National Westminster Bank Plc v Rabobank Nederland

INDEX

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:

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

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

Rabobank Nederland

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.

National Westminster Bank

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:

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

“that until further notice NWB and Rabobank would:

a)

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

b)

Jointly instruct a firm of accountants.

c)

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

and that as part of that agreement and in pursuit of what are described as “the Common Goals” Rabobank and NWB jointly agreed to appoint PW by whom they were subsequently jointly advised throughout the workout period.

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

“The representations made by NWB were to the effect that:

(i)

In pursuing the Common Goals the Banks’ investigation and assessment was being undertaken jointly.

(ii)

When discussing the issues which arose, setting agendas for their meetings, and questioning the directors of YFG, and instructing the investigating accountants (subsequently PW), that NWB was doing so candidly, openly, in good faith, fully and fairly informing Rabobank and the investigating accountants about any relevant communications with directors of YFG (or other relevant persons who might provide information) that NWB might have in the absence of Rabobank.

(iii)

NWB was providing Rabobank and the investigating accountants with all facts and matters known to NWB which were material to the achievement of the Common Goals.

(iv)

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:

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:

“the company has deliberately withheld information regarding the disappointing trading results against budget. Management figures had been requested on a number of occasions recently by the Relationship Manager, Mark Catton. When these had not been forthcoming from David Morgan, Mark had telephoned Paul Haley to make sure there was nothing wrong and was told everything was in order. However, only a week later, Mark was contacted regarding the poor results and covenant breaches.”

This comment which expressly represented those matters stated in it is said to have given rise to the following implied representations.

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:

“All of [Mr Firth’s] and fellow Management member’s wealth is invested in YFG shares: no other liquid assets are owned. Shares in YFG held by [Mr Firth] and Management are already deposited with National Westminster Bank, Leeds as collateral for personal borrowings (e.g, YFG share purchases, homes), so insufficient collateral exists and the asset would be unmarketable in present form. Another problem exists here: the matter would be a ‘related party transaction’ and unfortunately, should be disclosable to shareholders.”

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:

“... Management is currently contemplating farmland. A joint venture and/or acquisition will greatly enhance the company’s ability to obtain a consistent supply of quality almonds.”

It is pleaded that by discussing the PW interim report, without saying that Appendix 18 needed to be corrected or further information given for the banks to hold an informed discussion about the report, Mr Hamilton and Mr Catton impliedly represented that the report was accurate as far as NWB was aware with regard to YFG’s management, Treehouse and the acquisition of farmland by that management and NWB had no other material information with regard to the matters or Appendix 18. They intended their representations to be so understood and both knew them to be false having regard to the fact that the directors, including some of the Treehouse management had already bought the almond farms using the BL which was in default or had not been repaid and was secured on YFG shares.

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:

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:

“Agreeing to hold the 28 January 1997 secret meeting was deceitful in that Mr Cresswell knew and intended that the fact and terms of the proposed meeting were and were intended by the participants to be kept secret from Rabobank.

NWB agreed the proposal for (and held) these secret discussions to enhance NWB’s position at the expense of Rabobank’s position, on this occasion by seeking advantageously and unilaterally to obtain (and obtaining) and subsequently to deploy the ostensibly independent views of PW.”

It is further pleaded that the existence of this agreement and PW’s position were material facts so far as Rabobank were concerned.

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:

“The directors have the ability to make the orchard further attractive by attaching (if necessary/appropriate) a potential supply contract regarding almonds to Treehouse Farms Inc representing part of the YFG Group.”

It thereby indicated to Mr Catton and Mr Hamilton that the directors of YFG had not only acted in breach of fiduciary duty but were prepared to do so again in order to assist in the sale of the farms. This meeting and the matters discussed were material facts never revealed to Rabobank.

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:

“Steve [Hamilton] - I will do a note also on the subsequent conversations with both Paul [Haley] and Mike [Firth] - but need to be guided by you on what we record.”

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:

“The van der Schrieck Misrepresentation was made in order to induce Rabobank to continue to support YFG during the work out period and to induce Rabobank to enter into arrangements for the solution of the problems with the lending to YFG which would involve the reduction or removal of NWB's participation in the lending, including the take-out of NWB by Rabobank in circumstances in which NWB well knew that Rabobank would also immediately have to fund approximately an additional US$20 million to enable YFG to make payments to growers for the Autumn 1997 crop.”

It is said that, induced by and in reliance on the van der Schrieck Misrepresentation, the RICC decided on 29 September 1997 at a meeting attended by Mr van der Schrieck to proceed with the takeout of NWB’s participation and to enter into the DoT. Had NWB not made that misrepresentation, “as Mr Havelock and Mr Hamilton well knew”, Rabobank would have put YFG into administration and would not have agreed to fund the take-out of NWB.

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 5 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:

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:

“Banks in workout situations regard their reputations as paramount and will not seek to do anything during a workout which could damage that reputation through deliberately or accidentally misleading other participants. Disclosure of matters believed to be material makes the conduct of the workout as efficient as possible through making sure that whatever each workout banker himself considers to be material is shared with the other banks. This makes it more likely that the banks will come to the same conclusions.”

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:

“It is essential that during the rescue process all relevant creditors are provided with the same information regarding the assets, liabilities and business of the debtor … In the case of a group of relevant creditors that comprises only banks, it is quite common for all of them (with the agreement of the debtor) to receive the same information at the same time .. This is partly linked to the fact that the banks, under many legal jurisdictions, have either implied or contractual duties of confidence to their debtor customers and those banks are accustomed to receive and hold price-sensitive and confidential information.”

While drawing attention to the fact that this passage does not cover information about third parties’ assets, liabilities or business (such as those of a director) Mr Thompson also pointed out that the Principles are expressly non-binding and that even where more than two banks are involved and a co-ordinator is appointed to facilitate negotiations with the debtor and the provision of information to the other co-workout banks, the notes to the Fourth Principle state:

“Importantly, each of the relevant creditors will be expected to make its own assessment and decisions regarding any information, advice or proposals it receives either directly or via co-ordinators with regard to matters related to the restructuring process. Co-ordinators will have no duty or liability to the other creditors or the debtor with regard to the accuracy or completeness of such information or advice with regard to any proposals or their acceptance or rejection of them.”

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:

“Q. So you regarded any obligation you understood existed between the parties as one which was limited by a subjective view of either you or Mr Hamilton or whoever it was, as to what the other party would think was relevant, is that right? A. What was relevant or material, yes. Q. So if you thought that something -- and let us take this as an example -- Mr Stevens' views on mergers and acquisitions coming to no results, if you took the view that that would not be relevant to Mr Hamilton's decision, then you did not think you were under an obligation to disclose it? A. No. Q. By the same token, we can take it that if Mr Hamilton had some information which he did not think would be relevant to your decision, he was under no obligation to disclose it to you? A. Correct.”

Mr Cunningham’s evidence in the CC Proceedings was to the same effect. As to the answer given to Mr van der Schrieck, his evidence was as follows:

“Q. The question is, anything which you, Mr Hamilton, believe is important or relevant? A. That is implicit understood, yes. Q. Implicit and understood in that? A. I think that they understood and I understood it as well that, if I ask this question, that they only give me information which is relevant and important. Q. Which they think is relevant or important? A. Yes, of course. Q. So if they had a piece of information which they did not think was relevant or important, and they answered "no", that would be, as far as you are concerned, a truthful answer? A. Yes, of course.”

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 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

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:

“YFG is evolving into one of the most significant and dynamic participants in the global food ingredients market. The company is now positioned as a leading supplier of dried nuts and fruits to major food manufacturers such as Mars, Cadburys and Grand Met. In the case of Cadbury providing over 95% of this requirement in this area. Secondly, under its Del Monte brand YFG has a powerful retail franchise in the US with enormous potential for expansion in Europe and the Far East.”

It stated that YFG’s ability to take advantage of uniquely favourable market conditions was restricted by the availability of working capital and the gearing covenants of the existing facility. It noted that Mr Haley “for whom we have extremely high regard” was appointed as Chief Executive for the US. The memorandum continued:

“We have invested considerable time in developing our relationship with

senior management through numerous UK and US site visits and regular

meetings. Our overall high opinion of management at all levels has been

confirmed by this process.”

NWB’s reaction to YFG’s request was equally enthusiastic, Mr Catton wrote a 17 page Information Memorandum which Mr Skelley approved. The management risk was said to be strong with a well-balanced team, particularly Mr Haley who was first class. The financial risk was acceptable with the balance sheet ok “albeit gearing/leverage towards the outer edges”. Mr Catton observed:

“Cash flow risk hinges on debt/working capital cycle which

sees strong management control but influenced also by capex

aspirations which perhaps need to be checked.”

However, the repayment risk was “a little more tenuous” and would need to come from downsizing/refinancing. He went on “In Armageddon we have the comfort of substantially tradeable/liquid assets.”

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:

“However, our profile with the company is clearly strong and the proposed changes should generate good long term commercial opportunity for the bank in addition to improving the financing structure of the group.”

On 26 September 1995 YFG engaged Rabobank London as exclusive financial adviser in relation to the disposal of a substantial number of companies and businesses owned by YFG in the UK.

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:

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:

“Due to the fact that there are acreage restrictions for water obtained from US Federal districts our attorneys have recommended the creation of 2 new corporations Almond Farming I and Almond Farming II. These corporations will purchase the land in 2 halves. Kevin Matthews and John Campbell, (President and Vice-President of White Rose Farming) will be the only officers and members of these corporations. All monies will be loaned to these corporations via White Rose Farming. Kevin and John will be nominee members by means of trusts in favour of White Rose Farming. These structures may seem unusual by British standards, but are relatively common devices in California.”

Under the breakdown of cost of acquisition of the land (US$3.3 million) there appears an item “shareholder deposits paid to date” US$.06 million”. This clearly related to the total payments contributed by YFI totalling just under US$600,000 by way of discharge of the vendors’ indebtedness in relation to the farmland (see paragraph 130 above). This was misleading. On the second page the same figure is described as “equity deposits”. The enclosed business plan stated that White Rose Farming was a corporation to be farmed in California “with the purpose of owning and operating all of the Asset Management Company interests in agriculture through the state”. It showed who were the shareholders.

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:

“Bridging Loan Assistance towards acquisition of farmland/California – acquired by White Rose Farming (assets owned by Firth’s own private asset Management Company). Total consideration US$3.3m (inc legals). Composition includes US$0.6m directors introduction: US$1.5m short term loan CIGNA Ins Co and US$1.2 NWB.

The BL was to be repaid in full in three months. The security was to be a deposit of 1,950,000 shares in YFG to the value of £1.599 million together with a personal guarantee from Mr Firth to the extent of £800,000. As for the source of repayment, the application stated:

“Bridging Loan – to be repaid in full via monies raised viz long term loan established with Travellers Insurance totalling US$5.5m (US$1.5m to repay CIGNA debt/ US$1.2m NWB US$2.8m to fund proposed agri developments.”

Given that there was a 30 day period of grace for repayment, the loan had to be repaid by 31 August 1996, the due date being 1 August.

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:

“The acquisition will be transacted/land owned by a newly formed vehicle, White Rose Farming Inc, whose ownership will rest with a newly formed asset management company (PAMCO) which in turn is held privately by Mike Firth (major shareholder) and a number of colleagues.”

His recommendation that the application should be agreed to was given with some reluctance. This was because, as indicated in the memorandum he had already been approached by Mr Firth many weeks earlier for long term “seed capital” for expansion of his private business interests in the US and, as he put it, “At the time I shied away from the proposition as presented, advocating the formation and resultant trading/financial activities of any newco to actively stand on its own, with any permanent ‘seed capital’ sourced from the US as part of a joint venture arrangement or introduced by directors utilising own cash resources.” and there was now an application for bridging finance in respect of a purchase contract already entered into with completion on 2 May. The memorandum continued:

“It goes without saying that I am not amused at the eleventh hour request for support and nor am I overly attracted (as a principle) to the proposition before us and this has been communicated to Firth. We are unarguably being asked to support the ‘broader’ Firth relationship. I have little patience for the reasons behind the eleventh hour approach to us which, I am told, stem from a surprise at our unwillingness to provide long term seed capital and longer than expected subsequent process in raising direct/JV funding against the US proposition. I was not on notice until my meeting on Friday last that White Rose was committed to a land purchase.”

