“[81] . . . The ground was in a poor state of repair, and the club's finances were in poor shape. Large sums of money would be required for any modernisation and the Muddymans did not have it. They were personally exposed in that they had guaranteed loans from Flemings to the tune of£3m . The ground was leased from the Royal Bank of Scotland but the Muddymans claimed to have an option to acquire the land for£7.5m , exercisable by29th May 1997 (at which point the price would go up). In short, the club needed rescuing and it needed the injection of large sums of money if it was to return to being a successful club.”
“[82] . . . From the outset there was an issue over control. The Muddymans were not prepared to transfer outright control at the outset. They regarded themselves as being guardians of football at Craven Cottage and were very concerned that the club should not be taken over by someone who would then be in a position to asset strip it.”
“[91] . . . (i) It acknowledges the concern of the Muddymans to ensure that the ground was redeveloped and Fulham Football Club was protected and secured. (ii) It acknowledges the joint desire to see the club in the Premier League. (iii) Mr Al Fayed will make available a sum of at least£30m over the next three to four years, for the acquisition of the freehold, the redevelopment of the stadium, the running of the squad, the purchase of players, the development of commercial opportunities and the discharge of ‘certain existing liabilities’. (iv) Mr Al Fayed would acquire a 75% interest in the club, and the Muddymans would acquire the remaining 25% for£750,000 . (v) The Flemings loan would be discharged out of the£30m . (vi) Rights of pre-emption would apply to Mr Al Fayed’s shares. (vii) The parties would work together to obtain a new planning permission for the redevelopment of the stadium, failing which they would implement the existing planning permission. (viii) The Al Fayed approach was to be kept confidential.”
“9.5 Any additional finance (beyond that referred to in Clause 8.1 or 9.3) to be provided by way of subscription for share capital shall be provided by subscription at par for ‘A’ Ordinary Shares of£1 each in the capital of the Company, such ‘A’ Ordinary Shares to rank pari passu in all respects with the then existing ‘A’ Ordinary Shares of£1 each in the capital of the Company.”
“I confirm that, in the event that I inject capital into Fulham (Football Leisure) Ltd in such amount as takes its share or loan capital introduced by way of permanent investment in the Company beyond sixty million pounds (£60,000,000 ), I do not intend to do so in any way which will result in a compulsory dilution of your 25% interest in the Company. This letter is given without any legal liability or restriction on me, but is intended to give you comfort regarding my long term plans concerning both the Company and Fulham Football Club.”
“[258] I find that the Fulham team had become extremely keen, if not desperate, to do the Sutton deal, by the time of the Claridges meeting [on13 September 2002 ]. This was only partly to have a contract in the bag for the purposes of pursuing the new stadium. They were also very keen to have the cash that it would generate immediately. This was the main factor in the decision to buy out the Muddymans. The decision was obviously taken by Mr Al Fayed, and it was, like many of his decisions taken in this matter, one taken quickly and without a lot of business rationalisation.”
“[241] It can therefore be concluded that the deal between the Muddymans was done in order to get control of the club, and in particular to permit the Sutton deal, rather than specifically to acquire the right to be able to inject further funds as share capital. The injection of funds in that way would have been a means to the same end, but it was not an objective in itself.”
“[259] These factors combined to lead Mr Al Fayed to make one of his quick decisions to authorise his officers to negotiate a buy-out of the Muddymans. He never liked having someone else in the club with a significant interest and powers to prevent him doing what he saw fit – it was not his style to have that situation. It was not a decision which was much debated or rationalised (though the idea had been gestating in various members of the team for many months). Nor was any valuation exercise done. At this point Mr Al Fayed wanted to get rid of the Muddymans’ potential to control and veto. The timing and pressure came from the Project Wisley deal and the need for cash in the business. Had it not been for that deal waiting in the wings, it is unlikely that the buy-out would have taken place then. It is not possible to work out when it would have happened if at all.”
