HC03C03199 v ULTRAFRAME (UK) LTD [2005] EWHC 1638 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2005] EWHC 1638 (Ch)Case No Case No: HC03C03199, HC02C03545, HC03C0992, HC02C02548Venue Royal Courts of Justice, Strand, London, WC2A 2LL
Between
HC03C03199ULTRAFRAME (UK) LTDClaimant(1) GARY FIELDING (2) NORTHSTAR SYSTEMS LIMITED (3) SEAQUEST SYSTEMS LIMITED (4) ALAN CLAYTON (5) JEFFREY NADEN ('The Leeds Consolidated Action')DefendantsHC02C03545(1) NORTHSTAR SYSTEMS LIMITED (In Liquidation) (2) SEAQUEST SYSTEMS LIMITED (In Liquidation)Claimants(1) GARY JOHN FIELDING (2) BCP PLASTICS LIMITED (3) BURNDEN GROUP PLC (4) JEFFREY NADEN (5) SALLY ANNE FIELDING (6) ALAN CLAYTON (7) BURNDEN HOLDINGS (UK) LIMITED (8) K2 CONSERVATORY ROOF SYSTEMS LIMITEDDefendantsEDWIN BIRKETT ('The New Action')Part 20DefendantHC03C0992(1) NORTHSTAR SYSTEMS LIMITED (In Liquidation) (2) SEAQUEST SYSTEMS LIMITED (In Liquidation)Claimants(1) GARY FIELDING (2) SALLY ANNE FIELDING (3) THE BURNDEN GROUP PLC ('The New IP Action')DefendantsHC02C02548THE BURNDEN GROUP PLCClaimant(1) NORTHSTAR SYSTEMS LIMITED (In Liquidation) (2) SEAQUEST SYSTEMS LIMITED (In Liquidation) ('The Burnden Action')Defendants
Before
MR. JUSTICE LEWISONMR. ANDREW HOCHHAUSER QC, MR. CHRISTOPHER PARKER, MR. MARTIN GRIFFITHS, MR. ADRIAN SPECK, and MR. HENRY WARD (instructed by Messrs. Eversheds LLP) for the ClaimantMR. RICHARD SNOWDEN QC, MR. IAIN PURVIS, MR. NIGEL DOUGHERTY, and Miss KATHRYN PICKARD (instructed by Messrs. Addleshaw Goddard) for the Defendants in actions 1,2,3, and The Burnden Group PLC in action 4.MR. GILES MAYNARD-CONNOR (instructed by Robinsons) appeared on behalf of the Defendant Mr. Jeffrey Naden.MRS. LISA WALMISLEY (instructed by Peter Greenhalgh) appeared on behalf of the Defendant Mr. Alan Clayton.Hearing dates: November 2004 – 11th,12th,15th,17th,18th,19th,22nd,23rd,24th,25th,26th,29th,30th,December 2004 – 1st, 2nd,3rd,6th,7th,8th,9th,10th,13th,14th,15th,16th,17th,20th,January 2005 – 11th,12th,13th,14th,17th,18th,19th,20th,21st,24th,25th,26th,27th,28th,31st,February 2005 – 1st,2nd,3rd,4th,7th,8th,9th,10th,11th,14th,15th,16th,17th,18th,March 2005 – 8th,9th,10th.11th,14th,15th,16th,17th,18th,21st,22nd,23rd,April 2005 – 5th,6th,7th,8th,11th,20th,25th,26th,27th,28th,29th,May 2005 – 3rd,4th,5th,6th,9th,10th,11th,12th,13th,16th,17th,18th,19th,20th.Date 27 July 2005
[1]INTRODUCTION Preamble This is (for the moment) the culmination of a long war of attrition in which the real combatants are Ultraframe (UK) Ltd ("Ultraframe") on one side and The Burnden Group plc ("Burnden") on the other. The trial alone, on liability only, occupied 95 days of court time. Both Ultraframe and Burnden are competitors in the market for the manufacture and supply of conservatories, and conservatory roofs in particular. Burnden's principal brand of conservatory roof is called "K2". Mr Gary Fielding, and his wife Sally, are the majority shareholders in Burnden. The war has been bitterly fought. There have been accusations and counter-accusations of forgery, theft, false accounting, blackmail and arson, not to mention the widespread allegations that many of the principal witnesses are lying. At the heart of the litigation is a dispute about the ownership of businesses in the field of conservatory roof design and manufacture originally developed by Mr Howard Davies. The brand name of Mr Davies' system was "Quickfit". I shall call it by that name although the brand name was later changed. Mr Davies operated through a number of companies, all of which became insolvent. He was also adjudicated bankrupt. While Mr Davies' empire was collapsing in ruins, two companies were incorporated or acquired. These companies were Northstar Systems Ltd ("Northstar") and Seaquest Systems Ltd ("Seaquest"). These two companies, in their turn, became insolvent, and they are now effectively controlled by Ultraframe. Although the principal actions with which I am now concerned are actions nominally brought by the liquidator of Northstar and Seaquest respectively, there is no doubt that Ultraframe is the driving force behind him. Except where it matters, I shall call the claimants "Ultraframe".[2]Ultraframe is represented by Mr Andrew Hochhauser QC, leading Mr Christopher Parker, Mr Martin Griffiths, Mr Adrian Speck and Mr Henry Ward. Burnden, Mr and Mrs Fielding and other companies in the Burnden Group are represented by Mr Richard Snowden QC, leading Mr Iain Purvis, Mr Nigel Dougherty and Ms Kathryn Pickard. Their clients have been called "the Burnden Defendants". Mr Naden is represented by Mr Giles Maynard-Connor; and Mr Clayton by Mrs Lisa Walmisley. Due to funding difficulties, both Mr Maynard-Connor and Mrs Walmisley were unable personally to attend the whole of the trial after the end of Day 33. However, they were able to attend for such parts of the trial thereafter as had most impact on their respective clients; and, I understand, were supplied with daily transcripts of the evidence. They also attended the closing submissions; and each made submissions on behalf of their respective clients. Mr Birkett (who is the defendant to a claim for contribution by Mr Naden) attended the trial to give evidence on Ultraframe's behalf; but otherwise did not attend, and was not represented. Short written submissions were put in on his behalf.[3]In a nutshell, Ultraframe claims that Mr Fielding and his companies have stolen the business and assets of Northstar and Seaquest. Ultraframe's case is that this came about as a result of: i) the dishonest story advanced by Mr Davies and his associates, including Mr Birkett, Mr Naden and Mr Clayton, that Northstar and Seaquest belonged to Mr Naden and Mr Clayton, when in fact Mr Davies was the sole beneficial shareholder, which prevented Mr Davies' trustee in bankruptcy from realising those assets for the benefit of Mr Davies' creditors; ii) the dishonest story advanced by Mr Fielding, Mr Birkett, Mr Naden, Mr Clayton, Mr Roche and others in response to litigation by Mr Davies' trustee to the effect that Mr Fielding owned the shares in Northstar and Seaquest and was a secured creditor for monies claimed to have been lent by him, which prevented Ultraframe from taking control of those companies until after Mr Fielding had stripped them of their value and taken over all their assets and business through his own companies.[4]Burnden says that Ultraframe has been engaged in a long campaign to stamp out its competitors. It says that Ultraframe hounded Mr Davies and his companies by persistent litigation, forcing them into insolvency. Having done so, it bought the claims of Mr Davies' trustee in bankruptcy. It says that Mr Fielding, a businessman with an interest in Kesterwood Ltd, a company which was one of Northstar's suppliers, had provided finance to both Northstar and Seaquest; and had (so he thought) agreed to buy a majority shareholding in Northstar and Seaquest. During the period when Ultraframe was pursuing Mr Davies and his companies, Mr Fielding continued to support the businesses of Northstar and Seaquest by the provision of further cash and credit, and he provided the services of a management accountant to assist them to get their accounting records, which were a shambles, into some kind of order. Mr Fielding sought and was granted debentures to secure his loans by Northstar and Seaquest in November 1998. In October and November 1998 it was also agreed that in the light, among other things, of the continuing problems with the businesses, customer complaints about service, and the uncertainties of tenure at their existing premises, a part of the business of Northstar and the marketing operations of Seaquest should be moved to Mr Fielding's much larger premises at Burnden Works. When Northstar and Seaquest failed to pay their debts to Mr Fielding, he enforced his security; and acquired some of each company's assets from their respective administrative receivers. Since then, Mr Fielding has built a successful group of companies, some of which are in the conservatory business. Mr Fielding says that although Ultraframe has painted him as a conspirator and a thief, he is in fact the victim of the piece.[5]Mr Fielding first made his claim to ownership of Northstar in November 1998. He says that he was first introduced to Northstar in about March 1997 and became progressively more involved with the company since then. He says that: i) On 12 June 1997 he entered into a supply agreement with Northstar ("the Northstar supply agreement") under which in return for financing £750,000 to enable Kesterwood to buy capital equipment (in the shape of extrusion machinery and tooling) to service Northstar's requirements for uPVC extrusion, he would have security in the shape of Northstar's intellectual property rights in its roof system and a first option over Mr Naden's shareholding which, he says, he thought at the time belonged to Mr Naden personally; ii) On 5 January 1998 he made an offer to buy Mr Naden's shares in Northstar for £80,000. This agreement is evidenced by letters dated 9 January 1998 from Mr Fielding to Mr Naden and 14 January 1998 from Mr Naden to Mr Fielding. Between the end of January 1998 and March 1998 he lent Northstar £80,000 in cash in four instalments: three of £10,000 each and the fourth of £50,000; iii) On 16 January 1998, Mr Fielding was informed of the existence of Seaquest and wrote to Mr Naden and Mr Birkett to complain that he had not been told about this before he had agreed to provide cash to Northstar. Concerned to protect his commercial position, Mr Fielding had further discussions with Mr Naden and Mr Birkett, which resulted in Mr Fielding agreeing to acquire Mr Naden's shares in Seaquest and, on 21 January 1998, his entry into a supply agreement with Seaquest ("the Seaquest supply agreement"). iv) On 17 March 1998 Mr Fielding wrote to Mr Naden asking him to confirm that ownership of the shares in Northstar and Seaquest had passed to Mr Fielding; and Mr Naden subsequently countersigned and returned that acknowledgement. The delay in returning that acknowledgement was the result of Mr Naden's decision to transfer his shares in Northstar and Seaquest to Mr Clayton, by way of security for a loan of £20,000 that had been made by Mr Clayton to Northstar. v) In October 1998, Mr Christopher Hindley, a self-employed accountant, was approached on behalf of Mr Fielding to examine the accounts of Northstar and Seaquest with a view to advising Mr Fielding on an intended investment. In November 1998, Mr Fielding asked Mr Hindley to help Northstar and Seaquest to sort out their accounts and to resolve Northstar's problems with VAT and PAYE and Seaquest's VAT registration. vi) In November 1998 he took debentures over Northstar and Seaquest respectively to secure various monies he was owed or was intending to advance. vii) On 24 November 1998, Mr Fielding attended a meeting with Mr Birkett, Mr Naden and Mr Roche. Mr Fielding offered to lend further sums of £90,000 to each of Northstar and Seaquest in return for being issued with 900 shares in each company. On the following day, Mr Fielding paid £70,000 to Seaquest, £50,000 of which was transferred to Northstar in order to enable it to pay its suppliers; viii) On 21 June 1999 Mr Fielding, in exercise of his powers under the Northstar debenture, appointed an administrative receiver over Northstar's assets. He subsequently acquired some of those assets from the administrative receiver, and re-employed many of Northstar's staff; ix) On 25 February 2000 HH Judge Behrens delivered judgment on Ultraframe's application declaring that Mr Fielding had no interest in the shares in either Northstar or Seaquest taking priority over the interest of Mr Davies' trustee in bankruptcy x) On the following day, Mr Fielding called in the loans that he had made to Seaquest and, on its failure to repay, appointed an administrative receiver.[6]Ultraframe says that this claim is bogus; and that the documents on which Mr Fielding relies to support it are fabricated. It says that Mr Fielding was introduced into the story following a meeting convened by Mr Davies in about October 1998 as part of a conspiracy to defraud Mr Davies' trustee in bankruptcy. Thus these events need to be scrutinised with care. However, there is no pleaded claim in conspiracy.[7]Mr Birkett gives an account of how he says the plot was hatched. Towards the end of October 1998 Mr Davies met him, Sharon Owen, Maureen Patey, Mr Naden, Mr Ivison, Mr Roche and Mr Read in The Nag's Head, a pub in Altrincham. Mr Davies told them that Mr Fielding was going to take over Northstar and Seaquest; and that they were to take instructions from him. He told them that the shares in Northstar and Seaquest were to be transferred to Mr Fielding and that they had to find a way to get everything in the business over to him at Burnden Works so that Mr Davies could further distance himself from the companies. In October or November 1998 a further meeting took place at The Riverhead Tap pub in Marsden, West Yorkshire at which Mr Birkett, Mr Fielding, Mr Roche, Mr Clayton, Mr Ivison, Mr Naden, Mr Sheffield and Mr Read were present. The purpose of the meeting was to discuss possible stories they could put together to try and give a legitimate explanation as to how Mr Fielding acquired the shares in Northstar and Seaquest. They knew that what was required was to find a justification for being able to say that Mr Fielding had had a longstanding financial involvement in both Northstar and Seaquest in order to justify his being able to take security over the companies without breaching the orders restraining share dealings which Mr Davies' trustee in bankruptcy had obtained. They agreed to show that Mr Fielding had acquired control of Northstar and Seaquest before June 1998 when the Trustees first obtained Orders and that any share transfers would have to be backdated to that time. The story evolved as time went on. At first it was to be said that Mr Clayton had lent £70,000 to Northstar, taking shares as his security. But Mr Clayton got cold feet about that; because he feared trouble from the Inland Revenue in trying to account for having had that amount of money to lend. So the story was changed. It was now to be Mr Fielding who was to be presented as the one who had lent the money to Northstar. Documents would have to be falsified to corroborate the story. I deal with this in more detail later in this judgment.[8]Mr Birkett says that in the last week of November 1998 Mr Roche (who was working for Northstar) gave him a plastic wallet of documents (some 40 pages in all). Mr Birkett was too busy to file them, and kept them aside in the plastic wallet. He did not examine the contents of the wallet until the spring of 1999. When he did, he realised that many of the documents in the wallet were forgeries. Mr Snowden cross-examined Mr Birkett closely on his account of how he came to receive the plastic wallet of documents; what it contained and what became of the documents. I will return to this from time to time at different points in the story. Burden and standard of proof General[9]In view of the seriousness of the central allegations, it as well to recall, at the outset, that although the burden of proof resting upon Ultraframe is the ordinary civil burden, the evidence required to establish the dishonest scheme alleged must be cogent. As Lord Nicholls of Birkenhead explained in Re H and Others [1996] AC 563 , 586:
"The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. … Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established."
The Sherlock Holmes fallacy[10]The great detective famously said that once you have eliminated the impossible, whatever remains, however improbable, is the truth. While that may be true for detectives, it is not true for judges. As Lord Brandon of Oakbrook explained in The Popi M [1985] 1 WLR 948 , 956:
"In my view there are three reasons why it is inappropriate to apply the dictum of Mr. Sherlock Holmes, to which I have just referred, to the process of fact-finding which a Judge of first instance has to perform at the conclusion of a case of the kind here concerned. The first reason is one which I have already sought to emphasize as being of great importance, namely, that the Judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take. The second reason is that the dictum can only apply when all relevant facts are known, so that all possible explanations, except a single extremely improbable one, can properly be eliminated. … The third reason is that the legal concept of proof of a case on a balance of probabilities must be applied with common sense. It requires a judge of first instance, before he finds that a particular event occurred, to be satisfied on the evidence that it is more likely to have occurred than not. If such a Judge concludes, on a whole series of cogent grounds, that the occurrence of an event is extremely improbable, a finding by him that it is nevertheless more likely to have occurred than not, does not accord with common sense. This is especially so when it is open to the Judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of proving that the event occurred lies has therefore failed to discharge such burden."
[11]Lord Hoffmann has recently explained, albeit in a very different context, in Gregg v. Scott [2005] 2 WLR 268 :
"[The] law regards the world as in principle bound by laws of causality. Everything has a determinate cause, even if we do not know what it is... The fact that proof is rendered difficult or impossible … makes no difference. There is no inherent uncertainty about what caused something to happen in the past or about whether something which happened in the past will cause something to happen in the future. Everything is determined by causality. What we lack is knowledge and the law deals with lack of knowledge by the concept of the burden of proof."
[12]However, a judge should not fall back on the burden of proof as a way out of making difficult decisions. In Stephens v. Cannon [2005] EWCA Civ 222 Wilson J, giving the only judgment of the Court of Appeal said:
"(a) The situation in which the court finds itself before it can despatch a disputed issue by resort to the burden of proof has to be exceptional. (b) Nevertheless the issue does not have to be of any particular type. A legitimate state of agnosticism can logically arise following enquiry into any type of disputed issue. It may be more likely to arise following an enquiry into, for example, the identity of the aggressor in an unwitnessed fight; but it can arise even after an enquiry, aided by good experts, into, for example, the cause of the sinking of a ship. (c) The exceptional situation which entitles the court to resort to the burden of proof is that, notwithstanding that it has striven to do so, it cannot reasonably make a finding in relation to a disputed issue. (d) A court which resorts to the burden of proof must ensure that others can discern that it has striven to make a finding in relation to a disputed issue and can understand the reasons why it has concluded that it cannot do so. The parties must be able to discern the court's endeavour and to understand its reasons in order to be able to perceive why they have won and lost. An appellate court must also be able to do so because otherwise it will not be able to accept that the court below was in the exceptional situation of being entitled to resort to the burden of proof. (e) In a few cases the fact of the endeavour and the reasons for the conclusion will readily be inferred from the circumstances and so there will be no need for the court to demonstrate the endeavour and to explain the reasons in any detail in its judgment. In most cases, however, a more detailed demonstration and explanation in judgment will be necessary."
