IVY TECHNOLOGY LIMITED v BARRY MARTIN & Anor

INTRODUCTION

This judgment follows the trial of the Claimant’s (“Ivy”)’s claims against the First and Second Defendants (“Mr Martin” and “Mr Bell” respectively) for (i) fraudulent misrepresentation, (ii) breach of warranty, (iii) breach of covenant and (iv) unlawful means conspiracy.

With the exception of the breach of covenant claim (in respect of which it is alleged that Mr Bell is liable in conspiracy only), Ivy seeks to establish primary liability on the part of both Mr Martin and Mr Bell for each of the causes of action. Ivy relies inter alia on the allegation that Mr Martin was acting as Mr Bell’s agent at material times.

The claims relate to the purchase by Ivy of 21Bet, an online gambling business (“the Business”) made up of various corporate entities:

Ivy is part of the Tabella group, which is based in Prague and runs an online betting business.

Mr Martin is a businessman with experience in the gambling sector. Mr Martin was a signatory to the SPA and was defined in the SPA as the “Shareholder” of the companies sold thereunder. Mr Martin negotiated the sale with Ivy between May 2018 and the execution of the SPA in April 2019. Prior to the execution of the SPA, Mr Martin was the beneficial owner of 50% of the shares sold thereunder (“the Shares”).

Mr Bell is a wealthy businessman and investor. Mr Bell had previously worked with Mr Martin in relation to other business ventures including 666Bet, a gambling business which was liquidated in 2015 after accumulating substantial debts. Mr Martin and Mr Bell set up 21Bet in 2016 after Mr Martin approached Mr Bell with the idea and Mr Bell facilitated an initial payment (described as a loan) of £1 million for the purpose. It is common ground that Mr Bell beneficially owned 50% of the shares in the companies comprising the 21Bet business.

Mr Bell was not named on the face of the SPA. Mr Bell said in his first witness statement that Mr Martin “kept [him] up-to-date on the sale of the Business to [Ivy] at a high level” and that “as a 50% shareholder, [he] expected to receive [his] share of the balance of the sale proceeds”. Mr Bell attended one meeting with representatives of Ivy in Prague in early October 2018 (“the Prague Meeting”) but did not otherwise communicate directly with them during the negotiation of the SPA.

PROCEDURAL BACKGROUND

By a claim form dated 31 July 2019, Ivy claimed against Mr Martin for fraudulent misrepresentation, breach of warranty and breach of a ‘non-compete’ restrictive covenant under the SPA. It claimed against Mr Bell for the torts of unlawful means conspiracy and inducing breach of contract. Ivy also claimed against AXL Media Limited (“AXL”), a separate company owned by Mr Martin’s daughter, on the basis that it was involved in procuring the breach of the restrictive covenant and/or had conspired to use unlawful means to cause Ivy damage.

This matter first came before the court in the context of an application for a freezing order. That order was granted by Knowles J on 29 July 2019, with the result that Mr Martin and Mr Bell (along with AXL) were prohibited from removing from the jurisdiction or disposing of assets up to the value of £4 million. I discharged the freezing order insofar as concerned Mr Bell on the return date, 26 September 2019. In my judgment ([2019] EWHC 2510 (Comm)), I explained that I did not consider that Ivy had provided solid evidence of a risk of dissipation of assets by Mr Bell such as to justify the continuation of the freezing order against him.

On 11 November 2019, Ivy applied for permission to amend the claim form and Particulars of Claim to allege that: (i) the SPA was made by Mr Martin on his own behalf and on behalf of Mr Bell, so that Mr Bell was also liable to pay damages for breach and to repay sums paid under the SPA; and (ii) the warranties contained in the agreement were relied on as and were intended to be representations by Mr Martin on his own behalf and/or as agent on behalf of Mr Bell.

The amendment application came before the court on 17 January 2020. In his judgment ([2020] EWHC 94 (Comm)) and order dated 28 January 2021, Teare J granted permission for the first amendment. He refused permission for the second on the basis that he had no reason for thinking that such a case would succeed against Mr Bell.

Mr Bell appealed against Teare J’s order granting permission for the first amendment. Mr Bell advanced three grounds of appeal: (i) that the express terms of the SPA excluded any liability of Mr Bell; (ii) that Ivy and Mr Martin expressly contracted in the SPA on the basis that Mr Martin was the sole beneficial owner of the Shares, and therefore that Ivy was estopped from contending to the contrary; and (iii) that Ivy irrevocably elected to bring its claim for breach of the SPA against Mr Martin, to the exclusion of Mr Bell, when it commenced the proceedings.

Judgment was given by the Court of Appeal on 19 November 2020 ([2020] EWCA Civ 1563). The Court of Appeal dismissed the appeal, finding inter alia as follows:

In August 2021, it was ordered by consent that Ivy’s claims against AXL be discontinued and that the continued freezing injunction be discharged as against AXL. Further amendments were then made to the Particulars of Claim pursuant to the order of HHJ Pelling QC dated 2 November 2021. These amendments reflected the discontinuance of the case against AXL and sought to clarify other aspects of Ivy’s case.

The case was heard over the course of two weeks in December 2021. Due to the worsening COVID situation and a positive test within the attendees, Mr Bell gave evidence remotely on the sixth day of the trial and the trial was thereafter heard remotely. Written closing submissions were provided in early January, with oral closing submissions on 10 January 2022.

WITNESSES

The witnesses at trial were as follows.

Mr Neil Copans is the vice-president of Tabella, a technology company that provides customer services and marketing services to online casinos and is part of the same group of companies as Ivy. It appears that Tabella employees conducted the negotiations for the SPA on behalf of Ivy.

Mr Copans was involved in the negotiations between Ivy and the First and Second Defendants, including the Prague Meeting. He was also involved in conducting due diligence on behalf of Ivy and appears to have been in regular communication with Mr Martin. Mr Copans continued to be involved in 21Bet after its acquisition by Ivy. He was a good witness.

Mr Amit Hooja is the Chief Executive Officer of Tabella. Mr Hooja gave evidence that he instructed Mr Copans to carry out the due diligence process and was only involved at a “very high level”. Like Mr Copans, Mr Hooja was present at the Prague Meeting. Mr Hooja evidently had limited recollection of the relevant events by the time of trial, but I am satisfied that he gave a truthful account of those matters and impressions which he did remember.

Mr Archibald Watt, an accountant, is the Chief Financial Officer of Tabella. Mr Watt joined Tabella in December 2018 and was involved from that time in the negotiations for the purchase of 21Bet. He gave evidence that he was not involved in the due diligence process in relation to the purchase of 21Bet. He was, however, closely involved in the running of 21Bet after completion of the sale. Mr Watt gave his evidence fairly and honestly.

Mr Martin gave evidence in relation to the state of the 21Bet business, the negotiations for sale of 21Bet, the development of Premier Punt (a betting company acquired by AXL which is the subject of the breach of non-compete covenant claims) and the aftermath of the sale of 21Bet. He was at times argumentative or evasive in giving evidence. For the reasons which appear later, I am unable to accept significant portions of his evidence.

Ms Ashleigh Martin, Mr Martin’s daughter, gave evidence in relation to her involvement in the 21Bet business and the development of Premier Punt. There are several emails from Ms Martin which describe her job title at Premier Punt as Customer Support Manager, but she gave evidence that she was the Chief Executive Officer of Premier Punt. Ms Martin changed her name to Ms Ashleigh Chaplin in the AXL records at Companies House on 19 January 2019, albeit she had married in 2012. I found parts of her evidence implausible, particularly regarding her role and that of others in relation to Premier Punt, and the reasons for changing her name as recorded at Companies House.

Mr Bell gave evidence in relation to the nature of the Simplify businesses, payments made by the Simplify businesses and other entities to 21Bet, the state of 21Bet’s finances, his communications with Mr Martin, the Prague Meeting and Premier Punt. Mr Bell was from time to time evasive or argumentative when giving evidence, and for the reasons set out later, I am unable to accept considerable portions of his evidence.

Ivy and Mr Bell both submitted expert reports. Mr Martin did not. By order of Mr Richard Salter QC, the expert reports were confined to the following issues:

Mr Jeffrey Davidson, an accountant, provided an expert report and gave expert evidence on behalf of Ivy. He was a good witness.

Mr Andrew Donaldson, an accountant, provided an expert report on behalf of Mr Bell. During the trial, Ivy indicated that it would not seek to cross-examine Mr Donaldson on his expert report.

The experts also produced a joint statement dated 26 November 2021.

FACTS

In this section, I set out the factual background, and findings on a number of key matters, with reference to the evidence given by the witnesses and the contemporary documents.

Mr Bell and Mr Martin met for the first time in 2013. In 2014, they set up 666Bet, an online sports betting business. Mr Bell provided capital while Mr Martin acted as chief executive officer. 666Bet’s UK gambling license was suspended in 2015. Its parent company was subsequently liquidated. The demise of 666Bet was reported in national newspapers.

Around the same time, Mr Bell was arrested (though not charged) in the UK and the Isle of Man in 2015 in connection with an investigation into a £21 million VAT fraud and money laundering investigation. In 2017, he was the subject of a confiscation order imposed by the Deputy High Bailiff of the Isle of Man.

In 2016, Mr Martin approached Mr Bell with the idea for a new online gaming business. 21Bet was subsequently established.

The UK arm of 21Bet was initially operated through a UK company, Viktra Business Limited (“Viktra”), which was incorporated in August 2016. As explained further below, Viktra was put into liquidation in May 2018 and replaced in this role by City Support.

21Bet also operated in other jurisdictions through Aureate, Alibaba and Tristate. The registered shareholder of Aureate, City Support and Alibaba was Mr Richard Hogg. This arrangement appears to have been for the purpose of obtaining and maintaining licences from gambling regulators, who generally place restrictions on the type of person who may hold a gambling licence. It is common ground that (at least in the period preceding the execution of the SPA) the beneficial owners of 21Bet were Mr Martin and Mr Bell. Mr Martin accepted in evidence that Mr Hogg did not play a day-to-day role in the management of the business.

21Bet’s business revenue streams were UK gaming, non-UK gaming, BetExchange (where 21Bet appears to have acted as an intermediary between betting companies rather than taking bets directly from customers) and “VIP”. “VIP” business refers to income from certain high net worth individuals, to whom 21Bet appears to have provided a personalised “off-the-books” service. UK revenue was channelled through Viktra and later City Support, while non-UK revenue (at least predominantly) passed through Aureate.

21Bet initially operated on a platform provided by FSB Technology (UK) Limited (“FSB”). I understand that this meant that FSB held the relevant gambling licence for 21Bet and collected the gross gaming revenue (“GGR”) from bets placed on 21Bet’s website. Each month, FSB would subtract its fees and pass the net gaming revenue (“NGR”) to 21Bet.

The 21Bet companies received substantial funding from various companies using the name “Simplify”. The Simplify companies are payroll and recruitment businesses under the control of members of Mr Bell’s family. They were acquired in or around 2016 and include:

Ms Scambler was diagnosed with a sarcoma in 2016. She travelled to the United States of America for chemotherapy and immunotherapy treatment regularly thereafter. Mr Bell gave evidence that she had been very ill over a period of five years, and that hospital treatments “took over her life” following her diagnosis. She died in December 2020.

Payments by the Simplify entities to Viktra and City Support in the period from February 2017 until the date of the SPA on 4 April 2019 amounted to £1,812,445. Mr Bell acknowledges that SBL loaned sums “in excess of £3,000,000” to 21Bet, albeit that there was no formal loan agreement or security due to the “friendly terms” between Mr Bell and Mr Martin. Mr Bell stated in his second witness statement that he expected to “receive half of the profits of [21Bet] because [he] had arranged the funding.”

Mr Bell also gave oral evidence that he invested £300,000 of his own money in 21Bet when it was set up. When presented with Schedule 3 to the Claimant’s Skeleton Argument, which showed that Mr Bell had invested £400,000 between 3 March 2017 and 22 September 2017, Mr Bell accepted that he had in fact personally invested £400,000.

There is a dispute between the parties as to whether Mr Bell or Ms Scambler was controlling the Simplify entities and providing financing to 21Bet. Mr Bell gave evidence that he did not have a role in 21Bet and that his involvement was limited to protecting Nicola’s interest with regard to the loans made by Simplify. He explained that he would liaise with the Simplify businesses “several times a day” to protect Ms Scambler’s interests while she was ill, but that Ms Scambler exercised “full control” over those businesses.

There is evidence of payments to 21Bet from other companies associated with Mr Bell. BWM Developments Ltd (“BWM”), for example, made two payments of £11,500 to Viktra in February 2017. One of Mr Bell’s companies, Hexagon Solutions Ltd, also guaranteed the lease of 21Bet’s offices.

Mr Bell regularly referred in correspondence with Mr Martin to payments that he had made to 21Bet. He did not distinguish between payments made personally and by Simplify entities. On 10 October 2017, for example, Mr Bell said in an email that “I am not throwing any more funds in ad hoc”. On 8 November 2018, he said that “I have £3m in and over 3 years later it needs another £2m to stay afloat.” In other documents Mr Bell referred to “his” loans and to “my own investments in to this project”. I do not accept Mr Bell’s oral evidence that by referring in some of these communications to “my loans” he meant only the £400,000 which he had personally lent to the business. That would, for example, be inconsistent with the reference in the 8 November 2018 email to his having “£3m in”, and would in any event be surprising: even on Mr Bell’s case, he had a strong interest in protecting the £3 million which Simplify had put into the business, not merely his own direct personal lending.

It is also notable that none of the disclosed documents contain any evidence of Mr Bell consulting or updating Ms Scambler (or her husband) about the status of their lending to 21Bet or about further funds which Mr Bell arranged to be paid, on a very frequent basis, by Simplify companies to or for the benefit of 21Bet. In addition, Mr Bell’s evidence that his 50% beneficial interest in 21Bet had arisen from merely arranging the Simplify loans is hard to credit. In my view, by far the most probable explanation of the position is that the monies advanced by Simplify were in commercial terms Mr Bell’s money.

From at least 2017, 21Bet appears to have been heavily reliant on the funding provided by the Simplify entities and/or Mr Bell. Injections of cash were frequently necessary to enable 21Bet to meet debts as they fell due. Viktra’s bank statements show, for example, that the company’s balance dropped to £23.97 in February 2017 before £19,850 was provided by SBL. Again in March 2017, an injection of £20,000 was required from SBL when Viktra’s balance dropped to £2,200 shortly prior to paying out £19,620.

It was a frequent occurrence over the whole period from May 2017 to March 2019 that Mr Martin would need to ask Mr Bell for money in order to meet the Business’s liabilities to a variety of third parties, such as suppliers, affiliates, rent and wages. For example, in April 2017, Mr Martin estimated that the Business would need £120,000 per month from Mr Bell for the next three months and Mr Bell explained that “the office” was sending Viktra £20,000 per day, as that was the daily limit of the amount that could be transferred.

After the end of that three-month period, on 24 August 2017, Mr Bell said that “the office” was sending “3 x 20” to cover a shortfall in relation to a Turkish payment, and that he would arrange for a further £50,000 in relation to a development relating to Betfair.

On 29 August 2017, Mr Bell told Mr Martin that he had “organised 50 today to Viktra, same tmw. Will sort another 100 this week. Will sort 250 next week” (this money was required in order for the businesses in Turkey and China to “go live”).

Mr Martin in an email of 20 September 2017 to Mr Bell said:

On 22 September 2017, Mr Bell told Mr Martin that he had sent “100” today. On 3 October, Mr Bell told Mr Martin that he had sent “20 today” and would “sort more this week”.

In similar vein to the exchange on 20 September, Mr Bell emailed Mr Martin on 10 October 2017:

On 12 October 2017, Mr Martin emailed Mr Bell to request his “permission” to “start the process of winding up Viktra Business”. Mr Martin stated that Catena Media Limited (“Catena”) had passed “our debt” of £217,000 to a collection agency, and that there was an outstanding amount of “circa £60k” due to HMRC. (Mr Bell explained in his witness statement that Catena was a company which drove traffic to the 21Bet website in jurisdictions where the advertisement of online gaming was prohibited, such as Turkey and China.) Mr Martin said that “we can lose all this debt for a fee of £5k +VAT”. He explained that “The idea is to create a newco with bank account, not called Viktra but set up as a ‘trading as Viktra’ so we can continue to take in payments from FSB without any questions for their side”.

Mr Martin’s oral evidence, supported by Mr Bell in his oral evidence, though not foreshadowed in any of their witness statements, was that the “main reason” for putting Viktra into liquidation was a contract with Wolverhampton Wanderers Football Club (“Wolves”), which would require Viktra to make an additional payment of approximately £1,000,000 on their promotion to the Premier League. Wolves achieved promotion to the Premier League in April 2018, but Mr Martin alleges that it “looked like” they were going to achieve promotion prior to that date. There was no reference to Wolves in Mr Martin’s 12 October 2017 email to Mr Bell about the reasons for liquidating Viktra. The email did, however, touch again on the business’s financial problems:

Moreover, Mr Bell’s response, the same day (12 October 2017), made the point in trenchant terms:

Although the liquidation account includes a debt to Wolves of £168,544, neither Mr Martin’s email to Mr Bell, nor Mr Bell’s response, nor any other contemporaneous document to which I was referred, contained any suggestion that the Business was (as early in the season as October) contemplating the team’s promotion, or that the possibility of having to pay them £1 million had anything to do with the decision to liquidate Viktra. I consider that Mr Martin’s evidence to this effect, and Mr Bell’s evidence in support of it, was untrue and was merely an attempt to seek to deflect attention from the obvious fact that Viktra was liquidated because it was already insolvent. Moreover, the final paragraph quoted above from Mr Martin’s email, which referred to “look[ing] at each area to see how we can turn this into profitability quickly”, underlines the point that the business as it stood was not profitable and that both Mr Martin and Mr Bell knew that.

The list subsequently produced of Viktra’s creditors does not indicate that any of the loans, whether from Mr Bell personally or from Simplify, were included in the liquidation; and Mr Martin did not suggest in his oral evidence that he understood that any of Mr Bell’s personal loans had been written off as part of the liquidation. I do not accept Mr Bell’s evidence that Mr Martin was simply trying to pacify him by saying they would not be written off. Thus Mr Bell had three interests in the subsequent sale of 21Bet: the money he personally had lent to it, the money Simplify had lent, and his 50% beneficial interest as equity shareholder.

The correspondence between Mr Martin and Mr Bell during this period continued to reflect the fact that the Business was in significant financial difficulty. In an email exchange on 26 October 2017, Mr Martin informed Mr Bell of cost-saving measures that he had put in place, adding that “You did mention you can assist with the salaries this month which is much needed so if you could send £50k over today so I can get the guys paid by the end of the week, that would be a huge help”.

On 29 December 2017, Mr Martin asked Mr Bell if he would be “ok sending £15k a week in Jan?” – this money was needed because Viktra had agreed ‘payment plans’ in respect of the substantial arrears owed to Catena and HMRC, and had agreed to pay them €10,000 and £5,633 per week respectively.

These financial difficulties continued into 2018. In an email of 15 February 2018, for example, Mr Martin requested that £15,000 be sent to Viktra because “2 bills that needed to be paid this week clean us out. IBM/Silverpop £9k and Iovation £4k”.

In an email of 21 February 2018, Mr Martin said:

On 26 February 2018, Mr Martin thanked Mr Bell for transferring £2,000, describing that very modest payment as a “life saver”. The following day, 27 February 2018, Mr Martin thanked Mr Bell for “sorting £20k from Simplify” which was enough to “[sort] half the salaries”, but he chased for another £20,000 for the rest of the wages, plus another €20,000 to pay Catena. On 1 March 2018, Mr Martin apologised for “pestering” but said that he “really needed some more funds to Viktra (had £10k and £20k so far) and we had £40k of wages plus £20k needed for Catena”. Mr Bell said in response that “Office sent 40 for wages”.

Mr Martin emailed Mr Bell on 12 March 2018:

On 14 March 2018 Mr Martin emailed Mr Bell:

On 21 March 2018, Mr Martin emailed Mr Bell:

Also in March 2018, City Support was incorporated. The process of liquidating Viktra began with the appointment of a liquidator in May. Documents from the liquidation show that Viktra’s debts as at April 2018 stood at £518,468.78. No Simplify business was listed among the creditors. At trial, Mr Bell appeared to suggest that this must have been a mistake on the part of the directors of Viktra. Mr Martin had, however, provided Mr Bell with a list of creditors in an email of 22 March 2018 which did not include Simplify.

Mr Hooja and Mr Copans spoke with Mr Martin via Skype in May 2018, after an introduction through a mutual contact (Mr Richard Thorp) at FSB. Negotiations to buy 21Bet began almost immediately and continued between June and November 2018. Mr Copans’ evidence, which I accept, was that “[a]t Tabella we are constantly looking to acquire businesses that are profitable but where, with extra money put in, they can be made more profitable”. Mr Hooja’s evidence was to the same effect. He said:

On 31 May 2018, Mr Martin sent Mr Copans and Mr Hooja a spreadsheet setting out “key performance indicators” for 21Bet’s businesses in 2017. These included overall GGR and NGR figures, as well as player numbers and figures for different revenue streams. The total NGR was £2,953,472, with the UK business producing £1,589,182 of that figure. In the body of the email, Mr Martin provided details of websites operated by 21Bet, languages offered and payment providers. He said “Sorry this may be a bit piece meal but hopefully will be enough for you to at least build a picture of the business”. The spreadsheet was not linked to any underlying data.

Mr Copans responded the following day stating that “I have done a quick calculation for a profit and loss summary for 2017 and my calculation says that profit for the year 2017 was GBP205,447, however you mentioned that profit for the year was around 1,8 million GBP. I would like to chat to you on this spreadsheet and also have some additional questions to ask and further info to request”. Mr Martin in cross-examination said he could not remember saying the profit for 2017 was around £1.8 million, though he did not positively deny it:

On 4 June 2018, Mr Martin sent a similar spreadsheet but giving the figure for 21Bet UK NGR as £2,984,138 rather than £1,589,182, the figure for 21Bet Exchange NGR as £890,409 rather than £672,109, and the total NGR as £4,566,727 rather than £2,953,472 (“the 4 June Spreadsheet”). The total costs remained £2,748,024, meaning that the difference between NGR and total costs was £1,818,703. The ‘21bet UK’ NGR figure had been increased by including an amount of £1,405,502 purportedly in respect of VIP cash. Later, on 8 June 2018, Mr Martin told Mr Copans that he would break the £2,984,138 UK NGR figure down into VIP and non-VIP revenue, and a subsequent spreadsheet at stated £1,578,635 in respect of non-VIP revenue and £1,405,502 in respect of VIP revenue (the sum of which is £2,984,138).

In the meantime, in a Skype message conversation on 6 June 2018, Mr Martin and Mr Copans appear to have discussed the spreadsheets. During the conversation, Mr Martin stated “I know the 1.8m EBIT number was correct as we have gone through this process 4 weeks ago”. The following exchange then took place between Mr Martin and Mr Copans via Skype message:

On 11 June 2018, Mr Copans produced a model for 21Bet’s financial performance for 2018 which he sent to Mr Hooja. As Mr Copans stated in his email to Mr Hooja, this indicated that “UK is making approx. 25-30k GBP profit a month but .com is way more profitable”.

On 11-12 June 2018, Mr Copans and Mr Martin had the following exchange:

In the same exchange, on 12 June 2018, Mr Martin and Mr Copans also discussed the 2018 figures. Mr Copans asked Mr Martin “does it sound possible that you have done 2,045 million NGR [Net Gaming Revenue] in 1st 4 months across the board?” Mr Martin replied “yes that sounds about right as we have had a really good start to 18”.

Ivy’s first offer to purchase 21Bet was made by Mr Copans in an email of 19 June 2018. Ivy offered to make a fixed payment of £5.4 million, with £2.4 million paid upfront, followed by £1.8 million at the end of year 1 and £1.2 million at the end of year 2. The basis of calculation for the fixed payments was stated by Mr Copans in the fourth line of his email to be: “GBP1,8 million x 3 (PE Ratio) = GBP 5,4 million”. The accompanying spreadsheet showed the same calculation, with “EBITDA 2017” stated to be £1.8 million. Thus this offer was evidently based on the £1.8 million figure for 2017 which had originated with Mr Martin.

Ivy also proposed to pay 50% of yearly earnings before interest, tax, depreciation and amortisation (“EBITDA”) growth at the end of years 1 and 2, up to a maximum of £9 million. The estimated growth figures in Mr Copans’ email were £2.2 million for year 1 and £2 million for year 2, giving payments of £1.1 million and £1 million. Mr Copans stated at the bottom of the email: “Please note – Assumptions / estimates of EBITDA are used in b.2 and c.2 to illustrate the growth calculations and we do firmly believe that such growth is both realistic and achievable.”