“[260] The claimant puts its case quite simply. The claimant is entitled to the sum of money that would put it in the position it would have been in had it not sustained the wrong. Had the defendants not been negligent the Shareholders’ Agreement would have permitted Mr Al Fayed to dilute the Muddymans once he had put£60m into the club (if they had not chosen to match his investment pro rata). On the facts the right to dilute would have been invoked before September 2002. As it was it could not be invoked because Mr Al Fayed did not have it. In September 2002 what he did was in essence to put himself in an equivalent position to having the right by buying shares from the Muddymans (to reduce them below 10%) and expressly bringing the Shareholders' Agreement to an end. In doing so he acted reasonably. He is therefore allowed to recover that cost as the cost to himself of putting himself in the position he would have been in had the solicitors performed their duty. So far as relevant his loss is reasonably foreseeable and not too remote. The type of damage that is foreseeable in this case, and which occurred, is that Holdings would want to remove the Article 6 restrictions but would be unable to do so by dilution. . . . In addition to that substantial head of damages, Holdings also claims legal costs relating to consulting leading and junior counsel, and solicitors, in the last 3 or 4 months of 2001. ”
“9. RESTRICTIONS 9.1 Notwithstanding the provisions of the New Company Articles or the articles of association of any subsidiary for the time being of the Company, Belloc, as the holder of a majority in nominal value of the issued ‘B’ Ordinary Shares in the capital of the Company, hereby consents to the following: 9.1.1 any matter done pursuant to this Agreement, the Acquisition Agreement or the Property Agreement; and 9.1.2 an increase in the authorised and issued share capital of the Company and the issue of shares in the capital of the Company, in each case in accordance with the New Company Articles, at any time after Investco shall have provided finance pursuant to Clause 8.1 of an aggregate amount equal to at least the maximum amount of finance it is obliged to provide pursuant to Clause 8.3. 9.2 For the purposes of sub-clause 9.1.2, Investco shall be deemed to have provided finance pursuant to Clause 8.1 of an aggregate amount equal to at least the maximum amount of finance it is obliged to provide pursuant to Clause 8.3 notwithstanding any subsequent repayment of any such finance.”
“10 RESTRICTIONS 10.1 Notwithstanding the provisions of the New Company Articles or the articles of association of any subsidiary for the time being of the Company, Swinburn, as the holder of a majority in nominal value of the issued ‘B’ Ordinary Shares in the capital of the Company, hereby consents to the following: 10.1.1 any matter done pursuant to this Agreement, the Acquisition Agreement or the Property Agreement; and 10.1.2 an increase in the authorised and issued share capital of the Company and the issue of shares in the capital of the Company, in each case in accordance with the New Company Articles, at any time after Investco shall have provided finance pursuant to Clause 8.1 of an aggregate amount equal to at least the maximum amount of finance it is obliged to provide pursuant to Clause 8.3. 10.2 For the purposes of sub-clause 9.1.2, Investco shall be deemed to have provided finance pursuant to Clause 8.1 of an aggregate amount equal to at least the maximum amount of finance it is obliged to provide pursuant to Clause 9.3 notwithstanding any subsequent repayment of any such finance.”
“[101] It is plain from this (and other) material that there was an agreement that no part of the first£30m of financing would be advanced so as to pose a risk of dilution of the Muddymans’ 25% shareholding. It is also plain enough to me that there were question-marks over what would happen above that. The Muddymans were sensitive about the issue. The question was whether and to what extent Mr Al Fayed was to have the opportunity of providing further finance by way of the introduction of share capital in a way which would dilute the Muddymans. In theory the normal pre-emption rights in the Articles, which would enable the Muddymans to keep pace with him if exercised, would prevent that. In practice, however, the Muddymans might be unable to find the funds to do that, leading to Mr Al Fayed taking shares when they did not and to their consequential dilution.” (5) Mr Green prepared a third draft of the documentation. The provisions formerly in clause 7.3 of the proposed shareholders’ agreement were moved to clause 9. I have set out the relevant provisions of clause 9 in the third draft earlier in this judgment. After he had, himself, set out those provisions the judge explained that: “[103] . . . The overall effect of the drafting at this stage was therefore to allow the issue and allotment of new shares once the first£30m had been provided by Mr Al Fayed, and the Muddymans would have the opportunity to keep pace by taking a proportionate new shareholding if they wished. If they did not then they stood to be diluted by Mr Al Fayed taking shares.”
