AB v CD

Introduction

This is an application by a former husband to set aside a consent order agreed on 6 February 2012 (Footnote: ¹). The basis of his application is an allegation that, at the time of the agreement, his former wife failed to make full and frank disclosure in relation to a company of which she was both a director and shareholder. It is his case that the non-disclosure upon which he relies was a material factor in that he entered into the agreement to compromise his financial claims arising in the divorce proceedings on the basis of incomplete (and, on his case, misleading) information.

It will be convenient in this judgment to refer to the parties as ‘the husband’ (H) and ‘the wife’(W). I intend no disrespect to either in adopting this shorthand.

H’s present application was issued as long ago as 30 July 2012. The case has been before various judges of the Family Division since then and very significant costs have been incurred on both sides. Whilst each has during the currency of the litigation instructed top flight London firms of solicitors, neither can now afford that level of representation. W now acts in person, assisted by a McKenzie friend. H is represented by a firm of solicitors in which his brother is a partner. He instructs Nicholas Yates who has been his junior counsel of choice throughout.

The application to set aside the consent order was due to be heard over five days by King J (as she then was) in March 2014. For reasons which I shall explain, there was deemed to be insufficient time to conclude that hearing and the matter was relisted before me as a ten day fixture, some fifteen months later in June 2015. At that stage both sides were represented by leading counsel and I suspect that their availability and the court’s ability to accommodate the case in the lists led, in part, to that delay. At the pre-trial review before me on 8 May 2015, Mr Yates, on H’s behalf, made an application to adjourn the forthcoming hearing. He did so on the basis that the Supreme Court was about to hear the final appeals in Sharland v Sharland [2014] EWCA Civ 95 and Gohill v Gohill [2014] EWCA Civ 274.Judgment was not expected in those cases until the start of the Michaelmas term in October 2015. Because of the significant delay which had already been incurred (a delay of almost three years since the issue of H’s set aside application), I dismissed the application to adjourn but agreed to reserve my judgment at the conclusion of the set aside hearing until the judgments from the Supreme Court became available.

On 14 October 2015, the Supreme Court handed down judgment: Sharland v Sharland [2015] UKSC 60; Gohill v Gohill [2015] UKSC 61.

The matter was relisted before me on 11 November 2015. On that occasion I had written submissions from both W and Mr Yates who, by then, had had the opportunity to absorb the judgments and reflect upon their impact on these proceedings. W elected to rely upon her written submissions and did not attend the hearing. Mr Yates did appear and I heard from him, albeit not at any length since, like W, he relied for the most part upon his written submissions.

I am now in a position to deliver my judgment on the application before me.

H was born in March 1950. He is now 65 years old. W was born in November 1968. She is now 47 years old. The parties met in 2006. They married on 15 November 2008 having lived together since the beginning of March 2007. It was a second marriage for W and a third marriage for H. Each had a child or children from their previous marriages. Whilst there is a dispute as to the date upon which the marriage came to an end, it is clear from the evidence that, by June 2009, they were no longer living together in the same household. W contends that it was not until July 2010 that they abandoned their final attempt to repair the marriage. She speaks of holidays and times spent together during those last few months. In my view, the precise date upon which the marriage came to an end matters not in the context of this case since each accepts that, on any view, it was a short marriage which, on H’s case, lasted no more than 7 or 8 months. Even on W’s case, they were married for less than two years.

Each of the parties was independently wealthy when they married. H was, and is, a successful venture capitalist. He is chairman of E Co. At the time he met W, he was living in a home which he owned in a fashionable part of South Kensington. He had other property in the South of France and elsewhere in England.

W is an entrepreneur and the CEO of B Limited (‘B Ltd’), a company which she founded in 2002 and incorporated in 2004 shortly before meeting H. The company is involved in the development of technology hardware. At one stage, the company was tendering for an important contract with the Ministry of Justice. Even before she incorporated B Ltd, W had already established a successful track record as an entrepreneur. She had built up, and subsequently sold, previous companies and her endeavours as a successful entrepreneur were recognised in 2012 by the award of an OBE.

W issued a petition seeking dissolution of the marriage in May 2011. Sadly, it was an acrimonious parting of the ways. H was to issue his own petition some two months later. Those issues were compromised and the marriage was formally dissolved by decree absolute in May 2012. By that stage, both parties had issued applications for financial remedy orders (or ancillary relief, as it was then known).

W made her financial presentation in Form E on 13 December 2011. H’s Form E is dated 20 December 2011. The liquid assets totalled some £5.4 million. That sum, together with the illiquid business assets and pension, amounted to c. £6 million. A little over £930,000 (Footnote: ²) was held in W’s name and the balance in H’s. In terms of property, H owned the London home in SW7 which W claimed to be their former matrimonial home to which she had added value as a result of project-managing a substantial programme of renovations. She retained the flat in SW1 in which she was living when they met. The third property was a country house in Oxfordshire which had been purchased in their joint names in November 2007 and which was subject to a substantial mortgage (Footnote: ³).

H stated his annual net income to be just under £180,000. W’s income was estimated to be £95,520 net for the coming 12 months, although the actual earnings for the previous year were £40,283.

Within her Form E, W had valued her own (founder) shares in B Ltd at £1 per share, a total of £162,000. By that stage, she held 162,000 ordinary shares, a holding of 36.96% of the total issued share capital.

B Ltd had been founded in December 2004. W told me that it had been a concept which she had been developing for some two years before she met H. She provided the entirety of the start-up capital with £200,000 from her own funds. Her original shareholding was 200,000 shares. At that stage, there was no actual value in these shares since the company was not even trading, let alone profitably.

By September 2005, she had been able to persuade other investors to put money into the company. New shares were issued at £3.75 pence per share. The third round of “angel” investing occurred the following year in July 2006 at a price of £5.75 per share. H was one of the private investors who put money into the company at this stage. The following year he made a further investment in the company at a price of £6.50 per share. In all, by the time he and W had embarked upon their relationship, he had acquired 19,738 shares. Because he was able to invest as an individual, he was able to benefit from the tax relief then available under EIS (a government sponsored Enterprise Investment Scheme).

Later in 2007, and from time to time thereafter, further funds were raised by the issue of additional shares in the company. By November 2007, shares were being sold for £13 each. Subsequent tranches were issued at £25 per share. However, as is clear from the accounts, external investors were supporting the business on a speculative basis since the company was, and had been from the outset, loss-making. There was no tangible benefit in any of its underlying assets and expenses exceeded profits on a year on year basis. It is abundantly clear to me from everything I have heard and read in this case that W had put her heart and soul into her business venture and was working diligently to ensure its success. She was adept at securing good publicity as a means of encouraging the necessary further investment in the business. The ongoing development costs of the B Ltd product and its operating expenses were high; external investment was the company’s lifeblood at this stage.

When the divorce litigation commenced, W was in urgent need of funds to pay her then solicitors, Withers LLP. In 2010, she sold 50,000 of her founder’s shares and raised £50,000 towards her legal costs. That transaction was the only sale she has made of her own shares since she started the company. It was the basis upon which she valued her remaining 162,000 shares in her Form E. That valuation, which she accepts to be her own, was the product of the financial consideration she had received in the 2010 share sale seen against the backdrop of ongoing corporate losses. By the end of the 2009 financial year, B Ltd had lost just over £668,000. By 2010, the loss had increased to c. £762,000. By the time she swore her Form E in December 2011, the loss had risen to £1.364 million. The company then had cash reserves of £1.53 million to see it through its next year of trading. The provenance of that cash is something to which I shall return shortly.

H’s own Form E had attributed to his shares in B Ltd (a 4.6% minority interest) a value of £225,000. These were not founder shares. They were shares which he had purchased at arm’s length and for financial consideration. He told me that he was aware that another investor had recently sold shares for £11.59 per share and that was the value he attributed to his own shareholding in B Ltd. His interest in his Form E was listed as one of several holdings in various unquoted investments.

The First Appointment in respect of the financial aspects of the divorce had been listed for 6 February 2012. By that time, the legal teams on both sides had prepared lengthy questionnaires and statements of issues.

The documentation prepared by Withers on W’s behalf identified the following as issues which were likely to feature in the case :-

H had his own (equally full) list of issues which he intended to raise with the court. By and large, and in terms of substance, the statement of issues prepared by his (then) solicitors, Vardags, mirrored the points which I have set out above. The value of W’s shares in B Ltd was not specifically referred to in that list. However, his questionnaire did include a whole section entitled “B Ltd”. H had already been provided with a copy of the 2009 and 2010 Accounts (he was, in any event, entitled to see them because of his status as a shareholder). Over the course of twenty-two separate questions, he raised a number of enquiries which were clearly designed to establish the most reliable parameters for the present and (likely) future value of the company. In particular, his questionnaire sought the following information :

W’s own questionnaire of H was a no less formidable document. It ran to 17 pages of almost 60 separate questions. Within the material put before the court were the two position documents prepared by W’s leading counsel (Mr Philip Marshall QC) and Mr Yates. Of B Ltd, Mr Yates commented in his document, “[The company] has huge potential as recognised in the financial press” (para 7). In terms of outcome, by her Form E, W had set her sights on the following:

H’s approach to outcome was very different. By the time of the First Appointment, he was contending that this was a case where the marriage was so short that the parties should simply ‘drop hands’ and walk away with that with which they came. There was no offer to transfer his B Ltd shares to W. He justified that stance by the fact that W had substantial assets of her own and was then in a stable relationship with another ‘very wealthy individual’, a fact which was denied by W.

Thus were the battle lines drawn when the parties attended court with their respective legal teams on 6 February 2012.

As to the information which H then had about B Ltd over and above that provided with W’s Form E, shareholders would periodically receive by email narrative updates on the affairs of the company. These appear to have been circulated by W in December each year and were regularly provided together with management accounts (Footnote: ⁴). It is W’s case that H saw both the December 2010 update and the December 2011 update before the First Appointment on 6 February 2012. She has exhibited copies of these documents to her statement dated 4 March 2014. There is a specific reference in the December 2011 update to possible opportunities for future contracts with the Ministry of Justice. It also referred to two recent additions to the B Ltd board in Lord Stevens, a former Commissioner of the Metropolitan Police, and Julian Wolfson, a strategist at Odey Asset Management LLP.

