Neutral Citation Number: [2006] EWHC 2017 (Ch)
Case No: HC03C01407
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 31/07/2006

Before :

MR JUSTICE MANN
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Between :

	FULHAM LEISURE HOLDINGS LIMITED	Claimant	
	- and -		
	NICHOLSON GRAHAM & JONES	Defendant	

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MR. I. CROXFORD Q.C. and MR. M. CANNON (instructed by Kendall Freeman) for the Claimant.
MR. R. STEWART Q.C. and MR. H. EVANS (instructed by Mayer, Brown, 
Rowe & Maw LLP) for the Defendant

Hearing dates: 20th, 23rd, 26th, 27th, 30th, 31st January 2006
1st, 2nd, 3rd, 6th, 7th, 9th, 10th, 13th, 14th, 15th, 16th, 17th, 20th, 21st February 2006
1st, 2nd, 3rd, 6th, 7th March 2006
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Judgment
Mr Justice Mann : 
Introduction – description of the case
1.	This is a professional negligence action in which the claimant (“Holdings”) seeks to claim in negligence against the solicitors (Messrs Nicholson Graham Jones, “NGJ”) who were acting for it in its acquisition of Fulham football club in 1997.   Holdings was the vehicle chosen by Mr Mohamed Al Fayed to purchase the club.  It is apparently part of the assets of his family trusts, but at all material times it was controlled by him in relation to the matters referred to in this judgment.  I shall from time to time in this judgment treat him and Holdings as synonymous, both for ease of exposition and because it reflected how the people involved in these matters obviously viewed the situation.   I shall also use the expression “Fulham” as being a composite description of Holdings and its subsidiaries where it is helpful to do so and where it is unnecessary to distinguish between the various entities involved (particularly in the later stages of the story).  

2.	The football club had hitherto been owned by a father and son called William (Bill) and Andrew Muddyman (subject to some minority interests).  By April 1997 the club was languishing in Division 3 of the Football League, a long way from the elevated position it had once occupied in Division 1.  Developers were eyeing its ground (Craven Cottage) for development purposes and its finances were poor.  If it were to survive and prosper as a club it needed a large injection of finance to redevelop the stadium (in respect of which it had obtained planning permission) and to buy new players.  The Muddymans did not have access to such funds, but they were introduced to Mr Al Fayed, who did.  He agreed to buy the club and inject funds in order to procure its rapid elevation and betterment.  The deal was a complicated one, but in essence Holdings and the Muddymans took 75% and 25% of the shares respectively in a new company called Fulham Football Leisure Ltd (“Leisure”).  Mr Al Fayed agreed to introduce funds.  The documentation gave the Muddymans certain protections as minority shareholders, including provisions which operated to prevent their shareholding being diluted without their consent or participation.  It is Holdings’ case that that documentation gave them too much protection, and that once Holdings had invested £60m in the club Holdings should have been free to take more shares, so that if the Muddymans were not in a position to take or subscribe for shares proportionately then they would become diluted.  Once they were diluted down to below 10% then the arrangements had the effect that most of their protection disappeared.   It is said to be due to the negligence of the defendants that Holdings was not in a position to dilute the Muddymans at that point, because they altered the drafting by accident so as to give rise to a situation which created that result, and they did not point out the consequences to Holdings.  

3.	By 2002 Holdings had invested over £60m.  Mr Al Fayed wished to inject further funds, and to do so by way of taking shares.  He also wished to enter into a conditional contract to sell Craven Cottage.  It is said that he considered that the Muddymans were, or were likely to be, obstructive, but it was considered that the documentation did indeed entrench their position (or there was a good case for saying it did).  In the circumstances Holdings bought them out for £7.75m in September 2002, and claims the cost of doing so from the defendants on the footing that that is what it cost to put itself in the position it should have been in from the outset.  Holdings also claims just over £100,000 as legal costs involved in ascertaining and sorting out the position.  The defendants accept that the drafting has the effect that Holdings alleges, but say that the relevant wording and effect was included with the knowledge and consent of Holdings.  They also dispute that they are liable for the damages claimed even if they were negligent.  In these proceedings Mr Ian Croxford QC led for the claimant; Mr Roger Stewart QC led for the defendants.

4.	That is an overall introduction.  In order to be able to show how the claim arises, and to decide the issues arising, it will be convenient to start with the deal as done in order to provide a backdrop to an account of how it was brought about and to what happened thereafter. 
The final documentation– its overall effect

5.	The overall documentation to give effect to the deal between Mr Al Fayed and the Muddymans was comprised in a number of documents, but for present purposes it is necessary to refer in detail to only three of them, namely a Shareholders’ Agreement, the Articles of Association of the new jointly owned company (Leisure) and a letter of comfort given by Mr Al Fayed to the Muddymans.  There is an important point of disagreement about what the documents were intended to do, which lies at the heart of the liability question in this case, but most of the intended effect of the documentation is common ground.  It will be helpful to describe it generally before I turn to the detailed wording.

6.	The central elements of the transaction (as to which there is substantial agreement in this action) were intended to be the following:

i)	  Mr Al Fayed and the Muddymans were intended to have 75% and 25% of the shares in Leisure respectively.

ii)	     Mr Al Fayed would take A shares, and the Muddymans would take B shares.

iii)	    Mr Al Fayed undertook to fund the club to a maximum of £30m.

iv)	     His funding was to take the form of £2,250,000 of share capital and the balance in loan notes.  The Muddymans were to take £750,000 of share capital.   Thus, up to this £30m level, the Muddymans’ shareholding was not to be diluted by Mr Al Fayed injecting more than his share capital.

v)	    If Mr Al Fayed wished to inject a further £30m into the club, then he could do so by way of a loan, or by way of loan notes together with an increase in his share capital.  If he took the latter course then the amount that he could take by way of share capital was to be 7.5% of the injected amounts, and if he took that option then the Muddymans could elect to take, and pay for, a proportionate shareholding so as to preserve their stake at 25%.  The course to be taken was to be agreed between the shareholders.

vi)	    On an “Exit” the Muddymans could elect to acquire 25% of the issued loan notes for £1.  An “Exit” was defined as being in essence a flotation or a disposal by Mr Al Fayed of any of his shares to a non-connected person.  This was essentially treated as deferred consideration.  Under it the maximum value of the loan notes that could be acquired this way was £15m in face value terms.  The Muddymans did not receive any direct payment for disposing of part of their interest in the club.

vii)	    The loan notes were in an agreed form, redeemable in 2017.  

viii)	    The Muddymans’ right to acquire loan notes for £1 was protected by restrictions placed on Mr Al Fayed’s right to dispose of them (notwithstanding any contrary term of the loan notes themselves).

ix)	    The Muddymans were concerned to develop the club’s stadium at Craven Cottage and to keep the stadium out of the hands of the property developers.  The club had obtained planning permission to develop the stadium into a 15,000 seater stadium and to use part of the site for other purposes.  However, there were reasons for believing that that was not an adequate development of the site for the purposes of turning the club into a Premier League club and that a bigger capacity stadium was required.  It was agreed that the club would apply for a better planning permission, but would develop in accordance with the existing planning permission if that better permission could not be obtained.  

x)	    In certain events the Muddymans would have the right to purchase the Al Fayed shares.  Those events included the insolvency of Holdings prior to its finding the first £30m, and the insolvency of Leisure at any time.  The price was to be the greater of £1 or the fair selling price.  

xi)	    The agreement would terminate on a number of events, including the reduction of the Muddyman shareholding below 10%.  However, termination would not affect the right of the Muddymans to call for 25% of the loan notes for a consideration of £1.

xii)	    Mr Al Fayed personally guaranteed the obligation to inject the first £30m.

xiii)	    While the Muddymans had 10% or more of the issued share capital, they had certain minority protection rights.  These were provided for by the Articles of Association.  Two restrictions on the company are particularly significant for the present case.  First, Leisure could not increase its share capital or issue shares without their consent; and second, it could not sell, charge or otherwise dispose of the club’s ground (Craven Cottage) without their consent unless the disposition was a mortgage to obtain funds for footballing purposes.   The operation of these two restrictions (and particularly the first) lies at the heart of this case.  It is Mr Al Fayed’s case that the restriction on increasing share capital and issuing shares ought not to have operated once Mr Al Fayed had provided £60m of finance, so that from that point on he should have been legally free to provide further finance by way of equity (as opposed to loans).  That was not what the documents provided.

xiv)	    A letter of comfort provided by Mr Al Fayed personally to the Muddymans and dated 28th May gave a personal but non-binding indication that Mr Al Fayed did not intend to dilute the proportionate shareholding of the Muddymans once he had lent £60m just for the sake of diluting.   There is a dispute as to whether this letter formed part of the completion documentation.

The final documentation - detail 

7.	With that navigation guide in mind I can now set out some of the relevant parts of the final documentation which gave effect to them.    The complaint in this case is that the final documentation omitted a crucial limitation on the rights of minority shareholders and in due course I shall have to set out how the documentation arrived at its final form.  It will be useful to set out that form at this stage in order to identify the end point.  It will also be useful to give some names to the relevant provisions so that they can be properly identified in their journey through the drafting process.  

8.	A number of documents provided for the details of the transaction which do not need to be set out here. An Acquisition Agreement dealt with the acquisition of the shares of the relevant corporate vehicles by a newly formed company to be called Fulham Football Leisure Limited, which was to be the holding company within the structure and whose shares were to be divided between the Muddymans and Mr Al Fayed interest.  Nothing turns on its terms.  

The Shareholders’ Agreement

9.	The Shareholders’ Agreement, as its name suggests, set out arrangements which governed the relationship between the shareholders of Leisure in respect of matters which it was wished to keep out of the Articles of Association.   It was made between Holdings, Swinburn Ltd (a Muddyman vehicle), Mr Al Fayed, the Muddymans and Leisure.  In this document Holdings is referred to as “Investco” and Leisure as “the Company”.  Holdings was to take A ordinary shares in Leisure, and the Muddymans were to take B ordinary shares (through Swinburn).  

10.	There are two relevant definitions in that document, as follows:

(i)  “Exit – arrangements being made for more than 10% of the issued share capital of the Company to become available to the public or one or more financial institutions or for the sale or other disposal of any A Ordinary Shares…” 

Since the A shares were the shares to be issued to Holdings, the most significant effect of an Exit (for the purposes of this action) was to provide that any disposal by Holdings of any of its shares, other than to an Al Fayed connected person, would be an Exit.  This matters for later purposes.  

(ii)	“Loan Notes” were “the zero coupon convertible unsecured loan notes 2017 of the Company created to be created pursuant to an instrument in the Agreed Form”.  These were one of the two agreed forms of financing (the other being shares).

11.	Clause 2.2 set out the objectives of the parties:

“2.2. It is the intention of the parties hereto that Fulham Football Club be provided with the management and a squad of players, and that the Stadium be redeveloped to the extent necessary to enable Fulham Football Club to mount a realistic challenge for promotion to the FA Carling Premiership within 3-4 years following the date of this Agreement.”

12.	Clause 3 contained warranties.  They were much more limited than the familiar form of warranties on a company sale, but their details do not matter.  Nor do clauses 4 and 5.  Clause 6 provided for the increase of the share capital of Leisure to £30,750,000 (from £2), and the division of the shares into A and B shares on a 75% and 25% basis respectively.  Clause 6.1.3 provided for Holdings to acquire A shares to bring its shareholding to 2.25m shares (allowing for the 2 subscriber shares that it already had) and for £750,000 B shares to be allotted to Swinburn.  That brought about the 75/25 split of the shareholding that was of the essence of the deal.  Mr Al Fayed therefore had to inject an initial £2.25m, and the Muddymans £750,000 for shares.

13.	Clause 8 contained important provisions as to financing Leisure and the Club’s operations.  It read as follows so far as is material:

“8.	FINANCE

8.1	Subject as provided in Clause 8.3, Investco shall provide in a timely manner (so as to enable the Company and its subsidiaries for the time being to meet such respective obligations as and when they fall due) the finance from time to time required by the Company and its subsidiaries for the time being in order to enable them to meet their respective obligations as and when they fall due in relation to any of the matters referred to in Clause 8.2

8.2	    The matters are:

8.2.1	the purchase of the freehold of the Stadium pursuant to the Property Agreement;
8.2.2	the redevelopment of the Stadium pursuant to Clause 11;
8.2.3	the carrying out of works to the Stadium pending its redevelopment;
8.2.4	the running of the business of the Company and its subsidiaries for the time being insofar as they relate to football and ancillary activities;
8.2.5		the purchase of football players; and
8.2.6	the discharge of certain existing liabilities of FFC and FFC (1987).

8.3	Nothing contained in Clauses 8.1 or 2.2 shall oblige Investco to provide finance in excess of £30 million less the aggregate of the following:

8.3.1	the amount subscribed by Investco pursuant to Sub-clause 6.1.3 ; 
[and certain immaterial disregards]

8.4	Any finance to be provided by Investco pursuant to Clause 8.1 (up to the amount stated in Clause 8.3) shall be provided by Investco by subscribing for Loan Notes.  Neither Investco nor a person connected with Investco shall provide other finance (including without limitation provided by way of guarantee or indemnity or other financial support having a comparable financial effect) to the Company until it has provided such amount accordingly, unless otherwise agreed by Swinburn, WFM or AMM.

8.5	Notwithstanding the terms of the Loan Notes, unless and until the Company enters into liquidation no Loan Notes will be redeemed (within the meaning of Clause 1 of the instrument constituting the Loan Notes) except by agreement between Investco, Swinburn and the Company.   Any amounts so redeemed shall be deemed to reduce the amount provided by Investco pursuant to Clause 8.1.

[8.6 and following – further provisions restricting disposals of Loan Notes to persons other than those connected and other limited disponees.]

……..

8.10	Subject to Clause 8.13, Swinburn (or any other holder(s) of “B” Ordinary Shares nominated by Swinburn) shall have the right (the “call option”) exercisable (on one occasion only) in relation to and to have effect upon an Exit (but not otherwise) by notice in writing to Investco to acquire Loan Notes up to an aggregate nominal amount (but less any the subject of a previous exercise of the call option) of 25 per cent of all Loan Notes at that time in issue subject to a maximum aggregate under this Clause 8.10 of £6,937,500 in nominal amount of Loan Notes.  The aggregate consideration for the acquisition of all Loan Notes acquired by such exercise shall be one pound (£1).

8.11	If any Noteholder exercises any Conversion Rights (as defined in the Loan Note Instrument) Swinburn (or another holder of “B” Ordinary Shares nominated by Swinburn) shall forthwith upon and with effect from the allotment thereof purchase from such Noteholder and such Noteholder shall sell 25% of the shares allotted pursuant to such exercise for an aggregate consideration of one pound (£1).  Completion of such sale and purchase shall take place on the date of allotment whereupon the Noteholder shall procure the registration of the transferee as a member of the Company in respect of the Shares transferred.

…….

8.14	Upon Exit any finance provided to the Company or its subsidiaries by any person which finance is the subject of a guarantee or indemnity or other financial support having a comparable effect given by Investco or a person connected to Investco pursuant to Clause 8.1 shall be refinanced by subscribing   Loan Notes to the intent that the guarantees indemnities or other financial support shall be discharged and the Loan Notes will be subject to the options given under Clause 8.10.

……”

14.	I shall call this provision, and its predecessors in the drafting, the “financing provision”.  Its significant features were:

(a)	An obligation on the part of Holdings to provide funds for the stated football-related matters, but subject to an upper limit of £30m.  I shall call this level the “first £30m”.

(b)	The additional finance above the £3m of share capital was to be by way of the Loan Notes and not otherwise.  This was intended to ensure that Mr Al Fayed could not dilute the Muddymans’ 25% shareholding by financing with additional share capital.

(c)	Clause 8.10 gave the Muddymans the right to have 25% of the loan notes for £1 if there were an Exit, ie a flotation or a disposal by Mr Al Fayed of any of his shares.   This was intended by the parties to be deferred consideration.   This was not a transaction in respect of which the Muddymans received cash consideration, and they had to pay for such shares as they took.  The restrictions on redemption and transfer were intended to preserve the loan notes for this purpose. 

15.	The provision of an additional £30m of finance was dealt with in the next clause (“the second £30m”) – the “further finance provision”.

“9.	FURTHER FINANCE

9.1	This Clause 9 shall apply after the Company shall have received all finance provided for in Clauses 6 and 8.

9.2	If Investco or MAF or any person connected with MAF (at its or his entire and unfettered discretion) agrees to provide further finance (including without limitation finance by way of guarantee, indemnity or other financial support having a comparable effect) to the Company, Investco or MAF, as the case may be, shall first agree in writing with Swinburn, WFM or AMM (which shall be binding on the others) whether to do so by way of:
9.2.1		investment finance under Clause 9.3;  or
9.2.2	loan on terms not less advantageous to the Company than ordinary arm’s length shares.

9.3	Investment finance under this Clause 9.3 shall mean finance not exceeding a further aggregate £30 million (above any finance provided pursuant to Clauses 6 and/or 8) provided in multiples of £40 with:
9.3.1	92.5% thereof being provided by subscribing Loan Notes at par;  and
9.3.2	the balance of 7.5% thereof being provided by subscription at par for “A” Ordinary Shares of £1 each in the capital of the Company, such “A” Ordinary Shares to rank pari passu in all respects with the then existing “A” Ordinary Shares of £1 each in the capital of the Company.

9.4	Provided that Swinburn (or any other holder(s) of “B” Ordinary Shares nominated by Swinburn) shall have exercised (to the full extent then permitted) its rights under Clause 9.6, the provisions of Clauses 8.10 and 8.11 shall apply mutatis mutandis in respect of all Loan Notes issued under Clause 9.3.1 save that the limit of £6,937,500 shall not apply.

9.5	Any additional finance (beyond that referred to in Clause 8.1 or 9.3) to be provided by way of subscription for share capital shall be provided by subscription at par for “A” Ordinary Shares of £1 each in the capital of the Company, such “A” Ordinary Shares to rank pari passu in all respects with the then existing “A” Ordinary Shares of £1 each in the capital of the Company.

9.6	Simultaneously with the issue of any shares in the capital of the Company pursuant to sub-clause 9.3.2 or Clause 9.5, Swinburn shall be entitled (but not obliged) to subscribe at par (payable in full in cash on allotment) for such number of “B” Ordinary Shares of £1 each in the capital of the Company as it would be entitled to apply for if such issue had taken place in accordance with Article 10 of the New Company Articles.

…….”

16.	The material effects of this clause were as follows.  

(i)	The mechanism for the second £30m was one of two kinds – either a split of share capital and loan notes, or arm’s length loan terms.  If it was to be the former then the combined provisions of this clause had the effect of limiting the amount which could be introduced by way of share capital, and of allowing the Muddymans, if they wished, to have new shares themselves so that they could maintain the shareholdings in a 75/25 ratio.  This again, therefore, prevented the Muddymans from being diluted against their will, and also enabled them to maintain their relative shareholding at not too great a cost.  Were it not for the limit in clause 9.3.2 Mr Al Fayed could have introduced the whole of the second £30m by way of share capital, thereby forcing the Muddymans to pay over £7m if they wished to keep pace with his shareholding or face dilution.  As it was, the most they would have to pay to keep pace with him was another £750,000.   Such sums as Mr Al Fayed did not introduce by way of equity were to be taken by way of Loan Notes.  

(ii)	The Muddymans would have an option on Exit to acquire any Loan Notes used for the second £30m for £1 like the option applying to the prior Loan Notes.  This increased the potential deferred consideration, and if the maximum amount of Loan Notes were issued the total benefit to the Muddymans (assuming the Notes retained a par value) would be £15m in round terms.  

17.	Clause 10 in its final form, or rather an omission from it, is what lies at the heart of the negligence case.  It reads:

“10.		RESTRICTIONS

10.1		Notwithstanding the provisions of the New Company Articles or the articles of association of any subsidiary for the time being of the Company, Swinburn, as the holder of a majority in nominal value of the issued “B” Ordinary Shares in the capital of the Company, hereby consents to any matter done pursuant to this Agreement, the Acquisition Agreement or the Property Agreement.”

18.	Its principal context for these purposes is a provision in the Articles of Association which prevents certain things from being done without the consent of the B shareholders, and what was omitted in the very last stages of the drafting was a provision which had the effect of providing an express consent for the issue of shares once the first and second £30m had been provided.  I shall call this provision, and its predecessors, “the consent provision”.  

19.	Clause 11 contained what I shall call the “redevelopment provision”.  It contained an agreement to try to get a more advantageous planning permission for the rebuilding of the stadium at Craven Cottage than was allowed under the then existing permission, and for building it out thereafter, or redeveloping in accordance with the existing permission in the event of failing to get such a permission.

20.	Clause 12 contains an important “buy-out provision” or “buy-out clause” in the following terms:

21.	“12.	          BUY-OUT

12.1	The provisions of Clause 12.2 shall apply in the event that:
    12.1.1	Investco or the Company shall commit a material breach of the provisions of Clause 11 and shall fail to remedy such breach within thirty business days of a request in writing to MAF from the holders of a majority in value of “B” Shares to remedy such breach;
    12.1.2	Investco shall (prior to having provided finance to the Company of the maximum amount specified in Clause 8.3) become unable to pay its debts as they fall due or the Company shall be unable to pay its debts as they fall due within Section 123(1)(e) of the Insolvency Act 1986 or either shall propose to make a general assignment or arrangement or composition with or for the benefit of its creditors or a moratorium shall be agreed or declared in respect of or affecting all or a material part of its indebtedness or an analogous event shall occur in any other jurisdiction;
    12.1.3	an order is made or an effective resolution is passed for winding up Investco or the Company (except for the purposes of a bona fide commercial re-organisation, amalgamation or reconstruction) or an analogous event shall occur in any other jurisdiction;
    12.1.4	a receiver or an administrative receiver shall be appointed in respect of all or any of the assets of Investco in the Company or an analogous event shall occur in any other jurisdiction; or
    12.1.5	an administration order shall be made in respect of Investco or the Company or an analogous event shall occur in any other jurisdiction.

Provided that in relation to the matters referred to in 12.1.2 to 12.1.5       inclusive in relation to Investco only the said paragraphs shall not apply in any circumstances where Investco shall have provided the maximum finance to the Company of the amount specified in Clause 8.3.

12.2	If any of the events referred to in Clause 12.1 shall occur, then (without prejudice to any other rights of action or remedies) the “B” Shareholders shall have the right (“the Right”), exercisable by notice in writing given to MAF at any time within three months after the date of the request referred to therein (but prior to the date when Investco shall remedy such breach) to purchase all or some only of the shares in the capital of the Company held by the holders of any “A” Ordinary Shares in the capital of the Company (other than any shares which are being held pursuant to Article 17(1)(a) of the New Company Articles)(“the Vendors”) at the date of exercise of the Right (“the Sale Shares”).

12.3	In the event of the exercise of the Right, the Vendors shall sell and the “B” shareholders (in the proportions in which they hold the “B” Ordinary Shares in the capital of the Company) shall purchase the Sale Shares, with full title guarantee and free from any liens, charges or other encumbrances and together with all rights attaching thereto, at the price specified in Clause 12.4 and otherwise on the terms hereinafter provided.

12.4	The price for the Sale Shares (which shall be divided between the Vendors in the proportions in which they hold the Sale Shares) shall be such amount as may be agreed in writing by the Vendors and the “B” Shareholders or (in default of such agreement within twenty business days after the date of the exercise of the Right) such amount as shall be whichever is the greater of:

12.4.1	 the sum of £1;  and
12.4.2	the fair selling value of the Sale Shares (as hereinafter defined and determined) at the date of exercise of the Right.

12.5	On completion of the transfer of the Sale Shares:

12.5.1	the “B” Shareholders shall deliver to the Vendors a bankers draft for a sum equal to the aggregate of:
(a)	the price of the Sale Shares;  and
(b)	the proportionate part of:
(i)	the nominal amount of any Loan Notes held by, and any other loans outstanding to, any of the Vendors (or to any person to whom any of the Vendors is entitled to transfer shares in the capital of the Company pursuant to Article 16 of the New Company Articles) by the Company or any of its subsidiaries for the time being and whether such Loan Notes or other loans shall be presently payable or not but
(ii)	after deducting from the aggregate amount of such Loan Notes or other Loans (and to be divided proportionately between them) the net asset deficiency (if any) of the Group (as hereinafter defined and determined) at the date of exercise of the Right proportionately attributable to the Sale Shares on the basis that all the shares in the capital of the Company from one class of share ranking pari passu in all respects.

……”

22.	The fair selling price for the shares was to be agreed or determined by a third party.  The overall effect of these provisions (taken with later parts of clause 12 which I do not need to set out) is that in the event of an insolvency of Leisure at any time (and not just before the first £30m was injected) the Muddymans would be able to have the club back again for much less than Mr Al Fayed had injected (on the assumption that in that event the shares would be worthless).   The realisation that this was the consequence of this provision was said to be an important part of the background to the buying out of the Muddymans in 2002. 

23.	Clause 16 dealt with the circumstances in which the Shareholders’ Agreement was to come to an end.  It provided:

“16.     TERMINATION

16.1	Subject to Clause 16.2 this Agreement shall forthwith terminate on the occurrence of any of the following events:
16.1.1	the Company going into liquidation (whether voluntary or compulsory) or having a winding-up order made against it in circumstances when it is unable to pay its debts as they fall due within the meaning of Section 123(1)(e) of the Insolvency Act 1986 (save in respect of any provision hereof then expressly applicable);
16.1.2	the whole of the issued share capital for the time being of the Company becoming beneficially owned by any one person;
16.1.3	WFM and any persons to whom he is entitled to transfer shares in the capital of the Company pursuant to Article 16 of the New Company Articles (when taken together) ceasing to hold at least ten per cent in nominal value of the issued share capital for the time being of the Company carrying the right to attend and vote at general meetings of the Company;
……

16.2	The termination of this Agreement referred to in Clause 16.1 shall not affect the continuance in force of the provisions of Clauses 8.10, 8.11, 8.12, 8.13, 8.14 or 9.4.

16.3	The termination of this Agreement for any reason whatsoever shall not affect obligations of any of the parties hereto expressed or intended to continue after such termination and shall be without prejudice to any claims or rights of action in respect of any antecedent breaches of any of the provisions of this Agreement.”

24.	The important factors to note here are:

(a)	The crucial figure of 10% in clause 16.1.3.  When the Muddymans ceased to hold 10% of the share capital the agreement would no longer apply.  But:

(b)	That did not deprive them of the benefit of their right to have their deferred consideration on an Exit.

25.	Clause 22 contained a cross-reference to the Articles of Association:

“22.		ARTICLES OF ASSOCIATION

The provisions of the Articles of Association for the time being of the Company shall be deemed to be incorporated into and form part of the terms of this Agreement but in the event of any conflict between the terms of this Agreement and the provisions of such Articles of Association the terms of this Agreement shall prevail and the parties hereto shall forthwith take steps to amend such Articles of Association to remove such conflict.”

Articles of Association

26.	One provision of the Articles is of critical importance (“the minority protection provision”):

“SHARE CAPITAL

6.	(1)	During such time as the “B” Ordinary Shares shall represent at least ten per cent in nominal value of the issued share capital for the time being of the Company carrying the right to attend and vote at general meetings of the Company, then, except with the prior written consent of the holder or holders of a majority in nominal value of the issued “B” Ordinary Shares for the time being, the Company shall not:
(a)	increase, reduce or alter in any way any of its authorised or issued share or loan capital;
(b)	consolidate or sub-divide any shares in its capital;
	(c)	vary any rights attached to any class of shares in its capital or create any new class of shares in its capital;
	(d)	issue or agree to issue any shares or any securities which are convertible into shares, in its capital.

…..

	(g)	alter in any way its Memorandum of Association or Articles of Association;
……
	(i)	issue or create or allow to be created any mortgages, debentures, liens, charges or other security interests over any of its assets, other than:
i)	liens arising by operation of law;
	ii)	retention of title interests arising in the ordinary and normal course of business; or
	iii)	mortgages, debentures, liens, charges or other security interests to secure loans provided to it or to any of its subsidiaries for the time being to finance any of the following:
	(A)	the carrying out of any works to or a redevelopment of the Stadium;
	(B)	the operation of any football or associated activities including, but without limitation, the purchase of football players;

……

(k)	sell, transfer or otherwise dispose of the Stadium or any material part thereof, otherwise than to a subsidiary for the time being of the Company;
(l)	allow the Stadium to cease to be used as Fulham Football Club’s home ground (although, for the avoidance of doubt, this shall not preclude the use of the Stadium for other uses in addition to the use of the Stadium as a football stadium).”

27.	Again the significance of a 10% shareholding should be noted.  Article 6 contained important safeguards for the Muddymans so long as they maintained their shareholding at at least that level.  In particular they could stop dispositions of Craven Cottage (save for limited borrowing purposes).

The Letter of Comfort

28.	Mr Al Fayed gave the Muddymans a non-binding letter of comfort in the following terms:

“28th May 1987

To Mr William Muddyman from M. Al Fayed

“Dear Bill

I confirm that, in the event that I inject capital into Fulham (Football Leisure) Ltd in such amount as takes its share or loan capital introduced by way of permanent investment in the Company beyond sixty million pounds (£60,000,000), I do not intend to do so in any way which will result in a compulsory dilution of your 25% interest in the Company.

This letter is given without any legal liability or restriction on me, but is intended to give you comfort regarding my long term plans concerning both the Company and Fulham Football Club.”

29.	It was signed by Mr Al Fayed personally.  It was not a corporate document.

The crucial effect of the drafting

30.	It will be apparent from the above that a business relationship of some complexity was created by this documentation.  The negligence alleged in this case arises principally out of the provisions of clauses 8, 9 and 10.  The effect of those clauses was to regulate the injection of funds by Mr Al Fayed.   It is common ground in this action that the documentation operated in the following fashion:

(a)	Mr Al Fayed was obliged to provide £30m of finance, and that was to be done by a mixture of share capital and Loan Notes.

(b)	Mr Al Fayed had a discretion as to whether to provide further finance, but if he did then the next £30m was to be by way of a mixture of share capital and loan notes, with the Muddymans entitled to keep pace with Mr Al Fayed so as to preserve their 25% shareholding if they wished.  

(c)	Once £60m had been provided by Mr Al Fayed the Muddymans were in a position to prevent Mr Al Fayed from injecting further funds by way of share capital.  This was because the share capital could not be increased, and share capital could not be issued and allotted, without their consent – see Article 6.  In that way they could prevent further dilution of their shareholding without their consent.

(d)	Because they had this right, the Muddymans could also prevent the reduction of their capital below the crucial 10% level at which their minority rights under the Articles would fall away, and at which the Shareholders’ Agreement would terminate.  This gave them the potential to exercise significant control over certain aspects of the club’s business.

31.	It is also common ground that until a day or two before completion the draft documentation contained provisions which would not have given the Muddymans these powers.  Clause 10 contained a provision which provided the Muddymans’ consent to the issue and allotment of shares once Mr Al Fayed had provided the first £30m tranche of funding.   The relevant provision (clause 10.1.2) was removed by the defendants’ partner acting in the transaction a day or two before completion.  The claimants say that this was a mistake, was done without instructions and was negligent.  The defendants say it was deliberate, done on instructions, and therefore not negligent.  That difference is the liability issue in this case.  

Dramatis personae – the people involved and the quality of witness evidence

32.	There is a considerable cast involved in this matter, some, but not all, of whom gave evidence before me.  It will be useful to identify them here, and, where they were also witnesses, to make observations on the quality of their evidence.  They can be divided into three groups – the Muddymans and their advisers, the Al Fayed/Harrods/Fulham personnel, and the NGJ personnel.

The Muddyman group
Mr William (Bill) Muddyman and Andrew Muddyman

33.	These gentlemen were father and son respectively.  They owned (via a company) Fulham football club and were effectively the vendors under the transaction in this case.  They did not give evidence.
Swinburn Ltd.

34.	This was the corporate vehicle through which the Muddymans participated in the Fulham venture.  In April 1998 Ruxley Ltd was substituted. 
Frere Cholmeley Bischoff/Forsters

35.	Frere Cholmeley Bischoff (“FCB”) were the solicitors acting for the Muddymans in this transaction.  The partner acting was Mr Sugar.  He was assisted by Mr Mosheim.  Neither gave evidence, but Mr Mosheim’s attendance notes were put in under the Civil Evidence Act by the claimant.  They are a very helpful indication of what happened at relevant inter partes meetings.  By the time the Muddymans were bought out in 2002 Mr Sugar had become a partner in Forsters, and he was still acting for the Muddymans.  

36.	On one occasion Mr Benbow, a New Zealand qualified solicitor, was brought in to note a meeting at Claridges.  He gave evidence of that meeting.  He was a careful and reliable witness who gave measured evidence of what was an important meeting in September 2002 a few days before the Muddymans were bought out.
The Harrods group
Mr Al Fayed

37.	Mr Al Fayed is the well-known chairman of Harrods.  He is a businessman of considerable renown and experience, and was the person who took the decision to purchase Fulham Football Club.  Although the purchase was apparently by a company which was a family trust asset, he gave all relevant high level instructions.  His evidence was accordingly very important.  However, I regret to say that Mr Al Fayed was not a helpful witness and, unlike all other witnesses that I heard, I do not think that he set out to be.  He was reluctant to face up to questions and address them properly, and did not really focus on much of what he was being asked.  By way of example, he was apparently unprepared to accept a suggested fact if the fact in question had appeared in a newspaper, regardless of the fact itself.  The appearance in a newspaper meant that he was not prepared to consider it as even possibly being true.  He adopted a demeanour and approach which would, if real and genuine, have suggested a degree of forgetfulness and uncertainty about all these events which I do not accept that he had.   To use a phrase deployed in the case (by me), he appeared not to be “on the ball”.  That state of affairs is belied by Mr Al Fayed’s business activities and enterprises, is completely at odds with the evidence of other witnesses as to their dealings with him from time to time, and is directly contrary to the evidence of Mr Fallowfield who said, in terms, that Mr Al Fayed was always very on the ball, and as much now as 10 years ago.  I am sure he is right about that, and Mr Al Fayed appeared otherwise in the witness box for reasons of his own.  While it has to be understood and accepted that recollection of detail of what happened in 1997 is likely to be dim if it exists at all, some of Mr Al Fayed’s professed inability to remember some events was  so surprising that I am inclined not to believe it.  I think that he was from time to time willing to resort to a professed failure to recollect which was an easier answer than actually addressing the question. 

