2014 04 03 trial transcript (day 3) 16513263 1 by Coventry Telegraph

Thursday, 3 April 2014

(10.30 am)

MR THOMPSON:

MR JUSTICE LEGGATT:

Good morning, my Lord.

May I call Ms Deering?

Very good.

MS LAURA DEERING (sworn)

Examination-in-chief by MR THOMPSON

MR THOMPSON:

Good morning, Ms Deering.

a bundle 2?

Yes.

Can you open it at tab 1?

Can you just tell the court

your name and your address?

professional address.

14 15

Do you have

You can give your

Laura Jane Deering, SISU Capital Limited, fourth floor, 1 Red Place, London.

The document you have in front of you is your witness

statement in these proceedings.

Can you turn to

page 393 in the bundle at the back of that tab?

Do you see a signature there?

I do.

Is that your signature?

It is.

Is this your evidence before the court?

It is.

Is it true to the best of your knowledge and belief?

It is, yes. 1

MR THOMPSON:

I believe Mr Brennan has some

questions for you.

3 4

Thank you.

Cross-examination by MR BRENNAN MR BRENNAN:

Mrs Deering, it's evident from your witness

statement that you were close to the transaction whereby

Sky Blue, if I can call it that, acquired the football

club; is that correct?

Yes.

Is it also correct that those close to the transaction

appreciated the existence of the joint venture agreement

between various parties, including in particular

Football Investors Limited and the trustees of the

charity?

Yes.

Was it the working assumption of SISU that in due course

it would acquire a shareholding in ACL?

Yes.

Did anybody at SISU, to your knowledge, ask Football

Investors Limited or the trustees of the charity how

it would react to such a proposal?

Sorry, can you say that again?

I can't understand.

Did anybody at SISU, to your knowledge, make enquiries

of Football Investors Limited or the trustees of the

charity as to how it would receive the suggestion that

SISU would acquire a shareholding in ACL? 2

In what period are you referring to?

Before Sky Blue bought the club.

Oh, before we bought the club, so back in 2007?

Possibly.

negotiation.

I don't know.

Um ...

I wasn't leading that

Do we take it then that you are not able to recall any

specific incident in which you or anybody to your

knowledge made any such enquiries of Football Investors

Limited or the trustees?

11 12

We definitely met with the trustees.

I remember meeting

with Mr Knatchbull-Hugessen during that time. Q.

Forgive me.

Mr Knatchbull-Hugessen was a director of

ACL.

In what capacity did you meet

Mr Knatchbull-Hugessen?

As the clerk to the trustees.

When you met him, did you make enquiries of him so as to

invite him to express a view on behalf of the trustees

as to how it would receive a proposal that they would

sell shares in Football Investors Limited?

21 22

I don't remember.

As I say, it was my colleague that

was leading the negotiations. Q.

At the time, was it the working assumption of SISU that

Football Investors Limited would simply fall in line

with whatever view was taken by the city council?

At the time, the city council was certainly leading some 3

1 2

of the negotiations, yes. Q.

If I could repeat the question.

Was it, to the best of

your recollection, the working assumption of SISU that

Football Investors Limited would simply fall into line

with the views of Coventry City Council?

7 8

No.

There was an option agreement; it was nothing to do

with the council. Q.

Did you appreciate then that there was a distinction to be made between the interests of the council, as

shareholders in ACL, on one hand and Football Investors

Limited on the other?

They're two separate shareholders, yes.

And was it appreciated that the views of the council as

shareholder and Football Investors Limited as

shareholder may not necessarily coincide?

Yes.

Did you appreciate that the views of the directors of

ACL may not necessarily coincide with the views of the

trustees of the charity?

21 22

Potentially.

When we met them, it was quite

intermingled. Q.

Looking back over the transaction with the benefit of

hindsight, is it possible, do you think, that SISU gave

inadequate thought as to the potential for a difference

in view between the directors of ACL and the trustees of 4

1 2

the charity? A.

3 4

I'm not sure if there's any evidence of that.

I don't

understand the question. Q.

I'm asking your opinion.

With the benefit of hindsight,

did SISU fail to place sufficient weight in its

deliberations on the possibility that the directors of

ACL may take a different view than the trustees of the

charity?

MR JUSTICE LEGGATT:

10 11

About what?

About anything in

particular or just generally? MR BRENNAN:

Well, in the first instance, just generally,

but specifically in relation to the proposal that SISU

would take an interest in ACL.

I'm not sure how that's related to the directors of ACL.

Surely we would have dealt with the shareholders in that

case.

May I move on now to the events of 2011.

You exhibit to

your witness statement a note of Mr Knatchbull-Hugessen,

which records his meeting with a man called

Ken Dulieu -- do I pronounce that correctly?

effectively the chairman of the football club at the

time.

He was

Yes.

We can take you to the note should you wish to do so.

It's in tab 12 of your witness statement. 5

You may or

may not recall it.

it?

Would it be of assistance to turn to

It's page 420. Could I ask you to read to yourself the note of the

meeting, which is the paragraph at the foot of page 420?

(Pause)

Okay.

Is it your expectation that Mr Dulieu would have

8 9

Thank you.

reported the upshot of that conversation back to SISU? A.

He would have reported it to the board in the first instance.

The board of?

Sorry, the football club.

And would that have been communicated to SISU?

Possibly.

15 16

At this time, I wasn't running the

investment, it was my colleague, Onyay(?). Q.

Do you accept, though, from that note, if it is an

accurate note, that Mr Knatchbull-Hugessen told him in

clear terms that any third party investor would have to

obtain the support of the council to purchase Football

Investors Limited?

Yes, I would agree.

And do you also accept that Mr Knatchbull-Hugessen made

it absolutely clear to him that the trustees would not

sell their interest in Football Investors Limited at any

price, in the sense that they would not give their 6

interest in Football Investors away, they would expect

to be paid a price, and there was a negotiation to be

had?

Yes, agreed.

You gave evidence as to the meeting on 6 March, and you

refer to what Mr Fisher described as "a road map".

were present at that meeting, weren't you?

Yes, I was.

And nobody at that meeting thought for a moment that

You

that road map created legal obligations that were

binding on the parties, did they?

Not at that time, no.

You refer to that road map elsewhere in your witness

statement as being an "arrangement".

Was it your

opinion that anybody ever assumed even a moral

commitment to the road map?

Yes, a moral commitment certainly.

How long did that last?

Well, as I say elsewhere in my statement, the reason

that ARVO continued to fund the club -- and Joy was very

clear -- was because there was the prospect of a deal to

be done and we were working through that road map in

order to get the deal done.

24 25

Could I ask you please to turn to the third volume, tab 7?

Have you seen this letter before? 7

Yes, in preparation for trial.

This was the letter that Mr Knatchbull-Hugessen sent to

Tim Fisher, wasn't it?

I can see it is, yes.

And there's no dispute, is there, that this was sent on

or shortly after 11 March?

That's what the document says.

Yes.

It is evident from the first four bullet points that, so

That's less than a week after the meeting.

far as the ACL directors were concerned, they did not

care to proceed in accordance with the road map, did

they?

The ACL directors?

Yes.

Mr Knatchbull-Hugessen is reporting to Mr Fisher

the upshot of the meetings he had with the independent

directors of ACL on the previous day.

Yes.

And certain matters are agreed on that occasion, weren't

they?

Those matters were, to put it lightly,

a significant spanner in the machinery which Mr Fisher

had proposed at the meeting a few days earlier.

Sorry, what was the question?

Well, I can take you to the road map if you like, but in

light of the views expressed in this letter, it was 8

clear that the ACL directors indicated that they no

longer could be regarded to be morally bound, let alone

legally bound, by the road map, could they?

But the road map was in discussion with the shareholders

because we were looking to buy a share of the club -- of

ACL, sorry.

Did Mr Fisher, to your knowledge, ever communicate to

you that the ACL directors may be troublesome insofar as

achieving the plan that SISU had?

11 12

Yes, we were aware that some of them were not as agreeable.

In particular, did Mr Fisher communicate to you that, so

far as ACL were concerned, they would not agree or

accept the non-payment of rent by the football club?

16 17

Well, they issued a summary judgment, so I presume as much.

Do you have any recollection of Mr Fisher saying, "Look,

there's a problem, finances for a start, ACL are not

going to give us a holiday from the rent"?

I don't remember that conversation.

Mr Fisher would have been remiss upon receipt of this

letter if he hadn't let somebody know that the rent

holiday was a non-starter so far as ACL were concerned.

24 25

But that was why we continued negotiations and we signed the term sheet in June. 9

If you could focus on the question.

Do you accept that

Mr Fisher would have effectively been obliged to tell

people at SISU that the ACL directors were not going to

agree to a rent holiday?

6 7

I don't know what Tim's response to this was and whether he continued to negotiate.

Well, Mr Fisher was put in place by SISU ultimately, wasn't he?

He's appointed by the board.

Yes.

And Mr Fisher was charged with giving effect to

its plans.

Those plans were set out in the road map.

Mr Fisher was chief executive of the football club.

It's a straightforward matter, Mrs Deering.

Mr Fisher's

job was to manage the progression of the parties along

the road map.

Well, it was to try and get a deal with ACL.

Yes.

And if, during the course of managing the parties'

progression along the road map, an obstacle was

encountered, his job would be to say, "Hang about,

there's a problem".

In the first instance I would expect him to try and

resolve it himself and, if he couldn't resolve it, then

escalate it up, yes.

know what he did in response to this e-mail.

That's my point about how I don't

How close were you then to the transaction at this 10

stage?

Reasonably close, yes.

I attended the meetings.

Well, who was the decision maker ultimately?

On what decision?

On SISU.

Myself and Tim.

Right.

In relation to SISU's plan, who devised it?

If you and Tim devised the plan and, a few days

after the plan had been announced, the ACL directors

said, "Well, so far as we're concerned there's a problem

10 11

with the plan", surely Mr Fisher would have told you? A.

No, Tim is the man on the ground and, as I say, I would

expect him in the first instance to attempt to resolve

it.

15 16

know of these problems? A.

17 18

And you have no recollection of Mr Fisher letting you

I don't remember one way or the other.

I would have to

go back and check. Q.

Could I ask you now to turn to the bullet points that

appear in the second paragraph?

Mr Knatchbull-Hugessen

is there expressing views on behalf of the shareholders,

shareholders plural.

begins --

Do you see the paragraph which

Yes, I do, sorry, yes.

Did Mr Fisher tell you that the shareholders want sight

of a funding plan for the club? 11

2 3

I was aware, yes, that we needed to provide a cash flow forecast.

Were you aware that the shareholders wanted to see proof of funding?

I don't recall that, no.

Do you have any recollection of the shareholders seeking

confirmation and description of the mechanism to protect

any annuity arrangement?

Yes, I recall that we discussed the annuity, yes.

Well, you recall the discussions.

Do you recall that

they wanted to see confirmation and description of how

the annuity arrangement would work?

Yes.

And do you recall that in particular they wanted to be

15 16

satisfied that they would get the money no matter what? A.

17 18

Yes, I understood that they wanted some comfort on how they would get their deferred consideration.

In your witness statement, you express a view -- I can

take you to it if you want, it's paragraph 17.3.

prefer, it's 17.3, tab 1.

As you

Sorry, which paragraph?

17.3.

Thank you.

You have expressed yourself in a language that lawyers

understand, the "and/or". 12

Should we understand it to be

your view that neither the council nor the charity had

any interest in following through the road map, or are

you actually saying that either the council or the

charity -- and I'm not sure which, but one of them --

had no interest in following through with the road map?

At least one.

At least one?

Yes.

So do we take it therefore that you keep an open mind as

to whether or not that was either the council or the

charity?

Or both, yes.

In view of Mr Knatchbull-Hugessen's letter of 11 March

that we've just been looking at, it's not entirely fair,

is it, to say that:

"It is apparent on the disclosure material we have

obtained ..."?

18 19

Would you agree? A.

20 21

No, because -- that's why I've referenced the other documents.

Would you not say that it would be rather more

even-handed to acknowledge that this was apparent to

Mr Fisher as early as 11 March?

24 25

I agree Mr Fisher received that note from Mr Knatchbull-Hugessen.

Again, I don't know what then 13

was discussed between themselves.

before we signed a term sheet.

This is a few months

So to cut it short, I asked you whether or not your

statement at paragraph 17.3 is entirely fair, and you

are of the view that it is entirely fair?

Yes.

Could I ask you now to turn back to volume 3, if I may,

and tab 11?

This is a long letter.

It was written on

31 March by Mr Knatchbull-Hugessen to Mr Fisher.

I think it suffices for our purposes to pass over the

rehearsal of the events as Mr Knatchbull-Hugessen saw

them and turn to his conclusions.

So if you could turn over to page 620.

I don't mean

to rush you, but I don't think it's necessary to turn to

it.

Mr Fisher to provide the charity and the council with

what they have asked for over the course of the last few

weeks and he identifies what he wants details of.

sets out four things.

Mr Fisher bringing this letter to your attention?

He effectively is urging, to use his verb,

Do you have any recollection of

Well it's copied to Joy Seppala.

Do you have any recollection of Mr Fisher bringing this

23 24 25

letter to your attention? A.

I'm saying it wouldn't have been necessary. have received it at SISU. 14

We would

2 3

which is it? A.

4 5

Well, you either do have any recollection or you don't;

I'm pretty sure that we would have discussed it with Tim, yes.

Right.

Forgive me, that's not entirely an answer to the

question.

Do I take it that you don't actually have any

recollection?

MR JUSTICE LEGGATT:

I received it anyway.

MR JUSTICE LEGGATT:

12 13

But you infer that you received it?

Yes.

It's tricky for me to remember in what context two years ago.

MR JUSTICE LEGGATT:

Of course.

Nobody's criticising you.

I think Mr Brennan's just wanting to establish whether

you have a recollection of it or whether you're just

drawing an inference from what you read here.

must have seen it?

But you

Yes.

MR JUSTICE LEGGATT:

MR BRENNAN:

tab 12?

shareholder, Coventry City Council.

it very quickly.

do you have any recollection of Mr Fisher bringing this

Probably the latter?

Yes. Could I ask you now to turn over the page into Again, this is a letter from the other ACL I think I can take

It is much to the same effect.

Again,

1 2

to your attention? A.

3 4

Again, it's the same point, sorry, but it's also copied to SISU, so --

You have no recollection, but you infer it must have come to your attention?

Correct.

MR JUSTICE LEGGATT:

Sorry to interrupt, but when things are

copied to Joy Seppala, were you working closely with

her?

I was, my Lord, yes.

MR JUSTICE LEGGATT:

So does that mean that if something

goes to her it is likely to have been seen by you as

well?

Is that why you say that?

Typically, yes.

MR JUSTICE LEGGATT:

MR BRENNAN:

I see.

Thank you.

Do you recall what, if anything, SISU's

reaction was to the receipt of these letters at more or

less the same time?

Yes.

We tasked the football club with providing

a business plan which was then discussed with

the council and the charity, I believe, in April.

Was it appreciated by SISU that the shareholders had

made it quite clear that they were not prepared to

commit themselves to the road map that had been set out

at the meeting of 6 March? 16

2 3

I think what's clear is that there was more work to be done until we could progress the transaction.

In other words, to use the motoring analogy, the journey

may be a little more difficult than it had first been

hoped?

Yes, that's fair.

I think we can take it from the way the questions were

put yesterday, though I'm happy to be corrected if I'm

wrong, that it is simply not in dispute that Mr Harris

and Miss Seppala had many meetings between May and June?

Yes.

Did Miss Seppala report back to you the upshot of those

meetings?

In general terms she would have done, yes.

Those meetings effectively were thrashing out the

structure of the deal?

Yes.

And the deal in question was the sale and purchase

agreement of Football Investors Limited's shares?

Yes.

Security was discussed.

Are you aware as to whether or

not the security for the annuity payments -- perhaps

I can call it the deferred consideration.

a simple way of looking at it.

conversations with Miss Seppala that one of the matters 17

That's

Were you aware from your

that the trustees were concerned with was the security

for the deferred consideration?

Yes.

And were you aware that the parties had agreed to work

towards an agreement in that matter?

those matters which had been put to one side and they

said, "We'll have to agree that".

It was one of

We had proposed a mechanism in the term sheets, which included an incentive for us to pay earlier because

there's a discount for early repayment.

there was going to be no debts on ACL going forwards, so

they would effectively be first in line for any payment.

That was our proposal.

That was your proposal.

In addition,

The trustees had another

proposal.

Oh.

Well, the --

Did they?

The trustees were not satisfied with that and it was

20 21

a matter that remained to be resolved; do you agree? A.

22 23

If they'd wanted something else, they could have suggested something else, yes.

Well, I don't think there really ought to be much

dispute about this.

The indicative term sheet is

absolutely clear: the security is a matter which 18

1 2

remained to be resolved; do you accept that? A.

3 4

It could be changed for them if they wanted to.

That's

what the term sheet says, I'm pretty sure. Q.

Well, if we go to the term sheet.

It's in volume 1.

Perhaps it may be more convenient actually to use the

version in volume 3 at tab 26.

page at page 649?

Do you see the front

Yes.

There's a long section called "Preferred equity".

Yes.

The final sentence is:

"The parties will work together to achieve

a solution in respect of suitable alternatives."

Yes.

And the final paragraph of that section is:

"The parties will continue to work together to

achieve a solution in respect of mutually agreeable

alternatives and a suitable mechanism of security."

Yes.

And the parties agreed that the proposal set out in that

section on preferred equity was not to be legally

binding, it was a proposal.

Correct.

Is it your understanding that, so far as SISU's concern

was concerned, completion by 30 June remained an 19

objective?

July you mean.

Sorry.

So far as SISU was concerned, the indicative term sheet

indicates that the agreement was to be done as soon as

possible.

when it was that SISU hoped the sale and purchase

agreement could be finally agreed?

Do you have yourself any recollection as to

Well, yes, by the end of the exclusivity period.

It is apparent, if I may say, from your witness

statement, but perhaps I can ask you to confirm, that

the discharge of the Yorkshire Bank debt was key to this

agreement.

That's correct.

Do you accept that when the indicative term sheet was

signed, SISU appreciated that the trustees had been

acting under advice for some time?

18 19

Yes, they -- that's what they told us, yes, they had taken advice.

And do you accept that before the indicative term sheet

was signed, the trustees had given SISU to understand

that they had spent about ÂŁ29,000 on that professional

advice?

Yes.

Once the indicative term sheet had been executed, there

weren't any discussions at all during the exclusivity 20

period, were there?

Any discussions on what?

In relation to the sale and purchase agreement.

Because we were doing due diligence at the time.

You asked for the exclusivity period to be extended.

Yes.

At the risk of asking you to state the obvious, why?

Because we hadn't completed the due diligence and so we

9 10

obviously hadn't got to the SPA by that stage. Q.

11 12

purchase agreement? A.

13 14

How badly did you want to enter into the sale and

I don't understand the -- of course we wanted to do it. That's the whole point of the term sheet.

Because the term sheet talks of a "significant financial

payment" being made.

Was it still SISU's intention to

give effect to a sale and purchase agreement in

accordance with the proposal set out in the section

"Preferred equity"?

At the end of July?

Yes.

Were you still willing to pay the price that had been

put forward in previous discussions?

Yes, that's why we tried to extend the exclusivity.

Could I ask you to turn to Mr Knatchbull-Hugessen's 21

letter of 7 August, which you'll conveniently find in

the first bundle.

MR JUSTICE LEGGATT:

MR BRENNAN:

Sorry, which tab?

Forgive me, it's volume 1, tab 4, or the first tab 4,

Volume 1?

Volume 1, page 49.

page 49.

This e-mail was sent directly to you, wasn't it?

Yes.

Do you recall receiving it?

Yes.

Were you surprised by it?

Yes.

Did you agree or disagree with the first sentence of the

second paragraph, which states:

"The trustees have seen no progress towards

a transaction with SISU."