There is an issue as to whether or not H had received these shareholder updates. He said he did not, or cannot recall having seen them. W says that, as a registered shareholder, he would have been sent copies. In my judgment, W’s evidence is to be preferred on this issue because, within the body of the chronology which H’s own solicitors sent to W’s solicitors in advance of the First Appointment, there is an entry dated December 2011 which reads as follows:

“[W] sends a circular update to B Ltd investors, including of course to [H] as he owns 4% of its shares.

In the circular she states that, “We raised a committed £2.2m during 2010, at £25 per share (valuing the business pre-money around £10m.”

The circular also boasts both the growth of the team as well as increasing advertising and several new investment prospects.”

This entry immediately precedes the entry recording the issue of her divorce petition on 26 May 2011. This supports W’s assertion that H was in possession of the 2010 update and gave a copy to his solicitors. Whilst there is no equivalent entry on the chronology in respect of the 2011 update, I find it is likely that H did indeed receive a similar document in or around December 2011 (which he may or may not have read with any care). However, apart from those updates and the other documents which were available to all the company’s shareholders, I accept his evidence that he had no wider knowledge of B Ltd’s affairs. His evidence, which I accept, was that, on this basis, he assumed that his shares in B Ltd had little or no value over and above that which he had attributed to them in his Form E.

The parties’ common expectation as they approached the hearing on 6 February 2012 was that any disputes in relation to valuation or the ambit of disclosure would be resolved by the judge on that occasion. However, matters never reached that point because on the day the parties decided to negotiate with a view to achieving an overall settlement. Each decided to take a view and compromise so as to avoid months of future costly litigation. On W’s case, as I accept, one of her essential objectives was to put into effect a complete clean break between herself and H so that neither would need to have any future involvement in the other’s life or business interests. In this context, securing the return of H’s shares in B Ltd was an essential prerequisite for W and one for which she was prepared to sacrifice the opportunity of further exploring the disclosure which he had made in his Form E. She was also prepared to abandon any claim to share in what she contended was a potentially significant marital acquest.

The deal which was struck on that occasion, and subsequently approved by the court, included the following headline points:

The relevant clause appears at paragraph 5 of the consent order. I set it out below in full.

On W’s case, the relevance of the figure of £5 million which appears in paragraph 5(i)(a) is that it is by and large the product of B Ltd’s entire issued share capital x £11.59 or, in other words, the approximate underlying value which H was then attributing to the company for the purposes of his Form E. Thus, she contends, there was an agreed in-built mechanism for ensuring that, in the event she should sell her shares, H was not deprived of the opportunity to benefit if the future value of those shares increased over a period of slightly less than two further accounting years (Footnote: ⁵).

H denies that this was the specific reason for the insertion of this clause in the consent order. Whilst he accepts that, ex hypothesi, it operated so as to provide him with the opportunity to share in any future uplift in value before the end of December 2013, his case is that it was never intended to provide W with a shield against allegations of material non-disclosure.

On 14 May 2012 H sent to W’s solicitors a cheque for £200,000 in part payment of the lump sum of £350,000. The balance of that lump sum remains unpaid because of his subsequent allegations of non-disclosure. On the same day, he sent a signed share transfer form which was intended to satisfy his obligations in relation to the transfer of the B Ltd shares into her name. In fact, it appears that he had used an out of date form to effect the transfer, a fact which he had not noticed at the time.

It is H’s case that he was unable to pay the full £350,000 lump sum at that time because he needed to raise the additional cash by selling some shares but was then in a ‘closed window’ period in relation to the relevant shares. W does not accept that explanation. It is her case that he purchased shares in four publicly quoted companies during that period at a cost of just under £200,000. These he added to his personal portfolio and thus his explanation for failure to pay the full sum rings hollow. H disputes these facts. I did not hear specific evidence about this aspect of the case and make no findings as to why the full amount was not paid on time.

B Ltd had already attracted significant publicity in the financial press. As W told me, she had worked hard to ensure that the company attracted positive media attention in order to give her a platform from which to continue to raise funding for ongoing running and development costs.

On 19 May 2012, less than six weeks after the consent order was sealed, an article appeared in the Daily Telegraph which included the following passage:

When this article came to H’s attention, he instructed his solicitors to write to W’s solicitors in order to seek clarification about precisely when the negotiations for the deal with Odey were undertaken and whether this was something which should have been disclosed during the negotiations at court on 6 February 2012. In a letter dated 21 May 2012, Vardags asked Withers to ensure that the £200,000 part-payment of the lump sum which had already been paid was secured pending the outcome of these enquiries and that no further steps were taken to execute the stock transfer form in relation to the B Ltd shares. There was also a request for a significant quantity of documents which W claims were confidential to the company. (Despite what H describes as the defective form which H had used for this purpose, it appears that the share transfer was indeed registered.)

W immediately instructed her solicitors to respond confirming that the value of her shares had not changed since her Form E. She refuted the suggestion that the company was “worth tens of millions” and that it was “down to the last four in a MOJ contract” as the press report claimed. Over the course of the next month, correspondence went back and forth between the two firms without much headway being made. On behalf of W, Withers maintained that she had given full and detailed disclosure of all relevant facts and matters whilst H’s solicitors continued to press for further information.

There was more press coverage about W and B Ltd in the summer 2012 edition of The Director Magazine. The piece was a fairly lengthy profile of W’s business career. Speaking about the company, she appears to have told them that “… the recent investment in the business from Odey Investment Management – the £4.4bn hedge fund run by Crispin Odey – has given B Ltd the financial backing the company needs to deliver its bid to the ministry [of Justice]. If the MoJ are [sic] going to give us this contract they need to know that we can finance it which is funny because they are the ones with the solid balance sheets and should be able to pay us on time. But in the absence of them wanting to do that we need to have financial support, and now we have that in Odey.”

As to the potential value to the company of the Ministry of Justice contract, I have within the court bundles a copy of a tender document produced by the government as part of its commitment to transparency. That document refers to the Ministry’s wish to establish a framework agreement with potential providers – partners and investors – who might be interested in participating in delivering ‘payment by results’ projects for two pilot projects for offenders within the community. The estimated length of the contract was four years; the estimated value was ‘£0 - £4,000,000’.

W’s fundamental case in relation to these allegations is that H was throughout aware that the company had been looking for additional funding to secure not only its bid for the Ministry of Justice contract but also its ongoing running costs on a day to day basis as it pressed ahead with its bid. She describes as ‘nonsense’ the suggestion that this round of external funding from Odey (being simply the latest of several rounds of investment) injected value to the tune of ‘tens of millions’. On her case it was no more nor less than working capital which was used to repay existing borrowing and provide the company with sufficient cash-flow to survive the 2012 financial year which lay ahead. These are matters to which I shall have to return at a later stage of my judgment.

In the meantime, and against the background of H’s ongoing requests for information, he himself took action which gave rise to considerable consternation on W’s part. She had a significant press profile in the financial media by that stage, not least because in June 2012 she had been awarded her OBE. It was during this period that she became aware that H had approached the press making allegations of financial irregularities against her. W refutes that there was any truth whatsoever in these allegations. However, because she was then in the throes of competitive negotiations with the Ministry of Justice in relation to the widely advertised tender for tagging offenders, she saw his actions as a potential threat to the success of that bidding process. She instructed her solicitors to apply for an injunction preventing H from speaking about her to the press. H filed a statement in response to her application. In it, he admitted that he had used his corporate contacts to approach a well-known Daily Mail journalist because he wanted to discuss with that journalist a story he had previously written about another female entrepreneur (not related in any way to W).

That particular press story (which W describes as a “smear piece”), written in March 2012, had sought to cast some doubts on the financial integrity of some of this individual’s corporate dealings. It referred to the fact that previous companies in which she had been involved had collapsed leaving debts and that the company which she then owned and controlled had made successive losses year on year since its foundation. It cast this individual as a focus of scrutiny, if not outright controversy.

In his statement of 18 July 2012, H said this of his meeting with the Daily Mail journalist:

“25.

I contacted [the journalist] and discussed [W] and her business history with him. Everything I discussed with him was information which can be found in Companies House records and from third parties willing to discuss the matter. However I realise that one of the documents I provided to [the journalist] was page 12 of [W’s] Form E in respect of her shareholding in B Ltd. The level of [W’s] shareholding can of course be found from Companies House though I of course appreciate that this should not have been provided to [the journalist].”

W’s initial and continuing impression was that H was attempting to persuade the journalist in question to write a similar piece about her, thereby prejudicing the company’s chances of a successful bid for the Ministry of Justice contract.

For my part, I find it difficult to understand what motive H might have had in approaching this journalist and providing him with various documents about W’s business interests if such motives were not contaminated, at least in part, by a wish to discredit her in some shape or form. I find it difficult to accept that the provision of an extract from her Form E was an entirely innocent mistake, as he suggests it was. He does not explain in his written evidence why he was pursuing what he describes as “the matter” with this journalist, but I do not accept that his intentions were wholly innocent. His actions almost certainly fuelled the climate of hostility and mistrust between them during this period of time (which manifestly continues to this day).

On 17 July 2012, W issued a further application for enforcement of the outstanding balance of the lump sum due to her under the terms of the consent order. Both matters came before Coleridge J two days later on 19 July 2012. At that hearing, H advertised his intention to issue an application to set aside the consent order on the basis of W’s material non-disclosure. W’s application for injunctive relief was compromised on the basis of cross-undertakings and a further hearing was fixed for directions in relation to the outstanding applications for enforcement and set aside.

H’s notice of application to set aside the consent order was duly issued on 30 July 2012. On 5 November 2012, W responded with her own application to strike out the ‘set aside’ application.

These matters were listed before Parker J on 22 November 2012. By this stage, there was before the court a lengthy questionnaire from H’s legal team in relation to what he described as W’s ‘Material Non-disclosure’. I have had the benefit of reading a verbatim transcript of that hearing. Mr Yates appeared on behalf of H on that occasion; Mr Philip Marshall QC represented W.

