National Westminster Bank Plc v Rabobank Nederland

In March 1996 Rabobank Nederland (“ Rabobank ”) and National Westminster Bank (“NWB”) each agreed to extend to Yorkshire Food Group plc (“YFG”) an unsecured credit facility of US$50 million thereby providing YFG with a total facility of US$100 million. Rabobank was the second largest bank in the Netherlands. NWB was one of the largest independent clearing banks in the UK. YFG was a public company which had been created by Mr Michael Firth, a dynamic Yorkshire businessman, who was the largest shareholder. The business of YFG had come to be largely located in California and was concerned with the processing and sale of dried fruit and nuts. The processing was carried out through operating direct or indirect subsidiaries incorporated in the United States, including Yorkshire Foods Inc (“YFI”), effectively a holding subsidiary, Treehouse Holdings Inc, a Delaware corporation which owned Treehouse Farms Inc, incorporated in California (“Treehouse”), and Yorkshire Dried Fruit and Nuts Inc (“YDFN”), also a Delaware corporation. There was also Valley View Yorkshire Inc which specialised in processing prunes. Treehouse specialised in the processing of almonds which it bought in from the local almond growers, such as Baker Farms. YDFN processed raisins and prunes. Most of YFG’s revenue was derived from its operations in the United States. Michael Firth had been Group Chief Executive of YFG until January 1995, after which he retained the role of Group Chairman. The American operations of YFG then came to be managed by Paul Haley (“PH”) as Chief Executive.

Also in March 1996 NWB agreed to advance to YFG a further overdraft facility of £4 million.

Between March and August 1996 the financial position of YFG significantly deteriorated. On 30 July 1996 YFG gave notice to NWB that its reforecast of its trading position for 1996 indicated that it might be in breach of the Financial Covenants in the Credit Facility in as much as the ratio of Total Consolidated Net Borrowings to Tangible Consolidated Net Worth might have failed to comply with the contractual requirement. Both banks considered that YFG should be put into “workout”.

The purpose of a workout with regard to a multi-bank loan is to minimise the risk of loss to the lending banks. This may be achieved in a number of different ways; by providing additional finance to tide the company over a cashflow crisis and thereby enabling the company to go on trading or by causing the company to sell part of its assets to increase its liquidity, including selling off subsidiaries, or by putting in new management or by taking additional security or by simply allowing the company to go into liquidation. It is quite normal for lender banks to appoint investigating accountants at the outset to report on the financial condition of the company with a view to enabling the banks to decide what course to adopt the better to protect recovery of as a large proportion of their lending as possible. Such accountants would not conduct an audit but would concentrate on advising the banks as to how, if at all, the corporate resources of assets and management could be deployed to preserve the banks’ recovery. Immediate cashflow requirements would often be of very substantial importance.

Having on 20 August 1996 held an initial meeting to commence the workout and having agreed to appoint an accountant, representatives of both banks met representatives of Price Waterhouse (“PW”) on 29 August 1996 and duly instructed that firm to investigate and report on YFG in accordance with agreed terms of reference. PW were subsequently formally appointed on the basis of those terms by YFG by means of a letter of instruction dated 6 September 1996.

The fact that YFG was seriously under-funded became clear almost immediately. It was required to fund the redemption of preferred stock in Treehouse which was held by Berisford plc from which that corporation had been purchased, part of the purchase price (some US$3.2 million) having been left outstanding against the issue of preferred stock to Berisford. An extension of time for redemption from 31 July to 30 September 1996 was agreed with Berisford. Further, the company needed to pay for crops of fruit and almonds to provide itself with stock for its processing business. Harvesting was imminent and deliveries under its open contracts would have to be paid for by early October. PW calculated that the funding required for this purpose amounted to U$9 million. In the event, the banks decided to increase their lending to YFG by US$ 4.5 million each in the hope that, because it would thereby be enabled to purchase stock for processing, the profits to be derived early in 1997 from the sales of processed fruit and almonds would substantially improve the financial condition of the company. However, the banks declined to fund the Berisford redemption.

On 18 October 1996 PW issued its Interim Report on YFG. The picture that emerged was not rosy. The company was shown to be excessively geared by comparison with its equity value and yet to be under-funded to enable it to purchase enough stock fully to utilise its processing potential and thereby to engender increased profitability. YFG’s estimated operating loss for the seven months to 31 July 1996 was £3 million compared with a profit of £1.5 million previously budgeted.

On 17 December 1996 PW issued its Second Report on YFG. That disclosed a much more serious financial position. There was a forecast loss for 1996 of £20.4 million before tax against a forecast net asset value as at 31 December 1996 of £20.5 million. The cashflow forecast incorporated in the 1997 budget showed a cash requirement in excess of current facilities of £4.9 million in February 1997 reducing to £1.5 million in May 1997, but peaking for the year in October 1997. The forecast EBIT for 1996 was a loss of £16.5 million, the major negative components being Treehouse and YFI.

YFG’s cashflow perspective continued to deteriorate. By 15 January 1997 the United States companies did not have sufficient funds to meet cheques about to be drawn. Both banks responded to YFG’s requests for further funding by agreeing on 11 February 1997 to advance a further US$5 million each to enable the company to take the benefit of purchasing and processing the 1996 crop, thereby increasing its net worth in anticipation of sale of some or all of the United States companies in the course of 1997. This accorded with the advice received from PW and both banks saw it as a justifiable risk by comparison with the alternative of allowing the company to file for Chapter 11 bankruptcy, which would involve the banks in substantially greater losses than if the businesses could be sold.

Further loans to YFG were provided by both banks on 12 June 1997 (US$450,000 each), 16 July 1997 (US$2.9 million each) and on 15 September 1997 (US$1 million each). All this additional funding was provided by the banks to stave off Chapter 11 bankruptcy pending the anticipated sale of the US companies.

In the course of September 1997, it had at last become clear that the sale of the US businesses could not be accomplished in the near future. Those YFI companies were going to have to find sufficient cash within a few weeks to pay growers for deliveries of the product of the 1997 crops, failing which Treehouse and YDFN would not be able to engender profits from their processing operations and would effectively become unsaleable at any price which would significantly reduce the indebtedness to the banks. There then emerged a completely new suggested solution for the banks’ problems over repayment of their loans. It was proposed by Rabobank’s New York office, in particular by Mr den Baas of the Structured Finance Department, that a special purpose company (“SPC”) should be set up to which YFG’s US subsidiaries would transfer their open sale contracts for the 1997 crop together with their inventory. The SPC was at the centre of a complex structure within which it would borrow $45 million by issuing loan notes, and obtain by asset sales and increased borrowing a further $29.5 million. Part of the indebtedness to the banks would be converted into loan notes and $15 million would be written off by each of NWB and Rabobank London in exchange for 20 per cent of the equity in YFG. The London banks would also establish a revolving credit facility to the extent of $30 million which would be used to provide working capital and to contribute towards repayment of the banks’ indebtedness. The effect would be that part of that indebtedness would be converted into loan notes to be held by the banks and part (US$15 million) would be written off against which 20 per cent of the equity in YFG would be issued to the banks to be held for at least three years. Further, a total of $45 million would be repaid to both banks against the outstanding indebtedness. Loans (some $29 million) would be repaid to the banks over the next several months but a substantial part of the debt ($31 million) would be written off and/or extended into the future and its repayment would substantially depend on unpredictable earnings and proceeds of sale of shares in Treehouse.

Neither NWB nor Rabobank London were in favour of this proposed solution, the precise working of the structure remaining a matter of great doubt to those concerned at both banks.

However, in the course of a meeting between representatives of NWB and Rabobank London and Rabobank New York (“RNY”) in New York on 26 September 1996, it was proposed by Mr den Baas that RNY should take out the indebtedness to both the London banks and that NWB should agree to a discount. Further negotiations resulted in an agreement dated 15 October 1997 known as the Deed of Transfer (“DoT”). This was an agreement entered into by N, Rabobank and Utrecht-America Finance Co, a subsidiary of Rabobank, together with YFG and YDFN. Its effect was as a novation agreement under which NWB assigned to Utrecht both the US dollar indebtedness of YFG (US$ 48,946,110.07) and the sterling indebtedness (£5,466,734.51) for a total price of US$ 39,525,386.30. This represented a discount of £11.3 million. Although a party to the DoT, Rabobank undertook no substantive positive obligations and had conferred upon it no substantive rights except that by clause 21.3 it agreed to release NWB as agent in respect of the Credit Facility from any obligations, liabilities or responsibilities in respect of any action taken or not taken in its capacity as Agent under the credit agreement or under the security documents. Further, Rabobank, amongst all other parties, agreed not to bring any claims against NWB in its capacity as Agent and that it would procure its subsidiaries not to do so.

On 30 October 1997 YFG issued interim accounts recording a loss before tax of nearly £13.7 million.

On 5 December 1997 there was a meeting of the Rabobank International Credit Committee (“the RICC”) which, having observed that Rabobank’s gross exposure on YFG totalled US$127 million, and that, according to a consultant’s advice, the Group was being mismanaged, recommended that RNY should file for administrative receivership in London and should try to ensure that the receiver replace the existing management.

It will thus be appreciated that, although NWB and Rabobank had been lenders of equal amounts ($50 million) under the credit facility in March 1996, with NWB providing an additional £4 million overdraft facility, by October 1997 NWB had by means of the DoT sustained an accrued loss of £11.3 million (approximately US$18.2 million) whereas that of Rabobank had become about US$127 million.

In these proceedings Rabobank claims by counterclaim that, by reason of misrepresentations made to it by NWB and upon some or all of which it acted in reliance in advancing moneys to YFG from 3 October 1996 and on those occasions in 1997 referred to in paragraph 10 above and further in entering into the DoT in October 1997, it is entitled to rescission of the DoT or a declaration that it has already rescinded the DoT or, if not rescission of the DoT as a whole, then at least of clause 21.3 (see paragraph 13 above) and/or an indemnity in respect of any sum that NWB might otherwise be entitled to recover in respect of its claim in these proceedings (see paragraph 18 below) and further the return of the amount of the additional loans advanced by Rabobank to YFG as described in paragraph 13 above and of the moneys paid by Rabobank in order to fund Utrecht’s acquisition of the debt of YFG (US$ 37 million) as well as the further advances made by Rabobank to YFG, after entering into the DoT, to enable it to pay growers for the deliveries of product from the 1997 crops (US$ 18 million).

Rabobank further counterclaims damages for deceit based on the allegation that NWB made fraudulent misrepresentations upon which it relied in entering into the agreements to advance additional amounts to YFG and in entering into the DoT, alternatively damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967. Rabobank also raises an alternative claim based on NWB’s breach of the Good Faith Agreement (“GFA”).

NWB’s claim is for damages for breach of clause 21.3 of the DoT (see paragraph 13 above) on the grounds that Rabobank acted in breach of that provision by bringing, together with Utrecht, proceedings against NWB in the Superior Court, State of California, County of Contra Costa. Those proceedings having either been variously summarily dismissed on the merits or dismissed on the grounds of forum non conveniens, NWB now claims as damages the costs which it has incurred in defending those proceedings and which cannot be recovered in the Californian courts. These are said to amount to approximately £5.5 million.

The circumstances which have given rise to this litigation are somewhat unusual. They stem from the fact that, at one and the same time as NWB entered into the Credit Facility in March 1996 and throughout the period up to the agreement of Rabobank to take out NWB under the DoT, NWB was advancing to Mr Firth and other directors and former directors and managers of YFG substantial sums by way of personal loans. The borrowers were all shareholders of YFG. Mr Firth beneficially owned 8,243,111 shares out of a total issued share capital of 44,550,000 as at 31 December 1995 and 1996, ie. just over 18.5 per cent. The second largest shareholder was Mr Giddings. He had been a director of YFG until his resignation on 30 June 1995 but he remained a director of YFI. He owned 5,957,483 shares in YFG or some 13.37 per cent of the issued share capital. The total shareholding of the remaining directors and Mr Giddings was approximately 40 per cent. Mr Haley owned 1,440,686 shares or 3.23 per cent.

As from May 1996 some 6,726,430 shares in YFG (15.1 per cent) were deposited with NWB as security for facilities granted to directors and managers. This security interest was increased to 18.9 per cent in December 1996 with the deposit of a further 1,651,911 shares by Mr Firth. That bank’s security interest remained unchanged at the time of the DoT in October 1997. By October 1996 the total of loans to the YFG directors stood at £3,636,400 secured by deposits of shares in YFG, and, in the case of Mr Firth, property then valued at £4,314,600.

Whereas the personal borrowings of the directors were, for the most part, used for the purchase of shares in YFG, Mr Firth’s borrowings were of a different nature. They totalled £2.56 million. Of that total, £1.96 million had been advanced to the MRF Trust, which I infer was effectively controlled by Mr Firth. Of that amount some £770,000 was advanced, as it is described, as a Bridging Loan (“BL”) in the sum of US$1,200,000. That advance was made on 1 May 1996 for 3 months, but repayable on demand at the bank’s discretion with interest rolled up. Its purpose was to finance part of the purchase price of 1685 acres of land in California on which almond orchards were to be planted. It was hoped to replace it by July/August 1996 by means of refinancing by an American lending institution. The land was to be purchased in two halves by two corporations known as Almond Farming I (“AF I”) and Almond Farming II (“AF II”), incorporated in Delaware. Those corporations were to be under the control of White Rose Farming Inc, another Californian corporation in which all the issued shares would be owned by directors of YFG, except for Mr Kevin Matthews, who was to own 5 per cent. He was to be nominee President of AF I and AF II. Mr Matthews was currently an officer of YFI. Mr Firth was to own 48 per cent of the issued stock in White Rose and Haley 32 per cent. It was anticipated by Mr Firth that later in 1996 a loan of US$5.5 million could be made available by Travelers Insurance Corp which would replace the BL. It was further intended that the land would be developed as orchards by Baker Farming, who owned orchards in close proximity to the White Rose land and who, it was intended, should plant and operate the White Rose orchards as a joint venturer with White Rose. It would normally take three to four years from planting before almond trees produced commercial crops. 90 per cent of the land would be devoted to almond trees and the market for the almonds so produced would be major processors, such as Treehouse. Prunes and raisins would also be produced and the market for those products would include respectively Valley View Yorkshire and YDFN, both subsidiaries of YFG.

The BL was in the form of an advance to the MRF Trust and was then to be re-loaned to White Rose Farming and by White Rose Farming to AF I and AF II. It was predicted by the White Rose directors that the value of the farmland, according to current market values, would be of the order of US$8,000 per acre by the time when crop production started in 3-4 years against purchase and development costs of $4,000 per acre.

The BL was supported by a deposit of shares in YFG which, at the current share price, substantially exceeded the amount of the BL.

The land for the orchards had originally been intended to be purchased by YFI and leased to AF I and AF II but, in circumstances which will be considered later in this judgment, on 10 May 1996 YFI assigned to AF I and AF II the whole of its rights under the purchase contract between it as purchaser and Williams & Fickett as sellers. As prospective purchaser of the land YFI had by that time already paid over about US$600,000 to the vendors and others in connection with the purchase. The assignments to AF I and AF II included provisions to the effect that amounts proportional to the averages respectively purchased totalling $600,000 would be paid by the assignees to the assignor in accordance with the terms of loan agreements of even date under which the assignor was to lend such amounts to the assignees. No such loan agreements appear ever to have been executed.

Subsequently, during the period up to October 1997, YFI and Treehouse are said to have paid out amounts totalling about US$2 million which were utilised by White Rose for the development of the almond farms.

The underlying substance of the allegations of fraudulent misrepresentation by Rabobank is that:

with the exception of the utilisation of the $600,000 already paid out in connection with the purchase of the land, NWB was aware at and from 20 August 1996 of all the facts summarised in paragraphs 20 to 25 above;

all those facts were “material” to Rabobank as co-workout bankers because, had those facts been disclosed to them, they and any reasonable bank would not have (a) continued to prop up YFG by advancing additional sums to that company in order to keep it in business and would have allowed it to go into liquidation or (b) entered into an agreement such as the DoT or caused Utrecht to do so, thereby assuming most of NWB’s portion of the amount outstanding from YFG;

during the period starting with the first workout meeting on 20 August 1996 NWB had so conducted itself in all the circumstances as to represent by implication, and on one occasion expressly, that no material facts known to them existed;

NWB knew that its express and implied representations were untrue or were reckless as to whether they were true or false;

in addition to the facts in paragraph 20 to 25 a further material fact was that a representative of NWB (Mr Hamilton) had immediately following the meeting with PW on 29 August 1996 attempted to deflect representatives of PW (Mr Barrett and Mr Hargrave) from investigating and reporting upon the directors’ private borrowings from NWB;

NWB’s conduct thereafter amounted to express or implied representations that it knew of no such facts as in (v) and NWB knew that those representations were false;

NWB intended YFG to act in reliance on its express or implied misrepresentations.

NWB’s purpose in making these misrepresentations was (a) to cause Rabobank to continue to prop up YFG as co-lender with NWB up to September 1997 by making further additional loans to YFG and by refraining from calling in its loan under the Credit Facility thereby causing YFG to go into receivership and (b) ultimately, in September 1997, to cause Rabobank to take out NWB by causing Utrecht to purchase YFG’s indebtedness in order that NWB could maximise its recovery both of the corporate loans to YFG and the directors’ personal loans secured on YFG shares.

The substance of the case advanced by Rabobank as to the materiality of those facts can be outlined as follows.

The directors’ personal loans, including in particular the BL were in default or at least overdue for repayment and NWB was therefore likely to put the borrowers under pressure for repayment which would deflect their attention from their corporate management responsibilities with regard to YFG and YFI and the subsidiaries, thus adversely affecting the business of the debtor company.

The existence of the BL was the gateway to disclosure of a complex substructure of misconduct by the directors. In particular:

they had, by causing AF I and AF II to purchase the land for the almond farms, usurped the position of YFI and taken the benefit of a corporate opportunity without the independent consent of the YFG Board or the outside shareholders and thereby acted in breach of their fiduciary duty as directors or officers of YFG;

they had by that means positioned themselves indirectly to pursue commercial activities in conflict of interest with YFG in as much as the purpose of AF I and AF II was to sell produce for processing to YFI’s subsidiaries, in particular almonds to Treehouse, as well as to its competitors in the processing industry, which conduct would be in breach of fiduciary duty on their part.

As to the misrepresentation in respect of the secret meeting of Mr Hamilton with PW on 29 August 1996, the substance of the materiality was that PW, if left to their terms of reference without being deterred by Mr Hamilton from investigating and reporting upon the directors’ private borrowings, would have unearthed the BL and thereby discovered and disclosed to Rabobank not only the existence of the directors’ personal borrowings but also the directors’ breaches of fiduciary duty. Had NWB disclosed to Rabobank the circumstances of the secret meeting and what was allegedly said at it, Rabobank would have been sufficiently suspicious to have wished PW to investigate the directors’ personal loans, including the BL.

The claim advanced by Rabobank in the alternative under Section 2(1) of the Misrepresentation Act is put forward on the hypothesis that, if NWB did not know that the misrepresentations were untrue, it is put to proof that the relevant representor in NWB believed the relevant representation by him to be true and had reasonable grounds for so believing.

The claim advanced by Rabobank for breach of the GFA rests in substance on the allegation that NWB, by failing to disclose those matters as to which misrepresentations had been made up to and including the time of negotiation of the terms of the DoT, had acted in breach of an agreement in terms of a fax sent by Rabobank to NWB on 30 September 1997, the meaning of which is in issue, by which, Rabobank submits, there was imposed on both parties an enforceable obligation to negotiate the transfer of YFG’s indebtedness to NWB in good faith.

Finally, with regard to Rabobank’s alternative claim under section 2(1) of the Misrepresentation Act 1967, NWB contends that there was contributory negligence on the part of Rabobank in offering to take out NWB and in entering into the DoT. There was a failure to carry out due diligence with regard to the continued viability of YFG and in particular of Treehouse, a failure to comply with Rabobank’s own internal credit and control procedures and a failure to consult those in Rabobank London who had been involved in the workout since August 1996. A major issue in connection with this defence is whether contributory negligence is available as a defence to a claim for damages under Section 2(1) of the 1967 Act.

The Structure of the Banks and the Bankers mainly involved

Control over larger credit facilities granted by both the London and New York offices was exercised by the RICC, of which Baron van Slingelandt was Chairman and Mr Gentis was a member. The RICC met three times a week. The highest internal governing body of Rabobank was the Executive Board, of which Baron van Slingelandt was also a member. That met once a week. It appointed the members of the RICC.

The RNY office was sub-divided into the following, amongst other, divisions.

The Corporate Finance Department, which included the Mergers and Acquisitions division. Mr den Baas was from March 1997 Head of that department. Amongst the activities of that department was structured finance work. Mr den Baas was a specialist in this field. The Department also undertook private placement work under the leadership of Mr Richard Gormley. He reported to Mr den Baas. Mr Roger Barr also worked in that department and he worked in the field of providing advice on the sale and purchase of businesses in the agricultural field. Ms Nancy O’Connor also worked in structured finance. Mr Mesritz was Head of Investment Banking and Mr den Baas reported to him.

The New York Credit Committee was a supervisory group within the New York office to which applications for new lending would normally be made in the first instance.

Utrecht-America Finance Company Inc was a corporation within the Rabobank group which was used by Rabobank’s structured finance group for most of its transactions. Mr den Baas was Vice President and director.

The London office had its own subsidiary group – the London Credit Committee. The General Manager was Mr van der Schrieck. Mrs Parsons was Deputy Head of credit and Mr Davies was London relationship manager for YFG. Mrs Parsons reported to Mr Cunningham, Head of Credit in London and he reported to Mr van der Schrieck. Cora Hanley was a credit analyst at Rabobank London.

National Westminster Bank

As for the LBC, all the lending by NWB to YFG and the directors personally had from about 1989 emanated from Leeds where Mr Catton was Senior Corporate Manager. Mr Skelley was, until September 1986, the Chief Manager at Leeds to whom Mr Catton reported and was then succeeded by Mr Martin. The Chief Managers reported to Mr King, Regional Managing Director. The Regional Head of Credit was Mr Yates. Mr Catton was a relationship manager closely familiar with Mr Firth, Mr Giddings and Mr Haley, as well as YFG generally.

CSS operated specialist workout teams divided into two sections – one dealing with multi-bank lending and one dealing with lending only by NWB. Mr Hamilton was a manager in the workout team. Mr Cresswell, to whom he reported, was a senior manager. Mr Havelock was Head of CSS and he reported to Mr Side, Head of Corporate Credit. Mr Side reported to Mr Shaw, Director of Corporate Banking.

In August 1996, as YFG was about to go into workout, in circumstances which I shall have to consider, CSS took over from Leeds responsibility for the corporate lending to YFG, including the workout, leaving the management of the personal lending, including the BL under the administration of Leeds and Mr Catton in particular. Mr Hamilton was put immediately in charge of the corporate workout.

The History of Rabobank’s Claims against NWB and others

A further problem in evaluating the evidence has been the lack of familiarity by almost all the key witnesses with the way in which lawyers understand “representation” and particularly “implied representation”. There are no less than 13 distinct allegations of fraudulent implied misrepresentation in this case which, as I shall explain, were expressed in pleadings of great complexity and which had been drafted by counsel and then had to be explained in some detail to the witnesses, such as Mr Davies and Mrs Parsons, to enable them to approve, and sign witness statements in support of, the misrepresentation allegations in the pleadings. Their understanding of the concept of the implications in consequence of non-disclosure relied upon proved to be somewhat limited.

Before summarising the allegations of misrepresentation, it is necessary to outline the development of Rabobank’s claims in this jurisdiction and in the United States.

The first proceedings launched by Rabobank were commenced in the Superior Court of California, County of Contra Costa, on 28 October 1999 (“the CC Proceedings”). In that action Rabobank and Utrecht claimed against NWB and the officers and directors of YFI, alleging against NWB aiding and abetting breaches of duty by the officers of YFI, fraudulent concealment by NWB of unlawful transactions by those officers, negligent failure by NWB to disclose information, breach of fiduciary duty by NWB as agent for Rabobank, breach by NWB of the covenant of good faith and fair dealing, breach by NWB of the 1996 Credit Facility and a general tort claim.

On 19 May 2000 Rabobank and Utrecht launched a claim against PW and Coopers & Lybrand in the Superior Court of California, County of San Francisco (“the SF Proceedings”), claiming inter alia that PW had acted in breach of professional duty in the preparation of the reports on YFG which had been commissioned by the banks in August 1996 by having negligently failed to uncover the underlying operations of the YFI directors through White Rose Farming and AF I and AF II.

On 27 November 2000 this Court (Mr Peter Gross QC, as Deputy High Court Judge) ordered that Utrecht be injuncted from pursuing the CC Proceedings against NWB and ordered Utrecht to pay damages for breach of the English jurisdiction clause in the DoT. An appeal to the Court of Appeal against that judgment was dismissed on 10 May 2001.

On 1 August 2001 in the CC Proceedings all the claims against NWB were struck out on demurrer without qualification except for those based on breach of the covenant of good faith and breach of the 1996 Credit Facility where the demurrer was sustained but leave to amend was given. On 21 August 2001 the Second Amended Complaint was filed. On 16 November 2001 the demurrers were overruled. Meanwhile, depositions began in the CC Proceedings with Mr Davies being deposed during February 2002 and in February 2003, Mrs Parsons in February 2002 and February 2003, Mr den Baas in April 2002, Mr Gormley in April 2002, Mr van der Schrieck in August 2002 and Baron van Slingelandt also in August 2002. Of the NWB witnesses Mr Catton was deposed in January 2002, Mr Hamilton in January 2002 and March 2003, Mr Cresswell in January 2003 and Mr Havelock in January 2003.

On 28 May 2002 Rabobank filed its Third Amended Complaint by which there were introduced Causes of action against NWB for breach of fiduciary duty based on the workout relationship between Rabobank and NWB, a claim for damages for sharp practices and a claim in negligence based on a duty of care attributable to the workout relationship. Those causes of action were continued in Rabobank’s Fourth Amended Complaint filed on 19 July 2002.

Shortly after that, on 1 August 2002, a settlement agreement was entered into in respect of the CC Proceedings between the directors and Rabobank and Utrecht. That left NWB as a defendant. It then filed motions to dismiss on the grounds of forum non conveniens.

On 6 January 2003 in the CC Proceedings the demurrer as to the claim for breach of fiduciary duty was overruled, but those as to the sharp practices claim and the negligence claim were sustained without leave to amend. On 7 April 2003 the breach of the Credit Facility and breach of the covenant of good faith claims were struck out on the merits. On 4 September 2003 the motion by NWB to dismiss Rabobank’s breach of fiduciary duty as agent, sharp practices and negligence claims on the grounds of forum non conveniens succeeded.

In October 2003 there were depositions in the SF Proceedings from Mr Barrett of PW on 21 and 22 October and from Mr Hargrave of PW on 28 and 29 October. Both gave evidence with regard to the so-called secret meeting with Mr Hamilton following the 29 August 1996 meeting between Rabobank, NWB and PW: (see paragraph 5 above). On 22 September 2004 those proceedings were settled with effect from 16 June 2004. The defendants, including PW, were to pay US$9 million to Rabobank.

In the meantime, NWB had on 30 January 2004 commenced the present proceedings claiming an indemnity or damages for breach of the DoT in respect of the costs and expenses incurred by NWB in defending the CC Proceedings.

On 29 October 2004 Rabobank served its Defence and Counterclaim, its causes of actions then being (i) fraudulent misrepresentation in the course of the workout; (ii) breach of fiduciary duty arising out of the workout relationship; (iii) negligence in the course of the workout; (iv) alternatively damages under section 2(1) of the 1967 Act. There was no claim for breach of the GFA nor any claim for inducing PW to act in breach of professional duty.

Meanwhile Rabobank had appealed the decisions against it in the CC Proceedings. Its application to stay the proceedings before this court was refused by Cooke J. on 4 February 2005. On 15 June Aikens J. dismissed NWB’s application for summary judgment on its claim, NWB having on 26 May withdrawn its summary judgment application on Rabobank’s counterclaim.

On 20 June 2005 Rabobank served an Amended Defence and Counterclaim in which it raised a claim in respect of breach of the GFA, but raised no claim for inducing PW to act in breach of its professional duty.

On 4 August 2005 the California Court of Appeal reversed the first instance Court’s judgment in part and reinstated Rabobank’s claims against NWB (i) for aiding and abetting breaches of duty by the officers of YFI (ii) for fraudulent concealment (iii) for breach of fiduciary duty as agent and (iv) for breach of fiduciary duty based on the workout relationship. This appeal was then stayed: the claim for fraudulent breach of fiduciary duty as agent, on the grounds of forum non conveniens, and the claims for aiding and abetting the breach of the directors’ duty and for breach of fiduciary duty as agent, pending the result of the proceedings before this court.

On 3 March 2006 I ordered that Rabobank should serve a full statement of its case on misrepresentation, giving the information set out in a schedule to the order. This order was made necessary by the fact that the Amended Defence and Counterclaim was expressed in terms which did not sufficiently clearly state Rabobank’s case on fraudulent misrepresentation. It is axiomatic that, as a matter of case management and intrinsic fairness to the defendant, allegations of fraud can be permitted to proceed to trial only if they are expressed in words which clearly and unambiguously indicate each essential element of each allegation of fraud. The schedule to that order is Appendix 1 to this judgment. The order expressly provided that permission was not thereby given to depart from the case on misrepresentation already pleaded.

Rabobank responded to that order by serving on 3 April 2006 a schedule of its misrepresentation allegations, consisting of 23 pages each of eight very closely printed columns. This Schedule is referred to as the April Misrepresentation Schedule (“AMS”).

When on 19 June 2006 NWB objected to the content and complexity of the AMS, Tomlinson J. ordered that Rabobank should serve a Misrepresentation Statement of Case (“the MSC”) setting out in full such case as Rabobank intended to advance on fraudulent and section 2(1) misrepresentation and negligent misstatement by way of substitution for and amendment of each and every part of the pleading in the Amended Defence and Counterclaim. The order made clear that the MSC was to be a stand-alone document and was not to contain cross-references back to the main pleading and further that if and to the extent the MSC amended that pleading Rabobank would have to apply for permission.

Tomlinson J. also struck out on the grounds of res judicata Rabobank’s claim against NWB in negligence in the course of the workout by reason of the successful demurrer of the identical claim in the CC Proceedings.

It is against that background that this trial has been conducted with regard to misrepresentation on the basis of the case advanced in the MSC. This was served on 3 July 2006, some three months before the date fixed for the commencement of the trial. On the same date Rabobank informed NWB that it had decided not to pursue the allegations previously made against Mr Side personally.

Finally, on 21 July 2006, Rabobank’s solicitors informed NWB’s solicitors that Rabobank proposed further to amend its counterclaim by adding as new causes of action claims against NWB based on the secret conversation between Mr Hamilton and PW on 29 August, namely that NWB had procured PW to act in breach of its contract with YFG to investigate and report in accordance with its terms of reference and/or had led PW to act in breach of professional duty (“the PW Amendment”).

The MSC introduced three new allegations of misrepresentation and an entirely new claim for negligent misrepresentation based on NWB having a duty of care based on Hedley Byrne v. Heller in as much as it had voluntarily assumed responsibility for the accuracy of the information passed to Rabobank during the workout. Having considered written submissions from both parties on Rabobank’s application for permission to introduce these amendments, I allowed on terms the introduction of the misrepresentation allegation but refused on case management grounds the introduction of the negligence claim.

This trial began on 3 October 2006. There had not up until then been sufficient time to hear Rabobank’s application to re-amend by introducing the claims for inducing breach of contract and on account of being a joint tortfeasor. It was only on 16 October 2006, after the case had been opened, that it was possible to decide this issue.

On 16 October 2006 that application was refused on case management grounds having regard to the unexplained delay in advancing it and the likely disruptive effect on an already tight trial timetable. On 24 October 2006 this decision was reversed by the Court of Appeal. I therefore gave PW the opportunity to be represented at the trial and consideration was given as to whether they should be joined as a party. Having heard representations from PW’s solicitors, I decided that it was unnecessary for PW to be joined and PW considered it unnecessary for them to participate or be represented. At that point in the trial both Mr Barrett and Mr Hargrave of PW had completed their oral evidence but Mr Hamilton, a key witness on this issue, had not yet been called by NWB.