Later in the memorandum Mr Catton wrote under “Risk Assessment”.

“Financial, Structural and Security risks all satisfactory. Integrity risk is good.”

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:

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:

“Mark is of the view that there is now a serious banking issue for NWB and Rabobank. He has not been able to talk to Ben Davies who is on holiday, but feels strongly that with the various covenant breaches, the apparent deteriorating position, the two banks are moving rapidly into a quasi support situation. He also thinks that as part of any equity package which is agreed there will be a new money requirement from the banks.

In all the circumstances, he sees it as inevitable that he must involve Credit Support”

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:

“The company requested support from the Bank to help trade through these difficulties. However, nothing specific regarding its requirements was discussed, although revised projections provided in the Information Document suggest an additional USD 15 million is needed. The Chief Executive sees the current problem very much as a short term issue, however, it was highlighted to him that the business needs to be run for cash in order to finance the heavy w/c requirements inherent in the business and to service and ultimately repay our debt.”

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:

“The Account Manager was confident that the underlying businesses in the US are strong and remains confident with the capabilities of Paul Haley, Chief Executive. The offer of security over the assets of the company (with an asset/debt cover ratio of 1.6x), which was made in the Information Document, provides some comfort, especially given the highly liquid nature of the stocks. On this basis, the Account Manager was prepared to support an increase in the facility (by some USD 15 million) to help the company trade through this difficult period.”

The note also expressed “a serious credibility issue with regard to the financial projections”. There was therefore a need to work closely with the company/accountants to ensure that the figures were constructed correctly and could be accurately interpreted. Disappointment was expressed that Mr Firth had stepped down to be non-executive chairman. Mr Haley was thought to be taking on too much. Mr Morgan had proved disappointing as Finance Director. The management team was considered thin overall. The note recorded:

“The general feeling was that the best viable option is to help the company to trade through its difficulties in the short-term, after which we would review the situation. However, we would need to be convinced on the figures and the level of w/c actually required. A meeting with NatWest was scheduled, in order that we may discuss its position going forward and it was agreed that after that meeting, we would decide on a way forward and return to the company.”

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:

“Meeting to discuss the position of both banks and to share our ideas on the way forward. Discussion focused on the following points;

NWB feels that the company has deliberately withheld information regarding the disappointing trading results against budget. Management figures had been requested on a number of occasions recently by the Relationship Manager, Mark Catton. When these had not been forthcoming from David Morgan, Mark had telephoned Paul Haley to make sure there was nothing wrong and was told everything was in order. However, only a week later, Mark was contacted regarding the poor results and the covenant breaches.

NWB also considers that assisting the company to trade through the current difficulties is a viable option, however, it was made very clear that the bank is looking for an exit from the relationship in the short term (even if the business recovers to previous performance levels).

NWB agrees that the revised projections are difficult to understand and interpret, but are crucial in assessing the level of assistance required. We discussed the option of putting in accountants to assess the business and report on the projections, and agreed that, in the circumstances, this was the most prudent approach.

We also agreed that security should be taken, regardless of whether we assist with additional finance, and that weekly management and cashflow figures should be provided in an understandable format.

NWB has been advised by the company that Harris Bank in the US is prepared to bridge its short-term liquidity position. Although we were not advised about this in our meeting with the company, the arrangement has been confirmed with Paul Haley in a subsequent telephone conversation (with Ben Davies on 21/8). We do not yet have any details of the term and conditions involved.

We concluded that a co-ordinated response to the company should be produced (which will demonstrate a united front) detailing our requirements, with particular reference to the Accountants Report. We should also agree some Terms of Reference for the Accountants.

A meeting between ourselves and NWB was scheduled for Thursday, 22 August, in order that we may prepare a response to the company before the weekend.”

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:

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

“We would work closely together in a joint investigation into YFG’s financial condition, financial needs, business and management. We would get assistance and advice from a firm of accountants which would be jointly instructed to assess the business.

…. This was the beginning of what became a very close working relationship between our two banks. As I said in my first statement, we were like partners in the closeness of the relationship.”

He continued as to what had been agreed at paragraph 8-10:

“8.

The agreement on this joint approach carried several implications. Each bank would deal with the other in good faith (which I understand NWB has agreed was the case) and neither would mislead the other. When providing information to each other or to our accountants (or other outside professional advisers), we would do so carefully, fully and fairly. We would help each other in making this a good and effective investigation, in getting good advice, and in formulating a joint response. If we had material information, we would provide it to each other and to the accountants and other professional advisers to facilitate the best investigation. If we were going to have a successful workout of the corporate loans there was really no other way for NWB and Rabobank to proceed.

9.

I refer above to ‘material information’. To me ‘material information’ is information which would or would probably make a decisive difference when coming to a decision in relation to the workout.

10.

The joint instruction of accountants implied that the banks would deal with the accountants in good faith and openly as they would do with each other. We each would know what the accountants were instructed to do, what they were doing, and about the other’s dealings with the accountants in relation to the workout. We would instruct accountants together and receive their advice together. If one spoke to the accountants without the other, we would let the other know what was said if it was material (in the sense described above). We would each give the accountants the information we had that was material to their instructions. Neither bank would give information to the accountants that would not be available to the other bank. Certainly, neither would steer the accountants away from a relevant line of investigation. There is no other way to instruct a professional firm jointly.”

In the course of his cross-examination Mr Davies said that he did not remember a great deal about what had been discussed except for the banks’ views on YFG management generally and the decision jointly to instruct accountants. As to an agreement to conduct a joint investigation and to exchange information he said this:

“A. We agreed to conduct a joint investigation, I think is probably the broad term for it, whereby we would seek to instruct accountants, we would seek to instruct lawyers jointly, and thereby conduct our workout towards our common interest at that time; and the common interest was, of course, that we would seek to successfully work out the Yorkshire Food Group loans on a joint, on a joint basis, that I have described in the past as a partnership style. I think within that it was also implicit to me, and I think that amounts to an agreement, that we would share relevant, let us call it material information, in connection with that investigation and process and as I say work towards a common goal, a common target of working out these loans successfully.

Q. When you say it would have been implicit, what do you mean by that?.

A. What I mean is that it was my understanding that at the time that we had – that we would do those things, and I think, and particularly the sharing of information and so forth, that that would be a natural consequence and part of the procedure or process that we had agreed upon.

Q. Did you say anything at that meeting by way of promising that you would exchange information with NWB?

A. Not that I recall.

Q. Did NWB, when I say NWB, did any of Mr Catton, Mr Cresswell or Mr Hamilton, did they promise that they would exchange information with you?

A. I do not recall explicitly, but it was definitely my feeling and understanding at the time that that was the basis on which we were to proceed.

Q. You say for the second time it was your feeling of the basis of your understanding of the time. I am trying to identify what, if anything, was said either by you or the other side which gave rise to your understanding, if at all. Was the subject of information exchange addressed at this meeting?

A. I do not remember it specifically being addressed.

Q. You do not?

A. Not specifically, no. But I do – may I explain – but I do remember the strong sense that continued to pervade though the process, as long as I was involved, that we would act as partners in this process if you like, and to me at the time, that definitely meant that information of relevance would be shared, and mutually by implication, I guess as well.”

He also said in evidence

“Q. Other than what is set out in this document, was anything said, were there any promises made, or representations of fact by NWB, or the NWB representatives at this meeting, as you understood it at the time?

A. Well, in addition to the joint conduct of the workout, it also seems to me, and seemed to me, that the openness with which NWB had discussed management, their own views of management, was a clear indication, I suppose, of their openness and willingness to share information and give us their views, and they had given us views on management, and I think that is quite relevant here too.”

Later in his cross examination he said this:

“Q. You have no recollection of asking whoever it was at NWB whether they had any other information in relation to the management?

A. No. But I certainly felt that by speaking in what was apparently to me a very open and honest way, that had they held any such material information, that they would express it.

Q. You did not ask them: is this all you know about the management?

A. Not as I recall, no.

Q. You did not ask them before they gave the account: can you please tell me anything you know about the management?

A. Not that I recall.”

and

“Q. I am talking about whether you were agreeing on behalf of Rabobank that Rabobank was going to become under a duty to disclose information, the failure to perform which would enable NWB to sue Rabobank; that was a million miles from your thoughts, was it not?

A. But I did not see it that way. I am at risk of repeating myself, my Lord, but I did not see it that way. I saw a situation where we were going into a workout situation together, and that with only two banks involved, we would work together, we would share what we had that was relevant to that procedure. I certainly did not think of it in terms of extending duties at the time. That was not what I was – it was not what was in my mind. What was in my mind was getting to the right conclusion for both parties. Our interests were common.”

and

“Q. But if you were – did you think that you were making any representations of fact on which NWB were , to your understanding, going to rely, and which if you got them wrong, they could sue you?

A. I definitely did not think in terms of being sued. Our meeting was cordial, co-operative, positive. We were not thinking that we are extending duties that we are going to get sued for. We were looking to work together, and to my mind, that meant that – it meant a raft of things, and one of those things was that we would share what we had that was important. I mean, we had a lot of money at stake here.”

Having said in evidence that Rabobank had been deceived by Mr Catton and Mr Hamilton at the 20 August meeting, Mr Davies was asked how Rabobank had been deceived and replied:

“A. By their failure to convey to us material information regarding the situation with the loan exposures, and the involvement of management in the bridging loans, which now I understand were past due and in default, and I would have felt, I felt deceived on learning this information because it was something that I just would have expected to be told. As a matter of course.

Q. I am sorry?

A. As a matter of course.

Q. Was there anything that was said you can remember by either of them at the meeting on 20 August which you now realised had been untrue?

A. Well, yes, to the extent that the picture was incomplete, so by conveying, I suppose, one picture of the situation, the fact that it was incomplete, albeit the facts set down were correct, the fact that it was incomplete made it false.”

In this connection Mr Davies’s attention was drawn to his deposition in the SF Proceedings regarding the events of the 20 August meeting and many passages were put to him, including passages dealing with what were probably Mr Catton’s comments about the quality of financial reporting by YFG and he was asked:

“Now, Mr Davies, there is nothing in that exchange, those exchanges, in which you refer to any kind of agreement to exchange information, any kind of agreement for a joint investigation, or any representations of any kind. Is that fair?

to which he answered that he thought that was correct. There was then the following exchange:

“Q. There is nothing in any of that account or those answers to suggest that at the time you were giving that evidence, which is now March 2003, at a time when you have just said that you felt that you had been deceived by these people, no indication that you believed that at this meeting you had been in any way deceived; can you explain why not?

A. I cannot explain it, no.

Q. Well, Mr Davies, you are an intelligent man, a successful man, and I suggest to you that the only explanation is that at the time you gave those answers, you did not feel that you had been deceived.

A. I cannot recall how I felt at the time I gave these answers precisely. I think you will understand that. But I certainly feel as if I have been deceived now.

Q. I am not asking about now, I am asking about then, Mr Davies. You were on oath?

A. Of course.

Q. Under penalty of perjury, and you made no indication in those exchanges that you had, that you felt as at that time that you had been in any way deceived or misled, and that is correct, is it not?

A. That is what it says, yes, yes.

Q. You can give no explanation to the court as to why you did not do that:.

A. I cannot.”

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:

“It would make no sense at all to enter into an agreement at the outset of a workout to present a “united front” throughout because neither bank could possibly know whether their interests would continue to be aligned in all circumstances or might diverge in the future.”

