2014 04 02 trial transcript (day 2) 16505823 1 by Coventry Telegraph

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Wednesday, 2 April 2014 (10.00 am)

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RULING MR JUSTICE LEGGATT:

I may wish to correct the transcript of

the judgment I'm about to give, but I'm happy for it to

be circulated in uncorrected form.

The claim and counterclaim in this case arise out of

commercial negotiations, which did not result in

a concluded agreement.

They are claims by the claimants

and defendant respectively to recover professional fees

and other expenses incurred in or in connection with

those abortive negotiations.

part of an attempt by the owners of Coventry City

Football Club, the club, to find a solution to serious

financial difficulties, which in 2012 had brought the

club to the brink of insolvency.

The negotiations formed

The club was owned by a company in the SISU group of

companies, being a group of companies whose investments

are managed by the defendant in this case, SISU Capital

Limited, SISU.

the Ricoh Arena in Coventry.

The arena was operated by

Arena Coventry Limited, ACL.

ACL was owned indirectly

in equal shares by the claimants in this case who are

the full trustees of the Alan Edward Higgs Charity, whom

I shall refer to as "the trustees" or "the charity", and

The club's home ground at the time was

Coventry City Council.

ACL had borrowed a very substantial sum of the order

of ÂŁ22 million from Clydesdale Bank plc trading as

Yorkshire Bank in order to fund the acquisition of

a lease of the arena.

arena, granted by a wholly owned subsidiary of ACL.

was dependent on the revenue from this licence to

service its debt to Yorkshire Bank.

The club had a licence to use the ACL

In March 2012, SISU embarked on negotiations to try

to rescue the club from its financial difficulties.

the same time the club stopped making payments of

licence fees to the ACL subsidiary.

negotiations was a proposal by SISU to acquire the

charity's 50 per cent interest in the share capital of

ACL.

charity were able to agree indicative terms for such

a share purchase, which were recorded in a document

dated 18 June 2012, described as an indicative term

sheet.

One element of the

Discussions reached the stage where SISU and the

This term sheet outlined a proposed transaction

whereby "SISU or another SISU Group company" would

purchase the charity's 50 per cent interest in ACL for

a total cash consideration of ÂŁ1.5 million, payable

immediately upon completion of the share purchase.

Following completion, it was envisaged that what was 2

in effect further deferred consideration would be

payable over a period of ten years.

this proposed by SISU was the allocation to the charity

of preferred equity in ACL for a value of ÂŁ4 million,

which would be paid down through annual payments over

the ten-year period.

in stone.

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The mechanism for

However, this proposal was not set

The term sheet contained a statement that:

"SISU would consider an alternative structure to that of preferred equity.

The parties will work

together to achieve a solution in respect of suitable

alternatives."

The term sheet further recorded that SISU would

require a period for due diligence investigations, which

was expected to last 30 days.

to completion were indicated, one of which was the

completion would only take place:

Four conditions precedent

"... once a transaction has been satisfactorily

agreed between Clydesdale Bank plc trading as

Yorkshire Bank and SISU."

There were provisions concerning costs and

exclusivity, which are at the heart of this case and

which I will come back to.

for the transaction was said to be "as soon as

possible".

The expected closing date

There was then a paragraph which stated: 3

"This offer [meaning the offer made by SISU to

purchase shares] is non-binding and subject to due

diligence, save for the paragraphs related to costs and

exclusivity, which shall become immediately binding upon

both SISU and the charity upon countersignature of this

term sheet by the charity, notwithstanding that the

remaining terms of this letter remain subject to

execution and completion of formal legal agreements."

The term sheet was countersigned on behalf of all

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the charity trustees on 19 June 2012. It follows that the only two parts of the term sheet

which were intended to have contractual effect were the

provisions relating to costs and exclusivity.

I refer to "the contract", I shall therefore be

referring to those provisions and only those provisions

of the term sheet.

"Costs.

When

They stated as follows:

SISU acknowledges that the charity will

incur significant costs, fees and expense in evaluating

SISU's offer to purchase the shares, and in negotiating

the transaction with SISU and its advisors.

Accordingly, in the event that SISU withdraws its offer

to purchase the shares, or the charity withdraws from

negotiations as a result of SISU seeking a reduction in

the purchase price or seeking unreasonable terms, or the

conditions precedent cannot be met ('aborted 4

transaction'), SISU agrees to underwrite and be

responsible for all the charity's reasonable costs and

expenses (including without limitation the legal and

other professional costs of PwC, Bates Wells and

Braithwaite LLP and Gateley LLP and all expenses and

associated VAT) incurred up to the point of a

transaction with Clydesdale Bank plc, to a maximum of

ÂŁ29,000.

once the transaction has progressed beyond discussions

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Underwriting of further costs will be agreed

with Clydesdale Bank plc. "Exclusivity.

The parties have agreed to a period

of exclusivity, commencing on the date of signing of

this agreement and ending 6 weeks later (the

'exclusivity period').

during the exclusivity period it shall (i) only allow

SISU to conduct due diligence investigations in relation

to ACL; and (ii) conduct negotiations with SISU in good

faith with a view to agreeing and executing the legal

agreements within the exclusivity period.

The charity undertakes that

"The charity undertakes that, during the exclusivity

period, it shall not, directly or indirectly, enter

into, re-start, solicit, initiate or otherwise

participate in any third party negotiations, or supply

or otherwise disclose any information about ACL to a

third party that wishes, or may wish, to enter into 5

third party negotiations (unless the information is

publicly available)."

The exclusivity period expired on 31 July 2012

without any share purchase agreement being concluded.

There was no agreement to extend the exclusivity period.

No share purchase agreement has ever been concluded.

This action has been brought by the charity to

recover expenses from SISU in the maximum amount

permitted by the contract of ÂŁ29,000 on the ground that

the conditions precedent cannot be met.

contends that this became so when, in January 2013, ACL

repaid its loan from Yorkshire Bank, with the assistance

of funding from Coventry City Council, with the result

that it became impossible for a transaction to be agreed

between Yorkshire Bank and SISU.

The charity

SISU denies that it is liable to pay the costs

claimed or any costs incurred by the charity.

also advanced a counterclaim.

damages for breach of an alleged implied term of the

contract.

paragraph 31 of SISU's statement of case as follows:

SISU has

This counterclaim is for

The alleged implied term is pleaded in

"It was an implied contractual term of the agreement

that the parties would conduct the negotiations in good

faith and, in particular, that the claimants would not

do anything or procure that anything be done by any 6

other party or parties to render impossible or

materially to impede the performance of the conditions

precedent set out at paragraph 9 of the defence."

The implied term for which SISU contends has two

limbs and the allegations of breach likewise fall into

two categories.

trustees acted in a way which rendered compliance with

the conditions precedent impossible or materially

impeded their performance.

First, it is alleged that the charity

Second, it is alleged that,

as from 17 August 2012, the trustees resolved or elected

to proceed with an alternative scheme under which (a)

the debt owed by ACL to Yorkshire Bank would be assumed

by Coventry City Council and not by SISU, but at the

same time (b) the trustees would keep negotiations with

SISU open.

without informing SISU of their "true decisions, plans,

objectives and/or motives" was a breach of the implied

obligation to conduct negotiations with SISU in good

faith.

It is said that proceeding in this way

The counterclaim alleges that costs have been

incurred relating to the proposed transaction envisaged

by the term sheet, amounting in total to some ÂŁ290,000.

Those costs were incurred not by the defendant company,

but by other companies in the SISU group.

application has been made to add those companies as 7

additional parties to the counterclaim on the ground

that the defendant was acting as their agent in entering

into the contract with the charity or, alternatively,

that they have rights of action under the Contracts

(Rights of Third Parties) Act (1999).

That application to add additional parties is

opposed by Mr Brennan on behalf of the charity trustees,

who seeks to attack the counterclaim at its root by

arguing that the implied term on which it rests does not

exist.

whether the alleged term is to be implied raises a short

point of contractual interpretation, I took the view

that as a matter of case management I should decide that

point as a preliminary issue at the start of this trial

before any witnesses are called to give evidence.

Establishing at the outset whether the counterclaim is

built on rock or on sand may affect the shape and size

of the case.

In these circumstances, and as the question

The principles of law which govern the implication

of contractual terms are well-known and I need not

rehearse them at any length.

judgment of Lord Hoffmann in Attorney General for Belize

v Belize Telecom [2009], 1 WLR 1988, the process of

implication of terms is generally seen as an exercise

in the construction of the contract as a whole. 8

Since the influential

The

criteria traditionally used are still relevant, namely

that the proposed term must be: 1, reasonable and

equitable; 2, necessary to give business efficacy to the

contract; 3, so obvious that it goes without saying; 4,

capable of clear expression; and, 5, must not contradict

any express term of the contract.

However, as stated by Lord Hoffmann in Belize at 27:

"This list is best regarded not as a series of

independent tests which must each be surmounted, but

rather as a collection of different ways in which judges

have tried to express the central idea that the proposed

implied term must spell out what the contract actually

means or in which they have explained why they did not

think that it did so.

the significance of 'necessary to give business

efficacy' and goes without saying.

The board has already discussed

"As for the other formulations, the fact that the

proposed implied term would be inequitable or

unreasonable or contradict what the parties have

expressly said or is incapable of clear expression are

all good reasons for saying that a reasonable man would

not have understood that to be what the instrument

meant."

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I mention the factual background to the contract. The legal background is equally important. 9

As many

prospective house buyers or sellers know to their cost,

there is no general duty recognised in English law to

conduct contractual negotiations in good faith.

is a duty not to misrepresent facts, but there is no

duty to disclose facts which it would be material for

the other party to negotiations to know, nor is there

any constraint in law which prohibits someone from

carrying on negotiations with more than one counterparty

at the same time without informing them about the

There

existence of the other or others.

By the same token, if a party incurs costs as

a result of entering into or pursuing contractual

negotiations which do not result in any concluded

agreement, those costs as a general rule are not

recoverable from the other party to the negotiations

even if the negotiations fail because the other party

acts unreasonably or concludes an agreement with someone

else with whom it has been negotiating without telling

the party who has incurred the costs.

general rule or default position.

That is the

It is open to parties entering into negotiations to

depart from that default position by making a binding

contract which will regulate their negotiations.

a contract may impose an obligation not to negotiate

with anyone else during a specified period. 10

Such

Notwithstanding the decision of the House of Lords in

Walford v Miles [1992] 2 AC 128, it is also now

generally accepted that such a contract may impose an

obligation on one or both parties to conduct

negotiations in good faith, see eg Petromec Inc v

Petroleo Brasileiro SA Petrobras (No 3) [2005] EWCA Civ

891, [2006] 1 Lloyd's Rep 121.

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Such a contract may confer a right to recover from the other party costs and expenses incurred in

negotiations which prove abortive.

case made a contract which contained provisions of all

those kinds, but it is important when construing the

contract to bear in mind the default position which

applies, except to the extent that the parties have

agreed otherwise.

The parties in this

As I have indicated, the parties agreed to a period

of exclusivity during which the charity undertook,

first, not to negotiate with anyone or allow anyone else

to conduct due diligence investigations in relation to

ACL other than SISU and, second, to conduct negotiations

with SISU in good faith with a view to concluding

a legally binding share purchase agreement.

In return for that contractual undertaking by the

charity, SISU undertook to reimburse costs incurred by

the charity up to a specified maximum limit if the 11

negotiations failed for any of certain specified

reasons.

agreement an undertaking by the charity to conduct

negotiations with SISU in good faith after the end of

the exclusivity period.

inconsistent with the parties' agreement.

It seems to me impossible to imply into that

Such a term would be

On behalf of SISU, Mr Thompson QC disputed that

proposition.

between agreeing to conduct negotiations in good faith

during the six-week exclusivity period and agreeing to

do so for as long as the negotiations continued.

That is true in the sense that those two obligations

could in principle exist in parallel without either

contradicting the other.

a party has undertaken to conduct negotiations in good

faith for a specified period against the background that

in the absence of such an agreement there is no legal

duty of good faith in negotiation, the clear and

unambiguous meaning of the agreement is that the

undertaking is limited to the period specified in the

contract and does not extend beyond it.

There is, he submitted, no inconsistency

But in circumstances where

The contention that a term to be implied whereby the

charity undertook to conduct negotiations with SISU in

good faith after the end of the specified period of

six weeks seems to me as plain a case as there could be 12

of an attempt to rewrite the parties' bargain.

accepted, it would mean that in return for the promise

which it gave to reimburse certain costs, SISU would get

not just the six-week period of good-faith negotiation

which it bargained for, but a longer period, which went

beyond, indeed potentially far beyond, what it had

bargained for.

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The argument for this limb of the alleged implied term therefore falls in my view at the first hurdle.

Far from being necessary to imply a term that the

charity would conduct negotiations in good faith after

the end of the exclusivity period, there is in my view

no scope in the contract for any such term.

The other limb of the implied term for which SISU

contends is that the charity trustees would not do

anything to render impossible or materially to impede

the performance of the conditions precedent.

undertaking is said to be implicit in the provision

relating to the charity's costs.

Such an

Mr Thompson submitted that it cannot have been

intended that the charity should on the one hand be

entitled to come after SISU for costs in the event that

the conditions precedent could not be met and, on the

other hand, at the same time be free to act in a way

which rendered it impossible for those same conditions 13

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precedent to be met. I can see some force in that argument when viewed as

an argument for construing the last of the three events

which gives rise to a liability of SISU to pay costs,

namely that "the conditions precedent cannot be met" as

excluding a situation in which the conditions precedent

cannot be met because the charity prevents them from

being met.

and do not consider it further in this judgment because

I express no concluded view on this point

it is not part of the preliminary issue.

is a good one, it operates as a potential defence to the

charity's claim.

If the point

However, I can see no justification at all for

implying into the contract a free-standing obligation on

the part of the charity not to prevent the conditions

precedent from being met, which, if broken, would give

rise to a liability in damages.

inconsistent with the parties' bargain.

from the express terms of the contract that the only

party which was given a right to recover wasted costs in

certain circumstances was the charity.

that right, the charity gave undertakings limited in

time to afford exclusivity to SISU.

contains no provision which gives SISU a right to

recover costs from the charity in any circumstances and 14

That would again be It is clear

In return for

The contract

SISU gave no undertaking with regard to the conduct of

negotiations as a quid pro quo for any such right.

It would furthermore be wholly disproportionate and

unreasonable if the consequence of preventing the

conditions precedent from being met was not merely to

deprive the charity of the right to recover its own

wasted expenditure, limited to a maximum sum of ÂŁ29,000,

but was to render the charity liable to reimburse SISU

for its expenses without any limitation in amount.

It would, in my view, require very clear words

before the contract could be construed as requiring such

an unreasonable result.

the contract at all which suggest, let alone expressly

state, that this was intended.

As it is, there are no words in

In short, the attempt to imply out of SISU's promise

to reimburse the charity's costs to a maximum of ÂŁ29,000

in certain circumstances, an unstated promise by the

charity to reimburse SISU's costs with no limit in

amount in certain circumstances seems to me to be

hopeless.

For these reasons, I rule that there was no implied

term of the contract of the kind alleged in paragraph 31

of the counterclaim.

must be dismissed and all that remains to be decided at

this trial is whether or not the charity is entitled to

It follows that the counterclaim

succeed in its claim.

That is my judgment on the decision announced last

night.

out before we start the evidence.

I'll break for five minutes to sort ourselves

(10.23 am)

(A short break)

(10.33 am)

MR BRENNAN:

May it please you, my Lord.

will be Mr Peter Knatchbull-Hugessen.

The first witness His witness

statement is to be found at page 254 in the first

bundle.

MR PETER KNATCHBULL-HUGESSEN (sworn)

Examination-in-chief by MR BRENNAN

MR BRENNAN:

Sir, what is your full name, please?

Peter Wyndham Knatchbull-Hugessen.

And what is your address?

(Address given).

Do you have in front of you a copy of the witness

statement that you made during the course of these

proceedings?

Yes.

If you turn to page 277 of that statement, you'll see

a signature.

Yes.

Is that your signature? 16

It is.

Are the contents of that statement true to the best of

your knowledge, information and belief?

MR BRENNAN:

Yes. Thank you.

questions.

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Wait there, there will be some

Cross-examination by MR THOMPSON MR THOMPSON:

Good morning, Mr Knatchbull-Hugessen.

My name

is Thompson, I appear on behalf of the defendants in

this matter.

have been put in on behalf of the trustees, it's

indicated that Mr Rowley Higgs is a solicitor and

Mrs Emily Barlow is some sort of environmental

consultant, I believe.

put it.

profession or, if you're retired, what your former

profession was?

In the various witness statements that

Perhaps that's an

unfair way to

Could you just tell the court what is your

I was, have been, involved in -- I started off being

involved in training, training of both unemployed

people, refugees at different times, and young people

not in employment, educational training, bringing them

into work.

job, I was running a company down in Hampshire and

Surrey, which took contracts from what were then known

as Training and Enterprise Councils.

I finished doing that.

Before taking this

So if I described you as a businessman, would that be a fair description or ...

Not really.

Are you a specialist in corporate finance?

That's not

your business?

Absolutely not.

No.

There are two short preliminary points that I'd

like to take you to.

First of all, at a number of

places in your witness statement, to just take a fairly

representative example, paragraph 8, lines 4 and 8,

you'll see you refer to the "SISU web of companies" and

the "SISU web of partnerships"; do you see that?

I see that, yes.

I don't know if you need to turn it up, but in the ITS,

the indicative term sheet, there's reference to "SISU or

another SISU group company".

Yes.

Would it be fair to say that when you use the word

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I'm familiar with that.

"web", you just mean group? A.

No.

Not being an expert in corporate finance, I relied

only on an organogram that I saw where the --

SISU Capital's position is not one of ownership of the

companies that we have been dealing with as the owners

of the football club.

appeared to me, that SISU Capital manages funds for

It appears to me, and has

investors and that the companies that currently have the

right to play in the league and operate as Coventry City

Football Club, namely Otium and then above that another

one called Sky Blue Sports and Leisure, seem to be owned

by a limited partnership of some kind called Sconset

from the Cayman Islands, but it isn't clear from that

what the relationships are, other than that they are

a web rather than my understanding of a group, which

would be that there is some kind of ownership trail that

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goes through it. Q.

If we do turn to the indicative term sheet at tab 1

at the front of the bundle and turn right to the front

of the bundle, if you then turn to page 6.

I haven't got that, I am afraid.

Right to the front.

There should be a coloured "A", and

then behind it, a tab 1 --

Right.

-- and then a page 6.

Yes.

You see in the box headed "Upfront payment", in the

(Pause)

second line there's reference to "SISU or another

SISU group company", which is defined as SISU;

do you see that?

I read it, yes.

Whether you like to use the word "web" or "group", 19

that's what we're talking about, isn't it?

another SISU group company", that's how the ITS was

defined and that's what we're talking about in this

case; is that right?

MR JUSTICE LEGGATT:

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For what purpose?

"SISU or

You should make

clear what we're talking about. MR THOMPSON:

This case concerns primarily the construction

of this document and what its legal effects were.

That's what we're talking about.

That's what SISU is,

that company or another group company.

isn't it?

That's correct,

I think that the distinction for me at the time that

this was being constructed was that the option that was

available to Coventry City Football Club Limited was not

in issue.

understood, and from the first time that I came across

these people in the summer of 2007, that there were many

faces, if you like, or many entities that were broadly

and brushstroke, almost, called SISU.

There had always been, and I had always

Commonly, in the press, SISU is referred to as the

owner -- or the owner of SISU Capital is referred to as

the owner of the football club, which isn't, I think,

strictly true, but that is the common parlance that has

been used.

The other preliminary issue, if I can put it that way, 20

not in a legal sense, but just to get something out of

the way.

towards the back, tab D, page 262, in the last sentence

you say:

At paragraph 22 of your witness statement,

"[You] put aside personal attacks, both in public

meetings and in print, including an unwarranted and

unsubstantiated charge of defamation ... wild

accusations of orchestrating campaigns against SISU."

Do you see those two?

Yes.

I won't go to the end.

And then if I could just compare

that to the statement made by your wife,

Mrs Knatchbull-Hugessen, at tab 4 of the same bundle,

page 355, paragraph 19.

that it says:

Do you see about halfway down

"Despite provocation, the charity has remained

silent and not engaged in any public relations

activities in response."

And I assume that, as it were, you're both singing

from the same hymn sheet on this, as on other issues, so

that's the same sort of point that you're making in your

statement; is that right?

I'm being very specific that I am not and have not been

orchestrating campaigns against SISU.

correspondence, your Carter-Silk, I believe, said that 21

I had orchestrated a campaign that was called "SISU

Out".

and I had no part in it and have attended nothing to do

with it.

Yes.

I have no knowledge of the people who did arrange

This is what I mean by wild accusations.

It's an interesting example you give because you

point to some regrettable incidents on one side, and

I understand there have been some on the other side.

fact, I understand that you and Mr Harris were caught

tying "SISU Out" balloons to Mr Fisher's car in a car

park in Crawley.

court in resolving this matter.

you that you paint a picture which is not entirely

accurate.

We don't think that will assist the I'm simply putting to

My Lord, I can say on oath I never have tied a balloon

to Mr Fisher's car.

underneath the windscreen wiper.

it got into the Daily Mail, it had -- we could say it

had inflated.

I placed one half-deflated balloon However, by the time

Mr Knatchbull-Hugessen, I simply want to get the sort of

point out of the way, but have you heard of a firm

called Webber Shandwick and do you know what they do?

Oh indeed, yes, I do, my Lord.

Could you take up bundle 3?

It's quite a fat bundle.

It's tab 64.

If you look at the first page, page 788,

about halfway down, you'll see that it's an e-mail from 22

somebody called Chris Hogwood of Webber Shandwick, and

if indeed you turn through, there are indeed concerns

about whether the attachment to that e-mail could be

regarded as defamatory.