On 27 October 2006 Rabobank put forward yet a further amendment to the PW Amendment. After I had refused permission to amend, partly because I considered that it raised a hopeless point and Auld LJ. had refused permission to appeal, the parties agreed to that further amendment being allowed. I shall have to consider the substance of this further amendment later in this judgment.

Witness statements were taken from most of the witnesses (but not Mr Catton) in April 2005 for the purposes of summary judgment applications. However, the main body of written evidence was in witness statements taken in May 2006. There were further witnesses statements taken from Mr Davies, Mr den Baas, Mrs Parsons, Mr Barrett and Mr Hargrave of PW as well as Mr Catton, Mr Hamilton and Mr Havelock as late as the period July to November 2006.

The Misrepresentation Allegations

The first workout meeting took place on 20 August 1996, attended by Mr Catton, Mr Hamilton and/or Mr Cresswell for NWB and by Mr Davies and Ms Hanley for Rabobank. Those NWB representatives then knew the “material information”. The latter is a term of art in the MSC, defined by reference to information, identified in paragraphs 11 to 27 of the MSC, which can be briefly summarised as comprising:

the BL, its purpose and the fact that it was overdue for repayment and therefore already in default and would in any event be in default if it were not repaid by 31 August 1996 which was the ultimate agreed extension beyond the initial 3 months (see paragraph 22 above);

the facts that prospects for repayment of the BL were at least questionable, that acquisition of the almond farmland and repayment of the BL required refinance which had not yet been obtained;

the existence of the White Rose Farming project and the fact that the directors of YFG and YFI and Treehouse had taken from those companies the corporate opportunity of acquisition and that it was intended by them to sell almonds to Treehouse and/or to competitors in the nut processing industry;

that the matters in (iii) amounted to breaches of fiduciary duty by the directors of YFG/YFI;

that NWB held about 15 per cent of issued YFG shares as security for loans to the directors, including the BL, that all such loans were in default, that NWB had the ability to foreclose and force a sale of all those shares and the exercise by NWB of such security rights would negatively affect third parties’ views of YFG’s financial position and so materially affect YFG’s ability to repay the corporate loans;

NWB had a conflict of interest between its corporate lending to YFG and its private lending to directors which was secured on shares in YFG.

Misrepresentation (1) occurred at the 20 August 1996 meeting at which the NWB representatives represented and agreed that

Undertake a joint investigation into YFG’s financial condition, financial needs, business and management.

Jointly instruct a firm of accountants.

Present a ‘united front’ and ‘co-ordinated response.”

It is pleaded that NWB’s agreement to those matters involved implied mutual representations (“the Paragraph 42 Representations”), namely:

NWB was not concealing from Rabobank any facts and matters which NWB knew and which were material to the achievement by the parties of the Common Goals.”

The NWB representatives at the 20 August meeting are said to have known that such representations were being made by them and each of Mr Catton, Mr Hamilton and Mr Cresswell is said to have known that the representations were false, in particular at that time:

“NWB was not undertaking the investigation and assessment jointly.

NWB was not discussing the issues on the workout openly, in good faith, fully and fairly informing Rabobank about The material information.

NWB was not providing Rabobank with all facts and matters known to NWB which were material to the achievement of the Common Goals.

NWB was concealing from Rabobank facts and matters which NWB knew and which were material to the achievement by the parties of the Common Goals.”

It is pleaded that by making those representations NWB was “required” to disclose the material information (see paragraph 64 above) or parts of it because, without such disclosure, the Paragraph 42 Representations were misleading and that non-disclosure falsified what NWB said. It is said that NWB’s failure to disclose was consistent only with its having a hidden agenda inconsistent with both banks’ common goals under the workout and that such non-disclosure diverted the joint investigation from the hidden facts.

Because the three NWB representatives knew the material information it was self-evident to them that their representations at that meeting were false.

Misrepresentation (2) is in substance the repetition of the Paragraph 42 Representations by NWB’s subsequent conduct, namely at each meeting thereafter, but, in the alternative, at a meeting on 22 August attended by Mrs Parsons, Ms Hanley and Mr Davies of Rabobank and by Mr Cresswell and Mr Hamilton at NWB’s offices and/or at the meeting on 29 August at Rabobank’s London offices at which PW were present and at which it was agreed to engage their services. By its participation in the subsequent meetings NWB is said to have impliedly made the Paragraph 42 Representations. Its giving partial information to Rabobank while excluding the totality of that information gave rise to the misrepresentation, as was known by the NWB representors, Mr Catton, Mr Hamilton, Mr Cresswell and Mr Havelock.

I interpose that, as it developed from Rabobank’s Closing Submissions, the essence of Rabobank’s complaint is that NWB’s conduct amounted on subsequent occasions to repeated representations that it had knowledge of no further information material to Rabobank as co-workout banker.

As to Misrepresentation (3), this is said to arise from a comment made by Mr Catton at the 20 August 1996 meeting in the following terms:

“NWB was providing an open, good faith, full, fair and accurate representation of its views about and the information available to NWB about YFG’s management, including (but not limited to) Mr Morgan and Mr Haley.

NWB thought, and the available information known to NWB showed, that Mr Morgan may have been unforthcoming in providing information to the Banks, and Mr Haley may once have denied that anything was wrong in relation to YFG’s performance, but that was all that was relevant.

NWB had no further information which was material about:

YFG’s management or YFG generally.

NWB’s information and opinions about YFG’s management.

NWB was not withholding from Rabobank other material information relating to YFG’s management.”

Misrepresentation (4) is one of the alleged misrepresentations connected with the meetings at Rabobank’s London office on 29 August 1996. It is pleaded that in the course of that meeting attended by Mr Davies, Mrs Parsons, Mr Cunningham and Ms Hanley on behalf of Rabobank and by Mr Hamilton on behalf of NWB, Mr Hamilton spoke of a letter from YFG authorising Rabobank and NWB to disclose to PW for the purpose of its report any information, including confidential information at the bank’s discretion that might be relevant. This reference to the letter impliedly represented that NWB was acting in accordance with YFG’s authority to disclose everything and was not unilaterally holding back from Rabobank any information available to NWB in relation to YFG, the directors’ private borrowings and the fact that those borrowings were secured by YFG shares. In the course of the meeting Mr Hamilton knew that this representation was false because he knew of the material information and he knew that he was going to attempt after the meeting to persuade PW to ignore the directors’ private borrowings.

Misrepresentation (5). In the course of the same meeting on 29 August 1996 Mr Hamilton told the Rabobank representatives that NWB considered that Mr Firth’s continued involvement in management was important to the viability of YFG but that Mr Morgan was not seen as the man to provide the financial leadership needed by YFG. It is pleaded that Mr Hamilton thereby impliedly represented that he was giving an open, good faith, full, fair and accurate representation of the information known to NWB about YFG’s management, which to Mr Hamilton’s knowledge was untrue in as much as the material information was known to him at the time of the meeting.

Misrepresentation (6). At the 29 August meeting Mr Hamilton proposed that, as was agreed by Rabobank, PW should be appointed as the jointly instructed accountants to investigate and report on YFG, subject to joint terms of reference, in order to provide the banks with the best information as to the financial condition, needs, business and management of the group so that the banks could determine what course to take in the course of the workout, with regard to continuing to fund YFG, to disposing of its assets or to liquidation.

It is pleaded that by his proposal to appoint PW Mr Hamilton “necessarily implied and reiterated” the Paragraph 42 Representations which he knew to be false. In particular he intended unilaterally to instruct PW not to investigate the directors’ private borrowings and thereby to cause PW to conceal from Rabobank the material information, particularly the White Rose substructure involving the directors’ breaches of fiduciary duty as well as the fact that personal borrowings were in default and were secured on YFG shares.

Further, the conversation between Mr Hamilton and Mr Barrett and Mr Hargrave of PW which took place immediately after the meeting between both banks and PW on 29 August 1996 was an act of concealment of the material information from Rabobank. This had the effect of concealment in as much as PW did not investigate the directors’ private borrowings and in particular the BL or the bank’s security interest in the shares in YFG and therefore did not report on them and did not disclose to Rabobank the meeting with Mr Hamilton or the facts which he had told them or his request that Rabobank should not be informed of the private borrowings. Rabobank did not discover that this meeting and conversation had taken place until it was referred to by Mr Hargrave of PW in the course of his deposition in the SF Proceedings in October 2003. I refer to this episode as “the Pavement Conversation”.

Further material facts developed after 29 August 1996 in as much as NWB is said to have been placing the directors under increasing pressure to repay or further secure their borrowings, including the BL. This was known to Mr Catton, Mr Hamilton and Mr Cresswell.

Misrepresentation (7). On 12 September 1996 Mr Davies of Rabobank spoke to Mr Catton (NWB) on the telephone “to compare notes” on the workout and Mr Catton told him that Mr Firth was “looking to exit 50% of (his) interests”, thereby stating that Mr Firth intended to sell shares. It is pleaded that Mr Catton thereby impliedly represented that this was the only material information he knew about Mr Firth and YFG shares. It is further pleaded that Mr Catton intended the representation to be so understood. Mr Catton’s words gave rise to a misrepresentation because he failed to disclose the material information, that NWB was seeking further security over YFG shares for Mr Firth’s indebtedness and that one of the reasons why Mr Firth intended to sell shares was that NWB required repayment of his debts.

Misrepresentation (8). On 12 September 1996, in the course of that same telephone conversation, Mr Davies and Mr Catton discussed the relative management abilities of Mr Haley and Mr Morgan in the context of what Mr Catton said were Mr Firth’s views as to Mr Morgan’s future with YFG/YFI. It is pleaded that it was the necessary implication from what Mr Catton said that he and NWB knew nothing further about Mr Haley and Mr Morgan which was material to the workout which had not already been disclosed. This was untrue by reason of NWB’s knowledge of the material information and subsequent material facts (see paragraph 78 above). He failed to disclose those facts known to Mr Catton which showed that none of Mr Firth, Mr Haley or Mr Morgan was fit to hold any ongoing office with YFG. Mr Catton intended what he said to be understood in accordance with the implication pleaded.

Misrepresentation (9). In the course of a further telephone call on about 12 September 1996 Mr Catton told Mr Davies in passing that Mr Firth had a mortgage loan with NWB secured by shares in YFG. It was pleaded that the necessary implication was that Mr Catton and NWB knew nothing else about Mr Firth’s indebtedness or the YFG shares that was material to the workout which had not already been disclosed to Rabobank. Mr Catton intended what he said to be so understood. That implication was as Mr Catton knew false in as much as it concealed from Rabobank the substructure of personal loans to Mr Firth and the other directors, the security structure, as well as the BL and its purpose.

Misrepresentation (10). In the course of a telephone conversation on or about 25 September 1996 from YFG to NWB and Rabobank in which it was stated:

The contents of the YFG letter were materially accurate in relation to statements about Mr Firth’s and his fellow members of YFG’s management’s wealth.

It needed no material qualification, correction or further information from NWB in order for the Banks to hold an informed discussion about it.

So far as NWB, as the management’s bankers, was concerned and so far as NWB was aware ‘ All’ of Mr Firth’s and (substantially) the management’s wealth consisted of YFG shares and homes.

There were no loans in default.

NWB had no other information relating to (a)-(d) above which was material to the workout and a fair understanding of the financial position of YFG’s management or the role it might play in the financing of YFG.”

On 30 September 1996 Mr Catton sent to Mr Cresswell a memo to which were attached documents which gave Mr Cresswell and Mr Hamilton information about the BL.

Misrepresentation (11). On or about 24 October 1996 a meeting was held between Mr Catton and Mr Hamilton for NWB and Mr Davies and Ms Hanley of Rabobank with PW to discuss PW’s interim report. That report stated at Appendix 18 in relation to Treehouse:

Misrepresentation (12). On or shortly after 13 November 1996 Mr Hamilton and Mrs Parsons discussed a further PW report on the suitability of Mr Firth, Mr Haley and Mr Morgan to hold their current positions. By engaging in that discussion without disclosing that the PW report was not open, full, fair and accurate as to those matters in view of the instruction given by Mr Hamilton to PW in the course of the Pavement Conversation on 29 August 1996 Mr Hamilton impliedly represented that:

“The PW Report was open, full, fair and accurate as far as NWB was aware.

NWB knew of no material fact or matter which ought to be disclosed to correct the PW Report in relation to the management of YFG, YFI and Treehouse.”

On 22 January 1997 Mr Cresswell and Mr Barrett of PW agreed to hold a meeting on 28 January which was not to be disclosed to Rabobank. It is pleaded that PW was secretly partisan and disposed to help NWB’s interest at the expense of Rabobank’s interest and further:

On 25 March 1997 Mr Catton held a meeting with Mr Firth and Mr Haley without telling Rabobank. Two notes of that meeting were copied to Mr Hamilton. In one of them it was suggested that “we refrain from bringing this knowledge into our continuing discussions with both RNY and Rabobank London”. The other note stated:

Misrepresentation (13). On 12 June 1997 Mr Hamilton had a telephone conversation with Ms Hanley. She had already spoken to Mr Stevens of Rabobank and had recorded that he had told her that half an almond orchard development was up for sale but that he was not sure which company owned it. She recorded in her note of the later conversation with Mr Hamilton that he “seem(s) to think it is owned by the directors personally”. It is pleaded that by so expressing himself he impliedly represented that he had no “particular knowledge of the sale of any almond farms connected to YFG or its directors or why any such almond farm might be for sale” and he intended so to be understood by Rabobank. This representation he knew to be false from the material information which had already been given to him by 25 March and also by means of a note sent to him of a meeting of Mr Catton with the White Rose directors held on 25 March 1997 in the course of which they had informed Mr Catton that the value of the almond farms had substantially increased since purchase and that the farms were already for sale in order to repay the BL and the other personal borrowings of the directors. He also knew that NWB had been pressing the directors to sell the farms in order to repay the BL and their personal borrowings.

Rabobank further pleads that another fact material to the workout occurred when on 12 August 1997 Mr Catton had a “secret” meeting with Mr Haley at Carter Mills, Bradford, at which there was a discussion about plans of the White Rose directors to sell part of the farm property. On 10 September 1997 Mr Catton spoke by telephone to Mr Hamilton about the status of sale negotiations with Marubeni who had expressed interest in the purchase of some of YFG’s Californian subsidiaries. Mr Catton recorded that conversation and a conversation with Mr Firth in a memorandum to which he added in manuscript the words:

On 19 August 1996 NWB’s Leeds office sent to CSS documents which gave information as to the material information, including the BL to the Firth Trust (categorised by NWB as a personal loan), that it remained to be paid, that refinancing had not been obtained for it, that NWB held at least 15 per cent of the issued capital of YFG as security for personal borrowings of the YFG directors (including the BL) and that NWB’s involvement in the corporate loans, the BL and the directors’ private borrowings had generated a conflict of interest for NWB. It is pleaded that it is to be inferred that Mr Havelock was aware of all the material information upon which the alleged implied misrepresentations are based as well as of those material facts occurring subsequently to June 1997 (see paragraph 89 above). That inference is to be drawn from the facts that the documents described above were sent to CSS, that Mr Havelock was Mr Cresswell’s manager and worked closely with him in an open plan office, that he had been regularly updated as to the BL and the directors’ personal borrowings and NWB’s security over YFG shares and further that in August 1997 Mr Havelock had visited YFG’s operation in California with Mr Hamilton and Mrs Parsons.

Misrepresentation (14). This is referred to as “the van der Schrieck Misrepresentation” for the following reasons. It is the only express misrepresentation relied upon.

It is pleaded that in September 1997, shortly after it had been proposed that a wholly-owned Rabobank subsidiary or a company controlled by Rabobank would take out NWB’s interest in the 1996 Credit Facility, Mr Hamilton arranged a meeting which took place on 25 September 1997 between himself and Mr Havelock of CSS and Mr van der Schrieck, the General Manager of Rabobank, London. Mr Hamilton insisted that the meeting should be attended by Mr van der Schrieck and not by Mrs Parsons or Mr Cunningham because of the confidential subject-matter of the meeting. In the course of the meeting NWB asked Mr van der Schrieck to tell it whether Rabobank knew anything which NWB did not know which was material to NWB’s decision as to matters discussed at a meeting which had been held with Mr den Baas on 18 September 1997 “and any further proposals developed therefrom, including the proposed take-out of NWB’s interest in the 1996 Credit Facility”. Mr van der Schrieck replied that there was not. The latter then asked NWB whether it knew anything which Rabobank did not know “and which was material in connection with the same matters and proposals including the proposed ‘take-out’ of NWB’s interest in the 1996 Credit Facility Mr Havelock and Mr Hamilton said that NWB did not.

It is pleaded that the questions at that meeting were asked and answered in circumstances in which both Rabobank and NWB accepted a duty to answer honestly, openly, in good faith, fully and fairly, informing the other about any relevant communications and any information material to the workout and to the take-out.

It is further pleaded that having regard to what Mr Havelock and Mr Hamilton knew of the facts relating to the directors’ loans and the other material information, both must have known that their answers were false. It is then pleaded as follows:

Rabobank plead that in relation to each of the 14 misrepresentations the individual NWB representor concerned intended that Rabobank should rely on the misrepresentation by continuing to support YFG from 20 August 1996, including entering into the agreements for additional lending identified in paragraphs 6, 9 and above and by supporting Utrecht’s entry into the DoT, as well as the provision of further advances to enable the YFI companies to pay for the 1997 crop. Rabobank did rely on those misrepresentations by agreeing to the further lending, by leaving the YFG management in place, by not putting YFG into some form of insolvency procedure in August 1996 or later and by supporting Utrecht’s entry into the DoT. Had the misrepresentations not been made, the workout would not have started or continued, Rabobank would not have lent any further funds to YFG but would have instructed their own investigating accountants to look into that company’s affairs and those of the directors. Rabobank’s further investigation would have led to discovery of the whole of the material information, in particular the White Rose Project.

With regard to Rabobank’s alternative claim under section 2(1) of the 1967 Act, it relies on each and all of the misrepresentations, that after they or some of them were made Rabobank entered into the further loan contracts and the DoT and as a result suffered loss. Rabobank puts NWB to proof of the statutory defences, namely that NWB believed up to the time when each contract was made that the prior representation was true and had reasonable grounds for that belief. It is Rabobank’s case that once the workout had commenced, NWB’s misrepresentations not having been corrected, continued up to the time when each of the subsequent contracts were entered into: they were thus of continuing causal effect.

The Factual Background: how Bankers conduct a Workout

NWB’s position is as follows. Banks pursuing a mutual workout do normally disclose to other banks information known to them which they consider material for other co-workout banks to know for the purposes of the workout. Although this is a normal practice, it is not an invariable practice such as would support the implication of a term on the basis of trade usage into a contract relating to the workout.

Rabobank relied on the expert evidence of Mr David Hudson. He had experience of workouts as a workout banker, but only before 1989 when he had become a consultant. Before that, as a banker, he had been actively involved in workouts but subsequently he had been involved as a consultant and adviser to debtor companies under workout. He had been involved in 30 to 40 workouts overall, but of these only about 6 or 7 had been since 1989 and not as a workout banker. At no time had he ascertained from others experienced as workout bankers what test they applied or expected to be applied in relation to material information. His views can be summarised as follows:

At paragraph 11 of his Expert Report he stated:

In the course of cross-examination he stated as follows:

He also accepted in cross-examination that reasonable bankers could hold different views as to whether a particular matter was material.

In his Supplementary Report Mr Hudson stated at paragraph 13 that not only did NWB have “a duty” to disclose matters which NWB considered material but to disclose “matters which might reasonably be expected to have a significant influence on decisions made by its fellow lender (Rabobank)”.

In the course of cross-examination, however, he said this:

He accepted that a situation could arise where one bank possessing certain material information known to officials other than those dealing with the workout did not disclose that information because it was not known to those dealing with the workout.

He said in cross-examination that there was no duty on a workout bank to have a system of collation of material information which they considered to be material to the workout.

NWB relied on the expert evidence of Mr Paul Thompson who, until three months before the start of the trial, had been Head of Lending Services at HSBC Bank plc, having been in banking for 33 years. He had spent the bulk of that time dealing with lending and credit issues in the UK and the Far East. During the 1990s he had worked exclusively on the workout of corporate loan accounts in the UK and Europe. He estimated that he had been involved in well over 150 workouts in a wide range of sizes, industry sectors and complexity. From 2002 to 2006 he was a member of the INSOL Lenders Group. He stated in paragraph 5 of his report that in the context of the workout or the takeout he would regard as “material” a matter of sufficient importance in terms of subject and scale that it would significantly influence decisions being made by that bank in respect of either the workout or the takeout. He accepted the view expressed by Mr Davies of Rabobank that a matter would be material if it would probably influence the decision of the bank. However, he considered that bankers normally disclose information which they consider to be material to the workout.

He emphasised in his report that he had never heard it suggested by any banker that there was any legal obligation to disclose anything during a workout. Were it otherwise, workouts would have to be conducted in a much more formal manner and with documentation prepared in advance and with access to legal advice. This would involve cumbersome structures which would hamper the workout decision-taking which often had to be done very urgently. In a large proportion of workouts a bank will disclose what it considers to be material because it is in its commercial interests to do so. In paragraph 13 of his report he stated:

He further stated that a workout banker only discloses what he himself considers material because he will tend to focus on what is important to the workout decisions to be taken. “No workout banker goes through a conscious process of considering whether there is information which he should or should not disclose. He simply discloses what seems to him to be important. Disclosure of peripheral information would be potentially confusing and might distract from the efficient management of the workout process.” He had never come across the practice within a bank of making special internal enquiries or conducting a trawl of the bank’s records to see what might be of possible relevance to a co-workout bank.

Mr Thompson further stated that if information came to the attention of the bank which caused it to be suspicious of something, such as impropriety, which would be material if true, the bank would not disclose that information to co-workout banks until those suspicions had been investigated by it and the truth confirmed.

Mr Hudson had at paragraph 15 of his report quoted from the Principles of Multi-Bank Workouts published by INSOL in 2000:

Mr Blasi, the American banking expert called by NWB, accepted in cross-examination that materiality meant something “that would or might significantly affect lending decisions of the workout banker”. He had some experience of working in the London market in the 1990s.

Mr Davies of Rabobank accepted that it was up to each individual banker involved in a workout to decide for himself whether any given fact was material. Mrs Parsons said in cross-examination:

It was further the evidence of Mr Thompson – and in this respect he and Mr Hudson and also Mr Cresswell, Mr Side, Mr Havelock, Mr Hamilton and Mr Catton to a substantial extent were in agreement – that, in the course of a workout, decisions are based on the entire body of information available to and known by a bank at any one time, although it may be that in comparatively few cases one fact proves to be decisive.

On behalf of Rabobank it is submitted that, whatever may be the normal trade practice with regard to disclosure in the course of a workout, when it comes to a takeout by one bank of a co-workout bank, the position is different in a case where the bank about to do the taking out asks if material facts are known to the bank about to be taken out. In such a case the test of materiality must be an objective one – what facts known to the bank would a reasonable bank consider to be material to a decision that it should take out the other? This was Mr Hudson’s view.

In the course of cross-examination of Mr Catton and Mr Hamilton answers were given to the effect that workout banks followed the practice of disclosing information material to the workout. However, the questions and answers left open whether materiality was to be judged objectively or was to be that which was considered to be material by the bank in possession of the information.

In my judgment the weight of the evidence points strongly to the following conclusions.

In the 1990s the London banks considered it to be good practice to disclose information known to them which related to the assets, liabilities and business of the debtor corporation and which had been obtained for the purposes of the workout, so as to achieve as far as possible common knowledge between co-creditors as to such information.

In the absence of an express contractual framework to the contrary, banks recognised no legal duty to adhere to that practice or to exercise reasonable care to do so, but normally followed it.

Banks would give effect to that practice by disclosing those facts which each considered to be material to the decisions that a co-workout bank would need to take in the course of the workout. Amongst workout bankers the perception of what was material would usually be a matter of instinct as to what would probably be taken into account based on experience of workouts, rather than the result of a careful balancing exercise weighing their perception of the relative importance of information within their knowledge. Workout banks did not usually maintain systems for collating material information for the purposes of operating a workout or for the disclosure of information. If such information was available only to one office or division in a bank other than the workout office, it might not necessarily be disclosed.

In consequence of (i) and (iii), a co-workout bank would be entitled to assume that there probably (but not necessarily) would be disclosed to it all information known to those in another co-workout bank who were personally responsible for dealing with the workout which those persons honestly considered would probably be taken into account as significant in arriving at necessary decisions.

In further consequence of (i) to (iii) it was up to each co-workout bank to make its own enquiries and conduct its own due diligence in relation to the debtor corporation, for, if it relied solely on what it was told by a co-workout bank, it would not be entitled to assume that there would be disclosed to it each and every piece of information which either it or bankers generally might consider material. That piece of information might not be known to those in the other bank who were dealing with the workout and, if it were, those persons might honestly not believe that it would probably be taken into account as significant in the course of that workout.

In the likely event of the appointment of an investigating accountant, such as PW, it would be good practice, but not a legal duty, for the co-workout banks to disclose information known to those handling the workout which they considered material to the accountant’s terms of reference in the context of the workout.

With regard to the takeout of one creditor bank by another, whether there were a duty to respond to a question from the taking out bank, either by the disclosure of all material information known to the bank to be taken out or by refusing to respond, would depend upon the terms of the question and the circumstances in which it was asked. I consider later in this judgment the circumstances of the van der Schrieck Misrepresentation and in particular what Mr van der Schrieck was entitled to assume from the answer to his question.

In relation to the conclusions in paragraph 110, the weight of the evidence identified above is strongly supported by conceptual and practical considerations.

Firstly, if the characterisation of a piece of information as material were not left to the judgment of that workout banker who knew of it and were to be determined objectively just as if it were necessary to test its disclosability as a material fact under section 18 of the Marine Insurance Act 1906, the effect would be to superimpose on the practice usually followed by co-workout banks what would in effect be an obligation to ensure that they did not fail correctly to identify a fact as material and therefore to disclose it if it were within their knowledge. If they did fail so to identify it, they would be at risk of making a misrepresentation by non-disclosure to a co-workout bank. That could lead to consequences quite as serious as if there were a duty to disclose such information, such as a liability for damages which might arise under section 2(1) of the 1967 Act. It is no longer contended by Rabobank that NWB owed it a fiduciary duty to disclose material information. Nor is it any longer open to Rabobank to contend that NWB owed it a duty of care to do so under Hedley Byrne v. Heller principles. Nor can it seriously be suggested, except perhaps by Mr Hudson, that the banks are in an uberrimae fidei relationship. So to characterise the practice of disclosure by reference to an objective test as distinct from the subjective determination by the bank as to what is material would potentially expose banks to the risk of liability for misrepresentation notwithstanding universal acceptance that no legal duty to disclose material facts exists. I do not consider that the practice of bankers should be regarded as such as to accommodate this inconsistency.

Secondly, if the test of materiality were to be truly objective with the potential consequences of non-disclosure to which I have referred, banks involved in a workout would be obliged to be very cautious as to the performance of the disclosure requirement. For this purpose they would be inclined to take legal advice and would have to develop internal systems for information analysis and transmission. The effect would be to impede the rapidity of decision-taking in workout situations which often, particularly in the early stages, demand an urgent response to corporate problems and may do so later in a workout if, as happened in this case, a choice has to be made between funding immediate payment of obligations under open contracts and allowing the debtor to file for insolvency.

For these reasons, I accept the evidence of Mr Thompson, derived as it was from a wealth of experience in workout procedures, that amongst London banks it was in the 1990s considered good practice for co-workout banks to disclose to each other what those concerned with the workout personally considered to be material information, to the effect that in the absence of a specific contract to go beyond that, there could be no justifiable reliance on any wider or more specific disclosure.

The History of the Workout

that on or about 20 August 1996, or soon after, there was to be derived from the words and conduct of Rabobank and NWB an agreement for the purposes of the workout that each bank should disclose to the other all the material facts that it knew which were relevant to the workout;

from the outset and subsequently NWB withheld from disclosure to Rabobank facts which it knew to be material in order to induce Rabobank to continue to provide funding to YFG when otherwise it would or might have declined to do so, preferring that YFG should be put into receivership, administration or liquidation;

NWB’s conduct, in particular the conduct of Mr Catton, Mr Hamilton, Mr Havelock and Mr Cresswell, in making either partial disclosure or total non-disclosure in the circumstances of its other conduct and of the trade practice of banks in London and/or against the background of the anterior agreement referred to in (i), amounted to implied positive misrepresentations that NWB knew of no material facts beyond those already disclosed;

NWB intended what it said and its conduct to be understood by Rabobank as having that meaning;

Rabobank relied on the implied representations in taking its decisions to continue to fund YFG and ultimately in its decision to take out NWB’s loan;

The only express misrepresentation relied upon by Rabobank (the van der Schrieck Misrepresentation) was made in response to a question about a specific matter (the take-out) which demanded an accurate answer by NWB and the answer that was given was known to be untrue by both representatives of NWB – Mr Havelock and Mr Hamilton – and was untrue for the purpose of causing Rabobank to agree to enter into the take-out and ultimately the DoT;

The misrepresentations had a continuing effect because NWB did not correct them, allowing that effect to continue up to the entry into of the DoT.

In considering the developing relationship between the two banks it was also necessary to have regard to the developing parallel relationship between NWB and the directors of YFG with regard to the White Rose project.

YFG first banked with NWB in 1989 and first became involved in the United States fruit and nut market in 1991 when it acquired Rio Del Mar which specialised in the export of dried fruit and nuts. In July 1992 YFG acquired Treehouse Farms Inc, the nut processors, from Berisford Plc. In March 1993 YFG was listed on the London Stock Exchange. Thereupon Mr Davies of Rabobank approached YFG offering Rabobank’s services. Early in 1994 YFG sought finance from both NWB and Rabobank. On 21 April 1994 NWB (Mr Skelley of Leeds Business Centre) wrote to Mr Haley of YFG following discussions between Mr Haley and Mr Catton the previous day, offering a £250,000 loan to each director and member of senior management to enable them to purchase YFG shares with bullet repayment in 4 years maximum, amortising over 7 years maximum. As security each director was to sign a memorandum of deposit over YFG shares or alternative security to provide 200 per cent minimum cover, the borrower to restore cover if the value fell to 150 per cent. Among those directors and others who borrowed from NWB were Mr Firth, Mr Giddings, Mr Haley, Mr Morgan and Mr Atkinson.

On 12 May 1994 YFG and YDFN raised a multi-bank syndicated loan of US$80 million, the lenders being Rabobank, NWB, Bank of Scotland, Nikko Bank (UK), ABN Amro NV, NWB Capital Markets Ltd was arranger and NWB was facility agent. NWB’s share was $30 million and Rabobank’s share was $15 million.

In September 1994 six of the directors and others borrowed further amounts from NWB totalling £105,000 to purchase more shares in YFG.

On 1 January 1995 Mr Firth resigned from the post of YFG Group Chief Executive but remained Group Chairman. He was replaced as Chief Executive by Mr Haley. Mr Morgan became Group Financial Director.

On 24 February 1995 a NWB internal audit letter drew attention to the rather unusual, although satisfactory, situation arising from the directors’ share purchases loans against deposits of YFG shares and the need to monitor the adequacy of security cover.

In March 1995 YFG applied to both Rabobank and NWB for further loan facilities involving an overall increase of $30 million in the syndicated loan. Mr Davies recommended approval of this additional borrowing. The internal credit application at Rabobank observed:

On 21 April 1995 Rabobank and NWB entered into a Supplemental Agreement whereby they each agreed to increase by US$10 million the facility granted by each under the 12 May 1994 Facility. The effect was to increase the facility provide by NWB to US$ 40 million and that provided by Rabobank to US$25 million, the aggregate syndicated loan facility then increasing to US$100 million.