In the context of events as they unfolded during this hearing, I need to record how the various exchanges between the parties’ solicitors had developed since H first called into question W’s disclosure in the context of the negotiations which resulted in the consent order.

Included within the body of the first letter written by Vardags on H’s behalf on 21 May 2012 after publication of the article in The Daily Telegraph was a series of over thirty questions which sought not only a narrative response from W but also the provision of underlying company documentation, much of which was confidential and contained commercially sensitive information.

Her solicitors’ response on 22 May 2012 was in these terms:

H’s solicitors’ response to this letter is dated 28 May 2012. In that letter they reminded W’s solicitors that she had made numerous representations about the value of B Ltd and its shares. Those representations, it was said, were relevant not only to the value of the shareholding which H had agreed to transfer to W but also to the merit of further investigation of the other issues referred to in his questionnaire which pertained to the valuation of the shares which she herself was retaining. Her non-disclosure of the Odey investment, if indeed it was such, was “material to the understanding upon which [H] compromised the cross-claim between our clients”.

There was no response from W’s solicitors to that letter. A further reminder was sent on 11 June 2012. It precipitated a response on 14 June 2012 which threatened an application for costs in the event that an application had to be made for the enforcement of payment of the balance of the lump sum.

It was that exchange which led to W’s enforcement and H’s set aside applications and the parties’ appearance with their legal advisers before Parker J on 22 November 2012. As I have said, by that stage, H’s advisers had produced a formal questionnaire in relation to the alleged material non-disclosure. This had been sent to W’s solicitors on 15 October 2012. W was directed to respond to H’s questions although the scope and the reach of the enquiry was restricted in terms of the time line in respect of which she was obliged to provide primary or source documentation. Her application to strike out H’s set aside application was dismissed with costs.

H’s questionnaire was targeted at disclosure relating to any financial support or investment by Odey or any other entity in B Ltd. The document served on W’s solicitors contained, amongst others, the following definition clause:

The publicity in the financial press was clearly the catalyst for H’s set aside application. As he had contended in his statement in support of that application, W had not disclosed during the course of the proceedings or the negotiations at court on 6 February 2012 that there was any potential investment deals on the horizon in respect of B Ltd. The lack of any positive or helpful response to his solicitors’ enquiries since then had fuelled his suspicions that she had yet to reveal the true position. In fact, she had referred in one of her circulars to “several new investment prospects”. H also confirmed in his oral evidence that he realised raising money for the company was an important part of her role as CEO of B Ltd.

On 23 November 2012, Lord Stevens on behalf of B Ltd’s board of directors wrote to W reminding her that her employment contract prohibited her from releasing confidential company information and/or documents which were company property. The letter recorded the board’s concern that H could not be relied upon to respect the confidentiality of such material. I was told by Lord Stevens when he gave his oral evidence that this letter was written following legal advice from the company’s solicitors.

W’s case that she was trying to do what she could at that stage to answer H’s questions is evidenced in part by the fact that she had asked H to allow her to provide the B Ltd board with a copy of his questionnaire. That request was turned down by him on the basis that to do so would breach his own confidentiality in the matrimonial proceedings. His solicitors maintained his position that W did not need the Board’s consent to produce the material he had requested since, as a director, she was entitled to it. In my view, the position was not quite so straightforward: W was wearing two hats in these proceedings. In the normal course of events, the disclosure of relevant financial information is protected by the implied duty of confidentiality which attaches to financial remedy proceedings : see Clibbery v Allen [2002] EWCA Civ 45, [2002] Fam 261, [2002] 1 FLR 565 and DL v SL [2015] EWHC 2621 (Fam). W might well have been entitled to see the various documents and information which were being requested by virtue of her status as a director but the board’s stated position in relation to production of that information to H was clear, for reasons which they had explained. The information sought was commercially sensitive in the extreme concerning, as it did, negotiations which were ongoing with third parties who had an expectation that confidentiality would be maintained. In the view of both the company and W, H had not respected the confidentiality of her financial disclosure in these proceedings in the past and the board of B Ltd had withheld its permission in response to her request to be allowed to disclose what was sought by him and his legal team. I shall return to this aspect and W’s position in due course.

W’s response to H’s first questionnaire was delivered on 4 January 2013. In that document, she made the following representations :

The letter from her solicitors which accompanied W’s replies referred to this letter as conclusive evidence that earlier press speculation was inaccurate and that any further enquiries into confidential information relating to B Ltd was “nothing more than a fishing expedition which will not be tolerated”.

On 4 May 2013, some four months after delivering her replies to H’s questionnaire, another article appeared in The Daily Telegraph. It concerned the ongoing progress of the company’s bid for the Ministry of Justice contract. Whilst acknowledging that B Ltd was competing against the likes of major international companies, it continued:

The article also referred to the fact that W had funded the business with her own money and capital from angel investors but “she has also gained a recent investment from Odey Asset Management, the hedge fund, which now owns a 20pc stake”.

On 10 May 2013, H issued a further application seeking disclosure from the company itself. This appears to have prompted a further letter from Lord Stevens on behalf of the board. On 13 May 2013, he wrote to W expressing once again the board’s concerns about releasing to H any information which was commercially sensitive. However, the company was prepared to provide certain information which had been requested which was not relevant to matters of particular sensitivity or to individual employees. Of relevance in the present context and the value of W’s shares as 6 February 2012, Lord Stevens’ letter laid out the following points:-

On 17 May 2013, a firm of solicitors instructed by B Ltd, Jones Nickolds, wrote to H’s solicitors in relation to his pending application for disclosure against the company. They pointed out that W was a minority shareholder and there were a number of registered institutional shareholders on the register. She was but one of six directors and a separate sub-committee had been set up to deal with these matters in her absence. She had no part in the preparation or presentation of the board’s position and would not see the letter until her solicitors were copied in. That letter contained the company’s proposal that an independent expert should be appointed to value W’s shares and the company would provide to the expert instructed whatever documentation was necessary to enable that process to be undertaken. It described the breadth of the existing questionnaire as a ‘fishing expedition’ which was seen as an attempt to ‘cause commercial “trouble”’ for the company. The letter continued in these terms:

There was a further hearing before Parker J on 20 May 2013. By this point in time, H and his advisers had obtained copies of the 2012 accounts for B Ltd which had been filed at Companies House. H contends that these were filed late. A reconciliation of those accounts with the earlier accounts appeared to show that a sum of approximately £3.5 million had been injected into B Ltd in an apparently unconventional manner. According to H’s written evidence, this investment appeared to have been made before W’s Form E in which she represented that the value of her founder’s shares was £1 each. In terms of the company’s share capital, the notes to the accounts recorded that, whilst 438,206 ordinary shares had been allocated and fully paid, there were a further 102,248 shares which had been paid up but not yet allotted.

B Ltd was represented at the hearing on 20 May 2013 by counsel, Mr Ben Shaw. He prepared a written skeleton argument. Paragraph 3 of that document reads as follows:

Mr Yates, on behalf of H, submits that this was the first occasion – some ten months after H issued his set aside application – on which the existence of the investment by Odey in B Ltd was confirmed by the company.

At the conclusion of that hearing, Parker J ordered W to answer five separate questions in substitution for an order that she respond to H’s lengthy questionnaire. These were the five questions:

W’s response to those questions on 14 August 2013 came at a time when she was acting as a litigant in person, her previous solicitors, Stewarts Law, having ceased to act the previous month. In her replies, she set out the detail of the cash which Odey had made available to B Ltd, a sum of £3.5 million (Footnote: ⁷). It had been paid in October 2011, some five months before the agreement which the parties had reached at court on 6 February 2012.

Much of the substance of her written replies to these questions was explored in forensic detail during the course of her cross-examination by Mr Yates. I shall come to that evidence in due course. However, at this point, the broad thrust of her narrative response in August 2013 was in these terms. She said that the only shares purchased in B Ltd in 2011 were new shares issued to a named individual at £25 per share. The shareholders had been informed in 2011 that the company was in dire need of a further cash injection but none (including H) had been prepared to advance new working capital. A South African businessman (Nathan Kirsh) had been prepared to support the company financially. Through one of his holding companies, KI Corporation (“KI”), he had provided £2 million in 2010. This loan had been channelled through the vehicle of a formal Convertible Loan Agreement dated 9 July 2010. The initial agreement provided for a loan of £500,000 which sum could be converted into equity at the price of £25 per share on the basis of put and call options. The loan was repayable at the end of one year. The intention underpinning the initial agreement was that KI would carry out its due diligence in relation to B Ltd with the objective of determining whether to provide the company with an additional amount of up to £1.5 million. W contends that this information would have been available to H since it was included in the shareholder updates for the relevant year.

Over the course of 2010 and 2011, KI paid the full £2 million which had been contemplated by the terms of the original Convertible Loan Agreement.

W explains the difference in price between the £25 per share quoted in the Convertible Loan Agreement and the £11.59 value given by H in his Form E on the basis that the price at which a speculative investor puts new money into a company is different from the price at which shares would change hands as between existing shareholders and/or the founder. She had never been able to sell her shares for any more than £1.00 per share because the company was not making a profit and had no underlying assets. Without her presence driving the company forward, investment was likely to dry up altogether.

Without securing the Ministry of Justice contract, W was concerned as to whether B Ltd would be able to repay the £2 million loan. By 2011, KI was in any event refusing to convert the loan into equity on the basis that it regarded the conversion price of £25 per share to be too high. In addition, the lender was insisting on securing preference shares to the detriment of the existing body of shareholders. Relations between the two companies deteriorated further and KI threatened to sue B Ltd. It was at this point that W secured the new funding from Odey. On W’s case, the cash which was provided (£3.5 million) was to be held to the order of Odey and had to be repaid in the event that completion of its investment did not take place. With the threat of litigation by KI, part of the Odey funds was used to redeem the loan of £2 million due to KI. Final settlement with KI was concluded in February 2013. The balance of Odey’s advance of £1.5million was earmarked as cash flow which would be needed to keep the company solvent for the next 12 months.