One finds that at various

places in the document.

But the point I'm concerned

with is the e-mail at the top, which is from you to all

the trustees, all the witnesses in this case, saying:

"There is an intention to publish an open letter

in the Coventry Telegraph.

Its aim is to show a broad

coalition of city worthies, all asking Seppala to stop

her games and get a proper agreement sorted out.

trustees have been asked if they would sign.

is attached."

The

The letter

Mm-hm.

And, in my submission, that is clearly the trustees

working on effectively a PR campaign with the council

and with professional PR consultants, and this is

directly after the decision of the council to advance

the loan on 15 January.

In parts.

MR JUSTICE LEGGATT:

That's true, isn't it?

My Lord, can I explain? Yes, of course, yes.

ACL engaged a firm of PR consultants called Webber

Shandwick, that is correct, and at one point ACL had

the suggestion of printing or publishing an open letter.

And many people were asked if they would like to join 23

their signatures to it.

The charity was asked if it

would like to join, and hence I wrote to the trustees,

asking them whether they wished to.

of course, was that if it was to be a broad coalition --

as it says here, it needs to be broad.

My qualification,

I think that the sequence then goes on to show that

there was a discussion about it, there were suggestions

within ACL, and the correspondence that follows after

that first e-mail to the trustees is, I think, all

between ACL and its advisers and its staff and

the council and so on, and not with the trustees.

in the event, the letter was not published.

MR THOMPSON:

And

Mr Knatchbull-Hugessen, this is by no means an

isolated incident.

but for example at tab 55 there's a discussion,

evidenced between yourself and Mr Martin Reeves, the

chief executive of the council, and Webber Shandwick in

a conference call on Friday 26 October.

I was going to take you to, that was simply to show that

this is not the only time, as it were, that you were

dealing with such people.

We don't want to go to it lot of it,

The passage

Can I ask you to turn to -- there's a small grey

file next to you on your right.

Is there nothing on 755?

No, I simply wanted to point to the fact that you, on 24

755, were talking to Webber Shandwick back in October.

That's correct, isn't it?

My Lord, this may happen again.

I have a distinct role

as a director of ACL.

and it is natural that I would be in conversation with

fellow directors about stuff that was happening with the

company that ACL had engaged.

is not a trustee-related or charity-related letter.

I misunderstood you.

ACL had engaged Webber Shandwick,

Sorry, this isn't -- this

I think what mislead me was when

it said:

"I thought it might be sensible to write extensively

in order to ...(reading to the words)... knowledge and

authority."

I haven't had chance to read. following the Webber Shandwick.

where we're at?

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes.

It's quite a long letter, I wasn't proposing

to get into it now.

want to. MR JUSTICE LEGGATT:

23 24 25

I'm sorry.

My Lord, may I have a chance to read this and see

I thought we were

Obviously you can read it if you

If you read enough to see what it's

about, anyway. A.

Thank you, my Lord.

What it is is, apart from the first

line of a reference to Webber Shandwick, which is dating 25

it, further to a telephone conversation, I thought it

sensible to write.

observations on the performance and otherwise of ACL,

various members of staff and the chairman and so on.

But the text is actually

MR THOMPSON:

It's not part of a PR campaign.

I'm sorry, it may assist you if you turn to tab 53.

Yes.

This may cast light.

Okay.

There's minutes of a trustees' meeting held on

Yes.

12 September.

Yes, I am familiar with that.

Mrs Knatchbull-Hugessen was present and you were in

attendance.

Mm-hm.

If you turn to 750, at the bottom of the section headed

"Arena Coventry Limited", it says:

"The trustees have similarly been invited to join

the City Council and ACL in the instruction of Webber

Shandwick to handle the public relations interests of

all three parties at no cost to the charity."

That's what happened, isn't it?

Absolutely, that was the invitation that was made.

Can we now look at two documents that are actually quite 26

central to this case?

a small grey file beside you.

My Lord, I'm not sure whether this has reached its

4 5

way to the court. MR JUSTICE LEGGATT:

6 7

First of all, there should be

it?

It's not the one I had yesterday, is

We can exchange them.

MR THOMPSON:

(Handed)

It's a small clip of supplemental documents.

It would be desirable if they were chronological.

Obviously that has not been achieved.

If you turn to pages 937 and 938, if you have that,

in the bottom right-hand corner --

Yes.

-- you should see a sequence of e-mails, which, if you

go to 938, you see it starts on 11 December with an

e-mail from a Mr Shuttleworth of Deloittes to

Miss Seppala and Miss Deering of SISU, thanking them for

travelling up to Leeds yesterday, so on the 10th, for

the all-parties meeting:

"We have been giving further thought to the

situation since the meeting in order to understand

whether a consensual deal could be achieved."

So taking it as swiftly as I may, I think you

understand that Deloittes were acting as insolvency

consultants for the bank in relation to a possible deal.

You obviously were negotiating on behalf of ACL and the 27

trustees and there was a parallel negotiation on behalf

of SISU; is that correct?

No.

Well, when I say you were negotiating, I mean you were

part of the ACL trustee team as against the SISU team.

No.

Let's stay with this document for the moment and I will

take you to another document which is, as it were, the

other side of the coin.

Would you accept that this is

a negotiation that's being conducted here by e-mail

between SISU and Deloittes on behalf of the bank?

13 14

Yes.

I mean, I'm reading something to which I'm not

party. Q.

Yes.

On the left-hand side, you'll see two e-mails from

Laura Deering to Mr Shuttleworth of Deloittes --

Yes, I see that.

-- making a number of proposals in relation to rent and

matters of that kind; do you see that?

I see it, yes.

If we now turn back to bundle 3, if you turn first to

tab 59.

As I read it, you and Mr Harris were together

in Coventry and the other three trustees were on the

telephone; is that correct?

It is.

And this meeting took place on 12 December, so the same 28

date as the exchanges we've just been looking at between

SISU and Deloittes, which took place on the 11th and

12th.

I didn't look at the dates.

Can you remind me of where

they are?

Yes, certainly.

Thank you.

You'll see that there's an e-mail sent on the 11th at

It's page 937 to 938.

11 o'clock, referring to a meeting on the 10th.

And

then two e-mails, one on the 11th and one early on the

12th.

Yes, thank you.

And it may be worth just looking at point 1.

"Okay to send to ACL."

So this presumably meant that the proposed

It says:

arrangements between SISU and the bank could be passed

on to ACL.

trustees took place on this particular day?

Do you recall why this meeting of the

Yes.

Yes, I can see it.

Looking at point 3, was there any connection between

this debate in relation to ACL and the developments

in relation to SISU and Deloittes?

There is a report from Paul in this.

As he was the

person taking forward the ACL negotiations, he was

reporting to the trustees what the situation was and 29

1 2

what the situation could be. Q.

3 4

And do you recall why this meeting was called on this particular day?

Yes, because ACL were in negotiation with the

Yorkshire Bank, preparatory to possibly purchasing the

debt.

Can we now turn to tab 60, the next tab.

You'll see

that there's an e-mail from Mr West, who we've come

across before as the architect of the original council

plan, and it's addressed to, among others, you and

Mr Harris, also to Mr Carter who I think was from ACL,

Mr Reeves of the council, and Mr Skinner and Mr Hammond

of PwC; do you see that?

Yes, I do.

Then it says:

"Following our helpful discussion earlier, we would

like Matthew to speak to Craig Billup on our behalf."

Who was he?

Wasn't he ...

Was he a representative of the bank perhaps?

Perhaps he was.

22 23

I'll have to take your suggestion of

that. Q.

I believe that's correct.

If it's not correct, I'm sure

it will emerge in due course.

bank or Deloittes.

I think he was either the

I suspect he's the bank. 30

He's not someone I've knowingly met or ...

Then you might want to read the whole e-mail and then

I'll ask you a question about it.

(Pause)

Yes.

You may be familiar with the e-mail.

I am.

Well, I suppose there are two questions, possibly even

three.

One, there is the proposed offer of 11 million

to 13 million, which was substantially higher than had

been offered by the council in the past.

correct, isn't it?

Yes, that's what it's saying.

Secondly, there is:

That's

"The need for the arrangement to be kept entirely

private between ourselves --

From Deloitte, yes.

From SISU.

Yes.

Your concern being that:

First of all, from SISU.

"They would walk away from the table if they think

we've breached an arrangement with Yorkshire Bank."

Sorry, I think you said my concern.

The concern that's expressed here.

Yes, but as you so rightly say, it's not my e-mail.

the concern is expressed by the writer. 31

That's correct.

Yes.

And this is Mr West again.

And also asking that the

details are kept private from Deloitte, who were the

bank's own advisers.

That's correct, isn't it?

That is.

Then the last two paragraphs are in relation to whether

or not you were party to public relations exercises.

First of all, as I understand it, what's being said

is that:

"If the bank goes with the council scheme, we will

undertake to make only favourable press comment about

YB's involvement in this matter should it be concluded

as outlined above.

public at some stage."

The details will inevitably become

But then on the other side it says:

"Should YB do a deal with SISU, they need to be

prepared for a major media assault from all the

stakeholders in the arena."

That would include not only ACL, but also the

shareholders, they're the obvious other people, that's

the trustees and the council; is that correct?

24 25

That is the suggestion that is being made in this e-mail, yes.

And that is the suggestion that you forwarded almost 32

immediately to all the trustees in confidence at the

top; is that correct?

Yes.

Can we now go to the history of this matter and how the

term sheet came to be agreed at all?

I'll take it as

briefly as I may, but do you recall that in March 2012

you attended meetings, planning a possible deal with

SISU and the council?

if we turn to bundle 3, tab 2, you'll see a memorandum

To refresh your memory,

addressed to Mr Harris and Mr Fisher from Miss Deering,

in which you are stated to have been present at

a meeting at the Virgin Media offices, Sheldon, on

6 March 2012.

Yes.

And do you recall this meeting at least in general

terms?

I do.

I just wanted to pick out one or two points here.

You'll recall some discussion of the road map if you

were in court yesterday.

I do.

I think you were.

second page, page 602 of the bundle:

24 25

And one finds that evidenced on the

"TF [that's Mr Fisher] setting out the road map." A.

Yes. 33

And then stating that:

"SISU entities collectively will put in ÂŁ9 million

this year."

4 5

Do you remember that being said? A.

I don't remember that specifically, but I'm sure that

Miss Deering's note is accurate that that is the figure

that was mentioned at the time.

Yes.

And do you recall, further up, it says:

"Discussed practicality of discussions, agreed that

all three parties should be involved in all discussions

rather than council staying out of HT/SISU discussions

as HT involved in prop co going forwards, so discussions

should be transparent."

So at that stage at least it was common background

that the three main parties had to work together.

Is that how you recall it?

That is what was said in the meeting on that day, yes.

But I could add that I wrote an e-mail a couple of days

later, where I, point by point, disagree -- gave the

disagreement to the road map and to the other items in

this minute.

Did you disagree with the idea that the three parties

needed to work together if they were going to solve

this?

I would have to look at the e-mail again to see if 34

that's what I said at the time.

I think we do have it.

I think so.

It's at tab 7.

It's certainly true that you questioned

the point that had been made in the meeting about the

rent and the escrow, which appeared to be taken to be

non-objected to at the meeting, whereas you make it

clear that you weren't happy about that.

see anything about you saying that the two parties

10 11

But I don't

shouldn't work together. A.

No, I think that at that stage it was a fairly sensible

thing for people to be talking and working together, not

to have a ... I think if I might, my Lord, just add that

this was quite a powerful e-mail that followed meetings

of the independent directors of ACL as well as the

shareholder directors, and basically it takes us to

a very base position, a low position, in terms of where

the road map was to begin.

like "road map", you wouldn't start from that place if

you --

I mean, if we're using words

I'm sure that's true of all three parties.

None of them

would have wished to start from where they found

themselves in March 2012.

24 25

And it probably wasn't the right road map is what is being said here. 35

Well, that may be part of the dispute between the

parties.

require looking at one more bundle, it may even be the

bundle that your Lordship kindly handed back to me.

It's a document referred to by Mr Brennan in opening.

There are five files down there, one of which should

have a "4" on it.

8 9 10

If we can then look -- and I'm afraid it will

MR JUSTICE LEGGATT:

It hasn't made its way into your handy

supplemental bundle? MR THOMPSON:

Alas, my Lord, no.

The disadvantage of being

in Birmingham is I'm less able to do things immediately

than if I were 400 yards away from my office.

13 14 15 16 17 18 19

Perhaps if Mr Brown could hand this up as well. (Handed) I could certainly undertake to sort out the papers in a more convenient form. MR JUSTICE LEGGATT:

No, I don't want to impose that to your

other tasks, Mr Thompson. MR THOMPSON:

I think we'll manage.

Can we turn to page 1165 in that bundle,

please?

You'll see it's another of these memoranda

about a meeting, this time held at Mr Reeves' office in

Coventry, so the head of the council, the

chief executive of the council.

19 April.

seems to have opened with Mr Reeves producing a sheet

The meeting is held on

You'll see from the first paragraph that this

setting out, as it were, common elements, and one finds

that at page 1167.

I particularly refer you to the fourth and the sixth

bullets.

Mm-hm.

It says:

Do read whatever you want to, but

I think the word "all" has been put in bold.

"We all acknowledge that for any potential

funder/partner, the only viable pathway in the future is

to link the football club to the operating environment

and hence any relevant revenue flows of the Ricoh Arena

and we all understand that for more bridging finance to

be pumped into the football club to sustain this status

quo is unacceptable."

So, as I understand it, what was being suggested was

that all three parties essentially accepted the premise

of the SISU deal, that it needed some interest in the

arena if it was to be expected to continue to pump money

into the club.

Is that how you understand it?

No.

What do you understand those two bullets to mean?

The first of those is absolutely -- has been common

ground for everybody since 2003 when the charity bought

in.

should be part owner of the Ricoh Arena because that

would then mean that an owner would not have to pump

It was always the intention that the football club

money into a football club because it would have the

benefit of the revenues of what is not just a common or

garden football stadium; it is a 365-day-a-year

business.

that is -- I don't think anyone disagrees with that.

And that is, of course, the rationale,

That was basically the core point that Miss Seppala was

making, both at this meeting and at other meetings; was

that not the case?

Absolutely, yes, I have -- yes.

And if one looks, for example, at the top of page 1166:

"JVS [I think that is Miss Seppala] outlined a

potential deal by the YB debited discount of either

100 per cent by ARVO [so that's one of the SISU Group

companies] or do 50/50 with council.

structuring as such.

requirements.

and then, I think, generate increased revenues of ACL

and re-engage fans and the community."

No fixed ideas on

Flexible to accommodate council

FC will need additional capital to bridge

And then further down:

"Council asked JVS if it will fund from May to July.

JVS said only if do the YB deal.

fully completed, but do need to know they'll do a deal.

JVS noted it doesn't need permission from ACL to speak

to YB, but is discussing out of courtesy."

So that's how it was left. 38

Doesn't need to be

And indeed, Mr Reeves

appears to have thought that he could take that to his

council leader, John Mutton, who's referred to in the

two paragraphs below:

"Mr Reeves noted will need some goodwill to take the

deal to Mr Mutton, show him how he can't say no to the

transaction.

numbers to develop the story."

Joy Seppala reiterated need the ACL

That's, I think, what led to the due diligence

exercise in due course; is that correct?

Yes.

So against that background, can I just make sure we

agree on the basis for the original proposed deal?

I will take it in a number of points and see if you

agree with me.

And

First of all, the football club couldn't afford the

rent.

That's true, isn't it?

That's a matter of opinion.

What's your opinion?

Um ... I think that if you -- I'm not qualified to judge

what is right for the football club or not.

it was mentioned earlier in these proceedings that the

club was paying 90 per cent of its turnover in wages.

I think that there are priorities.

your priorities of payment.

rent and ensure that you have a place, or do you spend 39

But I think

It's how you set

Do you spend it on your

1 2

it on other living costs? Q.

I think it was said in opening that it's very unusual,

if not unique, for a club not to have an interest in its

ground; would you accept that?

It's certainly not a unique situation.

There are all

sorts of models, and this is one, a variant, and it is

one that was never envisaged at the outset.

9 10

Would you accept that rent is probably five or six times what other teams in Division 1 normally pay?

It's very difficult to get a proper comparator.

We've

certainly, in our discussions with the Football League,

looked at their statistics on rent, and part of the

problem is that this, of course, wasn't rent, it was

rent and licence fee, and it is what you put into the

mix that tells you what you should be comparing.

It's

very difficult to do a like-for-like comparison.

headline terms, it appears to be a lot.

I don't know and I don't think anyone has satisfactorily

broken out all the elements to make the comparison

a real comparison.

pears, it's certainly different varieties of apple.

In reality,

It's a bit like -- if not apples and

Let's see if we can agree on the second point, that ACL

couldn't afford the Yorkshire Bank loan unless the

football club kept paying the rent; would you agree with

that? 40

Certainly the sudden cessation of payment from the

football club was inevitably going to lead to cash flow

difficulties for ACL.

The third point, and I think you've already agreed it,

is that SISU or any other funder of the club was not

under any obligation to keep pumping money into the

club; would you accept that?

I don't know.

I think that football clubs, rather like

ocean racing, are a rich man's folly.

Not a rich man's legal obligation?

I'm sorry, but what an owner or someone acting for the

owners of a football club wants to do and how they wish

to manage their business is not really for me to ... I'm

sorry, I struggle with the question because it is --

I can make an observation, but it's a personal

observation.

18 19

I think you may be agreeing with me, but I think you may not like the way the question leads.

There's presumably an obligation on the owners of a club

to put money into it or to put it into administration or

liquidation if it's not making profits.

it's any different from any other business in that

sense.

24 25

I can't see

Well, it's true that both ACL and CCFC could have gone bust, but I assume all the parties were trying to avoid 41

that.

I couldn't agree with that, no.

The fourth point I had was that SISU had made it clear

that it was only prepared to fund the club if it

obtained a share in ACL, what I think Miss Seppala calls

a stadium deal.

That was correct, wasn't it?

Oh yes, yes.

And of more direct relevance to the trustees, SISU was

She said that, yes.

only prepared to pay £5.5 million for ACL if it was debt

free.

with an insolvent club unable to pay the rent and with

a £20-million debt round its neck, were they?

They weren't going to pay you 5.5 million for ACL

I don't ... Firstly, I don't wish to be in the mind of

Mrs Seppala.

who are not involved in this case, it was in ACL's

interest to try to arrive at some kind of rent deal with

the people operating the football club.

negotiations of a sort went on for a considerable length

of time, or over a considerable length of time, to be

more accurate.

And looking at it from a director of ACL,

To that end,

I wasn't talking about the ACL rent deal, I was talking

about the AEHC sale of its shares for £5.5 million.

That wasn't going to happen unless ACL was debt free.

That's true, isn't it?

There was ... Not necessarily debt free, no, that is not 42

1 2

what is, as I understand it, in the ITS. Q.

Then I'll put the, I think, sixth point, which really

rolls the whole lot together.

the SISU deal, including the sale of the shares to SISU,

depended on getting a discounted deal with

Yorkshire Bank, which reflected the reality that the

football club could not afford the rent.

reality, isn't it?

deal?

The whole structure of

That's the

That was the whole point of the

The whole point of the deal was for us to sell our

shares to the football club so they would have access to

the revenues going forward if they could come to that

agreement with the remaining shareholder.

15 16

But you were never going to get the value for your shares unless ACL was debt free.

I'm sorry, I struggle with this debt free because

that is not something that is in the ITS and therefore

was not a consideration of the trustees.

says that the debt is to be purchased.

leave ACL debt free as it's termed in the ITS to my

understanding.

In the ITS it That does not

Can I just take you to a note which I think was prepared

initially by Mr Rowley Higgs, but which I think has your

comments on it.

doesn't seem to have a date on it, but I think it was

It's at bundle 2, it's a document that

produced in the middle of August, but when your

comments, if they are your comments, were added, I don't

know.

It's at tab 27 of bundle 2.

Do you remember this note?

The reason why I say

I think that the underlined passages are by you is

because it's addressed to "Peter", and there's another

version of it without the underlined bits in it.

remember the provenance of this document?

I know it came from Rowley.

Do you

I'm not sure that I --

I cannot remember whether it's me putting lines under or

whether it's Rowley putting lines under.

Can you see the bottom of 1.2?

Yes.

Somebody, whether you or Rowley or possibly Mr Harris,

says:

"I would agree that rent has always been

unaffordable and should have been on a league-dependent

base plus variable basis."

Do you see that?

Oh, I do, yes.

Does that cause you to reflect on the question I asked

you as to whether the club could afford the rent,

particularly if that was you who wrote this?

24 25

I recognise that as something that I believe.

It was

what was proposed by my late brother-in-law, when he was 44

a director of the football club, that there should be

a league-dependent base and then have variables.

has always seemed to be sane and sensible.

That

Then at 1.4 I see that it says: "The charity was not prepared to make any further

investment in ACL."

Presumably, more generally, that the charity wasn't

proposing to put its hand in its pocket to solve any of

this problem; is that correct?

I'm not sure which problem I'm being asked about.

Well, it's the problem that has been besetting the

parties certainly since March of this year, which I've

been putting to you about the structure of ACL and the

football club's inability to pay its rent.

If the problem is the inability of the football club to

pay its rent, that problem -- certainly the charity was

not prepared to ... I mean, to do anything to assist

a football club financially.

19 20 21

I mean, it couldn't.

Then on the next page, 514, there's an analysis which I think is by Rowley Higgs.

The first part says:

"It is clear that the club is unwilling to pay the

current rate of rent ...(reading to the words)...

probably not the way to go as this is likely to lead to

the owners of the football club being backed into

a corner.