I disagree.

What progress, in your opinion, had the trustees seen?

Well, we had spent that time doing due diligence, we had

spent that time trying to fulfil the conditions for

the council, which their approval was required for the

trustees.

advisers, PwC, but we were never allowed to meet them.

And we had also requested meetings with their

The second sentence states: 22

"For the transaction to move forward, you will

recall there was work needed to provide better security

for any annuity stream."

Do you take issue with that?

No, that's one of the options in the term sheet.

The next sentence states:

"The trustees have seen no evidence that any thought

has been given to this fundamental matter."

9 10

That's a fair statement, isn't it? A.

No, I disagree with that.

As I say, you can't improve

on security until you have finished your due diligence

of the entity that you're purchasing, and again -- I'd

always understood that the trustees couldn't make the

decision by themselves and they would need to rely on

their advisers, which is why we requested to meet

directly with the advisers in order to understand what

their concerns were and try and alleviate them.

Do you accept that, by the next sentence, the trustees

were indicating that if they had seen any proposal to

overcome this hurdle, they would now consider an

extension of the period of exclusivity?

you that if you approached Mr Knatchbull-Hugessen and

explained the difficulties which you say arose, he might

be able to persuade them to extend the period of

exclusivity? 23

Did it occur to

2 3

They were already aware of the due diligence problems we'd had.

So was any thought at all given to seeking to dissuade the trustees from taking this course?

No.

This e-mail seems pretty final to me.

What did you understand the trustees to be saying when

Mr Knatchbull-Hugessen said, "The trustees wish to

remain open to other approaches"?

Other purchasers, I would presume.

And how did SISU react to that?

Well, we continued to try and work with the council in

12 13

order to do the broader transaction. Q.

Because hitherto for the previous six weeks the

relationship between yourselves and the trustees had

been strictly monogamous, as it were, on the trustees'

part, they couldn't entertain approaches from third

parties.

Correct.

Yet it was evident from this letter that they were, as

it were, taking your engagement ring off and giving it

back to you.

market.

of obtaining agreement as to the sale and purchase

agreement, wouldn't it?

They were putting themselves back on the

That would seriously derail any prospect at all

Not necessarily. 24

Well, if they found another purchaser and effected the

sale and purchase agreement with them, you'd have missed

the boat, wouldn't you?

5 6

If they found someone that presumably paid more than us, then, yes, I would agree.

Yes.

So why is it that no attempt at all was made to

dissuade the trustees from ending the period of

exclusivity?

Because, as I've said, this letter just seemed very

final to me.

make decisions without taking advice, and that was

obviously the advice.

to work alongside the council, and in fact had just

signed a term sheet with them, not a few days before.

They had made their decision, they don't

In parallel, we were continuing

Is the reality of this, Mrs Deering, that as a result of

the due diligence exercise that had taken place, there

was absolutely no appetite at all on SISU's part to

complete a sale and purchase agreement for the price

that had previously been mentioned?

21 22

No.

At that point in time, we hadn't even finished our

due diligence. Q.

I don't understand it to be in dispute that a telephone

call took place between Miss Seppala and Mr Harris on

10 August.

I can take you to Mr Harris' account of that, which

And because it's not in dispute, I think

you will find in his witness statement, which appears

later on in volume 1.

tab 2, it's the last tab 2.

It's right at the back under

Do you see Mr Harris' account to the telephone call

at paragraph 21?

Yes.

Can I ask you to read that to yourself.

Yes.

If it was true that the only way the charity were likely

(Pause)

to proceed was on a cash basis, the deal was plainly

going to be off, wasn't it?

The deal in the term sheet?

Yes.

That was a different deal than what was in the term

15 16

sheet. Q.

It was a different deal, and it was a deal that was

incapable of being agreed for -- SISU's entitled to

decide to enter into agreement or not and exercise its

own commercial judgment, but for all practical

possibilities the notion of SISU paying the entire sum

upfront and there being no deferred consideration was

a non-starter so far as SISU were concerned?

Well that wasn't what was in the term sheet.

But you agree a cash transaction was a non-starter?

If they had wanted all cash upfront, we certainly could 26

have discussed that, but it would obviously be under

different terms than in the term sheet.

It would been at a lower price?

Yes.

At that stage, your relationship with Mr Harris was

good?

Yes.

You regarded him as a straightforward and reasonable

person with whom to do business?

Yes, I had no reason to think otherwise.

And you sought his advice as to how best to approach

the council?

This is a call between him and Joy.

Yes, but we've seen you had an exchange of e-mails with

Mr Harris at or around this time.

Yes.

And I don't think we need to go back to the e-mails, but

you invited him to cast his eye over a proposal you

suggested would be put to the council?

It was my understanding that Mr Harris suggested that we

write to the council and offered to have a look at that

e-mail before it was sent, so I drafted something and he

sent a redraft back.

24 25

Thereafter, Mr Harris expressed his views that the deal was in certain difficulties, did he not? 27

Where's that, sorry?

If I can take you to the e-mails of the exchange of

16 August.

able to assist in this regard.

If you just bear with me, my friend may be

It's at tab 40 in file 3.

(Pause) Do you have the e-mail of

15 August?

Yes.

Mr Harris is asserting there:

"What is your game plan, as any deal is looking

increasingly fragile?"

Yes, I see that, yes.

So by this stage the trustees had declined to extend the

period of exclusivity and the person with whom you were

negotiating the sale and purchase agreement, a man in

whom you had certain confidence, was expressing the view

that the deal is looking increasingly fragile.

18 19

Just to be clear, we weren't negotiating a sale and purchase agreement at that time.

Did you not understand Mr Harris to be the person with whom any such negotiations would take place?

Him amongst others, yes.

Forgive me.

All negotiations hitherto had been

conducted on a personal basis between Mr Harris and

Miss Seppala?

Yes. 28

Surely it would have been reasonable to assume that

would continue and he would be the person who would

continue to negotiate on behalf of the trustees?

I would have expected him and Mr Knatchbull-Hugessen.

Why so?

Mr Knatchbull-Hugessen took no part in the many

meetings that took place between Mr Harris and

Mrs Seppala.

Just because he was the one that was communicating with me on e-mail in regards to the term sheet and would

convey the message of the trustees backwards and

forwards.

After your exchange of e-mails on the 16th, there was

a long period until October 2011 when there was no

contact at all between SISU on one hand and the trustees

on the other in relation to the sale and purchase

agreement; is that true?

Yes.

In October, a breakfast meeting took place between

Mr Harris and Miss Seppala; do you accept that?

Yes.

Do you recall discussing what was going to be said at

that breakfast meeting with Miss Seppala before it

actually took place?

No.

Do you recall discussing what had been said at that 29

breakfast meeting with Miss Seppala after it had taken

place?

Vaguely, yes.

And what is your recollection as to what she told you

5 6

about it? A.

That Mr Harris had asked for a deal to be done with the

trust, with the charity, ahead of the wider deal, which

included the bank debt and the deal with the council, in

exchange for cash upfront.

Do you have any recollection as to Miss Seppala telling

you that she had broached the issue of a significant

reduction in the purchase price for the shares?

Yes.

The reduction in the purchase price was because of

the increased risk that we would be taking on because

this was a different deal.

potentially buying the Higgs charity shares ahead of the

wider transaction, which was not what was contemplated

in the ITS.

20 21

We were buying --

Were you party to any discussions as to what an appropriate valuation should be for such a transaction?

No, I don't believe Joy was aware of the offer before --

in terms of having a different deal before the meeting,

so we wouldn't have discussed that ahead of time.

24 25

Did Joy tell you that at the meeting she had told Mr Harris that, in the light of the due diligence which 30

SISU had done on ACL, the purchase price was likely to

be closer to 2 million rather than 5.5 million?

I wasn't in the conversation, I don't know.

All I know

is that Mr Harris suggested that cash upfront be paid

ahead of the wider transaction, and therefore, from my

point of view, that would obviously mean a reduced price

compared to what was in the ITS.

Miss Seppala has been closely involved in this litigation throughout, hasn't she?

She's my boss, yes.

Yes.

She signed the defence.

Can you confirm that

Miss Seppala has read the trustees' witness statements

before the trial?

I would expect she has, yes.

Yes.

Moving on from the meeting in October, can you

explain why it is that if the price was going to be

reduced from 5.5 million to 2 million that was not put

in writing?

I don't know.

There were text messages that passed between Mr Fisher

and Mr Harris in November, weren't there?

Yes.

These are the ones from yesterday?

Yes.

And Mr Fisher is closely involved in this

24 25

litigation, he's been present throughout the trial. A.

Yes, I believe so. 31

Were you party to any discussion before these text

messages were sent as to whether they should be sent at

all?

MR JUSTICE LEGGATT:

6 7

Did you know about them at all before

reading the witness statement of Mr Harris? A.

8 9

No, not that I recall.

I really don't remember.

They didn't ring any bells

when I read the witness statement, my Lord. MR BRENNAN:

Did Mr Fisher tell you, to the best of your

recollection, that he had sent text messages to

Mr Harris?

I genuinely don't remember.

Could I ask you to look at paragraph 32?

I'm sorry. It's rather

difficult to understand actually.

Sorry, where are we now?

Do you have Mr Harris' witness statement in front of

you?

No.

It is volume 1, right at the back, tab 2 at the back,

paragraph 32.

It's page 336.

Can I just remind you,

the first text message was Mr Fisher and it said,

"Spoken to Joy?"

was, "And??"

speak".

Mr Fisher:

The response is from Mr Harris and it

Mr Fisher then responded, "For you two to

Then there was a further text message from

"And agree a deal.

I was clear you would sit on the

position if the price was not right.

clearly that although equity is worth zero, there is

a price to pay.

Equally, Joy is

Horse trading now."

In the light of your conversations with Joy Seppala,

is it true that she believed that the equity was worth

nothing?

9 10

I don't think -- yes, that's correct. PwC report, I think.

Yes.

As well as the

It also indicated the same thing.

In those circumstances, is it fair to say that

there was no prospect whatsoever of the indicative term

sheet being completed as was envisaged at the time it

was executed?

15 16

Not if the charity wanted cash all upfront.

It was

a different deal. Q.

No, but the deal that was envisaged was 5.5 million, a proportion of which would be deferred.

Yes.

That deal was never going to happen by this stage, was

it?

Why not?

Well, if Miss Seppala was of the view that the shares

were nothing, she wasn't going to commit to pay

ÂŁ4 million in cash for them and to commit a company in

which she had an interest to pay a further 33

1.5 million --

MR JUSTICE LEGGATT:

5 6

Thank you. But she wasn't going to pay 5.5 million

is the point for a company worth nothing. A.

7 8

The other way round I think you mean.

I don't think she ever said that she wouldn't pay that money if the original deal was still on the table.

MR JUSTICE LEGGATT:

Sorry, you're suggesting she thought

the company was worth nothing, but still would pay

5.5 million for it?

MR JUSTICE LEGGATT:

15 16

She recognised that they were a charity, yes. You're not a charity, are you?

No. Why would she pay 5.5 million for

something worth nothing? A.

I don't know.

I don't make the final decision.

I can

only --

MR JUSTICE LEGGATT:

MR BRENNAN:

Okay.

Is Miss Seppala, in your experience, a

particularly sentimental person?

In what respect?

Is she a hard-headed businesswoman or does she sometimes

enter into commercial decisions because she has a high

regard for the other contracting party, for example?

I can't speak for Joy. 34

No, but you know how she works.

I suggest to you, for

perfectly proper reasons, given the nature of her job,

her role was to make hard-headed business decisions.

5 6

I don't know what a hard-headed -- sorry, I don't understand.

A hard-headed business decision would not be to commit

to pay 5.5 million quid for shares that are worth

nothing.

10 11

But she'd already recognised the value that the charity had given.

She had said so in an e-mail herself.

I shan't labour the point, Mrs Deering.

Is it your

evidence under oath that Mrs Seppala seriously

entertained the possibility at this stage of committing

a SISU company to pay 5.5 million quid for shares that

weren't worth tuppence?

Again, I can't answer that question.

I don't make the

final decision on how much we commit and how much we

pay.

So be it, so be it.

Moving on from that, ultimately

Mr Knatchbull-Hugessen wrote to Miss Seppala, making

enquiries as to what her intentions were.

in January.

Mm-hm.

There was no response to that letter.

there was no response to that letter? 35

That occurred

Do you know why

No, I was actually on maternity leave.

Congratulations.

Thank you.

In the circumstances, that's not an answer that I will

take issue with.

Presumably, you were still on maternity leave on or

around 15 January when the deal was done?

Correct, yes.

You had no first-hand experience therefore of

Miss Seppala's reaction?

MR JUSTICE LEGGATT:

No.

My son was born on the 8th, so ... When did you start your maternity

leave?

MR JUSTICE LEGGATT:

Whatever the first working day in January was. So from the beginning of that year, you

weren't there?

Yes.

MR BRENNAN:

In your witness statement, perhaps I could ask

you to turn to it, it's in the second volume, tab 1.

Can I ask you to turn to page 389 of that bundle, which

is paragraph 17.6 of your witness statement?

giving evidence there as to what became obvious

after January 2013.

You're

Yes.

With your child having been born on the 8th, is it fair 36

to say you gave little or no consideration at all to

this transaction in the immediate period thereafter?

Not at that point in time, no, that's fair.

That is, however, the witness statement to which you

have sworn.

Could you explain, please, to whom was it

obvious that the charity had been involved for some time

with the council in negotiating a loan?

To SISU.

And on what basis do you say it was obvious to SISU

after January 2013 that that had happened?

From the disclosure that we got.

Right.

The language with which your witness statement

is expressed tends to suggest that the penny dropped

in January 2013, but in fact you say it only became

obvious after the disclosure provided by the trustees.

17 18

Yes, that's what the last sentence in that paragraph says.

I'm concentrating on your first sentence: "After January 2013, it became obvious that the

charity ..."

And it goes on.

Would it be more accurate to say,

"Having seen the disclosure, it is now obvious that the

charity ...", et cetera, et cetera?

24 25

Not entirely.

If I read it -- if I just read the whole

sentence, bear with me, sorry. 37

(Pause)

No, if you do a ... If you do a transaction in the

middle of January involving 14-odd million pounds, you

wouldn't expect that would have been done in a matter of

days.

That would be a reasonable suspicion, but a reasonable

suspicion is not necessarily something that is obvious,

is it?

No, but as I say, that's then confirmed by the disclosure.

When did you come back from maternity leave?

August.

Could you help us, please, with the way in which this

witness statement was put together?

first draft or did somebody else do the first draft for

you?

Did you do the

We sat in a room and we had a transcript and we put it all together.

They typed as we spoke.

Right.

Myself and Alex Carter-Silk.

And did Mr Fisher and Miss Seppala have any input into

21 22

Who was the "we"?

the witness statement? A.

Um ... Miss Seppala definitely saw it and gave me

comments.

I'm trying to recall if Tim did.

Potentially.

It's my witness statement.

I don't think he made any changes though.

Because if turn to the front page, you can see at the

bottom of the page, this is actually the version 8, and

it says, "Laura D", that must be you --

Yes.

-- "Joy", that must be Miss Seppala, "Tim", that must be

Mr Fisher --

Yes.

-- and another lady called Laura.

I think the paralegal at Speechlys is called Laura.

Right.

Did Miss Seppala have editorial input into the

witness statement?

MR JUSTICE LEGGATT:

Mr Brennan.

it.

MR BRENNAN:

What's editorial?

I just want to be clear. I'm not really sure where it goes,

It's her witness statement, she has signed

That's it really. Right.

Could I ask you about the second letter that

Mr Knatchbull-Hugessen sent?

you like.

demand for the ÂŁ29,000.

something that registered with you because you were at

home with a child.

Indeed.

Right.

letter.

I can take you to it if

This was a letter in February where he made This, presumably, was not

We know that there was no response to that Do you know why there was no response to it? 39

I don't, no.

Presumably the same applies in relation to the charity's

solicitor's letter later that February.

something you can assist with, I suppose?

It's not

No.

You describe the attitude of the charity in your witness

statement as being, in relation to the security,

intransigent.

formed the view that the charity was being intransigent

Can you tell us, please, when you first

regarding security?

Um ... Probably during July.

So this is during the exclusivity period?

Yes.

Are you able to assist as to whether that was a view

It's tricky to recall.

that was shared by other people at SISU?

I can't comment on --

Well, did Joy Seppala express to you the view that the

charity's attitude towards security was intransigent?

I don't recall.

You don't recall.

MR THOMPSON:

MR BRENNAN:

Where is the reference to intransigent? 19.1, first sentence.

Miss Deering, read it by all means.

No, that's fine.

I don't want to hurry you along. 40

I'd now like, if

I may, to ask you to turn to the defence.

You'll find

this conveniently, I think, in the first volume, tab 4

at the front.

counterclaim, but it's perhaps convenient to turn to

this as it's probably the version of the document that

the lawyers have all been working from.

that there's no doubt in your mind, the defence that was

signed by Miss Seppala herself with a statement of truth

is word for word reproduced in this document.

This is actually the defence and

But just so

Okay.

Do you follow?

Right, fine.

If I could ask you to turn to paragraph 9, do you see

there that it is being asserted that:

"In the event, no sale and purchase agreement was

concluded and negotiations ceased by mutual consent or

acquiescence as a result of a number of irreconcilable

differences."

I see that, yes.

What were the irreconcilable differences?

Well, one of which would be the cash upfront versus

22 23

deferred considerations. Q.

24 25

Were there any other irreconcilable differences to your knowledge?

Not that I can think off the top of my head. 41

Miss Seppala has asserted that she believes the facts

stated in this defence are true.

So presumably, we

simply must accept that Miss Seppala believes that there

was more than one irreconcilable difference?

I guess that would follow.

Could I ask you to look at paragraph 10?

It says:

"In the event, negotiations were terminated or

simply not pursued for a number of reasons."

Is it your view that negotiations were terminated?

The whole thing just fell away.

You say "fell away"; is it perhaps more accurate to say

the whole thing just fell apart?

Yes.

At that point -- in terms of the ITS, yes.

When the ITS fell apart, was that due to the charity's

attitude towards the security for the deferred

consideration?

Well, they wanted a different deal.

Well, if you look at paragraph 11, Miss Seppala has

asserted that she believes it to be true that:

"... negotiations terminated, in whole or in part,

by reasons of demands for security by the claimants."

Would you agree with that?

Well, yes, they wanted cash upfront.

Yes.

The transaction in terms of the ITS, you mean?

When in your view did the transaction fall apart?

Yes, the sale and purchase agreement.

apart?

thereafter?

When did it fall

Was it during the exclusivity period or

It would have been at a point thereafter.

Because if it assists, you have told us that you had

formed the view that the charity were being intransigent

some time in July, but it was still on the cards then,

was it?

10 11

continuing to do due diligence. Q.

12 13

Yes, we were still trying to access PwC and still

Did it fall apart upon receipt of Mr Knatchbull-Hugessen's e-mail of 7 August?

The exclusivity certainly did.

We continued, as I say,

to progress our due diligence and the wider transaction

with the council with a view to potentially coming back

to the charity at a later date once we'd completed that

work.

Had the transaction fallen apart by 16 August when there was an e-mail exchange with Mr Harris?

The ITS at that stage, I would say, yes.

In those circumstances, privately within SISU, was the

sale and purchase agreement envisaged in the ITS

regarded as a non-starter by 16 August?

No.

Well, forgive me, if it did fall apart on 16 August, how 43

1 2

could it be anything other than a non-starter? A.

That's my point.

We continued to do the due diligence,

we continued to try and work with the council with

a view to coming back at a later date to complete the

transaction.

Mrs Deering, do you understand the tension between

evidence whereby, on one hand, you say it fell apart and

it had fallen apart by the 16th, and on the other hand

saying, "We were still ploughing on regardless"?

