[1992] 4 All ER 700

Trust and trustee - Constructive trust - Breach of fiduciary duty - Knowing receipt of trust property - Sale of company assets at undervalue - Directors of vendor company in breach of fiduciary duty in respect of sale of company assets - Whether purchaser company liable as constructive trustee - Whether purchaser company having knowledge of directors' breach of duty - Proper test to be applied.

In May 1989 the vendor company, E plc, agreed to sell to the purchaser company, P Ltd (a wholly-owned subsidiary of C plc), three properties for a total of £900,000 and to grant an option to purchase two other properties at £350,000 and £250,000 respectively. Prior to completion E plc sought to rescind the whole agreement and shortly thereafter P Ltd purported to exercise its option over the fifth property. In various stages P Ltd sold on the three properties for a total of £1,777,500 and (by agreement between the parties) the fifth property for £408,000. The purchaser company subsequently brought an action against E plc, seeking a declaration that the notice exercising the option over the fifth property was valid and effective according to its terms. E plc counterclaimed that C plc or P Ltd was liable as constructive trustee of the fourth property and of the proceeds of the sale of the other properties on the ground of knowing receipt of trust property and that both C plc and P Ltd were liable as constructive trustees on the basis of knowing assistance in a fraudulent breach of fiduciary duty. The principal breach of fiduciary duty on which the constructive trust claims were based was that two directors of E plc, F and S, deliberately or recklessly brought about the sale of the five properties at a gross undervalue as part of a fraudulent scheme, the main element of which was identified as a purported joint venture agreement with another company, F Ltd, which was allegedly a sham set up to benefit F and700 S. E plc contended that the managing director of C plc knew that F and S were in fraudulent breach of their duty to E plc, since (i) he knew of the undervalue, in that he knew that the terms and manner in which the sale agreement was made (eg the exceptional size of the required deposit, the speed of the exchange of contracts and the lack of proper marketing) indicated a breach of fiduciary duty, or (ii) he wilfully shut his eyes to the obvious or (iii) he wilfully and recklessly failed to make the inquiries which an honest and reasonable man would have made, or, in the further alternative, that P Ltd or C plc had knowledge of circumstances which would have indicated to an honest and reasonable man that F and/or S were likely to have been acting fraudulently or in breach of their fiduciary duties or had knowledge of facts which would have put an honest and reasonable man on inquiry as to whether they were acting fraudulently or in breach of duty. E plc also counterclaimed, independently of the constructive trust claims, that it was able to trace the proceeds of the sold properties into the hands of P Ltd or C plc on the footing that they were not bona fide purchasers for value without notice of E plc's equity, namely the right of recovery because of the breach of fiduciary duty by F and S of which there was constructive if not actual notice. C plc counterclaimed that S, acting on behalf of E plc, had fraudulently misrepresented to C plc that F Ltd was party to an agreement with E plc to purchase the five properties and that C plc and subsequently P Ltd would have to reach an accommodation with F Ltd in order to make the purchase free from any claim by F Ltd and that in reliance on those misrepresentations it had paid out £400,000 to F Ltd.

Held - (1) In determining whether a purchaser company had knowledge of a breach of duty arising out of the sale of another company's property at an undervalue, the proper test to be applied was whether knowledge that the directors of the vendor company were deliberately selling at a gross undervalue could reasonably be imputed to the purchaser and, since the breach of fiduciary duty arose out of a typical commercial transaction, the requirement of knowledge as the basis for liability as a constructive trustee would be met where it was possible to show that the purchaser had (i) actual knowledge of the breach, (ii) wilfully shut his eyes to the obvious or (iii) wilfully and recklessly failed to make the type of inquiries that an honest and reasonable man would have made. In such a situation it would not be appropriate for the court to be astute to find circumstances which could indicate knowledge by a purchaser of breach of fiduciary duty on the part of directors of a vendor company. The duty of directors of a purchasing company was to buy as cheaply as they could in the light of the mode and terms of the proposed sale and it would be going too far to impose on them a positive duty to make inquiries into the reasons for an offer being made to their company at what appeared to be a bargain price. The line should be drawn at the point where the price in question was indicative of dishonesty on the part of the directors of the vendor company, regard being had not only to the open market value but also to the terms and mode of sale. Although C plc's managing director knew that E plc was selling at less than the open market value of the five properties, it was reasonable for him to think that E plc could not afford to market the properties properly and was looking for a quick sale with an exceptionally large deposit which necessarily involved a drop in the price, and consequently the conclusion that the asking price was indicative of dishonesty on the part of E plc's directors could not properly be reached. The constructive trust claim based on knowing receipt therefore failed. If, contrary to that conclusion, it was right to have regard to knowledge of circumstances which would indicate the facts to an honest and reasonable man or which would have put an honest and701 reasonable man on inquiry in determining liability, then the underlying broad principle in commercial transactions was that the court would impute knowledge to a person who was guilty of commercially disreputable conduct in the particular context involved on the basis of what a reasonable person would have learnt. In the circumstances C plc's managing director had not had knowledge on that basis either. Moreover, since C plc's managing director had no relevant knowledge of S's failure to disclose to E plc his interest in F Ltd, it was clear that the constructive trust claim based on the fraudulent design involving F Ltd also failed. E plc's constructive trust claims would accordingly be dismissed (see p 759 g to 761 j, p 766 b d e and p 767 b c, post).
   (2) There was no independent right to trace property against a purchaser for value under a contract for sale where the contract was not liable to be set aside and there was no valid claim to impose a constructive trust, since a claim to trace property was not an independent cause of action. It followed that E plc's second counterclaim would be dismissed, with the result that the declaration sought in the statement of claim that the notice exercising the option over the fifth property was valid and effective would therefore be granted (see p 767 f g, post).
   (3) Although E plc's managing director, S, had had ostensible authority to make the representation to C plc's managing director concerning F Ltd's pre-existing contractual interest in the five properties, he had not had actual authority to do so, since the representation was to his knowledge incorrect. Having regard to the fact that C plc had been entitled to believe and rely on the representation made by S on behalf of E plc and in reliance on that fraudulent misrepresentation had paid out £400,000 to F Ltd, it followed that C plc succeeded on its counterclaim to E plc's counterclaims (see p 767 j to p 768 f, post).

Notes
For constructive trusts, see 48 Halsbury's Laws (4th edn) paras 584-596, and for cases on the subject, see 48 Digest (Reissue) 254-272, 687-690, 2213-2365, 6346-6354.
   For the principle of following assets, see 16 Halsbury's Laws (4th edn reissue) paras 911-915 and 48 Halsbury's Laws (4th edn) para 941, and for cases on the subject, see 20 Digest (Reissue) 900, 6706 and 48 Digest (Reissue) 728-738, 6687-6751.

Cases referred to in judgment

702

Action and counterclaims
By writ the plaintiff, Cowan de Groot Properties Ltd (formerly known as Pinepad Ltd (Pinepad) a wholly-owned subsidiary of Cowan de Groot plc), brought an action against the defendant, Eagle Trust plc (Eagle), on an agreement dated 4 May 1989 between the plaintiff under its original name and Eagle whereby Eagle agreed to sell certain properties to Pinepad and to grant Pinepad the option to purchase two other properties, seeking a declaration that the notice exercising the option over one of the properties was valid and effective. Eagle counterclaimed that since the sale agreement was ineffective the actions taken under it were liable to be undone, and that in the premises Pinepad was liable as constructive trustee of one property and the proceeds of sale of others, and had knowingly assisted in fraudulent breach of fiduciary duty by two of its directors, and sought a tracing order. Pinepad and its parent company counterclaimed that they were not liable as constructive trustees. The facts are set out in the judgment.

19 July 1991. The following judgment was delivered.

KNOX J. Although the plaintiff in these proceedings is Cowan de Groot Properties Ltd, a company previously called Pinepad Ltd and which I shall refer to by its original name 'Pinepad', the onus of proof of the matters in dispute is accepted as lying upon the defendant, Eagle Trust plc (Eagle), which has counterclaimed against both Pinepad and its holding company Cowan de Groot plc (Cowan de Groot). Pinepad was at all material times the 100% subsidiary of Cowan de Groot.
   The proceedings concern an agreement (the agreement) dated 4 May 1989 between Eagle and Pinepad whereby Eagle agreed to sell properties in three towns or cities to Pinepad and to grant an option to Pinepad to purchase two other properties, one in Bristol and the other in Newport and which I shall call 'the Bristol property' and 'the Newport property'. The properties agreed to be sold were in Wolverhampton, Nuneaton and Birmingham and I shall refer to them703 individually as 'the Wolverhampton property', 'the Nuneaton property' and 'the Birmingham property'. The prices specified in the agreement for the latter were as follows: £300,000 for the Wolverhampton property; £50,000 for the Nuneaton property and £550,000 for the Birmingham property. The options were options to buy at the following prices: £350,000 for the Bristol property; and £250,000 for the Newport property. I shall refer to all five properties comprised in the agreement, both the three agreed to be sold and the two over which options were granted, as 'the five properties'.
   The agreement was completed on 1 June 1989 by transfers in favour of Pinepad of the Wolverhampton property, the Nuneaton property and the Birmingham property. The option over the Newport property has been sought to be exercised by Pinepad by a notice dated 23 April 1990. The option over the Bristol property remains unexercised but Eagle claims that it was under no obligation to complete the option agreements over the Bristol and Newport properties and that it has rescinded the whole of the agreement by letters dated 30 March 1990 addressed to Cowan de Groot and Pinepad. The principal issue in the action shortly stated is whether or not the agreement and the actions taken pursuant to it are, in the events which have happened, effectual or whether, on the other hand, as Eagle claims, the agreement is ineffective and the actions taken under it, notably the transfers of the Wolverhampton, Nuneaton and Birmingham properties, liable to be undone.
   Eagle acquired the five properties by purchase from CP Holdings Ltd (CP Holdings) on 9 December 1988 at a price of £1,200,000. In making this purchase Eagle was following up transactions which had earlier been negotiated in 1986 and 1987 between CP Holdings acting through its director, Mr B Schreier, and Midland City Partnership plc (MCP plc) acting through its directors, Mr J W Ferriday and Mr R Smith, who both figure largely in the events upon which this action depends. CP Holdings was engaged in business as builders' merchants and allied trades and there were in 1986 dealings, the details of which are immaterial to these proceedings, but the end result of which was that a company, MCP Building Supplies Ltd, a subsidiary of MCP plc, had vested in it builders' merchants businesses in East Anglia and the Midlands which had previously belonged to J H Sankey Ltd, a subsidiary of CP Holdings. There was included among those dealings an option granted by CP Holdings to MCP plc to acquire three of the latter premises, namely the Nuneaton, Wolverhampton and Birmingham properties, but the option expired by effluxion of time before it was exercised. Similarly in July 1987 MCP Building Supplies Ltd acquired further branches in the West Country of the businesses of J H Sankey Ltd and two of those branches operated on the Bristol property and the Newport property and options for 12 months were granted to MCP plc to acquire the freeholds of those premises at open market values but they too expired by effluxion of time.
   Shortly before this last transaction Eagle Trust plc had been formed in March 1987 by a merger of various companies, of which the two largest were Mitchell Somers plc and MCP plc. The latter two companies became subsidiaries of a listed company, Audiotronic plc, which then changed its name to Eagle Trust plc. From then on MCP plc and thereby MCP Building Supplies Ltd became wholly-owned subsidiaries of Eagle. The board of Eagle after the merger in March 1987 consisted of the following nine persons. (1) Mr Thomas. He was chairman of Eagle, having previously been chairman of Mitchell Somers plc. He retired from the board of Eagle in October 1988 and played no significant part in the events with which these proceedings are concerned. (2) Mr Ferriday. He had been chairman of MCP plc and became group chief executive of Eagle. He succeeded Mr Thomas as chairman when he retired. Mr Ferriday in practical terms effectively controlled704 Eagle at all material times in all major policy matters, more especially with regard to acquisitions and strategic financial matters. He kept in close touch with Mr Smith. (3) Mr Smith. He had been managing director and in 1986 executive chairman of MCP Building Supplies Ltd. He became group managing director of Eagle. He was a friend and confidant of Mr Ferriday. They had between them run MCP plc and MCP Building Supplies Ltd. Mr Smith was concerned principally with the management of Eagle's subsidiaries and in particular the MCP side, of which MCP Building Supplies Ltd was the most important part. (4) Mr C P Whiley was non-executive director of Eagle at first but became executive in July 1989. He was concerned principally with the financial and City side of Eagle's affairs. (5) Mr Martin Baker had been finance director of Mitchell Somers plc and became finance director of Eagle. (6) Mr Black was an executive director with principal responsibility for the management of the Mitchell Somers plc side of Eagle.
   There were also three non-executive directors, Mr Janson, Mr Saunders and Dr Hardwicke.
   Mr Ian Tromans gave evidence before me on behalf of Eagle. He was employed from 1985 onwards by J H Sankey Ltd, originally as the East Anglia regional manager and he moved to MCP Building Supplies Ltd when that company acquired the businesses in East Anglia. By June 1986 Mr Tromans had become managing director of MCP Building Supplies Ltd. His executive chairman was Mr R Smith. Mr Ferriday and Mr Smith were in effective control of MCP Building Supplies Ltd and when Eagle was formed in March 1987 both Mr Ferriday and Mr Smith became directors of Eagle whereas Mr Tromans did not but he became an employee of Eagle although still managing director of MCP Building Supplies Ltd. The latter pursued an expansionist policy after Eagle was formed and became a large business with a very substantial turnover, estimated by Mr Tromans at some £52m in 1988. It was however a business which by its nature had to carry large stocks and it was always undercapitalised so that profitability did not keep pace with growth. I shall return later to the state of its finances and those of Eagle in the first half of 1989.

EAGLE'S ACQUISITION OF THE FIVE PROPERTIES
   Mr Tromans, who had long known Mr Schreier of CP Holdings, was instructed by Mr Smith shortly before 4 August 1988 to try to negotiate with Mr Schreier a purchase of the five properties. This was a project that Mr Tromans had for some time been seeking to promote, partly because the rent which MCP Building Supplies Ltd was paying was somewhat in excess of what at current rates of interest it would, Mr Tromans reckoned, cost to borrow the amount likely to be needed to buy the five properties and partly because the commercial property market was rising fast and the purchase seemed to him intrinsically attractive. There was also a special reason in relation to the Birmingham property, which unlike the others of the five properties, which were all freehold vested in CP Holdings, was a long leasehold interest underlet in part to MCP Building Supplies Ltd and in part to Servis Systems Ltd, so that MCP Building Supplies Ltd was only in physical occupation of part of the Birmingham property. Mr Tromans had a project for getting possession of the remainder on the termination of the underlease in favour of Servis Systems Ltd, which was due to expire in August 1989, on the ground that it was required for the occupation of MCP Building Supplies Ltd and having done that to use the whole of the Birmingham property as the headquarters for MCP Building Supplies Ltd. Mr Tromans had succeeded in the summer of 1988 in persuading the board of Eagle to allow his proposed705 purchase to go forward, hence his instructions from Mr Smith to approach Mr Schreier.
   There was a meeting between Mr Tromans and Mr Schreier on 4 August 1988 upon which Mr Tromans reported to Mr Smith and Mr Duffy, financial controller of MCP Building Supplies Ltd, the next day. The report included the following:

   Mr Tromans had taken advice about current values from Messrs Alder King, surveyors and valuers of Bristol, as a check against the price asked for by Mr Schreier. That valuation was not produced in evidence but Mr Tromans's evidence which I accept was that the Alder King valuation indicated that he was proposing on behalf of MCP Building Supplies Ltd about the right price. The transaction was on the basis that the sitting tenant was buying the reversion save with regard to the part of the Birmingham property which was occupied by and leased to Servis Systems.
   There was a hitch in the funding of the proposed purchase in that the board of Eagle at the last moment in August 1988 decided not to fund the purchase itself. However, an extension was obtained from Mr Schreier and on 4 October Mr Tromans sent him £120,000 by way of deposit and the rest of the price was produced by MCP Building Supplies Ltd in November 1988 although completion in the shape of the transfer of the properties to Eagle did not take place until 9 December 1988.
   Although Mr Tromans had obtained the approval of the Eagle board to the purchase of the five properties and had understood that Eagle would fund the transaction, he was told by Mr Baker, Eagle's finance director, in or about October 1988 that the money required could not be produced by Eagle. Mr Tromans negotiated loan facilities with Lloyds Bank plc, MCP Building Supplies Ltd's bankers, and that was the source of the purchase price. However, MCP Building Supplies Ltd's indebtedness was part of the Eagle group's banking facilities and the advance was made by Lloyds Bank on that footing. This was done with the knowledge and approval of Mr Smith and Mr Baker but there is no record of any formal antecedent resolution by the Eagle board approving the making of an706 agreement for the purchase of the five properties from CP Holdings. The five properties were treated separately so far as conveyancing documents were concerned and indeed the Bristol property was divided into its two constituent parts. The six agreements for sale and six transfers were all dated 9 December 1988 and executed by Mr Baker and Mr Beaumont, Eagle's company secretary, the latter of whom gave evidence before me. He effectively did what he was told notwithstanding the absence of any board resolution until 26 January 1989, when there was an Eagle board resolution ratifying the affixing of the company seal to the documents in a schedule which included the six agreements and transfers mentioned above. The agreements were described in the schedule as:

This reflected the fact that MCP Building Supplies Ltd was the tenant of the five properties and in occupation of all save Nuneaton and Wolverhampton and that the purchase was embarked upon for reasons connected with MCP Building Supplies Ltd's long-term plans. In fact there had been uncertainty whether the transfers would be taken into Eagle's name or MCP Building Supplies Ltd's name until quite a late stage. The solicitor acting for Eagle and MCP Building Supplies Ltd on the instructions of Mr Smith and Mr Tromans was Mr Ranson, who gave evidence before me. He wrote to the solicitors acting for CP Holdings as late as 4 November 1988 saying he had not been able to identify from his clients which of the various companies would actually take the titles but anticipated that it would be MCP Building Supplies Ltd. In this he proved wrong because as already mentioned it was Eagle that was the purchaser. Mr Tromans did not protest at this because he recognised that MCP Building Supplies Ltd was heavily indebted to and dependent upon Eagle for its finances.