According to W’s evidence, the proposed investment agreement with Odey required B Ltd to comply with an extensive range of conditions. These conditions had not been satisfied by the company’s financial year end (31 December 2011) and, thus, the transaction could not be completed and the shares could not be issued. When the time came to file year end accounts, the company was presented with two options. Either the Odey funds could be treated as a loan (with the result that the company would have finished the year with a significant negative balance sheet) or they could be treated as what they were (i.e. paid up but unissued share capital). Given that B Ltd was then pursuing the Ministry of Justice bid, it was important that the company was seen to be in a position of solvency. It is for this reason that W maintains she was justified in not disclosing this information either at the time of the original agreement with H on 6 February 2012 or subsequently over the intervening months during which H was seeking further information after the publication of The Daily Telegraph article. On her case, Odey’s injection of cash had made no material difference to B Ltd’s underlying share price. It had simply enabled the company to repay its existing loans and carry on trading. The fact that the Odey funds had become available some five months before the compromise of the matrimonial proceedings was no more nor less than part of the financial modus operandi under which the company had operated more or less since its incorporation. It was a small technology company with significant development costs. Not only did those costs have to be serviced by means of external investments or loans, the company also required cash flow for its day to day operational expenses. Odey was simply one such potential investor, on W’s case, and she saw no reason to disclose this aspect of the company’s internal affairs in the context of her obligation to make full and frank disclosure in the matrimonial proceedings. She points to the fact that H was, and would throughout have been, well aware that her role as the company’s CEO was to secure investors precisely so as to ensure the company’s survival and its ability to become profitable through securing contracts such as that which was on the horizon with the Ministry of Justice.

According to part of W’s response to the five questions, “Odey agreed to convert their loan to shares in [B Ltd] following the KI settlement. They now hold 119,920 shares, with preferential rights”.

Thus, H’s case in relation to material non-disclosure is based upon two limbs. First, he contends that Odey’s investment at £35 per share would have represented a significant undervalue of his own and W’s shareholding as at the date of their agreement in February 2012. Secondly, he says that had he known that a blue chip investor of this calibre was prepared to back the company, he would not have agreed to part with his shares on the terms he did. His case is that the Odey investment in B Ltd was transformational in terms of potential future value and he maintains that case from the perspective of an experienced venture capitalist.

In response, W contends that this so-called “Odey effect” is fictional because its intervention in terms of providing capital to B Ltd has done nothing more than enable the company to survive to this point. The bid for the Ministry of Justice contract was not successful and the company has continued to trade at a loss.

In October 2013, H’s solicitors raised a schedule of deficiencies in relation to W’s written responses. By her replies in February 2014, W provided further information. She provided a timetable in respect of the dates upon which B Ltd had drawn down against the loans which KI had made available. She explained that KI had refused to sign the Deed of Adherence to B Ltd’s Shareholder Agreement which was a requirement of every one of the company’s shareholders, including H. In relation to the Odey funds, she said this:

“There has never been a Loan Agreement with Odey. Discussions envisaged an equity investment, subject to the majority of shareholders agreeing to give special shareholder rights to Odey. The shares ultimately granted to Odey at the end of February 2013, following their signature of the Deed of Adherence, are consequently more valuable than other Ordinary shares, as Odey’s shareholding cannot be diluted without their consent.”

When asked about the treatment of Odey’s investment in B Ltd’s accounts, W responded in these terms:

“As [H] knows, I am not an accountant and have no financial training. However, I understand that shares cannot be issued, and an SH01 filed just because there is an “intention” of an investment. I was aware throughout 2012 that Odey had the right to ask for the return of their money at any time, and the consequences of that for the Company. Had Odey asked for their money back during that period, including 6 February when we reached the consent agreement, then [B Ltd] would have been insolvent.

The company secretary, [SP], is responsible for all filings on behalf of the Company. The decision regarding the accounting treatment of the monies held on behalf of Odey was made by the Board of [B Ltd]. The decision was led by the economist Professor John Kay CBE FRSE FB in consultation with the company’s accountants, Mazars.”

In preparation for the anticipated final hearing in March 2014, Professor Kay had written a letter on behalf of B Ltd and signed a formal witness statement. He dealt in that statement with the accounting treatment of the Odey investment. Professor Kay joined the company’s board in September 2012. He explains the situation in this way:

“25.

The reason the company’s internal and external accountants had adopted this treatment was that Odey had provided funds in contemplation of an investment, but their terms had not been met within the required timeframe. Under the terms of the agreement, the monies received from Odey were repayable if the conditions precedent to an equity investment were not completed within 28 days, and were therefore technically repayable on demand at 31 December 2011 and indeed continued to be repayable on demand at October 2012.

26.

I thought that the draft accounts revealing the company’s position as insolvent at 31 December 2011 did not properly represent the financial affairs of the company, because I knew that the intention had been that the Odey monies that were provided to [B Ltd] would convert into an equity investment, allowing the company to meet its liabilities and continue trading. I was confident from my knowledge of the progress of discussions with Odey in October 2012 that their loan would in fact become an equity investment.”

…..

“28.

Following further discussion, I proposed the treatment contained in the filed accounts i.e. that the Odey investment should be treated on the basis that the subscription monies had been paid up, in contemplation of the subsequent equity investment, although the shares had not been issued at the balance sheet date. The effect was to enable the Odey investment to be classified in the balance sheet as equity rather than debt….”.

On 26 March 2014 the parties and their legal advisers attended court for the start of what was to have been a five day final hearing of both H’s set aside application and W’s cross-application to enforce the terms of the original consent order. W was represented on that occasion by leading and junior counsel, Mr James Turner QC and Mr Deepak Nagpal. Mr Richard Todd QC and Mr Yates appeared for H. The first day of that hearing was set aside for the judge’s reading day. By the time the parties appeared in court on the second day, negotiations to settle the case had started. King J (as she then was) attempted to assist the parties to narrow the distance between them but, by the time it became clear that negotiations were not going to be productive, there was insufficient time for the case to be completed. I suspect that by that stage, the judge may have felt herself to be conflicted in any event as a result of what must have been an agreement that she should enter the settlement arena on the basis of a quasi-FDR type of hearing. The matter was listed before me with time estimate of 10 days, along with a pre-trial review. Both parties have since filed further updating statements. As I have said earlier in this judgment, I subsequently rejected Mr Yates’s application on behalf of H for an adjournment of the final hearing in view of the inordinate length of time which it has taken this litigation to reach the end of its journey in the Family Court.

I pause only to say at this point that it is a great shame, in my judgment, that H and W have not managed to settle this litigation. I have seen copies of various open offers which each has made to the other in an attempt to secure closure. At times it seemed as though they were very close to agreeing matters although the final hurdle was never crossed. Thus it was that, on 22 June 2015, the final hearing before this court commenced. By that stage, I had additional written statements not only from the parties but from Barry Stiefel, a witness upon whose evidence H wished to rely. Mr Stiefel is a director of KI Corporation and H wished to adduce at trial his evidence in relation to the repayment of that company’s loan to B Ltd in October 2011 on receipt of the injection of the Odey funds. Despite the lateness of this evidence (to which I shall return), I gave permission to H to call this witness at the final hearing.

Before turning to the substance of the oral evidence, I propose to say something about my observations of the parties at this point.

Inevitably, W’s task at the hearing was made more difficult than H’s because she appeared as a litigant in person. Although she had the assistance of one or two McKenzie friends throughout, she conducted her own cross-examination of H and his witnesses herself. In my view, she discharged her task with an impressive command of the case. She was a courteous advocate who typically addressed the court with an economy of language which was almost invariably on point and in context. Notwithstanding the exquisitely sensitive task which fell to her in her cross-examination of H, she remained calm and in control of her personal brief. Her questions were invariably on point and, in terms of the areas which needed to be covered forensically, she needed little assistance or guidance from either me or her McKenzie friends. That I do not make similar remarks in relation to Mr Yates’s presentation of his client’s case is no reflection of any shortcomings on his part. Characteristically, his advocacy was of the highest standard and he pressed H’s case and his cross-examination of W with complete mastery of his facts. However, Mr Yates stood firmly on his familiar professional ground in discharging this task whilst W had no such advantage. I wish her to know that she has assisted me considerably, both in her written and oral submissions in this case.

W is quite clearly an impressive woman. It does not surprise me that she has succeeded in her business career to the extent about which I have read and heard. She is plainly intelligent, focused and driven in her desire to make a success of the various projects and commercial enterprises into which she invests so much of her time and energy. She is also charismatic and extremely personable. I have little doubt that her communication skills and her ability to persuade potential investors across the corporate threshold justify the reputation she clearly has as CEO of B Ltd.

In terms of her own evidence, she was scrupulous in her efforts to ensure that every detail of what she told me was accurate both in terms of its content and nuance. On several occasions whilst she was being cross-examined by Mr Yates, she challenged his use of a particular word or phrase which he had attributed to her. I am satisfied that this was not mere pedantry on her part but a wish to ensure that the court was not misled about the smallest detail of her case. I did not find her to be a devious or evasive witness, despite the challenges which Mr Yates properly made to some parts of her evidence. On a number of occasions, she was prepared to accept that a particular statement, or the impression it sought to convey, was not accurate or entirely truthful when looked at in the light of this litigation’s timeline.

And what of H ? It was not an easy exercise for him to sit in the witness box over a lengthy period of time and deal with W’s questions. It was quite clear to me that each of these parties carries significant emotional scars from their failed marriage and the subsequent court proceedings which have flowed from it over the course of what is now years of expensive litigation. H is himself an impressive individual who has carved out over many years a highly successful track record in the field of commercial investment. He is by profession an accountant and has a clear grasp of both the financial and commercial undercurrents which permeate the case. He was, like W, a courteous witness despite his evident exasperation at times when he was unable to contain his obvious feelings that W had ‘duped’ him into the agreement reflected in the consent order. I found him to be a fundamentally truthful witness although his grasp on the underlying detail of the history and events now long past was not as clear as parts of the evidence which emerged from W’s recollection.

I accept, as each told me, that H and W have genuinely tried hard to reach a compromise acceptable to both. That they have not been able to do so is singularly unfortunate in circumstances where the global costs bill is now approaching £1 million (Footnote: ⁸).