On 2-3 July 2018, Mr Martin travelled to Prague to meet with Mr Copans and Mr Hooja. In an email to Mr Bell on 3 July, Mr Martin informed Mr Bell that Ivy had made an offer to buy 21Bet and that the offer was:

The following day, 4 July 2018, Mr Martin explained Mr Bell that “There were some facts that I didn’t go into detail with them over a few debts we still have. This is why I would like to go back to them and say we take £2.25m upfront but we put £150k matched by them so we have £300k in the business to tidy things up and allow us to move into the operation debt free.”

Mr Martin added that:

Also on 4 July 2018, Mr Martin emailed Mr Hooja, and said “After speaking to my investor this morning, I would like to propose a slightly different deal”. The “different deal” was essentially the one envisaged in his email to Mr Bell. Mr Martin said that “This £300k will allow me to pay a few bonuses to key staff, pay Richard Thorp a finders fee, provide Richard Hogg at Spinnr a lump sum bonus and secure a few of the key staff in Estonia”. Mr Martin also requested that he be paid “an ongoing consultancy fee for my services”.

On 10 July 2018, Mr Martin forwarded Mr Bell an email requesting rental payments of approximately £14,000. He asked that Mr Bell “sort the rent”. Mr Bell then asked for the “latest on the acquisition”, to which Mr Martin replied that Mr Hooja would be visiting 21Bet and that he would keep Mr Bell updated when he knew more.

On 12 July 2018 Mr Copans then prepared a further document, which in his witness statement he explained as follows:

Mr Bell requested another update from Mr Martin on 18 July 2018, to which Mr Martin responded that he had “Just landed in Amsterdam to meet the guys tonight re the sale.” On the same day, Mr Martin asked Mr Bell whether he had “[got] any funds sent for the rent as yet?” Mr Bell relied “Shit forgot mate … Do I pay direct or to City ?” On 19 July 2018, Mr Bell emailed Mr Martin stating “Paid today from BWM ref Viktra”.

On 22 July 2018 Mr Hooja circulated 21Bet’s offer internally. The offer was now framed as a fixed purchase price of £5.55 million, made up of £2.55 million upfront, followed by £1.8 million at the end of year 1 and £1.2 million at the end of year 2. The accompanying spreadsheet again referred in the first line to an “EBITDA 2017” of “£1,800,000”. The total purchase price of £8,650,000 was expressed as an “Effective PE Ratio” of 4.81.

On 26 July 2018, Mr Copans sent Mr Martin a due diligence questionnaire (“the DDQ”). He explained that it was “necessary to get as much information as possible so that we can perform the due diligence to the utmost detail and if all goes according to plan, the deal can go through very quickly after that.”

Mr Martin then provided an initial set of responses to the DDQ on or around 30 July 2018. The information he provided included the following:

Mr Martin accepted that he had completed the DDQ, and that Viktra had in fact been liquidated with liabilities of almost £600,000 (excluding the sums owed to Simplify companies and to Mr Bell). The suggestion that Viktra had to be closed for the reason stated in the DDQ was false. Mr Martin in substance accepted that he had lied, and said he could not remember why:

In response to a question from Mr Copans about the arrangement with Mr Hogg, Mr Martin said in an email of 30 July 2018 that “there is a deed of trust in place between us showing the agreement we have as myself and Mr Bell as the owners of these businesses.”

The DDQ disclosed a £2.5m loan note in favour of Mr Bell. Mr Copans’ evidence was that he did not think anything in particular of this; it was normal for an investor to fund this sort of business in the background, and he (Mr Copans) thought that the £2.5m was a historic debt; he had no idea that Mr Bell was continuing to put further monies in the business on an ongoing basis, and Ivy were never told that it was necessary for him to do so in order for the business to survive. Mr Copans in his written evidence said that if he had known that Simplify had in fact made 41 cash injections into the Business in the period from May 2018 to April 2019 totalling £671,000, “it would have been a matter of real concern to me that a supposedly profitable business required such regular injections of cash”. In cross-examination he said:

Discussions continued between Mr Copans and Mr Martin in early August 2018. Mr Copans explained that Mr Martin and he agreed that Mr Copans would go to London on 9 August 2018 to meet and do some due diligence on the 2017 numbers, as the intention was to make an offer based on the full year of 2017. On 3 August 2018 Mr Copans sent Barry a profit calculation for 2017 and indicated the information he needed to see in order to verify the numbers. Mr Copans expected to be able to check the figures by accessing the platform “back end” or back office, which would include a server, application and a database where all online gaming activity would be recorded, including the GGR and NGR figures. Mr Copans also wished to verify the financial information against the bank statements.

Mr Martin in his witness statement said Mr Copans had, over a period of two months, received documentation from all the components of the Business, with full access to all their gaming back offices (including FSB), all historic data back to the Business’s launch, payment provider statements, invoices, HSBC bank statements and a plethora of other documents. However, Mr Copans found that it was impossible to do any kind of accurate due diligence on these numbers, for a number of reasons including the following:

Mr Martin said in evidence that he had located the Viktra bank statement data for March and June 2017 in a “spreadsheet knocking around in a Drop Box somewhere”, but that he did not have the full set of Viktra bank statements available in electronic form. That was despite the fact that at the time in question, on 25 April 2017, Mr Martin had emailed to Mr Bell bank statements for the period 27 March to 25 April 2017 in csv (spreadsheet data) form; on 8 August 2017 sent Mr Bell the bank statements for June, July and August 2017 in csv form; on 7 September 2017 Mr Martin sent Mr Bell the bank statements for August and September 2017 in csv form; and on 27 February 2018 he sent Mr Bell the statements for December, January and February in csv form. Mr Martin disclosed the csv documents in these proceedings. He claimed to have forgotten, when dealing with Mr Copans, that he had previously emailed all these bank statements to Mr Bell. In my view that is improbable, and I consider it far more likely (taken in the context of all the other evidence in this case) that Mr Martin withheld bank statements from Mr Copans in order to minimise the information provided about Viktra’s unhappy history.

Mr Martin also said he did not notice that the references to Simplify had been deleted in the electronic versions of the March and June 2017 bank statements sent to Mr Copans in August 2018, and did not know who had done that. That too is, in my view, unlikely: it is hard to envisage any reason why those redactions would have been made other than to reduce the visibility to Ivy of Simplify’s cash injections into the business, and Mr Martin was unable to suggest any. He suggested that the documents would historically have been used “to provide information on income to a plethora of different businesses, whether it be payment providers or wallets”, but could not explain why 21Bet might have been happy to disclose to such entities everything on the spreadsheets other than the references to Simplify.

Mr Martin made the point that Ivy already knew from the DDQ that Simplify had advanced money to the Business, but (a) the DDQ referred to a loan from Mr Bell, not Simplify, and (b) as noted above there is a substantial difference between what was reasonably understood to be a historic loan and regular ongoing financial support to pay routine expenses.

Mr Bell, for his part, relies on the fact that, on 20 August 2018, Mr Martin sent Mr Copans copies of City Support’s HSBC bank statements for the period from 3 June to 2 August 2018, which included reference to payments to the company by Simplify of £9,500 on 2 August 2018, £5,000 on 5 June 2018 and £5,000 on 7 June 2018. Mr Copans in cross-examination explained that he did not know who Simplify was at that stage, and there is no evidence that the name “Simplify” was ever mentioned to Mr Copans prior to the Prague Meeting. Mr Copans said:

Reverting to the meetings in early August 2018, Mr Copans said that while he was sitting with Mr Martin during these meetings, Mr Martin sent him various documents and other items to try to verify the numbers, including a spreadsheet for the VIP bets for 2017. However, whilst Mr Copans saw no red flags, the entire pack that was provided to him was in complete disarray and insufficient, and he regarded the two days he spent in London as a waste of time. Mr Copans denied Mr Martin’s suggestion that he was given “complete access to 21bet’s financial and operational data”: rather, he was given access to some information, but there were new platforms and no access to historical figures for accounts and platforms that no longer existed. Most of the information was just in Excel spreadsheets and not on a third party platform so Mr Copans was dependent on the accuracy of what Mr Martin was telling him and the information he was providing.

Meanwhile, Mr Bell and Mr Martin continued to correspond about the sale and the state of the business in August. On 8 August, Mr Bell asked Mr Martin whether there had been any progress on the sale. They arranged to speak by phone. On 16 August 2018, Mr Martin emailed Mr Bell referring to another possible purchaser for the business, adding:

As a result of the problems referred to above, Mr Copans decided he would need to change tack. He said that following his return to Prague, he and Mr Hooja agreed that instead of using the 2017 figures, they would extrapolate the financials for the 2018 year to date, for all the different revenue streams, based on the limited information they had. Since their ‘audit’ was done towards the end of August 2018, they decided to extrapolate the information in the following way:

On 27 August 2018 Mr Copans produced a model in an Excel workbook, which extrapolated 21Bet’s net 2018 profit as being £1,643,947.58 based on information he had received. Mr Copans explained this in his witness statement (§§ 22-25) as follows:

In cross-examination on behalf of Mr Bell, Mr Copans was not directly challenged as to the contents of this conversation with Mr Martin on 27 August 2018, save to ask whether any record of it existed, but it was in substance suggested that he cannot have regarded Mr Martin as making any type of representation. Mr Copans’ oral evidence was as follows:

Mr Martin in his oral evidence accepted that there had been a call on 27 August 2018 during which he and Mr Copans had run through the figures, and he said that he had no reason to disagree with Mr Copans’ evidence that Mr Martin told Mr Copans that he was “comfortable” with the EBITDA figure of £1.6m. Mr Martin also said that, although he was not an accountant, the figure of £1.6m “looked good to me”:

I accept Mr Copans’ evidence as to the course of the Skype conversation on 27 August, including as to what Mr Martin said to him and the degree of reliance which Mr Copans was placing on Mr Martin.

Mr Copans accepted in evidence that he had made an error in his calculation (entering a loss figure as a profit) which meant that the extrapolated profit was overstated by approximately £355,000. Two further errors in Mr Copans’ figures were discussed during Mr Davidson’s evidence: a currency error and a possible error in the Digitain (a betting software provider) figures, which together resulted in a further £325,000 overstatement in the extrapolated figures for the year. The cumulative result of these errors was accepted by Mr Davidson as potentially meaning that Mr Copans should have stated the EBITDA for 2018 as just under £1 million, rather than approximately £1.64 million.

On 27 August 2018, after the Skype call between Mr Copans and Mr Martin referred to above, Mr Copans sent Mr Martin a revised offer for 21Bet. This offer provided as follows:

Mr Martin responded the same day. He said:

Mr Martin kept Mr Bell informed of the negotiations over the course of 27 and 28 August. When Mr Martin forwarded Ivy’s offer on 27 August, Mr Bell responded:

Mr Martin’s answers in cross-examination about this email to him from Mr Bell were evasive:

Mr Martin responded to Mr Bell’s email stating that he was “in 2 minds”:

Later that day, Mr Martin sent another update on the negotiations. He also asked Mr Bell for money, stating that “We need a little more cash for the wages if possible please”, and “a few bills we need to sort if you can help out”. Mr Martin said £32k had been sent for the wages, but another £20k would be needed to complete the salaries for the month. Mr Bell responded to Mr Martin’s summary of the negotiations by saying:

Mr Martin replied:

Following various internal discussions, Mr Copans sent a revised offer to Mr Martin on 30 August 2018, referring to concerns about the “sustainability of the VIP Cash portion” and proposing a reduction in the purchase price if the VIP cash portion fell below £200,000 in subsequent years. Mr Copans noted that “we are paying a multiple of 3 x on this part of the business, which is a high multiple based on the fact that we know very little about this part of the business nor know anything about how to control it or maintain the existing numbers.”

Around the same time, Mr Martin appears to have proposed to Mr Bell that they meet jointly with Ivy in Prague.

In the meantime, Mr Martin’s requests to Mr Bell for money to pay regular overheads continued. On 6 September 2018, only a few weeks before the Prague Meeting, Mr Martin was chasing for more funds – “really need these please if possible”. Mr Bell asked Mr Martin to remind him what needed paying and, in response, was told: “so we have £14k left on salaries plus another £30k needed for other bills such as Evolution 10k, Catena 10k and Digitain 10k”.

A meeting took place between Ivy and 21Bet in Prague on 1 October 2018. It appears to have lasted approximately two and a half hours. Mr Copans, Mr Hooja, Mr Bell, Mr Martin were present, as were other Ivy representatives. There appear to be no notes or minutes of the discussions.

Mr Bell has given evidence that he was present in order to “support” Mr Martin and determine whether Ivy were serious about purchasing 21Bet. He also said that his purpose was to protect his daughter and ensure that Simplify’s debts were paid. He stated in his witness statement that he told Ivy during the Prague Meeting that his interest was “limited to getting the loans repaid to SBL for Nicola’s benefit.”

Mr Hooja’s evidence in his witness statement for trial was that he did not remember much of what was said at the meeting. He knew Mr Copans had carried out some due diligence in August and calculated an EBITDA figure of £1.65m; recalled that Mr Martin considered the EBITDA to be higher but said he could agree to £1.65m: Mr Hooja said he thought Mr Martin had said that at the Prague Meeting although he was not entirely sure. He was sure that someone on the 21Bet side said that the Business was worth more than Ivy was paying, and that the clear impression Ivy were given was that the Business was profitable but that with further investment in marketing from Ivy it could be more profitable. Mr Hooja said the 21Bet side said they were sure they were going to make £1.6m but were in growth mode and might do more next year; and Mr Martin said that with Ivy’s investment in marketing they would “smash it out the park”.

Mr Hooja recalled Mr Bell stressing to Ivy that he wanted them to get close to £10m for the business, a figure derived from a multiple of the EBITDA figure, and saying that once Ivy were in control of the business they could affect EBITDA, so the earn-out could not be based purely on EBITDA. As a result, there was discussion about a formula based on NGR along with EBITDA, which Mr Copans and Mr Hooja said they would discuss and reflect in a revised offer. His evidence on this point gains support from the fact that that is what Ivy then did: see § 147 below.

Mr Hooja said Ivy were aware that Mr Bell had lent the business £2.5m, but that it was certainly not mentioned that he was continuing to put money into the business.

Mr Hooja was cross-examined about his earlier statements and the development of Ivy’s case about the Prague Meeting. In his first written evidence, an affidavit dated 3 August 2019 in support of Ivy’s application for freezing orders, Mr Hooja dealt only briefly with the negotiations, and did not make specific reference to the Prague Meeting. He said Ivy was repeatedly told by Mr Martin that the EBITDA of the Business in 2018 was £1.6 million, and that that was based on figures provided by Mr Martin to Mr Copans on 27 August 2018 for the four income streams of the business, extrapolated for the full year.

Mr Hooja also made a first witness statement, dated 30 August 2019, in opposition to Mr Bell’s application to set aside the freezing order against him. In the meantime, Ivy’s original claim form and Particulars of Claim had been served, alleging misrepresentations by Mr Martin though not Mr Bell. Mr Hooja’s first witness statement did address the Prague Meeting (to which Mr Bell had referred in his own evidence). Mr Hooja said Mr Martin had by then provided his information about the Business’s EBITDA, and that the EBITDA figure of £1.6 million was the subject of discussion at the Prague Meeting:

Mr Hooja said in oral evidence that Ivy did rely on representations by Mr Bell, and was not sure why that was not set out in his 3 August 2019 affidavit. As to the Prague Meeting, he said he did not remember specifically what was said but remembered the gist. The gist was that there were active negotiations about the price and how the mechanics would work, and how the earn-out based on EBITDA might affect the future earn-outs. He was sure that Mr Martin or Mr Bell – he could not remember for sure which of them – said the business was profitable or self-sustaining from its revenue; and that Mr Martin would be able to earn considerable sums under the earn-out provisions.

Mr Bell submitted in closing that Mr Hooja’s first witness statement did not allege that Mr Bell himself made representations. However, the paragraphs from that statement which I have quoted in § 118 above, plainly state that Mr Bell participated in discussions at the meeting about and on the basis of the business’s profitability and the EBITDA figure of £1.6 million. That evidence is consistent with Mr Hooja’s witness statement for trial and his oral evidence. I do not consider it undermined by the fact that the brief account of the facts given in Mr Hooja’s affidavit in support of the freezing orders did not deal with the Prague Meeting.

Mr Copans said the main purpose of the Prague Meeting was to have a brainstorming session to finalise and agree on the purchase price of the deal. He recalled Mr Bell introducing himself and explaining that most of his money had come from his payroll business and, Mr Copans thought, mentioning the name Simplify.

Mr Copans said the EBITDA that had been calculated was not a specific topic of conversation as it had already been agreed, and the focus was more on the growth and the remuneration and the calculation of Mr Martin’s earn-out. However, he said, the basis of the whole meeting was that the business was profitable and was expected to generate significant profits in the future. Also, “the discussions about the overall purchase price (not just the upfront payment) were on the basis of EBITDA multiples. We had made clear that overall we would be happy paying five times EBITDA but the issue was how to carve that up. So the £1.6m figure for EBITDA was acceptable to all parties”.

Mr Copans said Mr Martin in the meeting was very positive about the business, on numerous occasions he said that once Tabella came on board “we would smash it out the park”; and that Mr Martin “also mentioned that there was the potential to make a lot more than £1.6m in the years to come if money was put into marketing”.

Mr Copans said both Mr Martin and Mr Bell spoke at the meeting, though Mr Bell probably did more of the talking about the mechanism for calculating the purchase price and, Mr Copans thought, mentioned the £1.6m EBITDA figure in that context, but Mr Copans could not specifically remember. Mr Bell had said his role was “in getting the best deal for [Mr Martin]” as Mr Martin was continuing to run the business. There was discussion of various options regarding Mr Martin’s profit share.

Mr Copans said Mr Bell seemed happy to let Mr Martin do most of the talking and he certainly did not say anything to suggest that he disagreed with Mr Martin’s positive assessment of the profitability of the business. One point of discussion was the suggestion that the earn-out should be based on a percentage of NGR and not only EBITDA. Mr Bell was concerned that the EBITDA for the three years after the sale would be minimal or could be in a loss-making situation as Ivy might overspend, which could impact on any future earn-outs calculated by reference to EBITDA. It was agreed that the parties would seek to agree a formula for this.

Mr Copans said the parties spoke for a few hours at Ivy’s office and then went for lunch at about 1pm at a restaurant, where the conversation continued for 2 hours or so. His recollection was that the discussion in the office was more general and that the main details of the conversation took place at lunch.

In cross-examination it was suggested to Mr Copans that no figure for EBITDA was mentioned at the meeting, in a passage which it is necessary to quote at some length:

The suggestion that Mr Copans had, in this evidence, departed from his witness statement was not entirely fair, because (a) he was not reminded during this questioning that in his witness statement he had (in addition to saying he believed Mr Bell had referred to the £1.6 million figure) also said that the discussions of price and earnout were on the basis of EBITDA multiples, that the £1.6 million figure was acceptable to all parties, and that Mr Martin had “also mentioned that there was the potential to make a lot more than £1.6m in the years to come if money was put into marketing” (see above); and (b) the gist of his oral evidence, consistently with his witness statement, was that he did not recall any part of the meeting verbatim but was sure that the £1.6 million figure must have been mentioned.

Mr Copans’ witness statement also included the following two paragraphs:

In cross-examination, quoted paragraph 38 above, and the first nine words of paragraph 39, were put to Mr Copans, completely ignoring the remainder of paragraph 39. It was suggested that Mr Copans thereby accepted that Mr Bell told Ivy at the Prague Meeting that funds had been injected into the business on an ad hoc basis for working capital because the business’s revenue could be erratic from month to month and funds were required to cover overheads. Unsurprisingly, in the light of the remainder of paragraph 39, Mr Copans denied both that that was what Mr Bell had said at the Prague Meeting and that he, Mr Copans, had ever accepted that Mr Bell said that. I accept Mr Copans’ oral evidence, which I find entirely plausible and also consistent with the explanation given in paragraph 39 of his witness statement read as a whole. It is also consistent with Mr Hooja’s oral evidence that Mr Bell did not tell Ivy, and Ivy did not know, that Mr Bell had been causing funds to be injected into the business in this way.

Mr Martin in his witness statement said nothing about this meeting. His evidence in cross-examination included the following:

Thus Mr Martin accepted that there was a discussion about the risk of Ivy bringing the EBITDA down, after buying the business, to the detriment of the seller(s). That supports the view that the express discussion at the meeting was premised on the parties having indeed arrived at an understanding as to the EBITDA of the business; and the “workings” by Mr Copans to which Mr Martin referred were the calculations of the £1.6 million EBITDA for 2018.

Mr Bell’s first witness statement, prepared in August 2019 (in the context of the freezing order application), referred briefly to the Prague Meeting, indicating that the deal at that stage was “still in progress and subject to due diligence”, and that he saw the main purpose of the meeting as being to figure out whether Ivy was genuinely interested in progressing with the purchase.

Mr Bell also said in his first witness statement:

I find that evidence wholly implausible. The contemporary documents, supporting the evidence of the Ivy’s witnesses, make clear that Ivy made and priced its offer for 21Bet on the basis that it was a profitable business with an EBITDA of the order of £1.6m. Information suggesting that the Business was in fact unable even to pay its regular outgoings without being propped up by financial support arranged by Mr Bell would have placed an entirely different complexion on the Business. In Mr Copans’ words, “if we had been told that [Mr Bell] was putting more money into the business on a regular basis in order to keep it afloat, that would have been very worrying indeed and, in all likelihood, it would have been a deal-breaker”. That evidence, which I accept, makes perfect sense. Even if Ivy might nonetheless have contemplated buying the 21Bet business for its brand or prospects, there is no reason to believe it would have purchased an ailing, or even loss-making, business on the terms which it offered and contracted for. Moreover, there is no contemporary document, on either side, supporting Mr Bell’s assertion that Ivy was told at the meeting that he was making regular cash injections into the Business. One would have expected such documents to exist, because such information would have been new to Ivy and commercially significant. Instead, such documents appear only following Ivy’s purchase of the Business.

When cross-examined on this point Mr Bell tended to resort to assumptions about what Ivy must have been told or learnt outside of the meeting:

That evidence fails to support the assertion made in Mr Bell’s witness statements that Ivy was told at the Prague Meeting that Simplify (or, as Mr Bell put it in his first statement “I”) was injecting working capital into 21Bet on an ad hoc basis.

In his second witness statement, produced for trial, Mr Bell reiterated the evidence quoted above, and added further comments. One of these was to suggest that Ivy “was aware that 21Bet had staff that needed paying each month. They must have realised that SBL was paying those wages directly, or else seen the deposits from SBL”. There is no basis for that assertion, which appears to assume that Ivy knew the 21Bet was making insufficient funds itself to pay its own staff. On the contrary, had the business been making EBITDA of £1.6m or indeed any significant positive profits, there would be no reason to assume that it could not pay its staff without support from Simplify.

In addition, Mr Bell said:

However, in his oral evidence Mr Bell said, repeatedly, that the business was clearly making no profits and had no EBITDA, because otherwise it would not have required regular cash injections from Simplify and would have been paying tax. Mr Bell also made the point himself, in the emails quoted in §§ 48, 50, 53, 56 and 63 above, all pre-dating the Prague Meeting, that the business was making no money. Indeed, it was suggested to Mr Bell in cross-examination that, specifically at the time of the Prague Meeting, the business was in as bad a state as it had ever been, with large amounts of cash being put in to keep it afloat, to which Mr Bell replied that “I will make the same statement I’ve made all the way along, there’s no EBITDA, it’s not making any money”. Accordingly, the suggestion in Mr Bell’s witness statement that, had Mr Martin said the business had an EBITDA of £1.6m, then he, Mr Bell, “could not possibly have known that to be untrue”, must itself be untrue. The same applies to his evidence that he did not know whether the business was profitable or self-sustaining. He clearly knew it was neither. Moreover, Mr Bell must have known these statements to be untrue, since they were clearly inconsistent not only with his own emails in 2018 but also the oral evidence he went on to give in December 2021.

Mr Bell’s suggestions that he knew only about the main overheads and did not know the cash call for wages are also belied by the contemporary documents, which show Mr Martin very frequently telling Mr Bell about even relatively modest overheads, as well as the sums needed for wages, and asking Mr Bell to provide funding to cover them. In cross-examination he eventually accepted that he was aware of “lots of the liabilities of the business” (adding that he had to ask for more information all the time), and that every time there was a request for payment from Mr Martin, Mr Bell required an explanation as to what the money was needed for.

The fact that Mr Bell gave this evidence in his statement, which I consider to have been clearly untrue, affects his credibility in general, including what reliance can be placed on his evidence about other aspects of the Prague Meeting.