38.	He also had views of the transaction which were wholly inaccurate.  By way of example, he said that he had offered the Muddymans a shareholding and directorships as a “courtesy” to them, by which he intended to suggest that they were in the nature of a gracious concession which he did not have to make.  That is simply an unrealistic view of the basis of the negotiation.  The Muddymans drove as hard a bargain as they could, in my view, and every other relevant witness and relevant document in the case demonstrates that.  They wanted to sell, and had pressing commercial reasons for doing so, but they were not going to sell at any price, as was demonstrated by important concessions that they got from the Al Fayed side during (and particularly at the end of) the negotiations.  Their continued participation in the new setup was at the heart of their own requirements, and recognised as such.  There is no way in which the deal would have been done without it.  Accordingly their position in the new setup was in no way a matter of “courtesy”, and I do not believe that Mr Al Fayed can ever have thought that it was.  

39.	I also consider that the evidence I heard tended to portray him as capable of being an impulsive decision maker.  He certainly does not seem to have agonised over quite big decisions in the history of this case, or to have given detailed consideration to some financial implications from time to time.   Some of the evidence he gave struck me as having that quality as well.

40.	In the circumstances I treat his evidence with the greatest caution, and would be reluctant to accept it unless corroborated by other evidence or the probabilities.  

Mr Benson
41.	Mr Benson is a qualified lawyer who had practised in major firms until 1996.  From then until now he has been in sole practice, and Mr Fayed is obviously one of his most important clients.  His work comprises not only legal work, but general business advice, and he is involved in a company which does that.  He is clearly a close adviser to Mr Al Fayed, and was closely involved in this transaction, as adviser, as conduit for instructions and as participant in various meetings.  He was also closely involved in the subsequent aspects of it as the consequences gradually came to light, having a central role in discussing and liaising with others who were acting.  

42.	He told me that the culture of Harrods was not one in which paper circulation and paper consultation played a great part.  A lot was achieved by word of mouth.  That may in part explain what is on the face of it a surprising absence of notes taken by him of the various stages of this transaction, though I doubt if it is a complete explanation.  Although he was involved at many of the important stages of this story he has notes of very few of them.  He claims to have reviewed important and difficult documents without generating any, or any significant, notes of that review.  If he was carrying out a worthwhile review I find that very hard to believe.  Although not a party to this action, and therefore not himself under a disclosure obligation, he claimed to have disclosed all significant documents, yet a large number of significant documents were found on his computer very shortly before this trial began.   I think that he has a very cavalier attitude to documents and to the generation or keeping of contemporaneous documents (at one point he said that it was quite possible that he had taken no notes whatsoever of the share acquisition transaction), and I think he has been rather cavalier in relation to disclosure of documents for the purposes of this action.  In the light of that I shall be very cautious about accepting his evidence on details of matters that occurred many years ago.  

43.	In 2001 he had cause to revisit the history of events in his mind when he had correspondence with Mr Sugar about it.  That correspondence and his evidence to me demonstrates that by then (much closer to the event than now) he had forgotten important or significant elements of the deal.  In January 2001 he had forgotten about the letter of comfort, even though he had drafted it himself, and he had forgotten that the minority protection rights ceased only when the Muddymans’ shareholding got down to below 10%; the original figure had been 25% and it had been negotiated down by the  Muddymans.  Later on in 2001 he prepared instructions to leading counsel in which he set out a version of the history of the matter.  It is quite apparent that he got the sequence of events materially wrong.  In one sense this failure to remember important details of a fast-moving transaction is not surprising, but it shows how dangerous it would be to rely significantly on his uncorroborated oral evidence so far as matters of recollection are concerned.  

44.	My ability to accept his evidence on major aspects is affected by another thing.  From time to time in his evidence he claimed to have ceased his involvement in the acquisition when he left to go on a pre-arranged holiday late at the end of 28th May 1997 (the day before completion).   He was quite adamant about that.  However, during the trial it became apparent that someone had noted his presence at a meeting on the 29th May.   After he had finished his evidence he did some further checks and by referring back to some expenses records he retracted his evidence and accepted that he had gone on holiday from 23rd May to 28th May (when he participated again in the transaction).   In fact some of his categorical assertions about that (in the form of the last date and the hotel in which he stayed) are not borne out by his evidence which does not prove the hotel stay and strongly suggests that he returned on 27th, not the 28th.  At one level this discrepancy does not matter.   There had been no suggestion of activity on his part during the true holiday period which had been falsified by the revelation as to the actual dates, and it is not at all surprising that a witness could make a mistake about holiday dates some 7 or 8 years ago.  However, the strong nature of his original evidence and his means of justifying it was striking, making its falsification equally striking.  He elevated the point to more than a minor detail whose falsification does not bear on a witness’s credibility.  It causes me to be very careful about relying on any of his evidence even about the “big picture” of this matter.  He was also a cagey witness who was reluctant to give evidence that he calculated might be against the Al Fayed case, yet capable of exaggeration if that case required it, as is demonstrated by a description of himself in correspondence as being “aghast” at one stage of the negotiations which in my view was plainly an overstatement made deliberately for effect.    

45.	All in all, therefore, Mr Benson’s evidence was evidence that I approach with great caution.  
Mr Fallowfield

46.	Since 1996 Mr Robert Fallowfield has been the financial controller and a sort of financial troubleshooter for various subsidiary companies in the Harrods collection of companies, reporting directly to Mr Al Fayed.  He has worked for the Harrods group for 10 years.   His role has expanded over the years, and in particular he has been involved where companies “needed significant attention to their structure, reporting, financial controls, and management personnel. I therefore soon acquired a reputation for only getting involved in “sorting out” difficult companies”. He was not materially involved in the initial acquisition but gave evidence about much of what was said to be the development of thinking leading up to the deal with the Muddymans in September 2002.  He was not a man who was at all times scrupulously honest in his dealings for his employer.   He was cross-examined about an exchange of emails in 2002 (at about the time of the deal with Mr Sutton) that he had had with a merchant bank (Macquaries) with whom there were negotiations about financing a redevelopment of Craven Cottage.  Those emails, as he admitted, contained untruths (lies) about the state of the project.  The lies, or some of them, were admitted by Mr Fallowfield.  He justified them on the footing that he was avoiding disclosing the Sutton deal to Macquarries and wanting to keep matters uncertain as far as that bank was concerned so that he could avoid paying a £500,000 termination fee which would probably have become payable at that time if the full truth were known.  This incident demonstrates that he is prepared to indulge in a significant level of untruth when conducting Mr Al Fayed’s affairs.  I therefore approach his evidence with caution.  Having said that, there was nothing in the manner in which he gave his evidence which demonstrated that he was prepared to lie to the court.  His evidence was plausible and plausibly presented, though I think that he would always give his evidence with one eye on the consequences for his employer.
Mr Cook

47.	Mr Cook was tasked in 1997 with some of the negotiation and with much note-taking at meetings.  He worked (and still works) for Harrods Estates Ltd, the estate agency arm of Harrods.  His expertise is property, and he was also involved throughout the whole of the period relevant to this action in the implementation of subsequent plans for new stadia, and principally plans for the sale of Craven Cottage.  He gave evidence in relation to both areas.  He came across as a careful man and a reasonably reliable witness (though I did not accept all his evidence). It was suggested by the defendants that he had admitted lying in negotiations with the local authority, but a close study of the transcript does not bear that out.  His evidence does, however, show that he thought that a level of lying was acceptable in negotiations.   Nevertheless, in my view he was not minded to contrive evidence or falsify recollections when giving evidence to me.  His attitude to negotiations does not necessarily spill over into other areas of life (including sworn testimony) and I do not think that he demonstrated that it did.     
Mr Collins

48.	Mr Collins is the managing director of Harrods Estates Ltd.  He knew the Muddymans (and in particular Andrew Muddyman) personally prior to the acquisition.  He had a limited participation in the acquisition in 1997 and gave some evidence of that.  Because of his personal relationship with Andrew Muddyman he was aware of potential conflicts of interest and kept in the background at the beginning, though he had some involvement at the time the acquisition transaction was closing.  Shortly thereafter he became director of the club for a few months.  Between August 2001 and May 2002 he was acting managing director of the club.   During this post-acquisition period he had some involvement in the plans to sell Craven Cottage and find a new stadium, of which he gave some evidence.   He had an understandably poor recollection of detail in relation to the events in 1997.   It was said against him that the history of the matter demonstrates that he was capable of misleading to support his employer’s case, as was demonstrated by some of the evidence that he gave in judicial review proceedings (to which I refer below).  It seems to me that this criticism of his prior evidence is not as strong as the defendants would seek to make out.  I do not think that he was knowingly misleading in his earlier evidence but I do think that from time to time he was capable of adopting an unjustifiable view to support Mr Al Fayed, as was demonstrated by his unjustifiable resistance to the idea that concerns expressed by the Muddymans as to the future of the club were reasonable albeit not agreed with.   On the whole he struck me as someone who was giving his evidence conscientiously.  
Mr Jeffrey Byrne

49.	He is currently Harrods’ in house solicitor, having been appointed in 1999.   He became involved in this matter in 2002 when there were plans to sell Craven Cottage and acquire a stadium elsewhere and concerns had emerged about the Muddymans’ position.   He considered the effect of the documentation a year or so after completion and played a part in advising Mr Al Fayed about it and in the events when the Muddymans were bought out.   Once that was done he set about trying to work out what had gone wrong (from Mr Al Fayed’s point of view) in 1997 and to that end carried out some initial investigations.  His evidence demonstrates that he is a careful and conscientious man, but like some of the other witnesses is prepared to sail a little close to the wind in pursuing his employer’s interests.  In his case that came when he was carrying out his investigations.  In that context he spoke to Mr Talbot to try to get some information from him and ultimately got NGJ to deliver their documents to him for his perusal (against his undertaking to hold them to their order).  In my view he had formed the view that it was quite possible that NGJ had been negligent, and he did not say anything at all about that to Mr Talbot.  That is not, of itself, a source of criticism, but he was not prepared to admit to me that his thought processes had got that far, which detracts a little from his straightforwardness.  He also withheld from Mr Talbot the information that the Muddymans had been bought out.  That must have been deliberate in the circumstances of the telephone call in question, but he would not acknowledge that.  Again, therefore, I regretfully feel I must be more cautious about his evidence than I would have wished or expected.  Having said that, like other of the claimants’ witnesses, I do not think that he came to court to lie and was fully capable of giving frank and straightforward evidence to me.
Mr Mark Griffiths

50.	From 1989 until 2001 Mr Griffiths was the private secretary to Mr Al Fayed.  That made him very close to Mr Fayed in many of his commercial activities.   It was a position of trust, which Mr Griffiths conceded he forfeited in 2001 when he indulged in acts which Mr Al Fayed described as contrary to corporate policy, and which Mr Griffiths described as being irregular conduct in connection with expenses.   As a result he was sacked.  Up until that time Mr Griffiths was closely involved with many of the relevant factual aspects of the case before me.  He was one of the two principal conduits operating between Mr Al Fayed and NGJ, and was present at various meetings which led to the final deal.  He was, in effect, Mr Al Fayed’s spokesman.  If instructions were necessary he would often be the person who would get them, because he had direct and frequent access to Mr Al Fayed.  He was a key player in the events of 1997.

51.	As a witness he performed creditably.  He was sheepish about the circumstances of his dismissal, and there was certainly more to it than he was prepared to say, but that is perhaps not surprising and does not reflect on his honesty as a witness.  More serious and significant, probably, is that he was involved in the now well known incident in which Mr Tiny Rowlands’ Harrods safe deposit box was improperly opened.  He played no part in the decision to open it, or in the opening, but he did see some of the documents in it, and he appreciated that what was happening was wrong, yet he still did what he did.  That says something about the extent to which he, like other Harrods/Al Fayed employees, would be prepared to go beyond what is acceptable in the pursuit of the interests of their employer.  In his case, however, the effect of that on his evidence has been mitigated because Mr Al Fayed has not been his employer since 2001.   Although he had had a witness summons served on him shortly before the trial, he gave two witness statements voluntarily, and he said he had not been given any promises or money by Mr Al Fayed (other than conduct money) in connection with his evidence.   His evidence was therefore not so immediately affected by his commercial proximity to Mr Al Fayed as that of other witnesses.  I think that in the main he gave his evidence in a straightforward fashion, seemed careful and was firm on the main points.  He presented as a reasonably credible witness.   I was not invited by the defendants to treat him as in any way a dishonest witness, and I do not do so.  I do, however, accept the point that his recollection of significant detail is (like the recollections of all witnesses) likely to be slight in relation to the events of 1997.

Mr Richard Jones

52.	Mr Jones is a planning expert in private practice.  He gave evidence of the planning background to the use of Craven Cottage and was personally involved in a planning application made in 1999, and in the consideration of alternative venues for a stadium in 2002-3.  He was a responsible and reliable witness.  
Mr Colin Porton

53.	Mr Porton is an architect in private practice who was involved in stadium design for Craven Cottage and in potential designs for an alternative site at White City.  He was also involved in 2002 in considering residential development of the Craven Cottage site in connection with a proposed sale of that site to a residential developer (Fulham River Projects Ltd, the creature of Mr Nick Sutton – see below).  He gave evidence of those matters.  He was a reliable witness.
Mr Charles Hoos

54.	Mr Hoos is the Football Business Director of Fulham Football Club and he gave brief evidence of the effect of insolvency on Premier League football clubs, and even briefer evidence about ground standards.  He was hardly cross-examined, and was a reliable witness.
Mr Andre Linder

55.	Mr Linder gave written and uncontroversial evidence of payments made for legal advice in this case.  The payments comprise part of the damages claim.  As payments they are not disputed.  What they were for, and whether they are recoverable, is in issue.

The defendants’ witnesses
Mr Green

56.	Mr Green was the commercial partner who first took up the baton on behalf of his firm before being replaced by Mr Talbot.  He was clearly a conscientious and careful man, and an honest witness.  His actual recollection of detail was not very great (not surprisingly), but he never pretended to a recollection that he never had.  He was a reliable witness whose evidence I can accept, but in truth most of his evidence was but background to the central events of the case concerning liability.
Mr Smith

57.	Mr Smith dealt with the property side of the transaction.  He gave some evidence as to that, again mostly by way of background.  He was an entirely truthful and reliable witness.
Mr Talbot

58.	Mr Talbot is the partner in NGJ who had conduct of the transaction at the critical time and whose acts are said to amount to negligence.  He is clearly a careful and conscientious man.  He obviously goes about his work, and his evidence, in a methodical way.  His recollection of actual events in relation to the history of this action is (again understandably) very thin.  Most of his evidence is reconstruction, based mainly on the premise that the consequences of what he did as a matter of drafting are so obvious that viewing the matter realistically he cannot have done them accidentally and cannot have done them without instructions.  In other words, if it was a mistake it was so obvious that he cannot have made it.   His approach is, in my view, coloured by his expressed view that he does not make what he calls “material mistakes”, by which he meant mistakes which had “material adverse consequences to a client”.  From that he reconstructs that he must have had instructions, that the relevant changes must have been deliberate and that they were done on the basis of what was agreed with the other side.  

59.	I have no hesitation in saying that he was an honest and straightforward witness.  However, I think that his approach is over-coloured by his view of his capacity (or incapacity) to make mistakes.  He probably misleads himself in his conclusions about his making mistakes.    I doubt that there is any professional man who is not capable of making a mistake.  Many mistakes do not give rise to problems, either because they are trivial or not serious, or because, while having the potential to be serious, they turn out on the facts not to have serious consequences.   Because of that they may go unnoticed.   But they are mistakes nonetheless, and Mr Talbot did not go so far as to say that he never made mistakes of any kind.   His great firmness in the witness box in his reconstruction of events in a manner which presents the relevant drafting as deliberate and properly approved was in my view coloured by his unwillingness to accept that he might have made a mistake and his strong desire to construct an edifice consistent with that theory.  I therefore have to approach his evidence with a certain amount of caution. 
Miss Brankin

60.	Miss Brankin was a newly qualified assistant solicitor employed by NJG at the time of the acquisition and she worked on the matter first with Mr Green and then with Mr Talbot when he took over.  She was very inexperienced in corporate matters at the time and was not given senior jobs, but she had certain significant functions in the case, two of which were compiling the bible after completion and taking notes of meetings.  I have had the benefit of her extensive notes of the meetings she attended (or most of them – there is one crucial meeting at the end of the process of which there are no notes).   She attended most of the meetings attended by Mr Green or Mr Talbot.  Her notes read as the notes of someone taking a full note because they are not quite aware of all the issues involved, and she admitted as much in her cross-examination.  Yet again, her memory of detail of events in 1997 is not very full, but she clearly has some relevant memories, and her notes give a good picture of many significant points.  She was a completely reliable witness on whose evidence I consider I can rely where she deposes to relevant points.

Other members of the cast

61.	It will be helpful at this stage to identify one or two other persons or bodies who played a significant part in relevant events.

62.	Mr Nick Sutton and his company Fulham River Projects Ltd entered into a conditional contract to purchase Craven Cottage in September 2002.  It was the perceived need to enter into this contract that generated what was said to be the need to buy out the Muddymans.   I have referred to Fulham River Projects Ltd as his company, but in fact he was at the time employed by a company known as Crown Dilmun, and in other litigation it was held that that latter company was entitled to the benefit of his deal.   Where appropriate to do so I shall refer to him, his company and Crown Dilmun as being effectively the same entity.

Evidential matters

63.	In the course of final speeches certain points were made on the quality of some of the evidence which need to be dealt with before the evidence is set out and evaluated.  I therefore do that at this point of the judgment.

The quality of Mr Talbot’s evidence

64.	Mr Talbot has some recollections of what actually happened in 1997, but not a great deal.  He has some notes, but they do not cover some events that clearly happened.  The nature of some of his evidence is reconstruction based on his normal practices.  However, other significant parts (and in particular the crucial events which lie at the heart of the negligence claim) are based on something different.  He reconstructs on the basis that being a careful solicitor who is unlikely to have made a mistake, he would have done X or Y.  

65.	Mr Croxford objected that evidence of the kind last referred to was inadmissible.  In indulging in that exercise Mr Talbot was trespassing into the territory of the judge.  If Mr Talbot could not base himself on his normal practice, or on some other fact known to him, his personal reconstruction was evidentially valueless, since it was for me to decide the point on the evidence that I heard and saw (which was the material available to Mr Talbot for these purposes).  It is fair to Mr Croxford to point out that he did not object to the evidence being formally tendered, but he objected to its status.

66.	Mr Stewart did not accept that.  He pointed out that much of what Mr Talbot said was based on his normal practice (which is true) and he relied on Pesskin v Mischon de Reya [2003] EWHC 1745 as justifying the admissibility of the rest.  I do not think it quite gets him home.   That case, like the one before me, was one in which the solicitors did not have a recollection of the critical events in question, one of which was (like the present case) the giving of advice to the client.   Etherton J found that they had given that advice.  The solicitors had plainly given some evidence to which the word “reconstruction” could be applied, but it was (as far as one can tell) not quite the same as the parts of Mr Talbot’s evidence which Mr Croxford criticises.   In finding that advice was given the judge relied on the fact that it would be surprising for a solicitor not to have advised the client on the facts of the case (see para 81) but the solicitors themselves do not seem to have made that part of their evidence.  However, they did apparently give some evidence that their own practice was to explain, and in the case of that particular client it was their practice to explain orally (and not in writing) and to record matters for the benefit of themselves (and not their client) in order to explain the absence of attendance notes of advice (see paragraph 84).  It therefore seems that their evidence (including such reconstruction as there was) was based in the territory which Mr Croxford concedes is admissible.  The case therefore does not go so far as to meet Mr Croxford’s complaint.

67.	Having said that, however, I do not think that Mr Croxford’s point requires me to exclude Mr Talbot’s evidence, or to ignore it completely.  He may be right as a matter of technicality when he says that if Mr Talbot is not giving evidence based on facts known to him, and is putting together a theory of events based on the facts, then that evidence is technically inadmissible.  However, in a case like this that approach ignores the realities of litigation.  Mr Talbot was entitled to put forward his actual recollection, and his recollection as refreshed from his own notes and the notes of others.  This last process will be likely to involve a reconstruction exercise going beyond the actual notes.  He is also entitled to put forward his own practices, and to interpret the notes that he made on drafts.  In addition, he can seek to demonstrate himself as being a careful and competent solicitor, because that may go to the probabilities of his having made a mistake of the nature alleged as opposed to his having done the acts deliberately.   All this will be against the background of real events in which the witness participated, and he is entitled to give a flavour of those events too.  It is inevitable at that point that his evidence would spill over to an expression of what he believed happened, which is a further stage in a reconstruction exercise.   It is inevitable that any competently conducted cross-examination will end up with his giving answers which amount to that, because such a cross-examination would have to put the negligence case to him and invite him to deal with it.  There is nothing wrong with his doing that in answer to the inevitable questions, and therefore nothing wrong with his anticipating them (so far as he does) in his evidence in chief.   The objected to parts are therefore an inevitable, or an almost inevitable, continuation of a reconstruction exercise which the witness is clearly entitled to do at least some of, and to characterise this end point as inadmissible is unrealistic (whether or not technically correct).    Its weight is, of course, a different matter, and the greater the extent of his theorising, and the farther it moves from established facts or plainly admissible evidence, the less weight it probably has.  However, I do not think it right to exclude the evidence completely, and I do not do so.  Nevertheless, I have approached his evidence with Mr Croxford’s points firmly in mind because they are serious weight points.
The absence of evidence from the Muddyman parties

68.	It will be apparent from the cast list appearing above that no-one from the Muddyman side of the transaction gave evidence, apart from Mr Benbow.  The defendants’ prime case is that the crucial change in the drafting came about as a result of a requirement of the Muddymans, acceded to by the Al Fayed side, and that that requirement was made at a meeting between the parties and their advisers.  No-one has a record of that requirement, and no-one actually recollects it.  In particular, Mr Talbot does not actually recollect it.

69.	During the course of this litigation various documents have been provided by Forsters to both sides (but principally the defendants).  When specific documents were asked for they were provided, but the defendants said they had to work out whether there was a document first and then ask for it, because that was what you had to do if seeking documents under a witness summons parallel.  They could not, they said, ask for a class of documents.  They are right about the witness summons procedure but their approach seems to me to overlook the new third party disclosure provisions of the CPR (which have their genesis in the RSC), as Mr Stewart conceded.  Be that as it may, it is not apparent that the Muddymans’ side has provided all potentially relevant documents.  More significant is the fact that they have not been asked or required to provide witnesses either (other than Mr Benbow).   If the requirement for deletion of the relevant right was made at a meeting, it must have been made by Mr Sugar, and Mr Mosheim may have been present.  At least one of the Muddymans might have been present as well.    Despite that, none of them was called to give evidence.   I was told by Mr Stewart on instructions that Mr Sugar had refused to talk to the defendants, but that is all I know about this failure to call any of them.

70.	Mr Croxford did not seek to make anything of this point until I asked him whether there was a point to be made in relation to it.  At that point he adopted the point, but indicated that he did not intend to have it figure largely in his submissions.  Mr Stewart submitted that there was no point to take.   He said that it was only when a party failed to call a relevant witness who was either that party or within that party’s control that a court could draw an inference from the failure to call that party (without explanation), that inference being that the witness would give evidence  contrary to the party’s case.  

71.	The authorities on the point were summarised in Wisniewski v Central Manchester Health Authority [1992] Lloyd’s Rep Med 223. Having considered them Brooke LJ derived the following principles:

“(1)  In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)  If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)  There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4)  If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn.  If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

72.	That analysis does not rely on the concept of the control of a witness, but the authorities referred to by Brooke LJ all demonstrate that feature on their facts.  I think that it is probably built into the reasons referred to in proposition (4).  I do not, however, think that it is determinative.  The absence of a relevant witness is taken to be part of the evidential picture, and I do not see why control should be a necessary element.  The reasoning ought to apply if the missing witness is demonstrated to be willing even if not controlled.  In the present case Mr Sugar is (I was told) not a willing witness.  (Mr Croxford objected to my relying on what I was told by Mr Stewart but I nonetheless do so.)  No reason has been given for not calling the other potential witnesses.  I do not know whether they would be willing or not.  I certainly think that they would have been helpful.  The defendants are not obliged to call them, of course, but this is a case in which their case invites me to make a finding of an event of which no-one called by the defendants has any actual recollection.   I think it is fair for me to infer that the defendants are not prepared to take the risk that the missing potential witnesses would give some evidence contrary to that reconstruction.   That causes me to be even more cautious about the reconstruction than I otherwise would be.  However, having considered this point, at the end of the day I do not think that it is determinative.  The conclusion that I have reached below would have been reached irrespective of this point.

Missing documents and alleged delays in disclosure

73.	Mr Stewart made much of what he said were missing documents in this case.   They fall into two categories – documents missing from the claimant’s side of the case, and some notes which are said to be notes made by Miss Brankin but which have gone missing and which the defendants say went missing while their documents were in the custody of Harrods.  I am invited to find that some relevant documents were destroyed, that I have not been supplied with other relevant documents which still exist, and that the claimant (in the sense of the Al Fayed organisation representatives) were somehow responsible for others going missing.   On the basis of the findings I am invited to make on this I am then invited to apply the remarks of Morritt LJ in Malhotra v Dhawan [1997] 8 Med LR 319 @ 322:

“the Court should not be slow to make such inferences or assumptions against that party’s interests as are consistent with other available evidence.”

74.	There is no doubt that some relevant documents have been destroyed.  Mr Griffiths gave evidence of a system that he had for making notes of matters to be raised with Mr Al Fayed on a rolling basis, with uncompleted matters from one day being carried over to next day’s notes and the first day’s notes destroyed (by shredding) at the end of that day.  That was designed to avoid those notes falling into the hands of opponents who might, it was thought, sift through rubbish.  It turns out that that policy is unfortunate where matters end up in litigation.  It is particularly unfortunate when, as already observed, the Harrods culture is apparently not particularly document based anyway, because in many instances it removes the only piece of evidence which exists of transactions which might be documented in other fashions in a more documented business environment.   However, there is no basis for saying (and Mr Stewart did not say) that these documents were destroyed for the purposes of hindering proof in this litigation.  In those circumstances other principles apply according to the same page of the same case:

“If the court has difficulty deciding which party’s evidence to accept, then it would be legitimate to resolve that doubt by the application of the presumption [omnia praesumuntur contra spoliatorem].  But, thirdly, if the judge forms a clear view, having borne in mind all the difficulties which may arise from the unavailability of material documents, as to which side is telling the truth, I do not accept that the application of the presumption can require the judge to accept evidence he does not believe or to reject evidence that he finds to be truthful.”

75.	In this case all those points come into play.  I was not (to put it at its lowest) short of other evidence on which to decide the main points on liability in this case, and the unavailability of those documents is but one factor in a very complicated equation.   It is not, in my view, as significant as other failures to document things at all, which goes to the credibility of some witnesses (principally Mr Benson).  While I do not ignore the point, it does not have very great weight in this case.

76.	Of more evidential significance, in my view, are the documents which never existed.  I have already referred to the absence of documents generated by Mr Benson, and the non-documentary aspects of Harrods’ culture.  That is, in my view, more significant in assessing the events surrounding this case.   It is capable of going to the quality of the decision-making that surrounds a transaction such as this, and makes me more cautions of accepting recollections of positive cases.  

77.	I should deal separately with the allegedly missing Brankin notes.   As will appear from the narrative below, Miss Brankin attended several of the central meetings in May.  She took extensive notes of at least most of them.  We have her notes of several meetings.  One of her main jobs was to be a notetaker, and her notes are pretty full, albeit occasionally obscure (which is not in any way to be taken as a criticism).  She attended a meeting on 28th May which was intended to complete the transaction but which went on through the night into 29th May.  There are no extant notes of hers in relation to that meeting.    Miss Brankin expressed surprise that there were no extant notes of what was a long meeting (albeit she will have had other functions in addition to note-taking).   The absence of notes was, she said, inconsistent with her practice in the case.   Mr Stewart invites me to find that there were notes, and that they went missing when the files were at Harrods’ offices in 2002 (Mr Byrne had asked for them so that he could review them).   He makes it quite plain that he does not assert a deliberate destruction, but he does say that here were documents which would have helped and for whose absence Harrods are responsible, and that that again is material which should assist me in resolving matters (and particularly doubts) in the defendants’ favour (where material).

78.	In order to make anything of this I first have to decide whether there were any notes in the first place.  I consider that there probably were.  Having heard what Miss Brankin’s functions were, having seen her fulfil them thoroughly in relation to previous meetings, having heard her on the subject matter, and having heard how the meeting on 28th/29th May went, I am quite satisfied that she would have made notes, and can think of no sensible reason why she would not.  The notes are no longer available.  So either they were not filed, or they were misfiled, or they were lost from the file when in the custody of the defendants, or they were lost when in the custody of Harrods, or they were lost when in the possession of Kendall Freeman (who act for Holdings in this matter).  I think that the realistic possibilities are that they were lost at Harrods or at the defendants.  They are equally possible, it seems to me.   I am unable to absolve either.   I certainly do not think that it is impossible that they went missing while at Harrods.  However, while this point was pressed strongly by Mr Stewart, I do not think that I can make the finding he requires.  The files of the defendants demonstrate that documents are physically fixed into the files.  It is plausible that Miss Brankin’s notes, if on the file, could have been removed for copying and then not put back properly (or at all).  However, if that had happened Harrods would have a copy, and that copy should have been disclosed at the disclosure stage.  No such copy was disclosed.  If this is to be the analysis then not only would Harrods have lost the original, they would also have had to have lost or suppressed the copy.   The former is not likely, and the latter was not alleged or put.   It follows that I can and should make no finding against the claimants in this respect, and there is nothing here to weigh against the claimants in evidential terms.  

79.	Next there is a long list of documents which the defendants say that the claimants were reluctant to disclose.   I received a long schedule of documents which, during the course of the action, were disclosed by the claimants after the formal list procedure, and often only after a disclosure application.  I am invited to infer from this that the claimants were “(a) extraordinarily reluctant to give full disclosure in this action of the events of 2001 and 2002” and also to find that there was a deliberate concealment of, and an attempt to create a false impression as to, those events to the extent that I have still not been given a full explanation of the thought-making process which led to the deal with the Muddymans.  This latter point (what the evidence shows about the thought-making process) is a point which has a life in this action independent of any disclosure point, but I should deal with the disclosure point at this stage.  Having devoted a proportionate amount of time to considering the considerable detail involved in this point, it seems to me that I cannot really conclude that the claimants were being “extraordinarily reluctant” (which is really a euphemism for “deliberately obstructive”) in relation to this matter.  The material shows the sort of requests, debate and resolution that one often sees about disclosure in a hard fought action where considerable attention is being paid to documents.  It is true that some documents were disclosed only after an application, but it is equally true that some of those were only sought in conjunction with an amendment application (by the defendants) to which they were related.  Looking at the overall pattern I cannot and do not find the kind of reluctance which can lead me to the conclusion on the merits urged on me by the defendants.  

The facts – commencement to completion of the purchase

80.	It is now necessary to set out the facts of this case.   Some significant amount of detail is required in order to show how the transaction got to completion.    I heard very extensive evidence on the steps taken to get there, via the history of amendments to several drafts and the participation of a number of people in the process.  It is not necessary to rehearse all the detail here, and in particular it is not necessary to set out the complete detail of the early stages of the negotiation.  As the transaction progresses it will be necessary to set out more detail.  In the account which follows any recording or recitation of fact should be treated as a finding by me to that effect unless the contrary appears from the context.

81.	As at the beginning of April 1997 the Muddymans were the controlling shareholders of Fulham FC.   There were a couple of minority shareholders and directors (Mr Jimmy Hill, Mr Wilson and Mr Swain) but the Muddymans had control.  They were very concerned for the future of the club.  It had once been a leading Football League club, but had declined and was languishing in the 3rd Division.  Its ground had attracted the attention of property developers, from whom the Muddymans had bought the club.  Planning permission had been obtained to develop part of the ground, but it was under attack in judicial review proceedings.  The ground had a theoretical capacity of well over 20,000, but various restrictions reduced it in practice to about 10,500.  The planning permission would increase the effective capacity to 15,000.  The ground was in a poor state of repair, and the club’s finances were in poor shape.   Large sums of money would be required for any modernisation and the Muddymans did not have it.   They were personally exposed in that they had guaranteed loans from Flemings to the tune of £3m.   The ground was leased from the Royal Bank of Scotland but the Muddymans claimed to have an option to acquire the land for £7.5m, exercisable by 29th May 1997 (at which point the price would go up).   In short, the club needed rescuing and it needed the injection of large sums of money if it was to return to being a successful club.

82.	Through the good offices of a Mr Basham, the Muddymans were introduced to Mr Al Fayed as being someone who would potentially be interested in taking on the club.   He had an interest in football, and there is some suggestion that he had a particular interest in Fulham.  By 16th April 1997 the parties had been put in touch with each other and Mr Al Fayed was interested.   He had a meeting with Mr Collins, Mr Cook and Mr Griffiths on that date and he expressed that interest, explaining that he was not commercially motivated.   His expressed intention at the time was to be able to acquire a 51% interest of the club, acquire the freehold, and invest in a “dreamscheme” development not involving residential development, and invest in players.    That was followed on the same day by a meeting between the Muddymans on their own behalf and Mr Collins and Mr Cook on behalf of Mr Al Fayed.  Mr Cook had been told (by someone he cannot recall) that Mr Al Fayed wanted a club for his son and he and Mr Collins were to meet to see what deal could be done.  Mr Collins was a friend of Andrew Muddyman and there was sensitivity about conflicts of interest, so Mr Cook took notes of his meetings.  From the outset there was an issue over control.  The Muddymans were not prepared to transfer outright control at the outset.  They regarded themselves as being guardians of football at Craven Cottage and were very concerned that the club should not be taken over by someone who would then be in a position to asset strip it.

83.	The meeting on 16th April produced enough consensus for the matter to be taken forward.  On 21st April Mr Griffiths met Mr Green of NGJ, and on the next day that firm set out the basis of their retainer.  They were thus retained.  The terms of the acquisition of an interest by Mr Al Fayed had not yet emerged, but certain things were emerging.  The scheme would involve the provision of funding for the acquisition of the freehold.  On 23rd April there was a conference call between Mr Collins and Mr Cook on the one hand and the Muddymans on the other.  The Muddymans indicated that they had met Mr Sugar (who was to act for them), and some broad proposals were made.  Andy Muddyman set out a plan to move into the 2nd Division in year 1, get into the 1st Division in Year 2, consolidate in Year 3 and challenge for the Premier Division in Year 4.  The costs were estimated - £7m to acquire the freehold and £13m to develop the ground, with £10m for the team and running costs, totalling £30m.   The costs estimate remained a relative constant in the negotiations which followed and was reflected in the obligation of Mr Al Fayed to finance contained in the Shareholders’ Agreement.  So far as control is concerned, it was anticipated at this point that the Muddymans would be phased out over those 3-4 years, and at the end they would expect to have no interest.  Conversations took place between Mr Collins, Mr Cook and Mr Green at which elements of the structure were discussed, including the fact that control would not pass until the stadium had been developed (this would have addressed the Muddymans’ concerns about asset-stripping).  Mr Green had a conversation with Mr Sugar at which he observed that after £20m expenditure control would pass.  

