Case No: HC02C01173
Neutral Citation Number: [2002] EWHC 1329 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 4th July 2002
Before:

THE HONOURABLE MR JUSTICE LIGHTMAN
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Between:
	(1) MORGAN GRENFELL DEVELOPMENT CAPITAL SYNDICATIONS LIMITED
(2) MORGAN GRENFELL PRIVATE EQUITY LIMITED
(3) DEUTSCHE BANK NOMINEES (GUERNSEY LIMITED (a company incorporated in Guernsey)
(4) DEUTSCHE BANK INTERNATIONAL LIMITED
(a company incorporated in Jersey)	

Claimants	
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	(1) ARROWS AUTOSPORTS LIMITED
(2) ARROWS GRAND PRIX INTERNATIONAL LIMITED
(3) THOMAS DOBBIE THOMSON WALKINSHAW
(4) ALISTER DAVID MITCHELL
(5) KATE BEAVAN
(6) BROADSTONE ESTATES LIMITED
(7) TWR GROUP LTD
(8) MOTORSPORT HOLDINGS LIMITED	

Defendants	
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Mr Kenneth Maclean QC and Ms Sonia Tolaney
(instructed by Slaughter and May, One Bunhill Row, London EC1Y 8YY) for the Claimants
Mr Robin Potts QC and Mr Andrew Thornton
(instructed by Brookstreet Des Roches, 1 Des Roches Square, Witan Way, Witney, Oxon OX8 6BE) for the First to Fourth Defendants
Hearing dates : 2nd & 3rd July 2002
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APPROVED JUDGMENT

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

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THE HONOURABLE MR JUSTICE LIGHTMAN

Mr Justice Lightman:
NATURE OF APPLICATION
1.	I have before me a without notice application by the First to Fourth Defendants (“the Defendants”) for the release of interlocutory undertakings given by them by consent until trial or further order on the 29th May 2002.  The Defendants’ Counsel Mr Potts supplemented this application (without formulating or making any further application), by adding during the closing stages of the opening speech a request for an (unparticularised) order for sale by the Court.  This request reflected a late recognition that a release of the undertakings without the addition of an order for sale would not achieve the Defendants’ purpose.  The undertakings were given to protect (amongst other things) the entitlement of the Second Claimant Morgan Grenfell Private Equity Limited (“MGPE”) to a charge granted by the Second Defendant Arrows Grand Prix International Limited (“AGPI”) over its prime asset, the benefit of “the Concorde Agreement”.  The Claimants have attended the hearing and on the evidence presently before the Court opposed the application.  At issue in these proceedings is whether MGPE can and should be dispossessed by the order sought of the protection of the undertaking and of the security.  Whether or not the order sought is made may be critical to the future of the Arrows Racing Team (“the Team”), a business conducted AGPI.  Since this application is made without notice, (as Mr Potts has confirmed and agreed to be the case) the Defendants are under an obligation to proceed with the utmost good faith making full disclosure of all relevant information available to them, whether favourable or adverse to their case.  This is a matter of considerable importance.
2.	The purpose of the Defendants’ application is to enable AGPI to enter into two commercial agreements with Red Bull GmbH and Red Bull North America Inc (to which I shall refer together as “Red Bull”) involving the sale to Red Bull of the rights of AGPI arising under what is referred in motor racing and in these proceedings as the Concorde Agreement.  The Concorde Agreement is an agreement between (1) The Federation Internationale de l’Automobile Association (“FIA”); (2) some twelve Formula One racing companies (which include AGPI); and (3) Formula One Administration Limited (“FOA”) by which FOA confers on (amongst the others) AGPI entitlement to payments as a competitor in Formula One World Championships.  Under the Concorde Agreement it would appear that (in default of agreement between the parties to the contrary), AGPI’s entitlement to participate in the Championships and payments may terminate immediately if AGPI fails to participate in any championship race due to its insolvency.  AGPI is and has long been insolvent and will be unable to participate in the Silverstone Grand Prix due to take place on Sunday if its supplier of new engines Cosworth (“the Supplier”) insists on payment up front of £3.25 million as the purchase price for new engines for its cars, unless AGPI can raise this sum elsewhere.  AGPI says that the only way it can raise the money to pay the Supplier and survive is to enter into the two commercial agreements, incomplete drafts of which have been placed before the Court and which have yet to be finalised, let alone executed in escrow.