He continued:

“Nothing transpired at the 20 August 1996 meeting which was in any way out of the ordinary in a multi-bank workout. Both banks’ interests and objectives were, as is usually the case, aligned (save perhaps for some differences as to long term strategy) so it made sense at this early stage in the workout to co-operate. Nothing which was said or agreed at the meeting gave rise in my mind to any implication that the banks would thereafter do anything other than proceeding in what they considered to be their own individual best interests, as again is the normal understanding in any multi-bank workout.”

He was confident that at no stage at that meeting or at any later time was anything said in discussions with Rabobank in which he was involved about the extent to which information known to either bank would be made available to the other. The normal practice for any agreement made between banks going beyond the terms of a facility agreement would be for it to be recorded in writing. In the course of his cross-examination he also said this:

“Q. The understanding between all workout bankers is that these exchanges of views and information are full and fair, correct?

A. I do not think you go into a meeting thinking, I am going to be full and fair, but you go into a meeting of that magnitude to discuss the issues that were facing that corporate credit to improve the risk of both banks. Both banks would exchange views. I do not think I go into a meeting and think “full and fair”, no, because you are exchanging views. You are always going to be full and fair anyway. But that is not number one on my mind.

Q. Well, Mr Hamilton, you may be saying it is so obvious you do not need to think about it all of the time. Are you saying that?

A. I am saying I do not go into a meeting thinking I am going to be full and fair, because I am an honest banker anyway, and I will always go into a meeting thinking I am going to be full and fair, yes.

Q. The convention, Mr Hamilton – see if you agree – is of disclosure, mutual disclosure, of material information?

A. Of relevant information to assist the workout of YFG, yes.

Q. The environment is one which expects high standards of honesty. Agreed?

A. Yes.

Q. At this meeting, NWB gave every impression of complete openness?

A. As we would always do at every meeting, yes.

Q. Which is what you expected from Rabobank?

A. Yes.

Q. And what they obviously expected from you?

A. I believe so, yes.

Q. From the very start, the banks were operating on the basis that they were both on the same side?

A. Well, we had very similar lending to the company, so yes, I think that is fair.

Q. Both banks agreed that they would work together?

A. Yes.

Q. There was never any qualification either at this meeting or any other meeting by anybody on NWB’s side as to the fullness or integrity of the information that NWB was giving?

A. Why should there be?

Q. I think you are agreeing.

A. Yes.

Q. At the meeting, it was agreed that the banks would undertake a joint investigation into YFG’s financial condition?

A. Which, again, is not unusual, because at the start of any investigation, a group of banks or two banks that are in a bilateral situation would have a joint investigation of the company that they are investigating, yes.

Q. It would be very surprising if it were otherwise, I think is what you are saying?

A. Yes.

Q. The investigation would include consideration of YFG’s business and management?

A. Yes.

Q. The banks agreed that they would jointly instruct a firm of accountants?

A. That is what I thought you were saying in terms of the joint investigation, yes.”

In the course of re-examination Mr Hamilton said this:

“Mr Justice Colman: Would you just reread it to yourself, having regard to the answer which you gave at line 22. (pause)

A. Yes.

Mr Stadlen: Yes what? What are you answering?

A. I am answering line 22: ‘Did you intend first of all to give the impression that you were doing that at that first meeting, namely that you were providing Rabobank and the investigating accountants with all facts and matters known to NWB which were material to the achievement of the common goals?’

Q. You intended to give the impression that that is what you were doing at the first meeting, providing them with all facts and matters known to NWB material to the achievement of the common goal?

A. Yes.

Q. Then look at your answer at line 14, where you say you did not make any statement to that effect.

A. Right, okay, yes.

Q. How did you think you were giving that impression if you were not making a statement to that effect?

A. Because it was a very open meeting, and it was an exchange of views on the first meeting of information that related to the YFG workout.”

And later he denied consciously holding back at that meeting or at any stage in the workout any information about the BL or the directors’ private borrowings. He further answered as follows in relation to Mr Catton’s criticism of the corporate management:

“Q. Do you have any recollection of thinking: well, unless I speak up and tell Rabobank about almond farms or a bridging loan or any other matter, that I am thereby going to be rendering untrue and false some kind of an implied statement that we are telling Rabobank all we know and all the opinions we have got about Yorkshire or the management?

A. No, it did not even cross my mind.”

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:

“Q. We are agreed about exchanging opinions, but let us go back one stage. Before you exchange opinions, you need to have an exchange about information, do you not?

A. Well, I have never attended a first all-bank meeting with it in mind that I have to go there and exchange all material information, no. I am going there to try to find out what I can, so I can do my job, which is to recover the debt on behalf of NWB.

Q. In the exchanges of opinions to which you are referring, the mutual expectation is one of complete integrity as regard the information which is being disclosed?

A. Yes, if anybody was disclosing information, I would expect it to be true and honest information.

Q. Yes, and complete?

A. Yes.”

The Hanley note was shown to him and he gave the following evidence:

“Q. That on the sharing of ideas, that would be the full and frank mutual disclosure of respective ideas, and meeting to discuss the position of both banks would be the mutual exchange of information, whatever it may be, between the banks?

A. No. I think the position of both banks is, I would view it as one of saying: do you want to continue support to this corporate, if so, for what sort of period, when do you expect that you will – your organisation will want repayment, if we can support, are you in there for the short term, for the medium term. That is what I mean by I would read the position of both banks, just saying: are you a long-term funder of business or are you a short-term funder.”

“Q. That both banks would undertake a joint investigation into YFG’s financial condition?

A. No, that is not my understanding. Both banks were in agreement to use the same accountants to undertake a financial review, and both banks were in agreement that security should be taken and one bank should act as security trustee to perfect that security.”

“Q. Again, as a result of the meeting, the understanding was that the banks would share information?

A. Yes, but the purpose of sharing information, as far as I am concerned, is so that I can get what I need to achieve, which is repayment of the NWB debt at the time. There would be no other purpose – reason for me sharing information at all.

Q. You may have NWB’s interests at heart, but we are agreed, are we not, that –

A. I would not share information if I did not feel it was relevant to getting what we wanted to achieve.

Q. Well, then, let me add the favourite qualifier of this case: the understanding was that the banks would share material information?

A. Yes, I do not remember consciously having that understanding coming out the meeting, but I would expect, if I was working in a workout with another bank or group of banks that, if somebody had some material information, I would hope that they would share it with me, yes.

Q. By the time you go to the end of the meeting, it is inevitable that you would expect them to share it with you?

A. Yes, I think bearing in mind this would be the first time that I would have met these individuals or dealt, I think, with this particular bank, I would have wanted to understand exactly how they were approaching matters and whether they were going to be doing things on their own or whether they were willing to work with us so we could cut down on time and expense.

Q. So let us be clear, by the end of the first meeting there was a mutual understanding, almost agreement, not a formal agreement, but understanding that both banks would share material information?

A. I cannot recollect the meeting, but that would not surprise me.

Q. You know nothing to contradict that?

A. No.”

“A. I think coming out of this meeting, you know, the expectation to get out of this meeting would be to say are we, as two banks, agreed that we are going to use this particular firm to undertake this review; are we agreed that we are going to respond to the company to say both banks require this review to be undertaken, at your expense, company, and that both banks require security for ongoing support. Those would have been my expectations at the meeting nothing beyond that, I am afraid.”

In the course of re-examination Mr Cresswell said as follows:

“Q. Now, when you went to the meeting on 20 August, the first meeting with Rabobank, did you go armed with all information known with NWB which might be relevant to Yorkshire so that you could disclose it all to Rabobank at the first meeting?

A. No.

Q. Why not?

A. Because it just would not cross my mind. I would have gone armed with the information in the information memorandum, and perhaps some other bits that I might have gleaned, but it would not have crossed my mind that that was the purpose of the meeting.”

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.

“As Cartwright states in his work on Misrepresentation (2002) pp 19-21 (paragraph2.12), dealing with ‘sales talk’, ‘the core question is whether the representee was entitled to take the statement seriously and so to rely on it in deciding whether to enter into the contract’. As I presently see the position, whether there is a representation and what its nature is must be judged objectively according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee (just as contractual interpretation depends on ascertaining –

‘the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’ (see Investors Compensation Scheme v. West Bromwich Building Society, Investors Compensation Scheme Ltd v. Hopkin & Sons (a firm), Alford v. West Bromwich Building Society, Armitage v. West Bromwich Building Society [1998] 1 All ER 98 at 114, [1998] 1 WLR 896 at 912 per Lord Hoffmann)).”

In this connection it is relevant to distinguish between the objectively-judged nature of what passed from NWB on 20 August 1996 and the assumptions made by Rabobank’s witnesses about that which NWB agreed to or represented. As to this, there is, in my judgment, no evidence that any of the NWB representatives said or did anything which, objectively assessed, could be treated as agreeing to or representing anything beyond what is recorded in Ms Hanley’s note; in particular, the only means of investigation of YFG’s position agreed upon or as to which any representation was made was the appointment of accountants. There was no agreement or representation at that meeting that anything further would be done by way of an investigation, joint or otherwise, except that the company should be asked to provide weekly management and cashflow figures in an understandable format. As regards presenting a “united front” and adopting a “co-ordinated response”, the agreement was that the banks should co-ordinate their response to the company’s Information Memorandum, that response to be sent off following the meeting to be held on 22 August and that such response should demonstrate that both banks were agreed on their security requirements and on the necessity for an accountant’s report.

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:

“Item 6 on the list was designed to be a ‘catch all’ term to encourage the accountants to report on any matters coming to their attention which they considered important to the banks. So, for example, if the accountants had uncovered anything concerning the directors’ borrowings which they felt needed to be brought to the attention of Rabobank, this sweep-up term of reference would have allowed them to do so even if it had not also fallen within their assessment of the Group’s management (the fifth identified on the list as an area to be covered).”

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 192.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:

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:

“Comment on the shareholding position, with specific reference to the Firth and Giddings shareholders and the likely impact of their disposal strategy.”

Mr Cresswell stated in his witness statement that he was on holiday when that arrived but that he would have seen it on his return. He considered it to contain a “rather long intimidating list, containing a number of questions that were rather more detailed than I would have used to instruct reporting accountants”.

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:

“Ben Davies at Rabo has produced a draft terms of reference for the purpose of our discussions with PW and from my initial reading fleshes out well our own standard terms. We agreed we would review and discuss this pm.”

It is to be noted that Mr Catton voiced no reservations about the content of Rabobank’s draft Terms of Reference. There is no evidence as to what passed between Mr Catton and Mr Hamilton when they discussed those Terms of Reference that afternoon.

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,

“We have set out to PW our views on terms of reference but prefer PW to be seen to be scoping the exercise with the benefit of discussions with management and its advisers.”

It is to be inferred from this letter and from that referred to at paragraph 177 above that Mr Catton and Mr Hamilton, and possibly Mr Cresswell, had concluded, before the 29^th August meeting with PW, that the draft Terms of Reference put forward by Rabobank were too elaborate and that it would be better for PW, working on the more outline basis of the NWB draft, to develop their own scope of investigatory work with regard to what they needed to do to advise the Banks as to their immediate strategy for a workout. This was, in my judgment, probably driven by considerations of the need for a speedy report and in order to avoid unnecessary expense.

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:

“Under the terms of the facility, I ought now to be asking for repayment as opposed to proposals. Let us discuss matters properly when we meet next week. You may wish to forearm yourself with relevant papers setting out the timing of the proposed US farmland/crop refinancing.”

Mr Catton said he could not recall how it came about that there was a discrepancy between the two documents, but he was sure that he would never have lied to Mr King about the 14 days. He suggested that he might have dictated the Briefing Note some time before 29 August when it was sent out.