84.	On 24th April Mr Green sent a memorandum to Mr Cook setting out his understanding of the position and which he intended to be the basis of a discussion with Mr Griffiths and Mr Al Fayed.  It reflected the fact that Mr Al Fayed’s objectives were to acquire control of the club together with the freehold of the stadium, and to redevelop the stadium to provide a 25,000 seat capacity, some commercial operations and possibly an element of residential development.  The Owners (the Muddymans) were recorded as wanting proposals for Mr Al Fayed to make £30m available (broken down a little differently from the above, but the differences are not material), to have money provided for the exercise of the option to acquire the freehold and to obtain a new planning permission for the new developments, with control to pass to Mr Al Fayed on redevelopment of the stadium, but with exactly what was meant by control left rather uncertain.  The memorandum envisaged an alternative proposal being put which would involve an agreement by Mr Al Fayed to make the £30m investment available, him to acquire immediate control (the extent of which was again left to be discussed) with the Muddymans being empowered to run the football activities on a day to day basis.

85.	This memorandum was discussed between Mr Green, Mr Al Fayed, Mr Collins and Mr Cook on 24th April and the alternative proposals were developed a little more.  Mr Al Fayed would make £30m available for investment in the club (with none of it apparently going to the Muddymans themselves), Mr Al Fayed would acquire an immediate 75% interest with the Muddymans having the balance of 25%, the existing planning permission would be developed if no improved permission was obtainable, and Mr Al Fayed might provide additional investment with the possibility that 3rd parties might provide investment instead.   Mr Al Fayed was content to leave day to day control of the footballing activities with the Muddymans, but with representation on the relevant board (and certain other controls), and all the proposals were to be subject to due diligence being carried out in relation to the club and the freehold.

86.	Various drafts of a letter of intent were then passed between Mr Green and the Harrods representatives.  Careful and detailed consideration was obviously given to this letter by those representatives.  On 28th April the Muddymans and their financial adviser Mr Joe Newman met with Mr Griffiths, Mr Collins and Mr Cook to discuss what was described as the “control” issue.  This meant the level of control to be taken by Mr Al Fayed, and at this meeting the Muddymans accepted that the shareholding in the new company would be split 75%/25% between Mr Al Fayed and the Muddymans respectively.   This dealt with the question of the initial control in terms of shareholdings; minority protection rights were dealt with later.  At the end of the meeting the Muddymans disclosed the existence of a £3m overdraft facility given by Flemings to the club and which they had guaranteed.  The discharge of this facility and the release of the guarantee was a concern of the Muddymans, and there were proposals for Mr Al Fayed to pay off 75% of this loan with the Muddymans paying off the balance of 25%.  Mr Griffiths said that from now on Mr Benson was to be involved; he came on board as from this time.

87.	On 29th April Mr Green met Mr Sugar and they had an extensive discussion about the transaction.  I do not need to set out the detail, but the following things happened, as reported in a letter the next day from Mr Green to Mr Griffiths:

(a)	Mr Sugar told Mr Green that his clients had (through a company called Belloc Ltd) entered into a contract to buy the freehold of the stadium for £6.7m, with completion to take place on 30th May.   That became a deadline hanging over the parties.  This contract was separate from the extant option to purchase.  

(b)	Mr Green was given some information about an alternative development possibility which the Muddymans thought they had open to them, namely one with Barretts.  They had had a bid from Barretts for some residential development in exchange for about £12m.  

(c)	The Muddymans were not prepared to give any warranties because they were not receiving any cash payment.   At the end of the day this stance was modified to some extent, but it remained the case that the Muddymans did not give extensive warranties.

(d)	The draft letter of intent was discussed.  In this context:

(i)	the discharge of the Flemings loan was discussed;

(ii)	The question was raised as to how Mr Al Fayed’s £30m was to be injected (whether by share capital, loan or a combination of the two);

(iii)	Mr Sugar indicated that the Muddymans would be looking for some minority protection.   Mr Green said to Mr Griffiths that they did not go into detail on this but he made it clear that whilst some protection might be possible, it was not such as to be to “negate our effective control.  Quite clearly, this is an area in relation to which very careful consideration will need to be given.”

88.	The next day (30th April) Mr Green met Mr Griffiths and they went through the various points arising out of the meeting with Mr Sugar.  What Mr Green had said about minority rights was recorded as “agreed in principle”.  The answer to the question of how Mr Al Fayed’s money was to be injected was that it was to be “a mixture”.    These points (and others) were reported back by Mr Green to Mr Sugar by a letter of the same day (30th April).   In particular, Mr Green confirmed that the Muddymans would require some minority protection, “particularly in order to enable your clients to preserve their 25% interest” but not so as to negate effective control.  The point was flagged as one which would require careful consideration when documents were drawn up.

89.	Mr Sugar responded to this letter on 1st May, and acknowledged that his clients did not intend to deny Mr Al Fayed control but merely intended to protect the agreements and understandings on which the transaction was based and their prospective position as minority shareholders.  Mr Green considered that this was intended to be a reference to the objectives of the Muddymans to preserve the football club and have the stadium redeveloped and retained as a stadium.  

90.	More meetings took place on 2nd May.  Mr Griffiths, Mr Benson, Mr Green, Mr Collins and Mr Cook had a meeting amongst themselves before then meeting the Muddymans’ team.  Various matters were discussed in order to take things forward.  One of them was the extent of due diligence – it was agreed (by way of concession to the Muddymans, apparently) that the due diligence exercise would be “reasonable” as opposed to “full”.  This was one of several concessions to the Muddymans, and after the meeting Mr Collins and Mr Cook are recorded (by Mr Cook) as expressing surprise that so many points were conceded to the Muddymans.   The points conceded are not material to this action, but what I think that this remark shows is that Mr Al Fayed was very keen to get this football club and was not driving a hard bargain to get it (though, of course, he had his limits).  

91.	On 2nd May the letter of intent was sent out in final form, its terms having been the subject of prior negotiation between the parties.  It is in the form of a letter from Mr Al Fayed personally to the Muddymans personally.  It records the following germane matters:

i)	    It acknowledges the concern of the Muddymans to ensure that the ground was redeveloped and Fulham Football Club was protected and secured.  

ii)	    It acknowledges the joint desire to see the club in the Premier League.

iii)	    Mr Al Fayed will make available a sum of at least £30m over the next three to four years, for the acquisition of the freehold, the redevelopment of the stadium, the running of the squad, the purchase of players, the development of commercial opportunities and the discharge of “certain existing liabilities”.

iv)	    Mr Al Fayed would acquire a 75% interest in the club, and the Muddymans would acquire the remaining 25% for £750,000.

v)	    The Flemings loan would be discharged out of the £30m.

vi)	    Rights of pre-emption would apply to Mr Al Fayed shares.  

vii)	    The parties would work together to obtain a new planning permission for the redevelopment of the stadium, failing which they would implement the existing planning permission.

viii)	    The Al Fayed approach was to be kept confidential.

92.	Mr Green now set about drafting documents.  On 8th May he sent (inter alia) drafts of the Shareholders’ Agreement and the Articles of the new company to Mr Griffiths, together with a letter commentary, and there was a meeting about these documents on the same day attended by Mr Griffiths, Mr Collins, Mr Green and Miss Brankin.   The state of the Shareholders’ Agreement at this point was as follows:

i)	    Clause 3 provided for an increase in share capital of Newco to enable the relevant shares to be allotted.

ii)	    Clause 4 provided for Muddymans’ directorships of Newco while they held at least 25% of the shares.

iii)	    Clause 6 was the financing provision.  The drafting technique was similar to the final form of this provision - Mr Al Fayed was to provide finance, for specified purposes but nothing in the agreement was to require him to provide more than £30m.  Finance provided over and above an initial agreed shareholding was to be by way of loans.

iv)	    Clause 7 contained the minority protection provision (which was eventually to be moved to the Articles).  The provision above which it operated was 25%, not the final 10%.   The creation, issue and allotment of shares was one of the restricted events.  The restriction relating to an alteration of share capital was in square brackets.

v)	    Clause 8 provided shortly for the redevelopment of the stadium under the new or existing planning permissions.  

vi)	    Clause 9 contained the buy-out provisions, but under the heading “Default”.   It applied only to the Al Fayed’s interest’s shares, and was not expressed to be applicable on the insolvency of Newco – contrast the final form.

vii)	    There were termination provisions which were intended to bring the agreement to an end if the Muddymans ceased to hold 25% of the share capital (some words were omitted from the initial draft, but that was the intention).

viii)	    There was no guarantee by Mr Al Fayed.

93.	The explanatory letter which Mr Green wrote to Mr Griffiths explaining the drafts made the following points:

i)	    He pointed out that the Muddymans would subscribe £750,000 for their shares, and asked how much Mr Al Fayed was intending to subscribe by way of shares and how much by way of loans.

ii)	    He pointed out the minority protection provision and said that “We shall need to go through these matters very carefully”.

iii)	    He drew attention to the buy-out (default) provisions.  

iv)	    He drew attention to the termination provision, and pointed out that if further shares might be issued in the future then the Muddymans’ interests might be reduced below 25% and consideration would have to be given as to whether the agreement would remain in force.

v)	    In relation to the Articles, he pointed out the need to provide for the shareholder proportions applicable to the rights of pre-emption applicable to new shares, and said he would want to discuss whether there should be a restriction on the issuing of new shares without the consent of the Muddymans.

94.	At a meeting on the same the day the following matters were decided:

i)	    Mr Al Fayed would inject £2.25m by way of share capital.

ii)	    There was a discussion of minority protection and Mr Griffiths and Mr Collins were made aware that share capital acquired by Mr Al Fayed would require the Muddymans’ consent.   They agreed this.

iii)	    Miss Brankin notes an acceptance that the 75/25 share ratio was to be maintained, and extra money would be put in by way of loan.

iv)	    Mr Green placed a tick by the paragraph of his letter pointing out the termination provision, indicating that what he had said was accepted by Mr Griffiths and Mr Collins.

v)	    Miss Brankin notes that someone had observed that the Muddymans might raise the point of Mr Al Fayed capitalising and forcing them out.

95.	Following this meeting Mr Green amended his drafts to incorporate the fruits of his discussion with the Al Fayed representatives.  His revised drafts were sent to Mr Griffiths on 9th May (one version showing alterations since the preceding draft).  The draft was amended to provide for the number of shares to be subscribed for by each of Mr Al Fayed and the Muddymans.  The former would subscribe for 2,249,998 shares (giving him 2,250,000 with his 2 subscriber shares) and the Muddymans would subscribe for 750,000 (a 75/25 ratio).   On the same date he sent drafts to Mr Sugar.  One of the new provisions that was added after his discussion with the Al Fayed representatives was a clause 7.3, which qualified clause 7.1 (the clause which forbad, inter alia, share capital issue and allotment without the consent of the Muddymans).  It read:

“Notwithstanding the provisions of clause 7.1, the Company shall be entitled to increase its authorised and issued share capital and to issue shares, in each case in accordance with the New Company Articles, at any time after Investco shall have provided finance pursuant to clause 6.1 of an aggregate amount equal to at least the maximum amount of finance Investco is obliged to provide pursuant to clause 6.3”

96.	The square brackets which had been round the restriction on altering share capital were taken out.  Taking these amendments together, they reflect an intention that when Mr Al Fayed had provided £30m the Muddymans could no longer block share issue and allotment.  This must have been one of the matters discussed and agreed at the meeting on 8th May (there is no plain note to this effect in Miss Brankin’s notes, but there are notes which are candidates and in any event it is plain that this must have been agreed).  

97.	It is apparent that by this time Mr Benson was actually participating in the consideration of these documents.   It was (as he told me) his job to understand this transaction and report back (orally) to Mr Al Fayed on matters requiring reporting back.   At this time he actually suggested the addition of a particular provision of the articles, suggesting that he was attending to detail.   Mr Griffiths told me, and I accept, that at some point in the transaction this clause 7 would have been pointed out and explained to either him or Mr Benson.  
14th May meeting

98.	On 14th May there was a meeting at Harrods to consider the drafting and matters of principle.  It was attended by Mr Green, Miss Brankin, Mr Griffiths and Mr Benson on the Mr Al Fayed side; and by Mr Sugar, Mr Mosheim, the Muddymans and Mr Newman on the Muddyman side.  The notes made by Miss Brankin, Mr Green (a pre-meeting note marked up during the meeting) and Mr Mosheim are the best evidence of what occurred at this meeting.  It is apparent that the issue of dilution of the Muddymans’ interests was raised at this meeting.  It was described as a “major gripe” by Miss Brankin.   The Brankin and Mosheim notes make it clear that it was accepted that they could not be diluted by Mr Al Fayed’s first £30m – Miss Brankin records “No capital issue before 30M” and Mr Mosheim notes “No intention that any part of the first £30m will be capitalised.”  The discussion in relation to the position should more than £30m be provided by Mr Al Fayed is less clear, but it seems to me, and I find, that this was a point which was left to be discussed further.  Miss Brankin’s note reads:

“Dilution is a major gripe for M’s; therefore prefer to have all extra financing by loans.  NGJ & Harrods to discuss options and suggest”

99.	Mr Mosheim’s note reads similarly:

“Clause 7 – threshold at which minority protection rights apply.
25% OK provided Ms can’t be diluted by new issue – ie AF will invest new money by way of loan [therefore] no protection if Ms sell out save that if Ms sell pars AF will give them a put option re balance.  AF to discuss.”

At a later point, under the heading “AF proposals”, he notes against “Dilution”:

“Ms 25% represents £7.5m.  Ms given credit for £7.5m on share issue/capitalisation.  WM & AF to discuss”

100.	Miss Brankin has a similar note without any reference to an intended discussion.   However, a later note of points arising refers to the same point as her similar note and also contains the words “come back” which suggests a discussion.  Finally, a typed FCB note of the meeting refers to a “Dilution discussion – Stuart, Mark reviewed/understood.  Will come back” and a note against “Program” says “Due diligence/dilution – WFM discussion with MAF.”

101.	It is plain from this (and other) material that there was an agreement that no part of the first £30m of financing would be advanced so as to pose a risk of dilution of the Muddymans’ 25% shareholding.  It is also plain enough to me that there were question-marks over what would happen above that.   The Muddymans were sensitive about the issue.  The question was whether and to what extent Mr Al Fayed was to have the opportunity of providing further finance by way of the introduction of share capital in a way which would dilute the Muddymans.   In theory the normal pre-emption rights in the Articles, which would enable the Muddymans to keep pace with him if exercised, would prevent that.  In practice, however, the Muddymans might be unable to find the funds to do that, leading to Mr Al Fayed taking shares when they did not and to their consequential dilution. 

102.	One other relevant matter was foreshadowed at this meeting.  Miss Brankin’s note shows that there was a suggestion that the 25% level which the Muddymans would need to maintain to keep their “privilege” under clause 4 (their directorships) might be reduced to 10%.  This took on a wider importance later on.

Third draft

103.	Following on that meeting Mr Green set about preparing a third draft of the documentation.  Amongst other things this draft did the following:

a)	It moved the Muddymans’ right to be directors to the Articles of Association (and varied it).

b)	More importantly, it moved the minority protection provisions there too.  They remained there in the final form of the documentation – see above.   

c)	This movement required some reconsideration to be given to clause 7.3, the clause which permitted alterations in the share capital once £30m had been provided.  As drafted it cross-referenced to the provisions of the Shareholders’ Agreement that restricted such an alteration.  When those provisions were moved to the Articles some modification of that provision was going to be required, and Mr Green introduced it into this draft.  It did not merely provide a different cross-reference; it went further and provided:

“9.	RESTRICTIONS

9.1	Notwithstanding the provisions of the New Company Articles or the articles of association of any subsidiary for the time being of the Company, Belloc, as the holder of a majority in nominal value of the issued “B” Ordinary Shares in the capital of the Company, hereby consents to the following:

9.1.1	any matter done pursuant to this Agreement, the Acquisition Agreement or the Property Agreement; and
9.1.2	an increase in the authorised and issued share capital of the Company and the issue of shares in the capital of the Company, in each case in accordance with the New Company Articles, at any time after Investco shall have provided finance pursuant to Clause 8.1 of an aggregate amount equal to at least the maximum amount of finance it is obliged to provide pursuant to Clause 8.3.

9.2	For the purposes of sub-clause 9.1.2, Investco shall be deemed to have provided finance pursuant to Clause 8.1 of an aggregate amount equal to at least the maximum amount of finance it is obliged to provide pursuant to Clause 8.3 notwithstanding any subsequent repayment of any such finance.”

This is the first draft of the consent provision (ultimately clause 10).  The cross references to clause 8.1 and 8.3 were to the newly numbered clauses requiring Mr Al Fayed to inject money but limiting his obligation to £30m.   The overall effect of the drafting at this stage was therefore to allow the issue and allotment of new shares once the first £30m had been provided by Mr Al Fayed, and the Muddymans would have the opportunity to keep pace by taking a proportionate new shareholding if they wished.  If they did not then they stood to be diluted by Mr Al Fayed taking shares.

d)	The draft also removed the then existing clauses providing for the redevelopment of the stadium in anticipation of a new clause.  

e)	The buy-out provision was amended to remove references to the insolvency of Investco as an event which would trigger the buy-out leaving only a failure to provide the initial £30m and a failure to develop the stadium as triggering events.  

Meeting 16th May

104.	The new drafts were sent by Mr Green to Mr Sugar on 16th May (a Friday), but they were submitted subject to any comments that the client might have – the Al Fayed representatives had not yet seen them.  On the same date there was a meeting at Harrods which did not involve the Muddyman parties.  The only notes of this meeting are Miss Brankin’s.  Although Miss Brankin was not certain that this was an internal Harrods-side meeting, I find that it was.  It was attended by Mr Griffiths, Miss Brankin and Mr Green – the latter is not recorded as being there, but he must have been.   Mr Benson may have been there, but that is not clear, and the same is true of some Ernst and Young representatives (they were acting for Mr Al Fayed).  The precise attendees do not matter.  What matters are two references to share-related matters.  At the beginning of the meeting Miss Brankin notes:

“MG – Dilution conversation w/WM  more flexible than Sugar”

“MG” is Mr Griffiths; WM is William Muddyman.  Towards the end of the note this appears:

“60m. after 75:25
Level of comfort – not intention to enforce dilution
No longer promise not to capitalise up to 30m
Effectively premium on partly paid shares”

105.	As the narrative will show, there are other records of a conversation having taken place between the lay clients about dilution and other matters, and I find that this is the first such reference.  It is likely that the conversation between principals which led to the Letter of Comfort being agreed in principle had taken place by this time.  The reference to “60m” shows that the parties had been discussing a higher level at which dilution might kick in (ie higher than £30m).   It seems to me to be likely that the reference to “Level of comfort” in the note reflects a mishearing – what was probably reported back was “letter of comfort”. 

Letter of 19th May and client meetings

106.	On the following Monday, 19th May, Mr Green wrote a letter to Mr Sugar in the following terms:

“Discussions have been taking place between our respective clients in relation to the issue of dilution and I understand that the following has now been agreed:

(a)	Should my client desire to capitalise all or any part of his initial £30m investment, this will not affect your clients’ existing 25% interest which they will have acquired at a cost of £750,000.
(b)	Should my client wish to inject any further monies by way of capital, up to a further sum of £30m, then your clients will be able to participate proportionately in any further share issue on the basis that, for every £1 subscribed by my client, your clients will only need to subscribe 2.5p.  In other words, if my client was to inject an additional £30m by way of capital, making £60m in total, then your clients will be able to maintain their 25% interest by injecting a further £750,000 resulting in a total investment by your clients of £1.5m.
(c)	Any share issue over and above that referred to in (a) and (b) above will be on the basis that your clients will be entitled to participate on a pro rata basis, with your clients paying per share the same amount as my client.

I look forward to hearing from you with confirmation that this is agreed, whereupon I shall come back to you with my suggestion as to how best to achieve this situation.”

107.	This letter confirms that discussions took place between the principals.  No-one was able to put a positive date on them, but Mr Green must have been told that that had happened, and it is suggested by Miss Brankin’s notes of the 16th May meeting.  Mr Green said that he would have received instructions or information before writing that letter, and that it is likely that he would have created a note of what he was told, but any such note was not available at the trial.  A copy of this letter was sent to Mr Griffiths; there is no evidence it attracted any dissent from him.

108.	Certain points need to be made about that letter:

i)	    It is intended to get confirmation as to the principles applicable to the drafting – it does not set out the mechanics of how the principles are to be achieved.

ii)	    It refers to “dilution”, a term applicable to the process by which the Muddymans’ proportionate shareholding might be reduced.  

iii)	    As well as that, it raises the potential for a transfer of value in relation to the second £30m referred to in paragraph (b).  It raises the prospect of the Muddymans acquiring an amount of equity disproportionate to their actual contribution towards it.

iv)	    While preventing dilution of the Muddymans’ shareholding in respect of the first £60m of finance provided by Mr Al Fayed, it does not in terms give a right to Mr Al Fayed to dilute in respect of further moneys.  Paragraph (c) states that contributions above £60m will involve a right to the Muddymans to participate on a “pro rata” basis, but does not in terms state what is to happen if they do not do so.  However, a combination of that, and the normal provisions of Articles of Association, would mean that Mr Al Fayed would be able to dilute because he would be able to increase his shareholding if the Muddymans did not.

Otherwise the letter speaks for itself.  Before coming back to deal with the meetings that must have taken place I will continue the narrative of events for the next few days.

Meeting on 20th May

109.	On 20th May Mr Green had to go to Monte Carlo for another client.  Unfortunately there was an inter partes meeting on that day which had to be attended by someone from NGJ, and Miss Brankin went alone.  The meeting involved the Muddymans’ team of the one part and Mr Griffiths, Mr Benson and Miss Brankin on the Al Fayed side of the other.  Since she was inexperienced and not leading the transaction, Miss Brankin was told to take notes and to agree nothing.  Mr Benson ran the meeting.  Miss Brankin said, and I accept, that he ran it forcefully and confidently.  The meeting covered a lot of ground in relation to such things as warranties and the financial state of the club.  The parts material to this action come at the end of the notes of Miss Brankin and Mr Mosheim.  Mr Mosheim’s notes, towards the end, record “Dilution” as an outstanding matter.  After recording a break at the meeting, he records:

“Principle re dilution accepted.
NGJ to draft dilution wording.
AF to draft side letter.”

110.	He does not record that the letter from Mr Green had been considered, but Miss Brankin’s note does.  It reads:

“Dilution issue – 
got copy of IDG letter SS yesterday on dilution
Agreed except “capitalisation”
How do mechanics work?

PR – do not want Ms to look like getting something for nothing
SS Suggesting do not take RIGHT to capitalise 
This changes

Not PR issue if in Shareholders’ A’ment [therefore] private alternative mechanics.

(b) in Shareholders A’ment. – S Benson 
[The side letter of comfort not to go over £60m] Harrods to draft”

The second set of square brackets is in the original – the “Harrods to draft” is against them so as to indicate that the drafting was to be of the letter of comfort.  

111.	Miss Brankin’s note is expanded by a note that she made after the meeting of points arising from it.  She wrote:

“E.  Dilution
Principles of IDG fax agreed except Frere Chomeley do not understand “capitalise” in paragraph (a).
Can this be drafted so that Muddymans do not look like getting a ‘gift’ from Harrods?  Suggest alternative mechanics eg rights for preference shares.
Incorporate in Shareholders Agreement ((a) and (b)) PLUS give a letter of comfort that Harrods will not capitalise over 60m.
NB S Benson will draft comfort letter.”

112.	At the trial there was a dispute as to quite how far the principles of dilution, and in particular Mr Al Fayed’s right to dilute, were agreed at this meeting.  I had better define what is meant by that.  His “right to dilute” in this context means the right cum opportunity to be able to subscribe for shares once £60m had been provided, so that if the Muddymans did not take the opportunity of subscribing for a proportion of the shares corresponding to their proportionate extant shareholding, then their proportionate shareholding would become progressively diluted.   Mr Stewart submitted that there might have been an agreement that Mr Al Fayed would have the right to dilute over £60m, but it was possible that there was not and that all the Muddymans and Mr Sugar agreed was that they would consider it further when they had seen the drafting.  He hypothesises (because he has no direct evidence about it) that an experienced negotiator like Mr Sugar might agree a sort of right as a holding matter but with a letter of comfort, planning to revisit the point in due course.  Mr Croxford says that there was plainly an agreement that the right to dilute should exist, but subject to the non-binding letter of comfort.  

113.	A finding that there was an agreement on the point at this stage is not strictly necessary as part of the reasoning on liability, since (as will appear) the documentation contained a right to dilute which, it is said by the defendants, was deliberately removed, and the defendants further concede that if there was no good reason for its removal then the defendants were negligent.  It is therefore the removal that is at the heart of the liability issue.  However, the existence of a prior agreement as to its existence is capable of going to the likelihood of its being taken out of the documentation in the circumstances alleged by the defendants, so I shall have to deal with it.  

114.	I find that by the end of the meeting on 20th the essence of the deal was that once £60m had been provided by Mr Al Fayed the normal company share issuing rules should apply so that if the Muddymans did not keep pace with him their shareholding would become diluted.  I put it that way rather than phrasing it in terms of an agreement of a right to dilute because I think that that gives it the right emphasis.  The parties had moved the debate along.  In the early stages of the deal the focus was on the first £30m.  Mr Al Fayed was concerned to limit his obligation to contribute funds, and there was, I find, little real thought about financing above that stage.   The second draft introduced a provision (clause 7.3) intended to allow shares to be issued in order to restore a default position rather than to give an opportunity which it was thought would be needed.  Then attention was focussed more on the possibility of further funding.   Consideration was given to a second £30m.   The notes demonstrate that there was a meeting between Mr Al Fayed and either or both of the Muddymans to discuss dilution-related issues, and I find there was.  The evidence about it was confused, but that is not surprising at this remove in time.  The thrust of the evidence of Mr Benson was that Mr Al Fayed was minded to promise no dilution after £30m had been lent, and he and Mr Griffiths talked him out of it and a ceiling of £60m was imposed instead.  Mr Al Fayed put the matter the other way round – after initially professing to have no recollection of this meeting, he then said that it was Mr Griffiths and Mr Benson who persuaded him to increase the non-dilution ceiling from £30m to £60m.  The quality of his evidence was such that I would prefer that of Mr Benson on the point despite my serious misgivings about the quality of Mr Benson’s evidence, but perhaps the precise content of the meeting does not matter.  It has to be said that Mr Benson’s evidence tended to wrap up the non-dilution aspects of this matter with the additional aspects which gave the Muddymans an economic benefit as well, but if I had to choose I would still prefer his evidence to Mr Al Fayed’s.  

115.	The reason that I consider that there was such a meeting is as follows:

i)	    The letter of 19th May clearly indicates that Mr Green was told there was a meeting.  

ii)	    Mr Green must have been told of its contents, and the probabilities are that he reflected what he had been told in his letter.   He would not otherwise have written it.

iii)	    Such a meeting was referred to on 16th May.  Whether it was this meeting or a precursor does not matter. 

iv)	    The contents of a letter from Mr Sugar in January 2001 – I deal with this in a separate paragraph below.  

v)	    I accept the evidence of Mr Benson and Mr Griffiths that there was such a meeting.  

vi)	    Mr Green said in terms that he believed that the right to dilute once £60m had been provided was achieved by 21st May.  Again, I deal with this below.  I think it probable that this had its roots in the meeting referred to.

116.	Although I have not heard from Mr Sugar directly, on 15th January 2001 he wrote a letter to Mr Benson about the effect of the Shareholders’ Agreement.  He says that Mr Bill Muddyman recollected a meeting with Mr Al Fayed in the presence of Mr Griffiths when Mr Al Fayed “indicated that he had no intention of diluting the Muddyman interest even if the £60m figure was exceeded.  However, no specific agreement was reached on what would happen after £60m figure was exceeded”.  Mr Muddyman could not recollect when the conversation took place; Mr Sugar said it was likely to have taken place after receipt of the NGJ letter of 19th May, or perhaps even after receipt of a later draft on 25th May.   I think that Mr Sugar’s timing is a little off, but the letter is consistent with a meeting of the kind I have described and found.  Mr Benson’s response, also in January 2001, also referred to a meeting between principals.

117.	However, the thrust of the meeting is not quite as Mr Croxford would have me find.  I find that the focus of the parties was much more on the second £30m.   The Muddymans had a concern about dilution once Mr Al Fayed had spent £30m, which was accepted as possible but of uncertain likelihood.  This must have been addressed at the meeting.   An arrangement was made about the next £30m, which included the economic benefits as well as the anti-dilution provisions.  However, I find that the focus was really on that tranche.  What happened after that £60m was not, I find, the subject of a lot of deliberation.  The thrust of the evidence was, and I find, that no-one at that stage anticipated with any great degree of seriousness that Mr Al Fayed would invest more than £60m.  It was clearly referred to, because there had been a discussion about it between Mr Al Fayed and the Muddymans, but in reality it was way down the scale of likelihood.   What was left in relation to that was effectively a default situation in which the parties reverted to the normal company law provisions governing the issue of shares, albeit tempered by what was ultimately the letter of intent.  That is reflected in paragraph (c) of Mr Green’s letter of 19th May.  All this is a matter of emphasis really.  The thrust of some of the evidence given by the Mr Al Fayed witnesses was of a very significant degree of conscious insistence that once the financing had risen above £60m then Mr Al Fayed would have the right, if he wished, to do so by the injection of share capital, but I think that that overstates what the parties were contemplating at the time because I do not think that anyone thought that the prospects of financing at that level were sufficiently great to lead to any such insistence in conversation.  The point was rather lower key than that.

Further drafting in relation to financing

118.	On 21st May Mr Green sent some revised drafting to Mr Sugar following on from the discussions as to dilution.  He wrote:

“Further to our telephone conversation of today, I enclose a clause to be inserted in the draft Shareholders Agreement dealing with the dilution issue.”  

119.	Mr Green’s evidence was that when he spoke to Mr Sugar it is likely that Mr Sugar would have confirmed his agreement to what had been set out in the letter of 19th May.   The clause that he sent was intended at the time to be a clause 9.   It provided as follows:

“PROJECT CC
Dilution

9.	ISSUE OF SHARES

9.1	In the event that Investco wishes:
9.1.1	to provide any finance pursuant to Clause 8.1 by way of subscription for share capital (rather than by way of loan);  or
9.1.2	to capitalise any finance provided by way of loan pursuant to Clause 8.1
Then Investco shall be entitled to do so on the terms set out in this Clause 9.

9.2	The first £27.75 million (less any amounts provided for the purposes of sub-clause 8.3.2 and less any amounts foregone for the purposes of sub-clause 8.3.3) of finance to be so provided by way of subscription for share capital or to be so capitalised shall be provided by subscription at par for or shall be capitalised at par into (as the case may be) preference shares of £1 each in the capital of the Company having the following rights and privileges and being subject to the following restrictions and provisions:

….

9.2.3	the holders of such preference shares shall not be entitled to receive notice of or to attend or vote at any general meeting of the Company.

9.3	The next £30 million of such finance to be so provided by way of subscription for share capital or to be so capitalised shall be provided or capitalised (as the case may be) in multiples of £40 with:
9.3.1	92.5% thereof being provided by subscription at par for or being capitalised at par into (as the case may be) preference shares of £1 each in the capital of the Company, such preference shares to rank pari passu in all respects with preference shares referred to in Clause 9.2;  and
9.3.2	the balance of 7.5% thereof being provided by subscription at par for or being capitalised at par into (as the case may be) “A” Ordinary Shares of £1 each in the capital of the Company, such “A” Ordinary Shares to rank pari passu in all respects with the then existing “A” Ordinary Shares of £1 each in the capital of the Company.

9.4	Any additional such finance to be so provided by way of subscription for share capital or to be so capitalised shall be provided by subscription at par for or shall be capitalised at par into (as the case may be) “A” Ordinary Shares of £1 each in the capital of the Company, such “A” Ordinary Shares to rank pari passu in all respects with the then existing “A” Ordinary Shares of £1 each in the capital of the Company.

9.5	Simultaneously with the issue of any shares in the capital of the Company pursuant to sub-clause 9.3.2 or clause 9.4, Belloc shall be entitled (but not obliged) to subscribe at par (payable in full in cash on allotment) for such number of “B” Ordinary Shares of £1 each in the capital of the Company as it would be entitled to apply for if such issue had taken place in accordance with Article 10 of the New Company Articles.

9.6	For the avoidance of doubt, any failure by Belloc to subscribe for shares in the capital of the Company pursuant to Clause 9.5 shall not in any way affect the operation of the provisions of sub-clause 9.3.2.

9.7	References in this Clause 9 to finance provided or to the capitalisation of finance provided shall be deemed to be references to finance provided or to the capitalisation of finance provided by Investco or any person connected with AF.

120.	The enclosing letter said that Mr Green’s clients had not yet had a sight of the drafting so it was submitted subject to such points as they might raise.  Mr Green sent a copy of it to Mr Griffiths on the same day with an explanatory letter.  It explained the clause paragraph by paragraph and at paragraph (d) said this:

“If finance in excess of £60 million is to be provided, then this can be done by way of a straight share issue and the Muddymans will be entitled to participate proportionately.  In other words, in order to maintain the 75:25 ration of Ordinary Shares, the Muddymans will have to put in £1 for every £3 put in by the Chairman.”

The defendants accept that this drafting gave a right to Mr Al Fayed to dilute, in the sense that he could take shares and if the Muddymans chose not to do so their proportionate shareholding would be diluted.  

121.	At this point in the transaction Mr Green departed from the scene because he was taking time off to move house.  Mr Talbot replaced him.  He plainly read into the matter.  His timesheets do not clearly identify time spent doing it, but I find that he did.  He basically took over the matter from 21st May.

122.	On that same day, 21st May, Mr Mosheim sent a marked up copy of the Shareholders’ Agreement showing various proposed amendments.   His covering letter raised the possibility of loans under the then financing provisions being by way of loan stock whose title would be governed by certificates.   Three significant amendments (significant for the purposes of this action) are proposed 

(i)	Against the then clause 9.2 (the “Restrictions”, providing consent to various matters) he or Mr Sugar has marked “needs to be discussed in the light of the anti-dilution provisions” and clause 9.2 is bracketed.  

(ii)	Against the default buy-out provisions there is marked “Please re-insert old insolvency provisions”.  This is a request to add back the wording that caused the buy-out provisions to operate on the insolvency of Investco.