“Discussions have been taking place between our respective clients in relation to the issue of dilution and I understand that the following has now been agreed: (a) Should my client desire to capitalise all or any part of his initial£30m investment, this will not affect your clients’ existing 25% interest which they will have acquired at a cost of£750,000 . (b) Should my client wish to inject any further monies by way of capital, up to a further sum of£30m , then your clients will be able to participate proportionately in any further share issue on the basis that, for every£1 subscribed by my client, your clients will only need to subscribe 2.5p. In other words, if my client was to inject an additional£30m by way of capital, making£60m in total, then your clients will be able to maintain their 25% interest by injecting a further£750,000 resulting in a total investment by your clients of£1.5m . (c) Any share issue over and above that referred to in (a) and (b) above will be on the basis that your clients will be entitled to participate on a pro rata basis, with your clients paying per share the same amount as my client. I look forward to hearing from you with confirmation that this is agreed, whereupon I shall come back to you with my suggestion as to how best to achieve this situation.”
“[114] . . . the essence of the deal was that once£60m had been provided by Mr Al Fayed the normal company share issuing rules should apply so that if the Muddymans did not keep pace with him their shareholding would become diluted. . . . ”: But he went on to say, at paragraph [117], that the focus of the meeting was “much more on the second£30m ”
“[117] . . . What happened after that£60m was not, I find, the subject of a lot of deliberation. The thrust of the evidence was, and I find, that no-one at that stage anticipated with any great degree of seriousness that Mr Al Fayed would invest more than£60m . It was clearly referred to, because there had been a discussion about it between Mr Al Fayed and the Muddymans, but in reality it was way down the scale of likelihood. What was left in relation to that was effectively a default situation in which the parties reverted to the normal company law provisions governing the issue of shares, albeit tempered by what was ultimately the letter of intent.”
“(d) If finance in excess of£60 million is to be provided, then this can be done by way of a straight share issue and the Muddymans will be entitled to participate proportionately. In other words, in order to maintain the 75:25 [ratio] of Ordinary Shares, the Muddymans will have to put in£1 for every£3 put in by the Chairman.”
“So far as the oral evidence of this meeting or these meetings went, no-one has any real or useful recollection of it”
“[143] This positive case of the defendants is not supported by any direct oral evidence of any participant. Nor is it supported by any note made by anyone. . . . ”
“[143] . . . but their effect is significantly attenuated in the present case by the fact that no-one I heard has any real recollection of any detail at all, including detail of important agreements that it is common ground were made, and it is apparent that other significant alterations which it is accepted were agreed are not reflected in any separate note. The effect of the fact that this was a very serious amendment with effects that have been seen to be extremely damaging, which might be thought to point away from such an amendment being made un-noted and un-remembered, is attenuated both by the matters that I have just referred and by the fact that at the time the prospects of Mr Al Fayed providing more than£60m of finance were not seen as particularly great, and it is quite possible that they were vested with sufficiently little significance that it makes it more explicable that the right to dilute was surrendered.”
“[148] . . . What is significant for these purposes is that provisions were added which materially strengthened the hand of the Muddymans, and Mr Al Fayed was prepared to allow them.. . .”
“[149] . . . What is significant, for the purposes of this action, is that the Muddymans were not taking whatever deal happened to be on offer – they were negotiating hard (contrary to the impression that Mr Al Fayed sought to give) and Mr Al Fayed was making concessions – he was not pressing that hard. I find that this demonstrates that he very much wanted the club and was prepared to make a lot of concessions to achieve that. He would not pay any price, but he was prepared to go a long way. This was clearly not a commercial transaction for him. That explains the concessions, and makes it more likely than it otherwise might have been that he would make the concession which the defendants say that he made about the right to dilute once£60m had been lent. I have borne that firmly in mind.”