Approach to the evidence Use of documents[13]When faced with sharply conflicting oral testimony, judges often like to start with the contemporaneous documents as providing the firm scaffolding from which to build a picture of the facts. That is not so easy in the present case, because Ultraframe allege that many apparently contemporaneous documents have been back-dated or forged, or both; and that accounting records have been retrospectively falsified. Mr Snowden prepared a table of the principal documents that Ultraframe alleges were forged, which I reproduce: Description Date Memo from Mr Cooper to Mr Fielding re: new revolutionary conservatory roof system 13/2/97 Mr Fielding's notes on discussion with Mr Cooper 19/2/97 Notes re: meeting at Groby Road 7/3/97 Letter to Mr Naden re: supply of uPVC extrusions 20/3/97 Letter from Mr Fielding to Mr Naden re: supply of uPVC extruded products 25/4/97 Letter from Mr Fielding to Mr Naden enclosing a proposed Agreement between Fielding and Northstar 12/6/97 Agreement between Mr Fielding and Northstar ("the Northstar supply agreement" 20/6/97 Letter from Mr Fielding to Mr Naden re: transfer of shares to Mr Birkett 7/10/97 Letter from Mr Fielding to Mr Birkett re: supply of uPVC product 15/12/97 Letter from Jim Sheffield to Mr Birkett re: extrusions 15/12/97 Letter from Adrian Cooper to Mr Birkett re: transfer of stock 22/12/97 Letter from Mr Fielding to Mr Naden re: capital injection 5/1/98 Letter from Mr Fielding to Mr Naden re: £80k injection 9/1/98 Letter from Mr Fielding to Mr Naden/Mr Birkett re: Seaquest 16/1/98 Letter from Mr Fielding to Mr Naden/Mr Birkett enclosing Agreement between Fielding and Seaquest 19/1/98 Agreement between Mr Fielding and Seaquest ("the Seaquest supply agreement") 21/1/98 Note of telephone conversation between Mr Fielding and Mr Birkett 19/2/98 Letter from Mr Fielding to Mr Naden re: Alan Clayton's share in Northstar / Seaquest 14/4/98 Various letters from Mr Fielding to Mr Naden and Alan Clayton regarding Alan Clayton's shareholding 17/3/98 14/4/98 8/5/98 20/5/98 1/6/98 Letter to 'Geoff' Naden from Mr Fielding re: buying Northstar's debt 23/10/98 Letter of agreement in response to letter of 23/10/98 from Ian Jones (Kesterwood) 23/10/98 Letter of agreement in response to letter of 23/10/98 from Mr Naden 23/10/98[14]I add to this list the computer records of Northstar's finances. Many of the transactions which feature in this case are alleged to have been cash transactions (by which I mean that large piles of banknotes were said to have been handed over) which have left no real audit trail.[15]Much, therefore, depends on the credibility of witnesses. Sustained attacks were made on the credibility of many of them; especially: Mr Ivison ("dishonest"); Mr Birkett ("a liar, forger and thief"); Mr Fielding ("shifty, calculating, inconsistent and wholly incredible"), Mrs Fielding; Mr Naden ("did not understand, let alone believe, the words that had been put into his mouth"); Mr Clayton ("not an honest or candid witness"); Mr Whitelock ("clearly lying"), Mr Roche ("partisan and unreliable"), Mr Walsh ("a shameless liar"), Mr Sheffield ("not an honest witness") and Ms Owen ("dishonest"). None of them emerged from rigorous cross-examination unscathed. It is clear to me that I have not been told the whole truth, as my subsequent findings will show.[16]Nevertheless, I have taken as my stepping stones those facts which both sides accept as true; and those documents which both sides accept as authentic. I have tried to test the evidence of each witness (where it is in dispute) against these markers. I have also tried to pay particular attention to what, in my judgment, are the inherent probabilities in each side's case. Much of this judgment sets out a selection of the evidence given to me without significant comment. I do this because the story is, on any view, one that is tortuous; and many of the issues are intertwined. I do not claim that all the pieces of the jigsaw can be made to fit together; but the conclusions I have reached are the best that I can do. Because the story is so intertwined, I think that it makes for a more coherent narrative if I tell the story thematically, rather than in strict chronological order. This, unfortunately, lengthens an already gargantuan judgment. For that, I apologise. The Lucas direction[17]Juries are routinely directed that the fact that a defendant tells lies in the witness box does not necessarily mean that he is guilty. They are told that people tell lies for all sorts of reasons: to bolster a weak defence, to conceal discreditable conduct, or out of panic distress or confusion. I bear that in mind. I must also bear in mind that the fact that a witness tells lies about some things does not mean that he or she is telling lies about everything. Occam's razor[18]Faced with a mass of evidence, much of which is alleged to consist of deliberate, elaborate and persistent lies; and given a mound of documents, many of which are alleged to have been fabricated, backdated or forged, Occam's razor may be a useful tool. In its essence the principle of Occam's razor (or the principle of parsimony), formulated by the mediaeval schoolman William of Occam, is that where there are multiple explanations available for a phenomenon, the simplest version is to be preferred, because it requires the fewest assumptions. The principle must of course be used with circumspection and it is no more than a working tool. But it has its uses. The witnesses[19]I heard the oral evidence of 39 witnesses, some of whom were intimately involved in the story; and others of whom had lesser parts to play. One person was conspicuous by his absence: Mr Davies.[20]The trial proper began towards the end of November 2004. Witness statements had been made in August 2004. Although many of the main witnesses had made witness statements in earlier parts of the litigation (and some had sworn affidavits), others had not. They were, therefore, being asked to remember events that had taken place up to seven years previously. It did not surprise me that some of the witnesses had only vague recollections of meetings, and some had no real grasp of dates. Nor is it surprising that an account given in the witness box, under the pressure of cross-examination, may differ, in some respects, from an account given in the calm of a solicitor's office. There were, however, some significant differences between earlier witness statements and later ones; and other significant changes in evidence during the course of cross-examination. Again, I deal with these later.[21]There are, however, a few general points about the witness statements and affidavits that I should make. First, witness statements, especially witness statements produced for interim applications, are produced for specific purposes. They are not autobiographies. So it is not surprising that a witness statement produced for trial is likely to be more detailed than a witness statement produced for a more limited purpose. Second, a witness statement is usually produced by a process of interview by a solicitor, who drafts the statement based on a record of the interview. The interviewee will sometimes have no real idea of the relevance of information to the purpose in hand. He or she responds to questions. So I do not find it surprising that some of the witnesses said that they had not given information about certain points because they were not asked to. Conversely, I do not find it surprising that information was given about other points of questionable relevance, simply because a question had been asked. Third, witness statements, and more especially affidavits, are drafted by the legal team. I regard with considerable scepticism evidence to the effect that any particular witness wrote (or typed) the whole of a witness statement personally. Witness training[22]Most of the witnesses called by the Burnden Defendants had received witness training for a day or thereabouts, a couple of months before the trial began. This fact was elicited by Mr Hochhauser in his cross-examination of the witnesses; although he did not then explore the content of the training, or the effect it had on the witnesses. However, Mr Roche volunteered the opinion that it was "about as much use as a chocolate fireguard". During the course of the trial the Court of Appeal (Criminal Division) gave judgment in R v. Momodou [2005] 2 All ER 571 . They said this about witness training in criminal trials:
"61. There is a dramatic distinction between witness training or coaching, and witness familiarisation. Training or coaching for witnesses in criminal proceedings (whether for prosecution or defence) is not permitted. This is the logical consequence of well-known principle that discussions between witnesses should not take place, and that the statements and proofs of one witness should not be disclosed to any other witness. (See Richardson [1971] CAR 244; Arif , unreported, 22nd June 1993; Skinner [1994] 99 CAR 212; and Shaw [2002] EWCA Crim 3004.) The witness should give his or her own evidence, so far as practicable uninfluenced by what anyone else has said, whether in formal discussions or informal conversations. The rule reduces, indeed hopefully avoids any possibility, that one witness may tailor his evidence in the light of what anyone else said, and equally, avoids any unfounded perception that he may have done so. These risks are inherent in witness training. Even if the training takes place one-to-one with someone completely remote from the facts of the case itself, the witness may come, even unconsciously, to appreciate which aspects of his evidence are perhaps not quite consistent with what others are saying, or indeed not quite what is required of him. An honest witness may alter the emphasis of his evidence to accommodate what he thinks may be a different, more accurate, or simply better remembered perception of events. A dishonest witness will very rapidly calculate how his testimony may be "improved"
. These dangers are present in one-to-one witness training. Where however the witness is jointly trained with other witnesses to the same events, the dangers dramatically increase. Recollections change. Memories are contaminated. Witnesses may bring their respective accounts into what they believe to be better alignment with others. They may be encouraged to do so, consciously or unconsciously. They may collude deliberately. They may be inadvertently contaminated. Whether deliberately or inadvertently, the evidence may no longer be their own. Although none of this is inevitable, the risk that training or coaching may adversely affect the accuracy of the evidence of the individual witness is constant. So we repeat, witness training for criminal trials is prohibited. 62. This principle does not preclude pre-trial arrangements to familiarise witness with the layout of the court, the likely sequence of events when the witness is giving evidence, and a balanced appraisal of the different responsibilities of the various participants. Indeed such arrangements, usually in the form of a pre-trial visit to the court, are generally to be welcomed. Witnesses should not be disadvantaged by ignorance of the process, nor when they come to give evidence, taken by surprise at the way it works. None of this however involves discussions about proposed or intended evidence. Sensible preparation for the experience of giving evidence, which assists the witness to give of his or her best at the forthcoming trial is permissible. Such experience can also be provided by out of court familiarisation techniques. The process may improve the manner in which the witness gives evidence by, for example, reducing the nervous tension arising from inexperience of the process. Nevertheless the evidence remains the witness's own uncontaminated evidence. Equally, the principle does not prohibit training of expert and similar witnesses in, for example, the technique of giving comprehensive evidence of a specialist kind to a jury, both during evidence-in-chief and in cross-examination, and, another example, developing the ability to resist the inevitable pressure of going further in evidence than matters covered by the witnesses' specific expertise. The critical feature of training of this kind is that it should not be arranged in the context of nor related to any forthcoming trial, and it can therefore have no impact whatever on it."[23]In Momodou the court went on to indicate the procedure that should be followed if witness familiarisation takes place:
"64. This familiarisation process should normally be supervised or conducted by a solicitor or barrister, or someone who is responsible to a solicitor or barrister with experience of the criminal justice process, and preferably by an organisation accredited for the purpose by the Bar Council and Law Society. None of those involved should have any personal knowledge of the matters in issue. Records should be maintained of all those present and the identity of those responsible for the familiarisation process, whenever it takes place. The programme should be retained, together with all the written material (or appropriate copies) used during the familiarisation sessions. None of the material should bear any similarity whatever to the issues in the criminal proceedings to be attended by the witnesses, and nothing in it should play on or trigger the witness's recollection of events…. 65. All documents used in the process should be retained, and if relevant to prosecution witnesses, handed to the Crown Prosecution Service as a matter of course, and in relation to defence witnesses, produced to the court. None should be destroyed. It should be a matter of professional obligation for barristers and solicitors involved in these processes, or indeed the trial itself, to see that this guidance is followed."
[24]I was also taken to the ruling of Pitchford J in the Crown Court at Chester in R v. Salisbury (unreported 19 May 2004). Pitchford J said this:
"28. The course was delivered by a member of the Bar I judge to have been well aware of the implications. She took pains to ensure that any witnesses who attended her courses knew of the possible consequences of collusion and she forbade it. No attempt was made to indulge in application of the facts of this case or anything remotely resembling them. True it is that witnesses would have undergone a process of familiarisation with the pitfalls of giving evidence and were instructed how best to prepare for the ordeal. This, it seems to me, was an exercise any witness would be entitled to enjoy were it available. No one engaged in special pleading with a view to gaining any expertise beyond the application of sound common sense. 29. I do not accept that this training, if such is the correct description, was capable of converting a lying but incompetent witness into a lying but impressive witness. Having considered the course content in some detail it seems to me that witnesses can have gained only a rudimentary understanding of what was to come and received no coaching in how to lend a specious quality to their evidence. What they would have received was knowledge of the process involved. It was lack of knowledge and understanding which created demand for support in the first place. Acquisition of knowledge and understanding has probably prepared them better for the experience of giving evidence. They will be better able to give a sequential and coherent account. None of this gives them an unfair advantage over any other witness. Although ease of manner or confidence in the witness box, if it exists, may be a matter of consideration by a jury, it does not seem to me that the ultimate judgment whether the witness is credible or not will depend on such considerations."
[25]There are, of course, significant differences between civil and criminal procedure. Not least, in civil cases evidence in chief generally takes the form of a pre-prepared witness statement, whereas in criminal cases it is elicited by (non-leading) question and answer; and in civil cases witnesses are normally permitted to sit in court while other witnesses are giving evidence, whereas in criminal trials this does not happen until the witness has given his own evidence; and even then it is unusual. In criminal cases witnesses do not see each other's statements or depositions; whereas in civil cases it is common for witnesses to see and respond to the statements of other witnesses. Nevertheless, the principle that a witness' evidence should be his honest and independent recollection, expressed in his own words, remains at the heart of civil litigation too. In the light of the disappearance of oral evidence in chief from civil cases, it may be thought that the importance of the witness's own independent recollection in giving his evidence under cross-examination is all the greater.[26]As a result of my reading Momodou , and at my request, I was provided with an account of the witness training that the Burnden Defendants' witnesses had received. Mr Naden received much the same training. The training was conducted by Bond Solon, who are well-recognised in this field, and have an impressive client list (which includes many of the firms of solicitors involved in this case). I received a letter from Bond Solon which indicated that they followed the guidelines in R v. Salisbury (the training having taken place before Momodou ). Mr Hochhauser did not challenge this. Bond Solon's brochure asks and answers a number of questions. One of them is:
" Isn't there a danger of "coaching" or over preparation? No. We have checked very carefully with The Law Society and The General Council of the Bar about the rules governing witness preparation. We do cross examine them, but not on the fact of an upcoming case. Witnesses learn the principles of cross-examination without the slightest hint of coaching."
[27]The information given to the potential witnesses in preparation for their session tells them not to speak to the trainers about their evidence in any live case and includes the following:
"Lawyers are not allowed to "coach" or influence witnesses in respect of their evidence: to do so puts the in breach of their professional conduct rules and may result in them being struck off. You, as an individual witness, might he prosecuted for perverting the course of justice if you have participated in any coaching or manipulated your evidence. Remember, every witness, in every legal forum, must tell the truth, the whole truth and nothing but the truth."
[28]The first part of the programme was an introduction to the theory, practice and procedure of giving evidence. Mr Hochhauser criticised this as giving the potential witnesses advice on how to behave in court ("stand with your feet pointing at the decision maker""; "walk slowly and purposefully to where you will be giving evidence from"). I do not see anything objectionable in any of this. It is a common experience that anxious witnesses are given general guidance on how to behave in court (listen carefully to the question; don't lose your temper etc).[29]The second part of the session consisted of a mock cross-examination. The brochure said that Bond Solon would have no details at all on the forthcoming case. However, it also indicated that the training could take place on the basis of fictitious case studies prepared either by Bond Solon themselves, or on the basis of case studies prepared by the client. In the present case, the case studies were prepared by Bond Solon, but chosen from a range by Addleshaw Goddard. But in at least two sessions they were not used; and the potential witnesses were allowed to make their own case studies or choose the subject-matter upon which to be cross-examined. Given that the trainers do not themselves know the subject or scope of the forthcoming trial, it seems to me to be highly undesirable for the potential witnesses to compile their own case study, or choose their own topics for cross-examination. If they do so, how are the trainers to know how much resemblance (if any) it bears to the subject-matter of the litigation? If it does resemble the forthcoming trial, the danger of inadvertent coaching is increased. Yet that is what happened in the present case. It should not have happened; and I hope it will not happen again. It was also disturbing that the course of the witness training came out piecemeal; and that a clear and comprehensive account was not given at the first time of asking.[30]Nevertheless, with the possible exception of Mrs Fielding's session, the case studies were sufficiently far removed from the issues in this case as not to give rise to any inference of coaching. Moreover, since it was not put to the witnesses that the training had taught them anything in particular or had caused them to change their evidence, it would, I think, be unfair to use the fact of the witness training to draw any adverse inference against them.[31]I was invited by Mr Hochhauser to give guidance on the permissible limits of witness familiarisation. That question raises very difficult issues, both of law and professional conduct, which must be the subject of wide consultation before any conclusions can be reached. I understand that the professional bodies are already engaged on that task. With some relief, I decline Mr Hochhauser's invitation. Demeanour of the witnesses[32]The Burnden Defendants warn me against relying on the demeanour of witnesses. Ultraframe say that the demeanour of the witnesses is something on which I should rely, although I should have regard to the fact that most of the witnesses called by the Burnden Defendants received witness training. It is, of course, dangerous for a judge to play amateur psychologist and deliberately to look for clues to the question whether a witness is telling the truth. But everyone knows that when we watch and listen to people speaking a great deal is communicated non-verbally. It is impossible to disentangle the verbal from the non-verbal aspects of the communication. I think that all that judges mean when they say that the "demeanour" of the witnesses has played a part in their assessment of the witnesses is that they have been influenced by non-verbal as well as verbal communication. I am sure that I have been. The main players Northstar and Seaquest[33]Mr Edwin ("Eddie") Birkett . Mr Birkett joined Northstar in June 1997, as warehouse manager. By September his responsibilities had increased, and his job title was changed to that of Warehouse and Purchasing Manager. As the story unfolded, Mr Birkett played an ever-increasing role in the management of Northstar, becoming one of its directors and its company secretary. He was also appointed as a director of Seaquest shortly after its incorporation. Mr Birkett was suspended from duty in March 1999 and severed his connections with Northstar in June 1999. He is the main "whistle-blower". Mr Birkett says that he was a principal participant in creating the dishonest story on which Mr Fielding relies. He says that documents were falsified in two stages: first by Mr Sheffield in September 1998; and subsequently by or at the direction of Mr Roche in November 1998. Although Mr Birkett is a self-confessed forger, thief and liar, he maintains that since he severed his connection with Northstar he has consistently told the truth. Mr Birkett was called as a witness by Ultraframe. He has sworn a number of affidavits and made a number of witness statements as the litigation has progressed. Much of his cross-examination was directed at attempting to show that there were significant discrepancies between his various accounts. Although Ultraframe joined Mr Birkett as a defendant, they have agreed not to pursue their case against him. They have also entered into a so-called "consultancy agreement" with Mr Birkett for one year starting on 11 August 1999; under which he is entitled to be paid £25,000. The date of this agreement coincides, more or less, with Mr Birkett's first affidavit in the litigation. There is no reason to suppose that Ultraframe would have agreed to pay this sum to Mr Birkett if he had not given evidence in support of their claims. On 21 April 2004 Mr Birkett and Ultraframe entered into another agreement under which Ultraframe agreed to pay Mr Birkett £15 per hour plus expenses for the provision of a truthful witness statement and giving truthful evidence at trial. There appears to be yet a third agreement between Mr Birkett and Ultraframe, which appears to have been negotiated between solicitors, but the details of which have not been revealed.[34]Mr Steven ("Steve") Ivison . Mr Ivison joined Northstar as a salesman. He spent a lot of his time out on the road, and was not, therefore, as au fait with what was happening back at Northstar's premises as some of the other witnesses. Although he was also a director of Seaquest, he played little part in its corporate governance. Like Mr Birkett, he was called as a witness by Ultraframe. He, too, has received financial assistance from Ultraframe; and has a continuing business relationship with them.[35]Ms Sharon Owen . Ms Owen joined Northstar as the Operations Manager at the end of June 1997. By the time she joined Northstar she had had an extensive business career in management and the retail and catering trades; and she had been a partner in the business of running a pub, where she first met Mr Davies. Unfortunately, that venture did not prosper, and resulted in her bankruptcy. She had an "on-off" affair with Mr Davies during much of the period covered by the story.[36]Mr Jeffrey ("Jeff") Naden . Mr Naden was in charge of the roof fabrication part of Northstar's business. He was also a director of Northstar and Seaquest. He now runs his own small business, called Majestic Roofs, in the field of the fabrication of conservatories. Mr Naden began his evidence on the afternoon of Day 71 (Tuesday, 5 April 2005). He verified his various witness statements and was shortly cross-examined by Mrs Walmisley on behalf of Mr Clayton. Mr Snowden QC said that he had no questions to put to Mr Naden. Mr Hochhauser began his cross-examination of Mr Naden at about 3.45 p.m. By the end of the session at 4.15 p.m. Mr Naden was having some difficulty in answering questions. When the court resumed on the following morning, I was informed by Mr Maynard-Connor that Mr Naden had been violently sick earlier in the morning, was very distressed and in floods of tears; and found it difficult to stand up. He was medically examined in the course of the morning; and the doctor reported that he was in the throes of an acute anxiety attack and was not fit to give evidence; and would not be fit to do so for a week. I therefore permitted Mr Clayton's evidence to be interposed, starting on Thursday 7 April, in the hope that Mr Naden would be fit to resume his evidence within the space of a week. Mr Naden was examined by his own GP. Unfortunately no appointment could be arranged before Monday 11 April. At the close of proceedings on Friday 8 April I indicated that I wanted an answer to the question:
"When, if ever, will Mr Naden be fit to resume giving his evidence?"