One of the conditions precedent was that we needed the

approval of the council and we continued to work towards

that.

The agreement that the parties had in their

contemplation when the ITS was executed was an agreement

whereby SISU or one of its companies would commit to

buying the shares for ÂŁ5.5 million.

Yes.

By 16 August, was there any real possibility at all that

a SISU company was going to commit ÂŁ5.5 million to

acquire these shares?

Again, the ultimate investment decision is not mine.

I was working on the basis that this deal could continue

to be done at some point in time, and that's why

I continued my discussions with Chris West, continued to

develop a business plan for ACL and CCFC combined, 44

continued to discuss with AEG.

with AEG and progressed all that to try and get through

this condition precedent of approval from the council.

We signed a term sheet

Could I ask you, please, to turn to the indicative term

sheet, bundle 1, tab 1, page 15?

You have there in

front of you, I imagine, the second page of the

indicative term sheet.

Yes.

Could I ask you to turn your attention to the section

entitled "costs"?

Yes.

The first sentence we can ignore.

Could I ask you to

focus on the sentence beginning "accordingly", three

lines into it:

"In the event that SISU withdraws its offer to

purchase the shares [we can skip the rest], SISU agrees

to underwrite and be responsible for all the charity's

reasonable costs and expenses."

When the indicative term sheet was signed, is it

reasonable to assume that if SISU had been asked, look,

if there does come a time when you decide that there is

no way that you are going to pay ÂŁ5.5 million for these

shares, you will withdraw the offer, won't you?

Sorry?

I ...

When the parties signed this agreement, there were 45

certain unwritten assumptions that both parties made as

to the probity of --

What does probity mean, sorry?

MR THOMPSON:

My Lord, it's a matter for you, but I'm not

sure this is an admissible line and I don't think it's

a pleaded line either.

your Lordship thinks it helpful.

MR JUSTICE LEGGATT:

I didn't think it was helpful when you

asked questions about it and I don't think it's helpful

10 11

I don't know whether

when Mr Brennan does either. MR BRENNAN:

We'll move away from the ITS.

Was there any discussion to which you were party

about, oh Lord, we're going to have to pay 29 grand now?

No.

The fact of the matter is that SISU has made stinging

criticisms as to the probity of the way in which the

trustees conducted themselves during the course of this

transaction, hasn't it?

Sorry, what does probity mean?

MR JUSTICE LEGGATT:

MR BRENNAN:

Could you just say the question again, sorry?

SISU has made stinging accusations in the course of this

Honesty.

The honesty.

litigation as to the honesty with which the trustees

conducted themselves during the course of this 46

1 2

transaction. A.

3 4

Yes, we were very surprised to see about the bank debt purchase.

Looking back over the piece, in your opinion, did SISU

conduct itself in a manner which an honest and

reasonable businessman would consider to be fair?

Yes, absolutely.

SISU bought the football club in the full knowledge of

its obligations under the lease and licence agreement,

didn't it?

Yes.

SISU formed the view that those responsible for

negotiating that agreement had struck a bad bargain,

didn't it?

Yes.

SISU knew, however, that the football club was legally

obliged to make those payments.

Yes.

SISU knowingly breached its obligations under that

20 21

contract, didn't it? A.

22 23

Well, it was the football club that didn't pay the rent, not SISU, to be fair.

24 25

There's a contract.

Yes, I see.

But that was done with the full knowledge

and approval of SISU, wasn't it? A.

I don't recall SISU approving non-payment of rent in 47

1 2

specifics. Q.

Are we to understand that Mr Fisher had entirely free

rein to conduct himself as he saw fit without any

comment or intervention from Miss Seppala?

6 7

I don't know what those two discussed, I can't comment on that.

Because I suggest to you that, when push came to shove,

the football club put its self-interest above its legal

obligation and the victim of that was ACL; is that fair?

11 12

The football club had a budget, it had to manage its budget.

Well, the football club was of the view that it had to pay something, surely?

Agreed.

Are you able to assist us with why it is that the

football club didn't pay that which they considered to

be fair, but withhold the balance?

I can't speak for the football club, but I can say that they paid over ÂŁ850,000 during that year.

You have mentioned that in your witness statement.

Mm.

It's a funny sort of way of paying, isn't it, because

the football club withheld the rent and licence fees

in April?

Yes. 48

So ACL then had to go cap in hand to the bank and ask

for its permission to dip into, effectively, a rent

deposit account to make good the cash flow?

The escrow, yes.

So in practice ACL was suffering on its balance sheet?

No, the cash sat under Coventry City Football Club's

7 8

balance sheet, not ACL's. Q.

Right.

There did come a time when the money ran out,

didn't it?

Yes.

And there were protracted negotiations in relation to

what has been described as an interim rent.

Yes.

Ultimately, the club paid ÂŁ10,000 on each match day?

Yes.

Is it true that that was simply a face-saving device so

Per match, yes.

as to prevent it being said that the football club

weren't paying anything?

No, that was an agreement between the football club and ACL.

Turning now to --

MR JUSTICE LEGGATT:

Mr Brennan, sorry to interrupt you.

I don't know how much longer you're going to be, as to

whether we should break now or whether you've nearly

finished.

We'll break for five minutes. 49

(11.53 am)

(A short break)

(11.58 am)

MR BRENNAN:

Mrs Deering, in the light of the evidence

you have given in your witness statement, is it fair to

say that in simple terms your complaint is that SISU was

led up the garden path, so to speak, and distracted

at the crucial moment, and in the meantime a deal was

done with Yorkshire Bank?

11 12

I'm not sure what you mean by distracted, but apart from that, yes.

That is the essence of your complaint, that a deal was

done of which you had no idea at a time when you had

been given to understand that the deal was ongoing.

Yes.

If the sale and purchase agreement had in fact fallen

17 18

apart by then, it's a pretty academic point, isn't it? A.

Well, not really.

This is my point.

We were continuing

to discuss, along with the council, to get them to

approve the deal.

If SISU had been told in the clearest possible terms

that ACL and the council proposed to enter into

negotiations with Yorkshire Bank in order to acquire the

Yorkshire Bank debt, would SISU's reaction have been,

amongst other things, to tell the trustees, "We propose 50

1 2

to complete the sale and purchase agreement"? A.

3 4

Well, I'd need to understand if the council were then proposing to sell the debt on to us or not.

Would SISU have committed itself to paying 5.5 million

if it had known about the negotiations with

Yorkshire Bank?

8 9

Again, I can't answer that. decision.

I see.

I don't make the investment

You're talking about hypothetical scenarios.

In the indicative term sheet, the parties could,

if they wanted to, have put in a prohibition which could

have prohibited certain conduct as they saw fit for

whatever length of time that they agreed, and they could

have agreed whatever conduct that they wish to prohibit.

It's all purely a matter for agreement, isn't it?

I guess, yes.

And, for good or bad, the agreement that was struck was

the one that's set out in writing and is before the

court.

Yes.

At the time all this was happening, the exclusivity

period had ended.

Sorry, what was happening?

The negotiations with the Yorkshire Bank conducted by

24 25

ACL and the council. A.

Okay.

So we're at September to December? 51

Is that what

1 2

we're talking about? Q.

I just want to be clear.

There or thereabouts, the end of 2012.

I think the

crucial month really is December, when the parties

entered into the discussions which led to the agreement

with Yorkshire Bank.

The exclusivity period had ended.

Yes.

There was no obligation on the trustees to negotiate

with you at all.

Okay.

They weren't negotiating with you, were they?

No, not actively.

So why is it precisely that you say that SISU is

14 15

entitled to complain about the way the trustees acted? A.

16 17

Because they've prevented the condition precedent from being fulfilled in terms of the bank debt.

Looking at it from the trustees' point of view, was it

not reasonable for them to act as they saw fit to

protect their investment?

21 22

I can't comment on what they should have done. work for a charity.

I don't

We've established that.

Are you saying you ought to have been told about these negotiations?

Yes.

Why should you have been told? 52

Because they prevented us from completing our condition

precedent, which was a fundamental part of the

transaction.

The transaction was the sale and purchase agreement of shares for ÂŁ5.5 million, wasn't it?

The ITS was that, yes.

Yes.

That transaction was dead in the water by then,

wasn't it?

By when?

By the time of the negotiations with Yorkshire Bank

in December.

Well, we didn't know about those at the time.

No, but in December 2012 those negotiations were, as

14 15

I put it, dead in the water? A.

Well, not from my side because we didn't know about the

fact that they were talking to the Yorkshire Bank about

the loan at that time.

I think we have got to the point where we're going round in circles now, so we'll move on.

I don't know if you still have volume 1 to hand.

Could I ask you to turn to tab 4 at the front?

Just so that you know where you are, what you're reading

now is the second page of the counterclaim.

Right.

If I could ask you to look at paragraph 31 in 53

Page 44.

particular.

be, in legalese, but it provides:

It's written, as these documents tend to

"In providing prior approval for ACL to borrow

monies from the council ..."

That must be a reference to what is officially

called the amendment and restatement agreement, whereby

the joint venture agreement was revised.

Was varied, yes.

"... the claimants acted or procured that other parties

under their control acted in a manner calculated to

prevent the defendant agreeing a transaction with

Clydesdale Bank."

One always has to be careful in situations like

this, so I took the trouble of looking up "calculated"

in the OED.

there about calculations in a mathematical sense.

in the secondary sense that it is intended to have

a particular effect.

I think it's fair to say we're not talking It is

Is that fair, Mrs Deering?

I --

I'm going to ask you about this.

MR JUSTICE LEGGATT:

It's not her document and I'm not sure

what she thinks the word "calculated" means is going to

help her very much.

ambiguous word, actually.

could just mean something that will have that effect.

I would have thought it was an

It could mean intended or it

MR BRENNAN:

I see.

Your witness statement does not make any allegation

at all as to what the trustees intended to do when they

entered into the joint venture agreement, does it?

No, I guess, no.

MR BRENNAN:

Thank you for bearing with me.

8 9

(Pause) I have no further

questions. MR JUSTICE LEGGATT:

10 11

If I might have a moment.

Mr Thompson?

Re-examination by MR THOMPSON MR THOMPSON:

Ms Deering, I have just a few questions.

You put it, in answer to a question of Mr Brennan,

that there was some form of moral obligation arising

under the road map and that ARVO paid money --

Yes.

-- on the basis of that.

Yes.

Can you say how long you say that that moral obligation

19 20

continued and was the basis for ARVO putting money in? A.

We continued to put money in from March 2012 until at

least I went on maternity leave on the basis of the

transaction being completed.

And when was that?

January 2013.

So really for the whole of 2012? 55

Yes.

You will remember you were taken to two e-mails from

Mr Knatchbull-Hugessen, one of 11 March and one of

31 March.

No, I think I have it here.

I've actually lost the reference to 31 March.

Sorry, what bundle are we in?

It's in bundle 3, tab 11.

Okay, yes.

Page 619.

You see a paragraph about four down:

"We have now met several times ..."

Yes.

And then do you see the next two sentences, and in

particular the reference to consideration?

Yes.

So was this the same deal that was in the ITS or was

16 17

this a different envisaged deal? A.

18 19

It must be a different deal, it's got a different number on it.

In response to an answer to Mr Brennan, you made the

point that you hadn't been able to see advisers or speak

to advisers and that that was an issue because of the

condition precedent in relation to advice and the need

for advice as a charity.

Yes.

In the papers, there is a report from 56

PricewaterhouseCoopers, it's at tab 27 of bundle 3.

Yes.

Have you read that --

I have, yes.

-- report now?

Yes, now, yes.

And you'll see the date on the front page.

Yes.

It's the date of the term sheet.

It is the same date,

isn't it?

Yes, it is.

If we look at page 656, under option 1 on the right-hand

side --

Yes, I do.

There are comments on your offer; do you see that?

Yes.

Did you see this document at any time before disclosure?

No.

Were you made aware of those comments at any time before

disclosure?

No.

Did you discuss equivalent comments with either

Pricewaterhouse or any other advisers of the charity at

any time before disclosure?

No. 57

There was mention of the heads of terms between

the council and SISU.

Again, I don't have the

reference, but I think we should be able to find it

fairly easily.

dated 2 August 2012, so just after the period of

exclusivity had expired.

because it was an important document.

I think it's in bundle 3, tab 38.

It's

You'll recall this term sheet

Yes.

Can you just explain to the court what the key elements

10 11

of it were from the perspective of SISU? A.

Yes.

So the fundamental things to agree were that SISU

would buy the debt that was currently at ACL and

discharge it.

grant ACL a longer lease to 125 years, and that SISU

would also buy the 50 per cent share in ACL held by the

charity.

In return for that, the council would

And so when you referred, I think, to a wider deal, was

that what you had in mind in relation to that

transaction?

Yes.

Was this the wider deal?

This is exactly what I meant, yes.

Can I ask you about the basis for the ÂŁ5.5-million offer

in the ITS?

wider deal?

Was your point that that was part of the

Yes.

And was it a matter of indifference to SISU whether the

wider deal was part of the overall deal or was it

important in the overall valuation?

MR JUSTICE LEGGATT:

7 8

Sorry, can you -I'm not quite clear about that

question, Mr Thompson. MR THOMPSON:

There were questions about the basis for the

ÂŁ5.5 million offer.

Was that offer based on the wider

deal or did it apply whether or not there was a wider

deal?

Um ... We'd actually said to the charity that to the

extent that we got the bank debt for less than we had

envisaged, we would be able to give them more cash

upfront.

That was the other side of the coin I was going to ask

you about.

indifferent to you whether it was cash upfront or

structured over 10 years, as set out in the indicative

term sheet?

were prepared to offer?

Yes.

In your ÂŁ5.5 million offer, was it

Did that make a difference as to what you

Clearly, cash upfront is a different transaction

and there's an implied time value of money, so there

would be a difference.

You were asked about the relationship with Mr Harris 59

in August 2012 and, in particular, the redraft of

a letter, which appears in the papers at tab 40 of

bundle 3.

Yes.

If one turns to Mr Harris' redraft, you'll see

a paragraph under the heading "Therefore", and

do you see the last sentence of that?

Yes.

Mr Harris was suggesting that you should say to the

council:

"Given the debt purchase discount we believe we can

achieve, the joint debt purchase would allow SISU to

purchase the entire Higgs shares for cash, therefore

removing any security or guarantee constraints."

15 16

What did you understand that to mean? A.

Well, if we were only paying half for the bank debt,

we'd obviously have more cash to spend to give to the

charity upfront, and there's a mechanism in the term

sheet to allow cash to be paid earlier.

In the papers there is some discussion of the situation

after that, and in particular you'll recall that there

are five volumes of attachments to your witness

statement, which I think are down there (indicating).

Right, yes.

Can you take up number 5? 60

Page 1447.

Yes.

You may want to read the e-mail that appears addressed

3 4

to Mrs Knatchbull-Hugessen from Mr Harris. MR JUSTICE LEGGATT:

Sorry, I've fallen behind, Mr Thompson.

Which bundle are you on?

MR THOMPSON:

MR JUSTICE LEGGATT:

8 9

Bundle 5 of the Deering attachments, my Lord.

bundle 5 was.

That's why I wasn't quite sure what

MR THOMPSON:

What page?

Page 1447.

MR JUSTICE LEGGATT:

MR THOMPSON:

Thank you.

Just for the court's benefit, obviously the

trustees are well-known.

or is that somebody else?

Lisa are?

16 17

Chris, I assume, is Mr West, Do you know who Chris and

I would assume that's Chris West and Lisa Commane of the council.

And you'll see there's reference to advice from

PricewaterhouseCoopers about the effect of the debt

purchase.

the last paragraph, and in particular the last three

lines; do you see that?

And then there's a comment from Mr Harris in

Yes.

How do you interpret Mr Harris' comment there?

24 25

Perhaps

I should read it out for the transcript: "I'm also surprised they haven't requested we don't 61

sell our shares to SISU in return for CCC purchasing the

debt, although this would be a difficult ask for the

trustees as I'm absolutely convinced Pricewaterhouse

would advise the trustees to accept a discounted cash

offer from SISU, as, given the current ACL valuation, it

may be a very long time before we see an offer of this

magnitude.

What do you understand Mr Harris had in mind at the

9 10

end of September 2012? A.

11 12

Regards, Paul."

That he should negotiate with SISU a new deal, which was all cash upfront.

And does that cast any light in your mind as to what was

going on in the meeting with Miss Seppala shortly

thereafter?

Yes.

What do you think was going on?

That he was then negotiating a new deal for all cash

18 19

upfront. Q.

Miss Deering, you end your witness statement, if you put

that away, at paragraph 19.2.

You say this:

It's volume 2, tab 1.

"The documents revealed on disclosure show that AEHC

thought the annuity from ACL was worthless because ACL

itself was of no value.

the proposed transaction, this would have rendered ACL

Had the charity not obstructed

debt free and of substantially greater value if indeed

AEHC were not paid in cash upfront."

Yes.

"Finally, I observe that it is strange indeed for

the charity to assert security as the stumbling block

and reason why negotiations failed in respect of

a transaction which would have seen the charity receive

considerably more than the nil value ascribed to their

share in ACL by themselves and PwC.

As I have

explained, SISU Group was committed not only to

discharging the debt of ACL to Yorkshire Bank

...(reading to the words)... also to acquiring the

charity's 50 per cent share in ACL."

Is that consistent, in your view, with Mr Harris'

15 16 17 18

position back in September 2012? A.

Yes, he obviously understood that without the debt and discharge, that there was no value in the equity.

MR THOMPSON:

Thank you.

I have no further questions.

I don't know whether your Lordship has any further

questions.

21 22

Questions from THE JUDGE MR JUSTICE LEGGATT:

Yes.

There are two things I'd like to

ask you about.

You said in your evidence that at the

end of the exclusivity period, when it wasn't renewed,

you hadn't finished the due diligence. 63

That's correct.

MR JUSTICE LEGGATT:

When did you finish the due diligence?

We got the -- BDO, who were doing our financial due

diligence, that was done in early October, so I would

say that was when we had finished the main bulk of the

due diligence.

MR JUSTICE LEGGATT:

8 9

BDO were doing what? A.

10 11

Sorry, if you could elaborate on that.

They were doing the financial due diligence, so they were looking at the accounts and the business plans.

MR JUSTICE LEGGATT:

Right.

So would it have been after

that information was available that Miss Seppala formed

the view that you were referring to earlier that the

company wasn't worth anything?

We never actually finished the due diligence.

That's

why I say the main bulk.

a lot of their revenues and costs into a new subsidiary

back in April 2012 and BDO were not allowed access to

management of that subsidiary to really look at the

business plan.

still at that point in time.

MR JUSTICE LEGGATT:

Partly because ACL had put

So we had a lot of unanswered questions

Right.

There's one other thing in

connection with that I'd like to ask you, which involves

asking you to find file 1 if you could.

back of it to tab 4, right at the very back, and 64

Go right to the

page 354.

In the middle of that page in italics is what is

said to be a quotation from Timothy Fisher on

a BBC Radio programme.

reported as saying there on 6 June 2013.

If you could just read what he's (Pause)

Does that, albeit in rather colourful terms,

correspond with the view that SISU took as well after

they had done the due diligence, or such due diligence

as was done?

I think the due diligence in some respects confirmed

what we'd already suspected, that the current structure

just didn't work, and so both businesses were not in

a great state.

MR JUSTICE LEGGATT:

Right.

So your view would have been

similar to Mr Fisher's, even if you wouldn't have put it

in terms of turkeys and eagles, or not?

a different view?

18 19 20 21

Did you have

No, I mean -- yes, the company -- as I say, ACL was not great, no.

MR JUSTICE LEGGATT: ask.

Thank you.

That was all I wanted to

Anybody have anything arising out of that?

No?

In that case you're finished, thank you very much.

(The witness withdrew from the witness box)

MR THOMPSON:

My Lord, that concludes the evidence.

MR JUSTICE LEGGATT:

Yes.