It is not clear to me whether the rent should 45

be agreed on what ACL requires to service its debt or

the debt should be restructured in relation to what

rental rate the football club is willing to pay.

really depends on the willingness of the owners of the

football club and ACL to continue to invest in their

respective ventures or their ability to walk away.

Whichever is more likely to throw the towel in will win.

It is essentially a game of chicken.

thought that the owners of the football club were more

likely to walk away than CCC, but this is exactly what

they will want people to believe."

This

I would have

And then it goes on:

"CCC and some ACL directors are prepared to take on

the franchise should SISU put the club into liquidation

or administration.

unwilling for ACL to take over the club as it requires

a subsidy to keep it going even at its lowest cost

base."

Our position has been that we are

And then there's discussion about the valuation of

ACL and whether or not 5.5 million is an overpayment.

Mm-hm.

And I think that goes to the point I was putting to you

that the payment only made sense if the debt was

discharged.

the answers to my earlier questions?

So does that lead you to reconsider any of

No, my Lord.

Firstly, discussion goes on all the time

amongst trustees, as you would expect.

that the fact was that the rent and licence fee were not

being paid.

ways out of that from the time of 2007, when the SISU

entities bought the football club -- all the way through

that set of discussions there has always been in the

background, or had always been in the background of ACL,

the possibility that in order to keep the football club

It was clear

Therefore, there was a real situation.

The

alive, it might be that ACL would have to step in.

That was a view of some of the directors of ACL that

was not shared by other directors of ACL and certainly

not shared by the trustees if there were any requirement

to put funding in.

That is what I see here.

Yes.

It would be barking mad for trustees to be subsidising

17 18

a football club. Q.

They couldn't do it lawfully.

It wouldn't solve the problem for ACL, would it, because they would still be liable on the debt to the bank?

All I can do is agree.

So that wasn't a solution, so we come back to the

structure of the SISU deal.

a slightly different topic, which was relevant to the

terms of the ITS, but which is only slightly relevant to

the present case, namely the issue of exclusivity? 47

Can we now look at

Do you recall that the council had been looking

at the issue of a sale of the club even at the end of

2011?

in your witness statement and it is evidenced at the

same bundle, 2, tab 12.

It's a matter which you address briefly, I think,

Yes.

In fact, I think I put it to you wrongly because there

it looks like they're going to buy the AEHC shares and

pass them on to somebody else.

Towards the bottom it

says:

"Our impression was that the council probably has

a buyer lined up or at least hot."

Mm-hm.

I don't know whether you know what that's about, but

15 16

is that as far as you know -A.

I don't know whether in fact -- and this was my

surmising.

what was behind it.

I'm trying to see what was happening and

One of the possibilities seemed to be that the council

would somehow palm your shares on to a third party;

is that --

That they would -- well, palming is interesting.

But

they would purchase the shares and then maybe enter into

a partnership with somebody else.

had. 48

That was a feeling we

Yes.

And then there's a note of a meeting with the

club, where they were looking at a possibility of

a third party coming in to help them to purchase the

shares and develop the arena; do you see that?

was, as it were, another point that was made at

a meeting a couple of days later.

Yes, I remember the meeting.

That

It's when I told them

there was little likelihood of success for their

purchasing the shares as it stood.

Yes.

And obviously the question of the council veto and

how that would be exercised.

Yes.

Can we now turn to the immediate predecessor of the ITS,

which at bundle 3, tab 24?

You'll recall that the term

sheet was itself signed on the 19th, so this is the day

before.

Yes.

In the few weeks before that, there had been a number of

drafts going backwards and forwards.

I think Mr Harris

was mainly involved with that.

issues right up to the wire, as it were.

There were drafting

Mm-hm.

And if you look at the bottom, you'll see an e-mail from

24 25

Mr Harris to you and Mrs Knatchbull-Hugessen. A.

Mm-hm. 49

"Numerous more calls taken from Mrs Seppala and

Tim Fisher, the latter being the facilitator of some

common sense [whatever that may mean].

has been made of a number of issues, subject to

clarification from our advisers, exclusivity is without

exception [something] deal breaker.

rightly acknowledges she has been remiss in not

considering exclusivity [and Mr Harris puts some ironic

exclamation marks], but given the lessons she has learnt

While progress

Miss Seppala

[probably, I would think] over the past weeks with GH

and JE, she has fixed on a six-week period being

included.

30 days, there is somewhat of a disconnect."

However, given the due diligence period of

And then there's a discussion of the costs

provisions saying that she would meet them, but only to

date and I think that's where the ÂŁ29,000 came from.

Mm-hm.

Can I just ask you, GH and JE, do you know who they are?

I believe it's a Mr Hoffman and a Mr Elliott.

if you could confirm that.

I wonder

Hoffman and Elliott, yes.

Who were they?

Gary Hoffman was a SISU-appointed director of the

football club, as was Joe Elliott, who is the other

person.

They had ceased to be directors of the football 50

1 2

club. Q.

That's really -- I mean, Gary Hoffman --

Why did that cause Miss Seppala to make numerous phone

calls to Mr Harris, the day before the ITS was signed,

demanding exclusivity?

Because although we, as the charity, had never been

approached by Mr Hoffman, Mr Elliott had tried to -- I'm

not sure if he had.

was so little contact between us and them, but I gather

that they had discussions with others about the

10 11

But who were they, were they businessmen, financiers or what?

Gary Hoffman is -- was a director, I think, of

Barclays Bank, but you have his name.

give his biography.

17 18

Because there

possibility of introducing purchasers.

12 13

Sorry, it's missed.

I mean, I can't

Was it envisaged that Mr Hoffman would himself buy your shares or that he would identify somebody else?

I have no idea as we didn't have any discussion with him.

And you don't know who they were?

I don't -- sorry.

My Lord, I had no discussion -- we

had no discussion with Mr Hoffman, so it's difficult to

know who Mr Hoffman was having any discussion with,

sorry.

It's just there's another document, I think, which says, 51

"Mr Hoffman is circling just below the horizon", which

I think is your phrase and I assumed you knew something

about it.

No, absolutely, he was below the horizon, he was

circling.

I knew that he was talking about to people

because there aren't that many actors in this play and

he was having conversations, I understood, with others,

but never with the charity.

I had one conversation with him on Euston Station for --

I had, I think, one --

With Mr Hoffman?

Yes, for about two minutes, as he was running for

12 13

a train. Q.

14 15

And other than that ...

And you don't know whether he was the person who was hot in the September of the previous year?

Not with us.

But I think it may be -- you're asking me

about something that Paul Harris is writing about,

informing us.

he wrote it.

Yes.

Maybe he will be able to help you because

Can I ask you about the e-mail from

Mrs Knatchbull-Hugessen, although obviously I could ask

her, but since we're on this now.

It says:

"Given Joy's preoccupation with Hoffman [so I think

that probably confirms who GH was], could we not tie the

exclusivity period directly to him and any concerns

linked to him.

We really do want to be free to explore 52

any possibilities with Majid."

2 3

Who was Majid? A.

Majid was someone we never met, never saw, and never

spoke to.

He was introduced to us by a third party as

being someone who might be interested in buying our

shares.

And what sort of a person was Majid?

As we understood it, apart from being a benefactor to

one of the Coventry universities, he was an Arab

10 11

businessman with considerable interests in the Gulf. Q.

Right.

Then it says:

"Perhaps we can duck below the radar anyway even if

the six weeks are accepted."

Presumably, that was perhaps a slightly misconceived

idea that you might be able to bend the rules slightly;

is that how you understand that?

And it's qualified by saying but then I don't know the conventions governing this sort of thing.

Yes, I think that was on costs.

Sorry, that's on costs.

Um ... Yes.

That is what

was ... Just for the avoidance of doubt, my Lord, we had

no communication further to a letter that had been sent

earlier, to which we had no reply, with Majid.

24 25

Can I just clarify, he wasn't introduced by Mr Hoffman, he wasn't the person who was introduced when Mr Hoffman 53

1 2

-- he was introduced by someone else? A.

3 4

Absolutely not.

He was introduced by one of the two

universities in Coventry. Q.

Thank you.

Can we now turn back to the ITS itself?

One

convenient place for it is behind the particulars of

claim, which is right at the front of bundle 1, page 6.

Yes.

I understand you're not a lawyer and, in a sense, this

is all a matter for submissions and my Lord to

determine, but I will just ask briefly, if I may, about

your understanding of what this contract is about.

12 13

MR JUSTICE LEGGATT:

occupation of your limited time.

MR THOMPSON:

MR JUSTICE LEGGATT:

you.

MR THOMPSON:

18 19

If you think it's going to be useful

Well, my Lord, I want to ask him -It's up to you.

Don't let me divert

You deploy it how you wish. If you think it's not useful, then I'll move

on. You'll see that there are the conditions precedent

set out and then there's a costs provision.

down it says:

Three lines

"Accordingly, in November, if SISU withdraws its

offer to purchase the shares or the charity withdraws

from the negotiations as a result of SISU seeking

a reduction in the purchase price or seeking 54

unreasonable terms or the conditions precedent cannot be

met, abortive transaction, SISU agrees to underwrite and

be responsible for all the charity's reasonable

costs ... up to ÂŁ29,000."

Do you see that?

I see it.

So that wasn't a non-conditional -- they weren't going

to pay whatever happened, they were going to pay if

these three types of thing happened; is that how you

10 11

understood it? A.

If SISU pulled out, they would pay?

What I understand by that is that the charity, having

been burnt in previous aborted costs when people have

offered to buy shares, needed to protect itself against

things that were outside its control, which are the

things here: the veto by the council was out of our

control, possibly the Charity Commission approval, and

so on.

control and therefore if those things, events, occurred

to interrupt it, we would be protected from cost.

Exactly.

These are things that were outside the charity's

Whereas if you pulled out for a reason within

your control, it'd be unreasonable for you to then

recover your costs.

"I don't want to do the deal any more", you wouldn't

then expect to be paid your costs, would you?

So if you then pulled out and said,

If we unilaterally withdrew, no. 55

Exactly.

Can we look at a couple of, as it were,

hypotheses, which actually came out in the facts?

We're

now looking at the first of the conditions precedent.

What if the Council had bought the bank debt but

then otherwise carried through with the SISU deal if

SISU had then discharged the debt and bought your

shares?

view?

in fact sold the shares after the council had bought the

Would that be an aborted transaction in your Would you expect to recover your costs if you had

bank debt?

Would you expect to recover in those

circumstances?

I'm sorry, I don't think I'm following you.

Let me help you.

MR JUSTICE LEGGATT:

This is all inadmissible.

I'm sorry.

It just

seems a bit of a waste of time, Mr Thompson, but if you

want to go on, do.

what he thinks the agreement means, I'm not allowed to.

But go on asking questions if you want.

MR THOMPSON:

I'm not going to take any notice of

I think the point will come in due course, so

I'll take that indication and move on.

Can we move to the events of August 2012?

I think

they are kicked off by your memorandum that I think has

been called the "moving parts memorandum"; do you

remember that document --

Not to answer on. 56

-- that you drafted and sent to the trustees?

It's at

tab 72 of bundle 3.

your finger in tab 72, you'll see that there was an

e-mail -- there's actually a sequence of e-mails, but it

culminates in the first e-mail on page 698, which is

addressed to you, copied to Marilyn Knatchbull-Hugessen,

Rowley Higgs and Neil and Emily Barlow, from you, on

Monday 30 July at 12 o'clock.

If you turn to tab 36, just keep

And you say:

"I have copied this to the others as we need to make

sure that everyone is in the loop."

And as I understand it -- and it's confirmed at 699

at the bottom -- where you refer to your summary of the

moving parts, that the document we were looking at in

tab 72 is the document that was circulated; is that

right?

Probably.

I'm sorry, I'm just ...

If you take your time.

We're obviously more familiar

with these documents than perhaps you are.

e-mail which you send to the trustees.

There's an

Yes, on the 30th.

And it follows an e-mail from Mr Harris, where he said

Monday the 30th, yes.

it was an excellent summation.

Right.

And then --

Ah, at the bottom: 57

"Attached at the bottom is a summary of moving

parts."

I think that is your summary document.

Yes.

And I don't know how familiar you are with this document

or whether you want to have a chance to familiarise

yourself with it.

MR JUSTICE LEGGATT:

MR THOMPSON:

Tab 72 now?

Yes, my Lord.

It's obviously

Mr Knatchbull-Hugessen's own document, but I don't know

how familiar he is with it.

This is right at the end of the period of

exclusivity.

It is.

It's the last day or two of the period and you're

summarising where you think the negotiations have got

to.

negotiations between SISU and CCC" that:

You make the point under the heading "Status of

"Crucially, the line in the TS that describes AEG's

role in ACL going forward was deleted on the Council's

behalf.

is little changed from the presentations they made two

or so months ago: SISU backed by the banker, CCC extends

the lease and ACL contracts with AEG to operate the

Ricoh."

Our understanding of the model proposed by SISU

So that was the summary of the SISU deal?

My understanding at the time, yes.

Yes.

And then below that you make a number of

observations about the political situation and you're

quite critical of Mr Mutton, the head of the council.

You say he allowed his mouth to get the better of him

and tried to appear as a strong leader, and I think this

was in the rent issue which caused problems, as

I understand it.

Mm-hm.

Then you make various observations about the council

being a large animal with a number of conflicting views.

Mm-hm.

And then the rent issue.

Then, at the bottom of 835,

you think the best option at the moment would be for

the council to buy you out, and that would be your

get-out-of-jail-free card.

Mm-hm, mm-hm.

Then you summarise the behaviour of the parties, and in

20 21

particular the SISU position that: "Joy Seppala has not put any more money into CCFC

...(reading to the words)... This feels unlikely given

the timescales and the hurdles that need to be crossed."

24 25

So can I put it to you that at this time you were sceptical about the SISU deal, but you were also 59

critical of the way the council was handling the

position; is that a fair summary?

At the time of writing, the SISU deal was a non-starter

as the security issue had not been addressed.

Although

that is not something that is being discussed within

this case, it is fundamental to the deal that you

actually have to have money that is coming in return.

The offer that had been made by SISU to secure it, it

had been made clear to them all the way through that

without proper security, the trustees, even if they were

minded to enter the deal, would be strongly advised

against it by both the trustees' responsibilities

lawyers and also by PwC who were acting on value.

there's correspondence that shows that.

And

And as for being critical of the city council, yes,

we are an independent body and the trustees have

independent views, and one of the problems is that

sometimes it is assumed by other parties that the

trustees are ciphers and that the city council runs the

whole show, which, given my comments, as you will see,

is not exactly the case.

What followed on from this, despite the difficulties

with the council, was that draft heads of terms were

agreed on 2 August, so a couple of days later.

right, isn't it?

That's

And we find that at tab 38 of this 60

1 2

bundle. A.

3 4

To which, of course, neither ACL nor the trustees were party.

They weren't party, but I believe you'd seen a draft,

even if you didn't see the final version because.

you turn back to the previous page, 37, you attach

a highly confidential copy of the draft.

Yes.

"Nobody knows we have this other than the original

leaker."

So you obviously had a draft at the end of July.

Mm-hm.

And I don't know whether the leaker obligingly gave you

the signed copy or not, but you obviously knew the gist

of it.

At page 704, you'll see that the basic provision was

again the discharge of the loan by SISU --

Mm-hm.

-- and the idea was an extended lease and a resolution

of the position in relation to the shares and the rent.

One sees that under 6 where there's a rather longer list

of conditions precedent; do you see that?

24 25

Sorry, I'm just trying to see where it says that SISU purchased the loan.

I can't ...

It's actually the discharge of the loan, which is quite 61

an important distinction.

the loan, but that they would discharge a loan so there

wouldn't be any loan any more.

a much better position for ACL than what has happened

either before or after; do you see that?

Yes.

It's not that they would buy

So obviously it would be

I can see what it says, but I can't -- you'll have

to help me, I'm afraid, my Lord, in showing me where

that purchase or the discharge of the loan -- sorry --

is by SISU.

Paragraph 4.

Well, the lease is granted by the council

or by --

To ACL?

Yes, I've taken it perhaps slightly quickly.

But the

idea is that there will be an extension of the lease to

ACL --

Yes.

-- that the loan will be discharged by the buyer, and

the share sale and purchase, including full approval by

CCC, will go ahead.

MR JUSTICE LEGGATT:

MR THOMPSON:

So I may have --

Sorry, I don't -- I honestly --

I don't see that.

The purchaser is SISU Capital Limited. You'll have to ...

I may have inadvertently said that the lease

will be granted to SISU Capital, whereas I think what

you're saying is that the lease is granted to ACL -62

Yes.

-- but on the basis that SISU will have a 50 per cent

interest in ACL because it will complete the proposed

share sale and purchase.

That's right, isn't it?

It would be a -- it would then be in our place, in the

charity's place, but I'm sorry, you asked me -- as

I heard it, I think you said in your question that SISU

had bought the loan.

It's point 4 on page 704.

If you tell me that is what it says, then I have to hear

11 12

you. Q.

13 14

Well, as I understand it, the buyer is SISU and the purchase price will be the discharge of the loan.

But who is purchasing the lease?

Whose lease is it?

I'm sorry, maybe I'm being obtuse.

ACL's, then ACL are the lease holder, the purchaser of

the further lease, whoever it's by, is on ACL's behalf.

If that is an investment in ACL that secures a lease --

I'm sorry, I'm not following your question.

I think it's probably set out in paragraphs A, B, C, D, E and F on page 703.

Right.

And at B:

24 25

If the lease is

"The council, is the freeholder of the property and intends to grant a long lease for a term of 125 years. 63

The football club pays rent to ACL and it has been

proposed that SISU shall purchase all of the shares in

Arena Coventry Limited, currently held by the trustees,

so that --

Yes, I see that, but I'm sorry, I still don't see where

this document says that SISU buy or discharge the loan.

I'm sorry, I just don't see it.

I don't read legal documents, but I don't see it.

Maybe that is because

I think it's because on that page the purchaser is

described as "SISU Capital Limited" and on the second

page the buyer is described as "SISU Capital Limited".

So when there's reference to a purchase, I think it's

assumed that the purchase will be by SISU.

I can't make an intelligent answer to that.

MR JUSTICE LEGGATT:

When you've finished with this

document, Mr Thompson, would it be convenient to have

a break for the stenographer?

MR THOMPSON:

MR JUSTICE LEGGATT:

(11.57 am)

Certainly, my Lord. Let's have a break for five minutes.

(A short break)

(12.02 pm)

MR THOMPSON:

Mr Knatchbull-Hugessen, the next event is

evidenced by a slightly curious document at tab 73 of

bundle 3.

I think it's a document that you produced, 64

it's a sort of composite of three different documents.

Mm-hm.

But the first one is dated 10 August and appears to

summarise a discussion that was taking place during

a hockey match.

of the attendees of the hockey match or whether this was

somebody else, but these are the points that were set

out.

I'm not quite sure whether you were one

Do you remember these events?

I do.

Was it you at the hockey match?

Football.

Oh, football match, I'm sorry.

Other than that ...

The points you make are under five numbered points.

15 16

There's: "A need to agree an interim rent to be confidential

to ACL, SISU and CCFC; an extension of time to

20 September to perform on the contract; give a window

of time for the council; and Higgs to agree a deal with

Yorkshire Bank and for SISU to put together a future

plan for ACL as we require them as the basis for any

deal.

the council will consider funding a restructure of the

Yorkshire Bank debt, significantly derisking the

position for ACL whatever future scenarios emerge.

Subject to formal, political approval,

The council will charge principal and interest on the

loan over a longer period, say 42 years.

able to meet all the requirements of the proposed

overall transaction in a way which is acceptable to both

shareholders, SISU would reimburse CCC for the cost of

the restructure and the loan will be discharged in full,

freeing ACL from future repayments."

Should SISU be

So that was the scheme that was put together,

whereby SISU would end up discharging the loan in full.

Isn't that right?

This, of course, is a meeting of ACL directors.

Yes.

This was as the ACL directors were understanding it,

I'm asking you about the structure of the scheme.

yes.

and another, and this is ACL ...

I do have the difference between one set of duties

Yes, I'm asking you about your understanding at this

point of what was happening, and this appears to be an

implementation of the heads of terms of a particular

structure with SISU ultimately discharging the loan in

full, leaving ACL debt free; is that right?

Yes.

And that's also reflected in an e-mail that you drafted

23 24 25

in very similar form at tab 41 of the same bundle. A.

I'm not sure -- just to be clear, I'm not sure of the date of this. 66

2 3

It's a curious document.

It says "10 August", but it is

not -A.

It doesn't, with respect.

"10 August".

15 August --

At the top there's

At the bottom it goes -- something from

Yes.

-- and at the very end of it, it is quoting from

8 9

a report to the trustees of 11 September. Q.

Yes, obviously if you can cast any light on how it came to be in that form, that would be helpful.

It's not something of that, that's all.

You don't think it is your document in that form?

Yes, but not on 10 August.

MR JUSTICE LEGGATT:

It looks as though it's a set of

excerpts from different things at different times,

doesn't it --

MR JUSTICE LEGGATT:

Yes. -- of which the first one was 9 or

10 August and then others come at later dates?

Yes, my Lord.

MR THOMPSON:

We have the originals of some of them, but not

of that one, whereas on 11 August, at tab 41, you're

notifying Rowley Higgs, Marilyn Knatchbull-Hugessen,

Paul Harris and Neil and Emily Barlow of what looks like

very much the same five points, and in particular 67

point 5:

"If SISU can then complete its transaction with the

charity, it will pay down the debt, leaving ACL debt

free."

So it's the discharge of the debt again.

Mm-hm.

Obviously, some of the points are about the shareholder

rather than directors' decisions.