“[186] . . . I find that the deletion of the crucial parts of clause 10 were done without a request from the Muddymans to remove the right to dilute, without an appreciation of the consequences and without the instructions of Mr Al Fayed or his representatives. It was, in effect, an accident. It may be that Mr Talbot thought that clause 9.5 preserved the right to have shares once£60m was reached (though that is not his evidence now) but it is not possible to reconstruct his thought processes plausibly. Nor is it necessary. The right was there in the documentation until 27th May; it was removed on that day and stayed removed; no reason exists for removing it, and no instructions were given to permit its removal. It was, as I have said, an accident. However, it was still negligent. The fact that it occurred should in no way be taken to detract from the conscientiousness and thoroughness of Mr Talbot. Such things happen, and in some ways are understandable in a fast-moving and complex transaction such as this, but it was negligent nonetheless. ”
“[157] . . . As [the executed documents] stand, once Mr Al Fayed had provided£60m of financing he could continue to lend by way of unsecured loan, but he could not acquire more share capital without the consent of the Muddymans. He therefore did not have the opportunity of increasing his proportionate shareholding by taking more shares in circumstances in which they did not wish to subscribe for a proportionate shareholding. He therefore did not have the opportunity of diluting their shareholding, and therefore lost the opportunity of reducing their shareholding to below 10% and removing their minority shareholder protections and bringing most of the consequences of the Shareholders’ Agreement to an end. The consequences of this are said to be more serious by virtue of the provisions of the buy-out provision (clause 12), because Mr Al Fayed was effectively locked in to continuing to fund on pain of losing his investment under clause 12 if he did not; and since he could not bring this position to an end by diluting the Muddymans so as to bring the Shareholders’ Agreement to an end he was locked in in perpetuity. . . .”
“[165] . . . The ‘good reason’ is asserted by the defendants and they therefore effectively have to prove it on a balance of probabilities.”
“[166] . . . the parties did indeed agree prior to 22nd May that in the event of the financing reaching£60m then any further financing by Mr Al Fayed could, if he wished, be by way of taking further shares. There was to be no anti-dilution mechanism in respect of those shares, other than the Muddymans’ company law rights to keep pace if they wished and if they could afford it. Mr Green’s evidence was clear on this, and it is consistent with his letter of 19th May. The terms which Mr Talbot then drafted gave effect to that by the consent in the consent provision. That was therefore the position at which the parties had arrived.”
“[178] What is significant about this letter is what it does not say. It is a letter which is intended to put forward a case that his clients’ consent was required to alterations of the share capital. It makes a point on construction, but it also sets out some historical material. What it does not say is that there was a specific request to remove the right to dilute (achieved by reinstating the consent requirement) during the negotiations. If Mr Talbot’s reconstruction of events were right then the background would have included a specific request (acceded to) that the right to dilute be removed. Furthermore, since that was backtracking on what had previously been agreed, one might have thought that the Muddymans and/or Mr Sugar would have remembered it. Mr Sugar even refers to his own markings against clause 10. Yet he does not refer to any such request. That is significant evidence that the events did not occur. . . .”
“[184] . . . The natural way of achieving the removal would have been to have removed clause 9.5 (whether or not parts of clause 10 were also removed). Yet it was left in the document. The next day it was actually amended during the completion meeting. . . .”
“[184] . . . The clause is indeed something of a waif if there is to be no right to dilute, and was an obvious candidate for removal if the right to dilute were being removed.”
“185] I do not find this a particularly compelling factor. It is not at all clear when the document was handed over. It was not referred to in the completion agenda (a point which might said to assist Mr Talbot's case) so it is unlikely that Miss Brankin asked for it. It might have been handed over at the meeting, as an additional document which was available, or it might have arrived later. Whichever it was, I can quite imagine circumstances in which, in this constantly evolving and urgent transaction, the logical necessity or redundancy of it would have been overlooked by Mr Talbot even if his case on dilution were correct. . . . The document is, of course, consistent with Holdings’ case, but it is not of any real probative weight in establishing it, in my view. ”
“[165] Since the direct oral evidence and the plausibility or implausibility of the deal itself are not directly helpful in this matter, I therefore have to turn to the documents and the rest of the probabilities in order to ascertain whether the defendants are right in their version of events. That is, in my view, the right way round of putting matters notwithstanding that technically the claimants have the overall burden of proof in this case. The rights were in the documentation up to the meeting of 27th May, and they were then removed. Unless there is a good reason for that then they should not have been removed. The ‘good reason’ is asserted by the defendants and they therefore effectively have to prove it on a balance of probabilities.”