Mr Bell also said in his oral evidence that historic EBITDA was not discussed at the Prague Meeting; payments by Simplify over the previous few weeks were not specifically mentioned, but it was acknowledged that there was a significant debt to Simplify; that he did not make any statement to the effect that 21Bet was currently profitable; and that he did not discuss the financial performance of 21Bet. Mr Bell said there was “not a lot to recollect” about the Prague Meeting. His evidence included the following passage:

Mr Bell said he did not remember a discussion about Ivy driving the EBITDA down by spending money on marketing, and added:

However, the discussion about Ivy impacting the earn-out by reducing the Business’s EBITDA (e.g. by spending too much on marketing) would make little or no sense if the only EBITDA under discussion were future EBITDA and the business currently had no positive EBITDA at all. To suggest that Mr Martin and Mr Bell were in fact worried that Ivy would turn a very unprofitable business into what should be a very profitable one, but at the same time would overspend on marketing and thereby prevent it becoming very profitable, is a convoluted and in my view unrealistic view of the discussion. The expressions of concern about Ivy reducing the EBITDA make sense only in the context of the pretence that the business currently had positive EBITDA, on the basis of which the Defendants claimed to have an expectation of earn-out payments. (The Defendants’ real concern, no doubt, was to avoid too much of the price being based on earn-out, precisely because they knew there was no positive EBITDA.) Moreover, the communications between Mr Martin and Mr Bell to which I refer at §§ 104-107 further support the view that Mr Bell knew that the basis of Ivy’s offers, and the premise of the discussion at the Prague Meeting, was the Business’s current EBITDA: not merely some hoped-for future level of profits which a currently loss-making business might eventually be induced to make.

I have carefully considered all this evidence as a whole. I have also taken account of the way in which Ivy’s case has developed, including the fact that representations were not pleaded as having been made by Mr Bell personally until Ivy’s Re-Amended Particulars of Claim dated 3 November 2019; and the absence of any contemporaneous records of the discussion. I conclude as follows:

On 4 October 2018 Mr Copans sent Mr Martin a revised offer for the purchase of 21Bet. He said that Ivy “would like the previous offer on the deal to remain exactly the same thing except for one additional requirement which will give you a guaranteed minimum payout in respect of NGR (instead of EBITDA)”. Mr Copans said that Ivy would pay out a minimum of 7% on NGR at the end of each year, irrespective of EBITDA. Mr Martin forwarded this offer to Mr Bell asking for a discussion about it.

On 9 October 2018 Mr Copans sent Mr Martin a further revised offer, which Mr Martin forwarded to Mr Bell. This appeared to improve on the previous offer by including 10% of EBITDA as a guaranteed payment, with a “Fixed payment on EBITDA” of £750,000 unless the NGR payment dropped below £750,000 (“the NGR Condition”).

Meanwhile 21Bet’s funding difficulties continued. On 2 October 2018, the day after the Prague Meeting, Mr Bell told Mr Martin that he had transferred £20,000 to the Business.

On 9 October 2018, Mr Martin told Mr Bell that for that week he needed £20,000 for Catena, £4,000 for Sofia business taxes, £16,000 for “outstanding player withdrawals” and £15,000 for recruitment fees; and on 12 October 2018 he asked for a further £15,000 for the Persian gateway setup. (The latter related to a different project which Mr Bell and Mr Martin were taking forward at around that time, separately from the 21Bet business and to be run from an office in Manchester.) Mr Martin’s email listed overall “Outstanding Debts” which ran to £502,230. Nevertheless, Mr Martin also proposed “having some bigger hitters within the business to take the load off me” and “a six-month plan around every territory on marketing and acquisition. It may not bring immediate results, but really start to get us in the game and get 21bet a bigger footprint in each of the areas”.

On 17 October 2018, Mr Martin told Mr Bell that, as he and Mr Bell had discussed the previous day, for the following week they needed “£30k (10+20) plus £50k from you for the VLounge payment”.

While negotiations were proceeding with Ivy, Mr Martin was continuing to explore other potential sales options. Mr Andrew Burlywood at Burlywood Capital LLP prepared an information memorandum which was sent to Mr Bell on 16 October 2018. Mr Martin’s email to him suggested that Burlywood Capital “have a few on the hook already”.

The draft information memorandum, which was 3 pages long, stated that the Business had made a profit of £1.9m in 2017 and was forecast to make a profit of £2.3m in 2018. Mr Bell said in evidence that he did not recall reading it, and that he received “30 to 50 information memorandums a month”. I do not find it possible to conclude that Mr Bell actually read this document. It is, on the other hand, likely that Mr Martin (who sent it to Mr Bell) had done so, and thus knew that Burleywood were contemplating telling prospective purchasers that the business was generating profits at those levels. That lends some support to the view that Mr Martin is likely to have made similar representations to Ivy.

On 30 October 2018, Mr Alan Spence was taken on as a VIP customer of 21Bet.

On 4 November Mr Martin forwarded a “VIP Users report” to Mr Bell. He stated that “Alan Spence had 9 of 10 winners from UK leagues and only lost 2 of his doubles yesterday with some very late goals (United was one of them) and overall we got extremely unlucky”. Mr Bell responded “So is he £700k up yesterday?” After Mr Martin confirmed this, Mr Bell responded “So he has bust the business in a day ? Fuckin nuts Barry”. Mr Martin replied suggesting that Spence would lose in the long term, to which Mr Bell said:

Mr Martin reported further Spence wins on 8 November 2018, suggesting nonetheless that:

On 12 November 2018 Mr Martin emailed Mr Bell stating that “We need to talk about Alan Spence as he rang me very irate and talking about us defrauding him and speaking to his lawyers the UK gambling commission”. Later in the email exchange, Mr Martin suggested that “Even if we can get over 100k to show we are willing and able to pay it will help”. Mr Bell responded “I don’t agree”. Asked how he would proceed, Mr Bell stated “The business is bust”. In response, Mr Martin said “We are on the verge of a sale and have a change of getting out of this with some payback”.

Mr Spence went on to win over £780,000 by 13 November 2018, at which point his account was closed with 21Bet owing him over £740,000. A repayment plan was agreed between Mr Martin and Mr Spence on 14 November 2018. This included an agreement that any outstanding balance would be paid from the proceeds of sale of 21Bet.

An initial payment of £40,000 was paid on account to Mr Spence. Mr Bell gave evidence that he did not recall being involved in that payment:

However, it appears that at least some of the payments to Mr Spence were facilitated by payments from Simplify entities. In March 2019, for example, payments into the City Support bank account were typically followed by payments out in roughly equivalent amounts to Mr Spence. Moreover, on 4 March 2019 the following exchange occurred between Mr Martin and Mr Bell:

Mr Bell was asked in cross-examination what he meant by saying “Yes use for that”:

I do not accept Mr Bell’s evidence on this point. As was clear from Mr Martin’s email, and as Mr Bell’s second answer quoted above indicates he understood, Mr Martin asked Mr Bell for an instruction about whether to pay Spence. On this occasion Mr Bell told him not to. At the very least, what this exchange shows is that, contrary to Mr Bell’s evidence in court, he knew perfectly well about the arrangement to make periodical payments to Spence. His specific denial of that fact further undermines his credit as a witness. Further, and substantively, the Spence arrangement lends additional support to the view that both Mr Martin and Mr Bell knew the business was unable to meet the gambling debt owed to Spence other than by hoping to pay in many monthly instalments (or, ultimately, from the proceeds of the sale of the business).

In late 2018 Mr Martin was negotiating with other potential purchasers of 21Bet, including FansUnite. On 1 November 2018, as part of his negotiating strategy, Mr Martin told Mr Copans details of an offer that FansUnite had made. Mr Copans asked, “with regards to above deal, if I can ask what EBITDA targets are they expecting? because the way I see it, our deal is pretty similar except for upfront?”. Mr Martin replied:

Also on 1 November 2018, Mr Copans sent a further offer to Mr Martin. In this version (which revised the offer made on 9 October 2018), the NGR Condition was removed and Mr Martin was offered an annual salary of £150,000 plus a bonus. Ivy also offered to include “10% of all Laba EBITDA”. (Laba appears to have been a separate gambling business.) Having set out the offer, Mr Copans stated that “we would like to do a new 1 day due diligence on the numbers of the last 3-4 months in your office just so we get a better picture of everything that is currently happening numbers wise in the business”.

On 13 November 2018 Mr Copans sent Mr Martin a further offer in the form of a spreadsheet. Mr Copans’ calculations gave a projected EBITDA for “Year 1” of £900,000. The offer included £2.55 million upfront, and yearly payments of £750,000 (expressed as “Fixed amount on EBITDA”) 7.5% of NGR for three years. Payments of 10% of EBITDA and 10% of Laba EBITDA were also offered, along with an annual salary of £150,000 plus bonus for Mr Martin. On 19 November 2018, Mr Copans revised this offer in a Skype exchange with Mr Martin.

21Bet’s financial difficulties continued. On 20 November 2018, Mr Martin told Mr Bell that the business needed to pay its rent as a priority. On the same date, Mr Martin raised in an email to Mr Bell the possibility of moving out of 21Bet’s current offices in order to reduce costs. When Mr Bell asked “Isn’t there a surplus from Fsb?” (i.e. gambling revenue), Mr Martin responded: “When you factor in paying £40k to Spence, £20k for Dharmesh and £20k to V-Lounge plus wages and a few affiliates we will be left with nothing”. In a later email in the same exchange, Mr Bell said:

Mr Martin responded:

On 19 November 2018 Mr Copans, Mr Hooja and Mr Amit Jain of Cascade Global met Mr Martin in London. They discussed the deal. Mr Martin accepted in evidence that he did not mention the debt owed to Mr Spence at this meeting. Later that afternoon, Mr Copans told Mr Martin by WhatsApp that Ivy was prepared to increase the upfront payment to £3 million, but the trade-off was a reduction in the guaranteed yearly payments for years 1, 2 and 3 from £750,000 to £600,000. Mr Martin responded asking for “2m over 3 years”, explaining that he believed a minimum of £5 million was a deal “I think I can get Paul to agree to”. Ivy agreed to take that proposal away.

On 21 November 2018 Mr Copans emailed Mr Martin stating that he was “really glad that we have finally come to an agreement on the commercials” of the deal. The commercial terms were summarised in Mr Copans’ email of that evening as including (i) £3 million upfront payment, (ii) £600,000 guaranteed for years 1, 2 and 3, (iii) earn-out payments of 7.5% of NGR, 10% EBITDA, and 10% of the Laba EBITDA for years 1, 2 and 3, (iv) a maximum of £10 million, and (v) an agreed salary for Mr Martin of £150,000. The spreadsheet attached by Mr Copans assumed projected EBITDAs of £900,000, £1,800,000 and £2,600,000 for “Year 1”, “Year 2” and “Year 3” respectively.

On 22 November Mr Martin responded stating “I will be instructing lawyers in the next 48hrs so please take this as an acceptance of the offer and the green light to get this completed”. On 26 November Ivy’s lawyer, Dotan Baruch, became involved in the transaction. Accountants Beavis Morgan LLP (“Beavis Morgan”) appear to have begun acting for Mr Martin around the same time. On 3 December, a first draft of the SPA was circulated. On 5 December 2018, Mr Martin attended the Tabella Christmas party in Prague.

Mr Watt visited 21Bet on 10 December 2018 and became heavily involved in the negotiation of the terms of the SPA from this point onwards. He produced revised revenue projections for 21Bet for 2019 in late December. In his witness statement, he said that the basis of all his discussions with Mr Martin was that 21Bet was healthy and profitable, and one which according to Mr Martin had potential to be even more profitable. That evidence was not challenged in cross-examination.

21Bet’s financial difficulties appear to have been particularly acute in this period. On 22 November, Mr Martin emailed Mr Bell. He said that “Given the balance we will receive from FSB next week is £125k as per my email, I am really struggling to find a way to budget for all of the payments needed this month including the new lease completion payment”. On 15 December 2018, Mr Bell emailed Mr Martin asking “what is the position on Creditors?” Mr Martin responded explaining that:

In an email of 27 December 2018 to Mr Bell, Mr Martin stated that “The last 6 weeks have been some of the darkest I have had to face. No car, no money, battling with creditors everyday both business and personally including the HMRC. I am usually a very positive guy but this has been extremely trying.” Later in the email, he said that “I fully understand you not getting excited a business that is broke”. On 29 December, Mr Bell responded:

Mr Martin responded on 2 January 2019 explaining that the sale was “still on” and he was “hoping to get the kendos over the line in 2-3 weeks”.

On 7 January 2019 Mr Martin forwarded Mr Bell an email from FansUnite, another potential purchaser of 21Bet. He listed the “Pros” and “Cons” of doing a deal with them. Under “Cons”, he stated:

Negotiations continued in January 2019. Mr Mike Kitto of Beavis Morgan began to correspond with Ivy more regularly on Mr Martin’s behalf. On 24 January 2019, Mr Kitto sent a balance sheet for 21Bet as at 31 December 2018. The balance sheet showed assets of £125,324.88, liabilities of -£149,445.83. Mr Watt circulated this document internally at Ivy, stating:

On 29 January 2019 Mr Martin gave notice to FSB, the platform used by 21Bet to run its UK business, terminating its agreement with FSB on 90 days’ notice. In his email of 10 January 2019, Mr Martin had stated that he could not “stand by and watch 21bet wither and die” as a result of changes in FSB’s policies and did not see any other option than moving to a new UKGC licensee to “give 21bet a fighting chance of survival.” FSB was eventually replaced in this role by SBTech, a platform operated by Incentive Games Limited.

On 29 January 2019 Mr Martin forwarded Mr Bell a copy of the draft SPA. Mr Martin in an email of 31 January asked Mr Bell whether he had had a chance to look at it.

On 1 February 2019 Mr Martin emailed Mr Bell with the subject line “PLAN C”. In the email, he stated: “As we touched on during the meet on Wednesday, we have spent quite a bit of time on putting together a very detailed plan on how a 21bet V2.0 would look”. It is not clear whether Mr Martin was referring to a scenario in which 21Bet was not sold, or whether he was proposing developing a new company after the sale.

On the same day, Mr Martin sent an email to Mr Bell with the subject “Andy Rennison”. He said “This guy is getting very irate talking about going to the UKGC over his payment. Any chance we could send him £20k today and the rest next week? He is owed in total £34k.” The following day, Mr Martin asked Mr Bell for £30,000 because he had “3 £10k I need to pay to the Israeli, Andy Rennison and a payroll tax bill in Sofia”.

On 26 February 2019, Mr Martin sent Mr Bell an agenda for a call. The agenda included “Distribution of funds post completion”, “Funds for month end” and “Incentive Games Purchase”. On 28 February 2019, Mr Martin requested a further “2x£20k” for 21Bet. On 4 March 2019, Mr Bell said “19 sent today Did u get 20 Friday”. Mr Martin responded “Yes mate all good, all salaries sorted”.

On 7 March 2019 Mr Martin sent Mr Bell a further mark-up of the SPA. On 12 March 2019, Mr Martin sent Mr Watt and Mr Copans an updated version of the balance sheet provided in January 2019. The balance sheet now showed assets and liabilities as at 28 February 2019. Assets now totalled £147,938.17, liabilities £123,573.40. Mr Martin sent a further updated version on 28 March 2019. This balance sheet, which was also stated to be “As of 28^th Feb 2019” showed assets of £157,972.96 and liabilities of £156,338.41.

The question of who would actually be party, as seller(s), to the SPA does not appear to have been finally settled until a fairly late stage in the discussions. The first draft of the SPA, sent to Mr Martin in January 2019, defined the selling shareholders as Mr Hogg and Mr Markovic, i.e. the persons in whose names the shares in the companies were registered. In an email to Mr Bell dated 11 February 2019, Mr Martin said:

Mr Bell explained in his witness statement that he then spoke to Mr Roger Pointon at Hill Dickinson LLP, who in turn informed Mr Martin that Mr Bell would not provide any warranties under the SPA. Mr Bell also stated that he told Mr Martin that he “wanted nothing to do with the SPA”. Consistently with Mr Bell having declined to sign the SPA, a few days later, on 24 February 2019, Mr Kitto told Mr Martin that in the latest draft of the SPA:

Mr Kitto’s advice was forwarded to Ivy, but the evidence does not indicate what, if any, specific response was received. There is also no direct indication, at least, of any release from Mr Bell of his 50% beneficial interest, or any discussion of any such release. The reason for that is unclear from the evidence. However, in later drafts of the SPA, and the final version, Mr Martin alone was defined as the selling shareholder.

Mr Watt’s evidence was that Mr Martin mentioned at a meeting in mid to late January 2019, with Mr Kitto also present, that Mr Bell did not want his name put in the SPA as a party: because Mr Bell was not on the share register, did not want his 50% ownership to be disclosed in writing and instead wished his shareholding to be hidden. In cross-examination, Mr Watt added that he told Mr Jain that Mr Bell did not want to be included in the SPA, and (he recollected) Mr Jain was content to proceed on that basis. I return later to this evidence, which I accept.

On 29 March 2019 Mr Martin emailed Mr Bell stating “Kendo’s sent back SPA with most of the indemnities remove so Monday looks like signing day now. Let’s catch up Monday to sort funds”. Mr Kitto and Mr Martin continued to negotiate with Mr Watt and other Ivy representatives on the final wording of the SPA over the following days. On 3 April 2019, a final balance sheet was sent by Mr Martin to Mr Watt. This showed assets of £96,249.47 and liabilities of £149,026.81.

The SPA was signed and dated 4 April 2019. In the preamble to the SPA, Ivy was stated to be the “Purchaser”, with Mr Martin defined as the “Shareholder” and the “Companies” sold defined as Aureate, City Support, Alibaba, Viktra and Tristate. The recitals recorded inter alia that:

The body of the SPA contained the following provisions:

At Schedule 7.26, a financial statement was provided for 21Bet current as at 31 March 2019 (suggesting that the reference to 28 February 2019 in clause 7.26 itself was an error). The statement provided that 21Bet’s net current liabilities were £52,777.34.

The financial structure of the deal was as follows:

Clause 5 provided for a “Closing”, with the Companies and Mr Martin required to take various steps and provide various documents to Ivy to conclude the sale (e.g. resolutions of the Companies approving the sale, share transfer deeds, and other formal documentation) (clause 5.3). Clause 5.4 provided that Ivy could agree to delay the fulfilment of these steps at its sole and absolute discretion. The Initial Consideration was intended to be provided by Ivy upon closing (clause 5.5). One condition of closing was the delivery of an executed employment agreement between Mr Martin and Lotus Technology Limited. Mr Martin was to have a continued role in the 21Bet business.

Mr Martin and the Companies were unable to satisfy all the steps required for Closing under clause 5.3, but Ivy agreed to a delay in the fulfilment of those requirements (pursuant to clause 5.4). Ivy therefore transferred £2.95 million to the client account of Beavis Morgan LLP on 3 April 2019, effectively as a pre-payment to purchase the Business pending completion of the outstanding steps for Closing.

Mr Bell gave evidence that, to his frustration, Mr Martin had proceeded without him in selling 21Bet. He stated that he was not invited to be party to the sale. He then qualified this to state that he was not invited “formally” by Mr Martin to be party to the agreement.

The documented course of events was as follows. The initial payment of £2.95 million was sent by Ivy to Beavis Morgan on 3 April. This factored in a £50,000 discount reflecting the balance sheet position as at the end of March 2019. In an email of 4 April 2019, Mr Martin asked Mr Bell for “the bank details of where you want the funds sent”. Mr Bell responded that he would “send Simplify details in a minute as it will be treated as repayment of Loan account”. He also asked “Can I just check where funds are coming from and amount ?” Mr Martin responded “Beavis Morgan LLP … Just a little under £1.2”. Mr Bell then asked “Can I have a breakdown of how the £3m is being split out ?” Mr Martin responded attaching a spreadsheet which showed inter alia payments of £694,962 to Mr Spence, various payments to creditors, a payment of £500,000 to Abensons solicitors (accepted in effect to be a payment to Mr Martin), and a payment in an unspecified amount to SBL. The reference for the SBL was stated to be “Loan repayment”.

Mr Bell gave evidence that SBL received approximately £1.1 million. He also gave evidence that he did not agree this division of the proceeds of sale, but that Mr Martin had told him that he would receive further consideration from the earnouts. Mr Martin’s oral evidence was that he and Mr Bell did make an agreement about the division of the sale proceeds, but Mr Bell denied this and said “Simplify is just given the leftovers”. I do not find Mr Bell’s evidence on this point credible. Simplify may not have had a written loan agreement, but had plainly advanced considerable sums to 21Bet which both Mr Martin and Mr Bell viewed as loans. Further, Mr Bell had been the person calling the shots in terms of finance throughout the story, and made no complaint when Mr Martin emailed him the division of proceeds. It is not plausible to suggest that Mr Martin could or would simply have decided for himself to take £500,000 personally while leaving Simplify substantially out of its money and Mr Bell’s personal loans to 21Bet entirely unpaid.

In a subsequent email from Mr Martin to Mr Hooja on 5 June 2019, Mr Martin stated that “I am meeting Paul Bell (our investor in 21bet) on Friday and if we are to discuss any potential revisions to the SPA in light of the last 8 weeks and would need to get him to agree to any changes”. Similarly, Mr Martin told Mr Watt the same day that he was meeting Mr Bell on Friday to discuss the current situation with Tabella and the proposed changes. Mr Bell said that he had no recollection of any such meeting, and that he thought Mr Martin was “using me as leverage”.

Mr Bell in his first witness statement said:

It is evident from quoted §§ 10, 13, 15 and 25(e) above that Mr Bell regarded himself as both a 50% shareholder in and a creditor of the 21Bet business, and that he left the due diligence – including what should and should not be disclosed – to Mr Martin and his solicitors. He was indeed a creditor, by reason of the personal loans of £400,000 he had made (albeit his witness statement for trial makes no mention of them), and – in substance though not in law – by reason of the Simplify advances which he sometimes referred to as monies which he had lent and which I concluded earlier were probably owed to him in commercial terms.

Mr Bell’s second witness statement included various statements relevant to his role in the sale of the business, which it is necessary to set out at some length in order to give the full flavour:

Mr Copans’ evidence was that, while he was in London on the due diligence visit to London in early August 2018, Mr Martin and he discussed various other matters. He believed, though he was not sure, that it was on that occasion that Mr Martin first mentioned Mr Bell. Ivy was aware of Mr Bell’s involvement from the DDQ. Mr Martin told Mr Copans that Mr Bell was a partner in the business and that they had previously worked together in relation to a business known as 666Bet, a company whose gambling licence had been suspended. Mr Martin also mentioned that Mr Bell had been arrested at the airport. Mr Copans could not remember the specifics or the reason why Mr Martin mentioned that. Mr Copans then said in his witness statement:

In oral evidence, Mr Copans said he did not remember telling anyone else at Ivy that, according to Mr Martin, Mr Bell wished to remain in the shadows. On the other hand, he recalled that Mr Martin had told both him and Mr Hooja about 666Bet at the same time. Mr Copans did not (as Mr Bell wrongly suggests in his written closing) suggest that Mr Martin told him and Mr Hooja at the same time that Mr Bell wished to remain in the shadows.

Mr Copans also confirmed in oral evidence that he understood Mr Martin to be representing both himself and Mr Bell, and recollected having told Mr Hooja that on many occasions. He understood that Ivy was contracting with Mr Bell, but Mr Bell’s name was not going to be on the contract because Mr Bell didn’t want it to be. Mr Copans said that was pretty normal in the industry to have a proxy shareholder who is acting on behalf of the real beneficial owner, as in this case, where Mr Hogg was the acting owner and (Mr Martin told him) Mr Martin and Mr Bell were the 50/50 owners. Asked about the contents of the SPA, Mr Copans said:

Mr Copans was cross-examined about when Mr Martin told him that Mr Bell’s involvement would be kept in the shadows, and said this was on several occasions, a recurring theme, one of which was (as mentioned in Ivy’s Reply) at a due diligence meeting with Mr Martin on 9 and 10 August 2018. It was suggested in a long, and at times confusing, cross-examination that Mr Copans was being inconsistent and untruthful in his evidence on this point, and also that he was confusing it with a statement Mr Martin once made about himself staying in the shadows. Mr Copans accepted that his witness statement did not specify where and when Mr Martin told him Mr Bell was to remain in the shadows, and said he could not recall the exact times and dates. Mr Copans agreed that the allegation in the Reply that it was said during his visit to London must have come from him, and said that that visit would have been one of the occasions on which it was said: it was a constant narrative. That evidence was in turn said to be inconsistent with the Reply, which refers to only one occasion.