3.	The two commercial agreements are respectively a Technical Services Agreement (“TSA”) and a Sale and Transfer Agreement (“STA”).  Under the STA, in consideration of Red Bull entering into the STA, AGPI is expressed to transfer to Red Bull the benefit of AGPI’s entry into the FIA 2002 Formula One World Championships, the benefit of the Concorde Agreement and the name of the AGPI’s chassis as recorded in the official Arrows entry into the Championships; and in consideration of the transfer by AGPI’s transfer to Red Bull of all the intellectual property rights relating to the design of AGPI’s cars, Red Bull is expressed to undertake to pay to Arrows US$4 million per year for five years to be disbursed in equal shares to MGPE and to the Third Defendant Mr Tom Walkinshaw (“Mr Walkinshaw”).  The STA contains a warranty that the Concorde Agreement is subject to no charge or lien.  Mr Walkinshaw founded the Arrows team, takes a dominant role in running the Arrows team and is a director of AGPI and its holding company the First Defendant Arrows Autosports Limited (“AAL”).  When the terms of the STA came under scrutiny in these proceedings, Mr Potts told me that amendments were in process of being made to meet criticisms, but at no time did he serve any evidence confirming agreement of any amendment and the application accordingly proceeded on the basis of the draft as it stood.  Mr Potts also told me that Mr Walkinshaw was agreeable to enter into a side agreement with MGPE freezing the annual payments of £4 million pending trial of the issues in this action.  As both the STA and TSA contain provisions for automatic termination on the insolvency of AGPI, the receipt of any payment under the STA is entirely speculative.
4.	By the TSA (as it stands today), in consideration to be provided by AGPI to Red Bull in developing and building for Red Bull capable of competing in Formula One World Championships and managing and racing a team of two cars in the Championships, Red Bull is expressed to agree to pay into an escrow account the sum of £13,800,000 specifically to pay off all independent trade creditors (a term calculated to exclude the Claimants and companies connected with Mr Walkinshaw) and £5 million as a contribution to the ongoing budget of AGPI as there provided before the 31st October 2002, and payments in respect of AGPI’s services thereafter as should be agreed.  The Defendants’ evidence is to the effect that the entire £13.8 million is to be payable exclusively to trade creditors and that none is to be payable to MGPE because Red Bull and FOA insist upon it as a condition of agreeing to the transactions proceeding.
RELEVANT FACTUAL BACKGROUND
5.	The Claimants are companies in the Deutsche Bank group.  MGPE is a private equity house which is the appointed manager for a number of investment funds including a fund called Morgan Grenfell Equity Partners. That fund comprises five limited partnerships (“MGE Partners”).  In two stages during 1999 MGE Partners made a substantial investment in the Team which now totals some US$60 million.  The structure of the deal was complex and involved a series of lengthy and detailed agreements.
6.	As part of the deal:
a)	A new holding company was set up, namely AAL, and MGE Partners’ equity investment was put into AAL.  MGE Partners also made substantial loans to AAL by way of loan stock and an overdraft facility.
b)	AAL was to hold 100% of the shares in various subsidiaries including AGPI which is the Arrows trading company and operates the Team.  (I shall refer to AAL and AGPI together as “Arrows”). 
c)	MGE Partners acquired 45% of the shares in AAL, with an option over a further 5%. The balance was held as to 45% by Mr Walkinshaw and 10% by HRH Prince Malik Ado Ibrahim. There was a Subscription Shareholder Agreement dated the 31st December 1998 regulating the rights and obligations of the shareholders.
d)	MGE Partners also acquired US$41,250,000 of senior loan notes issued by AAL secured on shares in AGPI and another Arrows subsidiary.
e)	MGE Partners also provided an overdraft facility to AAL, initially in the sum of £5m and increased by a Deed of Variation in October 1999 to £13m. It is now repayable on demand. The overdraft is currently made available by the First Claimant on behalf of MGE Partners.
f)	The overdraft is secured by a Composite Debenture and Guarantee dated the 22nd September 1999 (“CDG”) granted to MGPE which includes a guarantee of the overdraft by certain Arrows subsidiaries including AGPI and includes a fixed and floating charge over all assets of AAL and AGPI. When the overdraft was increased Mr Walkinshaw also provided a personal guarantee for half of any loss incurred by the overdraft provider.  For present purposes it is to be noted that the CDG granted to MGPE a charge on the Concorde Agreement securing the overdraft of £13 million.
g)	Mr Walkinshaw himself provided a working capital facility to AAL and certain companies owned by him have interests in US$20m of junior loan notes issued by AAL.
h)	There is an Intercreditor Deed restated as of the 5th June 1999 and a further Deed of Arrangement dated the 22nd September 1999 which regulate priority and other rights between the various creditors. 
7.	Arrows’ financial position deteriorated such that by the end of 2000 it had become clear to MGPE that the investment in Arrows had not been a success. In early 2001 MGE Partners decided that they would not invest any more monies in Arrows.  The dire financial position is conceded.  Mr Walkinshaw says that by March 2001 the board of AGPI had serious concerns regarding its solvency and that by July 2001 they were facing imminent liquidation.  Mr Leavy (AAL’s Chief Financial Officer) says that on 6 July 2001 he told MGPE that AGPI was insolvent. 