Have you agreed anything with 65

1 2

Mr Brennan about how you'd like to proceed? MR THOMPSON:

It was agreed that I would go first, which is

perhaps traditional, given that he opened at some

length.

5 6 7

MR JUSTICE LEGGATT:

I don't mind which order.

There's no,

as it were, established custom, I don't think. MR THOMPSON:

No.

And, given the constraints on time, I'm

content to proceed unless your Lordship would like to

rise for a moment.

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes.

No.

If you're ready to go, then --

I don't think I will finish before

lunch, so if I have any masterful thoughts over the

lunch adjournment I'll add them in.

MR JUSTICE LEGGATT:

15 16

You can add them in then.

Closing submissions by MR THOMPSON MR THOMPSON:

I was proposing to structure my submissions by

reference to the facts, the construction of the ITS and

then submissions, which will include conduct of the

parties after 31 July 2012.

So far as the facts are concerned, given the terms

of the judgment given at the start of yesterday, the

scope of the disputes between the parties has inevitably

narrowed.

in the witness statements, but this has not been

explored in cross-examination in any detail.

There is a good deal of prejudicial comment

Given the

scope of the issues between the parties and the limited

exploration of these issues in oral evidence, it is not

necessary or appropriate for the court to make any

finding on these issues, except insofar as they bear on

two points.

First of all, they formed part of the well-known

background or factual matrix against which the ITS is to

be construed.

whether the contingencies that formed the basis for the

Or, secondly, they form evidence of

costs indemnity at issue between the parties was

triggered by the subsequent sequence of events.

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes.

So far as the background is concerned, I think

that's the modern jargon since West Bromwich,

your Lordship will be aware that this is extensive,

going back to at least 2003.

MR JUSTICE LEGGATT:

Yes.

I'm a bit sceptical about how

much of it is relevant when construing the rather narrow

provision that I have to construe in the costs clause.

20 21

MR THOMPSON:

Indeed, my Lord, but I am not an

unaware of

that fact.

When the joint venture was entered into between the

charity and the council to govern their relationship as

50/50 shareholders in ACL, and including the loan

structure established in 2006, when ACL paid 67

a substantial lease premium to a subsidiary of

the council and took on a substantial loan from

Clydesdale Bank/Yorkshire Bank.

As put to Mr Knatchbull-Hugessen and Mr Harris in

cross-examination, the core issues that underlay the

negotiations at the start of 2012 were, first of all,

the inability of the football club to pay its licence

payments and its near insolvency, triggered by a number

of factors.

First of all, the very high level of rent

or licence fee.

of the team on the pitch, leading to its relegation to

Division 1 and its associated halving of its revenues.

Thirdly, the lack of any financial interest in ACL, or

in the match-day revenues associated with its occupation

of the ground.

change -- the Football League's financial fair-play

rules imposing substantial constraints on ongoing

subsidy of a football club.

Secondly, the continuing difficulties

And fourthly -- and this was another

Linked to these difficulties, ACL faced a looming

crisis in its finances.

In brief summary of a complex

issue, neither the charity nor the council wished to

inject funding into ACL on an ongoing basis.

revenues of ACL were heavily dependent on the viability

of the club.

the club as its largest source of revenue, but much of

And the

Not only was the licence or rent paid by

its other income, notably sponsorship by Ricoh and

income from match days, were intimately linked to

a successful football franchise.

The court has seen and heard evidence about a series

of meetings involving the three main players in this

drama: my clients, the SISU Group, the owners and

funders of the football club; the council; and the

charity, the shareholders in ACL.

In particular, the court has seen the common

principles set out by Mr Reeves, the chief executive of

the council, at a meeting on 19 April 2012 at which it

appeared to be common ground -- and I will give a number

of points -- first of all, that a workable solution had

to involve all three of the main protagonists.

Secondly, that this had to involve the club obtaining an

interest in the Ricoh Stadium and, thirdly, that it was

not a viable solution for the owners of the club,

whether or not SISU, simply to continue pumping money

into the club on an indefinite basis.

These sensible guiding principles governed

negotiations between the parties until the secret memos

produced by Mr West of the council on 15 and

24 August 2012.

charity of 19 June and the heads of terms between

the council and SISU of 2 August both make good sense

The ITS between SISU Group and the

against this common background.

Likewise, the e-mails from Mr Harris up to and

including his anxious comments on Mr West's plans make

clear his understanding, both as a trustee of the

charity and as a director of ACL, that, leaving aside

the obstructive approach of the Labour group on

the council, led by its leader Mr Mutton, a workable

solution to this problem necessarily had three core

elements.

First of all, discharge of ACL's debt to enable that

business to develop on a sound financial basis.

Secondly, reduction of the football club's unaffordable

rent and, thirdly, acquisition by the football club of

the charity's shares to return the position to how it

was intended from the start and to give the club an

economic interest in the Ricoh Stadium and the revenues

associated with the club's occupation of that stadium.

Against that background I come to the terms of the

ITS, which was entered into on the basis that it would

govern negotiations between the parties for a share and

purchase agreement to be concluded as soon as possible,

as it says in the term sheet, at an agreed price of

£5.5 million, to be structured by an upfront cash

payment of £1.5 million and a total consideration of

a further £4 million, payable over 10 years, on a basis 70

1 2

to be agreed, at least in terms of security. The costs indemnity provision at issue in this case

falls to be read against the overall negotiating

position between the parties at that time, including the

following factors.

the charity for the deal to progress, the charity as

a shareholder in ACL.

due diligence provided for in the term sheet.

the six-week period of exclusivity granted to SISU to

The urgency for both the club and

Secondly, the 30-day period for Thirdly,

carry out the negotiations and the as-soon-as-possible

provision in respect of completion.

So far as the contingencies or triggers for

liability concerned, those fall into three categories:

withdrawal by SISU, withdrawal by the charity, and

inability to satisfy four conditions precedent.

them in order, withdrawal by SISU is not relied on by

the charity and it is clear that SISU did not withdraw

from the negotiations.

19 20 21

MR JUSTICE LEGGATT:

I'm not quite sure about that.

Taking

I agree

with your first point, it isn't relied on. MR THOMPSON:

Well, I'll pass on.

The only other point

I was going to say is although it is apparently an

unconditional trigger for an indemnity, I need say no

more about it, and I certainly wouldn't accept that SISU

did withdraw, it's certainly within the terms of the 71

1 2 3

term sheet. Secondly, withdrawal -MR JUSTICE LEGGATT:

Are you pursuing a case that there was

a mutual termination, if you like?

case?

MR THOMPSON:

Is that part of your

It certainly is one of the submissions that

I'm going to make, by reference to paragraph 10,

effectively, of the defence.

it terms of it petering or fizzling out, but I'll come

I was going to put it more

to that, if I may, in the submission.

MR JUSTICE LEGGATT:

MR THOMPSON:

Sorry, I won't interrupt you.

The second set of contingencies, withdrawal by

the charity.

This was a relatively narrow trigger.

Mr Knatchbull-Hugessen accepted in cross-examination

that it did not cover unilateral withdrawal and that is

plainly right.

withdrew in response to either a reduction in the offer

price or unreasonable conduct by SISU.

It was triggered only where the charity

Mr Harris gave some evidence of discussions of an

informal nature about a reduced cash offer, something

that is also reflected in the papers, but there are two

points to be made about that.

that that was something that he himself advocated

in August and apparently in September 2012, and it has

never been treated as a reduction of SISU's offer as it 72

First of all, it appears

appeared in the ITS, and it was never relied on to say

that either SISU or the charity had withdrawn from the

proposed transaction, which was differently structured

based on a 10-year payment period.

So we come to failure of the conditions precedent,

and there are four of them, and they fall into two

categories.

court to look at it, but I suspect your Lordship --

9 10

I don't know if it's going to assist the

MR JUSTICE LEGGATT: MR THOMPSON:

I have it here, yes.

The first condition precedent, which I think

is common ground, was introduced by SISU itself,

although the drafting varied during the process and

sometimes it was referring to SISU and sometimes to ACL,

but it ended up referring to SISU and concerned the

anticipated transaction with Yorkshire Bank.

that, my submission would be that transaction clearly

refers to the transaction with the bank.

So in

Conditions 2 to 4, introduced by the charity at the

suggestion of Mr Harris -- and we saw the relevant

document yesterday -- concern --

MR JUSTICE LEGGATT:

does it?

MR THOMPSON:

It doesn't matter who introduced them,

No, but it's, as it were, background.

It may

be relevant to the issue of waiver.

Mr Knatchbull-Hugessen himself raised that point, but 73

I think

1 2

that's a peripheral issue. They concerned approval of the SPA itself by, first

of all, the Charity Commission, secondly the charity's

advisers and, thirdly, the council.

Those three conditions precedent reflected two

things.

First of all, the position of the charity

itself needing advice to act on advice, and that's

a point that Mr Brennan has made and was made also by

the trustees' witnesses.

And then the last of the

conditions precedent reflects the council's veto right

and pre-emption rights under the joint venture agreement

as the other shareholder in ACL.

precedent are also not in issue.

Those conditions

The first condition precedent was different from the

others in that it reflected the overall transactional

structure that had been discussed between the parties

since at least March 2012, the discharge of the ACL debt

as the quid pro quo for the club obtaining an interest

in ACL and a reduced rent and indeed a longer lease,

placing both the club and ACL on a viable commercial

footing.

So I come to construction of the term sheet and the

first condition precedent.

I would submit that it is apparent that the indemnity

provision is not unlimited in scope, it is capped at 74

By way of general comment,

£29,000.

Although it's drafted on a prospective basis,

the reality seems to be that the cap was based on costs

already incurred at 19 June 2012, and that appears from

a document in bundle 3, tab 24, page 646, where

Mr Harris reports that Miss Seppala will underwrite the

charity's costs to date, and I think £29,000 was agreed

as the figure.

the specific contingencies I've identified.

But more importantly, it is subject to

Moreover, it is to be read as part of an overall

document that was clearly intended to be turned into

a binding agreement in a matter of weeks.

has argued in a different context --

MR JUSTICE LEGGATT:

As Mr Brennan

That's actually apparent, I think, from

the point you have just made too, isn't it, when one

thinks about it.

and they say that underwriting a further cost will be

agreed once the transaction's progressed beyond

discussions with Clydesdale Bank, they must have been

expecting those would happen pretty soon.

MR THOMPSON:

Indeed.

If they've incurred £29,000 to date

As Mr Brennan has argued in a

different context, quoting, I think, Lord Bingham in

another post before he was Lord Bingham, it is not to be

reinterpreted with the benefit of hindsight to reflect a

bargain that either of the parties now wish they had

made. 75

MR JUSTICE LEGGATT:

MR THOMPSON:

No.

Against that background, and the wider

considerations I've mentioned, in my submission, the

court needs to consider three issues which are raised in

our defence.

indemnity provision still operative at all

by January 2013 or had the whole arrangement underlying

the ITS, as described by Miss Deering in her evidence to

the court this morning, lapsed well before the end of

First of all, paragraph 10.

Was the

2012?

deal was dead in the water, so it may be that there's

a degree of common ground there, and in my submission

it would be --

14 15 16

Indeed, I think Mr Brennan actually said that the

MR JUSTICE LEGGATT:

Well, it all depends on the reasons why

it was dead in the water in a way, doesn't it? MR THOMPSON:

It may do.

As I've said, it's not an

unlimited liability, there are three sets of

contingency, and does being dead in the water fit into

any of them?

can draw --

MR JUSTICE LEGGATT:

met?

MR THOMPSON:

In my submission, it doesn't, unless SISU

Unless conditions precedent cannot be

Well, they could all be met.

submission -- I don't know.

conditions -76

In my

The three Harris

MR JUSTICE LEGGATT:

They can't be met if nobody -- that's

why I say it's a bit simplistic just to say it's dead

in the water.

progressing to see whether it fits into any of the

categories, don't you?

MR THOMPSON:

You have to think why it is not

Certainly.

If any of those categories have

been fulfilled, so if one or other of the parties has

withdrawn, in SISU's case, at all, or, in the charity's

case, for reduction of price or unreasonable conduct,

then those would be contingencies.

fizzles out, in my submission that doesn't fit into

either of those boxes.

MR JUSTICE LEGGATT:

MR THOMPSON:

MR JUSTICE LEGGATT:

No.

But if it just

So what happens then?

Then it's not triggered because it's not -Do you then wait until you get --

eventually, you get to the point, whether you accept it

occurred when the deal is dead in the water or happens

later, that the conditions precedent can't be fulfilled.

19 20 21 22 23

MR THOMPSON:

So the agreement is revived simply to reflect

the frustration -MR JUSTICE LEGGATT:

That's why I asking you how you analyse

it. MR THOMPSON:

In my submission, if the court reached the

view that it's effectively intended to be a short-term

agreement leading to an early deal with the bank and if 77

it then just fizzles out, all the contingencies become

irrelevant.

MR JUSTICE LEGGATT:

It's not that it's an open -So at what point do you decide whether

the contingencies have or haven't been fulfilled and

whether costs are payable?

MR THOMPSON:

Well, if the arrangement, if I put it in that

way, comes to an end without any of the contingencies

having been satisfied, at that point the whole deal is

off and nothing happens.

That's essentially what I'm

saying.

and one of the contingencies arises that there can be

any liability under the contract.

13 14

It's only if while the contract is still live

MR JUSTICE LEGGATT:

There's no end date for the contract on

costs.

A different question, though, is -- you may not be

saying that the contract about costs ends, but you are

saying that the time at which it is to be decided

whether there is a liability for costs or not is at

a time when the SPA negotiation or deal comes to an end,

to put it very broadly.

MR THOMPSON:

Yes, my Lord.

MR JUSTICE LEGGATT:

And you say if that happens without it

coming to an end for one of those three reasons, then it

comes to an end without a costs liability.

you're arguing? 78

That's what

MR THOMPSON:

Yes.

Another way it could be put -- and that

might require your Lordship to make a finding somewhat

more in my favour -- is that if the charity effectively

withdraws from the deal, but not for one of the reasons

given in that limb, so it just withdraws because it

doesn't fancy the deal any more, then that doesn't

entitle it to recover.

something happens --

MR JUSTICE LEGGATT:

It's only entitled to recover if

That is not part of your case, is it?

That is definitely one of the -- well, it's implied

in the fact that if it withdraws for one reason, it gets

its costs, but if it withdraws for any other reason, it

doesn't.

MR THOMPSON:

If I come to the three ways I put it.

That's

the first question: did the indemnity provision still

operate in January 2013, or had the entire deal just

fizzled out, if I put it in that colloquial way?

I think your Lordship probably understands the way I put

it.

I'll say it in a little more detail in a moment.

MR JUSTICE LEGGATT:

I understand you possibly to be putting

it two different ways, but you may be saying both or

just one of them.

provision fizzles out, and the other way of saying

it is, for the purposes of the costs provision, it is to

be applied at a certain point in time, which is when the

One of them is that the costs

transaction fizzles out, and that had happened

by January.

MR THOMPSON:

What we've pleaded as our case is that the

deal had fizzled out, if I can put it that way, so there

was no longer any possibility of the -- the ITS

transaction had fizzled out, structured by the

ÂŁ5.5 million payable, 1.5 million upfront and 4 million

over a period of 10 years.

without either side having withdrawn, the deal --

10 11 12 13

MR JUSTICE LEGGATT:

If that had fizzled out

And without the conditions precedent

being unable to be fulfilled? MR THOMPSON:

Yes, at the time it had fizzled out, then

there's no liability.

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes.

The second point, and that's reflected in

paragraph 6 and 7 of our defence: did the provisions of

the first condition precedent bite, either in all

circumstances or at all, where the ACL debt was

discharged by a third party rather than by SISU?

MR JUSTICE LEGGATT:

Once the debt had been discharged by

somebody else, there's no longer a possibility, is

there, of the transaction being satisfactorily agreed

between SISU and the bank?

discharge the debt.

MR THOMPSON:

Yes.

The transaction being to

I am going to come to this in a little 80

bit more detail.

that we've pleaded and, in my submission, it's quite

a fiddling issue of law and also on the facts, given the

background and context.

5 6 7

MR JUSTICE LEGGATT:

Can I just set it out?

Is it?

Okay.

It's an issue

Come back to that one

then. MR THOMPSON:

Then the third one is: did the indemnity

provision and the conditions precedent necessarily carry

with them, whether by implication or construction of the

express terms, an obligation on the charity not to act

in a way that prevented fulfilment of that condition

precedent?

what was paragraph 21, now 28, in the amended version of

the defence.

And that's essentially the point we make in

In summary, SISU submits that on a fair reading of

the ITS and the subsequent events, the ITS deal

structure had indeed petered out well

before December 2012.

extend the exclusivity period.

a completely different bilateral strategy with

the council from 20 August onwards that had both the

object and the effect of excluding SISU from any

involvement in negotiations with the bank, a point that

Mr Harris appeared to emphasise in relation to the

29 August meeting of ACL.

The trustees had refused to

They had in fact adopted

The only evidence of ongoing negotiations are of

informal contacts between Mr Harris and Miss Seppala and

text messages with Mr Fisher for a discounted cash deal

that were not, in fact, taken forward by either party

and, in my submission, are quite different in nature

from the proposals under the indicative term sheet, and

I explored those issues with Ms Deering in

re-examination and I refer to the fifth bundle of

Laura Deering's exhibits, page 1447, where Mr Harris

explains his thinking, which in my submission is quite

different from the thinking underlying the indicative

term sheet.

The second point, the nature of the contingency or

condition precedent under CP1, condition precedent 1, we

submit that it's apparent that the indicative term sheet

deal was not in fact strictly contingent on the

fulfilment of that condition at all.

three conditions precedent, condition precedent 1 was

not a necessity for a transaction between the charity

and SISU to progress.

Unlike the other

As accepted by Mr Knatchbull-Hugessen in

cross-examination, SISU could readily have waived the

condition and the transaction proceeded, even in the

absence of the bank deal between SISU and

Yorkshire Bank.

By contrast, the other conditions 82

precedent were effectively relating to the transaction

itself and would have acted as a block if they were not

in place.

4 5

This theoretical analysis -MR JUSTICE LEGGATT:

But presumably it's there because SISU

don't want to be obliged to do the share purchase unless

they've agreed terms satisfactory with Yorkshire Bank?

That's the whole point, isn't it?

MR THOMPSON:

Indeed.

What I was going to come to was the

actual position.

confirmed, rather than cast in doubt, by the events that

occurred both before and after the term sheet.

In my submission, the analysis is

First of all, Miss Seppala had made it clear

from March 2012 onwards -- one finds that at bundle 2,

tab 17, page 434, the meetings of 28 March -- that she

was open to a 50/50 debt acquisition and for other

parties to be involved, and this was positively proposed

by Mr Harris in his advisory e-mails on 10 and

12 August 2012, which are at bundle 3, tabs 40 and 42.

In my submission, it would have been absurd for the

charity to have contended that the condition precedent

had been triggered and they were entitled to their costs

had Mr Harris' approach been adopted on the basis that

the council had bought part of the debt.

the favoured structure envisaged at the football match 83

And likewise,

negotiations and evidenced by an e-mail dated

11 August 2012 and the exchanges between Mr West and

Ms Deering from 10 to 14 August 2012, clearly envisaged

a two-stage deal whereby the Council would buy the debt

and then agree overall terms with SISU to leave ACL debt

free.

conveniently -- I think it is worth looking at this,

I don't think we've looked at it in evidence, it has

been referred to a number of times -- at bundle 2,

And one finds that at, I think, most

tab 24.

sent on 14 August 2012.