I was informed on the afternoon of Monday 11 April that the GP had prescribed an anti-depressant, whose side effects (if any) should settle down within two or three days, but that Mr Naden would not be fit to resume his evidence for the remainder of the week. The specific question I had asked on Friday remained unanswered. In the light of the medical evidence I adjourned the trial until Wednesday 20 April. Mr Naden was medically examined again on 18 April. The doctor expressed the view that his condition had deteriorated and said that in his view Mr Naden would not be fit to give evidence "for the foreseeable future". He amplified that view by saying that he could not say precisely when Mr Naden would be fit to give evidence. The upshot of the medical evidence, therefore, was the doctor's positive statement that Mr Naden would not be fit to give evidence for the foreseeable future; and there was no answer to the question when would he be fit. On 20 April I was asked to adjourn the trial again for a further two weeks, for the purpose of reviewing Mr Naden's condition. I took the view that since Mr Naden had given his evidence in chief; there was no evidence that his condition would improve within the foreseeable future; one of the causes of his condition was the strain of giving evidence, which cause would not disappear as the result of an adjournment; the trial had already been adjourned for two weeks on a "wait and see" basis; the effect of a further adjournment would be entirely speculative; his counsel had had the opportunity to cross-examine all witnesses called to give evidence adverse to Mr Naden; and since all parties were entitled to a determination of their rights within a reasonable time, no further adjournment could be justified. In making my assessment of the weight to be placed on Mr Naden's evidence I have taken into account the medical evidence about his condition, as well as the fact that his evidence has not been thoroughly tested by cross-examination.[37]Mr Howard Roche . Mr Roche started his working life in catering; and then moved into the wine business. In the course of that business he began to learn about accounts and VAT, and also gained some experience of intellectual property rights, because of a bottle sealing mechanism that he invented and intended to patent. At some stage he began to offer management services, trading under the name of "Helix Agencies". He was retained by Northstar in March 1998. He also gave advice to Northstar on legal or quasi-legal matters; and did the same for Mr Fielding later in the story. However, he has no legal qualifications. He is accused of being one of the main conspirators, and of having fabricated many of the documents on which the Burnden Defendants rely. In 1997 he signed a false statement in the course of a police investigation into a road traffic accident, for which he was later convicted and sentenced to community service. (I admitted evidence of this conviction under section 7 (3) of the Rehabilitation of Offenders Act 1974). He says that he is deeply ashamed of this episode in his life; and has never done anything like it again.[38]Mr Martin Read . Mr Read was the main designer at Northstar, at least after Mr Davies' presence became more intermittent. As time went on, he became more and more preoccupied with managing the computer database, rather than design. He worked for Burnden until about Easter 2001, when he left. He is now a director of another company called Conservatory Solutions Ltd. He has no continuing connection with either party, although he has remained friendly with Mr Roche.[39]Mr Anthony ("Tony") Roberts . Mr Roberts was originally employed as a fabricator, but rose to become the production manager at Northstar. He also said that he was a personal friend of Mr Davies. He was called as a witness by Ultraframe.[40]Mr Peter Brown . Mr Brown was an IT manager at Northstar. He was engaged in litigation with Seaquest over the removal of computerised information. He accepted that, in the course of that litigation, he was prepared to sign a witness statement which he knew to be untrue. He was called as a witness by Ultraframe. Kesterwood/Burnden[41]Mr Gary Fielding . Mr Fielding began his professional life as a quantity surveyor. Over the years, he has made investments in a number of companies. At the beginning of the story, most of these companies were unsuccessful; and went into insolvent liquidation. In some cases Mr Fielding was able to buy the assets of the defunct company from the liquidator. Ultraframe say that this was a repeated pattern of behaviour. Mr Fielding would invest in a company he knew to be in poor financial health; engineer security over the company in the shape of a debenture; put it into receivership or worse; buy its assets at a knock down price and then set up a phoenix company carrying on the same or virtually the same business. Mr Fielding is now the managing director of the Burnden Group which is a profitable and successful group of companies, with diverse business interests, some of which compete directly with Ultraframe. Ultraframe allege that Mr Fielding has perjured himself time and time again. They allege that he has pressurised others (including his wife and step-son) to give perjured evidence on his behalf. They allege that he has engaged in extensive discussion with other witnesses of the evidence that they can give; and that he has orchestrated a conspiracy to mislead the court; and thus pervert the course of justice. Mr Fielding accepts that he has not told the truth in an affidavit and witness statements made at earlier stages in the litigation. He also admits that at earlier stages in the litigation he suppressed details of his dealings with Mr Davies, even from his solicitors; but says now that in his evidence at trial he has revealed all. Ultraframe say, and Mr Fielding denies, that he has trimmed his evidence as the case has progressed and inconsistencies in his case have been revealed. Mr Hochhauser cross-examined Mr Fielding exhaustively for no less than thirteen days. I should record that Mr Fielding withstood his interrogation with patience, courtesy and good humour.[42]Mrs Sally Fielding . Mrs Sally Fielding (formerly Walsh) began her career as a journalist. Subsequently, she went into public relations and advertising. She married Mr Fielding in July 1995. She has two children by her first marriage: Ella and Ashley. Ultraframe have joined her as a defendant on the basis that she was an active participant in her husband's businesses. Mrs Fielding is an articulate and strong-minded woman, not backward in coming forward. If she has a point to make, she makes it. As of today she is plainly Mr Fielding's business partner in the business of the Burnden Group. The extent of her active participation in earlier stages of the story is in issue.[43]Mr James ("Jim") Sheffield . Mr Sheffield has been in the extrusion business for most of his working life. He has been involved in a number of companies (including the family company called Sheffield Brothers Ltd) all of which have, at one time or another, become insolvent. As he himself accepts, his track record as a businessman leaves a lot to be desired. For the last ten years or so he has steered clear of handling financial matters. He comes into the story when he was running a company called Kesterwood Ltd. He also accepts that he gave misleading answers to Kesterwood's creditors when it, too, went into insolvent liquidation. Ultraframe say that this shows that he is a liar. I do not think that it does. The fact that a person may have given misleading answers in the past does not ineluctably lead to the conclusion that he is prepared to lie on oath in court.[44]Mr Adrian Cooper . Mr Cooper worked for Kesterwood from the summer of 1996 until April 1999. He was a sales representative. When he left Kesterwood he went to work for Euroseal Ltd, for whom he still works. He is their sales manager. He has known Mr Sheffield since his schooldays; as he went to school with Mr Sheffield's daughters.[45]Mr Barry McMahon . Mr McMahon joined Burnden in July 1999 as Research and Development Manager. He is in charge of the technical department.[46]Mr Peter Gray . Mr Gray is Mr Sheffield's son in law. He and Mr Cooper are friends. He began his working life with Kesterwood; and now works for the Burnden Group.[47]Mr Ian Whitelock . Mr Whitelock is a close friend of Mr Fielding. He, too, is a quantity surveyor by training; and Mr Fielding was his professional mentor at the start of his career. He works for the Burnden Group. Mr Fielding described him as his "right hand man". Ultraframe say that he is prepared to lie on Mr Fielding's behalf because (in his words, in a completely different context) "that is what friends do". Others[48]Mr Chris Hindley. Mr Hindley is an accountant. He provided accountancy and financial advice for Mr Sheffield. He subsequently provided services for Mr Fielding and some of his companies; although he has not done so for some years. He described those services as "financial reporting". He was not involved in giving strategic business advice to Mr Fielding; and was not involved in decision-making.[49]Mr Alan Clayton . Mr Clayton met Mr Davies in Germany during the 1980s when they were both working there as building contractors. They became close friends. The friendship came to an end in 1994, when Mr Davies' then girlfriend, Janice Bardsley, had an affair with Mr Clayton's business partner. However, the friendship was rekindled in the autumn of 1997. Shortly afterwards Mr Clayton set up a business called Bespoke Windows, which was subsequently incorporated. However, he is neither a director of nor a shareholder in that company. He became a registered shareholder in both Northstar and Seaquest in circumstances that I shall have to examine.[50]Mr Ashley Walsh . Mr Walsh is Mrs Fielding's son. He now works for Burnden. At the time of the events about which he gave evidence, he was sixteen years old, and doing his GCSEs. Ultraframe say that he has been suborned by his mother and step-father to give perjured evidence. Experts[51]I also heard evidence from three experts. Mr Martin Hall gave expert accountancy evidence for Ultraframe; and Mr Brent Wilkinson for the Burnden Defendants. Mr Summers gave expert valuation evidence for Ultraframe.[52]Ultraframe also put in an expert report on computer matters and two on the forensic examination of a certain disputed document. None of these was challenged. Hamlet without the prince[53]I heard a good deal of evidence about Mr Davies. Most of the witnesses were in broad agreement about Mr Davies' character and behaviour. He is plainly a large man, both literally and metaphorically. He is a talented designer of roofing systems, although his business acumen is wanting. He regarded the Quickfit system as "his baby". He has little respect for the law, or for the niceties of corporate governance or accounting. He regards taxation as an irrelevance to his business activities. He would keep large amounts of cash in plastic bags in the boot of his car, and carried an axe for his protection. He was usually scruffy and unkempt; and at some periods lived in the office, carrying his belongings in more plastic bags. Mr Ivison described him as a "6 foot 2 axe-wielding gym fanatic". He turned up at Glassex 1998 (which is the most important annual trade exhibition for those in the glass industry) dressed in a gorilla suit. A number of witnesses described him as "ranting and raving"; as throwing things across the room when angry. Mr Roche recalled an occasion when Mr Davies threw a chair through a glass window; and then tried to tear a door off its hinges. Mr Ivison said that he was "like an unexploded bomb. If you trod in the wrong place he would go off". He was clearly a domineering bully. On the other hand, if in a good mood, he could be entertaining and "could tell a good tale". Ms Owen described him as "an accomplished drink-driver". Mr Davies was also the owner of an apparently vicious parrot, which cropped up in unexpected places during the evidence. He also nursed an intense and obsessive dislike of Ultraframe, about which he could (and did) expatiate at length. He now lives somewhere in southern Spain (probably near Marbella) at an undisclosed address, although he has been seen in Knutsford in Cheshire, from time to time. I am sure that, had he given reliable evidence, Mr Davies could have dispelled many of the mysteries in this case that I have been unable to solve. Although the case papers include both informal and more formal statements by Mr Davies, all sides agreed that I should treat them with extreme caution. BACKGROUND Conservatory roof manufacture[54]Before considering the details of Ultraframe's case I should describe, at least in broad terms, the principal components of a conservatory roof assembled from components forming part of a proprietary system such as "Quickfit" or "K2". In very broad terms, conservatories come in two types: dual pitch and lean-to. Dual pitch conservatories themselves are subdivided into two main categories: "Victorian" and "Georgian"; while lean-to conservatories are either steep pitch or low pitch. Each type of conservatory depends on a structural framework, usually made of aluminium. It is then glazed, usually with polycarbonate sheeting. A conservatory must be aesthetically pleasing, sturdy and weatherproof. Because aluminium is not aesthetically attractive, the aluminium is covered by various forms of cladding and capping, usually made of plastic or uPVC. A proprietary system will typically include components of all these types (although simple components, such as downpipes for rainwater drainage, may be bought in).[55]The aluminium members and many of the plastic or uPVC components are made by extrusion. The process of extrusion consists of forcing aluminium (or, for that matter, plastic) through a shaped die to produce the required shape. In Mr Hochhauser's more homely analogy, it is a bit like icing a cake. The icing is put into a piping bag, and then forced through a nozzle attached to the end of the bag. The equipment necessary is therefore an extrusion machine (to do the forcing) and a die (to provide the shape). Like many analogies, it is somewhat over-simplified; and a uPVC extrusion line is more complex. Mr McMahon gave a description of an extrusion line which was not challenged. uPVC lines consist of an extruder; a die (which forms the actual shape of the product), cooling and calibration, haul-off, saw, and packing equipment. The extruded product comes out of the extrusion tool hot; and it is then cooled to its correct size by the forming. The word "tooling" is sometimes used to refer to the die alone; and sometimes to both the die and the forming. The haul-off is a series of belts which draw off the extrusion at a constant speed; and the saw then cuts it into the required length. Once cut, it is then packed. Mr Shaw confirmed this general description in his oral evidence. Each line is capable of receiving any one of a number of extrusion tools and is typically 25 metres long and 1.5 metres wide. The general (though not invariable) trade custom is that the extruder owns (and pays for) the extrusion machine and the customer owns (and pays for) the dies. The life of a tool varies according to the volume of extrusions that it produces; and the materials from which it is made. But, on average, it is anything between two and five years. Within its lifetime a tool can be refurbished. Refurbishment typically consists of replacing parts of a tool (typically the front plate of the die and the calibrator or forming).[56]Mr McMahon also gave a general description of the principal components in a conservatory roof system, the substance of which is common ground: i) Aluminium extrusions . These generally form the structure of the roof system and are produced by suppliers (aluminium extrusion companies) to the customer's designs and sold in (generally) 6.5 metre lengths. Typical examples would be glazing bars and the eaves beam. ii) uPVC extrusions . These are generally cladding or capping pieces whose function is to hide the aluminium structure. They are designed by the customer and also sold in (generally) 6.5 metre lengths. Typical examples would be glazing bar top caps and ridge top caps. They may be manufactured by a uPVC extrusion company or by the customer itself. Typically they clip on to specially shaped parts of the aluminium extrusions. iii) Injection mouldings . These are generally small components. The mouldings are generally made of a plastic called ASA. Typical examples would be gutter fittings and end caps. iv) Injection moulding tools and equipment . Injection moulding tools can be fitted to an injection machine which is basically a large heated press (typically 5 metres by 2 metres) which melts and then forces the plastic material into the tool (or mould). v) Vacuum formings . The components produced by this method are similar to those produced by injection moulding. These components are produced by heating a sheet of plastic material and then drawing it down (by vacuum) over a former of the required shape. This method is only suitable for simple shaped components that are only required in small volumes. Typical examples would be box gutter adaptors and boss end covers which are required in a woodgrain finish. vi) Lamination . This is the process of applying a decorative finish to uPVC extrusions. It is also known as "foiling". The finish (usually a wood-grain pattern) is pre-printed onto a thin plastic sheet which is then cut into narrower ribbons. The ribbons are then adhered to the uPVC extrusions by passing them through a machine which applies a hot-melt adhesive and then forms the ribbons around the contours of the uPVC extrusion through a series of rollers.[57]A complete proprietary system may consist of anything between a hundred and several hundred components. Mr Richardson, Ultraframe's Technical Director, identified six components or assemblies of components that he described as being the "guts" of a roofing system. Mr McMahon agreed with Mr Richardson's list of components. They are: i) The glazing bars . These are pieces of extruded aluminium, typically in the shape of an inverted "T" that support the polycarbonate sheeting. They must be supported at either end. They are typically capped with uPVC cappings on the top and the bottom. ii) The ridge . This is where the two planes of a dual pitch roof meet at their highest point. A typical ridge assembly will consist of an aluminium extrusion, shaped to receive the glazing bars and polycarbonate sheeting that forms the dual pitch roof. It is typically covered with uPVC cappings on its top and bottom. iii) The valley . This is where the two planes of a multi-planar roof meet at their lowest point. A typical valley assembly is an aluminium extrusion shaped to receive glazing bars and sheeting. It is typically capped with uPVC on its underside. iv) The wallplate . This is a plate, fixed to the side of a house, that supports the end of the glazing bars where they abut the house. Typically it is an aluminium extrusion, capped in uPVC on its underside. v) The eaves beam . The eaves beam runs round the top of the external faces of the conservatory and supports the end of the glazing bars opposite the ridge (or, in the case of a lean-to roof, the wallplate). Typically it is an aluminium extrusion, clad in uPVC. vi) The box gutter . This is a gutter that is suspended from the eaves beam. Mr Davies and the early years[58]By the beginning of the 1990s Mr Davies, a joiner by training, was running a business making and supplying secondary glazing to houses. This business was incorporated under the name Noise Insulation Services (Manchester) Limited ("NIS"). Mr Davies owned the shares. As part of the business Mr Davies supplied conservatory roofs. In late 1991 he decided to concentrate on supplying double-glazing rather than secondary glazing. He coined the name Quickfit for this business. Shortly afterwards he closed down NIS, selling the work in progress and goodwill of the business to his sister. He invested the proceeds in his new business for which he incorporated a company called Quickfit Limited. He had previously purchased an industrial plot at Groby Road, Audenshaw, Manchester and in about 1993 he constructed factory premises on it for the business. He owned both the land and the buildings until he was made bankrupt. He did not occupy the whole of the site. The front part was occupied by another business called "World of Conservatories".[59]The premises at Groby Road were a long and narrow site. They had an open yard, and five industrial units: i) Unit 1 . This was a single storey steel framed unit, clad partly in brick and partly with metal sheeting. It was essentially occupied as a showroom for conservatories, with a small office. ii) Unit 2 . This was a single storey steel framed unit, backing on to Unit 1. Again, it was clad with metal sheeting. It had been divided internally to form a workshop and manufacturing space, and office accommodation in the rear section. iii) Units 3 and 4 . These were two small production units separated by an open sided store. iv) Unit 5 . This building, at the back of the site, was a workshop with offices on a mezzanine floor above. This was the building in which Mr Davies had his office, and in which the general office was located.[60]Mr Davies decided to enter the market for conservatory roofing systems with his own product which came onto the market in about 1992. This product was made primarily of GRP reinforced with wooden cores and was fairly crude. Mr Davies decided that his first product needed improvement and set about designing a replacement product made of aluminium and uPVC. This was intended to be an engineered product, designed to be easily assembled and using common components wherever possible to keep down the costs of manufacture and assembly. Mr Davies arranged for the Quickfit system to be manufactured and distributed through various companies of which he was a director and registered or beneficial shareholder: Quickfit Limited ("QL"); Quickfit Conservatories Limited ("QCL"), and Quickfit Windows Limited ("QWL").[61]All these companies went into insolvent liquidation. The circumstances of the failure of those companies led to Mr Davies becoming liable under s.216 of the Insolvency Act 1986 (prohibition on re-use of certain company names); and so becoming personally liable for the debts of QCL and QWL under section 217 of that Act; and disqualified for 5 years under the Company Directors Disqualification Act 1986 from being a director of or being concerned, directly or indirectly, in the management of a company. These events took place in the summer of 1997. When QCL went into liquidation it appears that it owed Mr Davies some £55,000 by way of director's loans. THE LITIGATION SO FAR The patent action[62]Although the patent action is no longer live, a brief account of it is necessary, as it plays a significant part in the story. The writ was issued on 11 September 1997 and served on the following day. Northstar was the defendant. Ultraframe complained of patent infringement, design right infringement and also breach of an undertaking given by Mr Davies on 26 November 1996 not to manufacture or offer for sale roof beams falling within the scope of the patent. Ultraframe applied for summary judgment. It was successful in obtaining summary judgment for breach of the undertaking, but Northstar was given leave to defend the remainder of the action. Ultraframe also obtained a costs order in its favour. Those costs were later taxed in the sum of about £70,000. How Northstar would be able to pay these costs became a major worry in the late summer and autumn of 1998. However, in fact the costs were never paid because Northstar obtained permission to appeal against the summary judgment; and ultimately, on 25 May 1999, the summary judgment and the costs order were set aside by consent. That action has progressed no further; and is unlikely to. The Leeds actions The first Leeds action.[63]On 12 November 1998 Mr Davies' trustees in bankruptcy began proceedings in the Leeds District Registry of the High Court (Ch. 1998 O/S No. 392). This action was begun by originating summons against Mr Clayton, Mr Birkett and Mr Naden. Messrs Clayton, Birkett and Naden were the directors and/or shareholders of Northstar and Seaquest at the time. The summons sought a declaration that the shares of Northstar, Seaquest and another company called Amberbale Limited registered in their names were held on trust for Mr Davies' trustees in bankruptcy; and other associated relief. The second Leeds action.