In my judgment there is no merit in the criticisms of Mr Copans’ evidence on these matters. As noted above, Mr Copans indicated in his witness statement that his visit to London was, he believed, the first time Mr Martin mentioned Mr Bell; and he proceeded to explain various things Mr Martin told him about Mr Bell including the ‘shadows’ point. It is reasonable to suppose that, as Mr Copans said in his oral evidence, the visit to London was an occasion on which Mr Martin made that point to Mr Copans. Given that Mr Copans very fairly made clear that he could not specify the other particular occasions on which Mr Martin told him this, it is unsurprising that the Reply mentions only one, and that fact does not in my view undermine Mr Copans’ evidence in any way. I accept his evidence on these matters as being truthful, plausible and accurate.

Mr Copans was also challenged on his evidence that Mr Martin told him Mr Bell had been arrested at the airport in connection with 666Bet. It was suggested that that was inconsistent with Mr Hooja’s original affidavit in support of the freezing order. Mr Hooja there stated that he understood from an internet search conducted by Ivy’s lawyers that Mr Martin and Mr Bell had a history of working together, and that they previously worked together on 666Bet, referring to various Press articles including about Mr Bell’s arrest. Mr Copans agreed that he would have discussed events before Mr Hooja’s affidavit was put together, but said he was not involved in its preparation or, so far as he recalled, shown it in draft. Mr Copans did not recall himself telling anyone else at Ivy about the 666Bet matter, though he was pretty certain that Mr Martin told Mr Hooja about those matters too, albeit he could not remember when.

Mr Copans was also asked about the warranties in the SPA. He said in examination in chief that he had no recollection of Ivy asking for Mr Bell to be bound by them. He recalled Mr Martin having told him that Mr Bell put in the money but did not want to be operationally involved or named in any share registers or documentation. Mr Copans considered that only Mr Martin could give relevant disclosure against the warranties, because Mr Martin was the person who would be continuing in the Business.

Mr Hooja’s affidavit and witness statements did not refer to having learned any of the information about 666Bet and Mr Bell’s arrest from Mr Copans, as opposed to from his lawyers’ internet searches prior to the freezing injunction application. In his oral evidence he said his affidavit did not seek to give the impression that the information was only newly obtained, and that Mr Copans had also told him that Mr Martin had been involved in other gambling businesses and that there had been a messy transaction in which a business had had to close. He thought Mr Copans could have told him this before the SPA was entered into, though he was not sure. He could not remember whether he had previously been told that 666Bet and Mr Bell had been involved in VAT fraud and money laundering allegations, or that Mr Bell had been arrested. He had been told that Mr Bell wished to remain in the shadows, in one or two meetings prior to when he swore his affidavit, but could not remember when, and was not sure why his affidavit did not say so. He also believed that 666Bet had been mentioned in “one of the phone calls”. The following exchanges then occurred:

In my view Mr Hooja’s evidence on these points was truthful. It is apparent that he had limited recollection about precisely what he was told when, but I am satisfied (notwithstanding the rather general nature of the final question and answer quoted above) that Mr Hooja had a recollection of being told, at the time the transaction was being negotiated, about a prior messy transaction leading to a business having to be closed, with 666Bet having been mentioned, and about Mr Bell wishing to remain in the shadows.

Mr Hooja went on to say, in his oral evidence, that he understood at the time the deal was done that Mr Bell wanted to be in the shadows, and it was very normal in the industry to have proxy relationships. Asked whether he understood Mr Bell to be a party to the SPA, Mr Hooja replied that the business was being sold to Ivy by Mr Martin and Mr Bell. It was then suggested to Mr Hooja that he was saying he understood Mr Bell to be a party to the SPA but wished to remain in the shadows (which Mr Hooja accepted was what he thought), but it was then put to him that he cannot have thought that otherwise his affidavit would have said so. Mr Hooja replied that he did not remember, and that he was just giving an account of what he thought and believed.

I am satisfied, having seen and heard his evidence, that Mr Hooja was being truthful and that he was told something, while the purchase of 21Bet was being negotiated, about the messy 666Bet transaction and about Mr Bell wanting to remain in the shadows. In addition, I am sure he considered Ivy to be buying the Business from both Mr Martin and Mr Bell - Ivy had, after all, been told they were its 50/50 beneficial owners – and in that sense may have believed Mr Bell to be a party to the SPA. Given, however, that the SPA on its face recorded Mr Martin alone as the selling shareholder, it is unsurprising that Ivy’s original case, and the evidence put forward in support of the freezing order application, did not assert Mr Bell to have been a party to the agreement.

Mr Hooja also gave this evidence about the warranties:

Mr Bell submits that Mr Hooja therefore confirmed that the warranties were personally provided by Mr Martin, as only he had the personal knowledge of the Business. That is a materially inaccurate summary of the evidence quoted above. Mr Hooja in fact took issue with the suggestion that Mr Bell lacked sufficient information about the Business in order to be able to provide warranties, albeit he did not positively suggest that he understood Mr Bell in fact to be giving warranties. His third answer, starting “I don’t believe so”, was expressing disagreement rather than agreement with the questioner.

Mr Watt said in his witness statement:

In cross-examination Mr Watt said that the Ivy representatives understood from the very beginning that Mr Martin was acting as Mr Bell’s agent, though he made the point that he was an accountant not a lawyer. He was asked to whom at Ivy he gave the information quoted above from his witness statement. Mr Watt said he did not mention it to anyone in the context of the application for a freezing order, because Ivy knew that Mr Bell had not wanted to be named in the SPA. At the time, however, i.e. after the meeting with Mr Kitto, Mr Watt said he had reported to Mr Jain at his Berkeley Square office that Mr Bell did not want to be named in the SPA. There were no notes of that meeting. Mr Watt said he did not find it particularly surprising, as he understood from the way Mr Martin had phrased it that it would have something to do with the 666Bet situation. He recollected that Mr Jain was content to proceed on the basis that Mr Bell was not a party.

In the course of his oral evidence, Mr Watt confirmed that he was aware that Mr Martin and Mr Bell had had previous involvement with 666Bet, and he thought Mr Martin had actually mentioned that. It was then suggested that Mr Watt had not said so in his witness statement, and that he and Mr Copans had in fact concocted the evidence. I reject that suggestion, and indeed have considerable doubt about whether it could properly be made. The evidence quoted above from Mr Watt’s witness statement clearly indicates that he knew, at the time, about 666Bet; and though it does not say in express terms that Mr Watt knew about 666Bet from Mr Martin, it is certainly not inconsistent with that having occurred. On the contrary, the words “This discussion with Barry …” immediately after the reference to 666Bet tend to suggest that Mr Martin may well have been the source, or a source, of information about 666Bet.

Mr Watt also said in his oral evidence that he was aware, before the SPA was signed, that Mr Bell had been arrested. Mr Watt said he lived in the Isle of Man at the time, and the arrest was big news there. He joined Ivy only in December 2018 and did not know what knowledge other members of the Ivy team had about Mr Bell’s arrest.

Mr Watt was asked about the discussions he had about the warranties. He confirmed that these discussions were with Mr Martin and Mr Martin’s representative, and that Mr Bell was not mentioned during the discussions. Mr Watt said he did not know what Mr Bell’s level of knowledge about the Business was, or about the depth of communication between Mr Bell and Mr Martin, though he expected that they would have communicated given that Mr Bell was a 50% owner of the Business. Further, Mr Watt said, Mr Martin kept referring to Mr Bell in terms that he was communicating with him about the deal. Mr Watt said he had not spoken to Mr Bell at all, but he was operating in the belief that Mr Martin was Mr Bell’s agent. Mr Watt accepted the general proposition that the warranties were dependent on Mr Martin’s personal knowledge of the Business, but did not accept that he knew they were personal warranties given by Mr Martin only. He did agree that no-one ever suggested that Mr Bell should give disclosure against the warranties.

I accept Mr Watt’s evidence as being truthful and as reflecting his genuine understanding of the position at the time the deal was done.

The ‘shadows’ point was also put to Mr Martin in cross-examination, who denied it, making the point that Mr Bell was named as a beneficial owner in the DDQ, and adding that after the Prague Meeting he did not believe he or Mr Copans had mentioned Mr Bell at all. However, there is no inconsistency between Mr Bell being named on the questionnaire as a co-owner but being kept in the shadows so far as the transaction documents were concerned; and having heard the evidence as a whole I do not accept Mr Martin’s evidence on this point.

On a related topic, Mr Bell in his written closing suggest that Mr Copans was being untruthful and partisan by suggesting in oral evidence that he assumed Beavis Morgan to have been acting for both Mr Martin and Mr Bell. That suggestion appears to be based on the following exchanges:

The contemporary documents referred to in section (D) above show that Mr Martin kept Mr Bell fully updated about the discussions with Ivy, forwarding offers to him and discussing the proposed terms with Mr Bell.

Moreover, Mr Martin made clear to Ivy that he needed Mr Bell’s blessing of the contemplated deal (see the 27 August 2018 communication quoted in § 103 above, and the 19 November 2018 email quoted in § 168 above about what Mr Martin thought he could get Mr Bell to agree to); and, afterwards, of any revisions to it (e.g. on 5 June 2019, § 197 above). Mr Bell denies that his approval was necessary but I am unable to accept that evidence. He was a 50% beneficial owner of the business, had funded it in part himself and in part via Simplify, and had been in control of the purse strings throughout. He wished to see the Simplify advances repaid and, as his written evidence indicated, his share of the balance of any sale proceeds. It is obvious that Mr Martin will have required Mr Bell’s blessing both of the deal and of any subsequent revisions to it.

After the sale, certain Ivy/Tabella employees became involved in the running of 21Bet. Mr Watt and Mr Christopher Owen attended the 21Bet offices. During this period, it became apparent that 21Bet had a number of outstanding liabilities:

Mr Watt said in his witness statement that he also became aware of a Bulgarian tax debt of around €18,000 for the period from January to March 2019.

It also became clear around this time that Mr Martin was involved in a dispute with FSB, arising from the UK business having migrated customers from the FSB platform to the SBTech platform. Mr Watt summarised this in an email to Mr Jain and Mr Hooja on 29 April 2019:

FSB was demanding a large sum to be put in escrow to cover historic liabilities to the UK Gambling Commission and threatening not to effect the migration. Mr Martin knew at least by 29 March 2019 (when he received a detailed email on the topic) that there were still a number of significant matters that needed to be resolved with FSB before the migration could be allowed to proceed, including outstanding invoices and other issues. Mr Martin accepted in his oral evidence that the migration from FSB to a new platform was a “critically important aspect of the business”. Nevertheless, none of this was disclosed to Ivy.

Mr Copans’ evidence was that Ivy discovered, after acquiring the Business, the following matters:

Mr Watt’s evidence was that “it was the worst state I had seen a business in during my entire professional career”; that the Business was unable to pay its debts without significant injections of cash from Ivy; and that over £250,000 was put into the Business to keep it afloat by end of June 2019, only 2 months after the acquisition.

Having been updated on 21Bet’s financial position, Mr Jain emailed Mr Watt on 30 April 2019 stating that “We bought business under the assumption that it is generating £150k per month in net positive cash flow. Barry lied to us and did not disclose that this is not the case. Due to ambiguity with the cash business, we could not verify all this and that was my fear in the first place”. He said that he would “put a hold on Barry’s salary till business starts generating positive cash flow”.

Mr Copans’ evidence was that Mr Martin pulled him aside shortly after the SPA and, during that conversation, Mr Martin effectively accepted that the Business had been on life support, that he had needed the cash to pay off his personal and business debts, and that he had been prepared to make the deal happen at any cost, essentially by not telling the truth about the true state of the Business. Mr Copans was not directly challenged about this evidence, though it was put to Mr Martin in cross-examination. Mr Martin denied it, saying the gist of the conversation was “look, Neil, I want to work with guys. What shall we do? How do we get out of this? How can I help? How can we move it forward?” There are no contemporary records of this conversation. Mr Martin is bound, in the light of all the matters I have referred to above about the state of the business, to have realised what a poor state it was in, and it is entirely plausible that he would have admitted this. He could not credibly take any other approach. It is also entirely possible that he admitted to having lied. However, I note that Mr Copans does not allege in terms that Mr Martin specifically admitted to lying, and it is not a matter on which I find it necessary to reach a conclusion. The real question is whether he did lie, which is a matter I consider later.

Mr Martin requested that Ivy “look upon this current situation as a blip that will right itself very quickly”. In relation to the VIP business, he said that “For the last two months we had stopped all VIP activity purely based on the fact that our investor (who was providing any shortfall in funds with FSB not sending any monies at all) was not willing to give the financial backing necessary to run an effective VIP service”.

In early May 2019, Ivy became aware that Mr Bell had been making significant capital injections over the course of 2019. On 7 May 2019 Mr Watt emailed Mr Martin stating that “there are a number of large transaction that I don’t understand. I have tabulated them on spreadsheet (attached) and hoped you could complete the explanations”. The table showed sixteen payments from Simplify Umbrella between 2 January 2019 and 29 March 2019, adding up to a total of £320,000. In the “explanation” column, Mr Martin appears to have entered “business Loan Note”. A similar exercise was carried out for the period from April to December 2018 in late May. In an email to Mr Copans on 21 May 2019, Mr Watt concluded: “From this analysis Paul was bankrolling the business for all of 2018”.

On 16 and 17 May 2019 Mr Watt and Mr Copans discussed what they had found by going through 21Bet’s financial information. The conversation included:

Mr Watt said that by late May 2019, it had become apparent to Ivy that the Business was “not a viable business or going concern”. In late May/early June 2019 Ivy representatives also discovered some of the communications about Premier Punt to which I refer in section (D)(24) below.

On 4 June 2019 Mr Watt raised the issue of Mr Bell’s loans to 21Bet with Mr Martin. Mr Martin responded that “Funds from P Bell is a tough one as it was only ever a hand shake and no docs exist”. Mr Watt replied that “we need something in writing, particularly as there is no evidence that the loan has been repaid”.

It appears that Ivy began to wind up the 21Bet business thereafter, and it ceased trading. City Support was dissolved on 11 February 2020.

It was common ground between the accounting experts called by Ivy and Mr Bell that the alleged representations about the Business’s profitability, if made, were materially inaccurate (Joint Statement § 1.1). The experts added, in their Joint Statement dated 26 November 2021, the following:

The experts also agreed that in this case, where there is no evidence that the business paid interest, or incurred depreciation or amortisation, EBITDA is broadly synonymous with profit before tax (Joint Statement § 3.2(iii)).

Mr Davidson’s view, which was not challenged, was that UK part of the Business made losses in the year to 31.12.2018 of £1.5m and, and in the period from 1.1.2018 to 31.3.2019 of £1.75m. He also found that the non-UK part of the Business made a loss for the year ended 31.12.2018 of £502,525, giving a combined loss for the entire Business of £2.25m.

Mr Donaldson did not quantify the losses in the non-UK part of the Business, but in considering the Business’s overall balance sheet as at 4 April 2019 he took into account the balance sheet from Aureate’s statutory accounts for the year ended 31 December 2018, which showed net liabilities of £908,057. Aureate’s statutory accounts for that period showed a net loss of €119,729, following a net loss of €888,328 in 2017, albeit the auditors were unable to express an opinion on the accounts due to lack of audit evidence. Mr Donaldson did not suggest that Aureate might, contrary to the accounts, in fact have made a profit in 2018, and (as noted above) agreed that the business as a whole made a loss. Nor was it suggested to Mr Davidson, at least not in terms, that the business as a whole in fact made a profit in 2018. In order for that to have happened, the non-UK part of the business would have had to make a profit in excess of the losses made by the UK part of the business, which the experts agreed were at least £1.6 million.

Mr Donaldson also agreed (in the context of the warranty issues) that “without the additional support from Simplify, the Business was unable to meet its liabilities as and when they fell due” (Joint Report § 2.2(ii)).

Until April 2018, the UK side of the business was operated through Viktra. Viktra went into liquidation on 1 May 2018, with net liabilities of £584,568, excluding the significant sums which the business owed to Simplify and to Mr Bell personally.

The decision to put Viktra into liquidation appears to have been taken at some point in late November 2017 and the process was underway at least by March 2018. The reason why Viktra was put into liquidation was because it had substantial liabilities to Catena, HMRC and others and, due to its cash-flow issues and lack of gambling revenue, it was not able to pay wages, rent and other ongoing liabilities. The plan - which was put into effect by the subsequent incorporation of City Support - was to put Viktra into liquidation and to set up a ‘phoenix company’ in its place. These considerations were set out in an email from Mr Martin to Mr Bell on 12 October 2017, which among other things said:

All of the Business’ non-UK gambling revenue went through the Maltese company, Aureate, the other overseas companies which formed part of the business being ‘costs centres’ only (as both Mr Davidson and Mr Martin indicated).

According to its audited financial accounts, for the year ended 31 December 2017 Aureate made a loss of £888,328, and for the year ended 31 December 2018 a loss of £119,729.

In the period from 14 February 2017 to 2 March 2018, Simplify companies made 69 cash injections into Viktra totalling £1,126,940, in addition to the £400,000 paid in by Mr Bell personally between March and September 2017.

In the period from 24 May 2018 to 29 March 2019, Simplify companies made 42 cash injections into CSS totalling £685,505. These included payments totalling about £52,000 in the month leading up to the Prague
Meeting on 1 October 2018, and payments totalling about £194,000 in the month leading up to the SPA. As Mr Davidson explains, the contributions were made on average once a week. Save for two periods of approximately two months each when no capital injections were made, no period longer than 17 days passed without the need for a capital injection.

In the words of Mr Bell in his oral evidence, “if the business continues to need cash, … it must be making losses”, and “As I said to you previously, I don’t believe there’s any EBITDA because cash is king and cash is constantly being required”.

The Defendants nonetheless advanced two main lines of argument to the effect, broadly, that the performance of the Business must have been better than might otherwise appear.

These lines of argument focussed in part on the figures for VIP customers betting in cash, which Ivy suggested must have been an area where Mr Martin had been able to inflate the figures in order to portray a profitable business. Mr Martin gave oral evidence that:

The first of the Defendants’ lines of argument is made by reference to a Schedule 5, prepared on behalf of Mr Bell, based on the bank statements for Viktra (unavailable at the time of Mr Davidson’s report), CSS and Aureate, indicating inter alia that there were a total of £349,293 of payments into Viktra’s and CSS’s UK accounts (at Lloyds Bank and HSBC respectively) in the period January to July 2018 in cash, or from e-wallets and/or from persons at least some of whom Mr Davidson accepted were likely to be VIPs. This part of the schedule thus excludes payments from Aureate, FSB and Simplify. It was suggested to Mr Davison in cross-examination that these receipts were consistent with the assumptions Mr Copans made about net gaming revenue from VIPs.

However, Mr Davidson disagreed with this suggestion. He pointed out that:

The general thrust of Mr Davidson’s evidence, which I accept, is that it is not legitimate to conclude, from a list of payments into the Viktra and City Support accounts, that there was net gaming revenue of any particular amount. Moreover, such data needs to be seen in the light of all the other evidence, to which I refer below, indicating that the business was not profitable.

The second line of argument focussed on credits to Aureate’s Satabank account in the period January to April 2018, which were also set out in the schedule prepared on behalf of Mr Bell. (Proper bank statements for this account existed only up to the end of April 2018.) These credits totalled €406,265.94.

Mr Davidson in his report noted that this level of receipts was difficult to reconcile to the level of revenue recorded in Aureate’s statutory accounts for 2018, namely €355,502 for the year as a whole. However, he noted that in the same 4-month period, January to April 2018, payments out of the bank account amounted to €413,000, suggesting a cashbook loss for the period. One of the payments out (€55,000) reflected a VIP loss, and there were also payments of €102,200 to “Viktra Business” and €119,800 to City Support, indicating a degree of support for the UK business. Mr Davidson noted difficulties in reconciling the figures to the statutory accounts: for example, these showed software licence fees of €25,000 whereas the bank statements referred to software licence fees of €57,087. Mr Davidson concluded that it was difficult to gain a clear picture of non UK trading from the various sources, but it remained the case that the Aureate financial statements did not show a profit and nor did the bank statements indicate a cash surplus from trading.

In cross-examination it was suggested that these cash payments indicated that the Aureate accounts grossly overstated its revenue for the year as a whole. Mr Davidson accepted that most of the payments listed in Mr Bell’s schedule appeared to come from e-wallets and platforms, suggesting that they represented revenue (i.e. net of gaming losses for the company), although he could not confirm the position definitively one way or the other. However, he pointed out that it was entirely possible, as was the case with the English company, that total revenue by the end of the year was lower than the cash received into the bank account in the first part of the year.

Mr Copans in his EBITDA calculations had relied on a figure of €123,562 for non-UK NGR for the 68 day period from 13 June to 21 August 2018, thus about €55,000 a month, extrapolated to an annual NGR of £592,177. It was suggested to Mr Davidson that NGR at that level could easily be accommodated within revenue of €406,000 received in the period January to April 2018. Mr Davidson considered, however, that one needed to be very careful before drawing any such conclusions by comparing two different periods of time. In addition, as noted earlier, the overall payments out of the Aureate bank account over the period January to April 2018 exceeded payments in, suggesting a cash book loss.

In these circumstances, I do not accept Mr Bell’s contention that one can justify the figure of £468,054 for VIP NGR provided by Mr Martin to Mr Copans by assuming the £349,293 payments into Viktra’s and CSS’s accounts, plus the €406,266 payments into Aureate’s Satabank account, to be made up mostly of VIP NGR.

Mr Bell makes the further point that the VIP figures for June and July 2018 (which Mr Copans was told amounted to €112,491, or about £100,000) could reliably be regarded as revenue as they were derived from invoices from the Digitain platform that the Business had started using. As a result it was only the non-Digitain figures for January to April 2018 where Ivy had to rely on numbers provided by Mr Martin. That is consistent with Mr Copans’ evidence, but the Digitain revenue accounted only for less than a quarter of the VIP NGR said to exist.

Mr Davidson also noted in his report that:

It was suggested to Mr Davidson in cross-examination that, if transaction fees were in fact at the level of 4-6% referred to in quoted § 4.41 above, then Aureate would have made a profit. Counsel for Mr Bell suggested that the position must therefore be that either the revenue was understated in the accounts or the transaction fees were overstated. Mr Davidson considered, however, that a third possibility was that the stated figures were correct, and the transaction fees were higher than he had been instructed would generally be the case. He accepted that he said in his report that the lack of an audit opinion made the accounts “wholly unreliable”, though he indicated that that usually meant that the company’s losses were understated. As to his assumption about the level of transaction fees, Mr Davidson said in cross-examination:

Ivy point out that the FSB reports indicate that the transaction fees incurred by the UK part of the Business were very significantly higher than 4-6%: in March 2017, the NGR (the total of the sports and casino remittances) was £173,000 and the net remittance was £110,000 suggesting a transaction fee of 36%; in May 2017, the NGR was £224,000 and the net remittance was £163,000 suggesting a transaction fee of 27%; in July 2017, the NGR was £142,000 and the net remittance was £95,000, suggesting a transaction fee of 33%; and in August 2017, the NGR was £122,000 and the net remittance was £67,000 suggesting a transaction fee of 45%. Ivy also notes that Mr Martin’s oral evidence was that the information used to prepare the Aureate accounts probably came from Harry Bull, whom Mr Martin elsewhere described as “probably my closest confidante in the business”.

In my view Mr Davidson’s evidence on this point was entirely realistic, and the generalised assumption to which he referred to transaction fees of order of 4-6% provides insufficient basis to seek to rewrite the accounts: particularly in circumstances where the evidence as a whole indicates that the Business as a whole was not generating profits.

Mr Davidson accepted that if the transaction fees were reduced to about 5%, then Aureate would have made a profit in 2018 (though not in 2017), though only if one further assumed that the sums shown in the accounts as transactions fees were not properly classified as some other form of expense. However, as noted above, there is no good reason to make that assumption: and in any event, the modest Aureate profit that would result from reducing the transaction fees in that way would not come close to offsetting the losses in the UK part of the business.

Perhaps most importantly, it was not suggested to Mr Davidson that the 21Bet Business as a whole was anything other than loss-making in 2018. (Indeed, in the context of the warranties, it was positively suggested to Mr Davidson that the business was clearly loss-making as at 4 April 2019, the date of the SPA.)