EAGLE'S ACQUISITION OF THE SAMUELSON GROUP
   Samuelson Group plc was a public company quoted on the Stock Exchange which traded very successfully in 1984 and 1985, when its share price rose steeply, but encountered some financial problems in 1986. It had originally been founded by Mr Sydney Samuelson and his three brothers and it remained in 1987 under family control. In September 1987 the board of Samuelson plc included Mr Sydney Samuelson, who was the chairman, and his son, Mr Jonathan Samuelson, who also figures very largely in these proceedings and whom I shall call 'Mr Samuelson', who was the managing director. Other substantial Samuelson family shareholders were Mr Samuelson's brothers Peter and Marc Samuelson and Mr Samuelson's uncle, that is Mr Sydney Samuelson's brother, Mr Michael Samuelson.
   Mr Samuelson had trained as a chartered accountant. He joined the Samuelson Group at the age of 27 and became a director two years later and managing director one year after that, when he was still only 30. When financial problems were encountered in 1986 help was sought from an experienced industrialist, Sir John Mayhew-Sanders, who in early 1987 became chief executive, whereupon Mr Samuelson ceased to be managing director but remained on the board. A difference of opinion developed between Sir John Mayhew-Sanders and Mr Samuelson concerning the state of Samuelson Group plc's finances and what needed to be done. It is not relevant to the issues in these proceedings to determine the rights and wrongs of that difference of opinion. What is relevant is that acute disagreements broke out not only between Sir John Mayhew-Sanders and Mr Samuelson but also between Mr Samuelson and other members of his family. The audited accounts of Samuelson Group plc for the year ending April 1987 showed a loss of some £900,000 and there was a restatement by way of diminution707 of £1.2m of profits for the previous year. Sir John Mayhew-Sanders's position was that resignations from the board of members of the Samuelson family were needed to restore confidence among the bankers supporting Samuelson Group plc, while Mr Samuelson did not accept that this was so. A proposal was mooted for Mr Samuelson to resign or not offer himself for re-election and this was supported by other members of the Samuelson family, notably Mr Samuelson's father. At first Mr Samuelson was minded to agree but at an informal meeting of Samuelson family directors on 30 September 1987 at the house of Mr Charles Corman, a partner in Messrs Titmuss Sainer & Webb, who had long advised Samuelson Group plc, there was a considerable row when Mr Samuelson refused at first to cease to be a director. He was supported in this by Mr Corman but other members of the family thought he should go. Here again it is not necessary to go into the rights and wrongs of that difference of opinion. It was resolved by Mr Samuelson changing his mind and agreeing not to seek re-election at the forthcoming annual general meeting of the Samuelson Group plc, which would in the normal course have been held early in December. This he did at that same meeting after consulting Mr John Needleman on the telephone. Mr John Needleman and Mr Samuelson are connected by marriage in that their wives are sisters and at this stage Mr John Needleman, also a chartered accountant, was Mr Samuelson's friend and adviser. He gave evidence before me.
   Mr Samuelson and Mr John Needleman had in view an alternative plan to Mr Samuelson's quiet departure from Samuelson Group plc with the attendant risks of damage to his reputation in relation to his stewardship as managing director and the possible gradual erosion of his family's controlling position as shareholders without their realising what he considered was its true overall value. That alternative was to find a bidder for a controlling interest at an acceptable price. The search for such a bidder had already been set on foot by Mr Samuelson with Mr John Needleman's help before 30 September but it was resumed with greater urgency immediately after. One prospective bidder in the shape of Mr Robert Maxwell was found but his offer was thought by Mr Samuelson not to be high enough and was not pursued.
   On 5 October after sounding out three other possible bidders Mr Samuelson attended a meeting at the offices of Mr Martin Boston, a solicitor with entrepreneurial talents to which he appears to have given free rein. Mr Boston did not give evidence before me. He was introduced to Mr Samuelson by Mr John Needleman, whose accountancy firm did work for Mr Boston and his firm and for whom Mr Boston acted as solicitor. Mr John Needleman was on friendly terms with Mr Boston.
   Mr Boston had been present at the abortive negotiations with Mr Maxwell and it was he who convened the meeting of 5 October in order to introduce Mr Ferriday and Eagle Trust to the Samuelson family and to Mr Samuelson in particular. This was the occasion when Mr Samuelson and Mr Ferriday first met. The object was to see if Eagle would make an acceptable bid for Samuelson Group plc. The first meeting passed off well and a further meeting attended not only by Mr Samuelson, Mr John Needleman, Mr Boston and Mr Ferriday but also by Mr Samuelson's brothers Peter and Marc was held on 8 October 1987 at the offices at Birmingham Airport of Paramount Airways Ltd (Paramount Airways), a company which Mr Ferriday managed. On that occasion Mr Samuelson met other executive directors of Eagle, including Mr Smith and Mr Baker. This meeting was successful and terms were agreed for Eagle to make a bid for shares in Samuelson Group plc. The basic terms were an offer of six shares of Eagle for each share in Samuelson Group plc with a cash alternative of £1.80 for each of the latter shares. At this time the quoted price of Eagle shares was over 35p a share, significantly above the708 cash alternative. Simultaneously a rights issue to existing Eagle shareholders was made on a basis of one new Eagle share for eight existing shares. Both the offer and the rights issue were fully underwritten by SBCI Savory Milln and also sub-underwritten. A public announcement regarding the offer and rights issue was made on 12 October 1987 in which it was stated that members of the Samuelson family intended to take the share alternative. It was during this take-over that Mr Ferriday and Mr Samuelson first worked closely together. Mr Ferriday was the dominant person on the Eagle board and Mr Samuelson was the spokesman for the members of the Samuelson family who between them had a controlling interest in Samuelson Group plc and whose attitude on the bid was therefore of the first importance.
   One week after the public announcement on 12 October the Black Monday crash on the Stock Exchange occurred on 19 October. The price of Eagle shares fell just below 30p on that day and fell further to around 26p by the end of that week. It never came back up to 30p thereafter.
   This substantial fall in the Eagle share price posed a considerable problem for numerous sub-underwriters of the offer and rights issue. Notable amongst these was Mr Martin Boston, who had taken on very substantial sub-underwriting commitments in respect of 11 million shares in Eagle. The prospective loss on this front seemed likely substantially to wipe out the £1.25m fee which he had negotiated that a company which he controlled, Guardian Investments Ltd, should receive as commission for the introduction of Eagle to Samuelson Group plc. Other sub-underwriters of the offer were themselves shareholders in Eagle and therefore in a position to vote at the forthcoming Eagle extraordinary general meeting against the offer and, if successful in their opposition, thereby escape liability on their sub-underwriting commitments. Mr Ferriday and Mr Samuelson both had reason to fear that Mr Martin Boston if not relieved of his sub-underwriting commitments might promote opposition amongst Eagle shareholders. Mr Samuelson did not view that prospect with enthusiasm, because not only his personal reputation as late managing director of Samuelson Group plc but also his and his family's chances of securing a satisfactory price for their Samuelson Group plc shares depended in his view upon the Eagle offer being approved. Mr Ferriday for his part had no wish to see the take-over of Samuelson Group plc which he had personally negotiated and promoted be voted down at the Eagle extraordinary general meeting.
   A meeting was held early in November 1987 between Messrs Ferriday, Samuelson and Needleman to address these problems and a memorandum prepared by Mr Needleman and corrected by Mr Samuelson was produced at the trial. The details are not of direct significance to the issues in these proceedings but reliance was placed upon the memorandum on behalf of Eagle as casting Messrs Ferriday, Samuelson and Needleman in a very poor light. I accept that the memorandum does indeed show that Mr Ferriday and Mr Needleman were quite prepared to contemplate actions which would have been commercially disreputable. Mr Ferriday stated his intention to leak price sensitive information to keep or send up the price of Eagle shares and Mr John Needleman suggested that preferential treatment should be given to Mr Martin Boston amongst the sub-underwriters by members of the Samuelson family taking the cash alternative and sub-sub-underwriting Mr Martin Boston's sub-underwriting, but Mr Ferriday rejected that as defrauding the other 149 sub-underwriters. Mr Ferriday was willing to take over Mr Boston's commitment but unable to deal because as a director of Eagle he was in a closed period for dealing in Eagle shares under the Stock Exchange Code. It was agreed that Mr John Needleman should put a proposition, the details of which do not now matter, to Mr Martin Boston to709 attempt to secure the latter's agreement. In fact that particular approach failed but Mr Ferriday did reach terms with Mr Martin Boston on or about 13 November 1987 whereby the latter was relieved of his sub-underwriting commitments. The Eagle extraordinary general meeting was held on 25 November 1987 and the offer for Samuelson Group plc was approved.
   Mr Ferriday had very substantial commitments by way of sub-underwriting. He had himself taken on some 15 million shares and had taken over from Mr Martin Boston liability for another 11 million. This very extensive liability in the context of the fall in the Eagle share price put him in financial difficulty and he approached Mr Samuelson between 19 October 1987, when the Stock Exchange crash occurred, and the Eagle extraordinary general meeting, when the Samuelson Group plc acquisition was approved, for an assurance that Samuelson Group plc directors would take the cash alternative notwithstanding their stated intention to take a substantial part of their entitlement in the shape of Eagle shares and that they would with that cash buy Eagle shares from Mr Ferriday at 30p a share if he asked them to do so. There was a conflict of evidence between Mr Samuelson and Mr Ferriday about the extent to which that request to enter into such an agreement was accepted by the Samuelson family directors. Mr Samuelson's evidence was that before the Eagle extraordinary general meeting all that was agreed to was to elect to take cash and that it was only just before Christmas 1987 that the Eagle shares were bought from Mr Ferriday. There is no doubt that the purchase from Mr Ferriday did go through just after Christmas 1987. 12,011,556, and not 12,110,556 as is pleaded and admitted in the pleading, Eagle shares were transferred by Anser General Investments SA (Anser) and Argonaut Global Investments SA, both investment vehicles of Mr Ferriday, to five members of the Samuelson family for a total price of £3,603,466.80, ie at 30p a share. Mr Samuelson took 6m Eagle shares at a cost of £1.8m. On the market Eagle shares then stood at roughly 18p. I prefer Mr Ferriday's evidence to the effect that there was an antecedent understanding or gentleman's agreement that such a purchase should be made. Whether there was or was not such an undertaking is not an issue that is directly relevant to these proceedings. It was suggested for Eagle that Mr Samuelson's evidence was deliberately untrue on this as on many other aspects of the case. I am not satisfied that Mr Samuelson was deliberately seeking to mislead the court on this matter. In my judgment what happened on this occasion as on numerous other occasions when Mr Ferriday and Mr Samuelson did business with each other was that there was a very loose understanding between them that on this occasion Mr Samuelson would do what he could to see that Mr Ferriday would get back 30p for Eagle shares to the extent that he wished and that Mr Samuelson and his family's cash entitlement to the cash alternative permitted. The end result was that Mr Samuelson and Mr Ferriday were mutually obligated to each other. Mr Ferriday had done Mr Samuelson a very good turn in mounting and putting through the Eagle take-over of Samuelson Group plc and Mr Samuelson had done Mr Ferriday a very good turn in taking over 6m Eagle shares at 30p a share when they stood below 20p in the market. The latter was not a wholly disinterested step, although to those with the benefit of hindsight it now looks extremely generous because Mr Samuelson and no doubt the other relevant members of the Samuelson family took an optimistic view of the prospects of Eagle and of the Samuelson Group within it and of the desirability of establishing a good relationship with Mr Ferriday. A fortiori, when the understanding was reached before the Eagle extraordinary general meeting there was the additional incentive of seeing the Eagle acquisition going through.
   An additional disadvantage to the taking of the cash alternative was that it, unlike the share alternative, attracted a liability to capital gains tax for someone710 like Mr Samuelson ordinarily resident in this country. So far as Mr Samuelson was concerned the amount of tax involved was about £450,000.
   As a result of the Eagle take-over of the Samuelson Group Mr Ferriday and Mr Samuelson became close business associates and during 1988 they were involved in a series of transactions and projected transactions the details of which are irrelevant. It will suffice to list the more important ones.
   (1) Mr Samuelson continued to work with Eagle and its subsidiaries. Mr Ferriday took steps to find Mr Samuelson positions which lessened the tensions that predictably developed between Mr Samuelson as ex-managing director of Samuelson Group plc and Eagle executives newly in charge of Samuelson Group.
   (2) Mr Samuelson and Mr Ferriday made two visits to the West Coast of America together, one in connection with a motor car project called in the United States 'Laforza' which was close to Mr Ferriday's heart and into which much of Eagle's resources were poured, and the other in connection with a possible takeover by Paramount Airways of an American airline.
   (3) Mr Samuelson put Mr Ferriday in touch with possible sources of finance, notably Coutts & Co, whose customer Mr Samuelson was. This involved Mr Samuelson seeing details of Mr Ferriday's financial affairs, notably his shareholdings.
   (4) Mr Samuelson lent Mr Ferriday £440,000, which was repaid with interest by a transfer of 1,940,000 shares in Eagle.
   (5) Mr Samuelson deposited £500,000 in February 1988 with Ferriday and Smith Holdings Ltd (Fash) with a view to an investment in the above-mentioned motor car project but that came to nothing and the money was returned with interest in June 1988.
   As a result of these various negotiations and dealings Mr Ferriday and Mr Samuelson were on close terms so far as business was concerned, saw each other and spoke to each other spasmodically but overall not infrequently and, what is more important, trusted each other so that transactions between them were conducted on a very informal basis.

MR SAMUELSON JOINS COWAN DE GROOT
   Mr Samuelson was not particularly content in the Eagle organisation and left it at the end of September 1988. Whether he jumped or as Mr Ferriday said was pushed gently is of no great consequence. He was accordingly happy when Mr John Needleman told him of the possibility of buying a stake in Cowan de Groot and getting a place on the board. The stake on offer was one of 20% of the issued share capital, which at the then current price of about 60p per share was estimated to cost £3.1m. The opportunity arose because the chief executive of Cowan de Groot, Mr John Carr, was looking to retire and had instructed Mr John Needleman's firm to find a purchaser for a 20% stake, which would have been just over 5 million shares.
   Mr Samuelson did not have £3m readily available at this stage. What he had in broad terms was 8 million shares in Eagle worth roughly £1.25m, some £300,000 to £400,000 in other investments, and a half share in a house worth roughly £1m. One obvious method of financing part of the acquisition would have been to realise the shareholding in Eagle. Mr Samuelson suggested this to Mr Ferriday, who was strongly opposed to the idea because Eagle's financial situation was becoming difficult and he wanted to avoid a sale of a large block of shares held by a member of the Samuelson family, more especially as, where Mr Samuelson had gone, other members of his family who still held Eagle shares might well follow. There therefore ensued negotiations between Mr Ferriday and Mr Samuelson for money to be lent by the former to the latter thus avoiding a711 sale of Eagle shares. The negotiations also included Mr John Needleman because he too had been looking for a place on the board of Cowan de Groot and it had been agreed between Mr Samuelson and him that they should both go on the board of Cowan de Groot once the share purchase had been made. Mr Ferriday was not pleased about this because he had become deeply suspicious of Mr John Needleman. Whether his suspicions, which related to activities of Mr John Needleman as an umpire or arbitrator in an arbitration over the amount of the commission payable to Mr Martin Boston on Eagle's acquisition of the Samuelson Group, were justified is not relevant and was certainly not proved before me. The significant fact is that Mr Ferriday was deeply suspicious of Mr John Needleman and therefore insisted that if Mr John Needleman was to be involved in the acquisition of Cowan de Groot shares he should carry some at least of the risk.
   The Cowan de Groot proposal was brought to Mr Samuelson towards the end of November 1988 and the consultations between Mr Ferriday, Mr Samuelson and Mr John Needleman took place in the first half of December 1988. Mr Samuelson wished to incorporate into the arrangements a discretionary settlement which would enable capital gains tax on a sale of the Cowan de Groot shares at a profit to be postponed until the gains were brought back within the jurisdiction and this aspect of the plan was one which caused the most remarkable confusion given that the drafting was handled by solicitors and the three trustees were Messrs Samuelson, Ferriday and John Needleman, two of whom were chartered accountants and therefore to be expected to have some appreciation of the effect of a trust.
   The proposals went through at least two versions. The first took the form of an agreement (drafted by Mr John Needleman) by Mr Ferriday granting options to each of Mr John Needleman and Mr Samuelson to acquire 25% of the amount of ordinary shares in Cowan de Groot which it was anticipated Mr Ferriday would acquire with £3m. That agreement although executed by Mr Ferriday was never implemented because, inter alia, it obviously did not do what Mr Ferriday wanted as a term of Mr John Needleman's involvement, namely subjecting him to part of the risk if the Cowan de Groot shares fell in value.
   There should also be mentioned at this stage, because it was a contemporaneous transaction between Mr Samuelson and Mr Ferriday, a letter dated 3 December 1988 from the former to the latter. The executed terms were as follows:

   Mr Ferriday duly confirmed his agreement by a letter in reply.
   This was intended to provide Mr Samuelson with a means of discharging his capital gains tax liability from the sale of the Samuelson Group plc shares to Eagle when Mr Samuelson took the cash alternative and also repay a sum of £500,000 which he was proposing to borrow and did indeed borrow from his bankers712 Coutts & Co to help finance the acquisition of shares in Cowan de Groot. It also contemplated the further transaction which occurred of Mr Ferriday advancing the further sums needed over and above the £500,000 to be borrowed from Coutts & Co in order to buy the stake in Cowan de Groot which Mr Samuelson intended to buy. In fact the put option in the letter of 3 December 1988 was never exercised.
   The scheme that was in the event adopted was not notably more successful or indeed more comprehensible than its predecessors. The shares in Cowan de Groot were agreed to be vested in all three of Mr Samuelson, Mr Ferriday and Mr John Needleman as trustees of a discretionary settlement (the settlement).

THE SETTLEMENT OF COWAN DE GROOT SHARES
   The settlement was in a fairly common form of wide discretionary trust the essential features of which were as follows.
   'The beneficiaries' were defined as Mr Samuelson, his spouse and issue of any degree and their spouses and any charities added thereafter. There was an overriding power of appointment in favour of the beneficiaries exercisable by the trustees with the consent of the settlor, Mr Samuelson, during an 80-year perpetuity period. Subject to that the income was payable to Mr Samuelson during his life and subject to that there was a discretionary trust of income during the perpetuity period in favour of the beneficiaries with a trust over capital in favour of the issue of Mr Samuelson per stirpes at the end of the period.
   Mr Samuelson had the power of appointing trustees during his life and of nominating a protector who would have that power and the power to consent to exercises of the overriding power of appointment after his death.
   There was an express power to alter the proper law of the settlement and to appoint non-resident trustees.
   Overall it is clear that far and away the most important beneficiary was Mr Samuelson himself. He was entitled to income and had a power of veto over any appointment of capital as well as the sole power of appointing new trustees, and he was an object of the power to appoint capital.

THE COWAN DE GROOT SHARE PROFIT-SHARING AGREEMENT
   Whether or not it was due to Mr Samuelson's preponderant position as a beneficiary is not clear but the solicitors responsible for drafting the settlement also prepared an agreement (the Cowan de Groot share profit-sharing agreement) which was designed to be and was executed contemporaneously with the settlement but whose terms are irreconcilable with the provisions of the settlement. The Cowan de Groot share profit-sharing agreement took the form of a letter written by Mr Samuelson to Mr Ferriday and Mr John Needleman. It was drafted by the solicitors on Mr Samuelson's instructions at a stage when it was contemplated that the stake in Cowan de Groot shares to be purchased would be one of 20%. The draft was considered by Messrs Samuelson, Ferriday and John Needleman at a meeting at which it was altered by a number of deletions, which need not now be spelt out for present purposes, as well as the filling in of various blanks. The end-product as executed on 14 December 1988 by all three persons at that meeting included the following:

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Both Mr Ferriday and Mr John Needleman signed confirmations that the letter from Mr Samuelson quoted above correctly set out the terms agreed between the three of them and agreed to be bound by all such provisions as affected them respectively.
   Clause 8.1 to the effect that the letter contained the whole agreement between the parties was false to the knowledge of all three persons concerned, but Mr Samuelson and Mr John Needleman knew a great deal more than Mr Ferriday. 714Mr Ferriday signed a side letter also dated 14 December 1988 to Mr Samuelson which stated, presumably with unconscious irony 'For the avoidance of doubt', and continued:

Mr Ferriday intended, and Mr Samuelson knew that he intended, that this should be a secret transaction between them not known to Mr John Needleman. Nevertheless Mr Samuelson lost no time in telling Mr John Needleman. In addition Mr Samuelson and Mr John Needleman entered into their own secret arrangement, which they did keep secret from Mr Ferriday and did not record in writing until some six months later, whereby Mr Samuelson agreed to indemnify Mr John Needleman against any losses while Mr John Needleman agreed to hold any profits in trust for Mr Samuelson. They both intended in entering into this agreement to frustrate Mr Ferriday's desire, fully appreciated by both Mr Samuelson and Mr John Needleman, that Mr John Needleman should be subject to 5% of the loss caused by a fall in the value of Cowan de Groot shares. Whether Mr Ferriday would have advanced the sums he did advance had he known what Mr Samuelson and Mr John Needleman were doing behind his back must be doubtful. In a sense the question is wholly academic because I am satisfied that the Cowan de Groot share profit-sharing agreement was repugnant to the terms of the settlement and had no legal effect whatsoever. The conception of three persons holding property as trustees and simultaneously agreeing to divide up between themselves any profit made on a sale of the trust property is an impossible one. Similarly it seems to me to follow logically that the provisions regarding the sharing of losses were of equally little effect since they were clearly intended to operate in conjunction with the profit sharing provisions. There is in principle no reason why trustees should not decide between themselves how any deficit suffered by them as a result of the liabilities of the trust exceeding its assets should be borne, should they be made personally liable by creditors of the trust, but that need not be fully investigated because Mr Samuelson did in fact I find execute a document indemnifying his co-trustees against liability to Lloyds Bank which, together with Mr Ferriday and Mr Samuelson himself, advanced the moneys by which the property subject to the trusts of the settlement was acquired. Only a draft of that indemnity was produced in evidence but I accept Mr Samuelson's evidence that he signed such an indemnity. That makes it unnecessary to investigate the question whether or not he would have been under a duty so to indemnify his co-trustees under the general law, more especially as it was not pleaded or argued before me.
   That indemnity also renders the rather sordid little deception practised by Mr Samuelson and Mr John Needleman, whereby the former indemnified the latter behind Mr Ferriday's back, irrelevant so far as practical consequences were concerned, at least so far as indebtedness to Lloyds Bank was involved.

PURCHASE OF COWAN DE GROOT SHARES
   The settlement identified as 'the trust fund' a sum of £10 which appears to have been paid into the trustees' bank account at Lloyds Bank on 9 January 1989 715and 3,652,743 ordinary shares of 10p each in Cowan de Groot. Those shares were acquired as follows.
   (1) 918,643 shares were bought on 14 December 1988 through Messrs Teather & Greenwood, stockbrokers, at 60p a share for a total sum of £551,185.80 as a separate transaction for cash settlement. That money was provided as to £500,000 by Mr Samuelson, who borrowed it from his bankers, Coutts & Co, and as to the balance of £51,185.80 by Mr Ferriday from the account of Anser at Hambros Bank (Jersey) Ltd. Anser was an offshore company controlled by Mr Ferriday and used by him to deal with his funds. Its management was conducted in Jersey by Ryco Trust Ltd. Mr Samuelson's borrowed £500,000 was channelled through Ryco Trust Ltd, which paid to Teather & Greenwood's bank the global price of £551,185.80 on 14 December 1988.
   (2) 2,734,100 shares were also bought in the market through Teather & Greenwood at 60p per share, ie allowing for £12,919.62 expenses of one sort or another at a cost of £1,653,379.62 on 14 December 1988 for settlement, in the usual way, on 9 January 1989. That sum was provided as to £1,103,379.62 by way of overdraft on the trustees' bank account at Lloyds Bank and as to £550,000 by Mr Ferriday through the Anser account at Hambros Bank (Jersey) Ltd. Both these latter figures require some qualification and explanation. The actual debit entry in the trustees' bank account at Lloyds Bank was £1,657,514.38, which, allowing for Mr Ferriday's contribution of £550,000, represents an advance of £1,107,514.38. The difference between that figure and the above-mentioned £1,103,379.62 was not satisfactorily explained in evidence but the discrepancy is not significant and is probably attributable to costs or bank charges. The facility which Lloyds Bank agreed to grant the trustees was one of £1,100,000, for which it took security in the form of a mortgage over the 918,643 shares in Cowan de Groot bought on 14 December. The loan was technically repayable on demand but Lloyds Bank's expressed intention was to leave it outstanding until 30 June 1989. There was an agreement that Lloyds Bank should have 100% margin over its loan by way of cover and that, if the Cowan de Groot shares fell so as to reduce the bank's cover to 50% or less, there would be what the bank described as an automatic trigger entitling it to sell or require additional security. The figure of £550,000 advanced by Mr Ferriday is the product of three payments, one of £125,000 from the Anser account at Hambros Bank (Jersey) to the trustees' account at Lloyds Bank on 6 January 1989, the second a transfer out of the trustees' account of £75,000 on the same day (of which more later) and the third another payment from the Anser account at Hambros Bank (Jersey) to the trustees' account at Lloyds Bank, this time of £500,000 on 10 January 1989. The net result of those three payments was clearly an addition to the trustees' funds of £550,000.
   (3) On 18 January 1989 two parcels of 100,000 shares and 47,257 shares in Cowan de Groot were bought by the settlement trustees through Teather & Greenwood at prices of 60p and 59p respectively at a total cost of £88,574.59, inclusive of costs, for settlement on 6 February 1989. The price for these shares was provided by Mr Ferriday direct, that is to say without the money passing through the trustees' bank account at Lloyds Bank.
   (4) The aggregate of the above-mentioned shares is 3,800,000 and it was common ground that they became subject to the trusts of the settlement. Another 400,000 shares in Cowan de Groot were also purchased in a similar unusual manner. The seller was Mr Carr, the chairman of Cowan de Groot but soon to retire and be replaced by Mr Samuelson. The 400,000 shares were agreed to be purchased by Mr Samuelson through the market at 60p a share, giving a total price inclusive of costs of £241,880. That sum was paid direct by Mr Ferriday through Ryco Ltd to the brokers, again without passing through the trustees' 716bank account. There was however an arrangement entered into by Mr Samuelson for Mr Carr to be paid an additional 20p per share and this together with a small addition for interest because the payment was five days or so late amounted to £80,992.15 and was paid out of the trustees' account at Lloyds Bank on 18 January 1989. This sent the trustees' indebtedness well over their agreed facility and was only cleared on the strength of an assurance from Mr Samuelson that Mr Ferriday would pay in a sum to reduce the indebtedness. He did in fact cause £120,000 to be paid into the trustees' account on 24 January 1989. Mr Samuelson agreed with Mr Ferriday that the latter would make these payments that enabled the 400,000 shares to be purchased on terms that Mr Ferriday would be repaid by the trustees with interest at a rate unspecified and that Mr Ferriday would be entitled to charge the 400,000 shares in favour of Hambros Bank (Jersey), which was to Mr Samuelson's knowledge advancing the funds. Neither Mr Ferriday nor Mr Needleman nor Mr Samuelson gave any thought whatever to the question how far such a transaction was a permissible one for them to embark upon as trustees. Nevertheless, the result in my judgment was to vest the beneficial interest in the 400,000 shares in the trustees as trustees of the settlement subject to the rights both of Mr Ferriday to be repaid and of Hambros Bank (Jersey) to require the shares to be sold to recoup the indebtedness of Anser, Mr Ferriday's investment vehicle, to it. The asset thus acquired by the settlement was in the nature of an equity of redemption, ie a beneficial interest in the share subject to lenders' rights.
   Mr Samuelson caused to be reported to the Stock Exchange the acquisition by him of a beneficial interest in all the 4,200,000 shares in Cowan de Groot after they were agreed to be purchased and he was accordingly reported as being beneficially interested in all those shares at all material times, ie down until after June 1989. Press releases on his behalf were issued on the same basis.
   The legal ownership in the shares followed an equally if not more chequered course. The initial parcels of 918,643 and 2,734,100 shares were intended to be and should have been registered in the names of all three trustees, Messrs Samuelson, Needleman and Ferriday. In fact roughly 100,000 shares fewer, viz 3,552,850 were thus registered. The balance of the 3,800,000 shares, viz 247,150 were registered in Mr Samuelson's sole name. The reason for this was never satisfactorily explained. Nothing turns upon it, in that there is no doubt that Mr Samuelson held the shares as a trustee on the trusts of the settlement and not for his sole benefit. The 400,000 shares in the last parcel were registered in the name of Hambros Bank's nominee company, reflecting and supporting the rights of that bank in respect of the advance to Anser. It will be convenient at this stage to record that in the latter part of March 1989 Hambros Bank realised its security and the 400,000 shares were sold and the proceeds credited to the Anser account at Hambros Bank (Jersey) Ltd. There was no profit realised and so the equity of redemption belonging to the settlement disappeared. Mr Ferriday, although he knew that this had happened, kept the news from Mr Samuelson, who did not find out until well after the date of the agreement. I do not accept Mr Ferriday's evidence that he did not know about the sale.
   In summary the Cowan de Groot shares were purchased with contributions by Mr Ferriday of the following sums:

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   Mr Samuelson contributed £500,000 borrowed from Coutts & Co and Lloyds Bank lent the rest of the moneys needed, initially £1,107,514.38.
   So far as interest on these sums was concerned the position in summary was as follows. On the indebtedness to Lloyds Bank interest would be charged by the bank in the usual way. Dividends on the shares purchased would be credited to the trustees' bank account and then go towards defraying the interest. Subject to that Mr Ferriday agreed to feed the trustees' account sufficiently to keep the balance within permitted or tolerated limits and he was to be recouped when the Cowan de Groot shares were sold. His status was that of a creditor of the trustees. The reamended defence of Eagle in paras 21 and 22 relied upon Mr Ferriday's legal title to the 3,552,850 shares registered in his name jointly with the other two trustees, and his contribution to the purchase price of the parcel of 147,500 (sic) shares. It is somewhat optimistically claimed that those two parcels of shares total 3.8 million shares. That is a trivial arithmetical error compounded by the curious phenomenon that 247,150 and not 147,150 were registered in Mr Samuelson's sole name. I treat the pleading as relying on Mr Ferriday's contribution to the acquisition of the 3.8 million shares which it was common ground did indeed become subject to the trusts of the settlement. Reliance is also placed upon the Cowan de Groot share profit-sharing agreement and on Mr Ferriday's contribution to the purchase of the 400,000 share parcel. No lien or other charge in favour of Mr Ferriday is pleaded. No doubt that was justified because the normal trustee's lien to be recouped all proper expenses in the execution of his trust would hardly extend to an advance of moneys for the initial purchase of trust property.
   So far as interest on the £500,000 borrowed by Mr Samuelson from Coutts & Co was concerned no express agreement was made between Mr Samuelson and his co-trustees. This was in line with the casual way in which they treated their duties and liabilities as trustees. The law implies a liability to pay interest on a loan of money and the probability is that Mr Samuelson would have been entitled in principle to be paid interest on his loan but since he was the beneficiary entitled to income under the settlement the point is not one of any materiality, save conceivably for fiscal purposes, and it rightly was not addressed in argument, so I ignore it.
   Mr Ferriday's contribution to the purchase of the trust property was agreed to be repayable to him with interest when the shares in Cowan de Groot were sold. The rate of interest was left undecided and I need not take time about that issue. Mr Ferriday's interest under this head was in my judgment the same as his interest in being recouped in respect of interest charged by Lloyds Bank. I do not take time to debate whether Mr Ferriday was entitled to interest on sums paid by him to defray the bank's interest charges since nothing turns on it and the point was not argued.
   Mr Samuelson and Mr John Needleman joined the board of Cowan de Groot on 13 December 1988. Mr Carr, the chief executive whose shares were later bought as described above as assets of the settlement, remained a director and there was also another executive director, Mr Brian Riches, who gave evidence before me. Mr Riches is a chartered accountant and an experienced company director and his integrity was not questioned at any stage.

PERRANPORTH AIRFIELD
   It will be convenient at this stage to deal with Mr Samuelson's and Mr Ferriday's activities concerning Perranporth airfield since although no relief is sought in relation thereto much reliance was placed on behalf of Eagle upon the way in which Mr Samuelson behaved and gave evidence regarding Perranporth airfield718 in support of the proposition that his evidence was not to be believed unless corroborated and that he was at a material time co-operating with Mr Ferriday in dishonest transactions from which it would be right to draw inferences with regard to their conduct in relation to the five properties.
   At all material times Perranporth airfield, in Cornwall, was the property of Central Pacific Securities Ltd (CPS). Mr Ferriday was very substantially interested in CPS but the precise extent of his interest was not established. His interest extended to give him the ability to give instructions on its behalf and make promises to his, Mr Ferriday's, creditors, notably Hambros Bank (Jersey), that proceeds of sale of CPS's property would be paid in reduction of Anser's indebtedness to Hambros Bank (Jersey), effectively in reduction of Mr Feriday's indebtedness. CPS was administered by Ryco Trust although registered in Gibraltar. It banked with Hambros Bank (Jersey).
   CPS on or about 18 October 1988 acquired Perranporth airfield using moneys belonging to Eagle to provide completion moneys. Mr Ferriday declined to answer questions about this (as he was entitled to do in exercise of his privilege against self-incrimination) and the documentary evidence tending to support this conclusion remains uncontroverted. It does not greatly signify for the purposes of these proceedings whether or not the beneficial ownership of the moneys was vested in Eagle. Far more significant is the date, mid-October 1988, of the acquisition of Perranporth airfield. This makes it unlikely that Mr Ferriday was looking for a purchaser to whom CPS could resell before November and even more unlikely that he would have been trying to interest Mr Samuelson in the property at the end of September 1988, which is when Mr Samuelson left Eagle. Mr Ferriday was not alone in seeking to resell Perranporth airfield: other persons, notably a Mr Hughes, were involved. A third party purchaser was found by early December 1988.
   I find that Mr Samuelson was told about Perranporth airfield at or very shortly before the time in early December when he was negotiating with Mr Ferriday regarding the purchase of shares in Cowan de Groot. There may well have been a short period when he was approached about it before he joined the board of Cowan de Groot on 13 December 1988 but he did not express any firm interest until he was reasonably sure that he might be able to use Cowan de Groot moneys to finance the purchase if it went through. On 13 December when in the thick of negotiations with Mr Ferriday for the settlement he did express a lively interest and Mr Ferriday reported by telephone to Mr Sampson of Ryco Trust that he had found a new purchaser 'this time around in sum of at least £1.25m subject to contract'. That was Mr Samuelson, prospectively wearing a Cowan de Groot hat. The earlier prospective purchaser was discarded. Mr Samuelson consulted Mr Stewart Russell of Russell Cash Ltd, commercial property consultants, with whom he was familiar, and obtained an informal appraisal by letter dated 20 December 1988 which was sufficiently encouraging for Mr Samuelson to proceed with the negotiations with Mr Ferriday.
   Mr Samuelson was in a difficulty regarding the involvement of Cowan de Groot in this proposed purchase in that he did not wish to inform Mr Carr of the prospective purchase. Mr Carr was supposed to be going to retire but he had not yet gone and might change his mind, particularly, said Mr Samuelson, if he heard of advantageous transactions in the offing. Even assuming that to be true, it constituted no sort of excuse for what Mr Samuelson with Mr John Needleman's full knowledge and approval did ostensibly on Cowan de Groot's behalf, which was to instruct solicitors, Messrs Jerrard Saunders Donn, and contract to buy Perranporth airfield for £1.5m without consulting the other members of the Cowan de Groot board, Mr John Carr and Mr Riches. This was entirely improper conduct on the part of Mr Samuelson and Mr John Needleman.

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   There was a dearth of direct documentary evidence of the actual transaction effected by way of contract largely because the Cowan de Groot file was, it appears, destroyed and singularly little evidence was obtained from the solicitors acting on either side, Jerrard Saunders Donn for Cowan de Groot and Mr Ranson who was acting for CPS. I find that a contract conditional upon planning permission being obtained by CPS was negotiated and agreed but not exchanged before the condition was at the last moment deleted and the contract made unconditional on 6 January 1989. Completion was delayed beyond normal to 6 July 1989 to allow for the planning application to proceed. I do not accept the submission by Eagle that a conditional contract was exchanged on 4 January and an unconditional one on 6 January. The document relied upon in support of the submission that there was an exchange of a conditional contract on 4 January was a letter dated 6 January 1989 from Mr Ranson to CPS saying he had that day exchanged contracts with completion scheduled for 7 July. Mr Ferriday was very anxious to be able to show as watertight a contract as possible to Hambros Bank (Jersey), which was looking to Perranporth airfield as comfort for the recovery of sums owing by Anser. For that purpose it was obviously preferable to have an unconditional contract rather than a conditional contract. On the other hand Mr Samuelson and Mr John Needleman were not at all anxious to expose Cowan de Groot to the risks involved in a contract which was not subject to a condition cancelling it if planning permission for the sort of development Mr Samuelson had in mind of 50 dwelling houses was not obtained within a fairly short period. No contract or copy contract was produced. Mr Samuelson said in evidence that he had no recollection of signing one but he was constrained to admit in evidence what he had signally failed to admit in his witness statements prepared and exchanged before trial, namely that there had indeed been an exchange of contracts. This is all the more obvious because £75,000 travelled round by way of deposit. It was provided initially in the £125,000 mentioned earlier which Mr Ferriday caused to be transferred from Anser's account to the trustees' bank account at Lloyds Bank. From thence £75,000 was transferred to Mr John Needleman's firm's client account and from there to Jerrard Saunders Donn, who paid the same sum to Mr Ranson on behalf of CPS and he in turn remitted it to Hambros Bank (Jersey) for and on behalf of CPS. At the end of the day so far as Hambros Bank (Jersey) was concerned all that had happened was a transfer from Anser's account to that of CPS and thence back to Anser because CPS by letter dated 28 December 1988 to Hambros Bank (Jersey) authorised a debit of any such amount in favour of Anser's account. Whether Hambros Bank (Jersey) was aware that it was itself the original source of the £75,000 paid into CPS's account for transfer to Anser's account may perhaps be doubted. On the way round the £75,000 was treated as a deposit on a contract for the purchase by Cowan de Groot of Perranporth airfield and as between Cowan de Groot, Mr Ferriday, Mr Samuelson and Mr John Needleman it is plain enough that Mr Ferriday provided the money. Although it is clear enough that the draft conditional contract was shown to Hambros Bank (Jersey), it is very remarkable that the evidence does not indicate that it was shown the unconditional one. Indeed the only evidence that an unconditional contract was ever executed is a letter dated 2 February 1989 signed by both Mr Ferriday and Mr Samuelson but addressed by CPS to Cowan de Groot, which read as follows:

All three of Mr Ferriday, Mr Samuelson and Mr John Needleman in effect stated in evidence and I accept that this letter was the result of what amounted to a bargain whereby in return for the reintroduction of a condition into the contract between CPS and Cowan de Groot Mr John Needleman gave up his aspiration to become chairman of Cowan de Groot. This was the fruit of Mr Ferriday's continuing suspicion of and hostility towards Mr John Needleman and caused a considerable row between the two of them. It also contributed to the deterioration in the hitherto close relationship between Mr Samuelson and Mr John Needleman because the latter resented the fact that Mr Samuelson effectively did what Mr Ferriday wanted in relation to the chairmanship of Cowan de Groot.
   I do not accept that the contract for the sale of Perranporth airfield on 6 January 1989 was a sham to Mr Samuelson's knowledge and known by him to be only intended as a piece of paper to be shown to Hambros Bank (Jersey) in order to secure more acceptable conditions for loans to Anser. It is not necessary for me to make findings about Mr Ferriday's intentions in relation to this transaction but so far as Mr Samuelson is concerned I accept that he intended to make a contract for Cowan de Groot's potential benefit. The fact that he consulted Mr Russell about the potential of the airfield, a step which can hardly have been intended as window-dressing, satisfies me that he did have a genuine interest in the property. On the other hand the way he went about dealing with the matter on Cowan de Groot's behalf was highly irregular and illustrates his willingness to cut corners and disregard legal requirements if he felt justified in doing so. I bear in mind that even after Mr Carr had resigned in February 1989 Mr Samuelson never revealed the existence of the contract, which he had entered into on Cowan de Groot's behalf, to Mr Riches, the other member of the Cowan de Groot board besides Mr John Needleman who knew all about it. It follows that the alteration to the contract on 2 February 1989 making it conditional again was not revealed to Mr Riches.
   Perranporth airfield also figured in dealings between Mr Ferriday and Mr Samuelson at a later stage after the date for the condition to be satisfied in the letter of 2 February 1989, viz 26 April 1989, had passed so that the Cowan de Groot contract had gone off. This is much later in the history of the matter, after the agreement had been completed as regards the Wolverhampton, Birmingham and Nuneaton properties, but it will be convenient to deal with it here because it has the same relevance as the earlier transactions as regards Perranporth, that is to say it goes to Mr Samuelson's credit. On 5 June 1989 when Mr Ferriday's financial problems became desperately serious he attended a meeting in Jersey with Hambros Bank (Jersey) and Mr Rodger Young of Ryco at which he was pressed about the repayment of outstanding liabilities of Anser. The subject of Perranporth airfield came up. Mr Ferriday is recorded in the note taken on behalf of Hambros Bank (Jersey) as having said that the agreement with Cowan de Groot was irrevocable at £1.5m for completion on 6 July but it is recorded that Mr Morris of Hambros Bank (Jersey) said that in his opinion it was not irrevocable, whereupon Mr Ferriday gave an undertaking to ensure that by 6 June a new contract would be exchanged giving the bank the necessary comfort for completion by 6 July. It is clear that Mr Morris understood this to be a contract721 with Cowan de Groot because he adds that he already had the necessary evidence that Cowan de Groot had the ability to complete. On the other hand that account conflicts with Mr Rodger Young's record of the same meeting, which was that a contract would be exchanged within the next day or two by CPS with Cosh Holdings Group plc another associated company of Mr Ferriday and Mr Smith. That conflict of recollection in my judgment reflects the confusion in what Mr Ferriday undertook to do. Mr Ferriday was frequently more categoric than clear in his evidence and I have little doubt that this applied more especially to conversations where he was being pressed by creditors.
   Whatever the explanation, Mr Ferriday did indeed get Mr Samuelson within two days to sign two letters dated 7 June 1989 on Cowan de Groot notepaper. The first was addressed to Mr Ferriday at Paramount Airways Ltd and read as follows:

   That was forthwith faxed to Mr Morris at Hambros Bank (Jersey). Mr Samuelson denied any knowledge that that was what Mr Ferriday wanted the letter for. I do not accept that evidence. In my judgment at this stage Mr Samuelson was asked by Mr Ferriday to write a letter of comfort on the basis that it would not legally commit him or Cowan de Groot to anything and it was for that reason that Mr Samuelson did not consult Mr Riches as he would have done if he had intended to commit Cowan de Groot to an expenditure of upwards of £750,000. On the footing that Cowan de Groot was not legally committed there is no explanation that I can see for such a letter other than to oblige Mr Ferriday and I find that if Mr Samuelson did not know what Mr Ferriday wanted the letter signed for it was because he deliberately shut his eyes to it.
   The second letter of 7 June 1989 signed by Mr Samuelson was addressed to Jerrard Saunders Donn, the solicitors whom Mr Samuelson had instructed ostensibly on Cowan de Groot's behalf to act for it in the proposed purchase. In this letter Mr Samuelson instructed those solicitors as chairman and on behalf of Cowan de Groot that the £75,000 deposit had not been paid by Cowan de Groot but by Mr Samuelson personally and that Cowan de Groot now wished to withdraw from the transaction. The solicitors were also told that they were at liberty to act for Paramount Airways as purchaser and treat the deposit as paid by the latter company. This letter contained false statements, notably that Mr Samuelson had paid the £75,000, and is yet another example of Mr Samuelson's willingness to do and say what he thought desirable to achieve the immediate object in view without any pernickety regard for the truth. On the other hand the falsehoods were not designed to put money in his pocket and I have no doubt he regarded them as justifiable. The letter is of course consistent with a plan by Mr Ferriday for a purchase by Paramount Airways. Whether or not such a contract was made was not conclusively established before me but if contracts were exchanged it was not completed before Paramount Airways went into receivership.

MR SAMUELSON
   Before I come to the facts leading directly up to the making of the agreement it will be convenient to state my conclusions regarding Mr Samuelson's character and reliability as a witness. In my view he can be described as a moral lightweight, in that he takes a casual view of such matters as legal requirements be it of722 company law or of the law of trusts where he considers it appropriate. Another symptom of what I regard as his low moral standards and lack of scruples was his willingness to practise a cheap deception on Mr Ferriday in relation to Mr John Needleman's participation as a trustee of the settlement. On the other hand I do not accept that Mr Samuelson would have willingly been party to any plan designed to defraud Cowan de Groot, the company of which he was chairman, of a major sum of money such as £400,000 or to one designed to put substantial sums of money derived from the price paid by Cowan de Groot to Eagle for the acquisition of any of the five properties into the pocket of a third party. I do however accept that Mr Samuelson's evidence needs to be very carefully scrutinised and as appears elsewhere in this judgment there is a significant amount of it which I do not accept.

MR FERRIDAY
   The other central actor in this matter who gave evidence was Mr Ferriday and it will be convenient to give my overall assessment of him. Mr Ferriday is an imperious, voluble and vain man who conducted the affairs of Eagle in a highly autocratic manner but who found himself well out of his depth when the economic climate changed in October 1987. He is quite unscrupulous in the means he adopts to achieve his commercial objectives and in my view only observed the requirements of the law when he was practically compelled to do so in order to achieve his aims. He was dismissive of the law's requirements which he described as paperwork and left to others to attend to. He has been charged with various offences in relation to his stewardship of Eagle and Paramount Airways and for that reason was the subject of numerous rulings by me that certain questions put to him need not be answered by him on the ground that the answers might tend to incriminate him. Although not a party to the proceedings he had the benefit of advice from counsel who appeared for him and whom I allowed to address me on the subject of self-incrimination and the pending criminal proceedings and I am grateful to counsel for that help. For the purposes of these proceedings I have to apply the civil burden of proof to the issues between the parties. This not only involves the irrelevance of my findings to criminal proceedings against Mr Ferriday but also requires me to approach the issues between the parties without regard to the various safeguards to Mr Ferriday which the criminal law affords him other than the warnings against self-incrimination which were given. Generally, I treat Mr Ferriday's evidence with very great reserve, since he is in my judgment much more unscrupulous than Mr Samuelson. He was quite right in the view that he evidently held that he was a much stronger character than Mr Samuelson.

FINANCIAL POSITION OF EAGLE IN EARLY 1989
   By early 1989 both Eagle and its subsidiaries, notably MCP Building Supplies Ltd, were experiencing cash flow difficulties which became increasingly serious as 1989 went on. Until Eagle's bankers co-operated with each other in demanding explanations from Eagle in May 1989, Mr Ferriday and Mr Baker, the finance director, were able to secure enough cash by one means or another to keep Eagle's and its subsidiaries' businesses trading. Thus on 3 May 1989, the day before the agreement was exchanged, a letter was sent by a corporate banking executive of National Westminster Bank plc to Mr Baker agreeing revised overdraft limits which were described as representing an overall increase of £3.5m which it was hoped would provide the group with sufficient funds to carry on normal trading whilst its disposal programme continued. Some of the means used to obtain its bankers' support would not have borne too close investigation. Thus the same723 properties were held out to two of Eagle's bankers as available sources for raising cash. After Lloyds', National Westminster's and Standard Chartered Banks' representatives met in mid-May 1989, a regional manager at Lloyds wrote to Mr Baker on 24 May 1989 saying, inter alia:

That unhappiness was amply justified because certain assets such as a large freehold property at Heathrow and a large holding of shares in Owners Abroad Group plc were mentioned to both Lloyds and National Westminster as possible sources of funds through sales without either bank apparently being told what was being said to the other. There had indeed been a realisation before 1989 on the part of Mr Ferriday and the rest of the board of Eagle that cash flow was very tight and difficult and that sales of assets were needed in order to keep the businesses going. Attempts were made starting in 1988 to sell MCP Building Supplies Ltd or its businesses as a going concern. Sales of land within the group of which Eagle was the holding company were also contemplated. The minutes of an Eagle board meeting on 26 January 1989 include a statement that Mr Baker believed that the short-term overdraft would be quite quickly cleared by asset sales but there is no record of any affirmative resolution for specific disposals on that occasion. That was the meeting when the execution of the contracts and transfers on the acquisition of the five properties was ratified. At an earlier board meeting on 8 December 1988 it was confirmed that the market would be properly tested in the normal manner in connection with the prospective sale of the Samuelson Group properties in addition to considering offers from the Samuelson family. This was in response to a request from a non-executive director, Mr Janson, and shows that both Mr Ferriday and Mr Smith, who attended the meeting, were aware of their obligations in relation to asset disposals. Matters were taken further at a board meeting of Eagle on 22 March 1989. The minute includes:

That minute was prepared by Mr Beaumont, the company secretary of Eagle, who said in evidence, and I accept, that the schedule referred to as having been presented by Mr Baker included the five properties. The schedule itself was not attached to the minutes but in line with the irregular way in which Eagle's affairs were conducted it was produced at the meeting and then taken back by the director who produced it and thus not preserved in the company's records. Mr Beaumont said he thought the schedule had prices against the various assets on it and on a balance of probabilities I accept that evidence. He did not say what the price in respect of the five properties was. Again on a balance of probabilities I find it was £1.5m, the figure at which the five properties were, as appears below, already being attempted to be sold. No further Eagle board minute deals with any disposal of the five properties until on 13 June the completion of the sale of the Wolverhampton, Nuneaton and Birmingham properties by transfer to Pinepad was ratified, as usual, after the event.

724

   Generally during the first five months of 1989 Eagle was up to or over its permitted overdraft limits but it did manage to persuade its bankers to continue to support it and I find that it was not at any time before the agreement was made on 4 May 1989 unable to meet its debts as they fell due or otherwise insolvent but it was in severe financial difficulty.
   One particular attempted realisation of assets in February 1989 deserves specific mention. Mr Ferriday then approached Mr Samuelson with a view to selling to Cowan de Groot two Eagle subsidiaries, one called Swift Electrical and the other dealing in public address systems, but about whose name witnesses were uncertain. These companies were attractive to Cowan de Groot for reasons which do not matter for the purposes of this action and negotiations were embarked upon and some professional fees were incurred by Cowan de Groot. Neither purchase went forward because Eagle was demanding payment of a large returnable deposit before contract and this Cowan de Groot would only do upon having its repayment secured. Eagle proved unable to provide the requisite security because of a negative pledge to its bankers upon the property in question. There was therefore clear evidence given to Mr Samuelson in February 1989 that Eagle was short of cash and had its assets heavily charged to its bankers. Mr Corman of Titmuss Sainer & Webb was also involved and was also aware of Eagle's cash shortage.