It's Mr West's last friendly overture to SISU, He says:

"Again, to clarify and as discussed on Friday,

we are not prepared to agree to any situation where SISU

own the debt.

would see the loan discharged, funded by SISU.

interim proposition -- which we still strongly believe

is the best way forward -- is for the council and the

charity, supported by SISU [so it's still a tripartite

agreement], to seek to do the deal with the

Yorkshire Bank as soon as possible, to create certainty

for the overall situation, and to create a window of

time that we believe will be needed to agree the deal in

full.

loan to ACL with a council loan to ACL at the value

which the YB loan was discharged.

Under our heads of terms, the full deal Our

Specifically, we would replace the Yorkshire Bank

We could set this for

a longer time period and at a more competitive interest

rate, thus creating significant room to manoeuvre in

ACL's finances.

discharge this loan, purchase the Higgs shares and

the council would extend the lease to ACL.

then benefit from being debt free.

your further consideration of this approach."

8 9

On completion of the deal, SISU would

ACL would

I would appreciate

So that was the proposal that the council was suggesting, effectively an interim purchase by

the council, but with SISU ultimately purchasing the

debt, discharging the debt and leaving ACL debt free.

12 13 14

MR JUSTICE LEGGATT:

And then SISU paying off that further

loan by the council; is that right? MR THOMPSON:

Yes.

In my submission, it would again have

been absurd for SISU to be liable for the charity's

costs under the indemnity if that transaction had gone

ahead as proposed by Mr West.

Indeed, as Mr Knatchbull-Hugessen accepted in

cross-examination, even the initial letter of

31 January 2013 that triggered this litigation appears

to have left it open that the transaction could still

proceed on the basis originally suggested by Mr West

in August 2012.

Mrs Knatchbull-Hugessen appears to interpret it in her

witness statement.

That's certainly the way that

MR JUSTICE LEGGATT:

I'm interested in how you interpret it

as a matter of submission, not how witnesses interpret

it in their witness statements.

point already this morning.

MR THOMPSON:

Indeed.

We've been round this

What I'm saying is that had either

the Harris deal, if I put it that way, the one proposed

in his letter to Mr West, or Mr West's deal as proposed

in that letter we've just looked at, gone ahead,

it would have been ridiculous for my clients to bear the

charity's costs had the transaction gone ahead on either

of those bases.

In my submission, the charity's position cannot get

bettered by a fluxion of time if it does, in our

submission, a secret arrangement with the council, which

effectively prevents any deal on a sensible basis

because they pay so-much for the debt and then come

along six months later and say, "Now pay us ÂŁ29,000".

MR JUSTICE LEGGATT:

Right.

And how do you fit that into

the language of the agreement?

a matter of analysis?

MR THOMPSON:

How does it work as

Well, it must either be a matter of

implication or construction, but it makes no business

sense for my clients to be liable for costs when the

transaction in fact goes ahead.

MR JUSTICE LEGGATT:

But why not? 86

Is it because the

condition precedent is met or because it doesn't need to

be met for some reason, or it disappears?

of -- there's probably three or four different ways you

could in principle --

5 6

MR THOMPSON:

I don't want to rely on Mr Knatchbull-Hugessen

as a construction expert.

MR JUSTICE LEGGATT:

MR THOMPSON:

9 10 11

I could think

No, don't do that!

The waiver point he puts forward is one way

round it, that in such circumstances that condition could be waived. MR JUSTICE LEGGATT:

Yes.

Then it wouldn't need to be met.

So if the parties agree that means to dispense with the

condition, then that wouldn't be treated as saying it

cannot be met because it would disappear as a condition.

MR THOMPSON:

MR JUSTICE LEGGATT:

17 18

Yes. So it requires the agreement of the

parties then? MR THOMPSON:

Yes, and all I'm saying is that the structure

proposed by Mr Harris and Mr West in August suggests

that those were possibilities that could very well have

gone ahead had not Mr West gone off in a different

direction.

23 24 25

I see the time, my Lord.

Those were my two, and

I suspect my most substantial is the third one. MR JUSTICE LEGGATT:

Yes, but I want to just bottom out the 87

second one.

it, that you're wrong on your first submission and that

it's still possible for the costs to be collected

in January, for the conditions precedent not to be met

in January, and that could trigger a costs --

6 7 8 9

MR THOMPSON:

So your second one is on the footing, is

Obviously, I don't need it if I win on the

first one. MR JUSTICE LEGGATT:

No.

So what are you saying is that

because it would be open to the parties to agree to

dispense with condition 1 by waiver, it somehow follows

that the conditions precedent can be met?

they can always be met because you can always agree to

dispense with any of the conditions precedent and you

can never get to a situation where they can't be met.

MR THOMPSON:

In that case,

I think it goes more with the first point

I made, that it's not an aborted transaction in the

sense of the second, third and fourth because those ones

are integral to the transaction itself, whereas this is,

as it were, an independent transaction, and the

transaction itself can go ahead.

MR JUSTICE LEGGATT:

You cannot read "the conditions

precedent cannot be met" as meaning any of 2, 3 and 4

cannot be met, can you?

of interpretation, for picking and choosing between

them.

There's no basis, as a matter

MR THOMPSON:

No.

The way we put it in our pleading is

probably as good a way to put the point as any: that it

could be met by SISU discharging the debt at any time.

So in effect, it's ACL's debt that is the critical

matter rather than the fact that it was SISU rather than

anybody else who carried out the transaction, and

likewise that it was the person that was the creditor of

ACL rather than specifically the Yorkshire Bank that

made the difference to this transaction.

MR JUSTICE LEGGATT:

That's a different way of arguing the

point, which is, when it says "Clydesdale Bank", it

doesn't mean Clydesdale Bank, it means ACL, or "ACL

in the alternative to Clydesdale Bank".

a difficult submission.

MR THOMPSON:

It means the creditor.

It seems

Yorkshire Bank is to

be interpreted as the creditor of ACL unless and until

the debt is discharged by SISU.

18 19

MR JUSTICE LEGGATT:

At which point Yorkshire Bank is to be

interpreted as what?

MR THOMPSON:

MR JUSTICE LEGGATT:

MR THOMPSON:

The creditor for the time being. The council.

Yes, it would be the council in this case,

yes, my Lord.

MR JUSTICE LEGGATT:

MR THOMPSON:

That's the second point, my Lord. All right.

Is it appropriate to take a break now? 89

MR JUSTICE LEGGATT:

MR THOMPSON:

I think it is.

And we'll come to the third point which,

your Lordship will anticipate, is the question about

acting inconsistently with the conditions precedent.

MR JUSTICE LEGGATT:

We've had an extra five minutes of

discussion, so we'll start at 2.05.

on reasonable course for completion?

MR THOMPSON:

MR JUSTICE LEGGATT:

I hope so.

I'm assuming we're

I don't have much longer.

2.05 then.

(1.05 pm)

(The Short Adjournment)

(2.05 pm)

MR THOMPSON:

My Lord, before I proceed there is one issue

that I think was discussed and which was of interest to

your Lordship, the question about the valuation and the

change of valuation over time.

that together.

MR JUSTICE LEGGATT:

MR THOMPSON:

I would just like to tie

Yes.

It ties in partly with some points I put to

Mr Harris yesterday and partly some points with

Mrs Deering.

The basic points that we make is that the value of

ACL, viewed in isolation, was recognised not only by our

clients, but by the trustees themselves, and in

particular by Mr Harris, as very low, and that was for 90

various reasons: partly the weakness of the football

club's covenant, if I can put it that way; secondly, the

level of debt to the bank; thirdly, the length of the

lease at the time was only 42 years, I think; fourthly

the dependency of its other revenues on the existence of

the football club and therefore risked undermining the

business altogether; and, finally, the limited

development of the Ricoh Stadium as a non-sports venue.

Putting all that together, the key value for the

original shares deal from the perspective of SISU was

the wider deal as reflected in the indicative term

sheet, but particularly in the heads of terms agreed

with the council.

That had a number of benefits, namely: the access to

ACL's potential revenues; the discharge of the ACL debt

at SISU's cost, but at a discounted value because of the

distressed nature of the debt; the extension of the

lease to 125 years, so equivalent to ownership or close

to it; and the reduced football club rent that could be

anticipated as the quid pro quo, as it were; and,

finally, last but not least, the development of the

stadium, not only as a major sports franchise, if the

club could be made more successful, but also as an

events venue by introducing AEG, which is one of the

world's leading events organisers, so the hope was that 91

the stadium could become a major centre of profitability

on that front as well basically as one of the leading

places in the Midlands.

So that was the idea.

Putting that together, the explanation for the

difference in value between the ÂŁ5.5 million offer set

out in the indicative term sheet, and the offers

discussed with Mr Harris in, for example, October, was

that Mr Harris' idea was effectively a discounted cash

offer, so they'd simply put up the money upfront, and

the deal was --

MR JUSTICE LEGGATT:

MR THOMPSON:

13 14 15

I did, my Lord, and that document we looked at

and it was Mr Harris' own words in that e-mail. MR JUSTICE LEGGATT:

MR THOMPSON:

MR JUSTICE LEGGATT:

That's true, my Lord.

MR THOMPSON:

MR JUSTICE LEGGATT:

MR THOMPSON:

You're talking about his e-mail of

16 August?

Sorry, I thought you were talking about

the later discussions he had with Miss Seppala.

You didn't ask Mr Harris about that.

It was 25 September, my Lord. Can we have a look at it then?

It's in the fifth Laura Deering bundle,

page 1447. MR JUSTICE LEGGATT:

morning?

MR THOMPSON:

This is the one we went to this

Yes. 92

MR JUSTICE LEGGATT:

MR THOMPSON:

MR JUSTICE LEGGATT:

4 5 6

Yes?

Where -There he's saying they'd be willing to

consider a discounted cash offer. MR THOMPSON:

He says:

"[He's] convinced that their advisers,

Pricewaterhouse, would advise the trustees to accept a

discounted cash offer from SISU."

So that was the type of deal, in my submission, that

we were talking about at this stage.

which was to be viewed in isolation from any wider

benefits.

my clients, including whether the council would consent

to any or all of the heads of terms set out in the

original heads of terms.

So a cash deal,

And in effect, that put all the risks on to

So, in my submission, that was the basis why the

difference of value was so stark.

a very difficult deal, but also it was a cash deal

rather than a 10-year discounted deal.

MR JUSTICE LEGGATT:

Not only it was

Yes, that obviously makes some

difference, but by itself it couldn't account for the

difference between 2 million and 5.5, but you say it's

because the 5.5 was contemplating all the other

benefits?

MR THOMPSON:

Indeed, so it was effectively buying 93

1 2

a Rolls Royce rather than a Mini. MR JUSTICE LEGGATT:

Presumably the only reason why SISU

would be interested would be in the hope of achieving

the wider benefits, but you are saying it would be

taking the risk, as it were, whereas it was previously

contemplated that all that would be agreed in an

incredibly short timescale?

8 9

MR THOMPSON:

Well, coming back to the narrower question

with which we are concerned, obviously from our

perspective the key question is that it was contingent

on doing a deal with the bank.

our first --

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes.

So that takes us back to

Amongst other things. But certainly as between us and the

charity, that was identified as the, as it were, key

plank, though obviously the council consent issue, as

Ms Deering made clear, became a major issue during the

due diligence process and thereafter --

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes.

-- which was, I think, the fourth condition

precedent and that obviously became a major issue, and

a lot of the work was gone in in trying to satisfy

the council and to get the council to cooperate

in relation to --

MR JUSTICE LEGGATT:

They had to agree everything, didn't 94

1 2 3 4

they, basically? MR THOMPSON:

Indeed, my Lord.

So that was, as it were,

where we devoted our fire mainly after July. MR JUSTICE LEGGATT:

And it basically looks from the

documents as though they weren't interested from August

onwards.

MR THOMPSON:

8 9 10 11 12 13

Well, indeed, Mr West was obviously pursuing

a different path. MR JUSTICE LEGGATT:

Yes.

Although not to the knowledge of

SISU at that stage. MR THOMPSON:

Indeed.

So if I may, I'll move to my third submission, the subsequent conduct of the trustees.

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes.

It may help -- there is a point of law here,

and by the diligence of my junior, we have a passage

from Chitty and an authority, which I've given to my

learned friend.

your Lordship.

clearly, I think.

MR JUSTICE LEGGATT:

MR THOMPSON:

23 24 25

It may well be familiar to It sets out the point reasonably

Right.

(Handed)

It's a section in Chitty, chapter 13, under

13.13, under the heading "Prevention of performance". MR JUSTICE LEGGATT:

As it happens, I did look at this this

morning. 95

1 2 3

MR THOMPSON:

I think it's the passage under the quote, it

says: "Where a binding contract is subject to a condition

precedent, the term may be implied that a party will not

do an act which, if done, would prevent fulfilment of

the condition."

So in my submission, that's quite close to the very

submission that we are making, and it is supported by

a number of judgments, but the most recent is the Court

of Appeal judgment that we've handed up, the judgment

Mark Taylor v Rive Droite Music.

MR JUSTICE LEGGATT:

I don't know this case.

The thing

is that on that particular question, as the next words

of the Chitty extract you passed up indicate, one can

find cases going both ways and it's quite hard to

reconcile them, I find, and make any overall sense of

them.

MR THOMPSON:

If I may show you.

It's a relatively short

passage where the Court of Appeal accepts a point of

principle, actually, in the judgment of

Mr Justice Lewison.

MR JUSTICE LEGGATT:

case, so --

MR THOMPSON:

MR JUSTICE LEGGATT:

He's not on the front page of this

It's on appeal from his -I see, yes. 96

1 2

MR THOMPSON:

Despite his eminence as an author, he hadn't

yet reached the Court of Appeal.

MR JUSTICE LEGGATT:

MR THOMPSON:

He has now, but not at that stage.

If we turn to paragraphs 156 and 157, I don't

think it's necessary to go into the facts because it's

a discrete issue which is addressed starting at

paragraph 155.

was in breach of an implied term, as one sees in the

first sentence:

It's a concern about whether Mr Taylor

"Mr Taylor was in breach of an implied term of the

production agreement in relation to what was called 'the

Cher project'.

proposed recording by Cher, which did not in the event

take place.

have occurred during the term of the 1998 agreement and

would therefore have been within the scope of that

agreement.

part of Mr Taylor, it didn't do so.

that argument and Mr Mill challenges that conclusion."

And then under that, he refers to a summary by the

21 22

This project was concerned with the

According to RDM, that recording should

But owing to a breach of contract on the The judge accepted

judge, and then it says: "The judge appears to accept that it was a fair

summary of the parties' respective rights and

obligations in relation to the Cher --

MR JUSTICE LEGGATT:

I've lost you. 97

Where are you reading?

MR THOMPSON:

MR JUSTICE LEGGATT:

MR THOMPSON:

156, my Lord. Yes, I see.

There's the core submission:

"Mr Taylor's obligation to carry out production of

the Cher project for RDM was conditional on RDM winning

the project.

was a fair summary of the parties' respective rights and

obligations in relation to the Cher project and

immediately went on in the same paragraph to say this:

The judge appears to have accepted this

"'Where a contract is conditional, it is commonplace

to imply a term that neither party will prevent

fulfilment of the condition.'"

Then the Court of Appeal accepts that.

Whatever may

have been his submission before the judge, Mr Mill

correctly, in my judgment, does not challenge that

proposition either as a generality or insofar as it was

applicable to Mr Taylor's obligations in relation to the

Cher project.

However:

"It is important to note the nature of the

obligation as described by the judge, namely that

Mr Taylor would not prevent fulfilment of the condition

...(reading to the words)... matter of language more

naturally constitutes a negative obligation and not

a positive obligation."

And then the discussion goes on, and effectively 98

says that it would be wrong to read in an obligation to

do anything positively, but it is appropriate to read

in, as it were, a negative obligation not to block

performance of the condition.

5 6 7 8 9 10 11 12 13

MR JUSTICE LEGGATT:

What was the nature of the contract in

this case? MR THOMPSON:

It was a production contract in relation to

the recording artist Cher, my Lord. MR JUSTICE LEGGATT:

So, what, Mr Taylor was a producer, was

he? MR THOMPSON:

Yes, my Lord.

His obligation to carry out the

project was conditional on RDM winning the project. MR JUSTICE LEGGATT:

So if Cher agreed that RDM would record

her album, then Mr Taylor would be contracted as the

producer?

MR THOMPSON:

Yes.

So I think it was then said it was

reasonable to assume in that situation that Mr Taylor

was under an obligation not to prevent it.

MR JUSTICE LEGGATT:

MR THOMPSON:

21 22 23

Right.

So it's essentially for the dictum other than

for any close analogy to the facts. MR JUSTICE LEGGATT:

How does that square with the passage

in Mr Lewison's book --

MR THOMPSON:

I'm happy to go back.

MR JUSTICE LEGGATT:

-- which Mr Brennan relies on, which is 99

1 2 3 4

at tab 5 of his authorities? MR THOMPSON:

Yes.

I think it was the passage that

I referred to. MR JUSTICE LEGGATT:

You referred to one passage, but he

relies particularly on the third of the points made on

page 317.

case of Luxor v Cooper there, which I reminded myself

of, is a case about estate agents where the agents'

commission depends on finding a buyer for the property

And looking at the footnotes to that, the

and it was sought to imply a term that the owner of the

property wouldn't prevent the agent from earning his

commission by selling it to somebody else.

MR THOMPSON:

Yes.

MR JUSTICE LEGGATT:

And it was found that there couldn't be

such a term implied.

with the cases where there is a term implied that you

won't prevent the contingency arising.

MR THOMPSON:

It's quite hard to reconcile that

Well, certainly the way the Court of Appeal --

I had thought it was Lord Justice Chadwick, but it's in

fact Lord Justice Neuberger, who's obviously now of

senior authority.

an obligation not to virtually frustrate the performance

of the condition and an obligation to take a positive

act.

He distinguishes between, as it were,

So 158: "The notion that the obligation on Mr Taylor only 100

extended to forbidding positive acts, which would

prevent fulfilment of the condition, also consisted of

the general proposition that the term is to be implied

only to the minimum extent necessary to give a contract

business efficacy."

MR JUSTICE LEGGATT:

MR THOMPSON:

Yes.

"It would be normally easy to identify whether

a positive act precludes performance of the condition.

It is often much harder to determine what positive acts

a person should be expected to take to enable

a condition to be fulfilled."

So Lord Justice Neuberger is saying that it's

relatively easy to clarify or to identify whether

a positive act precludes fulfilment of a condition and

here, to take the simplest case, there obviously is

a positive act on 14 January to enable the council to go

ahead with the loan, and that was itself the matter

that's relied on here as the way in which the condition

precedent became impossible of performance and our

liability arose.

MR JUSTICE LEGGATT:

Well, you say that's obvious.

You may

be right that that's a positive act, but it's not

totally straightforward.

did a deal with the bank, all they did -- what did they

agree to in fact?

It wasn't that the trustees

Can we just have a look at that? 101

MR THOMPSON:

Yes, certainly.

MR JUSTICE LEGGATT:

now.

MR THOMPSON:

MR JUSTICE LEGGATT:

6 7

I can't remember which bundle it's in

Bundle 3, tab 63. So they gave a consent which was needed

to allow the council to lend money to ACL. MR THOMPSON:

Yes.

The purpose of the amendment of the

restatement agreement was to enable a shareholder,

namely the council, to advance money to ACL.

MR JUSTICE LEGGATT:

Right.

But that doesn't by itself

prevent performance of the agreement, does it?

enables the council to lend money to ACL.

MR THOMPSON:

It just

But you'll recall that that entire scheme and

purpose of that was to have ACL discharge the bank debt.

Indeed, I think it was originally pleaded by my learned

friend that the council had discharged the bank debt and

I think that was the trustees' understanding until we

looked at the documents.

MR JUSTICE LEGGATT:

I don't care what their understanding

was; we know what actually happened and whether they did

at the time --

MR THOMPSON:

Yes, but the reality of the situation is it

was a domino effect that for ACL to have the money to

discharge the bank debt, the council had to lend it the

money and Mr Brennan's clients had to consent to that 102

loan.