(iii)	Against clause 15, which is the termination provision, there is marked “[ten]” against that provision which provides for the agreement to terminate when the Muddymans’ interest falls below 25%.  This is the origin of the final draft which provides that the relevant figure is indeed to be 10%, not 25%.  This was consistent with a note made against the draft Articles of Association.  In the minority protection provisions the protections were stated to apply while the Muddymans had at least 25% of the share capital, but the FCB alterations struck this out and substituted “ten”, and a marginal note said “to be discussed further”.

123.	This draft, and probably the new Green anti-dilution provisions, were considered by Mr Talbot as part of his reading in.

Meeting on 22nd May

124.	The documents received further consideration at an inter-partes meeting on 22nd May (a Thursday).  This took place at Harrods and was attended by Mr Talbot, Miss Brankin, Mr Benson and Mr Griffiths on the Al Fayed side, and the Muddymans, Mr Newman, Mr Sugar, a Mr Roberts and Mr Mosheim on the Muddyman side.  By this time Mr Talbot had read in to the transaction, and had probably also read the attendance notes of meetings that were on file.  As a result he appreciated that on the documentation as it stood Mr Al Fayed had a right to dilute once £60m had been provided.  The thrust of his cross-examination confirmed this.  Miss Brankin, Mr Mosheim and Mr Talbot all made notes at this meeting.  They are not always easy to interpret.  They also noted agreed matters by marking up their respective drafts, and some of these points are not recorded in the meeting notes.  That becomes important.  

125.	The negotiations at this meeting were complex and not easy to disentangle, but for present purposes the significant points are as follows:

(i)	The parties discussed the mechanics and effect of the introduction of the second £30m.   There were mechanics and principles to be agreed.   There was debate about the extent to which the Muddymans would, as shareholders, benefit from an increase in the value of the company, reflected in discussions about the order in which loans by Mr Al Fayed would be repaid in various events.  One of the problems debated was how Mr Al Fayed was to introduce moneys in the second £30m tranche without diluting the Muddymans.  At the end of the meeting it was decided to treat the two tranches similarly.  If Mr Al Fayed (in his discretion) introduced a second £30m the Muddymans would have the opportunity of taking shares amounting to 25% for £750,000.  Mr Al Fayed would be able to acquire 75% at a proportionately greater price.   If Mr Al Fayed sought to put in more by way of share capital (as opposed to loans) then it was suggested that the Muddymans could keep their proportionate shareholding at a less than proportionate price.   The meeting seems to have accepted that on a disposal of the company the Muddymans would receive the benefit of 25% of the investment up to 60% whether it was invested by Mr Al Fayed by way of loan or not.  On an insolvency any loans would come out first.   The detailed thinking is sometimes hard to follow, but that does not matter for present purposes.

(ii)	It was agreed by the parties that the minority protection rights threshold (or floor) would be reduced to 10%.  This is noted on the drafts, not in the meeting notes themselves.   A corresponding change was agreed in the corresponding figure in the termination provisions – the termination if the Muddymans shareholding fell below 25% was agreed to be altered to 10%.  This was a significant change.   Its obvious effect was to provide some headroom for dilution.  On the figures as the parties were looking at them it also meant that even if the Muddymans did not take up any additional shares in relation to the second £30m tranche but Mr Al Fayed did, they would still have a level of shareholding which preserved their minority shareholder protection rights and which kept the Shareholders’ Agreement in force.  

(iii)	It was anticipated that the dilution provisions would be redrafted by Mr Talbot (and this occurred).

(iv)	There was clearly some discussion and agreement about clause 9 (the consent provision, or “Restrictions”).  As it stood it cross-referenced to clause 8 (the financing provision), which in turn dealt with the first £30m only.  It was acknowledged that it was going to have to be revised to reflect the fact that the agreement was dealing with a possible second £30m of investment.   Mr Mosheim noted “only relate to £30m need to be doubled to £60m”.  Miss Brankin noted “60m to provide make sure not still 30m”.   Mr Talbot put a ring round the reference to clause 8.3 in clause 9.2 and linked it to a note “30 not 60”.  At some point he also put a tick through the previous Sugar note “Needs to be discussed in the light of the anti-dilution provisions”.  Mr Talbot also, at some point, put some square brackets in 9.2.1 and a ring around “Belloc” in 9.1.

126.	One important thing also did not happen at this meeting.   For a considerable period during the pendency of this action the defendants put forward this date, and this meeting, as being one of two candidates for the date on which they say the Muddymans asked for, and the Al Fayed representatives agreed, that there would be no right to dilute in respect of the provision of finance above £60m.  This date was maintained as a possibility through the evidence.  However, it became apparent as the evidence went on that it was very difficult to maintain that as a factual possibility.  The notes of this meeting contain nothing to support it, and if anything point against it (Mr Mosheim’s note, after recording the split of the first two £30m tranches, says “thereafter simply pro rata offer”).  Since this was a comprehensively noted meeting it is highly unlikely that any such request and concession, if made, would not have been recorded.  By the end of his final speech Mr Stewart conceded it was not a likely construction.  There are all sorts of other reasons for saying that, but I need not rehearse them.  The drafting at this stage went on with an apparent right to subscribe and a right to dilute (though not properly tied up), though it is right to say that there was no particular focus on this at the time.  Mr Talbot accepted in cross-examination that it was likely that the right to invest in shares after £60m was retained.  I find that it was.

127.	At the end of this day Mr Benson left for a few days holiday.  He did not return until 27th or 28th May.  

Meeting on 23rd May

128.	Mr Mosheim’s note of the 22nd May meeting ends with the note:

“When AF putting in permanent capital, Ms can put in 25% shares at a premium to AF or loan stock
AF to consider with EY”

“EY” was shorthand for Ernst & Young.  The next day, 23rd May, there was indeed a meeting between the Al Fayed representatives and Ernst & Young.   It was attended by Mr Talbot and Miss Brankin.  It is not clear whether Mr Griffiths attended, but it seems likely to me that if he did not attend then he was at least available to give some sort of instructions because on the basis of that meeting Mr Talbot did some more important drafting which would have been pointless without instructions on the matters of principle involved.  The significant point that emerged from this meeting was that it was decided that it would be best for Mr Al Fayed (for tax reasons) if moneys that were not introduced by share capital were introduced by way of convertible interest free loan stock.  The idea of this stock therefore replaced the preference shares which had been proposed by Mr Green on 21st May.  Mr Talbot must have got instructions to do this at some point either on 23rd or at about the same time as he produced his next draft.  It is more likely to have been the former, but that does not matter.

Drafting after 23rd May

129.	Based on that discussion, Mr Talbot set about redrafting the various documents over the weekend and the following Monday (which was a Bank Holiday).  Precisely what he did can be seen from his marked up drafts and on a separate document which records the changes in a marked up form on a word-processed document (a “comparite” version).   The following material changes were made:

(i)	A definition of Loan Notes was added (to cater for the new financing mechanism).

(ii)	He added the aspirations which appeared in the final form of clause 2 (see above).

(iii)	He altered the initial financing provision (clause 8) to reflect the fact that Mr Al Fayed would provide the balance of the first £30m by way of the Loan Notes, and introduced restrictions on redemption and transfer (the precursors of the final form set out above).

(iv)	In clauses 8.11 to 8.13 he provided that the Muddymans were to have call options enabling them to acquire up to 25% of the Loan Notes for the time being in issue for £1 (payable on each call).  In the event of a winding up of Newco Investco had the right to call for a transfer back of any loan notes so called for.  This drafting did not find its way into the final documentation in this form.  Its effect was to give the Muddymans the right to have some economic benefit from the Loan Notes.  

(v)	He redrafted Mr Green’s clause 9 (providing for the issue of preference shares) so that it read as follows (the words in square brackets in clause 9.4, and the square brackets themselves, being Mr Talbot’s, not mine):

“9.	FURTHER FINANCE

9.1	This Clause 9 shall apply after the Company shall have received all finance provided for in Clauses 6 and 8.
	
9.2	If Investco or MAF or any person connected with MAF (at its or his entire and unfettered discretion) agrees to provide further finance to the Company, it (or he) shall be entitled to elect at the time whether to do so by way of:

9.2.1		investment finance under clause 9.3;  or
9.2.2	loan on terms not less advantageous to the Company than ordinary arm’s length terms.

 9.3	The investment finance under this clause 9.3 shall mean finance not exceeding a further aggregate £30 million (above any finance provided pursuant to clauses 6 and/or 88) provided in multiples of £40 with:

9.3.1	92.5% thereof being provided by subscribing Loan Notes;  and
9.3.2	the balance of 7.5% thereof being provided by subscription at par for or being capitalised at par into (as the case may be) “A” Ordinary Shares of £1 each in the capital of the Company, such “A” Ordinary Shares to rank pari passu in all respects with the then existing “A” Ordinary Shares of £1 each in the capital of the Company.

9.4	[Add option for acquisition of 25% of Loan Notes on same terms as for first £30 million]

9.5		Any additional finance (beyond that referred to in clause 9.3) to be provided by way of subscription for share capital or to be capitalised shall be provided by subscription at par for or shall be capitalised at par into (as the case may be) “A” Ordinary Shares of £1 each in the capital of the Company, such “A” Ordinary Shares to rank pari passu in all respects with the then existing “A” Ordinary Shares of £1 each in the capital of the Company.

9.6		Simultaneously with the issue of any shares in the capital of the Company pursuant to sub-clause 9.3.2 or clause 9.5, Swinburn shall be entitled (but not obliged) to subscribe at par (payable in full in cash on allotment) for such number of “B” Ordinary Shares of £1 each on the capital of the Company as it would be entitled to apply for if such issue had taken place in accordance with Article 10 of the New Company Articles.

9.7		For the avoidance of doubt, any failure by Swinburn to subscribe for shares in the capital of the Company pursuant to clause 9.6 shall not in any way affect the operation of the provisions of sub-clause 9.3.2.

9.8		References in this clause 9 to finance provided or to the capitalisation of finance provided shall be deemed to be references to finance provided or to the capitalisation of finance provided by Investco or any person connected with MAF.”

(vi)	Clause 10 (the consent provision, or “Restrictions”) retained the form appearing above when it was clause 9 under the same description save that the reference to “Belloc” was altered to Swinburn, and the reference to clause 8.3 in paragraph 10.2 (formerly 9.2 – the words ringed by Mr Talbot on the previous draft) was altered to 9.3.  

(vii)	The minority shareholders’ protection percentage was reduced from 25% to 10% (amendments being carried out to both the Shareholders’ Agreement and the Articles to carry this out).

(viii)	A complete new redevelopment clause was included to provide for the obtaining of a new planning permission, or development in accordance with the existing permission if the former were not possible.  It was much more extensive in its drafting than its predecessor.

(ix)	The buy-out provisions were amended to restore the insolvency of Investco as being one of the events which triggered the Muddymans’ right to buy.

130.	It was suggested by Mr Croxford that this drafting at this stage failed to address the problem of finance over £60m properly, and that this was a mistake which demonstrated that Mr Talbot was capable of making mistakes.  I do not consider this to be clearly established, but do not need to spend a lot of time dissecting this part of the drafting.  It is true that it did not contain the clear permissive words that Mr Green’s clause 9 had contained in relation to finance of £60m, but the drafting can be made to work because clause 10 contained a consent to the issue of share capital which would have covered share capital issued in respect of any third tranche of financing.  What is of a little more significance is Mr Talbot’s slightly odd view of the purpose of clause 9.5 (see below) but this case does not turn on the fact that Mr Talbot made any error at this stage of the drafting.

131.	On 25th May Mr Talbot sent out his new drafts to the parties and their advisers.  His covering letter made a number of points including the following:

(i)	It pointed out that Loan Notes had been introduced.

(ii)	It pointed out that any Loan Notes acquired under the option would be re-transferred on the insolvency of the Company (“since it was agreed that this would be the exceptional case where B shareholders would not receive a 25% benefit”).

(iii)	He said a completion agenda and timetable would be available on the following Tuesday.  He said it was intended that there should be a lawyers meeting between his firm and FCB, at his offices.  

132.	The 25th was a Sunday.  On that day the press carried reports that the purchase was happening, contrary to the confidentiality that was supposed to be surrounding it.  The next day (Monday 26th) was a Bank Holiday, and the next material event was a meeting or meetings on 27th May.  This is an important day for the purposes of determining liability in this action because it is said by the defendants that this was the day on which the crucial amendments in the drafting occurred, and that they occurred as a result of the requirements of the Muddymans.  

Meeting or meetings on 27th May

133.	There was plainly one meeting on this day, which was attended by lawyers and clients.  It is less clear whether there was another, and in particular whether there was one which was the “lawyers only” meeting contemplated by Mr Talbot in his letter of 25th May.  The documentary evidence as to meetings is as follows:

(i)	A note of one of the Muddymans – probably Mr Andrew Muddyman.   He records a meeting at 3.15 pm at the defendants’ offices attended by “MG” (presumably Mr Griffiths), Mr Talbot, both Muddymans, Mr Sugar and “LJC”.   Mr Andrew Muddyman is recorded as leaving the meeting to go to FCB’s offices, and the note has an end time of 5.10 pm.

(ii)	Mr Talbot has a note which does not record attendees.  Its first couple of items can be seen to correspond with the Muddyman note.  It is clear it refers to the same meeting.

(iii)	There is another single page note of Mr Talbot entitled “O/S points” (outstanding points).  It has one matter recorded under Mr Griffiths name as “agreed by phone 27/5”.  It apparently has some relationship to what was happening on 27th May.

(iv)	Mr Smith has a note of a meeting on the same day in “conference room 1” with Mr Talbot, Mr Bill Muddyman, Mr Sugar, Mr Newman, a couple of accountants from Ernst & Young and a third Ernst & Young man who was there on behalf of the Muddymans.  It refers to various matters which do not appear in the other notes that I have referred to, and is apparently about a different meeting, or a different part of the same meeting.  Mr Smith recollects the position of the sun and infers it was in the afternoon.   

(v)	There exists a document, prepared by Mr Talbot and several pages long, which he described as a tick list.  It takes the form of a large number of points which required addressing, most of them with ticks by them.  He told me, and I accept, that he probably started it by the time that he wrote his letter of 25th May.  It was obviously added to from time to time.   Against some of the items he has put a note indicating that it had received attention in some specified way.  At least one such note was made on 27th May – against a note “FCB – letter saying they are doing [illegible]” he has written “S Sugar agreed in meeting 27/5/97”.  At least in part, therefore, it reflected some of what happened in a meeting or meetings on 27th May.

(vi)	There are notes of various participants in a drafting meeting on the face of the drafts which reflect intended alterations of those drafts.  I come to the detail of this below.

134.	So far as the oral evidence of this meeting or these meetings went, no-one has a real or useful recollection of it.  Apart from his recollection of where the sun was, Mr Smith professed himself to be “hazy” about it.   Miss Brankin has no recollection of this meeting at all.  She made a couple of notes on a draft which suggest that she was there but only very briefly.  She cannot assist as to what happened.    There is no clear evidence that Mr Benson attended a meeting on this day.  His final account of his holiday arrangements said he did not get back to work until 28th May, having spent the last night of his holiday in an identified hotel and returning his hired car on the 28th.  However, that is open to serious doubt.  His records, which show other hotel expenditure, do not show expenditure in the specified hotel at all, and the records show a payment to the car rental company on 27th, not the 28th.  It therefore may well be that he was back in London on 27th, but there is still no evidence that he participated in a meeting or meetings with the other side on that date.  Mr Griffiths’ evidence in chief was that he had no recollection of attending a meeting on that day.  In cross-examination he accepted that he must have been at one (or at least for part of the time), in the light of the apparent reference to him in the Muddyman note, but he plainly had no real recollection of such a meeting.  Mr Talbot had a form of general recollection of the meeting but his evidence as to detail was reconstruction; like others he had no real recollection of it.   As I have observed, I have not had any evidence from Mr Sugar or the Muddymans.  

135.	In the circumstances I have to rely on such documentary evidence as there is, and the probabilities, in order to work out what happened or did not happen at that meeting.   As will appear, there is also a certain amount of assistance to be gleaned from subsequent events.  

136.	Looking at the contents of Mr Talbot’s notes and Mr Andrew Muddyman’s note of the meeting, it is clear enough that they both cover the beginning of the same meeting because they both start at the same point and, until Mr Talbot’s stops, they can be seen to cover the same ground.  So it can be seen that the following matters were dealt with:

(i)	Tax matters – they do not matter for present purposes.

(ii)	Concern was expressed about the then existing option to purchase loan notes in the light of what the Muddymans had said to other directors.  Those other directors had been told that the Muddymans would not be receiving any price for their shares, but the loan options could have been regarded as such a price.  In that context it was apparently agreed that the exercise of the options would be confined to an Exit.  Mr Griffiths is recorded by Mr Talbot as agreeing to this point.  In order to reflect this Mr Talbot has added “Exit” to the definitions (but has not defined it) and has added the words “upon an Exit” to the option clause so as to qualify the circumstances in which the option might be exercised.  It is not clear whether or not this drafting change was made in the meeting.  Mr Sugar has not (or at least not clearly) noted that this change was to be made, but there is no dispute about its being agreed on all sides.

(iii)	There were discussions about tax and warranties.  The Muddymans agreed to give some limited warranties.

(iv)	Mr Talbot’s note then stops, with a heading number “5” but no additional text.  Andrew Muddyman’s note continues until he apparently leaves the meeting.   The next point he records is an important one.   The then existing clause 9 (dealing with the injection off the second £30m), gave Mr Al Fayed an entitlement (“… shall be entitled …”) to choose whether to inject that (discretionary) tranche by a mixture of shares and Loan Notes, or by way of an arms length loan, and giving the Muddymans the opportunity to keep up with share issues in advantageous terms.  The former would be of more benefit to the Muddymans than the latter.  At this meeting it was agreed by all parties that the concept of entitlement would be removed and the method of introduction would have to be agreed between the parties.  Andrew Muddyman has noted this by a short note – “By Agreement ref 9.2 2nd £30m”.   This was a significant concession by Mr Al Fayed.   It helped to give real potential value to the option.  If Mr Al Fayed had had an unfettered right to put in money by way of arms length loan then the option given to the Muddymans to have loan notes for a small sum (which had been previously agreed and which was actually drafted after this meeting) would have been avoidable at Mr Al Fayed’s whim.

(v)	Andrew Muddyman’s note records an intention to amend clause 2.  At some stage Mr Talbot gave effect to this.  Mr Muddyman’s note then stops.

137.	From then on the content of the meeting or meetings that occurred on this day has to be ascertained by the drafting changes made, as to most of which there is no dispute.  Mr Talbot’s evidence was that he used his draft to record matters that were agreed and which had to be reflected in re-drafting.  I need only deal with the points that are important to this action.

i)	    The buy-out provisions were amended to give a buy-out right if Newco, as well as Investco, was in breach of clause 8 (the initial financing provisions) and the redevelopment obligation.  This was a concession by Mr Al Fayed.  In addition, the buyout in the event of Investco’s insolvency was limited to the period up to, but not after, the first £30m of financing was provided.  Mr Talbot noted “only up to £30m” in red on his draft – probably at the meeting – and has added appropriate wording in blue (probably done afterwards).  Mr Sugar has noted “up to £30m” on his copy of the agreement.  We can therefore see both men noting the same required amendment by the same technique – noting it on their copies and not in an attendance note.  

ii)	    Up to that meeting clause 12.2 in the buy-out provisions required that the right to have the shares be exercised over all, and not merely some, of the Al Fayed shares.  At the meeting it was apparently agreed that it could be exercised in relation to some only of the shares if the Muddymans wished.  Mr Sugar noted this by an appropriate deletion on his draft and adding the word “or”.  Mr Talbot has done the same in red, and by the side has noted “Some OK MG 27.5”, indicating that he obtained Mr Griffiths’ approval to that amendment.

iii)	    Something was said about clause 10.  It is on this that the whole issue of liability in this case turns.  I deal with it in the following paragraphs.

The deletion of parts of clause 10

138.	I have set out the then existing wording of clause 10 above.  Not much of it survived to the next meeting.  Mr Talbot’s draft shows the following amendments.

i)		He added some wording in red after the word “Swinburn” in clause 10.1 seeking to expand the reference to Swinburn to include transferees.  He has written words for inclusion in the margin (linked by a caret and a line to the appropriate insertion point), but they have been ticked through in red and then had another diagonal line put through them, and the words do not appear in the final draft.    Nothing turns on the terms of that amendment, but it may be significant that Mr Sugar’s draft contains no corresponding mark.  This suggests that this was an amendment done by Mr Talbot after the meeting, with no indication made on the face of the draft prompting him to do so.  Had the wording been agreed at the meeting I think it likely that Mr Sugar would have noted it (or at least noted something) on the face of his own copy.  If that analysis is right then it suggests consideration being given to clause 10 by Mr Talbot after the meeting.

ii)	    He has struck through (in red) the words “the following:”  and the numbering “10.1.1”, together with the word “and” at the end of the subclause so that the wording would read as the final form does indeed read (see above).

iii)	    He has struck through (in red) the whole of 10.1.2 and 10.2.  The deletion of clause 10.1.2 is central to this action – it removed the reference to consent to the issue of share capital once financing had reached a certain level.

139.	Mr Sugar’s draft does not show the same.  His copy contains no striking through, but contains two markings:

(i)	It has a side line to the left of and beside the indented lines containing the words “after Investco shall have provided finance pursuant to clause 8.1 of an aggregate amount equal to at least the maximum amount of”.  It extends a little above and below these lines, though not to an extent sufficient to make it clear whether it is intended to relate to the lines either side or not.  

(ii)	There is a cross by the side of the line.  He has also put a large cross by the left hand side of clause 10.2, with what looks like an arrowhead on the top right-hand stroke (effectively pointing north-east).  It is not obvious what (if anything) this is intended to point at, but it can be observed that it does appear to point directly at the earlier sidelining that he has done.  

140.	It is therefore sensible to conclude, and I find, that this clause was discussed at the meeting, but the crucial point is: What was said about it?  

141.	The claimants say that what was discussed was the need to bring this clause into line with the fact that the deal now encompassed the possible financing of a second £30m tranche.  As it stood, the cross-referencing was related to, and apt only to deal with, the first tranche (appearing in clause 8).   Its wording gave consent to alteration of the share capital once the first £30m had been lent, and that was something that Mr Sugar would have objected to because there were specific arrangements dealing with the second £30m tranche which were inconsistent with that general consent.   Clause 10.2 was also inapt – it was inconsistent with clause 8.5 which (in substance) provided that in calculating whether £30m had been provided, repayments were to be treated as if that part of the loan had not been made in the first place.   Mr Sugar was therefore noting that amendments needed to be done to clause 10 to deal with those points.  

142.	The defendants’ case is that the parties discussed something more fundamental.  The positive case is advanced that at a meeting on 27th May the Muddymans said that they required the removal of Mr Al Fayed’s right to dilute once £60m had been lent, a right that the documents had hitherto reflected.   That was acceptable to Mr Al Fayed, and clause 10.1.2 was amended in order to achieve that.  It did so by removing the consent to the alteration of share capital that it would otherwise have contained.

143.	This positive case of the defendants is not supported by any direct oral evidence of any participant.  Nor is it supported by any note made by anyone.  Those two points would normally be pretty fatal to such a positive case, but their effect is significantly attenuated in the present case by the fact that no-one I heard has any real recollection of any detail at all, including detail of important agreements that it is common ground were made, and it is apparent that other significant alterations which it is accepted were agreed are not reflected in any separate note.  The effect of the fact that this was a very serious amendment with effects that have been seen to be extremely damaging, which might be thought to point away from such an amendment being made un-noted and un-remembered, is attenuated both by the matters that I have just referred and by the fact that at the time the prospects of Mr Al Fayed providing more than £60m of finance were not seen as particularly great, and it is quite possible that they were vested with sufficiently little significance that it makes it more explicable that the right to dilute was surrendered.

144.	Despite that, I have come to the conclusion that so far as the deletions in clause 10 removed a right to dilute which had hitherto been provided for on the documents, was not required by the Muddymans and agreed by the parties.  I think it more likely that Mr Talbot accidentally achieved that by deleting the words that he deleted from clause 10.  Some of my reasons for finding this depend on subsequent events, so it will be more useful to get to the end of this particular part of the story before elaborating on my reasoning.  I have, of course, taken the entire evidential picture into account in reaching my finding on this point.

Further drafting and the long completion meeting

145.	It was at one time hoped that a meeting at Harrods on 28th May would be a completion meeting, but in fact it took on the character of a continuing negotiation, and completion did not in fact take place until the next day.   The meeting in effect went on non-stop during that time, albeit that for part of it Mr Talbot was reviewing the documents.  Present during this time were Mr Talbot, Miss Brankin, Mr Griffiths, Mr Benson and Mr Collins on the Al Fayed side, and the Muddymans and Mr Sugar, probably with Mr Mosheim, on the Muddyman side.   It is likely that, particularly towards the end, Messrs Benson, Griffiths and Collins were not there all the time, but they were more than occasional participants.   No note seems to have been taken of this meeting by anyone, save for any additions to Mr Talbot’s tick list that might have been made by him.  Mr Talbot had prepared a new draft for this meeting, and he prepared it in two forms.  The first was a “clean” copy, showing the state of the documents at that stage as he proposed they should be.  The second was a “comparite” version, showing changes that had been made by strikethrough and by highlighting.  The computerised records show that the comparite version was produced at 4.16am.  

146.	At this meeting the parties did more than go through and check the documents.  There was significant further negotiation.  Since there is no meeting note, the details of the renegotiation have to be gleaned in the main from the alterations on the drafts themselves, though the participants (including Mr Talbot) do have some recollection of some of the negotiations on this day.

147.	Some of the renegotiation amounts to what Mr Stewart says is a continuing pattern of concessions by Mr Al Fayed which Mr Stewart submits is important because the pattern of concessions goes to the likelihood of Mr Al Fayed having conceded the right to dilute when he had provided £60m.   The main points relied on by Mr Stewart, are as follows (I do not list them all here):

(i)	Mr Talbot had prepared a definition of “Exit” (which, it will be remembered, triggered the option to acquire the Loan Notes) which defined it as a Stock Exchange listing, admission to AIM or the transfer by Mr Al Fayed of shares carrying a majority of voting rights to a non-connected connected person.  At the meeting the Muddymans extracted a concession that it should be disposal of anything more than 10% of the issued share capital.

(ii)	The Muddymans were given the additional right to acquire for £1 25% of the any shares acquired by a Noteholder on conversion of any Loan notes.

(iii)	The buy-out provision was altered to make it operative on the insolvency of the Company (Leisure).  This provision (unlike the insolvency trigger in relation to Holdings) was not limited to the period up to the time when the first £30m had been lent.

(iv)	Mr Bill Muddyman’s guarantee of Swinburn’s obligations was removed (Andrew Muddyman’s guarantee obligation had been removed at an earlier stage).

(v)	If Holdings were in breach of the initial funding obligation (the first £30m) then the Muddymans would have the right to buy its shares and loan notes for £1.

148.	There were other provisions negotiated in this meeting, but I do not need to set them out.  What is significant for these purposes is that provisions were added which materially strengthened the hand of the Muddymans, and Mr Al Fayed was prepared to allow them.   Mr Benson sought to describe them as tying up the existing deal, but I do not think that that is their character.  Some of them were significant concessions on the part of Mr Al Fayed.   He said in evidence that he advised Mr Al Fayed against the introduction of Leisure’s insolvency as a buy out trigger, which shows that it was a significant concession and not merely a tightening up.  

149.	Mr Talbot said that the introduction of some of these matters arose when Mr Al Fayed sought to have his guarantee liability clarified (or more clearly delimited).  At some time during the day Mr Talbot saw Mr Al Fayed and advised him as to a guarantee by him that appeared in the documentation to the effect that he guaranteed that Holdings would provide the funding that the agreement provided for.  Mr Al Fayed was concerned that it be quite clear that his liability was capped at £30m, and Mr Talbot was instructed to make sure that the drafting was tightened up so that the position was quite clear.  The point was only a clarification one – it did not introduce a new point.  However, it seems that the Muddymans were immediately suspicious of Mr Al Fayed because of this and it caused a threat of a walk-out and a flurry of other demands.  In the end they were placated sufficiently to keep them at the table, and various concessions were made to them.  Precisely which of the concessions resulted in that way is not clear as a matter of chronology, but that does not matter.  What is significant, for the purposes of this action, is that the Muddymans were not taking whatever deal happened to be on offer – they were negotiating hard (contrary to the impression that Mr Al Fayed sought to give) and Mr Al Fayed was making concessions – he was not pressing that hard.  I find that this demonstrates that he very much wanted the club and was prepared to make a lot of concessions to achieve that.  He would not pay any price, but he was prepared to go a long way.  This was clearly not a commercial transaction for him.  That explains the concessions, and makes it more likely than it otherwise might have been that he would make the concession which the defendants say that he made about the right to dilute once £60m had been lent.  I have borne that firmly in mind.

150.	Among the other clauses which received some attention were clauses 9.2 and 9.5.  

(i)	So far as 9.2 was concerned, the words “it (or he) shall be entitled to elect at the time” were removed (along with another amendment which is not material to this case).

(ii)	In 9.5 the words “9.1 or” were introduced before the reference to clause 9.3, making it clear that the clause applied to all share capital being introduced; and references to capitalisation and to capitalisation at par were  removed.  

151.	These points become significant when considering why the crucial alterations were made to clause 10 and the purpose of clause 9.5 in the final draft.

152.	I have pointed out that Mr Benson and Mr Griffiths were present at this meeting.  The “comparite” version was available at this meeting too.   While it was Mr Talbot’s evidence that the copies were given to Mr Benson and Mr Griffiths, he did not say that he actually went through those copies with them.  He did say, however, that he would have gone through the principal points of the position that had been reached on 28th May with those two representatives – I say “would have” because his evidence was that that was his normal practice.  He would have pointed out the material changes, with the benefit of the comparite version which showed all the changes made.  I am satisfied that that was his practice and that he did what he described.  He did not think that he went through that exercise with Mr Al Fayed personally, but that does not matter because if he explained only to Mr Benson and Mr Griffiths and got their consent that would be good enough for purpose of giving an explanation to, and receiving instructions from, the client.  The real question is what was explained.  Mr Talbot said, of the alterations to clause 10:

“It was a material change and one which I believe had already been addressed at the latest the previous day and possibly earlier than that, as I have said before. But it was a material change and that is why I believe it will have been noted on the Wednesday.”

He cannot remember giving an explanation, and in saying that is once more relying on his general practice.  He also said he believed that he explained the combined effect of the right to dilute and clause 12 (the buy-out provision) which was that in order to avoid a buy-out Mr Al Fayed would have to keep funding more or less in perpetuity, or at least until the club became self-sufficient, because a failure to keep funding would generate an insolvency which would trigger the buy-out provisions which (presumably) Mr Al Fayed would wish to avoid.  This was more onerous than would be the case were there still a right to dilute because if that right had existed then Mr Al Fayed could have introduced additional funds by way of share capital, thereby making the Muddymans choose whether to subscribe pro rata (which would have eased the burden on Mr Al Fayed) or let Mr Al Fayed dilute them down to a point where the Shareholders’ Agreement would cease to have an effect.   With the removal of the right to dilute Mr Al Fayed would have to advance money by way of loan (unless the Muddymans agreed otherwise) in order to avoid an insolvency and a compulsory buy-out.  

153.	I make my findings below as to what the Al Fayed representatives were and were not told and advised about at the completion meeting.  It is important because a failure to advise properly is one of the heads of negligence relied on by Holdings.  I shall continue the narrative for the moment.

154.	The completion meeting went on, in some form or another, until about 4am on 29th May when there was a pause for documents to be reconsidered and re-drafted.  Time was getting short – the deal had to be done before the date and time for completion of the stadium purchase on the 30th.  The meeting resumed later that morning and the matter was completed.  Some further last minute amendments were noted in manuscript on the face of the final documentation before the documents were executed.

155.	At some point on the 28th or 29th the letter of comfort was signed.  It will be remembered that Mr Benson was responsible for this document.  The history of its drafting and of the agreement of its terms is not clear.  The final document is dated 28th May.  I think that that connotes that it was typed then; it is likely to have been signed by Mr Al Fayed on that day or the next.  It does not figure on a completion check list that Mr Talbot prepared for the 28th May.   This leads Mr Talbot to believe that it was not actually tabled at the completion meeting.  I think that he is probably right about that.  I am satisfied that he is a methodical man and that if he had been expecting it, or if it had been produced in readiness for completion, it would have appeared on his list.  

156.	The letter of comfort did, however, find its way into the “bible”, which was a collection of the relevant documents put together by Miss Brankin a couple of months later.  The route it took to get there is not apparent.  There is no suggestion in the bundles that it was sent separately from other documents.  It must have found its way to the file with the other completion documents in some way which did not draw attention to its significance.   Mr Benson did not attend the resumed meeting on 29th May, so he cannot have added it himself on that day.  I think it most likely that Mr Griffiths somehow added it to the completion matters on 28th or (more likely) the 29th in a manner which did not draw any real attention to it.  That is quite conceivable bearing in mind its informal nature and the fact that Mr Griffiths was a layman who might not think it to be a document which had significance when placed alongside formal contractual documentation.  Miss Brankin said that she had no recollection of how she got the letter of comfort, and she had no recollection of asking Mr Talbot for his views as to what the bible should contain, but she said that it was most likely that she would have shown Mr Talbot the index for the bible (which included a reference to the letter of comfort).  Mr Talbot thought it unlikely she would have shown it to him.  I prefer Miss Brankin’s evidence on the point - her function and inexperience would make it likely that she would do what she said was likely.  This means (for what it is worth) that Mr Talbot could have seen a reference to the letter of comfort there, albeit 2 or 3 months after completion.

The result of the documents as completed and the negligence allegation

157.	I have set out the important final effect of the documents above.  As they stand, once Mr Al Fayed had provided £60m of financing he could continue to lend by way of unsecured loan, but he could not acquire more share capital without the consent of the Muddymans.  He therefore did not have the opportunity of increasing his proportionate shareholding by taking more shares in circumstances in which they did not wish to subscribe for a proportionate shareholding.  He therefore did not have the opportunity of diluting their shareholding, and therefore lost the opportunity of reducing their shareholding to below 10% and removing their minority shareholder protections and bringing most of the consequences of the Shareholders’ Agreement to an end.    The consequences of this are said to be more serious by virtue of the provisions of the buy-out provision (clause 12), because Mr Al Fayed was effectively locked in to continuing to fund on pain of losing his investment under clause 12 if he did not; and since he could not bring this position to an end by diluting the Muddymans so as to bring the Shareholders’ Agreement to an end he was locked in in perpetuity.   It is said that Mr Al Fayed was not asked by the Muddymans to give up the right to dilute, that Mr Talbot removed the right by accident, that Mr Al Fayed (and his representatives) did not know about this or consent to it, and that the matters just referred to were not explained to them.  At the heart of this case, therefore is why it was that Mr Talbot did as he did at or following the meeting of 27th May in removing the crucial words in clause 10.