8.	Mr Scott Lanphere (“Mr Lanphere”) was a director of MGPE.  Until his departure from MGPE, he was primarily responsible for the Arrows investment. He was appointed as MGPE’s representative on the board of AAL. In about February 2001 Mr Lanphere told Mr Walkinshaw that he would shortly be leaving MGPE. The effective date of the termination of his employment with MGPE was the 30th April 2001.  His letter of resignation from the board of AAL is dated the 29th June 2001.  Between March and May 2001 Mr Lanphere had discussions with Mr Walkinshaw about the various options which might be available to Arrows in its financial difficulties. Mr Lanphere’s evidence is that he and Mr Walkinshaw did not agree the specific terms of a restructuring of Arrows or of any rescue plan, although they discussed the options. He also says that Mr Walkinshaw knew throughout these discussions that he (Mr Lanphere) was not in a position to commit MGPE.  Mr Walkinshaw says that his discussions with Mr Lanphere led to agreement on some points in relation to a restructuring.  It is however clear that Mr Lanphere made and could have made no legal commitment: Mr Walkinshaw never suggested that he had when he later had the critical discussions with Mr Hutton who replaced Mr Lanphere.  When I put this to Mr Potts, though Mr Walkinshaw’s evidence suggested the contrary, Mr Potts conceded that there never was a contract of any sort arrived at in the course of the discussions or indeed at any time prior to the 11th July 2001.  All that was done was that Mr Walkinshaw and Mr Lanphere put in place certain resolutions and documents which would enable AGPI to lay out the broad terms of the proposed refinancing structure which they had discussed and which could form the basis of negotiations with a new investor and would be available to be triggered if a deal could be concluded with the new investor.  Unfortunately, when Mr Lanphere left MGPE, he did not inform his successor Mr Hutton of their existence.  He obviously and reasonably considered that they could not in any event be given effect without the express agreement of MGPE.
9.	On the 20th June 2001 Mr Walkinshaw had the first of three meetings with Mr Hutton of MGPE to discuss the way forward for Arrows.  The further meetings took place on the 6th and the 11th July 2001.  Mr Leavy attended on the 20th June and the 6th July.  Mr Feeney of MGPE (Mr Hutton’s assistant) attended on the 6th and the 11th July.  It is common ground that at these meetings with Mr Hutton, Mr Walkinshaw and Mr Leavy painted a very bleak picture of Arrows’ prospects. They said that millions of pounds of creditors were overdue, that they could not pay employees’ salaries, that statutory demands had been received, that they had stopped placing orders for parts and goods, that Arrows’ right to participate in Formula One races would be in jeopardy if it missed two races, that Arrows was very close to running out of cash and that it was days away from bankruptcy.
10.	Though Arrows was in desperately urgent need of new cash, MGE Partners and Mr Walkinshaw both said they were unwilling to invest further monies.  Mr Walkinshaw proposed that he secure the support of new investors.  In these stark circumstances, Mr Hutton agreed to discuss the terms of a financial restructuring of Arrows.  At the meeting on the 11th July 2001 Mr Walkinshaw produced a letter (“the 11th July Letter”) which he wished to discuss.  The 11th July Letter which described itself as “an agreement in principle” set out the general terms on which Mr Walkinshaw thought MGPE would be prepared to dilute its equity in return for (undisclosed) new equity investors coming in to rescue the company.  The 11th July Letter read as follows:
“Re: Arrows Grand Prix International Limited (“Arrows”)
Further to our discussions last Friday and given the seriousness of Arrows’ current situation, I feel that it is important for us to confirm our agreement in principle as soon as possible.  As we discussed we can only solve the present liquidity crisis by way of equity injection which, in turn, means we must urgently address the financial position of AGPI.  The simple fact is that the directors cannot allow the Company to continue to trade without a comprehensive financial restructuring.
We discussed and agreed that:-
1.	The £13m ($520m) loan facility to AAL shall be converted to redeemable zero coupon preference shares in AGPI with the existing security and guarantees waived and replaced with some other form of security which I would propose being as set out in 3 below.  These Redeemable Preference Shares will be granted with no right of redemption for two years and then redemption annually on a straight line basis over the next ten years.
2.	New Equity investment of at least $12m (£8.57m) is brought into AGPI urgently in order to fill the current funding hole produced primarily by the Coral Eurobet situation.  This will, as you have acknowledged, substantially dilute AAL’s holding down to 10% of the ordinary share capital of AGPI or new if created
In accordance with our discussion I further propose that:-
3.	The £13m redeemable preference shares are secured by an option to convert any shares not redeemed on the redemption dates set out at 1. above into a Loan/Bond instrument which would be secured by fixed and floating charges over the assets of the Company.  Whilst these shares remain unredeemed the Company will be obliged to seek your consent in the event of any material disposal of assets outside the normal course of business (eg £200k per asset or £1m in aggregate per year.  The Bond if reserved will carry a 4% Coupon.