So it was an active step taken to facilitate the

discharge of the bank debt by someone other than SISU,

namely ACL.

MR JUSTICE LEGGATT:

Well, it was something done which made

it possible, but it wasn't something which by itself

prevented the condition from being fulfilled.

MR THOMPSON:

Well, my Lord, I think we would say that --

I have taken your Lordship to that as the, as it were,

the final step in the process and the final piece in the

jigsaw because it's the clearest case of a positive act

by the trustees.

the charity after 20 August 2012, when a representative

of Pricewaterhouse was sent by the trustees to

participate in discussions based on Mr West's new plan,

was deliberately intended to prevent discharge of the

first condition by preventing SISU acquiring the bank

debt.

18 19

MR JUSTICE LEGGATT:

MR THOMPSON:

MR JUSTICE LEGGATT:

But what was done to prevent them

acquiring the bank debt --

But in my submission, the conduct of

If you recall --- in the way of positive acts, apart

from this one? MR THOMPSON:

-- Mr Harris' evidence was that the council

had made it clear to SISU -- and your Lordship saw the

e-mail this morning of 14 August -- that the council 103

wasn't prepared to consent to SISU acquiring the bank

debt; they wished to acquire it themselves.

that was the whole purpose of the West plan as set out

in the 15 and 24 August memos --

MR JUSTICE LEGGATT:

MR THOMPSON:

In a sense,

Yes.

-- to which the charity subscribed.

So we would say that the trustees were fully aware

of the council's plan from 16 August onwards and that

they were an integral part of that plan.

You'll recall

that, from the start, Mr West's plan was that there

should be a bilateral approach by the two shareholders.

MR JUSTICE LEGGATT:

MR THOMPSON:

But that didn't happen on the evidence.

Well, my Lord, we would submit that it is

clear from the e-mail record that, at the lowest, all

four trustees were fully informed of developments by

Mr Knatchbull-Hugessen and Mr Harris as their

representative directors.

admittedly it wasn't particularly explored in

cross-examination, that they were engaged with

the council in relation to the reparations issue, ie the

basis, if any, on which the trustees would give some

form of consideration for the council's loan to ACL and

the overall plan.

MR JUSTICE LEGGATT:

generality.

There is also evidence,

Yes, but that's at a level of high

You have just shown me a helpful authority 104

which says that the implied obligation is limited to

forbidding positive acts.

you relying on as a positive act, if anything, apart

from the consent given to the restatement agreement, or

is that the basis of it?

6 7 8 9 10

MR THOMPSON:

So the question is: what are

Well, in my submission, it's a matter for

your Lordship, but -MR JUSTICE LEGGATT:

Well, it's a matter for you to make

clear what your case is to me. MR THOMPSON:

What I am going to say is, on the evidence,

it's quite clear that all the trustees who expressed

a view expressed a view -- admittedly in Mr Harris'

case, somewhat qualified -- in support of the West plan,

which was to pay off the bank debt bilaterally, albeit

funded by the council.

position up to and including the e-mail that you'll

recall of 13 December 2012 was entirely consistent with

the charity's consent to the plan and that what

Mr Knatchbull-Hugessen said in evidence can, on any

view, go no further than that the trustees did not

themselves regard themselves as representatives or

exposed to the costs of participating in the

negotiations with the bank, but that it's quite clear

that they were fully informed and, in particular, were

fully informed on 13 December of the decision to go

And in my submission, the

105

1 2

ahead with the transaction. The legal point, which was undoubtedly known to the

council and the trustees, and in particular was a matter

of specific advice to the trustees in January 2013, was

that the plan required amendments to the joint venture

agreement, authorised by the trustees.

at the culmination of that, but your Lordship will

recall that there's another e-mail in January 2013,

which it may be worth just looking at briefly, bundle 3,

And we've looked

tab 62, where Mr Knatchbull-Hugessen writes to all the

trustees, saying:

"I attach a copy of the council's internal working

draft of the heads of terms between the council and ACL.

There are elements which are properly the province of

the board of ACL on which Paul and I will report to the

trustees and take their advice where necessary, and

there are elements which must have the agreement of the

trustees."

And then he goes on, I think, on 9.1.1:

"Paul and I need to take advice from the trustees,

but the decision is a board decision for ACL."

And then, down at the bottom, he says:

"I hope to speak to Stephen Lloyd of BDWB to see

whether they are prepared to advise the trustees on

changes to the JV and on the merits of a loan to ACL 106

from CCC.

It would be a saving to the trustees if they are

prepared to advise rather than I having to take

commercial advice from another firm."

They are familiar with the documents already.

And then there's discussion of the date.

And it's

obviously on the basis of that advice, one sees at

paragraph 1.3 of the 14th day of January minutes, that:

"The board noted a report from Bates Wells and

Braithwaite (London), dated 11 January, solicitors to

the trust, advising it was appropriate for the trust and

FIL to enter into the amendment and restatement

agreement."

So they were clearly advised that that was the

appropriate form into which to amend the joint venture

agreement.

act, which enabled the deal, which is now relied on, to

go ahead, and without which it couldn't have gone ahead.

18 19

And in my submission, that was a positive

MR JUSTICE LEGGATT:

That's the amendment to the joint

venture agreement?

MR THOMPSON:

Yes.

MR JUSTICE LEGGATT:

MR THOMPSON:

So it comes back to that?

It does in the end, but that is a clear

positive act which, in my submission, is now effectively

relied on by my learned friend as the basis for saying

we are liable for the wasted costs occasioned by the 107

1 2

very matter that that facilitated. As your Lordship's put to me, there are two disputed

factual issues that emerged in cross-examination.

Mr Knatchbull-Hugessen claimed that the trustees did not

participate in the negotiations with Yorkshire Bank,

leaving that to the council and ACL.

claimed that he was given specific assurances by Mr West

that SISU had been informed of the proposed bilateral

approach.

10 11

And Mr Harris

Neither of those points are in fact accepted,

but they're marginal, if of any relevance. It is apparent that the trust was kept fully

informed of developments as the minutes of the meeting

on 12 December, which we looked at on more than one

occasion, and as the subsequent sequence of events up to

14 January make clear, Mr Harris was himself a trustee

of the charity and was a party to all the negotiations

as a director of ACL.

court to support the suggestion that the charity didn't

adopt the West bilateral approach and the contemporary

documents all suggest the contrary, in particular the

draft instructions to Pricewaterhouse that we looked at

at pages 930 to 933.

No document was produced to the

The terms of Mr Harris' witness statement on the

assurance from Mr West are unclear and no document was

produced evidencing any assurance given by Mr West, but 108

it's apparent from the e-mail exchanges between

Miss Deering and Mr West on 10 to 14 August that

the council were not prepared to allow SISU to purchase

the debt before a wider deal was done.

doesn't --

6 7 8 9

MR JUSTICE LEGGATT:

However, that

Go a bit slower if you wouldn't mind,

please. MR THOMPSON:

We say it's apparent from the e-mail exchanges

between Miss Deering and Mr West that we looked at this

morning that the council were not prepared to allow SISU

to purchase the debt before a wider deal was done.

However, that doesn't at all show that SISU was informed

of the West plan to cut SISU out of negotiations

altogether, as in fact occurred, and so it is not clear

what Mr West told Mr Harris about SISU's state of

knowledge.

So in summary, my Lord -- and I'm obviously happy to

debate any further issues that may be of concern to

your Lordship -- we say that the claim must fail on one

of three grounds.

The term sheet had lapsed well before the end of

2012 for reasons that had nothing to do with any of the

three categories of contingency that would have entitled

the charity to be indemnified.

Secondly, we make the point that the condition 109

precedent didn't entitle the charity to recover on the

basis that a third party acquired the debt; it had been

clear that a 50/50 debt or a two-stage acquisition

process was perfectly possible, provided the end result

was a discharge of the debt.

And then, thirdly, the point that we've been

discussing since lunchtime.

We say the conduct of the

charity after 20 August debars it from reliance on the

indemnity on the well-established basis that it itself

acted in a way that prevented fulfilment of the

condition precedent by SISU.

Just to sum up the whole overall position,

Mr Knatchbull-Hugessen accepted in cross-examination

that the provision was intended to protect the charity

from acts of third parties, not from its own decisions.

In reality, the --

MR JUSTICE LEGGATT:

Sorry, I wish by this stage of the

trial, especially having made the point this morning

very fairly when Mr Brennan was cross-examining, that

you would stop making submissions as to what the

contract means based on what witnesses might have said

it means.

MR THOMPSON:

I'll take that out of my submission.

sorry, my Lord.

MR JUSTICE LEGGATT:

I'm

It's a very clear legal principle 110

that -- it may not be immediately obvious to

non-lawyers -- but it's very well-established that what

people who negotiate a contract think the clause means

is not the question for the court and I'm not allowed to

take account of that.

a hypothetical reasonable person would understand the

words to mean.

8 9

MR THOMPSON:

I have to decide what

I apologise.

I'm justly rebuked.

We say that the provision was intended to protect

the charity from acts of third parties, not from its own

decisions.

charity threw its lot in with the council from

August 2012 onwards and there is no proper basis for it

now to complain that it wasted costs in relation to

a deal based on a discharge of the Yorkshire Bank debt

by SISU that it itself abandoned and that it worked

together with the council to prevent ever occurring.

We say that that is the reality of the situation

In reality, what happened here was that the

with which your Lordship is confronted.

basis for the recovery of their costs in that very

particular circumstance.

my Lord.

with.

24 25

There is no

So that's the nub of our case,

Unless there's anything else I can assist you

MR JUSTICE LEGGATT:

No, thank you, Mr Thompson.

I understand it, your three submissions operate as 111

alternatives.

One can look at them in the following

order.

charity's shares to SISU came to an end probably

in August in such a way that it didn't trigger

a liability for costs.

Your first point is the transaction to sell the

MR THOMPSON:

Yes, my Lord.

MR JUSTICE LEGGATT:

If that's wrong and it came to an end

because the condition precedent couldn't be fulfilled

in January, you say that was caused by the charity

itself, its positive act, which it impliedly would not

do to prevent the impossibility of performing the

condition precedent.

still possible to perform the condition precedent anyway

because it can be performed with the lender and not with

the bank.

16 17 18

MR THOMPSON:

Yes.

And if that's wrong, you say it's

That one floats free, but it's true that

the one is -MR JUSTICE LEGGATT:

You could look at that one and the

other one in the other order, but they're all

alternatives to each other.

MR THOMPSON:

MR JUSTICE LEGGATT:

23 24 25

Effectively, yes. Thank you.

Closing submissions by MR BRENNAN MR BRENNAN: parts?

My Lord, if I may, could I approach this in two Could I first deal with my primary submission 112

that the pleaded case fails on the facts.

relatively brief.

general submissions I make to the effect that, given the

legal obligations which the trustees assumed and given

what actually happened, it is simply not possible to

conceive of a way in which a case could be successfully

put so as to prevent the trustees from recovering

ÂŁ29,000 on the facts of this case.

9 10 11 12

MR JUSTICE LEGGATT:

That will be

Secondly, could I deal with more

Right.

Although it's for to you

demonstrate that they can recover it, of course. MR BRENNAN:

Yes, I accept that entirely, though my second

submission largely focuses on the defence of the claim.

MR JUSTICE LEGGATT:

MR BRENNAN:

Yes.

And as my Lord has rightly pointed out,

although the focus of attention and argument may well

throughout the course of this case have been on the

defence to the claim, one cannot overlook the fact that

I have to get over the bar in the first place.

MR JUSTICE LEGGATT:

MR BRENNAN:

Yes.

In order to make good my submission that the

pleaded case fails on the facts, we first need to

identify precisely what the pleaded case is.

I invite you in that regard to turn to the defence,

which is at tab --

MR JUSTICE LEGGATT:

I have a copy out. 113

Could

1 2 3

MR BRENNAN:

It's rather more convenient, if I may say so,

to turn to the defence and the counterclaim. MR JUSTICE LEGGATT:

I have the amended one.

I didn't

actually give leave for amendments, but I'm treating it

as having given leave for any amendments which didn't

fall away because of judgment yesterday.

MR BRENNAN:

Yes, I follow that.

Paragraph 21 is the key.

It is said that:

"The fact of the transfer from the bank to the

city council rendered the compliance by SISU with the

condition precedents impossible."

Then:

"In such a case, it is averred that the trustees,

caused, contributed or prevented the compliance with the

conditions precedent."

That, in my respectful submission, is an assertion

of the consequence of the trustees' act, but it doesn't

help us greatly as to what the trustees' act actually

was.

In order to identify what that must be, I think

these days one must take a broad view of the pleading

and, given that the defence and counterclaim as a whole

was before the court, one must sensibly have regard to

paragraph 31, which is the particular of breach, which

was the last mentioned in the defence and 114

counterclaim -- forgive me, I don't have a copy of the

amended defence.

3 4

MR JUSTICE LEGGATT:

I'll look it up now. Well, it comes down to the amendment of

the restatement agreement, I think --

MR BRENNAN:

Yes.

MR JUSTICE LEGGATT:

MR BRENNAN:

It finds --- which is in there somewhere.

It has a spectral presence at 41(d).

ultimately, it boils down to the amendment and

restatement agreement.

MR JUSTICE LEGGATT:

That's pleaded in 38.

MR BRENNAN:

I'm grateful.

MR JUSTICE LEGGATT:

Is it?

But

Well, as a contract it may not be

picked up directly, but anyway I think that's the case

you have to meet.

15 16

MR BRENNAN:

Quite so.

Well, the essence of it is neatly encapsulated in

paragraph 31 of the extant defence and counterclaim.

The essence of that is the allegation that:

"... in providing prior approval for ACL to borrow

money, the claimants acted or procured that other

parties under their control acted in a manner calculated

to prevent the defendant agreeing a transaction with the

bank [et cetera, et cetera]."

24 25

I would invite the court to the view that the reference there to the trustees' calculation is an 115

assertion as to the intent with which the trustees

entered into the amendment and restatement agreement.

They intended it to have a particular effect and the

effect they intended it to have was to prevent SISU from

agreeing a transaction with the bank.

MR JUSTICE LEGGATT:

I can't think that that can make

a difference.

that they won't make it impossible to fulfil the

condition precedent, then it must be that if an act is

done which prevents the condition precedent from being

fulfilled, that's contrary to the implied term.

doesn't matter whether they were actually intending that

or whether they just must have realised that that would

be the result.

MR BRENNAN:

I mean, if it's an implied requirement

If such a term were to be implied, that must

necessarily follow, I accept that.

I would, however,

invite the court to the view that the gravamen of what

SISU is seeking to prove relates to the intent.

I'm wrong in relation to that, but that is my

submission.

convenient for me because the case on intent was

effectively abandoned at some stage after the trustees

provided their disclosure.

be put as the dog that didn't bark in the evidence upon

which SISU rely.

Perhaps

If it is a submission, it's certainly

116

Allegations of intent might

So far as that is concerned, that being what

I submit the pleaded case to be, I would invite the

court to the view that a realistic and proper analysis

of what actually happened would involve the court making

the following four findings of fact.

Firstly, that the trustees exercised their powers as

trustees for a proper purpose, namely to protect their

investment.

belief was that there was no prospect of SISU's

Secondly, that the trustees' subjective

acquiring their shares in Football Investors Limited for

ÂŁ5.5 million or, to put it another way, the trustees did

not themselves believe there was any prospect of SISU

completing the sale and purchase agreement envisaged

in the ITS.

The third point is essentially the same point, save

that on an objective analysis, there was in fact no

prospect of that happening.

trustees proceeded on the basis that its fellow

shareholder, the city council, had told SISU that ACL

would not allow SISU Capital to purchase the

Yorkshire Bank loan.

And fourthly, that the

I invite the court to the view that if those facts

are to be found on the law as it stands, there is no

basis upon which a defence to this claim could

successfully be put.

That of course presupposes, as 117

my Lord has identified, that the claim has been made

out.

So far as that is concerned, if one turns to the

indicative term sheet, it cannot, I respectfully submit,

be seriously in doubt that, as a matter of fact, the

transaction which the parties had in their contemplation

concerned Yorkshire Bank and, in particular,

Yorkshire Bank's loan to ACL.

accepted that in her witness statement.

Indeed, Mrs Deering She confirmed

that in cross-examination and if there be any doubt

in relation to that, paragraphs 17.5, 17.8 and 18.2 of

her witness statement demonstrate that beyond

peradventure.

I submit that if one has regard to the costs

provision, it is triggered by one of three triggers, one

of which was in the event that the condition precedents

cannot be met.

unless SISU can persuade the court that that state of

affairs came about as a result of a breach of an implied

term that should properly be incorporated into the

agreement on the part of the trustees, the trustees'

claim must succeed.

23 24 25

In those circumstances, I submit that

So far as the law is concerned -MR JUSTICE LEGGATT:

Well, you've dealt with, as I've

understood you just now, with the second argument that 118

Mr Thompson made.

argument at some point.

MR BRENNAN:

MR JUSTICE LEGGATT:

MR BRENNAN:

You've got to deal with his first

Yes. Whichever order suits you, but --

Well, I'll deal with it now.

The parties had

in their contemplation the prospect that the

negotiations which SISU had agreed to enter into in good

faith might result in failure because otherwise why

would they be concerned with abortive transactions?

Secondly, by reason of the fact that the trustees

submitted to afford SISU the exclusive right to conduct

due diligence, I invite the court to the view that part

of the factual matrix is that SISU wished to keep the

field to itself, or at any rate it wanted to be first to

the field and have it for itself for at least the period

of exclusivity.

MR JUSTICE LEGGATT:

MR BRENNAN:

Yes.

That is explicable only by reference to the

possibility of there being potential other purchasers

for the Football Investors' shares in contemplation of

the parties.

22 23 24 25

MR JUSTICE LEGGATT:

Or perhaps that the trustees might just

decide they don't want to sell the shares, I suppose. MR BRENNAN:

Possibly, but we're dealing here with

a transaction which the parties have in mind for the 119

sale and purchase of shares.

things that a prospective purchaser would be mindful

that there may be other prospective purchasers because

if they think the shares are worth buying, it's

difficult for them to suggest that no one else would

sensibly come to that view.

MR JUSTICE LEGGATT:

It is in the nature of

Well, it could be thought they were in

a rather special position.

football club playing at the ground wouldn't have the

same interest in buying ACL.

MR BRENNAN:

MR JUSTICE LEGGATT:

13 14

Somebody who didn't own the

Yes. Anyway, I'm diverting you from the main

thrust of your argument. MR BRENNAN:

If one looks at it a little wider, it cannot

seriously be doubted that there is a market out there

for people who want to buy football clubs.

seem a very harsh judgment indeed to suggest that there

is no market for people who would want to buy

Coventry City Football Club, and any such potential

purchaser would have an obvious interest in negotiating

with the charity for the reasons which became all too

painfully apparent to SISU after Sky Blue had effected

the transaction and were obvious to SISU before Sky Blue

entered into the transaction to purchase the football

club. 120

And it would

My friend's submission is that, properly understood,

the language that the parties used in order to give

effect to their intention, read in the appropriate

commercial setting, drives the court to conclude that it

was not the intention of the parties for SISU to pay for

the wasted professional costs of an abortive transaction

in circumstances in which the negotiations fizzled out.

8 9

I would invite the court to the view that in circumstances that where one of the triggers was SISU

withdrawing its offer to purchase the shares, there is

a compelling case to be put, which is not actually

before the court, that there was an implied term that

in the event that SISU did come to the view that it was

no longer minded to complete the transaction on the

terms contemplated by the parties when they entered into

the ITS, that they could not stay at the negotiating

table with their arms crossed and their mouths closed,

lest if they were to give voice to their actual

intention, they would thereby trigger a liability for

costs.