However:

"For the directors to be able to delay ...(reading

to the words)... the shareholders have had to give good

reason.

value to enable it to grow is to restructure the debt

and it is on that basis that the directors have made

this decision."

The simplest and quickest way to recover ACL's

So as at 11 August, SISU still seems to be in the

frame and the key point seems to be to discharge the

debt; is that right?

That was always there.

Whether it was to discharge the

debt or to restructure, but that was always central,

yes.

Then there's a sequence of documents involving

Mr Harris, which I'll take briefly because I will wish

to ask Mr Harris about them.

you were aware of this sequence.

tab 40.

I will simply ask whether It's the previous tab,

I think at this time Mr Harris was on holiday. 68

I don't know if you can remember that, or else he was on

business abroad, but there are various references to him

being hot or busy and so he appears to have been not in

the country.

711, where he sends a detailed redraft of a letter to

Mr West, "Dear Chris"; can you see that?

But he sends an e-mail at pages 710 to

Page 711.

Yes.

I don't know whether you were familiar with this at the

time.

No, I wasn't.

Well, I'll take it very shortly then.

This letter then

appears in a sequence of e-mails with Mr West.

don't know about it, I'll leave that and ask Mr Harris.

If you

Can we look at tab 42, which is an e-mail from

Mr Harris to you and Mrs Knatchbull-Hugessen.

records a conversation with Mr West in the third more

substantial paragraph:

"After a long conversation with Mr West today, it

seems the council and SISU are a long way apart from

terms of the debt ...(reading to the words)... allow

SISU to purchase the debt due to the perceived risks

associated with the ownership of the debt.

sure this risk is a risk CCC believe it to be as

I originally understood the debt was to be discharged on

the council converting the lease to 125 years." 69

I am not

Then he says they are at stalemate.

Whatever

Mr West may have understood, you, on behalf of ACL and

the trustees, understood the plan was to leave ACL debt

free.

it?

7 8

That's clear from the previous document, isn't

It was one of the things that could happen, yes, absolutely.

And at the bottom you see Mr Harris identifying various outcomes.

Mm-hm.

And the third one is essentially the same as the one

that appears in the ACL plan, except for the fact that

SISU and the council here purchase the debt in equal

shares; do you see that?

Yes.

And at the bottom of the e-mail, Mr Harris says:

"Item 3 above may well satisfy the charity's exit

position.

solution, but this will be a difficult pill for the

council to swallow without the entrance of the new

parties."

It may also be the only palatable all-round

What he seems to be saying is that the council don't

like SISU but that it's quite a good structure of

a deal; is that how you understand him to be concluding?

I don't know about the disliking and so on, but I think 70

that certainly that was the -- that could have been the

best outcome of those options, yes, for the charity.

And then we come to the intervention of Mr West in the

middle of August, and in particular his memos of

16 August and 23 August, which are at tabs 45 and 51.

They're both quite long.

time on them.

them.

opportunity to read them.

with those two documents?

I don't want to spend a lot of

I don't know if you're familiar with

I believe that his Lordship has had the Are you reasonably familiar

All I can say is we can try.

Can I just make one or two short points to you and see

if we are on the same page and, if we need to go into

more detail, then reluctantly we will.

tab 44 in fact --

The first is at

Yes.

-- which is that at 11 o'clock on the 16th, Mr West

sends this to you under the heading, "Confidential.

Importance: high", and it's a report to Mr Reeves, the

CEO of the council on the way forward:

"We are hoping to see the leader tomorrow.

If we get the green light, I will want to move quickly,

which is why I'm sharing this now in draft and not

waiting.

[presumably Mr Harris]."

I'm happy for you to share this with Paul

And there's a bit about the way that the Higgs

shares would be dealt with.

But you forward it at

3 o'clock to Mrs Knatchbull-Hugessen as chair of the

trustees; is that right?

Yes, it is.

And I think, to summarise, what is being suggested

is that in departure from what we might call the

tripartite approach that had been suggested even up to

the football game meeting, that this would now go

bipartite and SISU would be cut out completely; is that

how you understood it?

This is the proposal, yes.

That SISU would be cut out and effectively there would

be a secret approach by the two shareholders to the bank

without SISU being aware of it; is that right?

That was what was being proposed.

And likewise at tab 51, there's a further detailed

analysis with various action points, but again the core

point is that there was going to be a bilateral approach

to the bank and that this was going to be kept secret

from SISU and then the other element was that SISU was

effectively going to be kept warm, if I may put it that

way, by giving it some further information while the

bilateral approach by the bank proceeded.

you understood the plan to work? 72

Is that how

The proposition that was put was that the charity and

the council should jointly approach the Yorkshire Bank,

yes, absolutely.

And that SISU should not be told; is that right?

Clearly, yes.

What is more, I think -- and you see it in various

places -- is that it was regarded as necessary that the

trustees, as the other shareholders in ACL, should be

party to a joint approach to the bank; is that how you

understood it?

At that time.

So it required the trustees' consent for this scheme to

13 14

go ahead? A.

It would make no sense without it.

They would have had to have accepted the proposition and

to have joined it, yes.

being made, yes.

It was a proposal that was

This was notified to Mrs Knatchbull-Hugessen, as we've

seen, and then, at tab 46, we find that Mr Rowley Higgs

was forwarded the message -- in fact, I think slightly

earlier at 12.30 on the 16th, at the bottom of 727.

Then there's a slightly garbled e-mail, but he replies

at 6.27 saying he's going to deal with it before he goes

home.

he may have been still at his desk -- he sends what he

calls a rambling note, and he says:

And then, at just after midnight -- one suspects

"Basically, I think holding on tightly to CCC is

a good option.

and share in upside."

ACL will ...(reading to the words)...

Then he makes a robust observation about

Coventry City Football Club and that they have to pay.

I'm not sure what he means, but I'll ask Mr Higgs about

that in due course.

So he was fully notified of this scheme as well.

Mm-hm.

At tab 48 there's reference to a meeting, it's an e-mail

dated 18 August --

Mm-hm.

-- and reference to a forthcoming meeting on the 20th.

I think what in fact happened was that you instructed

PricewaterhouseCoopers to represent you at that meeting;

is that right?

They were still engaged as our advisers, yes.

And Mr Harris raised various questions with you in the

e-mail at the bottom of the page.

He says this:

"Can you please advise what is the scope of PwC?

The key output for me is to attain a definitive game

plan from the council, for example, their intent, if

once the debt is purchased, ie do they intend selling

part to SISU ...(reading to the words)... What is the

loan rate?

For how long? 74

Is the rate fixed?

Does ACL

or AEHC benefit from a lease extension?

game plan with CCFC [so the football club] if the debt

purchased?

so, when?

offered by SISU."

What is CCC's

Do CCC intend purchasing the FIL shares?

And assume the quantum is greater than

So Mr Harris asks a number of pertinent questions

about how this is going to work in relation to SISU and

the club.

Mm-hm.

But you give rather a negative answer.

11 12

You say at the

end of the first paragraph: "PwC [Mr Skinner, I believe] are not there to engage

in any of the things you mention in the second part of

your e-mail.

sell any part of the debt to anyone.

whether CCC members will even allow SISU to purchase FIL

after CCC has restructured the ACL debt."

To my understanding, they don't intend to Chris doubts

Towards the bottom you say:

"I understand that CCC have no game plan with CCFC.

I think everyone has thought about the likely reactions

of Seppala, but nobody has given it thorough

consideration or working through likely courses of

action."

So is it fair to say there was a bit of a hole

in the plan and that nobody had really thought through 75

1 2

what the implications were for the club? A.

3 4

I think that at this stage in the proposition there were quite a number of holes and that's one of them, yes.

Yes, and I think you make the same point in the next tab

at tab 49, where you comment on the increased urgency in

Mr West's note.

Then you say:

"There is one part of Chris' note which shows only

the tip of an iceberg: Seppala's reaction.

there have been musings about what she might do, nobody

has really sat down and tried to work through different

scenarios.

that this is something that the shareholders, separately

from the ACL board, need to be doing as well as ACL

itself."

Although

I shall be suggesting at the 29 August board

Basically, there was just a hole in the plan when it

came to the club and SISU; isn't that the position?

That is one of the holes, yes, absolutely.

And that hole was never filled, it was just left and

it would be secret from SISU and nothing would be done

about the position of the club.

Isn't that right?

Because the trustees did not go forward with the City Council, the proposition came to nothing.

Sorry, you didn't approach the bank?

No.

And there was no bilateral deal with the bank? 76

2 3

We did not approach the bank.

The trustees, the

charity, did not approach the bank. Q.

Well, we don't have all the documents in the file, but

what we do have is the position at the end of the year

when the deal went forwards.

you that at that point the trustees were fully engaged

with what was going on and you deal with it briefly in

your witness statement at paragraphs 45 to 47.

would you accept that the negotiations with the bank

I'll certainly put it to

But

were in fact a painstaking process over a period of

months from August to December?

Absolutely, yes.

And that the trustees were kept fully informed at all

14 15

times of what was going on? A.

The trustees were informed, but were not part of the

negotiation.

the bank.

19 20

They were not a party to the meetings with

And you're making the point that you and Mr Harris were party, but not as trustees; is that what you're saying?

I had no meetings other than when the bank, uninvited by

the -- well, it was invited by the chairman, some people

from the bank came to an ACL board meeting.

that, I had no meetings with anyone from the bank.

only time that I could have and did see some of them was

at Castle Donnington in the meeting that is referred to. 77

Other than The

And I wasn't in the room because I was there for the

trustees.

I understand the point you make about who actually

approved the final negotiations and indeed the final

loan.

directors.

That was a unanimous resolution of the ACL

Mm.

But are you saying to me that, notwithstanding all these

expressions of opinion at this time, the trustees

actually didn't go forward with what they had all agreed

to go forward with in these various memoranda?

They hadn't agreed to go forward with it because they

hadn't agreed on some of the terms with the City Council

and, at the end of August, PwC were transferred across,

as it were, and no longer were acting as advisers to the

trustees.

with the bank.

The trustees took no part in the negotiations

Can I take you to a document which isn't, on the face of

it, consistent with what you're now saying to the court.

It's in the little bundle, H.

Sorry, 4, yes.

page 930.

I think the tab is H inside it.

This is dated 29 August.

Ah yes.

And it's Mr Skinner of Pricewaterhouse. 78

It's

Yes.

And item 1 of "Work to be carried out":

"The deliverable will be a report to the ACL

shareholders, the council and the charity and the ACL

board.

a presentation to be prepared by the shareholders and

ACL to Yorkshire Bank."

This report will form the basis of

Mm-hm.

And so on the face of it, that doesn't seem to be

consistent with your position because it appears clearly

that the bilateral approach is exactly as I've suggested

to you, and indeed that's confirmed at point 8 on

page 933 where it says:

"This is a joint project between Coventry City

Council, as shareholders in ACL, the Higgs charity, as

shareholders in ACL, and the ACL board (the parties)."

So is it not the case that you were fully engaged in

this project throughout and with approval?

My Lord, we didn't complete this engagement.

Are you saying that Pricewaterhouse, contrary to this

21 22

document, ceased to be engaged by the charity? A.

23 24 25

They ceased to be engaged by the charity.

We did not

complete the set of documents that engaged them. Q.

Did anybody complete them? either.

This one isn't completed

Are you saying no one -79

The city council and ACL engaged.

Are you saying they completed this document and you

3 4

deliberately didn't? A.

Yes, and the subsequent document, the -- you'll have to

forgive me, I forget the -- FHSMA.

remember the initials of the document, but it's the

document that you have to sign up to to say that you are

a professional party and so on.

I'm not -- I can't

Again, not completed.

So your position is that, contrary to the appearance, you stepped out at some point?

Yes.

No doubt your barrister will point you to documents that

13 14

evidence that if there are any. MR JUSTICE LEGGATT:

Did the charity get the report that was

prepared or planned to be prepared that's referred to

here?

MR THOMPSON:

20 21

I cannot remember.

No. did?

I looked ...

You can't remember?

Am I allowed to look for help to see whether we That's the obvious answer.

There is, no doubt, such a report, so if ACL wish to say that you --

I can't recall it.

-- or indeed the charity -- I suspect you've got a copy

of it and you could produce it if you wished to. 80

I'm surprised it hasn't come out in disclosure because disclosure was exhaustive.

Yes.

We don't use Cloud and things like that, so ...

It's never too late, as you might say, to make

6 7

It may well be surprising.

a disclosure. MR JUSTICE LEGGATT:

So is the position,

Mr Knatchbull-Hugessen, you don't remember whether the

trustees were sent this report or not?

MR JUSTICE LEGGATT:

I cannot recall. Can you recall seeing the report in any

of your capacities?

No, I can't.

I was about to add that, my Lord.

MR JUSTICE LEGGATT:

MR THOMPSON:

Thank you.

I'm in a slightly awkward position in that I'm

instructed in the judicial reviews and I have

information, but I obviously have to be careful what

I say.

19 20 21

MR JUSTICE LEGGATT:

You're not here to give evidence

anyway. MR THOMPSON:

No, but in terms of disclosure of the

document, Mr Knatchbull-Hugessen and indeed

Mrs Knatchbull-Hugessen -- ACL has intervened in the

judicial review and Mrs Knatchbull-Hugessen has given

a witness statement in that, so insofar as there are 81

documents in the judicial review that could be relevant

to this case, they're obviously available to these

individuals.

the judicial review.

5 6 7

In fact, the trustees have intervened in

MR JUSTICE LEGGATT:

Are those documents that you can use in

court here, or do you have to get permission? MR THOMPSON:

No, it's simply the specific question about

what Mr Knatchbull-Hugessen or indeed

Mrs Knatchbull-Hugessen knows about this particular

10 11

report. MR JUSTICE LEGGATT:

Yes, but are you wanting to put some

information to him from the other proceedings?

what you're saying?

MR THOMPSON:

Is that

No, it has arisen specifically in relation to

this report, which, without wishing in any way to breach

my undertaking, that report is in evidence for the

judicial review, but for whatever reason is not in

evidence in this case.

MR JUSTICE LEGGATT:

MR THOMPSON:

Right.

Where does that take us then?

Well, it's simply come up now because

a specific statement has been made about that document

and obviously the easiest way would be for the other

side to disclose it in these proceedings and then there

would be no question of any inconvenience.

MR BRENNAN:

For the avoidance of doubt, 82

Mr Knatchbull-Hugessen is not a defendant.

a party to these proceedings.

is not subject to the duty of disclosure.

ACL.

He's not

Therefore he personally We are not

This has been ventilated, as I understand it, in

correspondence in the past.

suppression or even being awkward, but we are not ACL

and therefore we cannot disclose ACL documents.

MR JUSTICE LEGGATT:

It's not a question of

Well, I don't know where you're going,

Mr Thompson, whether you're making an application of

some sort or what you're doing, really.

MR THOMPSON:

It's obviously come up unexpectedly.

MR JUSTICE LEGGATT:

I know it has, but are you just

carrying on the cross-examination?

me to do something, I'll sit here and listen to you.

MR THOMPSON:

Yes.

Unless you're asking

I don't want to detain ... Can we see

whether it can be sorted out over lunch?

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes, very good.

Can we now go to the period of December 2012?

You'll recall that we've already looked at documents

evidencing negotiations between Deloittes and SISU.

you recall looking at those documents?

Yes.

A trustee meeting took place on 12 December, which

appeared to give some form of authority in relation to 83

negotiations with the bank.

document again?

4 5

I made my report back to -- or Paul Harris maybe made the report.

Do you want to look at that

I'm struggling to recall.

We've looked at a document where an instruction was

suggested that an offer should be made of £11 million to

£13 million; do you remember that?

Sorry, an instruction by who?

Perhaps we should look at the document.

It's at tab 60

of bundle 3.

Ah yes.

The council was saying:

"The parameters for us are £11 million to

£13 million in full discharge of the loan."

Yes.

What actually happened on the following day, as one can

find from bundle 2, tab 33, the chairman of ACL,

Mr Carter, wrote to Mr Billup, who is confirmed as being

an employee of the Clydesdale Bank, and there's

a comment on the rent offered by SISU being

a significantly better offer than any other made to

date.

debt service"?

Do you see the heading "Cash flow available for

Yes.

"Considerable progress has been made"? 84

Yes.

And then, "An issue of rent arrears still outstanding".

Over the page:

"Debt restructuring proposal.

The revised level of

CFADS [I don't know what that is, but I don't think it

matters for present purposes] is not sufficient to meet

the revised debt repayments proposed by Deloitte.

ACL board of directors accept that not being able to

service the bank is a very unsatisfactory position and

wish to find a solution that stablises the business as

soon as possible.

The

"As an alternative solution, we propose that the

debt is refinanced by Coventry City Council.

The council are prepared to offer ÂŁ12 million in full

settlement of all monies owed to Yorkshire Bank,

including both the loan and swap agreements.

this offer is significantly in excess of the property

valuation and, in light of the ongoing uncertainty over

the relationship with CCFC, would be higher than any

third party would be prepared to pay.

keep both the details of this proposal and the fact that

the council made such an offer strictly confidential

between ACL and Yorkshire Bank.

jeopardise the ongoing rent negotiations with SISU,

especially if it became known to a third party." 85

We believe

We ask that you

Failure to do this may

So the position is that it should be kept strictly

confidential and the offer was made of ÂŁ12 million.

Mm-hm.

Were you informed of this development?

Yes.

6 7

chairman of ACL. Q.

8 9

Yes.

Perhaps I should ask you whether this was made

known to the trustees in your other capacity. A.

10 11

I'm a director of ACL, this is a letter from the

I probably would have informed them that this was happening, yes.

Yes.

I should have done.

There's some evidence of this, which we can look

at briefly, at tab 61 in bundle 3.

document, which is dated 30 December, that the matter

had been kept secret for two weeks, although in fact

we've skipped over perhaps the most important thing,

that an agreement had in fact been reached of the

14.4 million.

that was reached, so obviously that had been agreed by

this stage.

to be followed to the 8th and 15 January and you have

notified the trustees again.

22 23 24 25

It appears from this

If you recall there was a final offer

And you set out the procedure that's going

And again, there's the reference to Miss Seppala, and saying that: "[You have] told nobody we've reached agreement with the bank as we want as much time as possible before 86

Seppala can react ...(reading to the words)... and the

behaviour of one of the bank's advisers is deeply

suspect [presumably that's a reference to Deloitte].

She will certainly know on 8 January."

And then there's reference to how ACL has behaved

and how they may behave if SISU respond.

Then you say:

"At some stage I will have to write to Seppala in

order to attempt to recover the abortive costs incurred

in dealing with her offer to purchase FIL."

Sorry, I'm not ... At 63 I have nothing.

Sorry, I'm at 61.

I've been going along -- I'm sorry,

I misled you.

Oh, right.

Then further down, you refer it to the -- as a 1942

moment.

I assume that means a Battle of Alamein moment

and you are going to be able to move forward.

what you had in mind?

Yes, the end of the beginning.

And then the next tab is important, 62.

Is that

We've gone into

the new year and you e-mail the trustees again, and the

second paragraph draws the distinction between what is

a matter for ACL and what is a matter for the trustees.

And you say:

24 25

"There are elements that must have the agreement of the trustees." 87

And then specific references to the changes to the

JV --

Mm-hm.

-- which are presumably because of the restructuring of

the debt.

In one element.

Yes.

And then at the bottom you refer to the need for

advice on the structure of the JV more generally.

And on the merits of the loan, yes.

Yes.

And what seems to have happened is -- one finds that

from the next tab, 63 -- you were given advice that

a further amendment was needed.

paragraph 1.2.

That's explained in the

I'm sorry, but in this bundle I have no 63.

I'm sorry.

18 19

I'm sure that can be provided to you.

I don't know if there's a clean copy. MR JUSTICE LEGGATT:

(Handed)

MR THOMPSON:

I'm sure you can ignore some markings.

They are not very exciting markings: two lines

and a cross.

It simply refers to paragraph 1.2.

Yes.

It's really the last two or three sentences:

"As a result of the refinancing arrangement, CCC had 88

agreed to buy out the debt owed by ACL to

Clydesdale Bank on favourable terms for ACL.

The council will also advance ÂŁ400,000 as a working

capital facility to ACL.

venture agreement, it was not possible for a shareholder

to lend money to ACL.

restatement agreement was to enable a shareholder to

advance money to ACL."

Under the original joint

The purpose of the amendment and

And so this was something the trustees had to

address, they had to give the council the power --

Indeed.

-- to make a loan to ACL.

No, they had to give ACL the power to have a loan from

the council.

Sorry.

They couldn't give a power to the council.

Well, not a power to the council, but it was a term of

the joint venture agreement between you and the council

that neither shareholder could lend --

Yes, absolutely.

This enabled ACL, yes, to take a loan.

I'm not sure that is right.

Isn't it?

I think the way I put it originally is correct: that

this was an amendment to the joint venture agreement,

which enabled the council to make a loan to ACL. 89

Yes.

And I think that's something that hadn't been picked up

in your previous e-mail.

I think it's clause 4.5 of the

agreement, but I don't think we need to be worried about

that.

Okay.

So that was a meeting of all the trustees --

Mm-hm.

-- on 14 January, which was the day before the council

decision of 15 January --

Yes.

-- and it was a legally necessary step for the loan to

ACL from the council to go ahead; is that right?

Yes.

So just to wrap up: first of all, the trustees, you'd

accept, were fully informed of Mr West's plan

from August 2012 onwards?

They certainly were, yes.

And I would put it to you that they were viewed as

a critical element of that plan from the start.

That's

clear from Mr West's own memos and from your response.

Partners in ACL, yes.

Your adviser, Pricewaterhouse, played a central role

in the negotiations with the bank; would you accept

that? 90

2 3

With the obvious caveat that at the time they were not our advisers.