On 12 May 1995 NWB provided to the Firth Trust a facility of £1 million for the purpose of the purchase of a large country house for Mr Firth – Oaklands, Whixley, near Harrogate. It was granted for one year. The facility offer stated that on expiry of the facility NWB would wish to establish with the Borrower an appropriate repayment arrangement.

By August 1995 it had become YFG’s medium term strategy to dispose of the whole of its UK business, in particular its Home Baking, Beverages and Sugar Divisions in order to fund the expansion of its US activities. Mr Davies had met with Mr Morgan and had been so informed. He had also been told that a private placement of equity in the US was well advanced in that in consequence YFG intended to “unwind” its banking syndicate and replace it with NWB and Rabobank as the sole core banks. Mr Davies commented that in the long term YFG would become a US company and would no doubt eventually be lost as a client to London. Mr Davies further commented:

On 22 November 1995 Mr Matthews signed on behalf of Yorkshire Foods a Real Estate Purchase Contract and Receipt for Deposit ($25,000) on account of the purchase price of $3,018,600 being the purchase price of the almond farmland (see paragraphs 22-24 above). The buyer was given 10 days to check title and the district water rights, after which a further $175,000 deposit would be payable. Investigation of the water rights gave rise to problems. The difficulties were set out in the summary prepared by Mr Matthews and sent to YFI’s attorneys on 15 December 1995, and in which the following was recorded:

It was intended that YFI would enter into some type of partnership arrangement with Baker Farms for the development/farming of almond acreage, YFI to contribute 1675 acres and Baker Farms 400 acres.

Baker would grow and supply the trees to be planted.

YFI would provide funding for ground preparation and tree planting and annual cultivation.

Baker would manage the farm.

Annual crop proceeds would be split 50/50.

Since the land to be farmed was in a Federal Water district it had a few problems namely:

In the course of January 1996 there was a presentation by Mr Firth, Mr Haley and Mr Skelley, copied to Mr Catton. This set out in broad outline intentions for the future development of YFG’s businesses in the US but it also mainly described the intention of Mr Firth and Mr Haley to set up a private asset management company (“PAMCO”) as “a vehicle for managing a diverse collection of business interests” which would be privately held by Firth and Haley employing proven, trusted, high-calibre ex-YFG personnel. Once the UK assets of YFG had been disposed of, the core UK corporate staff would be re-employed early in 1997 by the PAMCO. That company would be incorporated with immediate effect, and “farming business in California will commence Spring 1996” at which time finance would be raised for farming and other new businesses. The presentation stated that during Spring 1996 a farming business would be started in California with an initial equity of $1.5 million to $2 million principally subscribed by Firth and Haley.

On 12 January 1996 it was agreed between Williams/Fickett, the sellers of the farmland, and YFI that the escrow period on the deposits should be extended to 15 February 1996 or, if not then, to 1 March 1996. On 1 February 1996 YFI paid a further $100,000 deposit and on 13 February 1996 a further $75,000 was paid by YFI. This reflected an agreed increase in the overall selling price to US$3.3 million as a quid pro quo for the extension of completion. Further, in view of the vendors’ cash shortage, YFI agreed to discharge various outstanding indebtedness in respect of the farmland, such payments to be set off against the price of the land. By 10 April 1996 YFI had paid US$599,189.95.

On 20 February 1996 AF I and AF II were incorporated. Each had two shareholders, Mr Matthews of YFI and Mr Campbell. The division in land title to be accomplished by splitting it between the purchaser corporations reflected expert advice given to YFI by local lawyers experienced in creating land holding structures and was aimed at maximising permissible water extraction: see paragraph 125 above.

In the course of his deposition evidence in the SF Proceedings, and as confirmed before this court, Mr Matthews explained the economic benefits of controlling almond farms. There was at the time relative over-capacity in the almond processing industry by comparison with the available supplies of nuts. For that reason processing companies tended to maintain or acquire control of almond farms in order to maximise utilisation of their capacity. Alternatively, they might develop partnerships or similar links with nut producers. Otherwise, they would have to purchase nuts on the open market and be subject to market price variations and would be obliged to compete for supplies with other processors. In view of this, Mr Matthews had contemplated even while he worked for Treehouse, before YFI bought it, that it would be sensible for Treehouse to acquire farmland and/or go into partnership with growers. I find that this purpose was the genesis of the idea that YFI should gain control of nut production by acquiring farmland.

By the end of February 1996 legal advice received with regard to maximising water rights clearly showed that YFI could neither own the farms nor own the corporations which owned the farms. Nor could Treehouse. Accordingly, YFI, being a subsidiary of the English company was obliged to assign the purchase contract to Californian corporations AF I and AF II. Further, it had been suggested to Matthews by representatives of local water districts that YFI could maintain control over the farming companies through nominee shareholders who were Californian citizens and employees of YFI. There thus developed a general understanding between Mr Matthews and Mr Haley and others at YFI, including, I infer, Mr Firth, that, although YFI would not own AF I and AF II, it would be effectively the owner and in control of those corporations and of the almond farms through nominee shareholders, as an “in-house” method of ensuring future supplies, to the benefit of YFI and Treehouse.

The idea of farming and interposing White Rose Farming developed in March/April 1996. The creation of that corporation was associated with the PAMCO concept. A draft memorandum of March 1996, which I infer to have been the work of Mr Haley and approved by Mr Firth, referred to PAMCO as providing management services to White Rose. The structure of the transaction which involved, according to the evidence of Mr Matthews, AF I and AF II holding title to the farms for the benefit of White Rose which was a limited liability company in which Mr Firth and Mr Haley were the major shareholders with 80 per cent and other directors of YFI/Treehouse with 20 per cent. Mr Matthews stated that Mr Haley, in response to the specialist advice on water rights obtained by Mr Matthews had subsequently changed the ownership structure for the farms to the effect that White Rose would replace YFI as the owner of AF I and AF II. In the event, although White Rose was incorporated and Mr Morgan made a payment by way of capital subscription to it, it was not otherwise capitalised. Mr Matthews received no shares in it, and it had no employees and conducted no business, although initially it had an office.

I interpose that, according to Mr Matthews, he saw nothing objectionable about this control structure. Indeed, on 10 April 1996 he wrote to Arthur Andersen who were advising YFI setting out sufficient detail to show that those in control of YFI had caused the purchase of the farms to be switched from YFI to AF I and AF II which were in turn now to be purchasing for the benefit of the private company (White Rose) instead of YFI. This conduct is consistent with his view of the acceptability of the transaction and it also demonstrates that, absent any objection in reply, Arthur Anderson must also have seen nothing objectionable in what was proposed.

The purchase of the farmland gave rise to considerable financial difficulties for YFI and the White Rose directors. Not only did they lack the funds to complete but also it had been agreed with the vendors that deposit payments would be made and also that YFI would discharge various other debts of the vendors in relation to the land. As at 1 March 1996 it had been agreed with the vendors that the completion date should be postponed until 1 May 1996.

On 14 March 1996 Rabobank had under consideration an application by YFG that the existing multi-bank syndicated loan be replaced by a credit facility of US$100 million shared equally with NWB. An internal credit application signed by Mr Herbert and Mr Davies was enthusiastic. It referred to the competitor market strength of YFG in the US and to the organisation being “characterised by high quality personnel”. Taking note of the fact that Rabobank was already advising YFG on disposal of its UK businesses and that the company’s exit from the UK food businesses increased Rabobank’s profile “given our strength in US food and agribusiness and NWB’s withdrawal from the market”. The current proposal would “without doubt place Rabobank San Francisco in an excellent position to lead any US bank debt issue”.

A credit application to NWB was also strongly approved by Mr Catton, supported by Mr Skelley. With one relatively minor qualification relating to Mr Morgan, the application was enthusiastic about the quality of the US management. The report concluded that it was very important for relationship and reputational reasons that NWB should make the further advance.

The Credit Facility was entered into on 21 March 1996.

On about 22 April 1996 there was prepared a draft loan agreement and term promissory note by way of security under which AF I borrowed unspecific sums from YFI in respect of acquisition and development costs of the AF I portion of the farmland. I infer that these drafts were prepared by YFI’s lawyers in order to give effect to the repayment obligation of the AF companies to YFI referred to by Mr Matthews in his letter of 10 April 1996 to Arthur Andersen. It appears that neither this loan agreement nor any similar loan agreement between AF II and YFI were ever signed. This has not been explained.

As the completion date for purchase of the farmland approached, it became necessary for YFI to find immediate further funding for the completion. Mr Atkinson, a director of YFG and YFI wrote to Mr Catton on 26 April 1996 requesting a short-term bridging loan of US$1.2 million. He enclosed a business plan for the business (to be titled “White Rose Farming”) together with a cash flow projection. The letter stated:

Mr Catton was cross-examined at length on these documents. He said that he appreciated that there was a connection with the PAMCO but neither from that proposal nor from the Atkinson documents did he form the view at the time that here the directors were dealing with their own company. Nothing he read caused him to doubt the integrity of the directors. Although he accepted that, with hindsight, further enquiry should have been made as to the nature of the transaction, at the time he did not have reason to doubt their integrity. It was only subsequently some two years later – that it came to his attention that the directors had duped the bank and with that in mind he now considered that the documents called for further investigation. At the time NWB rated the directors very highly.

On 27 April 1996 Mr Atkinson sent to Mr Houlahan of NWB a breakdown of the amounts said to have been contributed by each shareholder to the deposit of US$600,000. This letter further masked the apparent fact that the funding of that sum had come from YFI. On 29 April 1996 Mr Matthews passed onto Mr Houlahan various documents from Travellers which stated that YFI had applied for a mortgage loan to purchase the farmland. According to Mr Catton’s witness statement, he had been informed that Mr Houlahan had stated that Mr Catton had on 29 April spotted the reference to YFI as borrower and had asked Mr Houlahan to seek an explanation and Mr Matthews had told him that the reference to YFI was erroneous. Later that day a second fax from Travelers was received via Mr Matthews showing White Rose as borrower. In cross-examination Mr Catton said that he could not recall anything about seeing those fax messages or the discrepancy. He said that he did not see in it a breach of fiduciary duty in that the directors were dealing with corporate property. He had zero interest in White Rose at the time that the BL application or the letters were received “and indeed throughout the process of putting the credit application together. He did, however, accept with hindsight that this was “a rather careless approach”.

On 29 April 1996 NWB processed the credit application for the BL of US$1.2 million. The purpose was described as follows:

Also on about 29 April 1996 Mr Catton partly wrote and signed a memorandum for circulation to LBC in support of the BL application which had been written by Mr Houlahan. His description of the underlying purpose and corporate structure includes this:

Mr Catton explained in evidence his lack of enthusiasm for this application. Having only the previous month spent a great deal of time on the restructuring and refinancing of the YFG corporate facility and having already made clear to Mr Firth that NWB was not interested in financing his private investments in the US, he was now obliged to give up more time on the BL application to do exactly that. As he put it, he had better things to do. I found this evidence entirely credible. I further find that he never spotted anything in the information he received with regard to the BL which suggested to him anything inappropriate in the conduct of Mr Firth or the other directors. His focus simply never extended to the legal analysis of the PAMCO/White Rose/almond farm structure and the directors’ and officers’ relationship with YFG with regard to the fiduciary duties of Mr Firth and the other directors and officers. He was concerned and only concerned with risk assessment, that is whether NWB could rely on Mr Firth to ensure that the Firth Trust repaid the BL in accordance with its terms. Whereas it is true that Mr Catton specifically said in evidence that he knew what would amount to a breach of fiduciary duty by a director, I have no doubt of two things. First, his grasp and understanding of that concept has developed and been accentuated by his preparations and the preparation of his witness statements for this trial. Second, that if in April 1996 it had been suggested to him that Mr Firth or any of the other directors had embarked upon a venture which involved any kind of misconduct on their part vis-à-vis YFG, he would have reacted with considerable surprise. I am equally sure that he would never have invited NWB’s approval of the BL or declared Mr Firth to be a good integrity risk. He would immediately have referred the matter to Mr Skelley, his superior, and consideration would then have been given to taking legal advice as to Mr Firth’s other facilities.

The bank’s offer to the Firth Trust with regard to the BL was sent out on 30 April 1996 and formally approved by NRCC on 1 May.

The security requirements for the BL (1,950,000 YFG shares to be deposited with NWB and a personal guarantee from Mr Firth for £800,000) left Mr Firth’s overall security relationship with NWB as follows:

Unscheduled memorandum of Deposit over 2,790,000 YFG shares.

Legal mortgage over Oaklands;

Informal deposit of title deeds relating to his residence at The Old Mistal, which was about to be sold.

On 10 May 1996 YFI assigned to AF I and AF II its interest in the Williams and Fickett purchase contract in relation to the farmland. The assignments expressly provided that the assignees would repay to the assignor the amount (US$600,000) already paid by YFI under the purchase contract. Mr Matthews said in evidence that, whereas he knew that AF I and AF II did not have the funds to pay YFI, he assumed that someone was going to find the money, but Mr Haley had never told him where the money was to come from and he stated that he realised with hindsight that this debt to YFI should have been formally recorded but Mr Haley had never asked him for a document and he now realised that this was wrong.

On 1 June 1996 Mr Firth, Mr Haley, Mr Atkinson, Mr McGonigle, Mr Morgan and Mr Matthews signed an Operating Agreement in respect of White Rose Farming Inc, which had been incorporated on 3 May 1996. Clause 3.1 lists the capital contributions to the company of each of those six persons, but apparently only Mr Morgan paid anything.

Early in June 1996 NWB was asserting that YFG was technically in breach of one of the covenants in the Credit Facility. YFG disputed this. NWB did not inform Rabobank because, according to Mr Catton, it was up to Rabobank to do their own calculations and in any event his perception was that Rabobank had a close relationship with YFG, both as banker and adviser in various respects, and could therefore be expected to be aware of the breach.

By the end of July 1996 more problems began to surface with YFG’s Credit Facility. On 30 July 1996 YFG gave notice to NWB as agent under the Credit Facility that YFG was completing a reforecast of its trading position for 1996 and beyond and that the draft reforecast indicated that the company might be in breach of covenant by reason of failure to comply with the required ratio of Total Consolidated Net Borrowings to Tangible Consolidated Net Worth. In other words YFG’s borrowings were likely to be excessive by the reference dates of 1 to 31 August 1996. Having regard to the fact that a Facility A loan of US$10 million was due on 1 August 1996, YFG asked NWB and Rabobank to waive the requirement that YFG should represent for that purpose that it continued to make the representations and to give the warranties under the Credit Facility. On the same day Mr Catton informed YFG that a 30 day waiver was granted.

On 1 August 1996 AF I and AF II entered into leases whereby their respective areas of farmland were leased to YFI until 2020. On that date also the BL fell due for repayment, subject to the 30 days period of grace. It was not repaid for no alternative source of funding for the White Rose project had been obtained.

On 10 August 1996 Mr Haley sent to Mr Catton a report to the banks on YFG. Although Mr Catton could not remember receiving this document, he accepted that he would have read the “headlines” and that it showed that YFG was in a serious condition. The draft Consolidated Profit and Loss account for the half year to June 1996 showed an operating loss of £2.906 million as against a profit of £1.681 million for 1995 and an overall loss of £3.401 million compared with £499,000. On the draft Consolidated Balance Sheet at 30 June 1996 net current assets were shown as £1.311 million compared with £15.816 million a year earlier. In the course of his cross-examination Mr Catton’s attention was drawn to the fact that many of those shown to be the directors of YFG were also involved in the White Rose project as well as to the fact that Treehouse was shown as a supplier of YFG and that the grower, Baker Farms, also traded with YFG. He was asked if this report did not suggest to him self-dealing by the directors. His evidence was that this never occurred to him at the time. In answer to a question from the court he said that up to the latter part of 1996 he never in his banking experience previously encountered self-dealing by company directors. He concentrated his mind on the overall picture of the financial condition of the group. “I was never remotely suspicious of any connection between Yorkshire Foods and White Rose, nor any lack of integrity on (the part of) … of the principals.”

It had been anticipated by YFG in the report that refinancing by a US lender or group of lenders could be achieved in the immediate future, but by 12 August 1996 this prospect had disappeared. On 12 August 1996 Mr Catton had a meeting with Mr Haley. From what passed it was clear that refinancing could not be accomplished in the short term. Mr Morgan had been removed from his responsibility for liaison with NWB and Mr Haley would take over. Things were not going well in the US although, as Mr Catton told Mrs Parsons, the reasons were unclear. According to Mrs Parsons’ note of their conversation:

I interpose that the suggestion that, at least at this stage, Mr Catton appreciated that the directors of YFG were by their involvement with White Rose guilty of any form of impropriety presents itself to me on the contemporary evidence as highly improbable. Exposure of the situation to CSS would almost inevitably involve the exposure to superiors not only of the relationship between NWB and YFG but also to a lesser extent between NWB and the directors although Mr Catton would remain responsible for the management of personal loans. Had he appreciated that, contrary to his initial analysis of the integrity risk associated with the BL, Mr Firth’s and Mr Haley’s conduct with regard to White Rose was wrongful, his obvious course was to put to Mr Skelley that the BL should at once he called in or at least called in at the end of August. It is inconceivable that in those circumstances the risk of prejudicing repayment of the corporate loan could have caused anyone at NWB to refrain from calling in the BL.

On 13 August 1996 the share price of YFG fell to £0.49 – a reduction of one-third on publication of the company’s warning of a pre-tax loss. This directly affected the value of NWB’s security for the personal loans to directors (except Mr Firth and the Firth Trust) who had deposited parcels of YFG shares with the bank. A total of 6,726,430 YFG shares had been deposited out of a total then owned by directors or their associates of about 16,524,237.

On 19 August 1996 the YFG Credit Facility management was transferred from the Leeds Business Centre to CSS in London. That was done under cover of Form Z. At that date the outstanding liability of YFG to NWB was $34.418 million including interest, unsecured, and the outstanding liability to Rabobank was US$37.5 million. The papers which would then have come to the attention of the CSS would according to Mr Cresswell, have included credit application forms for YFG and “any related papers that the credit team had in their files”, but he could not remember which documents they had received.

On that day there took place a meeting in Mr Herbert’s room at NWB attended by Mr Cresswell, Mr Hamilton and Mr Herbert and either or both of Mr Havelock and Mr Side. Mr Cresswell did not remember that meeting. Mr Hamilton, a manager in the CSS, who had very extensive experience of corporate workouts, was asked to take over the case. He stated that he believed that he received, in addition to the credit applications, the YFG Information Memorandum in its final form. He read those papers but he would also have discussed the case by telephone with Mr Catton with whom he had had no previous dealings. He conducted what he called an “intake review”, the main purpose of which was to gain as much information as possible within as short a time as possible about the YFG loan, the security for it, if any, and the reasons for the problems which caused referral to the CSS. Next, his job was to work out a strategy for improving the risk on NWB’s lending. His immediate purpose was to prepare an initial review for Mr Havelock.

On 20 August 1996 there took place a meeting at Rabobank’s London office between Mr Cunningham, Mr McWilliam, Mr Davies and Ms Hanley of Rabobank and Mr Haley and Mr Atkinson of YFG. Ms Hanley’s note recorded as follows:

This inconclusive meeting was followed by an internal Rabobank meeting also attended by Mr van der Schrieck. A note of that meeting included the following:

This was followed on the same day by the initial meeting between the banks which began the workout. Present on behalf of Rabobank were Mr Davies and Ms Hanley and on behalf of NWB Mr Cresswell, Mr Hamilton and Mr Catton. Ms Hanley’s note of the meeting was not challenged by any of the NWB witnesses who were present. This meeting being of essential importance to the way in which Rabobank puts its case, I set out the note in full:

Before considering the oral evidence as to what passed at that meeting, it is important to identify precisely what matters were recorded by that note as having been agreed between Rabobank and NWB. They were as follows:

The purpose of the meeting was to exchange ideas on how to deal with YFG.

In view of the difficulty of understanding and interpreting YFG’s revised projections and their crucial relevance in assessing the level of assistance required, the most prudent course would be to put accountants in to assess the business and report on the projections.

Security should be taken in respect of the indebtedness regardless of whether the banks assisted with additional finance.

The Company should be required to provide weekly management and cashflow figures in an understandable format.

The two banks should co-ordinate their response to YFG in such a manner as to demonstrate to YFG a united front and that co-ordinated response should give details of the bank’s requirements with particular reference to the Accountants’ Report.

The banks should agree Terms of Reference for the Accountants.

The banks would meet again on 22 August in order to prepare a response to the company before the weekend.

NWB held the belief that YFG had deliberately withheld information as to the failure of the trading results to match the budget.

Mr Catton, the relationship manager, had on a number of recent occasions requested “management figures” from Mr Morgan and they had not been provided.

Mr Catton had then telephoned Mr Haley and was assured that there was nothing wrong, that being one week before the company had informed Mr Catton of poor results and breaches of covenant.

NWB held the belief that assisting YFG to trade through was a “viable option”.

NWB’s policy was to end its lending relationship with YFG in the short term even if YFG recovered to its previous performance levels.

YFG had informed NWB that Harris Bank was prepared to bridge the short-term liquidity position.

In his second witness statement Mr Davies stated of the agreement at that meeting at paragraph 6:

Of the others who took part in that meeting Ms Hanley unfortunately could not give evidence as she had a long term illness. Mr Catton had no recollection of what passed at that meeting independently of Ms Hanley’s note. When asked in cross-examination whether he expected that Rabobank would rely on NWB to be honest and open he replied: “I did not have any expectation other than an honest relationship”. He later said “.. we had a relationship with Rabobank where information was shared in a fulsome way and with integrity”. Mr Hamilton stated in his witness statement with regard to those matters which that note showed to have been agreed that they were “all things which it is absolutely standard to consider, discuss and (ideally) agree upon in the early stages of a workout”. He stated that there was “no wider agreement between the banks (than that stated in the note) to conduct a joint investigation.” Although he did not remember the phrase “co-ordinated response” being used, he did not believe that it could possibly have indicated an agreement of wider application than the production of the letter to be sent to YFG on 22 August 1996. He continued:

Mr Cresswell who was also present at the 20 August meeting had considerable experience as a workout specialist. He had worked in this field at NWB from 1991 to November 1997 when he moved within NWB upon being promoted to Senior Corporate Manager. During that period he had been involved in about 50 different corporate workouts approximately half of which involved NWB as part of a syndicate. However, he could recall only one instance where only two banks had been involved in a syndicated loan and that was this case. In his witness statement he denied that, apart from the agreement to appoint accountants, there was any agreement between the banks to conduct a joint investigation. The references to “united front” and co-ordinated response related only to the banks’ initial response to the YFG Information Memorandum and did not refer to the entirety of the workout. Further, the banks never created any binding agreement to disclose information.

In the course of his cross-examination Mr Cresswell said this:

Mrs Parsons was not present at the 20 August meeting and her evidence about what she believed the inter-bank relationship to involve was derived from Ms Hanley’s note and from her subsequent meetings with representatives of NWB, particularly Mr Hamilton.

The first question which has to be answered with regard to Rabobank’s case on the events and effect of this meeting is whether it gave rise to any (admittedly) non-binding agreement or to a representation of NWB’s intention as to existing or future conduct that it was disclosing and would disclose to Rabobank all facts known to it material to the decisions which Rabobank would have to take as co-workout banker. The basis upon which this case is founded is the agreement of the parties to carry out a joint investigation into YFG.

For there to be such an agreement or representation upon which Rabobank was, and would be, entitled to rely as a basis for its justifiable assumptions as to what it was being told by NWB, Rabobank would have to demonstrate that what passed from NWB at the 20 August meeting was expressed in all the circumstances in such a manner as to convey to a reasonable banker in the position of Mr Davies that it was put forward by NWB as a statement that was meant to be relied upon as distinct from an off-the-cuff comment or remark in the course of conversation. As Mance LJ. put the principle in MCI WorldCom International Inc v. Primus Telecommunications Inc [2004] 2 All ER 833 at p844 paragraph 30.

Was Mr Davies entitled to infer from such conduct on the part of NWB that NWB was also agreeing to disclose to Rabobank all facts material to the present and future conduct of the workout or that NWB represented that such was its intention? In this connection, I have already found that there was no established and invariable practice of workout banks to disclose to co-workout banks all material information although banks would generally recognise that it would be good practice to disclose matters known to them which they honestly thought were material in the sense of being such as would probably be taken into account by co-workout banks (see paragraph 110 above). The position arrived at during the 20 August meeting did not render this workout operation materially different from any ordinary workout. The agreements reached represented a typical course. It follows that, apart from the perception of what would generally be regarded as good practice among workout banks, Rabobank cannot point to any feature of this workout which at that first meeting superimposed any justification for the assumption by Mr Davies that NWB was disclosing and would throughout the workout disclose all material facts known to it. All he was entitled to assume was that there probably (but not necessarily) would be disclosed to it of all information known to those in NWB with whom he was dealing as to the workout which they honestly believed to be material. It follows that Rabobank would not be entitled to assume that silence meant that no other material matters were known to NWB, for disclosure might be due to lack of knowledge of such matters by those in NWB with whom Rabobank was dealing or to lack of appreciation by those same persons in NWB that the matters were material or simply to failure by NWB to adhere to what was generally regarded as good practice amongst workout bankers. Although this last eventuality might be morally objectionable, it could not of itself, without more, give rise to a duty to speak.

Accordingly, the surrounding circumstances available for determining whether on the occasion of each of the alleged implied misrepresentations there was an untrue statement of fact, either by silence or half-truth, have to include these considerations. They are referred to in this judgment as “the Paragraph 168 Considerations”.

It follows also that the representations said to underlie Misrepresentation (1) namely the Paragraph 42 Representations have not been established (see paragraph 65 above) as having been made on 20 August 1996.

As to Misrepresentation (2) (see paragraph 70 above) it will be a matter for consideration later in this judgment whether the Paragraph 42 Representations were repeated (as pleaded) at later meetings, particularly those held on 22 and 29 August.

As to Misrepresentation (3) (see paragraph 72 above), I do not find that Mr Catton made any implied representation as to the management of YFG other than what is recorded by the Hanley note as having been expressly mentioned, namely the shortcomings in financial reporting, particularly by Mr Morgan together with the incomprehensible explanation for YFG’s projections. That information was provided in the context of the problems experienced by the banks in understanding why the company’s serious financial position and need for urgent financial support had developed. That context did not involve that a statement about this very limited adverse criticism of management could reasonably be taken as representing a comprehensive assessment of all management skills, or indeed of the integrity of management or the involvement of the directors and officers in personal borrowings or of the deposit of shares to secure such borrowings. In my judgment, Mr Davies and Mrs Parsons, when she read Ms Hanley’s note, were not entitled to assume anything other about the quality of YFG management than that which Mr Catton told the meeting.

On 21 August 1996 Mr Hamilton sent to Mr Catton by fax draft Terms of Reference to be used for appointment of the accountants for consideration prior to the meeting with Rabobank on 22 August. The covering note indicated that Mr Cresswell had approved them and that Mr Hamilton would discuss them with Mr Catton later. The substance of those Terms of Reference was subsequently agreed with Rabobank to be used for the appointment of PW. In his witness statement Mr Cresswell stated that there was nothing unusual about them. His understanding was:

On 22 August 1996 Mr Cresswell and Mr Hamilton of NWB met with Mrs Parsons, Ms Hanley and Mr Davies of Rabobank to continue discussions as to YFG, in particular which accountant should be appointed, the terms of reference and terms of a letter to be sent by the banks to YFG. Mrs Parsons and Mr Davies agreed in principle to NWB’s suggestion that Mr Barrett of PW be appointed investigating accountant and agreed to consider NWB’s draft terms of reference and draft letter to YFG. It was also agreed to appoint Allen & Overy to commence preparing security documentation. NWB was agreed to be security trustee. Since YFG was due to announce its interim results on 4 September 1996, it was agreed to discuss the question of breach of covenant by the company before then with a view to a waiver because of the damaging effect on the company if it were to announce a banking default before then. It was the evidence of Mrs Parsons that when it was agreed to instruct PW the banks were doing so “in an open, an honest and full way to provide them with the information they needed to be able to report to us” and that she believed NWB had made a representation to that effect. In my judgment, the only representation made by NWB on that occasion was identical to that made at the later 29 August 1996 meeting, which is identified at paragraph vi) below. Certainly there was no representation of those matters relied on as the Paragraph 42 Representations.

On 23 August 1996 Mr Hamilton prepared and provided to Mr Havelock, copied to Mr Side, an internal memorandum concerning YFG. It is a five page comprehensive account of the company and its problems. I infer that much of this information was obtained by Mr Hamilton in the course of briefings by Mr Catton and possibly Mr Cresswell. The Memorandum stated:

“We have now met with the Company and Rabobank (the other Bank that provides US $37.5m in the syndicated loan) to agree the way forward, following our review of the information memorandum prepared by the Company.

Rabobank and ourselves are in agreement with an Accountants Review and a letter has now been sent to the Company outlining our current stance.

Our ultimate goal here, is to exit this relationship, as this business is now a US business which should also be financed in the US, although we must acknowledge that short term support will be necessary.

CSS sanctioned facilities in March following the covenant breaches but the plan was that refinancing in the USA would occur within six months.”

“In summary, we have now set out both Banks’ position to the customer and must take forward the review with PW as soon as possible to ensure the report is received by the end of October. Quite frankly, we do not want to lend any more money to this Group at this stage and a clearly defined exit needs to be established as US funding is key here.”

On 28 August 1996 Mr Davies sent by fax to Mr Catton draft Terms of Reference for use with PW. These were divided into Phase I and Phase II. Phase I included the following:

On the same day Mr Atkinson of YFG telephoned Mr Catton and informed him that the company had no objection to the appointment of PW and was comfortable with PW getting into contact in the first instance with management by the end of that week. In passing on to Mr Hamilton information as to this call Mr Catton observed that he thought it important that PW were seen to be scoping the work with the benefit of discussions directly with management and its advisers “although clearly working cognisant of the Banks’ requirements.” The note to Mr Hamilton concluded:

Also on 28 August 1996 Mr Catton requested from YFG authorisation for NWB and Rabobank to disclose to PW any information which at the discretion of the Banks might be relevant “regarding operation of the Group’s bank accounts and its affairs generally”, including any information that might have been given in confidence to the Banks. This authority was clearly confined to information confidential to YFG and its subsidiaries and did not operate to release NWB from obligations of confidence with regard to the relationship between it and the directors with regard to their personal financial affairs.

On the same day Mr Firth signed a letter to Mr Catton giving him authority to discuss and correspond with Mr Haley regarding Mr Firth’s borrowings on his house at Whixley and two other specific commitments.

On 29 August 1996 Mr Catton sent to Mr King, his Regional Managing Director, with a copy to Mr Yates, Leeds Regional Head of Corporate Credit, a Briefing Paper with respect to YFG. This contained detailed information both as to the corporate borrowing by YFG and as to the Directors’ personal borrowings. It showed that the company’s facilities amounted to a total of £31.75 million including £24 million ($37.5 million) in respect of the Credit Facility and £4 million net overdraft, both of which were fully drawn down. It also showed that Mr Firth’s total borrowings were £1.77 million, including the BL at £770,000, secured by £1.4 million in YFG shares, with a note “Expecting refinancing in US next 14 days”. Other directors’ total borrowings were shown at £1.698 million covered by shares in YFG at 50p of an aggregate value of £1.870 million. The Briefing Note contains a comprehensive appraisal of the position of YFG in relation to its corporate borrowings but no other information whatever about the BL or the other directors’ borrowings. In his covering letter to Mr King, Mr Catton wrote that he had introduced CSS, that he would be working alongside Mr Hamilton and Mr Cresswell, that their respective views and strategy were entirely consistent and that, having introduced PW,

With regard to the words “Expecting refinancing in US next 14 days”, Mr Catton was unable in the course of his evidence to recollect the source of this information but thought that it must have emanated from Mr Haley. However a letter dated 29 August 1996 from Mr Catton to Mr Firth referred to a telephone conversation between them on the previous day and covered the borrowings of the Firth Trust, including the BL. Having drawn attention to the 30 days grace period due to expire on 31 August, the letter stated in that regard:

There is no evidence as to what, if anything, was the basis for the stated expectation of refinancing in 14 days. In deciding whether this was a sop thought up by Mr Catton to avoid trouble with his superiors, it is necessary to keep in mind the pattern of deceptive conduct of the directors towards the Bank which emerges throughout the period under consideration. On the whole of the evidence relating to that conduct I am not able to conclude that this 14 days expectation evidences an attempt by Mr Catton to deceive anybody at NWB. Moreover, Mr Catton’s character was not, in my judgment, such as to set out to deceive his superiors simply to maintain the Bank’s relationship with Mr Firth. Such deception, if it were later discovered, as it probably would be, would risk very serious professional criticism of Mr Catton. Although he had recommended the BL, he had done so with overt reluctance and it had been approved by others.