MR JUSTICE LEGGATT:

Well, the terms that were agreed

contemplated the charity withdrawing because of

a reduction in price or unreasonable terms.

be one thing that would trigger the costs.

argued that it's implicit in that that if the charity 121

That would It can be

withdraws for a different reason, it's not going to get

its costs and that that would be the point of that.

MR BRENNAN:

Yes.

MR JUSTICE LEGGATT:

And then Mr Thompson built on that

a small step further to say that perhaps if what happens

is it's a mutual withdrawal because neither side wanted

to continue with the negotiations, that is also

something that falls outside the three trigger points of

the agreement and means that there's no liability for

costs.

MR BRENNAN:

MR JUSTICE LEGGATT:

13 14

Well -That's how I see his argument sort of

working. MR BRENNAN:

It might well be thought as a matter of fact

that if the parties were to approach this again from the

start, it could keenly be argued that each of the three

triggers to the liability for costs had been activated.

MR JUSTICE LEGGATT:

MR BRENNAN:

Well, yes.

Firstly, because SISU had in fact come to

a view that it didn't want to pay ÂŁ5.5 million for the

shares and that it was in breach of its implied

obligation to articulate that view.

23 24 25

MR JUSTICE LEGGATT:

Well, on one reading of it, SISU did

withdraw its offer. MR BRENNAN:

Yes. 122

MR JUSTICE LEGGATT:

On another reading of it, it sought

a reduction in the price when there was a discussion

in November.

MR BRENNAN:

Yes.

MR JUSTICE LEGGATT:

But part of the difficulty that we're

in is that the way the evidence has turned out doesn't

very obviously match up to the pleaded case.

8 9 10

MR BRENNAN:

No, that is true.

On the other hand, one has

to remember this started off as County Court litigation --

MR JUSTICE LEGGATT:

MR BRENNAN:

I know.

-- and given the costs that have been incurred

in recent months in relation to this matter, the

prospect of amending a claim in order to recover

ÂŁ29,000, which might result in an adverse costs

consequence arising from the amendment, might actually

rather defeat the purpose of the amendment.

MR JUSTICE LEGGATT:

It might, but we still have to go by

the rules, whatever the reasons that lead to the

position.

MR BRENNAN:

Yes, in which case we must then focus on the

third trigger, and I would invite the court to the view

that in circumstances where the trigger was the simple

issue of fact as to whether or not the conditions

precedent could be met, in circumstances where there is 123

simply no loan in existence between Clydesdale Bank and

SISU, the condition precedent cannot, as a matter of

fact, be met.

I accept, is if the reference to Clydesdale Bank should

be understood to be a reference to "ACL's creditor for

the time being".

A potential answer to that argument,

That is not a submission with which I would agree,

but that is what it boils down to.

You either accept,

as a proposition of fact, that all I need to prove

is that the conditions precedent cannot be met triggers

the liability for costs or you don't and it's a matter

of plain contractual construction.

MR JUSTICE LEGGATT:

Well, it is, but the construction put

against you, I think -- well, one is that

Clydesdale Bank doesn't mean Clydesdale Bank, but

I don't need to hear further argument from you on that.

MR BRENNAN:

Yes.

MR JUSTICE LEGGATT:

One put against you is that what is

envisaged is that this costs provision applies at the

time when the negotiations come to an end and that if

they come to an end for one of the three reasons, your

clients get their costs, and if they come to an end for

not one of the three reasons, then you don't.

that construction, if that construction is correct, then

the argument proceeds to say: well, you're relying on 124

And on

the condition precedent, but that wasn't why the

negotiations came to an end -- or the transaction fell

through or fell apart or whatever you want to say -- so

therefore you don't succeed on the basis you're claiming

your costs.

MR BRENNAN:

Yes.

That, if I may respectfully suggest, is

an unattractive proposition and, as a construction of

the contract, would, I say, fall foul of the proposition

that the court leans against constructions that would

give rise to an unreasonable or absurd result.

plain purpose of this transaction was to provide the

trustees with a measure of protection in the event that

they incurred fees in evaluating an offer which was

ultimately aborted.

15 16 17 18

MR JUSTICE LEGGATT:

The

Other than through their fault, as it

were. MR BRENNAN:

Yes.

And could I deal with their fault now?

I'm in the fortunate position, though I rather

suspect you might think you are in an even more

fortunate position, of not having to revisit the

arguments that were rehearsed at length before you in

the Yam Sing(?) case.

MR JUSTICE LEGGATT:

They weren't rehearsed at much length

actually!

The judgment was at some length, so you'll be

forgiven for assuming that they must have been. 125

MR BRENNAN:

I looked at the dates of the hearing and

I rather assumed that the first day, which took place

quite some distance in time --

MR JUSTICE LEGGATT:

That was because counsel on one side

lost the power of speech on that day, so we had to

adjourn to another day.

happened to me in my career.

8 9

MR BRENNAN:

I hadn't appreciated your Lordship could have

quite that effect.

MR JUSTICE LEGGATT:

MR BRENNAN:

12 13 14 15 16

It's the only time it's

I hope it wasn't to do with me!

I'd rather assumed that you had been subjected

to days and days of argument in November. MR JUSTICE LEGGATT:

Sorry, did you want to look at the

case? MR BRENNAN:

If I may do.

It starts at paragraph 119.

I'm not going to deal

with it at length because it is, for reasons which are

obvious, a judgment, the reasoning of which you will be

extremely familiar with.

at a broad level of generality, is a criticism made by

SISU of the commercial morality of the trustees.

say that, given the trustees' conduct, the law would

preclude them from recovering the costs of ÂŁ29,000.

What I say this case is about,

They

When one talks of commercial morality, one is

conscious of the fact that there are those who assert 126

that there simply is no such thing as commercial

morality and it is an oxymoron.

which your Lordship explained in this case, that is

simply wrong and does not reflect the law of England and

Wales.

6 7 8

MR JUSTICE LEGGATT:

But for the reasons

As I take the view, commerce couldn't

exist otherwise. MR BRENNAN:

Precisely.

Firstly, there is a basic

assumption of honest behaviour and, secondly, there is

a presumption that the parties intend the -- as it was

put at paragraph 139:

12 13 14

"It promotes the values and purposes expressed or implicit in the contract." I would invite the court to the view that this case

is concerned with the implicit obligations, and in

particular the trustees' implicit obligations.

regard, without wishing to revisit a terrain which we

covered very recently, I point out that the strict

constraints which Lord Bingham, Master of the Rolls,

pointed out in the case rehearsed in the Reborn, which

attend the implication of terms into contracts ...

In that

I invite the court to the view that this case does

not obviously fall into the middle ground of

a distributive agreement into which the parties in the

case that we are considering fell into. 127

However, that is not to say that there was not

implicit in the contract certain fundamental and

underlying assumptions which SISU reasonably made, which

the trustees are reasonably bound by.

had been in fact a limited company, it seems difficult

to argue that a limited company as a counterparty should

not be bound by the proper and ordinary course of

business.

company.

If the trustees

The trustees are not, however, a limited They are the stewards of certain property.

And although this may well have not been in the

contemplation of the parties during the course of the

negotiation -- because we are concerned here with the

imposition of objective standards -- the court may,

I submit, take account of the nature of the trustees'

obligation in English law.

They have certain powers.

Those powers can only be

exercised for proper purposes.

They have certain

obligations.

them at any time to account for the stewardship of trust

property.

found to have failed to take proper care of trust

property, they can be held accountable.

found to have dispersed trust property, given trust

property away without authority, they can be held to be

accountable.

The beneficiaries of their trust can ask

And if, on taking that account, they are

If they are

But the court can also take account of the 128

fact that under section 61 of the Trustee Act, the

strict liability which attended the obligation of

trustees upon a taking of account can be ameliorated

in that the court may excuse a trustee from the rigours

of strict liability if he has acted properly and

reasonably.

if trustees act in accordance with the benefit of

professional advice, they can avoid the pitfall of

personal liability.

In that regard, it is well understood that

It is against this background that I would invite

the court to consider the obligations that arose in this

instance.

put in one of two ways.

the same thing.

exercise their powers for an improper purpose with the

intent to prevent the completion of the sale and

purchase agreement envisaged by the ITS.

the trustees could act as they saw fit, provided they

did not act outside their powers arbitrarily,

capriciously, irrationally, or in bad faith.

I would submit that the obligation could be It amounts, frankly, to much

Firstly, that the trustees would not

Alternatively,

I say the trustees simply did nothing wrong in the

eyes of the law.

The obligations they had assumed under

the ITS were relatively limited.

during a limited period of time, to afford SISU and SISU

only the right to conduct due diligence and to conduct 129

They had undertaken,

negotiations in good faith.

implied into the contract ought to recognise, I submit,

that upon the expiration of the period of exclusivity

there is no duty on the trustees other than those

imposed either by the law of tort --

MR JUSTICE LEGGATT:

And any term that should be

I've already held that yesterday.

But

what I haven't determined is whether their ability, as

a matter of construction, to get their costs depends on

them not doing something to prevent the condition

precedent from being met, or whether, if they prevent

a condition precedent from being met, that trigger

applies.

MR BRENNAN:

Yes.

Well, I would invite the court to the

view that this calls for an analysis of the reasons why

the trustees did the act of which complaint is made.

And in that regard, I would invite the court to make the

four findings of fact which I set out at the start of my

submissions.

investment.

any of the witnesses that their motive was injury to

SISU.

The motive was the protection of its own In fairness, it has not been suggested to

So far as what the trustees' subjective belief was

as to the prospect of the sale and purchase agreement

being completed, might I invite the court to reconsider

the following evidence?

And I will take it, if I may, 130

1 2

chronologically. There were no discussions at all during the

exclusivity period.

During the course of the

exclusivity period, Miss Deering had taken the view that

the trustees' position was intransigent.

of Mr Knatchbull-Hugessen's letter of 7 August 2012, the

trustees made clear that they wished to entertain other

approaches and reaffirmed the importance they placed

upon the provision of what they regarded to be proper

Upon receipt

security for the deferred consideration.

recall that in a private e-mail that

Mr Knatchbull-Hugessen sent to Mr Harris rather earlier

in the piece, he jests about what he wants is a security

that would see them good even in the event of

World War III breaking out.

You will

Moving on in the chronology, a few days later, on

10 August, there was a telephone call with Mr Harris, in

which he made the view that the trustees would only

proceed on the basis of a cash basis and that provision

of security needed to be dealt with as an urgent matter.

21 22 23 24 25

MR JUSTICE LEGGATT:

Just give me the reference again for

that. MR BRENNAN:

Paragraph 21 of his witness statement.

16 August, the two e-mails that Mr Harris sent. They're oddly, and rather unfortunately, in different 131

parts of the bundle.

the 16th, in which he expresses a view as to the

fragility of the proposal.

4 5 6

MR JUSTICE LEGGATT:

At F40 you'll find the e-mail of

That's actually on the day before, on

the 15th? MR BRENNAN:

Is it?

Forgive me, I'm grateful.

It was the

16th, which is the e-mail attached to the amended

defence and counterclaim at page 51, in which he talks

of the need for bulletproof security.

It is that e-mail

of the 16th together with Mr Knatchbull-Hugessen's

letter of 7 August, which the defence asserts by way of

particulars in support of their notion that there were

irreconcilable differences.

Moving on in the chronology, by October, due

diligence had finished.

statement at paragraph 31, deals with a breakfast

meeting that he had with Miss Seppala in that very

month.

notion of the purchase consideration being reduced from

5.5 million to something nearer 2 million, and Mr Harris

expressed the view that the trustees would not be

interested in that, even if it was provided in cash.

Mr Harris, his witness

On that occasion, Miss Seppala broached the

In support of the significance of the due diligence,

we also have the important evidence that Miss Seppala

asserted to Mr Harris on that occasion that her view was 132

that, in view of the due diligence exercise that had

been carried out, the shares were worthless, which view

is entirely consistent with Mrs Knatchbull-Hugessen's

evidence as to what Mr Fisher said months later as to

what was discovered when the due diligence exercise was

carried out.

We then have in the following month, November, the

text messages, paragraph 32 of Mr Harris' witness

statement.

Then we have a series of unanswered letters,

the response for which is not known and is not in

evidence, namely the first letter sent by

Mr Knatchbull-Hugessen on 13 January inviting an

indication as to SISU's intentions.

Then we have Mr Knatchbull-Hugessen's demand of

9 February and we have two letters from solicitors, only

the last of which was responded to.

responded to, the response reflected no criticism of the

trustees' conduct.

dry, arid analysis of the contractual provision.

But when it was

It was in the nature of a rather

My final point in relation to that is that Mr Harris

was best placed to express a view and his view was that

there was no prospect at all of the deal going ahead.

So far as the objective position is concerned,

my Lord, you will have to make a finding of fact as to

the actual appetite that SISU had to proceed on the 133

basis of a ÂŁ5.5-million share purchase.

you to the view that the suggestion ventilated in

evidence by Miss Deering that Miss Seppala seriously had

in mind proceeding on that basis to be incapable of

belief, it being inherently unlikely.

I would invite

Fourthly, Mr Harris' evidence at paragraph 25 of his

witness statement, which evidence he expanded in

cross-examination as to what passed between him and

Chris West at the board meeting of ACL as to what SISU

had been told is, in my respectful submission, entirely

credible.

challenge, it is evidence which is entirely consistent

with what we know to be Mr Harris' private thoughts

because his response to one of the proposal documents

circulated by the council was that he would have to

consider the ethical implications of that, and the

timing of that was shortly before the ACL board meeting.

18 19 20 21

Not only is it evidence which is difficult to

MR JUSTICE LEGGATT:

Sorry, what paragraph were you

referring to? MR BRENNAN:

Paragraph 25.

That was the evidence-in-chief.

There is no reason to suppose that Mr Harris'

notions of what an honest and reasonable businessman may

or may not do is in any way unreliable or inaccurate,

and I invite you to the view that, on the basis of those

four findings of fact, it is simply not possible to 134

assert that the trustees were in breach of any

obligations which they assumed under the contract to

SISU.

Might I make three further points?

It is said that

entering into the amendment and restatement agreement is

capable of being regarded as a breach of some term which

would prohibit conduct against which the law has set its

face.

joint venture agreement.

Well, we know that the trustees were bound by the And if the trustees wanted to

sell their shares, it's difficult to conceive how they

could have sold their shares without taking a proactive

role because they were obliged under the joint venture

agreement ... Well, they weren't obliged to seek out

the council, but the point is, if the council exercised

its power of veto, any transaction could not take place.

In those circumstances, it is inevitable that the

trustees would have to have taken a proactive step,

which would have had the consequence of preventing the

condition precedent from being met because if the

trustees sold their shares to somebody else, there was

absolutely no prospect of the agreement that was

envisaged by the parties when the ITS was entered into

ever taking place.

24 25

It's difficult to see what distinction there is in principle between the trustees sounding out their fellow 135

shareholder, "Look, we want to sell our shares to

Mr Bloggs, he seems a good bloke to us, please don't

exercise your power of veto", and entering into a formal

revision of the joint venture agreement whereby they

gave their consent to allow ACL to borrow money from

the council.

not a great deal of difference.

8 9

As a matter of fact and degree, there's

There is also another point.

Strictly speaking,

entering into the amendment and the restatement

agreement merely facilitated the prevention of the

conditions precedent from taking place.

significance of this?

terms, it might be regarded, in a causation point, as

the causa sine qua non rather than causa causans.

What is the

I suppose in old-fashioned Latin

There is a little law which I'd like to take you to

if I may, again it's from Lewison.

bundle.

section that deals with a party taking advantage of his

own wrong.

indicate that the causal relationship which the courts

will look to see to be established is a direct result

rather than a result.

It's at tab 5 of my

It's to be found at page 378, which is the

The final paragraph on that page does

MR JUSTICE LEGGATT:

How do you square the paragraph before

that, which is analogous with the principle you relied

on the other day, with -- not 378, but with the case 136

that Mr Thompson cites.

MR BRENNAN:

MR JUSTICE LEGGATT:

Might I -Because if that principle is right,

then there has to be a breach of duty.

MR BRENNAN:

Yes.

MR JUSTICE LEGGATT:

Then you succeed because there hasn't

been.

Lord Justice Neuberger in this Taylor case is the

correct statement, then you might still have an argument

of causation, but I would be interested to know what you

say about that point.

MR BRENNAN:

But if the statement of the principle by

I haven't had the opportunity to give the

Cher project perhaps the attention it deserves, but what

I do invite the court to bear in mind is that in this

field, the authorities do indicate that the court is

concerned to identify primary obligations that parties

assume under contracts.

If a party said, "It's an implied term that you

wouldn't prevent performance", the performance in

question tends to be the contractual adventure.

it's a very important point in this case because it's

all relational, everything is incredibly fact sensitive

and all dependent on context.

The contractual adventure in this case was an

agreement which was unilateral on the trustees to

And

137

negotiate in good faith.

SISU at all to enter --

3 4

MR JUSTICE LEGGATT:

There was no contractual agreement here

in the period we're talking about --

MR BRENNAN:

MR JUSTICE LEGGATT:

MR BRENNAN:

MR JUSTICE LEGGATT:

was a contract?

There was no obligation on

Precisely. -- apart from the costs provision.

MR BRENNAN:

Precisely. You're saying in the Cher case there

I'd have to look at the facts of the Cher case

in rather more detail, but in terms of the obligations,

I wonder if I could ask you to turn to the passage

concerning prevention of performance, which is at

page 315?

states:

In the last two lines on page 315 the author

"The essence of the prevention principle is that the

promisee cannot insist upon the performance of an

obligation which he has prevented the promisor from

performing."

In this case, I would invite you to the view that

if we put it out of our -- well, it's very difficult to

see how this principle arises in the factual situation

that arose here at all, but let's say, for the sakes of

argument, the parties entered into a mutual obligation

to negotiate. 138

MR JUSTICE LEGGATT:

They didn't.

Well, not according to my

ruling the other day, with which, we are, for present

purposes, working on.

MR BRENNAN:

But to illustrate the point, if they did enter

into a mutual obligation, I couldn't prevent the

performance of that obligation by refusing to sit down

at the negotiating table with them so as to prevent the

ITS from being completed by refusing to speak to them.

It's a rather bad analogy.

If one looks at the

examples, if one turns over to page 316, with the final

paragraph, the author states:

"There are three main circumstances in which an

implied term not to prevent performance needs to be

considered."

15 16 17

I'm going to go through those three examples now and submit that none of them apply in this case: "The first is where the action of one party to the

contract prevents performance of the obligation imposed

on the other."

That's not this case.

"The second is where one party to the contract has

an obligation which is to be performed in the future or

is a contingent obligation.

whether a term should be implied that he should not

disable himself from performing those obligations." 139

It is then relevant to ask

Well, that's not this case either.

MR JUSTICE LEGGATT:

MR BRENNAN:

No.

"The third is where one party's obligation is

subject to a precondition and the suggested implied term

is that he should not do anything to prevent the

precondition from being satisfied."

Again, that's not really this case either.

MR JUSTICE LEGGATT:

MR BRENNAN:

No, it isn't.

The parties recognised the right of its

counterparty to negotiate a different deal.

trustees' part, they recognised SISU's right either not

to enter into the ITS at all, save that the quid pro quo

was that if the conditions precedent couldn't be met

they would have to pay the abortive costs.

On the

SISU for its part must be taken to have recognised

the trustees' right not to enter into the contract at

all because the contractual adventure with which the

parties are concerned was the right to negotiate at

SISU's election with the trustees in good faith on the

part of the trustees.

for a limited period.

And it went no further than that

If I may, I think all the points that I would wish

to make in relation to my friend's second point, which

is, in broad terms, that the trustees' conduct precludes

them from laying claim to the ÂŁ29,000 and have been 140

rehearsed in relation to my submission that, on the law

and on the facts as they stand, the trustees did nothing

wrong.

My Lord has my submission as to whether or not the

liability to pay is triggered by the bald factual

enquiry as to whether the conditions precedent can be

met and my submissions in that regard will not be

improved by repetition.