How was the right to dilute conceded – accidentally or deliberately as a result of a request from the Muddymans?

158.	It is therefore now necessary to decide that question– how did the right to dilute come about?  It is common ground that the drafting up to 27th May included it, that the final version of the documents does not include it, and that it was removed on or immediately after the 27th May meeting or meetings (or one of the meetings) that occurred on that day.  My findings hitherto demonstrate how it was that it came to be present in the drafting in the first place.  The claimants say that the wording was deleted by Mr Talbot without request, and without instructions, and whatever Mr Talbot may have been thinking when he did it he did not realise that he was removing the right to dilute.  It ought to have remained and been adjusted to allow the issue of share capital once £60m had been provided by Holdings.  The defendants say that the removal of the crucial wording in clause 12, and of the right, was done deliberately, as a result of a request or demand by the Muddymans, and with the instructions of the client.  

159.	The nature of the defendants’ case must be borne in mind.  It can be fairly boiled down to this – the relevant right was removed from the documents by an apparently deliberate act of excision; a plausible explanation can be given for it; a plausible context can be provided for it; Mr Talbot is a careful man who would not have made a mistake about this matter; therefore, although he has no positive recollection of doing it, or for the reasons for it, I should find that the consequences were intended and were the result of a requirement of the Muddymans which was acceded to.  There is more to it than that, of course, such as subsequent conduct of the claimant in which it did not raise the point when one might have expected it to do so.  There is even evidence of Mr Benson which would support the alleged context, because on two occasions in his evidence he suggested that there was a late re-visiting of the dilution point by the Muddymans which would plainly be consistent with (though it does not prove) the defendants’ case.  However, the essence is as I have described it.  Their case is such that it invites me to draw inferences on the basis of probabilities, not just on the basis of their witnesses’ oral evidence or documentary records recording the facts.  

160.	There is no big point that has assisted me in determining this conflict.  Rather, there are various points which cumulatively tend to point in favour of the claimant’s case rather than that of the defendants.  Overall, for the reasons appearing below, I think that the defendants fail to establish the probabilities they rely on, and that the probabilities point the other way.   

161.	The claimant, of course, relies on oral evidence which gainsays the defendants’ reconstruction of events.  The evidence of the witnesses comprises a negative and a positive.  The negative comprises an account of events in which it is said that the events relied on by the defendants (the requirement by the Muddymans of a concession, its being conceded and the relevant consent and instructions being given by or on behalf of Mr Al Fayed) did not happen.  All the principal relevant witnesses (Mr Al Fayed, Mr Benson and Mr Griffiths) gave evidence to the effect that there was no such request from the Muddymans, or at least not one of which they were aware, they did not accede to any such request and did not give or know of instructions to give effect to it.   The positive is an oft-repeated assertion of an understanding that there was a right to dilute when the financing exceeded £60m.    I am not prepared to base my findings on that evidence.  The quality of their evidence is such that I cannot put much reliance on it in the circumstances.   I have dealt above with the credibility of the witnesses themselves.  In addition, they are trying to remember detailed events which took place a long time ago.   Furthermore, while it might be suggested that a concession such as that relied on  by the defendants might be said to be one which would stick in the mind, on the facts of this particular case, bearing in mind what I find to be the significance at the time of the prospects of Mr Al Fayed’s financing getting to £60m, a concession about it may well not have seemed significant enough to stick in the mind, and a combination of wishful thinking and forgetfulness could have led the deponents to believe that there had been no concession when in fact there had been one.  This is not quite so true of Mr Griffiths, who (having left the Mr Al Fayed organisation) has less cause for wishful thinking than the other relevant deponents, but I would still be reluctant to place much weight on his evidence on the point.  In this context I do not ignore the fact that Mr Griffiths is said by Mr Fallowfield to have told him that there was a right to dilute over £60m relatively shortly after the transaction completed, but I do not find that piece of evidence convincing – that particular element of recounted conversation did not seem natural to me.   The capacity of witnesses to forget significant matters of detail in negotiations such as this is demonstrated by the fact that Mr Benson had forgotten about the letter of comfort when he wrote to Mr Sugar about the history of part of the negotiations in January 2001; and he was the man who drafted the letter.   Of course, I cannot and do not ignore all this evidence, but I do not rely on it in the sense of preferring it to the evidence of the defendants’ witnesses in reaching my conclusion.  

162.	Mr Talbot has no actual recollection of it.  Miss Brankin has no recollection of any discussion of it on the next day (28th May). Mr Griffiths cannot recall being present on the 27th May.   This is not necessarily fatal to the defendants’ case.   On the facts of this case it is quite possible that it happened and that they have forgotten it.  The events at the end of the negotiating process were fairly high speed events in relation to a transaction with lots of detail, and this is not a transaction in respect of which it can be said that if the concession had been made these particular witnesses would have remembered it.  In my view this is true of both sets of witnesses.  In the context of this deal it was not such a striking feature (if it happened).  

163.	Underlying all this is a finding, which I make, that at the time of the deal it was not treated as much more than a theoretical possibility that more than £60m would be provided by Mr Al Fayed.  No-one thought that the financing would be at all likely to exceed that level, or indeed that it would achieve that level (though it was a matter which concerned the Muddymans sufficiently to cause the to raise it with Mr Al Fayed in mid-May – see above).  The transaction was entered into on the footing that £30m would be sufficient.  It is true that financing over that level was contemplated but I do not think that anyone thought that sums exceeding £60m were a realistic possibility.  Mr Benson is recorded as having said as much in consultation with leading counsel in 2002.  The note of the consultation reads: 

“At the time the deal was concluded, it was not envisaged that there would be any requirement for investment over and above the £60m envisaged by the agreement.  Stuart Benson commented that the sums involved in running football clubs had increased drastically by then.”

The remark in the first sentence can only have come from Mr Benson.  I find that he was right about that.  Mr Al Fayed told me that he never thought his investment would go beyond £60m, and that is one part of his evidence that I do accept – it coincides with the probabilities and how the transaction developed.  This factor means that it is more likely than would otherwise have been the case that the concession could have been made and forgotten – it would have been a concession about a relatively immaterial matter.

164.	This also makes it impossible for me to take a view that the alleged concession was, of itself, either likely or unlikely.   It is plausible that the Muddymans would have been concerned about dilution on 27th May.  Since the prospects of getting up to £60m were not taken particularly seriously, and since Mr Al Fayed was prepared to make significant concessions to them, it is not implausible or improbable that, if they had asked, he would have conceded restrictions on his ability to have shares once the financing exceeded £60m.  It would not have been too foolish a deal for him realistically to have contemplated or accepted.  By the same token, it is not obvious that such a concession would be likely to have been sought by the Muddymans – the deal without the concession was a good one for them.  Accordingly, I can get nothing much of assistance on the probabilities from looking the deal, or what it might have been, as at the time of the bargain.  

165.	Since the direct oral evidence and the plausibility or implausibility of the deal itself are not directly helpful in this matter, I therefore have to turn to the documents and the rest of the probabilities in order to ascertain whether the defendants are right in their version of events.  That is, in my view, the right way round of putting matters notwithstanding that technically the claimants have the overall burden of proof in this case.   The rights were in the documentation up to the meeting of 27th May, and they were then removed.   Unless there is a good reason for that then they should not have been removed.   The “good reason” is asserted by the defendants and they therefore effectively have to prove it on a balance of probabilities.

166.	I take as my starting point something that I find emerged clearly in the evidence, which is that the parties did indeed agree prior to 22nd May that in the event of the financing reaching £60m then any further financing by Mr Al Fayed could, if he wished, be by way of taking further shares.  There was to be no anti-dilution mechanism in respect of those shares, other than the Muddymans’ company law rights to keep pace if they wished and if they could afford it.  Mr Green’s evidence was clear on this, and it is consistent with his letter of 19th May.   The terms which Mr Talbot then drafted gave effect to that by the consent in the consent provision.  That was therefore the position at which the parties had arrived.

167.	The defendants then say that the Muddymans sought the concession on 27th May.   There is nothing that supports that other than the fact of the removal of the relevant words from the consent provision, so I turn to consider the events of the day in question so far as they can be reconstructed by means of reliable evidence.  The following points are material.

168.	First, there is the absence of any record of any request and consent. The absence of a note is perhaps not as significant in this case as it would be in many others, because it is apparent from the history of this matter that some important concessions made during the course of drafting are unrecorded in any note other than an indication on the face of a draft that the relevant amendment was to be made.  However, it is not totally devoid of significance.  Mr Talbot’s note of the meeting is obviously not a complete record of what was happening at the meeting, but it certainly does not record the matter.   Mr Andrew Muddyman’s note records the start of the meeting at 3.15, and his departure from it at 5.10, and that does not record it either.  It records various points, and has a margin on each of its two pages headed “Action”.  It does record that Mr Griffiths would put to Mr Al Fayed that the options over loan notes would be exercisable on an Exit, with “MG” in the action column against the item.  More significantly it records agreement relating to certain tax and warranty matters, both in the body of the note and by the mark “MG/WFM agreed” in the margin.  It also records other agreements.  It does not record any agreement about the right to dilute.  One can infer from this that the removal of the right to dilute was not raised or agreed before Andrew Muddyman left.  It is, of course, possible that it was raised afterwards, but it is more likely that a significant item like that would have been raised while he was there

169.	At some point Mr Talbot drew up his “O/S points” note that I have referred to above.  It is not totally clear at what point he did that but it seems to me to be more likely that it records some points that he had to deal with as a result of the meeting and was probably done at or immediately after the meeting.  It starts with the note “loan notes or share capital”, struck through.  There was no investigation of what that might mean.  Then there is a note “limitation on Experts’ liability”.  That is likely to be a reference to such a limitation which appeared in the then form of the buy-out clause.  His draft shows it struck out in red.  The next note says:  “is RBS happy with draft?  If so, tell C McKenna (George Williamson)”, with a line to the words “to conform to Martin Halling at FCB”.  As part of the same note it says “Draft on SBS payable to WR(L) Ltd”.  This was a reference as to how the stadium was to be paid for on completion on 30th May.  The query was whether a draft would be satisfactory.  This matter was dealt with in the third part of an attendance note made by Mr Smith in relation to three matters that he records as having occurred on 27th May.  That part is a note of a telephone conversation with Martin Halling of FCB in which Mr Smith is told that a telegraphic transfer, not a cheque, is required.  It therefore answers the point raised by Mr Talbot.  The other two items of the note suggest that the confirmation from Mr Halling came very late in the day, because they refer to a fax which it can be seen was sent at around 5.35, and it refers to Mr Smith attending the meeting at which Mr Andrew Muddyman was not in attendance, suggesting that Mr Smith came in after Andrew Muddyman left at 5.10.    

170.	The “O/S points” note goes on to record 2 more points which are reflected in the drafting.  The first reads “Shh agmt – 9.4”.  This reflects the need to draft a clause 9.4; it had not yet been drafted.  Mr Talbot’s draft shows red carets indicating the need for an insertion, and a written rider in blue containing the wording to be inserted.  The next reads “Shh Agmt Default – if Co defaults on develp’t clause”.  This refers to the introduction of a default of Newco (Leisure) for the purposes of the buy-out provision.  At some stage on 27th this was introduced, and it must have been introduced at the instigation of the Muddymans.  The wording is added on Mr Talbot’s draft in blue.  Mr Talbot’s evidence was that it looked to him as though suggestions from the Muddymans were marked up in red, and that his post-meeting drafting activities and instructions were done in blue, but he also accepted that does not appear to be uniform.  It appears to me that much of the red marking is what one would expect of quick alterations done in a meeting, or on some occasions notes of things to follow up, and all considered drafting appears in blue, but I accept that that is not a uniform pattern.  

171.	On the note there is then a line across the page and four items are set out in the centre of the page thus:

“Mark - proportionate guarantees
leave to 2 valuers
no contingencies in n.a. deficiency
Andrew not to gtee Swinburn?”

If one looks at the amendments done at or as a result of the meeting(s) on 27th one can see that the last three are all reflected in amendments or points marked up.  I am not sure about the first.  The last of them, if not the others, was clearly a matter introduced by the Muddymans – Mr Andrew Muddyman was no longer to be a guarantor.  His name is stuck through in blue on Mr Talbot’s draft; it is bracketed on Mr Sugar’s.  To the left of those entries Mr Talbot has written (in a different colour pen):

“Agreed
by phone
27/5”

And in the bottom right hand corner of the note Mr Talbot has written Mr Griffith’s home telephone number.  This clearly indicates that on 27th May, after the points had been raised at the meeting, Mr Talbot noted certain significant matters as requiring instructions and got them by phone.  Some debate and probably drafting was going on in the absence of Mr Griffiths, so he must have left the meeting at some point.

172.	There is another clear suggestion that drafting and debate was going on in the absence of Mr Griffiths.  On his draft Mr Talbot has marked an amendment to clause 12.2 against which he has put the word “Some” (which reflects the amendment) “OK MG 27.5” (in red), and Mr Talbot said that this note is likely to reflect a telephone approval.  I accept that, which means that Mr Griffiths was not there when all the amendments were done.  Mr Griffiths’ home telephone number appears written on the front sheet of the Shareholders’ Agreement.   It is also worthy of note that in relation to the “2 valuers” point appearing on the note the words “2 Valuers” has been written (in blue) by Mr Talbot at the foot of the relevant page of his draft with a red tick through it.  This probably records the telephone conversation as well.  

173.	What one gets from this is that Mr Talbot discussed various matters with Mr Sugar in the absence of Mr Griffiths.  He then got Mr Griffiths’ express consent to various matters arising out of that exercise, probably on 27th May.  There are puzzles about the timing of the telephone call.  The telephone records of NGJ have been produced and they do not show a call which can have been the call during which the necessary approvals were given by Mr Griffiths.  There is a short telephone call to his home late in the evening, but it is not long enough to permit proper instructions to be sought and given.  It is therefore not clear when the telephone conversation took place.  However, the picture that emerges from this is that at least some detailed discussion was not done with Mr Griffiths present (which is not surprising), that Mr Talbot realised that there were certain matters requiring instructions, and that he rang and obtained those instructions.  That is recorded.

174.	One therefore has this position.  The notes of the meeting suggest that the point was not raised while Andrew Muddyman was there.  Mr Talbot’s “O/S points” note suggests that it was not something raised in Mr Griffiths’ absence because otherwise it would have had to have been raised with him over the telephone and his consent would have been recorded on the draft or on the note.  It is not known when Mr Griffiths left the meeting.  He had apparently left it by the time that Mr Smith joined it (he is not recorded by Mr Smith as an attendee), but on the chronology of that note he might well not have attended until after 5.35.  So there remains a possible window during which the matter could have been raised at the meeting and Mr Griffiths’ instructions sought there and then.  However, this narrowing window reduces the probabilities of its having been done at the meeting.  

175.	The tick list also fails to support Mr Talbot’s reconstruction.  It contains a number of matters which were plainly intended to be referred to Mr Griffiths, and they are ticked, presumably to indicate that they have been done.  Some of them have an express indication that Mr Griffiths has been told and approves (for example “MG – OK”) and one has a marking “MG aware – 28/5”.   Some of this tick list was probably prepared at or around the 27th, but there is no reference to the dilution point being put to Mr Griffiths.  This absence again has some significance.

176.	There are other factors which point away from Mr Talbot’s version of events.  The defendants’ case involves the Muddymans objecting to the right to dilute, that objection being acknowledged and Mr Talbot deciding to achieve that by deleting the relevant consent on the consent provision.  That deletion would be one way of going about it.  However, if it was discussed with Mr Sugar then one would have expected him to reflect the same amendment on his draft – that is to say one would have expected him to strike out the same words.  There are a number of occasions where his draft has deletions marked by striking through the words in question (matching Mr Talbot’s striking through).  Yet in this case he has not struck anything through.  He put a single line by the side of some of the lines of clause 10.1.2, with a cross to the left.   In the absence of evidence from him one does not necessarily know what he meant, but it rather looks as though he intended to mark this as something requiring attention.  On his draft he has put a double line with a cross to the left of clause 8.6.4, which one can see from Mr Talbot’s draft has had some words added to it as a result of the negotiations; that supports my view of what his mark is more likely to mean against clause 10.1.2.    Against 10.2 Mr Sugar has put the cross with an arrow on it.  Again, this might be thought to denote something that requires attention at the same time that 10.1.2 is being addressed (hence the arrow).  There is a certain amount of intelligent guesswork about this, but at the very least it can be said that Mr Sugar’s marking does not support Mr Talbot’s case and if anything tends to point away from it.  It is, of course, true that clause 10.1.2 requires attention because the cross-reference is wrong, and clause 10.2 requires attention because it is inconsistent with clause 8.5.  But at the end of the day if the parties had agreed the removal of the right to dilute, and if the solicitors had agreed that the way of achieving that was to delete the consent in clause 10.1.2 then it would have been more natural for Mr Sugar to mark that accordingly.   He did not do so.  It is also of some significance that there was an amendment to clause 16.2 on 28th May to make sure that the call options would survive dilution of the Muddymans below 10%.  This is more likely to have been done because it was understood that dilution might take place without the consent of the Muddymans.  

177.	It is also instructive to see what Mr Sugar said about the matter when there was debate about it a few years later.  On 15th January 2001 he wrote to Mr Benson in the light of the fact that it had become apparent that the £60m finance figure would shortly be exceeded.  He sent a copy of the letter of 19th May, the 25th May drafts of clauses 9 and 10 and clause 9 and 10 of the Shareholders’ Agreement as executed.   He then says:

“As I think Bill has told you, he has a clear recollection of a conversation with Mr Al Fayed in the presence of Mark Griffiths when Mr Al Fayed indicated that he had no intention of diluting the Muddyman interest even if the £60m figure was exceeded.  However, no specific agreement was reached on what would happen after the £60m figure was exceeded.  Bill was quite sure that this conversation took place but does not remember exactly when.  It is likely to have taken place after receipt of Nicholson Graham Jones’ letter of 19 May and perhaps even after receipt of the draft of 25 May.  “

He then makes an observation about the note “ag” written on the 25th May draft, and notes:

“The other important annotation is my cross against the words ‘at any time … pursuant to clause 8.3’ contained in clause 10.1.2.”

He then deals with the question of the true construction of clauses 9 and 10 (which he professes to find less than straightforward) and volunteers the view that the Muddymans’ consent would be required for the issue of shares even after the £60m had been provided.  He anticipated a discussion about this.

178.	What is significant about this letter is what it does not say.  It is a letter which is intended to put forward a case that his clients’ consent was required to alterations of the share capital.  It makes a point on construction, but it also sets out some historical material.  What it does not say is that there was a specific request to remove the right to dilute (achieved by reinstating the consent requirement) during the negotiations.   If Mr Talbot’s reconstruction of events were right then the background would have included a specific request (acceded to) that the right to dilute be removed.  Furthermore, since that was backtracking on what had previously been agreed, one might have thought that the Muddymans and/or Mr Sugar would have remembered it.  Mr Sugar even refers to his own markings against clause 10.  Yet he does not refer to any such request.  That is significant evidence that the events did not occur.  A similar point can be made out of Mr Sugar’s approach to the question of construction.  If Mr Talbot is right the parties (and in particular their solicitors) had agreed to remove parts of the consent clause as an appropriate way of achieving the Muddymans objective of removing the right to dilute.  On that hypothesis Mr Sugar must have satisfied himself that that would produce an appropriate effect and he was satisfied with the construction of the clause.  Yet here he is in January 2001 struggling with the construction of that very clause, apparently having forgotten that he had agreed how things would work back in 1997.  That does not assist Mr Talbot’s case.

179.	It is right to say that the force of this point is reduced by two things.  First, the letter was written 3½ years after the relevant events, when details of this complex negotiation will have faded from the memory.  It is plain from the letter that Mr Sugar himself had difficulty in remembering some of the relevant facts.  Second, and reinforcing the first, the Muddymans and Mr Sugar seem to have forgotten about the letter of comfort at this stage.  If they had forgotten that, they might have forgotten an agreement to remove the right to dilute which was reached as one of many points agreed in negotiation.   Nevertheless the points made above still have some force.  

180.	Mr Benson responded to this letter by setting out a version of events which was intended to assert the position that an upper limit on protection from dilution was set at £60m at a meeting between the principals.  He then says:

“I don’t know whether Bill has a recollection of yet further discussions which did not involve me.  I have spoken to Mark who is adamant that there was no discussion other than the one I have just referred to.”

181.	Mr Sugar replied almost immediately.  He does not assert that there was a later meeting.  Nor does he refer to any discussion on 27th May.  He says:

“As I understand it, what Bill is saying is that once the £60m figure was reached, there was no specific agreement as to what was to happen.  The points I make on the document relate to an interpretation to that effect.”

182.	This correspondence is again inconsistent with Mr Talbot’s case.   There is still no recollection of a relevant conversation on 27th May.  

183.	Over the months which followed there were then further internal dealings on the Al Fayed side.  Some of them will appear in the second part of this judgment dealing with causation and damages.  I do not need to set out the detail.  Either those matters are neutral as to whether there was a right to dilute, or they assume there was one.  None of them suggest that there was a removal of a previously agreed right to dilute over £60m.  The same applies to external dealings between the Al Fayed side and the Muddymans.  

184.	Some further support for the claimant’s case on this is to be gleaned from clause 9.5.  It had a clear purpose, and made sense, when it was part of Mr Green’s original scheme.  It governed the third tranche of lending.   Its effect to that end became a little less comfortable when Mr Talbot started his involvement in the drafting, but in my view it continued to have that effect and made some sense when read with the consent provision.  However, it made little sense to leave it there if the right to dilute had been removed.  The natural way of achieving the removal would have been to have removed clause 9.5 (whether or not parts of clause 10 were also removed).  Yet it was left in the document.  The next day it was actually amended during the completion meeting.   It was put to Mr Talbot that it could perform no useful purpose if he was right in saying that the right to dilute had been removed.  His answer was that it was intended to operate to define what sort of shares would be taken in the event that there were shares issued after £60m of financing – A shares, or shares issued at par.  I do not find his answers plausible.  He is, of course, reconstructing, not remembering, but I do not consider that that could plausibly have been his thought process at the time.  The clause is indeed something of a waif if there is to be no right to dilute, and was an obvious candidate for removal if the right to dilute were being removed.  Its continued presence weighs against Mr Talbot’s case as to what happened.

185.	The signed letter of comfort was urged on me by Mr Croxford as indicating that there can have been no agreement as alleged by Mr Talbot.  If there had been, said Mr Talbot, then the letter of comfort would have been otiose and would have been spotted as such.  As it was, the letter was provided, and ultimately incorporated into the bible.  Mr Talbot did not say it was unnecessary, either at the completion meeting (if it was handed over then) or subsequently when the bible was put together.  I do not find this a particularly compelling factor.  It is not at all clear when the document was handed over.  It was not referred to in the completion agenda (a point which might said to assist Mr Talbot’s case) so it is unlikely that Miss Brankin asked for it.  It might have been handed over at the meeting, as an additional document which was available, or it might have arrived later.  Whichever it was, I can quite imagine circumstances in which, in this constantly evolving and urgent transaction, the logical necessity or redundancy of it would have been overlooked by Mr Talbot even if his case on dilution were correct.  The same applies if that did not happen, but he approved the index – it is even more plausible that, a couple of months after the transaction had been closed (which is when the bible was finalised) he should not have spotted the inappropriateness of this document from its short description in the index.  The document is, of course, consistent with Holdings’ case, but it is not of any real probative weight in establishing it, in my view.  

186.	For all these reasons, therefore, I find that the deletion of the crucial parts of clause 10 were done without a request from the Muddymans to remove the right to dilute, without an appreciation of the consequences and without the instructions of Mr Al Fayed or his representatives.  It was, in effect, an accident.  It may be that Mr Talbot thought that clause 9.5 preserved the right to have shares once £60m was reached (though that is not his evidence now) but it is not possible to reconstruct his thought processes plausibly.  Nor is it necessary.  The right was there in the documentation until 27th May;  it was removed on that day and stayed removed; no reason exists for removing it, and no instructions were given to permit its removal.  It was, as I have said, an accident.   However, it was still negligent.  The fact that it occurred should in no way be taken to detract from the conscientiousness and thoroughness of Mr Talbot.  Such things happen, and in some ways are understandable in a fast-moving and complex transaction such as this, but it was negligent nonetheless.  

187.	Since, in my view, Mr Talbot did not appreciate what he had done, a fortiori he cannot have pointed out that effect to Mr Benson and Mr Griffiths on 28th May.  Those gentlemen had their own drafts to work from at the meeting, but it is unreasonable and unrealistic to expect them to have followed through the legal consequences of the complex changes that had been made, as well as those additional changes that were being made on that day.   It is not easy to reconstruct what would have been said about clause 10, and I have considered the extent to which that fact supports Mr Talbot’s case that he must have done it deliberately and must have given an accurate explanation, but I do not find that a weighty point.   I do not think that Mr Talbot explained because I do not think he realised what he had done, and there is nothing surprising in Mr Benson’s and Mr Griffiths’ not having picked up the effect of the amendments.  Mr Griffiths was not a lawyer, and while Mr Benson was he was not a details man in relation to a transaction such as this, and he was not expected to be.  Accordingly, I do not think that the defendants can gain any evidential assistance from the fact that Mr Griffiths and Mr Benson did not take any point about the alterations which had plainly been made to clause 10.  The same applies to submissions made by Mr Stewart to the effect that Mr Benson had plenty of opportunity  to study the documents after the event (when they were being finalised for the purpose of producing finalised copies for the bible), yet he never complained about their effect.   The effect now complained of was not so obvious that I can conclude that Mr Benson must have been aware of it.  I do not think that he was, and so again this point does not assist the defendants evidentially in relation to the circumstances of the critical amendments to the Shareholders’ Agreement.  

188.	In those circumstances Mr Talbot was guilty of negligence in the drafting of the documentation.   Since that is my conclusion on the facts, I do not need to consider the consequences of an alternative possible finding, namely that Mr Talbot did the amendments deliberately but failed to explain the amendments to, and get instructions on, the amendments.  That scenario would have involved a consideration of what the Al Fayed representatives (or Mr Al Fayed himself) would have done had that happened and had they had to consider the point.  Since I do not need to, I will not lengthen this already lengthy judgment by considering that point.

The facts leading to the alleged loss

189.	It now becomes necessary to chart the relevant facts leading up to the principal alleged loss, namely the buyout of the Muddymans in September 2002.  As above, any statement of fact appearing below should be treated as a finding of fact unless the contrary appears.  The buyout took place against a background of plans to sell Craven Cottage and develop a stadium elsewhere.  It will be useful to set out that strand of the facts before then going back into the history to set out the developing financial situation, the states of mind and understanding of the Al Fayed representatives from time to time in the period leading up to that buyout, and dealings with the Muddymans. 

The plans for Craven Cottage and an alternative stadium 

190.	In the period following the acquisition of the interest in the Club, the plans to redevelop Craven Cottage were pursued.   The then existing planning permission did not allow for a development of the size and nature that it was thought was required to make the club a big and prosperous one.  It allowed for only 15,000 seats, and that was not enough.  So an alternative development idea was sought – this is the redevelopment referred to in the Shareholders’ Agreement.    Those plans were pursued.  They became all the more important when the existing planning permission was set aside by a decision of the House of Lords on 6th July 2000, so that was the end of that planning permission.  The plans were not straightforward because a number of factors had to be catered for.  For example, the footprint of the site was limiting; the residential nature of the surrounding area had to be catered for; there were listed buildings on the site.  The first designers who produced a design were known as KSS, but their design was not satisfactory and they were superseded by another designer called Robin Snell.  He produced a design more in keeping with Mr Al Fayed’s requirements, and which was thought to be more likely to get planning permission.  Unfortunately the scheme was more costly than envisaged – at first it was likely to cost £100m, which made it commercially unviable.  So it was cut down, and by October 1999 it looked as though a version of the Snell scheme would be achievable for just under the target figure of £70m.    However, as is the way of these things, it crept up again and by February 2001 it was costed at about £82m, though with an opportunity to make savings.   These were, of course, substantial sums, though it was hoped that external finance would be found for them.  Mr Fallowfield investigated the possibility of raising some outside money, and in 2001 Macquarie Bank was instructed to advise on raising such money.  

191.	On 27th February 2001 outline planning consent was obtained for the Snell design and work then started towards getting detailed consent.  It became apparent to the Fulham team that Mr Snell did not have the size of practice which was necessary to create all the detailed drawings that were necessary, so yet another architect was appointed in the summer of 2001– the Miller Partnership.  The intention was to start work on the scheme immediately the season finished at the end of April 2002 and to complete it by July 2003 so that the team could be back playing football in the redesigned stadium by the 2003/2004 season.  By the time these new architects had come on board Mr Al Fayed’s support had had considerable success in that the club had gained promotion to the Premier League at the end of the 2000/2001 season.  This made obtaining a better stadium more urgent because staying in the Premier League required an all-seater stadium, which Craven Cottage most certainly was not.  There was a certain amount of leeway in terms of time (a 3 year period of grace), but it had to happen.  Additional players would also have to be bought in order to maintain Premier League status.  

192.	Additional problems began to arise.  It became apparent that the design would only allow 27,100 spectators, not 30,000, which had an important effect on the business plan that was in the background.  Over time they managed to squeeze a few hundred more seats into the plan, but projected costs were still above £70m, and it was beginning to look as though the club would be out of the stadium for 2 seasons, and not just one, while redevelopment took place.  A ground share agreement was entered into with Queen’s Park Rangers to achieve this (signed on 4th February 2002).  Full planning consent was obtained on 17th May 2002, but the costs of the scheme remained high, at around £100m.  In the spring of 2002 it became apparent that this scheme in its full form was not going to be financially viable.  

193.	These sort of difficulties led the Fulham team to consider an alternative in the form of finding a completely different site.  Consideration was given to this as early as 1999 but no suitable sites presented themselves at this time.  By 2002 several alternatives had been looked at, but in the end only one was pursued.  It was a site at White City, then owned by Dairy Crest and which was up for sale.  The project to acquire it, and to carry out the concomitant dealings with Craven Cottage, were known as Project Gypsy.   This plan would have given a larger stadium (40-50,000 seats), and would have been substantially financed by a sale of the Craven Cottage site for residential purposes.  The Project Gypsy site had travel advantages for fans too.   Moving the stadium from Craven Cottage was a sensitive matter as far as fans were concerned, so steps were taken to deal with the matter secretly at first, which included a plan to approach the owner via a third party called Chelsfield, with whom a joint venture was canvassed.

194.	The proposals to find a new site were presented to the board of Leisure at an “away-day strategy meeting” held on 19th April 2002.  The various theoretical alternatives were pointed out, including the various possibilities for revamping Craven Cottage.  The Miller/Snell scheme was presented as not being economically viable.  Doing a minimum amount of work to Craven Cottage was not attractive because it did not produce enough seats.  Project Gypsy was presented as the only scheme which was sufficiently viable to be worth pursuing.  The Muddymans were on the board and were present, and they agreed the strategy of pursuing Project Gypsy.

195.	That project was therefore pursued.  Mr Cook and others (including Mr Bill Muddyman) had meetings with representatives of the planning side of the local authority (Hammersmith).   The local authority was keen to preserve three major football teams in the borough (Fulham, Chelsea and Queen’s Park Rangers).  The White City site was inside the borough boundaries and the planners were interested in discussing the planning side of what was required to try to preserve the existence of the three teams.  In principle they were prepared to indicate support for a scheme which gave consent to residential planning consent for the Craven Cottage site provided that a new stadium was built on the Dairy Crest site.  

196.	Chelsfield dropped out of the picture by the end of April 2002, so the approach to Dairy Crest was made direct.  Various contacts took place with Dairy Crest, with various terms of an offer passing.  On 19th June 2002 a meeting took place between the parties.  The only record of what happened at that meeting is in a letter of 24th June from Dairy Crest’s agents (Knight Frank).  It appears from that that Fulham was invited to increase its price to the amount of an offer already made of £26.25m but which had apparently lapsed – an offer had been made in May of £25m plus £1.25m if the property were taken off the market.  It had not been taken off the market and Fulham’s offer price immediately before that meeting was £25m.  Concern was expressed by Dairy Crest about obtaining comfort on funding, and Fulham was invited to reconsider its approach in relation to a “clawback” provision.  Going into the meeting Fulham was offering to pay additional consideration of 50% of net profits on a sale of the whole site within 3 years for non-footballing purposes.  At the meeting Dairy Crest apparently requested that the period be increased to 7 years.  It looks from the letter from Knight Frank as though Fulham was invited to submit a final offer by 28th June.  Fulham’s response to this is contained in a letter dated 21st June, which expresses itself to be its “best and final proposal”.  It was to increase the sale price to £26m, to increase the clawback period to 6 years and to offer a personal guarantee of funding from Mr Al Fayed.    Bearing in mind Mr Al Fayed’s keenness to get the White City site, the differences between his final offer and the terms requested by Knight Frank seem strange.  He had already indicated a willingness to pay £26.25m, yet at this point did not reinstate it.  While the commercial difference between the 6 years and the 7 years for the clawback provision was not fully canvassed in the proceedings before me, Mr Cook was unable to explain why they did not go to 7 and it does not seem a big step for someone as keen to get the site as Mr Al Fayed was.  This episode strikes me, in the circumstances, as being a somewhat quirky negotiation.  

197.	Whether or not it was that that ultimately cost Fulham the opportunity, Fulham was not the successful bidder.  On 12th July Helical Bar was announced as Dairy Crest’s preferred bidder.  That, however, did not end Fulham’s interest in the White City property.   The selling agent wrote a letter to Mr Cook on 15th July 2002 telling him that Fulham had not been accepted as the preferred bidder, but it did say that it “may be advisable for us to remain in contact over the next few months”.  That was an understandable hint that the position might change (understandable because there would have to be further negotiations between Dairy Crest and the preferred bidder, and they might falter).  Helical Bar’s proposals for the property were thought to involve office development, and Mr Cook and his colleagues took the view that Helical Bar would have some difficulty getting planning permission for its requirements.  Accordingly even after the deal was apparently struck between Dairy Crest and Helical Bar Mr Cook indicated that they would indeed stay in touch with the selling agents, and he and others harboured the view that Helical Bar might have to withdraw from the transaction because of the planning shortcomings.  His perception was that the consideration payable by Helical Bar depended on how much office space they would be allowed by the planners, and his researches and belief indicated to him that they would not be able to get enough.  Over a period of time he sought to ascertain just what the deal was, what the planning authority’s view was and how that would bear on the Dairy Crest/Helical Bar deal.  His plan was to draw the difficulties to the attention of Dairy Crest so that it would abandon the Helical Bar deal and sell to Fulham.   To that end he had confidential meetings with those employed in the planning authority and, on 2nd September 2002, Mr Jones and Mr Cook had a meeting with representatives of the Mayor of London in order to try to enlist the Mayor’s support.  That did not achieve a positive indication of support, but it was not discouraging either.