On 29 August 1996 there took place at Rabobank’s London offices a meeting between the Banks and PW. Mr Cunningham, Mrs Parsons, Mr Davies and Ms Hanley were present on behalf of Rabobank, Mr Hamilton on behalf of NWB and Mr Barrett and Mr Hargrave on behalf of PW. Mr Barrett, a partner of PW, had substantial experience of acting as reporting accountant for banks operating a workout and he had been engaged to work for NWB about three times a year over a period of about 20 years going back to the time before he joined PW when he was at Deloittes. He also had a social relationship with Mr Side and Mr Havelock of the CSS at NWB and they would meet for lunch or dinner several times a year. He had never previously been engaged with Rabobank. Mr Hargrave was an insolvency specialist, having worked in that field for PW in Australia before joining PW London as senior manager in about 1996.

There are two contemporary notes of that meeting: one by Cora Hanley and one by Mr Hargrave, the latter in greater detail. As appears from both notes, there was very detailed discussion of NWB’s draft terms of reference. In the course of that discussion Mr Barrett indicated that, with reference to YFG’s five year development plan, PW would normally only look at financial plans up to 18 to 24 months moving forward. Mr Hamilton explained that in late September 1996 rather than October further funding of £9 million would be required. This was needed to pay for the 1996 crop which was expected earlier than usual. The timing of PW’s report therefore was important and an initial report would be needed by mid-September. Mr Barrett enquired if YFG was a customer both banks valued and wished to stay with. The responses were as follows:

There was no detailed discussion of Rabobank’s draft terms of reference. Mr Hargrave’s note records as follows, reference to AZB being to Mr Barrett:

By the end of this meeting therefore there had been no agreement that required PW to proceed under either one of the draft terms of reference. It was instead left to Mr Barrett to proceed by way of his own discretion to negotiate terms of reference acceptable to YFG having regard to those areas of investigation discussed at the 29 August meeting. The terms of reference would clearly have to accommodate the main objectives required by the Banks, namely identifying the Group’s immediate cash flow position and diagnosing the cause of its current financial difficulties in order to develop a workout strategy to protect the recoverability of what was due to the Banks. The cash flow phase would have to be completed in little more than two weeks. It was therefore obviously essential that PW should concentrate on the immediate problems.

Mr Davies said of this meeting that it was “the implicit basis” of all the discussions that both banks were being open with each other and with PW. Both banks were providing their knowledge of the situation to establish a common understanding and to obtain complete and accurate advice from PW. In his second witness statement Mr Davies said that when there was discussion of the terms of reference including “an assessment of the group’s management” it must have been obvious to Mr Hamilton and Mr Cresswell (who was not present) that a proper assessment of management should include a review by PW of the material matters such as the personal loans to directors, the White Rose project, their reckless personal business venture in buying almond farms without sufficient funds to pay for them and their relationship with Baker Farms. Mr Davies further referred to Mr Hamilton having produced the letter of 28 August 1996 from YFG authorising the banks to disclose to PW relevant information as to the operation of the Group’s bank accounts and its affairs generally, including confidential information (see paragraph 178 above). Mr Davies regarded this as a representation by NWB that it would disclose all material information about the affairs of those managing the Group as well as YFG. In his third witness statement Mr Davies stated that he understood from the requirement for PW to report on the management of YFG that NWB would disclose all material facts that it knew about those who were the managers. Indeed, in cross-examination, while acknowledging that he was aware that Mr Hamilton had only very recently taken over the YFG file, he said that by making admittedly somewhat brief comments on the quality of management and by not qualifying or disagreeing with the comments on management made by Mr Davies, Mr Hamilton was making an untrue statement about the management, namely that he knew nothing else material about the management in general and Mr Firth in particular. He further confirmed that he regarded it as implicit in Mr Hamilton’s words and conduct that NWB would pass on to PW all material information known to NWB and, having regard to Mr Hamilton’s reference to the letter from YFG of 28 August 1996, that NWB would “act in accordance with it” by disclosing all material information even if it were of a confidential nature and that NWB was doing so at that meeting.

Mrs Parsons also gave evidence that she believed that both at the meeting on 22 August and that on 29 August NWB was telling Rabobank “all the relevant information, but not the totality of every single piece of information known to NWB. She stated that that it was implicit from the joint instruction of PW that neither of the Banks would do anything to inhibit the best advice and that this would be facilitated by the instructions to PW. She further stated that it was implicit in what passed that NWB would not have any secret discussions with PW and would not divert PW from its investigation.

Mr Cresswell stated that unilateral discussions between a bank and reporting accountants were not uncommon in the course of a workout. He said this:

In the course of his first expert report Mr Thompson expressed an identical view as follows:

By contrast, Mr Hudson considered that it would be “improper” for NWB deliberately to conceal from Rabobank the meeting with PW, which suggests that an intention to hold such a meeting as distinct from the holding of it would in itself be material, as stated by Mrs Parsons.

The evidence as to what passed at the 29 August meeting leads to the following findings.

Mr Hamilton’s agreement to the joint instruction of PW as reporting accountants involved agreement that PW would in its own discretion decide what areas of investigation should be incorporated into terms of reference to be agreed between PW and YFG.

All parties were agreed that the terms of reference to be negotiated should include as the primary objective investigation of the causes of the company’s current cash crisis and in particular whether this reflected a fundamental defect in the business. In this connection, it was also common ground that PW should evaluate the quality of management of YFG as part of its review of workout strategy. The first phase of the report should be produced in time for the Banks to decide whether to make further cash injections in late September. In deciding what matters to investigate and report on PW would work on a projected business plan extending not more than 18 to 24 months ahead. Investigation of other matters of detail referred to in the draft terms of reference put forward by Rabobank, such as “the shareholding position, with specific reference to the Firth and Giddings shareholdings and the likely impact of their disposal strategy” would be included in the scope of the PW investigation only if and to the extent that PW considered that it might contribute to any of the primary objectives of the report.

NWB made no representation that it had knowledge of no more material information than that imparted by Mr Hamilton as to the quality of management of YFG.

Nothing was said by Mr Hamilton or indicated by his conduct which entitled Rabobank to treat as an express or implied representation upon which it would be entitled to rely that NWB had knowledge of no other facts material to the workout which went to the quality of management. In particular none of the so-called Paragraph 42 Representations were implicitly made.

The production by Mr Hamilton of YFG’s letter of 28 August 1996 did not give rise to any representation express or implied that NWB was disclosing or intended to disclose all the material information within its knowledge notwithstanding considerations of confidentiality to YFG.

Mr Hamilton’s agreement to the appointment of PW did not give rise to an implied representation that NWB were supplying or intended to supply to PW all the material information in NWB’s knowledge. However, it did give rise to an implied representation that NWB did not intend without the knowledge of Rabobank to prevent PW from reporting in accordance with whatever terms of reference might ultimately be agreed with YFG and from investigating and reporting upon whatever in its discretion was regarded by PW as relevant to its professional duty to carry out the mandate identified by those terms of reference.

Nor did agreement to the appointment of PW give rise to any express or implied representation that NWB did not intend to hold unilateral meetings with PW in the course of the workout and before PW had fully reported in accordance with its mandate.

As to the findings (iii) and (iv), although Rabobank could justifiably make an assumption that if Mr Hamilton had knowledge of a fact which he regarded as material he would more likely than not and consistently with good workout practice impart it to Rabobank and PW, Rabobank could not rely with complete assurance on Mr Hamilton adhering to good practice or on his having knowledge of any particular material fact or on his evaluation of the fact in question as material.

As to finding (v), apart from the fact that the letter relates exclusively to matters confidential to YFG and makes no reference to matters confidential as between the directors and NWB, its function is to provide NWB with a facility to enable it to disclose material information. Reference to the letter therefore would disclose only the facility and would represent nothing either about whether NWB intended fully to avail itself of that facility in the case of every material fact unless the perception was that it was indeed material and subject always to NWB’s decision to adhere to good workout practice. In truth, all that production of the letter indicated was that NWB were not going to be prevented from disclosing to PW material facts within their knowledge merely because they were confidential to YFG.

As to finding (vii), I am not able to accept Mr Hudson’s evidence that there was anything necessarily untoward or inappropriate in NWB holding unilateral meetings with PW. The great preponderance of evidence from those experienced workout specialists including Mr Thompson and Mr Barrett, who gave evidence is that unilateral meetings are commonplace. This is entirely unsurprising. Each bank has an independent contractual relationship with the debtor. Its participation in the appointment of a single firm of investigatory accountants is the consequence of a mutual desire to obtain as efficiently and cost-effectively as possible an investigative and advisory report with the minimum of delay. Their position is analogous to co-operation between independent co-insurers of a single insured upon the happening of an event giving rise to a claim when they agree upon the appointment of a market adjuster. In the last resort it is for the adjuster or accountant, as the case may be, to go in and unearth the material facts and whether and to what extent each of those agreeing to the appointment provides additional information is entirely up to each participant. Similarly, just as each participant has an independent relationship with the debtor, so each has an independent relationship with the accountant. Against this background I consider that the only implicit assumption is that the accountant will not be obstructed in giving effect to the mutually agreed terms of reference.

Having regard to the findings set out in paragraphs 174 and 192-195 and to the Paragraph 168 considerations, the submission that NWB made representations in the terms pleaded in MSC, Misrepresentations (2), (4), (5) and (6) must be rejected.

I now turn to the Pavement Conversation. This took place immediately following the 29 August 1996 meeting just described. Mr Hamilton left Rabobank’s office in company with Mr Barrett and Mr Hargrave. As they reached the pavement in Cannon Street, according to Mr Barrett’s and Mr Hargrave’s evidence, there took place a very brief exchange with Mr Hamilton. Of this he has consistently maintained that he can remember nothing. Indeed, his evidence has also been that he has no recollection of the main 29 August meeting between the Banks and PW. Rabobank submits that in this respect his evidence is untrue and that he is trying to conceal what really passed in the course of the Pavement Conversation.

Mr Barrett and Mr Hargrave, both of whom were called by Rabobank, declined to provide witness statements. However, the evidence which both had given by deposition in the SF Proceedings formed the basis of their evidence in this trial in the form of Civil Evidence Act notices and notices under CPR 33.2(3).

Mr Barrett in his evidence in chief confirmed his evidence on deposition to the following effect. He could not remember when there had been a conversation with Mr Hamilton but it was either in late September 1996 or early October in the course of which Mr Hamilton “said to me that I ought to know that the bank had a line out personally to Mr Firth, secured on, partly secured on shares, Mr Firth’s shares in the company and that the line was for personal lending”.

In his evidence before this court Mr Barrett stated that it was the first time he had been involved in a two-bank workout. By the time when he gave evidence in this court he was certain that the conversation followed on after the first meeting with PW. When asked whether he knew what had prompted the exchange with Mr Hamilton, he replied:

In cross-examination Mr Barrett stated that, following that Conversation, he had neither discussed the matter of personal loans with Mr Hargrave nor instructed him not to investigate whether any other directors had personal loans when preparing their report. That was because he considered it irrelevant. Even if Mr Hamilton had said nothing, PW would not have investigated the directors’ loans. When the terms of reference had been agreed, directors’ loans did not fall within the scope of the terms of reference. Accordingly, Mr Hamilton’s request was not understood by him as an instruction not to investigate the directors’ personal affairs, there being nothing in the terms of reference which required that to be done. Therefore PW was not diverted by the Pavement Conversation from giving effect to the terms of reference.

As for Mr Hargrave, his evidence can be summarised as follows. With regard to the Pavement Conversation he recalled in his deposition in the SF Proceedings Mr Hamilton advising them that Mr Firth had some personal borrowings with NWB which were secured against shares in YFG and those borrowings “were not in connection with YFG and were not in connection with our review”. He continued: “and he asked us accordingly not to tell Rabobank of that fact”. Mr Hamilton gave no further information on that occasion about the nature of Mr Firth’s personal borrowings. He had learned of the purpose of the BL for the first time when he read the complaint in the SF Proceedings.

Before this court Mr Hargrave, while stating that he could not remember exactly what Mr Hamilton said in the Pavement Conversation, he said that he was now “slightly uncomfortable” about “He asked us accordingly not to tell Rabobank of that fact”. Whereas he could not remember what he recollected when he was deposed:

Having observed all three participants in the Pavement Conversation cross-examined in considerable detail about what was said, I find as follows:

Mr Hamilton genuinely did not remember that conversation and was not using pretended amnesia as a shield, for, as I find later in this judgment, he believed at the time that the personal loans to Mr Firth, including the BL, as well as the other directors were of no relevance to what PW would be engaged to report on the terms of reference yet to be identified and agreed with YFG.

What Mr Hamilton imparted to Mr Barrett and Mr Hargrave, in addition to the existence of personal borrowings of Mr Firth secured on shares in YFG, was that such borrowings were not connected to YFG and that in NWB’s opinion they were not relevant to PW’s mandate. Therefore, NWB considered it unnecessary for PW to tell Rabobank of them and preferred that PW should not do so.

The substance of this statement as it would reasonably be understood by an experienced workout accountant in the position of PW was therefore (a) that NWB wished PW to be informed of the existence of Mr Firth’s personal borrowings; (b) that such borrowings were not connected to YFG and, because of that, NWB did not consider them relevant to PW’s mandate; (c) therefore there was no need to disclose them to Rabobank and, therefore also, NWB preferred Rabobank not to be told of them.

Properly understood the sense of this statement was that NWB was disclosing information about the borrowings of Mr Firth, so that PW should not be under the false assumption that NWB was only exposed on the corporate indebtedness, was expressing an opinion that such borrowing was irrelevant to the report to be prepared by PW and on that basis making known a preference that it should not be disclosed to Rabobank.

These words were not of prohibitory effect in the sense of imposing an embargo on the content of the terms of reference to be negotiated or the manner in which PW should give effect to them. They were to be understood as demonstrating NWB’s opinion without preventing PW from investigating this area if they considered it relevant to do so for the purposes of their report. In this connection, I attach little weight to Mr Barrett’s evidence that, if NWB expressed a preference that information should not be disclosed coming from a client such as NWB, he treated it as “an instruction”. No doubt, as with many professionals, maintenance of the goodwill of a particularly valued client would lead Mr Barrett to take very seriously words which, properly construed in context, were no more than an expression of opinion. If he chose to treat what was said as controlling the exercise of his professional duty, that would be due to a decision aimed at the maintenance of good client relations on his part, as distinct from the proper construction of Mr Hamilton’s words.

The understanding of Mr Barrett and Mr Hargrave of what was said to them by Mr Hamilton was such that neither of them suspected that NWB had anything material to hide from PW and their belief was that NWB was participating in the workout in a normal manner and in particular was not acting in a deceptive manner by holding back information material to their mandate.

Following the 29 August 1996 meeting it was the policy of Rabobank to await the first part of the PW report before deciding what if anything to do about putting up further funding for YFG.

On 31 August 1996 the BL repayment days of grace expired with the loan remaining unpaid. It was then repayable on demand. However, as appears from Mr Matthew’s message to Mr Haley of 4 September 1996, there was still not yet an agreement by Travelers Insurance to provide funding for White Rose in substitution for the BL. The problems of structuring the White Rose project to maximise water rights continued to obstruct obtaining new funding. On 5 September 1996 there was a meeting at Bradford between Mr Catton and Mr Haley at which there was discussion of the BL and when it might be repaid. In a letter dated 9 September Mr Haley told Mr Catton that an application for term loan facilities to Travelers had received a favourable response “verbally” and that it was intended that Stage 1 of that loan would be drawn down by October 1996 against security over the land and Stage 2 in March 1997 against security over the land and developed orchard. By March 1997 it was estimated that the market value of the developed orchard land would exceed the costs by US$2.6 million. Mr Haley also requested an increase in lending for Mr Firth against the security of his recently acquired residence, Oaklands at Whixley. Although, Mr Catton had only on about 29 August apparently been told that the BL would respond in 14 days time, his evidence was that the change in Mr Firth’s position indicated by Mr Haley’s letter did not cause him to distrust his customer: he simply trustingly took what he was told at face value. In my judgment, the evidence of Mr Catton’s management of the directors’ loans from his letter of 29 August 1996 does not lead to the conclusion that NWB was imposing real pressure on Mr Firth or the others for repayment. He was doing no more than adopting a relatively accommodating, albeit basically firm attitude to the outstanding loans.

Meanwhile on 6 September 1996 YFG (Mr Atkinson) wrote to PW giving formal instructions to carry out an independent business review of YFG. It set out terms of reference virtually identical to the NWB terms of reference tabled at the 29 August meeting. The letter is annexed to this judgment at Appendix 2.

On 12 September 1996 there took place a telephone conversation between Mr Davies and Mr Catton upon the latter’s call “to compare notes”. Matters discussed included, according to Mr Davies’s note:

For similar reasons, I reject the submission that for Mr Catton to raise the question of Mr Morgan’s future with YFG or Mr Firth’s view about Mr Haley’s management suitability was an implied representation that there were no other material facts relating to the suitability of those individuals or of any other directors including Mr Firth. Mr Catton may not have wished to disclose such facts or he may not have recognised them as material.

Neither piece of information imparted by Mr Catton as to Mr Morgan or Mr Haley comes anywhere near the concept of half-truth in the sense of being intrinsically misleading.

For these reasons I do not find that there was any representation of the facts as pleaded at MSC paragraph 114 in relation to Misrepresentation (8).

According to the evidence of Mr Davies, on about 12 September 1996, in the course of a separate telephone conversation, Mr Catton mentioned to him “in passing” that Mr Firth had a mortgage loan with NWB secured by shares in YFG. Whereas Mr Davies said that this taken alone was not surprising, he was entitled to treat that comment as an implied representation that NWB knew of no related facts which were material to the workout, in particular that there was the BL, that it was in default, that it was secured by a deposit of a substantial number of YFG shares and that the purpose of the BL was to enter into the White Rose Project by the purchase of the almond farmland. Mr Catton had no recollection of this conversation and Mr Davies had no note of it, although he had made a note of Mr Catton’s call “to compare notes” on about the same day. Mr Catton conceded in cross-examination that if he did give that information to Mr Davies his omission to mention the related Material Information would make what he said misleading or potentially misleading. However, he thought that he did not have the conversation because he was being, as he put it, “ambivalent” as to the knowledge that Rabobank had in respect of NWB’s lendings to the directors and any such conversation would have been a much more developed one under the authority of the directors’ agreement.

There is no evidence as to the remainder of the content of the alleged conversation or as to the context of the conversation in which mention was made of the personal loans. The description of the comment by Mr Catton as being made “in passing” suggests that it was not made in answer to any specific question from Mr Davies which might have formed the basis for the construction of intrinsic half-truth misrepresentation. That is not suggested. The implication of misrepresentation has therefore to be founded on context contributed by invariable market practice or prior inter-bank agreement which I have held earlier in this judgment did not exist. Accordingly, Rabobank do not establish that this comment gave rise to any implied representation as to the non-existence of further material information or in particular as to the non-existence of the matters relied upon for the purposes of Misrepresentation (9). Whether what passed from Mr Catton amounted to a representation which Mr Davies was justified in relying upon is above all a matter of construction of the statement in the context in which it was made. As to this, Mr Catton’s answers in cross-examination are as irrelevant as if he had been asked what he thought was the meaning of a written contract which he had negotiated, for the purpose of establishing that NWB was in breach of it.

Meanwhile, pending the first part of PW’s report, both the Banks were at one in requiring that YFG should provide security in view of its existing breaches of Credit Facility covenants and its need for further fundings. Rabobank’s current thinking is recorded in Mr Davies’s Quarterly Loan Strategy Report dated 16 September 1996 in which Rabobank’s strategy was defined thus:

On 18 September 1996 a meeting took place between the Banks and PW. NWB was represented by Mr Hamilton and Mr Cresswell, Rabobank by Mrs Parsons, Mr Davies and Ms Hanley and PW by Mr Barrett and Mr Hargrave. PW reported that in order to reduce working capital requirements YFI had decided to reduce its purchases of the new 1996 Crop. Even so, the working capital requirement to the end of December estimated by the company was US$9 million and YFG was also seeking funding to the extent of US$3 million for the Berisford redemption (see paragraph 116 above). PW stated that it was comfortable with the figures but the progress of the full investigation had been delayed by the company’s failure to complete the 3 year projection.

In consequences of this and the PW report Rabobank internally approved increased lending to YFG of US$4.5 million on the basis of an equal share with NWB. This was approved by the RICC on 24 September, but only up to 30 November, by which time it would be reconsidered in the light of PW’s full report. Mr Hamilton also sent a memorandum to Mr Havelock applying for additional funding of US$4.5 million available until the end of September 1996. He observed that there was no further news about any increased equity solution to the Group’s problems and that Mr Barrett thought that this would take at least six months. He summarised the position thus:

It is to be observed that this note contains no suggestion that Mr Hamilton was concerned that Rabobank would abandon ship leaving NWB with the choice either of saving a severely under-capitalised Group or allowing it to collapse.

Mr Havelock agreed to authorise the increase in funding, but added a manuscript note:

By 19 September 1996 YFG was finding itself in a very dangerous position with regard to the Berisford redemption. Berisford was threatening to release adverse publicity unless YFG honoured its redemption commitment. Some US$4 million was due. In a letter dated 19 September 1996 to both banks Mr Firth expressed great concern as to the Banks’ reluctance to finance this debt. He made the point that, if Berisford exercised its rights to take shares in YFG at a discount and sell them on the market, that would have a very serious effect on YFG’s standing in the market for it would be believed by growers that it could not pay its way and that would badly damage the company’s business. In a further letter by fax dated 19 September 1996 Mr Haley raised with Rabobank, NWB and PW the problems arising out of the threat presented by Berisford and the possibility of Dole Food Company Inc (“Dole”) seeking to acquire a controlling interest in YFG. Advice on those problems was received by Mr Hamilton from Mr Barrett of PW in a letter dated 20 September 1996 which Mr Hamilton requested that PW should copy to Rabobank.

In the meantime, Rabobank were also taking advice on the Berisford problem. On the previous day RNY had offered to act as its exclusive financial adviser and exclusive agent for the purpose of marketing a majority or minority equity interest in the company. This was to be Mr Gormley’s area of responsibility. The formal agreement between RNY and YFI was signed on 28 October/1 November 1996. In the interim Mr Gormley was in touch with Mr Davies by a memorandum of 20 September in which he raised concerns for the future standing of YFG if the Berisford problem were not resolved in YFG’s favour. He also mentioned that RNY was trying to obtain appointment as YFI’s financial advisers and placement agent, the scope of the proposed recapitalisation being contingent on the results of a proposed equity value analysis. That opportunity represented an attractive business proposition for Rabobank “given the potential fees and profile of the transaction in the marketplace”.

On 20 September 1996 Mr Catton and Mr Davies discussed by telephone YFG’s request for funding of the Berisford redemption. Mr Davies said that Rabobank was intending to decline the request and tell YFG management to find the money elsewhere, possibly with the help of RNY. Mr Catton said that he had no appetite for supporting the Berisford redemption, that he needed to have a better understanding of whether, were the Banks to decline the request, that might cause their position to deteriorate but that, depending on the answers given by the management and the company’s advisers and on the advice as to the possible effects of Dole acquiring more of the equity, he could probably be persuaded to support the redemption against “appropriate fee returns” and in return for action by management to improve working capital inflow to provide a payback.

I interpose that this response, in my judgment, exemplified a level of cautious and focused professionalism on the part of Mr Catton shown by much of his style of management on the evidence in this case.

On 24 September 1996 PW sent its interim report to YFG and to Mr Hamilton and Mr Catton. Its projections showed a US$9 million cash flow shortfall which could be repaid by the end of December 1996.

In a letter dated 24 September 1996 to the Banks and PW, Mr Haley reiterated the requested by YFG for funding of the Berisford redemption. The letter was sent to Mr Catton, Mr Davies, Mr Barrett and Mr Southern of Coopers & Lybrand with a request that it should be forwarded to Mr Cresswell. It was also copied by Mr Hamilton to Mr Havelock who was currently away from the office. The letter emphasised the importance of avoiding the appearance that YFG was undergoing a liquidity crisis – by reference to the effect on the YFG share price and to the effect on the growers’ goodwill in the United States. As to the possibility of Mr Firth and the management of YFG buying out Berisford for cash, the letter stated

On the following day (25 September 1996) Mr Catton and Mr Davies discussed this letter in a telephone conversation. Mr Catton’s note, which was faxed to Mr Hamilton, the next day, indicates that Rabobank would decline to provide funding for the Berisford redemption, although Mr Davies personally did not agree with that policy. The note sets out arguments some of which support the provision of additional funding. It also records discussions between Mr Catton and Mr Haley in which there was an offer of further security of 2.4 million shares currently held in the names of Mr Firth’s and Mr Haley’s wives. This note contains no reference whatever to the White Rose Project or to the BL.

Rabobank asserts and Mr Davies states in his witness statement that Mr Catton misrepresented the facts by failing in the course of their conversation on 25 September 1996 to disclose that the letter of 24 September from Mr Haley was untrue or at the lowest economical with the truth, for it gave the impression that the personal loans to directors were only for the purpose of purchasing homes or shares while failing to disclose that they had in part involved the BL for the White Rose project. Nor did the letter or Mr Catton in the conversation disclose that the loans were in default. Nor did the letter disclose that the directors owned assets other than YFG shares, in particular their interests in White Rose. Accordingly, Rabobank submits, Mr Catton’s failure to disclose those matters gave rise to implied representations that, in summary, NWB had no other information relating to those specific matters which was material to the workout.

In determining whether anything said by Mr Catton in the course of that conversation amounted to a representation to the effect relied upon or at all, on which Mr Davies was entitled to rely, it is necessary to investigate the content of the conversation. The mere fact that the letter was the occasion for the conversation is not in itself and without more an adoption by Mr Catton of its contents as true or as comprehensive or even as not containing half-truths. Only if in the course of the conversation Mr Catton had so conducted himself as to adopt expressly or impliedly the correctness of what Mr Haley had written could it be said that Mr Davies was entitled to rely on Mr Catton’s endorsement of the content of the letter. In the course of his cross-examination Mr Davies said this:

In my judgment, it is to be inferred that in the course of that telephone conversation there was discussion of various ways in which the Berisford redemption might be funded, including funding by the directors out of their own resources. It is, however, impossible to reach any conclusion as to whether express reference was made by Mr Catton to the paragraph in question either at all or, if so, in terms which represented that NWB adopted its contents as true, to the effect that Rabobank would be entitled to rely on NWB’s representation as to that. A fortiori, it is impossible to infer that the scope and effect of any such representation was impliedly to inform Rabobank that there was no other related material information. For any such representation to be established it must be shown in precisely what context the letter was put forward by Mr Catton so that if it contained intrinsic half-truths he adopted them and, if it omitted other material information, his adoption of the letter was such as to demonstrate that such information did not exist. There being insufficient evidence of the context of the conversation and, as I have already held, no overarching agreement or invariable banking practice to disclose all material information, I conclude that no representation was made in the terms pleaded in MSC Misrepresentation (10).

On 29 September 1996 the Banks wrote jointly to YFG declining to fund the Berisford redemption, but repeating their preparedness to provide jointly US$9 million in support of working capital subject to suitable security being executed and agreement of financial terms.

On 27 September 1996 Mr Hamilton wrote an ‘internal memorandum’ to Mr Havelock, copied to Mr Side, in which he explained the decision by both Banks not to fund the Berisford redemption. Under the heading “The main options the management have highlighted are as follows” he included a reference to Mr Firth and the management buying the Berisford position for cash but then explained why this was impossible by copying out the wording of the paragraph from Mr Haley’s letter of 24 September (see paragraph 224 above).

On 30 September 1996 Mr Catton sent an internal memorandum to Mr Cresswell which was to give him “a reasonable understanding” of NWB’s exposure to the directors and its “reliance on Almond Shares”. He enclosed a schedule dated 16 August 1996 showing details of the private borrowers, their borrowings and the security cover. This included £770,000 borrowed by the MRF Trust (the BL) and the current value of the security of 2,790,000 YFG shares (£1,255,500). Also included was a credit paper of 6 September 1995 relating to proposed additional borrowing by the Trust supported by Mr Skelley. There was also the credit paper of 29 April 1996 relating to the acquisition of Oaklands, as well as Mr Catton’s letter of 29 August 1996 to Mr Firth and Mr Haley’s letter in reply dated 9 September 1996. Mr Catton referred to Mr Haley’s reference to the proposal for refinancing the BL having received a favourable response verbally (from Travelers Insurance) see paragraph 72 above). As there appeared to have been little progress on this, Mr Catton had that day requested a paper from Mr Cresswell setting out in detail the state of play on refinancing. He requested a conversation with Mr Haley to discuss these borrowings.

Mr Cresswell speculated in cross-examination that he probably requested that report in case he was asked any questions about the private loans because it was material to an assessment in NWB’s books as to the creditworthiness of those loans. He did not accept that he needed that information for the purposes of taking decisions on the workout.

Mr Catton said in cross-examination that he thought that he sent the memorandum to Mr Cresswell because it would have been good order for him to do so, by which he meant “for awareness and courtesy”.

Mr Hamilton said in evidence that the 30 September 1996 letter and enclosures, he thought, came to his attention on or shortly after that date, although he had no recollection of receiving it. However, he was never concerned to work out NWB’s exposure to the directors’ loans since it was not under his control.

On 3 October 1996 YFG signed and executed the First Supplemental Agreement to the Credit Facility under which the Banks each advanced US$4.5 million to YFG.

On 9 October 1996 Mr Hamilton sent an internal memorandum to Mr Havelock on the subject of the Directors’ Private Borrowings. Attached to it was a revised edition of the 16 August schedule. It showed total borrowings of £3,636,400 against total value of YFG shares as security of £4,314,600. The BL is again included and described as (“to be refinanced”). The memorandum in note form includes the following recommendations:

I find that the memorandum was probably prepared by Mr Hamilton in response to a suggestion from the Leeds office, probably Mr Catton, that CSS should take over the management of the private borrowings but that Mr Hamilton was unwilling to do so due to lack of experience and those above him, with whom he must have discussed management of the private borrowings, put forward the suggestions in the memo for putting to Mr Catton who would put forward proposals on how to manage the private borrowings and then meet Mr Yates to discuss them. The disinclination of CSS to become directly involved was, I infer, the result of their regarding private borrowing issues as below the level of importance of their usual operations and outside the scope of their experience and had nothing to do with a perception of conflict of interest arising from personal loans being secured on YFG shares.

On 18 October 1996 PW issued its Interim Report on YFG. It showed that the YFG cash flow as forecast to 31 December 1996 had deteriorated since the August 1996 memorandum. Management was currently re-working the forecasts and PW proposed to review them as soon as they became available. In the main body of the Report reference is made at paragraph 1.33 to management’s having identified an imbalance between the level of corporate debt and the equity position and to the fact that it is impractical for the company to maintain its borrowings in the UK now that its core operations are in California. Under the heading “The Group’s current shareholding position” (paragraph 1.35) there appears the following:

It is Rabobank’s case that this statement was untrue: management was not contemplating acquisition of farmland by YFG but had already acquired such farmland personally through the medium of AF I and AF II and White Rose Farming. It is submitted that, by discussing this Report with Rabobank without reservation or qualification at a meeting on 24 October 1996 attended by Mr Firth, Mr Haley and Mr Atkinson of YFG, Mr Cresswell, Mr Catton and Mr Hamilton of NWB and Mr Davies of Rabobank, together with PW, Mr Hamilton and Mr Catton impliedly represented that Appendix 18 was accurate as far as NWB was aware and that it knew of no other material information as regards Appendix 18.