The contemporaneous documents, particularly frequent emails between Mr Bell and Mr Martin, show beyond doubt that the Business was not generating sufficient cashflow to pay its regular outgoings (including salaries, rent and tax), let alone investments such as development projects; and as a result was wholly reliant on injections of cash arranged by Mr Bell. This is clear from the emails and other documents referred to in §§ 44, 45, 48 (“cap in hand with more news of cash flow issues”, per Mr Martin), 56, 57, 58, 59 (“living literally hand to mouth in as far as keeping our payment wallets with some balance but constantly withdrawing what we can to pay off the running costs and debts”, per Mr Martin on 21 February 2018), 60, 61 79, 81, 95 and 111 above, which span the period from February 2017 to September 2018; and all of these relate to the period before Mr Spence started to make large winnings adverse to the business (commencing on 4 November 2018). The emails referred to in §§ 166, 167, 172, 173 (“The last 6 weeks have been some of the darkest I have had to face. No car, no money, battling with creditors everyday both business and personally including the HMRC”, per Mr Martin on 27 December 2018) and 180 above indicate that there was no improvement in the ensuing months, even though the business was only making modest part-payments to Mr Spence and was relying on the proceeds of sale of the business to pay the bulk of what was owed to him. The communications referred to at §§ 224-234 above indicate that this – a Business unable to pay its debts as they fell due – was also the situation which Ivy found when it acquired 21Bet in spring 2019.

Moreover, the contemporary documents indicate that the problem was not merely one of cashflow but, more fundamentally, that the Business was not making money or even breaking even. That can be seen from the communications referred to in the following paragraphs of this judgment:

These documents provide compelling evidence that, unless Mr Martin and Mr Bell had fundamentally misunderstood the position during the entire period from September 2017 to December 2018, the Business was neither profitable nor self-sustaining, but rather was making substantial losses.

That position was also, of course, reflected in the impact on Mr Martin’s personal financial position, put forward in strong terms in the communications referred to at §§ 61, 62, 63, 76 and 173 above.

Mr Bell in his oral evidence made perfectly clear, repeatedly, that he did not consider the business to be making any profits, or any EBITDA, particularly because (a) the business repeatedly needed cash injections in order to pay its running expenses (and, as Mr Bell put it, “cash is king”), and (b) there was no sign that any tax was being paid on any profits. As quoted earlier (§ 140 above), Mr Bell’s position was that “there’s no EBITDA, it’s not making any money”.

Mr Martin in his witness statement, dated 14 July 2021, said very little about the actual profitability and sustainability of the business, save for this:

In his oral evidence, Mr Martin denied that he knew that the business was unprofitable. He suggested that profits had been invested in the business, for example in the following exchanges:

Similarly, Mr Martin suggested that by 2018 the Business had 50-60 staff, three or four offices and a “multitude of assets”, and that revenue was being spent on investment, Bet Fair, new exchange, new software platforms, new domains, new staff, new offices. However, as was put to Mr Martin in cross-examination, it is entirely implausible to suggest that a business which required very frequent cash injections arranged by Mr Bell in order to pay basic overheads such as salaries and rent was, at the same time, earning substantial revenues which were instead being ploughed into new offices, platforms and domains. Moreover, the contemporary documents show Mr Martin also requesting money from Mr Bell for investment/development purposes (see, for example, those referred to in §§ 46 and 47 above).

Mr Martin also suggested that some profits were or could be represented by sums owed to the business by customers:

However, irrecoverable debts could obviously not properly be counted as part of profits. There is, moreover, no indication in the documents presented at trial of any such problem in obtaining funds from Turkey which were due to the Business.

Mr Martin suggested that VIP revenue was coming into the Aureate account with Satabank in Malta, or to various Turkish banks the Business was using, or in cryptocurrency. He was asked why, in that case, the business continually needed more money from Mr Bell in order to pay its overheads:

Later in his evidence Mr Martin accepted, however, that any revenue coming in from Turkey ultimately had to be accounted for in the accounts of the UK company or of Aureate.

Viewing this evidence in the round, the position is very clear. The Business was making no profits but was heavily loss-making and unable to pay its way, in both 2017 and 2018. That was the conclusion both experts reached and was not seriously challenged. It is consistent with the liquidation of Viktra and Aureate’s statutory accounts. It is also consistent with the Business’s need for regular and large infusions of cash arranged by Mr Bell, and all the contemporaneous correspondence showing that the Business was making no profits and was unable to pay its basic regular outgoings from its own revenues. The Defendants’ rear-guard efforts to paint a different picture by reference to such matters as incomplete and inconclusive data about overseas VIP income are unpersuasive and unrealistic.

In parallel with the events set out above, the Defendants were involved in discussion and activities in connection with a potential new business, Premier Punt, and the acquisition of a gaming licence owned by Incentive Games Limited (“Incentive”).

In August 2018, Mr Martin and Mr Bell began corresponding about the possibility of acquiring Premier Punt, a gambling business owned by Premier Punt Group Limited (“PPGL”) operating under a gaming licence and gaming platform owned by Incentive. The CEO of Incentive and of PPGL was a Mr John Gordon. Discussions between Mr Gordon and Mr Martin about the acquisition of the Premier Punt business commenced in August 2018.

On 18 August 2018 Mr Martin forwarded Mr Bell an email exchange that he had had with Mr Gordon regarding the acquisition of Premier Punt. Mr Martin said to Mr Bell that he “Would like to discuss the opportunity”. Mr Bell responded “Ok mate Spk Monday”. On Monday 20 August, Mr Martin emailed Mr Bell again informing him that “They have already dropped the price to £65k … Defo worth a discussion”.

On 24 August 2018 Mr Martin sent Mr Bell an email setting out what would be required to start the Premier Punt business. Among other things, Mr Martin proposed that “We would nick Alex Drummond … from 21 and build a team around him”. He also referred to the fact that “we have over 200k players already signed in the UK and over £1.8m GGR from players who have either closed their accounts or self-excluded”. On the same day, Mr Bell responded “Worth a go mate Spk Tuesday”.

On 28 August 2018 Mr Martin explained to Mr Bell: “This is how it will look – We would nick Alex Drummond (our current Affiliate Manager) from [21Bet] and build a team around him”. Alex Drummond, a senior 21Bet employee, was later moved across to head up the new Premier Punt team in February 2019. His LinkedIn profile and email signature suggest that he became Premier Punt’s UK Gaming Manager.

On 4 September 2018 Mr Martin sent Mr Bell an email with the subject line “New Co for Prem Punt”. In the email, Mr Martin said:

On 5 September 2018 a new company, AXL Media Limited (“AXL”), was incorporated. Ms Ashleigh Martin, Mr Martin’s daughter, was the sole director and shareholder of the company. Both Mr Martin and Mr Bell suggested in their evidence that the business belonged to her.

Ms Martin had previously worked for 666Bet and 21Bet. In her witness statement, she explained that she left 21Bet “in or around September 2018”. At trial, she gave evidence that she first discussed the possibility of acquiring Premier Punt with Mr Martin in August 2018, but that she did not get substantively involved in the business until late December 2018. She stopped other work in August or September 2018 and gave birth in October 2018. As Ivy point out, Ms Martin was clearly not a wealthy individual - indeed, very far from it. The evidence indicates that, in September 2018, she owed money to HMRC and was even struggling to afford a buggy (or, she said in oral evidence, an expensive car seat) for her child.

None of the contemporary emails between Mr Martin and Mr Bell relating to Premier Punt referred to it as being Ms Martin’s business, or even mentioned her at all. Mr Bell agreed in cross-examination that Ms Martin did not have the qualifications or experience to be the CEO of a gaming business. Ms Martin’s Premier Punt email signature stated her role not to be director or shareholder, but “Customer Support Manager”, and it appears she dealt with the website’s ‘live chat’ function, payments and verifications.

In her oral evidence, Ms Martin said she was the CEO of Premier Punt, but chose to describe herself as a customer support manager so as not to “overwhelm” the other employees. She also said that she chose to do customer support online ‘chats’ so that she could work from home and look after her young baby, and that she “went in once a week to meet Alex [Drummond]”. However, later Skype messages between Ms Martin and Harry Bull on 29 November 2018 suggest that Ms Martin was worried about what the consequences of being a director might be for her, and she asked Harry for reassurance in that regard: “surely dad won’t let anything happen to me?” A subsequent Skype exchange between Mr Bull and Ms Martin, on 4 March 2019, was to similar effect.

I find the evidence that Premier Punt was owned and operated wholly or mainly by Ms Martin implausible. The contemporary documents, and the inherent probabilities (specifically, Ms Martin’s lack of relevant experience and the motive Mr Martin and Mr Bell had to create another phoenix-like business), all strongly suggest the true position was that Ms Martin was used as a front.

Ms Martin said in her oral evidence that the money required to set up Premier Punt came from two of “Dad’s acquaintances”, namely Thomas Ashman and “Civil Building Limited”. She said Mr Ashman provided £35,000 and Civil Building Limited provided £52,000, followed by a further £28,000 a few months later. Ms Martin said that funding had been set up on her behalf by her father, but that she never met either of the investors/lenders. After she had completed her evidence, Ms Martin produced some documents said to evidence the receipt of these monies from Mr Ashman and CBSL.

Ivy’s subsequent enquiries indicated (as set out in their written closing) that there is no company registered in the name “Civil Building Limited” at Companies House, and that the only company whose name includes the words “Civil Building” is Civil Building Services Limited (“CBSL”). Ms Martin’s documents include reference to payments made by “Civil Building Ser”. CBSL is recorded as being a building company involved in site preparation, incorporated on 28 April 2017, whose accounts for the period ended 30 April 2019 were due on 31 January 2020 but have not yet been filed. According to its only set of filed accounts (i.e. for the period ended 30 April 2018), CBSL had net assets of £44,271.

As Ivy point out, it is unclear why a recently-formed building company with such limited assets would be investing £80,000 in an online gambling company. It is also unclear why the monies apparently provided from CBSL in February 2019 came in four separate tranches over two days for the very specific sums of £8,712.63, £7,439.25, £7,016.47 and £5,587.65. Such a pattern of payments might have other explanations, such as redirection of sums due under invoices payable to a business in which Mr Martin or Mr Bell had an interest. That would be speculation. However, it is striking that, even though Ms Martin’s evidence was that Mr Martin arranged these payments, he himself provided no evidence about these alleged sources of the money. Nor were any documents produced evidencing the basis on which the money was provided to Premier Punt. Moreover, the extreme lateness of this evidence (not even foreshadowed in Ms Martin’s own witness statement save for a reference to “two informal loans provided by two family friends”) made it impracticable for Ivy to test it in the usual ways, such as by investigating the alleged payees and their connections with Mr Martin and/or Mr Bell. In all the circumstances I find this evidence of very little value, and do not consider that it assists the court in deciding (should it be necessary) whether Mr Martin and/or Mr Bell had interests in Premier Punt.

Returning to the proposal discussed between Mr Martin and Mr Gordon by email on 5 September 2018, it appears to have involved (i) a marketing agreement under which PPGL would add AXL to their UK gambling licence and provide software, marketing and customer support; (ii) the sale of the Premier Punt brand and app to AXL for £65,000; and (iii) provision of a non-UK software licence.

At 12.49pm that day, Mr Martin sent Mr Bell copies of Heads of Terms which had been agreed with PPGL and asked Mr Bell whether he was authorised to sign them and proceed. Mr Bell said in his evidence that he did not authorise Mr Martin to sign the Heads of Terms and suggests that this was “Barry running away with his plans”. He refers to the project as an investment opportunity which he rejected.

Later the same day, at 7.57pm, Mr Martin sent Mr Bell another email with the subject “Prem Punt” with a “reminder” about three things which were needed, namely: “4 office desks”, “company with bank account” and “will get the initial funding info next week to buy the brand/URL and get the Platform fee sorted”. Mr Bell responded: “Ok ”. In his first witness statement, Mr Bell stated that he later, in or around June or July 2019, provided office space for five or six Premier Punt employees on a short-term basis (around six weeks) as a “favour to Mr Martin’s daughter”.

Mr Martin then sent a reminder on 17 September 2018, stating “Any news on the newco/bank acct for Premier Punt”. Mr Bell said in response:

On 25 September 2018 Mr Martin chased Mr Bell again for the details of the “newco business and bank details for Prem Punt”, sent him a further “quick nudge” about it on 26 September 2018, and then chased again on 27 September 2018. In response, Mr Bell said that he would have “full details” for Consilium the following day. As for desk space for Premier Punt, Mr Bell said that there was no space in Manchester, but it would be “easy to sort”.

Further reminders were sent by Mr Martin to Mr Bell in September 2018 regarding “Details of newco business and bank acct for Prem Punt” and “Desk space in London for Prem Punt?”. On 27 September 2018, Mr Bell responded “Will have Consilium full details for tmw … Lots of space in Cheapside”.

Mr Bell did not ultimately provide office space in 2018, although (as noted above) Mr Bell did provide AXL with free office space in Cannon Street for a period of two months in 2019.

On 1 October 2018, Mr Martin emailed Mr Bell stating inter alia:

Mr Bell responded “Ok will get in gear on this lot tmw mate”. This and other responses from Mr Bell quoted above and below are inconsistent with his evidence that the Premier Punt project was no more than an example of Mr Martin running away with his plans.

On 7 October 2018 Mr Martin sent Mr Bell an agenda for a call. Item 1 was “Tabella offer/Other Options”, and Item 2 “Premier Punt”.

Mr Martin formulated a to-do list for Premier Punt and other projects, which he sent to Mr Bell on 9 October 2018. The items on the list included:

Mr Martin denied that the reference to Premier Punt as a ‘backdoor’ project indicated that it was a covert means of taking business out of 21Bet, and that any such thing actually occurred. On the other hand, Mr Bull at least clearly understood that Premier Punt was meant to be a secret from Ivy, as indicated by Skype conversations between him and Mr Alex Drummond in which Mr Bull stated that “Ashleigh is signing docs, creating emails, opening bank accounts and now everyone on the other side know there is a connection (SBTECH and PP guys), absolutely no way new owners will not find out about it IMO” (7 December 2018) and that “21 should never see PP and PP should never see 21” (25 April 2019).

In an email dated 17 October 2018, Mr Martin told Mr Bell that he was in the process of setting up an offshore company for Premier Punt which would be owned between them on a 50/50 basis. Mr Martin told Mr Bell that he “just needed” Mr Bell’s passport and proof address signed by a solicitor/accountant.

In an email sent to Mr Bell on 6 November 2018, Mr Martin reported on the progress of Premier Punt and other projects. He stated as follows:

In January 2019, Ms Martin’s details at Companies House were updated to use her married name, Ashleigh Chaplin. According to her witness statement, Ms Martin considered using her married name when she first registered at Companies House but “hesitated” because using her married name was a “big deal for [her]”. She said that she “eventually decided to change to my married name”, but offered no explanation for this change of heart in January 2019 and why something that was a “big deal” for her in September 2018 ceased to be such in January 2019.

In her oral evidence, Ms Martin said she got married in August 2012 and never officially changed her name from Martin to Chaplin, not even on her passport. However, she finally decided in January 2019 that she would change her name to Chaplin, which is why she decided to change her details at Companies House. However, having apparently made the decision at long last to change her name, and gone to the trouble of changing her details at Companies House, she did not - in fact - go through with it and she has still not done so. When asked why she had not done so, Ms Chaplin said this was partly because she was “a very busy person”, and partly because changing her name was a “big deal” which she was not ready to go through with. I find this evidence contrived and unlikely. The obvious explanation is that the change of name at Companies House was an attempt to conceal the links between Premier Punt and Mr Martin should third parties, particularly Ivy, subsequently wish to look into the ownership of Premier Punt.

On 17 January 2019, Mr Martin emailed Mr Bell in relation to a new proposal to purchase the gambling licence from Incentive at a cost of approximately £165,000. Mr Martin explained that Incentive already had in place agreements to move Premier Punt and 21Bet onto their license. Since 21Bet would then be fixed to a 3-year deal with Incentive, Mr Martin’s idea was either to “sell it back to them for much more or just keep control and make a few quid along the way”.

On 2 February 2019 Mr Martin sent Mr Bell an email with the subject line “Plan D”. He said that he had “Been giving the whole situation a lot of thought and I think plan D maybe the one we also need to look at”. On the assumption that “we do buy Incentive”, he proposed the following steps:

On 21 February 2019 Mr Bull explained that he had been to see three new offices and asked if there were any updates in relation to the Incentive purchase. Mr Martin said that things were moving ahead slowly but that there would be “movement next week for sure” once Mr Bell was back from his skiing trip.

On 25 February 2019 Mr Martin emailed Mr Bell suggesting that he meet with Rich Thorp of FSB as Mr Martin thought “we can bag him for a senior role at Incentive Games”.

A sales plan was drawn up in relation to Incentive. This included the progress status of items such as “Alex Drummond to complete PML application”, “Premier Punt Go Live” and “Company sale contract agreed and signed”. The document was sent by Mr Martin to Mr Bell on 1 March 2019 and again on 20 March 2019.

In early April 2019, Harry Bull and Mr Bell exchanged emails with the subject line: “Incentive Games”. By that time, Mr Bull was already using an “incentivegames” email address. The emails concerned the assistance which Mr Bell was providing in terms of providing office space and IT support, and the work which Harry Bull was doing in order for Mr Bell’s daughter, Melissa Bell, to obtain a PML (personal management licence) which was needed in order to purchase the license from Incentive. Mr Bell told Mr Bull that “we have 18 spare desks in Cannon St. Will have IT sorted for next week”. Mr Bull later told a colleague that Mr Martin had promised Mr Bull that he would, in Mr Bull’s own words, “pay me for my current job whilst getting paid for my new one”.

The SPA was signed on 4 April 2019.

In an email of 6 April 2019, Mr Bull thanked Mr Bell for meeting him. The subject line of the email was “Incentive Games”. Mr Bull said that he had “enclosed a few notes and screenshots on the PML application for the UBO” and that “In respect of the number of desks required to kick things off, 3 or 4 would be enough for the first few weeks, I will be using the 21bet offices next week which should reduce the urgency in getting I.T. set up”. Mr Bell responded “We have 18 spare desks in Cannon st Will have IT sorted for next week”.

In an email from Mr Martin to Mr Bell on 24 April 2019, Mr Martin wrote under the heading “Incentive Group” “a. Spoke to Richard Ward last week about the office space. He said it maybe another week. Ready to go when you are. b. We need to get this UBO sorted ASAP. It is the last piece of the puzzle to get this deal over the line. Is Quinten still in the frame?”

On 30 April 2019, Mr Bell responded to an email from Mr Bull regarding the “contract details for the Cannon Street offices” saying that “I need to run through the business plan with Barry before we commit on this”. Mr Martin and Mr Bell appear then to have spoken by telephone.

On 5 May 2019 Mr Martin forwarded Mr Bell another list of items which included “a. Offices (Regus)”, and repeated the point made in his 24 April email that “b. We need to get this UBO sorted ASAP. It is the last piece of the puzzle to get this deal over the line. Is Quinten still in the frame?” under the heading “Incentive Group”. He attached a PowerPoint entitled “Incentive Games Limited Purchase”. This modelled various financial aspects of the Incentive business, including start-up costs, operational costs and revenue.

It is unclear how these discussions ultimately progressed. Mr Bell’s evidence was that he did not purchase Incentive, but was taking steps to buy it on behalf of his daughter. He said in the end the proposed acquisition did not work financially and did not proceed.

On Wednesday, 15 May 2019, Mr Bull said in a Skype message that it looked like “Incentive is finally sorted”. He explained that Tabella was due to visit Incentive on Friday and hoped that “nothing gets let out of the bag”.

On Friday, 17 May 2019, Mr Watt reported back to Mr Martin about his visit to Incentive and the negotiations he had with them that day, but there is no indication that he was told anything about the plans Mr Martin and Mr Bell (or his daughter) themselves had in relation to Incentive.

Ivy suggests that the evidence in relation to the proposal to purchase the Incentive license, and Mr Bell’s involvement in that project, supports its case that Mr Bell was also involved in Premier Punt. It says the proposal to purchase the Incentive license ran alongside, and in tandem with, the Premier Punt project; it is inherently unlikely that Mr Bell had declined the opportunity to invest in Premier Punt and yet continued to be involved in the proposal to purchase the Incentive license; and the evidence shows that Mr Bell was still involved in the latter at least as late as 5 May 2019. I am, however, not persuaded that such an inference can safely be drawn. It is true that several of Mr Martin’s emails discussed Premier Punt and Incentive as complementary or related proposals. However, Incentive had a different position in the market from Premier Punt, and was capable of being a freestanding business proposition.

Mr Watt gave evidence that following the acquisition of the Business, the Ivy team found Skype messages between Mr Bull and Mr Drummond regarding complaints from 21Bet customers about having received marketing emails from Premier Punt. No such messages were included in the trial bundle, and Messrs Bull and Drummond (and any relevant customers) did not give evidence. It was suggested to Mr Watt in cross-examination that Premier Punt was in fact using a database provided by PPGL, to which he responded that he was not aware of that but it would “make sense”.

The trial bundle did include a Skype exchange on 8 June 2019 between Mr Hogg and Mr Watt in which Mr Hogg reported that “He did say though premier punt apparently is making money – why? Because all the best players were moved off 21 to pp”. The “he” appears to have referred to an employee named Ben, or (possibly) to Mr Martin itself. Ben was not called to give evidence, and the basis of his belief is unclear.

However, Mr Martin’s email of 9 October 2018 about approaching the ‘self-excluders’ on 21Bet’s database indicates that he certainly planned to make use of the database for Premier Punt’s benefit. Mr Martin’s emails of 6 November 2018 (“as we have all the data already”) and 2 February 2019 (“We have a huge database to kick off with”) were to similar effect. Mr Martin in cross-examination denied that customers had been in fact moved from 21Bet to Premier Punt. However, I consider it more likely than not that he did carry out his plan and that part of the explanation for Premier Punt’s profits at least in its first few months of operation is the advantage gained by use of information from 21Bet’s database.

From January 2019 to the end of May 2019, Premier Punt made NGR of some €494,337.03. During the same period, 21Bet was making very substantial losses: Mr Davidson noted that for January to March 2019, the UK business made a loss of £1.75 million.

DECEIT

Ivy alleges that Mr Martin made the following representations in the course of negotiations for the SPA:

Ivy also alleges that Mr Martin was authorised by Mr Bell to act as his agent in relation to the negotiation and sale of his 50% share of 21Bet; and that Mr Bell is therefore liable for the EBITDA Representation and the Profitability/Sustainability Representation.

Mr Martin in his Defence dated 26 February 2020 (drafted by counsel) admitted that he made the General Representations, albeit adding that:

Mr Bell in his Defence, also pre-dating the fuller pleading of the allegations of the Prague Representations, made no admissions as to the General Representations allegedly made by Mr Martin, and denied that Mr Martin had any authority to make any representations on Mr Bell’s behalf, let alone any representations made fraudulently. He also denied that he held Mr Martin out as having such authority, that Ivy understood Mr Martin to have made any representations on Mr Bell’s behalf, and that Ivy relied on Mr Martin having any such authority or on Mr Bell having so held him out.

In addition, Ivy alleges that the following representations were made at the Prague Meeting (“the Prague Representations”) by both Mr Martin and Mr Bell:

Ivy alleges that the Prague Representations were made, expressly and/or by implication, in that (i) the discussion at the Prague Meeting about the purchase price “were based on the Business being profitable and having a current EBITDA of £1.6m”; (ii) “[t]he gist of what the Defendants said at the meeting was that the Business was profitable and that, with further investment, it would be even more profitable …”; and (iii) the Defendants wanted the upfront payment to be as large as possible, and “expressed concern that, if the Claimant ended up spending too much money running the Business, the EBITDA figure in the future would be lower than the current figure of £1.6m, and that that would impact on any future earnout calculated by reference to the EBITDA”.

Ivy’s original Particulars of Claim, after referring to the alleged Profitability/Sustainability Representations, added the words “as was discussed at [the Prague Meeting] by [Mr Martin] and [Mr Bell]”. In response to that allegation, Mr Martin made a general non-admission in respect of the Prague Meeting. Ivy’s fuller allegations in relation to the Prague Meeting were pleaded by way of amendment, but Mr Martin’s Defence was not amended to address them as such.

In relation to the allegation about the Prague Meeting referred to in § 335 above, Mr Bell said in his Defence he made no such assertion and had no recollection of Mr Martin doing so. Mr Bell also made the positive averment in relation to the discussion at the Prague Meeting that:

Ivy also alleged that Mr Martin and Mr Bell represented at the Prague Meeting that they had a genuine belief that, by agreeing to pay in the region of £8 million for 21Bet, Ivy was getting a good deal. However, Ivy elected in its written closing not to pursue its case based on that representation, though it maintained that the Defendants did in fact tell Ivy at the Prague Meeting that it was getting a good deal.

The basic ingredients of the tort of deceit are that:

A representation is a statement of fact made by the representor to the representee on which the representee is intended and entitled to rely as a positive assertion that the fact is true (see, e.g., Vald Nielsen § 132).