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:

“Rabobank confirmed that this was the case, however that they needed to be sure regarding the customer given that the current experience had frightened them. There was a desire from Rabobank’s point of view to move borrowings towards US banking side. Again Davies advised that commercially the US side of Rabobank was nervous about the current position of the customer. Hamilton explained that NWB didn’t see themselves as long term players at this stage but in the short term they were committed. He advised that NWB now see this as a US operation needing US funding and so would like to get out as soon as practical.”

I interpose that those intentions reflect the fact that Rabobank had a powerful presence in the US whereas NWB did not. There was detailed discussion of the qualities of Mr Firth, Mr Haley, Mr Morgan and Mr Atkinson. Mr Hamilton expressed NWB’s concern that since March 1996 the management had let things slide and lost credibility, as Mr Haley acknowledged. Mr Davies further expressed the following views:

“Davies explained he believed that there is a need to keep Mike Firth involved in the business. Davies explained that Firth wants to do his own thing given that he has been involved in the food industry all his life. Davies explained he has an 18% shareholding of the company which is the major shareholding second to Geddings who holds 14%. Davies explained that Firth was not walking away from the company but doesn’t want to move to the USA which is where the operations now lie and he wants time to do other things. Davies explained not much is known about Geddings as he is not involved in the business any more.”

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:

“Having reviewed the NWB Terms of Reference it was agreed that PW could review the Rabobank Terms of Reference at a later time in that the two were very comparable. However, the Rabobank Terms were slightly more detailed. AZB advised that he considered Terms of Reference should be short provided PW knew exactly what the banks actually wanted which the Rabobank’s Terms of Reference detailed quite well.”

It was agreed that PW would first report on Phase I which I take to be a reference to what was covered by Phase I in Rabobank’s Terms of Reference. However, it was agreed that it was necessary to identify whether this was a short-term cash crisis or whether there was something more fundamental as to the future of the business. Mr Davies considered that the business offered “significant opportunities” in financial terms for financial investors currently”. Both banks were happy for PW to agree the final terms of reference with Mr Haley of YFG at a meeting which would take place the following week.

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:

“It would be common for individual banks, as the need arose, to speak to the appointed accountants individually and outside the presence of other banks involved. This might happen, for example, where one bank had a particular question to raise or a specific issue to explore which affected its interests as lender to the company. In such circumstances, a meeting might be arranged between NWB and the reporting accountants alone. I never thought that there was anything secretive or improper about this. In some circumstances, it might also be necessary and in NWB’s interest to give the reporting accountants a piece of information, by way of fuller background briefing, even though CSS did not consider the information to be relevant to the assignment. In such cases, it would always be for the reporting accountants to form a final view, consistent with their terms of reference and professional responsibilities, on whether the information needed to be referred to in their report to the banks.

This was perfectly normal and I do not think that any bank involved in workouts on which I worked would have acted any differently or would have been at all surprised that such discussions sometimes took place from time to time without their knowledge.”

Mr Hamilton’s evidence was to the same general effect, as was that of Mr Havelock.

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

“If it is being suggested that it was in any way unusual or improper for NWB to have had a ‘meeting’ with PW without Rabobank’s knowledge, I disagree. It is, in my experience, commonplace for one bank to have individual discussions with reporting accountants which are not necessarily disclosed to other banks in the workout. I would not characterise discussions of this nature as ‘secret’. Such discussions could be concerned with the progress of the workout or the communication of information to assist the reporting accountants in performing their tasks. Whilst material information disclosed or discussed at such meetings would normally be passed on to any lender not present, any other information may well not be.

I would be surprised if any experienced workout banker would take exception to the mere fact that another workout bank had met with reporting accountants without disclosing that fact. For this reason, I do not consider that a workout bank in Rabobank’s position would thereby have felt that NWB had breached the ‘spirit of co-operation’ between them in the context of the workout or would have considered the fact that the meeting had taken place to be material in any way.”

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.

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:

“A. My Lord, no more than Mr Hamilton said to me that he felt in the interests of openness with their advisers, he felt I should know.”

Although Mr Barrett did not recollect exactly what language Mr Hamilton used, those words, although “a rather liberal interpretation” reflected the generality of what he said. He further stated that Mr Hamilton used words to the effect that:

“he felt I should know of the existence of these personal loans, because it was standard NWB practice to ensure that advisers that they were using were properly and fully informed of the circumstances.”

He further stated that he did not have any particular reaction to that information for it was not uncommon, where bankers had been bankers to a former private company, for them also to be lenders of a personal nature to the senior directors and he would not have thought anything particular of it. When asked whether there was any particular reason why he had not told Rabobank of this conversation he replied “Mr Hamilton asked me not to”, the gist of what he said being …

“Rabobank do not know of this personal lending and I would rather that they do not.”

He then gave this evidence:

“Q Can you explain now why the information is something that could be given appropriately by NWB to you as an accountant for two banks, but not passed on to your client?

A. My Lord, I think that Mr Hamilton erred in telling me in the first place. I believe he was probably in breach of banking procedures by informing me of a personal lending, unless he had authority from Mr Firth to do so, and I would imagine, although I do not know for a fact whether this preyed on his mind, I imagine that he would be even more constrained from that information being given to another bank without his customer’s agreement. However, I must say that was not expressed to me by Mr Hamilton.”

He told the court that he had on other occasions been given information about the personal borrowings of directors from banks making corporate loans but the source of such information had always been the director borrowers themselves and not other lender banks. He described the words of Mr Hamilton as “a request” not to pass on the information to Rabobank but, coming “from a bank of that nature”, it would be treated as “an instruction”. He could not recall ever previously having received such a request from a client bank not to give information to a co-workout bank. However, he explained that when he and Mr Hargrave returned to the PW office they neither recorded the Pavement Conversation in a note nor discussed it between themselves because:

“… it was of insignificant importance to us in relation to the instructions that we had been given earlier during the course of that morning which were of far more importance to us to deal with.”

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:

“I guess my – the one thing about what is written there that I think is important is that I did not take it away to say, ‘I am not to tell Rabobank about it, but actually do not need to tell Rabobank about it because it is not connected to the case.’”

He further stated that he did not believe that Mr Hamilton had made a request not to tell Rabobank. In cross-examination he described the Pavement Conversation as “an impromptu conversation” that was not pre-arranged. He did not get the impression that Mr Hamilton was being deceitful towards Rabobank. He repeated his recollection of the “request” not to tell Rabobank in these terms:

“..my takeaway from the discussion was there are some personal borrowings, they are not – they are secured by shares, the borrowings are not relevant to the case, and therefore you do not need to tell Rabobank about it, rather than something that was limited, either limiting the scope or limiting what I could do or say to Rabobank.

Q. You did not regard that in any way as Mr Hamilton giving you any kind of instruction at all, you did?

A. No, I felt he was telling us something that frankly he did not need to tell us.

Q. You felt that he was telling you something that he did not need to tell you, because he did not think it was relevant –

A. No, I walked away more than anything thinking why did he tell us that, because if it is not relevant to the case, then I am not going to – you know, I am not going to come across it. If it is relevant to the case I am going to come across it and I am going to deal with it.”

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

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:

“NWB believe Haley is pursuing a buy-out (certainly I know this is an option) but note both Firth & Giddings still looking to exit 50% of their interests. Rolling over existing equity may be a problem so new investors will be necessary.

Firth has indicated David Morgan’s future with the group will be over once the present situation has passed. Surprise, surprise. We are both surprised at Firth’s reported view that Paul may not be right for the CEO job.”

In cross-examination Mr Davies asserted that both these statements were untrue. The basis for those assertions was that both involved implied representations founded on concealment of related facts. As to the first, the concealed related fact was that the reason why Mr Firth sought to exit 50 per cent of his interest was to enable him to repay the BL. However, he accepted in cross-examination that this was speculation on his part and there was no evidence to support such an explanation. Even if there were, the erection of an implied representation that there was nothing material about the disposal of Mr Firth’s holding and in particular that the facts pleaded at MSC paragraph 108 as the basis of Misrepresentation (7) did not exist, is quite unreal. Mr Davies was not, for reasons already given in this judgment, entitled to assume that NWB’s participation in discussion as to Mr Firth’s shareholdings would necessarily involve disclosure to Rabobank of associated information even if it were objectively material. Not only might Mr Catton not have recognised such information as material, but he might for reasons best known to himself have chosen not to adhere to good practice among co-workout bankers.

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:

“Repayment will derive from refinancing in the US and this is dependent on the provision of further equity into the company. At this point from the bank’s perspective this is a ‘stay’ although it has always been London Branch’s strategy to transfer this account to Rabobank San Francisco reflecting the domicile of the majority of businesses. Transfer should occur as part of the refinancing arrangements.”

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:

“In our view, its not surprising that the company have not executed the security and we now find ourselves in a position whereby the Group need new money and, in the short term, this will undoubtedly buy us security.

However, the risk assessment on this file is in no way complete and we still have many holes to fill on items such as the forward projections, the management, the asset cover especially in the US and the future of this business.

We still have to maintain this is not a business that we want to be banking long term, as the activities are mainly in the US, but in the short term, I believe we will need to assist by way of the minimum excess we can get by with, which looks like being US$9m. We have agreed with Rabo Bank to share this $4.5m each and they are currently approaching their credit committee for sanction.

We need to look at this in two stages, the first stage providing the $4.5m excess on a short term basis until the end of December, at which point the excess should be repaid in full. PW have confirmed that some support is justified and they are comfortable the cash flow projections are accurate and that the excess will be repaid in line with the short term 26 week cash flow. We will be in receipt of the PW interim report in the next couple of days and by the time the excess is repaid, we will have the full PW review, at which point we can consider our future commitment to this group and can undertake a full credit assessment.

As mentioned above, in the short term I feel we have little option but to proceed with this excess on PW’s assurances in the knowledge that we will receive security over the next few weeks, as at the moment, we are in a position where we have facilities of £ totally unsecured.”

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:

“This is not a comfortable position needing very close monitor. We want the Group rebanked/refinance in US asap.”

The term of the proposed increase being set at 31 December, it was assumed that the company would repay it out of cash flow by that date.

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

“All of Mike’s and fellow Management member’s wealth is invested in YFG shares: no other liquid assets are owned. Shares in YFG held by Mike and Management are already deposited with National Westminster Bank, Leeds as collateral for personal borrowings (eg YFG share purchases, homes), so insufficient collateral exists and the asset would be unmarketable in present form. Another problem exists here: the matter would be a ‘related party transaction’ and unfortunately, should be disclosable to shareholders.”

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:

“Q. There is no reference in this note of any conversation with you where you discussed the letter. Do you actually recall a conversation where you went through and discussed the letter?

A. I certainly recall discussing the principles that were raised in the letter, yes, indeed.

Q. What do you remember about that?

A. That we spoke on the subject in the context of Berisford and that Mark gave some – there was some discussion about the credit points. I certainly remember telling Mark my position on Berisford generally. Yes.

Q. There was no discussion, was there, that you can recall about the relevant paragraph we have just looked at in the letter about management’s wealth being tied up in the YFG shares?

A. Well, I think there was.

Q. The question is: do you actually recall, sitting here today, that conversation? A conversation about that paragraph in the letter?

A. I recall a conversation about the letter.

Q. So the answer is no?

A. Yes and no, I suppose.

Q. Well, no, the answer is no, is it not? You recall a conversation about the letter. Do you recall specifically a conversation about that paragraph?

A. I cannot say that I – I do not think I can say as I sit here right now, as far as I am trying to remember, that I can remember the specific paragraph discussed.

Q. So you cannot remember, then, by definition, having any thoughts about what Mr Catton might be telling you in relation to that paragraph of the letter?

A. I suppose not, but I know we talked about Mike Firth and the possibility that he and management would put some financial support into this situation. So to that extent, yes.

Q. You cannot recall a discussion about that paragraph, you have just confirmed. It must follow that you cannot recall what you were thinking at the time, if at all, that paragraph was referred to?