Much time was taken up during the oral evidence of H and W with issues of share valuation. Surprisingly for such a contentious issue, there was a good measure of agreement between them on the underlying principles. Both agreed that it was very difficult to value shares in unquoted start-up technology companies since these can often be loss making over a number of years. H told me that one of the most reliable indicators of value is the last price at which an external investor was prepared to put money into the company. He explained about the tax breaks which are available to an individual investor, but not to a corporate or institutional investor. He confirmed that he knew that shares in B Ltd were being traded at £25 per share when he completed his Form E since the 2010 accounts (which he had seen) contained that information. However, he qualified that evidence by telling me that an investment by an individual at a particular price is not necessarily a reliable indicator or benchmark of value at that particular time since the actual net cost to the investor is likely to be less.

Of the ‘anti-embarrassment clause’ in the February 2012 agreement, H denied that this had been included so as to compensate him for any potential uplift in value of the shares in B Ltd in circumstances where the value remained largely unknown at the point of the agreement. He said that if this had been the intention and the clause was intended “to have teeth”, he would have insisted on a much longer period than the less than two years provided for.

Of the so-called ‘Odey effect’, he confirmed that he would not have done this deal with W had he known that Crispin Odey’s fund had already made an investment in B Ltd. He spoke of that investor’s international reputation in terms of his ‘investment eye’ which, he told me, put him on a par with Warren Buffet in the United States. He spoke of a corporate ‘pivotal moment’, being one where, as an investor, you realise a company has significant potential value and will start “motoring”. The fact that Odey had been willing to inject £3.5 million into B Ltd to support its potential bid for a government contract was such a ‘pivotal moment’. That investment, in his eyes, had given the company a status, standing and access to a high level of expertise and support. It opened up a ‘back room’ to B Ltd which provided the collective support of Odey’s analysts and researchers. This was, in H’s experience, a very unusual investment for Odey to make and stood quite apart from the scenario whereby a private individual (such as himself) made an investment in a start-up company in order to secure, amongst other potential benefits, a significant tax saving through the government’s enterprise based schemes which were then available.

He described what he perceived as W’s attempt in the accounts to disguise this investment by reference to “share capital paid up but not yet allotted” as a device which was specifically designed to prevent him from discovering the identity of the investor prior to the agreement which led to the consent order. Had the shares been properly described as ‘paid up and allotted’, she would have been obliged to disclose details of the investor on the company’s annual return at Companies House. He rejected W’s account of the interim arrangements with Odey whereby they could have called for the return of capital on demand. A straightforward reading of the accounts showed this to be a fully paid up equity investment in B Ltd, albeit that the identity of the investor remained obscure.

He told me that he had first seen the 30 December 2011 year end accounts for B Ltd a few days after the hearing before Parker J on 22 November 2012. He says that the accounts had not been available as at the date of that hearing because they were filed late. (W says they were filed before the hearing). Shortly after that, he had read the letter sent by Odey’s chairman, David Fletcher, on 5 December 2012. That letter contained no reference to the injection of £3.5 million into the company some 14 months earlier. It spoke only of the fact that Odey had begun discussions with B Ltd in May 2012 (3 months after the agreement he had reached with W) and the fact that ‘… Odey would consider, subject to the structure and terms of a Ministry of Justice Contract being awarded, providing [B Ltd] with a proposal for the Board to consider for the financing of this contract’. At this point H told me that he was ready to give up but, some three or four days later, he had asked his personal assistant to see if the 2011 accounts for B Ltd had been filed. It was at this point that the extent of an unidentified injection of cash was revealed.

H was asked by Mr Yates whether he considered that his assumed value of £33 or £34 per share (predicated on the basis of the Odey investment) was an accurate reflection of the underlying value in B Ltd at that point in time. H accepted that he could not confirm definitively that the investment translated into a hard value at par for the shares since “young technology companies were often a law unto themselves”. However, he pointed to the subsequent prices at which external investors had been prepared to invest in B Ltd following the injection of Odey funds in October 2011. In 2013, an external investor came in at £45 per share. Most recently, shares had been offered at £122 per share (Footnote: ⁹).

H was keen to stress in his evidence that a company’s turnover, even if low, was not necessarily an indicator of value because this could often be based upon a monthly subscription value of anything between three and five years. I pause at this point to say that there was no evidence before me at all that the turnover of B Ltd was comprised of, or underpinned in any significant way, by this type of guaranteed income stream.

He was asked about his knowledge of the convertible loan due to KI of £1.5 million. W put to him that he knew about this because (a) she had disclosed this information; and (b) his advisers had referred to it specifically in the chronology they prepared for the First Appointment on 6 February 2012. H’s evidence was that he had known of the loan of c. £1.039 million but he knew nothing of the conversion price of £25 per share, nor of the circumstances of the company’s arrangements with that lender.

When cross-examined by W, H said that he genuinely believed that he had never seen a copy of B Ltd’s shareholder agreement dated September 2005. However, he was taken to a copy of a Deed of Adherence which he had signed in July 2006. He confirmed that the signature appearing on the foot of that document was his and that it had been witnessed by his PA. He said he could not recollect signing it or being provided with a copy of the shareholder’s agreement which he had acknowledged receiving by signing the deed. In my judgment, W was correct in stating that he had received the former and signed the latter. I do not believe that H was deliberately seeking to mislead me. I accept that he has no independent recollection of these events, but I accept W’s evidence on this point as being more reliable supported, as it is, by contemporaneous documents.

Equally, I accept that her memory is accurate in relation to the discussions (or, more accurately, absence of discussions between them) in relation to her previous non-domiciled status, her frequent trips to Guernsey and her supposed connections with Ansbacher/Investec bank. These were all connections which H had sought to run in relation to his case that W owned or had some indirect beneficial interest in a company called Zinc Ltd, a shareholder in B Ltd. That interest, he contended, had enlarged her ownership or control of B Ltd over and above her interest as declared in her Form E. It was an enlarged interest, on his case, which she had failed to declare. When W cross-examined H about these matters, it was abundantly clear to me that there was very little foundation or substance for H’s suspicions. I accept that she is not, and never has been, non-domiciled. I accept that there is no evidential basis for his assertions that she spent a good deal of time in Guernsey. I accept that her only connection with Ansbacher Bank is the existence of a commercial loan which she took with that institution, a liability recorded – properly – in her Form E. Eventually H himself was forced to retreat from his suggestion that she was “very ‘up’ on foreign trusts”, a statement for which there was no evidence at all, even prior to its retraction.

For the avoidance of doubt, and despite the evidence which I was to hear from Mr Stiefel (to which I shall come), I do not accept that H has made out even a prima facie case in relation to W being the owner of, or having a beneficial interest in, Zinc Limited.

When W entered the territory of share valuation in her cross-examination, H confirmed that he was not aware of any institutional investors in B Ltd at the time he prepared his Form E and that had been the reason for basing his share price (£11.59) on the most recent transaction of which he was aware between two individual shareholders. Instead of looking at balance sheets, he had quite simply used the last price paid.

He was asked about the conversations which he alleged they had about the progress of the company’s bid for the Ministry of Justice contract. It was H’s case that W had told him during these conversations that the company was ‘in trouble’ and the contract had been delayed. This was disputed by W who told me that there were no discussions at all between them about B Ltd once they had separated. H was asked when these conversations had taken place. He was unable to give me any specific information as to when, or in what circumstances, he had spoken to W about the company’s financial fortunes. He told me about his recollection that she was constantly telephoning to ‘pester’ him, although most of the time he tried not to take the calls. He told me that he had a number of girlfriends at the time and W would call early in the morning on occasions when it would be difficult or embarrassing for him to take the calls. On balance, I am prepared to accept W’s evidence that there was no direct discussion between them about the financial health of the company once they had formally separated. I am quite prepared to accept that, in the months following June 2009 when H told W he did not wish to live with her any longer in the South Kensington property, there may well have been several anxious telephone calls between them as they entered a difficult ‘no man’s land’ in terms of their marriage. It is W’s case that the marriage limped along for another few months, albeit that they were living separately. In her mind, there was still a prospect of saving the marriage during this period. On the balance of probabilities, I am prepared to accept that the telephone calls to which H was referring had happened during this period and related to the difficulties in which this couple then found themselves rather than to any issues surrounding W’s work with B Ltd. I accept that, once the separation became final (in W’s mind, at least, by July 2010), there was little – if any - direct discussion between them about the company. This is consistent, I find, with H’s earlier evidence that W was not forthcoming with information about the company. He said at one point of his oral evidence that he did not ask questions because he knew that she would not tell him anything. Thus, on his case, he was dependent upon her for information at the time he struck the deal in February 2012, a case which W appears to accept save only in respect of the information he received (or could have ascertained) in his capacity as a shareholder of B Ltd.

H confirmed that when he prepared his Form E, he had not necessarily believed that his shares were then worth £11.59 each. Rather, this was the price at which at least two (named) investors had sold their shares to other arm’s length investors. It was a benchmark which he put forward, rather than a formal statement of belief in their value. He was prepared to agree with W that, at that value, the total issued share capital would have been somewhere close to the figure of £5 million which informed the ‘floor value’ for the anti-embarrassment clause. However, he maintained that whether or not that might have been the case, he entered into the agreement without the knowledge that the company had recently received an external injection of £3.5 million and, of even greater significance to his mind, that the investment had come from Odey.