THE ATTEMPTED SALE OF THE FIVE PROPERTIES TO FENWAY PROPERTIES LTD
   On 22 February 1989 MCP Building Supplies Ltd had leases granted to it by Eagle over part of the Birmingham property and the whole of the Bristol and Newport properties. It no longer occupied the Wolverhampton and Nuneaton properties for the purposes of its business and the way was therefore open for all of the five properties to be sold by Eagle subject to the leases in favour of MCP Building Supplies Ltd and of the other tenant of the remainder of the Birmingham property, Servis Systems Ltd. During January 1989 Mr Ferriday told Mr Smith that the five properties would have to be disposed of as part of Eagle's asset disposal programme. Mr Smith did not put the five properties on the market by any process of advertisement or even of seeking to place them privately with the help of agents. Instead he looked around for someone or some company to whom they could be sold quickly and with a minimum of publicity. It was submitted to me that the requirement of confidentiality, or at least lack of publicity, was justified on the footing that any disclosure of the fact that the properties owned or occupied by MCP Building Supplies Ltd were up for sale was perceived as having the gravest risk of occasioning very serious damage to the remaining goodwill of MCP Building Supplies Ltd. I do not accept this. It was known in the trade that the business of MCP Building Supplies Ltd was up for sale and I do not accept that knowledge that the five properties were up for sale would have had any significant additional adverse effect, more especially as the sales of those properties which MCP Building Supplies Ltd was still occupying were subject to leases in its favour so that what it was doing was closely similar to a sale and lease-back transaction. Mr Tromans, the managing director of MCP Building Supplies Ltd, was aware of and concurred in the intention to sell the five properties. Indeed he said in evidence that he thought he initiated the idea of a sale with an option to repurchase. Although there was a need for dispatch in effecting the sale given the difficult financial position of Eagle and MCP Building Supplies Ltd there was no need in my judgment for secrecy or for a sale to be negotiated with a relatively impecunious friend of Mr Smith's. That however is what happened. The friend in question was Mr John Baines, who gave evidence before me. He was on friendly terms with Mr Smith, having had both business dealings, since Mr Baines ran a heating and plumbing business through a small limited company, Baines725 Heating Ltd, and was a customer of MCP Building Supplies Ltd, and also social contacts, which started in 1988 or thereabouts with promotional events connected with business and went on to include playing football together. Mr Baines had embarked upon various relatively small property transactions of a speculative nature before he was approached by Mr Smith regarding the five properties in February 1989 but he had never been involved in a project of anything approaching the magnitude of the purchase of the five properties which Mr Smith offered to him at £1.5m. Neither Mr Baines nor his plumbing company, Baines Heating Ltd, had available cash resources to pay a 10% deposit on such a purchase, nor indeed a 1% facility fee to a prospective mortgagee, let alone any substantial part of the price. Mr Smith instructed Mr Ranson, a solicitor who habitually acted for Eagle and MCP Building Supplies Ltd and who was familiar with Mr Ferriday and Mr Smith, to act in the proposed sale to Mr Baines. Mr Ferriday also spoke to Mr Ranson about the matter and asked him to hurry it through. Mr Baines instructed his solicitor, Mr Flint of Messrs Pearson Rowe & Co, who also gave evidence before me, and at an early stage a small limited company, Fenway Properties Ltd (Fenway Properties), was acquired by Mr Baines and his wife from company promoters recommended to Mr Baines by Mr Smith. Mr and Mrs Baines were the sole directors and shareholders and Mrs Baines was the company secretary. She had the custody of the company seal.
   Mr Ranson, having had his instructions from Mr Smith, sent a draft contract to Mr Tromans for approval on 6 February 1989. The draft contained the following significant features.
   It provided for sale of the five properties by Eagle to Fenway Properties at a price of £1.5m subject to the leases mentioned above in favour of Servis Systems Ltd and MCP Building Supplies Ltd over the Birmingham property and of the latter over the Bristol and Newport properties. The price was I find chosen by Mr Smith and apportioned among the five properties in the way stated in the agreement at the outset of this judgment. Clause 3 of the draft read as follows:

No such payment of a deposit had been made to Mr Ranson. He was told by Mr Smith shortly before 10 February 1989 that a 10% deposit had been paid directly by Fenway Properties to Eagle. This too was untrue and was a deliberate lie by Mr Smith at which Mr Baines connived in order to facilitate the loan from a prospective mortgagee. Mr Ranson wrote to Mr Flint, Fenway Properties' solicitor, on 10 February 1989 saying, inter alia:

It came as no great surprise to Mr Ranson at a later stage to find when the proposed contract with Fenway Properties went off as it did in April 1989 that there was no deposit to be repaid to Fenway Properties. Mr Ranson said in evidence that it was not entirely unusual for him to receive instructions that a deposit had been paid when it had not been. He described it in evidence as 'not necessarily orthodox'. That was a euphemism to cover Mr Ranson's unease. In my view it was a fraudulent misrepresentation made to the prospective mortgagee, HFC Bank, to726 induce it to make an advance to Fenway Properties. The misrepresentation was made on the express instructions of Mr Smith but Mr Baines was well aware that it was made and that it was false.
   Mr Smith and Mr Baines had an informal agreement which they took good care not to reveal to their respective solicitors, Mr Ranson and Mr Flint, that the deposit should be treated as having been paid by Fenway Properties and found after completion by a resale by the latter. To return to the draft contract submitted by Mr Ranson to Mr Tromans for approval on behalf of MCP Building Supplies Ltd, there was also included a clause which provided in a somewhat rough and ready form for Fenway Properties to offer to sell back to Eagle at the then current market value if the former wished thereafter to dispose of any of the properties transferred. This was Mr Ranson's attempt to give effect to a provision that Mr Tromans had discussed with Mr Smith whereby Eagle would retain the right to repurchase should Fenway Properties wish to sell on. Mr Tromans had not originally envisaged a right to repurchase at the then current market price but rather at a fixed price but the matter was not of first priority and was not thought through by him so that he did not react to the draft contract which did not give effect to his original desire. I am in any event satisfied that Mr Smith would have overridden any suggestion that there should have been included an option for repurchase at the price at which the five properties were proposed to be sold because that would have damped the sale generally and in particular would have been totally unacceptable to Mr Baines, who was a speculative buyer who was looking for a quick profit on a resale.
   Another matter undertaken by Mr Tromans in order to help on the proposed sale to Fenway Properties was to instruct the same valuers as had advised on the occasion of the acquisition of the five properties, Messrs Alder King, to produce as favourable a valuation as possible for submission to the proposed mortgagees, HFC Bank. This valuation was dated 13 February 1989 and stated the instructions upon which it was based as follows, namely:

So far as a prospective mortgagee was concerned those were not likely to be very impressive instructions, not only because the Birmingham property was not in fact freehold but leasehold, but also because there were leases subject to which it was proposed to transfer the five properties to Fenway Properties. The valuation given on these unrealistic instructions was as follows:

It was duly sent on to HFC Bank as soon as it was received by Mr Flint.
   HFC Bank sent a facility letter on 20 February 1989 to Fenway Properties offering to lend 90% of the proposed purchase price, ie £1,350,000, for a period of one year. This was subject to various terms, notably that the offer was subject to open market reports and valuations for mortgage purposes to be deemed satisfactory to HFC Bank and prepared by Messrs Stewart Newiss on all the five727 properties with comments, inter alia, on vacant possession valuations and current investment valuations. Coupled with this was a term that the loan would be limited to the lowest of 90% of the purchase price, ie to £1,350,000, and 70% of the investment valuation and 70% of the vacant possession valuation. There was also a requirement of a non-returnable 1% flat fee on acceptance of the offer. This latter request raised a problem because Mr Baines was not in a position to raise the necessary £13,500 and told Mr Smith this. The latter lent the required sum to Mr Baines in cash, a transaction that says a good deal about both the keenness of Mr Smith to sell to Mr Baines or his company and the suitability of the latter as purchaser. With this assistance Mr Baines on behalf of Fenway Properties accepted the offer from HFC Bank on 22 February 1989.
   Stewart Newiss made their valuation of the five properties dated 7 March 1989. The relevant figures were as follows:

Applying the formula in the facility letter HFC Bank expressed its willingness to lend 70% of the vacant possession valuation, viz £1,291,500. This was £58,500 below the 90% figure of £1,350,000 that Mr Baines was looking for and even he accepted on or about 10 March 1989 that the matter could not proceed on the basis of the money which HFC Bank was willing to lend. HFC Bank returned the balance of the facility fee of £13,500 after deducting their costs at £5,480. After deduction of £3,890 in respect of Mr Flint's costs the balance of roughly £4,170 was returned to Mr Smith, who never recovered the rest of the £13,500 he originally lent Mr Baines.
   Mr Baines did not give up his attempts to buy through Fenway Properties although he was, according to his solicitor Mr Flint, very disappointed. Mr Flint tried on behalf of Fenway Properties to interest Co-operative Bank plc in lending 90% of the proposed purchase price but he was unsuccessful in this. Mr Baines remained very keen on the proposed purchase and tried to find finance elsewhere. His enthusiasm was primarily based on the belief that he could make a large profit on the Wolverhampton property the buildings on which were old and of very little value but the site was ripe for development. Mr Baines had received a very optimistic report dated 13 February 1989 from an architect, Mr T P Bolton, which stated that he could not overemphasise his recommendation to proceed with a project which he recommended and which he estimated would yield £3.5m to £4m. In early April 1989 a good deal of cold water was poured on this project by another firm of surveyors assisted by quantity surveyors but they too thought that there was a profit to be realised and Mr Baines remained eager to embark upon it if he could. Mr Smith had introduced Mr Bolton to Mr Baines and, I find, knew about his recommendations. An attractive offer of £560,000 subject to contract and subject to planning was made to Mr Baines for the Wolverhampton property on 5 April 1989 by a development company which Mr Smith introduced to him. The Wolverhampton property had development potential but there was a long way to go in the shape of obtaining planning permission and finance before any profit could be realised over the £300,000 at728 which it was being offered to Fenway Properties by Eagle. It will be recalled that Stewart Newiss valued it for HFC Bank at £150,000 so that it is very evident that it was a property about which very widely divergent views on value could be held. Interest had also been expressed in the shape of an offer subject to the usual legal formalities in the Nuneaton property at a figure of £102,500 by a building contractor and heating engineer on 31 January 1989 to agents for Eagle. This offer was passed on together with other inquiries for that property by Eagle to Mr Baines. Accordingly Mr Baines also thought he could make a profit over the £50,000 at which the Nuneaton property was being offered to him by Eagle.
   Mr Baines tried to interest Greyhound Bank in lending money on the security of the five properties and he did eventually succeed in getting a conditional offer from it on 3 May 1989 but that was too late because Eagle had by this time lost patience and gone elsewhere, viz to Cowan de Groot. In the meanwhile Mr Baines had suggested to Mr Smith that a cousin of Mr Baines, a Mr Sylvester Adley, a builder in London, might be interested in buying. Mr Smith and Mr Baines put their heads together and Mr Smith wrote out in Mr Baines's office a series of laudatory comments about the virtues and values of all the five properties. I find that these were in the nature of puffs and no solid evidence at all of the values at which the five properties could then be sold. Mr Baines in evidence was quite unable to substantiate much of what was said by Mr Smith in these notes, which suggested to Mr Adley that there was an estimated minimum total profit to be made of £2,167,000. Mr Adley was obviously sufficiently prudent not to place any reliance on these figures and refused to proceed. It is not in my judgment necessary to examine these figures in any detail since they constituted flights of fancy on the part of Mr Smith and Mr Baines and are of no assistance as to evidence of value. I also pass over for a similar reason various valuation figures, which, unlike Mr Smith's figures sent to Mr Adley, in themselves may well have been genuine, and were obtained for insurance reinstatement purposes. They too bear no direct relation to the value of the property to a purchaser on the market and should be ignored.
   Overall I consider that the conduct of the negotiations for a sale of the five properties to Fenway Properties did constitute a breach of the fiduciary duties of Mr Ferriday and Mr Smith as directors of Eagle in that they knowingly were seeking to sell valuable assets of Eagle to a personal friend of Mr Smith in a thoroughly unbusinesslike and in some respects dishonest way. Through Mr Smith they knew that Mr Baines was in a relatively small way of business and unable to find even the prospective mortgagee's commitment fee let alone the deposit which they proposed to deal with in an irregular manner not to be revealed to either side's solicitor. Eagle's need for cash was pressing and it was in my judgment in the highest degree imprudent to ignore the rest of the world as potential purchasers in favour of a prospective purchaser such as Mr Baines. I shall return later in this judgment to the question whether the proposed price of £1.5m was so low as of itself to constitute a breach of fiduciary duty on the part of Mr Ferriday and Mr Smith to negotiate to sell at that figure.

THE APPOINTMENT OF NEW TRUSTEES OF THE SETTLEMENT
   During March 1989 steps were taken to implement the next stage in the capital gains tax avoidance scheme set in train by the settlement by the appointment of trustees resident in Jersey, namely Mr R C Young, Mr Michael Sampson and Ryco Trust Ltd. A deed of appointment dated 13 March 1989 was prepared by the same solicitors as prepared the settlement. It is not very happily drafted because the party of the first part is Mr Samuelson described as 'the Appointer', the parties729 of the second part are Mr John Needleman and Mr Ferriday described as 'the Retiring Trustees', and the three new trustees named above, called 'the New Trustees', are the parties of the third part. What was intended was that not only the retiring trustees but also Mr Samuelson, the appointor, should retire and be replaced by the new trustees but what the deed in terms provides is as follows:

The draftsman either forgot or failed to notice that Mr Samuelson was also a trustee. On balance it seems to me likely that even as a matter of construction it would be right to treat Mr Samuelson as retiring because of the recital that the investments and cash in the settlement were intended to be forthwith transferred into the joint names of the new trustees as indicating that the new trustees and no one else were intended thereafter to be trustees. Even if that view is incorrect, I have no doubt that the deed would be rectified if it had to be, because I accept the evidence of all three of Mr Samuelson, Mr Ferriday and Mr John Needleman that the common intention was for all three of them to retire and there is no evidence at all the other way. There was also a mix up with regard to the way in which the schedule to the deed of appointment was completed. Initially there was typed in 4,200,000 ordinary shares in Cowan de Groot as assets of the settlement but that was amended in manuscript before execution to 3,800,000, a deletion of the 400,000 shares acquired in the name of Hambros Bank's nominee company. The other items in the schedule were also the subject of ink amendments initialled by all three of Mr Ferriday, Mr Samuelson, and Mr John Needleman. Here again there was much untidiness. The recitals to the deed state that the schedule contains particulars of the investment and cash subject to the trusts of the settlement. What the schedule in fact contained was an inaccurate description of the assets and liabilities of the settlement. This was completed by Mr John Needleman and was a hasty and somewhat slipshod effort. It is not in my judgment necessary to go into the minutiae of this because the deed of appointment of new trustees did not alter any obligations by describing them inaccurately. I am however satisfied that, however inartistically prepared, it was effective for its primary purpose of appointing the three Jersey resident trustees in place of the three original English resident ones. No less disorganised were the attempts to transfer the legal title to the 3,800,000 Cowan de Groot shares. Various transfer forms were prepared for Mr Samuelson, Mr Ferriday and Mr John Needleman to execute and I find they did execute some but none was given effect to on the register so that the legal property in the Cowan de Groot shares remained as I have described it above until well after the date of the agreement. No useful purpose would be served by describing the various attempted share transfers and I refrain from doing so.

THE FIVE PROPERTIES ARE OFFERED TO COWAN DE GROOT
   The negotiations with Fenway Properties Ltd were broken off at the end of April 1989 when Mr Ferriday, who I find was kept broadly in the picture by Mr Smith regarding the negotiations with Fenway Properties, lost patience and took the negotiations out of Mr Smith's control and directed him to make a closely similar offer to that which he had been making to Mr Baines and Fenway Properties to Cowan de Groot via Mr Samuelson, who was by now its chairman. There were various significant alterations or additions to the terms. The first was the omission of any right to repurchase by Eagle should the purchaser Cowan de730 Groot decide to sell on. The second was that the deposit, instead of the usual 10%, was to be one-third, ie £500,000 and the third was that contracts were to be exchanged within a very short period of time.
   Mr Smith acted on those instructions and contacted Mr Samuelson during the week starting on Monday, 24 April to put the proposed transaction to him in its essential terms. I find that Mr Smith did also say to Mr Samuelson that he thought there was £200,000 in it for Cowan de Groot. Mr Ferriday I find sounded Mr Samuelson out in general terms about the proposed transaction but did not go into details. Mr Ferriday knew that Mr Samuelson had substantial funds at his disposal in Cowan de Groot and was keen to go into property transactions. Mr Ferriday was not concerned with details but only with getting £500,000 into Eagle's coffers. He had a particular reason for this in that the motor car project known as Laforza had to make a payment of some £400,000 to the Italian coach builders Pininfarina by 28 April if it was not to incur severe penalties which would in practice have put an end to the project as conceived by Mr Ferriday. There was a dispute whether or not the payment by Eagle of that sum was a proper application of Eagle funds. I was not satisfied on the evidence that it was established to be a proper payment authorised by the board of Eagle but I have no doubt that Mr Ferriday genuinely took the view that it would be for the benefit of Eagle for the payment to be made. So anxious was he for it to be made that so long as a sufficiently large deposit was secured to effect the payment by 28 April or very shortly thereafter he did not greatly care what the price was at which the five properties were sold. As he himself put it in evidence when asked why he did not consider seeking more than £1.5m:

The more important task was keeping the Laforza project in existence by making the requisite payment to Pininfarina. Such an attitude regarding the price at which the five properties were to be sold was reckless, the recklessness of desperation in relation to the Laforza project.
   Mr Smith also told Mr Samuelson during the week starting 24 April that contracts had been exchanged with another purchaser by Eagle, meaning Fenway Properties, that the latter could not complete for lack of necessary finance and that they would need to be allowed a piece of the action. This was of course not true as regards the exchange of contracts and was false to Mr Smith's knowledge. On a balance of probabilities I find that Mr Smith told Mr Ferriday that he had said this to Mr Samuelson. I also find that Mr Ferriday knew that contracts had not been exchanged with Fenway Properties. I reject the submission made on behalf of Cowan de Groot that Mr Smith deceived Mr Ferriday into thinking that there had been an exchange of contracts with Fenway Properties. All the witnesses who knew both Mr Smith and Mr Ferriday described them as very close business associates and I do not accept that Mr Smith would have deceived Mr Ferriday on such a question. I also find that neither Mr Smith nor Mr Ferriday told Mr Samuelson that in fact contracts had not been exchanged with Fenway Properties. Of the many disputed issues of fact this is perhaps the most important. My finding is not so much based on Mr Samuelson's and Mr Ferriday's evidence, both of which but particularly the latter I treat with great reserve, but on the sheer improbability of Mr Samuelson being told any such thing. In my judgment Mr Smith in telling Mr Samuelson that there was another purchaser who would need to be given a piece of the action was seeking to do his friend Mr Baines a favour. 731No doubt Mr Smith felt sorry for Mr Baines in that he had tried hard to raise the requisite finance and then had had the deal taken away from him. Mr Smith, who had lent Mr Baines the sum needed to pay HCF Bank's acceptance fee and had engaged in a deception about the payment of a deposit by Fenway Properties, had invested a good deal of personal effort into getting the transaction between Eagle and Fenway Properties through and I infer was reluctant to let it go for nothing. None of these considerations suggests that Mr Smith would have taken Mr Samuelson into his confidence regarding Fenway Properties' real position being that of a prospective purchaser who had neither paid a deposit nor exchanged contracts. Any benefit that could be secured for Fenway Properties and thereby Mr Baines would be at Cowan de Groot's expense and Mr Smith was not going to point that out to Mr Samuelson. For similar reasons I find that Mr Smith told Mr Samuelson that the principal of Fenway Properties was a customer of MCP Building Supplies and well known to Mr Smith but Mr Smith did not tell Mr Samuelson that that person, the principal of Fenway Properties, was a personal friend of Mr Smith's. I bear in mind that Mr John Needleman in evidence said he thought that Mr Baines-

(I have inserted the word 'I' which is not in the transcript but in my judgment should plainly be added) and that it was in part because Eagle was being nice to Fenway Properties that Eagle, through Mr Smith, negotiated for a profit share for Fenway Properties. This is an aspect of the eventual negotiations for sale to Cowan de Groot to which I must later return but it is relevant to the issue of what Mr Smith told Mr Samuelson. Just as Mr Smith was not in my judgment at all likely to tell Mr Samuelson that no deposit had in fact been paid by Fenway Properties, so it seems to me that it was highly improbable that he would have gone further than saying that the principal behind Fenway Properties was a customer and well known to Mr Smith.
   Mr Smith asked Mr Baines to get his solicitor to write to Mr Ranson to say that Fenway Properties was not proceeding with the proposed purchase and Mr Flint was duly asked by Mr Baines to do this and did so by a letter dated 3 May 1989. This process took a few days in that Mr Smith made his request to Mr Baines right at the outset when Mr Ferriday lost patience whereas Mr Flint's letter was only written in the following week.
   Mr Samuelson told Mr John Needleman of the approach from Mr Smith during the week starting 24 April. He also told Mr Riches that he was getting an offer from Eagle which looked like being attractive but he did not give him any details until the following week, which effectively started on Tuesday, 2 May, the previous day being a bank holiday. Mr Samuelson was much closer to Mr John Needleman than he was to Mr Riches, who was to Mr Samuelson's knowledge a prudent and experienced director who would need to be convinced that it was sensible to embark upon a project before accepting it. During the week starting 24 April Mr Samuelson only had a verbal statement from Mr Smith of what and where the five properties were and it was clearly necessary for more details to be supplied to him so that the Cowan de Groot management could decide whether or not to enter into the proposed purchase. I reject the suggestion made to me that Mr Samuelson deliberately delayed telling Mr Riches or Mr Downey about the transaction so as to be able more readily to get it approved quickly because he, Mr Samuelson, knew it was dishonest or at best suspect. It was arranged between Mr Samuelson and Mr Smith that there should be a meeting at the offices of Russell Cash early on Tuesday, 2 May at which Mr Ferriday, who was due to go to London that day anyway, would bring the relevant documentary material.