198.	In the end this tactic did not work.  Dairy Crest exchanged contracts with Helical Bar in October 2002.   Even then, however, Mr Al Fayed did not give up on the idea of getting the White City site for some time.  There were then negotiations with Helical Bar, until the end of 2003, but they proved unsuccessful.

199.	In parallel with this, and as part of Fulham’s overall tactic, attempts were made to get planning permission for the residential development of Craven Cottage.  Fulham created a contractual obligation to do this as a result of a contract with Mr Nick Sutton, which I deal with below.  Realistically speaking, planning permission for this was only going to be obtained as part and parcel of relocating the ground to another location in the borough.  Equally realistically, the only candidate for relocation was the White City site, and it was hoped that the discussions with the planning officials about all this, would, as Mr Cook put it in one of his witness statements, lead to the officials using what influence they had to try to assist Fulham in obtaining the White City site.  Being translated, I think that that is likely to mean that Mr Cook and his colleagues hoped that a planning outcome would arise which would make the development unfavourable for Helical Bar and favourable for Fulham.  All this did not work either, and by the beginning of 2004 it was apparent that the alternative site was not available.

200.	Mr Stewart has invited me to find that the prospects of obtaining the Dairy Crest site were poor once Helical Bar had been announced as the preferred bidder.  An extensive case was mounted in cross-examination in relation to this.  There was no real challenge to the assertions that the tactic of Fulham was as set out above, or to its bona fides.   There was a serious challenge as to the sense of it, and its prospects of success.   Having heard all that evidence, and having considered carefully the Fulham material and the cross-examination, it seems to me that it can be described in various ways.  There was undoubtedly a large speculative element about the tactic, and a great deal of it was based on hope.  However, it was not a hopeless speculation, and cannot be branded as unreasonable as a plan.  Having lost the bidding war, it was, in business terms, not unreasonable to go about matters in a different way.  The club did not get negative messages from the planning authority.  It would be a hard fight, and it turned out to be unsuccessful, but it cannot be branded as unreasonable in commercial terms, particularly in the period leading up to the exchange of contracts between Dairy Crest and Helical Bar.   However, it would not have been sensible to have regarded it as more probable than not in terms of its prospects of success.  There were too many uncertainties in it for that to be true.   Whether it is right to brand the prospects at the time as poor is less clear, but I do not think that it is necessary for me to consider in detail whether that is the right adjective to apply.  What is important for present purposes is that it was a legitimate business plan in the circumstances, but one with a very large element of uncertainty about it so as to deprive it of the characteristic of a probability and to give it a heavy speculative characteristic.  What can be said is that the fact that Fulham felt it had to do it makes its decision not to increase its offer to what Knight Frank suggested look even stranger, if not foolish.

The contract to sell Craven Cottage

201.	I have referred above to the agreement to sell Craven Cottage to Mr Sutton.  It was apparently the desire to enter into this agreement that acted as a trigger for the deal which bought out the Muddymans.  It came about in the following circumstances.

202.	The hope in relation to Project Gypsy was that it would be possible to sell Craven Cottage with permission for development (including residential development) so as to raise funds to assist in the purchase and development of the White City ground.   DTZ had carried out a valuation in 2000, and in June 2002 they were asked to update it.  They were apparently asked to do it in a hurry.  They came up with a range of figures ranging from £61.3m to £89.4m.  With the benefit of those figures there were then negotiations with potential purchasers.  Mr Cook was in charge of those negotiations.  Initially there were three potential purchasers - Berkeley Homes, Crest Nicholson and Mr Sutton.  The first of those three went off the scene first, leaving the other two candidates.  The first relevant contact with Mr Sutton was probably on 7th June.   On 12th July Fulham was told that it was not the preferred bidder for the White City site, but the attempts to enter into agreement for the sale of Craven Cottage continued.  Mr Cook told me that the reason for this was that he thought that there was a reasonable chance that Fulham would come back into the frame for White City (see above) and they wanted to have a contract in place in order to be able to demonstrate that they were serious and were in a position to go ahead with the acquisition.  I accept that this was probably at least part of the thinking, though for reasons appearing below I am not satisfied that I was told the complete picture in relation to the thinking behind the Sutton deal.  

203.	Offers from both Crest Nicholson and Mr Sutton were considered, and on about 29th July Mr Cook produced a comparison of the offers then received.  They showed that Crest Nicholson were offering more money (on various alternative scenarios, and on some of them considerably more), though the payments were structured differently.  Despite that a deal was reached with Mr Sutton (or technically his company), which culminated in a written conditional contract dated 18th September 2002.  The principal terms of that deal were in outline as follows:

i)	    Mr Sutton’s company (Fulham River Projects Ltd) would buy Craven Cottage.

ii)	    The purchase price was £50m, of which £15m was payable as a deposit.

iii)	    The condition of the contract was the obtaining of a Satisfactory Planning Permission.  A Satisfactory Planning Permission was one that permitted the demolition of the existing stadium and the building of at least 240,000 square feet of residential units.

iv)	    If the contract was not fulfilled by 30th September 2004 then either party might terminate; and if it was not fulfilled by 30th September 2005 then the contract would automatically terminate.

v)	    There was an overage provision which increased the consideration up to a maximum of £10m if the planning permission allowed more than 240,000 square feet of residential units.

vi)	    The obligation to obtain the Satisfactory Planning Permission was placed on Fulham, as was an obligation to acquire an alternative site for use by the Club as a stadium.

vii)	    In the event of the termination of the contract without completion then the deposit would be repaid to the purchaser with compound interest at the rate of 12% with annual rests.  The repayment of this sum was to be secured by a charge on Craven Cottage.

204.	There are a number of odd features about this deal and the way it was done.  

i)	    First, it was perceived as urgent.  Mr Cook’s notes for mid-July show that he was looking to exchange in about a month if possible.  If the plan was to have a deal in place to convince Dairy Crest that Fulham was a better bet than Helical Bar then it is not plain why that degree of urgency was required.  It would take some time for the planning factors to come into play, and while a leisurely stroll towards exchange would not be appropriate, the degree of urgency demonstrated by Mr Cook’s notes strikes an odd tone.

ii)	    The interest rate is high (as other witnesses admitted).  Compound interest is unusual too, but bearing in mind that the rests were annual then to that extent the compounding is less significant.  Since part of the purpose was to have funds available if necessary towards the purchase of the Dairy Crest site, this seems expensive funding. Various witnesses denied that the motivation behind this deal was to obtain funds that were needed for the Al Fayed empire.  If that denial is wrong, then bearing in mind the picture that was painted of Mr Al Fayed as a wealthy man with access to substantial funds, this form of funding looks bizarrely expensive.

iii)	    The overall intention was probably to tie the operation of this agreement in with getting hold of the White City site.  The agreement was conditional on getting planning permission for residential development; and in practical terms that was dependent on getting planning permission for the White City site; which in practical terms was only going to happen if the White City site became available.  There is a logical structure in that.  However, clause 2.4 of the agreement gave Mr Sutton the right to waive the condition and insist on completion even if the condition was not met.  It might have been thought to be unlikely that he would do so, but it did expose Fulham to the possibility of losing the ground without having another home to go to.

iv)	    The deal was below the valuations suggested by DTZ.   The overage provisions operated to increase the price if more residential square footage became available; it did not increase the price if there was an increase in residential property values.

v)	    The deal was not as good in financial terms as that apparently on offer from Crest Nicholson.  The preference for the Sutton deal was justified in substantial measure by the fact that he was likely to be able to respond more quickly than Crest Nicholson and to “deliver”, and to some extent by the fact that the Crest Nicholson deal was more complicated.

vi)	    Mr Cook said that one of the motivations behind getting this deal, or a similar deal, in place at that time was to convince the planning authority of Mr Al Fayed’s seriousness in his intention of acquiring the White City site.  I find this unconvincing.  The planners would know from their discussions, then and subsequently, how serious he was, and I do not see how a conditional contract of this nature would demonstrate that any further.  There is some evidence that at an early stage in the transaction he was concerned that the planners would regard this sale as “putting the cart before the horse” and not like it.  

205.	It was strongly submitted by Mr Stewart that the real reason for urgency in reaching this deal was that Mr Al Fayed needed the money because there was a cash crisis in Fulham.  This was steadfastly denied by the claimant’s witnesses, save that it was accepted that there was a form of cash crisis at the time because there always was such a crisis in this club.  I think that the need to generate cash probably played a larger part in the thinking behind this deal than witnesses were prepared to admit.  There is a reference to “Fulham’s urgent cash flow problem” in instructions to leading counsel in September and in supplemental instructions to him.  More tellingly, in August Mr Fallowfield prepared a document entitled “Fulham Football Club the options now available”, in which he records:  “The Chairman has instructed S Benson and R Fallowfield to examine options available to him for an exit from FFC.”   It is apparent from this that Mr Al Fayed thought the situation was very serious, and the note records that “Harrods may not be in a position to continue paying FFC’s payroll after the end of July 2002.”  The options were then identified, including (as option 2) “Sell assets to generate cash”.  When considering this option the document states “Selling land at Craven Cottage is the only other option.  This process has already started and will generate £15m in the next few weeks.”  There are other strong indications of a funding crisis in the club in that document.   It is true that it is not clear that this money was vital and that without it the club would fail, but there is evidence that the deal with Mr Sutton had the effect just described, and I find that it was part of the motivation behind the deal and its timing and urgency.  The decision to enter into it was also taken quickly, and I accept Mr Stewart’s submission that it demonstrates Mr Al Fayed’s propensity to make decisions that can be seen to be over-quick, not fully measured and somewhat quirky.  

The dealings with the Muddymans and the agreement to buy them out

206.	Those major events form the background to the agreement to buy out the Muddymans.  In order to see how the parties got there it is now necessary to re-trace one’s steps again and follow the unfolding understanding of the Al Fayed participants as to the deal they had entered into in 1997, their dealings with the Muddymans over the ensuing years and the final events leading to that buy-out.

207.	It became apparent within a relatively short time of completion that the financing figures on which the original deal was based were not going to work.  There are documents in November 1997 which indicate that the cost of the stadium renovations were going to be more like £30m and not the £13m anticipated when the deal with the Muddymans was struck.  By June 1998 Holdings had lent over £19m.  From time to time Mr Al Fayed’s representatives considered the respective values of the interests of Mr Al Fayed and the Muddymans.  In November 1998 Mr Fallowfield put together a one page spreadsheet, in which he considered the values of those interests on an “Exit” which would generate the payment of the deferred consideration for the Muddymans.  He did that on the basis of an injection of the first £30m, and then the second £30m on the footing that it went in as “investment finance”, and showed that the Muddymans would get over £7.5m in the first event, and £10.25m in the second.  This was produced at the request of Mr Griffiths who wanted to show it to Mr Al Fayed in order to explain what would happen in relation to the first and second £30m tranches.  

208.	While the club prospered on the playing field, it did not do so financially.  More money was being injected, and in October 1999 there is the first record of someone thinking in terms of more than £60m being injected by Mr Al Fayed (though at this time the first £30m had not yet been fully injected).   Mr Fallowfield prepared another spreadsheet contemplating an investment of up to £100m and working out the consequences to Mr Al Fayed assuming a “break-up” and making a variety of assumptions as to how the additional money would be injected and by whom.  The detail does not matter, save to observe that the figures showed that gains would have to be very significant to give Mr Al Fayed his money back.  The document was said to have been prepared on Mr Fallowfield’s own initiative to give him an insight as to the inner workings of the business and how some of the options could work out for Mr Al Fayed in the future.  

209.	The relationship between Mr Al Fayed and the Muddymans was not entirely easy in this period.  The Muddymans were not prepared to sit back and let others get on with the running of the club, and sought to have some influence.  They insisted on signing cheques for over £10,000.  Mr Al Fayed found this irritating both because he was the person putting the money in, and also doubtless because his personal style and experience was such that he was not used to having other people having a say in businesses which he regarded as his.  Those factors would obviously lead to some tensions, and they did.

210.	It is apparent that within 6 months there was talk in the Al Fayed camp about buying out the Muddymans.   A diary entry of Mr Benson for 17th March 2000 shows he had a discussion with Mr Griffiths about “the Muddyman shares and possible purchase of them”.  At about the same time, on 2nd March, Mr Fallowfield prepared another spreadsheet, entitled “The Time Bomb in the Loans”.  The figures demonstrated that if Mr Al Fayed’s investment stopped at £60m, there would have to be a gain of £18m in the value of the club over that investment for Mr Al Fayed to break even, because of the advantages given to the Muddymans by the Shareholders’ Agreement.  The value would have to get to £114m before Mr Al Fayed’s gains matched those of the Muddymans.   If one assumed another £10m being introduced by Mr Al Fayed by way of share capital, there would have to be a £14m gain for him to break even, and if that additional £10m were introduced as share capital pro rata by the shareholders the gain would have to be £18m for Mr Al Fayed to achieve break-even and £54m for him to achieve parity of cash profits with the Muddymans.  By this exercise he was pointing out the profits available to the Muddymans and seeking to draw attention to the point so that Mr Griffiths and Mr Al Fayed could consider whether they wanted to do anything about it.  It did not look sensible to Mr Fallowfield.  I find that he was implicitly inviting some consideration to be given to fixing the situation.  

211.	As at the end of June 2000 over £40m had been provided to the club by Mr Al Fayed.  This was done in accordance with the Shareholders’ Agreement, with the Muddymans taking matching shareholdings as provided for there.  The total of injected shareholder funds by the end of June was just over £43m.  At the end of August Mr Fallowfield produced a document predicting that over £55m would be required by the end of the year, and that by the end of April 2001 £60m would be exceeded, and Mr Fiddy (managing director of the club) recognised that by October 2000.  He wrote a formal letter to Holdings pointing this out, and asking for instructions as to how additional funding was to be dealt with.  Mr Fiddy professed an understanding that clause 9.5 of the Shareholders’ Agreement provided that additional capital above £60m should be by way of share capital and that Holdings had an entitlement, but not an obligation, to subscribe for A shares, whereupon the Muddymans would have a right to pro rata B shares.  It stated that the more usual course would be to come to the shareholders in advance and invite them to subscribe, but sought views on other solutions.  The letter stated that it was copied to Mr Bill Muddyman.  It was also copied to Mr Benson in January.  He professed to have “no idea” as to why it was faxed to him at that time, but I do not accept that.  Even if he could not remember receiving it (which is entirely plausible) it must have been apparent to him that it was faxed to him so that he had a copy when, as happened shortly thereafter, he was having dealings with Mr Sugar.  Mr Benson did confirm, however, that he would have been having discussions with Mr Fiddy about the sort of things raised in the letter at about the time of the letter.  I think it likely that the letter was the fruit of such discussions (and perhaps other discussions with Al Fayed representatives) and I think it likely that it contained a slant which was approved by those representatives as being a line that Mr Al Fayed would wish to have them take.  

212.	The Muddymans themselves had been thinking about further financing, and indeed discussing it with Mr Benson and Mr Fiddy.  On 15th January 2001 Mr Sugar wrote to Mr Benson dealing with what should happen once the £60m figure was reached.  I have already referred to this letter above.  It sets out his view that the Muddymans’ consent would be required in relation to investment above £60m if it were to be done by way of additional share capital (that is the thrust of the letter, which argues the point as a matter of construction and refers to an oral agreement that the Muddymans would not be diluted.)  Mr Benson responded, claiming that the inability to dilute only arose in relation to the first £60m, on 26th January.  The position was discussed further between Mr Benson, Mr Sugar and the Muddymans over the following 2 months.   Also in January, a firm called IMG made a presentation to someone at Fulham about the financing and possible flotation of the stadium.  This demonstrates that a flotation was at least in mind.  This would be an event which would trigger the Muddymans valuable rights under the Shareholders’ Agreement.  On 31st January Mr Fallowfield sent a reminder to Mr Benson and Mr Griffiths that some time in March the “magic £60m … could be breached” and that a formal structure for future financing was required “if it is the intention that the Muddymans’ share is rapidly diluted”.  That seems to reflect the view that dilution might be desirable.  

213.	In May 2001 Mr Fiddy instructed Herbert Smith to advise on how further financing was to be dealt with under the Shareholders’ Agreement.  They advised in writing on 31st May.  They advised that by virtue of a combination of clause 9.5 and Article 6.1, the consent of Ruxley (the Muddymans) would be required for the issue of shares.  This letter was provided to the board of the club company, and thus the Muddymans saw it.  On 4th June Mr Sugar wrote to Mr Fiddy saying that from Ruxley’s point of view the principle of the matter was dealt with in the letter of comfort, and that Bill Muddyman was seeking a meeting with Mr Al Fayed to discuss a way forward.  Mr Benson responded to the effect that Mr Al Fayed was willing to continue to provide financing, but only by way of an increased shareholding so that dilution of the Muddymans was inevitable unless they took up their pro rata share entitlement (which at this point would arise under the Articles).  In the face of the letter from Herbert Smith, I think that this strong line was a tactical ploy (though by no means an illegitimate one).  These strong sentiments were repeated in a longer letter from Mr Benson to Mr Sugar of 14th June, in which he justified the possibility of dilution in the face of the letter of comfort.  It appears that a meeting had indeed taken place between Mr Al Fayed and Mr Bill Muddyman, and that it had been made clear that the Muddymans were not going to be willing or able to take a pro rata shareholding in respect of financing above £60.  In that same letter Mr Benson pointed out that Ruxley was “more or less guaranteed a return of £16.5m” on an investment of £1.5m.  He told me in evidence that this represented his belief at that time and for some time thereafter – he thought that an exit which triggered the Muddymans’ rights to loan notes was more or less inevitable at some stage.  I accept that that was his belief at the time.  It follows that he thought that the Muddymans had very valuable rights.

214.	Thereafter there were more discussions in the next couple of months involving Mr Benson and Mr Sugar, with no resolution.  The plans for the club remained in flux.   Mr Fallowfield became concerned that Mr Al Fayed did not appreciate the real position of the club (which says quite a lot about the information flow in the Harrods organisation and the basis on which decisions must or may have been taken by Mr Al Fayed).   In August 2001, together with others, he put together something in the nature of a presentation of the information which he felt needed to be got over to Mr Al Fayed.  It listed various possible options – pursuing the original objectives which required a large amount of cash, lowering the club’s sights, putting the brakes on the cashflow and planning for a possible exit.  It is not clear whether and to what extent this message was conveyed to Mr Al Fayed at the time.  At the same time Mr Fallowfield pursued what he himself regarded as an “aggressive” approach to the Muddymans.  He sent them a letter proposing an increase in the share capital to £123,000, and that new cash be injected by acquiring shares, with the Muddymans participating if they wished to do so.  There was also a meeting at which this was apparently proposed.  Mr Al Fayed gave his clear instructions for this approach.   The Muddymans responded by protesting that what was proposed would dilute them below 10%, and that that was not acceptable.  They said that if Mr Al Fayed wished to get rid of them he should buy them out.  

215.	The club then went and got the advice of junior counsel (Mr David Marks) on the Shareholders’ Agreement.  He advised that it was far from certain that shares could be issued without the consent of all shareholders once the first two tranches of £60m had been provided by Mr Al Fayed (and the Muddymans had provided their matching funds).   It would not be safe to assume that they could.  

216.	Mr Benson then got his own advice on the point, this time from leading counsel (Mr Michael Briggs QC).  He had a consultation with him on 11th October, and received more favourable advice – although Mr Briggs considered the point arguable both ways, he thought that on balance the argument which favoured the possibility of the allotment of shares without the consent ostensibly required by Article 6 was the better argument.  The consultation ended with Mr Benson indicating that he would probably come back through external lawyers to get assistance in the drafting of a letter to the Muddymans, and the solicitors indicating that they would probably involve junior counsel.  Mr Stewart submitted that the most likely reason for seeking this advice was to try to get an opinion to aid Mr Benson in his negotiations with the Muddymans, and he also suggested that Mr Benson tailored the instructions and information provided to Mr Briggs in order to achieve that.  I do not need to make a finding about this, but I would say that while there would be nothing wrong in trying to get counsel’s opinion to assist in negotiation, I do not see how Mr Briggs’ opinion as given would have helped much because, while it was favourable, it recognised the strengths of the Muddymans’ argument.  

217.	Thus far there are a number of references to the idea of Mr Al Fayed investing further moneys by way of share capital.  However, it began to occur to some individuals that that was not necessarily the only sensible way forward.  The financial situation of the club was such that the shareholders would not necessarily get anything were the club to be sold, because the creditors would effectively come first, so the idea took hold that it would be more sensible for Mr Al Fayed to inject further moneys by way of loan, and preferably a secured loan, so that he had a creditor’s priority.  

218.	The question of how to deal with the Muddymans was obviously getting even more serious.  On 4th December 2001 DJ Freeman made a presentation to Mr Al Fayed entitled “Tackling the Muddymans”.  A number of options were canvassed, including buying out the Muddymans for “say £10m” over 5 years, representing a discounted value on their conversion rights and the value of their shareholding.  The benefits to Mr Al Fayed of providing finance by way of loans was also pointed out and he accepted this (albeit reluctantly, according to Mr Fallowfield).   From a short note prepared by Mr Sugar, it seems that Mr Sugar put forward an offer to be bought out for £10m at a meeting with Mr Benson on 7th December.  It was not accepted.  

219.	In January 2002 Mr Fallowfield prepared some points for discussion with Mr Al Fayed.  The points were discussed.  One of the things that he suggested was buying out the Muddymans for £6.5m, representing a “fair value of loans and shares”.  He proposed this on the mistaken assumption that the Muddymans would have the benefit of the loan notes when they were repaid in 2017; this was not in fact the case. Mr Al Fayed did not accept this option, despite the fact that Mr Benson recommended it and Mr Fallowfield was presenting it as a sensible way forward.   I accept Mr Stewart’s submission that that was a somewhat strange decision, bearing in mind the fact that Mr Al Fayed liked to have a free hand in his companies, he had agreed a deferred consideration anyway (and he cannot have thought that it would never be paid), he professed to having a preference to injecting money by way of share capital rather than loan, and on the figures he was being given the amount of money required was justifiable.  (While it is true that Mr Fallowfield’s suggestions were based on a misapprehension as to the precise rights of the Muddymans, there is no evidence that Mr Al Fayed appreciated that at the time, and if one was looking at deferred consideration on an exit then one might arrive at similar figures anyway, as was reflected in the figures used in the D J Freeman presentation.)  Mr Al Fayed was, of course, entitled to make his own business decisions, but I think that this reflects yet again his quirky decision-making style which was not necessarily one involving close reasoning or detailed business judgment.

220.	In the period that followed, Mr Al Fayed continued to fund the club by way of loan.  In February Mr Al Fayed decided to put another £25m in by way of ad hoc loan.   Harrods would usually pay the payroll.   Up until about April 2002 the parties were co-existing on the footing that money was going to have to be found for the redevelopment of Craven Cottage, and that that was going to be very expensive.  After the awayday in April 2002 that changed.  The White City development came on the horizon, and the decision was taken to try to go for that.  

221.	In April Mr Fallowfield started to consider for the first time the provisions of clause 12 of the Shareholders’ Agreement.  It struck him for the first time that in substance it amounted to a perpetual funding obligation on Mr Al Fayed because if he ceased to fund the enterprise then Leisure would not be able to pay its debts, it would be insolvent within the meaning of clause 12 and the Muddymans would be able to buy Mr Al Fayed out.  They would have to pay what the agreement referred to as a proper value, but there were various adjustments that would have to be carried out which made that commercially unattractive.  In order to avoid these consequences Mr Al Fayed was therefore forced to continue funding.  

222.	Shortly after this Fulham started its negotiations for a sale of Craven Cottage.  It is not apparent that the Muddymans were kept abreast of these developments, and I find that they were not, even though Mr Cook at least was aware of the need to get their consent to the sale of Craven Cottage, as a note he made on 17th June demonstrates.  (He did not accept that that was the significance of the relevant note, but I find that it was.)  They obviously knew of the plan to find a new stadium because of their participation in the awayday, but they did not know, for a time, of the actual negotiations for an early contract to sell the existing ground.   It was well known that they had a strong attachment to Craven Cottage (saving it from the developers had been one of their prime motivations for years) but they were not kept informed of the negotiations with Mr Sutton until the main points of the deal had been agreed.

223.	It appears that they had found out, or been told about it, by 19th August 2002 when they wrote to Mr Benson.  The letter starts by referring to a recent board meeting:

“Since the board meeting at which the new loan agreement was discussed, we have received information about the proposed deal with Crown Dilmun.”

224.	(The reference to Crown Dilmun is a reference to the company for whom it was thought Mr Sutton was acting.)  The board meeting in question was one of Leisure on 29th July and was attended by the Muddymans.  It had been called to consider a loan of £100m from Holdings to continue to finance the club.  It required security to be given and the loan notes were to be subordinated to the new loan.  The board (with the Muddymans abstaining) resolved to pursue the loan.   The minutes seem to anticipate that the Muddymans as minority shareholders were going to have to give their consent, but it is not clear that that was correct.  They reserved their position in that respect.  Be that as it may, it is apparent from the letter of 19th August that the Muddymans were unaware of the Sutton proposals at the time of the board meeting.  That can hardly have been helpful from the point of view of preserving a good working relationship with the Muddymans.  

225.	In their witness statements both Mr Benson and Mr Fallowfield said, in terms, that Bill Muddyman (who was the chairman of the Leisure board) “refused” (their word) to sign and return the minutes, and they presented this as an obstacle to proceeding further with the loans.  In Mr Benson’s case he had said:

“Bill  Muddyman had refused to sign the 29 July Board minutes so it appeared we were not going to be able to implement the granting of security for the new loans.”

226.	It is quite clear that the witness statements seek to give the impression that this was obstructive, and deliberately so.  An e-mail from Mr Benson to Mr Fallowfield, disclosed after those witness statements were signed, demonstrated that that was a significant overstatement of the position.  On 13th September 2002 Mr Benson reported on conversations that he has had with Mr Sugar and Mr Bill Muddyman.  In those conversations Mr Muddyman acknowledged that the minutes were accurate, and said that the normal course would be to get the confirmation of the other directors that they were accurate.  The normal course would have been to do that at the next board meeting, and he is recorded as wondering why everyone was anxious to get the minutes signed at that point rather than waiting for the next meeting.  Mr Benson asked Mr Fallowfield whether there was any reason that they had to be signed by Mr Muddyman at that point (which was 13th September).  According to an earlier e-mail of 20th August it had been explained to Mr Muddyman that the minutes needed to be signed in order to “process” the loan, but there is no evidence that his concerns about formalities were dealt with.  In his supplemental examination in chief Mr Benson acknowledged that the word “refused” was not right – it overstated the position.   He said that the true position was that he had begun to sense prevarication.  He also said that this change of evidence was not one which was brought about as a result of his e-mail having been drawn to his attention (he said he did not think it had been).  Mr Fallowfield refused to accept that his witness statement was inaccurate, but in answer to questions from me he accepted that “reluctance” was an appropriate description of Mr Muddyman’s attitude.

227.	In one sense this is but one point in a case with a multitude of points, but in its particular context it assumes some significance.  The motivation behind the deal with the Muddymans is an important feature of this case.  The alleged “refusal” was part of the picture that was built up.  It seems to me to have been a significant misrepresentation of the position (repeated in the Particulars of Claim).   I find it hard to believe that Mr Benson’s retraction was not caused by his having had the e-mail drawn to his attention.  I think that there is an element of deliberate overstatement of the case here which causes me to approach the remainder of the version of Holdings’ case on the buy-out with great care.  

228.	The letter of 19th August from Andrew Muddyman took the point that both the new proposed loan from Holdings and the Sutton deal required the Muddymans’ consent.  It then went on to point out how the 1997 arrangements were, in their view, exhausted, and that another shareholders’ arrangement needed to be put in place.  It took the point that the security which it was proposed to grant to Holdings undermined Ruxley’s fundamental interest arising out of the provision entitling the Muddymans to have shares on the conversion of loan notes.  Having taken a number of points, it ended by proposing that Ruxley would put forward some new proposals, and that Mr Sugar should speak to Mr Benson to receive the latter’s immediate comments.  Its tone is business-like, not hostile, and what it suggests is sensible if not to Mr Al Fayed’s liking.  Taken by itself it is not an obvious pre-cursor to an attempt to exert commercial pressure towards a buy-out, but it is (in theory at least) possible (in the minds of the Muddymans) that it was.  

229.	It is obviously a significant document in the lead up to the deal with the Muddymans, which makes it remarkable that it was not disclosed by the claimant until shortly before Mr Benson gave his evidence.  It was said that it was found on a hard disk on Mr Benson’s computer at that time.  No hard copy was disclosed, or apparently found.  Although it apparently arrived by e-mail, and not in hard copy, bearing in mind the number of people in the Harrods organisation who would be likely to be interested in this sort of letter, it is remarkable to find that no hard copy exists on anyone’s files.  It would be expected that Mr Al Fayed would be interested in this letter, and indeed Mr Benson said that he would probably have read it to him.  Others involved in the transaction would have been interested in its contents as well.  Yet no copy has been filed anywhere, apparently.  In my view that says something about the business approach to this area of the case, which I will have to bear in mind in considering the reasoning behind the Muddyman buy-out deal.

230.	It is apparent from some recently disclosed notes of Mr Benson that there were further internal discussions about the Sutton project (known as Project Wisley), and that there was at least one meeting on 21st August between Mr Benson and Mr Sugar.  The detailed content of those discussions and meetings is not known.  In his witness statement Mr Benson describes the Muddymans’ attitude as being that while they could see that it did not make commercial sense to stay at Craven Cottage, they objected to the Sutton deal because they had a personal agenda which they were pursuing.  On 6th September he had a meeting with solicitors from Messrs Lewis Silkin to discuss matters, and according to the attendance note of that meeting (whose contents I accept as reflecting what happened at that meeting) he told those solicitors of the concerns of the Muddymans as to their position in the company.  There is no suggestion in that attendance note that the Muddymans were at that stage in fact angling to be bought out, but there is a reference to Mr Benson’s belief that it might be possible to buy them out for between £5m and £6m.  If there was a “personal agenda” it was probably, at that stage, the protection of their interests as minority shareholders, which was a proper and legitimate stance for them to take.   At the end of this meeting it was agreed that leading counsel would be asked to consider the possibility of the issue of further shares.  Diluting the Muddymans was obviously firmly on the horizon.   Instructions were prepared asking leading counsel (Mr David Richards QC) about dilution and other matters.  On 12th September supplemental instructions were prepared, referring to the negotiations with Mr Sutton and setting out the merits of the deal – in particular that it would resolve “Fulham’s urgent cash flow problem” and that there were good commercial reasons for it “in addition to Fulham’s pressing need for funds”.  Counsel was asked to advise whether the ground could be sold without the consent of the Muddymans, and on other matters.  It is apparent from these instructions that part of the desirability of the Sutton deal was making available substantial funds to repay Harrods indebtedness.  By now Mr Al Fayed had provided about £85m of finance to the club.  

231.	The consultation with leading counsel was fixed for 2.30 on 13th September.  However, before it happened, and on the same day (at 10.30) there was a meeting between Mr Al Fayed’s representatives and the Muddymans at Claridges hotel.  It is an important meeting.  Present were the Muddymans, Mr Sugar, a Mr Shrimpton and Mr Benbow on the Muddyman side, and Mr Collins, Mr Byrne, Mr Cook and Mr Langham (chief executive of the club) on the Al Fayed side.   The tone of the meeting is a matter of some controversy.

232.	Mr Cook’s evidence in chief was that the Muddymans started talking about a number of conditions they would impose if their consent to the Sutton deal was to be given, but the tone of the discussions was such that it became clear that they wanted cash and Mr Al Fayed was put in the position of having to decide whether to buy them out or not.  He expressed the view that the Muddymans had them “over a barrel” (his words).  In cross-examination he did not claim to have a detailed recollection.   He kept a note, but for much of the time he was noting corporate matters that he did not really understand.  He did, however, claim to have a recollection that they were “confronted” by a whole load of demands, and that it was clear that the Muddymans wanted “a whole load of money” to consent to the transaction.  He claimed to remember a condition that the £15m should stay in the club, and remembered that the Muddymans were unhappy about Craven Cottage being sold before the White City site was secured (though there was some equivocation about that).  He took a note of the meeting but it is more or less unintelligible as a stand-alone note. 

233.	Mr Collins provided 2 witness statements.  Somewhat remarkably, in neither of them did he refer to or deal with the Claridges meeting.  However, he claimed to have a recollection of it in his cross-examination.  He described it as “hostile”.  The Muddymans handed over a written list of demands; everyone at the meeting had a copy of it.  He had a certain recollection of other matters, particularly when prompted by a note taken by Mr Benbow, but again his recollection of detail was not good.

234.	Mr Byrne did not give a detailed account of this meeting in his witness statements.  He professed to have a good memory of the meeting, but he was not cross-examined much about it.  He did say that he remembered a physical list of demands being handed over.  If it was, he did not keep it, which, bearing in mind he is a solicitor, and the solicitor tasked with the legal side of bringing Project Wisley to fruition (which he was) is somewhat surprising.  It is even more surprising in the light of the fact that he had already started to investigate what had gone wrong in the original transaction and had called for the files from NGJ.  One would have expected that that would make him even more careful to keep relevant documents if any came into his possession.