Determining whether any, and if so what, representation was made by a statement requires (1) construing the statement in the context in which it was made, and (2) interpreting the statement objectively according to the impact it might be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee (ibid.). The latter step will include considering whether the alleged representation has “the character of a statement upon which the representee was intended, and entitled, to rely” (Vald Neilsen § 138); or, as it has also been expressed, “whether the representee is entitled to take the statement seriously rather than with a pinch of salt”: Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises [2018] EWHC Civ 1857 (“Nederlandse”) § 91.

Mr Bell cites a passage from Grant and Mumford, “Civil Fraud” (1st ed., 2018) for the proposition that statements, typically by vendors, which are put in general terms may be incapable of constituting actionable representations: they cannot reasonably be understood as containing statements of fact upon which the counterparty should rely. The authors state:

Context is likely to be significant:

As set out in Vald Nielsen:

It may be necessary to read or construe different statements made at different times together, in order to understand their combined effect as a representation (Vald Nielsen § 142, citing Spencer, Bower & Handley, “Actionable Misrepresentation”, 5^th ed., § 4.24).

A statement of opinion is not in itself actionable. However, as indicated in Clerk & Lindsell (23^rd ed.) §17-13, a statement of opinion will “invariably” be regarded as incorporating an assertion that the maker does actually hold that opinion.

At least where the facts are not equally well known to both sides, a statement of opinion by one who knows the facts best may carry with it a further implication of fact, namely that the representor by expressing that opinion impliedly states that he believes that facts exist which reasonably justify it: Vald Nielsen § 134 citing Clerk & Lindsell § 17-14, where the authors state:

A person may also be guilty of misrepresentation by conduct. There is no separate rule for representations by conduct; the relevant misrepresentation must be one that can be articulated or “spelled out from conduct” in the same way that an implied representation is “spelled out from words”: Leeds City Council v Barclays Bank Plc [2021] EWHC 363 (Comm) §§ 131-132.

Silence by itself cannot found a claim in misrepresentation, but an express statement may impliedly represent something. The “court has to consider what a reasonable person would have inferred was being implicitly represented by the representor's words and conduct in their context”: Vald Nielsen § 136, citing IFE v Goldman Sachs [2006] EWHC 2887 (Comm); [2007] 1 Lloyd's Rep 264, § 50. As with express representations, this involves considering whether a reasonable representee in the position and with the known characteristics of the actual representee would reasonably have understood that an implied representation was being made and being made substantially in the terms or to the effect alleged: Vald Nielsen § 136.

As regards non-disclosure, the question is whether a reasonable representee would naturally assume that the true state of facts did not exist and that, had it existed, he would in all the circumstances necessarily have been informed of it. This should not, however, water down the requirement that there must be clear words or clear conduct of the representor from which the relevant representation can be implied: Vald Nielsen § 136, citing Property Alliance Group Ltd v Royal Bank of Scotland PLC [2018] EWCA Civ 355; [2018] 1 WLR 3259.

The representor must, however, understand that he is making the implied representation and that it had the misleading sense alleged. A person cannot make a fraudulent statement unless he is aware that he is making that statement: Vald Nielsen § 137. It is also necessary “to show that the representor intended his statement to be understood by the representee in the sense in which it was false” (Goose v Wilson Sandford & Co [2001] Lloyd's Rep PN 189 § 41 per Morritt LJ).

A defendant may also be liable for representations made by a third party if he manifestly approves and adopts those representations, and the other elements of the tort of deceit are satisfied against him. If so, then he will be liable as a primary tortfeasor, not merely on an agency basis. In Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 (“Bradford”), Viscount Maugham put it in this way:

In Vald Nielsen, Jacobs J referred to the test in Bradford and said:

Jacobs J went on to find (at §§ 383-386) that two co-defendants (Mr Baldorino and Mr Mantell) had approved and adopted the fraudulent misrepresentations in two emails by another co-defendant (Mr Bennett), albeit that they were only copied on one of the emails. The judge considered that it was “improbable that Mr. Bennett would not have told the other Defendants about the request [in the first email], or that he would acted [sic] alone in deciding how to respond”. Jacobs J had “no doubt that both Mr. Baldorino and Mr. Mantell were comfortable with Mr. Bennett providing figures, on 20 April [the first email], which were out of date and which did not represent their genuine and current views as to the prospects of the company” and that it was “overwhelmingly likely that all aspects of Mr. Bennett’s response on 3 June were agreed by all of the Defendants”.

Notwithstanding the focus on agreement in the passages to which I have referred (which may have been relevant also to the claim of unlawful means conspiracy), I do not read Jacobs J’s judgment as suggesting that the approval and agreement need not be communicated to the representee in order for the approving and agreeing party to be liable in misrepresentation. The need for there to be such communication is consistent with the starting point of Jacobs J’s analysis of the law of deceit: “A representation is a statement of fact made by the representor to the representee…” (§ 132). That, in my opinion, is the significance of “manifestly”: the approval and agreement of the party alleged to be liable must have been manifested or communicated to the claimant.

Whether a representation is treated as continuing at the moment it is acted on is a matter of interpretation of the representation. A representation made during the course of negotiations with a view to inducing the representee to enter into the contract will generally be characterised as continuing to the point when the contract is concluded, and the general principle is that a representation will be regarded as continuing until fully acted upon: European Real Estate Debt Fund (Cayman) Ltd (in liquidation) v. Treon [2021] EWHC 2866 (Ch) (“ERED”) §§ 353-354.

A classic example of this type of continuing representation is a representation made during the course of negotiations in relation to the turnover of a business, which - given its nature - is normally treated as continuing up to the date of the sale of the business: With v O’Flanagan [1936] Ch 575, 580-581; Briess v Woolley [1954] AC 333, 344. However, as a matter of interpretation a representation may be treated as limited to a statement of the facts as they stand at the time the statement is made: ERED § 353. It will depend on what the representation is construed as meaning in the context in which it is made.

The representation must be false. A representation may be true without being entirely correct, provided that it is substantially correct and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimants to enter into the contracts: Avon Insurance v Swire Fraser [2000] Lloyd's Rep IR 535 § 17.

The representor must have known the representations to be false, or have had no belief in their truth, or have been reckless as to whether they were true or false: Derry v Peek (1889) 14 App Cas 337.

The defendant’s motive is irrelevant. "If fraud be established it is immaterial that there was no intention to cheat or injure the person to whom the false statement was made": Clerk & Lindsell § 17-20, citing Bradford at p.211. What is required is an absence of belief in truth: Vald Nielsen § 147.

The ingredient of dishonesty (in the above sense) must not be watered down into something akin to negligence, however gross (Vald Nielsen § 148). The test is subjective, and it is not sufficient that any reasonable or honest person would regard the defendant as dishonest (ERED § 363). However, the unreasonableness of the grounds of the belief, though not of itself supporting an action for deceit, will be evidence from which fraud may be inferred (Vald Nielsen § 148, citing Derry v Peek at p.376).

The representor must have intended to induce the representee to act as on the representation, though the authorities indicate that it is not necessary for the representor to have intended the representation to be acted on in the specific way in which it was (resulting in damage to the representee): see Vald Nielsen §§ 150-151.

The representee must show that he in fact understood the statement in the sense (so far as material) which the court ascribes to it, and that, having that understanding, he relied on it (Vald Nielsen § 152). As Mr Bell says, that point is of particular significance in the case of implied representations.

The onus of proof is on the representee to show that the misrepresentation was “actively present in his mind” when he made the decision to enter into the transaction (Vald Nielsen § 154, ERED § 368, 370).

It is not necessary that the misrepresentation be the sole cause of the representee entering into the transaction on the terms he did; it need only be a cause: Vald Nielsen § 155, citing Hayward v Zurich [2016] UKSC 48 § 33. The question is whether the representation was a matter of some significance in the decision to take the course of action in question (Vald Nielsen § 157, ERED § 371).

Reliance can include cases where the representee is induced to persevere in a decision that it has already taken: see Barton v County NatWest [1999] All ER (D) 782 §§ 59-60, quoting Australian Steel & Mining Corp v Corben [1974] 2 NSWLR 202, 209 per Hutley JA. (See also Edwards v Ashik [2014] EWHC 2454 (Ch) §§ 36-37.)

The representee, having shown that the representation was actively present in his mind, may be assisted by an evidential presumption of fact that a representee will have been induced by a fraudulent misrepresentation intended to cause him to enter the contract: BV Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises [2019] EWCA Civ 596 § 43. It has been stated that that inference will be “very difficult to rebut”: ibid., citing Hayward § 43.

“However, it remains the case that the “tribunal of fact has to make up its mind on the question whether the representee was induced by the representation on the basis of all the evidence available to it”: ibid., at §§ 25 and 43. If the representation is of “no real significance, then a court will decline to hold that it was one of the reasons which induced the contract”: Vald Nielsen § 157.

The facts that the representor expects the representee to consider the information he provides and apply the representee’s own experience and judgment when considering it, and that the representee does so, do not of themselves negate intended or actual reliance. The questions remain whether the representee intended the representee to place reliance on the information provided and whether the information played a real and substantial part in inducing the representee to act: see, e.g., Ali v Abbeyfield V.E [2018] EWHC 669 (Ch) §§ 144-148.

It is no answer to a claim in fraud that the representee could have discovered the falsity of the statement by exercising reasonable care and skill: see Standard Chartered Bank v Pakistan National Shipping Corp (Nos. 2 and 4) [2003] 1 AC 959, §§ 10-18; Hayward § 39; Vald Nielsen § 158; ERED § 372.

The representee must show that it has suffered loss as a result of the fraud. If the claimant would have acted in the same way even in the absence of fraud, the claim will fail: ERED § 374.

An agency relationship arises either (a) by “the conferring of authority by the principal on the agent, which may be express, or implied from the conduct or situation of the parties”, or (b) “retrospectively, by subsequent ratification by the principal of acts done on the principal’s behalf”: Bowstead & Reynolds on Agency (22^nd ed.) (“Bowstead”) § 2-001.

Conferral of authority will be express where the principal appoints the agent, whether in writing or orally, to act as his agent and the agent acquiesces. An agency relationship may be implied in circumstances where “one party has acted towards another in such a way that it is reasonable for that other to infer from that conduct assent to an agency relationship”: Bowstead § 2-029. As stated in Chitty on Contracts (34^th ed.) (“Chitty”) § 21-029:

Mr Bell submits that authority to act illegally will not usually be implied, citing Bowstead § 2-025 and the passage from Pickard referred to in § 421 below. However, the principal authority Bowstead cites on this point is the statement of the Privy Council in Mackay v Commercial Bank of New Brunswick (1874) LR 5 PC 394, 411 quoted in § 389 below (as quoted by Lord Macnaghten in Lloyd v Grace Smith: see in particular the passage starting “it may be generally assumed”). However, when read in full, those observations in fact indicate that a broad approach should be taken when construing the scope of an agent’s authority, so as to avoid relieving the principal of liability for fraudulent acts committed within the scope of a general authority given to an act.

The question whether or not a particular relationship is that of agency “depends upon what the parties have in substance agreed, rather than the label which they choose to place on it”: UBS v Kommunale Wasserwerke Leipzig [2017] EWCA Civ 1567 § 87 (cited in Zedra Trust [2019] EWHC 2191 (Comm) § 32). Further, what matters is not the parties’ subjective understanding but whether, objectively, authority has been conferred to act on the principal’s behalf (Freeman & Lockyer v. Buckhurst Park Properties [1964] 2 QB 480, 502-503).

Where the existence of an agency relationship is sought to be implied from conduct, “it must be fatal to the implication of an agency relationship if the parties would have or might have acted as they did in the absence of such a relationship”: The Magellan Spirit [2016] 2 Lloyd’s Rep 1 § 29. Further, as stated in out in UBS v Kommunale Wasserwerke Leipzig:

It is possible to prove that authority has been conferred without direct evidence. As set out in Monde Petroleum SA v Westernzagros Ltd [2016] EWHC 1472 (Comm) § 203:

Counsel for Mr Bell also referred to Bowstead § 1-004 in support of the proposition that a non-owner of property can contract to sell the property with the owner’s consent without necessarily being the agent of the owner. Bowstead states:

Bowstead cites as an example Foster v Action Aviation Ltd [2014] EWCA Civ 1368 § 38. The question of agency which arose there was whether the seller of an aircraft was acting for the owner of the aircraft, or the beneficial owner of the company which owned the aircraft. The Court of Appeal agreed with the first instance judge in “seeing no reason to depart from the usual presumption that, if a seller is acting for an agent at all, he is likely to be acting for the owner of the subject-matter of sale”. The Court of Appeal acknowledged that it was “not … necessary to go to the length of holding that the owner of the thing sold is always a party to a contract of sale, since sellers often contract to sell goods which they do not own at the time of the contract. But on the basis that it is common ground that the seller was an agent, that seller must be acting for the owner and thus be able to transfer title”.

As it was common ground in Foster that an agency relationship existed, the authority is of limited assistance in the present case. However, the general point Bowstead makes is clearly logical: if an asset is sold via a chain of contracts, from A to B then to C, then B will not have A’s authority to bind A to a contract with C, because no such contract will arise or be necessary. Further, as Bowstead states in § 8-002:

Conversely, however, as Bowstead’s examples of the solicitor and estate agent illustrate, it is possible to have authority to negotiate a transaction or otherwise communicate with third parties on a principal’s behalf about it without having the authority to bind the principal to the transaction. An estate agent or solicitor typically will not have the seller’s authority to bind the seller to a sale: the seller will enter the contract to sell personally and directly. Bowstead later refers (§ 8-196, Illustration 22) to the facts of Armstrong v Strain [1952] 1 KB 232:

If, however, the agent had known of the unsoundness and acted fraudulently, I see no reason why the principal could not then have been liable (subject to the point discussed under heading (iii) below). Even though the agent no doubt lacked authority to bind the principal to the contract of sale, he had authority to negotiate the proposed terms of the sale on the principal’s behalf and, in doing so, to make representations on the principal’s behalf. Similarly, a solicitor may be authorised to make representations to a third party in the course of negotiating a transaction even if the solicitor lacks authority to conclude the transaction itself.

Whether any such authority to make representations has actually been conferred – particularly in a case where the owner of the asset does not go on to contract with the buyer – must be a question of fact in each case. If A agrees to sell to B, who in turn sells to C, A and B being arm’s length commercial parties (as in the case of a commodity sale transaction, for example), then it is unlikely that A will give any authority to B to negotiate with or make representations to C. The position may, however, be different if A and B are co-owners of an asset and B is, in substance, arranging the sale of both of their interests.

Mr Bell submitted that he could not be liable for a fraudulent misrepresentation made by Mr Martin unless Mr Martin had Mr Bell’s authority to act fraudulently. For the reasons which follow, I do not accept that submission.

Bowstead states at 8-177:

In the footnote to (b), the authors refer the reader to the commentary to article 74 of Bowstead. Article 74 states that “An act of an agent within the scope of the agent’s apparent authority does not cease to bind the principal merely because the agent was acting fraudulently and in furtherance of the agent’s own interests”. The commentary states inter alia that:

“for the principal to be responsible under agency principles the agent must normally have been acting within the scope of the agent’s actual or apparent authority. It is a well-known proposition that the mere fact that the principal by appointing an agent gives that agent the opportunity to steal or otherwise to behave fraudulently does not without more make the principal liable.”

Actual authority has been discussed above. Apparent or ostensible authority arises “Where a person by words or conduct represents to a third party that another has authority to act on his behalf”: Chitty § 21-063. The requirements for representations giving rise to apparent or ostensible authority are:

I was referred to several cases about when a principal is liable for the deceit of his agent, which Mr Bell argued either supported or did not contradict his submission. Some were cases of actual authority, some of ostensible authority.

In Lloyd v Grace Smith [1912] AC 716, the House of Lords held a firm of solicitors liable for a fraud committed by its managing client, whereby he deceived a widow into signing properties over to him, which he then disposed of for his own benefit. The leading judgment was given by Lord Macnaghten, with whom Earl Loreburn and Lords Atkinson and Shaw agreed. A key question was whether the effect of Barwick v English Joint Stock Bank LR 2 Ex 259 was that a principal was not liable where an agent committed a fraud for the agent’s own benefit. Lord Macnaghten held the answer to be no, and considered Barwick to mean that:

Lord Macnaghten cited with approval the Privy Council’s decision in Mackay v Commercial Bank of New Brunswick (1874) LR 5 PC 394, as follows:

Lord Macnaghten also referred to observations by Lords Selborne and Blackburn in Houldsworth v City of Glasgow Bank (1880) 5 App. Cas. 317, including as follows:

I have quoted these passages at some length because they indicate, in my view, that the court in Lloyd v Grace Smith regarded the question before it as falling squarely within the realm of the law of agency, while further indicating that the scope of an agent’s authority would where appropriate be given a generous interpretation (including to avoid a principal being able to avail itself of an agent’s fraud without incurring liability), and that broadly speaking scope of authority and course of employment would amount to the same thing. Further, I explain below, nothing in the Ocean Frost contradicts these statements of principle in Lloyd: on the contrary, Lloyd is regarded as authoritative.

In Briess v Woolley [1954] AC 333, a company director had no authority to make representations to act in relation to the sale of shares prior to the company’s annual general meeting. He had nevertheless made fraudulent misrepresentations in that period. He was then appointed at the general meeting to “take up the matter further with that company with a view to completing the transaction” (as the minutes recorded). It was not clear whether the director had in fact made any further representations after the date of the annual general meeting. The House of Lords found that the shareholders were liable for the director’s fraud because the fraudulent misrepresentations were made within the scope of the negotiations that the director was authorised at the general meeting to conduct. Even if no further misrepresentations had been made after authority was conferred, the representations that had been made could be treated as continuing representations.

Lord Oaksey said at 344 that:

Lord Reid stated at 347-348:

Lord Tucker noted that:

Similarly, Lord Cohen said:

The decision was accordingly based on the finding that the director had actual authority to conduct the negotiations; and the company was liable for a fraud committed in the conduct of those negotiations.

As regards the liability of a principal for a misrepresentation made prior to his conferring authority on the agent, Lord Tucker held that:

Mr Bell makes the points that:

Mr Bell’s point (i) above is incomplete, since what was undisputed in Briess was that the shareholder would be liable if both (a) the agent had been given sufficient relevant authority and (b) the agent had gone on to make representations after the date of his appointment as an agent. Lord Reid made clear, at p.346, that the first question to be decided was the extent of the authority conferred on Mr Rosher by the shareholders, the only source of such authority being that conferred at the general minute in question. Lord Reid went on to say, on that issue:

The passages quoted above from the speeches of Lords Tucker and Cohen also make clear that the first issue on the appeal was the extent of the authority conferred on the agent, Mr Rosher; and their conclusion was that he had authority to make such representations as he might think desirable or necessary to achieve a sale.

Mr Bell’s point (ii) above is in my view incorrect and/or beside the point. The difference between reliance-based torts and other wrongs is that liability for the former depends on actual or ostensible (apparent) authority, and it is not possible to rely on ordinary principles of vicarious liability insofar as they would extend to matters beyond the agent’s authority. However, as the passages quoted above show, Briess is squarely based on the agent’s actual authority, as specifically ascertained by interpretation of the minute of the general meeting at which such authority was conferred. Lord Reid’s speech included the following passage:

As to Mr Bell’s point (iii), the House of Lords in Briess treated the scope of Mr Rosher’s authority as a question of fact to be determined by construing the minute of the general meeting at which he was appointed. The House concluded that he was authorised to make such further statements and representations and to give such answers to any questions and do such other things as he should think desirable or necessary to achieve a sale. It was conceded that such authority was wide enough to render the principal liable for a fraudulent representation made pursuant to that authority. In my view nothing in the later case law holds (in substance, let alone expressly) that the House of Lords was wrong to accept that concession.

Four more recent cases cited before me were Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462 (PC); Armagas Ltd v Mundogas SA (The “Ocean Frost”) [1986] AC 717; Dubai Aluminium Co v Salaam [2002] UKHL 266; [2003] 2 AC 366; and Winter v Hockley Mint (also known as Hockley Mint v Ramsden) [2018] EWCA Civ 2480.

In Kooragang, the defendants' employee Rathborne, a valuer, carried out valuations on the defendants' behalf for a group of companies which was a client of theirs. Those valuations were made with the defendants' knowledge and authority. The group of companies failed to pay for the valuations and the defendants instructed the valuer not to carry out any more work for the group. However, the valuer then became a director of one of the group's member companies and, despite the defendants' instructions and without their authority or knowledge, carried out about 30 valuations for the group, using the defendants' stationery and signing in the defendants' corporate name. Some of these valuations were negligent, and the claimant group company sued the defendants. The action failed. Lord Wilberforce, delivering the judgment of the Privy Council, said:

Hence the valuations in question were outside the scope of the agent’s actual or ostensible authority because they had nothing to do with the principal’s business and were in no sense authorised by the principal. Kooragang provides no analogy to the present case. Ivy’s claim against Mr Bell does not depend on Mr Bell having authorised Mr Martin simply to make “representations” as an abstract concept: the allegation is that he authorised Mr Martin to make representations to Ivy in order to bring out the sale of the business in which he, Mr Bell, was a 50% shareholder; and that the representations Mr Martin made were made pursuant to and within the scope of that authorisation. Kooragang emphatically does not decide that authority cannot be given to carry out acts of a particular class, with the result that a principal can be liable only where it has specifically authorised each and every particular act the agent undertakes. Indeed, such an approach would be nonsensical.

In The Ocean Frost, the defendant’s chartering manager Mr Magelssen was authorised to sell a ship to the plaintiff. He also had authority to enter into a simultaneous 12-month charterparty to be granted by the plaintiff to the defendant. However, having accepted a bribe, Mr Magelssen in fact purported to bind the defendant to the sale of the ship and a 3-year charterparty from the plaintiff to the defendant.

The Court of Appeal held, first, that the 3-year charterparty was outside the scope of Mr Magelssen’s general authority, and that he had no ostensible authority to bind the defendant to it. In the absence of any holding out by the defendant, Mr Magelssen could not confer ostensible authority on himself by his own assertion to the plaintiff that he had authority to enter into the 3-year charterparty (see, e.g., p.732F-g per Robert Goff LJ).

Secondly, the plaintiff argued that Mr Magelssen did have authority to negotiate the sale of the ship; that his fraudulent representation that he had authority to enter into the 3-year charterparty was made in the course of that authorised transaction; and that the representation accordingly bound the plaintiff (see, e.g., p.736D-E, 737E, 750C-E). The Court of Appeal rejected that argument, on the basis that the representation about the 3-year charterparty fell outside Mr Magelssen’s authority to negotiate the ship sale. There was no doubt Mr Magelssen did have authority to make representations in relation to the ship sale itself:

Thus a representation to the effect that Mr Magelssen had authority to enter into a 3-year charterparty could not realistically be regarded as a representation made in the course of the negotiations, which he was authorised to conduct, for the sale of the ship:

In the second sentence of the last paragraph quoted above, the words “whether the contract is authorised or unauthorised and whether the misrepresentation represents that the servant has authority or relates to some other matter” might conceivably be thought to suggest that Stephenson LJ considered that a fraudulent misrepresentation that had not been specifically authorised would fall outside the agent or employee’s authority even if it related to a contract which the employee/agent had been authorised to negotiate. However, that would in my view be inconsistent with the foregoing parts of his reasoning, which focus on the scope of the transactions which the employee is authorised to enter into, rather than the difference between a fraudulent and a non-fraudulent representation. I understand Stephenson LJ’s point to be, rather, that a fraudulent representation made in relation to a proposed contract cannot be regarded as within the scope of a general authority to make contracts regardless of (a) whether or not the contract in question is authorised and (b) whether the representation relates to the contract in question or (as was the case on the facts before the court) some other contract. I do not understand any of the members of the court to have rested their decision on the proposition that, unless specifically authorised, a representation made in the course of negotiating an authorised transaction will fall outside the scope of an employee or agent’s authority merely by reason of being fraudulent.

Similarly, in the House of Lords, Lord Keith quoted without disapproval Sir Wilfrid Greene MR’s statement in Uxbridge Permanent Benefit Building Society v. Pickard [1939] 2 K.B. 248, 254-255 that:

Hence the reason why the representation in Ocean Frost about the 3-year charterparty did not bind the defendant was not that it was made fraudulently: the reason was that it related to a wholly distinct and different transaction from the transaction (the sale of the ship) which Mr Magelssen was authorised to negotiate.

Mr Bell suggests that in Lloyd v Grace Smith [1912] AC 716, 735-736, which is followed in Briess, Lord Macnaghten did not draw a distinction between agency and vicarious liability principles, citing for that proposition statements by Lord Keith in The Ocean Frost at p.781E.