4.	The total residual intercompany balance between AAL and AGPI (loan notes, unsecured borrowings etc) is converted into $15m non redeemable zero coupon preference shares together with a release of any securities/charges.  They convert to be being redeemable on sale of the company and rank above any new investors’ funds.
5.	Priority for adequate working capital of up to £10m shall be granted by you to third parties by a deed(s) of priority in relation to any charges granted by the Company to you under 3 above.
6.	There will be no personal liability or guarantees from me or further guarantees or support by yourselves.
You will appreciate that in order to fastrack any new investment we may need to undertake an asset transfer into a clean ‘Newco’.  If this is necessary then all the proposed securities and protections in your favour will, of course, transfer over to Newco.
There is clearly some urgency to this situation if we are to continue trading.  I’d therefore be grateful if you would give this your urgent attention and confirm your agreement to the principles set out above in respect of the loan/intercompany position so that I am able to make the proper approaches to potential investors.
Yours sincerely
[signed]
Tom Walkinshaw”
11.	After discussion Mr Hutton and Mr Walkinshaw signed the 11th July Letter.  Mr Hutton himself thereafter left MGPE.
12.	In broad terms the 11th July Letter envisaged a financial restructuring along these lines:
a)	The £13m overdraft facility provided by MGE Partners to AAL would be converted into redeemable preference shares in AGPI. The existing security for the overdraft would be replaced with other security. The proposal was that the shares were secured by an option to convert any unredeemed shares into a loan or bond (undecided) which would be secured by fixed and floating charges over the assets of AGPI. 
b)	There would be an urgent new equity investment of at least US$12m in AGPI or in a Newco (undecided). New shares would be issued to the new investors diluting AAL’s shareholding in AGPI or the Newco to 10%.
c)	The residual inter-company balance owed by AGPI to AAL would be converted into US$15m non-redeemable preference shares in AGPI with any security being released.
d)	Priority for adequate working capital of up to £10m would be granted to third parties by a deed or deeds of priority. 
e)	There would be no personal guarantee from Mr Walkinshaw.
13.	Mr Hutton’s expectation was that, following the meeting on the 11th July and in accordance with the 11th July Letter, Arrows would then take urgent steps to introduce the new investors, so that further negotiations could take place over the terms of their investment and the other terms of the financial restructuring and so that Arrows could then obtain the urgently needed cash investment.  It appears however that the next day (the 12th July 2001) Mr Walkinshaw sent an internal Arrows memo saying that there should be an “orderly sale” of Arrows’ equity which he suggested should be over a four month period.  Mr Walkinshaw did not disclose this memo or the instruction to MGPE.  Mr Walkinshaw never informed MGPE of any new equity investor or investors prepared to make the investment in Arrows which was envisaged by the 11th July Letter.  Indeed there has never been such an investment.
14.	There were further meetings between representatives of MGPE and Arrows on the 25th July and the 29th August 2001.  There is a dispute about whether the 11th July Letter was referred to at all during the first meeting.  At the second meeting on the 29th August 2001 Mr Leavy gave a presentation about Arrows’ financial position, during which the July management accounts for AGPI were discussed.  The July management accounts (and monthly management accounts thereafter) recorded in a note at page 3 that the forecast reflected a financial restructuring of the company.  Mr Rupert Harding of Deutsche Bank does not recall this being drawn to his attention.  Even if it had been, he would have assumed that the directors had prepared the forecast on the assumption that they would find a new investor. 
15.	In October 2001 Mr Jonathan MacIntosh of MGPE assumed responsibility for the Arrows investment.  In December 2001 he had various exchanges with Mr Leavy of Arrows in relation to a request by Mr Leavy for MGPE to issue a waiver of its security rights under the CDG to permit Arrows to refinance certain assets.  In those exchanges Mr Leavy again painted a bleak picture of Arrows’ finances.  He also indicated that it was Arrows’ position that the 11th July Letter was a binding agreement there being “really nothing further to discuss apart from the practical issue of the implementation of the July heads”. Mr MacIntosh made in clear in his e-mail responses that the 11th July Letter did not commit MGPE to anything and that, even of it did purport to create legally binding obligations, over five months had passed and no new equity investor had been brought into Arrows and in the circumstances MGPE was under no obligation to give effect to the arrangements described in the letter.
16.	In Mr Leavy’s e-mail dated the 17th December 2001 he referred to “the necessary lodgment of the 403a as part of this implementation it is our intention to file these to reflect this element of the agreement”.  In his response Mr MacIntosh reiterated MGPE’s position on the 11th July Letter and stressed that Arrows should do nothing which was inconsistent with or a breach of MGPE’s rights under the financing documents.