For the sake of completeness, might I finally end,

for the avoidance of doubt, with this?

that during the course of the argument on the

preliminary point, I ventilated, perhaps bravely,

certainly unwisely, the notion that SISU were no longer

on the costs hook, so to speak, at the end of the

exclusivity period.

survive when exposed to argument and it is not an

argument that I would seek to maintain today.

18 19 20 21 22 23

MR JUSTICE LEGGATT:

You will recall

That is an argument that did not

No.

Right.

I had forgotten about that

point. MR BRENNAN:

I rather hoped you would draw a veil over it.

Perhaps I ought not to have mentioned it. MR JUSTICE LEGGATT:

No, that's all right.

Thank you very

much.

MR BRENNAN:

I'm grateful.

MR JUSTICE LEGGATT:

I was hoping to be able to give 141

judgment immediately, but I'm not sure in light of some

of the issues raised whether I shall be able to or not.

If you don't mind waiting, I'll just retire for five

or ten minutes now and then I'll either come back or

give a judgment or, I'm afraid to say, I'm going to need

time to consider further some of the submissions that

have been made.

If I don't give judgment now, the alternatives would

be to give it first thing tomorrow morning or to provide

a written judgment.

you whether you've got a preference, a mutual

preference, in that regard if I decide I need further

time.

(3.34 pm)

15 16

(A short break) (4.00 pm)

17 18

Perhaps you could discuss between

JUDGMENT MR JUSTICE LEGGATT:

In the judgment which I gave yesterday

morning, I summarised the background, both factual and

legal, to the proposed transaction by which it was

contemplated that SISU would purchase from the charity

trustees their 50 per cent interest in ACL.

repeat that background now, but will take it as read.

24 25

I will not

The negotiations which took place between principally Mr Harris on behalf of the trustees and 142

Miss Seppala on behalf of SISU between March

and June 2012 led to an outline agreement in principle,

which was recorded in the indicative term sheet dated

18 June 2012.

were agreed not to be contractually binding with the

exception of the two provisions concerning costs and

exclusivity.

8 9

All the terms set out in that document

The claim by the trustees to recover costs is based on the costs indemnity provision.

In that provision,

SISU acknowledged that the charity would incur

significant costs, fees and expenses in evaluating

SISU's offer to purchase the shares and in negotiating

the transaction with SISU and its advisers.

Accordingly, it was agreed that:

"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

transaction), SISU agrees to underwrite and be

responsible for all the charity's reasonable costs and

expenses incurred up to the point of a transaction with

Clydesdale Bank plc to a maximum of ÂŁ29,000."

It is under that provision that the charity trustees

make their claim in this action for costs to the maximum 143

amount of ÂŁ29,000.

charity incurred such costs in evaluating SISU's offer

and in negotiating the transaction, nor has it been

disputed that those costs were reasonable.

issue is whether SISU is liable to pay the costs.

depends upon, in the first place, how the costs

provision, which I have just read, is properly to be

interpreted and, secondly, on the facts of what happened

after the agreement was made and as to whether, in the

10 11

It is not in dispute that the

The sole That

events which happened, a liability has arisen. In interpreting the document, it is important to

keep in mind, as was not always done in the course of

argument and cross-examination in this case, that the

task of the court when interpreting a contract is an

objective task.

thought it meant or hoped it meant is not

a consideration which is relevant to the court's

exercise.

admissible in court proceedings.

What the parties who made the contract

Evidence about that is accordingly not

What the court must do is to seek to read the

language as a reasonable person would understand the

words who has in mind the background to the transaction

and an understanding of its commercial purpose.

important in that regard to seek to understand what was

the rationale or purpose which underlies the costs 144

It is

provision.

It seems to me that an important part of the

provision is the term "aborted transaction", which

appears in the middle of that clause.

costs provision, what was being looked at was the

circumstances in which negotiations might fall through

and a share purchase agreement might fail to be

successfully concluded or completed.

As I construe the

In that event, the intention was, in substance, that

the charity trustees should be entitled to recover their

costs if the reason why the transaction was aborted was

either that SISU had withdrawn from negotiations or that

the charity had done so as a result of SISU taking an

unreasonable bargaining position or seeking a reduction

in the purchase price or, thirdly, that it had become

impossible for the transaction to be completed because

of various matters which were outside the control of the

parties.

such matters.

All four of the conditions precedent refer to

The first involved the conclusion of a transaction

between Yorkshire Bank and SISU, which depended not only

on SISU, but on the attitude taken by the bank.

second condition depended on favourable advice being

given by the charity's trustees, which again was outside

the parties' control.

approval from the Charity Commission, and the fourth

The

The third condition depended on

145

condition on approval of the transaction by

Coventry City Council, again the action of a third party

which was not within the control of either of the two

parties to the proposed share purchase agreement.

On that basis it seems to me that I need to consider

the reasons why this transaction did in fact prove

abortive, as everybody agrees undoubtedly sooner or

later became the case, and then ask myself whether that

reason or reasons falls within any of the three

conditions under which the charity trustees are entitled

to their costs.

As I explained in my judgment yesterday, the legal

background to disagreement is that ordinarily a party is

not entitled to recover their costs from the other party

incurred in the course of a negotiation which failed.

It is an exception to that where there is an express

agreement.

they fall within one of the three limbs of this express

agreement, the ordinary position must prevail that they

cannot recover their costs.

But unless the trustees can demonstrate that

As the evidence at this trial progressed, it became

progressively clear that this transaction, by which

I mean the proposed purchase of the charity's shares on

the terms or substantially the terms set out in the term

sheet, effectively became aborted, probably 146

in August 2012, but certainly well before the end of

that year.

At the time when the term sheet was agreed, both

parties were plainly contemplating, most optimistically

as it turned out, that a transaction might be completed

within a very short timescale.

the fact that the due diligence was expected to last

30 days, the exclusivity period was a period of

six weeks, the expected closing date was as soon as

That is apparent from

possible, and it is implicit in the final sentence of

the costs provision, which contemplated that further

costs might be underwritten, but once the transaction

had progressed beyond the discussions with

Clydesdale Bank, that it was anticipated that

a transaction might be agreed between Clydesdale Bank

and SISU in the near future.

In fact, none of those things proved to be the case.

Due diligence was not completed within the 30 days, nor

indeed within the exclusivity period.

exclusivity period, no negotiations, or none of any

significance, took place to develop the outline

agreement contained in the term sheet into something

which could constitute a legally binding document.

During the

It is apparent, moreover, that the due diligence

which was undertaken by SISU led it to believe that the 147

company, ACL, was of even less value than it had

previously recognised.

Mrs Knatchbull-Hugessen, in her witness statement,

quoted a statement made by Mr Timothy Fisher, the

chief executive officer of the club, on BBC Radio on

6 June 2013, but referring back to the due diligence

undertaken by SISU and the club the previous year.

said:

"Now, when we started the due diligence, ie we got

into the numbers and we drilled down, we realised the

business was nothing short of appalling, so actually

there is no real business there.

small is very, very small and if you think the football

club is struggling, I will tell you ACL is likely

struggling and this is the point: two turkeys don't an

eagle make.

business and that is why we have to create our own."

Half of something very

We would not strap ourselves to an ailing

In August 2012, a number of relevant communications

took place.

e-mail to Laura Deering of SISU, responding to a request

by SISU to extend the exclusivity period.

e-mail, he said:

On 7 August, Mr Knatchbull-Hugessen sent an

In that

"The trustees have seen no progress towards

a transaction with SISU.

For the transaction to move

forward, you will recall, there was work needed to 148

provide better security for any annuity stream that

might be agreed.

that any thought has been given to this fundamental

matter.

hurdle, they would now consider an extension of the

period of exclusivity.

to other approaches, should they be made, as there is

little evidence that the period of exclusivity has been

used to any effect."

The trustees have seen no evidence

Had they had any proposal to overcome this

The trustees wish to remain open

Then on 15 August 2012, Mr Harris sent an e-mail to

Miss Seppala of SISU, and to Miss Deering, in which he

asked:

"Did you respond to Coventry City Council re the

debt?

increasingly fragile unless structure is revisited?"

What is your game plan, as any deal is looking

Miss Seppala replied by asking, amongst other

things, what the trust's issue of structure are.

response to that, Mr Harris sent another e-mail on

16 August 2012, in which he said:

"It is also important to recognise that the charity

will not dispose of its shareholding without

a bulletproof guarantee.

100 per cent cash transaction, the deal is unlikely to

progress."

Therefore, unless this is a

On the next day, the trustees received 149

a communication from Mr West of the council -- 343, 344,

345 -- an internal memorandum from Mr West, the head of

legal and finance at Coventry City Council, to

Mr Reeves, the chief executive, was conveyed to the

trustees.

there was opposition within the council to any deal

being done with SISU and that, in those circumstances,

the council officers had given thought to an alternative

proposal.

In that memorandum, it was made clear that

That would involve the council negotiating

with Yorkshire Bank revised terms for its loan or buying

out the loan from Yorkshire Bank to ACL.

It was envisaged in the communications at that time

that the charity trustees would approach the bank,

together with the council and ACL, to negotiate terms

for redemption of the loan from the bank.

according to the evidence of Mr Knatchbull-Hugessen,

which I accept, the negotiations took place between

the council and ACL with the bank, but it is

nevertheless apparent that the trustees were kept

informed of those negotiations and were aware that, as

from late August onwards, the council, for their part,

were no longer evidently interested in seeking to come

to an arrangement with SISU or to give their agreement,

as would be necessary, to a purchase by SISU of the

charity's shares and were instead seeking to pursue an 150

In the event,

alternative proposal.

There were two subsequent communications between

Mr Harris and SISU, or the club, in respectively October

and November 2012.

a breakfast meeting with Miss Seppala, when she stated

she remained interested in acquiring the charity's

interest in ACL, but given the due diligence on ACL,

which SISU had obtained, she said that the figure was

likely to be closer to 2 million rather than the

5.5 million figure in the indicative term sheet.

Mr Harris responded that he was sure the trustees would

not be interested in such a transaction, even if the

offer was in cash.

In October, Mr Harris had

From that point on, he had no further direct

discussion with Miss Seppala.

10 November 2012, receive three text messages from

Mr Fisher, which were asking him whether he had spoken

further to Miss Seppala.

messages, Mr Fisher said:

He did, on

In the third of those

"I was clear that you would sit on the position if

the price was not right.

although equity is worth zero, there is a price to pay.

Horse trading now."

24 25

Equally, Joy is clear that

Mr Harris did not respond to that text message. When I asked Mr Harris about the position at that time 151

at the end of his evidence yesterday, he confirmed that

from his point of view and that of the trustees at that

time, there was no longer any reasonable prospect, as

they saw it, of a deal being done.

Putting those matters together, the position as

I see it is that the prospect of the transaction

outlined in the term sheet taking place effectively

disappeared, probably by the end of August 2012.

On the one hand, SISU, in the light of the due

diligence, no longer wished to offer a price as high as

ÂŁ5.5 million for the shares.

trustees were not interested in proceeding without

cast-iron arrangements to ensure that the amount that

was to be paid by way of deferred consideration was

going to be received.

no proposals and, as I infer, had no desire to make

proposals to offer such arrangements.

from the later part of August onwards, the trustees knew

that the council were not willing to consent to

a transaction with SISU and that the council were

actively pursuing an alternative arrangement for dealing

with the problem of the bank indebtedness of ACL.

On the other hand, the

SISU, again for their part, made

Furthermore, as

The reality, as I see it, therefore, is that the

transaction described in the term sheet failed probably,

as I say, by the end of August 2012. 152

From that time on,

the reality was that there was no real prospect of

a deal on those terms being done and neither party had

any appetite to seek to pursue any negotiations based on

the term sheet to attempt to conclude such a deal.

I must then turn to the costs provision and consider

whether, in the light of those factual findings, the

charity is entitled to recover its costs.

arguments were made by Mr Thompson to dispute the

entitlement, the first being that the first condition

Three

precedent could still be met even after the transaction

had been agreed between ACL, the council and the bank

in January 2013 because, although it was no longer

possible then for SISU to agree terms with the bank, the

condition precedent, which referred to a transaction

between Clydesdale Bank and SISU, should be interpreted

as referring to a transaction between SISU and whoever

should be the lender to ACL for the time being.

However creatively the words are interpreted, it is,

in my view, impossible to interpret the reference to

Clydesdale Bank trading as Yorkshire Bank as a reference

to whoever the lender might be so that it would include

the council, which became the lender to ACL when ACL

discharged the bank loan in January.

it is quite clear from the findings that I have made

that there was no realistic prospect by January of the 153

In any event,

transaction taking place and no possibility of

the council being willing to agree a transaction with

SISU.

The way in which the case is advanced on behalf of

the trustees is to rely on the third limb of the costs

provision, that the conditions precedent cannot be met.

It is said that that was so because of the fact that,

in January 2013, a transaction was agreed between ACL,

the council and the bank, and from that point on it

became impossible for the first of the conditions

precedent to be met.

As I consider the position, however, the transaction

did not fail because of the fact that the conditions

precedent could not be met in January; the transaction

had already failed well before that in August of 2012.

An argument might have been sought to be made that

a reason for the failure was that SISU had withdrawn its

offer to purchase.

which the case has been advanced by the trustees, and in

any event it does not seem to me to accurately describe

the circumstances in which the transaction failed

in January.

description is that contained in the defence at

paragraph 9, as it originally stood, that:

However, that was not the way in

It does seem to me that a reasonable

"The negotiations ceased by mutual consent or 154

acquiescence as a result of a number of irreconcilable

differences."

Those irreconcilable differences, as I see it, were

that SISU no longer wished to offer a price of the kind

set out in the indicative term sheet, the trustees for

their part did not wish to go ahead without guarantees

of security for the deferred consideration, which SISU

was not prepared to offer, nor, from late August

onwards, were the trustees seriously interested in

pursuing the offer in the term sheet at all because they

knew that the council were not prepared to consent to

it.

In those circumstances, I have come to the

conclusion that the transaction failed for reasons which

do not fall within any of the three limbs which would

entitle the trustees to recover their costs.

In those circumstances, it is unnecessary for me to

consider the interesting but difficult question as to

whether, if I had found that the transaction failed

because of the impossibility of meeting the condition

precedent, it would have been a bar to recovery that the

trustees had done an act to bring that situation about.

On the facts, as I perceive them, by the time the

trustees entered into an agreement to vary the joint

venture agreement on 14 January 2013, the transaction 155

contemplated by the term sheet had already fallen apart

or fallen away, to use Miss Deering's expressions this

morning, long before that.

It follows that the criticisms made of the trustees

by SISU as to the propriety of their conduct in December

or January and the arguments made about them undermining

the bargain by their actions at that time seem to me to

be misplaced and it is unfortunate that allegations were

made in some of the terms which have been put forward by

10 11

SISU in these proceedings. I have come to the conclusion, however, that in

circumstances where the transaction fell apart or fell

away in August 2012, effectively because neither party

wished to pursue the transaction contained in the term

sheet, that is not a circumstance in which the trustees

are entitled to recover their wasted costs.

(4.37 pm)

MR THOMPSON:

My Lord, I'm grateful for the judgment.

Obviously neither of us made representations after your

judgment yesterday --

21 22

MR JUSTICE LEGGATT:

overall outcome was.

MR THOMPSON:

MR JUSTICE LEGGATT:

No, because you waited to see what the

So far as I know -If you want to have a few moments to

take instructions on both sides before I deal with any 156

consequential matters -- shall I go out for a few

minutes?

MR THOMPSON:

That might be convenient.

I don't know what

Mr Brennan thinks or whether he wants to deal with it

now.

6 7 8 9

MR JUSTICE LEGGATT:

You take instructions and I will sit

here unless anybody asks me otherwise. MR THOMPSON:

(Pause)

My instructions are simple, given that there's

obviously been a judgment in both directions, that there

could be no order as to costs.

That would be an order

that we would be content with.

I don't know whether

Mr Brennan has some other suggestion.

13 14 15

MR BRENNAN:

My Lord, I wish life was so simple, but the

test isn't simplicity; the test is justice. This was an ordinary County Court claim, which

shouldn't have been brought on the basis that it was

brought and could and should have been defended in the

counterclaim on the narrow basis which has ultimately

succeeded.

inter alia on another basis, which was predicated on

stinging criticisms of the trustees' conduct, which were

unwarranted.

In the event, SISU sought to defend the case

As a matter of principle I say that the appropriate

order as to costs is that we should have to pay SISU the

proper and reasonable costs that it would have incurred 157

had it defended the case on a proper basis without

making the unwarranted criticisms and, in those

circumstances, I would invite the court to grant SISU

their costs of the claim, less a deduction, which, as

best you can, you think meets the justice of that case,

and order SISU to pay the costs of the counterclaim.

Unfortunately, it's very difficult to unravel it and

the matter will have to be put off to a costs officer,

but the costs officer, will need some guidance --

MR JUSTICE LEGGATT:

You might end up worse off than on

Mr Thompson's proposal.

what I should do, but ...

13 14 15

MR BRENNAN:

I know that's not the test of

My instructing solicitor is rather closer to

the costs than I am, so perhaps I can take -MR JUSTICE LEGGATT:

Yes.

It's not obvious what the costs

are of the counterclaim and claim except, up to the time

there's a counterclaim, of course, there weren't any

costs of that.

MR BRENNAN:

Yes, I follow that.

MR JUSTICE LEGGATT:

MR BRENNAN:

MR JUSTICE LEGGATT:

Once there was a counterclaim...

The claim rather took second place thereafter. They were both sort of entangled with

each other to some extent.

persisted for another day at the other end as well.

You have two days at the other end. 158

The claim has obviously

1 2 3 4 5 6 7

MR BRENNAN: costs.

As I say, my instructing solicitor is closer to (Pause)

My Lord, these are not insignificant sums. it's 4.40, but could I ask for five minutes? MR JUSTICE LEGGATT:

Of course you may.

Call me back in

when you're ready. (4.41 pm)

8 9

I know

(A short break) (4.47 pm) MR BRENNAN:

My Lord, I'm very grateful for the extra time.

Mr Thompson's suggestion is a sensible one and we wish

to agree it.

MR JUSTICE LEGGATT:

conclusion.

days, the usual approach is not, as it once was, to

treat the counterclaim and the claim independently; it's

to look overall at who the winner is and it seems to me

that this is a case which has effectively ended as

a nil-all draw, if I'm allowed to use the comparison.

MR BRENNAN:

I would have come to it anyway.

These

I think minus one each probably more accurately

sums it up.

MR JUSTICE LEGGATT:

Well, I think it is the right

Well, that may be the case.

Thank you.

For the judgment I've given yesterday, but

particularly for the one I gave ex tempore today, I will

produce a corrected version of the judgment based on the 159

transcript.

were, in case there's ever any need to refer to it

subsequently.

yesterday, there's no objection obviously to using the

transcript for the time being, but it will be superseded

by a corrected judgment, which I will issue hopefully

tomorrow.

8 9 10 11

MR THOMPSON:

It's just the official version of it, as it

So if I may, I will say, as I did

My Lord, is there any value or do you need to

be sent a soft copy? MR JUSTICE LEGGATT:

I think that gets sent to me anyway.

MR THOMPSON:

MR JUSTICE LEGGATT:

(4.50 pm)

I think I have got that anyway.

I'm grateful. Thank you all very much.

(The hearing adjourned)

16 17 18 19 20 21 22 23 24 25 160

I N D E X

2 MS LAURA DEERING (sworn) .............................1 3 Examination-in-chief by MR THOMPSON ..............1 4 Cross-examination by MR BRENNAN ..................2 5 Re-examination by MR THOMPSON ...................55 6 Questions from THE JUDGE ........................63 7 Closing submissions by MR THOMPSON ..................66 8 Closing submissions by MR BRENNAN ..................112 9 JUDGMENT ...........................................142 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 161