“[160] There is no big point that has assisted me in determining this conflict. Rather, there are various points which cumulatively tend to point in favour of the claimant’s case rather than that of the defendants. Overall, for the reasons appearing below, I think that the defendants fail to establish the probabilities they rely on, and that the probabilities point the other way.”
“[159] The nature of the defendants’ case must be borne in mind. It can be fairly boiled down to this – the relevant right was removed from the documents by an apparently deliberate act of excision; a plausible explanation can be given for it; a plausible context can be provided for it; Mr Talbot is a careful man who would not have made a mistake about this matter; therefore, although he has no positive recollection of doing it, or for the reasons for it, I should find that the consequences were intended and were the result of a requirement of the Muddymans which was acceded to. . . . Their case is such that it invites me to draw inferences on the basis of probabilities, not just on the basis of their witnesses’ oral evidence or documentary records recording the facts. ”
“[164] It is plausible that the Muddymans would have been concerned about dilution on 27th May. Since the prospects of getting up to£60m were not taken particularly seriously, and since Mr Al Fayed was prepared to make significant concessions to them, it is not implausible or improbable that, if they had asked, he would have conceded restrictions on his ability to have shares once the financing exceeded£60m .”
“16.2 The termination of this Agreement referred to in clause 16.1 shall not affect the continuance in force of the provisions of Clauses 8.10, 8.11, 8.12, 8.13, 8.14 or 9.4”
“Q Somebody has changed, in clause 10.2, in the last line, from ‘8’ to ‘9’ in clause 9.3? A Yes Q Did you make that change? A I do not believe I did. I have seen a suggestion with which I would agree. Q A word processor operator? A A word processor operator, and I think I am reinforced in that view from my note, 30 not 60 – you may my Lord recollect that a line was drawn from that note and a circle was written around that clause reference and so, when I deleted the note on the Sunday, it may well be that the person typing the changes for me misconstrued the fact that the circle should have gone as well, if you see what I mean, and made that clause change because he or she believed that it was a consequential change.”
“[176] . . . The defendants’ case involves the Muddymans objecting to the right to dilute, that objection being acknowledged and Mr Talbot deciding to achieve that by deleting the relevant consent on the consent provision. That deletion would be one way of going about it. However, if it was discussed with Mr Sugar then one would have expected him to reflect the same amendment on his draft – that is to say one would have expected him to strike out the same words. There are a number of occasions where his draft has deletions marked by striking through the words in question (matching Mr Talbot’s striking through). Yet in this case he has not struck anything through. He put a single line by the side of some of the lines of clause 10.1.2, with a cross to the left. In the absence of evidence from him one does not necessarily know what he meant, but it rather looks as though he intended to mark this as something requiring attention. On his draft he has put a double line with a cross to the left of clause 8.6.4, which one can see from Mr Talbot’s draft has had some words added to it as a result of the negotiations; that supports my view of what his mark is more likely to mean against clause 10.1.2. Against 10.2 Mr Sugar has put the cross with an arrow on it. Again, this might be thought to denote something that requires attention at the same time that 10.1.2 is being addressed (hence the arrow). There is a certain amount of intelligent guesswork about this, but at the very least it can be said that Mr Sugar’s marking does not support Mr Talbot's case and if anything tends to point away from it. It is, of course, true that clause 10.1.2 requires attention because the cross-reference is wrong, and clause 10.2 requires attention because it is inconsistent with clause 8.5. But at the end of the day if the parties had agreed the removal of the right to dilute, and if the solicitors had agreed that the way of achieving that was to delete the consent in clause 10.1.2 then it would have been more natural for Mr Sugar to mark that accordingly. He did not do so. . . .”
“[143] . . . it is apparent that other significant alterations which it is accepted were agreed are not reflected in any separate note. The effect of the fact that this was a very serious amendment with effects that have been seen to be extremely damaging, which might be thought to point away from such an amendment being made un-noted . . . is attenuated . . . by the fact that at the time the prospects of Mr Al Fayed providing more than£60m of finance were not seen as particularly great, and it is quite possible that they were vested with . . . little significance . . .”