[64]On 1 December 1998 the trustees began a second Leeds Action against Mr Fielding, Northstar and Seaquest (Ch. 1998 O/S No. 418). By this action the trustees also claimed against the defendants a declaration that Messrs Clayton, Birkett and Naden held the shares of Northstar, Seaquest and Amberbale registered in their names on trust for Mr Davies' trustees in bankruptcy; a negative declaration that Mr Clayton did not hold the shares in Northstar and Seaquest registered in his name on trust for Mr Fielding; and other associated relief. The second action was begun because Mr Fielding had claimed to own the shares in Northstar and Seaquest and that he had made loans to both companies secured by a debenture over Seaquest dated 6 November 1998 and a debenture over Northstar dated 17 November 1998. He claimed to have bought the shares in Northstar and Seaquest on 5 May 1998 from Mr Clayton; and to have had further shares allotted to him in November 1998. Declarations were claimed setting aside these allotments of shares and debentures. The Leeds Consolidated action[65]The two Leeds Actions were subsequently consolidated and ordered to continue as if begun by writ. They have since been called the Leeds Consolidated Action. The Leeds Consolidated Action was transferred to London by Order dated 8 July 2003 (HC03CO3199). The essential allegations originally made in the Statement of Claim served in the Leeds Consolidated Action were that: i) Mr Davies was the beneficial owner of the shares in both Northstar and Seaquest at the date of his bankruptcy in December 1997; ii) Mr Davies was also the owner of the intellectual property rights in the Quickfit system as at that date. The pleading described these as: "intellectual property rights (including copyright and design rights) in a system for the assembly of conservatories and similar constructions marketed under the name of Quickfit Conservatory Roof Systems, including all component parts thereof and all improvements or modifications thereto or replacements therefor ("the Systems")" iii) Mr Clayton and Mr Naden, the legal owners of the shares in both companies, fraudulently breached their duties to Mr Davies' trustees in bankruptcy and, with others engaged in an unlawful conspiracy to injure the trustees by preventing them from taking control of the intellectual property rights and the companies exploiting them. The conspiracy took the following form: a) Acquiescing in a claim by Northstar to ownership of the intellectual property rights; b) Incorporating Seaquest to take over Northstar's role in exploiting the intellectual property rights; c) Acquiescing in a purported assignment of the intellectual property rights from Northstar to Seaquest in January 1998; d) An allotment and issue of further shares in Northstar and Seaquest to Mr Fielding in 1998 and e) The grant by Northstar and Seaquest of debentures to Mr Fielding, also in 1998.[66]The Statement of Claim claimed: i) Declarations that Messrs Clayton, Naden and Birkett held the shares registered in their names on trust for Mr Davies' trustees in bankruptcy; ii) Orders setting aside share transfers and allotments of shares to Mr Fielding; iii) Orders setting aside the debentures; iv) Equitable compensation or damages for dishonest participation in a breach of trust and/or damages for conspiracy.[67]So far as the intellectual property rights were concerned, the Statement of Claim claimed a declaration that as at 22 December 1997 the intellectual property rights were owned by Mr Davies and vested in the trustees; and an order setting aside an assignment of the intellectual property rights dated 13 January 1998 between Northstar and Seaquest. Mr Fielding served a Defence on 23 February 1999. Paragraph 2 (2) put the trustees to proof of the nature and extent of the intellectual property rights and the systems to which they were said to relate. Paragraph 6 (2) put them to proof that the intellectual property rights were included in Mr Davies' assets that vested in his trustees. No positive case of ownership or licence was asserted.[68]Northstar served a Defence on 25 February 1999. It asserted that the Quickfit system was redesigned by Mr Davies and/or Mr Clarke on behalf of Northstar between May 1996 and September 1997. It asserted in paragraph 9 (1) that Northstar was the owner of the intellectual property rights in relation to the system marketed by it or by Seaquest from 12 September 1997. Seaquest served a Defence on 25 February 1999. It alleged, in response to paragraph 11 of the Statement of Claim, that Northstar was the owner of the rights which were the subject of the assignment to Seaquest. Faced with very significant legal costs in pursuing the Leeds Consolidated Action, the trustees in bankruptcy assigned to Ultraframe the claims in the Leeds Consolidated Action, certain intellectual property rights and other property, including their claim that Mr Davies was beneficially entitled to the shares in both Northstar and Seaquest. HH Judge Behrens' judgment[69]On 25 February 2000 Ultraframe obtained summary judgment on some of the issues raised in the Leeds consolidated action. HH Judge Behrens decided that all the shares in both Northstar and Seaquest were held on trust for the trustees in bankruptcy of Mr Davies and that the further shares issued to Mr Fielding were invalid. He was able to do so without going into the hotly contested issues of fact that have been examined before me. HH Judge Behrens' reasoning was as follows: i) The registered shareholders, who held legal title to the shares, held them on trust for Mr Davies at all times before the bankruptcy; ii) Mr Davies' equitable interest in the shares passed to his trustee in bankruptcy as at the date of his bankruptcy in December 1997; iii) Mr Clayton only claimed that the transfer of shares to him was a security interest; and he also claimed to have been repaid his loan. Thus any transfer of the shares to Mr Clayton did not discharge Mr Davies' equity of redemption; and upon repayment he (or his trustee) became entitled to call for a re-transfer of the shares; iv) Any uncompleted agreement that Mr Fielding had with the registered shareholders to acquire the shares in Northstar could only have conferred upon him an equitable title to the shares; v) Since that equitable interest was later in time than that which had vested in Mr Davies' trustee in bankruptcy, the earlier equitable interest prevailed over the later; vi) So far as the Seaquest shares were concerned, Mr Naden had no interest, either legal or equitable, in those shares. They were not registered in his name, and he gave no consideration for them; vii) Since Mr Naden was "a stranger to the shares" any agreement between him and Mr Fielding could have conferred no interest (either legal or equitable) in the shares on Mr Fielding[70]The consequence of the judgment is that Ultraframe, as assignee of Mr Davies' trustees, is beneficially entitled to all the shares in Northstar and Seaquest. HH Judge Behrens also held that the allotment on 24 November 1998 of 900 shares in each of Northstar and Seaquest to Mr Fielding was invalid, because in neither case were the articles of association of the company complied with. The articles of each company contained rights of pre-emption and these were ignored. The validity of the debentures granted by Northstar and Seaquest to Mr Fielding remains in issue. There was no appeal against HH Judge Behrens' judgment.[71]On 31 March 2000 Ultraframe served a Re-Amended Statement of Claim. So far as the intellectual property rights were concerned the relief claimed was the same as that claimed in the Statement of Claim as originally served (i.e. declarations about ownership of intellectual property rights at the date of Mr Davies' bankruptcy). The significance of HH Judge Behrens' judgment[72]The fact that HH Judge Behrens has decided that beneficial ownership of the shares in both Northstar and Seaquest belongs to the trustee has a number of significant consequences for the actions I am trying. First, it means that all the parties to the Leeds Consolidated Action (Messrs Birkett, Clayton, Fielding and Naden and Northstar and Seaquest themselves) are bound by that finding. It is not open to any of them to contend that Mr Naden or Mr Clayton owned the shares in Northstar beneficially or that Mr Clayton owned the shares in Seaquest beneficially. However, whether either Mr Naden or Mr Clayton knew that fact at the time has been the subject of dispute. Second, it means that any alleged conspiracy to disguise the true ownership of the shares in either company has no continuing legal consequences. Third, since the continuing claimants are Northstar and Seaquest themselves (rather than their shareholders), it means that any dishonesty in relation to the ownership of shares has no direct relevance to the companies' own claims.[73]I should also record that Ultraframe's solicitors accepted in open correspondence on 8 April 2004 that, in consequence of HH Judge Behrens' decision, Ultraframe had suffered no loss as a result of this alleged conspiracy. The London action[74]Having established its right to the shares in Northstar and Seaquest, Ultraframe began its own action on 15 March 2001 (HC 0101170). This action has been called "the London Action" (because it was begun in London). At some stage this action was re-numbered 1 CH 00435. The Defendants to this action were Mr and Mrs Fielding; Burnden and two other companies called Alumax Extrusions Ltd and Alcoa Extruded Products (UK) Ltd who, as their names suggest, supplied aluminium extrusions. Alumax will feature in the story. The claim against these last two companies has since been settled. Paragraph 1 of the Particulars of Claim (as originally served) asserts that Ultraframe is the owner of "the design right that subsists in the designs of the shape of configuration of the component parts of the conservatory roof system known as the Quickfit system ("the Designs")". Particulars of a number of different designs of component parts are then given. (Ultimately, after amendments, some 25 different designs and assemblies were specifically pleaded). The pleading went on to allege that all the designs were created by Mr Davies; that he was the first owner and that Ultraframe was his successor in title. It also alleged that Mr Fielding was party to a dishonest design to divert the intellectual property rights away from Mr Davies' trustees in bankruptcy, as set out in the Leeds Consolidated Action. Finally it alleged infringement of Ultraframe's intellectual property rights in the Designs. The infringement was pleaded as follows:
"After 22 November 1997 Northstar Systems Limited and, from about January 1998, Seaquest Systems Limited have manufactured and/or authorised others to manufacture articles to the Designs or substantially to the Designs for commercial purposes and without the consent of the Claimant or the owner of the design right in the Designs at the time. PARTICULARS Hereunder the Claimant relies upon the manufacture and/or authorisation of others to manufacture the Quickfit conservatory system … [with particulars being given]"
[75]It was also alleged against Burnden that since its incorporation on 31 January 1999 it had "infringed the Claimants design right in the Designs by making articles and/or authorising another to make articles to the Designs or substantially to the Designs for commercial purposes and without the consent of the Claimant".[76]Mr and Mrs Fielding served their Defence on 22 May 2001. They said that Ultraframe "does not own any design right in any of the designs relied on". They then went on to deal with the "individual designs relied on". The Defence went on to say that if any of the designs were created by Mr Davies, he did so as an employee of Quickfit or QCL, or under a commission from one of those companies. By way of an alternative plea it was alleged that because of Mr Davies' fiduciary duties to Quickfit and QCL as a director of those companies, they were the owners in equity of any design right in designs that Mr Davies had created. The Particulars of Claim then pleaded a chain of assignments from those companies to Mr Fielding and thence to Burnden. The preliminary issues[77]A Case Management Conference was held on 31 October 2001; and HH Judge Behrens gave directions for the trial of preliminary issues in the Leeds Action and the London Action. In the course of the CMC Mr Iain Purvis, then appearing as counsel for Mr Fielding, drew attention to the width of the plea in the Leeds Consolidated Action relating to design right in the "system"; and said that no design right had been properly identified. He contrasted this with the plea in the London Action, where he accepted that design right had been adequately identified and pleaded. His proposal was for a preliminary issue to deal with "all questions of subsistence and ownership of design right". The trustees had asked the defendants to state their position as regards unregistered design right in the system. But the Defendants' stance was that they would not do so until the trustees had properly pleaded in the Leeds Consolidated Action the design rights that they relied on.[78]The order for the trial of the preliminary issues was as follows:
"IT IS ORDERED that:" 1. The following issues be tried in both actions prior to the remaining issues: (1) whether or not design right subsists in any of the designs pleaded in 1 CH 00435 [ i.e. the London action ]; (2) ownership of any such design rights as are held to subsist; (3) the extent to which the components marketed by Northstar Systems Limited, Seaquest Systems Limited and The Burnden Group Plc are infringing copies of the said designs and consequently infringing articles within the meaning of the CDPA 1988; (4) to what extent The Burnden Group Plc, Alumax Extrusions Limited, Alcoa Extruded Products (UK) Limited, Northstar Systems Limited and/or Seaquest Systems Limited and each of them are liable to the Claimant for infringement of such design rights; (5) the relief (if any) consequential on the determination of (1)-(4). The following questions shall not be considered with the preliminary issue set out above and shall be tried with the remaining issues: (a) whether Mr & Mrs Fielding, Mr Naden or Mr Clayton are liable for the infringements of any persons or companies concerned in the alleged infringing activities; (b) Mr Fielding's alleged dishonest participation in the scheme to divert the intellectual property rights away from Mr Davies' trustees in bankruptcy (specifically the allegations contained in paragraphs 18 to 25 and paragraph 27 of the Re-Amended Statement of Claim in the consolidated action CH 1988 O/S Nos. 392 & 418. [ i.e. the Leeds Consolidated Action ]; and, (c) the question of the quantum of any damages, additional damages or profits to which the Claimant is entitled."
[79]Mr and Mrs Fielding served a Re-Amended Defence on 8 April 2002. The allegation that Mr Davies held design right on trust for Quickfit and QCL was expanded to include an allegation that he also held design right on trust for Northstar. Paragraph 5 of the Re-Amended Defence then alleged that "such design right is now owned in law and/or in equity by the successors in title of" (among others) Northstar. It went on to say that the successor in title to Northstar was Seaquest by virtue of the assignment of 13 January 1998. A previous paragraph of the pleading (paragraph 4B) pleaded a licence dated 23 November 1999 from Seaquest to Burnden Conservatory Products Ltd ("BCP") and a sub-licence dated 19 February 2001 from BCP to Burnden. However, these documents were pleaded as an alternative to the plea that Mr Davies held design rights on trust for Northstar, although they could have formed part of that strand of defence.[80]In June 2002 Mr and Mrs Fielding served a Re-Re-Re-Amended Defence. The plea that Mr Davies held design right on trust for Northstar was maintained. However, paragraph 5 of the Re-Re-Re-Amended Defence now pleaded that "such design right was at the date of the bankruptcy of Howard Davies" held on trust for (among others) Northstar. The reference to the assignment of 13 January 1998 was deleted from the pleading. Burnden's Defence followed a similar history. These amendments were foreshadowed by letters from the Defendants' solicitors in which it was said: i) That the only pleaded claim for title to design right was through Mr Davies' trustees in bankruptcy; ii) Consequently the claim would be defeated by a finding that Mr Davies did not own the design right personally; iii) Consequently Burnden's own title to the design right was legally irrelevant, as was its entitlement to a licence. The allegations about assignment and licence could therefore be removed from the pleading.[81]This was the state of the pleadings (so far as relevant) when the preliminary issues were heard.[82]Over 8 days in July 2002 Laddie J heard the preliminary issues that HH Judge Behrens had ordered to be tried. On 3 October 2002 Laddie J held that ownership of these design rights was that of the various companies he identified in a Schedule to his order. Twenty three design rights were identified at that stage; and the owners identified were Northstar as to twenty, NIS as to one, and QCL as to two. In the course of his judgment Laddie J said in paragraph 4:
"There is no dispute that Burnden has been exploiting some of the Quickfit designs. Burnden's case is that it has been doing so legitimately. First, it is said that it has been doing so under licence from the true owner of many of the designs, Seaquest Systems Ltd ("
Seaquest"). Seaquest was the assignee of Northstar Systems Limited ("Northstar"), another of Mr Davies' companies. Seaquest is said to be the company which created and exploited the designs at issue between June 1996 and June 1999. Second, it is said to be the assignee of the rights from Mr Davies' companies (now all in liquidation or dissolved) which created and exploited all these designs which existed prior to 1996."[83]In paragraph 5 he said:
"The primary issue I have to determine is whether Ultraframe owns any of the design rights in the Quickfit system. This in turn requires resolution of the following issues: (a) what rights, if any, exist in the designs pleaded; and (b) who owned them, in law and in equity, at the date of Mr Davies' bankruptcy."
[84]Laddie J went on to determine those two issues. In reciting the history of Mr Davies and his companies, Laddie J said in paragraph 22 of his judgment:
"In early 1998 Seaquest was set up and an assignment of the design rights in the system from Northstar to Seaquest was drawn up. This was executed on 19 January 1998 and backdated to the date of incorporation of Seaquest, 13 January 1998. Mr Davies continued to work within the business until at least April 1998 when he was purportedly dismissed. There are disputes between the parties as to the purpose behind the formation of Seaquest, the effectiveness of the assignment and whether Mr Davies continued to have indirect control over or interest in the company after his purported dismissal. None of these are issues which need to be considered at this stage."
[85]In paragraph 24 of his judgment Laddie J set out the parties' rival contentions:
"The position now is that Ultraframe claims to own the design right in the Quickfit system by purchase from Mr Davies' trustee in bankruptcy while the defendants claim that they own them through QCL, QL and Noise Insulation, or to be acting under licence from Northstar and Seaquest."
[86]After Laddie J handed down his judgment, the defendants tried to raise an argument to the effect that the design right that the judge had held to belong to Northstar in fact belonged to QCL. The basis for this contention was the allegation that the designs in question had been created by Mr Davies while he was working for (or was a director of) QCL. In a supplementary judgment given on 12 December 2002 Laddie J held the raising of this argument amounted to a collateral attack on his October judgment, and was not open to the Defendants. There was then a hearing about costs and the form of order. The draft order prepared by the Defendants included a declaration that:
"the design rights in issue were first owned by the companies set out in the schedule hereto."
[87]This form of declaration would have been limited to ownership at the time when the designs were created, leaving the question of current ownership at large. However, Laddie J did not make an order in that form. The order he in fact made included declarations that:
"3. The owner of such design rights is the person identified in the 2 nd column in the table of the said schedule. 4. The components complained of in [the London action] and identified in the 3 rd column in the table in the said schedule are infringing articles within the meaning of the CPDA 1988."
[88]However, this paragraph of Laddie J's order was subject to a proviso in the following terms:
"Paragraphs 3 and 4 above are without prejudice to the right of [the Defendants] to seek to raise any defence of licence in any proceedings for infringement of design right … and without prejudice to the right of [Ultraframe] to seek to rely on any point of estoppel or acquiescence or other argument that they are now precluded from raising any such defence of licence."
[89]One consequence of Laddie J's findings was that he dismissed the London action. There was a subsequent appeal to the Court of Appeal against Laddie J's order. Although the Court of Appeal held that the legal route by which Laddie J reached his conclusions to have been, in part, erroneous, his ultimate conclusions were upheld, albeit by a different chain of reasoning. However, whereas Laddie J had decided that the named companies were the legal owners of design right, the Court of Appeal held that they were only equitable owners of the design right. This also has significance. Following the handing down of the judgment of the Court of Appeal, the defendants again raised the question of the form of the declaration about ownership. They submitted that the form of the declaration should be that the identified company "was" the owner of the design right, rather than a declaration that the identified company "is" the owner of the right. The ground for the submission was that:
"the question of what happened to any rights belonging to Northstar QCL or NIS after the date of bankruptcy has not been resolved by this court and was not resolved by the Court below. Thus the use of the present tense is inappropriate."