17.	Between December 2001 and February 2002 Mr MacIntosh made a number of requests to Mr Leavy for further information on Arrows. Some information was provided but a number of important requests were not met. In particular, Mr MacIntosh was not given details of what Mr Leavy had called an “option over the shares in AGPI” or details of the AAL board minutes from July to December 2001, both of which would have revealed the preparatory steps previously taken by Mr Walkinshaw and Mr Lanphere before the 11th July Letter was signed, but of which Mr Lanphere’s successors knew nothing. Other financial information about Arrows which he requested was not given. On the 19th February 2002 Mr Leavy indicated that he would write to Mr MacIntosh within a few days to provide an update on what he called the “restructuring” but did not then do so.
18.	MGPE subsequently discovered that on the 4th January 2002 AGPI had granted a new charge to State Securities Plc.  This appears to have been in relation to the sale and leaseback for which MGPE had declined to provide a waiver of its security.
19.	On the 30th April 2002 MGPE discovered that:
a)	An article had appeared on a Formula One website reporting that AGPI was now owned as to 88.9% by a company called Motorsport Holdings Limited, the Eighth Defendant (“MHL”), said to be controlled by a series of nominee companies which could be traced back to a BVI company. The documents now available show that Mr Walkinshaw himself is the beneficial owner of MHL.
b)	On the 22nd March 2002 forms 403a had been filed at Companies House declaring on oath that the debts secured by the CDG and Deed of Variation had been paid or satisfied in full. The forms are signed by Mr Mitchell, AGPI’s company secretary.  Pursuant to these forms the registrations of MGE Partners’ security over the assets of AGPI (the CDG and Deed of Variation) are now described as “satisfied”.
c)	On the 10th April 2002 a new all monies debenture in favour of HSBC had been granted by AGPI and had been registered at Companies House. 
d)	On the 10th April 2002 AGPI had filed at Companies House a new set of Articles of Association purportedly adopted by special resolution dated the 29th March 2002.  The return filed on the 20th March 2002 states that MHL now holds 6,856,799 shares in AGPI and the Fifth Defendant one share. 
20.	All these actions had been taken by the Defendants notwithstanding the position taken by MGPE in respect of the 11th July Letter and the warning that it stood on its rights under the existing finance documents and without any disclosure or indeed intimation that these steps were being taken.  The Defendants concealed what they were doing for good reason.  They knew that if MGPE was alerted to what was planned and being undertaken, MGPE would have immediately applied to the Court for interlocutory relief to protect their rights.  The actions taken by the Defendants can only be described as underhand and improper, indeed downright dishonest.  Mr Potts told me that in his view to act in this way was honest.  I can only say that I regret that he thinks so.
21.	It was in these circumstances that the Claimants applied without notice on the 3rd May 2002 for injunctive relief to protect their position.  On that date Laddie J. granted injunctive relief.  On the 9th May 2002 the Defendants offered undertakings in place of the injunction and a timetable was agreed for serving evidence in time for a full inter partes hearing before me on the 27th May 2002.  On that date by consent the parties agreed to an order over until trial or further order by which the Defendants undertook that AGPI should not sell or dispose of its assets other than in the ordinary course of its business or create further security interests over its property or create new shares or securities.  As explained above the injunction has been replaced by undertakings by the Defendants from which they now wish to be released.
22.	It has now come to light that at the same time as one of the two hearings before Laddie J, AGPI faced a creditor’s winding up petition presented by Wylam International Holdings Limited (“Wylam”) and in those proceedings swore a quite remarkable affidavit dated the 24th April 2002 by their financial director Mr Wayne Humphreys (“Mr Humphreys”) in support of an application for a validation order.  On the 10th May 2002 the Claimants’ solicitors obtained from the solicitors acting for AGPI in the validation proceedings (different solicitors from those acting for the Defendants in these present proceedings) a copy of Mr Humphreys’ affidavit.  Notwithstanding their duty to the Court, the Defendants in their evidence on this application did not disclose the existence of the affidavit or make any reference to it or give any explanation for it.  The Claimants told the Defendants of their intention to rely on it prior to the hearing, but the Defendants continued to ignore its existence in their evidence, their skeleton argument and Mr Potts’ opening speech.  I shall have occasion later to refer to the contents of the affidavit.