There is, however, no suggestion in the Ocean Frost that the Court of Appeal or House of Lords there considered that Lloyd v Grace Smith was either wrongly decided or inapplicable to cases of deceit. On the contrary, both the Court of Appeal and the House of Lords treated Lloyd as a leading case and as setting out the true principle that a principal will be liable for an agent’s fraud only if committed in the scope of his authority. Hence, for example:

Thus rather than disapproving Lloyd (as Mr Bell suggests was done) on the ground that it failed to distinguish principle of agency and vicarious liability principles, the Ocean Frost treated it as correctly stating the applicable principle in terms of the agent’s authority.

Moreover, there is no suggestion in the Ocean Frost that the approach in Lloyd to determining the scope of an agent’s actual authority, set out by Lord Macnaghten by reference to Mackay, was incorrect. Nor does anything in Lord Keith’s speech in The Ocean Frost in any way undermine the approach taken in Briess (which was not cited in The Ocean Frost).

Mr Bell also submits that The Ocean Frost rejects the proposition that it is enough to show that the agent conducted dishonestly what he was authorised to do honestly, and that the argument to that effect is based on vicarious liability reasoning applicable to torts in general but not to deceit. Mr Bell relies on the following statements by Goff LJ and Dunn LJ, the first of which must be quoted at some length in order to understand precisely what proposition Goff LJ did not accept:

The proposition which the Court of Appeal rejected in these passages was the notion that the principal could be liable for a representation made outside the scope of the agent’s actual or ostensible authority, merely on the basis that the representation was made in the course of his employment. On the facts of The Ocean Frost, as summarised above, the agent’s representation about his authority to enter into a 3-year charterparty could be regarded as having been made in the course of his employment; however, it was clearly outside his actual and ostensible authority because he had no actual authority to enter into such a charterparty, nor had his employer held him out as having such authority: and he equally can have had no actual or ostensible authority to warrant that he possessed any such authority. Nothing in these passages does, or could, purport to depart from the approach taken in both Lloyd and Briess to the ascertainment of the scope of an agent’s actual authority.

The error in Mr Bell’s approach to the feasible scope of actual authority is illustrated by the fact that, on that approach, the claimant in Briess would have lost: on the basis that (a) the shareholders did not specifically authorise the particular fraudulent representation made (or the making of fraudulent representations in general), and (b) no ostensible authority was established. That would be an unprincipled result in circumstances where the shareholders had authorised Mr Rosher to do whatever he considered necessary to bring out the sale (and, albeit this is not a necessary ingredient, had then taken the benefit of the sale).

The judgments/speeches in Pickard and The Ocean Frost focus in places on ostensible as opposed to actual authority, or even positively suggest that a principal will not give actual authority to make a representation fraudulently (see, in particular, Pickard at p.254 “When a person is put in that position his actual authority and his ostensible authority are in one sense the same, because the ostensible authority of a solicitor's clerk put in such a position coincides with the actual authority which he is given. But the ostensible authority may go a little further, and for this reason, that it is not within his actual authority to commit a fraud”). However, these cases do not in my view lay down any rule of law that liability in a deceit case can be founded only on ostensible, as opposed to actual, authority. That would be inconsistent with the reasoning of the House of Lords in Lloyd v Grace Smith, based as it is, at least in part, on actual authority. It would also be inconsistent with Briess, where the House of Lords’ conclusion on the question of authority was premised solely on the actual authority derived from the general meeting (as evidenced in the minute of it), and there was no evidence or reasoning based on reliance or ostensible authority. There is no sign that the shareholders had in fact held Mr Rosher out as having authority to negotiate on their behalf, and nor would his position as managing director involve ostensible authority to negotiate a sale of shares by a shareholder in the company. Mr Bell accepted, in his written closing (§§ 187 and 190), that liability in deceit can be founded on either the actual or the ostensible authority of the agent.

Dubai Aluminium concerned the liability of two solicitors’ firms in respect of dishonest assistance putatively given by one of their partners. The House of Lords found inter alia that the firms were vicariously liable for the partner’s conduct. At § 122, Lord Millett referred to Denning LJ’s judgment in Navarro in support of the proposition that “The vicarious liability of an employer does not depend upon the employee’s authority to do the particular act which constitutes the wrong”. Lord Millett then stated:

As pointed out by counsel for Mr Bell in his skeleton argument, the reasoning in that case turned on the application of the first limb of section 10 of the Partnership Act 1890, which provides that a firm is liable for loss or injury caused to a third party as a result of any wrongful act or omission of any partner "acting in the ordinary course of the business of the firm". However, I do not accept Mr Bell’s submission that it was “recognised” in Dubai Aluminium that the claim could not succeed based on authorisation “as the wrongdoing partner had not been authorised to commit fraud”. The case contains no such determination or observation.

In Winter, the Court of Appeal considered the proper legal test for determining whether a principal is liable for an agent’s deceit. The case concerned the supply of equipment by Mr Winter trading as Erskine Hathaway. The equipment was sold by Erskine Hathaway to BNP Paribas, which then leased it to Hockley Mint. Erskine Hathaway paid rebates to Hockley Mint out of the profit from the sale to BNP Paribas. Mr Ramsden negotiated the terms of the tri-partite transactions on behalf of Erskine Hathaway, and in the course of those negotiations he dishonestly represented to Hockley Mint that the rebates were postage credits ultimately paid by Royal Mail and would be paid during the entire period of the lease. The court held that:

That cannot be controversial: a principal will be liable for fraudulent misrepresentations made by his agent if the agent was expressly authorised to make the specific misrepresentations. The court added that:

The Court of Appeal referred at § 52 to the passages of Lord Keith’s judgment in The Ocean Frost that are cited above, before concluding that:

The Court of Appeal in Winter accordingly rejected the broader test applied at first instance (which it summarised as “whether it is just for the employer to bear the loss, and whether there was a sufficiently close connection between the employee’s or agents wrongdoing and the acts he was employed to perform” (§ 61)). The Court also rejected at § 65 a proposed gloss on The Ocean Frost test to the effect that “a principal will always be liable for the dishonesty of his or her agent where the agent has acted with the intention of benefiting the principal”.

Accordingly, I do not consider that any of these authorities supports Mr Bell’s proposition that a principal cannot be liable for his agent’s fraudulent misrepresentation unless the principal has authorised it specifically or has given specific authority to make fraudulent misrepresentations in general. It is sufficient for the fraudulent misrepresentation to have been made in the course of a negotiation which the agent had the principal’s actual or ostensible authority to carry out.

Although this topic does not itself form part of the law relating to deceit, I include it here because the question of whether or not Mr Bell was party to the SPA forms part of the context for considering whether Mr Martin made representations with Mr Bell’s authority.

The starting point is the general principles of contractual interpretation, which were summarised in Arnold v Britton [2015] UKSC 36; [2015] AC 1619:

As to the admissibility of pre-contractual negotiations, Leggatt LJ in Merthyr (South Wales) Ltd (FKA Blackstone (South Wales) Ltd) v Merthyr Tydfil County Borough Council [2019] EWCA Civ 526 said:

A contract may set out factual or other matters on the basis of which the parties agree to contract:

The liability of a principal under a contract not naming him was considered in Filatona (cited in § 13 above). The issue there was whether a Mr Chernukhin was entitled to exercise contractual rights under a shareholders’ agreement (“SHA”) which had been entered into by his nominee, Ms Danilina, in circumstances where the counterparty to the agreement, Mr Deripaska, was aware that Ms Danilina was acting as Mr Chernukhin’s agent. The Court of Appeal framed the enquiry in the following terms:

The facets of the SHA relied upon in support of the argument that Mr Chernukhin could not sue thereunder included that:

However, Simon LJ concluded:

Among other authorities, Simon LJ cited the statement of Lord Diplock in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717G (in the context of the right to exclude a remedy for breach of contract for the sale of goods or for work and labour) that:

Males LJ agreed, observing at §§ 122-123 that while the law recognises in the context of undisclosed principals a “beneficial assumption” to the effect that the counterparty “is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract” unless the terms of the contract or background circumstances expressly or impliedly exclude that possibility (Teheran-Europe Co Ltd v. S.T. Belton (Tractors) Ltd [1968] 2 QB 545, 555 per Diplock LJ), “there is no need to resort to any such assumption” in the case of a principal whose existence and identity are known to the counterparty. That is because, where there is a disclosed principal, “All parties know the true position and can be taken to agree with it. If the counterparty did not agree to contract with the principal, he would say so”. Males LJ added:

More recently, an issue in Kaefer Aislamientos SA de CV v AMS Drilling Mexico [2019] EWCA Civ 10, [2019] 1 WLR 3514 was whether the judge at first instance was correct to find that the terms of the contract were neutral as to whether the contract was made with an undisclosed principal in circumstances where those terms included an entire agreement clause. The Court of Appeal considered that the terms of the agreement were not neutral due to the presence of the entire agreement clause. The Court of Appeal held that “Where there is an entire agreement clause this is evidence which tends to negative any suggestion that a party intended to sue or be sued by a person other than the counterparty in respect of disputes under the agreement” (§ 113); and

As noted earlier, Mr Martin admits making both of the General Representations, though adding the rider quoted in § 331 above to the effect that he was not involved in the “calculation and assessment” of the EBITDA figure. Mr Bell made no admission on this point, but at trial did not accept that these representations were made.

Ivy alleges that Mr Martin made the EBIDTA Representation:

I find that Mr Martin did make the statements referred to in (i) and (ii) above, and the EBITDA figure was the express basis of Ivy’s offers as indicated in (iii) above. This third point does not, in my view, constitute in itself a representation by Mr Martin. It meant Mr Martin was well aware that Ivy understood the EBITDA to be at that level, but representations were potentially made only to the extent that Mr Martin encouraged and fostered that belief by the alleged representations referred to in (i) and (ii) above and at the Prague Meeting.

As to whether these statements by Mr Martin constituted representations, the Defendants submit that:

As to those various points:

The Defendants also suggest that the fact, if it be such, that Mr Martin said that he was comfortable with the figure did not amount to Mr Martin making a representation to Ivy that Mr Copans’ EBITDA figure was correct. I disagree. The context was a long and detailed discussion of the figures between Mr Copans and Mr Martin on 27 August 2018, as described by Mr Copans in his evidence quoted in §§ 97-98 above. Mr Copans was looking to Mr Martin to confirm whether or not Mr Copans had correctly understood the figures and what they indicated, and it was important to Mr Copans to have that confirmation given Mr Martin’s much greater knowledge of the Business. Mr Martin provided it, and in my judgment thereby made the representation I have referred to above.

For these reasons, I consider that Mr Martin did make the EBITDA Representation by the means referred to in §§ 440(i) and (ii) above.

Ivy submits that this representation, namely that the Business was profitable and/or self-sustaining from its revenue, was made in the following ways:

I agree with Ivy that the EBITDA Representation also included a representation that the Business was, at the very least, profitable and – hence – able to cover its expenses and overheads from its revenues. I also accept the evidence of Mr Copans and Mr Watt about that was said to them about profitability and sustainability: generally over time in Mr Copans’ case and during the early December 2018 visit in Mr Watt’s case. These were all representations of fact.

Mr Bell contends, first, that the existence of any such representation is directly inconsistent with what Mr Bell told Ivy in Prague, to the effect that he had lent personally or facilitated loans from third parties (including SBL) and had done so by injecting funds into the business on an ad hoc basis for working capital purposes because in some months Mr Martin required funds to cover overheads. That submissions rests on evidence from Mr Bell which I have rejected (§§ 133-135 above), and the misconceived challenge to Mr Copans’ evidence based on a highly selective reading of his witness statement to which I refer in §§ 129-130 above.

Mr Bell submits that it was obvious that the £2.5 million which Mr Copans said he understood to have been a historic loan was in fact working capital, seemingly on the basis that there was nothing else it could have been spent on. That assertion is based on part of the cross-examination of Mr Copans, in which he was asked how he understood the money would have been spent. Mr Copans realised that initially any business of this type would need substantial capital investment at the outset. Asked what he therefore believed the money had been spent on, Mr Copans referred to software and working capital. No suggestion was made to Mr Copans that that must be wrong, yet in closing Mr Bell asserted that the evidence was “simply incredible”. I see no basis for that assertion, and I reject it.

Mr Bell also relies on oral evidence given by Mr Copans, when being asked about Mr Bell’s operational involvement in the business, that Mr Martin would talk to Mr Bell whenever capital injections were needed. Mr Copans said he did not know that at the time but found out about it later. The following exchange also occurred:

Mr Copans went on to (re)state that he did not know at the time that cash injections were being made through Mr Bell; but that after the SPA had been signed, when he met Mr Martin in his office, Mr Martin told him that Mr Bell had to put in further investment to keep the business afloat. I accept that evidence.

Mr Bell also relies on a passage in the report of Mr Davidson stating:

The first sentence of this passage is obviously inconsistent with the evidence of Mr Copans and Mr Watt, and would have undermined the basis on which Ivy offered to (and did) buy the business as a viable going concern and at a price calculated by reference to an EBITDA of £1.65 million. Mr Copans confirmed that he was not the source of the statement. In examination in chief Mr Davidson said he thought he must have conflated information provided to him about the due diligence questionnaire with document separately provided about dealings between Mr Martin and Mr Bell about the business’s funding needs, and from cash books. Mr Davidson confirmed that the sentence was included in a draft prepared after a meeting on 9 September 2021 which included Mr Copans and Mr Watt, but he did not have a note or clear recollection of the meeting, save that he recalled being told that Ivy knew from the due diligence document that money had gone in. Mr Davidson could not recall whether, following his draft report, he had further discussions with Mr Copans or Mr Watt. Mr Davidson disagreed with the suggestion that his paragraph correctly reflected his instructions from Ivy and Ivy’s state of knowledge in July 2018.

It seems likely that someone at Ivy with responsibility for the litigation saw and approved at least the final draft of Mr Davidson’s report. Nonetheless, I accept Mr Davidson’s evidence that the paragraph in question must have arisen from an error. Its contents are inconsistent with clear and consistent evidence from Mr Copans and Mr Watt which I have accepted, and is inherently improbable for the reasons I have already indicated.

I conclude that Mr Martin did make the Profitability/Sustainability Representation, by the means and to the extent referred to in §§ 446 and 447 above.

I have set out earlier my findings as to what, materially, was said at the Prague Meeting. I have concluded that:

Mr Martin’s statement referred to in (ii) above impliedly repeated his representation in August 2018 that the Business was currently making EBITDA at a rate of £1.6 million per annum, and at the very least was profitable.

Mr Bell, by participating in the discussion in the way indicated in (iii) above, was, by clear implication, both (a) manifestly endorsing Mr Martin’s statement to the effect that the Business was profitable and (b) himself representing that the business was profitable. An expression of concern that Ivy would affect the earn-out (which depended on positive EBITDA) by reducing the Business’s EBITDA clearly implied that there was currently positive EBITDA of some kind, even if not at the level of £1.6 million. Moreover, I have no doubt that Mr Bell understood himself to be conveying this message to Ivy, and did so in order to help persuade Ivy to go ahead with the transaction, and preferably to do so on terms which maximised the fixed element of the price and minimised any element dependent on future EBITDA.

I conclude that both Mr Martin and Mr Bell made the Prague Profitability Representation, and that Mr Martin (at least) made the Prague EBITDA Representation. These too were representations of fact.

For the avoidance of doubt, in stating that at least Mr Martin made the Prague EBITDA Representation, I do not positively conclude that Mr Bell did not also make it. Rather, I conclude that the evidence in my view does not establish, on the balance of probabilities, that Mr Bell’s contributions to the discussion referred to in §456.iii) above implicitly included (or endorsed Mr Martin’s making of) a statement as to the Business’s current EBITDA being at the specific level commensurate with £1.6 million for the year.

The Defendants suggest that any such representations (whether the General Representations or the Prague Representations) did not continue up to the date of the SPA, particularly in circumstances where:

I do not accept the Defendants’ submissions on this matter:

The Defendants make the further submission that any earlier representation as to 2018 was overtaken by the provision by Mr Martin (via his adviser, Mr Kitto) to Mr Watt on 24 January 2019 of a balance sheet for the Business as at 31 December 2018 which showed net liabilities of the Business of £24k (even excluding what Ivy had been told was a £2.5m shareholder loan). In forwarding this schedule on to Messrs Copans and Hooja, Mr Watt stated:

The Defendants submit that Mr Copans accepted there were no dividends being drawn out, as had been stated in the DDQ (§ 4.6), and so Mr Watt’s explanation that costs were higher than income was the only possible conclusion. They point out that Ivy was aware that the balance sheet attached to the SPA did not include debts of the Business which Mr Martin himself was going to pay (including the £2.5m loan or the debt to Mr Spence). The Defendants suggest that Mr Copans accepted that when he received the December 2018 balance sheet, he was aware that the Business could not pay its debts as they fell due. Mr Copans said this in oral evidence:

Having listened to and read this passage as a whole, I understand Mr Copans to have denied, rather than accepting, that he knew that the business could not pay its debts as they fell due. He did not accept that he was positively aware, at the time, of the fact that Mr Martin was taking no money out of the company (whether as dividends or by any other means), and he was not aware that the Business could not sustain itself. Even if the Defendants were correct that by combining knowledge of the balance sheet as at 31 December 2018 with other sources of information about money being taken or not taken out of the company, it would not follow that the balance sheet led to any earlier representation about profitability being overtaken. A representation does not fall away simply because the representee is later provided with various pieces of information which, if combined, could lead to the conclusion that the representation was wrong or had ceased to be true. Further, I accept Mr Copans’ evidence that he did not draw that conclusion. It is inherently unlikely that he did: had he done so, then it would have called into question the whole premise of the deal and, quite possibly, the veracity of what he had been told. Alarm bells would have rung. Moreover, as Mr Watt pointed out, the information to be gleaned from a snapshot of assets and liabilities is limited: the fact that its liabilities exceeded its assets at a particular time did not necessarily mean that the Business was unprofitable or unable to pay its debts as they fell due.

The Defendants refer to later schedules showing a worsening net liability position, with the final version (which became Schedule 7.26 to the SPA) showing a net liability position of £53k, and suggest that Mr Davidson accepted that these clearly signalled that the Business did not have sufficient funds to pay its current liabilities. Mr Davidson did agree that the 31 March 2019 schedule indicated that, as at that date, the company did not have sufficient funds to pay its current liabilities “in the sense that the amount of the liabilities exceeds the amount of its assets”. However, Mr Davidson also said:

For these reasons, there is no merit in the Defendants’ arguments that the representations made to them were overtaken by events. Nor do I accept their submission that Ivy by the stage of the SPA knew that the representations made to it had been wrong. The evidence does not establish that, and it is improbable that Ivy would have been willing to proceed with the deal, or to do so on the same terms, had it been aware of that.

I have concluded above that Mr Martin made the General Representations (i.e. the EBITDA Representation and the Profitability/Sustainability Representation), the Prague EBITDA Representation and the Prague Profitability Representation; and that Mr Bell made (both directly and by approving the representation by Mr Martin) at least the Prague Profitability Representation.

I have set out my conclusions about the actual state of the business in section (D)(23) above. On the basis of those conclusions, all of these representations were false. The business was neither making EBITDA at a rate equivalent to £1.6 million per annum, nor any EBITDA at all. It was neither profitable nor self-sustaining: it was heavily loss-making and unable to sustain itself, instead relying on regular cash injections arranged by Mr Bell to fund ordinary operating expenses such as salaries and rent.

Even if I am wrong in my conclusions that the representations made were representations of fact, they were at least representations of opinion; and on that basis too they were false because neither Mr Martin nor Mr Bell had any genuine belief that the business was making or likely to make profits of the order of £1.6 million in 2018, nor any profit at all. On the contrary, as set out in section (iii) above, they both knew it was making heavy losses and could not meet its regular outgoings without the cash injections.

The Defendants submit that even if any of the representations were made and were false, neither of them knew that to be the position.

In the case of Mr Martin, it is submitted that:

In my view, none of those matters assists the Defendants. Any suggestion that Mr Martin might not have noticed that Mr Copans had wrongly calculated the profits as being £1.65 million rather than just under £1 million is beside the point in circumstances where Mr Martin knew the business was making no profits, let alone profits of the order of £1 million. The communications referred to in § 268 above – either sent by Mr Martin, or sent to him and which he did not dissent from – indicate that he was perfectly well aware that the Business, which he was running, was making no profits, could not pay its basic outgoings from its own revenues, and had no prospect of making any overall profit in 2018. That was also clear from the facts that he had to call on Mr Bell so regularly to arrange for more money to be put in, in order to survive; and that Mr Martin himself had taken very little money out of the business, and not enough to pay his personal expenses. I have addressed the points about access to bank statements and other data in §§ 89-94 and 462(iv)-(v) above, and do not consider that they detract in any way from Mr Martin’s knowledge as to the falsity of the representations he made. Mr Martin knew that the representations he made were untrue.

Mr Bell equally knew that the Business was making no profits and could not pay its regular outgoings from its revenues. He was party to the same communications with Mr Martin, and was himself arranging the regular cash injections. Mr Bell also clearly stated in his oral evidence that the Business was making no profits. Mr Bell accordingly knew that the Prague Profitability Representation which he made – personally and by endorsing what Mr Martin said – was untrue. Both he and Mr Martin acted dishonestly in that regard. They made these representations knowingly as part of their effort to offload onto Ivy a failed business.

The representations which I have concluded were made were each made with the intention that Ivy would rely on them. Having read and heard the evidence, I have no doubt that the Defendants wished to sell their loss-making business onto Ivy, and sought to do so by persuading Ivy that it was in fact profitable.

Mr Copans’ written evidence indicated that he relied on the representations made, both in August 2018 and at the Prague Meeting on 1 October 2018. Specifically in relation to the August discussions, he said he “wanted Barry’s confirmation on these numbers and the methodology, assumptions and rationale”. I refer below to his evidence about the Prague Meeting.

In cross-examination on behalf of Mr Bell, Mr Copans rejected Mr Martin’s suggestion that he placed no reliance on the information Mr Martin had provided:

In cross-examination on behalf of Mr Bell, Mr Copans was asked about a Skype message exchange between him and Mr Watt on 26 May 2019, during the course of which Mr Copans had expressed anger about, among other things, liabilities of the business which had not been disclosed. Mr Watt referred to a suggestion that Mr Martin and Mr Bell were already operating another brand, to which Mr Copans expressed amazement and then commented “I knew he was full of shit and lying on a lot of things but if that’s the case, I am flabbergasted”. Mr Copans gave this oral evidence in cross-examination:

Mr Bell suggests that the Skype message shows that Mr Copans did not rely on anything Mr Martin told him, including Mr Martin’s assertions about the business’s potential, and that his oral evidence was inconsistent, incoherent and untruthful. I reject those suggestions. Mr Copans’ evidence, which I accept, that was that he perceived Mr Martin as being a salesman, and is likely to have taken with a pinch of salt Mr Martin’s enthusiastic comments about the business’s future potential; but had no reason to disbelieve, and relied on, what Mr Martin had said about the business’s current performance.

Similarly, I accept Mr Hooja’s oral evidence, consistent with the written evidence I quote in § 65 above, that Ivy was not merely interested in the 21Bet brand and that it was important to Ivy that the business was already profitable:

Mr Bell submits that the Prague Representations were in any event not relied on because Mr Copans acknowledged, as quoted earlier, that “[t]he EBITDA from the prior numbers and financials was not a specific topic of conversation as this had already been agreed…”; and that Ivy would have entered into the SPA on the same terms even had no representations been made in Prague.

However, Mr Copans also said in his evidence that “the idea was to have what was essentially a brainstorming session as to how to get to a reasonable, acceptable amount of the purchase price which all parties were happy with”, and (as quoted earlier) that the whole basis of the meeting was the Business’s profitability. The representations made at the Prague Meeting thus played an important part in the process of Ivy satisfying itself that the contemplated terms of purchase were appropriate. Mr Copans in cross-examination expressly rejected the suggestion made to him that nothing that Mr Martin or Mr Bell said at the Prague Meeting made any difference to whether Ivy bought the Business. Mr Hooja similarly stated that Ivy definitely relied on representations made by Mr Bell. I do not accept that Ivy would necessarily have contracted on the same terms even without the Prague Meeting; and, even if it would have done, the representations made at the Prague Meeting (by both Mr Martin and Mr Bell) remained significant because they influenced Ivy to persevere in the course of action already in contemplation (see § 365 above).

I also consider that Mr Copans relied on Mr Martin’s statement by Skype on 1 November 2018 that the Business was currently making profits commensurate with £1.8 million per annum. That statement was made in response to Mr Copans’ specific query about what EBITDA targets the other prospective bidder was expecting. Although the specific reason for the query was to compare that bidder’s offer with Ivy’s, Mr Martin’s answer is bound to have provided reassurance to Mr Copans that the current EBITDA based on which Ivy had put forward its own bid remained realistic. Moreover, Mr Martin in my view intended the statement to have that effect, as part of his consistent strategy of giving Ivy to understand that the Business was profitable. Further, since Mr Martin’s statement was evidently active in Mr Copans’ mind, Ivy is entitled to benefit from the presumption referred to in § 366 above.