H was then asked about the rolling losses which B Ltd had continued to make on a year on year basis (Footnote: ¹⁰). He accepted that W had to finance the business because it was continuing to lose money. He said that he had been unaware of the circumstances of the redemption of the KI loan until he had spoken to Barry Stiefel. The subsequent investment by Odey was highly relevant in his view because it was a significant sum of money which had been invested by a major player. The identity of that investor would have been sufficient by itself to enable B Ltd to attract other wealthy investors who would have been happy to follow Odey’s lead. This, on H’s case, was a key piece of information which would have been highly material to any decision he took about the terms on which he was prepared to part with his own shares in B Ltd or, alternatively, the “price” at which he was prepared to release them into to W’s control. He disagreed with her suggestion that this was a small and insignificant investment for the likes of Odey. Whether or not the sums involved were a substantial part of Odey’s assets under management, the company owed a fiduciary duty to its investors to carry out proper due diligence into B Ltd. He told me that this was not an investment decision which could be viewed as ‘a commercial punt’. Rather, he described Odey’s decision to back B Ltd’s commercial future as ‘a wholly different league’ in investment terms. In my view, much of his case was encapsulated in a response he gave to one of W’s questions at this point:

“You pulled off a real coup with Odey; congratulations [he referred to W by her first name]; I would just have liked to know about it before I signed the consent order.”

In my view, that answer reflected H’s genuine sentiments about his own perception of her conduct. That, of course, is not an end to the matter because one of the matters I shall have to determine is the extent to which (if at all) the investment by Odey in B Ltd has had the transformational effect upon the company for which H contends. This I shall consider when I come to deal with the issue of ‘materiality’.

In terms of W’s evidence, she was keen to stress that she had never had any dishonest intention in terms of her presentation of B Ltd’s financial affairs. Of Mr Yates’s criticism of the terms in which David Fletcher’s letter dated 5 December 2012 had been framed, she told me that she had no involvement whatsoever in its formulation. Her point of contact with Odey was Mr Wolfson, an affiliate of Odey’s who sat on B Ltd’s board. She continued to maintain her case that the injection of funds by Odey into B Ltd in 2011 was not an equity investment. At the point of receipt, it could not properly be characterised as the provision of long term capital (i.e. an investment of more than 12 months) because the 28 day window which was specified as the deadline for agreeing terms had closed without agreement. The terms being proposed by Odey as a condition of its investment involved wide-ranging provisions which included a change to the company’s Articles of Association. The agreement into which the company entered had a specific clause which provided that Odey’s offer would lapse if terms had not been agreed within the specified time frame. Of course, by that time, the outstanding loan from KI had been repaid using a significant part of the Odey funds. The balance was retained within B Ltd as working capital.

W told me that she had her own views as to why Odey had not demanded the return of its cash. She told me,

“They were speculating we might win the Ministry of Justice [bid]. If we had won that contract it would have been a, as [H] describes, pivotal moment and anybody would want to have been invested. But there was a very, very – the odds of winning were so outside, so by doing what they did was very clever. They provided cash, but they didn’t reach an agreement and they sat on it. So it gave them effectively an option at any time. We didn’t give the money back because we didn’t have it, we had spent it, so we didn’t raise our head above the parapet to get shot down. And I thought, well, worst case, if they ask and it’s a year’s time they ask or three months’ time, at that stage I will work hard to negotiate something with them or I will try to find somebody else to replace them. In the same way I did when KI reneged on their agreement, and with KI we actually had a fully executed signed agreement and they still reneged on it and said they wouldn’t convert it. So I was in the context of knowing that this is what investors do, they sit there and keep the option open, which gives them a preference … effectively then it’s a loan, which is a preference. So if the company falls over they get their money out before anybody else does, and we were not offering that. We were only offering them – if they were going to invest it was going to be in ordinary shares. Now when they finally did complete their investment in February 2013, three things had happened. We had qualified to bid for the MOJ, which is extraordinary, so the MOJ had changed the criteria for the bidding and allowed small companies to bid for one part of it, and we had qualified for that. So that was amazing. It was an incredible achievement. We had completed our disagreement with KI …. But one of the terms of the Odey proposal was that we could all warrant as directors that there were no outstanding legal issues, and [H] knows full well that that is something any investor would require. We couldn’t do that until that agreement was reached and that agreement was reached in February 2013. And the third thing was in 2013, February, that we had run out of money again. We had spent the working capital and we needed to go out and raise, and I went to talk to [N Co] and they said they’d come in at a higher price, so Odey went, “Well we want to complete” and at that point said, “We want to complete and we want to complete on this price” and then there was a negotiation and they completed. But they had managed to keep for 14 months the option of investing.”

When she was cross-examined by Mr Yates about the contents of her Form E, she accepted that there was no mention of the Odey investment despite the fact that it had been made some two months previously. It was W’s clear view, expressed forcefully from the witness box as I have set out above, that it had not occurred to her that the identity of the investor was in any way relevant to the value of her shares in B Ltd. She did not then, and does not now, consider that she was under any obligation to refer to the investment in her Form E and she questions its relevance in terms of the set aside application being pursued with such determination by H. She told me that she believed to this day that she had completed her Form E honestly and accurately. At that point, as far as she was concerned, B Ltd was holding the balance of Odey’s £3.5 million investment (£1.7 million of which had been applied to redeem the KI loan) and those funds were repayable on demand. She did not consider the funds to belong to the company. Had the accounts been drawn to reflect a greater burden of debt, it would have significantly prejudiced the company’s position in its bid for the Ministry of Justice contract. She described the position as being “in no man’s land; technically we should have given the money back but it was not in our interests to do that”.

She did not accept that there was any basis or foundation in the so-called “Odey effect” in terms of H’s current application. She pointed to another early investor in B Ltd, Anthony Bolton, whose fund (Fidelity) had made an investment in B Ltd some 12 months before H’s initial investment. That investment was made on the basis of £5.75 per share. Despite the considerable reputation of that particular investor, it had made no material difference to the price at which she had been able to attract future investment in B Ltd. She told me that she had learned from a very early stage that investors do not make commercial decisions based upon the identity of their fellow investors. In this context, she was in agreement with H that the price at which new investors were prepared to put money into B Ltd had no relevance to the value of her founder’s shares. She rejects H’s argument that Odey’s arrival as an investor opened doors to valuable networks of contacts and/or that it provided so-called ‘backroom’ facilities which offered new opportunities which would otherwise have been unavailable to B Ltd. In this respect, there was no evidence before me of any such opportunities having being introduced to B Ltd by Odey.

Of the “anti-embarrassment clause”, W accepted when she gave her oral evidence that H had not known that Odey had made an investment of cash at the time he agreed to its insertion in the agreed terms of settlement.

Following the making of the agreement, she described to me how she felt under virtual siege by the demands which H was making in 2012 for information and documents about B Ltd. His solicitors’ initial response to The Daily Telegraph article had been a demand to see several categories of documents which she was being prevented by her board from disclosing. She told me that she had construed these requests as H’s attempt to continue and prolong the highly acrimonious litigation which had then been ongoing between them for two years. She had felt exhausted by that litigation and had all but run out of funds to continue it. Because of his earlier approach to a Daily Mail journalist and his disclosure of confidential court documents (or, at least, a page from her Form E), she was extremely anxious about releasing to H in the context of the ongoing litigation any further commercially sensitive documents which he might use to damage B Ltd’s bid for the Ministry of Justice contract. She had no confidence in any undertakings he might give to keep this information private and, further, the board of B Ltd was telling her that she could not release the documents which were being sought. On her case, it was a combination of these factors, rather than any reluctance on her part to provide information, which prolonged the disclosure process over the course of 2012.

Of the potentially damning statement in her solicitors’ letter written on 22 May 2012 that there had been “no new injection of cash” into the company, a statement which post-dated Odey’s financial injection of funds by some seven months, W accepted that the statement was not true but denied that she had intended to lie. She told me that she should have read that letter with greater care but had never anticipated that this correspondence, written after they had concluded their agreement, would be the subject of such rigorous scrutiny. She accepts that she gave clear instructions to her solicitors that there had been no investment by Odey; this was simply working capital which enabled the company to continue to trade from a position of corporate solvency for the next twelve months.

She was asked about the statement she made to the journalist who wrote the article in ‘The Director’ magazine. In that article, she had been quoted as referring to Odey’s financial support for the company as “an investment”. She was adamant that she did not refer to the transaction in those terms during the interview and was misquoted. She told me that, following the publication of the article, she had been telephoned by Julian Wolfson who had challenged her about her reference to an “investment”. She had told him what she was subsequently to tell me.

Of the many requests for information which followed H’s challenge to her disclosure at the time of the agreement, she gave evidence about the position of conflict in which she felt she was placed. She had been prevented by her board of directors from disclosing sensitive commercial information which they suspected H might well misuse in order to damage the company. There was already a basis for that suspicion in terms of the information which had been given by him to the Daily Mail journalist. W told me that she had written a personal letter to her board asking for their assistance and for permission to disclose the information which was being sought. Although that letter was not included in the bundles of material before the court, she provided me with a copy the following morning. The letter confirms her evidence and sets out in clear terms her request to be released from her contractual obligations to the company to the extent of providing the information sought by H and his legal team. She accepted that she could have gone privately to H to inform him that the company was holding cash belonging to Odey which might have to be returned. She did not do this because she believed he would have used the information to damage her and the company. She described H as “an angry man”. In my judgment, that was probably an entirely apt description of his feelings towards her at the time. It was not until May 2013 when the lengthy questionnaire directed towards W was distilled by order of Parker J into 5 direct questions that the board agreed to assist W in her disclosure obligations to this court.

I recorded earlier in my judgment that W had been prepared to make concessions where she believed them to be appropriate. One such concession was her response to a question put to her by Mr Yates in relation to a schedule of deficiencies which H had served on 17 May 2013. In relation to potential investors in B Ltd, she had been asked to identify “any offers (whether formal or informal) of Investment received by [W] or by [B Ltd]”. In response, she had provided a letter from Lord Stevens, the company’s chairman, dated 20 February 2013 to which I have already referred. Its terms were quite clear: “The Board of [B Ltd] will not release you from these obligations [of confidentiality] and will not permit you or any employee to release or copy company property for the benefit of any third party without the board’s specific authority”.

The letter continues:

“You have asked me to confirm that [B Ltd] has not recently received material external funding and that there are no commitments to provide such funding. The only external funding provided to the company in 2012 was a small loan from a US business and there are no outstanding commitments of any kind to provide further funding to the company. The board is content that you should give this information to [H].”