A. Okay.”

Mr Catton had no recollection either of reading the letter of 24 September 1996, although he thought he must have done so or of discussing it in the telephone conversation with Mr Davies on the following day. It was put to him in cross-examination that “the implication of your discussion with Mr Davies was that as far as you and NWB were concerned the contents of the … letter were materially accurate” and he answered “That is correct, yes”. His evidence continued:

“Q. So far as you were aware, it needed no material qualification, correction or further information in order for the banks to hold an informed discussion about it?

A. That is correct, yes.

Q. So far as NWB, as the management’s bankers were 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, correct?

A. Yes, on its own, and even more ‘yes’ with the rider that was attached, I believe, to that sentence.

Q. The implication was also that so far as NWB knew, there were no loans in default?

A. There are probably a couple of points in there to bring out. My Lord, I do not know that we drew any implication from it, and, you know, there were no loans in default, but I am not sure how one would seek to draw that implication anyway from the 24 September letter.

Q. Let me just try it again. The implication of the discussion that you had with Mr Davies was, so far as you and NWB were concerned, there were, so far as you knew, no loans in default?

A. I do not think I would have ever intended that to be an implication of the discussion. That notwithstanding, my view will have been that there were no loans in default in September.”

Apart from the fact that these questions invite Mr Catton’s commentary on the meaning and construction of his words and conduct, upon which his view is not evidence, the questions are not formed to elicit answers to the only relevant question, namely whether his discussion of the letter was such as to show that NWB represented to Rabobank that it could rely upon the truth of the contents and upon the fact that there was no other material information relating to the matters referred to in the letter quoted at paragraph 224 above.

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:

“Proposed response to Mark Catton after internal discussions:

No further increase FTB we need to sort out the YFG corporate arrangements.

Any further deed security or equity available from Firth or Haley.

Accept all Haley’s and Firth’s shareholding as top up security for all Directors’ borrowings. This will give over 200% cover at a price of 45p.

Gordon Yates to continue to sanction, CSS to keep at arms length.

Mark Catton will produce a note on his proposals for all Directors borrowings and confirm the details of his meeting with Gordon Yates.”

When asked in cross-examination about this memorandum Mr Hamilton said that he seemed to remember at that stage that the Leeds office wanted CSS to look after the directors’ private borrowings as well as the corporate borrowings but CSS did not want to do so because he personally had got no experience in dealing with private borrowings and that was probably the reason for the memo. Mr Hamilton further said that he thought that there may have been a discussion following that memo involving Mr Havelock and Mr Cresswell and Mr Side may have been involved. When it was put to him that such discussion would have been important being as to what to do about the directors’ private borrowings he replied:

“It was not that important to me, because I never looked after the directors’ private borrowings, and I know Mr Havelock did not want me to, because of my experience.”

Mr Cresswell was unsure why Mr Havelock would have asked for that information about private borrowings but the only reason he could think of was to explain for the purposes of internal audit inspections the apparent inconsistency between making a provision against the corporate debt whereby no value was assumed for shares standing as security, whereas, for the purposes of the private debts, value was assigned to the shares as security. In answer to the court he explained the words “Gordon Yates to continue to sanction. CSS to keep at arm’s length” in this way:

“A. Gordon Yates was head of a regional function, a regional credit function, and therefore, it is like in the pecking order, CSS would have been seen as more senior within the bank, and the only thing I can suggest there is that decisions are made that, despite the fact that the recoverability of the corporate debt could impact on the value of the shares and therefore the value of our security on the personal debt, CSS were not going to decide what was done on the personal debt, Gordon Yates would be allowed just to deal with that as he saw fit without any interference.”

Mr Havelock said in evidence that he did not think that he would have looked at the memo or the schedule. He did not recall seeing either. Because “they are nothing to do with CSS to be dealing with private borrowings”, he would have said that they should just be “dealt with by the region”. However, the fact that he had not signified on it his approval or signed it suggested that he had not seen it. He specifically denied that the reference to keeping at arms length had anything to do with a perceived conflict of interest.

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:

“YFG management and associated persons hold approximately 40% of the issued shares in YFG. Primary shareholders are current Chairman M Firth and former board member A Giddings who share approximately 30% of the issued capital. We recognise along with YFG management that any equity reorganisation proposal in the medium term will need and in fact benefit from the full support of management and in particular Messrs Firth and Giddings.”

This, I infer, was inserted to take account of Rabobank’s draft terms of reference request for consideration of the shareholding dispositions of Mr Firth and Mr Giddings. The Report was 41 pages long. Attached to it were another 39 pages of appendices, substantially concerned with matters of detail in relation to subsidiaries such as Treehouse. In relation to that company there appeared at Appendix 18 under the heading “opportunities” the following:

“Management is currently contemplating acquisition of farmland. A joint venture and/or acquisition will greatly enhance the company’s ability to obtain a consistent supply of quality almonds.”

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:

“Our telephone conversation refers. Given the sensitivity/confidentiality of some of the private arrangements there is a need for me to keep my comments brief. This said, I believe you have sourced directly from the respective borrowers under our facilities an appropriate level of information to enable you to have a view on the structure of our facilities and the options we may have for improving the quality of our risk. You are very familiar with the issues we face and it serves no purpose me repeating here.”

With reference to the BL Mr Catton called for a detailed paper giving details of the status of Haley’s approach for re-financing “and/or alternative strategies”. He referred to being under pressure from his credit people that the terms, the loan should be complied with and called for proposals for repayment. Mr Catton was cross-examined at some length on the basis of his description of some of the private arrangements being “sensitive/confidential”. It was suggested that these words indicated that Mr Catton and Mr Haley were complicit in having something to hide. I reject that interpretation. I accept the evidence of Mr Catton that to describe a loan transaction as sensitive is merely to indicate that the lender bank has made provision for it against non-payment.

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:

“You will receive today a request from the Group for an additional facility of $5 million plus $1.3 million to resolve the Berisford position. The funds are needed by the end of this week.”

There followed a very awkward body of information. In particular, the YFG loss for 1996 was now forecast to be £20 million with a profit of £1.5 million forecast for 1997 but the letter observed “the sensitivities in the 1997 forecast are numerous and their balance is very much on the negative”. The Group would need to have the additional lending of $6.3 million in place throughout 1997 and would need in addition a further $5.4 million during the first four months of 1997. The letter ominously added:

“The sensitivities again will worsen that requirement. A proportion of any lending will remain in place throughout 1997.”

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:

“The USA skew of this business leaves us uncomfortable as we are just too far removed. Given the trading uncertainties and recent poor performance by the management an outright sale is the best way forward.

What we do not know is how sale/merger discussions will progress and the timing and shape of the ultimate deal is far from clear. What is certain is that we are effectively still largely unsecured and find ourselves facing a weak asset base. Formal insolvency would leave us with a significant loss on both the corporate and personal debts.

Alan Barrett is adamant that, due to the seasonality of the business, taking formal recovery action 3 months either side of Xmas is not wise and he believes we should look to providing additional support over coming weeks. He also makes the valid point that the directors may consider protection under Chapter 11 if they see a situation whereby they cannot meet their short term liabilities.”

Mr Hamilton did not accept in cross-examination that he had included this reference to the directors’ personal borrowings because it was material to a decision whether to lend to YFG. It was inserted as a matter of additional information to Mr Havelock and Mr Side in view of the statement at the beginning of the memorandum quantifying the personal borrowings at £4.162 million. Mr Cresswell also denied that the personal borrowings were material to lending to YFG. Although he had copied the quantification of NWB’s exposure to personal borrowings into a memorandum on YFG that he sent to Mr Havelock on 19 November 1996, that had been included because it was easy for him to pick up Mr Hamilton’s memorandum and amend it to bring things up to date. I note that he made no further reference to the personal borrowings when setting out his summary and recommendations at the end of the memorandum, except to comment that corporate insolvency would cause NWB losses on both the corporate and personal debts. It is to be observed that the loss on the corporate debt would be many times greater than on the personal debts. It is thus intrinsically improbable that NWB’s decision-taking was directed otherwise than to give priority to recoverability of the corporate debt.

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:

“Alan’s concern is that if the company is going to chapter 11 the directors may simply decide not to get round to doing a sale. Several of the directors (particularly Mike Firth, the Chairman) have very large personal borrowings and may simply decide to continue as long as they can, draining the company’s resources and the banks will be prevented from enforcing their security.”

In the course of his evidence Mr Barrett said, as I so find, that he would not at that time have referred to the personal borrowing being “very large” because, although he had known that such borrowings existed since about September, he had never been told what size they were. Allen & Overy’s report to the Banks of their meeting with PW did not include any reference to Mr Barrett’s view as to the risk of the directors’ conduct referred to. It is unclear why this was omitted.

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

“There are a number of unsatisfactory issues which came out of our research into the background of these lendings, in particular their sanctioning/control.”

The report concluded:

“We are endeavouring to reduce exposure to ‘Almond’ shares wherever possible by pursuing alternative security options. ‘Almond’ shares prudently valued at nil throughout. Total debt £3,864,050 with provision £1,077,716. Sale of the US land is critical as not only should this clear the related MRF Trust debt but hopefully provide c $100k to each director who originally invested (Messrs Firth, Haley, Atkinson & Morgan) – as stated above no reliance is placed on the latter.”

This, I infer, evidences NWB’s concern that because of the parlous financial condition of YFG, it was necessary to protect its security position by replacing YFG shares by more potentially productive collateral. There are, however, two significant features of this report which have a wider relevance.

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:

“Ideally the strategy for Wednesday depending of course on the valuation of the dried fruit business from Rabobank, is that we continue with the existing lines through January and February and the customers continue to manage the cash at which point our 90 day period will have finished on our security and also the growers claims will have reduced thereby putting the banks in a stronger position.

However, we cannot lose sight that Rabobank ideally do not want to advance any further funds to these customers, although they too seem concerned with regard to the uncertainties on the Chapter 11 issues.

If the Rabobank valuation comes out at a figure of US$50/60m then I believe we need to support this group (depending on the customer’s request) in order that they can progress an outright sale by the end of March, otherwise, undoubtedly, if the position is crystallised now, the Bank may well have to realise the current £17m shortfall.”

Mr Hamilton said in cross-examination that both Rabobank and NWB were “getting extremely concerned about the constant drip-feeding of YFG.”

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:

“We believe that the Group will require more than the additional funding requirement shown by its forecast, and the peak needs in February of £4.9 million and in last three months of £10.8 million could be significantly understated.”

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:

“Lastly, the appraisal will be necessary to support any reorganisation negotiations (whether in or out of bankruptcy) ie. if we reschedule debt, do a debt/equity swap, debt/asset swap or discounted debt sale: we may also need to give Firth a “reality check” if as we suspect, the M&A efforts don’t product any results and he refused to move on to the next alternative.”

This message was then passed on by Mrs Parsons to Mr Hamilton but after the deletion of the words “as we suspect”. Mrs Parsons was much cross-examined about this deletion in order to gain support for the submission on behalf of NWB that it exemplified one bank withholding material information from a co-workout bank. Mrs Parsons explained the deletion by saying that it did not reflect her own opinion of the prospects of the M&A efforts. I accept her evidence as to this matter and I am not persuaded that her conduct provides any significant support for NWB’s case on banking practice.

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 …

“Just us and NW. Rabo not to know – I don’t want them smelling conspiracy when there isn’t any.”

Amongst the issues Mr Barrett wanted to discuss were:

“1.

Do we (ie. NW and PW) wish to try and persuade Rabo to contribute to new monies (or do we think that we re wasting our time).

2.

If so, how do we do that – what are our arguments and how do we present them.

3.

Is there any additional information we need as a consequence.

4.

Is NW certain that it isn’t prepared to go it alone on new money, bearing in mind that it does have more at risk given the director(s) personal exposure – is there any basis on which NW might be prepared to assist (ie. is there a deal to be hammered out with Rabo).