The trustees maintained secrecy in relation to SISU

until January 2013 and they participated in the PR

campaign against SISU in January 2013?

7 8

a PR campaign. Q.

9 10

I'm not sure how the trustees participated if there was

You were certainly notified of it.

Are you saying you

didn't actually consent to it? A.

The trustees ... I'm sorry, I'm struggling with PR

campaign.

Shandwick.

Webber Shandwick could act for them.

prepared papers, prepared scenarios, prepared all sorts

of things.

from Webber Shandwick on one occasion, maybe two

occasions, as the charity.

There was -- ACL had PR advisers, Webber The offer was made to the trustees that Webber Shandwick

I certainly recall taking advice directly

But more than that, no.

Then finally, the trustees' role was crucial, in a legal

sense, in that you had an effective veto right under the

joint venture agreement to the entire council plan;

is that correct?

23 24 25

The trustees need not have agreed to the amendment of the joint venture agreement.

Overall, our submission would be that you clearly acted wholly inconsistently with the indicative term sheet 91

from 17 August 2012 onwards and you materially impeded

the SISU deal from that date.

On -- I can't remember the date, and it must be

somewhere in the bundles, but I was instructed by the

trustees to write to SISU to say there would be no

extension of the exclusivity period because they wished

to be free to have open discussions with others.

Then there's a final point, if I may.

The documents

appended to the claim form, as you'll remember, are

a number of letters and they start with a letter dated

31 January 2013; do you remember that?

I know of the sequence of letters.

In fact, the 31 January letter, I'm wrong, is not

appended to the particulars of claim.

tell me where it is.

held up well, but I've lost one.

MR JUSTICE LEGGATT:

MR THOMPSON:

Somebody will

Sorry, my Lord, my referencing has

It has.

(Pause)

I think it may be appended to your witness

statement.

points out correctly that it's over six months since the

trustees agreed with your conditional structure for the

sale and purchase of Football Investors Limited.

then you say:

24 25

Page 324.

It's written in simple terms.

And

"I would be grateful therefore if you could advise the trustees of your intentions without further delay." 92

Mm-hm.

And Mrs Knatchbull-Hugessen comments on this letter at

page 355, tab 4, at the end of paragraph 18.

says is:

What she

"The first letter sent at the end of January 2013

gave SISU Capital that opportunity."

Which is an opportunity to go ahead with the

purchase, as I understand it.

Mm-hm.

And then says:

"The charity sought to give them every opportunity

of achieving the purchase, even despite their behaviour

both with regard to ourselves and to the damage they

caused in the local community."

So leaving aside that comment, would you agree with

her that the terms of the 31 January 2013 letter

deliberately left it open that the ITS might be

performed, notwithstanding the fact that the council had

discharged the debt?

letter?

Is that what you intended by that

It was my understanding that a condition precedent that

has been put into a document can be removed by the

person who had wanted to put it in.

24 25

So in principle the condition precedent could have been waived by my clients had they proceeded with -93

And if they had arrived at -- yes.

MR THOMPSON:

Thank you.

3 4

No further questions, my Lord.

Re-examination by MR BRENNAN MR BRENNAN:

Mr Knatchbull-Hugessen, you referred to an

organogram.

In that context, could you explain what the

document is at page 280?

Yes.

When did the original of this document come into your

This is the organogram that I referred to.

possession?

I don't know.

Can you assist us with the handwriting that appears

And I don't know in what context.

in the right-hand side of the document?

No.

Do you have any recollection at all as to its

provenance?

I don't.

Turning now to Mr West's plan, can you explain why it

was in your opinion -- well, was it in your opinion

a good idea to keep this plan secret from SISU?

I think it needed to be kept confidential from everybody, yes.

And why were you of that opinion?

The ... The directors of ACL had -- were having to deal

with a situation where their principal tenant had

stopped paying rent.

This meant that the directors had 94

to take fairly rapid steps to make sure that ACL could

meet its creditors' demands, keep its employment, and to

continue as a business.

shareholder value.

attack from outside because the -- I don't know how to

describe it, but the thing that was in play was

a football club, which is far more than just a business.

And as both the investors in ACL had made what, in

charitable terms, is called a mixed investment, it is

It needed to protect the

The directors were under constant

not simply about financial return, it is about the

regeneration of the city.

aspects of the life of a city and its people is

a football club.

And one of the important

The directors were all the time having to wrestle

with trying to run a business and trying to ensure that

further damage wasn't done to the football club.

they could be a part of that, that is what they wished

to do, not for necessarily the economic reasons, but

because a successful football club is such an important

part of a city.

22 23

What effect, if any, would disclosure of this plan to SISU have had?

For us as directors of ACL, we were not familiar in our

working lives with the practices of the kind of hedge

fund investor that -- and the drivers that make them 95

work.

Therefore, there was always a recollection --

I mean, we read and we see that articles call

Miss Seppala "the queen of debt, with balls of steel",

I think The Times put it.

the word, of what sort of things could happen to us.

had seen -- at the time we had seen a shifting of

movements, changes of personnel, we knew we were dealing

with people who had a clear goal and a clear aim, and

I suppose, to put it in the sort of language I would

So we were wary, I think is

use, that they would stop at nothing to get what they

wanted.

I think if I recall correctly, the question was --

I'm sorry.

-- what consequence did you believe would follow in the

15 16

event that the plan was revealed to SISU? A.

I think we just feared for the worst, that there would

be -- I don't know, she might liquidate the club.

was threatened often enough, all through that period,

both by Mr Fisher and by Miss Seppala.

It was a financial inevitability that one of the

consequences of Coventry City Council's plan was that

the value of Football Investors Limited's shareholding

in ACL would increase.

between yourselves and the charity as to the fallout

from that benefit that arose?

Were there any discussions

Are you asking me --

MR THOMPSON:

agreed?

MR BRENNAN:

Can I just indicate it's both leading and not

In cross-examination there was a time when you

were being asked questions about the events after

Mr West's plan had been circulated.

Yes.

And you asserted that the trustees were not in agreement

in all terms with the council.

Yes.

What was the source of the disagreement?

One of the disagreements was that if the debt was

restructured and the debt remained in ACL, there were

councillors who had a view that the charity would have

an increase in value, although there would be no

increase in the value of ACL, and to that end they

wanted to have the trustees make payments to unknown,

unspecified projects that the council would determine.

This is something the trustees rejected and was one of

the stumbling blocks in having an arrangement with

the council.

22 23 24 25

MR BRENNAN:

My Lord, do you have any questions of

Mr Knatchbull-Hugessen? Questions from THE JUDGE MR JUSTICE LEGGATT:

Yes, I've got one question. 97

Between August and your letter to SISU of 31 January

that I think we've seen recently, was there any form of

discussions or communications at all between them and

the trustees or ACL?

MR JUSTICE LEGGATT:

No, my Lord. Just silence?

With ACL, there were many. In which you were involved in that

capacity?

MR JUSTICE LEGGATT:

Yes. Those were about the rent payment, were

they?

Yes, my Lord.

MR JUSTICE LEGGATT:

Was there any discussion at all, either

with ACL or with the trustees, of the proposed share

purchase?

18 19

Certainly not with the trustees, my Lord, and there wouldn't have been with ACL because it was --

MR JUSTICE LEGGATT:

It didn't affect them, yes.

And what

about any discussions with Yorkshire Bank?

any communication that you had with SISU about their

being involved with any discussions with Yorkshire Bank?

No, my Lord.

MR JUSTICE LEGGATT:

MR BRENNAN:

Thank you.

My Lord, I note the time. 98

Was there

MR JUSTICE LEGGATT:

Thank you very much,

Mr Knatchbull-Hugessen.

That completes your evidence.

We will adjourn until 2 o'clock.

If there's

anything in the matter that you mention, Mr Thompson,

I will leave it to you to raise over lunch or if you

want my involvement in any way, raise it afterwards.

MR THOMPSON:

I'm grateful.

MR JUSTICE LEGGATT:

(1.00 pm)

2 o'clock.

(The Short Adjournment)

(2.00 pm)

MR BRENNAN:

My Lord, I call Mr Harris.

His witness

statement appears immediately behind

Mr Knatchbull-Hugessen's witness statement at page 328

in bundle 1.

MR PAUL MICHAEL HARRIS (sworn)

Examination-in-chief by MR BRENNAN

MR BRENNAN:

Mr Harris, what is your full name, please.

Paul Michael Harris.

What is your address?

(Address given).

Could I ask you, please, to turn to the witness

statement that's in front of you and turn to page 337 of

it; is that your signature?

It is. 99

Is this the witness statement that you made during the course of these proceedings?

It is.

Are the contents of this witness statement true to the

best of your knowledge, information and belief?

They are.

MR BRENNAN:

8 9

Thank you. Cross-examination by MR THOMPSON

MR THOMPSON:

Good afternoon, Mr Harris.

Good afternoon.

I take it you were in court this morning.

I was, yes.

So you've heard some questions already?

Yes.

So I will try and be as economical as I can.

summary, you are an experienced businessman, working for

Virgin Media Group.

background and professional expertise is that led you to

your current position?

Could you briefly say what your

My background is in construction management and in

manufacturing management and general management across

large corporations.

Can I ask you to look at paragraph 5 of your witness

statement where you cross-refer to the witness

statements of the other witnesses? 100

You were present in

court when I raised a number of issues about public

relations with Mr Knatchbull-Hugessen.

that the trustees have from time to time and in

particular in December 2012 and January 2013 worked

closely with the council and Webber Shandwick on the

public relations presentation of the council's decision

to lend money to ACL?

to time you have worked closely with the council and

Webber Shandwick on that issue?

11 12

Would you accept

Would you accept that from time

I would accept as a director of ACL we worked closely. From time to time we have worked with that agency.

Yes, and the trustees have certainly been aware of that fact, to put it at its lowest?

Maybe some of the trustees may be aware of that, yes.

Can we look at paragraph 7 of your witness statement?

You refer to an option agreement and an approach by

SISU Capital and Tim Fisher to open discussions to

potentially purchase the charity's shares in FIL.

you go on:

Then

"I believe the reason for this was that the formula

containing the option agreement would require payment of

a sum in excess of what SISU Capital or companies or

partnerships connected to it wished to pay ...

SISU Capital's offer to the charity was therefore at

a discount from the formula contained in the option 101

agreement."

I just wanted to ask you about that.

This wasn't

a matter of SISU's meanness, as it were, it was because

ACL wasn't worth what the option agreement provided for.

That's correct, isn't it?

No.

That's their assumption.

But you're an experienced businessman and you knew about

such matters.

And you knew that the value of ACL

depended on the strength of the football club's covenant

and that that was known to be weak.

didn't you?

You knew that,

I knew that the covenant was weak, yes.

You knew that the football club was close to insolvency

and that the position had been made worse after its

relegation to Division 1 and, because of football

financial fair play, you knew about that didn't you?

I did.

Can we just look at what you knew at this point?

First

of all, if you turn to bundle 3, tab 27, you may recall

that there was some mention of a Pricewaterhouse report

that was prepared in September, but this is

a Pricewaterhouse report that was prepared in June, and

whatever the position in relation to September, at this

point this was prepared for the charity.

that on the front page; do you remember that? 102

One can see

I do.

If you turn into it, it's a report that's all drafted in

landscape on the side.

the report, 656.

column --

There's a summary on page 5 of

If one looks down the left-hand

Excuse me, this bundle is not ... It's coming apart.

Sorry, it's slightly awkward to use.

You'll see:

"In PwC's view the financial position of CCFC means

that there is considerable uncertainty over its ability

to pay rent to ACL.

to breach its banking convents [but I think it must mean

'covenants'].

jeopardise the charity's investment in ACL."

In such a situation ACL is likely

A breach of banking covenants will

So that was a difficult position for ACL; is that

right?

It was at that point in time, yes.

And if you look at 663, one of the options was to reject

the SISU offer and the PwC view is, in rejecting the

offer from SISU, the charity might be passing on its

only chance of receiving value for its investment in

ACL, and then over on the right in more detail it says:

"However, it may be difficult to find an alternative

buyer and there is no guarantee the alternative buyer

will offer a higher purchase price."

Then over on the right: 103

"In a worst-case scenario and if ACL is unable to

meet its financial obligations, this results in an

insolvency of ACL.

risk that the value of business is below the bank debt

and the value of the charity's investment has no value."

6 7

Were you familiar with this at the time? A.

8 9

In this situation there is a high

I was familiar with a number of options contained in this report, yes.

And you were familiar with the view of Pricewaterhouse

that SISU's offer was a good one in financial terms and

that there was an argument that ACL had no value at all?

That was one view, yes.

Can we look at what the council thought at the time?

That's at tab 45 of the same bundle.

that you've heard referred to before.

15 August document from Mr West to Mr Reeves.

passage I'd like to take you to is at page 725 where

Mr West says:

This is a document It's the The

"I think the reality of the situation is that the

price Higgs have negotiated, if not the payment

mechanisms, is very significantly above the market

value, and that, even after the restructure I am

proposing, the charity would struggle to get much above

this unless a substantial rent deal was agreed with the

football club.

The latter has got to be very unlikely." 104

And then he goes on.

He says it's not an absolute

blockage, but I think that's about the terms between

the council and the charity.

So that was the council's view; do you see that?

I can see it.

And do you recall that that was their view at the time?

I don't recall at that particular time, I recall after

8 9

I'd come back from overseas, yes. Q.

Just two more documents on that issue very briefly.

There's a thin file of documents beside you.

If you

could take that up and turn to pages 934 to 935, tab 7.

There's a detailed analysis by Mr Aherne of

PricewaterhouseCoopers on 2 November 2012, subject

"AEHC".

the bank debt and restructuring the debt; do you see

that?

He gives an analysis of the effect of acquiring

Yes.

Do you recall this e-mail?

Um, I'm not sure actually.

I think it's not necessary to go to it in any detail,

but the conclusion you see on the right-hand side --

I must have seen that.

"The final point to make is there is no guarantee the

restructuring of the loan gives rise to any value to the

equity." 105

And the reason was you might pay more than the

business was worth even if you reduced the debt.

understood that?

understand as a businessman?

You

That's a sort of point you would

Yes, it would be.

Then finally, can we look at your own view at the time?

Unfortunately, we need to look in another bundle for

that.

Laura Deering's witness statement.

10 11

I'm afraid that's bundle 5 of the exhibits to Sorry, I have them

in a single volume. It's pages 1444 and 1445.

This was a note, if you

look at the second page, prepared by you and

Mr Knatchbull-Hugessen on 10 September.

paragraph you consider SISU's offer.

In the first

You say:

"SISU have offered £5.5 million for FIL, though the

residual element is unsecured.

and thus at risk.

pre-emption as well as a veto over any sale.

The council intends to buy from the Yorkshire Bank the

loan taken out by ACL and convert this to a loan with

ACL, which is coterminous with the remaining lease

tenure of 42 years.

4 million is unsecured

Coventry City Council has a right of

"The approximate value of the loan is £15 million,

with a further £3-million hedging agreement with the

Yorkshire Bank.

If the purchase is successful, the 106

value of ACL could be enhanced, though this will be

dependent on whether the loan is purchased for a value

at least comparable to the business valuation.

Therefore it's unlikely any residual value enhancement

would be achieved unless the debt purchase was less than

£8 million.

ACL is as little as £4.5 million, although the value of

which will be subject to a revised valuation."

It is possible that the current value of

So that confirms that both you and

Mr Knatchbull-Hugessen would have thought that

a 5.5-million offer for half was a very good deal

indeed, would you not?

14 15

Miss Seppala, yes. Q.

16 17

That's the deal that I personally negotiated with

So although it was below the option price, it was a very good price?

Yes, but it was part of that negotiation with

Miss Seppala that started in May.

£2 million and we concluded £5.5 million, yes.

Yes.

She started at

And that, on your own analysis, was significantly

above what the business was worth?

That was the negotiation, yes.

And that you wouldn't achieve an increase in value

in the terms you have put there unless the bank debt was

bought out for less than £8 million? 107

That was part of that consideration, yes.

Whereas in fact, it was bought for 14 million.

It was.

I think people know about that, there was the hedging

The debt at the time was 19 million.

element, so there's a question about how much it was,

and you there say I think it's 15 million.

The next passage I'd like you to look at is the next

paragraph, paragraph 8 of your witness statement.

can put away that bundle.

You

I'm sorry to have put you to

that trouble.

Which bundle was that in, sorry?

Your bundle 1.

Paragraph 8.

It says:

"The football club were refusing to pay sums due

under the lease and licence arrangements or to top-up

a rent deposit account."

There are two points there.

The first, I think you

understood very well -- and we've looked at some of the

meetings -- that the club was close to insolvency at the

start of 2012, was it not?

refusing; it hadn't got the money to pay.

So it wasn't simply

But they were paying other debts and other liabilities, yes.

But they were close to insolvency, I think --

That's what Mr Fisher had indicated, yes.

We hadn't at

that point in time started to look at the trading 108

1 2

position. Q.

Yes.

I have already discussed with

Mr Knatchbull-Hugessen, but I think you'd agree that

SISU was not under any legal obligation to bail out the

club indefinitely.

legal obligation?

You'd accept that as a matter of

Well, I mean, that depends on the owners of the football club, whether their under obligation or not.

Yes, certainly.

I mean, we were dealing -- at that point in time, when

we were having those conversations about Coventry City

Football Club Holdings and their trading position, which

were the party to the lease and the licence.

Yes.

And you may recall that I took

Mr Knatchbull-Hugessen to some principles that Mr Reeves

set out in a meeting in April.

part of the discussion this morning?

Do you remember that

I might have to reflect back on that, yes.

What was said is that there was common ground

effectively that you couldn't pump in money

indefinitely.

We can look at it if you want to.

Who couldn't pump in money, sorry?

You couldn't expect someone to pump money into

24 25

a football club indefinitely; do you recall that? A.

I heard what was said, yes, but again that's not for me 109

1 2

to comment in terms of pumping in money. Q.

No, certainly.

On the other side of it, you refer to

the refusal to pay and the failure to top up a rent

deposit account.

a discussion about whether the stadium deal could go

ahead and whether Miss Seppala would put the money into

the club in the absence of a stadium deal.

remember that?

And it's true that there was

Do you

I do, yes.

But what actually happened was that there was

a half-a-million-pound escrow account; do you remember

that?

I remember that.

And that was used by ACL to pay the rent until it was

exhausted.

from March 2012.

So ACL received ÂŁ500,000 in rent ongoing

It was triggered by ACL to the bank, the Yorkshire Bank, because of the failure to pay rent.

Yes.

It received it after triggering and the release of it

But it did receive that money?

from the bank.

Yes, and it also --

It didn't receive it by gifting it or by anything that

the football club did, other than stop paying their

rent. 110

Except -- and again we can go to it if you want to --

you'll recall in March of that year this issue of the

escrow account was expressly discussed between the

parties, between the council, ACL and the club, and

SISU, at a meeting in March; do you recall that?

7 8

I'd like to go back to that.

I do recall it.

It was

6 March, so I believe, in my office. Q.

Yes, indeed.

It's bundle 3, tab 2, I believe.

Page 603.

Yes.

"The rent holiday and escrow release and cash flow was

noted by all.

No objections raised.

Both CW [Mr West]

and [yourself] seem to understand the rationale and

result if this wasn't achieved."

So I know that ACL changed their position in

a letter afterwards, but do you recall that this was

openly discussed at this meeting?

I recall this was openly discussed, I also recall Peter

responding to this from meeting minutes that he took at

that meeting, and I recall him responding to those

points on 11 March.

Yes, a letter was written.

Yes.

So there was not accepted.

You know, there was

a discussion, absolutely, and was that tabled?

Absolutely. 111

Yes.

The upshot, whether or not by consent, was that

ACL received £500,000 out of the escrow account.

correct, isn't it?

5 6

That's

By triggering the default position, yes, on the rent deed deposit.

And they also received £10,000 on a pay-per-play basis

for the season after the escrow account was exhausted.

That's true, isn't it?

10 11

That's true as a negotiated position on the basis that the escrow had also run out by this point in time.

The net effect -- and I don't think we need to go into

the detail of the numbers -- is that overall ACL

received somewhere between £800,000 £900,000 in relation

to the rent or licence fee payments over the period

rather than the 1.3 million under the original rental

agreement.

18 19

That's correct, isn't it?

In terms of cash triggered by the rent deposit deed being actioned, absolutely.

Yes.

And this was all in the context of an ongoing

negotiation, one term of which was to agree an interim

rent position, pending resolution of all the other

issues.

That's also correct, isn't it?

There was ongoing conversations with various members of

ACL, which I wasn't a party to, to do with the rent and

lease and licence agreements, yes. 112

But you knew very well that one of the issues was to

agree an interim rent position until all the other

things were resolved.

We can see that in the papers.

I think one of the issues was to try and ascertain the

agreement that was signed up to and get the football

club to pay the rent.

into negotiations about agreeing an alternative rent.

At that point in time we weren't

Well, we can look at the papers.

The cessation of the rent commenced on 2 April.

talking of minutes here from 6 March.

of rent, physical rent, stopped on 2 April 2012.

Yes.

We're

So the cessation

So it had been heralded in March, so people --

there's no great surprise about it.

in March 2012.

It was heralded

There was no surprise that the rent would be withheld.

Can we go on to paragraph 13 of your statement?

17 18

In the

first sentence you say: "Following the initial approach by Mr Fisher of the

club and Laura Deering of SISU Capital to

Mr Knatchbull-Hugessen and [to yourself] as a trustee of

the charity, it became apparent through discussions with

Mr Fisher and Miss Deering that they did not have the

authority to agree terms and conditions related to the

purchase of FIL."

And you then go on to say: 113

"It was all a matter for Miss Seppala."

I was surprised to see that because there are large

numbers of documents of you dealing directly with

Miss Deering and Mr Fisher over a large number of issues

over this period.