23.	The Defendants negotiated the draft commercial agreements without any reference to the Claimants and in particular MGPE.  The Claimants had no participation in agreeing the parameters for the negotiations or in the negotiations themselves and there is no evidence that any (serious) regard was paid to their position or interests.  I shall say more on this later.  In the middle of last week the Defendants wrote to the Claimants facing them as a fait accompli with the two drafts and stated that, unless the Claimants would agree to the necessary steps being taken to implement them, an application would be made to the Court for release from the undertakings to enable the transactions to go ahead.  The Claimants refused to be railroaded into this course and the Defendants thereupon gave short notice of this application for Tuesday of this week and obtained a hearing on that date estimated at one day.  They did not however serve their evidence in time for the Claimants to give any proper consideration of it before the hearing, and I only received their evidence and skeleton argument at 9.30 a.m. on Tuesday.  This meant that the whole of Tuesday morning was absorbed with reading skeletons and the evidence and hearing proceeded until about 2.45 p.m. on Wednesday.  The Defendants told me that it was essential, if the Team was to be able to obtain the engines and participate in the Silverstone Grand Prix that I give my decision by 4 p.m. on Wednesday.  I accordingly agreed to do so and to expedite my judgment giving my reasons as early as I could today.
WITHDRAWAL FROM CONSENT ORDER
24.	It is well established, even as it is common ground, that the Defendants should not be allowed to apply for a release from the undertakings which they freely gave on the 27th May 2002 over until trial unless there has been a material change of circumstances since the date of that order: Chanel Limited v. F.W Woolworth [1981] 1 WLR 485.  AGPI rely on two matters as sufficient changes of position.  The first matter is the current critical need for funds to pay the supplier for new engines which cannot be raised whilst the undertakings remain in force.  The short answer is that the financial position of AGPI today in this regard is for all practical purposes identical with that which subsisted during May 2002.  The affidavit of Mr Leavy dated the 17th May 2002 stated that, unless there was an immediate lifting of the injunction then in force, AGPI stood little prospect of being able to recover its vital working capital facility.  Further Mr Walkinshaw in his second affidavit dated the 1st July 2002 stated that AGPI did not in May 2002 have the funds available to purchase the engines required for the Monaco Grand Prix due to be held at the end of the month (though in fact Mr Walkinshaw’s company TWR in fact provided the necessary money).  AGPI’s evidence is to the effect that AGPI has been on the brink of insolvency since before May 2001 and seeking equity and other investment from third parties since at least that time.  I should add that I have substantial reservations about the evidence of Mr Walkinshaw that he or his company will not provide the necessary funds to pay the supplier on this occasion as he did on the last occasion in May for the Monaco Grand Prix.  There is certainly no evidence that he cannot do so if he wants.  The Defendants’ evidence and conduct in this case is open to serious question for reasons which I will set out later.
25.	The second matter relied on is the existence today of the draft commercial agreements with Red Bull.  I find this ground unpersuasive.  It is clear on the evidence that AGPI has been in negotiations with Red Bull since 2001.  It is not suggested in the Defendants’ evidence that negotiations only started after the date of the consent order.  The Defendants have not condescended to furnish any details of the history or course of the negotiations or the state of affairs and relations with Red Bull in May 2002.  There is no reason to believe that a deal could not have been negotiated before the 29th May 2002.  I shall nonetheless consider the evidence before me relating to the proposed agreements and whether it justifies a release from the undertakings.  For this purpose it does seem to me necessary, since the relief sought is for all practical purposes irreversible, that I should pay serious regard to the merits of the dispute between the parties, and that means the dispute regarding the validity as a binding agreement of the 11th July Letter.
ORDER FOR SALE
26.	Jurisdiction is conferred on the Court to make an order for sale under CPR Part 25.1(v) and (2) which provides:
“25.1.(1)	The court may grant the following interim remedies—
... (c)	an order ... (v) for the sale of relevant property which is of a perishable nature or which for any other good reason it is desirable to sell quickly...
(2)	in paragraph (1)(c) ... ‘the relevant property’ means property ... which is the subject of a claim or as to which any question may arise on a claim.”
27.	The language of the current rule is for all practical purposes the same as that of its predecessor, RSC Order 29.4, which was the subject of authoritative consideration by the House of Lords in On Demand Information plc v. Michael Gerson (Finance) plc [2002] UKHL 13.  Their Lordships held that a sale pursuant to the order did not prejudice the substantive rights of the parties in the pending proceedings since the whole purpose of the sale was to preserve the value of those rights and the rights of property, converting the interests of the parties from interests in the property to interests in the proceeds of sale.  Mr Potts agrees that any sale ordered to take place must be at the best price reasonable obtainable, and the Court will require evidence to satisfy itself that such price is obtained.
THE 11TH JULY LETTER
28.	In my view it is quite plain on the face of the 11th July Letter that it does not have, and cannot have been intended to have, legal effect.  It was, as it is expressed to be, an agreement in principle only.  It is inconceivable that the parties can have intended to entitle the Defendants to effect the far-reaching reconstruction and abrogation of  MGPE’s rights which they have carried out using that document as its pretext.  Even giving credit to the Defendants’ evidence alone (which I have carefully read) the 11th July Letter cannot be so construed.  The Claimants’ evidence as to its true object and purpose - to show willingness to negotiate along those lines with a prospective investor - alone accords with common sense.  Even if (contrary to my view) the 11th July Letter was held to have legal effect, it was conditional upon an investor making the investment referred to and there never was any such investment; and it cannot without more have justified the action unilaterally taken by the Defendants.