5.

If we think that Rabo’s macho stance will prevail (ie. no new money) should we be making the customer address a ‘Plan B’ – we don’t have to say outright now that there wont be any money, merely that you ought to be preparing a fall-back plan. It isn’t in the banks’ interests that there should be a knee-jerk reaction from Firth and I would rather not give him the opportunity of bitching that we’ve forced his hand by not telling him soon enough. I would also like to get a feel as to what Firth will actually do – do we think there is any chance that he wont file – does he have any realistic options.”

Mr Barrett explained his suggestion of a meeting with NWB in the course of his evidence thus:

“At the time of this letter, there was a disagreement between the banks as to the way forward with the company. One of my roles that I saw was to act as a facilitator, and I believed that by so doing I would help both the banks reach whatever they considered to be the proper outcome.

I believe Mr Cresswell would be receptive in those circumstances to having a meeting with me to discuss certain aspects of the case.”

and further

“It would have been my expectation, my Lord, that once I had discussed with NWB the matters which were outlined in my email, depending on the outcome of that, that there would have been some form of communication with Rabobank. One of the matters which I wanted to raise with NWB, and one in particular that I could not raise in front of Rabobank, was do you, NWB are you, NWB, prepared to make the additional lending all by yourself. For obvious reasons that was not a question that I could put to them in front of Rabobank.

Depending on – I think I knew the answer to that question, because normally the answer would be no, but nevertheless I felt the question needed to be asked. But depending on the outcome of the meeting that might have taken – would have taken place with Mr Cresswell, there would clearly have been some communication with Rabobank.

My role, as I saw it at this stage, was the role of a facilitator. If you have a disagreement between two parties, you have to start off with one party or the other. In this instance, I started off with NWB.”

In the course of his evidence Mr Barrett explained that he had previously been criticised by the Banks for being insufficiently pro-active and in suggesting this meeting he was trying to remedy that criticism and believed himself to be acting in the interests of both banks.

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:

“We believe the best way to maximise our recovery on this credit is through the orderly sale of the dried fruit business and in providing sufficient funds to allow the company to continue to trade the process can be conducted in a way which, we are informed, will optimise value. The company is acutely aware that the banks will not finance the 1997 crop”.

We have visited the subsidiaries in the US and whilst we are not competent to comment on their value overall we believe the operations to have sound business fundamentals under an appropriate financing structure.

In the absence of a sale of YDFN or a new financing, we will be optimally positioned to pursue an orderly liquidation of our collateral beginning in July 1997 if management remains co-operative with the Banks. In our worst case scenario, management would resist our efforts to obtain repayment by filing a chapter 11 bankruptcy, in which case, our strategy with respect to this new advance will provide material benefits by further hardening collateral, gaining control of collateral proceeds and ensuring the payment of existing grower payables.”

This application was approved by the LCC on 31 January 1997 and on 5 February the RICC decided to submit the application to the Executive Board, recommending authorisation. This was granted on 11 February 1997.

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:

“I am sure you appreciate, and as we have confirmed previously, the Bank’s stance here is that we still require an exit by July 97 and cannot give any commitment to fund the 97 crop. The additional funding of US$10M was granted on the basis that the group has the opportunity to pursue the sale of the Dried Fruit business on a going concern basis.

We would welcome your views on the 97 crop position and also the position with the audit sign off due in April, as clearly the Banks cannot confirm ongoing facilities beyond July at the current level and terms, but following the disposals we may obviously wish to consider facilities for the remaining business. Also perhaps RNY could provide a one page memo on the reasons for the delays that have occurred to the sale process. Please also arrange for a copy of the sale memorandum to be sent to both Banks.”

By 3 March 1997 the sale memorandum had still to be completed by RNY.

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:

“The concern is therefore that the directors may at some stage in the future become concerned about their position and turn to the bank for an assurance that it will now agree to fund the 1997 crop. The banks have indicated that they would, in these circumstances, stand by their decision not to fund and this may therefore tip the companies into Chapter 11. Clearly, there is no way of knowing when such a request is likely to be received.”

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:

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

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:

“Bob advised me that half of an almond orchard development (he wasn’t certain which company owned this; Steve Hamilton seems to think it is owned by the directors personally) is up for sale. Bob is awaiting the sale particulars and will forward these to us. He does not believe this to form part of our security and hasn’t seen any reference to the development before. We may need to raise this with the group in due course.”

I infer that, after the telephone conversation with Mr Stevens, Ms Hanley contacted Mr Hamilton and asked him whether he could throw any light on the sale of the almond orchard. However, his reply is recorded in obscure terms. In particular it is not clear whether “seems to think” reproduced an expression of doubt by Mr Hamilton in the accuracy of the information he was giving to Ms Hanley or uncertainty felt by Ms Hanley as to precisely what she was being told by Mr Hamilton. Rabobank rely on this note as the foundation for Misrepresentation (13), pleading that Mr Hamilton 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 farms might be for sale.

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.

“Once again, I was particularly concerned with Paul Haley’s (Finance Director) running of the cash and, once again, I have not quite received all the information requested, but I am moving towards that goal.

In the meantime, the banks just have to sit tight whilst the sale process/due diligence is taking place and I will continue to monitor the cash on a daily basis and ensure we achieve full updates from the lawyers on the sale process. We need to make a decision just how far we go on any new money requests and preferably tie this into completion of the due diligence. However I believe we have gone far enough now.”

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:

“Given the complexity of certain of the issues involved and the delay in receiving access to certain of the necessary materials required by our due diligence professionals, it has become apparent that a target closing date of August 29 is unrealistic.

Furthermore, our due diligence investigation to date has uncovered numerous previously undisclosed material issues relating to the subject entities. Such issues have forced us to revisit the fundamental economic assumptions underlying our valuation of the transaction. In addition to significantly increased forecasted working capital needs, the pro forma financial statements as well as the historical financial results have been significantly adjusted by our accounting professionals.

Our preliminary valuation of historical and projected cash flows indicates that the companies have a negative equity value and that an acquisition by Marubeni would require the holders of the companies’ indebtedness to agree to a substantial reduction of the face value of their claims. We believe our valuation is based on realistic assumptions provided by the companies’ management and that a sale of the companies cannot occur without the involvement of the major creditors.”

Information as to Marubeni’s position was withheld from the Banks in London. However, a team from RNY, including Mr Gormley and Mr Barr, met representatives of Marubeni in New York on 11 August 1997 when Marubeni identified its major concerns and RNY indicated that it would not consider a price for YFG below its debt level. It was agreed to hold a further meeting on 15 August 1997. On 12 August 1997 Mr Gormley and Mr Barr informed Mrs Parsons and Mr Hamilton that RNY expected to meet Marubeni on 18 and 19 August “to finalise all outstanding issues relating to their offer and to proceed toward closing.”

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:

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

“The due diligence would normally take several months but we only had about a month to see if it would work. For example, we needed to understand the nature and quality of Yorkshire’s contracts with customers and suppliers before being able to see if the SPC concept was workable.”

Mr Gormley therefore arranged for Mr Firth to release finance and other information to him about YFG and to meet Mr de Baas on 2 September 1997. Having heard Mr de Baas’s evidence at considerable length, I have no doubt that he saw the rescue of YFG from the brink of disaster and the maximising of the Banks’ recovery of its indebtedness as an almost irresistible challenge to his personal expertise as an investment banker, particularly in view of the extreme urgency with which it was necessary to act in order to fund the acquisition of the 1997 crop. If that could not be accomplished, YFI and YFG could not be rescued for the SPC would not be able to earn the profits essential to that rescue by selling on processed fruit and nuts to purchasers under the take or pay contracts. Further, even if a sale to Marubeni on the terms of the proposed offer could be finalised, the Banks would only make good the outstanding indebtedness of about US$102 million to the extent of about US$38 million from the proceeds of sale. Additionally, after the sale of YFC, the remaining part of YFG’s business was unlikely to be able to generate sufficient profits to repay the Banks’ remaining exposure. Rabobank alone was likely to be left unpaid to the extent of US$10 to $22 million. Further, an ultimate sale to Marubeni would be likely to bring about the departure of Mr Firth. He told Mr den Baas that, if he was required to sell on the terms offered by Marubeni, he would leave. That would deprive YFG of a vital management tool for reviving it. For these reasons Mr den Baas saw his SPC solution as substantially more advantageous to the Banks than either a sale of YFC to Marubeni or Chapter 11 bankruptcy.

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.

“Steve, I will do a note also on the subsequent conversations with both Paul and Mike – but need to be guided by you on what we record.

It was suggested in cross-examination to Mr Catton that there could be no honest reason for such a question to Mr Hamilton to which he answered:

“A. Well, I think the suspicious mind would point to me attempting to suppress something from a NWB file. I think the sensible mind would then wonder what on earth I was doing making that suppression extremely obvious by essentially referring to it in the manuscript note, and the innocent mind probably takes the view that there was so much going on at the time that I asked – and so many conversations happening bilaterally at the time that I probably asked Steve Hamilton to guide me on whether I needed to continue to put conversations on the file.

Q. This is not a request: Steve, do I need to continue to record conversations? This is a request: need to be guided by you on what we record. Where is the guidance that he gave you, if any?

A. I do not recall any conversation with Steve on this subject.”

He could not recall Mr Hamilton either asking him why he asked for guidance or giving him my reply and this was another reason Mr Catton believed:

“that this is an innocent reference to what he would like me to record in the context of the many bilateral conversations that are taking place in the heat of some very difficult circumstances with Yorkshire Foods.”

Mr Hamilton said in cross-examination that he could not think of any honest reason for Mr Catton asking this question, the substance of his answer being that he could not explain why Mr Catton had asked for guidance and not that he believed Mr Catton to be acting dishonestly. However, he did not think he contacted Mr Catton about this because he would have been far too busy with this workout and other matters at the time. In my judgment, this was a question put by Mr Catton to CSS for purely administrative purposes which does not give rise to any inference of concealment or dishonesty.

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.

“The first of these notes at pages 1678 to 1679 records a meeting with Mike Firth. This meeting must have taken place after 18 September 1997 as it refers to certain features of the SPC proposal and in particular the fees and YFG equity to be taken by RNY if the SPC proposal were to proceed. The note records my concern at the lack of clarity as to who at Rabobank was doing what and the ‘internal wrangling’ which appeared to be going on within Rabobank. It appears that RNY was to receive 15% of the YFG equity for putting the SPC deal together. To put this into context, NWB and Rabobank London were being asked to convert a total of US$15 million into 20% of the equity in YFG. I could not see how Mr de Baas’ work on the SPC deal could possibly justify an additional 15% of YFG’s equity for RNY. I asked Mr Firth whether Richard Gormley, as YFG’s corporate finance adviser, regarded a 15% equity stake as a fair fee for putting together the SPC deal. Mr Gormley’s job was to represent the best interests of YFG. It seemed to me that there was an obvious conflict for Mr Gormley in negotiating on behalf of YFG the equity to be received by RNY in respect of a transaction proposed by his own boss, Hans den Baas. Added to that, there was the complication of the relationship between RNY and Rabobank London, which I did not understand. My impression was that Mary Parsons and Jim Cunningham had been kept as much in the dark as NWB about what was going on at RNY, which I found slightly surprising. In all these circumstances, I was not happy that Mr Gormley was in a position to negotiate effectively and impartially on YFG’s behalf with Mr den Baas over matters such as equity participations and fees and that the net result of this would be that NWB received less than its fair share of any possible equity upside. The question posed at the end of the note is how these items could effectively be negotiated with RNY given its dual role as advisor to YFG and arranger of the SPC deal.”