The analytical exercise required in order to ascertain the effect of the 24 October 1996 meeting is similar to that called for in relation to the discussion between Mr Catton and Mr Davies as to the letter of 24 September (see paragraph 227 above).

There were two distinct meetings on 24 October 1996: the first attended by the Banks’ and PW’s representatives and the second by the Banks and YFG. PW provided a revised cash flow projection to the end of December 1996 which indicated a worsening situation. The Banks’ additional US$ 9 million facility could not be repaid by then. Indeed, the latest projection showed a US$ 10.5 million shortfall by then. Not surprisingly, both the Banks were extremely concerned at the unreliability of the company’s projections. In my judgment, the evidence suggests that their focus of attention had a short horizon. The seriousness of YFG’s position to which the attention of both the Banks was directed was due to the prospect that the Group would be likely to run out of cash before its revenues could be replenished by sales of processed product in 1997.

The misrepresentations said to have been made by NWB in the course of this meeting are of two distinct kinds: (i) that the PW report was accurate, as far as NWB was aware, in relation to the paragraph in Appendix 18 and (ii) NWB had no other material information as regards Appendix 18. Thus (i) involves an implied representation as to NWB’s belief in the accuracy of the Appendix 18 paragraph and (ii) involves a wider representation that NWB knew of no other Material Information relating to that paragraph. The latter therefore involves an implied representation that there was no related Material Information, such as the BL and the White Rose Project, known to NWB.

With regard to what passed at the meeting, it is common ground that the PW report was discussed as well as the most recent cash flow projection. I infer that, although the presentation by YFG at the second meeting concentrated on longer term issues going to the capitalisation of the Group, the dominant concern of the Banks was whether YFG could go on trading up to 31 March 1997, particularly having regard to the extremely tenuous cash flow position exemplified by an immediate crisis involving the threatened non-payment of cheques drawn in favour of growers on the Group’s account at Fleet Bank, where YFG had exhausted its overdraft facility, and further by the on-going negotiations with Berisford over the Berisford Redemption. The contemporary notes of what was discussed strongly suggest that neither Bank would have paid any significant attention to the proposed future acquisition of almond farms and that therefore nobody present would have mentioned that subject, even if they had troubled to read Appendix 18. It is therefore unsurprising that Mr Davies could not remember whether the subject was discussed or whether he had noticed the reference to management contemplating acquiring farmland. His evidence was further that, although he would have expected NWB to have read the report in fine detail beforehand, he would not have expected NWB to have gone through it to check it against their files for accuracy, which was not something Rabobank had done. Nor did he think at the time in terms that, by discussing the PW report, NWB would be representing that, as far as they knew, everything in the report was accurate.

Mr Catton’s evidence was that he could not remember whether he had read the report cover to cover. Nor did he remember what was discussed at the 24 October meeting, except by reference to the contemporary notes. However, he accepted that if he had seen anything significantly wrong while reading the report he would have corrected it at the meeting.

Mr Hamilton had stated in his deposition evidence that he would have read the report in great detail. In this trial his evidence was that he could not recall the 24 October meeting and he was not even sure that he had read Appendix 18.

I find that the paragraph in Appendix 18 was not discussed at the meeting and further that neither was there any discussion of the subject-matter covered by that paragraph. I further find that in the context of the discussions at the meeting the Rabobank representatives were not entitled to assume that those representing NWB adopted as accurate the contents of that paragraph. There was no basis for Rabobank to infer that, with regard to the subject-matter covered by Appendix 18 which was not mentioned in the course of discussions, that NWB’s failure to introduce a correction or explanation represented that it adopted the report as accurate in relation to that subject. I further find that NWB made no implied misrepresentation that it had no material information relating to the acquisition of almond farms (as distinct from the inaccuracy of Appendix 18). This last conclusion is founded on the absence of any overarching agreement for mutual disclosure of material information (see paragraph 68 above) and on the absence of any invariable banking practice as to such disclosure in a workout.

It follows that I find that NWB made no implied representation as pleaded in the MSC as the basis of Misrepresentation (11).

On 25 October 1996 Mr Catton sent to Mr Yates, Regional Head of Corporate Credit for the North Region, a request to be permitted to approach the private borrowers in order to attempt to improve NWB’s security support and to seek specific repayment proposals from some of the borrowers. In an enclosed Positioning Paper Mr Catton succinctly identified the problems faced by NWB with regard to the personal borrowings, namely valuation of the YFG shares, then trading at 49p, which had been deposited to secure the borrowings and the illiquidity of the market for their disposal. It was thus very difficult to find a solution to the directors’ borrowings until the problems of YFG itself had been solved, for the ability of the directors to repay the borrowings was dependent on a recovery of the corporate share price and that would take a minimum of six months. He records that from separate discussions with Mr Firth he understands that formal credit proposals for refinancing the BL are expected to be received during the course of the next two weeks.

As appears from a fax dated 25 October 1996 from Mr Hamilton to Mr Barrett of PW, those at NWB were deeply dissatisfied by the failure of PW and management to produce a comprehensive account of YFG’s cash flow position. He had discussed the “current precarious situation” with Mr Side who agreed that PW should revisit YFG the following Monday “to get behind the cash flow issue”.

On 28 October 1996 Mr Gormley of RNY wrote to YFG (Mr Haley and Mr Helfer) confirming that RNY had been engaged to perform a financial analysis, including an equity analysis relative to sale of a minority equity interest and a majority equity interest in YFG. Subject to some qualifications Rabobank undertook to keep the terms of the letter and of information supplied confidential. This agreement had been signed by both parties by 1 November 1996.

On 29 October 1996 Mr Catton wrote to Mr Haley a letter marked “strictly private and confidential” headed “Re Directors’ Private Arrangements”, which began:

PW’s further meeting with YFG management produced a further serious deterioration in the position of YFG as recorded in Mr Davies’s note dated 4 November 1996. A group loss of £18 million was now tentatively forecast and there was no chance of the $9 million advance being repaid to the Banks in full by 31 December.

On 4 November 1996 Mr Hamilton reported to Mr Havelock and Mr Cresswell on the meeting of 24 October with PW. The note indicates Mr Hamilton’s belief in the inadequacy of the cash flow advice received from PW. It also outlines a further proposal that the Banks should fund the Berisford Redemption by advancing $1.3 million. Mr Cresswell added a note about the unsatisfactory nature of PW’s performance and commented that Mr Firth, having apparently let go of the Group during the last two years, recognised that he would have to provide hands-on leadership again. It is to be observed that all concerned at NWB were concentrating on the corporate cash flow problem. There is no suggestion in any contemporary documents that there was any belief that the directors’ private borrowings or the fact that the BL was overdue for repayment had any bearing on that major problem.

On 6 November 1996 YFG issued a press release warning that the Company was likely to make substantial trading losses in its US operations in the second half year. It would pay no final divided in the current year to 31 December 1996. Mr Morgan had resigned as Group Financial Director, to be replaced by Mr Haley. Mr Firth would resume as CEO. In the result the quoted price of YFG shares fell on 7 November from 42.5p to 28.5p.

On 11 November 1996 Mr Barrett of PW sent a formal report on YFG’s cash requirement until 31 December. The covering letter began with the startling statement:

On 11 November 1996 PW issued to YFI and the Banks a report containing summary information as to YFG’s cash flow requirements. It sought to qualify and explain the reasons for the deterioration in the cash flow position. It was sharply critical of management’s “controls on commitments within the Group and its ability to control these costs in a tight cash environment”. The report explained the need for the yet further funding of US$5 million. On 12 November Mr Hamilton assisted by Mr Catton provided a memorandum to Mr Havelock copied to Mr Side, in which he commented on PW’s latest report, observing that, whereas at 31 July 1996 security for YFG’s total bank borrowing had been shown as £44.1 million against £51 million indebtedness, the position at the end of October was that the Banks’ security was only valued at £24 million, taking into account growers liens over un-paid for crops, against total indebtedness of £53 million.

The gravity of the situation as viewed by NWB is reflected in the postscript added to this memorandum by Mr Cresswell:

On 13 November 1996 Mr Haley wrote to Mr Catton with proposals as to further securing and repaying the personal borrowings. These proposals included sale of the White Rose farmland so that the proceeds could be used to pay off the BL and other personal borrowings. Mr Catton explained the reference by Mr Haley to keeping his comments brief for the reasons discussed on the telephone as a reflection of the confidentiality of information as to the private loans to some of the directors. He also stated that Mr Haley’s statement that refinancing of the farmland purchase by Travelers would not be pursued by Mr Haley in order to permit him to concentrate on the management of YFG would have made sense to him at the time.

On the same date (13 November 1996) PW issued its report on the quality of management of YFG. Its effect was to endorse the combination of Mr Firth as CEO with Mr Haley as CFO, provided that Mr Firth had the time to commit itself whole-heartedly to the US operations of the company. The references in this report to cash difficulties are directed exclusively to the problems of YFG and have nothing to do with the White Rose project. Similarly, the evaluation of the quality of management is exclusively directed to the ability of management to deal with YFG’s cash flow problems and profitability. PW’s remit was urgently to assess management skills in the context of a deteriorating shortfall in working capital. In the circumstances, it is hardly surprising that the scope of the focus of Mr Barrett and Mr Hargrave did not encompass the directors’ relatively collateral personal borrowings. The latter would have appeared to PW to be wholly irrelevant to their work under the Terms of Reference. They were aware of no facts which suggested that the existence of the personal borrowings would prejudice the recoverability of the corporate indebtedness.

According to Mrs Parsons, she discussed the management report with Mr Hamilton, with whom she agreed that Mr Morgan ought to be dismissed for incompetence and because of a suspicion raised by PW that he might be making deliberate errors. Mr Hamilton could not recall this meeting or discussion or PW’s report, but he thought that there would have been a discussion of the report. Mrs Parsons’ evidence was in substance that the discussion of the inadequacies of Mr Morgan and of the qualities of the others mentioned in the PW report amounted to an implied representation by NWB that it had no material information which suggested that any of the remaining directors were lacking in integrity and that it knew nothing to suggest that PW had been deflected by NWB’s instructions from investigating the directors’ personal borrowings. Her complaint was that in as much as PW was reporting on the directors’ efforts to solve the cash flow problems of YFG, it was only to be expected that Mr Hamilton would refer during their discussions to the directors’ personal financial problems in relation to repayment of their personal borrowings, particularly the BL.

The implication of such a representation could be made good on the grounds of intrinsic half-truth but not with regard to any overarching agreement between NWB and Rabobank or invariable banking practice as to full disclosure. In order to make good an intrinsic half-truth the content of the discussion between Mrs Parsons and Mr Hamilton would have to be identified in order to ascertain whether what passed in the course of their conversation implicitly invested Mr Hamilton’s comments about the report generally or the management, including Mr Morgan, in particular, with the further statement that there was nothing else material known to NWB which related to the directors such that Mrs Parsons was entitled to assume that NWB was inviting reliance on that implication. Mrs Parsons, however, could not remember the detail of the conversation with Mr Hamilton.

The absence of any evidence as to the detailed content of any conversation between Mrs Parsons and Mr Hamilton leaves this court without any express positive representation, other than a general discussion of undefined contents of the report with the common expression of opinion that Mr Morgan ought to be dismissed for incompetence, which would provide the foundation for a misrepresentation by half-truth that involved an implied representation that that which was expressly represented was both literally accurate as far as it went but, because it was incomplete, was a misleading statement of the whole truth. The emphasis was, I infer, clearly placed on the twin specific topics of the ability of management accurately to forecast cash flow and so to run the operating companies so as to engender greater profitability. It is indeed hard to envisage that, without evidence of conversational context, comments by Mr Hamilton as to such subjects would be rendered misleading so as to amount to misrepresentation because of the omission to open up information as to the outstanding BL or other indebtedness or as to the White Rose Project. Accordingly, I do not find that any such representation was made.

In my judgment, the only assumptions that Mrs Parsons was justified in making as a result of Mr Hamilton’s participation in the discussion of the report was that he personally was not aware of any positively inaccurate statement contained in the report and that he was not aware that NWB had procured PW not to report on matters which in PW’s discretion were regarded by PW as proper to be investigated under the terms of reference. However, by reason of the Paragraph 168 Considerations, she was not entitled to assume that Mr Hamilton’s omission to mention in the course of this discussion any additional Material Facts was a representation that none existed.

It follows that I do not find that there were implied representations of those facts relied on by Rabobank as the foundation of Misrepresentation(12) in the MSC.

On 15 November 1996 Mr Catton discussed with Mr Yates and Mr Potts of NWB in Leeds the information in Mr Haley’s 13 November 1996 letter (see paragraph 258 above), Mr Catton noting in his memorandum of 18 November that the farmland was now to be sold, that the issue of marketability needed exploring and that, the directors having originally invested $0.1 million each, letters of intent ought to be taken where appropriate to ensure the original investments were used to repay NWB.

On 25 November 1996 Mr Catton wrote to Mr Haley setting out the requirements for additionally securing the personal borrowings. These included: transfer of two properties into Mr Haley’s name with mortgages in NWB’s favour in support of his private borrowings as well as a letter confirming that his equity in his home in California could be used to reduce his indebtedness when the house was sold in the Spring of 1997; Mr Firth pledging more shares in YFG to secure Mr Atkinson’s personal borrowings; the farmlands to be valued for the purposes of a mortgage; Mr Firth’s new house, Oaklands, was to be put on the market in February 1997 if a “corporate solution was not clear and he was unable to see affordability”; Mr Firth had agreed to pledge all his remaining shares in YFG, to be executed in the week of 2 December.

On 11 December 1996 Mr Catton wrote to Mr Haley acknowledging receipt of various documents going to security of the private borrowings but also requiring urgently the appraiser’s valuation of the farmland and “your proposals for dealing with realisation of your investment and repayment of the White Rose facility”. Mr Firth had that day indicated that Mr Catton would receive the papers in the next 24 hours.

On 15 December 1996 Mr Haley sent to Mr Catton a valuation of the almond farms as at 12 November 1996. This valued the farms currently at US$3.98 million and as at 1 January 2001 at US$10.6 million on an as-to-be completed basis. It was on the basis that the first almond crop would be produced in 1999 and the first economic crop in 2000. The development costs were put at US$3.558 million to be incurred in 1997.

In the meantime, on 12 December 1996 a meeting took place between PW (Mr Barrett and Mr Hargrave) and Allen & Overy to discuss the security arrangements for the corporate loan. Allen & Overy’s note of the meeting included under the heading “conclusion” the following as subsequently corrected in manuscript:

On 13 December 1996 Mr Yates sent a Special Report to Mr Side on the “Project Almond Directors”. The covering letter observed:

Although critical of the circumstances in which the directors’ loans were made in the first place, referring expressly to an anticipated sale of that land to pay off indebtedness to NWB, it contains no suggestion that the BL was advanced for an unlawful purpose or that any of the directors had improperly participated in the acquisition of the farmland;

It nowhere suggests that the existence of the personal loans could adversely prejudice the recoverability of the corporate loan.

On 16 December 1996 Mr Hamilton sent a memorandum to Mr Havelock to which he attached Allen & Overy’s review of the security applicable to the corporate loan. The memorandum noted the issues relating to Chapter 11 bankruptcy and set out recommendations for the strategy to be adopted at the forthcoming meeting with YFG. Mr Hamilton considered that much depended on what proceeds might be derived from YFG selling the dried fruit business. On that they would have to await a marketing report from RNY. He concluded:

The problem of the Berisford Redemption remained unsolved and on 17 December 1996 YFG informed the Banks and PW that Berisford intended to commence sequestration proceedings against YFG’s assets in the California courts on 23 December.

On 17 December 1996 PW issued its Second Report on YFG’s financial position. The whole group was predicted to sustain an EBIT loss of £16.5 million for 1996 and a positive EBIT for 1997 of £6.451 million. However, the cash flow forecast for 1997 showed a cash requirement in excess of current facilities of £4.9 million in February 1997, reducing to £1.5 million in May 1997. Although PW considered that YFG had taken a great deal of care in its forecasts, PW entertained concerns that, due to price and marketing uncertainties, the 1996 loss could rise to £24.1 million and the report ended with the ominous words:

On 18 December 1996 there took place at Rabobank’s London offices a meeting between YFG (Firth, Haley, Atkinson), NWB (Havelock, Catton and Hamilton), Rabobank (Cunningham, Davies and Parsons), RNY (Gormley and Barr) and Coopers & Lybrand. One of the purposes was for RNY to give a presentation as to the value of YFC and Treehouse. RNY valued YFC at US$50-60 million and Treehouse at US$30-36 million. Their recommendation was to sell YFC in March/April 1997 and to run Treehouse for cash and sell it later in 1997. It was considered by the Banks and RNY that, if YFG filed for Chapter 11 bankruptcy, those values would reduce and the Banks would lose control of the sales. The values given by RNY were based on limited due diligence to date. The Banks agreed that YFC should be marketed as soon as possible in January 1997 with the object of finalising sale by the end of February and that Treehouse should not be marketed until after its crop position and financial performance would be better defined. Decision-taking by the Banks was again hampered by the fact that YFG presented them with cash flow requirement forecasts substantially above those set out in the PW Second Report. Mr Hamilton’s note of the meeting sent to Mr Havelock on 20 December 1996 recorded the need for PW to review the latest forecast but also identified the undesirability of allowing YFG to go into Chapter 11, thereby diminishing the asset realisation that could be achieved by sales in the ordinary course. Whereas his note identified the need to limit further funding by the Banks, it was recorded that NWB confirmed to Rabobank that it was willing to provide half of US$1.3 million in order to enable YFG to reach a settlement with Berisford on the basis of an interim payment which would avoid the potentially damaging consequences for sale of the businesses of Berisford bringing proceedings in the US courts. It also recorded that, in order to effect such sales, the continuing support of the Banks would be essential in February 1997 when the cash flow shortfall would peak. In the event, the Banks’ firm line on the provision of further funding caused YFG to find the US$1.3 million for the Berisford Redemption out of its own resources.

Inside Rabobank not everybody believed in the proposals put forward for sale of the businesses. Mrs Parsons discussed RNY’s presentation with Mr Stevens of Rabobank Dallas in the United States. They agreed that the sale scenario seemed “too optimistic given current operating results and the market for YFG’s products.”

On 9 January 1997 Mr Stevens sent an email to Mrs Parsons in preparation for the forthcoming visit by the Banks to inspect the Group’s businesses in California. It included detailed comments on the appraisal of the businesses to be sold and included:

By 9 January 1997 Mr Hamilton had been informed by Mrs Parsons that Rabobank had increased its provision to approximately 50 per cent of the corporate indebtedness. I find that it would be unusual in the ordinary course of a workout for one bank to inform the other of the extent of its provision.

On 13 January 1997 Mr Haley sent to Mr Davies and Mrs Parsons, Mr Hamilton and Mr Catton, as well as to Mr Barrett and Hargrave, a letter concerning the cash requirements of YFG up to 29 August 1997, thereby covering the trading outcome for 1996 crop. The explanatory letter indicated that there would be a need for cash flow funding of US$ 11 million during the period 28 February to 28 March 1997 which by deliberate payment delay might be limited to US$8-9 million. It suggested that interest payments might be delayed and stated that their additional cash facility could be repaid by the end of May 1997. Attached to the letter as Appendix 1 was a weekly cash flow by actual from 1 November 1996 to 3 January 1997 and by forecast to 29 August 1997. That Appendix included a schedule showing Treehouse grower payments as at the beginning of 1997, and included an entry for “White Rose” in the sum of US$42,148. The total of payments shown is US$7,987,169. Rabobank pleads in the MSC, paragraph 153, that this was material information because Mr Catton and Mr Hamilton must have known that there was no legitimate reason why Treehouse should be paying White Rose as a grower. Rabobank relies on Mr Catton’s description of the proposed trading function of White Rose as the beneficial owner of the farmlands set out in his credit paper of 29 April 1996 with regard to his recommendation of the BL. Under cross-examination Mr Catton stated that by January 1997 he was taking little part in consideration by NWB of most of the discussions with YFG management and certainly of the regular information about cash flow. CSS was more concerned with that material than he was. Therefore, although he did not recall seeing the letter, he would be surprised if he did not pick out the headlines but he would be staggered if he had read any of Appendix 1 and even if he had looked at it, he did not believe he would have noticed the White Rose payment. Mr Hamilton stated in cross-examination that he could not recall reading through Appendix 1 but, as it related to cash flow, he would probably have looked at the total payment and also at the larger individual entries and might have discussed those with Mr Haley. Mr Thompson expressed the view that it would be exceptional if a workout banker had the time to go through each separate payment item in the Appendix. He stated that as a banker he would be much more interested in the total figures for cash requirements in the letter than in the constituents.

I find that it is more likely than not that neither Mr Catton nor Mr Hamilton noticed the White Rose item. It is a relatively small entry in a long list and represents but 0.53 per cent of the total. The likelihood of Mr Catton having looked at any of the separate constituent items are negligible and the chances of Mr Hamilton having noticed this item, even if he looked at some of the larger ones, are even more remote. Even if Mr Hamilton had noticed this item it is highly improbable that it would have alerted him to anything improper.

On 15 January 1997 Mr Haley wrote to Mr Hamilton and Mrs Parsons asking for further funding of US$500,000 to enable YFG to honour outstanding cheques. On the following day Mrs Parsons and Mr Hamilton agreed to a temporary increase in funding as requested.

In the course of 20-22 January 1997 the Banks (Parsons, Davies and Stevens for Rabobank and Hamilton for NWB together with PW) visited California when they met YFG (Firth, Haley and McGonigle). In the course of that visit there took place very full discussions between Rabobank and NWB, some of them with Mr Firth, as to the causes of YFG’s difficulties. No mention was made of the White Rose Project. It emerged that there were to be delays in marketing YFC on account of the need to re-write the sale memorandum to enable various assets to be removed from YFC before it was sold.

On 22 January 1997 Mr Barrett prepared an internal note for Mr Hargrave and sent it to both him and Mr Cresswell. In it he recorded that he had suggested to Mr Cresswell that there should be a meeting between PW and NWB to discuss options, given the need of YFG for new money and “Rabobank’s probable refusal to help”. The note stated that the meeting had been arranged for 28 January …

In the event no meeting took place. It is not entirely clear why but I infer that it was called off because it had been indicated to Mr Barrett that Rabobank would not necessarily refuse further funding of YFG.

Having regard to the expert evidence of Mr Thompson referred to earlier in this judgment in the context of the Pavement Conversation, I find that the proposal to hold a meeting and not to disclose it to Rabobank was not an unusual departure from normal practice in a workout, particularly having regard to the fact that it was only at a meeting not attended by Rabobank that PW could ascertain how far NWB might be prepared to go in taking over the YFG funding – information which Mr Barrett, as an experienced workout investigating accountant, regarded as necessary to fulfil his role as facilitator as between the Banks and information which was self-evidently confidential to NWB. I find that in ordinary banking practice a bank in the position of Rabobank would not expect to be informed of the intention to hold such a meeting.

On 30 January 1997 Mrs Parsons, Mr Davies and Ms Hanley sent an application for authority from the LCC and RICC to provide further funding to the extent of half US$10 million shared with NWB to provide for the requirement to pay growers. The net cash position was expected to recover so that YFG could operate on existing facilities from June 1997. If the additional funding were not provided YFG would inevitably file for Chapter 11 Bankruptcy which would give the creditor growers priority over the Banks’ claims. The application, having expressed satisfaction with the management of YDFN and Treehouse and having underlined the importance of Mr Firth as CEO, concluded:

On 4 February 1997 Mr Hamilton sent a memorandum to Mr Havelock recommending that NWB participate in the additional US$10 million funding, remarking that the only alternative was Chapter 11. He further emphasised that it was important, if funding was granted, that sale of the fruit companies should take place without delay, otherwise the Banks would find themselves confronted by the problem of funding the 1997 crop.

On 21 February 1997 Mr Catton sent to Mr Firth NWB’s Advice of Borrowing Terms relating to his private and MRF Trust borrowings. As to the Trust’s facilities, in accordance with a previous telephone conversation, the letter required Mr Firth to make specific proposals for repayment of the BL within the next 14 days and no later than 31 May 1997 proposals for repayment of the sterling loan to include plans for marketing Oaklands, Whixley. I interpose that the BL had now been overdue and therefore repayable on demand since 31 August 1996.

On 26 February 1997 Mr Hamilton wrote to Mr Firth complaining at the lack of a sale memorandum for disposal of YDFN until its now expected appearance on 3 March, given the transaction timetable of 17 weeks from despatch of the memorandum to potential purchasers. The letter continued:

Following the eventual release of the sale memorandum on about 7 March 1997, Mr Hamilton was involved in several discussions with Allen & Overy relating to the problems of the tightening timetable arising from the approaching need for YFG to pay for the 1997 crop and the need for the auditors to pass the 1996 Group Accounts without qualification. The problem was precisely identified in an internal memorandum of Allen & Overy dated 12 March 1997 in which it was stated that PW believed that the 1997 crop would cost about US$50 million, that it was understood the directors were already signing crop produce contracts notwithstanding that the Banks had “made it clear on a number of occasions that they (did) not intend to fund the 1997 crop” and “it is not thought likely that the directors will have been or will be able to secure alternative funding”. The note continued:

On 25 March 1997 there took place a meeting between Mr Firth and Mr Haley and NWB (Mr Catton and Mr Coster) at the request of Firth and Haley. The principal and original purpose of this meeting was to outline “a repayment strategy” for the directors’ private borrowings. However, there was also detailed discussion of the future of the corporate borrowing recorded in Mr Catton’s note which was copied to Mr Hamilton. The salient points recorded in that note are:

Identification of a rift between RNY and Rabobank London the effect of which had recently been to “undermine the RNY mandate to market the dried fruit business and to cause Mr Gormley” to decline any dialogue with Rabobank London;

Mr Haley was optimistic about disposing of the dried fruit business for $55 million net within the July timetable;

Management were working on a document to obtain refinancing of Treehouse, modelled on the RNY sale memorandum for YDFN, to be released to RNY in early April, the intention being for RNY to work upon a due diligence and validation process over one month with a view to rewriting the document and adding its name.

The note made by Mr Catton of the discussion of the directors’ private borrowings at the same meeting recorded the following salient points:

there was an agreed strategy to remove NWB’s exposure on the private borrowings outside resolution of the corporate borrowing and the principal source of repayment could be the sale of some or all of the White Rose farmland, that land already being on the market;

NWB would control the application of such sale proceeds to reduction of debts as to which it felt most vulnerable;

Firth and Haley were looking for appropriate time and flexibility with regard to their own facilities and repayment of the Oaklands borrowing had been left open for discussion alongside repayment of the BL from the sale proceeds of the land.

A Sale of 600-800 acres of farmland by 31 July could realise $3.4 million.

With regard to the sale of the almond farmland, ….

Rabobank relies on this as a “secret” meeting which was material for NWB to disclose to it, particularly in view of the apparent intention of the management to sell the White Rose farmland subject to a potential supply contract with regard to almonds to Treehouse, thereby embarking on a self-trading transaction in breach of fiduciary duty to YFG. It is pleaded that if Mr Catton and Mr Hamilton were not already aware that the White Rose project involved breach of fiduciary duty, this meeting must have alerted them to that fact.

I interpose that I infer that the reason why the note of the discussion of corporate indebtedness was not to be disclosed to Rabobank was that it contained information derived from YFG which identified friction between RNY and Rabobank London, disclosure of which to Rabobank London obviously would be detrimental to the relationship between YFG and RNY and might cause an intervention by Rabobank London which could prejudice the work being done by RNY, particularly Mr Gormley, towards marketing the fruit companies and developing a refinancing workout plan for YFG.

With regard to the note about the private borrowings, the reference to Mr Haley’s comment about a supply contract with Treehouse “if necessary/appropriate” is so qualified as to indicate that such contract would not be entered into if it were impermissible or unlawful. In my judgment, what is recorded in the note does not indicate that a breach of fiduciary duty was inevitable or even probable. Further, in the course of his evidence, which I accept, Mr Catton made the point that although NWB was trying to persuade the directors to repay the BL and in that sense was applying pressure for repayment of that part of the private borrowing, it was being extremely accommodating in as much as it was permitting interest to be rolled up and was prepared to subordinate such recovery to “the very many more testing priorities that we had in respect of the corporate borrowing”. It therefore never occurred to NWB at the time to call in the BL and bankrupt the Trust or to call up Mr Firth’s guarantee and bankrupt Mr Firth. It is to be observed that for NWB to adopt that course would obviously have been fatally to imperil the recoverability of the corporate borrowings.

By May 1997 a number of prospective purchasers of YFG had come forward. Further, although YFG had on 31 March 1997 repaid US$2.5 million out of the US$10 million additional facility, it failed to pay back more than US$1 million out of US$2.5 million due on 30 April and had requested that repayment of the balance and of the 31 May instalment should be postponed to the period June/August. This unanticipated additional outstanding indebtedness together with the delay in the finalisation of the sale of YFC gave rise to increasing concern at NWB for Mr Hamilton, Mr Cresswell and Mr Havelock. It appeared that NWB might have to write off much of its then current provision of US$8 million.

On 3 June 1997 YFG presented its workout plan to the Banks. The main features were that, having regard to the ongoing negotiations of RNY with potential buyers of YFC, who had offered from $40 to $60 million, RNY was confident of achieving a net price of US$50 million. It was further proposed that 30 – 50 per cent of Treehouse be sold, that Treehouse’s debt should be refinanced in the US, and that there should be settlement of the Berisford Redemption by payment of the outstanding balance of US$2 million, the payment deadline having been postponed by agreement until 30 June 1997. Mr Hamilton reviewed the position in a memorandum to Mr Havelock dated 4 June 1997. In that he drew attention to the lack of detailed cash flow calculations, balance sheets and forecasts. There was the recurrent cash shortage problem exemplified by Mr Firth’s prediction that a further US$2 million would be needed on loan before completion of the sale of YFC and the fact that the source of the funding of the Berisford Redemption was proposed to be the proceeds of sale of YFC and part of Treehouse. Mr Hamilton calculated NWB’s position on a comparative basis between what would be the expected recovery under the YFG workout plan and under a Chapter 11 bankruptcy. In the former case unrecovered indebtedness would be between £7.71 and £9.8 million and in the latter about £16.1 million. Accordingly, he recommended that NWB should support the workout plan and should advance such additional sums as were essential to keep the company afloat pending the sale of YFC.

Typically, the cash flow requirements rapidly expanded. Mr Haley’s letter of 9 June 1997 to both Banks asked for yet further funding - $900,000 at once in order to satisfy an amount due to suppliers of prunes to YFC for payment by 30 June 1997 - and $800,000 on 7 July to be paid by 30 July 1997. The Banks agreed to advance the US$900,000 in order to protect the sale price of YFC.

On 12 June 1997, while Mrs Parsons was away on holiday, Cora Hanley recorded in a note a telephone conversation between her and Mr Bob Stevens of Rabobank Dallas concerning what the constituted balance sheet stated about the sale of YFG’s assets quantified at US$42 million and the higher figure for the sale proceeds forecast by YFG. The note recorded:

Mr Hamilton’s evidence in his witness statement and his oral evidence was that he could not recollect the conversation, much less the words which he used, although in the CC Proceedings his evidence was that he did tell Ms Hanley that he thought the directors owned some almond acreage that was for sale. He said in cross-examination that he might have expressed a tentative view because he did not know how he knew at the time about the director’s personal borrowings.

In my judgment, it is impossible to ascertain, as a matter of sufficient probability from the note whether Mr Hamilton did indeed express himself in a way which would have conveyed in the context of the conversation to someone in Ms Hanley’s position that he was unsure of the accuracy of the information that he was giving to her. Accordingly, I am not persuaded that it has been proved to a sufficient level of probability for a fraud case that Mr Hamilton did make the representation said to have been implicit or that it was untrue.