Miss Deering and Mr Fisher had significant authority at

this time?

So surely it's the case that

I would disagree with that.

I would disagree --

Well, can we look at some of these documents?

want to waste time.

at 432 and it's another meeting on 28 March.

that Mr Fisher and Miss Deering are there alongside

Miss Seppala and Mr Barber, acting on behalf of ARVO,

and that Mr Fisher makes a presentation at the bottom of

the page.

meeting was the need to progress discussions with the

bank.

says:

It's at bundle 2, tab 17.

I don't That's You'll see

One of the things that came out of this

One finds that at page 434, where Miss Seppala

"If you can't do a stadium deal, SISU is finished

funding the football club.

JS noted also the full

purchase of the debt could be done by SISU or split

50/50 with the council as they wished."

Then you say at the bottom:

"PH considers significant progress made in the

meeting and that the discussions had moved things on 114

considerably."

Then there's a question about who should attend the

bank meeting and Mr Fisher noted:

"Likely Yorkshire Bank will want to speak with

ARVO."

So it's true that Miss Seppala clearly is a figure

of authority, but Mr Fisher is also expressing firm

views at that same meeting; is that correct?

10 11

Mr Fisher did express firm views; it didn't mean to say he had the authority.

Can we now turn on to tab 20?

You'll recall that one of

the things that was outstanding was due diligence

in relation to the proposed transaction.

you were put in charge of negotiating on behalf of the

trustees, and possibly ACL, to deal with due diligence

issues that arose.

I think

No, I was put in -- I was responsible for dealing with

the trustees' negotiations with SISU.

charge or responsible for dealing with due diligence

issues.

but I was not a party to that.

I did try and facilitate and help them along,

Turn to page 447.

You have Tim Fisher on 12 June, so

just before the ITS was signed.

Laura Deering:

I was not put in

He's communicating with

"I spoke with Paul Harris at length about the lack 115

of support we have had in regards to providing due

diligence information, for example contracts.

push for Chris West to release the information.

requests are deemed reasonable and perfectly normal."

Paul will Our

So you were obviously regarded as the contact person

for Mr Fisher and Miss Deering to deal with in relation

to the due diligence?

No.

No, that's totally wrong.

Mr Fisher often called

me and often raised issues that he thought I may be able

to help with unlocking.

The NDA that was signed with ACL was -- you know, the

trustees weren't a party to that, I did not lead that

due diligence, it was the chief executive of ACL.

Tim was asking me to do was could I help.

to help.

17 18

This was one of those issues.

What

And I tried

So what was your role if it wasn't -- why were you doing this?

I was trying to do it so that all parties had an

opportunity to, you know, deal with what they needed to

deal with throughout this process.

full-time job in my day job.

about trying to assist in various matters, and this was

one of those matters.

24 25

I have a pretty

Tim often spoke to me

The fact is that you, Laura Deering and Tim Fisher were effectively liaising repeatedly in relation to due 116

diligence.

There's a whole clip of documents.

For

example, at 449, Miss Deering is asking you, responding

to questions from you, for meetings in relation to due

diligence and perhaps, more simply, at 454, there's the

arranging of a meeting for you, Mr Fisher and

Miss Deering in relation to that.

that they weren't simply referring everything to

Joy Seppala and that the three of you were dealing with

these issues on your own bat.

And it's quite clear

No.

Is that not correct?

No, I think you're not actually looking at the facts.

The facts of the matter are -- my reference to

negotiations associated with the ITS were conducted in

terms of decisions directly with Joy.

referring to is a due diligence process that I was being

asked to help with, and I did help with that.

are two different strands.

What you're

But they

One slightly different point, but related to the issue

of due diligence: were you aware that there were

substantial difficulties between SISU and the council as

a shareholder of ACL about the due diligence process?

Was that something of which you were aware?

24 25

I was aware from, again, Mr Fisher saying there was difficulties in getting information that they required. 117

1 2

Yes, I was. Q.

Just to take an example, pages 472 to 473.

There's

a long e-mail from Laura Deering to Mr West, with

a number of complaints, and in particular complaining

that he disagrees with pretty well everything.

look about two-thirds of the way down, it says:

If you

"I don't understand why the rent negotiation is now

being used as an excuse to stop the rest of the

transaction instead of continuing in parallel as

10 11 12 13

before." Then there are a number of other points, and then over the page at 473: "As the delays continue, any impact that AEG or any

other operator might have on the upcoming season will

diminish.

that Joy should demonstrate good faith in assisting

progressing the transaction.

her promises to John Mutton by agreeing to fund both the

academy and a competitive team on the pitch.

discussed, she has continued to fund the losses at CCFC

while the transaction is ongoing.

very little action from the council."

At our meetings in May the council was clear

To this end she has kept

As also

However, we have seen

And further down:

"As we have clearly said in the past, SISU will not

continue to fund CCFC indefinitely without continued 118

progress from yourselves on the transaction.

not an attempt to bully anyone involved in the

transaction, but SISU's position has always been clear.

CCFC, as it stands, cannot continue to trade without

reduced rent and some interest directly or indirectly in

ACL.

further forwards."

It would appear from your e-mail below we are no

Were you aware of this type of problem between

9 10

This is

the council, ACL and SISU during this period? A.

I was made aware of the issues again by a call from Tim,

and again that goes back to what I was trying to do to

try and move things along with the council.

Yes.

This is the period of the exclusivity and some

10 days later, complaints were made that SISU had not

really been taking things forward, but were you aware

that actually the problem had been that there was

basically a blockage between ACL, the council, as

shareholder in ACL, and SISU?

I was aware that there were points being raised, as

I say, by Tim and by Laura.

ACL side of it that there was also blockages, yes, from

a SISU point of view.

other than what Laura outlines in her list to me.

24 25

I was also aware from the

What they were, I do not know,

Do you refer to anything in particular in terms of the blockages from the SISU point of view? 119

Do I refer to anything?

Yes, do you have anything particular in mind?

I have no -- other than feedback that was given to the

ACL board from the chief executive at the time, it was

fair to say that there were challenges that he was

experiencing, but again I was not close to that at all.

Thank you.

You heard the discussion with

Mr Knatchbull-Hugessen about the rationale for the SISU

deal, and I put a number of points to him, which he

agreed with some of them and not others.

But you

yourself as a businessman understood the rationale for

the SISU deal from March 2012 onwards?

the rationale?

You understood

I understood the rationale, absolutely.

If I just put it to you briefly, both ACL and the club

were, as you might call it, underwater in the present

structure.

true, isn't it?

Neither had a profitable structure; that's

ACL had a profitable structure up until that point, up

until the point of cessation of the rent and licence

agreement.

the business.

24 25

Yes.

That would have put considerable stress on

Because the football club couldn't pay the rent,

ACL wouldn't be able to pay its debts? A.

No.

ACL would be forced to look at restructuring its 120

own business.

at that point this time because we were servicing our

debts and continued to service our debts.

We hadn't got to couldn't pay its debts

But the key issue, and the key issue addressed by the

SISU deal, if I put it that way, was to free ACL from

its debt burden, which would then allow the club to pay

a lower rent.

That was the key point, wasn't it?

That was one of the points that was tabled.

There were

a number of other points that, as ACL, we would be

considering our position, as any good business would do

when its principal tenant ceases to pay its obligations.

Yes.

But that was the reality, and it had been

a reality for years that the club was barely solvent.

Yes, but that wasn't of our making.

We've looked at some of the key documents already.

I may take you to your own analysis of the situation at

tab 23 of bundle 2.

the position in terms of how the debt could be

discharged and the position of the club and ACL, and you

identified four possible outcomes towards the bottom of

the page; is that right?

As I understand it, you analysed

That's correct.

And the third of those was, as it were, a version of the

SISU deal with SISU and the council equally purchasing

the debt, SISU trading their debt for conversion of the 121

42-year lease to 125 years, thus creating added value.

This could allow SISU the headroom to purchase the

charity's shares for cash, with the council's debt

purchase repaid as a long-term loan to ACL.

structure has many merits from the charity's perspective

as it would allow clean exit and secure the club, though

the council would probably resist this type of

arrangement."

This

And the contrast, if you go up the page, it says:

"The trustees are in a vulnerable commercial

position, though they remain tactically influential.

The trustees may also be forced into the unpalatable

position of sacrificing the very football club they once

saved to safeguard the future of the charity."

So your concern was that the club might be dragged

down unless there were some deal to reduce their rent;

is that right?

19 20 21

I always had thoughts for the club, having been a supporter for 47 years.

Yes.

So at the end of this e-mail, you conclude at

item 3:

"May well satisfy the charity's exit position.

also be the only palatable all-round solution, though

this will be a difficult pill for the council to swallow

without the entrance of a new party." 122

May

So that seemed to be where you were coming out, that

this was actually a good outcome if it could be

achieved; is that right?

5 6

I think if that could have been achieved, then it could have been a very helpful outcome.

If you turn back to tab 24.

You'll see a sequence of

e-mails starting with an e-mail dated 10 August 2012,

timed at 11.47.

Sorry, on tab 24?

Page 500.

No, I haven't ...

Sorry, do you have tab 24, page 497?

It's at the back of the clip.

If you turn to

page 500.

Yes, I've got that.

I don't know if you have seen this sequence of e-mails

before, but it's a sequence between Miss Deering and

Mr West.

You'll see about two-thirds of the way down the

paragraph:

It starts with this e-mail timed at 11.47.

"Thereafter, after giving our respective discussions

further consideration, we would like to propose we

purchase the debt on a 50/50 basis from the

Yorkshire Bank and, once purchased, the council convert

the lease term to 125 years.

discount we believe we can achieve, the joint debt 123

Given the debt purchase

purchase will allow SISU to purchase the entire Higgs

shares for cash, therefore removing any security or

guarantee constraints."

Do you see that?

I do see that.

And that was basically your option 3 spelt out slightly

more fully; is that right?

Yes.

You may think that's not a coincidence because in fact

you drafted that letter, didn't you?

I have drafted that, yes.

I think you drafted it verbatim.

One finds that in

bundle 3, tab 40.

If you turn to page 710, that is an

e-mail from Miss Seppala dated 16 August.

Yes.

There's a quite friendly, informal exchange, one from

Miss Seppala, and then there's a query that you sent on

the 15th, if you go down the page.

Mm-hm.

That goes back to an e-mail from Joy Seppala saying,

"Much appreciated", an e-mail sent from her to you.

Yes.

And then a friendly e-mail from you to Laura Deering:

24 25

"Hope you and your little bump are doing well.

the draft below I have redrafted as follows, though feel 124

free to come back to me."

And I think we find verbatim the very e-mail that

was then sent to Mr West --

Yes.

-- which you had obviously drafted effectively to

6 7

guide -A.

Yes, this was on the request of Miss Seppala phoning me

up and asking a number of questions around the deal.

reference to our deal, but more reference to

the council's deal.

going to -- I'd actually said to them, "I suggest you

write to them formally", and she asked whether I would

look and modify anything that they'd sent, which Laura

did do.

situation forward, yes.

And she had stated that they were

So I knowingly drafted that to help move the

In fact, they followed your advice to the letter, and it

appears that, up to 16 August, they were under the

impression that you were, as it were, batting on their

side and asking how it was going with the council.

21 22

I was batting on the side of trying to get the deal moving.

But you'll be aware, of course, that, in parallel to

this, Mr West had effectively come up with a completely

different plan to cut SISU out completely and have

a bilateral approach to the bank. 125

I wasn't aware of it at that point in time, no.

If you compare the dates, if you'd look back at

bundle 3, tab 25, this is actually an e-mail to

Mr Higgs, but at the bottom of the page you'll see that

Mr West sent his note to Mr Knatchbull-Hugessen on the

16th, so the same day that you were e-mailing --

Sorry?

Sorry, bundle 2.

I've got no -- tab 25? Sorry, my Lord.

Tab 25.

You'll see that you were sent an e-mail or an e-mail

was sent to Mr Knatchbull-Hugessen to be shared with

you, I assume, with Paul, and that was sent at

11 o'clock on the 16th.

you sending your e-mail to Miss Deering and Miss Seppala

replying, it appears that you'd effectively been

notified of Mr West's completely different plan; is that

right?

With respect, no.

So it's correct that between

You'll also see that I was on

vacation in the Middle East at that point in time and

I was only looking at the odd e-mail and I certainly

hadn't seen that one at that time when I'd spoken or

corresponded with Joy, and Joy actually referenced

a point about disturbing me on holiday.

Yes.

I don't think the precise sequence -- I'm not

turning anything on that, but it's in parallel.

were, in one sense, riding the SISU horse still and 126

You

advising them and, at almost exactly the same time,

a completely different plan was emerging from

the council.

I'm not going any further than that.

I think the key word you've just said there is "emerging

from the council".

I was certainly not riding three or

four different horses; I was trying to keep the process

moving.

Yes.

Can we now go to the issue of the ITS itself?

Which one is that in, sorry?

That is the contract with --

No, which bundle?

Sorry.

Bundle 3, tab 21.

We're now going back in time to

11 June 2012.

You'll see, on 11 June, you're sending an

e-mail to Mr Knatchbull-Hugessen and describing

a conversation with Joy Seppala.

You say:

"After we had spoken and just before I left the SISU

offices, I went back to see Joy and advise any potential

...(reading to the words)... approval will be

conditional on a number of items.

the DD required by the charity's advisers, this would

not be complete by the date to on the term sheet.

the predicament that CCFC finds itself in in terms of

signing off the accounts and getting out of the embargo

this week, I would like to test SISU's mettle.

therefore like to go back on the term sheet and suggest 127

I also advised, given

Given

I would

we insert in conditions precedent."

And then -- these are under two bullets, but there

are effectively three points:

"Approval of the deal's commercial structure and

legal framework by the charity's advisers and the

Charities Commission; and approval of the transaction by

Coventry City Council.

agree to these conditions.

have plenty of wriggle room whilst allowing CCFC to file

My view is that Seppala will In doing so, the trustees

accounts."

That's the origin of the three conditions precedent

about approval; is that right?

That's the beginning of those, yes.

If we then turn to the term sheet itself, which, since

we're in that bundle, one can find at tab 26.

Those

additional conditions precedent appear on page 650.

as I've said, they're broken out into three points:

approval by the advisers, approval by the Charity

Commission, and approval by the council.

correct, isn't it?

But

That's

That's correct, yes.

So overall, the idea was not that SISU paid the costs

whatever happened, but that they paid if the charity

withdrew for certain reasons or if one of these

conditions precedent weren't satisfied. 128

That's correct,

isn't it?

It's what it says.

That's correct.

Can we go back to the chronology briefly in relation to

the position in August?

statement.

Paragraph 23 of your witness

You say this:

"Having not been party to any debt-related

discussions between SISU Capital and the accountants, as

this wasn't related to my duties as a trustee, it was

difficult to ascertain the true position in respect of

the negotiations between SISU Capital and the council."

I think you've already indicated that you have some

information about what was going on, but you say you

didn't have direct information.

I certainly was aware of what Joy was hoping to do with the council from meetings I attended.

Yes.

But I did not attend -- certainly did not attend any

meetings that Joy and the council had with regard to

debt.

Can I take you -- I'm afraid it goes back into these

other bundles, bundle 5 again.

document in bundle 5 of the exhibits to Laura Deering's

statement.

24 25

It's the very first

This is another of the memoranda, and this time it's a meeting at Mr Reeves' council office on 24 July. 129

This

was an important meeting because it was attended not

only by Mr Reeves and Mr West, but also by the head and

deputy head of the council, Mr Mutton and Mr Duggins,

and you attended on behalf of the charity; do you

remember that?

I do.

And of course, this was just before the end of the

exclusivity period.

So you were aware of the

negotiations at this important period and you were party

to the discussions.

For example, at the top of 1372,

you raise a question about the financing of the club and

financial fair play; do you see that?

I do, yes.

And at the end, you see point 1:

"CW [Mr West] and Miss Deering to meet to finalise

term sheet.

now."

Best efforts to complete one week from

So you knew that there were ongoing discussions for

a term sheet between the council and SISU?

I did.

Can we go back to your witness statement?

Paragraphs 19

through to 27 cover quite a lengthy period, but

addresses only a small number of the exchanges that went

on over that period.

closely involved in discussions with the trustees

Would you accept that you were

130

throughout August in e-mails and discussion papers over

that period?

4 5

I was ... I wouldn't say I was closely -- I was sporadically involved, mainly because I was on leave.

If I could just go through a number of the key elements.

I will take them quickly because they were taken with

Mr Knatchbull-Hugessen this morning.

his "moving parts" memo that he wrote just at the end of

the exclusivity period?

Do you remember

We can look at it, it's at

tab 72 of bundle 3.

Do you remember receiving this memo?

It was sent to

you under cover of an e-mail, which we have earlier

in the bundle.

What date was that?

Can you remind me?

It's tab 36, the covering e-mail.

Could you remind of what date it was?

30 July, so just after the meeting you'd attended at the

council.

the document by Mr Knatchbull-Hugessen along with all

the other trustees at 12 o'clock on 30 July.

comment on page 698:

One finds, at 699, that you were copied into

You

"This is an excellent summation of the current

position, although, as we know, if we adjust one of the

cards, the pack may fall.

sceptical as to whether CCC will acquire the FIL shares 131

I still remain a little

as the debt may cost them ÂŁ13 million.

considering the charity's position they will still need

to resolve CCFC's."

Before

So at that point you saw the three parts of the

jigsaw as still very much in play, the football club,

the debt and the shares; is that right?

Yes, yes.

And as we've seen, you continued to advise SISU on

strategy up to 15 or 16 August.

That's right as well,

isn't it?

I continued to give them guidance, yes.

And then I think we've looked with

Mr Knatchbull-Hugessen at an analysis you did at tab 42.

In fact, we looked at that a moment ago, so we won't go

back to that.

Then the next document I'd like to take you to is at

tab 48 of the same bundle.

Three?

Yes.

At the bottom of the page, 732, you're expressing

a number of concerns, and as I put to

Mr Knatchbull-Hugessen this morning, he wasn't really

able to give you any comfort.

concerns about the implications for SISU and CCFC, and

he replied that none of that was going to be addressed

and that the council have no game plan for CCFC. 132

You were expressing

Do you see that?

his e-mail.

I do.

It's about two-thirds of the way down

At that point this time I think I was trying to

catch up on events.

overseas at that time and he may well have already

indicated that to me.

As I said earlier on, I was

And presumably, that must have been of some concern to

you because there was basically no response to the

concerns that you were raising as key issues.

Um ... I can't recall how I felt.

Again, I was supposed

to be having some time with my family.

Yes, I know.

So I probably looked at it, turned my Blackberry off and

14 15

I understand that, Mr Harris.

said I'd deal with it when I get home. Q.

Can we see how you deal with it at tabs 50 and 51?

There was a further document from Mr West, which I think

was described as somewhat toughening up the position,

which is at tab 51, which was addressed to the ACL board

for discussion on 29 August, and you refer to the

29 August meeting in your witness statement.

remember this document, which was effectively a decision

document issued by Mr West to the board?

Do you

I do remember that document, yes.

And in particular, towards the end, there were some

specific questions, and in particular, at 15, 16 and 17 133

issues about releasing information to SISU and:

"... holding meetings with their advisers so the

original deal with SISU can also be progressed."

Do you recall that?

I do.

Then your response was at tab 50.

The basic idea was

again the bilateral approach by the charity and

the council with SISU no longer involved; do you

remember that?

I do.

What I wanted to ask you about is you respond to this on

the 24th in the evening, and copy to

Marilyn Knatchbull-Hugessen, Mr Higgs and

Mr Knatchbull-Hugessen.

And towards the bottom you say:

"We shouldn't underestimate the reaction from

Joy Seppala as if the intent is never to do business

with SISU, then ACL/shareholders [so that presumably

means the council and the charity] will need to engage

in open/honest conversations ASAP."

20 21

What did you mean by that? A.

Well, what I meant by that was -- and I actually touch

on the point again on 29 August in a comment I have

made -- I was unaware where we were with the restructure

in terms of the new proposal from the council because

I was on holiday, I was trying to catch up. 134

If we were

going to start to change the general structure of the

agreement, then I would prefer that the council would

have notified or at least had that conversation with

them about the debt because they were talking about

debt.

Conversation with SISU?

Yes, because they were the ones who were talking about

the actual debt, not the trustees.

And as a consequence

of that I even made reference to it, as I say, in a note

on ACL on the 29th, asking for confirmation that

the council had actually notified SISU, that they had

informed them about buying the debt.

I don't think we've seen that document, it doesn't ring a bell with me.

Well, I made reference in my witness statement to that.

We may need to come back to that.

bottom of the page, you say:

"I would need to understand the ethical impacts and

tactics in more detail before agreeing."

20 21

At point 15 at the

Is that the same point? A.

It is the same point, absolutely the same point.

we are going to change the way we're looking at

a potential deal, then I think we should be generally

open with that.

And I wanted that confirmation --

Yes. 135

-- and I received that confirmation.

You received that --

I received that confirmation, verbal confirmation,

at the board meeting on the 29th.

That SISU would be informed?

Yes.

Have been informed.

Had been notified, had been

actually informed.

Who provided you with that?

Chris West, an ACL director who was the guy who was

10 11

negotiating the debt or the lease structure with SISU. Q.

12 13

But in reality no such information was given to SISU at any time until January.

No, I can't comment on whether they were or were not

informed by the council; all I can say is I asked for

that confirmation and I got that confirmation.

So your agreement to this strategy was conditional on SISU being told?

I wanted -- that's why I referred to this being ethical.

Yes, indeed.

20 21

statement -MR JUSTICE LEGGATT:

I think it's paragraph 25 of your

witness statement.

MR THOMPSON:

Can we just see in your witness

Yes. Yes.