732

THE MEETING AT RUSSELL CASH LTD ON 2 MAY 1989
   On 2 May 1989 Mr Russell, of Russell Cash Ltd, was driven into his office in Welbeck Street by Mr Samuelson for a meeting there with Mr Ferriday. Mr Russell and Mr Samuelson had been at school together and were on friendly terms. It was due to this that Russell Cash had been advising the Samuelson Group regarding property matters and after the Samuelson Group was taken over by Eagle this had led to Russell Cash also giving property advice to Eagle. Mr Russell was therefore acquainted with Mr Ferriday and he was aware of the need for cash of Eagle because he had been engaged shortly before May 1989 in the realisation of property interests of Eagle at Heathrow with a view to raising cash.
   Mr Russell himself was heavily committed at this time with other work and he arranged for the main burden of advising Mr Samuelson to be taken by Mr Andrew Finnamore, who was also present at the meeting on 2 May. Mr Samuelson had explained to Mr Russell before that meeting that Eagle was willing to sell to Cowan de Groot the five properties but that Eagle had entered into a contract of sale in favour of another company, Fenway Properties, but that company was having difficulty in completing the contract and was therefore prepared in principle to assign the benefit of its contract. Mr Samuelson wished to have Russell Cash's opinion concerning the attractiveness of a contract to buy the five properties for £1.5m. It was known to Mr Russell that it was proposed that the transaction should be put through very swiftly.
   Mr Ferriday produced to the meeting at Russell Cash a bundle of documents which I find included copies of the Stewart Newiss valuations of the Birmingham, Bristol and Newport properties but which did not include any indication of who made the valuations or when. So far as Mr Russell and Mr Finnamore were concerned these valuations were of relatively minor importance in that they were being asked at very short notice to give their own opinion of value and copy valuations by an unidentified valuer at an unascertained date were not of real significance to them. Mr Samuelson strenuously denied having seen the Stewart Newiss valuation figures on 2 May or immediately thereafter. When Russell Cash sent on to Cowan de Groot on 3 May Mr Finnamore's estimates of value (he and Mr Russell were at pains to emphasise that they could not be described as valuations) there were deleted from the supporting material the valuations placed on the Birmingham, Bristol and Newport properties. This was done deliberately, and quite properly by Russell Cash because it would merely have confused the issue to include them. In fact Mr Finnamore's estimates of value contained in the letter which he wrote on 3 May 1989 to Mr Riches at Cowan de Groot were for all but one of the five properties either higher than or very close to the Stewart Newiss valuations. Mr Finnamore's figures, arrived at after making such inquiries as the very short time available allowed, were as follows:

It was only on the Birmingham property that he placed a significantly lower figure than Stewart Newiss had done, viz £750,000 against the latter's £800,000 with vacant possession or £860,000 subject to tenancies. Mr Finnamore told Mr Samuelson in the course of the morning of 3 May 1989 what his figures were going to be. I also find that in a conversation with Mr Russell Mr Samuelson was told by Mr Russell that the five properties might eventually realise a value of 733£3m to £3.5m but there was no question of that statement being an expression of present value.
   I find that Mr Samuelson did see the valuation figures in the bundle produced by Mr Ferriday but that he did not place any significant weight upon them because what he was proposing to rely on was Russell Cash's view as to values. Mr Ferriday did not stay very long at Russell Cash's office, about 20 minutes, during which time he mostly talked about the development potential of the Wolverhampton property in relation to which the bundle of papers he brought with him included the very enthusiastic approval by the architect Mr T P Bolton mentioned above without of course any mention of the later cold water poured on that enthusiasm by the other surveyors. Nor by the same token did he produce the Stewart Newiss valuation of the Wolverhampton property which at £150,000 was a great deal lower than Mr Finnamore's estimate of value of £550,000 and only half the figure at which it was being offered to Cowan de Groot, viz £300,000. Everyone present at the meeting on 2 May 1989 at Russell Cash's offices appreciated that Mr Ferriday was acting as a vendor in commending the proposed sale to Cowan de Groot and accordingly prudently took what he said and any opinion evidence he produced with a pinch of salt and as needing verification.
   It follows from the findings made above regarding Mr Samuelson's knowledge of the Stewart Newiss valuations of the Birmingham, Newport and Bristol properties that I reject his evidence that he did not see them on 2 May 1989. On the other hand I do not accept that he deliberately lied to the court in his explanations of the fact that Titmuss Sainer & Webb's conveyancing files contained copies of those valuations, as in fact they did. How they got on to that file remains a mystery. Mr Fryzer, the partner at Titmuss Sainer & Webb who actually conducted the conveyancing transaction, was unable to say how those copies got onto his files and they plainly had not made any great impression on him, no doubt because they did not affect the title, which is what he was concerned with. Mr Samuelson's explanation for the presence in the Titmuss Sainer & Webb conveyancing file of these valuation documents was different in chief from what he said in cross-examination. Which of the two accounts (if either) was correct is not a question which directly impinges on any of the issues in this action, and I do not take time with this question.

MR RANSON IS INSTRUCTED
   Shortly after the meeting on 2 May Mr Ferriday and Mr Smith gave Mr Ranson instructions that the sale to Cowan de Groot was going through and gave him details of the essential terms, namely that the transaction was to be on the same terms as proposed for the sale to Fenway Properties which had now fallen through but without the option to repurchase and with a £500,000 deposit and an exchange of contracts in the very near future. I find that Mr Ferriday gave these instructions personally, and not through an assistant, because he was very anxious to ensure that the deposit was used to make the payment due to Pininfarina as quickly as possible. Mr Smith also gave the instructions because he was, under Mr Ferriday's directions, in direct charge of the sale of the five properties. Mr Ranson's evidence, which I accept, was that both Mr Smith and Mr Ferriday spoke to him on the subject. It does not signify much in which order they spoke.

FENWAY PROPERTIES PROFIT-SHARING
   Mr Samuelson shortly after leaving the meeting at Russell Cash on 2 May 1989 rang up Mr Smith and had a conversation regarding what might be done for734 Fenway Properties. Mr Samuelson was prepared to concede on behalf of Cowan de Groot a share of eventual profit but not to make a lump sum payment, more especially as he had not as yet had the benefit of Russell Cash's opinion on values. Mr Smith indicated that a half share of profit would be acceptable and he also made it clear that Eagle were looking for completion within 48 hours. The reason for this urgency he gave as a threat by Eagle's bankers not to meet a wages cheque. It was submitted to me that Mr Samuelson's acceptance of the concept of Fenway Properties taking a share in profit without checking up to see how valid their claim to have a legally arguable if not enforceable interest in the transaction was indicative of Mr Samuelson's understanding that Fenway Properties in fact had no interest at all but that if the transaction was to go through Eagle would require Fenway Properties to be given a profit share. I do not accept this. It may be that if Mr Samuelson had found out that Fenway Properties had neither exchanged contracts nor paid a deposit and if he had objected to paying any share of profit to them he would have been told that he could take it or leave it but that if Cowan de Groot was to buy at £1.5m it would have to enter into a profit-sharing agreement with Fenway Properties, but I do not accept that Mr Samuelson did find out what the contractual position regarding Fenway Properties was. With the benefit of hindsight it is now easy to say that Mr Samuelson should have made at least some inquiries on the subject of the alleged existing contract with Fenway Properties. In fact he made none and at first sight that looks to be at least careless and perhaps explicable by dishonesty. But when one takes into account that an honest and diligent professional conveyancer such as Mr Fryzer also took no such step although he knew from an early stage of the intention to enter into a profit-sharing agreement with Fenway Properties the failure of Mr Samuelson and the other members of the board of Cowan de Groot to make an effective investigation of Fenway Properties' contractual position in relation to Eagle becomes more comprehensible and a long way short of indicating dishonesty.

THE BOARD OF COWAN DE GROOT IS INFORMED
   In the afternoon or evening of 2 May Mr Samuelson told both Mr Riches and Mr Downey of the possibility of buying the five properties from Eagle at £1.5m and described the price as attractive. He said the reason was that Eagle were in a cash crisis, hence the need for speed. I prefer Mr Riches's evidence to that of Mr Samuelson on the question whether Mr Samuelson gave Mr Riches any details about the prospective purchase at the usual management meeting of Cowan de Groot directors on Friday, 28 April to the effect that he did not. Mr Samuelson knew Mr Riches would need to be satisfied that the transaction was both worth pursuing and proper and he did not know enough to warrant giving Mr Riches any details on Friday, 28 April before receiving any documentary information himself.

SOLICITORS ARE INSTRUCTED
   Quite early on 3 May 1989 Mr Samuelson gave to Titmuss Sainer & Webb a warning that there was a proposal on foot for a purchase transaction that would need great expedition and that Mr Ranson would be acting for the vendor. This was a normal and prudent step. His contact was Mr Corman, who told him that the partner who would normally have dealt with such a matter was not available and that it would be handled by Mr Fryzer, who had lately been made a partner. Mr Fryzer gave evidence before me. No one challenged his honesty and his conveyancing expertise revealed two flaws in Eagle's title which had escaped Mr Ranson. He kept very full notes of most of his dealings. On the other hand it was735 evident that he had given very long and anxious consideration to the events of May and June 1989 before giving evidence in late December 1990 and in some respects he had persuaded himself that events not recorded in his notes had taken a particular course rather than having a direct recollection of them.
   Mr Fryzer had two telephone conversations with Mr Ranson, who told him where the five properties were, their insurance values, the total proposed price of £1.5m and the deposit of £500,000 with exchange that very day, giving as the reason for Eagle's hurry the possibility of a take-over. Fenway Properties was not mentioned save to record the fact that there were available replies to preliminary inquiries made to a previous purchaser. Mr Ranson knew perfectly well that there had been no exchange with Fenway Properties and he therefore said nothing at all about any rights or interest it might still have.

COWAN DE GROOT BOARD MEETING
   At Cowan de Groot's offices there was a board meeting shortly after 2 pm with all the directors, Mr Samuelson, Mr John Needleman and Mr Riches present together with the company secretary, Mr Downey. The formal minute prepared by the latter recorded the meeting as having been held at 10 am that morning and that Mr John Needleman was not there. I find that Mr Downey was mistaken about those two aspects and that Mr Samuelson, who signed the minutes, was careless in doing so. In my judgment Mr Downey confused the board meeting in the afternoon of 3 May with the informal notification that Mr Samuelson gave to Mr Riches and himself the previous afternoon. The formal minute in any event did not record much that was discussed and decided at the board meeting. It did record that Mr Samuelson reported he had learnt that Eagle was seeking to dispose of five properties for £1.5m, that it would be necessary to act very quickly as the transaction would need to be completed by the close of business on 4 May 1989 and that it was agreed in principle that negotiations with Eagle should continue. What were omitted from that minute but were discussed at the board meeting were the following points, all of which were reported by Mr Samuelson to the meeting: (a) that a deposit of £500,000 was required to be paid on exchange; (b) that there was a prior purchaser, Fenway Properties, who had signed and exchanged contracts and paid a deposit of £150,000 but had failed to complete and was currently unable to do so; (c) that it would be necessary to enter into some form of profit-sharing agreement with Fenway Properties to secure their withdrawal and that a fifty-fifty split was suggested; (d) that an estimate of value of the five properties was going to be provided by Russell Cash in a figure of £2.4m and that an indication had been given by that firm that ultimately they could realise £3m to £3.5m after development.
   Mr Riches was concerned at the unusual features of the proposed transactions, particularly the size of the deposit and the speed with which the exchange was to be made. Other features which worried him were the question of Eagle's possible insolvency and the effect this might have on the deposit and the role that Fenway Properties was playing. Mr Riches did not altogether trust Mr John Needleman or Mr Samuelson and he wanted to be sure that neither of them nor anyone connected with Eagle had any connection with Fenway Properties. Mr Downey, who had experience of insolvency work, was concerned about the possibility of a sale by Eagle at an undervalue followed by Eagle's insolvency. At one stage in the discussion when Mr Riches was expressing some reservations about allowing Cowan de Groot to embark upon the proposed transaction, Mr John Needleman suggested that, if Cowan de Groot did not engage in it, he and Mr Samuelson in their individual capacities might do so. Mr Samuelson demurred at this and it was not pursued because Mr Riches was sufficiently satisfied with Mr Samuelson's736 explanation to agree to the transaction proceeding subject to the advice of Cowan de Groot's solicitors and subject to conducting a company search on Fenway Properties and getting a confirmation that Fenway Properties' interest in the contract had terminated. In particular Mr Riches accepted Mr Samuelson's explanation that Eagle was suffering from a cash crisis and was under pressure from its bankers, who might not meet a wages cheque, as an explanation for the speed of the proposed exchange. The concept of a 50% profit-sharing arrangement with Fenway Properties was accepted subject to Cowan de Groot being in sole control of the properties and subject to Cowan de Groot recovering all its outlay and costs before any question of profit arose. A stepped distribution of profit was suggested by Mr Samuelson and in principle agreed to whereby Cowan de Groot would take the first £250,000 of profit, Fenway Properties the next £250,000 and any additional profit would be divided equally. This has the obvious advantage from Cowan de Groot's point of view that if there is a profit Cowan de Groot would get at least half of it and if it was under £250,000 the whole of it. Overall it was clear that in the light of Russell Cash's opinion on values the proposed transaction had all the appearance of being likely to yield a substantial profit and the apparent oddities such as speed and the size of deposit due to Eagle's cash problems did not appear to present an insuperable objection so long as their solicitors did not advise against the transaction. After the board meeting Mr Downey went to Titmuss Sainer & Webb's offices to liaise with Mr Fryzer, Mr Riches set about organising the loan of the £1.5m required from Cowan de Groot's bankers and Mr Samuelson reported to Mr Smith that in principle the transaction was approved by Cowan de Groot, which would agree the tiered profit-sharing arrangement, and asked that confirmation be given to Cowan de Groot's solicitors that Fenway Properties would withdraw from the transaction and would accept the proposed profit-sharing arrangement. He did not ask for further information regarding the principal behind Fenway Properties. Nor if it be material do I find that Mr Smith and Mr Samuelson entered into an enforceable agreement on behalf of Fenway properties and Cowan de Groot respectively regarding a profit-sharing arrangement. All there was was an intention by Mr Samuelson that the tiered arrangement mentioned above would be acceptable.

CONSULTATIONS AT THE SOLICITORS' OFFICES
   Mr Downey spent the late afternoon with Mr Fryzer. He passed on the concern felt by Mr Riches regarding Mr Samuelson's past involvement with Eagle, the speed of the transaction, the size of the deposit, the possibility of Eagle's insolvency and Fenway's involvement. As regards the latter the possibility of there being a side-deal between Fenway and Mr Ferriday was specifically raised. Mr Fryzer was told of the discrepancy between the price being asked and Russell Cash's advice regarding value and of Eagle's apparent cash crisis. He was aware of a memorandum prepared by Professor Adams regarding the provisions of s 238 of the Insolvency Act 1986 and having consulted it again he advised that there was a risk if Eagle went into liquidation within two years that the transaction might be open to attack as having been made at an undervalue for the purposes of the section, that is to say a transaction entered into by a company for a consideration the value of which in money or money's worth was significantly less than the value in money or money's worth of the consideration provided by the company. He also drew attention to the provisions of s 238(5), which provides as follows:

Mr Fryzer accepted in cross-examination that the saving provision regarding transactions made in good faith would not have been applicable if the fact was that the directors of Eagle knew they were selling at such an undervalue. Mr Fryzer, who was a conveyancer rather than a company law specialist, decided to consult a partner senior to him, Mr Corman, who was such a specialist and moreover was well acquainted with Mr Samuelson, and had acted for Cowan de Groot in company and commercial matters since Mr Samuelson became its chairman. Notably Mr Corman had been involved in the abortive negotiations by Eagle to sell two of its subsidiaries to Cowan de Groot in February 1989.

MR CORMAN IS CONSULTED
   Mr Corman saw Mr Fryzer and Mr Downey at about 6 pm on the same day, 3 May 1989, and having heard a summary of the proposed transaction from them decided that there were two matters upon which Mr Samuelson should be personally questioned. The first was whether Mr Samuelson had such a shareholding or had or had lately held such an office in Eagle as to cause the proposed transaction to need shareholder approval pursuant to the Stock Exchange 'Yellow Book'. The second concerned the possibility of the proposed transaction being set aside by a liquidator of Eagle and in that context Mr Corman wished to know whether Mr Samuelson was satisfied that Eagle was solvent and whether he considered that the directors of Eagle were aware that they were apparently entering into a transaction at an undervalue. So, in the presence of Mr Downey and Mr Fryzer, Mr Corman telephoned Mr Samuelson on a loudspeaker telephone so that the former two persons were able to hear what was said on either side. Although both Mr Downey and Mr Fryzer took notes only the former's survive and they are clearly abbreviated.
   Mr Corman satisfied himself that because Mr Samuelson had only been a director of a subsidiary of Eagle, viz Samuelson Group, and was only a 1% shareholder in Eagle no shareholder consent would be required by the Stock Exchange rules. He asked Mr Samuelson whether Eagle was solvent and was told that it was. This was, I find, Mr Samuelson's genuine opinion on this point. It appears to have been correct at the time and I do not accept that Mr Samuelson was seeking to deceive Mr Corman into thinking that Eagle was solvent when he knew or suspected that it was not. Mr Samuelson did not tell Mr Corman that a threat had been made not to meet Eagle's wages bill. Both Mr Downey and Mr Fryzer were aware that the basis upon which Cowan de Groot was offered the five properties at £1.5m was that Eagle was in a cash flow crisis and that its existing purchaser, Fenway Properties, was not in a financial position to complete as quickly as Eagle wanted. This I find was conveyed to Mr Corman. Mr Corman also asked Mr Samuelson about Fenway Properties' position. Mr Downey's abbreviated note about this reads:

   Although Mr Downey's note uses the words 'can complete', I do not accept that Mr Samuelson categorically stated that it was certain that Fenway Properties would complete within 21 days, since any such definite assertion would have738 been contrary to what he had said earlier to Mr Downey and the other Cowan de Groot directors, namely that Fenway Properties was not currently able to complete fast enough for Eagle. I find that Mr Samuelson was explaining the basis upon which the profit-sharing arrangement with Fenway Properties was founded, namely that the latter had the benefit of a contract and could well complete but with a profit-sharing agreement of the sort proposed with a tiered distribution of net profits would abandon its contract with Eagle. Mr Samuelson also said that he did not know anyone connected with Fenway, with whom he had no direct contact since Eagle was acting as intermediary. Mr Samuelson did not tell Mr Corman what he had told his fellow directors that the principal behind Fenway Properties was a customer of MCP Building Supplies Ltd. Mr Corman accepted what Mr Samuelson said without further investigation. No one suggests he was not acting honestly in doing so, although it was suggested that his inquiries were perfunctory. Here again it is easy to be wise after the event. I do not consider that Mr Corman was acting in any way negligently or improperly in taking his client's word at its face value. So far as valuation considerations are concerned I find that Mr Corman received a factually inadequate assurance from Mr Samuelson. The actual question asked by Mr Corman was whether or not Eagle were aware of the £2.4m opinion on value expressed by Russell Cash. The answer to that question was fairly obvious in that a prospective purchaser is not likely to tell a prospective vendor of a higher valuation than the current asking price. No doubt different considerations would apply to a lower valuation. However I am satisfied that Mr Samuelson knew what Mr Corman was intending to ask, namely whether the Eagle directors were aware that they were selling at an undervalue. His answer that Eagle's last valuation was £1.7m was inaccurate because there was no such valuation, as Mr Samuelson knew. I do however accept his evidence that he was not seeking to deceive Mr Corman but was stating compendiously (and inaccurately) the effect of Mr Smith telling him that there was £200,000 in the transaction for Cowan de Groot over and above the asking price of £1.5m. Mr Corman closed the interview by saying that there was no harm in making a profit. That is the sort of generalisation that does not bear close examination since it is self-evident that there are many ways of making a profit which are highly reprehensible and indeed illegal. I do not consider that it was intended or understood to mean more than the fact that a profit is highly probable is not of itself a valid reason for refraining from entering into a given transaction so long as there is no evidence of fraud, which on the evidence before Mr Corman there was not. It clearly was not intended to mean that if a profit was going to be made no other considerations mattered.

THE LETTER OF 3 MAY 1989
   Among several telephone conversations on 3 May 1989 between Mr Fryzer and Mr Samuelson there was one in which the former advised the latter of the need to ensure that Fenway Properties was effectively withdrawing from its contract (as they supposed it to be) with Eagle. The letter written by Pearson Rowe & Co on 3 May to Ransons saying that Fenway Properties no longer wished to proceed with the proposed purchase of the five properties was received by Mr Ranson at about 3.15 pm that day. He had previously been instructed by Mr Ferriday that it would be coming and to send it on to Cowan de Groot. This he did about an hour later and Mr Samuelson saw it shortly thereafter. I find on balance that Mr Samuelson dropped it in on Mr Fryzer that evening but not much turns on the precise time. Reliance was placed on behalf of Eagle on the inadequacy of the letter as a formal renunciation by Fenway Properties of its supposed contractual739 rights. Mr Fryzer in evidence accepted that Mr Samuelson did not view the latter as satisfactory. Mr Samuelson disagreed with that evidence and said he thought it was. On this point I prefer Mr Samuelson's evidence. The letter from Pearson Rowe & Co was not of course addressed to Cowan de Groot or its subsidiaries but it would in my view have placed an immense obstacle in the path of any attempt by Fenway Properties to seek specific performance as against Cowan de Groot had there been a contract in existence between Eagle and Fenway Properties. Far more important however to a conveyancer than any question of the adequacy of the letter as a release by Fenway Properties was the fact that there was no entry on the register or caution to protect Fenway Properties' contract so that Cowan de Groot on getting a clear search, as it did, could safely contract with Eagle. Mr Fryzer was a conveyancer and it is this consideration which explains the fact that he did not feel it necessary further to explore the precise mechanics of the release or renunciation by Fenway Properties of any contractual rights which it had.