On 19 June 1997 RNY informed the Banks that Marubeni had signed a letter of intent to purchase YFC at a price of US$56 million to US$61.6 million, depending on the corporate debt at the closing date. By a letter of 26 June 1997 YFI informed the Banks that it could not repay the US$900,000 due on 30 June. On 1 July YFI requested a further US$1.7 million immediately and a further $1.2 million the following week. As recorded in Mr Hamilton’s memorandum to Mr Side dated 4 July 1997, although cash flow projections appeared to show that repayments could be made by 15 August 1997, management had by that time lost all credibility as to forecasting. However, the due diligence for the sale of YFC to Marubeni was in progress and, although it was not clear, it might be that the sale price would be increased under the provisionally agreed terms of the purchase contract if a further advance was agreed to. The Banks agreed to advance extra funds (US$1.45 million) but it was agreed that on a trip to visit the US companies and management from 7 to 10 July 1997 the Banks would have to investigate the Group’s cash flow and establish a procedure for monitoring it more closely.

The due diligence by Marubeni continued and it was anticipated that completion would take place on 29 August 1997. However , it was still open to Marubeni to withdraw.

Mr Hamilton (NWB), Mrs Parsons and Mr Cunningham visited California from 7 to 10 July, Mr Hamilton arriving only on 8 July. Mrs Parsons stated that she derived from her visit a much more positive view of management’s abilities and attitude. That view was not shared by Mr Hamilton who wrote in his report.

With the due diligence by Marubeni drawing to completion it was decided by the Banks that another visit should be made to New York and California by Ms Parsons, Mr Hamilton and Mr Havelock. According to Mr Havelock, he was encouraged by Mr Hamilton to make this trip for two reasons: to discuss with RNY the progress of sale negotiations with Marubeni and to see the YFI business at first hand in view of the expectation that the Banks were getting very close to difficult decisions about further funding, the perceived problem being that completion of the sale to Marubeni might not take place until after it became necessary for the YFI companies to pay growers for the first deliveries of the 1997 crop or, at worse, that the sale might not take place at all.

On 4 August 1997 the Banks’ representatives met Mr Gormley of RNY in New York, with Mr Firth and Mr Haley, and were told that both legal and financial due diligence had been completed and that, although Marubeni had raised points on financial due diligence, RNY had answers to them and that, even if the price had to be renegotiated, the present provisional figure was unlikely to be reduced by more than $3.5 million. Mr Gormley thought that Marubeni would have withdrawn by then if the due diligence had given rise to any major material adverse development. If Marubeni withdrew, that would not necessarily mean Chapter 11 bankruptcy for YFG because Mr Gormley could then approach other buyers. In the course of that meeting management said that prediction of cash flow was difficult due to the prune and almond crop being harvested early and the demands of growers for early payment by reason of the recent announcement of YFG’s problematic results. Further, the position was likely to be very tight early in September. The Banks made it very clear that they would not provide further funding until the outcome of Mr Gormley’s imminent meeting with Marubeni was known and contracts had been exchanged for the sale of YFC at a price giving a minimum of US$50 million repayment to the Banks. Mr Hamilton recorded in his note of the visit that “the cash position continues to be a big worry”.

In the course of their visit to California, Mrs Parsons, Mr Hamilton and Mr Havelock were driven in a car by Mr Firth to various places in the vicinity of YFG’s locations where meetings had been planned. At some stage during one such car journey Mr Firth pointed to some farmland and said something to the effect of his owning or having some involvement in almond farms which they were passing. There was no further conversation on that subject and I find that neither Mr Hamilton nor Mr Havelock made any comment. Certainly they made no reference to the White Rose Project or the BL. Mrs Parsons had no recollection of Mr Firth’s reference to almond farms.

On 8 August 1997 the problems facing YFG and the Banks moved closer to crisis point. Berisford demanded payment of the balance of the Redemption moneys and stated that it would commence proceedings on 26 August. Worse than that, Marubeni informed YFG as follows:

On the same day there was a meeting between Mr Catton and Mr Haley in Bradford at which there was discussion of repayment arrangements for the directors’ loans. Attempts to market part of the White Rose farmland had so far proved unsuccessful. Mr Haley stated that they would continue to market the orchard and seek a refinancing for additional funds. However, those objectives required his involvement and he had to give priority to the corporate management and disposal of YFG at the present time.

On 20, 21 and 28 August 1997 there were further meetings between RNY and Marubeni culminating in a provisional offer from Marubeni of US$45 million together with a further $10 million based on YFC’s performance. By 31 August 1997, when Marubeni’s exclusivity period ended, no sale had been concluded. Further, the prospect of reaching completion before YFC needed to pay growers for the 1997 crop had by now disappeared, the closing of the deal being expected on 7 October with completion on 27 October. RNY believed that Marubeni was delaying conclusion of the deal in order to beat down the price. It was against that background that Mr Gormley involved RNY Investment Banking Division and in particular Mr den Baas.

Mr den Baas was well accustomed to the use of special purpose companies as a means of providing working capital in the agricultural field where individual companies did not have the resources to carry the immediate cost of operations far larger than their capital base or ordinary banking facilities could absorb. The structure which seemed to him possibly to be able to tide over YFG so that the 1997 crop could be paid for, processed by YFC and Treehouse and then sold profitably and the company turned round or, if not turned round, put into insolvency in mid-1998, involved the following:

the setting up of a SPC (special purpose company) owned by independent investors and independent of YFG or Rabobank ownership,

funding of the SPC by loans procured and underwritten by Rabobank,

assignment of the 1997 on-sale contracts for processed crops to the SPC,

the SPC would get title to the 1997 crop and pay the growers,

the SPC would buy YFC’s inventory as necessary,

the SPC would pay YFC to process the crops,

From the proceeds of sale by SPC it would repay YFG’s debt to the Banks.

In order to see whether this structure might work Mr den Baas needed to carry out considerable due diligence. In his witness statement he stated

Accordingly, on 4 September 1997, Mr den Baas put his ideas for an SPC to Baron van Slingelandt in Utrecht.

The Marubeni sale effectively collapsed on 8 September 1997 upon receipt by RNY of a fax from Marubeni stating that top management had not yet authorised the transaction and wished to pursue further investigations of YFC. In view of that, more time would be needed and final approval would not be given by the end of October.

On 12 September 1997 Mr Catton discussed with Mr Hamilton and Mr Firth the acute problems arising from Marubeni’s delay. Mr Firth hinted that he was working on an alternative solution but would not disclose it to Mr Catton until he had further discussions and he would get back to NWB the following week. Mr Catton expressed disapproval of his lack of openness. Mr Catton added to the note a manuscript message to Mr Hamilton in these words.

On 15 September, NWB and Rabobank wrote to YFG confirming that the Banks would make further advances up to $2 million available under the Credit Facility available for drawdown up to 18 September. The Banks were to review the position generally in the light of the forthcoming presentation on refinancing of the dried fruit business on 18 September.

On 17 September 1997 a special meeting of the RICC was convened to discuss the SPC scheme proposed by Mr den Baas and Nancy O’Connor from RNY. It was attended amongst others by Mr van der Schrieck and Mr Cunningham from London. Mr Baron van Slingelandt was in the chair. Mr den Baas explained what he saw as the advantages of the SPC proposal over liquidation or the sale of assets. The proposed SPC scheme has already been explained in some detail in paragraph 11 above. Mr den Baas or Ms O’Connor asked whether the financial information provided by YFG could be relied upon and were told by Mr Cunningham or Mr van der Schrieck that audited figures from the annual report could be relied on but cash flow forecasts were unreliable. Notes of the meeting included the words “buy out NWB or they should go along”. None of those who gave evidence could recall what had been said about this or by whom or the context, but it is reasonably clear that the note reflects a comment, albeit not a formal discussion, that if NWB would not agree to the SPC proposal, the only way it could go forward would be for Rabobank to buy out NWB. Mr den Baas did not request the RICC to give definitive approval to the SPC scheme, but merely for approval for him to investigate it further. This authority was given but the decision was a very close one.

On 18 September 1997 Mr den Baas and Ms O’Connor presented the SPC plan to the London Banks. Mr Firth, Mr Gormley and Mr den Baas were also present. Both London Banks had gone into this meeting firmly resolved not to fund the 1997 crop payments in October. The meeting lasted about two hours but to both Mr Hamilton and Mrs Parsons there were aspects of the SPC plan which, without further explanation, did not appear satisfactory. Amongst these aspects was the risk that the Banks might end by having to fund the 1997 crop to substantially the same extent as if there were no such SPC plan. In view of the reputed expertise of Mr den Baas in agrifinance it was decided between Mrs Parsons and Mr Hamilton that, rather than reject it out of hand, they would send a detailed list of questions for which satisfactory answers would be needed before serious consideration could be given to the plan by the Banks.

In the course of his deposition in the CC Proceedings Mr Hamilton stated that the first he heard of the possibility of Rabobank taking NWB’s share of the debt was at that meeting. In this trial Mr Hamilton stated that he believed that was an error and that he was confusing what was said on that occasion with what was said at the New York meeting on 26 September. He was less focused on detail when he was giving his deposition evidence and there is no mention of any such proposal in either his notes of the meeting or those taken by Mr Catton. Mr den Baas makes no mention of this in his evidence. In my judgment, this proposal was not raised at that meeting. Had Mr den Baas raised this point, the NWB representatives would unquestionably have seized on it as music to their ears and would have been sure to note it down. The prospect of disengaging from YFG’s indebtedness would have been too inviting to go unrecorded and questions would certainly have been raised about such a proposal in the joint questionnaire to Mr den Baas, prepared the next day by Mr Hamilton and Mrs Parsons.

Mr Hamilton and Mrs Parsons met on 19 September to prepare a joint questionnaire. They worked together on Mrs Parsons’s computer in something of a hurry because it was seen as important to get the questions sent before the weekend (19 September being a Friday) in view of the fact that the existing funding facility expired on 30 September.

Following the 18 September meeting, Mr Hamilton discussed the new proposals with Mr Firth, probably on 19 September. The notes taken of this meeting strongly suggest that Mr Hamilton believed that the scheme presented by Mr den Baas, although the best of the three scenarios considered at the 18 September meeting, involved RNY gaining an unfair advantage over NWB which was not going to be taken advantage of because that was the only deal available. Mr Hamilton explained his concerns recorded in the notes in the following passage in his evidence.

Notes made by Mr Havelock and Mr Hamilton of their meetings and contacts with Rabobank after 19 September and up to 24 September show that for NWB the essential starting point for agreement to the SPC plan was RNY’s agreement to underwrite the US$15 million revolving credit for the SPC. If that were not forthcoming, NWB would not participate.

An internal PW note of a telephone conversation with Mr Hamilton on 24 September records his extreme concerns about the dealings with RNY with regard to the SPC. It also records the sharp deterioration in the cash flow position of YFG - $1.2 million needed during the current week, rising to US$7.9 million the following week and US$20 million in the first two weeks of October, the latter having risen from a forecast two weeks previously of $13 million.

It is against this background of crisis that Mr den Baas requested NWB to attend a further meeting in New York to receive a yet further presentation by him about the SPC on 26 September 1997. Mr Havelock, according to his evidence, was extremely doubtful as to whether there was any point in attending such a meeting. RNY had so far provided no answers to the questions raised in the Banks’ joint questionnaire, to the failure of RNY to indicate that it would be prepared to underwrite the revolving credit and to considerable doubts as to whether Mr den Baas would be able to find a solution for the deficit in the SPC proposal in time before 30 September when the existing facilities for YFG expired and the growers had to be paid in early October. Mr Havelock doubted whether Mr den Baas had the ability or the authority in Rabobank to solve these problems. Mr Havelock stated that it was apparent that Rabobank London were being sidelined and were not being kept fully informed of developments by RNY, a view derived from comments made by Mrs Parsons to Mr Hamilton.

Given that a quick decision had to be taken by Mr Havelock as to whether to authorise Mr Hamilton to go to New York to attend the 26 September meeting or to stop further funding and go immediately for insolvency, it was decided by him that there should be a meeting with the most senior person at the Rabobank London office. The meeting was to be in the absence of Mrs Parsons and Mr Cunningham. It is unclear at whose request this was, but it is, in my view, probable that it came from NWB in order to avoid embarrassing those two and to promote a more open discussion. Given that Rabobank was hosting the meeting, it is perhaps slightly more likely that Mr van der Schrieck suggested that no notes be taken, in order to encourage an informal atmosphere, but it is almost equally likely that Mr Havelock made the request. There is an issue between the parties as to whether Mr Havelock and Mr Hamilton called the meeting with Mr van der Schrieck for the reason that, because, already knowing that RNY had proposed or were preparing to propose that Rabobank should take out the indebtedness to NWB, they wished to satisfy themselves that RNY did not propose to set up a back-to-back deal with a third party, such as Marubeni, which would give Rabobank an advantage and would disadvantage NWB. Resolution of this issue is inextricably bound up with what passed at the meeting on 25 September 1997.

According to the first witness statement of Mr van der Schrieck (27 April 2005) the following occurred:

I find the following facts in relation to this meeting.

For reasons explained later in this judgment, I find that at no time prior to attendance at the New York meeting on 26 September did Mr Havelock or Mr Hamilton have any knowledge of a proposal that Rabobank should take out NWB. In this connection, I find Mr den Baas’s evidence in this trial to be cogent and credible and to the extent that evidence given in the United States depositions in the CC and SF Proceedings by him and Mr Hamilton was inconsistent with this, I find it to have been mistaken being based on inadequate preparation by those witnesses on very detailed facts in respect of events then already four years old.

The predominant reason for NWB in requesting the meeting was that Mr Hamilton and Mr Havelock were extremely disturbed by the recent conduct of RNY, in particular

the failure of Mr den Baas to reply to the Banks’ joint questionnaire;

the sudden injection of the SPC proposal at the very last minute before the Banks’ funding was about to expire after RNY had spent many months unsuccessfully attempting to sell YFG and the apparent impossibility of putting the plan together before YFG would require massive additional funding from the Banks in order to pay for the 1997 crop deliveries;

the fear that, having regard to the apparently disproportionate equity benefit to be derived by RNY from the SPC proposal, there might be other features of the proposal that disadvantaged NWB to the benefit of Rabobank;

the serious doubts as to the reliability of Mr den Baas and his authority within Rabobank.

Mr Havelock and Mr Hamilton attended the meeting in a mood which was one of considerable exasperation with RNY coupled with uneasiness as to whether Mr den Baas could be relied upon to accomplish what he proposed and to deal even-handedly between Rabobank and NWB. That mood manifested itself, in a palpably abrupt manner in speaking to Mr van der Schrieck. No doubt that was accentuated by the need for a quick decision to be taken as to whether NWB should attend the New York meeting, for Mr Hamilton and Mr Cresswell would have to leave for the airport within a few hours. Further, both of Mr Havelock and Mr Hamilton were under immense pressure as to whether to decide to reject the SPC there and then by declining to go to the New York meeting in favour of cutting off all further funding of YFG and causing its immediately going into Chapter 11 bankruptcy.

The meeting lasted about 20 minutes.

It is to be inferred that in the course of the meeting the conversation concentrated on the eligibility of Mr den Baas and particularly his reliability in the field of SPC structures, as well as his authority to propose the SPC in this case. Mr van der Schrieck reassured the NWB representatives on these points but appeared to know few of the details of this specific proposal.

There was no mention of any proposal for Rabobank to take out NWB’s share of the indebtedness.

In the course of the meeting Mr Havelock put to Mr van der Schrieck a question the gist of which was, Does Rabobank know anything about the SPC proposal which NWB does not know but which it ought to know? Mr van der Schrieck answered in the negative.

Mr van der Schrieck then put to Mr Havelock a reciprocal question, rather out of pique than because he was endeavouring to obtain specific information from NWB, having been riled by the implication in Mr Havelock’s question that Rabobank was not being entirely open with NWB about the SPC proposal. The exact terms of that question are uncertain. Mr Havelock answered in the negative.

Mr Havelock, Mr Hamilton and Mr van der Schrieck then shook hands in a courteous manner and the meeting ended.

Mr Havelock was sufficiently reassured by what Mr van der Schrieck had said thereupon to authorise Mr Hamilton and Mr Cresswell to attend the New York meeting on 26 September.

In arriving at these findings I have taken into account the extremely sparse recollection of this meeting of Mr Havelock and Mr Hamilton and the very imprecise evidence of Mr van der Schrieck. As to the latter, having observed him being searchingly cross-examined for many hours, I have no doubt that he genuinely believed that he had heard about the take-out (as distinct from the SPC) proposal from RNY at some stage before 25 September, that he genuinely believed, when he gave evidence, that Mr Havelock and Mr Hamilton had come to the meeting to discuss that proposal and not the SPC proposal and that their apparent belief in a hidden agenda related to the proposed takeout. I find that it is inconceivable that he would have mistakenly imagined over the period since 1997 the putting of Mr Havelock’s question and his own reciprocal question.

Did Mr Havelock’s and Mr Hamilton’s answer to the reciprocal question put by Mr van der Schrieck amount to a representation and, if so, what did it represent? As I have already indicated (see paragraph 167) the essential test is to ask whether in all the circumstances the answer was expressed in such a way as to convey to a reasonable banker in the position of Mr van der Schrieck that it was put forward by NWB as a statement that was meant to be relied upon as distinct from an off-the-cuff comment or remark in the course of conversation. The problem here is that neither Mr Hamilton nor Mr Havelock remember this exchange at all and Mr van der Schrieck does not remember the exact words in which either question was put – whether to him or by him. In ascertaining whether a fraudulent misrepresentation has been made by a negative answer to a specific question, it is all – important for a court to identify with precision not only the contextual circumstances within which the question was put but also the precise scope and meaning of the question to which the answer was given. If the court is unsure on the evidence before it as to the terms of the question it cannot normally be sufficiently sure as to the meaning of the answer or as to whether it had the effect of a representation.

In my judgment, the evidence in this case does not leave it in doubt whether Mr van der Schrieck asked a reciprocal question but does leave it in doubt as to precisely what was asked. That is because the precise terms of the question asked by Mr Havelock to which it was a related response are also in doubt. Only the gist can be inferred. What is to be inferred, however, is that the essence of the earlier part of the conversation which, according to the evidence of Mr Havelock and Mr Hamilton, must have consisted of the NWB representatives seeking from Mr van der Schrieck assurances on their key concerns, was exclusively directed to the very immediate conduct of RNY in general and of Mr den Baas in particular, in relation to the proposal for the SPC. They were not concerned with the workout as a whole or the quality of the directors of YFG or even the viability of YFG or Treehouse if the present crisis could be overcome and the group turned round. Against that background, in my judgment, Mr Havelock’s question must have been understood as directed exclusively to those matters to which the meeting was directed, namely Mr den Baas’s reliability and whether this SPC proposal was intrinsically worth consideration and was authorised by RNY. Consequently, a reciprocal question apparently put forward on the spur of the moment by Mr van der Schrieck would be understood as confined to the viability of the SPC proposal as an immediate expedient for avoiding the imminent insolvency of YFG. It was to that very confined scope of enquiry that the recipient of the reciprocal question would think it was directed and it was to that same scope of enquiry that a reasonable banker in Mr van der Schrieck’s position would think that Mr Hamilton’s answer was responding. To that extent only was there an express representation on the occasion of the meeting with Mr van der Schrieck.

Shortly before Mr Hamilton’s departure from NWB’s office for the airport on 25 September a fax arrived from Mr Firth setting out answers to questions which the first questionnaire had directed to YFG. However, to the extent that the questionnaire had been directed to RNY the questions remained unanswered. It is to be observed that the message contains no reference to a take-out by RNY and is directed exclusively to the SPC proposal.

The meeting in New York on 26 September 1997 was attended by Mr Hamilton and Mr Cresswell on behalf of NWB, by Mrs Parsons and Mr Cunningham on behalf of Rabobank London and by Mr den Baas, Mr Gormley and Ms O’Connor from RNY. Between his attendance at the meeting in London on 18 September and 26 September Mr den Baas had visited YFI in California. In the course of that visit he had discovered the following:

The London Banks were making it clear to Mr Firth and Mr Haley that they would provide no more funding to pay for the 1997 Crop and in consequence Firth and Haley had begun to discuss putting YFG into liquidation.

YFI and the operating companies, particularly Treehouse, were living from hand to mouth with acute liquidity problems in as much as all cash receipts were being paid to YFI which then decided which pressing creditor should be paid.

The growers who had made deliveries of produce to the operating companies retained liens over the deliveries pending payment by the YFI companies.

The growers were holding back on supplies of produce due to concerns about YFI’s solvency and, as a result, Treehouse’s processing facilities were under-employed.

Mr Firth and Mr Haley owned their own almond farmlands and were growing almonds that would come on stream in two years time.

As to those almond farms Mr Firth had suggested to Mr den Baas that it would be a good idea if YFI or Treehouse could contract with them so as to obtain almond supplies. Mr den Baas cautioned Mr Firth against self-dealing.

It was the practice of the operating companies to enter into “take or pay” sale contracts with purchasers of processed product under which the purchasers would guarantee to take delivery of a minimum quantity of processed product. Until such a contract had been entered into there was no guarantee that the operating companies would be able to sell on their product. However, Mr den Baas was not shown any concluded take or pay contract in respect of the processed produce of the 1997 crop.

According to the recollection of Mr Hamilton, which I accept, in the earlier stages of the meeting it was made clear that the London Banks would not fund the 1997 crop by an increased facility to any extent and that a serious problem for the SPC proposal was the existence of the growers’ lien. Under the proposal it had been envisaged that produce to the value of US$60 million would be transferred to the SPC so that it would be available as security for raising additional finance to the extent of US$45 million which was to be utilised in repaying the Banks. However, the assumption had been that the inventory was unencumbered. If growers’ liens applied to part of it, there would be a substantial reduction in the amount that could be raised by an SPC by way of additional finance. Mr Hamilton calculated that this would drop to US$29.1 million. In consequence, the Banks would benefit by a net reduction in their outstanding exposure by about US$9 million from US$104 million but they would be obliged to lend a further US$20 million and would lose the benefit of the security represented by the inventory produce that was transferred by the operating companies to the SPC. As Mr Hamilton put it, this made no commercial sense. Moreover, one of the main concerns of NWB with Mr den Baas’s original proposal was that the $30 million revolving credit was not underwritten by RNY, and this had been raised in the joint questionnaire. However, Mr den Baas did not deal with this requirement at the meeting. Accordingly, there was no apparent alternative to insolvency.

Mr den Baas then raised the possibility of RNY taking out NWB’s share of the debt. Mr Hamilton described the meeting having become relatively unstructured and disjointed by that stage, with Mr den Baas and Mr Gormley and their assistants coming and going. It was Mr Hamilton’s evidence, which I accept, that the take-out proposal came as a complete surprise to him. It appeared to him that both Mr Cunningham and Mrs Parsons were as surprised as he was that RNY “was prepared even to contemplate a take out of a loan to a company which was in such desperate financial trouble.”

I find that the idea of a takeout by RNY had never previously been mentioned to any of Mr Hamilton, Mr Cresswell, Mrs Parsons or Mr Cunningham. Had it been tabled before that meeting or at the outset of the meeting, either Mr Hamilton and Mr Cresswell would never have gone to New York, or there would have been little or no discussion of the SPC project at the meeting and Mr den Baas would have come armed with a calculation of the discount on the indebtedness acceptable to RNY and with authority to negotiate. As it is, in the course of the meeting he produced a paper showing a 33.33 per cent discount to the effect that the London Banks would be bought out for US$68.5 million out of a total debt of US$103.5 million. Mr Hamilton and Mr Cresswell had no authority to negotiate a discount on this basis. Nor did Mr den Baas. He made it clear that he would have to get authority from Rabobank at Utrecht.

Mr Hamilton and Mr Cresswell returned to London the same day together with Mrs Parsons and Mr Cunningham. Mr den Baas was informed by Mr Firth that YFG was about to file for bankruptcy and was preparing a press release. He was not able to give the Banks more time because cheques had been issued which were not covered by cash. Mr den Baas told him that RNY would only proceed with a takeout if he committed himself to return to the full-time management of YFG. Mr Firth undertook to do so. Mr den Baas stated that he was impressed by Mr Firth and by those in management who were running Treehouse and YFC. Accordingly, RNY began negotiations with Mr Firth directed to exchanging part of YFG’s indebtedness for a share in the equity of YFG with RNY having board representation and further on the basis that Mr Firth would remain as Chairman and CEO until the earlier of 3 years or until substantially all YFG’s businesses had been sold or refinanced by a party other than Rabobank.

As between NWB and Rabobank the discount on the indebtedness to NWB for the takeout was agreed on 29 September 1997 to be £11.3 million (US$18.08 million at $1.6).

On 29 September 1997 Mr den Baas attended a meeting of the RICC in Utrecht at which he presented four different scenarios to the meeting, including SPC, insolvency and takeout. The meeting was attended by Mr van der Schrieck. Opinion was very evenly divided. Mr van der Schrieck supported the proposal for a takeout. At one stage, according to Mr den Baas’s recollection, the question was raised whether the numbers were reliable. A range of something like 5% to 10% or $1-$2 million was indicated by Mr van der Schrieck. Mr den Baas was not sure whether this occurred after the 29 September meeting or at the earlier RICC meeting on 17 September. However, he told the meeting that if the financial information were not reliable they were wasting their time. The effect of the RICC’s decision was that Mr den Baas was authorised to continue negotiations with NWB on the terms of the takeout. There can be no doubt that the decision was a rushed one by reason of the imminence of the directors’ need to put the company into liquidation if a solution to the funding crisis were not found by 30 September.

On that same day (29 September 1997) the substance of the take-out was agreed between Mr Hamilton and Mr Havelock and Mr den Baas by telephone and fax. According to Mr Hamilton’s evidence, all those concerned with decision-taking at NWB – he, Mr Havelock and Mr Side – regarded the deal offered by RNY as so peculiar that they entertained strong suspicions that RNY might well have a back-to-back disposal of YFG lined up thereby to benefit Rabobank to the relative detriment of NWB. I accept that evidence. It is supported by the astonishment with which, according to Mr Hamilton, Mrs Parsons had reacted in New York to Mr den Baas’s proposal. Indeed, so concerned were Mr Havelock, Mr Hamilton and Mr Side, that all three of them considered it necessary to consult Mr Shaw, Managing Director of Corporate Banking at NWB. For this purpose they all travelled to Mr Shaw’s office and presented the transaction to him. According to Mr Hamilton, his reaction was exactly the same – had RNY lined up some back-to-back transaction? I interpose that I infer from the fact that no less than five bankers experienced in workouts all reacted in the same way strongly suggests that the course which RNY proposed to take was to all outward appearances very eccentric, if not self-evidently reckless. It is therefore hardly surprising that, in the course of the oral negotiations that day, according to the evidence of Mr den Baas, Mr Hamilton or Mr Havelock expressly raised the question whether RNY had some back-to-back arrangements whereby they would make a quick profit. Mr den Baas stated that this stung him somewhat and caused him to put back to NWB that Rabobank was acting in good faith and he assumed NWB also was. Mr Hamilton or Mr Havelock did not demur.

By letter dated 29 September 1997 NWB confirmed its agreement to accept the takeout offer at a discount of £11.3 million subject to various conditions, including:

The DoT was finalised during the first two weeks of October 1997 and signed by NWB on 15 October. It involved the introduction of Utrecht-America Finance Co as the purchaser of NWB’s debt, as described in paragraph 13 above. It incorporated a provision to cater for the term warranting no back-to-back transactions agreed in the course of negotiations and described in paragraph 339 above, in particular clause 7.2(j). It effected a novation in favour of Utrecht of NWB’s obligations under the Credit Agreement and the Credit Facility and all subsequent agreements for lending to YFG up to 12 June 1997, whereby Utrecht effectively took over NWB’s position as lender to YFG in consideration of the purchase price which was calculated by deducting £11.3 million from the agreed total indebtedness, giving a total of US$39,521,904.84.

As appears from my findings in relation to the Misrepresentations relied upon by Rabobank in its MSC, it is only the facts relied upon in relation to the 29 August 1996 meeting (Misrepresentations (2), (4), (5) and (6)) and those relied upon with regard to the van der Schrieck meeting on 25 September 1996 (Misrepresentation (14)) that gave rise to any kind of representation upon which Rabobank was entitled to rely. In all those cases I have found there to be a representation of a much more confined scope than that relied upon in the MSC.

The Meetings of 29 August 1996

The relevant findings as to what passed at the 29 August meeting between Rabobank, NWB and PW are at paragraphs 192-196, and 204 above.

It is the cornerstone of Rabobank’s case on the 29 August meeting that there can be no honest explanation for Mr Hamilton’s remarks during the Pavement Conversation: his purpose was the dishonest concealment of facts from Rabobank and PW which he knew to be material to the workout. Accordingly, in order to test his intention in the course of that meeting, it is necessary to identify exactly what Mr Hamilton knew at the relevant time and whether his knowledge extended to facts material to the workout which PW would be expected to carry out pursuant to their terms of reference.

There can be no doubt that by 29 August 1996 Mr Hamilton was at least aware that Mr Firth had personally borrowed from NWB and that such facility was secured by his shares in YFG. This is what he told Mr Barrett and Mr Hargrave during the Pavement Conversation. He must also have been aware that there was no direct connection between Mr Firth’s borrowings and YFG. I infer that he had been given that information by Mr Catton, who was clearly aware of the BL and the White Rose project, possibly when they met on 28 August 1996 and discussed Rabobank’s draft terms of reference: see paragraph 177 above. Mr Catton’s note to Mr Hamilton written that morning and partly quoted at paragraph 177 expresses no reservations about the reference in the draft terms of reference to investigation of the exit strategy of Mr Firth and Mr Giddings with regard to their personal shareholding in YFG, but merely recommends leaving the final scoping of the work to be fixed by PW. I infer that Mr Catton, with full knowledge of the purpose of the BL, entertained no concerns by reason of that purpose about the scope of PW’s work extending to looking at Mr Firth’s shareholding if PW thought it relevant. In these circumstances I consider it more likely than not that he did not raise that specific issue with Mr Hamilton at their 28 August meeting.

At the Bankers’ meeting with PW on the following day there was no discussion of the detailed components of Rabobank’s terms of reference or of the directors’ shareholdings and, although Mr Barrett had expressed a preference for short terms of reference (Rabobank’s draft being more detailed than NWB’s draft), it was left to PW to decide in consultation with YFG exactly what terms would apply, the understanding being that PW knew exactly what the Banks wanted from the meeting and the drafts. Accordingly, when that meeting ended, Mr Hamilton was aware that PW were likely to agree terms of reference in broad terms which gave them a wide discretion as to what they investigated for the purposes of providing the key workout advice which the Banks were seeking.

I find that on 29 August Mr Hamilton neither knew nor cared what the purpose of Mr Firth’s private borrowings was. His mind was focused exclusively on the problems of the corporate borrowings that had been passed to him little more than a week earlier. His evidence most strongly suggests that he regarded the world of private borrowing as alien to his area of expertise and was not prepared to take responsibility for the management of personal loans. His evidence was that he had a heavy workload at the time and one can well understand that the last thing one who was accustomed to dealing with major facilities to public companies would want to be involved with was the handling of a disparate group of individual borrowers of relatively small amounts.

I have investigated in some detail the circumstances surrounding the purpose of Mr Catton’s sending to Mr Cresswell the internal memorandum of 30 September 1996 relating to the directors’ private borrowings. Having considered the evidence of Mr Cresswell, Mr Catton and Mr Hamilton, I have no doubt that those in the CSS regarded these borrowings as little more than a side show, best left in the hands of Mr Catton at his provincial office. Consistent with this attitude was the evidence of Mr Catton and Mr Cresswell, neither of whom was entirely sure why Mr Cresswell needed to be sent the 30 September memorandum and enclosures: see paragraphs 231-234 above. In this connection, I conclude that it is highly unlikely that either Mr Hamilton or Mr Cresswell knew anything, or had access to any information, about the purpose of the BL and in particular of the White Rose project before receiving Mr Catton’s memorandum. It is certainly not established that either of them had perceived a breach or potential breach of fiduciary duty by Mr Firth before that time. Had they or Mr Havelock done so from information received from Mr Catton before 29 August, I infer that their immediate requirement would have been to request full details and documentation relating to the private borrowings, particularly the BL, in order to investigate the circumstances of the BL and the White Rose Project. I infer that no such request was made because otherwise Mr Catton would not have allowed a month to elapse before sending the documents enclosed with the 30 September memorandum. Nor would he have written to Mr Cresswell in the terms of his letter of 30 September 1996 in which there is express reference to the BL. Nor would the memorandum have been written without so much as a mention of the purpose of the BL.