29.	It should be noted that the Defendants concede that, if the 11th July Letter is a  valid contract and validates the restructuring effected, it operates to prevent AGPI making any transfer of the Concorde Agreement without the consent of MGPE.  Indeed in the Defendants’ skeleton argument it is correctly conceded that (at the very least) it arguably creates a like charge to that created by the CDG.  Accordingly no sale is possible without an order of this Court.
CREDIBILITY OF DEFENDANTS
30.	In my view for a whole series of reasons, though this is an interlocutory hearing and I have not had the opportunity to see and hear the Defendants’ witnesses in the witness box, I have the strongest grounds for questioning and doubting the evidence of the Defendants’ witnesses, the motives of the Defendants for their actions and the good faith of this application.
31.	The first ground relates to the use of the 11th July Letter as the pretext for the reconstruction undertaken and wholesale abrogation of the rights of MGPE.  It seems to me incredible that any honest or reasonable businessman would consider that the document justified the course taken.
32.	The second ground is closely related to the first and I have already referred to it.  I do not think that any honest or reasonable businessman would consider it proper to proceed with the actions taken, when already forewarned that MGPE disagreed with his construction of the 11th July Letter, without any prior intimation or indeed even any intimation after the action had been taken.  I may add that in many respects MGPE and the Defendants were (in a loose sense) partners in the racing project.  This fact alone should give rise to an obligation in good faith to disclose and to refrain from taking advantage of MGPE’s ignorance of what they were doing.
33.	The third is based on Mr Humphreys’ witness statement dated the 24th April 2002 in the proceedings against Wylam.  In that witness statement Mr Humphreys, who was then as he is now Financial Director of AGPI, stated in support of the application for the validation order that: (1) Arrows was solvent and perfectly able to pay its debts; (2) Arrows made a profit of £13,743,000 in the year ended 31 December 2001; (3) Arrows assets exceeded all liabilities by £2,302,000; (4) 2001 was particularly significant in terms of Arrows; financial affairs because there was a debt for equity swap and a write-off of £26,916,000 of debt.  The fact that Arrows was a valuable and viable concern was reflected by the fact that Arrows’ creditors were prepared to make a debt for equity swap in 2001; (5) by obtaining the Cosworth engines Arrows put itself in an ideal position to do well on the racetrack this year: “With increased income, success breeds success”.  Mr Humphreys went on to say that, if Arrows was forced to stop racing, it would lose income from FOA and its sponsors, but (curiously) he made no mention of the loss which is at the forefront of the present application, namely its main asset, the Concorde Agreement.
34.	In respect of this statement I have the following comments:
a)	the picture of the financial position of Arrows is totally at odds with the picture painted on this application.  It is plainly and deliberately false.  (Mr Potts made no effort to defend it);
b)	there is deliberately excluded from reference the crucial fact that the principal creditor MGPE did not know of the equity swap and denied that the 11th July Letter relied on as the basis for it had any such or any legal effect.  The dispute with GMPE, if disclosed, would have required a totally different picture to be painted;
c)	Mr Humphreys, though Financial Director, gave no evidence on the application before me and no evidence was given why this was so.  The obvious explanation was that he could not reconcile the contents of any affidavit sworn in these proceedings with the statement in the proceedings against Wylam.  But that was surely a matter to be faced by any other honest witness who gave evidence for Arrows;
d)	the Defendants never disclosed the statement of Mr Humphreys, referred to it or explained it.  Indeed Mr Potts had it in his possession when he opened his case and made no reference to it; and when it had been read by Mr Maclean for the Claimants in his speech in answer and commented on, Mr Potts remarkably did not think it fit to comment or explain his failure to do so.
35.	The only inference I can draw from this state of affairs is that AGPI is prepared to say or do anything which it thinks best suits its interests.  When it considered it needed a validation order to survive, it had recourse to Mr Humphreys’ statement.  I must be alert for similar tactics on this application.
36.	The Defendants excluded the Claimants from any participation in the talks with FOA and any part in the negotiations with Red Bull.  There  is no evidence before the Court from either FOA or Red Bull.  I have no evidence before me whether either was told that MGPE had (or claimed to have) a charge on the Concorde Agreement securing the debt of £13 million.  No explanation is given why both FOA and Red Bull insisted that all trade creditors should be paid in full, but did not insist that MGPE as secured creditor should be paid no part of the £13.8 million.  My inference in the circumstances is that they were told what Laddie J was told in Mr Humphreys’ statement on the application for the validation order, namely that the secured indebtedness had been discharged.  If they were told this, the insistence on payment of trade creditors is explicable.  Only on this basis can they have fairly expected no part of the payment to be made to MGPE.  Despite their obligation to make full disclosure, the Defendants afforded no assistance on this matter though they knew the answers to these questions. Indeed when Mr Maclean in his speech raised these questions, Mr Potts remained mum and refrained from saying in reply.