Lord Stevens provided further information about that loan in a subsequent letter which he wrote to W on 13 May 2013, although H’s schedule of deficiencies only referred to his earlier letter written in February 2013. Mr Yates asked W why, with the Odey investment having been agreed in February 2013, she had not instructed her solicitors to write prior to the hearing before Parker J on 22 May 2013 (the occasion for further scrutiny of H’s schedule of deficiencies) to reveal the fact that Odey’s “loan” (on her case) had since been converted into an investment. W very fairly conceded that she had not done so because she did not consider it relevant. I mention that here because, on Mr Yates’ case, it goes to the heart of her credibility in relation to what she believed about her obligation to disclose Odey’s involvement at the time she concluded the February 2012 agreement with H. He relies on that failure as a further brick in the evidential wall he seeks to erect to support his case against her in relation to a deliberate intention to deceive both H and the court in relation to the information which was provided in her Form E.

It is common ground that the first time W herself made any formal disclosure about Odey’s injection of cash into B Ltd came on 14 August 2013 when she responded in writing to the five questions authorised by Parker J at the hearing at which the company had been separately represented. That narrative explanation coincides with the evidence which she has subsequently set out in her written evidence and as she explained matters during the course of her oral evidence. She set out in that narrative that Odey had agreed to convert its loan to shares in B Ltd following the company’s settlement with KI in February 2013. As a result, Odey then held 119,920 shares with preferential rights.

I heard oral evidence from Mr Barry Stiefel about the involvement of KI with B Ltd. He is a director of that offshore (Jersey) holding company which is owned by a South African businessman called Nathan Kirsh. Late in the day, H made contact with Mr Stiefel and he agreed to appear on his behalf as a witness at this hearing although they had never previously met. I agreed to allow him to call Mr Stiefel on the basis that H, through Mr Yates, informed me that he had relevant evidence which might assist me in determining the issues which I have to decide. As I made plain at the time, the weight to be attached to his evidence would be a matter for me once I had heard from him.

Mr Stiefel confirmed in his written statement that KI had entered into a convertible loan agreement with B Ltd on 9 July 2010. I have seen a copy of that agreement which provides for an initial loan of £500,000 to B Ltd which, at KI’s sole discretion, could be converted into shares in B Ltd at a price of £25 per share. The loan was stated to be repayable in full on the first anniversary of the agreement (i.e. 9 July 2011). Clause 7 of the agreement provides that, after carrying out a due diligence examination of B Ltd’s affairs, KI would consider lending a further £1.5 million to the company. Thereafter, sums totalling £1.5 million were made available to the company. Those loans were never converted into equity in accordance with the loan agreement. I heard evidence from both Mr Stiefel and W as to why that was not done. Had the loan been converted into shares, there would have been no need for part of the Odey cash injection to be used to repay the debt. Mr Stiefel stated in his written evidence that, in October 2011, W had visited his office and told him that she no longer wished KI to be involved with B Ltd. She handed over a cheque made out to KI in the sum of £1.5 million. He says that this came as a surprise to him since there had been no earlier indication from KI that repayment of its loan was required. He made reference to an earlier disagreement between KI and B Ltd/W in relation to the production of a share certificate to which KI was entitled as a result of buying the shares of a previous investor in the company. Litigation was threatened but never proceeded as a result of an out of court settlement. This litigation related solely to the transfer of shares; it did not concern the loan which KI made to B Ltd.

In relation to that threatened litigation, Mr Stiefel told me that Lord Stevens, the chairman of B Ltd, and Professor Kay, another board member, came to see him shortly before the court hearing. He said they told him that they could not issue KI with a share certificate because W had sold the shares twice and there were none to allocate. I heard evidence about the reasons why KI had refused to sign a Deed of Adherence in relation to B Ltd’s shareholders agreement. Mr Stiefel told me it was because of W’s failure to produce a certain business plan. I heard about Mr Stiefel’s opinion that W was the controlling shareholder on the B Ltd board. I heard about his ‘impression’ that W was the alter ego of a company called Zinc Ltd (which was itself a shareholder in B Ltd).

Some of Mr Stiefel’s evidence was in direct contradistinction to W’s evidence and to the evidence I was to hear from Lord Stevens. There was no consensus as to the circumstances in which the Convertible Loan Agreement had been signed. W produced on the third day of the hearing a different version of the signed agreement which had been signed by “L S Coomer” on behalf of Zinc, as one of B Ltd’s shareholders. Frankly, none of this evidence assisted me in relation to the core issues in this case. Lord Stevens was to tell me that there was a very difficult personal relationship between the directors of B Ltd and Mr Stiefel. Much of what Mr Stiefel told me appeared to be based on incomplete knowledge and assumption. The issue of the ownership of the shares in Zinc Limited is a good example. W told me during the course of her oral evidence that she had never provided funds to Zinc to enable that company to purchase shares in B Ltd. Initially she had owned 99.9% of the shares in B Ltd as its founder. Zinc Ltd became a shareholder in September 2005 during the first stage of external funding. W’s own shareholding at that point reduced to about 80%. Over four further rounds of external investment, her interest in B Ltd was further reduced so that, by 2009, she held a 38% equity stake in the company.

Further, David Fletcher, the Chairman of Odey, was to tell me during the course of his oral evidence that his company had received an assurance from the B Ltd board that there was no connection between W and Zinc Ltd when Odey acquired some shares from Zinc in 2011. I am entirely satisfied that W was telling me the truth when she denied any relationship or connection with that company. I am also satisfied that neither she nor Lord Stevens made any representations to Mr Stiefel about selling shares in B Ltd twice. W denies this and her denial is supported by Lord Stevens and Professor Kay who told me that this is something which Mr Stiefel himself had not surmised until the facts were explained to him by Professor Kay himself.

At the end of the day, I am left with the strong impression that much of what Mr Stiefel had to tell me about W’s control of B Ltd (through Zinc or otherwise) was speculation on his part. I do not find that it assists me very much at all on the issues which I have to decide, nor does it take H’s case forward in any real way.

I heard next from Mr David Fletcher, the Chairman of Odey. He had not made a formal written statement for the purposes of these proceedings but he had signed two letters which were in the written material placed before the court. He was not called as W’s witness; indeed, as she confirmed in an email, she had at the pre-trial review opposed his being called to give oral evidence. I had directed him to attend as part of the case management directions I made on that occasion. He subsequently wrote to the court and indicated that he was quite willing to attend, albeit it that he did not entirely understand the basis upon which his assistance was being sought. I record in my judgment my thanks to him for his attendance.

The first of Mr Fletcher’s letters is dated 5 December 2012 and was addressed to W in her capacity as the chief executive of B Ltd. This was shortly after the hearing before Parker J in November 2012 when W’s application to strike out H’s application to set aside the consent order was dismissed. In that letter, he confirmed that Odey began discussions with B Ltd in May 2012 with a view to providing financial support to the company for its discussions with the Ministry of Justice. He explained that Odey’s particular interest was in ‘offender management’ because of the company’s belief that pressures on public expenditure created a potential worldwide market for tracking solutions in substitution for custodial sentences. Under W’s leadership, Odey considered that B Ltd might be capable of providing the basis for the development of such a business. His letter continued in these terms:

“For these reasons, Odey would consider, subject to the structure and terms of a Ministry of Justice Contract being awarded, providing [B Ltd] with a proposal for the Board to consider for the financing of this contract. Neither [B Ltd] nor Odey is able to estimate the likely requirement, if any, for such funding. No commitment has been made either by Odey to provide this finance, or by [B Ltd] to accept it, and the terms would have to be negotiated between Odey and [B Ltd] when the requirement arose.

Odey would not make an offer to buy [B Ltd] or any or all of the founders’ shares in [B Ltd]. Such a transaction would not be consistent with Odey’s investment objectives. We look forward to discussing the financing with you as the process advances and are willing for you to share this letter with your legal advisers.”

Mr Fletcher’s second letter was dated 22 June 2015 and was written shortly before his appearance to give evidence. In that letter, which was addressed to W and H’s solicitor and copied to me, Mr Fletcher queried the basis of the reliance which was being placed by the parties on his first letter. He claims not to have remembered writing it although he did recall some discussions about W’s divorce case “and the possibility of us helping rebut some untrue claims by stating the facts”. He explained that his lack of recollection did not mean he had not signed the first letter since he would frequently sign letters drafted by others in the normal course of his work. As to any suggestion of “collusion” with W, he fully and firmly rejected any suggestion that he had been involved in anything underhand or improper. When cross-examined by Mr Yates on behalf of H, Mr Fletcher said that Odey had about five hundred ‘live’ investments at any one time and he would often sign letters in this way. He said that the purpose of the letter had been to restate clearly the circumstances of Odey’s investment in B Ltd. That investment had occurred in October 2011 at a time when the shares in the company were valued at £34.23 each. That would have valued the company at about £15 million which was a far cry from what was being represented in the Daily Telegraph article which spoke of the company being worth “tens of millions”. He said he had no idea as to the provenance of the report and he had had no conversations with W prior to writing this letter about information she was being asked to provide in these proceedings. He was unaware of what information had been provided to Odey by W and/or B Ltd in order to persuade the company to invest in B Ltd although he had seen Odey’s own financial projections. He explained that Odey would have undertaken the normal due diligence procedures before investing and would have reserved the right to appoint one of B Ltd’s board members.

Significantly, Mr Fletcher confirmed that when Odey paid over the £3.5 million to B Ltd in October 2011, it was viewed by his company as an equity investment rather than a loan. Odey received a share certificate and it was recorded as such in Odey’s own accounts. Odey had signed a subscription agreement. When Mr Yates put to him the description of the “investment” as it was reflected in B Ltd’s own accounts, Mr Fletcher confirmed, again, that there was no doubt in his mind that Odey had acquired an equity stake in B Ltd at the time it had provided funding in October 2011 and it had been recorded in Odey’s financial records as such from the outset. He accepted that there was a technical glitch which prevented the company from formally completing the conditions of the investment since various changes were required to the B Ltd Articles before Odey was prepared to sign the shareholder’s Deed of Adherence. He accepted that W and B Ltd may not have been aware that this was how Odey had recorded its investment. He was adamant that there had been no collusion between him and W and/or any other employee or representative of Odey in relation to the letter written on 5 December 2012. He told me that he had met W once in the summer of 2011 and they might have spoken once or twice on the telephone after that meeting. He was aware that Odey had written to the Ministry of Justice to support B Ltd’s bid and to confirm that the company was willing to provide financial support to B Ltd in the event of it securing the government contract.