Accordingly, I find that when he participated in the Pavement Conversation, Mr Hamilton did not know of or care about the purpose of the BL and did not know any facts which suggested to him that Mr Firth or the other directors had conducted themselves in breach of fiduciary duty or in such a manner as to suggest that they might have acted in breach of fiduciary duty. The background to the BL and the manner in which the White Rose Project had been set up and effected were known only at the Leeds office and by Mr Catton in particular.

I am equally sure that Mr Catton concerned himself only with the issue of recoverability of the personal loans and with the value of the security supporting those loans. That the scope of his vision was so narrowly confined is supported by his having raised no objection to PW’s taking into account the Rabobank draft Terms of Reference with their reference to Mr Firth’s shareholding as appropriate to be covered by PW’s report. It is further evidenced by his not having provided CSS with any detailed documentation on the personal loans until a month after the PW meeting and then having done so without making mention of the White Rose Project.

A further consideration relevant to the state of mind of both CSS in general and Mr Hamilton in particular is that at this point of time the development of the workout and its ultimate outcome in the future had yet to be defined. The view which the Banks might take on that depended crucially on PW’s report and its diagnosis of YFG’s current problems. All options were regarded as open by NWB, although its preference (known to Rabobank) was to disengage from the Credit Facility in the fairly near future because the centre of gravity of YFG’s business had moved to the United States where NWB no longer had a presence. There is however, no suggestion in any of the contemporary documents that NWB had dismissed the prospect of YFG trading through if only it could overcome its immediate cash flow problems. I infer that Mr Hamilton and others at CSS, including Mr Cresswell and Mr Havelock, regarded insolvency procedures very much as a last resort. Their focus was a group sufficiently viable to be able to refinance its operations and thereby to repay the indebtedness in full. For this objective there is strong contemporary evidence that Mr Firth supported by Mr Haley was regarded as an essential participant in operating the company. Against this background the proposition that anybody in CSS so much as suspected that Mr Firth, Mr Haley or any other directors had acted wrongfully and in breach of their duty to YFG and that NWB had facilitated that conduct by advancing the BL is nothing short of completely incredible. Even if Mr Catton had been too close to the mechanics of the personal loans, their security and recoverability and his vision too narrow to evaluate the broader picture and detect self-dealing, the problem would surely have revealed itself to those in the CSS, such as Mr Hamilton, Mr Cresswell and Mr Havelock all of whom were highly experienced in dealing with the personal position of directors of debtor companies in workout. And, if that problem had revealed itself, it is inconceivable that it would not have been mentioned in an internal written reference and it is even more inconceivable that NWB would have continued to contemplate that YFG should be assisted to trade through with continued financial support if that were possible and that for this purpose the Banks would be working in close cooperation with Mr Firth and Mr Haley. The suggestion that a bank such as NWB with personnel of the calibre and experience of Mr Havelock, Mr Side, Mr Cresswell and Mr Hamilton would have knowingly allowed that to happen is, in my judgment, far-fetched not least because, if the directors’ misconduct ever became more widely known in the course of refinancing by such means as an equity issue or a sale of an operating subsidiary (expedients which were only actively considered in 1997) or, in the case of insolvency, by an administrator or liquidator, so also would the part played by NWB in knowingly sustaining the White Rose directors, with potentially extremely serious consequences for NWB’s legal position and for its reputation and the personal prospects of those individuals concerned.

Assuming, as I find, that Mr Hamilton was not aware of the purpose of the BL but only of the fact that NWB had made personal loans to Mr Firth and other directors secured by YFG shares, did he, in the course of the 29 August meeting, form an intention to deflect PW from investigation of such loans when he appreciated that for PW to abstain from doing so would be to fail to carry out their professional duty to give effect to the Terms of Reference? It is common ground between the UK banking experts, Mr Hudson and Mr Thompson, that the personal affairs of the directors, such as these personal loans, could be material to the workout if they compromised the directors’ competence or integrity or compromised the conduct or progress of the workout itself by distracting the directors from the management of the Group. Accordingly, as at 29 August 1996, in view of his state of knowledge, Mr Hamilton’s appreciation of the materiality of the existence of the directors’ personal borrowings must be assumed to be confined to appreciation that the existence of those borrowings would be likely to or might so distract Mr Firth, Mr Haley and the others from the management of YFG as to prejudice the workout.

In my judgment, there is no evidence to suggest that Mr Hamilton either on 29 August or at any subsequent time, considered that the existence of the personal loans or the fact that they were supported by deposits of YFG shares was for this reason material to the workout. Nor is there is any evidence that NWB was then placing the directors under any real pressure to repay their loans. The letter of 29 August 1996 from Mr Catton to Mr Firth, referred to at paragraph 188 above, is written in terms which are not particularly pressing or threatening, whether as to the then overdue BL or the loan in relation to Whixley. No previous letter had been sent by NWB concerning the directors’ loans since 8 July and no further letter was to be sent until 29 October. It is not conclusively established whether on 29 August Mr Hamilton was aware of what Mr Catton wrote to Mr Firth that day. It is unlikely that he was. Further what passed at the 29 August meeting with Rabobank and PW makes it clear that all parties, including Mr Hamilton, were working on the assumption that it was desirable that YFG should continue under the management of Mr Haley and Mr Firth. Had Mr Hamilton entertained concerns about the risk that they would be distracted by the existence of the personal loans, the position taken by Mr Hamilton is difficult to understand: it was, after all, NWB’s loan money that the workout was to be designed to recover.

Had Mr Hamilton decided that information about the personal loans was to be kept from Rabobank, it was only to be expected that NWB would attempt to ensure that Rabobank was not informed of these loans by any of the YFG directors. However, it is to be inferred that no such steps were taken. Otherwise Mr Haley would hardly have sent his letters of 24 and 30 September 1996 to Rabobank as well as to NWB. In his letter of 24 September (see paragraph 224 above) Mr Haley made it clear that the directors had all invested all their wealth in YFG shares and owned no other liquid assets. That meant that Mr Firth had no other liquid assets and that such shares as he had were unavailable as collateral to support additional borrowing for the Berisford Redemption because they were already deposited to support other borrowing from NWB. A subsequent letter from Mr Haley also copied to Rabobank indicated that the only available collateral amongst the shares owned by the Firth and Haley interests were 2.4 million shares owned by Mr Firth’s and Mr Haley’s wives. In view of the collapse of the YFG share price from 72p to 49p on 12 August, it would be obvious to anyone having this information that in as much as the deposited shares were collateral for continuing loans, the cover ratios would have been adversely affected and the financial position of the directors would have been made vulnerable. Although all this information was known to Mrs Parsons and Mr Davies as from 30 September 1996, neither of them raised with NWB or PW the possible impact of these financial problems on the directors’ ability to run the company. The risk of distraction from management of YFG never occurred to Rabobank and so it was never alluded to as between the Banks. Given that it is, according to Mr Thompson, relatively common for directors to borrow against the security of their shares, it is hardly surprising that Rabobank did not consider the fact of such borrowing by Mr Firth and others sufficiently important to investigate further.

Similarly, I infer that the same information did not cause Mr Hamilton or others in the CSS to be concerned about the YFG directors being distracted from their management work. Further, on that assumption it cannot be inferred that Mr Hamilton or others in the CSS would have regarded the existence of the personal borrowings as material to the workout and therefore as a matter that was to be fully investigated by PW. Against this background I find that Mr Hamilton, although believing that the personal borrowings were not material, thought it appropriate that PW should know of the existence of Mr Firth’s borrowings so that PW would know that NWB would be likely to approach the workout and PW’s recommendations on the basis that it had the indebtedness of a private banking customer to take into account in its own decision-taking, as well as that of a corporate borrower. That indebtedness was, as Mr Hamilton told PW, not connected with YFG. It was perfectly true that, as at 29 August, Rabobank did not know of that private borrowing. Since, as I have found, Mr Hamilton did not believe it was material to the workout, he was entitled to tell PW that, in his opinion, this was so and that he preferred that it was not disclosed to Rabobank. On that basis, it was not necessary either for PW to investigate it and preferable not to tell Rabobank about it. His intention in expressing that view was, I have no doubt, to avoid disclosing the personal borrowings more widely than was necessary for PW’s purposes and that was because, without Mr Firth’s consent, information as to private borrowings ought not to be disclosed to PW, let alone to Rabobank, and as at that moment Mr Hamilton did not have Mr Firth’s consent. Here was a man who had a previous professional relationship with Mr Barrett being rather more open than he ought to have been and then wishing to protect the bank’s personal customer from disclosure to another bank. It is also possible that Mr Hamilton was influenced in what he told Mr Barrett by a concern to deter PW from wasting time and costs in getting involved in the complexities of the directors’ loan structure when the Banks needed an urgent report on the corporate position.

Those being probably his purposes in saying what he said, I do not find that in the course of the meeting with Rabobank and PW on 29 August Mr Hamilton had the intention of persuading PW to fail to comply with its professional duty to act in accordance with the terms of reference which, as I have found, were yet to be finally agreed between PW and YFG. There was accordingly no implied misrepresentation at the 29 August meeting in respect of his intention to interfere with PW carrying out its investigatory work in accordance with its proper professional duty. It also follows that, contrary to MSC paragraphs 144 to 151, (Misrepresentation (12)) the falsity of what is said to have been, but, as I have found, was in truth not, represented with regard to the PW report, is not established.

It is right to add in this connection that Rabobank’s reliance at MSC paragraphs 160 to 170 on the secrecy of the meeting of Mr Catton with Mr Firth and Mr Haley shortly before 25 March 1997 and the subject-matter discussed (see paragraphs 290-294 above) amounting to material information which was deceitfully concealed from Rabobank cannot be sustained. For one workout bank to hold a meeting with a corporate creditor without disclosing it or its contents to other co-workout banks does not, taken alone, involve conduct which is either in breach of any duty to the other banks or even contrary to good banking practice. Each workout bank having a separate contractual relationship with the creditor corporation, it is open to each bank to protect its own interests by making direct contact with the debtor, just as it would be open to one amongst several co-insurers to meet directly with an insured to discuss an outstanding claim. If, however, in the course of such a meeting a workout bank obtained from the debtor information which it believed was material to the workout but not known to another workout bank, it would be good banking practice (albeit not an enforceable duty) to disclose such information to such other workout bank. The fact that the meeting was not disclosed to Rabobank therefore does not, in my judgment, give rise to an inference that such non-disclosure was attributable to appreciation by Mr Catton or by Mr Hamilton (to whom the notes were copied) that Mr Firth and Mr Haley had passed material information to NWB, hitherto unknown to Rabobank, which it would be in NWB’s best interest not to disclose to Rabobank. Indeed, it was the evidence of both Mr Catton and Mr Hamilton that neither suspected that a breach of fiduciary duty by the directors might be involved, either in the White Rose Project in general or in the possibility of the White Rose companies entering into a supply contract with Treehouse, as mentioned in the meeting notes, in particular.

The van der Schrieck Meeting

For the answer to amount to an express misrepresentation would therefore involve Mr Havelock and Mr Hamilton, both of whom were extremely sceptical and somewhat suspicious of the SPC proposal, concealing from Rabobank information which was known to Mr Havelock or Mr Hamilton but unknown to Rabobank and which, if disclosed, they realised would be likely to, or at least might well, deter Rabobank from entering into the SPC plan. This is, in my judgment, a wholly unreal likelihood for, if NWB did have such information, it was all the more likely to disclose it in order to avoid becoming involved in the trip to New York which was regarded as of very doubtful utility. The proposition that in all the circumstances then prevailing NWB, with knowledge of facts which were appreciated by Mr Havelock and Mr Hamilton to suggest that Mr Firth and the other directors were not people of integrity because they had already acted in breach of fiduciary duty and proposed further to do so, held back those facts from Mr van der Schrieck which suggested that the directors were unfit to manage the SPC is quite untenable. It cannot seriously be contemplated that the very experienced workout bankers in NWB’s CSS would have wished to preserve from liquidation an already seriously crippled company by means of a substantially unattractive device (the SPC) dependent at least in part for management on the YFG directors whose integrity ex hypothesi they believed to be questionable.

For these reasons I have come to the conclusion that Mr Hamilton and Mr Havelock made no representation to Mr van der Schrieck which they knew to be untrue or as to the truth of which they were reckless. Their evidence that they did not do so is conclusively corroborated by the intrinsic improbability of their having done so and I accept it. However, their answer to the reciprocal question was not only honest: it was true; and accordingly they thereby made no misrepresentation.

For these reasons I conclude that Rabobank’s whole case on misrepresentation, whether fraudulent or otherwise, must fail. To the limited extent to which NWB made any representations, such representations were not untrue.

The Good Faith Agreement

Rabobank submits that the overall sense of the meeting with Mr van der Schrieck on 25 September and of the meeting in New York on 26 September was “that there would be a mutual exchange of any previously undisclosed information material to the takeout” and that it was in the interests of both Banks “to carry this understanding forward into the negotiations for the documentation needed to give effect to the in principle agreement as to the take out and the discount previously agreed orally between Mr Havelock or Mr Hamilton and Mr den Baas (see paragraph 358 above). Thus the fax from NWB dated 29 September provided that “the buyout is subject to NatWest being satisfied with the documentation”. It is submitted that the good faith provision was a separate collateral agreement as to the manner of negotiation of the documentation. Rabobank relies on the commercial setting of this exchange, particularly the telephone conversation between Mr Havelock or Mr Hamilton and Mr den Baas described in paragraph 338 above, in which there had been references by both sides to acting in good faith in the context of NWB’s concerns as to whether Rabobank had planned to take a profit from a back-to-back deal with a third party.

In my judgment, the construction of the good faith provision as a matter of first impression is that, having already arrived at an agreement in principle as to the basic terms of the takeout, it was necessary to document that agreement in a manner acceptable to both parties and that they would conduct the negotiation of the wording in good faith. The substance of the wording was thus directed to both parties making a genuine effort to arrive at common ground as to the wording and not placing obstacles in the way of agreement for spurious reasons. The scope of this provision has nothing to do with Rabobank’s assurance that it had not entered into a back-to-back deal, for that was expressly dealt with in the previous paragraph of the 30 September fax:

Finally, even if the scope of the good faith agreement were wide enough to provide for the disclosure of information material to Rabobank’s decision to enter into the takeout, any such agreement would in principle be unenforceable. This is clear from the judgment of Lord Ackner in Walford v. Miles [1992] AC 128 at page 138:

Reliance is placed by Rabobank on the decision of the Court of Appeal in Niru Battery Manufacturing Co v. Milestone Trading Ltd [2004] QB 985 and particularly the passage from the first instance judgment of Moore-Bick J. approved by Clarke LJ. at p1004. That part of the judgment was concerned with the concept of good faith in the context of the recovery by way of restitution of money paid by mistake and good faith fell to be considered in order to evaluate the conduct of the recipient who had paid away the money. Evaluation of that conduct would be necessary in order to determine whether it was unconscionable that the recipient should be permitted not to repay the money to the payor. The analytical exercise required to test unconscionability in that context is quite different from that which would be required to give effect to the good faith provision in this case. Whereas want of good faith in that context may be relatively easily recognisable, as Lord Ackner stated in Walford v. Miles, in the context of the negotiation of a contract it is intrinsically without objective criteria. Accordingly, I find no assistance in that case. As recognised by Bingham LJ. in Interfoto Picture Library Ltd v. Stiletto Visual Programmes [1989] 1 QB 433, although most civil law systems incorporate an overriding doctrine of good faith applicable to the making of contracts, there is no equivalent in English law, except in those limited cases of contracts uberimmae fidei. This is not such a case and was not converted into such a case by the good faith agreement.

Even if the good faith agreement had the attribute of enforceability, the effect of clause 18 of the DoT would have been to preclude Rabobank from relying on that agreement in the manner now attempted. The good faith agreement is said by Rabobank to be a previous agreement which requires disclosure of facts material to the takeout. But the takeout was the subject matter of the DoT and accordingly the good faith agreement would be a previous agreement “on that subject”. As such the execution of the DoT caused it to cease to have effect.

I conclude that Rabobank’s claim based on breach of the good faith agreement must be dismissed.

The Claim under Section 2(1) of the Misrepresentation Act 1967

In these circumstances Rabobank have failed to establish the essential factual foundation for a case under section 2(1), namely that NWB made misrepresentations to Rabobank in reliance on which it made further loans to YFG and/or entered into the takeout agreement. Consequently, the burden of proof never passed to NWB to establish by way of defence that its representatives believed such representations to be true and that they had reasonable grounds for so believing. Accordingly, the claim under section 2(1) must be dismissed. In view of the multiplicity and complexity of the alleged misrepresentations it is not appropriate to embark on a further detailed investigation of what would have been the state of mind of the NWB representatives on the on the hypothesis that they had made some or all of the pleaded misrepresentations. However, in view of the extremely serious allegations of fraud made against Mr Hamilton, Mr Havelock, Mr Cresswell and Mr Catton, it is right that I should investigate whether on the whole of the evidence any of them acted deceitfully in their dealings with Rabobank or PW on the occasions when misrepresentations are said to have been made.

Was there dishonest Concealment?

The witness statements in these proceedings were not taken until much later. Thus Mr Catton’s main witness statement was only signed on 22 May 2006 – more than eight years after the most recent events covered by it and more than ten years after the earliest events. His second witness statement was made necessary by the formulation in the MSC served on 3 July 2006 of Misrepresentations (7), (8), (9) and (10), and dealt with events which happened just under ten years previously. I infer that work on his main witness statement which runs to 66 pages must have been spread over at least six months. His depositions in the CC Proceedings were heard in January 2002, more than five years after most of the key events and more than four years after the most recent event covered by it.

Mr Hamilton’s main witness statement was also signed on 22 May 2006 and therefore dealt with events occurring eight to nine years earlier. Since it runs to 142 pages and is in considerable detail, I infer that it must also have taken at least six months to prepare. His depositions in the CC Proceedings were heard in January and March 2002, four to five years after the events.

Mr Havelock’s main witness statement was also signed on 22 May 2006 and dealt with events eight to nine years earlier. Since it runs to 66 pages I infer that it must have taken at least six months to prepare. His second witness statement was prepared partly to deal with the MSC allegations as to the Mr van der Schrieck meeting (Misrepresentation 14). It was signed on 22 November 2006, some nine years after that meeting. His deposition was heard in January 2005. Mr Cresswell’s only witness statement was signed on 22 May 2006 and I infer that it took at least six months to prepare. His deposition in the CC Proceedings was heard in January 2003.

For these reasons, the findings of facts which I have made in this judgment, while taking into account to a substantial extent the oral evidence of all the main witnesses, have had to rely heavily on the contents of contemporary documents and on the inferences properly to be drawn from that source rather than on what was said in the witness box, a large part of which was of no greater weight than somewhat speculative commentary on the contents of forgotten documents.

Against that background I now consider the conduct of each of Mr Catton, Mr Hamilton, Mr Havelock and Mr Cresswell. I do so on the hypothesis, contrary to my findings, that there were the implied misrepresentations identified and defined in the MSC, as well as the express representation (14) at the 25 September 1997 van der Schrieck meeting.

Since Mr Catton became involved with YFG long before those in the CSS, it is appropriate to start with him. Fundamental to the case against him is the allegation that he appreciated that information as to the directors’ personal borrowings and as to the White Rose Project was material to be known to Rabobank because it would probably influence or (as Mr Davies of Rabobank put it) because it would decisively influence Rabobank’s decisions to go on lending to YFG and ultimately to take out NWB’s loan.

The core, although not the only part, of Rabobank’s case on materiality and concealment by Mr Catton and the other NWB officials is that the White Rose Project involved breaches of fiduciary duty by the directors and employees of YFG and its subsidiaries by reason (i) of the manner in which the almond farmland was acquired by AF I and AF II and (ii) the purposes of that acquisition being that companies owned or controlled by those who were directors or employees would trade with Treehouse by selling nuts to it for processing and/or would trade with processors who were competitors of Treehouse and thereby compete with Treehouse. The conduct which it is said would amount to breach of the directors’ and employees’ fiduciary duty for the acquisition of the farmland would involve directors taking over a corporate opportunity and the use of the farms to sell produce to Treehouse or its competitors would involve self-dealing and/or conflict of interest. An additional aspect was the projected involvement of Baker Farms which was an existing supplier of nuts of Treehouse and with which it was proposed that the farms would become involved in a joint venture to develop and exploit the new orchards. Whatever may be the strict legal analysis of their conduct and proposed conduct, which at the lowest involves near certainty that the acquisition of the farms was the taking of a corporate opportunity in breach of fiduciary duty by the directors, it is reasonably clear, and I so find, that this information would have been material to be known to a co-workout bank such as Rabobank, for, at the very least, it would have caused it, before making further loans or making the takeout proposal to investigate with the directors, in particular Mr Firth and Mr Haley, how they had acquired the farms and how they proposed to trade the farms consistently with their duties as directors of YFG. Since it was Mr Catton who had been most closely involved with the PAMCO proposal and with the making of the BL it was he who could be expected to appreciate or, at its lowest, to suspect that the directors’ conduct was or might well be wrongful. In this connection, it was the application for the BL which, if anything, could have been expected to alert Mr Catton to the wrongful character of what was being done by the directors and in particular by Mr Firth and Mr Haley, particularly having regard to his evidence in cross-examination that he understood that directors owed fiduciary duties to their companies and that unauthorised self-dealing was impermissible.

I find that Mr Catton at no time appreciated that any of the conduct of Mr Firth or the other directors was or might be in breach of their fiduciary duty. Mr Firth was a well-known and respected Yorkshire businessman. Mr Catton’s perception of those involved was that they were the highly respectable directors of a publicly quoted company, which included on its Board Sir Marcus Fox, a local MP of impeccable credentials and which had never done anything to suggest to him that it or its directors would act improperly. He had never previously in his banking experience encountered self-dealing by directors who were the customers of the bank and he did not approach either the application for the BL or the management of the directors’ borrowings generally with an eye to whether the directors conduct with regard to the White Rose Project was improper or questionable. In this connection it is relevant that Mr Catton in March 1996 had backed the increased lending by NWB to YFG bringing up the total facility to £50 million, just at the time when the PAMCO proposal was developing (January 1996), hardly a course which would be recommended by a relatively junior banker to his bank had he smelt impropriety. In this context it is worth recalling the words of Steyn J. in Barclays Bank v. Quincecare [1992] 4 All ER 363 at p377:

The making of the BL in April 1996, with which Mr Catton was directly involved, at the outset exemplified his attitude to Mr Firth and his Trust when he indicated that the “integrity risk” was “good”. Although it is true that the BL involved only $1.2 million and was only for four months, it is inconceivable that Mr Catton would have given it his approval, although (for other reasons) reluctantly, had he believed that Mr Firth’s conduct via-a-vis his own company and a major borrower from NWB was improper. In this connection Mr Catton could have had no motive at this early stage in misrepresenting to NWB the Firth Trust’s integrity standing. It certainly could not be suggested that there could then have been any purpose in persuading Rabobank to continue the recently-established Credit Facility of which there had been no breach by YFG. Mr Catton’s comment in the BL credit application that he was ‘not amused at the eleventh hour request’ simply reflected his feeling that NWB was being pressured into making the loan to preserve a private business interest in the United States for which local borrowing would have been more suitable, the purpose being, as he said in evidence, ‘to support the broader relationship between NatWest, YFG and Mike Firth’.

Mr Catton’s lack of appreciation of any actual or projected wrongdoing by the directors was attributable both to his lack of professional experience of breach of fiduciary duty by directors and also to the apparently distinct nature of the business constituting the White Rose Project. In particular, unlike the YFG operating companies in the United States which were currently in production, the White Rose companies were to be a farming business and not a processor business and were to form a new business which involved production for processing by others, but not until the trees were producing a commercially viable crop, in about three years time. The White Rose Project’s commercial activity therefore lay in the future and had no bearing on either the recoverability of the BL or of the amounts that would become due for repayment by YFG under the Credit Facility. Mr Catton’s focus with regard to recoverability of the BL did not extend beyond the Firth Trust itself and was not concerned with the commercial viability of the White Rose Project. His belief was that, apart from the BL, the farm acquisition had been funded by the directors’ capital contributions, a reasonable assumption given that those at YFG who were concerned with the farms had concealed from NWB that the purchase had originally been intended to be by YFG and that Yorkshire funds had been used at the outset to acquire the land. There is evidence to suggest that such concealment was deliberate, as appears, for example from the fax from Mr Atkinson to NWB dated 27 April 1996: see paragraph 140 above which set out as the directors’ individual capital contributions amounting in total to $600,000 which had in truth been paid by YFG. Further, the two letters from Travelers referred to at paragraph 140 above, in particular that received by NWB on 29 April 1996, which had apparently mistakenly referred to YFI as borrower and then apparently been corrected by inserting White Rose as borrower was a further misleading factor which, had Mr Catton read it, would have appeared to have involved a mistake.

Finally, for one such as Mr Catton, who was not closely familiar with the concept of breach of fiduciary duty, the prospects of future impropriety when it came to trading the farms’ produce would be not only outside the immediate concerns for recoverability of personal borrowing or the corporate loans but would be such as would appear remote and far from inevitable, for, by the time such trading occurred, sufficient authorisation might be obtained from an independent Board to enable the farming companies to trade with, or even with the competitors of, the YFG producer companies.

I have already drawn attention (see paragraph 348) to the delay, following the introduction into the workout of CSS and Mr Hamilton in August 1996, in Mr Catton sending on to him any detailed information about the private borrowings for a month, until the memo of 30 September 1996. Had Mr Catton believed at that time that the BL and the White Rose Project was relevant to the work of CSS in relation to the workout, it is inconceivable that he would have waited such a long time before providing such information to CSS and also inconceivable that the memo would have made no reference to any impact that the existence of the Project might have on the corporate loan.

It was Mr Thompson’s evidence that the intention of the directors personally to operate almond farms some years in the future would not have been of interest to a workout banker. His report states:

Accordingly, I conclude that Mr Catton neither knew nor suspected at any time prior to the entering into of the DoT that the White Rose Project was material to the workout or the Takeout.

In evaluating Mr Catton’s state of mind with regard to other aspects of what Rabobank says was material information, it is important to keep sight of the relatively small exposure of NWB on the personal loans (about £3 million at the start of the workout) by comparison with the corporate loans of about £32.5 million. The personal loans were then fully secured by 15.1 per cent of the shares in YFG. The proposition that an experienced workout bank would do anything by way of enforcement of that security which might involve the risk of prejudicing the recoverability of the corporate loan presents itself to me as plainly inconceivable. Mr Hudson’s suggestion that the existence of the security represented a risk to recoverability by Rabobank because if NWB realised that security by causing the sale of all the deposited shares, the effect on YFG’s market standing would be very damaging and might therefore imperil the viability of the company and the recoverability of the corporate indebtedness is to be rejected. No even moderately sophisticated bank would contemplate placing itself in that position. The truth is that the existence of the corporate indebtedness had effectively locked NWB into the directors’ private loans so that its only effective remedy during the workout was to attempt to persuade them to repay the loans or to increase the security, as Mr Firth did in December 1996 by an additional deposit of shares, and as Mr Catton attempted to procure in the course of 1997. I have absolutely no doubt that Mr Firth would have been the first to appreciate that there was not the remotest prospect of NWB trying to make him bankrupt or enforcing its security unless it also decided to abandon the workout in favour of liquidation. No doubt this was also fully understood by Mr Haley and if Rabobank or any other workout bank in a similar position had been told of the personal indebtedness and the fact that it was thus secured, it would at once have arrived at the same conclusion. No doubt that accounts for Rabobank’s complete failure to investigate further the information acquired by it in the letter of 24 September 1996 (see paragraph 224 above) that NWB had made substantial loans to the directors which were secured by deposits of shares in YFG. These considerations lead further to the conclusions that the existence of these personal loans, even if overdue for repayment, would not be regarded as material to the market on any basis – whether as a source of pressure possibly deflecting the directors from their corporate management responsibilities or as a potential threat to the viability of YFG. For these reasons I accept Mr Thompson’s view that, at least on this ground, the existence of the director’s personal loans was not material information. He stated in his report:

It is right to add that the argument advanced on behalf of Rabobank that the information which NWB possessed as to the directors’ entering into the White Rose Project and their subsequent failure to repay their loans on the dates for repayment was material because it evidenced the directors’ financial recklessness or at least inability to manage financial affairs and therefore suggested unfitness to manage YFG or its subsidiaries is not sustained on the evidence. Throughout the period of the workout both Banks considered that Mr Firth had the flare and ability to turn YFG round and both Banks were prepared to entrust him with this objective – even making their further financial support conditional on his hands-on management. Mr Haley was also well thought of, in spite of the reservations expressed by Mr Firth shortly before the takeout that Mr Haley was not up to the job. There is no evidential support for the proposition that Mr Catton held any different view and I infer that he did not. I further infer that he did not direct his mind specifically to the question whether late repayment of the BL suggested material shortcomings in Mr Firth’s management skills. His assumption throughout was that Mr Firth was a reliable and skilful manager of integrity. I have no doubt that, were it otherwise, Mr Catton would have supported neither the BL nor the Credit Facility applications

Mr Catton is alleged to have made fraudulent misrepresentations identified in MSC (1), (3), (7), (8), (9), (10) and (11). Having reached the conclusions as to his state of knowledge and belief set out in paragraphs 377 to 387 above, I can deal with these issues quite shortly.

MSC (1). Mr Catton did not believe or suspect that any of the representations set out in MSC paragraph 42 were false as stated in paragraph 45 or at all. Mr Catton did not believe that any of the undisclosed material information was material or relevant to the workout. Since this was his state of mind, he could not have believed that his omission to disclose them was capable of amounting to a misrepresentation because by definition as a matter of good practice, as distinct from legal duty, workout bankers only disclose information which they believe to be material.

MSC (2). On no subsequent occasion on which it is pleaded that the representations set out in paragraph 42 of the MSC were made did Mr Catton believe or suspect that any of them were false. At no time did he believe that NWB was concealing from Rabobank information which he believed to be material to the workout.

MSC (3). Mr Catton at no time believed or suspected that any of the matters relied on in paragraph 62 of the MSC were untrue.

MSC (7). Mr Catton at no time believed or suspected that any of the matters pleaded in MSC paragraph 108 rendered what he stated in the 12 September telephone call, as pleaded in paragraph 105, untrue.

MSC (8). Mr Catton at no time believed or suspected that what he stated in the course of the telephone conversation on 12 September 1996 was false.

MSC (9). Mr Catton did not at any time believe that any of the matters pleaded in MSC paragraph 121 were material and consequently did not believe or suspect that the matters said to have been misrepresented at MSC paragraph 122 were false as pleaded in paragraph 127 or at all.

MSC (10). Mr Catton did not believe or suspect that the facts and matters pleaded to have been represented at MSC paragraph 128 in the course of the 25 September telephone conversation were false as pleaded in paragraph 131 or at all.

MSC (11). Mr Catton did not appreciate that any representation was being made in relation to the relevant paragraph in Appendix 18 to the PW Report and did not intend to make such representation. The subject-matter was simply not discussed (see paragraph 243 above). Mr Catton therefore did not act in any way dishonestly.

Accordingly, in my judgment, at no time in the course of the workout did Mr Catton make any representation to any representative of Rabobank which he knew or suspected to be untrue. This conclusion rests heavily on inferences from the contemporary documents and the context in which the representations are alleged to have been made. However, it is right to add that during nearly 12 hours cross-examination and 4 hours re-examination Mr Catton presented as a scrupulously honest and careful witness. He was particularly careful to listen to the questions, make sure he understood them and to relate his answers to contemporary documents. He did not pretend to remember facts of which he had no clear recollection and he made it clear when his evidence depended on reconstruction from contemporary documents. I am in no doubt that at no time did he set out to mislead Rabobank or to feed them with half-truths in order to induce them to go on lending to YFG knowing that if they were given additional information they would or might decline to go on with the workout or refuse to proceed with the Takeout.