[90]There was then a reference to the assignment by Northstar to Seaquest and the assignment from QCL to Burnden. However, apart from changing "owner" to "beneficial owner" and a consequential amendment to refer the trust under which the design rights were held, the word "is" remained in the Court of Appeal's order. The proviso to this declaration remained as part of the varied order.[91]Part of Laddie J's order was that the costs of the preliminary issues should be determined by the judge hearing the trial of the remaining issues (i.e. in the event, me). This order was not disturbed by the Court of Appeal.[92]On 11 March 2003 Mr Fielding applied to strike out what was left of the Leeds Consolidated Action. The New Action[93]On 27 November 2002 Northstar and Seaquest began yet another action (HC02C03545). This one is called "the New Action". It is the principal action before me. In the New Action, they claim against Mr and Mrs Fielding, BCP, TBG, Mr Naden and Mr Clayton, among other things(1) declarations that the Northstar Debenture, the Loan Agreement are invalid;(2) a declaration that the licence agreement was void or was held on trust for Seaquest;(3) proprietary relief in respect of all assets of BCP and TBG deriving from Northstar and Seaquest; and(4) accounts of profits and equitable compensation. It is part of Northstar and Seaquest's claim in the New Action that Mr and Mrs Fielding took steps in and after November 1998 to remove the intellectual property rights and business from Northstar and Seaquest to their own premises at Burnden Works and to their own newly formed companies (1) BCP of which Mr Fielding was a director between 22 November 1998 and 30 March 2000 and (2) Burnden of which Mr and Mrs Fielding have at all material times been directors and holders of more than 90% of the issue and share capital. Burnden has at all material times carried on business, among other things, as a manufacturer and distributor of conservatory roof systems and related components under the style K2. Paragraph 14.11 of the Particulars of Claim alleges infringement of design right in "some or most" of the designs which Laddie J had held to belong to Northstar.[94]In summary, in their defences, the Defendants say that no business was wrongfully taken because such business that was undertaken in relation to the Quickfit system was undertaken by means of licences from Seaquest to BCP and BCP to Burnden. In addition they say that the businesses that were originally hived up into Burnden came from other profitable business activities of Mr Fielding. The validity of the debentures granted by Northstar and Seaquest to Mr Fielding is in issue in the New Action, this time at the suit of Northstar and Seaquest themselves. In response to paragraph 11 of the Particulars of Claim the Defendants plead (among other things) that the products manufactured were manufactured with the consent of Northstar and Seaquest.[95]In addition, Burnden counterclaimed in the New Action for damages for infringement of the three designs that Laddie J had held to belong to NIS or QCL and 15 other designs said to have been used in the Quickfit system and which it acquired from NIS, QL, QCL or QWL. The design that Laddie J held to belong to NIS is a design for a finial. The designs that he held belong to QCL are a design for an ogee gutter bracket, and a design for a wallplate. In its counterclaim Burnden relied on a number of new designs (fifteen in all) which it says were created by Mr Davies when he was working for (or a director of) companies other than Northstar and from whom Burnden had acquired the intellectual property rights. It said that Northstar was infringing design right in these designs. These designs were said to be designs created by Mr Davies between 1992 and 1995 for various parts of the Quickfit system; and of which the company through which Mr Davies was carrying on business at the time was said to have been the first owner. The counterclaim then pleaded a chain of assignments by which it was said that ownership of those designs had passed to Burnden. None of these fifteen designs was considered by Laddie J, for the simple reason that no one had pleaded them.[96]On 20 June 2003 Northstar and Seaquest served a Reply and Defence to Counterclaim. They said that it was an abuse of process for Burnden to raise claims of ownership of design right which could (and should) have been included in the preliminary issues tried by Laddie J. The New IP Action[97]As I have said, Laddie J decided that (for the most part) Northstar was the owner of the intellectual property rights; and he indicated that Northstar would be the proper claimant for any infringement of them. Consequently, on 19 March 2003 Northstar and Seaquest began yet another action. This one is called "the New IP Action", in which they claim against Mr and Mrs Fielding and Burnden damages for infringement of the London Designs held by Laddie J to belong to Northstar. Twenty designs (or assemblies) are relied on. These twenty are the same twenty that Laddie J considered and held to belong to Northstar. Defences have been served and Burnden has served a counterclaim. In their Defence the Defendants said that the designs on which Northstar and Seaquest rely were created by Mr Davies when he was working for (or a director of) other Quickfit companies, and that accordingly, those companies are the owners in equity of the designs. They also said that Northstar was set up by Mr Davies as part of a dishonest scheme to defraud creditors; that in consequence any ownership of design right that it might otherwise be entitled to is tainted by illegality and that, accordingly, the court should not enforce such rights. In addition they said that any design rights that Northstar owned were assigned to Seaquest by the assignment of 13 January 1998; that on 23 November 1999 Seaquest granted BCP a licence to reproduce the designs; and that, in turn on 19 February 2001 BCP granted Burnden a sub-licence to reproduce them. In its counterclaim Burnden repeated the counterclaim in the New Action. On 18 June 2003 Northstar and Seaquest served a Reply and Defence to Counterclaim.[98]On 25 September 2003 Northstar and Seaquest issued an application for summary judgment. They said that the parties are bound by Laddie J's decision as to Northstar's ownership of the subsisting London Designs and as to Burnden's infringement. They said that any attempt by Burnden and the Fieldings to relitigate matters decided by Laddie J or which ought to have been raised before him was an abuse of process. The Burnden action[99]On 4 August 2004 Burnden started its own action against Northstar and Seaquest. This one has been called "the Burnden Action". This action claims that the businesses of Northstar and Seaquest respectively were created as a result of Mr Davies' dishonest misappropriation of assets belonging to QCL. They are therefore held on a constructive trust for QCL. Burnden claims as assignee of QCL. Burnden also alleges that Northstar and Seaquest are guilty of passing off, relying on the goodwill in the "Quickfit" name that, they say, belonged to QCL when it went into liquidation. They also say that Northstar and Seaquest have converted tooling that belonged to QCL; and that they have infringed QCL's design right. More preliminary issues[100]At the outset of the trial I decided two preliminary issues. The first was an application to strike out what remained of the Leeds Consolidated Action. The second was an application for summary judgment on substantial parts of Burnden's defence and its counterclaim for infringement of design right.[101]For reasons that I gave in writing at the time, I decided: i) To strike out what remained of the Leeds Consolidated Action on the ground that the relief claimed was reflective loss for which Northstar and Seaquest had their own claims; ii) To strike out Burnden's defence in so far as it was based on allegations that Northstar was not entitled to enforce the design rights that Laddie J and the Court of Appeal had held belonged to it in equity; iii) To strike out Burnden's counterclaim in so far as it was based on allegations of design right in fifteen specific designs that could and should have been pleaded in the preliminary issues.[102]I refused to strike out Burnden's defence in so far as it was based on post-bankruptcy events; namely the assignment of intellectual property rights from Northstar to Seaquest and the subsequent chain of licences, and the defence based on estoppel by acquiescence. I also permitted Burnden to advance its counterclaim based on ownership and infringement of three designs which Laddie J had held belonged to earlier Quickfit companies and to which Burnden claimed to be a successor in title. The QCL assignments[103]As I have said, in the Burnden action Burnden claim as assignees of QCL. The assignments were made by the liquidator of QCL. Ultraframe challenged the validity of these assignments; and claimed that they should be set aside. Their application to set aside the assignments was struck out by HH Judge Maddocks. However, on Day 34 of the trial the Court of Appeal allowed Ultraframe's appeal, and remitted the application for hearing by a High Court judge: [2005] EWCA Civ 276 . That remitted application is still awaiting hearing. Unless and until they are set aside, I must proceed on the basis that the assignments are valid. THE PLEADED CASES The New Action Introductory[104]The evidence and cross-examinations ranged far and wide. However, in a case of this complexity, it is important not to lose sight of the wood for the trees. I shall therefore set out, in much simplified form, the essential case now pleaded against each of the main Defendants. I should emphasise that the case is brought by Northstar and Seaquest respectively, claiming as corporations and not by any member of either corporation claiming in his capacity as shareholder. I shall deal with the allegations of infringement of intellectual property rights when I come to the New IP Action. I shall return to the pleaded case in more detail when I come to my conclusions on the pleaded issues. The case against Mr Naden[105]In a nutshell the case pleaded against Mr Naden is as follows. i) Until October 1998 Mr Davies was a shadow or de facto director of Northstar (Para. 2.5). Mr Naden was a director of Northstar (Para. 2.3), and therefore owed it the usual duties of a director (Para. 5.1); ii) Mr Naden, on Mr Davies' instructions and together with Mr Birkett, caused Seaquest to be incorporated on 8 January 1998 (Para. 4.3). Mr Naden became a director of Seaquest (Para. 4.5) and therefore owed it the usual duties of a director (Para. 5.3); iii) On 25 January 1998 Mr Naden and Mr Birkett caused Northstar to assign the intellectual property rights in the Quickfit system to Seaquest (Para.4.6); iv) The assignments were ineffective (Para. 4.6). Moreover, in causing the assignment to be made, Mr Naden acted in breach of his duties to Northstar as director, because he was not motivated by the legitimate commercial interests of Northstar (Para. 4.7); v) On 6 November 1998 Mr Naden and Mr Birkett, as directors of Seaquest, caused Seaquest to grant a debenture in favour of Mr Fielding (Para. 7.4). In so doing Mr Naden acted in breach of his duties to Seaquest, because the debenture was granted for an improper purpose and not for the legitimate commercial purposes of Seaquest (Para. 8.3). In any event the Seaquest debenture was void for non-compliance with technical requirements of section 320 of the Companies Act 1985 (Para. 12.5); vi) On 17 November 1998 Mr Naden and Mr Birkett, as directors of Northstar, caused Northstar to grant a debenture in favour of Mr Fielding (Para. 7.7). In so doing Mr Naden acted in breach of his duties to Northstar, because the debenture was granted for an improper purpose and not for the legitimate commercial purposes of Northstar (Para. 8.3). In any event the debenture was void for non-compliance with technical requirements of section 320 of the Companies Act 1985 (Para. 9); vii) On 24 November 1998 Mr Naden and Mr Birkett purported to allot 900 shares in each of Northstar and Seaquest to Mr Fielding (Para. 7.12). The allotments of the shares were a breach of Mr Naden's duties to Northstar and Seaquest, because neither Northstar nor Seaquest derived any benefit from the allotments; and the allotments were made for an improper purpose (Para. 8.1) viii) In breach of his duties as director of Northstar and Seaquest Mr Naden allowed Mr Fielding to take over the businesses of the two companies for no or no sufficient consideration (Para. 14.6) and has failed to protect their intellectual property rights (Para. 14.12; and Para. 17.6).[106]Some of this pleading has apparently been "recycled" from the pleadings in the Leeds Consolidated Action. The allegation that the assignment of the intellectual property rights was invalid has not been pursued; and it is not easy to see how it could have been, in an action in which both assignor and assignee are co-claimants. Likewise the allegations relating to the allotment of the shares is of no continuing relevance, since HH Judge Behrens set aside the allotment in the Leeds Consolidated Action. The case against Mr Clayton[107]The case pleaded against Mr Clayton is as follows: i) Mr Clayton held shares in Northstar and Seaquest on trust for Mr Davies (Para. 4.4 and Para. 4.8); ii) On 1 April 1998 Mr Clayton was appointed a director of Northstar, but never took any part in its management (Para. 4.9); iii) Mr Clayton dishonestly signed forged and back-dated documents; and dishonestly supported Mr Fielding's false claim to ownership of 98 shares in Northstar and Seaquest (Para. 7.10; Para. 7.13 and Para 7.19); iv) Thus Mr Clayton dishonestly prolonged the de facto control of Northstar and Seaquest by Mr Fielding (Para. 25.1) and thereby dishonestly participated in the breaches of fiduciary duty by Mr Naden and Mr Fielding (Para. 25.3); v) Consequently Mr Clayton is liable as a constructive trustee to account or to pay equitable compensation for the resulting loss (Para. 25.4). The case against Mr Fielding[108]The case pleaded against Mr Fielding is as follows: i) At a meeting in about October 1998 at the Nag's Head (which Mr Fielding did not attend) Mr Davies told Mr Birkett to arrange the transfer of shares in Northstar and Seaquest from Mr Clayton to Mr Fielding (para7.1 ) ii) At a meeting in October 1998 at the Riverhead Tap Mr Fielding participated in a discussion about the transfer of the shares registered in the name of Mr Clayton to himself and how it could be made to appear that Mr Fielding had been investing money in Northstar and Seaquest so that he could take security over their assets and exercise direct control over them (Para.7.2 ); iii) From about October 1998 Mr Naden and Mr Birkett were accustomed to act at the direction of Mr Fielding, with the consequence that Mr Fielding became a de facto or shadow director of Northstar and Seaquest (para. 11.2); iv) As a de facto or shadow director, Mr Fielding owed Northstar and Seaquest the same fiduciary duties as if he had been a duly appointed director (para.12.1 ); v) In November 1998 Mr Fielding claimed to be the owner of 98 shares in each of Northstar and Seaquest and produced back-dated share transfer forms in support of his claim (Para. 7.9). He subsequently produced forged or back-dated documents in support of the same claim (Para. 7.13); vi) On 6 November 1998 Mr Fielding took a debenture over Seaquest's assets (Para. 7.4) and on 17 November 1998 took a debenture over Northstar's assets (Para. 7.7). Mr Naden and Mr Birkett exercised their powers to grant the debentures at Mr Fielding's direction (para 8.3). In directing Messrs Naden and Birkett to grant him the Northstar debenture and the Seaquest debenture, Mr Fielding was in breach of his fiduciary duties to those companies (Para12.2 and12.3 ); vii) Mr Fielding subsequently produced forged and back-dated documents in support of his claim that he had lent money to each of those companies (Para. 7.15 and Para. 7.17), and dishonestly swore an affidavit telling the same story (Para. 7.18); viii) Mr Fielding knew that Messrs Naden and Birkett had improperly used their powers to procure the grant of the Northstar and Seaquest debentures, and consequently cannot rely on the usual protection given to persons dealing with a company in good faith (Para. 9.2); ix) On 24 November 1998 Mr Fielding directed Messrs Naden and Birkett to allot to him 900 shares in each of Northstar and Seaquest (Para. 7.11); x) Mr Fielding had also engineered the improper allotment of shares by Messrs Naden and Birkett and the improper grant of the debentures (Para. 11.1); xi) Mr Fielding dishonestly took advantage of these breaches of fiduciary duty on the part of Mr Naden and Mr Birkett to take control of both Northstar and Seaquest; and then used his control of those companies to misappropriate their businesses (Para. 11.1); xii) Alternatively, since he was a shadow or de facto director of Northstar and Seaquest, various formalities should have been observed under section 320 of the Companies Act, but were not; in consequence of which the Northstar debenture and the Seaquest debenture should be set aside (Para. 12.5; Para 12.5A; Para. 12.6 and Para 12.7); xiii) Since November 1998 Mr Fielding (or companies which he controls) have entered into trading transactions with Northstar and Seaquest on terms which are over-favourable to Mr Fielding and his companies. He also charged rent and licence fees to Northstar and Seaquest which were far in excess of what they had paid at their previous premises. These transactions all involved a conflict of interest between Mr Fielding on the one hand and Northstar and Seaquest on the other (Para. 14.1; Para. 14.2; Para. 14.3 and Para. 14.5); xiv) Consequently Mr Fielding was in breach of his fiduciary duties as shadow or de facto director of Northstar and Seaquest; and is therefore liable to account for any profit or to pay equitable compensation for any resulting loss (Para. 14.7; Para. 14.10); xv) The grant of the leases and each arrangement for the supply of goods and the levying of management charges should have complied with the technical requirements of section 320 of the Companies Act 1985, but did not (para 14.8) xvi) From about November 1998 Mr Fielding used his de facto control of Northstar and Seaquest to cause their businesses to be taken over by other companies that he controlled for no or no adequate consideration (Para. 15.1 and Para. 15.3) xvii) On 21 June 1999 Mr Fielding appointed an administrative receiver over Northstar who sold Northstar's remaining plant and equipment to TBG. That sale should have complied with section 320 of the Companies Act 1985 but did not (para. 16.7); xviii) On 29 October 1999 Mr Fielding became a director of Seaquest (para 17.1). On 23 November 1999 Seaquest granted an exclusive licence to BCP to exploit the intellectual property rights belonging to Seaquest. The licence was granted for an improper purpose (para 17.7) and its grant ought also to have complied with section 320 of the Companies Act, but did not (Para. 17.3); xix) Mr Fielding is liable to account for all profits made by him or his companies arising out of the impugned transactions. The case against Mrs Fielding[109]Although Mrs Fielding does not feature in the pleaded narrative, the case against her is that she played an active role in the management of Mr Fielding's companies; and dishonestly participated with him in the various breaches of fiduciary duty (Para. 22). It is not alleged that she owed any fiduciary duties to either Northstar or Seaquest. The case against the corporate defendants[110]The corporate Defendants are BCP; The Burnden Group plc; Burnden Holdings (UK) Ltd and K2 Conservatory Roof Systems Ltd. The pleaded case against them is as follows.[111]It is alleged against BCP and TBG that: i) Kesterwood Extrusions Ltd, Dearward Ltd, Dearward Profiles Ltd, BCP and TBG have knowingly received property of Northstar and Seaquest (namely money) as a result of Mr Fielding's breaches of fiduciary duty (para. 14.7 (1) and (2)); ii) The profits of Mr Fielding and of Kesterwood Extrusions Ltd, Dearward Ltd, Dearward Profiles Ltd, BCP and TBG derived from "such transactions" are held on trust for Northstar and/or Seaquest and BCP and TBG are liable to account to Northstar and/or Seaquest for those profits (para. 14.7 (3)); iii) BCP and TBG are liable to account to Northstar and/or Seaquest for any gain made directly or indirectly as a result of the grant of the leases by Mr and Mrs Fielding to Seaquest and any gain made as a result of the trading arrangements and the levying of management charges (para. 14.9) iv) From 22 April 1999 BCP and TBG sold infringing copies of designs belonging to Northstar and by so doing "dishonestly participated in" a breach of fiduciary duty by Mr Naden and Mr Fielding who failed to require the payment of commission (para 14.12 (2)); v) BCP and TBG are therefore liable to account to Northstar and/or Seaquest for all profits derived from such trading (para 14.14 (1)) or to pay equitable compensation (para 14.14 (2)); vi) BCP took over Northstar's business as a going concern for no adequate consideration (para 15.3). The transfer of the component business and stock should have been approved by the shareholders of Northstar in general meeting, but was not (para 15.5). Consequently the transfer should be set aside (para 15.5); and BCP is liable to account to Northstar for any gain which it made directly or indirectly from the transfer (para 15.6); vii) The sale by the receiver of Northstar to TBG of Northstar's plant machinery and other chattels should have been approved by the company in general meeting, but was not (para. 16.7). Consequently the sale should be set aside (para. 16.7) and TBG is liable to account to Northstar for any gain made directly or indirectly on the sale (para 16.8); viii) The grant of the licence to BCP to exploit the intellectual property rights should have been approved by the shareholders of Seaquest in general meeting but was not (para 17.3) and was granted for an improper purpose (para 17.7). Consequently it should be set aside (para 17.7); and BCP is liable to account to Seaquest for any profit or gain it has made from the grant of the licence (para. 17.8) or to pay equitable compensation (para 17.9); ix) TBG is similarly liable to account for any gain which it has made directly or indirectly from the grant to it by BCP of an exclusive sub-licence (para 19.8) x) Because of Mr Fielding's knowledge of Mr Naden's and Mr Birkett's breaches of fiduciary duty, and because they received the businesses of Northstar and Seaquest otherwise than for consideration, BCP and TBG hold the businesses and assets derived from Northstar and Seaquest on trust for Northstar and Seaquest and are liable to account for all profits derived from them (para 21.3); or are liable to pay equitable compensation (para 21.6); xi) The entire businesses of BCP and TBG are held in trust for Northstar and Seaquest (para 24B (2)).[112]The case against BHU and K2 is that Northstar and Seaquest are entitled to trace all profits or gains of BCP and TBG into the property of BHU and K2; and consequently BHU and K2 are liable to account "for the same" (para 24.2B (1)). This includes the distribution by TBG to BHU of property in specie (para 24B).[113]It is also alleged against K2 that the diversion of TBG's business to K2 constituted knowing receipt by K2 of trust property (para 24B (2) (b)(i)) and a dishonest breach of trust by TBG as trustee of its business and assets for Northstar and Seaquest in which K2 dishonestly participated (para 24B (2)(b)(ii)). K2 is therefore liable to account to Northstar and Seaquest for all its profits or to pay equitable compensation equal to the value of the business diverted. The New IP action and intellectual property rights issues[114]As I have said, the claim in the New IP action is that Burnden have manufactured and sold designs infringing those design rights that Laddie J and the Court of Appeal held to have belonged beneficially to Northstar at the date of Mr Davies bankruptcy. The alleged infringement consists of manufacturing or allowing others to manufacture the "K2" system. I have struck out those parts of Burnden's defence that disputed beneficial ownership by Northstar as at that date. However, I allowed Burnden to continue to advance those allegations that relied on: i) The assignment of the intellectual property rights from Northstar to Seaquest and ii) The subsequent licence from Seaquest to BCP and the sub-licence from BCP to Burnden.[115]Burnden also alleges that until November 2002 any act which would otherwise amount to an infringement of design right was carried out with the acquiescence of both Northstar and Seaquest. The role of the pleadings[116]Mr Snowden's exhaustive legal analysis was closely tied to the pleaded case against the Burnden Defendants. Mr Hochhauser accused him of construing the pleading as if it were a statute and submitted that, in effect, Ultraframe should not be tied to its pleaded case. He relied on the observations of Lord Woolf MR in McPhilemy v. Times Newspapers Ltd [1999] 3 All ER 775 :
"The need for extensive pleadings including particulars should be reduced by the requirement that witness statements are now exchanged. In the majority of proceedings identification of the documents upon which a party relies, together with copies of that party's witness statements, will make the detail of the nature of the case the other side has to meet obvious. This reduces the need for particulars in order to avoid being taken by surprise. This does not mean that pleadings are now superfluous. Pleadings are still required to mark out the parameters of the case that is being advanced by each party. In particular they are still critical to identify the issues and the extent of the dispute between the parties. What is important is that the pleadings should make clear the general nature of the case of the pleader. This is true both under the old rules and the new rules. The Practice Direction to CPR 16, paragraph 9.3 requires, in defamation proceedings, the facts on which a defendant relies to be given. No more than a concise statement of those facts is required. As well as their expense, excessive particulars can achieve directly the opposite result from that which is intended. They can obscure the issues rather than providing clarification. In addition, after disclosure and the exchange of witness statements pleadings frequently become of only historic interest."
[117]That case concerned an objection to excessive particulars being given in support of a plea of justification in a libel action. The result of the appeal was that the particulars were allowed. Lord Woolf's observations were directed to "excessive" particulars; not to essential allegations. It is to be observed, moreover, that Lord Woolf emphasised that pleadings are not superfluous and are still "critical to identify the issues". This point was amplified by Lord Phillips MR in Loveridge v. Healey [2004] EWCA Civ 173 as follows:
"It is on the basis of the pleadings that the parties decide what evidence they will need to place before the court and what preparations are necessary before the trial. Where one party advances a case that is inconsistent with his pleadings, it often happens that the other party takes no point on this. Where the departure from the pleadings causes no prejudice, or where for some other reason it is obvious that the court, if asked, will give permission to amend the pleading, the other party may be sensible to take no pleading point. Where, however, departure from a pleading will cause prejudice, it is in the interests of justice that the other party should be entitled to insist that this is not permitted unless the pleading is appropriately amended. That then introduces, in its proper context, the issue of whether or not the party in question should be permitted to advance a case which has not hitherto been pleaded."