37.	The fifth ground is that the STA is a contrived and artificially constructed document. What is remarkable is that it deliberately refrains from assigning any part of the purchase price to the benefit of the Concorde Agreement.  The consideration for that assignment is part of the consideration for the agreement to pay for the intellectual property rights to which alone a price is assigned.  I do not think that, as deliberately structured, there is any sale of the Concorde Agreement.  At any rate there is no explanation given for this extraordinary drafting, not withstanding the Defendants’ obligation to the Court.
38.	The sixth ground is the absence of any evidence before the Court as to the financial standing of Red Bull or of any capacity to meet the substantial financial obligations undertaken.  Such evidence is plainly called for on any such application as the present.  Again the absence is unexplained.
39.	The seventh ground is the timing and last minute nature of the application and its “without notice” character.  These features are highly troubling, for they are calculated to face the Court and the Claimant with a situation where they are required in order to avoid the doomsday prognosis made by the Defendants to accept at face value the evidence and merits of the application.  No opportunity is afforded to investigate or explore the facts, or make inquiries of Red Bull or FOA which might be highly illuminating.  The gaps in the Defendants’ evidence to which I have referred lend credence to this.  There is no sufficient explanation or justification for this course.
DECISION
40.	The Court is faced on this application with a threat by Mr Walkinshaw not to pay for the engines needed for Sunday’s race with the dire consequences of loss of the benefit of the Concorde Agreement unless the Court blindly agrees to authorise entry into the proposed agreements and orders the sale of the benefit of the Concorde Agreement.  Whilst the Court must be anxious to avoid the potentially disastrous loss of the benefit of the Concorde Agreement if this is reasonably practicable, it cannot and should not allow itself to be dragooned into making the orders sought unless satisfied that the applications are made in good faith, supported by credible evidence, are just to MGPE and that the preconditions for an order for sale are satisfied.  I am not satisfied that any of these conditions are satisfied.
41.	The applications seek endorsement of agreements and a sale which have been negotiated without any proper or sufficient regard to the legitimate interests of MGPE.  On any just basis the £13.5 million made payable to trade creditors should in whole or in part be payable to MGPE as the secured creditor and I am far from satisfied that FOA and Red Bull would not have agreed that this should be so if fully informed of the true facts.  Certainly MGPE cannot be excluded from benefit without proper participation in the negotiating exercise.  The attempted exclusion, as it appears to me, is the attempted “coup de grâce” in the campaign waged by Arrows since the beginning of 2001 to undermine MGPE’s security and rights commencing with the drafting of resolutions and documents for future use, continuing with the drafting and signature of the 11th July Letter, carried forward by the secret restructuring and now culminating in any attempt to remove from MGPE any serious participation or rights.
42.	For the reasons which I have given, I do not find the Defendants’ witness statements (and most particularly those of Mr Walkinshaw) fulfil the requirements of full and proper disclosure and (having regard to Mr Humphreys’ unexplained statement) I do not think that I can safely rely on them as fully informing me of the relevant facts sufficient to make the critical orders sought on this “without notice” application.
43.	I do not think that the orders sought are fair or just to MGPE or desirable or in any way orders which it is proper to make on this application.
44.	The requirements of Part 25 are not satisfied.  Even if the transaction relating to the Concorde Agreement falls within the description of a sale (which I doubt) the sale is not for its value, but for a residual sum after reserving for trade creditors alone the true consideration under the deal with Red Bull.  As I have already stated, I would expect that Red Bull and FOA (if told the true facts) would not have agreed to payment of far more (if not repayment in full) to MGPE.  A sale for a residual figure, with the true value creamed off for reasons unsatisfactorily explained, is not a sale I can or should order in any event, let alone in the circumstances of this case.
45.	I think that if the management of Arrows is placed in competent and honest hands (e.g. an administrator, liquidator or receiver) something of real value may be salvaged for MGBE and other creditors.  It is very late.  But it does not seem to me a proper or just exercise of the Court’s jurisdiction to allow the Defendants to make the lateness of the application (which is of their making) the occasion for the Court placing its imprimatur on their plans and proposals which are calculated to effect a gross injustice on MGPE.
46.	I am concerned for all the creditors of Arrows, and this includes the trade creditors.  The management of Arrows however are alone responsible for the prolonged insolvent trading and, if Arrows goes into liquidation, administration or receivership (as appears practically inevitable), creditors may be expected (as they may be entitled) to seek relief against and obtain recourse from the directors in proceedings for wrongful or fraudulent trading.
CONCLUSION
47.	For the reasons given, I refuse the applications by the Defendants.