I found Mr Fletcher to be an entirely straightforward and honest witness as I would have expected for a man of his professional standing. I accept that, as far as Odey was concerned, it had made a commercial investment in B Ltd from the outset, i.e. in October 2011 when its relationship with B Ltd was formalised beyond the exploratory discussions which had been taking place up to that point in time. In relation to the content of the letter dated 5 December 2012, I accept that neither Mr Fletcher nor W were directly concerned in the drafting of the letter. Nonetheless, it was, as I find, presented to H’s lawyers in support of the case which W was then running in relation to Odey’s involvement with B Ltd and it does not on its face reflect Odey’s position in relation to its equity stake in B Ltd as it was explained to me during the course of Mr Fletcher’s oral evidence.

I heard next from Lord Stevens. Since June 2011 he has been the Chairman of B Ltd’s board of directors and is well known as a former Metropolitan Police Commissioner. His written statement is dated 4 March 2014. In that statement he dealt with his knowledge about the company’s financial situation in the early days of his involvement and the circumstances in which Odey came to be involved with the company. He spoke of the financial difficulties with which the company was struggling when he joined the board and of problems he encountered in his dealings with Mr Stiefel with whom he had many telephone calls and discussions over KI’s unwillingness to provide the balance of the cash funding which had been promised. B Ltd was then losing about £100,000 per month in terms of its cash flow and, during the Summer of 2011, W had been involved in many discussions with potential investors with a view to replacing KI’s financial backing for the company. Whilst Lord Stevens told me during his oral evidence that he respected Mr Stiefel as a good businessman, his view was that he was witholding the funds earmarked for investment in B Ltd as a means of control and to give KI some standing in decisions made in relation to the process of governance of the company.

He told me that in 2011 he had been to see Mr Fletcher and Julian Wolfson at Odey’s London offices when that company’s funding of B Ltd had been discussed. He does not appear to have been involved in the treatment of Odey’s investment in B Ltd’s accounts; with board approval, he merely signed the accounts in his capacity as Chairman and had no direct discussions with Professor Kay as to how the figures were represented in those accounts.

On 20 February 2013 Lord Stevens had written a letter on behalf of the board to W at her home address in London. I have referred to the contents of this letter in paragraphs 118 and 119 of my judgment and do not repeat them here. When cross-examined by Mr Yates about the content of that letter, Lord Stevens told me that the board had taken legal advice following the hearing before Parker J in November 2012 and had instructed independent counsel for the purposes of the next hearing in May 2013 when the company was separately represented. (It was at that hearing, on 22 May 2013, when counsel instructed by the company made the open concession that Odey had invested in B Ltd.) He told me that W had had no part in the drafting of the letter dated 20 February 2013; the information relating to B Ltd had been provided in the form which appears in that letter since the company accounts for the year end 31 December 2011 were already in the public domain. Those accounts show that the company was then holding cash reserves of some £1.53 million (i.e. the balance of the Odey funds paid in October that year, although there is nothing by way of further narrative in those accounts to alert the reader to the provenance of the funds).

Lord Stevens confirmed that it had always been the board’s position since it became formally involved in the dispute between H and W in relation to their divorce settlement that it would not oppose the instruction of a single joint expert in relation to a valuation of W’s shares in B Ltd at the time of the agreement in February 2012. This offer was never accepted and the company was thus obliged to instruct counsel to attend the hearing on 22 May 2013 in order to oppose H’s outstanding application for a production order against the company.

He was adamant that he would never have been a party to the provision of information which was designed to mislead or ‘dodge the question’ and, in all his dealings with W as a fellow board member, he had been scrupulous to observe his fiduciary obligations to the company.

As to the so-called “Odey effect” on the value of the shares in B Ltd, Lord Stevens’s evidence was that what Odey brought to the corporate table was a considerable amount of financial knowledge and experience, although he knew nothing specifically relating to ‘back room’ resources and researchers. He told me that, at one stage, matters had deteriorated to such an extent that a board meeting was called: the company was unable to pay staff salaries when they were due the following week. He recalled the directors offering to “put their hands in their pockets” in order to ensure the staff were paid. The deal with Odey had provided the company with a vital source of cash flow and enabled the company to carry on trading and investing in the resolution of a number of technical problems which were occurring in the manufacture of its main product.

I accept that Lord Steven’s evidence was truthful and that he was doing his best to assist the court about matters which, in some respects, were not his concern. He clearly takes his obligations to B Ltd seriously and I do not accept H’s overt criticism of him as a witness who would support W in any case she chose to run in these proceedings. I can find not one scintilla of evidence of “collusion” between them and, by the conclusion of his cross-examination, Mr Yates was not seeking to frame his questions about the letters Lord Stevens had written on the basis that what he wrote was intended to be misleading.

Professor Kay is a Fellow of St John’s College, Oxford, a visiting Professor at the London School of Economics, a Fellow of the British Academy and of the Royal Society of Edinburgh. He was honoured with a CBE in the 2014 New Year’s Honours List. He had prepared a written statement dated 3 March 2014. Much of his statement was redacted. I suspect that the redacted material went to his opinion of the value of the shares in B Ltd and there was no permission or agreement in this case for expert valuation evidence. What he did assist me with was the accounting treatment of the Odey investment.

Professor Kay has held shares in B Ltd as a private investor since 2008. He had joined the board of B Ltd in September 2012 but appears to have been giving informal advice to the company for a period of time prior to his formal appointment. He was brought in specifically to assist the company with a number of administrative matters including the termination of its corporate relationships with KI and with the former chairman, Mr Kanter, the completion of the 2011 accounts, and the finalisation of the company’s investment agreement with Odey.

When he received the draft accounts for 2011 from the company’s external accountants, he could see that B Ltd was technically insolvent. He was aware that the company was preparing to bid for a number of contracts, including the Ministry of Justice tender, and he could see the disadvantage of filing accounts which showed a negative net worth on the balance sheet. The reason for the deficiency was the fact that the Odey investment had been treated in the draft accounts prepared by Mazars as a loan to the company, repayable within twelve months. This was because Odey had provided funds in contemplation of a formal equity investment but their terms had not been met within the required time frame. Under the terms of the agreement, the monies received from Odey were repayable if the conditions precedent to an equity investment were not completed within 28 days. Thus, in Professor Kay’s eyes (and in the opinion of the company’s external accountants), the monies were technically repayable on demand as at 31 December 2011 (the company’s year end) and continued to be repayable on demand in September 2012 when his appointment to the board took effect.

Professor Kay was well aware of the continuing discussions which were ongoing with Odey. He knew that the intention was that the Odey monies would be converted into equity, allowing the company to meet its liabilities and continue trading. The ongoing discussions confirmed his belief that the equity investment would crystallise. He told me during the course of his oral evidence that he had spoken to Julian Wolfson, Odey’s appointment to the board of B Ltd, who confirmed that Odey was not likely to require the return of its funds. Having spoken to Mazars, the company accountants, Professor Kay was of the view (shared by Mazars) that the shares which were due to be issued to Odey could not be shown as such in the 2011 company accounts since they had not been formally issued by the time of the preparation of the 2011 accounts in September the following year. In these circumstances, it was his specific advice to the board that the Odey investment should be treated in the accounts as subscription monies which had been paid in contemplation of a subsequent equity investment albeit that the shares to which the subscription related remained unissued. On this basis, and with the agreement of the partner at Mazars who was responsible for B Ltd’s affairs, the accounts were drawn on the revised basis. Professor Kay was aware by this time that W was in dispute with H in relation to the value of the shares in B Ltd. He pointed out to her that the revised treatment of the Odey investment in the accounts might be to her detriment since the debt was removed and replaced by a positive cash balance thus displaying a stronger financial position than would have been the case on the basis of the original draft accounts. She responded by telling him that “we should do what is best for [B Ltd]”, or words to that effect. He was not challenged in relation to that response and I believe that is more or less exactly what she told Professor Kay.

It became clear during Mr Yates’s cross-examination of Professor Kay that he was unaware until very shortly before this hearing that Odey had in fact been issued with a share certificate in 2011 when they made funds available to B Ltd. I heard a great deal of evidence about what was referred to as “crossing the ‘t’s’ and dotting the ‘i’s”. I learned that the change to the Articles (undertaken as a condition of the Odey investment) took longer than expected and that, to some extent, it suited both parties to leave matters in a state of some ambiguity. Professor Kay told me that, despite holding a share certificate, Odey was never registered as a shareholder at that time. In Professor Kay’s view, they were more properly described as preferential creditors in respect not of a loan but of monies repayable on demand.

Professor Kay was asked for his view about the “Odey effect” and the potential of its investment to transform the company’s fortunes. He did not agree that the investment had been either transformational or a pivotal event. Had the availability of the initial investment and the agreement in principle to support the Ministry of Justice bid if the contract was awarded to B Ltd resulted in success for that bid, he agreed the Odey effect would have been transformational. But that did not happen. The company did not secure the contract and the funds made available by Odey merely enabled the company to develop its products and carry on its business. He had no knowledge of Odey’s investment having acted as a magnet or prestige factor in terms of attracting other investors.

I accept Professor Kay’s evidence as entirely honest. He was a courteous witness who dealt with all the questions put to him in a considered and careful manner. I have no doubt that he was doing his best to present the position in relation to the company’s internal accounting procedures in what he genuinely believed to be an accurate reflection of the true state of affairs at the time. However, I am left in real doubt as to the extent to which all this actually assists me with resolving the fundamental issues in this case. My focus must be on the duty of disclosure imposed by law upon W at the time she concluded her agreement with H and the extent to which she complied with that duty of disclosure. I accept that the circumstances of the Odey investment are relevant to an extent to her own state of knowledge and to the existence (or otherwise) of an intention on her part to mislead or hide information which might have been relevant to H’s decision to do the deal.

It is to the law that I now turn.