In notes in Mr Hamilton’s writing prepared at about the same time, possibly in preparation for the meeting with Mr Firth on 19 September, appear the words: “we are prepared to move quickly but we are not being stuffed on this deal” and “Hans den Baas where does he sit/as opposed to Rabobank London” and “MF has to justify to shareholders the 15% Equity”. I find that the deal there referred to was the SPC proposal, as so far developed, and that the reference in the notes to “Rabo London taken out” referred to the fact that the New York office, to the exclusion of the London office, was henceforth to deal with the development of the SPC plan and the consequent relationship of the Banks with YFG. There was no mention of a buyout at this meeting. If there had been, the SPC would have been effectively abandoned. I further find that from this time there developed in the mind of Mr Hamilton a pronounced wariness as to the financing operation of RNY and a suspicion that Mr den Baas might be developing a means of disadvantaging NWB in respect of what might ultimately be available for recovery against YFG’s indebtedness by the equity benefit to be taken by RNY out of the transaction.

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:

“21.

I met Mr Hamilton and Mr Havelock on 25 September 1997. I invited Mr Havelock and Mr Hamilton to meet me in my office rather than in one of our more formal meeting rooms. The meeting took place on sofas around my coffee table, and lasted about 20 minutes. Due to the confidential nature of this meeting, we agreed that no note of the meeting was to be taken for the file. Notwithstanding the more relaxed environment of my office, the meeting began in a tense and aggressive manner.

22.

Mr Hamilton and Mr Havelock made it clear that they were concerned about the invitation they had received from Mr den Baas to meet in New York. They were worried whether Rabobank New York had some relevant information which NWB did not have. They were concerned that Rabobank New York had some hidden transaction planned which would follow after NWB accepted Mr den Baas’ proposal, which could make them look foolish and which would show that NWB had entered into a bad deal. Mr Havelock was unwilling to let Mr Hamilton go to New York until satisfied that it would not be a waste of time.

23.

Early in the meeting, I was asked bluntly whether I had any information which NWB did not know and which would impact upon NWB’s decision in relation to Mr de Baas’ proposals. I was shocked at the question. In banking, reputation is everything, and maintaining a good reputation is at the heart of Rabobank’s values. We had conducted ourselves throughout the YFG work out in an honest and open fashion. NWB knew we were being completely honest with them about YFG. I told Mr Hamilton and Mr Havelock the truth, which was that I knew nothing which had not already been shared with NWB. Mr Hamilton and Mr Havelock were persistent in their questioning. I repeated that I did not know of anything which had not been shared with NWB.

24.

In my whole career this was the only occasion when I have been asked whether I was hiding information from a co-lender. Prompted by their question, I felt I should ask Mr Hamilton and Mr Havelock whether NWB knew anything which Rabobank did not know. I asked the same question of them: did they have any information which Rabobank did not know and which would impact upon Rabobank’s decision? Mr Hamilton and Mr Havelock replied that they did not.

25.

The meeting was emotional. To conclude the meeting, I shook hands with Mr Hamilton and Mr Havelock. It was very much as if we were gentlemen shaking hands on a deal. I believed what Mr Havelock and Mr Hamilton had told me, and they believed what I told them.”

I find the following facts in relation to this meeting.

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:

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:

“Confirmation that no back to back syndicated refinancing or deal with Marubeni exists (or with any other party) as at the date of your letter.”

On 30 September Mr den Baas replied confirming the unconditional takeout by Rabobank of both the NWB share of the Credit Facility and the £4.2 million overdraft facility and that Rabobank would provide additional facility needs of YFG as of 30 September. The letter also included an express representation that there was no back-to-back arrangement with Marubeni or any other party and concluded in these words:

“Documentation arranging this transfer shall be acceptable to both Rabobank New York and NatWest, which will be negotiated in good faith.”

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:

“We furthermore represent that Rabobank has not arranged or is aware of the immediate sale of any part of the company to Marubeni or has pre-arranged syndicated facilities for the company at this point.”

Further, as I have found, the meeting with Mr van der Schrieck had nothing to do with the takeout and the 26 September meeting at which the takeout was first proposed did not involve any representation by NWB that it was disclosing all material facts. Nothing is shown to have passed which displaced the caveat emptor principle.

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:

“Before your Lordships it was sought to argue that the decision in Courtney’s case [1975] 1 WLR 297 was wrong. Although the cases in the United States did not speak with one voice your Lordships’ attention was drawn to the decision of the United States’ Court of Appeal, Third Circuit, in Channel Home Centers, Division of Grace Retail Corporation v. Grossman (1986) 795 F 2d 291 as being ‘the clearest example’ of the American cases in the appellants’ favour. That case raised the issue whether an agreement to negotiate in good faith, if supported by consideration, is an enforceable contract. I do not find the decision of any assistance. While accepting that an agreement to agree is not an enforceable contract, the Court of Appeal appears to have proceeded on the basis that an agreement to negotiate in good faith is synonymous with an agreement to use best endeavours and as the latter is enforceable, so is the former. This appears to me, with respect, to be an unsustainable proposition. The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? The answer suggested depends upon whether the negotiations have been determined ‘in good faith’. However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. Mr Naughton, of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question – how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an ‘agreement?’. A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while those negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw. Accordingly a bare agreement to negotiate has no legal content.”

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:

“But there is one particular factor which will often be decisive. That is the consideration that in the absence of telling indications to the contrary, a banker will usually approach a suggestion that a director of a corporate customer is trying to defraud the company with an initial reaction of instinctive disbelief. In Sanders Bros v. Maclean & Co (1883) 11 QBD 327, at 343, Bowen LJ. observed:

‘But the practice of merchants, it is never superfluous to remark, is not based on the supposition of possible frauds. The object of mercantile usages is to prevent the risk of insolvency, not of fraud; and any one who attempts to follow and understand the law merchant will soon find himself lost if he begins by assuming that merchants conduct their business on the basis of attempting to insure themselves against fraudulent dealing. The contrary is the case. Credit, not distrust is the basis of commercial dealings; mercantile genius consists principally in knowing whom to trust and with whom to deal and commercial intercourse is no more based on the supposition of fraud that it is on the supposition of forgery’

That was, of course, a very different case, and the relationship between merchants is very different from the relationship between a banker and a customer. But, it is right to say that trust, not distrust, is also the basis of a bank’s dealings with its customers. And full weight must be given to this consideration before one is entitled, in a given case, to conclude that the banker had reasonable grounds for thinking that the order was part of a fraudulent scheme to defraud the company.”

In truth, Mr Catton’s vision was directed throughout exclusively to matters of security and recoverability of the directors’ indebtedness. The purpose for which loans were needed was only material to his thinking when it impacted on recoverability, as was the case with the Firth Trust’s borrowing for the purchase of Oaklands, a substantial property which would stand as security by way of mortgage. This limited vision continued throughout Mr Catton’s involvement, not only with the personal loans to the directors and the pre-workout corporate loans, but also with the initial stages of the workout and, in a more limited way, its later stages.

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:

“In particular, I do not see any reason to think that this would have alerted a workout banker to possible lack of integrity on the part of the directors. It would not have alerted me.”

It is also worth noting that the information that Mr Firth owned or might own an almond farm was received by Mrs Parsons when she read Ms Hanley’s memo of 12 June 1997, by Mr Gormley when Mr Firth told him at the end of August or the beginning of September 1997 and by Mr den Baas in October 1997 before he signed the Takeout Agreement. Yet, none of the three was deterred from pursuing current workout plans or, in the case of Mr de Baas, from entering into the Takeout. For none of them did further investigation appear necessary. The red light was ignited for nobody.

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:

“81.

I do not, however, agree with Mr Hudson that a mere possibility, ‘however remote’, of the security over YFG shares being realised would be of material significance to a workout banker. Unless a sale in the near future was at least a realistic possibility, a workout banker would not, in my experience, regard the existence of the security over the shares as material. I do not believe that such knowledge would have any effect on decisions being made in the workout….

82.

Whilst NatWest was aware of the existence of the security, I note that a number of NatWest’s witnesses say that, in effect, there was no realistic possibility of NatWest enforcing its security in this case. A workout banker with that knowledge would not have regarded the existence of that security as of any relevance. I would not have done so.

83.

In paragraph 46 of his report, Mr Hudson states that NatWest’s argument that it was unable to foreclose on the YFG shares ‘flies in the face of commercial logic’ since ‘the only point of taking shares as security would be that NatWest regarded itself as able to exercise its security rights if this became necessary’. I regard this as simplistic. Banks take security for a number of reasons and pure reliance on such security is generally regarded as unwise. Banks look for cash streams such as salary, bonuses, dividend income, corporate profitability, asset disposals etc as the primary source of repayment. Security is a secondary source of repayment and prevents the assets being disposed of or charged for other creditors.”

There is no evidence to suggest that Mr Catton believed that the existence of the personal loans or the fact that they were overdue for repayment was material information in relation to the workout and I infer that he did not.

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:

“78.

By contrast with all this, if I had thought about it at all, I would have thought detail of the directors’ personal borrowings to be an extremely minor issue of no relevance to the tasks in hand. In the absence of a suspicion of impropriety on the part of the YFG directors (which I never had), even if I had been aware on 20 August 1996 of some or all of the details of the personal loans, White Rose, Almond Farms I and II and the connections with the directors, I would not have thought it appropriate or necessary to discuss them with Rabobank at this meeting or later and I would not have expected Rabobank to disclose them to me had our positions reversed.

79.

In August 1996, if I had any awareness or interest in the directors’ personal borrowings, it would have been as background information of very little, if any, consequence to what Steve Hamilton and I had to do on the corporate lending side. It certainly did not mean that I thought either that I had to be made aware of all the details or that it was necessary to disclose the details to Rabobank. My concern (and the concern of CSS) was with YFG’s debt and the potential for repayment, and not with the position of the debts of its individual directors.”

His evidence was that he regarded the information provided by Mr Catton in his 30 September 1996 memo as entirely irrelevant to the corporate indebtedness and therefore not information which was material to be disclosed to Rabobank. He did not consider that the delay in repayment of the BL would be material to the workout: it did not suggest the unsuitability of Mr Firth to be running YFG. He did not regard the involvement of the directors in the almond farm business as material to the workout. The effect of his evidence was that the exclusive focus of his work in relation to the workout was the recoverability of the corporate indebtedness and since the directors’ borrowings appeared to him to have no bearing on that objective, having regard either to their being overdue for repayment or to the purpose of the BL for acquiring almond orchards, he did not regard such borrowings as material to further lending. Indeed, he could not remember any discussion with Mr Catton or Mr Hamilton of the almond farms at the time and, as he put it in cross-examination, “it would have been a relatively immaterial conversation.”

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:

“Although it sometimes happened that the interests of banks came into conflict in individual cases, my experience was that most bankers involved in workouts in London would try to work together as a means to an end; the end being to get closest to what each bank, in its own interests, wanted to achieve. My own approach in my dealings with other banks on behalf of NatWest was to make recommendations tailored to the individual workout and on the basis of my own experience. In doing so, if it seemed to me that other banks had ideas that seemed useful, I would be happy to form a co-ordinated plan. But if this happened, I always felt it was my responsibility to put the interests of my own bank first and no bank I encountered acted any differently. Each bank had made its own credit judgment when advancing money in the first place and I did not feel that I could put NatWest’s interests second to those of other banks. This is perhaps best summed up by the fact that it was sometimes said in workout circles about the other banks with which we worked, that we had many acquaintances as workout bankers, but not many friends.

For these reasons, I disagree with a number of the allegations which I understand Rabobank has made about the nature of its relationship with NatWest during the YFG workout. So far as I was concerned, the relationship was not a “joint venture” or “partnership-style” relationship or, indeed, a contractual relationship of any kind (apart from the agreement contained in the 1996 Credit Facility) and it never even crossed my mind that either bank might owe the other ‘fiduciary duty to give full and fair disclosure to the other and to the accountants and solicitors advising them both or all information relevant to the achievement’ of what are described as the ‘Common Goals’ (in paragraph 49 of the ADC). No workout I have ever been involved with has operated in this way and I cannot recall any banker (including those at Rabobank with whom I had contact during the YFG case) ever referring to a workout in those terms or in any way that might suggest that there was any sort of obligation of full and fair disclosure between the banks. I have no doubt that NatWest would not have consented to the creation of this sort of relationship with another bank unless it was properly documented, in writing and duly authorised at the requisite level within the bank. I do not recall any such agreement ever having been entered into. Had there been, I certainly would have remembered it because it would have been exceptional.”