Did you understand that to mean that

SISU could have no part in purchasing the Yorkshire Bank 136

1 2

loan or that it couldn't purchase it on their own? A.

I wanted the city council, who were in dialogue with

SISU, not the trustees, to be very clear with what they

were going to do and what they were allowing them to do

as part of that debt restructure.

assurances that that is what happened.

those assurances on face value as being correct --

I was given I have to take

Are you saying that --

-- and they were minuted assurances.

We'll have to check that because I'm not aware of the

minutes being in the papers, but that may be my

ignorance.

It's ACL minutes.

You say they were minuted?

They were minuted.

So how does that answer sit with the fact that, right

In fact, I insisted at the time.

through until December, SISU were deliberately kept

in the dark about the ongoing negotiations with the

bank?

about various documents right through to December.

that concern still pressing with you at that time or did

you think it was no longer a worry?

You'll recall I asked Mr Knatchbull-Hugessen Was

There was no concern from my perspective on the basis

that the assurances were given by a council member and

ACL director, who happens to be the same person who was 137

negotiating with SISU.

And in fact, the discussions

with the bank only commenced on 20 September anyway.

But I had no recourse to actually go back and question

that on that basis.

So you thought SISU knew all about that --

I was absolutely, you know, given those assurances.

Thank you, Mr Harris.

Can we move on now to the, as it were, final stage

of the drama in December 2012, and in particular to the

documents that start at tab 59 of bundle 3?

Just as the context for that, if you take the little

bundle just for a moment, pages 937 and 938.

Mr Knatchbull-Hugessen about this this morning.

tab 8.

10 December, there was a meeting attended by Joy Seppala

and Laura Deering in Leeds to discuss resolution of the

issues between the bank and SISU directly, involving

Deloittes, who were advising the bank.

that?

I asked It's

What seems to have happened is that, on

Do you recall

I recall the meeting, I was in attendance at that

meeting, but it wasn't on that basis that you've just

articulated.

23 24 25

If one looks at the e-mail, it says: "We have been giving further thought to the situation since the meeting in order to understand 138

whether a consensual deal could be achieved."

So it sounds as if Deloittes were thinking about

a consensual deal involving SISU; would you agree with

that?

No.

What do you think it means?

I know what it means.

What does it mean?

I absolutely know what it means.

It was a meeting that

I attended at the request of the Clydesdale Bank.

Clydesdale Bank were trying to basically knock the

parties' heads together in terms of ACL and the football

club.

we got an agreement on the rent and party to that

agreement.

their calculation on restructuring the debt.

of the matter is that no agreement on rent was actually

managed.

sat in a meeting for four or five hours and we could not

agree on a rent.

And the idea was that they wanted to ensure that

Obviously, they would then factor that into The fact

Both Laura and Joy and myself and Chris West

At the end of that meeting, a guy called Dan Butters

of Deloittes, who had previously had a conversation with

SISU about the rent, walked Miss Deering and

Miss Seppala to the lift, and he came back 15 minutes

later and said, "The position now is that the 175 that 139

you were talking to us about has been changed now to

ÂŁ400,000", just on a walk to the lift with Deloittes.

So I know exactly what went on in that meeting and

it was certainly not a meeting to discuss debt; it was

to discuss totally rent.

in that meeting whatsoever because we would not have had

those discussions.

There was no debt discussion

But nonetheless, this exchange appears to be

a negotiation between Deloittes and SISU by e-mail with

a number of elements which are negotiated over a period

11 to 12 December; is that correct?

Again, let me expand on that because you've asked that

question.

SISU is because it was not discussed with ACL; it was

a discussion on the way to a lift with Deloittes.

when they came back into the meeting room and fed that

back to both Chris West and myself, I said I would like

to see that in writing rather than verbal feedback from

a conversation that's just been had on the way to

a lift.

Deloittes went back to SISU and they wanted to get those

put in writing and then, once they were happy they were

in writing, then they would send them to us.

discussion.

The reason that it's between Deloittes and

That's where these have come from.

That's the

It's the rent.

Yes, and it said "Okay to send to ACL" at the top of 140

page 937.

Yes.

So presumably, ACL would have been notified of this?

Notified of what, sorry?

Notified of the exchange between Deloitte and SISU.

We were absolutely aware that SISU were talking with

7 8

Deloittes, reference the rent discussion of that date. Q.

But if you then turn back to 59, there's your report to the trustees by telephone of the same date.

So what

suddenly triggered this telephone meeting between the

trustees?

telephone?

Why were they suddenly called together by

I think the only ... I think they were probably called

together on the basis that we had gone and tried to

discuss the rent, never got anywhere, and basically I'd

fed that back that basically we were still at stalemate

with the rent.

And you say this was all something that was quite openly discussed with Deloitte and --

The rent?

Yes.

The rent was, absolutely, yes.

Can we turn now to tab 60, the next tab?

You'll

recall -- we've looked at this document with

Mr Knatchbull-Hugessen -- it's an e-mail dated 141

13 December, which you were copied into, presumably in

your role as ACL director rather than as trustee.

That's correct, yes.

It's then copied on to the trustees at the top.

The

proposal is for 11 to 13 million to be offered in full

discharge for the loan, for it to be kept entirely

secret from SISU and from Deloitte; do you see that?

Private from Deloitte.

And then it says:

"[You] will make only favourable press comment about

Yorkshire Bank's involvement in this matter should it be

concluded as outlined above."

Then equally:

"Should Yorkshire Bank do a deal with SISU, they

need to be prepared for a major media assault from all

the stakeholders in the arena [presumably ACL, the

trustees and the council."

So it doesn't sound like it was consensual with

Deloittes.

as though it was a deal that was to be kept secret from

Deloittes and SISU.

It sound like quite the contrary.

It sounds

No, the conversation with Deloittes -- this was all

about the restructuring of ACL's debt.

parallel conversations going on here.

conversation was -- we were in dialogue with Deloittes 142

There's two The first

and Clydesdale Bank with regards to what we could do

with servicing our debt and how we could restructure our

debt and it's clear that we'd tried to do that on

several occasions from 20 September.

back, time after time after time, saying we could

continue to service our debt even without the football

club.

there and they wanted to make sure that they could get

some kind of rent so that they could actually continue

Deloittes pushed

Their preference was to have the football club

to service the debt.

The conversation here is going on between -- you

know, ACL basically saying, "Look, we'd still like to

continue to try and have that conversation about

purchasing that debt".

needed to be kept separate from the conversation with

Deloitte about the rent.

conversations.

As a consequence of that, it

So there are two parallel

It was to be kept secret and there was effectively

a threat that, if they did a deal with SISU,

the council, the trustees, and ACL would basically

presumably contact Webber Shandwick and say what

a disgrace it was.

24 25

I think you're actually saying that, I'm not saying that.

I'm certainly not condoning that, no.

What do you think "a major media assault" means? 143

Webber Shandwick were employed by ACL.

I think it's

well-known in Coventry the feelings with regards to the

football club.

that point in time as to how we could ensure that all

parties were considered.

a media attack, the way you're articulating it to be.

Absolutely not.

I'm simply reading the words from Mr West.

He's

uses his words carefully.

MR JUSTICE LEGGATT:

You'd have to ask Mr West that, not me. Is now a time to have a break for the

stenographer? MR THOMPSON:

That would be fine.

with Mr Harris.

MR JUSTICE LEGGATT:

we do that?

But this was certainly not

a director of finance and legal services, presumably he

And there was a lot of consideration at

MR THOMPSON:

I have nearly finished

If you have nearly finished, why don't

So the position after 13 December I went over

with Mr Knatchbull-Hugessen.

and the other trustees were copied in by him and if you

look at the next tab, tab 61, it was clearly still being

kept secret from SISU.

this stage with the bank of the ÂŁ14 million; do you

recall that?

And it's clear that you

I think a deal had been done by

Yes, that's correct. 144

I think it was done on 20 and 21 December.

That's correct.

Then, 4 January, you were informed that there were some

elements that needed to be dealt with by the agreement

of the trustees.

paragraph, first main paragraph on page 786?

Do you see that in the first It says:

"There are elements that must have the agreement of

the trustees."

Do you see that?

I do, yes.

These were changes to the joint venture agreement.

Then

you were present on 14 January.

a document that I looked at with Mr Knatchbull-Hugessen

and you were required to make some amendments to the

joint venture agreement to enable the loan from

the council to go ahead --

That's correct.

-- in its terms.

That was again

So just to sum up, up to 16 August or roughly then,

you worked with SISU to attempt to structure a deal,

despite the problems caused by the council's hostility;

is that fair?

24 25

I worked with all parties to try and keep that going, yes.

But you were aware that was a problem right at the top 145

1 2

with the council? A.

3 4

I was aware there was a problem.

I wasn't aware of the

nature of all of the problems. Q.

You expressed a number of misgivings about the

implications for the club if the West plan, if I can put

it that way, went ahead in its terms; is that fair?

did express a number of concerns?

You

I did, yes.

That it might bring about the end of the club?

I did.

And we would obviously say they were somewhat prescient

in that they did indeed cause some quite serious

problems.

facilitate the council's secret plan and although you

say you were told that SISU had been informed, it is

certainly clear by December that the whole thing was

being conducted in secrecy as against SISU, is it not?

But, after 24 August, you worked to

I would not certainly say that, no.

Is it not clear from the e-mails we've just looked at

20 21

that SISU was not informed? A.

No, I would say that SISU -- I could not comment on, you

know, what SISU had or had not been involved in with

the council.

say that SISU were also in dialogue with the Clydesdale,

which was not the case in terms of the meeting

It's very clear from what you're trying to

146

I attended.

ACL director, to protect the company that I was

a director of.

But there was clearly a need for myself, as

And in general, the trustees cooperated with the council

and, in particular, carried out certain legal steps

which were necessary to enable the council to carry out

its loan to ACL.

MR THOMPSON:

That's correct, isn't it?

That's correct. Those were my questions, my Lord.

I understand behind me there's some sort of jostling, so

it's possible there may be something I have missed.

I don't know whether it would be convenient to take

a break now and then deal with any re-examination, or

shall I ask whether there's anything pressing that I've

missed?

MR JUSTICE LEGGATT:

Why don't you find out and, if you need

time to take more instructions, then I'll have to ask

Mr Harris to stay on.

(Pause)

20 21 22

MR THOMPSON:

I think probably Mr Harris has answered enough

as far as I am concerned, my Lord. MR JUSTICE LEGGATT:

23 24

But if you don't, I won't.

Thank you very much.

Re-examination by MR BRENNAN MR BRENNAN:

Two matters, Mr Harris, if I may.

Could I ask you to turn to the 147

PricewaterhouseCoopers report in file 3 at tab 27?

Could I ask you to turn to page 662 in that tab, which

is internal page 11 of the report?

Mr Thompson understandably took you to option 2,

which you recalled.

Do you also recall appraising

option 1, which is set out at page 662?

Yes.

Did that, in broad terms, reflect your understanding of

the position as a businessman?

It did, yes.

Could I take you now to tab 40?

e-mail.

Friday, 10 August.

when you were abroad?

No, no.

I see.

You may recall this

It's the one at the bottom of the page, dated Is this the e-mail that you wrote

I was in this country then. Do you happen to recall when it was that you

left the country?

I left the country on -- I think it was the 12 August.

The e-mail of the 10th is the one Mr Thompson was able

to demonstrate formed the basis of Laura Deering's

e-mail to the council of the 16th.

recollection of any further intercourse between yourself

and SISU between these e-mails of the 10th and the 16th?

24 25

Do you have any

None other than the e-mail chain that you see. further conversations.

I had no

I had seen no evidence of the 148

e-mail that was sent, despite the fact that I'd helped

them draft that.

I see.

And by the e-mail chain, do you refer to those

e-mails there?

Just these e-mails.

MR JUSTICE LEGGATT:

MR BRENNAN:

Yes.

Thank you very much.

My Lord, do you have any questions of Mr Harris?

10 11

Page 710?

Questions from THE JUDGE MR JUSTICE LEGGATT:

Yes.

Mr Harris, do you still have your

witness statement available?

MR JUSTICE LEGGATT:

Yes, I do. If you could possibly turn to page 336.

Yes. Paragraph 32 at the bottom refers to

some text messages.

Yes.

MR JUSTICE LEGGATT:

I'm afraid I couldn't understand that

paragraph at all.

text messages, but could you interpret it to me?

Yes.

Probably you're just copying out the

I had a text message from Mr Fisher that basically

said, "Spoken to Joy".

MR JUSTICE LEGGATT:

Yes.

He's asking you that, is he?

He's asking me that. 149

And I said, "And", and then

Mr Fisher said, "For you to speak.

No response".

then I said, "No response from PA", so I didn't respond.

And then Mr Fisher came back and said, "And agree

a deal.

if the price was not right.

the equity is worth zero, there is a price to pay.

Horse trading now".

I was clear that you would sit on the position

MR JUSTICE LEGGATT:

Equally, Joy is clear that

I did not respond.

So what did you interpret that to mean?

I interpreted it to mean that Joy wanted to re-engage in

a conversation that would see the ITS agreement of

5.5 million diluted.

MR JUSTICE LEGGATT:

And

It would be a much lower price?

Yes. In line with a conversation you'd had

perhaps the previous month in paragraph 31?

That's exactly right.

MR JUSTICE LEGGATT:

And do I infer, from the fact you

didn't respond, the fact that you thought it was of no

interest to the trustees?

MR JUSTICE LEGGATT:

22 23

Yes, exactly. And just for my understanding, can you

indicate briefly why that was? A.

Because the trustees had already discussed the fact that

we'd gone down from 5.5 million, I'd had a -- we've had

no dialogue since that period of exclusivity expired. 150

I then had a meeting, a breakfast meeting, with

Miss Seppala in the October, and she had indicated that

it was pretty worthless, and, as a consequence of that,

she would only offer anything up to 2 million.

I basically fed that back to the trustees and generally

the trustees said they were not interested.

MR JUSTICE LEGGATT:

So would I be right to infer that at

this stage you thought that any reasonable prospect of

a deal was off?

Oh, absolutely.

MR JUSTICE LEGGATT:

Absolutely. Thank you.

Do either of you have any questions?

Thank you very much, Mr Harris, you are finished

No?

now.

(The witness withdrew from the witness box)

We'll take a break for five minutes.

(3.32 pm)

(A short break)

(3.38 pm)

MR BRENNAN:

My Lord, the next witness is Mr Higgs.

MR ROWLEY THOMAS EDWARD HIGGS (affirmed)

Examination-in-chief by MR BRENNAN

MR BRENNAN:

Thank you, Mr Higgs.

(Address given).

I believe you have tab 5, page 360 in front of you. 151

What is your address?

you could please turn to page 363, you'll see an

unsigned witness statement.

although the witness statement is unsigned, it is the

witness statement you made in these proceedings?

Can you confirm that,

Yes.

Ah, forgive me.

It's just the scanned copy I provided wasn't

I think the previous page is signed. I do beg your pardon.

particularly good.

Is that your signature?

Yes, it is.

Are the contents of that witness statement true to the

best of your knowledge, information and belief?

MR BRENNAN:

Yes, they are. Wait there, there will be some

questions.

16 17

I'm grateful.

Cross-examination by MR THOMPSON MR THOMPSON:

I understand you became a trustee on

17 July 2012.

your witness statement.

the discussion, and I'm sure you have seen the ITS

sheet, the indicative term sheet, that that was

two-thirds of the way through the exclusivity period

that had been agreed between the parties.

that?

I think you say that at paragraph 4 of You'll probably be aware from

Yes. 152

Do you recall

You say at paragraph 7 of your witness statement that

you were kept generally informed by

Mr Knatchbull-Hugessen and Mr Harris of relevant matters

and that you then say in paragraph 8 that you were

involved in a number of e-mail exchanges and discussions

on your views.

discussions" or "numerous discussions".

I think at one point you say "many

By profession you're a corporate solicitor; is that

correct?

Yes.

And, as one might anticipate from someone in that

profession, you made a detailed analysis of the papers

you were given.

you have been given at pages 915 and 916.

I believe.

One sees that in the little file that

Yes.

You had been sent various information by

That's tab 1,

Mr Knatchbull-Hugessen, and in particular, if you turn

to 916, I think it's what has been called the "moving

parts" paper, which is referred to in particular at 917,

and that's copied to you and to Mrs Barlow and to

Mrs Knatchbull-Hugessen and Mr Harris.

in the middle of 917?

Do you see that

Yes.

I see that.

Then on the back of that, you have drafted a long and 153

relatively complex e-mail, asking for information, and

saying in the second paragraph on page 915 or the second

full paragraph:

"Since the meeting I have now had a chance to read

your note, the PwC report, and review the legal

documents, the note prepared by Kennedys, the finance

and governance report for ACL."

You have a number of queries arising out of raising

these documents, you would be grateful for a few

additional bits of information.

You ask for:

"... structure charts, heads of terms, copies of

advice, copies of the loan facility agreement, and the

agreement relating to the hedge."

So you went into this in some detail at the end

15 16

of July; is that correct? A.

I wanted to have all the information that was

potentially available to me, so I could try and appraise

myself of the situation at that time.

Yes.

And you see, at tab 3, you comment again thanking

Mr Knatchbull-Hugessen for responding to a number of

your queries and saying that you're going to review the

rest of the documents and look forward to hearing what

the council has to say at the end of the e-mail on

31 July.

exclusivity period was ending, you were getting up to

So is it fair to say that, just as the

154

speed on the whole issue of what was going on, and

that's where things really started for you in relation

to this matter; is that correct?

I think that's fair.

Can we now turn to bundle 3, tab 46?

MR BRENNAN:

I'm afraid bundle 3 broke and we had two

bundles out at the same time.

happened.

MR THOMPSON:

(Handed).

I think I know what's

(Pause)

Turn to tab 46.

If we start at page 728, this

is an e-mail that the court at least has looked at

a number of times.

Mr Knatchbull-Hugessen, attaching his first report,

which I've called the West plan, the bilateral approach

to the bank.

16 17

Yes.

This is the e-mail from Mr West to

Do you remember that?

Could you direct me to where I'd find a copy of

that? Q.

A copy of the actual document is in the previous tab, tab 45.

Yes.

It's headed, to Martin Reeves, "Proposed way forward for

ACL", and I suspect you'll remember this document.

the document proposing a bilateral approach and

recognising that SISU's going to regard it as a hostile

act and then also addressing some of the issues about

what the implications are for the charity. 155

Do you

It's

remember that?

Yes, I recall it, but not in great detail.

No.

But if you then turn back to the start of tab 46,

you were obviously busy because, at 6.27, you're saying:

"I am struggling on my deals to find time to respond

to you.

Quickly scanned the e-mail below and the

attached document.

respond to the council's proposal rather than simply set

ours out.

I am presuming we now need to

And I agree with it, as an assessment, that

decisive action is required in relation to the YB loan.

I will send you an e-mail before I go home tonight,

which could be quite late."

And then, at the top, it looks like you have stayed

late.

were still at work or whether you had gone home, but it

looks rather as if you'd stayed late and drafted what

you called "a rambling note".

remember what happened.

I don't know whether you remember whether you

I don't know whether you

You then say:

"Basically, I think holding on tightly to CCC is

a good option.

In relation to CCFC, CCFC may not like it, but

realistically they ..."

23 24 25

ACL ...(reading to the words)...

And then you have done an anagram of the well-known brand with a word taken out, and: "In the past they fucked up on the pitch and 156

elsewhere and had to pay."

Apart from the rather concise way you have expressed

yourself, what did you exactly mean by that?

they've not done well on the pitch, so they've not been

a good team, elsewhere, something else, and then have to

pay.

Presumably

What did you actually mean?

I think this is a reference to the rent at the time.

understanding was that no rent had been paid at that

juncture.

And whether or not the then circumstances

represented a good deal for the football club didn't

determine whether or not they would have to pay the

rent, in my opinion.

was to say that the relegation of the football club

shouldn't affect the obligation to pay the rent under

the lease.

Right.

I see.

So I think what I was expressing

If we look at what your more detailed

analysis was, that's at bundle 2, tab 27.

Unless I'm

misunderstanding, I think this was the rambling note.

It's certainly quite long, I don't know that's it's

rambling.

My understanding is that the underlined passages were

added as comments on your note.

understand it?

It has a number of interesting points in it.

Is that how you

That's how I understand it.

And that would be by Mr Knatchbull-Hugessen? 157

Again, that's my understanding.

Yes.

So so far as the position of the club is

concerned, you seem to address that at page 514,

paragraph 3.2 under the heading "Restructuring".

you say:

Where

"It is clear the club is unwilling the pay the

current rate of rent, so seeking to enforce the

contractual provision is probably not the way to go as

this is likely to lead to the owners of the football

club being backed into a corner."

And then you analyse the position as being

essentially a game of chicken and that you've either got

to drive the rent to pay the debt, or you've got to

reduce the debt to reflect the rent.

reading this, I'd rather thought it was the other way

round, that you were suggesting that realistically the

thing to do was to pay off the debt.

analysis?

I must say,

Was that not your

Sorry, could you repeat the question?

I think you had just said that your answer was that the

club should pay the rent, but what you seem to be saying

is that that's not realistic, you can't back the owners

of the club into a corner because, realistically,

they'll only pay what they can pay.

I think I offer this analysis as an alternative to 158

numerous others and what I say as kind of possible in

this document doesn't necessarily concur entirely with

the cover e-mail.

evidence of the cover e-mail not meaning what I've just

said it meant.

Right.

In that regard it's probably not

Can we just turn back briefly to the narrative,

which is in bundle 3, as it were, the more historic

documents?

because I don't think you were a board member of ACL,

I don't know whether you remember this

but you were copied in to an e-mail at tab 50, where

Mr Harris -- you were probably in court.

some of these points with him shortly before we broke.