THE LETTER OF 4 MAY 1989
   The fact that Mr Ferriday personally told Mr Ranson that the letter of 3 May 1989 would be coming from Fenway Properties' solicitor is an indication that Mr Ferriday took an interest in smoothing the path for the contract with Cowan de Groot to go forward. Mr Ferriday, I find, also took an active part in procuring the sending of another letter by Pearson Rowe & Co, this time on 4 May. Mr Baines at Mr Ferriday's specific request told Mr Flint of Pearson Rowe & Co early on 4 May to send a letter to Ransons reading:

Mr Flint did as he was asked. He inquired of Mr Baines what it was about and particularly whether his firm Pearson Rowe & Co was to be involved in the joint venture mentioned. He was told that it would not and at that point Mr Flint lost interest and did not pursue the matter. It is very doubtful whether he would have found much out from Mr Baines about the nature of the joint venture, for Mr Baines was wholly unable to give any coherent account of what he understood the joint venture referred to actually was to consist of. I find that he was effectively thoroughly confused by Mr Ferriday, as the latter intended, and that he, Mr Baines, had no clear idea at all of what was likely to be involved in the joint venture or that it would confer significantly valuable rights in Fenway Properties. I am far from able to accept all Mr Baines's evidence but on this aspect his evidence is in tune with what was said by Mr Ranson and I prefer it to Mr Ferriday's evidence. Mr Ranson again was warned of the imminent arrival of the letter by Mr Ferriday. He too asked what the joint venture was about, but, as not infrequently happened with Mr Ferriday, was quickly made aware that this was not anything that he need or should concern himself with. In conformity with his practice when acting for Mr Ferriday on occasions when there was no improper act asked of him personally Mr Ranson did as he was told without asking any further questions. The letter was received by Mr Ranson at 9.54 am or shortly thereafter and although he intended to send it on to Titmuss Sainer & Webb when he sent a fax to them at 3.25 pm he did not do so until 9.48 pm that same evening. The letter had no effect upon the course of events and is only significant in showing that Mr Ferriday was involved in paving the way for the profit-sharing agreement between Fenway Properties and Cowan de Groot. He had no clear idea740 at this stage what this might produce as an end product but I am satisfied that he recognised in Mr Baines someone whom he could manipulate quite easily.
   The company search on Fenway Properties revealed that it was a £2 company with two directors, Mr and Mrs Baines, and that Mr Baines's only other directorship was in his heating company. This did not reveal any substantial organisation but equally it did not reveal any evident connection with Mr Samuelson, Mr John Needleman or Mr Ferriday or indeed Eagle or its subsidiaries. In effect the results of the search showed nothing.
   There were two significant last minute changes in plan made on 4 May 1989. The first was that because defects were discovered by Mr Fryzer in the title deduced on behalf of Eagle to the Bristol and Newport properties the agreement was altered from one of outright purchase and sale of the five properties to the grant of an option to purchase the Bristol and Newport properties and a sale of the other properties. A positive obligation was placed upon Eagle to use its best endeavours to obtain a marketable title to the Bristol and Newport properties. The modification was devised by Mr Fryzer and did not involve any alteration of the consideration for any of the five properties although it did make the deposit of £500,000 an even larger proportion of the price to be paid on completion. Mr Samuelson consulted Mr Russell about the wisdom of going on with the transaction in the light of the title difficulties regarding the Bristol and Newport properties. Mr Russell advised against going on unless or until the conveyancing problems were solved. He saw no objection to dealing with the problem by the grant of an option. Mr Samuelson's consultation of Mr Russell provides some indication that Mr Samuelson had a genuine concern to be as sure as possible that this was a prudent transaction for Cowan de Groot to embark upon, rather than putting through a scheme which he knew to be fraudulent. Equally I do not consider that the fact that Mr Samuelson was keen for the transaction to go forward, rather than to wait for the conveyancing problems to be ironed out, is indicative of any consciousness on his part of a dishonest scheme.
   The other significant last minute change in the transaction was the introduction of Pinepad as the purchaser and grantee of options in place of Cowan de Groot. This was a perfectly normal technique to adopt in acquiring a property for a group of companies and was done for accounting and fiscal reasons. As mentioned at the outset, Pinepad was a wholly-owned subsidiary of Cowan de Groot. Its sole director was Mr Samuelson. Its sole function at this stage was to enter into the transaction in place of Cowan de Groot, its holding company. Cowan de Groot funded the transaction through its own banking facilities. Pinepad was not a nominee however in the strict legal sense of holding the benefit of the agreement on trust for Cowan de Groot. On a resale at a profit it would have been Pinepad, rather than Cowan de Groot, that would have been liable to corporation tax on any chargeable gain. The relationship between Cowan de Groot and Pinepad was one of creditor and debtor rather than beneficiary under a bare trust and trustee or nominee.
   The agreement was exchanged at about 11.20 pm on 4 May despite a further hitch in that both Mr Smith and Mr Ferriday, either of whom might have been expected to sign on behalf of Eagle, were in the United States of America that day and not available to sign. Mr Samuelson played an active part in finding a director of Eagle to sign. He first contacted Mr Smith by telephone in New York, who said Mr Baker, the finance director, would sign and then, when Mr Baker proved not to be obtainable, Mr Samuelson contacted Mr Whiley, who came and having checked with Mr Ferriday that it was in order to sign and exchange did so on behalf of Eagle. Here again, while I accept that Mr Samuelson was showing741 himself keen, and indeed keener than Eagle for all their cash crisis, to proceed to exchange, it does not in my view follow from that that Mr Samuelson was deliberately hastening on what he knew to be an improper transaction. He was satisfied he had a good bargain on Cowan de Groot's behalf and he was keen to conclude it.
   Mr Ferriday's principal objective of securing a payment to Pininfarina for the benefit of the Laforza car project was realised in that Mr Ranson on Mr Ferriday's instructions paid £400,294.20 to Pininfarina on 8 May, having received the £500,000 deposit on 4 May. The delay was caused by the fact that Ransons held the £500,000 deposit as stakeholders until clear local searches were obtained on the properties sold by 8 May, whereupon Cowan de Groot agreed to permit the deposit to be held by Ransons as agents for the vendor Eagle, thereby freeing it in Mr Ranson's hands to be dealt with as directed by Mr Ferriday.
   Finally, as regards the events of 4 May there remains to be dealt with a telephone call that Mr Fryzer had shortly after 3 pm with a person whom he thought to be Mr Flint. Mr Fryzer and Mr Downey both made notes recording that this conversation took place and it is clear that it did. The record kept by Mr Fryzer showed that he was told by the other party to the conversation, whom I shall call 'Flint', that he 'Flint' had written the fax-letter regarding the joint venture mentioned above whereupon Mr Fryzer corrected this and said he understood it to be a profit-sharing agreement with Cowan de Groot in complete control and outlined the tiered profit distribution mentioned above. 'Flint' indicated that these terms were broadly in agreement with his instructions. Mr Flint, the partner in Pearson Rowe & Co, was very firm in his evidence that he had no such conversation with Mr Fryzer on that day and supported this assertion by saying, inter alia, that he would certainly have noted it had it occurred because it would have been of great importance to Fenway Properties and Mr Baines. I accept this evidence from Mr Flint, whose bona fides is not challenged. It was submitted on behalf of Cowan de Groot that both the notes made by Mr Downey and Mr Fryzer referred to the fact that 'Flint' said he had sent the fax dated 4 May about the joint venture and that is correct. As already stated it was sent at about 9.54 am on that day but the only people who would be at all likely to know of this were the parties to the fax, Mr Flint and Mr Ranson, and this indicates, it is submitted, that it was the real Mr Flint who had the telephone conversation with Mr Fryzer and that because his firm had dropped out of it as Mr Baines had told him early that morning Mr Flint paid no attention and made no note. It is indeed puzzling to know what happened but on balance I consider that 'Flint' was an imposter put up by Mr Ferriday. I appreciate, as Mr Ferriday himself pointed out, that it would be a very risky thing to do to impersonate a solicitor to another solicitor. The risks of not getting the professional jargon right would be considerable and there is the point that Mr Ferriday was not sent a copy of the fax of 4 May concerning the joint venture. Nevertheless I am unable to accept that Mr Flint would not have been interested to hear that the joint venture from which his firm had been excluded that very morning was perhaps going to produce £250,000 or more. Mr Flint had put a good deal of work into this matter and for it to go off in such a way was plainly disappointing. His disinterest would have been superhuman if he failed to react to or recall the news that his client might well be making a £250,000 or greater profit. In addition Mr Flint struck me as not only an honest witness, no one doubts that, but also a competent and efficient solicitor and a reliable witness. On a balance of probabilities I accept his evidence.
   The main practical effect of this conclusion is that it demonstrates that Mr742 Ferriday was promoting a dishonest scheme right from the outset of the so-called joint venture in putting forward someone to agree the profit-sharing agreement purportedly on behalf of Fenway Properties. It is quite neutral on the question whether or not Mr Samuelson was privy to such a scheme. The second effect of my finding that 'Flint' was not Mr Flint is that there can be no question of the conversation between 'Flint' and Mr Fryzer having created any legally binding profit-sharing agreement between Fenway Properties and either Cowan de Groot or Pinepad. Nor do I find that any such agreement was created at any other time.

POST-EXCHANGE STEPS
   The absence of any document containing the proposed profit-sharing agreement was appreciated and sought to be rectified shortly after the exchange of documents by Mr Samuelson asking Mr Fryzer to produce a draft of such a document. Mr Fryzer continued to be very busy with the conveyancing aspects of this and other transactions and not immediately available, so the first rough draft was in fact produced by Mr Samuelson. It set out the tiered profit shares already described. This approach was abandoned by Cowan de Groot and Pinepad in favour of an arrangement whereby Fenway Properties would be paid a lump sum. The reasons for that change were twofold. First, it became increasingly clear to the board of Cowan de Groot that Russell Cash's figure of £2.42m was on the conservative side. Mr Samuelson and Mr Finnamore visited four of the five properties on 11 and 12 May 1989 and Mr Finnamore thereafter on 24 May 1989 wrote a letter recommending how they should be marketed. His recommendations were so far as figures were concerned in summary as follows:

It is clear that he did not consider that any of the figures mentioned in the earlier report of 3 May totalling £2.42m was too high but rather the contrary.

THE LUMP SUM PAYMENT
   It stood to reason that if the ultimate realisations were likely to be greater than at first anticipated a lump sum payment to Fenway Properties based on the original expectations would be likely to be more rewarding than a fifty-fifty split of net profits. The second reason for the change to a lump sum payment was that advice was taken from Touche Ross on the fiscal implications of the proposed profit-sharing agreement. Mr Riches wrote on 18 May seeking that advice and saying that the half share of profit to be realised was estimated at £500,000 to £1m. Touche Ross's advice was to the effect that a lump sum payment would have beneficial fiscal repercussions. It is not necessary to go into what the reasons given for this were. It suffices for my purposes to record that the change to a lump sum transaction was in my judgment made because it was recommended by the professional advisers of Cowan de Groot and Pinepad and adopted by the743 board of Cowan de Groot for valid fiscal and commercial reasons and not because it was promoted by Mr Samuelson for any sinister reason.
   The question whether or not Cowan de Groot or Pinepad was in fact bound to give Fenway Properties a profit share was discussed by the Cowan de Groot board internally and not with Mr Fryzer. Mr John Needleman, never a man to make unnecessary financial concessions, questioned whether any payment need be made. Mr Riches and Mr Samuelson both took the view that there was a moral obligation on Cowan de Groot which it should honour, and in addition Mr Samuelson, I find, quite genuinely considered there was probably a legal obligation as well. Mr Fryzer, when asked, raised the question whether there was a legal obligation but did not take the matter further, recognising the right of Cowan de Groot to honour what the board regarded as their moral obligation.
   The board of Cowan de Groot agreed upon the principle of making a lump sum offer to Fenway properties and left it to Mr Samuelson to implement. He instructed Mr Fryzer to inquire of Fenway Properties' solicitors whether a lump sum would be acceptable and if so what sum. Mr Fryzer left a message with Mr Flint of Pearson Rowe & Co late in the afternoon of 22 May 1989 to ring back but, before getting a response from Mr Flint, Mr Fryzer was instructed by Mr Samuelson on 23 May to put an offer of £250,000. This figure had been agreed by informal discussion in the board of Cowan de Groot and was taken from the similar figure in the first stage of the proposed tiered profit-sharing arrangement. In effect what was suggested was that Fenway Properties be guaranteed the share they would have been entitled to if the profits were £500,000 but should forgo any share of larger profits. There had to date been no movement from Fenway Properties to seek the execution of a formal profit-sharing agreement, which with the benefit of hindsight is a suspicious feature. But it did not arouse the suspicions of either Mr Riches or Mr Fryzer at the time. In the circumstances it seems unrealistic to regard Mr Samuelson's failure to take precautions based on Fenway Properties' failure to react between 4 May when the agreement was exchanged and 23 May when the offer of £250,000 was made as an indication of Mr Samuelson's complicity in promoting a sham profit-sharing agreement.
   Mr Fryzer did make contact with Mr Flint on 23 May and made him a without prejudice offer of £250,000 to leave the five properties in Mr Fryzer's clients' hands alone. Mr Fryzer, who thought he had already spoken to Mr Flint on 4 May, also told Mr Flint of the late developments in the negotiations leading up to the exchange of the agreement between Eagle and Pinepad, that is to say the option agreement regarding the Bristol and Newport properties and the substitution of Pinepad for Cowan de Groot. This is entirely consistent with Mr Fryzer's evidence that he thought he spoke to Mr Flint on 4 May but does not disprove Mr Flint's evidence that he was not a party to the conversation on that day with Mr Fryzer. Mr Flint was extremely surprised at Mr Fryzer's offer but maintained a non-committal silence and did not express his surprise to Mr Fryzer, contenting himself with saying that he would take instructions. Mr Flint did however record that perhaps Mr Fryzer had rung the wrong solicitor. That contemporaneous note in my view does support Mr Flint's evidence that he knew nothing previously of the tiered profit-sharing proposals and that if he had been party to the conversation with Mr Fryzer on 4 May he would have recorded it.
   Mr Flint I find passed on the offer of £250,000 to Mr Baines, who initially was as surprised as Mr Flint. Mr Baines then rang Mr Smith to find out what was going on. Mr Smith told Mr Ferriday of Mr Baines's call and Mr Ferriday took control of the situation by ringing Mr Baines and telling him that there had been a mistake in that Cowan de Groot's solicitors had rung the wrong solicitors and744 that he Ferriday would deal with the matter. Mr Baines on 25 May rang Mr Flint to say that he was dealing with the matter direct. This meant that Mr Flint need no longer concern himself with the matter and he did not.
   I find that Mr Ferriday learnt all he needed to know from the report from Mr Smith that Mr Baines was being offered £250,000. This was a quite sufficient indication to him that Cowan de Groot were likely to be anticipating a considerably greater total profit than £500,000 out of the transaction. I reject Mr Ferriday's evidence that he elicited details about Cowan de Groot's likely profit from Mr Russell of Russell Cash and accept the latter's evidence that he did not have any contact with Mr Ferriday about the five properties after the meeting early on 2 May.
   On 1 June 1989 completion duly took place of the contract in the agreement for the sale of the Nuneaton, Wolverhampton and Birmingham properties and the balance of the purchase price of £900,000 after the £500,000 deposit, subject to usual apportionments, was paid and transfers were executed in favour of Pinepad.
   The next relevant event with regard to Fenway Properties was that Mr Samuelson was telephoned by someone unidentified in evidence pretending to be Mr Baines who told Mr Samuelson in blunt terms that £250,000 would not be enough. I find this call was procured by Mr Ferriday and was not made by Mr Baines, whom Mr Ferriday had successfully mystified as to what was going on. Mr Samuelson said he would have to confer with his colleagues on the board of Cowan de Groot and did indeed consult Mr Riches and Mr Downey. They discussed various possibilities, including an immediate payment of £250,000 with additional payments of £100,000 when the Bristol and Newport properties were disposed of, but eventually decided on an offer of £400,000 which they regarded as representing a refund of the deposit which they thought Fenway Properties would have forfeited to Eagle (it matters not whether that belief was justified) plus the original £250,000. When the false Mr Baines rang back on 5 June that offer of £400,000 was made to him and accepted on the basis that it was to be made to 'Mr Baines' and not Fenway Properties. Before that occurred Mr Ferriday had paved the way for him to intercept this payment in various ways.
   First he provided Mr Smith with the text of a letter which Mr Baines was to ask Mr Flint of Pearson Rowe & Co to send to Cowan de Groot. It was written by Mr Ferriday in block capitals and read:

The letters X and Y were intended to refer as follows. X was Fenway Properties and X's solicitors were Pearson Rowe & Co. Y was Cowan de Groot. Mr Ferriday got Mr Smith to give the text written out by Mr Ferriday to Mr Baines at a cricket match on Saturday, 3 June 1989 with instructions to give it to Pearson Rowe & Co to send to Cowan de Groot. This was Mr Ferriday's method, as he frankly admitted in evidence, of getting rid of Fenway Properties' current legal advisers and making it possible for Mr Ferriday to introduce another legal representative for Fenway Properties through whom he, Mr Ferriday, could procure the lump sum payment in prospect from Cowan de Groot without Mr Baines understanding745 exactly what was going on. At that stage the probability is in my judgment that Mr Ferriday had not settled in his own mind what the mechanics for diverting the lump sum would be and I do not consider that he had an ascertained third party in mind. Mr Baines did as he was told but Mr Flint was not willing to send the letter off on his notepaper on Mr Baines's behalf without more ado. In particular he was concerned at the possibility of adverse repercussions in relation to capital gains from the use of the words 'we have disposed of an interest'. He therefore advised taking an accountant's advice and the upshot of that was that at the expense of grammar the text as sent by Mr Flint to Cowan de Groot on 5 June shortly after 2 pm read under a heading 'Fenway Properties Limited':

   The second step taken by Mr Ferriday, having got rid of Pearson Rowe & Co was to instruct a substitute firm, Messrs Beller Needleman & Co, through its partner Mr Beller, who gave evidence before me. Mr Ferriday saw Mr Beller very early on Monday, 5 June in his office in London and instructed him that he, Mr Ferriday, was owed £300,000 commission by Cowan de Groot, that he wanted to collect the commission but that he wanted not to reveal his identity. He told Mr Beller that he was to contact Mr Samuelson who was the managing director of Cowan de Groot and that the form of the invoice to be sent would be sent later to Mr Beller for him to send on. Mr Beller did not seek to inquire into this transaction. He duly received by fax from Ryco Trust in Jersey later that day the relevant text of an invoice to Cowan de Groot:

   Mr Beller on the same day signed a letter intended to go with an invoice in the terms instructed and his evidence, based on his firm's practice, was that it was sent off to Cowan de Groot, marked 'For the attention of Mr J Samuelson'. The letter gave Beller Needleman's client account bank account number and sort code. Mr Samuelson's evidence was that this letter did not reach him. I find that letter was not sent because it was very quickly superseded by a further instruction from Mr Ferriday on the telephone the same day that the client was a Mr N Baines and that the figure was £400,000 and not £300,000. Mr Beller accepted the change in his client without demur and sent off the revised invoice in Mr Baines's name in the sum of £400,000. This did reach Cowan de Groot. Mr Samuelson saw this and at 6.20 pm in the evening of June 5, having consulted Mr Merrison in the absence of Mr Fryzer of Titmuss Sainer & Webb, with Mr Riches's approval, replied, asking for Beller Needleman's bank details and specifying a form of receipt by Mr Baines for £400,000 payment receipt from Pinepad. Mr Beller had not previously heard of that company but he was prepared to act for it if asked to do so. Mr Beller did however think it prudent to get written confirmation that he was instructed as Mr Ferriday said and accordingly Mr Ferriday provided Mr Beller with a sheet of Fenway Properties notepaper with:

746

It bore the seal of Fenway Properties impressed upon it and a signature 'John Baines'. Mr Baines's evidence was that he did not sign this nor did he or his wife, who as company secretary of Fenway Properties had custody of its seal, affix the seal or part with it to enable Mr Ferriday to affix the seal to this sheet of paper. I do not accept part of that evidence of Mr Baines, who I find was not telling the truth about this. I find that Mr Baines provided Mr Ferriday at the latter's request with several sheets of Fenway Properties notepaper and the company seal and that Mr Ferriday then produced the document quoted above which Mr Ferriday handed to Mr Beller early on June 6. I do not accept that Mr Ferriday stole the seal and had another made. He did not have the time for that. Mr Ferriday also at the same time on 6 June 1989 gave Mr Beller several more sheets of Fenway Properties notepaper and told him that Fenway Properties was a company he was using for this transaction and that it belonged to a friend of his, Mr Baines. Mr Beller was content to accept instructions from Fenway Properties on the strength of this documentation and early on June 6 he sent a fax to Mr Samuelson at Cowan de Groot enclosing another revised invoice on Fenway Properties paper and a draft receipt for and on behalf of Fenway Properties and N Baines Esq for £400,000 from Pinepad in respect of the five properties and not mentioning commission or any other reason for the payment but containing a number of fairly trivial clerical errors. Mr Samuelson was away from Cowan de Groot that day and Mr Riches asked Mr Downey to take, and he duly took, the advice of Titmuss Sainer & Webb regarding the form of the receipt to be taken. Mr Merrison of that firm in consultation with a tax partner devised the ultimate form of receipt which corrected the clerical errors and provided for a receipt by Beller Needleman and a signature from Mr Baines plus execution under seal on behalf of Fenway Properties. This form was cleared by Mr Merrison with Mr Beller. It was suggested for Eagle that the introduction of a firm Beller Needleman with a name identical to that of Mr John Needleman was a suspicious circumstance which should have put Mr Samuelson on his guard. The name in the firm name is derived from a Mr Andrew Needleman, a cousin of Mr John Needleman. Relations between the two cousins were not cordial. Mr John Needleman had fallen out with him, as with others, over a question of money. Mr Ferriday's activities through Beller Needleman were indeed nefarious but the fact that he resorted to that firm had nothing to do with any Needleman connection but to the fact that Mr Ferriday was rightly confident that Mr Beller would act on his instructions. Therefore, although Mr Riches and Mr Downey were understandably surprised at the name Needleman cropping up, they were quite right to permit their suspicions to be allayed because that was not in fact the source of trouble. By the same token I do not find that Mr Samuelson was at fault, in not being suspicious at the emergence of a solicitor's firm named Beller Needleman apparently acting for Mr Baines. On this score I find that Mr John Needleman raised the question of Beller Needleman having acted for Mr Ferriday in the past with Mr Samuelson but this was after the payment had been made, by which time it was too late to recover it save by taking proceedings. I base this on Mr John Needleman's evidence, which I accept on this matter. Mr Downey put the conversation between Mr Riches and Mr Samuelson about Beller Needleman's involvement a little later than the original deals on 2 and 3 May but cannot possibly be right because Beller Needleman had no involvement before 5 June. In any event Mr Riches, unlike Mr John Needleman, had no knowledge of any involvement of Beller Needleman with Mr Ferriday and was only concerned about the coincidence regarding the name Needleman which I have already dealt with. Finally, I do not accept that the fact that Mr Samuelson did not tackle Mr Ferriday about whether Beller Needleman had been acting for him on 5 and 6 747June when Mr Samuelson was told some time later that Beller Needleman had previously acted for Mr Ferriday is indicative of Mr Samuelson's dishonesty or of his knowledge of Mr Ferriday's dishonesty. When Mr Samuelson was told where the £400,000 paid out of Cowan de Groot's bank account had in fact gone he did take steps to tackle Mr Beller about this. There was a conflict of evidence between Mr Samuelson and Mr Beller as to what happened. Mr Beller's account was that Mr Samuelson did call without appointment at his firm's offices in the spring of 1990, that he met Mr Samuelson as he, Mr Beller, went down the stairs and that all Mr Samuelson said to him was 'I'm Jonathan Samuelson' and that there was no conversation between the two of them about anything. Mr Samuelson's account was that he did see Mr Beller and asked whether Mr Ferriday was involved in the payment to Fenway Properties, to which Mr Beller replied that his client was Fenway Properties and Mr John Baines and that Mr Ferriday was nothing to do with it. I regret to say that I cannot accept Mr Beller's evidence upon this. I find his account implausible in the extreme, whereas Mr Samuelson's, which I accept, is intrinsically probable. I am assisted in this conclusion by the opinion which I hold that Mr Beller may not have had an entirely easy conscience about his ready acceptance of kaleidoscopically variable instructions from Mr Ferriday on 5 and 6 June.
   The £400,000 was paid over from Cowan de Groot's bank account to Beller Needleman's client account on 6 June 1989 to be held to Titmuss Sainer & Webb's order until the receipt in the form agreed between Mr Merrison and Mr Beller was received by Titmuss Sainer & Webb. As already stated, that form provided for execution by Mr Baines and execution under seal by Fenway Properties. Mr Ferriday procured the forging of Mr Baines's signature and used or directed the use of Fenway Properties' seal on the receipt which Mr Beller had passed to him for execution. Mr Beller received that document back on 8 June and received a verbal release on 9 June and a written confirmation of it dated 12 June 1989 from Mr Merrison. On 9 June on the strength of the verbal release he transferred £398,000, retaining £2,000 in respect of his costs as agreed with Mr Ferriday, to Ryco Trust in Jersey. From thence Mr Ferriday procured its transfer to Mr Martin Boston, the solicitor mentioned earlier, to constitute part of a deposit on an intended purchase transaction by Paramount Airways of shares in Owners Abroad Ltd belonging to Eagle. This transaction was never completed and was in all probability in itself a dishonest transaction on the basis of the explanation given by Mr Ferriday in evidence, but that aspect is not relevant to these proceedings. The £398,000 went neither to Fenway Properties nor to Mr Baines but was intercepted by Mr Ferriday for his own purposes. Mr Samuelson, I find, had no knowledge of what Mr Ferriday did with the money until long after the event, nor did he have any knowledge of what Mr Ferriday was intending to do with the money. Mr Baines did not go empty-handed away because I find that Mr Ferriday handed over to him a Jaguar motor car in return for his co-operation in such matters as getting Mr Flint to send letters and providing Fenway Properties notepaper and the company seal. I reject Mr Baines's evidence that the Jaguar car was in return for his management of a company in the Eagle Group during the summer of 1989. Mr Baines was duped by Mr Ferriday into lending his aid to the latter's schemes but Mr Baines was, I find, prepared to do things such as provide Fenway Properties' notepaper and the company seal, which he must have known were being used improperly by Mr Ferriday for his own ends just as he was prepared to mislead HCF Bank into thinking that a deposit had been paid by Fenway Properties when he knew perfectly well it had not. On the view I take, although a victim, he was hardly an innocent one.