[118]Lord Phillips expressly rejected the submission that the court should "disregard the pleading rather than … close its eyes to what are admitted to be the true facts".[119]In addition the Practice Direction accompanying CPR Part 16 says in paragraph 8.2 that the Particulars of Claim must "specifically set out" "any allegation of fraud" and "details of all breaches of trust" on which the claimant intends to rely in support of his claim. To my mind this includes not only the relevant state of mind; but also the overt acts that are relied on as amounting either to fraud or to breach of trust. In addition, where (as here) the direct evidence of fraud or breach of fiduciary duty adduced by the claimant has changed over the course of the litigation, the formal pleadings take on a more important role than in the type of case that Lord Woolf MR was considering in McPhilemy .[120]Although I accept that it would be wrong to construe a pleading like a statute; nevertheless Ultraframe are limited to their pleaded case, fairly read. THE MAIN ISSUES I HAVE TO DECIDE[121]Based on the pleadings, it seems to me that the main issues I have to decide are: i) Did Mr Fielding become a shadow or de facto director of Northstar and if so when? ii) Did Mr Fielding become a shadow or de facto director of Seaquest and if so when? iii) What duties (if any) does a shadow director (as opposed to a de facto director) owe to the company in question? iv) Was the grant of the Seaquest debenture a breach of fiduciary duty by the directors of Seaquest? v) Was the grant of the Northstar debenture a breach of fiduciary duty by the directors of Northstar? vi) Which (if any) of the impugned transactions ought to have complied with section 320 of the Companies Act 1985? vii) Did Mr Fielding or his companies misappropriate the businesses of Northstar or Seaquest, or assets belonging to those companies? viii) If breaches of fiduciary duties are established, who (if anyone) is liable for dishonest assistance in their commission? ix) If property has been transferred in breach of fiduciary duty, who (if anyone) is liable for knowing receipt of such property? x) To what extent (if at all) can such property be traced into the businesses of companies within the Burnden Group and assets owned by those companies? xi) What are the appropriate remedies for such breaches of duty (if any) as have been established? xii) How much do Northstar and Seaquest respectively owe Mr Fielding? xiii) Are those debts secured or unsecured?[122]I must also determine the issues in the New IP Action and the Burnden Action; but I will do so in the last parts of this judgment. MR FIELDING: HIS BUSINESSES AND PROPERTY INTERESTS Early business life[123]Mr Fielding left school at sixteen. He says that during his youth his grandmother introduced him to gambling; both card playing and betting on horses. His success as a card player was such that within a few years no one would play with him; and he retired from card playing at the age of 21. By then he says he had acquired a cash surplus of about £25,000 which he kept in an old suitcase in a wardrobe in his bedroom. By 1979, when Mr Fielding married for the first time, his cash pile had increased to £30,000 and he had £10,000 in the bank as well. He says that he did not reveal this to his first wife. The matrimonial home was sold in 1991. Mr Fielding says that this realised a surplus of £52,000 which he invested in the stock market. He and his wife separated in July 1992. There were three children of the marriage. Mr Fielding had continued to gamble and also to speculate on the stock market. By the time of the separation, he says, he had a cash surplus of some £400,000, which he kept at his mother's house. Quantity surveying[124]Mr Fielding began his business career as a quantity surveyor. Nominally he traded in partnership with his wife. In 1986 he was introduced to Mr James Hope who was working for Brown Boveri Ltd. Brown Boveri had won a contract to install district heating in Sheffield, and Mr Fielding was taken on as a self-employed sub-contractor to provide quantity surveying services and project management. The project was, apparently, a great success, and Mr Hope was very impressed with Mr Fielding. Thereafter, they worked together regularly. Brown Boveri went through a number of changes of ownership. In the autumn of 1997 it tendered successfully for a large project in the Shetland Isles, consisting of the design and construction of an energy centre; and the completion of a waste to energy plant. Mr Fielding was engaged as project manager. The project required him to spend a lot of time in the Shetland Isles during much of the period covered by the events in issue in this case. Kilohurst[125]Kilohurst Ltd was run by a good friend of Mr Fielding's called Colin Owen. Its business was the manufacture of cardboard tubes. In August 1994, while on holiday with Mr Owen, Mr Fielding agreed to invest £20,000 in Kilohurst, which was suffering financial problems. Mrs Fielding (as she would become in July 1995) was on the same holiday. She did not trust Mr Owen, and told Mr Fielding that he was mad to invest the money; but he did not listen to her. The money was intended to come from the sale of some shares on the stock market. The proceeds of sale of the shares were a little less than £68,000; and the initial intention was that they would all be paid to Kilohurst; and that Mr Fielding would collect the balance over £20,000 on his return from holiday. However, the proceeds of sale were not released until later than expected; so on his return Mr Fielding says that he lent Kilohurst £10,000 in cash. However, an examination of the contemporaneous documents showed that the sum of £10,000 was not provided in cash. It was provided by Mr Fielding making over a blank cheque from a company called Seathurst Ltd in favour of Kilohurst. This company was run by Mr Con Cunningham, another friend of Mr Fielding's, who will feature again in the story. It was subsequently agreed that the amount that Mr Fielding would lend Kilohurst would be £70,000 repayable in March 1995. This agreement was documented by an exchange of letters dated 30 August 1994 and 2 September 1994 respectively. Mr Fielding said that the reason why the agreement was documented was because Mr Owen was not the sole owner of the company. If he had been, Mr Fielding said that the agreement would have rested on a handshake. But since Mrs Fielding had expressed her distrust of Mr Owen in no uncertain terms, I consider that Mr Fielding listened to her enough to ensure that his agreement with Mr Owen was recorded in writing. I do not, therefore, accept Mr Fielding's evidence in this respect. By December 1994 Kilohurst was still in financial difficulty, and Mr Fielding agreed to buy a new machine for Kilohurst, at a cost of £40,000, in return for which he was to acquire a shareholding in Kilohurst. It seems that this agreement was never implemented.[126]By August 1995 Mr Fielding says that he was a major creditor of Kilohurst "with no obvious prospect of repayment." He instructed accountants to investigate Kilohurst's finances; and was advised that it was in a poor financial state. Kilohurst went into creditors' voluntary liquidation in October 1995. The formation of Dearward[127]In January 1995, Mr Owen had had the idea of diversifying into the manufacture of plastic extrusions. Mr Fielding agreed to provide £20,000 as start up capital to buy a second-hand extrusion line. In April 1995 Kilohurst Plastics Ltd was incorporated with Mr Fielding owning 75 per cent of the shares and Mr Owen owning the remaining 25 per cent. The reason why a new company was incorporated was that Mr Fielding appreciated, even at that time, that Kilohurst was in financial difficulty; and he did not want to throw good money after bad. In August 1995 Kilohurst Plastics Ltd changed its name to Dearward Ltd. In the autumn of 1995 Mr Owen resigned as a director of Dearward; and transferred his 25 per cent shareholding, for no consideration, to Mrs Sally Fielding. Mrs Fielding was appointed the Sales Director of Dearward in September 1995. However, she says that she did not begin to work for Dearward until the beginning of 1996. The reason for the change of name and Mr Owen's resignation was Kilohurst's financial difficulty, and Mr Fielding's desire to distance the plastics extrusion business from it. Dearward now entered the extrusion business.[128]In October 1995 Mr Fielding agreed to buy a factory unit in Heywood near Bury for £650,000; and shortly afterwards Dearward moved into it (although Mr Fielding subsequently pulled out of the agreement to purchase in January 1996, so the purchase was never completed). At about the same time, as I have said, Kilohurst went into creditors' voluntary liquidation. The unsecured creditors got nothing. When Kilohurst went into liquidation: i) Mr Fielding himself bought a cardboard core machine from the liquidator although he subsequently transferred it to Dearward, leaving the purchase price as a debt owed by Dearward to him. The price he paid was below the book value of the assets; ii) Mr Fielding also bought Kilohurst's stock; iii) Dearward began manufacturing cardboard cores, which had been Kilohurst's business; iv) Dearward employed all Kilohurst's employees, who had been made redundant by the liquidator; v) Dearward engaged Mr Owen as a consultant for about six months. Kilohurst: a summary[129]Mr Fielding's involvement with Kilohurst can be summarised as follows: i) Mr Fielding lent money to Kilohurst; ii) The loan was unsecured; iii) When Kilohurst went into liquidation, Mr Fielding acquired some of its assets from the liquidator; iv) Kilohurst's staff were employed by the new company, Dearward, which Mr and Mrs Fielding owned; v) Dearward carried on the business that had formerly been carried on by Kilohurst. Dearward[130]Mrs Fielding says that Dearward's business was under her day to day control from the spring of 1996; although from early 1997 she shared it with Mr Bryan Burrows, who had recently been appointed as production director. Mr Fielding was not involved, except when issues of funding arose. Although Dearward's principal business was the manufacture of cardboard cores following Kilohurst's liquidation, it also had an extrusion machine which was not working properly. An acquaintance of Mr Owen's called Jim Sheffield ran a company called Kesterwood Ltd. Kesterwood's business was the extrusion of plastic profiles for businesses in various industries. For example, Kesterwood extruded hula hoops for the toy industry, curtain tracks, tubes for gaming machines, DIY extrusions and tubing for the plumbing trade. These were basic trade extrusions. Kesterwood was a competitor or potential competitor of Dearward. Nevertheless, Mr Sheffield sent one of his employees, Mr Andy Shaw, to see if he could get Dearward's extrusion machine going. It seems that Mr Sheffield was willing to help a competitor on the principle that one good turn deserves another. While he was helping to get the machine going, Mr Shaw came across Mr Fielding. The impression he had was that Mr Fielding was the man in charge. Once the machine was working, Mr Fielding bought Mr Shaw a drink. It is not entirely clear when this episode took place; but it was probably in late 1995. Kesterwood[131]Kesterwood, too, was having cash flow difficulties. In December 1995 Mr Fielding lent Mr Sheffield £13,000 in cash to settle outstanding tax due from Kesterwood to the Inland Revenue, who were threatening to distrain. It seems that Mr Sheffield's belief that one good turn deserves another had paid off. Mr Fielding did not recall that specific terms for repayment were agreed at the time, although Mr Sheffield recalled that Mr Fielding was willing to accept repayment in instalments, as and when Kesterwood could afford to repay. However, on 4 December 1995 Mr Sheffield sent Mr Fielding a fax in which he said that "as discussed" he would transfer title in certain extrusion machines, which were not financed or leased, to Mr Fielding until such time as the loan was repaid. Mr Sheffield said that this was his idea and that he had not previously discussed it with Mr Fielding. Mr Sheffield's evidence about what the letter was supposed to do was somewhat confused.[132]Mr Fielding attended a meeting with Mr Sheffield in January 1996, to discuss repayment of the loan. Although Mr Fielding says that he expected to come out with his £13,000 back, the upshot of the meeting was that he agreed to lend Kesterwood a further £87,000 (making £100,000 in all) in return for 66 per cent of its shares. He envisaged that the loan would be repaid as and when the company regained prosperity; and that even if the loan were repaid he would keep the 66 per cent shareholding. Mr Fielding and Mr Sheffield disagreed in their recollections of who suggested that Mr Fielding should acquire a 66 per cent shareholding; but both agreed that without the shareholding the loan would not have been made. Nothing was agreed in writing, and Mr Fielding says that he never saw a share transfer form and was never provided with any share certificates. Mr Sheffield confirmed that the loan was made on a handshake without documentation; which left him "absolutely gobsmacked". The meeting at which the agreement was reached was chaired by Mr Hindley who was providing accountancy services for Kesterwood. It was Mr Fielding's first encounter with Mr Hindley. Mr Fielding says that he provided the money in three tranches and also agreed to give his personal guarantee of some of Kesterwood's debts. This money was paid out of a joint account that Mr Fielding had with his mother. Mr Sheffield did not give him a receipt for the money. Mr Shaw recalled that he had been told at the time that Mr Fielding had lent Kesterwood £87,000, but did not know the terms on which it was lent. Mr Shaw said that even after the loan had been made, Mr Fielding did not play an active part in the business. He was away a lot on his quantity surveying work. However, Mr Shaw did recall that Mr Fielding came down to the factory and addressed the staff, saying that he wanted the company to go forward and that there was good work coming in. Mr Gray also recalled both Mr and Mrs Fielding coming to the factory. Although he was unable to date the visit, he recalled that they came to the factory at Deakins Mill; which was before Kesterwood moved to Burnden Works in November 1996. Mrs Fielding also recalled that she had been asked to go and "smile at the workforce", although she said that she played no active part in the business.[133]Although he had no recollection of having done so, Mr Sheffield signed the appropriate forms for registering the shareholdings. Both Mr and Mrs Fielding were registered as shareholders of Kesterwood, holding 200 shares each. Mr Sheffield and his wife held 95 shares each, with the remaining 10 being held by a Mr Whitehead. ASM[134]In February 1996 Mr Fielding bought one third of the share capital of ASM, which was held by Ken Hopwood, for £30,000. The money was paid in cash, from the cash hoard that Mr Fielding kept at home; but Mr Fielding says he received neither a share certificate or a share transfer form. Acquisition of the Burnden Works[135]In about March 1996 Mr Sheffield introduced Mr Fielding to Burnden Works. This was a factory complex in Bolton in a run-down condition. Mr Shaw went with him to look at it. Mr and Mrs Fielding agreed to buy it for £350,000 with the aid of a bank loan. They both put up their homes as collateral security for the loan. Mr Fielding also borrowed some £34,000 from Mr Con Cunningham. Contracts were exchanged in June 1996 and Mr Fielding set about refurbishing it. A number of gangs of workers were directly employed; and those involved in the refurbishment included Mr Shaw and Mr Gray. At about the same time Kesterwood temporarily ceased its manufacturing activities; although it continued in business by securing orders and sub-contracting them to other manufacturers.[136]ASM, Kesterwood and Dearward all moved into Burnden Works over the winter of 1996 to 1997. Kesterwood moved in November 1996. The refurbishment was complete by March 1997 and all three companies entered into 10 year leases. The bank's valuers reported that all the industrial production space had been brought into use; and the first floor had been converted into high quality offices. The landlord was Mr and Mrs Fielding's quantity surveying partnership, GJ & SA Fielding. The total rent roll was nominally some £150,000 per annum; and repayments on the loan (both interest and capital) were then running at some £96,000 per annum. The building was valued, after the refurbishment, at £1.355 million. However, it is clear that Kesterwood never paid any rent to Mr Fielding. When it went into liquidation about a year later, the arrears of rent were some £66,000. Kesterwood's rent was £5,000 per month; so as Mr Fielding said the rent that Kesterwood were liable to pay was £60,000 a year. Since that rent was never paid, it must follow that the rent was barely keeping down the mortgage repayments. Mrs Fielding said that she did not know, at the time, that Kesterwood had failed to pay its rent.[137]At about this time Mr Fielding says that his quantity surveying work was producing a profit for him of some £200,000 per annum. Mr Shaw said that Mr Fielding did not play an active part in the business of Kesterwood, even at this time; and that he was busy in Scotland. As far as Mr Shaw was concerned Mr Sheffield was in charge of Kesterwood, although he thought that Mr Sheffield probably had discussions with Mr Fielding. Mrs Fielding[138]Mrs Fielding says that she had no involvement with the business of Kesterwood, despite holding shares in it, or ASM. NORTHSTAR AND SEAQUEST: EVENTS TO NOVEMBER 1998 Introductory[139]Northstar had been incorporated in May 1996. Its first director was the company formation agent, Mr Vibrans. He was replaced on 4 June 1996 by Mr Pendragon, to whom 98 shares were also allotted. Mr Pendragon executed a declaration of trust of those shares in favour of Mr Davies. The remaining two shares continued to be held by the company formation agent. Mr Pendragon was also Mr Davies' nominee as director. On 16 September 1996 Mr Pendragon resigned as a director, and Mr Naden was appointed in his stead. On the same day all the shares in Northstar were transferred to Mr Naden. At the material time, therefore, he was the sole director of Northstar; and the registered owner of all the share capital.[140]It is clear that Mr Vibrans, Mr Pendragon and Mr Davies expected that Mr Naden would hold the shares on trust for Mr Davies. It had at one time been thought that the shares might be transferred to Ms Owen as Mr Davies' nominee; and a draft declaration of trust to that effect (with the typed date of 1997) is among the case papers. However, this was not proceeded with; perhaps because Ms Owen was an undischarged bankrupt at the time. On 17 October 1996 Mr Vibrans prepared a draft declaration of trust for Mr Naden to sign; and sent it, together with the stock transfer form, to Mr Pendragon. However, no completed declaration of trust has ever been found. Mr Naden says that he was unaware until the summer of the following year that the shares had been registered in his name. What he says is that when, in the summer of 1997, he discovered that the shares had been registered in his name, he questioned Mr Davies who said that he was giving him the company. He attributes this generosity to Mr Davies' lack of interest in roof fabrication (as opposed to design of the Quickfit system). He told Mr Davies that he had no money to invest, but Mr Davies told him that he (Mr Davies) would continue to support the company.[141]It seems likely that Northstar became the corporate entity for exploitation of the Quickfit system because Quickfit Conservatories Ltd was under attack by Ultraframe, which had written to its suppliers alleging infringement of intellectual property rights. In a conversation with his solicitors on 16 September 1996 Mr Davies is recorded as having said that he was inclined "to let the company disappear and to pocket the money". Despite Ultraframe's attempts to choke off supplies of materials, Alumax were persuaded to continue supplies of aluminium. Mr Hacking recorded a note of a conversation that he had had with Mr Vince Botham of Alumax on 15 October 1996 in which the latter expressed the view that Ultraframe were trying to put Quickfit out of business. Mr Davies and Mr Hacking discussed the problems. Mr Davies told Mr Hacking that he would like to "get manufacturers tied up for confirmation of supply"; but Mr Hacking advised against it for the time being. Mr Davies said that it was something to think of for the future. Mr Hacking appears to have followed up this suggestion in the following year. At about the same time, Northstar was under pressure to give an undertaking not to sell products which infringed Ultraframe's intellectual property rights. On the following day Mr Botham indicated that on the advice of their lawyers, Alumax would stop supplying Quickfit. Mr Hacking wrote to him a few days later in an attempt to persuade him that his fears were misplaced. This, and possible fears that a refusal to supply Northstar might fall foul of competition law, persuaded Alumax to continue supplies. Northstar's business at the beginning of 1997[142]At the beginning of 1997 Northstar's business was threefold. First, it fabricated roofs, using the Quickfit system. Second, it sold components for the Quickfit system, often to fabricators who were its direct competitors in the sale of fabricated roofs. Third, it collected commissions on sales of other parts of the Quickfit system (such as aluminium and uPVC extrusions) which it did not manufacture itself.[143]The original components of the Quickfit system had been designed by Mr Davies himself. In January 1997 Mr Tom Clarke joined Northstar. He had previously worked for one of the earlier Quickfit companies, but he had left for a while. Mr Clarke's role was primarily that of a designer, working alongside Mr Davies. But he was also close to Mr Davies, having known him for some years; and they often discussed matters of design and the practicality of Mr Davies' design ideas.[144]Northstar obtained its supplies of aluminium extrusion from Alumax Extrusions Ltd. Mr Davies was the main point of contact with Alumax; although Mr Clarke was also in occasional communication with them. Mr Botham of Alumax gave evidence at the trial. Northstar obtained most of its uPVC extrusions from Axis Profiles Ltd, a company in Liverpool. FROM MR FIELDING'S FIRST ENCOUNTER WITH NORTHSTAR TO THE SUPPLY AGREEMENT Mr Fielding's case First contact with Northstar[145]Mr Adrian Cooper joined Kesterwood as a sales representative in the summer of 1996. Mr Fielding was present at his job interview, together with Mr Sheffield. Mr Cooper was given to understand at his interview that Mr Fielding was providing financial backing to Kesterwood; and that this investment might enable Kesterwood to offer free tooling to potential customers. In the late autumn of 1996 (at about the time of Kesterwood's move to Burnden Works, which took place in November 1996), Mr Cooper came across the name of Quickfit. It was a name that featured on a customer list, emanating from Axis Profiles Ltd, one of Kesterwood's competitors, which Mr Cooper had been given by an acquaintance of his who had worked for Axis. The name "Northstar" did not feature on the list. Mr Cooper was given the name of Howard Davies as the contact. After several attempts at making contact by telephone, Mr Cooper spoke to Mr Davies in the new year of 1997. Mr Cooper and Mr Davies met at Northstar's premises at Groby Road, some time in early 1997. From Mr Cooper's perspective this was a sales pitch by Kesterwood to attract business for its extrusion line. One of Mr Davies' requirements was for co-extruded products, for which Kesterwood did not have the necessary machinery. Nor, without Mr Fielding's help, did it have the money to buy it. But Mr Davies said that he was being let down by Axis; and mentioned that there might be significant volumes of business. Mr Cooper said that he recalled that Mr Davies mentioned that if the company would supply new tooling then he would enter into a supply agreement for three years or even longer. On his return Mr Cooper was quite excited; and discussed the matter with Mr Sheffield. Mr Sheffield, according to Mr Cooper, thought that three to six new extrusion lines would be needed. Mr Cooper says that he sent a typed memo to Mr Fielding on 13 February 1997, explaining the situation and asking him to discuss the matter and, shortly afterwards, they met. The memo appears on the headed paper of Kesterwood Ltd. It bears the date 13 th February 1997. It is addressed to Mr Fielding from Mr Cooper. It reads as follows:
" Re- New Conservatory Roof System Sole UPVC Extrusion Supplier Following a lead from one of our compound suppliers, I made a call on the 10 th February 1997 to Northstar in Audenshaw who are in the initial stages of developing a new revolutionary conservatory roof system and they are looking for a company to assist in the UPVC extrusions. There are potentially large volumes of new business but there would be a significant amount of new capital required in R & D plus new extrusion plant. I would be grateful if you could spare some time next week to enable me to present the project to you more fully."
[146]It is common ground that the lead did not emanate from a supplier; but from the Axis customer list. It is also common ground that Mr Cooper did meet Mr Davies on or about 10 February 1997, as the memo says. However, Ultraframe say that the description of the meeting is a later fabrication; and that the document was written by someone else and placed before Mr Cooper for signature at a much later date. Mr Cooper denied that this was so; and maintained that he was the author of it, and that it was composed on the date it bore. Mr Cooper was, however, not clear when he discovered that the name of the company was "Northstar" as opposed to "Quickfit", which was the name that been given to him on the customer list that led to his initial meeting. Although many of Mr Cooper's communications are in his own handwriting, he says that this memo was typed for him. Mr Cooper said that at the time when he wrote the memo he did not know that Northstar owned any of its own tools.[147]Mr Shaw (who worked on the shop floor at Kesterwood) recalls that shortly after Kesterwood's move to Burnden Works in November 1996 Mr Cooper came in with a new customer lead and asked him about taking on conservatory business. He recalled that Mr Cooper was quite excited, and thought that there could be good orders to come onto the books. Mr Shaw was confident that Kesterwood had the skills to produce the more sophisticated extrusions that would be required. But Kesterwood did not have a co-extruder, which would be needed if the customer lead materialised into new business.[148]Mr Fielding says that he and Mr Cooper met on 19 February 1997 and that he made a manuscript note of the meeting. The relevant parts of Mr Fielding's notes read:
"1. [Northstar] Ltd: New company who want to launch a new cons. Roof system. 2. They want 3 to 6 dedicated extrusion lines to their product – extrusion company to pay for new tooling & development of tooling in terms of making sure system works 3. In return they are willing to sign contract for 3 years guaranteed sole supplier with option to renew. 4. Contact points Tom Clarke & Howard Davies."
[149]Although Ultraframe are not in a position to dispute that a meeting between Mr Cooper and Mr Fielding took place on or about 19 February, they say that the memo is a forgery; and that description of the meeting is a fabrication. Mr Cooper had no clear recollection of this meeting; but he had no reason to doubt that the notes (which he did not see at the time) were accurate. Mr Fielding said that he recalled that Mr Cooper told him about Northstar (using that name rather than Quickfit), and told him that it was a new company. Mr Cooper did not tell him that Northstar already had a supplier of uPVC extrusions; and did not say that Northstar owned its own tooling; or, indeed, anything about the ownership of existing tooling. Mr Fielding said that he did not ask Mr Cooper who was in charge of Northstar, or what the respective roles of the two contact points (Mr Davies and Mr Clarke) were, because he intended to find that out at a meeting to be held with Northstar. Mr Fielding was certain that Mr Cooper referred to three to six dedicated extrusion lines; but he did not refer to the need for a co-extrusion machine. He also recalled that Mr Cooper definitely spoke of a potential three year guaranteed sole supply for a company that was prepared to invest in new tooling. However, Mr Fielding made no inquiry at that stage about how much new tooling would cost, or what level of commitment might be required for new machines. His attitude was that all this would be discussed at a future meeting with Northstar. The matter was left with Mr Cooper to arrange a meeting with Northstar.[150]A further meeting with Mr Davies, attended by both Mr Cooper and Mr Fielding, took place at Groby Road on 7 March 1997. Mr Fielding recorded the appointment for this meeting in a diary entry. Mr Sheffield did not attend the meeting, despite the fact that he was the managing director of Kesterwood. He says that he did not attend because Mr Cooper was his protégé and he was keen to give him his head. Mr Fielding says that he himself attended because of the possibility that he would be putting more money into the business. He recalled that he told the Northstar representatives that he was the funder of Kesterwood; and that he also owned some other companies within the factory complex at Burnden Works. Mr Fielding says that he made notes of the meeting, the authenticity of which is also challenged. Accompanying Mr Davies were Mr Naden and Mr Clarke. Mr Davies led the meeting. He introduced the others, including Mr Naden as the managing director. Mr Naden, according to Mr Fielding, was "pretty quiet" and just sat and listened. Mr Fielding agreed that this was not the sort of behaviour he would have expected of the managing director. Mr Fielding summarised the meeting as follows: i) Northstar wanted a new extrusion company to supply them to replace Axis Profiles who were their supplier of uPVC extrusions at the time. Northstar were also looking to two other extrusion companies who were both said to be "major players" and whose customers were interested in Northstar's products. ii) Northstar envisaged that they would be looking to place with Kesterwood within twelve months orders for £120,000 per month for uPVC extrusions, increasing to £250,000 per month within a further twelve months. Northstar asked whether Kesterwood was capable of servicing that level of turnover. iii) The extrusion company would need to guarantee 3 to 6 extrusion lines (depending on the time of year), working 7 days a week, dedicated solely to producing extrusions for Northstar's roof system. iv) Mr Fielding informed Northstar that, they were interested but, due to potentially high tooling and commissioning start-up costs, they would require a written supply agreement as security for an agreed period. Mr Fielding accepted in his oral evidence that he did not ask what tooling Northstar already owned; and did not ask about the cost of new tooling because, had he done so, he would have "looked a bit of an idiot". He recalled that the subject of a sole supply agreement was discussed, but he did not think that the duration of the agreement was specified. In his own mind he thought that three years would be a minimum in order to recoup the outlay on tooling. v) Subject to their prices being acceptable, he would forward an agreement. Mr Fielding's manuscript note on this point reads: "GF told N/S that in principle we were very interested but we would require a written contract as security on development costs for an agreed period. Obviously prices need to be agreed. GF to send proposed contract." vi) Northstar were very keen to move quickly and wanted indicative prices from them the following week.[151]Mr Fielding agreed that there was no discussion at this meeting of any intellectual property rights; or any first refusal over shares. He says that he only discovered who owned the shares in June 1997.[152]Mr Naden says that he attended this meeting; and that it was at this meeting that he first met Mr Fielding. Mr Cooper had a clear recollection of Mr Fielding having been at this meeting. He also remembered that they went away with some drawings and some samples.[153]Mr Cooper and Mr Fielding came away from the meeting with some drawings, which Mr Davies had given them, in order to work up prices. Mr Cooper worked up the pricing and gave his costings to Mr Fielding. Mr Fielding then sent a letter to Mr Naden on 20 March 1997, quoting these prices. Ultraframe say that this letter is also a forgery. The letter was written on headed writing paper of Mr Fielding personally, and from his home address. It is addressed to Mr Naden at "Northstar Systems Ltd". It begins as follows:
"Thank you for the courtesy extended to Adrian and myself on the 7 th March 1998 and I am pleased to offer a quotation as follows for the initial 16 sections:"
[154]The quotation for each section was for a price per metre of uPVC extrusion, and in addition a quotation for the cost of the die necessary to produce the extrusion. The letter deals with a total of sixteen different components. The quoted prices vary from £1100 to £12,500, the latter price being the price of the ridge cover assembly. Most of the prices cluster in the range £3,000 to £4,000. The letter ends:
"Should Tom, Howard or yourself wish to discuss any aspect of the quotation then please telephone Adrian at your convenience."