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:

“I cannot recall any occasion where another banker involved in a workout has asked me or those working in my department for details of directors’ personal financial arrangements; and I do not recall any workout in which I specifically asked one of my managers to obtain information about such arrangements from another bank, or asked about them myself. The only time I can think of when this might happen is where a funding solution revolved around the directors investing their own personal resources, such as for a rights issue. Furthermore, to my knowledge, the subject of directors’ loans has never been the focus of any attention by banking groups in a workout. Although they might comment on whether management are able to put up new equity, reporting accountants focus on management capability and experience, not personal wealth or borrowings.”

And in the course of cross-examination he said this:

“Q. Are you saying if there are directors’ personal loans, by definition they are immaterial to a corporate workout, whatever the circumstances?

A. I am not saying whatever the circumstances, but I have never – never seen a situation at all where we have had any issue relating to personal loans or directors’ borrowings in a workout. It has never been – it has never been a situation that we have given our attention to, and nor has any other bank in my experience.

Mr Justice Colman: Right. In those cases where on a workout you have found that directors of the company under workout have also been personal borrowers from your bank, have you ever disclosed that fact to any co-workout banks?

A. No, no, my Lord, no.

Mr Justice Colman: Have you ever had any such information disclosed to you?

A.

No, I have not, no.”

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

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:

“a reasonable and competent accountant would not set out to investigate the personal financial position of the directors under the Terms of Reference in the instruction letter of 6 September 1996”.

Mr Wheeler, who had a wealth of experience in the corporate recovery field, stated in his report:

“5.8

It is important to note that the terms of reference were issued by YFG and were confined to matters relating to YFG and its subsidiaries. Any reasonable and competent investigating accountant would understand the scope of the investigation to be confined to the YFG Group. There was no reference to investigating any matters relating to any other party either corporate or personal, including the directors. As such the terms of reference were entirely typical of these sorts of instruction letters.

5.9

In all my experience of investigating corporate borrowers, I have never been instructed to investigate the personal financial position of directors. I have never understood any part of the terms of reference (including a requirement to assess management) to require me to investigate such matters, nor have any of the banks who have instructed me ever suggested that any part of their terms of reference obliged me to investigate such matters. Indeed as head of Corporate Recovery for KPMG in UK for about seven years I cannot recall any case involving KPMG where there was an instruction to investigate the personal borrowing position of a debtor company’s directors. In my opinion, given the terms of reference in this case, an investigating accountant would have been acting reasonably and competently if he had not taken any steps to investigate the personal financial affairs of the directors. On the facts of this case, as I understand them, I would not have undertaken such an investigation myself.

5.10

It would be entirely possible for a bank wishing an investigating accountant to perform an investigation into the personal financial affairs of the directors of a debtor company to instruct him accordingly. However, as I have stated, I have never received such an instruction in my 30 year career. The instruction would require clear and unambiguous wording to expand the scope beyond the corporate entity together with appropriate consents and cooperation from the directors and the directors’ bankers (if the latter were not already parties to the instructions). In my opinion, in the absence of such an instruction and consent, an investigating accountant would be acting reasonably and competently in not investigating and reporting on the personal financial affairs of the directors of a debtor company.”

Nor did he consider (in disagreement with Mr Lee, Rabobank’s expert) that PW was under any duty to inform Rabobank of the “instruction”. Mr Lee’s view is based on his assumption that what Mr Hamilton said was of prohibitory effect. Mr Wheeler approached the Pavement Conversation on the basis that it was not. Since I have so found, I accept Mr Wheeler’s evidence on both these facets of Rabobank’s case.

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 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:

“(a)

approving YFI’s funding of more than $600,000 for the purchase of farms for Almond Farms I and II at a time when YFI was insolvent, and causing YFI to assign all of its rights and interests in the property to Almond Farms I and II for no monetary consideration;

(b)

approving YFI’s funding of lease payments for farming operations on the Almond Farms I and II property at above market rates at a time when YFI was insolvent and without any reasonable expectation of repayment;

(c)

approving YFI’s funding of millions of dollars of expenses incurred by its subsidiaries at a time when YFI and those subsidiaries were insolvent and without any reasonable expectation of repayment; and

(d)

approving various exorbitant and unnecessary expenditures such as luxury car leases for key employees, lavish parties and conferences, and interest free loans to YFI personnel at a time when YFI was insolvent or in the vicinity of insolvency.”

NWB is said to have knowingly aided and abetted such breaches of fiduciary duty in the following manner:

“Upon information and belief, at the time NatWest engaged in these activities, it knew (1) that several YFI officers and/or directors had formed White Rose and Almond Farms I and II; (2) that funds belonging to YFI and/or the US Subsidiaries were being used to acquire property and services for Almond Farms I and II and White Rose, and (3) that the US subsidiaries were either in the vicinity of insolvency or were insolvent in fact. It also knew that Rabobank (and later, Utrecht) was YFI’s primary creditors.”

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

“Among other things, NatWest assumed fiduciary duties to Rabobank, including a duty to promptly disclose certain information to Rabobank.”

It then refers to NWB, in addition to that agency relationship, having entered into the Takeout Agreement and continues:

“153.

NatWest, by virtue of its role as agent under the Credit Facility, and by virtue of its dealings in connection with White Rose and the Almond Farms I and II transactions, had superior access to material information, and had a legal duty to disclose such information to Rabobank and Utrecht.

154.

Despite its duties, NatWest fraudulently concealed from Rabobank and Utrecht all of its information and knowledge concerning the existence of White Rose and the Almond Farms I and II transactions, as well as its subsequent lien on the Almond Farms I and II property.

155.

In engaging in such fraudulent concealment and omissions, NatWest communicated to Rabobank and Utrecht only those facts calculated to induce them into entering into the Take Out Agreement, thereby shifting at least $50,000,000 dollars in potential liabilities from NatWest to Utrecht. These actions were directly contrary to the legal duties NatWest owed to Rabobank and Utrecht.

156.

NatWest intended for Rabobank and Utrecht to rely on its fraudulent omissions in entering into the Take Out Agreement, and Rabobank and Utrecht reasonably and justifiably relied upon them. Had Rabobank and Utrecht known of the Almond Farms I and II transactions, of YFI’s undisclosed liabilities relating thereto, and of NatWest’s interest and involvement in them, Rabobank and Utrecht would not have entered into the Take Out Agreement.”

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

“170.

Pursuant to the covenant of good faith and fair dealing, NatWest owed duties to Rabobank in connection with the execution and delivery of the Credit Facility Agreement and the Take Out Agreement.

171.

By failing to disclose foregoing material facts and information to Rabobank and Utrecht both prior, during and subsequent to the execution of the Credit Facility and the Take Out Agreement, respectively – information peculiarly within the knowledge of NatWest – NatWest breached the covenant of good faith and fair dealing to Rabobank and Utrecht.

172.

The facts and information wrongfully withheld by NatWest were material to Rabobank’s and Utrecht’s decision to enter into the Credit Facility and Take Out Agreement, respectively. Had NatWest disclosed to Rabobank and Utrecht the foregoing material facts and information, Rabobank and Utrecht would not have entered into the Credit Facility and Take Out Agreement, respectively.”

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:

“180.

In engaging in all the wrongful conduct previously described, all Defendants, without justification or excuse, acted with an intent to injure Rabobank and Utrecht.

181.

As a direct and proximate result of the Defendants’ wrongful and intentional conduct, Rabobank and Utrecht, have been injured in their business and property.

182.

Accordingly, if New York law is applicable to this cause, and should not other tort claims be available, Defendants are liable to Rabobank and Utrecht for actual and consequential damages, exemplary damages, pre-judgment interest, post-judgment interest, and costs due to their commission of prima facie torts.”

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:

“To date, the Court has considered only contractual-based duties existing between Rabobank and NatWest in its narrowly defined role as ‘agent’ under the Credit Facility. NatWest’s deposition testimony confirmed, however, that once the Yorkshire loans went into workout, NatWest (in its role as participant bank) stepped well beyond the agency duties described in the Credit Facility, and assumed additional duties to disclose information relating to the Yorkshire Companies’ financial condition. Plaintiffs’ new claims are based on these additional duties, which aRose from the parties’ course of dealing and performance once the Yorkshire loans were transferred to the banks’ respective ‘workout’ departments in the latter part of 1996.”

Indeed there are other references in this document to Rabobank’s previous claims being based on agency.

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:

“Here NatWest owed fiduciary duties to Rabobank; thus, NatWest falls within the class of individuals capable of aiding and abetting another fiduciary’s breach. There is no legal requirement that the fiduciary duties involved be identical.”

There was thus no amended pleading in relation to the Fourth Cause of Action as such but there was certainly an attempt to make a claim or allegation that the conduct referred to in the Fourth Cause of Action aiding and abetting the breach of fiduciary duty by the officers of YFI was, because of NWB’s position as Agent, also a breach of fiduciary duty by it. That attempt was in my judgment, a breach by Rabobank of clause 21.3(b).

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:

“NatWest correctly notes that generally ‘mere silence, however morally wrong, will not support an action for fraud’ under English law. But so long as a duty to speaks exists, English law does recognise an action for misrepresentation based on omissions. Here, the agent/principal relationship and specific provisions of the Credit Facility required NatWest to disclose the almond farms information. Given this pre-existing duty to speak, English law plainly would recognise Rabobank’s fraud claims as pleaded here.”

It further appears to rely additionally on the following express provisions of the Credit Facility

Clause 20.11(a) provides:

“The Agent shall promptly forward to the person concerned the original or a copy of any document which is delivered to the Agent by a Party for that person.”

Clause 20.7(a) provides

“The Agent is not obliged to monitor or enquire as to whether or not a Default has occurred. The Agent will not be deemed to have knowledge of the occurrence of a Default. However, if the Agent receives notice from a Party referring to this Agreement, describing the Default and stating that the event is a Default, it shall promptly notify the Banks.”

Clause 20.4 provides:

“The Agent will be fully protected if it acts in accordance with the instructions of the Majority Banks in connection with the exercise of any right, power or discretion or any matter not expressly provided for the Finance Documents. Any such instructions given by the Majority Banks will be biding on all the Banks. In the absence of such instructions the Agent may act as it considers to be in the best interests of all the Banks.”

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.

Each and every representation relied on by Rabobank is to be separately identified.

In the case of each representation, the following matters are to be specified:

In the case of each representation, the statement is to identify:

The Statement is to make it clear, in relation to each alleged representation, whether it is alleged that any and if so which individual(s) within NWB:

The statement is to identify, in relation to each allegation of knowledge in relation to an individual within NWB, the facts and matters relied on in support of the allegation that the individual had such knowledge.

The statement is to identify, in relation to each alleged representation, whether any and if so which individual(s) within NWB intended the representation to be acted upon.

The statement is to identify, in relation to each alleged representation, what action Rabobank took or omitted to take in reliance on the representation.

The Group’s present financial situation and viability to including the following:

The Group’s immediate cash needs:

An estimate of the present asset over available. [This section to only be made available to the Banks:

An assessment of the Directors’ proposals (and their advisors proposals) for resolving the financial problems and equity solutions. (This may require discussions with The Chicago Corporation who are undertaking diligence for the Group on the Equity/Debt issues:

Assessment of the Group’s management.

Any other matters which come to your attention during the course of the review which you may consider to be important to the considerations of the Group or the Banks.