748

MR SAMUELSON'S GUARANTEE
   Another transaction with which Mr Beller was involved is one in respect of which I should make findings although on the view I take of the matter it is not relevant to any issue which I have to determine in these proceedings. This is that one week later than 6 June, when the £400,000 payment was made, Mr Samuelson went to Beller Needleman's offices to sign a guarantee of £1m indebtedness of Mr Ferriday to Mr Albert Wade. The origins of this transaction go back to the loan which Mr Ferriday had made to the trustees of the settlement. Mr Ferriday as well as Eagle was becoming increasingly beleaguered financially between May and June 1989 and one possible source of money was the settlement. He had discussions with Mr Samuelson about repayment by the trustees of the settlement. Mr Samuelson was unable to raise any funds sufficient to repay the settlement's indebtedness although he did think he would be in funds in August 1989 because he received an offer on 22 May 1989 from an American firm of attorneys on behalf of Iroquois Brands Ltd to purchase his 7,940,000 shares in Eagle on 22 May 1989 at 17p per share. Mr Samuelson made a counter-offer to sell at 22p per share, viz for £1,746,800, which was accepted by the American attorneys on 30 May. Completion was to be on 21 August 1989 or earlier if the buyer wished. In the event that transaction was not completed but that is not relevant for my purposes. What is relevant is that Mr Samuelson was closely engaged with Mr Ferriday about the proposed sale of Eagle shares on or about 22 May since Mr Ferriday was attempting to negotiate the sale of a substantial holding in Eagle of which Mr Samuelson's holding was part to Iroquois Brands. It is also relevant that although Mr Samuelson was not in a position to cause the trustees of the settlement to repay its indebtedness to Mr Ferriday since that would have involved selling a very large part of the Cowan de Groot holding he did have as he thought the prospect of substantial liquidity in August 1989. Since Mr Ferriday's cash needs were much more urgent than that, other sources of finance were needed and were found in the shape of Mr Albert Wade, chairman of companies with a substantial holding both in Eagle and Cowan de Groot. Mr Wade met Mr Samuelson and Mr Ferriday on 13 June 1989 and agreed to lend Mr Ferriday £1m against Mr Samuelson's guarantee, which the latter agreed to give as a temporary substitute for the repayment of the settlement's indebtedness to Mr Ferriday. The solicitor chosen to prepare the necessary documents was Mr Beller. Mr Ferriday instructed him to prepare documents evidencing a loan of £1m by Mr Wade to Mr Ferriday and a guarantee of repayment by Mr Samuelson. Mr Samuelson called by appointment at Beller Needleman's offices on 14 June 1989 to sign the guarantee. Mr Ferriday was there too and Mr Samuelson signed the guarantee. Mr Beller was I find acting for Mr Ferriday. There was no discussion on that occasion of the transaction regarding the five properties or the £400,000 payment made by Cowan de Groot. The actual form of guarantee then signed by Mr Samuelson was not acceptable to Mr Wade and a slightly altered form of guarantee was sent by Mr Beller to Mr Samuelson to sign and he duly signed it at Mr Beller's offices two or three days later. He also signed a promissory note in support of it at the same time. Both were expressed to be payable on 23 August 1989. There was no provision that Mr Samuelson was to be released if Mr Ferriday's indebtedness from the settlement was repaid by some other source. Mr Ferriday in consideration of Mr Samuelson's guarantee signed a letter dated 13 June 1989 (but I find signed the following day) confirming that he had no claim against Mr Samuelson for any profit share arising out of the Cowan de Groot share profit-sharing agreement and releasing Mr Samuelson from all his obligations in that respect. Mr Ferriday thereby also confirmed that he had no claim financial or otherwise against the749 trustees of the settlement. So far as the first provision, the release of the benefit from the Cowan de Groot share profit-sharing agreement, is concerned that letter was in my view of no effect because Mr Ferriday had no right to any share of profit for reasons given earlier. Mr Ferriday's evidence was that he thought he still had a beneficial interest but held it for Mr Samuelson's children. I accept that that was his view although it was in law incorrect but the practical result on either basis was that Mr Ferriday was not giving up any beneficial interest. The release of the trustees on the other hand was a dealing with his personal right to be repaid the moneys he had advanced to the trustees of the settlement. Here again, as so often was the case in the documents executed in connection with the settlement, the drafting was very defective in that it was only intended that Mr Ferriday should give up his right to be reimbursed if and to the extent that Mr Samuelson's guarantee was enforced against him.
   The intended acquisition by Iroquois Brands of shares in Eagle was accompanied by changes on the board of Eagle. Mr Malcolm Stockdale, the chairman of Iroquois Brands, was appointed acting chief executive of Eagle on 12 June 1989 by a resolution of the board of Eagle which at the same time accepted the resignations of Mr Ferriday and Mr Baker, the finance director. Mr Ferriday had been replaced as chairman of Eagle by Mr Stockdale on 24 or 26 May 1989 but remained chief executive until he resigned as a director on 12 June 1989. The affairs of Eagle were at this stage in a state of crisis. The share quotation had been suspended at 18p a share on 19 May 1989. At a board meeting of Eagle on 13 June 1989, ie after Mr Ferriday's resignation as a director, the programme for disposal of assets was reviewed and it was noted that three MCP Building Supplies Ltd properties, viz the Birmingham, Wolverhampton and Nuneaton properties, had recently been sold to Pinepad for £900,000 but that it was apparent that only £385,869 had been remitted to MCP Building Supplies Ltd. Mr Beaumont, the company secretary, was instructed to write to Ransons and Mr Ferriday for a full and prompt explanation. Mr Whiley stated that he believed that Pinepad also held options to purchase two other properties, as well he might since he himself signed the relevant document on 4 May. At that meeting it was also resolved to ratify the affixation of the Eagle company seal to the transfers to Pinepad of the Birmingham, Wolverhampton and Nuneaton properties, an action which was recorded as having been authorised at short notice on 31 May 1989 by Messrs Stockdale, Smith, Black and Whiley.

POST-COMPLETION DEALINGS
   The subsequent dealings by Pinepad with the properties transferred to it on 1 June 1989 were as follows.

(a) The Nuneaton property
   Contracts for sale at £102,500 were exchanged on 4 July and completion took place on 11 July. This was a transaction which had been in negotiation by Russell Cash on behalf of Cowan de Groot and Pinepad since shortly after the agreement was exchanged on 4 May 1989 and perhaps more significantly there had been offers made by the same purchaser for the Nuneaton property in the sum of £102,500 as long ago as 31 January 1989 which were known of by Mr Smith.

(b) The Wolverhampton property
   This was known to all concerned throughout to be a site ripe for development but without planning permission. A considerable amount of work was done by750 architects on the instructions of Cowan de Groot to put together a scheme for submission for planning permission to be obtained and by Russell Cash to find tenants for the new development if and when constructed. The development proposals generated a great deal of interest. Planning permission was eventually secured on 18 December 1989 and the property was ultimately sold in October 1990 for £425,000.

(c) The Birmingham property
   This was subject to two leases, one in favour of MCP Building Supplies Ltd and the other in favour of Servis Systems. The former were bad tenants, their financial predicaments have been described earlier, and that situation did not improve, so that in August 1989 the company went into administrative receivership. This gave Pinepad, which by this time had changed its name to De Groot Properties Ltd, the opportunity to forfeit the lease, which it did, and that in turn enabled a profitable sale to be effected to the holding company of Servis Systems, the other tenant, at £1,250,000. Completion took place on 30 October 1989 of a contract exchanged on 6 October 1989.
   The Newport and Bristol properties, which were the subject of options, were not the subject of an exercise of the option before 30 March 1990 when Eagle, by letters addressed to Cowan de Groot and Pinepad, claimed to rescind the agreement. As mentioned at the outset of this judgment Pinepad served notice on Eagle on 20 April 1990 claiming to exercise the option to purchase the Newport property for £250,000, the figure in the agreement. Offers in the region of £410,000 had previously been received for it by Russell Cash. On 25 April 1990 the writ in the action by Pinepad to enforce the options in the agreement or to have them declared valid was issued. After the date of the writ, the Newport property was sold in June 1990 for £408,000 by agreement between the parties and the net proceeds of sale over and above the £250,000 option price which was on any view payable to Eagle, just under £151,000, abide the result of this action. The Bristol property remains unsold.

VALUATION EVIDENCE
   The expert valuers called on either side agree the open market and forced sale values of the five properties as at 4 May 1989 as follows:

   
   They both use the expressions 'open market' and 'forced sale' in the sense in which they are defined by the Royal Institution of Chartered Surveyors. The former is the best price at which an interest in the property might reasonably be expected to be sold at the date of the valuation assuming (a) a willing seller, (b) a reasonable period in which to negotiate the sale, taking into account the nature of the property and the state of the market, (c) that values will remain static in that period, (d) that the property will be fully exposed to the open market, (e) that no account will be taken of any additional bid by a purchaser with a special interest.

751

   Forced sale is defined as the open market value as defined above with a proviso that a time limit for completion has been imposed that cannot be regarded as a reasonable period, and both valuers took the time thus abridged as within four months from receiving instructions to achieve a sale.
   Thus far the experts on either side were on solid ground with comparables and other data upon which to base their opinion, which coincided and which I naturally accept. They were also asked for their opinions on maximum prices for the five properties to be offered to an already identified purchaser to the exclusion of others to be as certain as possible of achieving a sale subject to conditions and time constraints comparable to those imposed by Eagle in its approach to Cowan de Groot in the week beginning 24 April 1989, viz an exchange of contracts within 48 hours, a £500,000 deposit to be paid on exchange to agents for the vendor and completion on 1 June 1989. In addition their views were sought on the effect on the valuation of the assumed hypothesis that Eagle had entered into a binding contract with a third party and required the purchaser to procure a release from the contract by agreeing to share profits on resale equally with the purchaser. On these matters the two experts differed and this was hardly surprising because the sort of transaction they were asked to envisage does not in fact occur in practice so that they had no comparables or other reliable data upon which to underpin their valuation opinions. In effect therefore their views were more in the nature of educated guesses than valuations properly so called and were arrived at by applying what each took to be the appropriate discounts to be applied to their agreed open market and forced sale valuations according to the additional hypothetical facts they were asked to allow for. Their views were in my judgment of limited value on these discounts. The valuation given by Mr Bingham for Cowan de Groot on the footing of the stepped profit-sharing agreement contained in Mr Samuelson's first draft of the proposed profit-sharing agreement but assuming that that arrangement would not constrain Cowan de Groot from dealing with the properties in accordance with good estate management was £1,402,000. The comparable valuation given by Mr Macey for Eagle was £1,860,000.
   My conclusion on the issue of valuation of the five properties is that the mode and terms of sale chosen by Eagle in the approach made by Mr Smith to Cowan de Groot were grossly depreciatory of the price which could be expected and, as I have already indicated, in my judgment Mr Ferriday and Mr Smith, who were responsible for fixing that mode and those terms of sale, were recklessly negligent and in breach of duty to Eagle in offering to sell and selling on those terms. On the other hand I am firmly of opinion that given that mode of sale and those terms of sale that were adopted the actual figure of £1,500,000 was not a figure which was so far below what a purchaser on those terms could be expected to pay as of itself to indicate to the prospective purchaser that dishonesty or even negligence was involved. In other words the shortfall between what Eagle should have realistically achieved as a price and what it did achieve was entirely attributable to the mode and terms of sale and not to an undervalue in the sense that the property was being offered for sale at a figure which did not reflect both the open market value in the sense used by the expert valuers and the mode and the terms of sale.

EAGLE'S CLAIMS
   Eagle's claims against Cowan de Groot and Pinepad can be summarised as follows.
   (a) Cowan de Groot or Pinepad is claimed to be liable as a constructive trustee752 of the Bristol property and of the proceeds of sale of the five properties other than the Bristol property both on the basis of knowing receipt of trust property and, as regards both Cowan de Groot and Pinepad, of knowing assistance in a fraudulent breach of fiduciary duty. The claim concerning knowing receipt involves identifying the recipient of the relevant property and Eagle's primary claim is that Cowan de Groot is the recipient on the alternative bases, first, that Pinepad acted as its agent and, secondly, that as a matter of law this is a case where it would be proper to lift the corporate veil and attach the constructive trust to the holding company of Pinepad notwithstanding that the latter was the recipient of the relevant property.
   (b) The breaches of fiduciary duty upon which the constructive trust claims are based are in summary as follows: (1) that Mr Ferriday and Mr Smith deliberately or recklessly brought about the sale of the five properties at a gross undervalue; (2) that Mr Ferriday and Mr Smith deliberately procured the sale of the five properties at an undervalue as part of a fraudulent scheme to the detriment of Eagle, the principal element in that scheme being identified as the purported joint venture agreement with Fenway Properties, which Eagle claims was a sham intended to benefit Mr Smith and Mr Ferriday, and a second element of the scheme being identified as the payment by Cowan de Groot of £400,000 to Beller Needleman and thence to Mr Ferriday's direction; (3) that Mr Ferriday had an interest in Cowan de Groot shares held or intended to be held on the trusts of the settlement and in the transaction consisting of the fraudulent scheme involving Fenway Properties and was under a duty both under general equitable principles and under s 317 of the Companies Act 1985 to disclose those interests to Eagle or to the board of Eagle, which he failed to do.
   (c) Eagle claims that Mr Samuelson knew that Mr Ferriday and Mr Smith were in fraudulent breach of their fiduciary duty to Eagle in that (1) Mr Samuelson knew of the undervalue and knew that Mr Ferriday and Mr Smith knew or believed the five properties were worth substantially more than £1.5m, (2) Mr Samuelson knew that the terms upon which and the manner in which the agreement was made, notably the size of the deposit, the speed of the exchange of contracts and the lack of proper marketing, were such as to indicate breach of fiduciary duty, (3) Mr Samuelson was aware of suspicious circumstances surrounding the £400,000 payment and its negotiation, (4) Mr Samuelson knew that Mr Ferriday had failed to disclose his interest as mentioned in (b)(3) above to Eagle and (5) Mr Samuelson failed to make obvious inquiries regarding Fenway Properties and its alleged contract with Eagle.
   (d) In the alternative if Mr Samuelson did not have the knowledge claimed by Eagle of Mr Ferriday and Mr Smith's breaches of fiduciary duty it is claimed that he wilfully shut his eyes to the obvious or wilfully and recklessly failed to make the inquiries which an honest and reasonable man would have made.
   (e) In the further alternative it is claimed that Pinepad or Cowan de Groot had knowledge of circumstances which would have indicated to an honest and reasonable man that Mr Smith or Mr Ferriday or both were likely to have been acting fraudulently and in breach of their fiduciary duties or had knowledge of facts which would have put an honest and reasonable man on inquiry as to whether Mr Smith or Mr Ferriday or both were acting fraudulently or in breach of fiduciary duty.
   (f) It is said that the agreement was in the circumstances voidable, so that the options are not exercisable since the agreement was rescinded so far as it remained executory when the letters of 30 March 1990 were sent claiming rescission.
   (g) Finally Eagle advanced a claim, independently of the constructive trust753 claims, to be able to trace the property of Eagle into the hands of Pinepad or Cowan de Groot on the footing that neither of the latter was in the circumstances a bona fide purchaser for value without notice of breach of fiduciary duty by directors of Eagle.

CONSTRUCTIVE TRUST
   There was a substantial measure of agreement between the parties regarding the applicable law on constructive trusts, more especially concerning cases of knowing assistance. It was submitted on behalf of Eagle, and accepted on behalf of Cowan de Groot, that the ingredients for a constructive trust on the basis of knowing assistance are as follows: (1) a trust or other fiduciary relationship, (2) a dishonest design on the part of the trustee or fiduciary (3) relating to misapplication of trust property, (4) actual knowledge of that design in categories (i), (ii) and (iii) of the five mental states set out in the judgment of Peter Gibson J in Baden v Sociˇtˇ Gˇnˇrale pour Favoriser le Dˇveloppement du Commerce et de l'Industrie en France SA [1992] 4 All ER 161 at 235 as follows:

and (5) assistance in the implementation of the design.
   It is not necessary in view of the agreement between the parties on this point to cite further authority beyond the textbooks, Snell's Equity (29th edn, 1980) pp 193-194 and Underhill and Hayton on the Law Relating to Trusts and Trustees (14th edn, 1987) p 355 and the cases there cited.
   In relation to knowing receipt there was not the same degree of unanimity between the parties, save that they were both agreed that the subject of the type of knowledge which is required was one of considerable academic and judicial controversy and both parties accepted that it was not an essential that the breach of trust or of fiduciary duty should be fraudulent. Upon the doubtful question of the type of knowledge required, it was submitted for Eagle that the knowledge required for the imposition of a constructive trust in the case of a purchaser for value of trust property conveyed in breach of trust or of fiduciary duty was actual or constructive knowledge of the breach of trust. For Cowan de Groot and Pinepad it was submitted that want of probity on the part of the constructive trustee was an essential element and that the elements of carelessness involved in categories (iv) and (v) of the Baden classification were not sufficient for this purpose. In particular it was submitted that unless it could be shown that Cowan de Groot or Pinepad by their directors either knew or deliberately shut their eyes to a relevant breach of fiduciary duty or wilfully and recklessly failed to make such inquiries as an honest and reasonable man would have made there would be no such requisite want of probity established. It was further submitted that for there to be such a wilful and reckless failure to make such inquiries as an honest and reasonable man would make it would need to be established that the directors of Cowan de Groot or Pinepad believed that the relevant breach of fiduciary duty was a probability rather than a possibility.
   The authorities relied upon on behalf of Eagle in support of the proposition that constructive notice without lack of good faith suffices for the purpose of knowing receipt are as follows. In Nelson v Larholt [1947] 2 All ER 751, [1948] 7541 KB 339 an express trustee in the shape of an executor of a will drew cheques on the executors' account signing 'G. A. Potts, Executor of William Burns, dec.' for his own purposes in favour of a bookmaker whose good faith in receiving and collecting on the cheques was not impugned nor was it suggested that the cheques were received other than for value. Denning J held that the executor was fraudulent (that was not in doubt) and that the bookmaker was liable to repay. It is therefore authority for the proposition that the requisite notice in a knowing receipt case where a third party recipient gives value can be based on an honest but negligent failure to make the inquiries which an honest and reasonable man would have made. But it is to be observed that the notice of the trust could hardly have been clearer and as Denning J said ([1947] 2 All ER 751 at 753, [1948] 1 KB 339 at 344): 'I am satisfied that the defendant had notice of the want of authority.' He applied an objective test of what a reasonable and honest man should also have known and applying that test held that the defendant had the requisite notice.
   In Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 the claim was that a company called City Industrial Finance Ltd (referred to as 'City') was a constructive trustee in a sum of money which it received in the course of a transaction which was held to be illegal as infringing the prohibition against a company giving financial assistance for the purchase of its shares contained in s 54 of the Companies Act 1948. Buckley LJ said (at 405):

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Goff LJ said (at 410):

His conclusion on the question whether it did is stated (at 412):

Illegality no doubt stands apart so far as notice of breach of trust is concerned but Goff LJ did expressly include knowledge that should have been acquired from known facts and that again supports an objective test.
   Similarly in Agip (Africa) Ltd v Jackson [1992] 4 All ER 385 at 403, [1990] Ch 265 at 291 Millett J described the class of constructive trust where a person receives for his own benefit trust property transferred to him in breach of trust as follows:

But that is a quite general statement and has to be read in the context of the passage where Millett J in terms declined to express an opinion on the question whether constructive notice was sufficient in a 'knowing receipt' case (see [1992] 4 All ER 385 at 405, [1990] Ch 265 at 293). I do not therefore derive much guidance on this particular issue from that decision, which was concerned with knowing assistance.
   Lawson J in International Sales and Agencies Ltd v Marcus [1982] 3 All ER 551 at 558 adopted an objective test of what the recipient ought to know, saying:

   In fact Lawson J found there was actual knowledge of the breach of trust, so the statement of principle was obiter.
   Reliance was also placed on Lord Herschell LC's and Lord Shand's speeches in Thomson v Clydesdale Bank Ltd [1893] AC 282, [1891-4] All ER Rep 1169, where the House of Lords held that a bank was entitled to retain sums paid by a broker into his overdrawn account with the bank by cheque when the bank knew that the cheque was the proceeds of the sale of shares but did not know and made no inquiry whether the payment in was of moneys in the broker's hands as agent or as principal. That decision does not assist Eagle in my view. Lord Herschell LC said ([1893] AC 282 at 289, [1891-4] All ER Rep 1169 at 1171):

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True it is that earlier in his speech he said ([1893] AC 282 at 287-288, [1891-4] All ER Rep 1169 at 1171):

Even this statement while admitting of cases where an objective standard regarding knowledge is justified is not authority for the proposition that there is a duty to inquire. In similar vein Lord Shand said ([1893] AC 282 at 293, [1891-4] All ER Rep 1169 at 1173):

Finally Lord Watson, alone of their Lordships, in terms required bad faith for a constructive trusteeship to be imposed, saying ([1893] AC 282 at 290, [1891-4] All ER Rep 1169 at 1172):

   Finally reliance was placed upon Westpac Banking Corp v Savin [1985] 2 NZLR 41, where a bank was held to have constructive notice that sums paid into the overdrawn trading account of a company, which the bank was aware was in the habit of selling boats as agents for third parties and paying the proceeds into its trading account, were thus paid in without authority, so that the bank was accountable as a constructive trustee. There was in that case actual knowledge found on the part of the bank that there was a three chances in four odds that the payment in was of a third party's, as opposed to the company's own, moneys and that a responsible officer was conscious that the moneys might not be freely dealt with by the company as its moneys. Putting it at its lowest that appears to be a case where there was a strong probability rather than a mere possibility that the payment in question was in breach of fiduciary duty. Richardson J, having set out the five categories of circumstances which can be treated as amounting to the requisite knowledge in the Baden classification, said (at 52-53):

Sir Clifford Richmond quoted with approval the passages cited above from Buckley and Goff LJJ in Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 at 405, 410 and adopted the view that constructive as well as actual notice of the relevant trust can suffice in a knowing receipt case (see [1985] 2 NZLR 41 at 69-70). His conclusion was stated as follows ([1985] 2 NZLR 41 at 71):

From this he agreed in holding the bank liable as constructive trustee.
   There is therefore a substantial body of authority in favour of the proposition that constructive notice based on what a reasonable man would have concluded though falling short of want of probity on the part of the person charged as a constructive trustee may suffice in a knowing receipt case.
   The other view is in my judgment most clearly expressed in Megarry V-C's judgment in Re Montagu's Settlement Trusts, Duke of Manchester v National Westminster Bank Ltd (1985) [1992] 4 All ER 308 at 329-330, [1987] Ch 264 at 285, where he said:

This was submitted on behalf of Cowan de Groot and Pinepad to be an accurate summary. It has been adopted by Steyn J in Barclays Bank plc v Quincecare Ltd (1988) [1992] 4 All ER 363 and by Alliott J in Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 331, [1987] 1 WLR 987, but not applied by Vinelott J, although on other grounds the claim to a constructive trust failed, in Eagle Trust plc v SBC Securities Ltd [1992] 4 All ER 488. By that decision Vinelott J struck out as bound to fail an action by Eagle Trust against the underwriters of the cash alternative and the rights issue in connection with the take-over by Eagle of Samuelson Group mentioned earlier in this judgment. The particular facts are not directly relevant to this case, but the statement of principle is. It is ([1992] 4 All ER 488 at 509):

   In my judgment the position of a person dealing as purchaser with a vendor company's directors on a sale is as regards potential breaches of fiduciary duty by the directors of the vendor company in many ways similar to that of a person to whom a payment is made in discharge of an obligation in that they are typical commercial transactions. As Vinelott J observed in Eagle Trust plc v SBC Securities Ltd [1992] 4 All ER 488 at 507:

Vinelott J quoted Lindley LJ in Manchester Trust v Furness [1895] 2 QB 539 at 545 and Thomson v Clydesdale Bank Ltd [1893] AC 282, [1891-4] All ER Rep 1169 in support. Neither the fraudulent scheme that is relied upon by Eagle in the present759 case nor the claimed sale at a gross undervalue in my judgment constitute the sort of incumbrance with which conveyancing investigations of title are concerned. In relation to such dealings it would be inappropriate to introduce the doctrine of constructive notice. I prefer in this context as the proper test to be applied the question whether knowledge that the directors of Eagle were deliberately selling at a gross undervalue can reasonably be imputed to Mr Samuelson; it follows from this view that I do not accept the submission made to me that in the case of a knowing receipt of trust property it is not necessary to establish at least in the case of a bona fide purchaser for value of trust property that the recipient had actual knowledge in categories (i), (ii) or (iii) in the Baden case of the breach of trust. I suspect that the inclusion of the words 'bona fide' in that submission was not intended because their presence would seem to negative any possibility even of constructive knowledge, but apart from that I consider that the relegation of a purchaser for value to a category more, rather than less, exposed to claims of constructive trusteeship to be misconceived. The volunteer, such as the tenth Duke of Manchester in the Montagu case, is not a person who is entering into an arm's length contractual bargaining transaction and the courts applying equitable doctrines would be more, rather than less, likely to impute knowledge to a volunteer than to a contracting purchaser, more especially when the subject of inquiry on the latter's part, such as the question whether the sale to him is at a deliberate undervalue, is a matter in which his commercial interest is diametrically opposed to that of the vendor. On the other hand I do not accept what is implied in the submissions on Cowan de Groot's behalf that all that was involved was negligence on the part of Eagle's directors. Eagle's case is put squarely on the basis of fraud in relation to the fraudulent design involving Fenway Properties and reckless and deliberate conduct in the sale at an undervalue. The latter can constitute a breach of fiduciary duty and is in my judgment capable in law of constituting such a breach as will ground a claim to a constructive trust if the requisite knowledge in the third party is established.
   So far as the fraudulent design involving Fenway Properties is concerned, I am satisfied that Mr Samuelson had no relevant knowledge of any of the five categories in the Baden classification and I find the constructive trust claim on this basis fails.
   So far as the claim based on a reckless and deliberate sale at an undervalue is concerned the position is not so clear-cut.
   There is not a single figure at which one can say of any given property that that is its value so that a sale below that figure is a sale at an undervalue. A fortiori one cannot postulate of all sales below the open market value of a property that directors of a company making such a sale are guilty of a breach of fiduciary duty. Account has to be taken of the terms and mode of sale in assessing the question whether there was a breach of fiduciary duty in any given case where directors of a company cause a company to sell its property. My conclusion has already been stated that there was a breach of fiduciary duty involved in the proposed sale of the five properties in the way in which the negotiations for the sale of Cowan de Groot were conducted and the switch to an option transaction at the same figure in relation to two properties as was proposed for a sale makes no difference to that conclusion. Mr Ferriday was guilty of a reckless disregard of his duties towards Eagle in his single-minded concentration on laying Eagle's hands on £500,000 to the exclusion of all other considerations. Mr Smith was also guilty of breach of fiduciary duty in his choice of Fenway Properties as sole potential purchasers and in his dishonest activities in permitting that proposed sale.
   So far as Mr Samuelson's knowledge of these matters is concerned, I accept that760 he knew that Eagle was selling at less than the open market value of the five properties in the sense in which the expert witnesses use that expression and indeed in a less refined sense of the figure which the properties might be expected to fetch if properly marketed. He also thought that Eagle could not afford the time to market the properties properly and were looking for a very quick sale with a wholly exceptionally large deposit which necessarily involved a drop in the price. In a situation such as that it is not in my view appropriate for the court to be astute to find circumstances which could indicate knowledge by a purchaser of breach of fiduciary duty on the part of directors of a vendor company. The duty of directors of a purchasing company is to buy as cheaply as they can in the light of the mode and terms of the proposed sale and it would in my judgment be a slippery slope upon which to embark to impose upon directors of a company a positive duty to make inquiries into the reasons for an offer being made to their company at what appears to be a bargain price. The line should in my judgment be drawn at the point where the figure in question, regard being had not only to the open market value but also to the terms and mode of sale, is indicative of dishonesty on the part of the directors of a vendor company. In my judgment that conclusion cannot properly be reached here notwithstanding the fact that Mr Samuelson did have some material, notably in the shape of the valuation produced at the meeting at Russell Cash, from which he could see that at least with regard to some of the five properties Eagle had had a valuation which was significantly higher than the figure which Eagle was asking Cowan de Groot to pay in respect of that individual property. The figure at which the property was sold was only part of the overall picture which it was necessary to have before concluding that there was breach of fiduciary duty. Had there been a genuine need for a sale on the depreciatory terms on which the sale was affected there would have been no breach of fiduciary duty. Mr Samuelson did not in my judgment have the knowledge in any of the categories (i), (ii) or (iii) of the Baden classification of the facts that constituted the breach of fiduciary duty in the sale at the figure and on the terms on which it was affected. That is fatal to Eagle's claim on the basis of a sale at an undervalue on the view which I take of the test to be applied to a purchase in a commercial transaction from a company vendor. If, contrary to my view it is right to have regard to the categories (iv) and (v) of the Baden classification, I would still conclude that Mr Samuelson should not be treated as having the requisite knowledge. I have stated my conclusion in terms of the classification of circumstances in Baden principally because that is the way the case was pleaded and argued by the parties. I share the reservations expressed by Millett J in Agip (Africa) Ltd v Jackson [1992] 4 All ER 385 at 405, [1990] Ch 265 at 293 regarding over refinement in making the distinctions implicit in that classification or a too ready assumption that categories (iv) and (v) are necessarily cases of constructive notice only. In my judgment it may well be that the underlying broad principle which runs through the authorities regarding commercial transactions is that the court will impute knowledge, on the basis of what a reasonable person would have learnt, to a person who is guilty of commercially unacceptable conduct in the particular context involved. The banker in Westpac Banking Corp v Savin [1985] 2 NZLR 41 who took a three to one chance regarding the source of the sums paid into the debtor's account was, but the banker in Thomson v Clydesdale Bank Ltd was not, guilty of such conduct. Although I regard much of Mr Samuelson's conduct in matters which are peripheral to this case such as Perranporth airfield as quite unacceptable, in relation to the central issue regarding knowledge of a sale at a deliberate or reckless undervalue I acquit him of it.

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WHO WAS THE RECIPIENT?
   The conclusion thus stated renders it unnecessary to identify the recipient of the Bristol property and of the proceeds of sale of the five properties other than the Bristol property, but the point was fully argued and I will state my conclusions shortly. In my view the recipient was Pinepad which was not acting as agent for Cowan de Groot. Had dishonesty or want of probity been established there would have been no difficulty in lifting the corporate veil but in the absence of dishonesty or want of probity in the relevant transaction there is in my view no justification for regarding the legal nature of the transaction as different from what a strict analysis produces.

CONFLICT OF INTEREST
   The other head of breach of Mr Ferriday's duty as a director relied upon by Eagle is based on the claim that Mr Ferriday was interested in 3.8 million shares in Cowan de Groot and in the further 400,000 shares registered in the name of Hambros (Jersey Nominees) Ltd and that he had an interest in the transaction in relation to the fraudulent scheme involving Fenway Properties. It is further claimed that Mr Ferriday failed to disclose his interest to the board of Eagle and that he placed himself in a position where his interest and his duty to Eagle conflicted.
   The duties of disclosure relied upon are in part statutory and in part under general equitable principles. The statutory provision is s 317 of the Companies Act 1985, sub-ss (1) and (2) whereof read as follows:

I omit s 317(3), which provides for a general notice of interest to be valid to satisfy the section, because there is no suggestion that this was complied with. It is in my judgment clear on the authority of Hely-Hutchinson v Brayhead Ltd [1967] 3 All ER 98, [1968] 1 QB 549 as approved by Lord Goff in Guinness plc v Saunders [1990] 1 All ER 652 at 664, [1990] 2 AC 663 at 697 that the statutory duty of disclosure under s 317 of the Companies Act 1985 or under its predecessor, s 199 of the Companies Act 1948, does not of itself affect the validity of a contract. That however leaves the ordinary principles of law and equity which, unless excluded by relevant articles of association, have the result that, if a director enters into or is interested in a contract, the contract may be voidable at the instance of the company (see per Lord Goff in Guinness plc v Saunders [1990] 1 All ER 652 at 664, [1990] 2 AC 663 at 697, and Transvaal Lands Co v New Belgium (Transvaal) Land and Development Co [1914] 2 Ch 488, [1914-15] All ER Rep 987). It is a condition of such relief that the parties can be restored to their original positions, which in the present case would be possible as regards the options granted by the agreement but not as regards the sales of the Wolverhampton, Birmingham and Nuneaton762 properties, which were completed and the properties sold on. Eagle's claims under this head are therefore limited to avoidance of the options over the Bristol and Newport properties.
   The relevant article in Eagle's articles of association is art 118(a) and (b), which reads as follows:

   In my judgment the proviso to art 118(b) only renders the provisions of the general law mentioned above inoperative where there is a positive compliance with the terms of that proviso, so that if there is in fact no meeting of the board at which the question of entering into the contract is taken into consideration the general law operates and the contract may be liable to be avoided. I reject the argument advanced on behalf of Cowan de Groot that this article produces a different result from the differently worded art 99 that was involved in Hely-Hutchinson v Brayhead Ltd [1967] 3 All ER 98, [1968] 1 QB 549. That read as follows:

Of that article Lord Denning MR said ([1967] 3 All ER 98 at 103, [1968] 1 QB 549 at 585):

In art 118(b) of Eagle there is no explicit reference to the statutory requirement of s 317 but the scheme of the article is in my judgment similar in requiring affirmative compliance with the disclosure provisions before freeing the transaction from the general rules of law and equity.
   The only board meetings of Eagle that can be relevant to these issues are those held on 22 March and 13 June 1989, about which I have made findings earlier. The former was before any question arose of a sale to Cowan de Groot and there can be no question of Mr Ferriday being under a duty at that stage to disclose any relevant interest in Cowan de Groot or a projected transaction with it. The latter was after completion of the sale of the three properties agreed to be sold by the agreement and even longer after the grant of the option over the Newport and Bristol properties. Reliance was placed on the earlier meeting on 22 March on behalf of Cowan de Groot and Pinepad in that it was argued that there was Eagle board approval for proceeding with various property sales which included the then projected sale to Fenway Properties at £1.5m of the five properties and that this amounted to an effective resolution for sale of the five properties at that price to anyone willing to buy, so that the identity of the purchaser became irrelevant so long as that purchaser was willing to pay £1.5m, thus effectively absolving any director of Eagle from his duty of disclosure if he or a company in which he was interested became such a purchaser. This point was not pleaded by Cowan de Groot and Pinepad in their amended defence to the counterclaim and I do not regard it as open to them. In any event I am not satisfied that Mr Ferriday was thereby absolved from his duty to declare an interest in the light of the highly abnormal transaction that was in fact entered into and which had a very significant impact on the price recoverable by Eagle. If and to the extent that there was an authorisation for a sale at £1.5m it was in my view implicit that it was for a sale on normal commercial terms and not on terms such as severely to depress the price commercially recoverable.
   I turn therefore to the question whether Mr Ferriday did have in interest that required disclosure.
   So far as the shares in Cowan de Groot are concerned the 400,000 share parcel can clearly be disregarded because it had been realised by a mortgagee well before the date of the agreement. So far as the 3.8 million shares are concerned Mr Ferriday was in my view a bare trustee of the legal interest therein without any duties to perform. Indeed it was only an accident that he remained the legal owner. Although it is clear on the authority of Transvaal Lands Co v New Belgium 764(Transvaal) Land and Development Co [1914] 2 Ch 488, [1914-15] All ER Rep 987 that a conflict between a duty as trustee for others on the one hand and a duty as a director on the other constitutes just as significant a conflict of interest as does a conflict between a personal interest and a duty as a director, that principle only applies where the trusteeship carries duties, which a bare trusteeship does not. The bare legal title which Mr Ferriday accidentally retained is not in my judgment relevant because it gave rise to no conflict. The second interest principally relied upon by Eagle was Mr Ferriday's interest in the fraudulent scheme connected with Fenway Properties. In my judgment Mr Potts QC for Cowan de Groot was correct in submitting that an intent to defraud a company does not constitute an interest such that the prospectively fraudulent director is under an obligation to disclose but the point is in my view academic because either the other contracting party has actual knowledge or is treated as having knowledge of the prospective fraud or it is not. If it is, then the transaction can be avoided as against it because of its knowledge of the fraud. If it is not, then the transaction cannot be avoided against it. On the view of the facts which I have taken, Cowan de Groot and Pinepad had no knowledge either through Mr Samuelson or otherwise of Mr Ferriday's fraudulent design through Fenway Properties and, even if Mr Ferriday was under an obligation to disclose his prospective fraudulent interest to the board of Eagle, his failure to do so cannot affect Cowan de Groot or Pinepad. There is finally, under the question whether Mr Ferriday had an interest that required disclosure, the claim by Eagle that he had such an interest in that transaction contained in the agreement in that he was personally interested in Cowan de Groot or its subsidiary Pinepad obtaining a beneficial bargain because his debtors', the trustees of the settlement's, only significant asset was their shareholding in Cowan de Groot and his right to be repaid was tied to the sale of that shareholding at a profit. Moreover his liability in respect of interest owing to Lloyds Bank would be reduced to the extent to which dividends were declared and paid by Cowan de Groot. In addition the Cowan de Groot share profit-sharing agreement was relied upon by Eagle as constituting a relevant interest of Mr Ferriday in Cowan de Groot. As regards the latter I have earlier expressed the view that it was of no legal effect and, even assuming, as seems likely, that Mr Ferriday did not appreciate this and thought he had rights under it, albeit on the basis that he held them for the benefit of Mr Samuelson's children, the only significant question is whether he did indeed have such an interest. A director who erroneously supposes he has an interest is under no duty to declare that erroneous supposition. I therefore disregard the Cowan de Groot share profit-sharing agreement.
   On the other hand in my judgment Eagle is on firmer ground in identifying the transaction enshrined in the agreement as an agreement in which Mr Ferriday had an interest because of the several ways which I have mentioned in which it was to his interest that Cowan de Groot should prosper both on a capital and an income basis. It was submitted for Cowan de Groot that there is no authority suggesting that a director of a vendor company has a disclosable interest in a contract with a purchasing company because he is a creditor of that company and that the same conclusion follows a fortiori if the director is a creditor not of the purchasing company but of shareholders of the purchasing company. I would accept that in the great majority of cases there would be no disclosable interest in such a situation because the link between the director of the vendor company and the purchasing company would be too tenuous to justify its treatment as constituting an interest. But regard has to be had to the particular circumstances as well as to the correct categorisation of the nature of the director's legal765 relationship. If that be right I consider that regard should be had to what in my judgment is the fact that Mr Ferriday had a greater practical interest in the prosperity of Cowan de Groot than he would have had had he been, say, a 1% shareholder. His chances of recovering a very substantial sum of money was closely linked to the potential successful sale of the trustees' only settled asset of any significance, shares in Cowan de Groot. De facto he had every ground for wanting to see Cowan de Groot prosper.
   However, I need not further pursue this issue because I have also reached the conclusion that it would not be correct to treat Mr Samuelson as having notice of Mr Ferriday's failure to disclose his interest to the board of Eagle, assuming for this purpose that he had such a disclosable interest. In my view the rule in Royal British Bank v Turquand (1856) 6 E & B 327, [1843-60] All ER Rep 435 affords a defence to Cowan de Groot. The rule was stated with approval in the House of Lords in Morris v Kanssen [1946] 1 All ER 586 at 592, [1946] AC 459 at 474 by Lord Simonds as follows:

For present purposes I assume a duty on Mr Ferriday to disclose his interest at an Eagle board meeting. That he did not so disclose it and that Mr Samuelson knew of the interest are plain. Mr Samuelson is to be taken to know the contents of the articles of association of Eagle and a fortiori of the general law regarding the need for disclosure. He is therefore to be taken to be aware of the need for Mr Ferriday to declare his interest. He did not in fact have any knowledge whether or not Mr Ferriday had thus declared his interest and the issue is whether he was put on inquiry as to this, because it is well settled that ignorance by itself does not entitle an outsider to rely on the rule in Royal British Bank v Turquand. As Slade LJ put it in Rolled Steel Products (Holdings) Ltd v British Steel Corp [1985]3 All ER 52 at 77, [1986] Ch 246 at 284:

In the Rolled Steel Products case the Court of Appeal held that the defence based on Royal British Bank v Turquand should not have been allowed to be pleaded at a very late stage because that prevented the plaintiffs showing by cross-examination that there was notice of the relevant irregularity. The latter was that the relevant meeting was attended by only two directors, one of whom had a personal interest which under the articles disqualified him from voting unless he had declared his personal interest, which he had not, and without his vote there was no quorum. What the plaintiff was deprived of the opportunity of proving by the very late amendment was not that the director with an interest needed to declare it, but that the defendant knew he had not done so or was put on inquiry whether he had. This is clear from Slade LJ's reasoning where he said ([1985] 3 All ER 52 at 78-79, [1986] Ch 246 at 286):

   In my judgment Mr Samuelson and through him Cowan de Groot were not put on inquiry whether or not Mr Ferriday's interest had been disclosed. It was submitted for Eagle that Mr Samuelson knew as a fact that Mr Ferriday had not disclosed his interest to the board of Eagle. That plea fails on the facts. Mr Samuelson in my judgment had no knowledge of what passed between Mr Ferriday and the board of Eagle. The fact that Mr Ferriday was not a person to trouble his head over-much by what he would have regarded as lawyers' technicalities and referred to as 'paperwork' and that Mr Samuelson knew a great deal about Mr Ferriday's character and habits, all of which I accept, is in my judgment not nearly enough to put Mr Samuelson or Cowan de Groot on inquiry. Both sides were represented by separate solicitors and an inquiry by Titmuss Sainer & Webb as to disclosures to Eagle's board by directors of Eagle of their interest would in my view have been most unusual and very probably not replied to as not being matter for inquiry. It is to be borne in mind that in the Rolled Steel Products case the relevant resolution had actually been prepared by solicitors for the claimed outsider, potentially a most material factor.

TRACING
   Finally so far as the action and counterclaim are concerned Eagle relies on a claim to trace the proceeds of the four properties which have now been sold, ie all the five properties save the Bristol property. This is put on the basis independently of the claims to constructive trusts as a right exercisable against Pinepad or Cowan de Groot on the footing that they are not bona fide purchasers for value without notice of Eagle's equity, the equity in question being the right of recovery because of the breach of fiduciary duty by Eagle directors of which it is said there was constructive if not actual notice. In my judgment this fails on the facts, but even if it did not there can in my view be no independent right to trace against a purchaser for value under a contract for sale where the contract is not liable to be set aside and there is no valid claim to impose a constructive trust. I accept Mr Potts's submission for Cowan de Groot that tracing is not an independent cause of action.
   Accordingly in my judgment the counterclaim by Eagle falls to be dismissed and I propose to grant the declaration sought in the statement of claim that the notice exercising the option over the Newport property was valid and effective according to its terms.

COUNTERCLAIM TO COUNTERCLAIM
   Pinepad and Cowan de Groot counterclaim that Mr Smith acting on behalf of Eagle fraudulently misrepresented to Cowan de Groot that Fenway Properties was party to an agreement with Eagle to purchase the five properties and that Cowan de Groot and subsequently Pinepad would have to reach an accommodation with Fenway Properties to be able to purchase the five properties free from any claim by Fenway Properties and that in reliance on those misrepresentations £400,000 was paid to Fenway Properties on 9 June 1989.
   I have found that Mr Smith did indeed falsely represent to Mr Samuelson that Fenway Properties had exchanged contracts with Eagle and paid a deposit. It was submitted for Eagle that Mr Smith was not acting in the course of his employment with Eagle in so doing. In my view Mr Smith was acting within his ostensible authority as Eagle's managing director. It is of course clear that he did not have767 actual authority to make a fraudulent misrepresentation. Mr Smith in approaching Mr Samuelson on behalf of Cowan de Groot was seeking to put a sale proposition on behalf of Eagle to Cowan de Groot. Had it been the case that Eagle had exchanged contracts with Fenway Properties it would have been entirely proper for Mr Smith to tell Mr Samuelson of the existence of the prior contract. Indeed it would have been improper not to do so. I appreciate that Mr Smith also acted as intermediary for Fenway Properties or pretended to do so and that in that respect Cowan de Groot through Mr Samuelson was on notice that he was not acting on Eagle's behalf, but that does not in my view detract from the fact that it was as a director of Eagle that he made the offer to sell to Cowan de Groot and stated that Eagle had already got a contract with Fenway Properties.
   Eagle also claims that Cowan de Groot is not entitled to rely upon Mr Smith's ostensible authority because Mr Samuelson knew Mr Smith's statement was fraudulent (that fails on the facts) or because Cowan de Groot was put on inquiry whether or not Fenway Properties had a legitimate claim to share profits with Cowan de Groot. I have effectively rejected the latter submission on the facts in that I do not consider that Cowan de Groot was under a positive duty to investigate the veracity of Mr Smith's representation. In my judgment it does not lie in the mouth of a party which has through its officer made a fraudulent misrepresentation to say that a better investigation would have revealed the falsity of the representation.
   I find that Mr Samuelson did believe and rely on the representation. That he passed it on to the other members of the board of Cowan de Groot is clear and they plainly relied on Mr Smith's representation, which was passed on to them without substantial distortion. Eagle's claim that Cowan de Groot is disentitled from claiming reliance because of Mr Samuelson's actual or 'Nelsonian' knowledge fails on the facts. Similarly the claim that the chain of causation was broken by Mr Samuelson's breach of duty in failing to disclose to Cowan de Groot that he knew or believed Smith and Ferriday were acting fraudulently fails on the facts.
   In my judgment Cowan de Groot succeeds in its counterclaim to counterclaim but I will hear counsel on the question of quantum, more especially as there would appear to be an error in the interest claimed by Cowan de Groot.

Order accordingly.