[155]It was signed by Mr Fielding. Ultraframe challenge the authenticity of this letter. Mr Fielding says that he wrote the letter personally because he wanted to keep his options open. He addressed it to Mr Naden because Mr Naden had been introduced at the meeting as Northstar's managing director. He explained that the cost of the tool was the "third party purchase cost". This was given to Northstar because Northstar wanted to check the competitiveness of the prices, even though it was envisaged that they would not be paying those costs. However, in his oral evidence he heavily qualified his initial evidence that Northstar would not be bearing these costs. He said that "in some way, shape or form" these costs could be borne by the customer; perhaps by amortising, or perhaps by recouping the costs in some other way over a period of time. His final position was that Northstar would be lent the outlay on tooling which ultimately he would recover. Mr Fielding agreed that the letter did not mention the question of a sole supply agreement; let alone such an agreement for three years. But he said that he was not supplying prices on the basis of a three year sole supply agreement; and that if Northstar were willing to fund the tooling, he would have been delighted.[156]Mr Fielding says that on 26 March 1997 Mr Clarke called him (rather than Mr Cooper whose name had been given as the contact point) at Burnden Works to say that the quoted prices were very keen and they wanted to move the project forward. It does not appear that Mr Clarke had been supplied with the telephone number of Burnden Works; and Mr Fielding was unable to explain how he got it. Mr Fielding says that he made a note of the conversation on his copy of his letter of 20 March 1997. Ultraframe say that these notes were fabricated; and that the telephone conversation never took place. Although Mr Cooper said in his witness statement that Mr Fielding had given him a copy of the letter of 20 March 1997, he said in cross examination that he had not in fact seen it until it was shown to him in the course of preparing his witness statement. He confirmed this in re-examination (by reference to the annotated version of the letter). Mr Fielding, however, maintained that he had given Mr Cooper a copy of the letter. Collection of tooling[157]On 8 April 1997 Mr Goodier from Northstar sent Mr Cooper an authority to collect a number of dies from Axis Profiles Ltd in Liverpool. However, Northstar continued to place orders with Axis Profiles for some uPVC components. Mr Cooper says that he recalls organising the collection of tools from Axis with Mr Shaw. Mr Shaw also recalls going with Mr Cooper to Axis' premises to look at the tooling. He also recalls picking up between 4 and 6 tools and carrying out trials at Kesterwood. He could not recall which particular tools he collected; but he did not think that they were the ones described in Mr Goodier's authority. He said:
"The tools I collected that day with Adrian were old unloved tools. They had been used, they had been knocked about. They were not new tools. The steel had gone black, it was obvious that the brass forming had been used and there was some slight waxing on them. But they were not new tools."
[158]Mr Cooper also said that the tools collected from Axis, to the extent that he saw them, "did not look in very good condition". Mr Shaw said that after he had collected the tools from Axis he produced some samples. He had no technical drawings; but he did have some handwritten sketches. He then went to Groby Road to discuss problems that he had had in producing them. One of the problems was that he could not produce extrusions to the required tolerances. Mr Cooper accompanied him. One of the people he met was Mr Davies. After discussion he was given new tolerances for the extrusions, which he was able to accommodate. However, in order to produce Northstar's requirements, it would be necessary for Kesterwood to use a co-extruding machine; which it did not have at the time. Mr Shaw did not recall anyone asking whether Kesterwood could meet Northstar's requirements; but he had a vague recollection of a discussion about volumes. Someone said that six extrusion lines might be needed. Mr Shaw said that the tools that he collected from Axis were not the full suite of tools that would be needed to produce the system. Tools for heavy duty parts in particular were missing; and had to be commissioned. He thought that there were ten additional tools needed of which two (the gutter and the eaves beam closure) were paid for by Northstar; and the remainder were paid for by Kesterwood. Mr Shaw's overall impression of Northstar was that they were "likely lads"; and he was concerned that Kesterwood should not be taken for a ride. Mr Shaw produced a written tool report which would have been given to Mr Cooper, Mr Sheffield and possibly Mr Fielding. However, the tool report has not survived. The tool report would have reported on what refurbishment of the tools was required. The run up to the Northstar supply agreement[159]Mr Fielding says that on 25 April 1997 he wrote to Mr Naden to say that he would "organise a Contract of Agreement between myself and Northstar Systems Limited because it is I who will be financing deposits and personal guarantees on the new machinery etc." He said that the extruded product would be supplied by Kesterwood from the Burnden Works. Ultraframe say that this letter is also a forgery.[160]On 1 May 1997 Mr Cooper sent Mr Davies a fax in which he quoted a price per metre for another uPVC component. On 28 May 1997 Mr Goodier sent Mr Cooper a Quickfit price list and product guide; and said that the part numbers for the various components would be used in future orders.[161]Some time in June Mr Fielding says that he had at least two telephone conversations with Mr Clarke and one with Mr Naden. It was during one of these calls that he was told that Mr Naden was the owner of Northstar. It was Mr Clarke who gave him the information, in response to a question from Mr Fielding. In his conversation with Mr Naden, Mr Fielding says that he told Mr Naden that he would "sort out" an agreement. However, he did not refer to his letter of 25 April, to which Mr Naden had not replied. Nor did he outline to Mr Naden the terms on which he envisaged a contract would be made. Mr Fielding's evidence was that the first time Mr Naden was made aware of the terms of the agreement was when he was sent the written draft.[162]On 4 June 1997 Mr Sam Harris of Harris Extrusion Tools (a manufacturer of tools) sent a fax to Mr Davies. The fax contained sketches of five tools for components (including two co-extruded top caps) and gave projected delivery dates between 9 June and 14 July. The fax concluded with a request for Mr Davies to ring Mr Harris to discuss tooling lead times.[163]On 10 June 1997 Mr Fielding says that he dropped in at Groby Road and spoke to Mr Naden. He says that he invited Mr Naden to come to look at Burnden Works; and that Mr Naden asked for a copy of the proposed agreement.[164]On 12 June 1997 Mr Cooper sent a fax to Mr Davies in which he quoted prices for two co-extruded top caps. These were the same components as had been sketched in Mr Harris' fax to Mr Davies some eight days earlier. On 19 June 1997 Mr Cooper sent a fax to Mr Davies, in which he quoted a price per linear metre for three uPVC components. The Northstar supply agreement[165]Mr Fielding says that a supply agreement was signed by him and Mr Naden (on behalf of Northstar) on 20 June 1997. 20 June 1997 was also the date upon which Mr Birkett began work at Northstar as its warehouse and distribution manager. Mr Fielding says that this agreement was preceded by a letter dated 12 June 1997 in which he enclosed a copy of the draft. He says that the letter was typed by his step-son Ashley Walsh on a home computer. The letter is addressed to Mr Naden. It bears the date 12 th June 1997. It reads as follows:
" RE: SUPPLY OF U.P.V.C. EXTRUSIONS CONTRACT OF AGREEMENT I refer to our meeting at your offices on the 10 June 1997 and would take this opportunity of reiterating our commitment to the development of the new conservatory roof system. I have undertaken some preliminary costings but based on supplying 4 new extrusion lines at the Burnden Road factory and developing approximately 20 extrusion tools would require an investment of around £750,000. Therefore, as explained in our meeting, before entering into the project it is essential that I have the security of a Formal Agreement with Northstar Systems Limited. I therefore enclose for your perusal a proposed agreement, which, subject to your approval, we could endorse one day next week and commence developing the system to our mutually successful benefit. Please telephone me should you wish to discuss the wording of the agreement."
[166]I should mention that the "£" is written in manuscript.[167]The supply agreement itself bears the date 20 th June 1997. It is made between Mr Fielding and Northstar. The material parts of the agreement read as follows:
"BACKGROUND A. Northstar Systems limited is looking for a partner to assist in the design & development of a conservatory roof system but does not have the capital to pay for the development of the u.p.v.c. products. B. G.J. Fielding will provide the necessary investment capital to develop the u.p.v.c. products from his Burnden Road factory complex. C. The investment required is in the region of £750,000.00 and therefore the agreement is meant to safeguard and act as security against G.J. Fielding's investment in the project. NOW IT IS HEREBY AGREED THAT:- 1. G.J. Fielding will supply 4 extrusion lines at Burnden Works, Burnden Road, Bolton solely for the use of Northstar Systems Limited and their dealers. (Approximate cost £500,000) 2. G.J. Fielding will part supply and develop all extrusion tooling for the u.p.v.c. product range of the conservatory roof system. (Approximate cost £250,000.00) 3. All machinery and tooling referenced in 1 & 2 to be fully commissioned by April 1998. 4. Northstar Systems Limited agree to offer as security against this investment the Intellectual Property Rights and Design Rights to the conservatory roof system. 5. Jeffrey Naden hereby agreed not to sell his share holding in Northstar Systems Limited without giving first refusal on the purchase of these shares to G.J. Fielding and should G.J. Fielding not wish to purchase these shares during the term of the agreement then the agreement should pass to the new shareholder as the first charge over the intellectual property rights and the design rights to the conservatory system. 6. This agreement shall be deemed to have commenced on the date hereof and shall continue for a period of five years. Either party may terminate the agreement at the end of this period of five years by serving on the other not less than one years notice. If no such notice is served the agreement shall continue thereafter until terminated by either party serving notice on the other not less than one years notice."
[168]The agreement bears the signatures of Mr Naden (witnessed by Ms Helen Atherton) and Mr Fielding (witnessed by Mr Whitelock). Once again the "£" is written in manuscript.[169]This account of events was supported by Mr Fielding himself, Mr Naden, Mr Whitelock and Mr Walsh. Ultraframe say that both the agreement and the preceding letter are fabricated; and that all these witnesses are lying.[170]The circumstances in which the covering letter came to be written and the agreement came to be signed were examined in great detail at the trial. I shall deal with them later. Mr Naden's evidence[171]Mr Naden says that he believed that he was the owner of the shares registered in his name; and that he believed that he did not hold them on trust for Mr Davies. He says that he believed he was entitled to enter into the agreement to give Mr Fielding the right of first refusal over the shares. He says that the Northstar supply agreement is a genuine document and that it was not back-dated. New tools and machines[172]Mr Shaw said that once it became clear, in the summer of 1997, that Kesterwood was going to get the Quickfit business, he went to look at new machines. He said that Mr Fielding financed two new machines: a Maplan 60/30 extruder and a Boston 60 extruder and downstream. The Maplan 30 is a co-extruder. He said that a Maplan 25 jockey was also bought. He said that he thought it was strange that Kesterwood was laying out the cost of tooling, but was told by Mr Cooper and Mr Sheffield not to worry because Quickfit "were going to be tied in" for three to five years. The details of this evidence were not challenged in cross-examination.[173]Mr Gray recalls that when Kesterwood got the Quickfit business new machinery and tooling arrived. He says that Kesterwood did not have a lot of money with which to pay for tooling; and he assumed that Mr Fielding had paid for it.[174]Mr Cooper said that from the middle of 1997 he spent a considerable time with the shop floor staff at Kesterwood getting the tools running in order to produce samples. He thought that the tools that had been collected from Axis were of poor quality. The main section tools were replaced at Kesterwood's cost. As the relationship developed Kesterwood financed new tools, with Mr Fielding's backing; and by the time he left in April 1999 all the original tools had been replaced or refurbished. Ultraframe's attack on Mr Fielding's case[175]Ultraframe's principal witness, Mr Birkett, did not join Northstar until 20 June 1997, the very day on which the supply agreement was said to have been signed. So Ultraframe did not lead direct evidence on what actually took place before 20 June 1997. In his opening address Mr Hochhauser outlined Ultraframe's case, which was based on: i) Contemporaneous documents whose authenticity was not in doubt; ii) Alleged inconsistencies between those documents and the challenged documents; iii) Alleged inconsistencies in the explanations given by the same witnesses at different times in the course of the litigation; iv) Alleged inconsistencies between different witnesses; v) Inherent improbabilities in Mr Fielding's case; vi) Mr Birkett's evidence about the hatching of the conspiracy and the forging of documents. Kesterwood's financial position .[176]The first prong of Ultraframe's attack concentrates on Kesterwood. According to its audited accounts for the year to 31 March 1997 (i.e. the year preceding the supply agreement) it had tangible assets with a book value of £488,021. These had increased from £193,792 shown in the previous year's accounts. The depreciation policy was to write down plant and machinery at 10 per cent per annum on the reducing balance. However, by 31 October 1997 (i.e. after the supply agreement was made) Kesterwood went into liquidation. The statement of affairs showed plant and equipment with a book value of £468,694, which appears to be six months' depreciation on the amount shown in the previous set of audited accounts. This does not show the acquisition of any new equipment. The realisable value of that plant and equipment was estimated at nil.[177]In his witness statement Mr Fielding said that Kesterwood entered into finance agreements for the purchase of new extrusion plant and machinery to service Northstar's needs. He says he gave personal guarantees for Kesterwood's liabilities under those agreements. There are in existence two lease purchase agreements between Kesterwood and a finance company for two machines (an extruder and a power pack); but the total purchase price for these machines is less than £70,000. There is also an agreement between Dearward and a finance company of the same date, for the purchase of a power pack at a cost of some £43,000. Contrary to what Mr Fielding says in his witness statement, those agreements contain no personal guarantees. Moreover, the supply agreement envisaged that Mr Fielding himself (and not Kesterwood) would supply the machinery.[178]Kesterwood had, in any event, been in financial trouble for some time. In December 1995 the Inland Revenue were threatening to distrain for unpaid tax; and the situation was only eased by Mr Fielding providing £13,000 in cash to settle the debt. In January 1996 Mr Fielding was told by Mr Hindley that Kesterwood was in serious financial difficulty. These difficulties were only averted by Mr Fielding injecting a further £87,000 into the company. By January 1997 Kesterwood was in financial trouble yet again. By May 1997 the Inland Revenue were once again demanding unpaid tax; and threatened either to distrain or to wind up the company. Mr Fielding himself paid the back tax. In June or July 1997 things were so bad that on the advice of Mr Hindley an insolvency practitioner was called in to advise. He was Ges Ratcliffe, who ultimately became Kesterwood's liquidator. Mr Hindley's view was that the part of Kesterwood's business consisting of plastics processing had good prospects; but that the outlook for the extrusion side was not rosy. Yet if Kesterwood had just secured a long term supply agreement with Northstar, the evaluation of the extrusion side of the business ought to have been more upbeat. Mr Ratcliffe advised Mr Fielding to take a debenture over Kesterwood's assets and gave him the name of a solicitor who could draw up the necessary documents.[179]Mr Fielding explained that his idea was that he would enter into the supply agreement in his own name because of his concerns about Kesterwood's financial position. That way, if anything happened to Kesterwood, he could come up with a contingency plan to deal with supplies. Yet that is inconsistent with his reliance on the two lease purchase agreements, which appear to show that Kesterwood (not Mr Fielding) bought the new machines. Commercial terms[180]The second prong of Ultraframe's attack looks at the commercial terms of the supply agreement. At the date of the supply agreement (June 1997) Ultraframe says that Mr Davies was still firmly in control of Northstar as a shadow or de facto director and as beneficial owner of the shares that had been registered in Mr Naden's name. Mr Davies believed that the intellectual property rights in the Quickfit system were his most valuable asset. He was the principal designer of the system, although Mr Clarke was also a designer. Northstar already had a supplier of uPVC extrusions, in the shape of Axis Profiles. Northstar already owned its own dies.[181]It follows, according to Ultraframe, that: i) Northstar were not looking for a partner to assist in "the design & development" of the roofing system as the supply agreement recites. Mr Davies was a more than competent designer and not the sort of person who would willingly give up control of the system. At most, Northstar were looking for an alternative supplier of uPVC extrusions. The recital is therefore false. ii) Even if the recital were true, it is inconceivable that the machinery required would have cost anything like £750,000 as the agreement recites. iii) The distinction drawn in clauses 1 and 2 of the agreement between extrusion lines (£500,000) and "tooling" (£250,000) is nonsense. First, it is inconceivable that dies would cost anything like £250,000. Second, the trade custom is for the customer to pay for the dies, so that that cost would not have fallen on Mr Fielding anyway. Third, the alleged quotation of 20 March 1997 appears to place the cost of the dies on Northstar. Thus there is an apparently fundamental change in the commercial terms, which no witness has explained. iv) The lead-in time between the date of the agreement (20 June 1997) and the date by which the new machinery was to be commissioned (April 1998) makes no commercial sense; v) The offer of "security" against Mr Fielding's investment defies explanation. Mr Fielding, according to the agreement, was to buy machinery, which would belong to him. The supply agreement does not envisage any form of loan by Mr Fielding to Northstar. What, then, is the "security" meant to secure? In what circumstances is the "security" to be capable of being realised? Moreover, there could have been no commercial justification for the offer of "security", since Kesterwood were doing no more than any other supplier of extrusions would have done (with the possible exception of paying for the cost of the dies). vi) In June 1997 the "party line" among Mr Davies and his colleagues (including Mr Naden who signed the supply agreement on Northstar's behalf) was that the intellectual property rights belonged to Mr Davies personally. This is amply demonstrated by a letter that Mr Naden himself wrote, some two months later, on 26 September 1997 to Northstar's own solicitors. In that letter he said that the owner of the intellectual property rights in the "Northstar Systems Limited glazing system" was Mr Davies. It was not until Mr Davies was himself on the point of being adjudicated bankrupt that the "party line" changed to an assertion that Northstar owned the intellectual property rights. Accordingly, at the date of the supply agreement Mr Naden cannot genuinely have believed that Northstar had any intellectual property rights to offer as security. vii) If, as the supply agreement suggests, Mr Fielding was about to commit £750,000 to new machines and dies, it is extraordinary that the agreement contains no obligation on Northstar's part to provide any work to Kesterwood, still less any guaranteed minimum orders. Personnel[182]The third prong of Ultraframe's attack is a consideration of the personnel involved in the making of the agreement. According to the documents, the two prime movers were Mr Naden and Mr Fielding. However, on the basis of Laddie J's findings, Mr Naden was simply a "front" for Mr Davies. He held his shares in Northstar as Mr Davies' nominee. All the business decisions were in fact taken by Mr Davies. So the apparent involvement of Mr Naden is no more than a smokescreen. Moreover, since Mr Naden held his shares as Mr Davies' nominee, how could it have come about that he purported to give Mr Fielding a right of first refusal over the shares? So far as Mr Fielding is concerned, he was at pains to say in his witness statement (on more than one occasion) that he had no active involvement in the management of Kesterwood. If that is true, how can it be reconciled with the apparent paper trail, which shows Mr Fielding as the principal actor on Kesterwood's behalf in the events leading up to the supply agreement. Moreover, as Mr Fielding concedes, he knew nothing about extrusion at the time. How, then, could he have prepared the costings of the required machinery that he purported to have made?[183]Ultraframe also suggested that the purported involvement of Mr Clarke was suspicious because Mr Clarke was no more than a designer. But the evidence of Mr Roberts, who was a fabricator with Northstar at the time, was that Mr Clarke was responsible for the day to day running of the company, although everyone answered to Mr Davies. There are also documents in the trial bundles which show that Mr Clarke was in contact with suppliers and tool-makers. Subsequent events[184]Ultraframe next rely on a number of subsequent events as demonstrating that the supply agreement was a sham. Specifically, these are: i) In September 1997 Mr Fielding was involved, through Dearward Ltd, in the abortive scheme to licence fabricators to use the Quickfit system. The scheme was prepared on the basis that the licensor of the intellectual property rights would be HD Systems (a trading name for Mr Davies). Mr Davies could only have been in a position to grant the licence if the intellectual property rights were his to licence. Yet if Northstar had purported to offer the self-same intellectual property rights to Mr Fielding as "security", there was an obvious inconsistency. There is no trace of Mr Fielding having queried, let alone protested at, this. ii) The supply agreement was first disclosed in December 1998 as an enclosure to a letter from Mr Fielding's solicitors. Yet in June 1998 an order had been obtained against, among others, Mr Naden, requiring the production of documents. The supply agreement was not produced at the time. Mr Davies' trustee also wrote to Dearward Ltd on 3 July 1998 asking for information about the ownership of intellectual property rights. The response, although signed by Mrs Fielding, was in Mr Fielding's name. It simply denied all knowledge of Mr Davies, Northstar and Seaquest. Ultraframe say that if Mr Fielding had had a valid claim to a security interest in Northstar's intellectual property rights it is inconceivable that he would not have raised it at the time. Mr Fielding, on the other hand, says that he was playing his cards close to his chest, and was hoping to flush out the trustee. Mr Fielding's explanations[185]Ultraframe next point to differences in the various accounts that Mr Fielding has given of how the supply agreement came to be signed. I deal with the details of these later.[186]Ultraframe say that Mr Fielding's account of how the draft contract came into existence has been forced to evolve over the course of the proceedings. Each time an obvious flaw in Mr Fielding's account has been exposed, he has had to invent an ever more elaborate story to fit the provable facts. Mr Walsh, they say, is dishonestly corroborating Mr Fielding's latest account. I will return to the details of the creation of the Northstar supply agreement later. Mr Birkett's evidence[187]Ultraframe also rely on Mr Birkett's evidence. He says that he knows that the Northstar supply agreement is a forgery because it was given to him by Mr Naden for filing, in November 1998, shortly after Mr Naden had signed it. The reason why Mr Naden gave it to him was because a copy needed to be placed in Northstar's records. I deal with the question of fabricated documents later in this judgment.[188]Mr Fielding was in court for most of Mr Hochhauser's opening address. Mr Ivison's evidence[189]Mr Ivison joined Northstar in October 1997. He said in his witness statement that at the time when he joined, Northstar's suppliers of uPVC extrusions were Axis Profiles. He said that shortly after he joined, Kesterwood took over the supply of uPVC extrusions, although a small volume of business had been done with Kesterwood before that date. This would have placed Kesterwood's entry onto the scene in October 1997, some three to four months after the supply agreement purported to have been made. However, Mr Ivison's evidence was not accurate. First, he said that some uPVC extrusions were sourced from a company called Nenplas; but Nenplas had stopped supplying Northstar a year earlier in October 1996. Second, the supplier of uPVC extrusions referred to in the documentation for the open day in September 1997 was already named as Kesterwood. Third, it is common ground that Kesterwood in fact began to supply product to Northstar in July 1997. Mr Ivison's recollection must be wrong. The Alumax supply agreement[190]At some time in 1997 Mr Hacking, a solicitor who acted on Northstar's behalf, prepared a draft supply agreement between Northstar and Alumax. Mr Hacking's manuscript draft refers to the level of the Retail Price Index as at May 1997, so he must have drafted it after the end of May. The draft is structured with three lettered paragraphs under the heading "Background", followed by the operative clauses beginning with the phrase "NOW IT IS HEREBY AGREED as follows". The agreement imposed an obligation on Alumax to supply aluminium extrusions for a period of twelve months. Although the manuscript draft did not contain a clause dealing directly with the duration of the agreement, the typed up version contained a clause in the following terms:
"This agreement shall be redeemed (sic ) to have commenced on the date hereof and shall continue for one year. Either party may terminate the agreement at the end of the said period of one year by serving on the other not less that (sic) three months written notice. If no such notice is served the agreement shall continue thereafter until terminated by either party serving on the other not less than three months notice."