235.	The other participant in the meeting from whom I heard evidence was Mr Benbow.  He was, as I have said above, a New Zealand qualified solicitor with Forsters.   He was not involved in the transaction at all, and was merely recruited for the purposes of the meeting so that he could act as a note-taker.  His original notes have not survived, but 3 months later he turned them into typed form and made them into a form of narrative.  They extend to just over 3 pages of single spaced typing.  On their face they would seem to be a full record.  They certainly represent a reasonably contemporaneous record.  I am conscious of the fact that there are sometimes going to be difficulties making a note of a meeting taking place in the context of a transaction or relationship about which the note-taker has no prior knowledge, but making every allowance for that, and having heard and seen him in the witness box, I am confident that I can take his note as an accurate record.  It is a very good and intelligible record too.  It contains the following material elements (or absences):

i)	    It contains no reference to a list of demands having been handed over.  It would have done so if one had been provided.  

ii)	    It does not suggest that the meeting was hostile or that the Muddymans adopted an overtly tough stance.   The thrust of his evidence was not that the meeting was hostile as suggested by Mr Collins and Mr Cook.  He said that what the Muddymans were proposing were more in the nature of requests than demands.  I prefer his evidence on tone.  It is likely that the meeting was one in which positions were made quite clear, but I do not accept the degree of hostility which Mr Cook and Mr Collins sought to portray.  In particular, I find that the Muddymans were not adopting a tone which could reasonably be put forward as one in which they considered they had (or sought to get) Mr Al Fayed over a barrel. 

iii)	    The Muddymans expressed themselves to be concerned about the future of the club and being “pressured” into selling “the Crown Jewels” of the Club (Craven Cottage).  There were questions to be answered before Ruxley gave its consent.

iv)	    Mr Byrne acknowledged that it was “late in the day” that Ruxley had been contacted on the point.  

v)	    Mr Cook made the point that in April 2002 it had been agreed that it might be desirable to move to a new ground.  (He is recorded as saying that it was necessary to dispose of the current ground in order to get planning permission for a new stadium.  I think that this is one thing that Mr Benbow probably misunderstood – it was not true, and I do not think that Mr Cook can have said it because the Muddymans would be likely to have challenged it.)  Mr Bill Muddyman said he understood the April 2002 position but his position had been that Craven Cottage would not be released without a new ground having first been “determined” (which I assume meant made available).  It is apparent from this that he was objecting to a sale of Craven Cottage before an alternative site was found, which was what was being proposed under Project Wisley.  This, I find, to be an understandable and legitimate concern.

vi)	    It refers to a prior meeting between Mr Al Fayed and Mr Bill Muddyman at which reference had apparently been made by the former to a claim of 12% compound interest that Harrods was making on the loan that it was calling up from the club.  Mr Al Fayed had no recollection of such a prior meeting but his evidence was not convincing, and had indications of evasion, on the point.  I find that such a claim was indicated by Mr Al Fayed at the previous meeting, and that he did it as a way of putting some pressure on the Muddymans.

vii)	    Mr Byrne acknowledged that the “timing” had been bad on the request for consent.  The urgency arose because of the requirements of the purchaser (Mr Sutton).  (Elsewhere in the evidence there was an indication that if the deal was not done very soon the £15m would not be available.)  The Harrods loan was said to be repayable in 2003 but was being demanded at that time, but there was a letter in existence which enabled the demand to be withdrawn.  This is further evidence of the Al Fayed side attempting to exert pressure in the negotiation.

viii)	    After a break the meeting resumed and the Muddymans, through Mr Sugar, made a number of what Mr Benbow described as “requests”.  That is how his note refers to them, and in his re-examination he recalled them being more of this nature than in the nature of demands or pre-conditions to their consent.  I accept his evidence on this.  Their requests were:

(a)	A conversion of the loan notes to share capital, which would have increased the number of shares held by each party.  (This would have had the effect of increasing the number of additional shares that would have to be issued to Mr Al Fayed in the future to dilute them down to below the critical 10% level.)

(b)	The £15m deposit was to stay in the club.

(c)	They needed a commitment from Mr Al Fayed as to future financing.

(d)	They wanted Mr Al Fayed to consider whether he could give some comfort to the club’s directors as to his future commitment to the club.  

(e)	They wanted extensive veto rights.  Mr Byrne said that Mr Al Fayed was prepared to consult, but wanted the final veto himself.  (This encapsulated one of the key features of the then present situation - Mr Al Fayed’s frustration at not being able to run the business as he wished.)

(f)	The Muddymans wanted a “deadlock breaker” under which there would be a sale at a valuation (with a minimum value).

ix)	    After a further break Mr Byrne returned to say that he had taken instructions but certain requests would be unacceptable to Mr Al Fayed – the deposit staying in the club, further forward funding and guarantees, and possibly the deadlock provision, which sounded more like an exit route for the Muddymans.

x)	    Mr Byrne said his “take” was that Mr Al Fayed would leave some of the £15m with the club and provide some comfort as to his continuing involvement.  If the Muddymans did not consent to the sale to Mr Sutton then it was likely that Harrods would go through with its demands and go for the insolvency of the club.  He asked in terms whether “there was a preference for a buy out or taking a chance on insolvency”, to which Mr Bill Muddyman responded yes (presumably to the possibility of a buy-out) but he did not want anyone to think that that was what the dispute was all about.  Mr Byrne said that he was not saying that that was Ruxley’s agenda.

236.	The claimant has sought to portray the tone and tactic of the Muddymans at this meeting as one in which they were seeking to exploit the need for their consent and were seeking to manoeuvre Mr Al Fayed into a situation in which he had to buy them out.  On the evidence as I find it, I do not consider this to be the correct analysis.  The Muddymans had not been kept informed of the important deal with Mr Sutton until it had been done in principle.  It was a deal under which a sale could (at least in theory) take place before a new ground was secured.  It was always known that the Muddymans were keen to keep football at Craven Cottage, and while they had been prepared to go along with a move for the club, there had not hitherto been a suggestion that a deal would be done on Craven Cottage before any sort of deal was done at all in relation to a new ground.  It is understandable that they would be suspicious of future intentions, and in the light of that that they should make the proposals that they did.  The Al Fayed team had brought those suspicions on themselves by not keeping the Muddymans up to date and then presenting them with a situation in which the consent was required urgently.  It cannot have helped that there was a threat to demand the early repayment of Harrod moneys, and with compound interest (as to which there is no evidence at all that it could have been properly demanded).  Such conduct was bound to lead to the Muddymans feeling pressurised, and being defensive and suspicious.   Their proposals may well have been a negotiating position, but if they were then they were genuine proposals for a continued co-existence in the club rather than a smokescreen for a buy-out plan.  They had been mishandled, and the proposals, and their attitude at the meeting, was a response to that.

237.	Mr Byrne went straight from that meeting to a meeting with Mr David Richards QC at which he considered the questions arising out of the instructions referred to above.  He advised that Article 6 was not restricted so as to prevent dilution.  In practice, therefore, the Muddymans could “bring the house down” by withholding consent to the issue of new shares.  Clause 10 of the Shareholders’ Agreement did not assist in this regard – it did not import the necessary consent.  Nor could the stadium be disposed of without the Muddymans’ consent.  

238.	The Muddymans met with Mr Byrne and Mr Collins at a hotel in Cobham on the morning of 16th September to discuss their relationship further and they reached a successful negotiation in which the Al Fayed side was to buy out the Muddymans.  Quite how they arrived at that point is not clear.  Mr Collins said that he was not sure what the objective of the Muddymans was as at the end of the Claridges meeting.   He was equivocal as to what the meeting was going to be about, though he thought it would about “money”.  They needed a resolution that day.   He could not remember if he was briefed before he arrived at the hotel.  No note from the Fulham side has been produced.  Mr Collins believed that Mr Byrne took a note, but Mr Byrne said he did not.  There is a Muddyman note that occupies 4 lines and reveals nothing of its course or content.   Mr Collins has little recollection of detail.  Mr Byrne said his instructions from Mr Al Fayed were to see if a deal could be done in order to get the relevant consent so that the Sutton transaction could proceed.   His evidence in chief was that after and as a result of the Claridges meeting he thought that the Muddymans were manoeuvring so that Mr Al Fayed would have no choice but to buy them out.  

239.	I find that claimant’s case that the Muddymans were manoeuvring to be bought out is an overstated one.  The Muddymans had stated their misgivings about the situation in which they had been placed, and they may not have relished a continued relationship of the kind that seemed to be emerging, and it may well be that at the time of the Claridges meeting they contemplated the possibility of being bought out, but it is significant that Mr Collins did not get the impression that that is what they were angling or plotting for.  The idea of buying them out as a solution to what the Mr Al Fayed team saw as a problem came more from the Fulham side, and has coloured their view of the Muddymans’ objectives as at the date of that meeting.  In the circumstances they (or at least Mr Byrne) arrived at the Cobham meeting with an intention to negotiate a buy-out in order to achieve Mr Al Fayed’s objectives (unless, I suppose, some other course arose at the meeting).   There was apparently a horse-trade over the amount required to buy them out.  The Muddymans asked for £15m, and the parties settled on £7.75m payable over more than a year in order to buy out sufficient of their shareholding to remove their rights of veto under Article 6.  Two days later, on 18th September, an agreement was signed.

240.	The terms of that agreement were, in outline, as follows:

i)	    The Muddymans sold 1,050,000 if their shares.  (That left them with a shareholding below 10%).

ii)	    As consideration for the same of the shares they received £7.75m in four instalments.  £500,000 was to be payable in addition in the event of certain events which did not in fact occur.

iii)	    The Shareholders’ Agreement terminated and the parties were released from all obligations under it.   Thus the rights to have loan notes and to enforce a buy-out in the event of an insolvency were terminated.  

241.	That agreement having been entered into, the conditional contract with Mr Sutton could be, and was, entered into and the £15m received.  Thus were the Muddymans bought out.  It does not appear that any new shares were ever issued.  It can therefore be concluded that the deal between the Muddymans was done in order to get control of the club, and in particular to permit the Sutton deal, rather than specifically to acquire the right to be able to inject further funds as share capital.  The injection of funds in that way would have been a means to the same end, but it was not an objective in itself.  

242.	To round the story off, as the narrative above shows, the attempts to get hold of the White City site were unsuccessful, and at the end of 2003 it was decided that Fulham would have to unwind the deal with Mr Sutton.  It was duly brought to an end and the deposit repaid with a large sum by way of compound interest.  To this day Fulham Football Club is still playing at Craven Cottage.  

Mr Al Fayed’s financing and his attitudes leading up to the Muddyman buy-out

243.	The broad outlines of the state of financing provided by Mr Al Fayed appear above.  He had reached £60m of financing by about April 2001.  By the date of the buy-out it had got to £85m.  Harrods was financing the payroll of the club, and being repaid at year ends, after which further lendings were made.  He had accepted advice that at that stage it was more advantageous to provide finance by loans, and had accepted that advice.  He had declined to agree to buy out the Muddymans in January 2002.  If he had been providing additional finance by way of share capital, unmatched by the Muddymans, then he would have diluted them below the 10% level once he had provided just over an additional £11.5m above the £60m.  Looking at the matter at this point of time, I think, and find, it unlikely that the Muddymans would have been able or willing to put in funds to enable them to keep pace with his injections and postpone the point of dilution, had Mr Al Fayed’s money gone in as share capital.  There is little evidence now which supports the idea that they could have done so or would have been willing to do so.

244.	It is apparent that from time to time Mr Al Fayed’s advisers, and probably Mr Al Fayed to an extent, were considering the prospects of the business from time to time and the value of the Muddymans’ interests in it.  It was submitted by the defendants that the possibility of an Exit was in serious contemplation throughout the whole of the relevant period.  That is said to go to the question of the value of the Muddymans’ interests under the Shareholders’ Agreement, the price paid for their interests in the buy-out in September 2002 and hence to damages.  I need to consider the extent to which the submissions of the defendants on the facts are correct.  It is also a convenient point at which to make some findings about the reasons for the deal with the Muddymans.

245.	While one of Mr Al Fayed’s stated motivations was to acquire the club for the benefit of his children, the possibility of an Exit, which would trigger the rights of the Muddymans to have loan notes for a nominal consideration under the Shareholders’ Agreement, was clearly contemplated at the outset.  It was one of the ways of giving the Muddymans deferred consideration, and the prospect of that was real and not fanciful.  Mr Benson’s evidence was always that the provisions of the clause were intended as deferred consideration.   There was, of course, no guarantee that it would be paid, because its payment depended on a sale of shares by Mr Al Fayed or a flotation prior to the loan notes maturing, and while no-one knew quite whether those events would occur, and when, there was, at least at the outset, a real prospect of one or the other.  Mr Griffiths accepted that it was to be hoped that there would be an exit from every business, and he did not say that there would be no such exit from this one, and since he was close to Mr Al Fayed he cannot have got the impression that one or other of these exits would never, or be unlikely to, arise.  Mr Fallowfield accepted that one of the things that Mr Al Fayed had in mind from the start was the possibility of a stock market flotation.  It was more of an idea than a firm plan, but it was a definite possibility if circumstances permitted.

246.	Thereafter an Exit remained as a possible and plausible future event for the remainder of the time leading up to the buy-out of the Muddymans.  Mr Stewart invites me to find that at various stages it was “in contemplation”.  If by that he means that it was treated as being likely, or something that Mr Al Fayed had decided to work towards, then that overstates it.  I think that throughout the possibility of an Exit remained on the cards, though to a fluctuating extent and never to the extent that it was contemplated as a real possibility in the near future.  It was not really higher than that.  One can see this from some of the documents that Mr Fallowfield prepared and from the oral evidence.  

247.	I have referred above to various spreadsheets and other documents prepared by Mr Fallowfield from time to time, examining the effect of different methods of financing, on different assumptions, and in some of them considering the options open to Mr Al Fayed.  His November 1998 document refers to Exit as a hypothesis.  I do not think that this shows that an Exit was actually intended.  It is a way of working out the values available to the Muddymans, on the stated hypothesis.  It does, however, show that an Exit remained generally on the cards as a plausible scenario.  No-one was saying the exercise was entirely academic because an Exit would never happen. 

248.	The same is true of his 1999 document.  This document is entitled “Analysis of a break-up of Fulham Football Leisure”.  In his witness statement Mr Fallowfield said that it was produced in response to requests from Mr Griffiths.  In cross-examination he said it was done on his own initiative.  Whichever is correct, he also said that “I was very concerned that I explore what that meant in terms of a return on the investment to Mr Al Fayed should he ever decide that he wanted to sell the business.”  I do not think that he would have been thinking that, or conducting the exercise, unless the possibility of a sale (and therefore an Exit) was a real one.  This makes his choice of title for the document a little curious, but it was probably just misplaced.  All this demonstrates that the prospect of an Exit remained real.

249.	In March 2000 Mr Fallowfield produced his “Time Bomb in the Loans” document.  The exercise in this document too is predicated on the assumption that the Muddymans would acquire the right to have loan notes, which itself assumes (implicitly) an Exit.  This was at a time when Mr Benson was negotiating about a possible purchase of the Muddyman shares.  In April 2001 he prepared another document on dilution.  Its detail does not matter, but again it is based on an assumption that the Muddymans have the benefit of 25% of the loan notes.  

250.	I have already referred above to Mr Benson’s letter of 14th June 2001 to Mr Sugar in which he stated that the Muddymans were more or less guaranteed a return of £16.5m, and to the fact that this reflected his honest belief at the time.  In August Mr Fallowfield put together his proposed presentation to Mr Al Fayed (which was not actually made) which addressed what he thought were significant problems of which he thought Mr Al Fayed might not be aware.  He listed 4 options – injecting a lot of cash to try to achieve the original objectives, lowering their sights, putting the brakes on spending and “a controlled exit strategy”.  This last option was to build a young squad, avoid expensive players and “At some point, we should have created the opportunity to exit by realising the majority of assets …”.  Mr Stewart relied on this, and an answer given in cross-examination, as indicating that an exit was in contemplation.  That is not a fair reading of this document.  The document sets out options, and does not state a preference for any of them.  It demonstrates that he was listing possible theoretical options, but no more.   The sort of exit referred to was not necessarily the sort referred to in the Shareholder’s Agreement.  Having said that, nothing that occurred at this time detracted from the position hitherto, which was that the Muddymans had built-in valuable rights, which were implicitly based on some sort of Exit some time in the future.  This remained the position at the time of the consultation with Mr Briggs and at the time of the D J Freeman presentation in December 2001, and it had not changed by the time Mr Fallowfield presented his analysis in January 2002 (albeit that this analysis proceeded on a misapprehension as to the Muddymans’ rights). 

251.	None of this evidence supports a finding that an Exit was in contemplation as an actively considered strategy.  It just supports a finding, which I make, that an Exit was anticipated at some stage.  

252.	Mr Stewart then went on to invite me to find that an Exit was even more seriously under consideration in 2002.  He pointed out (correctly) that the financial position was deteriorating.  Losses were mounting, and Mr Al Fayed had had to fund the club to the extent of £25m over the original £60m, and that was before any money was spent on a stadium anywhere (it will be remembered that the original plan had been to spend £30m to get a stadium and team fit for the Premier League).   Cashflow forecasts anticipated further significant negative cashflow in the following 3 years (£24.5m, £16.9m and £9.7m respectively).   It is apparent that there were serious concerns about the way forward for this club.  In August Mr Fallowfield prepared a document entitled:

“Fulham Football Club the options now available”

It opened with the words:

“The Chairman has instructed S Benson and R Fallowfield to examine options available to him for an exit from FFC.  A key point is to minimise (or eliminate altogether) the continuing cash drain which has been supported by loans from the Chairman’s companies, including payroll advances from Harrods.  It is further understood that Harrods may not be in a position to continue paying FFS’s payroll after the end of July 2002.

This document summarises all the identifiable options and indicates which ones should be seriously considered.”

The options considered are cutting costs to eliminate negative cashflow, selling assets to generate cash, ceasing funding (with the likelihood of an administration), supporting the club while a buyer for Mr Al Fayed’s 75% stake was found, looking for other equity partners and continuing support until the new stadium was built.  The conclusion was that there were no easy answers.  

253.	It was urged on me that this document shows that an Exit in the terms of the Shareholders’ Agreement was a “real possibility soon”.  It does not quite show that.  It shows that things amounting to an Exit were put forward, but the exit referred to in its opening words would be more accurately paraphrased by the words “getting Mr Al Fayed out of the current dismal financial situation and outlook”.  However, it is true that events and acts which would amount to, or give rise to, an Exit under the Shareholders’ Agreement are under active consideration at this stage.  I find that they were.  That, I think, is the most that can be said.   

254.	The last piece of evidence relied on by Mr Stewart in this respect is a statement by Mr Cook or Mr Collins to the planners in December 2002 (in the context of continued negotiations about the new stadium and the development of Craven Cottage) to the effect that Mr Al Fayed might “walk away” and think that enough is enough.  This is said to demonstrate that Mr Al Fayed might well just cease funding, and that that had been the position in September too.  This was described by Mr Cook as a negotiating position and untrue.  I am satisfied that it was a negotiating position; it does not demonstrate anything like a fixed intention to procure an “Exit”. 

255.	It follows from this that it is right to say that throughout the entire period from 1997 to October 2002 events which would amount to an Exit were an assumption in the minds of Mr Fallowfield and Mr Benson, and while Mr Al Fayed did not give the same detailed consideration to various possibilities as his team did, it was an assumption on his part as well.  What those people anticipated was that the Muddymans had real and significant rights to loan notes which were not just theoretical – it was generally assumed that at some stage they would be able to exercise them and thereby extract their value though as an active assumption that was probably not quite so much in the forefront of peoples’ minds by August 2002. 

Why did Mr Al Fayed buy out the Muddymans?

256.	This question may go to the extent to which Holdings is entitled to claim the cost of buying out the Muddymans as damages in this action so I need to make some findings about it.  The facts leading up to it are set out above.  I find that the basis on which it was decided to buy them out was as follows.  There had been some suggestions in the past that this should happen.  Mr Al Fayed had turned down the idea when it was proposed earlier.  The commercial imperatives for doing it at that time were less.  However, by September 2002 they had changed.  A decision had been made, supported by the Muddymans, that attempts would be made to find a substitute ground.  There is no real suggestion that that support was false.  The impetus for the deal with the Muddymans came from the perceived need to do the Project Wisley (Sutton) deal.  The Muddymans indicated they were not happy to do that deal, but I do not think that they refused to do it.  They had various concerns, and wanted to safeguard their legitimate concerns.  I think they were probably prepared to do a deal.  Although they had proposed previously that they should be bought out, I do not think that they were maneouvering to be bought out at this stage, or that they were asking for things at the Claridges meeting that they knew they were not going to get.  They were not, I find, being tactically obstructive.  They had genuine concerns.  Nor was Mr Bill Muddyman’s declining to sign the minutes a deliberately obstructive step (as it was presented at the trial).  He was certainly not falling over himself to fall into line over the Sutton deal, but he was not using it as a means to get himself bought out.  His suspicions about and misgivings over the deal were almost certainly contributed to in large measure by the fact that he and his son had been kept in the dark over it for the period of its gestation.   It was not put that keeping it from the Muddymans was a deliberate tactic, and I do not find that it was, but it was clearly unwise – everyone on the Mr Al Fayed side must have known how concerned the Muddymans would be over a sale of Craven Cottage.  A 12% compound interest rate would have looked very odd, and the Muddymans were not handled well or sensibly when a threat was made that Harrods was intending to charge such a rate too.  

257.	By the time the deal was done Mr Al Fayed had been made aware of the consequences of the buy-out clause in the Shareholders’ Agreement (clause 12).   Although its effect had been explained to him in 1997 (according to Mr Benson) it was drawn to his attention again, probably by Mr Fallowfield because it had become apparent to Mr Fallowfield that its consequences were in practice to bind Mr Al Fayed to a continuation of his funding of the club or face the Muddymans buying him out at what he would have thought was a very inadequate price for his efforts (notwithstanding that it would have been what the agreement provided was a fair price for the shares).  The price might have been £1.  That was on top of the situation in which the Muddymans had the benefit of the right to have the benefit of 25% of the loan notes on an exit.  

258.	I find that the Fulham team had become extremely keen, if not desperate, to do the Sutton deal, by the time of the Claridges meeting.  This was only partly to have a contract in the bag for the purposes of pursuing the new stadium.  They were also very keen to have the cash that it would generate immediately.  This was the main factor in the decision to buy out the Muddymans.  The decision was obviously taken by Mr Al Fayed, and it was, like many of his decisions taken in this matter, one taken quickly and without a lot of business rationalisation.  

259.	These factors combined to lead Mr Al Fayed to make one of his quick decisions to authorise his officers to negotiate a buy-out of the Muddymans.   He never liked having someone else in the club with a significant interest and powers to prevent him doing what he saw fit – it was not his style to have that situation. It was not a decision which was much debated or rationalised (though the idea had been gestating in various members of the team for many months).  Nor was any valuation exercise done.  At this point Mr Al Fayed wanted to get rid of the Muddymans’ potential to control and veto.  The timing and pressure came from the Project Wisley deal and the need for cash in the business.   Had it not been for that deal waiting in the wings, it is unlikely that the buy-out would have taken place then.  It is not possible to work out when it would have happened if at all.   

Causation and damages – the respective cases of the parties in outline

260.	The claimant puts its case quite simply.  The claimant is entitled to the sum of money that would put it in the position it would have been in had it not sustained the wrong.  Had the defendants not been negligent the Shareholders’ Agreement would have permitted Mr Al Fayed to dilute the Muddymans once he had put £60m into the club (if they had not chosen to match his investment pro rata).  On the facts the right to dilute would have been invoked before September 2002.  As it was it could not be invoked because Mr Al Fayed did not have it.  In September 2002 what he did was in essence to put himself in an equivalent position to having the right by buying shares from the Muddymans (to reduce them below 10%) and expressly bringing the Shareholders’ Agreement to an end.  In doing so he acted reasonably.  He is therefore allowed to recover that cost as the cost to himself of putting himself in the position he would have been in had the solicitors performed their duty.  So far as relevant his loss is reasonably foreseeable and not too remote.   The type of damage that is foreseeable in this case, and which occurred, is that Holdings would want to remove the Article 6 restrictions but would be unable to do so by dilution.   In the words of Mr Croxford, Holdings did what it had to do in order to get the missing right.  In support of all this, heavy reliance is placed on County Personnel v Pulver [1987] 1 WLR 916.  The claimant accepted that there is a limit on this – if it results in a measure which no reasonable person would choose, then this would be a wrong choice of measure of damages (I deliberately use Mr Croxford’s terminology in this respect).  This is said to flow from Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344.   If the claimant’s choice of measure (in this case the cost of cure) is within the band of what a reasonable person would do or choose, then that measure of damages should be awarded.  While it is true that in addition to getting the shares, Mr Al Fayed also brought to an end the Muddymans’ loan note options (allowing them to call for loan notes on an Exit), that right was of no real value.  In addition to that substantial head of damages, Holdings also claims legal costs relating to consulting leading and junior counsel, and solicitors, in the last 3 or 4 months of 2001.  

261.	Mr Stewart, for NGJ, describes the claimant’s approach as unconventional or even unique.  He says that the normal course would be to assess the damages at the date of the breach, and the conventional measure of damages would be the difference in value between the rights obtained from the transaction and the value of the rights as they ought to have been.  That would produce a nil figure in the present case.  While in exceptional cases costs of extrication have been allowed, that does not cover this case because the principle only applies where there would have been no transaction had it not been for the negligence of the solicitor.   Nor is this a case where the claimant can recover the cost of obtaining a right he should have obtained as part of the original transaction, because that is not what happened here on the facts.  Mr Stewart put Ruxley Electronics in the forefront of his submissions.  He said it justified the proposition that there was a reasonableness ceiling which had to be imposed on damages.  If it is unreasonable to incur the cost of reinstatement or cure, it cannot be recovered as damages.  One has to look at the reasonableness of the exercise of the reinstatement, as well as the reasonableness of the cost of it.  In the present case, when one looks at what Mr Al Fayed did when he entered into the transaction with the Muddymans in September 2002, one finds that the transaction was not evaluated, it was not carried out for a good or sensible reason, and Mr Al Fayed in fact put himself in a better position than he would have been in but for the negligence of NGJ because he bought in various rights including the right to have loan notes on an Exit.  The claimant had made no attempt to value the rights that were bought out.  Either they had no value (on the footing that the club was and would remain valueless), in which case the deal was not reasonable, or they were valuable, in which case a claim for as much as £7.75m cannot be maintained.   There is no reported case in which a victim of professional negligence has been allowed not the costs of getting out of the deal, but damages assessed by reference to a different bundle of rights from those directly affected by the negligence.  So far as recovering the costs of extrication are concerned, that has only been allowed where it has been demonstrated that the claimant would not have entered into the original transaction if he had correctly understood it.  In the circumstances the loss claimed is outside the scope of the relevant duty, or too remote (not reasonably foreseeable) and not caused by the breach.

Causation and damages – findings and determination

262.	The claimant’s case does not depend on comparing values so as to arrive at a measure of damages based on a diminution, or difference, in value test.  There has been no attempt to prove the extent to which the bundle of rights that the claimant acquired under the Shareholders’ Agreement was less than it ought to have been.  Its case on damages is firmly based on the amount that it has had to pay to put itself in an equivalent position to that of being able to dilute the Muddymans and override their objections under Article 6, ie £7.75m.   

263.	In County Personnel v Pulver a solicitor’s client had entered into a lease as a result of negligent advice in relation to the consequences and effect of a rent review clause.  The client got out of the practical consequences of the negligent advice by paying a sum to surrender the lease.  The Court of Appeal rejected the argument that the proper measure of damages was one based on the difference in the value of the actual property acquired and the price paid (or the value of the property as it was thought to be as a result of the negligence, if lower).  There was a finding that the client would not have entered into the lease at all had it been properly advised.  The client was held to be entitled to the capital sum paid if paying it was a reasonable attempt to mitigate the loss.  In considering the correct approach Bingham LJ indicated the extent to which there was flexibility in the exercise of determining damages in order to arrive at a figure which reflected the basic principle on which damages are assessed:

“The principles to be applied in assessing damages in this case are, in my judgment, these:

1.	The overriding rule was stated by Lord Blackburn in Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25, 39, and has been repeated on countless occasions since: the measure of damages is 

"that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation." 

As Megaw L.J. added in Dodd Properties (Kent) Ltd. v. Canterbury City Council [1980] 1 W.L.R. 433, 451: 

"In any case of doubt, it is desirable that the judge, having decided provisionally as to the amount of damages, should, before finally deciding, consider whether the amount conforms with the requirement of Lord Blackburn's fundamental principle. If it appears not to conform, the judge should examine the question again to see whether the particular case falls within one of the exceptions of which Lord Blackburn gave examples, or whether he is obliged by some binding authority to arrive at a result which is inconsistent with the fundamental principle." 

2.	On the authorities as they stand the diminution in value rule appears almost always, if not always, to be appropriate where property is acquired following negligent advice by surveyors …

3.	That is not, however, an invariable approach, at least in claims against solicitors, and should not be mechanistically applied in circumstances where it may appear inappropriate… 

4.	While the general rule undoubtedly is that damages for tort or breach of contract are assessed as at the date of the breach (see, for example, Miliangos v. George Frank (Textiles) Ltd. [1976] A.C. 443, 468 per Lord Wilberforce), this rule also should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory rule… 

5.	On the facts of the present case the diminution in value rule would involve a somewhat speculative and unreal valuation exercise intended to reflect the substantial negative value of this underlease. It would also seem likely to lead to a total claim well above the figure the plaintiffs claim. By contrast, there is firm evidence that £18,761 is what it actually cost the plaintiffs, as a result of an arm's length negotiation after expiry of the first five years of the underlease, to extricate themselves from the consequences of the negligent advice they had received. Unless (which seems unlikely) it can be shown that payment of this sum did not represent a reasonable attempt by the plaintiffs to mitigate the loss they had suffered, this figure would represent a fair assessment of one head of the loss. 

6.	Even after an appropriate measure has been found to reflect damage recoverable under the first limb of the rule in Hadley v. Baxendale (1854) 9 Exch. 341, there will be cases in which a plaintiff will not be adequately compensated unless he receives damages to reflect his loss under the second limb also. In claiming £17,000 for loss of its prospective sale of the lease and the goodwill of the business the plaintiffs advance the present as such a case. It must, however, be accepted on the findings of the deputy judge that if they had not been negligently advised the plaintiffs would not have entered into this underlease at all. This being so, damage cannot be assessed with reference to a specific gain which the plaintiffs could only have made if they had entered into this underlease, unless it be proper on the facts to conclude that properly advised, the plaintiffs would probably have been able to negotiate the grant of this underlease but without the offending clause. Even then the offer of £17,000 would call for closer scrutiny.”

264.	Those propositions undoubtedly require a flexible approach both in terms of the date of assessment and in terms of the measure to be applied, in order to fulfil the objective in the Livingstone case.  In should be noted that in Pulver the sum involved was the true costs of extrication in the sense that the moneys were paid to get the client out of the deal it had entered into.  However, the expression used by Bingham LJ was £18,761 is “what it actually cost … to extricate themselves from the consequences of the negligent advice they had received”.  The way in which that was achieved was by paying a sum to get themselves out of the whole transaction but that is not necessarily the only manner of extricating oneself from the consequences of negligent advice.  The loss was allowed on the basis of sums spent in a reasonable attempt to mitigate.  In Reeves v Thring [1996] PNLR 265 at 278E Sir Thomas Bingham MR indicated that the cost of buying in rights which the client thought he had and ought to have had might be a better approach to assessing the loss than applying the diminution of value rule as at the date of the negligence or even as at the date when the negligence and loss came to light.  He recognised the particular difficulties caused when the problem comes to light some years after the negligence occurred, and it is implicit in his judgment that he thought that this method of assessing loss was one way of overcoming those difficulties.  

265.	It is apparent enough from those authorities that it would be legitimate as a matter of principle to adopt what is described in Jackson & Powell on Professional Negligence (5th Edition at para 10-276) as “Cost of cure” (which is a better description in some circumstances than cost of extrication), and in that paragraph they list some other instances where that measure has been allowed in solicitor’s negligence cases.  It is also apparent from Ruxley Electronics that that in theory at any rate would be a permissible measure.  In that case builders had been instructed to build a swimming pool of a given depth to allow diving.  They built it too shallow, though diving was still possible.  At first instance a limited award for loss of amenity was given.  On appeal the Court of Appeal awarded the cost of rebuilding the pool (to produce the correct depth).  The House of Lords reversed the Court of Appeal on the footing that the expenditure was out of all proportion to the benefit to be obtained.  There is nothing in that case which indicates that cost of cure is somehow an inappropriate measure, and indeed many remarks which explicitly or implicitly acknowledge that it may be correct.  That cost is, of course, a common measure in building contract cases, of which Ruxley Electronics was one.  It is a common measure because, in appropriate cases, it reflects the loss which the claimant has suffered and for which he should be compensated.  There is no reason in principle to exclude it as a measure of damages just because the action in question bears the label “professional negligence” rather than “building contract dispute”.   Accordingly, whether or not an award on that basis in the present case would be unusual,  it would not necessarily be contrary to principle, and at the end of the day I do not think that Mr Stewart went so far as to suggest that it would.  There may be many reasons why, in many cases, it is not an appropriate measure of damages in a professional negligence case, but it would not be correct to say that as a matter of principle it cannot apply.

266.	It is therefore necessary to consider whether it should be applied in this case, and if so what sum of money it throws up. 

267.	Ruxley Electronics indicates the limits of a claim based on the cost of cure.  In that particular case the trial judge was not satisfied that the owner intended to rebuild the pool, and the pool was perfectly safe to dive into.  In that context their Lordships considered whether it was right to give the cost of building a new pool, which was much more than damages based on loss of amenity.  The trial judge held that the cost of rebuilding the entire pool was disproportionate to any benefit obtained from it and was therefore unreasonable.  The question for their Lordships was whether that was a good reason for not awarding what they described as the costs of reinstatement.  They held it was.  Their Lordships considered the basic objective of damages in breach of contract cases by reference to certain well-known authorities and conducted the debate in that context.  They all came to the conclusion that the cost of reinstatement was not the measure of damages if it was not a reasonable way of dealing with the situation, even if damages measured on a diminution in value basis (or difference in value basis) was nil.  Reasonableness is the important factor.  This was expressed in various ways by their Lordships.  Lord Jauncey of Tullichettle cited a number of cases in which damages based on the costs of reinstatement would be allowed if reinstatement was a reasonable thing to do, and not if it were not.  Thus:

“I start with the question of reasonableness in the context of reinstatement. There is a considerable body of authority dealing with this matter. Lord Cohen in the passage above quoted in East Ham Corporation v. Bernard Sunley & Sons Ltd. referred to the reasonableness of insisting on reinstatement. In Imodco Ltd. v. Wimpey Major Projects Ltd. (1987) 40 B.L.R. 1, 19, Glidewell L.J. stated that the cost of work to put pipes in the position contracted for would be recoverable if there was an intention to carry out the work and if it was reasonable so to do. In Minscombe Properties Ltd. v. Sir Alfred McAlpine and Sons Ltd. (1986) 2 Const.L.J. 303, 309, O'Connor L.J. applied the test of reasonableness in determining whether the cost of reinstatement of land to its contracted for condition should be recoverable as damages. In Radford v. De Froberville [1977] 1 W.L.R. 1262 Oliver J. said, at p. 1283: 

"In the instant case, the plaintiff says in evidence that he wishes to carry out the work on his own land and there are, as it seems to me, three questions that I have to answer. First, am I satisfied on the evidence that the plaintiff has a genuine and serious intention of doing the work? Secondly, is the carrying out of the work on his own land a reasonable thing for the plaintiff to do? Thirdly, does it make any difference that the plaintiff is not personally in occupation of the land but desires to do the work for the benefit of his tenants?"   …

In McGregor on Damages, 15th ed. (1988), pp. 675-676,  paras. 1091-1092, after a reference to the cost of reinstatement being the normal measure of damages in a case of defective building, it is stated: 

"If, however, the cost of remedying the defect is disproportionate to the end to be attained, the damages fall to be measured by the  value of the building had it been built as required by the contract less its value as it stands."” (At p 356)

268.	Lord Mustill observed (at p 361):

“As my Lords have shown, the test of reasonableness plays a central part in determining the basis of recovery, and will indeed be decisive in a case such as the present when the cost of reinstatement would be wholly disproportionate to the non-monetary loss suffered by the employer.”