I must now consider Mr Hamilton. The core of the case in fraud against him is the Pavement Conversation for it is submitted on behalf of Rabobank that there can be no honest explanation for what passed between Mr Hamilton and the PW team of Mr Barrett and Mr Hargrave following the meeting with PW at Rabobank’s offices on 29 August 1996. My findings as to the content and circumstances of the Pavement Conversation are set out at paragraph 204 above. My findings at paragraphs 344 to 356 above are to the effect that Mr Hamilton at no stage believed that information as to the directors’ personal borrowings was material to the workout. His focus was exclusively directed to the recoverability of the corporate indebtedness and to the conduct of the workout with that objective. He had little or no interest in the directors’ personal loans or their recoverability, which he regarded as peripheral matters within the responsibility of Mr Catton and the Leeds Office. I have no doubt whatever, on his evidence and that to be derived from the contemporary documents that there never came a time, right up to the Takeout, when he made any connection between what little he knew of the purpose of the BL and the recoverability of the corporate debt. Nor did he regard any other aspect of the personal indebtedness as relevant to recoverability of that debt. This is not surprising. He had a heavy workload of workout cases simultaneously with that of YFG and the latter made ever-increasing demands on his time, particularly from August 1997. Not least was the need to monitor as closely as possible YFG’s cashflow in view of the apparently unreliable figures repeatedly put out by the company.

The consequence of these findings on the case advanced by Rabobank with regard to the misrepresentations pleaded in the MSC can therefore be summarised as follows.

MSC (1) and (2). Mr Hamilton had substantially less information about the purpose to which the BL had been put than Mr Catton. His potential perception of the materiality of the directors’ personal loans and of the BL in particular was therefore weaker than that of Mr Catton. I find that he did not believe that any of the undisclosed material information to the extent to which he was aware of it was material or relevant to the workout. He therefore did not believe or suspect that any of the representations set out in MSC paragraph 42 were false as stated in paragraph 45 or at all, except that the Banks’ investigation was being made “jointly” only to the extent that they were jointly instructing PW to prepare a report on YFG. Thus Mr Hamilton did not believe that his omission to disclose the material information was capable of amounting to a misrepresentation, it being neither NWB’s legal duty nor good workout practice to disclose information not believed to be material. This continued to be Mr Hamilton’s state of mind with regard to the representations set out in MSC paragraph 42 throughout the workout.

MSC (4). In view of the findings in paragraphs 344-356 above, it has not been established that Mr Hamilton was dishonestly concealing information set out in paragraphs 73-75 of the MSC. Mr Hamilton did not believe the directors’ private borrowings to be material; nor did he have the intention at the 29 August 1996 meeting of deflecting PW from carrying out what he believed to be their professional duty as investigating accountants. His belief was that he was simply expressing a view that the personal borrowings were irrelevant to the investigation by PW and that it would therefore be preferable if they did not disclose those borrowings in their report. Assuming, as I find, that his intention was no more than that, he could not be guilty of dishonest concealment.

MSC (5) and (6). For the reasons given in paragraph 401 Mr Hamilton did not know and did not intend that there was any misrepresentation as alleged in MSC paragraphs 82 and 90.

MSC (11). For reasons substantially the same as those applicable to Mr Catton (see paragraph 396 above), I find that Mr Hamilton made no representation as to the accuracy of Appendix 18 of the PW Report and did not act dishonestly in any way.

MSC (12). In view of Mr Hamilton’s continuing belief in the irrelevance of the BL and other material information and Further material information to the effect that, in spite of the Pavement Conversation, it was always open to PW to take a contrary view as to the materiality to the workout of the directors’ personal borrowings and to proceed to investigate them, Mr Hamilton did not believe or suspect that this alleged misrepresentation was untrue.

MSC (13). In view of the impossibility of ascertaining the context in which this alleged representation was made or, therefore, whether it was made at all (see paragraph 300 above) all that can be said on this hypothetical basis is that the matters referred to in the conversation with Ms Hanley were not regarded by Mr Hamilton as material to the workout and it is accordingly most improbable that, however he expressed himself, this was with dishonest intent.

MSC (14). I have already found that Mr Hamilton and Mr Havelock made no misrepresentation by their answer to Mr van der Schrieck’s reciprocal question: see paragraphs 359 - 360 above.

Mr Hamilton gave evidence under cross-examination for just under 12 hours and in re-examination for about 4 hours. His memory was not particularly good, which is hardly surprising given the amount of time which has elapsed since the key events. His answers to questions from counsel were sometimes obliquely expressed or not directly focused on what he was being asked. That said, I have no doubt that he was an honest witness and that he was doing his best to respond as accurately as his memory permitted. In assessing his credibility it is necessary to look at the wider ramifications of what is alleged against him. Thus, had he embarked at any stage on a deliberate course of concealment of the purpose of the BL and of the White Rose Project generally, he could not have expected that purpose to be achieved unless all those likely to be in contact with Rabobank were alive to it. That would mean that Mr Catton, Mr Cresswell, Mr Havelock and, possibly, Mr Side would have to be made aware of this policy. So would the YFG directors. Since Mr Hamilton reported to Mr Cresswell and he to Mr Havelock and he to Mr Side, a decision as to such a course would have to be taken above Mr Hamilton‘s level or possibly at Mr Side’s level and realistically it would have had to be taken right at the outset of the workout, by 20 August 1996. Yet it is clear from the contemporary documents that Mr Catton and the CSS, including Mr Hamilton and Mr Cresswell did not treat the directors’ borrowings as of any relevance to NWB’s decision-taking on the workout: otherwise Mr Catton would have provided to Mr Cresswell details of those borrowings immediately following CSS taking over the management of the corporate indebtedness, instead of delaying for over a month before sending his memorandum of 30 September 1996 to Mr Cresswell. The proposition that, prior to this date, Mr Catton and the CSS had agreed to conceal from Rabobank all information about private borrowing is, in my view, untenable. Indeed, it is quite clear that no such design had been communicated to YFG, otherwise Mr Haley would never have indicated in his letter to the Banks of 24 September 1996 concerning the Berisford Redemption that the directors had personal borrowings secured by shares in YFG. Further, the letter also went to PW and must have been seen by Mr Barrett and/or Mr Hargrave who had yet to produce their report. It was also seen by Mr Hamilton, who copied it to Mr Havelock. That was less than a month after the Pavement Conversation. Had the continued concealment from Rabobank of the directors’ personal borrowings been a matter of any importance to NWB, it might have been expected that Mr Hamilton would then have reiterated to PW what is relied on as his instruction not to deal in detail with that matter in their report. Yet that is not what he did. In my judgment, the only significance in relation to the workout which any of those concerned in the CSS attached to the personal borrowings of the directors was whether, having regard to those borrowings and the deposits of YFG shares as security, the directors, particularly, Mr Firth retained any surplus assets which could be used to pay off Berisford.

Finally, the existence of a concerted design to conceal the directors’ personal borrowings could be explicable only if NWB had some motive for it. Rabobank submit that the motive was to preserve Rabobank as a co-lender to YFG in order to improve NWB’s prospects of recovery of its portion of the debt rather than having to rely on recovery by way of YFG’s insolvency. The belief that Rabobank might be deterred from continuing the workout could only be derived from NWB’s appreciation that the directors had acted wrongfully or proposed to do so. As already found (paragraph 351) this is a distinctly improbable scenario.

My conclusions with regard to the honesty of Mr Catton and Mr Hamilton lead to similar conclusions in relation to Mr Cresswell and Mr Havelock.

Mr Cresswell, like Mr Hamilton, had no interest in the directors’ private borrowings. They did not fall within the management role of CSS. He did not see them as relevant to recoverability of the corporate lendings. He stated in his witness statement:

Mr Cresswell is said by Rabobank to have been a representor in relation to MSC misrepresentations (1) and (2), the latter extending over later meetings with Rabobank in as much as Mr Cresswell repeated the misrepresentations alleged in MSC paragraph 42. Given that, as I accept, Mr Cresswell did not believe any of the material information as defined in the MSC to be material to the workout, he did not believe that, even if any of the representations pleaded in paragraph 42 of the MSC were made, any of them were untrue to the extent that they refer to the non-concealment of material information. However, his belief as to the need for NWB to disclose material information and the nature of the co-operation with their co-workout banks, which I accept that he genuinely held, is expressed in the following passage in his evidence:

I find that there was no dishonest concealment of facts known or suspected by Mr Cresswell to be material in any of the meetings referred to in relation to MSC Misrepresentation (1) and (2). Mr Cresswell believed that the directors’ personal loans were of no concern to him or the CSS and it followed from that belief that he never considered disclosing them to Rabobank. Having heard him cross-examined in considerable detail over a period of eight and a half hours I am entirely satisfied that he was an honest witness, notwithstanding his very defensive responses to many of the questions put to him.

Finally, there is Mr Havelock, the most senior of the NWB officials who were accused of fraud. I have already considered the meeting with Mr van der Schrieck on 25 September 1997 (see paragraphs 326 and 358-360 above) and I have concluded that, in answering the reciprocal question, there was neither misrepresentation nor dishonesty on the part of Mr Havelock or Mr Hamilton. No other specific allegation of fraudulent misrepresentation is made against Mr Havelock. His evidence made it clear that, to the limited extent that he was aware of the directors’ personal borrowings, he regarded them as completely irrelevant to the workout. Such borrowings were not dealt with by the CSS which was a corporate workout department. He further stated:

Mr Havelock gave his answers before this court in a somewhat hesitant manner but I do not consider that this was the consequence of fabrication or lack of transparency. Rather, it was a consequence of the problem of recollecting details of events long past and of having to deal with relatively complex questions based on unfamiliar legal concepts, a problem encountered by both sides’ witnesses. I am satisfied that he gave his evidence honestly and as accurately as his memory allowed. Had it been necessary to decide whether he participated in a dishonest conspiracy to mislead Rabobank, I would have decided that he did not. There is no evidence that he made or procured the making of any untrue representation at any time up to and including the Takeout.

Had I concluded that Rabobank had established that untrue statements were made to it and that the makers of those statements believed them to be true, it would have been necessary to decide for the purposes of the case on Section 2(1) of the Misrepresentation Act 1967 whether NWB had proved that the representors had reasonable grounds for their belief in respect of each misrepresentation. I make no hypothetical findings on this area of the case because the number of different misrepresentations is so great that there could be many permutations of factual foundations for the hypothesis. Similarly, I make no findings on causation on the basis that NWB did make fraudulent or section 2(1) misrepresentations. The factual foundations could be infinitely varied and such findings would be of little or no assistance to the parties.

Inducing PW to act in Breach of its Professional Duty

NWB knew of the contract or professional duty said to have been broken and intended to interfere with its performance.

The person said to have been induced must have acted in breach of his duty or other rights.

The breach must have been caused by the defendant’s act of procurement.

The claimant must have suffered damage caused by the breach.

In relation to (i), the purpose of the defendant must be shown to be to procure breach of contract or duty and it is not enough if such a breach is merely caused by the defendant’s conduct: see D C Thomson & Co Ltd v. Deakin [1952] 1 Ch 646 at p663 per Upjohn J. and p681 per Evershed MR, p698 per Jenkins LJ. and p702 per Morris LJ.

In relation to (iii) the breach of contract or duty must have been caused by the act of procurement to the effect that if the contract breaker or duty breaker was always going to break his contract or duty, regardless of the act of procurement, there is no tort for there has to be direct causal linkage between the wrongful act of the defendant and the damage sustained by the claimant whose contract has been broken: see DC Thomas v. Deakin, supra, per Evershed MR at p686, Jenkins LJ. at p696 and Rickless v. United Artists [1988] FSR 502 at p521-522. Reliance is placed on behalf of Rabobank on Barton v. County Natwest Ltd [1999] Lloyd’s Rep (Banking) 408 and the principle that where a fraudulent misrepresentation has been made in relation to an anticipated contract and the representee has entered into a contract it is presumed that the representee has in so doing relied on the representation to the effect that where a statement of inducement is made there is a presumption that it has been relied upon by the person said to have been induced in deciding to act in breach of contract or duty. I find no basis for this analogy. Apart from the fact that it is inconsistent with the authorities to which I have referred, it is wrong in principle. Whether the act of procurement has caused the breach is a question that has to be answered by reference to all the available evidence and the highest it can be put is that in some cases and depending on the circumstances an inference may be drawn from the sequence of breach following an act of procurement that the former has been caused by the latter.

I have already found that in the course of the Pavement Conversation Mr Hamilton expressed an opinion as to the materiality to the PW report of the personal borrowings of the directors of YFG, indicating that therefore there was no need for PW to disclose such borrowings to Rabobank and that NWB preferred that this should not be done. I have further found that Mr Hamilton did in truth believe that the directors’ personal borrowings were irrelevant to PW’s remit. He also knew the provisional contents of the terms of reference that were likely to be agreed between PW and YFG. In these circumstances his perception of the scope of PW’s professional duty is necessarily conditioned by his view as to what was relevant to the workout and to the terms of reference. Accordingly, if on that view the directors’ private borrowings fell outside that scope, his remarks to Mr Barrett and Mr Hargrave, even if of prohibitory effect, could not support the case on intentional procurement.

There is, however, another fundamental problem with Rabobank’s case on inducing breach of duty. Both Mr Barrett and Mr Hargrave gave evidence that they would not in any event on the information available when the terms of reference were agreed have considered investigation and reporting as to the directors’ personal borrowings to be a necessary part of their reporting function. In other words, they would not have considered that to be an exercise required to be performed by their professional duty. I accept that evidence. They, like the CSS personnel at NWB, were directing their attention exclusively to the recoverability of the corporate indebtedness. Although they were required to report on management of YFG and its subsidiaries, that called for an investigation of the ability of the present management to turn the group round. They would not investigate the private borrowings unless they had information that caused them to suspect managerial unsuitability. Therefore, the remarks made by Mr Hamilton, even if of prohibitory effect, could not have had the required causal linkage with any subsequent breach of professional duty by PW in omitting to pursue any investigation of the BL or other borrowings or to locate and investigate the White Rose Project.

Finally, there is strong evidence that, given that the scope of PW’s investigatory duty was defined by the terms of reference ultimately agreed on 6 September 1996, there would be no breach of duty by PW failing to investigate the directors’ personal borrowings or failing to tell Rabobank about the remarks made by Mr Hamilton in the course of the Pavement Conversation. The Joint Report of the Accountancy experts, Mr Lee (Rabobank) and Mr Wheeler (NWB) stated:

On the basis of these findings I conclude that Rabobank has failed to establish that NWB procured PW to act in breach of its professional duty. The alternative analysis advanced by Rabobank that NWB were joint tortfeasors with PW in relation to PW’s negligence in omitting to investigate the directors’ personal borrowings is equally unsustainable. There simply was no tort committed by PW.

The counterclaim by Rabobank therefore fails in all respects and must be dismissed.

I express no concluded view as to whether, had Rabobank established that NWB made misrepresentations to it, whether fraudulent or such as were covered by section 2(1) of the Misrepresentation Act 1967, Rabobank would also have established sufficient causal connection between such misrepresentation and either its continuation of the workout from August 1996 or its entering into the DoT in October 1997. The hypothetical factual permutations are too diverse to make this a sensible exercise. Nor do I express any concluded view as to whether contributory negligence, as distinct from lack of causation, is an available defence to a claim under Section 2(1) and, if it is, whether there was any contributory negligence on the part of Rabobank in this case. However, my preliminary view is that contributory negligence is not an available defence to a claim under section 2(1) but that, if it were, Rabobank’s level of contributory negligence as regards entry into the DoT would be not less than 60 per cent. I express no view as to whether Rabobank’s conduct in entering into the DoT would have prevented such hypothetical misrepresentations as were made by NWB from being the predominant or effect cause of Rabobank entering into the DoT. If this matter goes further and as a result it is necessary for there to be further findings, these will have to be remitted to this court.

NWB’s Claim

Rabobank denies that the following causes of action amongst the Original Claims were brought against NWB in any respect as Agent:

the Fourth cause of action: aiding and abetting the directors’ breach of duty;

the Ninth cause of action: fraudulent non-disclosure;

the Twelfth cause of action: negligent non-disclosure;

the Twelfth cause of action: breach of the covenant of good faith;

the Thirteenth cause of action: breach of contract by failure to disclose material information;

the Fourteenth cause of action: tort

The Fourth Cause of Action alleged that NWB had knowingly aided and abetted breach of fiduciary duties owed by YFI officers and directors to Rabobank and Utrecht to preserve YFI’s corporate assets for the benefit of YFI creditors. Those breaches of fiduciary duty are pleaded as follows:

The Ninth Cause of Action alleged that NWB served as agent for Rabobank “in connection with the banks’ relationship with YFG and US Subsidiaries” and

The Tenth Cause of Action alleged that, if NWB did not intentionally withhold the information which it had concerning the almond farms, it negligently failed to disclose it to Rabobank and Utrecht.

The Twelfth Cause of Action. The basis for this cause of action is the following

The Thirteenth Cause of Action. It is pleaded that NWB was obliged “under the Terms and provisions of the March 1996 Credit Facility Agreement to provide to Rabobank all material facts and information relating to the lending relationship of Rabobank and NWB to YFG and its subsidiaries” and in breach of contract NWB failed to do so.

The Fourteenth Cause of Action is based on the following allegation:

It is submitted on behalf of NWB that Rabobank was in reality contending that because NWB was appointed Agent under the 1996 Credit Facility it owed fiduciary, contractual and tortious duties to disclose the particular information relied on. This is said to be supported by Rabobank’s assertions in its memorandum in support of its application to amend the original complaint by the introduction of the Workout Claims in February 2002 that the Original Claims were “only contractual-based duties” of NWB “in its narrowly defined role as ‘agent’ under the Credit Facility” and in its Reply brief of 8 May 2002 that “Rabobank’s new claims are based upon the conduct of NatWest’s lending arm, not its Agency, and therefore, none of NatWest’s previous demurrers (all of which exclusively addressed the Agent’s duties under the Credit Facility) is applicable to Rabobank’s new claims.” In its Opposition to NWB’s demurrer to Rabobank’s first amended complaint Rabobank based its opening analysis of the substance of the Original Claims on the proposition that a principal and agent relationship existed between Rabobank and NWB, that being the basis of the fraudulent non-disclosure claim against NWB. Thus, in the Table of Contents the applicable section is headed “As Agent, NatWest owes Rabobank a Duty to disclose”. Further, Rabobank sought to justify the claim against NWB for aiding and abetting the directors’ breaches of duty by alleging that because NWB was an agent it owed a fiduciary duty to Rabobank in its own right. That, it is to be inferred, arose solely from an alleged relationship of principal and agent. As to the fraud claim against NWB, the Opposition to Demurrer stated that NWB’s duty of disclosure in English law arose from its position as agent and the express terms of the Credit Facility and in California Law from its position as agent and the Facility also expressly created a duty to disclose. Finally in Rabobank’s Reply Brief Supporting its motion for leave to file a Third Amended Complaint Rabobank pleaded:

It is submitted on behalf of NWB, that although agency may not be a tenable foundation for these claims, what matters for the purpose of clause 21.3 is not whether they are properly analysed as so based but whether they are, rightly or wrongly, so expressed by Rabobank in the CC Proceedings.

It is submitted by Rabobank that the CC Proceedings have been stayed pending the outcome of this action and further that not all the pending causes of action against NWB in the CC Proceedings have been reproduced in these proceedings, in particular the claim for aiding and abetting breach of fiduciary duty by the directors and officers of YFI to preserve that corporation’s assets for the beneficial use of its creditors. If NWB were ultimately successful in defeating that claim, NWB might be awarded at least some of its costs already incurred up to now in the CC Proceedings. Consequently NWB’s claim in this jurisdiction for damages in respect of unrecovered costs in those proceedings is premature. Although NWB would not be awarded attorneys’ fees in the CC Proceedings, it would be entitled to other legal costs and it could apparently bring a claim for damages to recover attorney’s fees in California. It is therefore wrong in principle that NWB should be entitled to recover a judgment in London for payments which the Californian Courts may in future award as costs or by way of damages equivalent to at least part of the costs in the CC Proceedings.

Rabobank, however, advances a more fundamental challenge to NWB’s claim. It is submitted that the English courts do not permit recovery of costs in the form of damages when those costs have not been awarded as such, whether in the same proceedings or in a further action brought for that purpose: see McGregor, Damages, 17^th Edition paragraph 17-002, and this principle applies equally where the previous proceedings have occurred abroad: see McGregor, Damages 17-004. In The Ocean Dynamic [1982] 2 Lloyd’s Rep 88, Robert Goff J. dismissed a claim for damages based on the costs incurred by the successful party who had started and then discontinued a claim in the United States courts in respect of the same cause of action as that on which it succeeded in English courts. Only if an order for costs had been made by the US Court could such a claim be brought. Whereas, in cases where there had been foreign proceedings brought in breach of an exclusive jurisdiction clause, such costs might be recoverable as damages, that would be on the basis of breach of the contractual obligation contained in the jurisdiction clause having caused the innocent party to incur costs in defending a claim brought in breach of contract, see Union Discount Co v. Zoller [2002] 1 WLR 1517. Rabobank submitted that the principle in that case had no application here because the CC Proceedings had not been brought in breach of an exclusive English jurisdiction clause and the proper construction of clause 21.3 was that it was an exclusion clause, the effect of which went no further than to provide a defence to NWB if Rabobank brought a claim against it in respect of any action which NWB took or omitted to take in its capacity as Agent under the Credit Agreement prior to the Completion Date under the DoT. It is argued on behalf of Rabobank that if NWB were sued and successfully relied on the substantive defence provided by clause 21.3, it must be confined to its remedy in costs and has no right to recover as damages what it cannot recover in costs. In other words breach of the express obligation under clause 21.3 not to bring a claim is not analogous to breach of an express obligation only to bring a claim in the English courts and not elsewhere.

Rabobank further submits that the Californian court has already made a limited costs order in NWB’s favour, although the order was subsequently struck out on appeal, and thereby indicated what its view is as to the reasonable level of costs in that jurisdiction. Accordingly, the English courts should not make an order which in effect substitutes a completely different measure of costs in guise of damages.

The DoT is by clause 23 expressly governed by English Law. It is therefore by reference to English Law that one must analyse the effect of the express terms. The effect of clause 21.3(a) is to operate as a release of NWB from obligations, liabilities and responsibilities of any kind in respect of acts or omissions by it in its capacity as the Agent prior to the Completion Date. If one simply stops there, one has an exclusion of liability based on the mechanism of a washout of NWB’s obligations, liabilities and responsibilities. Proceedings brought against NWB for breach of its duty as Agent would therefore be met by a substantive defence. What then is the function of clause 21.3(b)? Is it simply re-emphasising that NWB’s liability for acts or omissions in its capacity as Agent are excluded? Or is it going further?

In my judgment, there can be no doubt whatever that clause 21.3(b) has been framed in the words used to impose on Rabobank and on the YFG Group a substantive obligation not to make or attempt to make any claim on or allegations against NWB in respect of its acts or omissions in its capacity of Agent. In other words, the function of (b) is not to exclude liability but to exclude the bringing of claims and the making of allegations – or even attempts to do so. Is there any principle of law, public policy or otherwise which would prevent damages being recoverable from a party in breach of this term? The proposition that somehow the principle in The Ocean Dynamic, supra, stands in the way of recovery is, in my view untenable. Such an action for damages would be founded on breach of the anti-claim clause and not on the merits of the improperly pursued claim. There would thus be as distinct a cause of action as in the case of breach of an exclusive jurisdiction clause or of an arbitration agreement. The fact that the loss caused by breach must be calculated by taking into account what has been paid by way of legal costs is irrelevant. The principle of indemnity for loss is not displaced by the existence of an alternative remedy even if it is the availability of a costs order, provided that no issue of causation or failure to mitigate disentitles the claimant from recovering. I find nothing inconsistent between this conclusion and anything that was said in Berry v. British Transport Commission [1962] 1 QB 306 or Union Discount Co Ltd v. Zoller, supra, for in this case there is no question of duplication of a cause of action in order to recover by way of damages in one set of proceedings or jurisdiction what could not be or has not been recovered as costs in a previous set of proceedings founded on the same cause of action.

Accordingly, if NWB can establish that the bringing or attempted bringing by Rabobank in the CC Proceedings of claims in respect of NWB’s acts or omissions in its capacity as Agent under the Credit Facility has caused loss or damage to NWB, it is in principle entitled to deploy a claim for damages for breach of clause 21.3(b) in order to obtain an indemnity even if that loss is the incurring of legal costs. The fact that at some future stage, if any, the Californian courts might make an order for costs relating to such part of the CC Proceedings as have been stayed is nihil ad rem. Recoverability of damages works on the indemnity principle to the effect that NWB is entitled to treat as its recoverable loss whatever it has reasonably incurred as a present liability to its Californian and English legal advisers, regardless of any possibility of a costs order in its favour at some time in the future. There would obviously be no question of double recovery.

Finally, it is not open to Rabobank to rely on the costs determination of the Californian Court as precluding the damages claim by way of issue estoppel. The insuperable obstacles to this argument are that (i) there is no final judgment on costs and (ii) the costs issue in California was completely different from the damages issue now before this court. In the former case a discretionary method of compensation, subject to particular costs rules, was being deployed, whereas in this court the only relevant methodology is a non-discretionary indemnity for all loss and damage caused by breach of contract.

In order to determine whether and, if so, in what respects, Rabobank was in breach of clause 21.3 in bringing the CC Proceedings it is first necessary to construe that term. Either it means that there is a breach if the proceedings commenced by Rabobank are in respect of conduct of NWB which was, objectively tested, in NWB’s capacity as Agent or it means that the proceedings are in respect of conduct by NWB which Rabobank asserts was in NWB’s capacity as Agent. There can be no doubt that clause 21.3(a) requires an objective test as to whether the action or inaction by NWB is in its capacity as Agent. One looks to the correct legal analysis of the relationship of the conduct of Rabobank’s capacity as Agent. That, however, in my judgment, is not matched by clause 21.3(b): That provision is aimed at providing, as far as possible, a completely litigation – free future for NWB and for that purpose it is concerned to prohibit all claims against NWB, whether rightly or wrongly based on acts or omissions in its capacity as Agent. It would be palpably absurd for the embargo to be directed only to those claims or allegations which justifiably asserted conduct in the capacity of Agent but not to be directed to those claims, actual or attempted, or allegations which unjustifiably so asserted.

Accordingly, the question whether there was a breach of clause 21.3(b) has to be tested by investigating in relation to each cause of action what, if anything, was, rightly or wrongly, asserted as to the relationship between NWB’s capacity as Agent and the conduct said to found the cause of action.

The Fourth Cause of Action: aiding and abetting breaches of duty by YFI’s officers. This cause of action is founded on NWB’s conduct in making the BL and its state of knowledge set out in the passage from the original complaint quoted at paragraph 427 above. That claim is not based on any conduct said by the pleading to be within NWB’s capacity as Agent. The Memorandum of Rabobank for leave to file a Third Amended Complaint dated March 2002 part of which is quoted at paragraph 433 above is misleading. The duty underlying the Fourth Cause of Action was certainly not contractual based between Rabobank and NWB in its narrowly defined role as “agent’ under the Credit Facility: it was expressly based on a cause of action independent of Agency under the Credit Facility, which involved aiding and abetting, by knowing assistance in, a breach of fiduciary duty said to be owed by the YFI officers to Rabobank as its primary creditor. The cause of action could have been asserted as fully against NWB if it had never had been a party to the Credit Facility. The Fourth Cause of Action therefore did not apparently rely on NWB’s capacity as Agent. Such assertion would be relevant to NWB’s claim if and only if it had been introduced as a pleaded part of Rabobank’s case as distinct from mere descriptive spin.

However, the document dated 18 April 2001 entitled “Opposition of Demurrer of National Westminster Bank” is a brief designed to justify the viability of the Original Claims. It does not set out to amend them. What it says about them is therefore merely descriptive. However, the Californian court had ruled in a decision of 9 January 2001 that a person may only aid and abet a breach of a fiduciary duty if they also owe fiduciary duties. At Section B of this brief the problem raised by this ruling is attempted to be met by this:

The Ninth Cause of Action: fraudulent concealment of the White Rose Project. The basis of this claim has been described at paragraph 428 above. It is palpably based on NWB’s duty to disclose to Rabobank derived from its fiduciary duty as agent. The fact that it acquired the material information as a bank is not the basis of the cause of action. The duty to disclose is the only duty alleged to have been broken. The submission by Rabobank that in effect the concealment by non-disclosure is inseparable from the process of acquisition and therefore the claim is not one against NWB in its capacity as Agent thus presents itself to me as wholly untenable. Rabobank was in this respect also in breach of clause 21.3(b).

The Tenth Cause of Action: negligent non-disclosure. It is in the alternative to the Ninth Cause of Action and rests on the duty of care arising from NWB’s capacity as Agent. As such it, like the Ninth Cause of Action, is based on breach of NWB’s duty in its capacity as Agent. Rabobank was also in breach of clause 21.3(b) in this respect.

The Twelfth Cause of Action: breach of covenants of good faith and fair dealing as described in paragraph 430 above. That Cause of Action does not in the Original Complaint expressly deploy NWB’s position as Agent as a basis for the existence of a duty of disclosure founded on the covenant of Good Faith and Fair Dealing.

The Thirteenth Cause of Action: breach of the 1996 Credit Facility. This allegation does not identify precisely which terms of the Credit Facility are said to have been broken by the failure of NWB to provide Rabobank with information as to all material facts concerning YFG and its subsidiaries and NWB’s lending relationships with insider officers and directors of YFI. However, it appears, having regard to the Opposition to Demurrer brief, that Rabobank supported this cause of action by the submission that:

The Fourteenth Cause of Action: the general claim in tort. This is described in paragraph 432 above. The “wrongful conduct previously described” included a substantial body of NWB’s conduct elsewhere alleged to be in breach of its obligations as Agent. The deployment of a claim in tort as an umbrella claim covering a variety of conduct characterised elsewhere in the pleading as in breach of NWB’s duty as Agent does not deprive that same conduct of its character as the basis of a claim in respect of NWB’s conduct in its capacity as Agent. Indeed, it is quite clear that it is the fact that the conduct was committed in that capacity which renders the conduct wrongful and it is that same wrongfulness which is the foundation of the general tort claim.

In the event, the bringing of all the causes of action in issue involved breaches of clause 21.3(b) of the DoT and NWB is entitled to recover damages quantified by reference to the losses caused to it in defending those claims in the CC Proceedings.

There is a further discrete issue as to whether NWB is entitled to include in its damages claim fees paid to Allen & Overy in respect of work in and from 1999. Rabobank argues that Allen & Overy were in a conflict of interest position when such fees were earned in as much as that firm advised both Rabobank and NWB jointly during the workout but, unknown or not fully known to Rabobank, they acted for NWB alone in advising on other matters the costs of which are included in NWB’s damages claim. It is argued that Allen & Overy were thereby in breach of duty to Rabobank and, accordingly, NWB cannot recover as damages what was paid by NWB to Allen & Overy when so acting.

This somewhat unusual point will, in my judgment, have to be more fully argued as part of the damage quantification hearing. There has been no useful argument on it so far and I therefore direct that it should be left for future submissions.

Conclusions

Rabobank’s counterclaim is dismissed.

the individual(s) alleged to have made each representation and the individual(s) to whom each representation is alleged to have been made;

the precise words and/or conduct that are alleged to constitute the representation;

the date(s) and place(s) such words were said and/or of such conduct;

the means of communication employed; and

the specific representation which it is said those words and/or that conduct amounted to.

the precise respect in which the representation is alleged to be false; and

the facts and matters that rendered the representation false.

knew that the words and/or conduct said to constitute the representation amounted to the representation in the terms alleged; and

knew that the representation so alleged was false.