Mr Bell also suggests that any representations made were overtaken by events and not relied on. I have already considered and rejected the argument that the representations were overtaken by events. I am satisfied that Ivy was still relying on the representations when it executed the SPA.

Mr Bell submits that Ivy’s evidence was unclear as to who actually made the decision to proceed with the purchase, pointing out that the evidence of Mr Hooja and Mr Copans was in some respects confusing or self-contradictory about various individuals’ roles, and did not clearly identify who took the decision. Mr Bell highlights, for example, that Mr Watt gave evidence that he reported back to Mr Amit Jain of Cascade Global and said in his written evidence that Mr Jain was the person who made the decision to release SPA consideration funds to Mr Martin; however, neither Mr Watt nor anyone else giving evidence on behalf of Ivy was able to explain what Cascade Global was, or what their relationship with Ivy was, nor who was the decision maker at Ivy in relation to the SPA; further, Mr Watt said “I have no idea whether Mr Jain was the decision maker or not”, and that he left it to Mr Jain to decide who was the decision maker.

This is a somewhat unattractive point in circumstances where the Defendants advanced no positive case on this point in their statements of case, and nor was it raised in their openings. In any event, however, I am not persuaded by it.

First, Ivy is entitled to benefit from the presumption referred to in § 366 above. Secondly, and in any event, I infer as a matter of fact that, whoever the ultimate decision-maker was, Ivy was induced by the representations made to proceed and to do so on the terms it did. It is clear from the evidence that Mr Copans and Mr Hooja were given the job of investigating the purchase proposition and negotiating the terms of any deal. Mr Copans referred in his witness statement to internal discussions of the matter (e.g. “We continued to discuss the matter internally …”), without specifying who was involved in the discussions, and Mr Hooja in his original affidavit similarly stated that “ITL”, i.e., Ivy, entering into the SPA and valued the business in reliance on and as result of what Mr Martin had said and the information he had provided. It is overwhelmingly likely that the decision-maker acted on the recommendations made by Mr Copans and/or Mr Hooja, which in turn were induced by the Defendants’ misrepresentations; and I conclude that that is what happened.

In case I am wrong in my conclusion that Mr Bell himself made the Prague Profitability/Sustainability Representation (directly and/or by manifestly approving Mr Martin’s making of that representation), I shall consider whether, alternatively, Mr Martin acted as Mr Bell’s agent in himself making the General Representations and the Prague Representations.

That issue itself arises on the alternative bases that Mr Bell (a) was or (b) was not a party to the SPA as seller thereunder of his admitted 50% beneficial interest in the shares in the companies comprising the Business. It is logical therefore to be begin by considering whether or not Mr Martin had authority to, and did, bind Mr Bell to the terms of the SPA. That issue is also central to the question of whether Mr Bell can have any liability to Ivy under the warranties in the SPA.

The starting point is that the negotiations for the sale of the Business to Ivy were conducted in the context of Mr Martin and Mr Bell each owning a 50% beneficial interest in the shares in the companies comprising the Business, as all parties (Ivy, Mr Martin and Mr Bell) knew. Ivy submits that the only mechanism by which Mr Bell’s interest could have been sold to Ivy is by Mr Martin acting as his agent; there is no other way that the transfer could have happened. Ivy draws attention to parts of the hearing before the Court of Appeal in November 2020 (on Ivy’s application for permission to amend), at which Henderson LJ asked “How on earth would his beneficial interest pass without some form of agency?” and Arnold LJ similarly asked “how does the beneficial interest pass from your client to Ivy unless there is an agency?” In response, Mr Bell’s leading counsel said there was a triable issue as to “whether or not Mr Martin had authority, actual or ostensible, to deal with his shares as if he was the 100 per cent beneficial owner of all those shares”, and submitted that “[i]t is not enough simply for Mr Martin to be able to deal with Mr Bell’s shares. Mr Martin has to have had an agency agreement in place to enable him to enter into the agreement on behalf of his principal, and we say that is a distinct difference”. Peter Jackson LJ observed that he was not sure he understood the difference.

I have already outlined in § 13 above the conclusions reached in the Court of Appeal’s judgment. As part of its judgment, the court also noted that:

Ivy submits that Mr Martin must have been dealing with the shares as Mr Bell’s agent in order for his 50% beneficial interest to pass to Ivy under the SPA and that, in any event, that is supported by the evidence. Ivy alleges that there was an express conferral of authority since on Mr Bell’s own evidence he had “lost interest in 21Bet entirely” by 2018 and he told Mr Martin “just to get on with a sale if that is what he considered best”. That is also how Mr Martin understood the situation:

“That's true, isn't it, that Mr Bell said to you if you want to sell the business you, Barry, get on with it?

A. Yeah, probably. It was pretty much all down to me to get the business sold.”

Alternatively, Ivy submits that Mr Bell impliedly authorised Mr Martin to deal on behalf of both of them, as shown by the following matters:

As to why Mr Bell was not named in the SPA, Ivy submits that:

Ivy submits that, having regard to the factual matrix, the terms of the SPA are not sufficiently clear and unambiguous to exclude a claim against Mr Bell (or found an estoppel). It argues that:

Mr Bell submits that:

In considering these matters, I begin with the terms of the SPA and then how they should be assessed in the light of the factual matrix evidence.

The SPA’s terms included:

Provisions (i)-(iii) above indicate that, despite it having previously been known that Mr Bell was the beneficial owner of 50% of the shares, the parties agreed to contract on the basis that he would not be a party to the contract. The recitals to the effect that Mr Martin was the 100% beneficial owner of the companies at the time he entered into the SPA would be consistent with Mr Bell having previously assigned his own beneficial interest to Mr Martin. (I note in parentheses that any such assignment would presumably have had to be in writing and signed, by reason of section 53(1)(c) of the Law of Property Act 1925, though this point was not argued before me.) No evidence was adduced of any such assignment – or any other form of disposition or release of Mr Bell’s beneficial interest – having actually occurred, nor that the parties to the SPA were aware of any such disposition having occurred. Indeed, neither of the Defendants advanced any positive case, whether in statements of case or submissions, as to what happened to Mr Bell’s beneficial interest. Mr Bell took the position that it was “unnecessary for Mr Bell to have to explain how beneficial title could have transferred in the absence of agency”, and that the SPA could simply have contained a lacuna, adding only that:

What assistance does the factual matrix provide when assessing the meaning and effect of the recitals to and substantive terms of the SPA? The evidence I have already referred to indicates that Ivy was told that Mr Bell had a 50% beneficial interest in the shares in the companies; and that each of Mr Copans, Mr Hooja and Mr Watt were told (directly or indirectly by Mr Martin) that Mr Bell did not wish to be a party to the SPA because he preferred his interest to remain hidden; and that they (subjectively) considered that Ivy was buying the shares from both Mr Martin and Mr Bell. Further, Mr Martin made clear to Ivy that Mr Bell’s approval was needed of whatever agreement Mr Martin made for the sale of the shares to Ivy. Mr Jain was told that Mr Bell did not wish to be a party to the SPA, and was content to proceed on that basis.

In these circumstances, had the SPA simply failed to mention Mr Bell, it would have been possible to conclude that Mr Bell was nonetheless a disclosed and identified principal whose rights and obligations were not excluded by the terms of the contract.

However, the SPA – particularly in the recitals – went further, setting out as an agreed basis of contracting that Mr Martin was selling as 100% beneficial owner of the shares and that no-one else had any interest in them. That was further reinforced by clause 15.12. Those statements are expressed in unequivocal and unambiguous terms. Ivy submits that the recitals do not say anything about whether Ivy is entitled to sue Mr Bell under the SPA, nor anything about whether Mr Martin was acting as Mr Bell’s agent. However, if Mr Martin was selling as full legal and beneficial owner of the shares, there was no reason for Mr Bell to be a party to the SPA.

The admissible factual matrix indicates that the parties to the SPA understood that Mr Bell was not willing to be party to the SPA because he wished his involvement to remain hidden. They also knew that, unless anything had changed by the time the SPA was signed, the statements in the recitals did not reflect the actual position, since Mr Bell had a 50% beneficial interest. However, in the absence of any real room for doubt about the meaning of the statements in the recitals (reinforced by clause 15.12), I am driven to the conclusion that Ivy was willing to, and did, contract with Mr Martin on the basis that the matter of Mr Bell’s beneficial ownership would be sorted out between Mr Martin and Mr Bell, and that Ivy were in any event willing to proceed on that assumption; in other words, that this is an example of parties agreeing to contract on a particular basis whether it be true or not.

As a result, I conclude that Mr Martin did not conclude the SPA as agent for Mr Bell, and that Mr Bell is not a party to it.

It is next necessary to consider whether Mr Martin had Mr Bell’s authority to make the representations he did even in circumstances where Mr Bell did not become a party to the SPA. Mr Bell accepts that it is theoretically possible for a person to be granted authority to make representations on another’s behalf, but not to enter into the ultimate agreement on their behalf, though he says on the present facts that would be most unlikely. In principle such a situation must be possible. Mr Bell personally could (and, I have earlier held, did) make a direct representation to Ivy about the condition of the Business, for which he can be liable in deceit, regardless of whether Mr Bell was party to the SPA as a selling shareholder. Equally, there is no reason in principle why Mr Bell could not make such a representation through an agent, Mr Martin.

Mr Bell submits that on the present facts, however, that would be most unlikely. In particular, Mr Bell says, the reason he was not party to the SPA was that he was not doing the deal: it was Mr Martin’s deal. Further, even if the SPA was beneficial to Mr Bell or those connected with him, or his shares might be transferred as a result, such matters did not and could not of themselves confer authority on Mr Martin to make representations on behalf of Mr Bell.

I am, however, unable to accept those submissions on the facts. Because Mr Bell was a 50% beneficial owner of the business, the sale to Ivy was in commercial substance very much his deal. It was his at least as much as it was Mr Martin’s transaction: arguably more so, since in addition to his beneficial interest Mr Bell was concerned to ensure that as much as possible was repaid to the Simplify companies whose funds he had arranged to be advanced to 21Bet, as well as (even on his case) having personally lent money to the Business. It remained Mr Bell’s deal in substance regardless of the mechanism ultimately selected (at a late stage, and after the key representations had been made) by which Mr Bell’s beneficial interest would pass to Ivy. On any view, the passing of Mr Bell’s beneficial interest, even if not strictly speaking effected by the terms of the SPA, was intricately connected with the SPA. Whether Mr Bell’s interest was expected to pass pursuant to, or collaterally to, the SPA has no real bearing on Mr Bell’s direct commercial interest in the transaction: not merely as a transaction between third parties further down a chain, but as the transaction which would give rise to and define the consideration that Mr Bell would receive for his various interests in the Business. Moreover, as I have already found, Mr Bell’s approval was needed, not merely for whatever collateral arrangement Mr Bell may have made with Mr Martin, but for the terms on which Mr Martin agreed the SPA itself; and Mr Martin was expected to, and did, keep Mr Bell regularly updated (virtually on a blow by blow basis) on his negotiations with Ivy.

Further, it is not merely by reason of the above factors that Mr Martin had Mr Bell’s authority to make representations. Mr Bell’s own written evidence was that:

Accordingly I conclude that Mr Bell is jointly liable as principal for the representations that Mr Martin made to Ivy, as well as for the representation which I have already held Mr Bell personally made directly to Ivy.

That conclusion of course applies a fortiori if, contrary to the conclusion I have reached earlier, Mr Martin had Mr Bell’s authority to bind him to the SPA.

Ivy seeks £2.95 million, which is the sum that it paid by way of pre-payment for 21Bet, together with the sum of £250,000 which it claims to have subsequently invested in 21Bet in attempting to keep it afloat.

As set out by Jacobs J in Vald Nielsen at § 484, Smith New Court Securities Ltd. v Citibank N.A. [1997] AC 254 (“Smith New Court”) is the leading case relating to damages for deceit in the context of contracts of purchase. In that case, the Court of Appeal had proceeded on the basis of the law as laid down in a series of cases at the end of the 19^th Century, namely that:

Lord Steyn affirmed this in the House of Lords:

While it was made clear in Smith New Court that the general rule may be departed from in order to give adequate compensation for the wrong done to the claimant, no submissions were made by Ivy in the present case to the effect that the relevant date was anything other than the date of the SPA.

Ivy claims, as damages for fraudulent misrepresentation, amounts equal to:

That claim proceeds on the footing that the Business as purchased had no positive value. The Defendants contend that it in fact had a value substantially in excess of £500,000.

The experts agreed that, as the Business was loss-making, using the valuation methodology implicit in the SPA (based on EBITDA) the Business would have had no value as at the date of the SPA.

Mr Davidson considers that the Business was worthless on any basis, given that it had no UK income, was making losses outside the UK, had no cash or cashflow, and had gross liabilities of at least £3.152 million and no goodwill. As discussed in section (F)(3) below, on one view it is inappropriate to treat as liabilities, for these purposes, debts which were planned to be, and were, paid off from the proceeds of the sale to Ivy. Those include the money owed to Alan Spence and to Simplify/Mr Bell. On any view, however, the Business had no net assets (subject, perhaps, to the point discussed below about certain intangible assets).

Mr Donaldson agrees that based on an EBITDA valuation, the Business was worthless as at the date of the SPA. Nonetheless, he states that he would have expected Ivy to attribute value to the Business. He states in his report:

Mr Davidson points out, in response, that all the evidence from the Business as at the date of the SPA is that it had no future cashflows (or income), however generated, as demonstrated by the fact that it had had no trading income in the UK in the four months before the SPA, and received no trading income in the UK in the two months following the SPA. Furthermore, it had had negative cash flow in the UK from business activities throughout the whole of its history prior to the SPA and continued to have negative cashflow in the UK following the SPA in excess of £200,000 in less than two months. At the same time, throughout the period of trade, the Business had been loss-making in its non-UK activities. Thus, the business had no goodwill as at the date of the SPA. As at the date of the SPA, the Business had been materially loss-making and had had substantial negative cash flows for more than two and a half years. In all these circumstances, the Business had no goodwill, and if it did have identifiable intangible assets within the generality of goodwill, these had no value either.

Mr Donaldson responds, in turn, that although both experts agree that the Business was loss-making, even the most basic due diligence should have exposed that the Business did not make a profit. Consequently, he concludes that Ivy must have identified a value in the Business that they were willing to pay for, and that value would have existed regardless of the position regarding the warranties. This forms the basis of his alternative conclusion regarding the intangible assets. He also points out that the Business’s performance after the date of the SPA is not strictly relevant to its value as at the date of the SPA. He repeats that he has seen no evidence that would enable him to value the Business’s anticipated future cashflows, but maintains that that does not mean such an exercise would be impossible.

Mr Donaldson’s reasoning as summarised in the preceding paragraph proceeds on the basis that Ivy must have realised the Business was currently loss-making, and saw some value in it despite that fact. However, the evidence does not support that view. Ivy did not realise the Business was loss-making. On the contrary, they relied on the representations made to them that it was profitable. There is no evidence that they perceived the Business to have a value over and above that which they arrived at based on its EBIDTA. Further, there was no cogent reason to believe that the Business could, as at the date of the SPA, be said to have any positive future anticipated cashflows, and certainly none on which a particular value can be placed.

In conjunction with the argument based on intangible assets/future cashflows, the Defendants rely on evidence given by Mr Hooja, in his affidavit in support of the freezing order, to this effect:

The Defendants submit that (a) Mr Hooja is wrong to consider that the competing business of Premier Punt or the alleged use of 21Bet's customer database in fact caused any loss to the Business, and (b) it therefore follows from Mr Hooja’s £500,000 estimate that the Business was in fact worth at least £500,000 as at the date of the SPA. Mr Hooja was by this stage aware of the alleged misrepresentation, breaches of warranty and conspiracy with Premier Punt. Further, since the alleged diversion of business to Premier Punt of €494,337 for January to May 2019 was lower than Mr Hooja’s £500,000 estimate of the value of the Business, Mr Hooja must (it was suggested) have attributed a significant positive value to the Business in any event.

I conclude in section (F)(5) below that the evidence does not establish what, if any, business was diverted to Premier Punt. Even on that footing, however, I do not accept the Defendants’ contentions. Mr Hooja’s £500,000 figure was evidently no more than an estimate of value (in terms of share value) diverted to Premier Punt. Even if he was wrong about such diversion of value, it does not follow that the Business in fact had a positive value. Further, the Defendant’s comparison of the €494,337 Premier Punt revenue for January to May 2019 with Mr Hooja’s £500,000 valuation estimate does not compare like for like. If Premier Punt was taking business from 21Bet at the rate of €494,337 every 5 months, that might well have affected 21Bet’s value by £500,000. It is simply not possible to infer from Mr Hooja’s evidence that the Business had a value of £500,000, or any other positive value, at the date of the SPA; and Mr Hooja was clear in his evidence (as quoted above) that he considered it to have no value.

I conclude that the Business was valueless as at the date of the SPA, and that Ivy is accordingly entitled to damages for deceit on that footing.

Ivy’s claims in deceit succeed against both Mr Martin and Mr Bell. It is entitled to damages on the basis that the Business, on which it spent the sums identified in §511 above, was in fact valueless as at the date of the SPA.

CLAIMS UNDER THE SPA

As set out above, Ivy alleges two categories of breach of the SPA. First, Ivy alleges that Mr Martin and Mr Bell breached warranties contained in clauses 7.18 and 7.26 of the SPA. Secondly, Ivy alleges that Mr Martin breached the non-compete covenant in clause 9.6 of the SPA.

For the reasons set out in section (E)(3)(vi) above, I have concluded that Mr Bell was not a party to the SPA, and he is not liable under it. Any claims for breach of warranty lie only against Mr Martin.

Ivy alleges breach of warranties 7.18 and 7.26 of the SPA. Ivy’s and Mr Bell’s experts were agreed that these warranties were breached. Mr Martin denied breach of warranty in his Defence without giving reasons.

For ease of reference, I repeat the text of these warranties below:

The experts called by Ivy and Mr Bell, Mr Davidson and Mr Donaldson, agree that both warranties were materially false. Based on the expert evidence, Mr Bell accepted (at least in his written opening) that the warranties had been breached, though he took issue with Mr Davidson and Ivy about the extent of the breaches. The experts agreed in relation to warranty 7.18 that without continued support from Simplify, the Business was unable to meet its liabilities as and when they fell due. That was undoubtedly the case, as shown by the history set out in section (D) above.

Mr Davidson says that is all the more so given the true level of liabilities he found to exist (see below). To the extent that those liabilities were planned to be, and were, paid off from the proceeds of sale, I am not persuaded that they should be taken into account when deciding whether warranty 7.18 was breached. It was made clear to Ivy, for example in an email and draft SPA sent to Messrs Copans and Watt on 12 February 2019, that a proportion of the sale proceeds were going to be used to pay off Mr Spence and “Barry’s investor”. Warranty 7.18 applies only to liabilities etc. that “are or could become a Lien against or otherwise have an adverse effect on any of the assets or the business of that Company”. That will not be the case in relation to those liabilities.

While on this topic, I should record that I accept Mr Hooja’s evidence that he personally did not know about the Spence debt, though his original affidavit was in fact inaccurate in stating that Ivy did not know about it. Mr Watt’s written evidence was that Mr Martin did not mention the Spence debt to him, and that Mr Watt did not know why Mr Martin seemed to regard it as being ‘outside’ the deal. Mr Watt accepted in cross-examination that the 12 February 2019 email indicates that Mr Martin did in fact mention the Spence debt to him. I accept Mr Watt’s oral explanation that he did not realise his witness statement was wrong on this point when he wrote it, bearing in mind that the email was sent in anticipation of a call in which Mr Watt did not participate and he did not go through the SPA in detail at that time. Mr Watt ought to have corrected this point, if only as part of his oral examination in chief. I have taken this point into account in assessment of his evidence, though as indicated earlier my overall assessment is that his evidence was honestly and fairly given.

In any event, as I note below, there were other liabilities found by Mr Davidson to exist, over and above those which were disclosed to Ivy in Schedule 7.26 or paid off from the sale proceeds. Whether or not account is taken of those additional liabilities, it is clear that the Business had liabilities which it was unable to pay as they fell due and which could have an adverse effect on its constituent companies’ assets or business.

In relation to warranty 7.26, Mr Davidson concluded that:

Mr Donaldson agreed that the warranties given at § 7.26 were not accurate, and that the financial statements had not been prepared in accordance with GAAP and did not give a true and fair view of the financial position of the Business.

As to the level of liabilities, Mr Davidson includes in his £3.152 million figure certain liabilities that were paid off from the process of sale. I understand the division of the sale proceeds to have been as set out in a spreadsheet attached to an email from Mr Martin to Mr Bell of 4 April 2019. It included £694,962 to be paid to Mr Spence, £47,211 to HMRC for PAYE, £87,223 to “various affiliates” and £496,040 to other creditors. There was also reference to a payment of £500,000 to Abensons for Mr Martin (see § 195 above) and a payment of unspecified amount to SBL as a loan repayment. Mr Bell’s evidence was that Simplify was repaid £1.1 million.

It is difficult to identify precisely which of these payments Mr Davidson included in his figure, but it appears that his figure does include (of the above items) the £694,962 to be paid to Mr Spence, £47,211 to HMRC for PAYE, £496,040 to other creditors and £863,063 of “Shareholder loan – PB”. Those sums total £2,101,276. Net of them, Mr Davidson’s figure of £3,151,908 would become £1,050,632, meaning that liabilities were understated by approximately £901,000 compared to the figure of £149,026 given in Schedule 7.26. (Conversely, Mr Davidson’s figure does not include certain liabilities to casino providers, Digitain, Income Access and “affiliates” which were disclosed to Ivy as part of Schedule 7.26 in the total sum of £39,071, but I leave those to one side for present purposes.)

The Defendants submit that warranty 7.26 should not be regarded as having been breached to the extent that liabilities were planned to be, and were, paid off from the sale proceeds, bearing in mind that the purpose of the warranty (as explained by Mr Davidson in cross-examination) was to tell the buyer what assets and liabilities they might expect when they acquired the Business. However, warranty 7.26 is expressed in terms of the companies’ assets and liabilities as at 28 February 2019 (sc. 31 March 2019), and contains no relevant qualification. Strictly speaking, therefore, even liabilities to be paid off from sale proceeds count when deciding whether the warranty was breached, albeit different considerations may well arise when assessing damages for the breach.

The Defendants also take issue with the fact that Mr Davidson place reliance on Aureate’s 2018 filed accounts, whilst also adjusting those accounts by reference to the 2017 accounts by increasing the figures for affiliate costs, licence fees, platform services and research. Mr Davidson noted that those costs totalled €838,335 in the 2017 accounts but only €74,391 according to the 2018 accounts, despite the fact that (for example) one of Aureate’s main affiliates (Catena Operations Limited) issued a claim form on 27 March 2019 claiming unpaid fees of €125,471: an amount which did not appear in the list of liabilities disclosed to Ivy in Schedule 7.26. Mr Davidson concluded that these four areas of costs should be adjusted by €440,000 in aggregate. In my view he was correct to do so. The Defendants object that to the extent that Mr Davidson did rely on the 2018 filed accounts, he was wrong to do so since he had previously concluded they were wholly unreliable, and (the Defendants suggests) are likely to have overstated transaction costs and understated revenue (in the light of payments into Aureate’s Satabank account). I have already considered those matters in §§ 255-265 above. I do not consider any of them to undermine Mr Davidson’s assessment of the liabilities of the Business as at 31 March 2019.

Mr Davidson also found that the financial statements overstated some of the assets, at £96,000, because:

Thus, even leaving out of account liabilities to be paid off from sale proceeds, the assets were overstated by £74,000 and liabilities understated by £901,606 (§ 539 above), resulting in the overall net liabilities been understated by about £975,000.

For these reasons, I conclude that both warranties 7.18 and 7.26 were breached.

Ivy alleges breach of the non-compete covenant at clause 9.6 of the SPA.

The legal issues which arise revolve around the enforceability of clause 9.6.

Three questions have to be decided when considering the enforceability of a covenant in restraint of trade. First, the court must decide what the covenant means when properly construed. Secondly, the court should consider whether the party relying on the covenant has shown on the evidence that it has legitimate business interests requiring protection. Thirdly, once the existence of a legitimate protectable interest has been established, the covenant must be shown to be no wider than is reasonably necessary for the protection of those interests. (See TFS Derivatives Ltd v Morgan [2004] EWHC 3181 (QB); [2005] IRLR 246 §§ 36-38 per Cox J).