269.	Lord Lloyd of Berwick referred to the judgment of Cardozo J in Jacob & Youngs v Kent 129 NE 889 and said:

“Cardozo J.'s judgment is important, because it establishes two principles, which I believe to be correct, and which are directly relevant to the present case; first, the cost of reinstatement is not the appropriate measure of damages if the expenditure would be out of all proportion to the benefit to be obtained, and, secondly, the appropriate measure of damages in such a case is the difference in value, even though it would result in a nominal award.” (at p 367)

And he went on to say (at p 368):

“Once again one finds the court emphasising the central importance of reasonableness in selecting the appropriate measure of damages. If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the plaintiff's loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.”

270.	It is not necessary to set out other remarks in the same vein.  It is apparent from what I have set out that there is a reasonableness limit on the extent to which a claimant can claim damages on a cost of cure or cost of reinstatement basis.  In relation to that reasonableness point the following additional matters also emerge:

i)	It is apparent from that case that at least some of their Lordships regarded the reasonableness point as something that went directly to whether the loss in question should be treated as having been sustained rather than a factor imposing a ceiling or enabling a choice between two remedies.  Lord Jauncey said (at p 357):

“If it is unreasonable in a particular case to award the cost of reinstatement it must be because the loss sustained does not extend to the need to reinstate … This was recognised by the High Court of Australia [in a specified case] where it was stated that the cost of reinstatement work subject to the qualification of reasonableness was the extent of the loss, thereby treating reasonableness as a factor to be considered in determining what was that loss rather than, as the respondents argued, merely a factor in determining which of two alternative remedies were appropriate for a loss once established.”

ii)	In taking reasonableness into account one must put the question in the context of the particular contract.   At page 358 Lord Jauncey said:

“Furthermore, in taking reasonableness into account in determining the extent of the loss it is reasonableness in relation to the particular contract and not at large.”

He said this in the context of considering building contracts in order to illustrate that sometimes a client would be able to say that his loss was the cost of reinstatement because on the facts the particular building or feature was sufficiently important, and sometimes he would not.  While the principle is probably more difficult to apply in some professional negligence contexts it is nevertheless something that I have to bear in mind.

iii)	Although the test is reasonableness, the cost of remedy is obviously central to that question.   While personal preference may be important in some cases (see eg Lord Jauncey at p 378-9) the cost is still inevitably going to be a very important factor.  The quotation (with approval) from McGregor on Damages set out above, demonstrates that.  So does the citation, again with approval, of Phillips J in Channel Island Ferries Ltd v Cenargo Navigation Ltd [1994] 2 Lloyds Rep 161 @ 167 (cited in Ruxley at p 370):

“If, in such a case, the contractual requirement is not met, the costs of remedial measures will not normally be recoverable as damages if they are disproportionate to the financial consequences of the breach.”

271.	In the light of that I think that whether or not the claimant is entitled to the remedy it seeks in this case can be considered under the following 4 heads.  They are not absolutely independent tests.  They all inter-relate, and the basic question is whether the cost of cure relied on in this case is the real and proper measure of the claimant’s loss.  However, the following four questions seem to me to be a useful way of breaking the discussion down:

(a)	Is cost of cure available as a matter of principle, in cases of this sort?

(b)	If so, is there a case for considering it as an arguable way of measuring the loss on the facts of this case, or should some other measure be used?

(c)	What is the cost of cure relied on in this case, and is it actually the cost of cure?

(d)	Is the cure, bearing in mind that cost, a reasonable thing to do in Ruxley Electronics terms?

Is cost of cure available in cases of the present sort?

272.	This question has already been answered above.  The present case is one in which, as a result of the negligence of solicitors, a formal document did not contain a provision which ought to have been there.  Since the object of an award of damages is compensatory, and since that principle, and not mechanisms, is paramount, it would be surprising if any particular way of calculating loss would be allowed in certain types of cases but not in others, merely because of their categorisation.  It may be that certain types lend themselves naturally to certain ways of measuring loss, but that does not mean that in some instances another measure would be inappropriate.  Bearing that in mind, it seems to me that there is no reason in principle why cost of cure should not be allowed in solicitor’s negligence cases even if in a large number of them another measure is habitually used.  The cases cited in Jackson & Powell (see above) demonstrate applications of that proposition.  Mr Stewart did not really seek to argue otherwise.  His arguments were focused on the inapplicability of the measure on the facts of this particular case.

Is it prima facie an arguable way of measuring the loss in this case, or should some other measure be used?

273.	Strictly speaking this question, like the following questions, cannot be considered in isolation because the real question is whether on the facts it is a proper measure of loss or whether some actual alternative is the proper measure.  However, it is still a useful question to consider in order to see whether at this stage of the reasoning there is something else which plainly rules it out. 

274.	As I have already observed, no attempt has been made in this case to establish what damage has been suffered on the familiar diminution or difference in value test.  There has been no attempt to value the bundle of rights that the claimant acquired under the Shareholders’ Agreement and the rights that it should have had.  That is not surprising.  The exercise would probably be immensely difficult and I would have thought it would be difficult to put any value on it at all by conventional means.   At the date of the Shareholders’ Agreement it was contemplated (at least by the Muddymans) that there was a risk of a desire to inject more than the £60m provided for by that agreement, but it was not apparent when, if ever, that would be.  The original estimates were that all the relevant plans could be implemented for £30m.  The second £30m was thought sufficiently possible for it to be specifically provided for.  The rest was scarcely thought about at all.  The right to be able to do so by injecting share capital, in the face of objections from the Muddymans, is not something with an obvious financial value, unless it was thought of as a means to bring about a dilution which would cause the Article 6 rights to cease.   I do not think that that factor would have been treated by the parties as having a lot of practical significance because they probably would not have thought that it would have arisen in practice, though the Muddymans were sufficiently concerned about dilution to extract the letter of comfort.  Accordingly, in terms of valuing the deal with and without the omitted rights, it is not apparent that there would have been a measurable difference.  I received no evidence on this sort of valuation exercise, so everything points to this basis of assessing damages as yielding no discernible loss.

275.	All that considers the measure as at the date of Shareholders’ Agreement, but of course that date can yield to a later date if the justice of the case requires it.  However, the claimants did not seek to advance a “difference in value” case by reference to any later date either, and I can see that there are similar difficulties in carrying out the valuation exercise at a later date too.  

276.	It is therefore apparent that the “conventional” difference in value test throws up no measurable loss.  However, that does not mean that an alternative measure of loss (that claimed by the claimant) becomes relevant.  As Ruxley makes clear, if the cost of reinstatement measure is to be found to be the correct one then it must be on the footing that it represents a proper measure of loss, not on the footing that another measure produces a nil figure or a difficult assessment.

277.	Accordingly, it is necessary to consider whether the cost of cure in this case is a viable alternative as being a real reflection of the claimant’s loss.   The idea in the abstract (without looking at the amounts involved) has some attractions.  The solicitors’ negligence removed a right that Mr Al Fayed ought to have had.  It was not a minor right, though it was not central either.  If it could be bought in at a reasonable price, so as to put Mr Al Fayed in the position that he ought to have been in, then the cost of achieving that is potentially a real measure of his loss.  

278.	Accordingly this somewhat abstract question can be answered in the sense that it is an arguable way of measuring the loss.

What is the cost of cure relied on, and is it the real cost of cure in this case?

279.	Mr Croxford advances a primary and secondary case.  His primary case is that the cost of cure is the cost of doing the deal with the Muddymans ie £7.75m.  His secondary case recognises that technically the deal achieved the buying in of the loan note options.  He submits that they had no real value, but he says that if they did have value then that value falls to be taken off the £7.75m.

280.	On its face, and as a matter of technicality, the deal with the Muddymans went beyond cure.    Curing the problem would have involved the insertion of the provision which was removed in the course of the drafting, or a provision with equivalent effect.  That, however, was not the thrust of the September agreement.  It went further than that.  It terminated the provisions of the Shareholders’ Agreement, bringing to an end the loan note options and all other relevant rights that the Muddymans had.  The Muddymans parted with a large part of their shareholding.  It was therefore technically different from just buying the omitted right.  

281.	However, it would not be right to conclude that the claim fails to be a cost of cure case for that reason alone.  It must be right that I should look at the substance.  If in substance what the claimant did was bring about the same situation that it would have been in had the solicitors complied with their duty then that might qualify for consideration on a cost of cure recovery basis even if it achieved it by a different technical route.  I must therefore consider what the substance of the deal was.

282.	The claimant would seek to argue that it achieved the substance of the position it would have been in had the solicitors complied with their duty.  Had they done that then Mr Al Fayed would have been able to acquire shares with his financing over £60m, and would have done so.  He would have been able to dilute the Muddymans and thereby bring the Article 6 bars to an end, and bring most of the Shareholders’ Agreement to an end.  While it is true that the call options would have continued in existence, they were in fact of no value at the time.  Accordingly, Mr Al Fayed put himself in the position that he ought to have been in, and it cost him £7.75m to do it. That sum is therefore said to be recoverable.  

283.	I do not consider that that is the correct view of the substance of the situation.  It is true that in some respects the deal achieved the same overall position that Mr Al Fayed would have sought to have achieved had he had the right to finance by way of share capital for sums in excess of £60m.  If the right had been bought in, some existing lending could have been capitalised and the Muddymans would have been rapidly diluted to below the critical 10% level.  To that extent the deal went straight to overall effect without any intervening issue of diluting shares.  However, I consider that the deal achieved rather more than that and put Mr Al Fayed in a better position than the introduction of the right by itself would have put him in.  One has to have regard to the realities of the situation and what Mr Al Fayed was actually buying in this bargain.   Merely buying in the right to take shares, with the possibility of diluting, would not have been an attractive option, and I doubt if at that time Mr Al Fayed would have paid a lot of money for it.  By doing the deal that was done, Mr Al Fayed was not merely buying the right to subscribe for shares; he was in a real sense buying out a large part of the power of the Muddymans to influence the club and compromising potential disputes.  All that was necessary to “cure” the problem created by deletion of the words which would have preserved the right to subscribe for shares once £60m had been provided was the reintroduction of that right.  However, merely doing that would not necessarily, in practical terms, have provided all that Mr Al Fayed wanted.  True it is that he would have had the opportunity of seeking to capitalise some of his existing loans, or of introducing further money by way of share capital, but it does not follow that that theoretical possibility would have given him the control he wanted, or at least not in a clean way.  There was the possibility, albeit not great, that the Muddymans would themselves have sought to take shares if they were offered by the company, thereby requiring Mr Al Fayed to introduce more money if he wished to dilute them down to below 10%.   Although I have found in this action that they would probably not have done so, it is perceptions at the time that count for current purposes.  Mr Al Fayed would not have known for certain at the time whether and to what extent they would seek to, or be able to, do that.  Mr Benson’s view was that they might have been able to find up to £2m, but not more.  Whether they would have done it is, of course, untested, but the possibility of their doing so could not have been ruled out and would have had to have been factored into any decision as to what to try to do by way of turning loans into shares, and would probably have formed part of the background to a negotiation about share issues.   Then there was the letter of comfort as to dilution.  This was not binding, but the Muddymans would be very likely to have sought to use this to resist dilution.  Then there was the risk of publicity if the Muddymans did not like dilution and sought to make a fuss.  On the Al Fayed side there was a serious concern that squabbles with the Muddymans should not attract publicity.  That was apparent at the D J Freeman presentation in December 2001, and was still likely to have been operating in September 2002.  Mr Benson told me, and I find and accept, that he expressed concerns about publicity of disputes with the Muddymans to Mr Al Fayed at or by the beginning of 2002, and I accept that evidence.   I also find that those concerns were still operating in September 2002.  At a meeting in September 2002 between Mr Coates of Lewis Silkin and Mr Benson, the former commented that the publicity arising from proceedings would have to be carefully managed – there is no record of any dissent from that.  The prospects of getting a new stadium, and any external financing required, would have been harmed by such public disputes.  Relationships with the club manager might have been affected by it too.   Mr Stewart suggested that the Muddymans might have brought a petition under section 459 of the Companies Act 1985.  I think that is rather more fanciful.  However, I consider and find that Mr Al Fayed would not have found it very attractive merely to have bought in the right to subscribe, because it would still have left him with the practical difficulties of dealing with the Muddymans, and simply steam-rollering them would not have been an attractive, or probably a viable, option, particularly in order to bring about the Sutton deal which the Harrods side wished to keep from the public gaze anyway.  Buying off those potential disputes was therefore a valuable commercial matter, and was therefore a valuable commercial benefit.  In doing the deal that he did, Mr Al Fayed was not merely getting in that which Holdings’s solicitors had negligently omitted.  He was buying the non-opposition if not the co-operation of the Muddymans.    

284.	Accordingly Mr Al Fayed obtained significantly more than the “cure” of the problem with which the defendants had left him.   That means that I cannot take the £7.75m as being the cost of cure in this case.   However, it is still necessary to consider whether the cost of cure can in fact be defined and identified.  If it were possible to filter out the value of the other benefits that were acquired then a residual figure might be available for consideration.  However, I do not consider it is possible to do that.  The value of the call options is something that might be capable of being valued for these purposes, and Mr Croxford advanced a strong case for saying that they had no real value at the time.   However, I am unable to find that they had no value at all, and I do find that the parties did not actually treat that as being the case.  The call options were a form of deferred consideration, and the Muddymans will have had that in mind as part of the package of rights that they had acquired.  I find it impossible to believe that the value of this right was something that was entirely discounted in the horse-trading negotiations that took place, even if no value was articulated.   I think it likely that negotiations between the parties arrived at a figure which contained some indefinable element attributable to the fact that the Muddymans were giving up their rights in this respect.  By the same token, the Muddymans were giving up something that they doubtless considered of some value, and whose value one cannot ignore, when they gave up the remaining effects of the agreement, and some of their shares. 

285.	So far as the value of the call options is concerned, Mr Croxford accepted that if they had a value which could be determined (the burden of establishing which was on the defendants) then that value would fall to be deducted from the £7.75m, so that the remainder would be the cost of cure and recoverable.  As a secondary position he invited me to do that (while firmly maintaining that it was for the defendants to prove the value).   I do not consider that I can or should accede to his invitation.   First, I have insufficient material to enable me to do it.  While it is true that, in the context of determining damages, this Court will put figures on that which cannot conventionally be valued, that sort of exercise is not quite what is involved here.   It would involve my coming up with a figure to determine what figure the horse-trading parties notionally, but did not actually, put on these rights, not a strict financial calculation.  I cannot do that on the material that I have.   Second, I would be doing it in order to tell Mr Al Fayed what his cost of cure was, when that is something that he ought to be able to tell the court if it is to be a true measure of his loss.  And third, it would not solve the problem because there are the other factors which came into play in the negotiations and which I have referred to above.  I would have to do the same in relation to those other factors in order to arrive at the cost of cure, and the difficulties of doing that are probably even greater than in doing it in relation to the loan notes.

286.	In the circumstances I do not consider that Holdings has established that the sum claimed, or some other definable part of it, is the cost of cure in this case.   In so finding I am not relying on a conventional finding that a claimant has not actually proved its case on a balance of probabilities.  I am making a finding that the facts do not permit one to identify a cost of cure which can be said to be the loss attributable to the negligence which has been established in this case.   This is perhaps not surprising.   In cases where cost of cure will typically be appropriate, such as building contract cases, one can very often readily identify what is necessary to put right the physical problems that have arisen, and can relatively easily say that the cost is a proper measure of the loss.  In some professional negligence cases that may well be the case too.  However, this is not such a case.  This is a case where the eventual deal done was a horse-trade in the commercially unconventional context of a football club in which matters other than the missing right were firmly in play, and dealt with, in the negotiations.   If that makes it impossible to identify a true cost of cure then that measure of loss is not available to the claimant.   The other factors which I refer to below in relation to the reasonableness of the deal also muddy the waters to some extent too.  

287.	In the circumstances I consider that Holdings has not established a cost of cure sufficiently clearly to enable me to conclude that it is an appropriate measure of its loss in this case.

Is the cure, bearing in mind that cost, a reasonable thing to do in Ruxley Electronics terms?

288.	If I am wrong about that, and if £7.75m is correctly identified as the cost of cure, then is it a reasonable cost in terms of the requirements of Ruxley Electronics?   It has to be measured against what it acquired, and that has to be set against the broken contract in question.   In that context is it proportionate or disproportionate?  

289.	Ruxley Electronics indicates the importance of the overall cost of the cure or reinstatement.  It will usually be a decisive factor in deciding the reasonableness of effecting the cure for these purposes.  In this particular case trying to get hold of the right to subscribe for shares was probably not, of itself, an unreasonable goal.  It cannot, however, be divorced from the cost.  The cost in the present case was £7.75m (on the present hypothesis).  In absolute terms that is obviously a lot of money, but it has to be measured against what it acquired, and that has to be set against the broken contract in question.   In that context is it disproportionate?  

290.	For Holdings to succeed in its claim it is necessary to assess the damages as at the date of the buy-out, not as at the date of the breach.  It is plainly permissible to assess damages as a later date if that is the proper way of giving effect to the compensatory principle (see eg Pulver; as a principle it was not disputed by the defendants in this case).   If one is to allow the actual costs of buying in a negligently omitted right it will usually be necessary to take the later date, because it is only by reference to the later date that one can see what the cost was.  Contrast very many building cases, where the cost of cure can usually be determined as at the date of the breach where it is necessary to do so.  In the present case the date of the alleged incurring of the loss was more than 5 years after the date of the contract and of the breach.  A lot of water had flowed under the bridge in the intervening period.  At this stage in the reasoning it seems to me to be helpful to consider one thing as a useful (though not determinative) cross-check, and that is to consider the question of reasonableness and proportionality of the actual cost of cure as if it had been incurred at the date of the breach.   In this case the relevant point of time is completion of the 1997 deal, when the breach of the duty of care (which started when Mr Talbot accidentally deleted the important words and let a final form be executed which did not have them in) led to the deal being completed without the negligently omitted wording.  That is the point of time at which the breach has real consequences.  Let it be imagined that the breach comes to light immediately after that time, and the innocent party is putting forward the ultimate cost of cure as a reasonable and proportionate response.  In very many cases the answer to the question of whether it is a reasonable and proportional response is likely to be same whether one takes this date or the later date at which the problem comes to light and is being debated.  It seems to me that that is likely to be the case in typical building disputes, and the same is likely to be true of less complex professional negligence cases than the present – for example, Pulver.  Suppose that the analogous cost of extrication which Sir Thomas Bingham MR would have been minded to allow in Pulver were tested as to its proportionality both as at the date of the breach and as at the date at which the cost was actually incurred.  The answer as to proportionality would be likely to be the same as at both dates (if one imagines the negligence coming to light at the earlier date).  

291.	The present case seems to me to give a different impression.  Imagine that the negligence had come to light immediately after completion.   Would it have been a proportionate response to pay £7.75m to buy in the right to dilute, had the Muddymans demanded it as the price for putting back that which had been omitted?  It seems to me that the answer to that would clearly be in the negative.  Bearing in mind the situation as it then was, that would have been a wholly disproportionate sum of money to have paid, and it is completely inconceivable that Mr Al Fayed would have agreed to pay it, or anything like it.  At that time the desirability of being able to lend sums in excess of £60m by way of injecting share capital would not be thought of as having anything remotely approaching that sort of value.  It was not seriously contemplated that sums of that order would be required anyway; nor would the commercial imperatives of being able to inject by way of share capital have been sufficiently clearly perceived to make it proportionate to spend any large sum of money buying in the right to do so.  

292.	However, that does not determine the issues that I have to decide, because the whole point of assessing damages at date later than the breach date is because as at the date of the breach the loss has not occurred, or perhaps is not sufficiently apparent.  Nevertheless, where the issue of proportionality and reasonableness of a course of conduct is concerned it does seem to me to be of some significance.  It means, at the very least, that particularly close attention must be paid to the reasons why something that would not have been proportionate and reasonable at the earlier date has become proportionate and reasonable at the later date.  It may also be an indication that the cost of cure is not, in the circumstances, the proper loss of the claimant, in the same way as the cost of procuring a deeper swimming pool was not the proper loss of Mr Forsyth in Ruxley Electronics.

293.	At the date of the deal the club was heavily insolvent.  That is common ground.  The original generalised business plan (in which £30m was thought to be enough to get the ground modernised and the club into the Premiership) had been found to be completely unattainable.  Over twice that had been provided and still the ground had not been modernised, and it was thought that it would not be possible to achieve the original business objectives by staying at Craven Cottage after all – hence the push for the White City ground.  The provision of further moneys did not achieve solvency - Mr Al Fayed was having to provide very substantial funds to pay player wages and keep the club afloat.  There was no clear business plan to achieve solvency, though if the White City project had come to fruition then in the medium to long term the position might have been turned round.  

294.	When the situation is described in such stark terms it is not easy to see how the payment of £7.75m for the right to dilute (or its equivalent) could be described as a reasonable or proportionate activity.  It provides the opportunity to acquire more shares in an insolvent club, without achieving solvency, and with the serious prospect of losing that money.  It is hard to see how such expenditure, thus described, could be reasonable.  It can be contrasted with Mr Fallowfield’s suggestions in January 2002 that an offer might be made to buy out the Muddymans for £6.5m, at a time when he perceived that that was actually the value of their rights.

295.	However, that is not the whole context.  The claimant’s case is that the whole picture makes what happened reasonable, in Ruxley Electronics terms.  I must obviously consider that.

296.	The immediate context in which the deal was done, so far as the claimants are concerned, was as follows.  Mr Al Fayed had provided all the funding anticipated by the Shareholders’ Agreement, and more.  His preference was for contributing by acquiring increased share capital, though he had accepted advice that in the context it made more commercial sense to do so by making loans.  However, he wished to pursue the White City venture, and in that context he wished to enter into the Sutton deal.  The Muddymans were blocking that deal and, he said, were using the position to try to manoeuvre in negotiations.   He and his advisers perceived a great need to do the Sutton deal, and needed and wanted, reasonably, to be in a position to override the Muddymans.   Does that context improve Holdings’ claim?

297.	I do not consider that it does.  Obviously Mr Al Fayed considered that it was worth paying £7.75m in order (as he saw it) to get himself to where he wanted to be had the right to subscribe for shares been there.    On the hypothesis on which I am approaching this question (that the £7.75m should be treated as the cost of cure), £7.75m was paid for the right to have complete control of a seriously insolvent football club (and in particular so that the Sutton deal could be done), with a ground that was apparently inadequate for its Premier League status, with serious ongoing funding problems in terms of its day to day expenditure (and in particular its players wages), in respect of which twice as much as the original investment had already been expended with the effect of still failing to achieve the original objectives  and in respect of which the prospects of getting a better ground were at best attended by very significant uncertainty.  While Mr Al Fayed was obviously prepared to pay that sum as a matter of personal choice, I do not consider that it was reasonable in Ruxley Electronics terms to spend it for that purpose.  So far as its reasonableness is concerned it falls into the same category as expenditure on deepening the pool in Ruxley Electronics, or demolishing large parts of the building in the coloured bricks example given by Lord Jauncey at page 358.   I do not ignore the effect of clause 12 in this context.  Its effect was such that Mr Al Fayed might feel obliged to continue funding the club if he did not wish the Muddymans to have the opportunity to re-acquire the club for perhaps not a lot of money.  However, that does not make it reasonable or proportionate for him to spend £7.75m to remove the Muddymans (and that prospect).   Mr Al Fayed was still paying £7.75m for complete control of an insolvent football club with uncertain prospects.  I do not consider that to be a sensible measure of his loss in respect of the original solicitor’s negligence in failing to preserve for him the right to subscribe for shares.  

298.	I accept that there are dangers, and even unfairnesses, in a court second-guessing the judgment of businessmen as to the value to them, in overall business terms, of a given deal.  It may be that in many cases, where a businessman succeeds in dealing with a third party in order to recover that which was lost to him as a result of an act of negligence, the deal done will prima facie be a reasonable commercial deal.  However, in my view the sum paid to the Muddymans in this case was distorted by a number of factors with the result that, while it was a sum which Mr Al Fayed was prepared to pay, it is a sum which is rooted in his personal preferences and cannot be treated as a sum which reflects commerce or as his real loss as caused by the negligence of the defendants.  Those factors were as follows.

299.	First, there is Mr Al Fayed’s somewhat impulsive business style, at least in relation to this club and probably elsewhere.   Mr Al Fayed’s business style here was not one based on his own careful and elaborate planning, detailed consideration of business options, and then a rationalised decision. Rather it was based on his personal feelings, and doubtless his gut reaction (albeit sometimes with the benefit of considered input from his subordinates).  This was certainly the case in relation to the major affairs of Fulham Football Club.  The original decision to purchase, and the concessions to the Muddymans made along the way, demonstrate this particular style.   So does the decision that he made not to increase his offer for the White City by a relatively small amount and procure funding guarantees satisfactory to the vendor.  In saying this I do not seek to paint his decisions as being constantly irrational.  They were, however, personal.  When he decided that the time had come to remove the Muddymans and their obstacles to his preferences for the club, he doubtless decided that he would pay what he had to pay to achieve that.  It was in no way a calculated business decision.  Doubtless there were limits on what he would pay, but no-one has suggested that he had actually laid any down.  Accordingly, the decision to pay £7.75m was not a business decision affected by any refined business judgment.  It reflected the fact that Mr Al Fayed wanted to get rid of the Muddyman constraints, and that that was what he had to pay, at the time, to achieve that.  This analysis is reinforced by the evidence, such as it was, of how the negotiations went.  There was no advance plan for the negotiations, apparently, no particular structure to them and no real evidence that there was anything other than a horse-trade.  

300.	Second, the imperative for doing a deal when this deal was done was the perceived need to bring the Sutton deal to fruition.  That could not be done without dealing with the Muddymans, and it gave the situation urgency, apparently.  This did not create a negotiating environment in which one could be confident that a full, testing negotiation could take place.   The claimants say that the Muddymans had got them over a barrel in relation to this deal.  So far as that is an apt description then it was a barrel over which the claimant had to a large extent draped itself.  First, while the apparent aim of the club at the time was to pursue the White City option, it was the club’s decision to try to further that by putting the Sutton deal in place.  The Sutton deal was one way of pursuing the objective, but it was not the only way.  Second, the Muddymans were not consulted about the deal or the objective from the outset.  They were only told about it when it was in its advanced stages despite the fact that (as I have already found) it was appreciated on the Al Fayed side that their consent would be required.   This was not a sensible way of handling the Muddymans over the sensitive issue of the sale of Craven Cottage, and would be likely to make dealing harder rather than easier.   Third, when the matter did come to the Muddymans’ attention, it is not apparent that there was a prompt attempt to deal with them fully.  Mr Benson had some dealings with Mr Sugar, the content of which is unclear.  The real dealings did not start until the Claridges meeting, which was uncomfortably close to Mr Sutton’s own deadline, and the final deal was done right up against it.

301.	Third, as I have already pointed out, the actual deal was not one in which the just the right to subscribe for shares was bought in.  The claimants purchased other rights – see above.    

302.	My overall assessment is therefore that £7.75m was not a reasonable sum to pay to cure the negligence, and if (contrary to my earlier findings) it falls to be treated as the cost of cure, it does not provide a proper measure of the loss of the claimant in this case.

The legal costs claim

303.	In addition to that claim Holdings claims certain legal costs. The following costs are claimed:

i)	Fees paid to D J Freeman:
(a)	Initial advice 2001-2 – £17352.28
(b)	Advice on arms length transaction - £33,360.59
(c)	Advice on sale of Craven Cottage and consents required from Muddymans - £9,195.56

Total - £59,908.53

ii)	Lewis Silkin fees – share sale and purchase - £48,367

304.	This makes a total of £109,275.43.  The D J Freeman fees include the fees of counsel (Mr Briggs and Mr Philip Marshall) even though Mr Briggs was initially instructed directly by Mr Benson (no point is taken on that).  Lewis Silkin’s fees include the cost of three counsel – Mr David Richards QC, Mr David Mabb QC and Mr David Chivers QC.

305.	Not a lot of attention was lavished on the detail of these fees in the course of the evidence or submissions in this case.  There was evidence in form of a witness statement from Mr Andre Linder,  a director of Leisure, that invoices were received from those firms and that those invoices were paid.  However, with the exception of Mr Briggs’ activities, the appropriation of work to those invoices has not been done.  Three D J Freeman (or Kendall Freeman) invoices are headed “Dispute with Muddymans”, but contain no other detail of the work done in the period described at the top of each invoice (each of which covers a few weeks and which, when combined, cover the period 2nd October 2001 to 31st January 2002).  A fourth is headed “Project Wisley”, is in the sum of £9,195.56 and covers the period 8th August 2002 to 30th August 2002.  A fifth is headed “Muddymans” and charges £21,343.68 for the period from 30th April 2002 to 28th June 2002.  A sixth is entitled “Muddymans”, covers the period 1st July 2002 to 31st July 2002 and seeks the sum of £9,882.14.  The seventh is similarly entitled and covers August 2002. None of these invoices gives any details at all of the work done, and there is no other direct evidence of what it was, though one can see from the documents what some of it probably was in the form of the presentation to Mr Al Fayed referred to above.  

306.	Counsel’s fees notes are almost as uninformative.  Mr Marshall’s fee notes are headed “Fulham Football Club”, and show unspecified work done on 4 identified dates.  Mr Briggs’ fee note shows an item for “Reviewing papers, preparation for and advising in consultation” (for which a charge of £2,250 is made) and further unspecified work on 2nd November 2001.  Holdings produced a partially redacted note of a consultation with Mr Briggs, Mr Marshall and D J Freeman on 5th November 2002, but that does not seem to figure on the fee notes.  Mr Benson gave some evidence that the matter on which Mr Briggs and Mr Marshall subsequently advised was the matter on which Mr Briggs was consulted, but no more detail was given.  Ms Robson, a partner in the firm acting for the claimant, said (in a witness statement provided during the action for the purposes of a disclosure action) that counsel was instructed to draft and advise in the preparation of proceedings against persons other than the current defendants (which were not issued).  Even if I am allowed to look at that evidence for these purposes (which is probably doubtful), that description of the activities concerned (which was presumably deliberately coy) does not enable me to make any relevant findings about the nature of the activities, their connection with the breach of duty alleged in this case or the reasonableness of the fees.

307.	The fees of Lewis Silkin are described in the Particulars of Claim as relating to “Share sale and purchase agreement”.  If the matter stopped there then they would not be recoverable because they would suffer the same fate as the £7.75m claim in this action for the same reasons.  However, yet again the evidence to support this claim is very thin.  There is an invoice for £58,367 entitled “Re: Investment In Fulham for the period 01 September 200 to 24 September 2002”.  There is a subsequent credit note for £10,000, so the amount of this invoice net of the credit note corresponds to the claim made for legal fees.  The invoice goes on to refer to “Professional Charges in relation to the above matter as per the attached narrative”.  No narrative is attached.  The only thing that appears from the evidence as to what Lewis Silkin did is an attendance note of a meeting with Mr Benson on 6th September 2002, and the instructions to Mr Richards.  The unpaid disbursements include counsels’ fees totalling £8,000, of which £4,500 are attributable to Mr David Richards QC.  One set of fees is attributable to David Mabb QC (£3000).   The instructions (and supplemental instructions) given to Mr Richards have been made available, as has a note of his advice.  No other material appears in the evidence, save that it appears from the instructions to Mr Richards that Mr Mabb had been asked to advice separately in another aspect of the matter, which was probably the conditional contract.  

308.	I accept as a matter of principle that the costs of instructing lawyers to consider the legal position in which negligence has placed a client are costs which are recoverable.  They must be properly proved to be such, and must be reasonable.  I consider that the first set of fees of Mr Briggs have been demonstrated to fall into that category.  They will be allowed.  The same applies to the advice sought from and given by Mr Richards.  It does not actually relate to the buyout (contrary to the heading of the D J Freeman invoice).   It actually goes a little beyond the immediate effect and consequences of the effect of the relevant parts of the Shareholders’ Agreement, and goes into ways of tackling the matter in a broader sense, but I do not think that the court should be too astute to draw lines in this area.  It is advice which was reasonably sought on the situation in which the Shareholders’ Agreement (and Articles) had left the claimants.   However, the evidence does not establish that any of the rest of counsels’ fees falls within this category.  The claimants have chosen to be coy about what counsel was being asked to do.  It appears on the authorities that making a claim for the fees does not waive privilege (see Paragon Finance plc v Freshfields [1999] 1 WLR 1183) but that does not mean that the claimant can get away with some inadequate level of evidence if it chooses to make that claim.  The claimant has a choice.  If it wishes to claim the legal fees, it must adduce a sufficient level of evidence to prove its claim and demonstrate that the fees are properly recoverable as damages.  If that involves a waiver of privilege then so be it.  If it chooses to limit its disclosure in the interests of preserving its privilege (which is clearly what has happened here) then it runs the risk of not having proved its case.  That is the position in this case.  In fact, not only is there inadequate evidence of various matters, there are also certain limited positive matters which cast doubt on some of the claim.  The coyness of Ms Robson’s witness statement, provided for the purpose of a debate on privilege which took place on day 5 of the trial, tends to cast doubt on the link between the unspecified proceedings that were under contemplation, and the reference to Mr Mabb’s advice seems to indicate that that his advice was not something flowing from the negligence.   So far as D J Freeman’s fees are concerned, no attempt has been made to separate out what fees relate to what activities to enable me to form any view about their propriety as part of this claim.  The same applies to the early costs of Lewis Silkin, which I would otherwise have been minded to allow.  I do not think it is appropriate for me to indulge in guesswork in relation to these fees.

309.	In the circumstances the claimants are entitled to claim as damages the fees of Mr Briggs in the sum of £2,250 and the fees of Mr Richards in the sum of £4,500 and no other fees.  The other fees have not been sufficiently proved.

Conclusion 

310.	I therefore conclude that the claimant in this case succeeds on liability but has failed to establish most of the loss relied on.  Other than the legal costs claim, the cost of cure basis, based on the deal in September 2002, was the only loss pleaded or sought to be established in these proceedings.  That claim fails for the reasons given.  No other basis of claim was suggested.  The claim to legal fees succeeds in the aggregate sum of £6,750.