This is an e-mail of 24 August, discussing the terms of

the document that appears at the next tab, tab 51, which

is a private document addressed to the ACL board.

I discussed

Do you recall whether you were shown a copy of the

document, which is a document from Mr West, which is

what Mr Harris is commenting on at tab 50?

No, I don't recall.

But you were clearly fully informed of the position,

both in relation to the original Mr West paper of

16 August and at least you saw Mr Harris' response to

that, the second paper, on the 24th; is that correct?

Yes, I saw Mr Harris' response.

So in general terms, you were fully aware of the issues 159

that I've debated already with Mr Knatchbull-Hugessen

and Mr Harris from August 2012 onwards; is that correct?

I'm not aware of what you debated with

Mr Knatchbull-Hugessen.

morning.

7 8

They're essentially the issues that you

address in some detail in your note. A.

9 10

I apologise.

I haven't been in court this

I was aware of the situation as is set out in this e-mail regarding the debt position.

I don't know whether you were in court when a discussion

was brought about of a PwC report.

from June, which I think was one of the papers you did

review in the e-mails that we looked at first of all.

There was reference to a September report.

recall whether you were shown that?

17 18

There was one

No, I don't recall off the top of my head.

Do you

Is the

document in this bundle? Q.

No.

I was just asking you whether or not you recalled

a report from PricewaterhouseCoopers and whether you saw

it?

MR JUSTICE LEGGATT:

He might be helped if you tell me what

the report might have contained or what it might have

been about.

24 25

MR THOMPSON:

PricewaterhouseCoopers had been instructed by

the charity prior to your involvement and had produced 160

a report in June 2012 --

Yes.

-- which is all in landscape --

Yes.

-- and has various discussions and an evaluation of the

SISU offer.

another report and that was a joint instruction as we

understand it.

was ACL and the council.

It was subsequently instructed to prepare

Mr Knatchbull-Hugessen thought that it I'm simply asking whether you

recall seeing that report.

No, I don't recall seeing that report.

Can we now turn to the events of December?

I'll take

them relatively swiftly because they're the same

documents I've already looked at with Mr Harris and

Mr Knatchbull-Hugessen.

3, there's a record of a telephone trustees' meeting

held on 12 December 2012 where you and the other

trustees are reported as being present by telephone with

Mr Harris present in Coventry with

Mr Knatchbull-Hugessen; do you see that?

At tab 59 of the same bundle,

Yes.

Do you recall this meeting or this telephone meeting?

Vaguely.

Do you recall what triggered it?

No.

It looks like it was a meeting of the trustees. 161

Are they normally conducted by telephone?

It depends.

I normally attend by telephone because I'm

often unable to travel to Coventry.

MR JUSTICE LEGGATT:

6 7

Yes.

Then at tab 60 -It looks as though they happen every

other month, roughly; is that right? A.

Probably slightly less frequently than that.

roughly.

MR THOMPSON:

That's

There is an e-mail copied to you enclosing an

e-mail from Mr West to a number of people from

PricewaterhouseCoopers, Mr Reeves of the council and

Mr Carter of ACL, and then Mr Harris and

Mr Knatchbull-Hugessen, informing you of a proposal for

a revised offer to the bank of 11 to 13 million to be

kept secret from SISU and Deloittes, and you may have

heard the discussion of the press position with

Mr Harris that's referred to in the last two paragraphs.

Do you recall being informed of this development in the

negotiations at the time?

Of which development?

The improved offer from the bank, the secrecy from SISU

and Deloittes, and the issues in relation to press

coverage, favourable or unfavourable, depending on

whether a deal was done with the council or SISU.

I recall the improved offer. 162

And then at tabs 61 and 62, there are effectively

updating e-mails dated 30 December and 4 January

in relation to the negotiations between the council, ACL

and the bank.

Mr Knatchbull-Hugessen of developments over the New Year

2012/2013?

So do you recall being kept informed by

Yes.

And in particular, the need for the trustees to adopt

certain amendments to the joint venture agreement to

enable this loan to take place?

being required?

Yes.

And then the document at tab 63.

Do you remember that

You were present, it

appears -- it doesn't suggest that this was by phone --

on 14 January, where the amendment was made to enable

the council to make the loan; do you remember that?

18 19

Yes, I do remember, and yes, I was in attendance by telephone.

So, in summary, you were aware of the situation

from August and, in particular, that the charity had an

active role in the negotiations with the bank as the

second shareholder in ACL in August onwards?

I was aware that there were negotiations taking place.

The charity, as far as I was aware, was not involved in

those negotiations with the bank. 163

But they were conducted on behalf of the charity and

that was the basis on which Mr West had made his

proposal from the start.

You understood that?

As far as I was aware, there was a proposal that was put

forward by ACL, which in my opinion benefited the

charity, and I therefore thought it was something which

was beneficial from our perspective.

A proposal was put forward by the council to ACL, just to be formal about it.

That's correct, isn't it?

I understood that if that was the case.

You made your own advisory input particularly

in August 2012.

That's correct, is it not?

looked at the document?

You have

Yes.

That's correct.

And you were present at meetings on 12 December and

14 January when decisive steps were taken to put forward

the council's plan?

19 20

Please explain what you mean by "decisive steps" in relation to 12 December.

Well, you had a report and you made certain decisions,

but it's true that the legally effective decision was

taken at tab 63 in relation to amend the joint venture

agreement.

legally effective decision that was taken.

present at that meeting in any event?

So I'd accept that that's the principal

164

But you were

I was present at the meeting on 14 January.

And formally, or legally, it wouldn't have been possible

for the council's loan to go forward unless the charity

had made the relevant amendment to the joint venture

agreement.

That's also correct, isn't it?

That's my understanding from the legal advice that was provided to us.

MR THOMPSON:

MR BRENNAN:

Thank you.

No further questions.

My Lord, do you have any questions of Mr Higgs?

MR JUSTICE LEGGATT:

MR BRENNAN:

I don't, no.

I'm grateful.

(The witness withdrew from the witness box)

The next witness will be Mrs Knatchbull-Hugessen.

MRS MARILYN KNATCHBULL-HUGESSEN (sworn)

Examination-in-chief by MR BRENNAN

MR BRENNAN:

Mrs Knatchbull-Hugessen, what is your full

name?

Marilyn Freida Knatchbull-Hugessen.

And where do you live?

(Address given).

I'm grateful.

My Lord, before I take Mrs Knatchbull-Hugessen to

swear to the accuracy of the witness statement, may

I deal with a correction to paragraph 16?

MR JUSTICE LEGGATT:

Of course. 165

MR BRENNAN:

It is file 1.

If you could turn almost to the

very back, it's tab 4.

Yes, thank you.

I've got it.

Turn, please, to paragraph 16, which is page 354.

I understand you wish to make a correction to the second

sentence of paragraph 16.

Yes, the second sentence.

It was my understanding that

there was a non-disclosure agreement between the charity

and SISU Capital.

I now learn that there wasn't.

fact, there was a non-disclosure agreement made between

SISU Capital and ACL.

in that sentence.

So it's incorrect to say "us"

May we take it that you wish to delete the word "us" and substitute the acronym "ACL"?

Yes.

I'm grateful.

Could I ask you, please, to turn to

page 358 of that witness statement?

signature?

Is that your

Yes, it is.

Is this the witness statement you made in the course of

these proceedings?

Yes.

And are the contents of it true to the best of your

24 25

knowledge, information and belief? A.

They are. 166

MR BRENNAN:

Wait there.

There will be some questions.

Cross-examination by MR THOMPSON

MR THOMPSON:

Good afternoon, Mrs Knatchbull-Hugessen.

Good afternoon.

It's fairly clear from the tenor of your witness

statement and, for example, paragraph 13, that you are

highly critical of SISU and relatively personally

critical of Miss Seppala.

you why that is.

I'd just like to explore with

As I understand it, your main complaint is that SISU

and Miss Seppala were not prepared to put more money

into Coventry City Football Club to fund their losses on

an indefinite basis.

to?

Is that really what it comes down

No, it doesn't come down to that.

It comes down to the

use of threats and bullying as a means of gaining

commercial advantage, of which I disapprove.

But you don't -- and I don't think you're probably in

a position to -- dispute that SISU Group had invested

approximately ÂŁ50 million in the football club over the

period from 2007, including ÂŁ9 million in the period

leading up to March 2012.

Do you dispute that?

I can't either agree or disagree.

And do you accept that SISU, the SISU Group, was not

I don't know.

obliged to use its money in this sort of way on an 167

1 2

indefinite basis? A.

3 4

I really can't speak for SISU.

What SISU does with its

money is a matter for SISU. Q.

But you yourself -- and one sees that in the

documents -- were anxious not to commit further

charitable funds to support either the football club or

ACL.

You felt that you had done enough, didn't you?

No, I felt -- well, I did feel that we'd done enough, but that isn't the point.

We are very closely

constrained as trustees of public money by what we are

able to do and one of the things we are not able to do

is give money to a football club.

But you felt that the same rules or nothing like the

same rules should apply to SISU and they should pay up;

is that really what it comes down to?

SISU are a commercial enterprise and what they do with

their money is up to them; we, as trustees, are not free

to behave as a commercial enterprise.

A further point that you make, in particular at

paragraph 15, in particular the last sentence, is the

lack of progress towards a deal during the period of

exclusivity from 19 June to the end of 31 July 2012.

Were you aware of the due diligence process provided for

in the indicative term sheet?

I wasn't aware of the detail of it; I was aware that it 168

1 2

was to be done. Q.

Were you aware of the difficulties between SISU and

the council and the difficulties caused by the senior

management of ACL in intervening in that process?

I'm sorry, you're telling me ACL caused difficulties for the due diligence to be undertaken by SISU?

Were you aware of these matters?

Are you telling me it took place?

I can show you the documents if you wish to see them.

If we turn, for example, to bundle 2, tab 20.

Obviously, it's not a matter within your knowledge, but

to take a representative or a striking example from the

middle of the exclusivity period, if you turn to

pages 472 to 474.

Would you like me to read all this?

I think in particular, if you read page 473 under the

heading "As the delays continue", that might give you

some information that you might wish to comment on.

(Pause).

This is a letter from Laura Deering, addressed to Chris West at the council.

Yes.

24 25

And your suggestion is ACL are causing them

problems. Q.

I don't read that.

If you look at the bottom, you'll see Mr West's e-mail. 169

MR JUSTICE LEGGATT:

the moment.

and first you ask whether she was aware of it, and then

you said she won't be aware of it.

we're going to end up with any evidence that bears on

any issue.

MR THOMPSON:

I'm not quite sure where we're going at

This is something she hadn't seen before

I don't know where

Mrs Knatchbull-Hugessen has made various

allegations against SISU and I'm just exploring how

knowledgable she was in relation to these matters and

whether her evidence is, as it were, properly informed

and balanced.

I'm afraid, as far as SISU's dealings with the council

go, I have absolutely no knowledge and I have read what

you suggested, and I cannot see any reference to ACL

holding up due diligence.

something else I should read?

I'm sorry, that's -- is there

You have read the passage and that is exactly what it

says, which is that there have been difficulties caused

by failures on the part of the council and ACL in

dealing with questions from SISU.

Can we look at paragraph 16, where you just made

a minor amendment to the witness statement?

understand whether in fact you have any knowledge of the

terms of the non-disclosure agreement with ACL, which

you say Mr Fisher was clearly in breach of? 170

Can I just

No, I don't.

So would you like to withdraw paragraph 16 or

3 4

do you have any knowledge that he was in fact in breach? A.

5 6

No, I will withdraw "in clear breach of the NDA with ACL".

We've just been looking at the material in relation to

due diligence and you were probably in court when

I discussed this matter with Mr Harris.

necessarily want to take up the court's time, but would

you accept that in fact Mr Fisher and Miss Deering were

the primary representatives of SISU in relation to the

due diligence process and were fully entitled to see all

the documents that they did see?

I wouldn't

I can't comment.

You give a relatively general account of the position

I have no knowledge of that.

from August to December 2012 in your witness statement.

At paragraph 24, you say that:

"[You are] not and never have been a businesswoman,

and for that reason wouldn't have presumed to direct the

decisions of the charity's nominated directors in

commercial or any other matters."

I have been over the documents in some detail with

Mr Knatchbull-Hugessen and Mr Harris.

that you essentially delegated the conduct of this

matter to those two gentlemen rather than dealing with 171

Would you accept

1 2

it yourself? A.

I entirely delegated the conduct of those matters

because those matters were ACL matters, which were

handled by ACL directors and not qua trustees, in the

case of Mr Harris, and my husband is not a trustee.

But also in relation to the comments on, for example,

Mr West's notes, although we have seen detailed comments

from Mr Harris, Mr Knatchbull-Hugessen and indeed

Mr Rowley Higgs, you were not directly involved in those

matters and didn't make any detailed comments; is that

correct?

That's correct.

On the other hand, it's equally clear that you were kept

informed and copied into large numbers of e-mails,

reflecting your role as the chair of the trustees;

is that also correct?

That is correct.

And you were specifically copied into the e-mails

in relation to Mr West's two plans in August 2012.

That's correct, is it not?

22 23

I imagine so, if you tell me.

I haven't got them in

front of me. Q.

I'm only trying to be quick, but we can look at it

if we need to.

I suspect it's not necessary.

example, at tab 49. 172

For

Sorry, which bundle is this?

Bundle 3.

Yes, I'm copied into that e-mail.

You were copied into the e-mail commenting on and

attaching Mr West's second note.

And you were present

at the trustees' meeting on 12 December, which is at

tab 59 of bundle 3?

Yes, I was present at that meeting.

And at the meeting on 14 January, which I just took your

nephew, Mr Higgs to, just before you gave evidence --

Yes.

-- which is at tab 63?

So overall, would you accept

from me that although you delegated the detailed conduct

of the negotiations that were involved in this matter to

Mr Knatchbull-Hugessen and Mr Harris, you were fully

informed of developments and, where it was necessary for

the trustees to give their authority for a matter, you

were both informed and gave the requisite authority?

MR THOMPSON:

MR BRENNAN:

22 23 24 25

Yes. No further questions. My Lord, do you have any questions for

Mrs Knatchbull-Hugessen? MR JUSTICE LEGGATT:

No, I don't.

your question to me. MR BRENNAN:

Yes. 173

I assume you don't from

MR JUSTICE LEGGATT:

your evidence.

3 4

Thank you very much, that completes

(The witness withdrew from the witness box) MR BRENNAN:

My Lord, I'm conscious of the time, but

I rather expect, unless I'm contradicted, that we would

be able to complete Mrs Barlow's evidence by 4.30.

MR JUSTICE LEGGATT:

MR BRENNAN:

Well, we have to, yes.

Mrs Barlow.

MRS EMILY LUCY BARLOW (affirmed)

Examination-in-chief by MR BRENNAN

MR BRENNAN:

(Address given).

Do you have in front of you file 1?

Mm-hm.

If you could turn to tab 3, that is the tab 3 closest to

Mrs Barlow, what is your address?

the back, do you have page 344 in front of you?

I do.

Could I ask you to turn to page 347?

Is that your

signature?

It is.

Is this the witness statement you made during the course

of these proceedings?

It is.

Are the contents of this witness statement true to the

best of your knowledge, information and belief? 174

MR BRENNAN:

It is. Thank you.

If you wait there, there will be

some questions.

Cross-examination by MR THOMPSON

MR THOMPSON:

Mrs Barlow, good afternoon.

Good afternoon.

We can be very brief, I think.

The first thing I should

do is -- I think I may have misdescribed your specialism

this morning.

I see that you're a social policy

specialist and if I said something different, then the

record should be corrected and I apologise.

You say at paragraph 4 of your witness statement

that you became a trustee with effect from 12 September,

but you were not involved in the negotiations leading to

the indicative term sheet, which was completed on

19 June.

into the circulation of documents.

significance in 22 June which the court should be aware

of?

But from 22 June, you were occasionally copied Is there any

Only that it was the first one that I had a record.

Is it simply an e-mail that, when you checked, you found

you had an e-mail of that date?

Yes.

In the papers, I see that you were copied in, on

30 July, to what has been called the "moving parts" 175

paper that Mr Peter Knatchbull-Hugessen prepared and

circulated, and one finds that in trial bundle 3,

tab 36, page 698.

e-mails are addressed to Neil and Emily Barlow.

I assume that's a family e-mail address.

I think most, if not all, of your

Yes.

One sees at the top of 698 that you were copied in by

Mr Peter Knatchbull-Hugessen on 30 July 2012, and if you

turn to 699, you'll see at the bottom that it was

a summary of the moving parts of the AEHC/CCC/CCFC/SISU

situation.

So the charity, council, club and SISU

situation.

And indeed, you were copied into that.

13 14

Do you remember this and whether you read the paper? A.

To be honest, not particularly.

I didn't really engage

until I had the full responsibility and I had other

commitments.

Certainly.

If you turn to tab 41, just another sample.

You were copied in on another e-mail there from

Mr Knatchbull-Hugessen to all the trustees, and so

that's the sort of thing you're saying that you were

informed prior to becoming a trustee in September.

Yes.

Part of getting up to speed.

And finally, at 54, to take another example, you're

copied in in mid-October/late October on a draft letter

that Mr Knatchbull-Hugessen is preparing to send to 176

the council to, as it were, put the record straight and

so you're copied in along with the other trustees.

Yes.

So would it be fair that, by December, you were fully

engaged as a trustee along with the other trustees?

Mm-hm.

So we see at tab 59 that you were present by telephone

on 12 December when there was a telephone meeting with

Mr Harris and Mr Knatchbull-Hugessen in Coventry, and

the other trustees joining by telephone.

Mm-hm.

And he gives a description of the position in relation

to the negotiations with the bank.

Amongst other general business, yes.

Yes.

And then from thereafter, we've been through the

sequence several times today so I don't want to take up

time.

30 December, tab 61.

attended the meeting on 14 January 2013, where the

decision was taken that enabled the council to complete

the loan on the following day.

event?

You were copied in on 13 December, tab 60. 4 January, tab 62.

And you

Do you remember that

Yes, enabling ACL to borrow.

So in summary, you were, like Mrs Knatchbull-Hugessen,

no doubt not hands-on day-to-day, but you were fully 177

informed of the activities of the trust from

September 2012 onwards?

Mm-hm.

And insofar as decisions were taken by the trustees on

behalf of the charity, you were an informed decision

maker; is that correct?

Sorry, can you break that down?

The trust from time to time had to make decisions.

Yes.

And we've looked at one example, 14 January 2013.

those decisions had to be taken, you were a

fully-fledged trustee?

When

Yes.

You were fully informed and you took responsibility for

the decisions of the trust?

MR THOMPSON:

MR BRENNAN:

MR JUSTICE LEGGATT:

Mm-hm, yes. No further questions, thank you. My Lord, do you have any questions? No.

Thank you very much.

That's all

your evidence.

(The witness withdrew from the witness box)

So tomorrow, you're calling Miss Deering; is that

23 24 25

right? MR THOMPSON:

Yes, my Lord.

Hopefully, we are quite neatly

keeping to time. 178

1 2

MR JUSTICE LEGGATT:

Yes.

morning in cross-examination, Mr Brennan?

MR BRENNAN:

MR JUSTICE LEGGATT:

Certainly no longer than that. That's the cut-off time, but within

that.

submissions will be?

And do you agree on what the order of the

MR BRENNAN:

MR JUSTICE LEGGATT:

9 10

I haven't spoken to my friend about that. Perhaps you can agree that overnight

anyway. MR THOMPSON:

My Lord, do you have any sort of sense of how

the day should go?

morning, do you --

13 14 15 16 17

And do you expect to be the

MR JUSTICE LEGGATT:

Supposing we do go short in the

Well, if you want time to collect your

argument before the afternoon, that's -MR THOMPSON:

I suspect submissions won't necessarily be all

that long. MR JUSTICE LEGGATT:

I don't think so.

If Mr Brennan ends

at 12.30, I'm quite happy to start submissions at

2 o'clock if that's what counsel between you want.

Maybe you can agree overnight what you'd like to do.

21 22 23

MR THOMPSON:

Certainly.

I'm sure that won't be a problem.

I'm grateful, my Lord. MR JUSTICE LEGGATT:

I haven't decided whether I'm going to

give judgment at the end of tomorrow yet.

how the argument goes.

It depends

But given that the amount at 179

stake isn't terribly large now, I will try and save the

parties the expense of any further hearing time if it

can be avoided.

4 5 6

10.30 tomorrow then. (4.28 pm) (The hearing adjourned until 10.30 am the following day)

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 180

I N D E X

2 RULING ...............................................1 3 MR PETER KNATCHBULL-HUGESSEN (sworn) ................16 4 Examination-in-chief by MR BRENNAN ..............16 5 Cross-examination by MR THOMPSON ................17 6 Re-examination by MR BRENNAN ....................94 7 Questions from THE JUDGE ........................97 8 MR PAUL MICHAEL HARRIS (sworn) ......................99 9 Examination-in-chief by MR BRENNAN ..............99 10 Cross-examination by MR THOMPSON ...............100 11 Re-examination by MR BRENNAN ...................147 12 Questions from THE JUDGE .......................149 13 14

MR ROWLEY THOMAS EDWARD HIGGS ......................151 (affirmed)

Examination-in-chief by MR BRENNAN .............151

Cross-examination by MR THOMPSON ...............152

MRS MARILYN KNATCHBULL-HUGESSEN ....................165 (sworn)

18 Examination-in-chief by MR BRENNAN .............165 19 Cross-examination by MR THOMPSON ...............167 20 MRS EMILY LUCY BARLOW (affirmed) ...................174 21 Examination-in-chief by MR BRENNAN .............174 22 Cross-examination by MR THOMPSON ...............175 23 24 25 181