[191]Mr Hacking sent a copy of this agreement (with some of the spelling errors corrected) to Mr Davies on 29 July 1997. On 1 August 1997 Mr Hacking sent a draft agreement (in a different form) to Mr Botham at Alumax. FROM THE NORTHSTAR SUPPLY AGREEMENT TO THE INCORPORATION OF SEAQUEST Kesterwood supplies Northstar[192]It is common ground that Kesterwood began to supply Northstar with uPVC extrusions in July 1997. Kesterwood did not have extrusion lines that were dedicated to the extrusion of Northstar products, at least not straight away. The extrusion lines could be switched from one customer's products to another's by changing the die. However, Mr Cooper said that by the time he left, there were dedicated extrusion lines serving Northstar alone. Ultraframe say that Kesterwood was supplying Northstar in the same way as any other supplier: namely, on receipt of individual orders. The Burnden Defendants say that Kesterwood was supplying Northstar under the terms of the Northstar supply agreement. The approved fabricators scheme The scheme is launched[193]Mr Davies devised the idea of a "licensed dealers" scheme and planned an open day to launch it. The essence of the scheme was that a licence would be granted by HD Systems (a trading name for Mr Davies) to companies manufacturing components for the "Quickfit" system. A licence would also be granted to "approved fabricators" on payment of a lump sum of £50,000. The licence granted to an approved fabricator would entitle him to buy his aluminium components and uPVC extrusions "direct from the mills" (i.e. from the extruders of aluminium and uPVC respectively; and the supplier of components) at discounted prices. Northstar would itself be the "mill" so far as components were concerned, and would also be an approved fabricator; but would also be responsible for co-ordinating the appointment of franchisees and arrangements with the licensed manufacturers. There is no doubt that the licensed fabricators' scheme was predicated on the assumption that Mr Davies personally was the owner of the intellectual property rights in the system and that he, personally, would be the recipient of the licence fees. Mr Hacking prepared draft agreements to embody the scheme.[194]Mr Fielding and Mr Cooper had a meeting with Mr Naden and Mr Davies in advance of the planned open day, on 5 September. The meeting had been called by Northstar to seek assurances that Kesterwood were committed to the project. Mr Fielding assured them that the plant was on order and tools were being progressed. The idea of the approved fabricators scheme was explained to him; but he expressed reservations about it. He made a note of the meeting on a rough pad. It reads as follows:
"Mtg At Northstar (pm Friday 5.9.97) Present: J. Naden E. Birkett H Davies A.C GF 1. Meeting called by Northstar to seek assurances that we are committed to project. 2. GF assured plant on order and tools being progressed. GF asked how promotion of system going and then HD spent 1 ½ hrs moaning about vindictive campaign against him. 3. N/S have come up with selling idea of buying "direct from the mill" at discounted prices. But dealers/licensed fabricators will have defined areas of work & pay lump sum £50k! to be able to use the system or weekly instalments that include interest. 4. GF expressed reservations about companies paying £50k upfront due to poor reputation (cowboy) of window trade. HD said that they are talking to big companies. 5. GF suggested prices from "mill" be increased to cover licence fee but N/S want both i.e. LF plus increase price because system is cheap. (That says something about our prices). 6. Invited to open day but declined due to other commitments."
[195]Mr Birkett's name has been squashed in between that of Mr Naden and Mr Davies. Originally in his affidavit of January 1999, Mr Fielding had said that Mr Birkett "attended" the meeting. But in his witness statement of August 2004 Mr Fielding says that he added Mr Birkett's name because he popped in to ask Mr Davies a question and Mr Fielding was introduced to Mr Birkett. He therefore added Mr Birkett's name to the list of those at the meeting. Mr Fielding also agreed that Mr Naden was not present throughout the meeting. The note is written in pencil; and bears the date Friday 5 September. Mr Fielding accepted that the note had originally borne the date Friday 4 September; and that he had rubbed out 4 and inserted 5, also in pencil. He says that he did this after he had given photocopies of documents to his solicitors on 19 November 1998 and before disclosure was made in the actions. He says that he realised that the date was wrong (because Friday was 5 September and not 4); and that at the time he did not realise the importance of "not messing with" original documents. However, this alteration only came to light when the photocopy was found several weeks into the trial; and Mr Fielding had not mentioned the alteration in his witness statement. His explanation was that he had forgotten.[196]Mr Birkett says that he did not meet Mr Fielding before January 1998 and that the note is a forgery in this respect.[197]Mr Fielding said that the main thrust of the meeting was that Northstar wanted to know that Kesterwood were ready to partner them if the anticipated increased volume of business came on board. What they wanted to know was that Kesterwood would be in a position to produce the requisite stock for direct supply to dealers when the licensed fabricators scheme began. He said that at this stage Northstar did not distinguish between Kesterwood and him personally. There was no reference during the meeting to the Northstar supply agreement; and Mr Fielding did not say at the meeting that he would pay for the tooling whose progress was discussed. It is, in my judgment, clear from the note that the nature of the licensed fabricators scheme was explained at the meeting; and that Mr Fielding knew that it involved the payment of a lump sum in exchange for a licence.[198]On 9 September 1997 Mr Cooper sent a fax to Mr Davies in which he quoted a price for a tool for a white uPVC gutter section.[199]The materials for the licensed dealers scheme included a "Licensed Dealer Information Pack". This pack contained letters from the main suppliers of components. Among them was a letter, signed by Mrs Fielding, on behalf of Dearward Ltd. The letter said that Dearward was committed to supplying an exclusive service to the licensed dealers of the Quickfit system. Mrs Fielding accepted in her oral evidence that this letter was untrue; and that she had been dishonest in signing it.[200]The planned open day on 12 September 1997 was designed to introduce the approved fabricators scheme. Presentations were given by Mr Davies himself (described as the designer and licensor); Mr Hacking; Mr Webb of Alumax and Mr Sheffield of Kesterwood. The latter was a presentation on the capability of supply and delivery. Mr Ivison was unable to attend because of a previous commitment. There is no doubt that Ms Owen and Mr Naden knew the nature of the scheme; although Mr Naden did not attend the open day; and appears not to have been invited. The patent action begins[201]Ultraframe had advance notice of the open day; and chose that day to serve the writ in the patent action. This was clearly done in order to cause maximum embarrassment to Mr Davies. Ultraframe publicised the action in its in-house magazine, and also by sending a circular letter to its customers. The action itself was based on trap purchases by Ultraframe employees. In addition, Ultraframe had employed at least two private investigators to try to get information from Mr Davies about his system and Northstar. One of the investigators posed as a potential buyer of Northstar's business. They also reported Mr Davies to the DTI and to the trading standards authority. Ultraframe's protestations that this was done in the public interest, because they were concerned that Mr Davies was in breach of his disqualification order, and because they were concerned about public safety, ring very hollow.[202]On 26 September, Mr Naden, acting as director of Northstar, instructed Mr Hacking to act on the company's behalf in the patent action. He said in his letter that the owner of the rights in the "Northstar Systems Limited glazing system is Mr Howard Davies." The letter was drafted for him by Mr Hacking.[203]On 29 September 1997 Mr Cooper sent a fax to Mr Davies in which he quoted prices for four tools. Two of these were a rigid uPVC gutter section and a rigid uPVC eaves closure. These two tools were subsequently manufactured by Harris Extrusion Tools and invoiced to Northstar on 5 January 1998 and 17 October 1997 respectively.[204]By September Mr Birkett had increased his responsibilities within Northstar; and had been given the job title "Warehouse and Purchasing Manager". In August 1997 Mr Davies had offered to have him appointed as a director and company secretary of Northstar, but at that stage he turned down the offer. However, on 27 October 1997 Mr Birkett did become the company secretary of Northstar. He was also given a 2 per cent shareholding in the company.[205]Mr Fielding says that he was informed of this by Mr Naden shortly afterwards. He says that he wrote to Mr Naden on 7 October 1997 confirming his agreement to "you giving 2% of the Company Shares to Eddie Birkett in lieu of him taking on the increased responsibilities associated with being a Director of the Company." Mr Birkett says that this letter is a forgery. He points out that the letter wrongly refers to his having assumed the responsibilities of being a director, when in fact he had become the company secretary. He did not become a director of Northstar until January 1998. The original of this letter, folded in such a way as to suggest that it had been placed in an envelope, was in Mr Birkett's plastic wallet. Mr Ivison and Mr Whitby join Northstar[206]Mr Ivison and Mr Whitby joined Northstar in October 1997. Mr Whitby (who was good on details, but something of a conspiracy theorist) had done some preliminary investigations into Northstar. He had been given some information by Mr Davies on 14 August 1997. Among the things that he was told was that Northstar's uPVC supplier was Kesterwood. He was not told about any sole supplier agreement. Mr Whitby and Mr Ivison were told that Mr Davies was the managing director; and that he (rather than Northstar) owned the tools and dies. They were also told that Mr Davies was planning an open day on 12 September, at which he would launch a new scheme. Mr Whitby was not keen on this idea. Mr Davies was also prepared to consider selling the company outright; because he was fed up and wanted to go and live in the sun. He also alluded to "personal and domestic reasons" for wanting to sell. Mr Ivison was not clear who the directors of Northstar were; but he said that this did not concern him because, whoever it was, it was "just Mr Davies in a different pair of trousers". Mr Read (who joined a month later) was inclined to agree with this graphic description.[207]Essentially Messrs Whitby and Ivison were salesmen. Their job was to sell the Quickfit system to dealers; and for that purpose they spent a lot of time out on the road. Mr Ivison accepted that he did not know much about the financial details of Northstar, although he was clearly under the impression that it was not in good financial health. It was finding it difficult to obtain credit. In addition Northstar was already embroiled in litigation with Ultraframe which was an unwelcome distraction. Mr Davies himself was under investigation by the DTI as a result of the insolvencies of the earlier Quickfit companies. Mr Ivison said that he was also concerned that the DTI were "sniffing around" Northstar. He and Mr Whitby feared that if the DTI investigated Northstar and its relationship with Mr Davies, they might "freeze" the Quickfit system with the result that no one could use it. From the outset of his time with Northstar Mr Ivison thought that the best way forward would be to set up a new platform selling company to market the Quickfit system in a way that would distance it from Mr Davies. Mr Whitby (and, I think, Mr Ivison) had a meeting with Mr Davies on 6 October. Mr Whitby summarised the points discussed on the following day. Among the things that Mr Davies had told him was that Kesterwood had introduced two new extrusion lines in "the last few months"; and had recruited extra staff to cope with the demand that Northstar would create. Northstar were also to recruit an accountant.[208]In October 1997 Mr Ivison and Mr Whitby prepared a series of "Meeting Notes" in which they set out their ideas. Meeting Note 5 suggested that an off the shelf company should be bought. This would give a "clean company" which would be at arms' length from Northstar. At this time the idea was that Mr Davies would own all the shares; and the company would be run by a nominee director, with Mr Davies as chairman. At this stage the proposed structure was driven by a desire to satisfy "the law relating to the DTI"; that is to say to comply with the disqualification order. Whether it would in fact have done so is neither here nor there. Mr Whitby and Mr Ivison prepared a draft agency agreement. Among its terms was a clause which contemplated that they would own 10 per cent of "the systems company which owns the intellectual rights in the roof system". At that stage Mr Ivison was not clear who owned the intellectual property rights; whether it was Northstar or Mr Davies personally.[209]What was clear, however, was that it would be in everyone's interests, in the light of the DTI's interest in Mr Davies for as much "distance" to be put between him and the company; at least on paper. Although Mr Ivison suggested in his witness statement that part of the motivation for setting up a new company was a threat of bankruptcy hanging over Mr Davies, this was not in fact the case. Mr Ivison did not know about any real threat of bankruptcy until some months later. His desire to set up a new selling company was quite independent of Mr Davies' personal financial position and the possible consequences of his potential bankruptcy. Mr Read joins Northstar[210]Mr Read joined Northstar in November 1997. He was interviewed by Mr Davies, and offered a job on the spot. He was introduced to Mr Birkett and Mr Naden as the directors of Northstar; but it was obvious to him that Mr Davies was the boss and the man in charge. At the time that he joined Northstar there were about 10 or 12 employees. Mr Read worked in an office in Unit 2. The other occupiers of that Unit were Mr Naden and Mr Goodier (who retired shortly afterwards). Mr Read's main responsibility was design and quality control. However, at first Mr Davies had the ultimate responsibility for tooling, although Mr Read did consider tooling issues from time to time. Mr Read was also responsible for the installation of computer software which enables fabricators to place orders more easily. I deal with the computer software later in this judgment.[211]From the time he joined Northstar until the formation of a management committee in the summer of 1998, Mr Read had little or no involvement in the wider management of the company, and no involvement in its financial affairs. Once he became part of the management committee, Mr Read was shown cash flows and balance sheets in meetings, but otherwise did not have access to accounting documents. Mr Read was not required to look at contracts with suppliers, and did not do so.[212]The impression I have is that, at least on a professional design level, Mr Davies respected Mr Read, who was prepared to argue his own point of view on design matters. But Mr Read readily accepted that, at least in his early days at Northstar, Mr Davies was the man in charge. Mr Davies' bankruptcy and its immediate aftermath[213]In October 1997 financial pressure on Mr Davies increased. His former girlfriend, Janice Bardsley, was suing him for some £31,000. She had obtained judgment against him in the Manchester County Court on 9 July 1997; and subsequently obtained a charging order nisi over Groby Road on 22 September 1997. (The charging order nisi was in fact discharged on 10 November 1997). Faced with this pressure and, presumably, the threat of bankruptcy, Mr Davies asked Mr Birkett to forge two documents. Mr Birkett agreed. The two documents were: first, a contract of employment between Northstar and Mr Davies, back-dated to 11 October 1996; and, second, a so-called "rental agreement" by which Mr Davies purported to lease the Groby Road premises to Northstar for a term of 15 years from 16 September 1996 at a rent of £300 per week, with five yearly rent reviews. Mr Birkett typed out these documents himself. Mr Birkett got Mr Naden to sign both documents. Although the rental agreement was not dated, the employment contract was dated both at the top and immediately below Mr Naden's signature. In each case the date was 11 October 1996. Mr Naden says that he did not notice that the date was incorrect. Once Mr Naden had signed, Mr Birkett artificially aged the document by photocopying it onto a sheet of paper which had been run through the photocopier many times. It is not suggested that Mr Naden knew that the document had been artificially aged.[214]On 15 October 1997 Mr Davies was served with a statutory demand. The debt on which it was based was that owed to Ms Bardsley: of the order of £31,000. Mr Davies failed to comply with it; and a bankruptcy petition was presented on 14 November with a return date of 22 December 1997. Mr Davies was adjudicated bankrupt on 22 December 1997. In fact, on 14 November Mr Keeling (the bank manager) had written to NatWest Bank in Jersey to open an account on Mr Davies' behalf, explaining that "over the course of the next few months the customer will be leaving the country on a semi-permanent basis."[215]Mr Davies was neither present nor represented at the hearing. In fact he had gone on holiday to Florida with Ms Owen. Although they were no longer living together, they had resumed their relationship; and Ms Owen regarded this holiday as "make or break". Shortly before his departure Mr Davies had arranged for Maureen Patey, Northstar's bookkeeper, to procure from Mr Hacking a refund of £3,335 which had been paid on account of legal fees. He needed the money for his holiday. Mr Davies appears to have left for Florida on about 20 December and to have returned on 8 January 1998. Judging by his credit card bill, £3,335 was not enough to pay for his holiday spending.[216]Shortly before he left, two things happened. First, Mr Davies gave Mr Read a folder of legal papers. Mr Read could not recall the precise details of what he had been given, but he thought that it was mostly to do with Ultraframe's allegations of patent infringement. Mr Davies asked him to read the papers and said that he would be expected to contribute. Second, Mr Davies met Mr Fielding at a football match at the Reebok stadium in Bolton on 14 December 1997. I deal with this meeting later.[217]Mr Birkett was in the office on 29 December 1997 (and probably on 30 December as well).[218]On 30 December 1997 Mr Vibrans, the company formation agent at Davenport Company Services, applied to incorporate a company under the name "Seaquest Systems Limited". Mr Birkett says that he knew nothing about that at the time.[219]Immediately on his return to England on 8 January 1998 Mr Davies consulted a solicitor with a view to seeing whether the bankruptcy order could be set aside or annulled. Northstar appears to have paid his legal bills. On 14 January the county court granted a stay of the order until 27 January. It does not, however, seem that Mr Davies took any further steps to secure the annulment of his bankruptcy. One major problem for Mr Davies was that, as I have said, he had been made personally liable, under section 217 of the Insolvency Act 1986, for the debts of the earlier Quickfit companies, which amounted to at least £186,000. So it was not simply a question of paying off Ms Bardsley. In his report to the court on 26 February 1998 the Official Receiver recorded that Mr Davies had said that he had sold a BMW motor car for £24,000 to pay for his Florida holiday. Mr Kaye of Crawfords was appointed as Mr Davies' trustee; but he resigned as a result of threats by Mr Davies. Two partners in Cork Gully were appointed in his place.[220]Mr Ivison said that after Mr Davies' bankruptcy he was not on site as often; but that he occasionally slept there. The DTI investigation begins[221]The DTI were interested in the affairs of Northstar. They were also concerned that Mr Davies may have been in breach of his disqualification order. In fact the DTI had had a tip off from Ultraframe in December 1997. Mr Deane of the DTI attended at Groby Road on 18 December 1997 to meet Mr Birkett with authority to require documents. His meeting with Mr Birkett was not a success; not least because Mr Davies, who was also there, spilled coffee all over Mr Deane's papers. There was at least a suspicion that he did so deliberately. Mr Deane wrote to Mr Naden (as sole director of Northstar) on 22 December 1997 requesting various financial documents. KESTERWOOD'S FINANCIAL POSITION IN 1997 Introductory[222]All the witnesses who worked for Kesterwood before and during 1997 agreed that its finances were precarious.[223]It struggled to pay its debts as and when they fell due. It had trouble with its landlord; and trouble with the Inland Revenue. Mr Fielding bailed it out at least twice.[224]Kesterwood had moved into Burnden Works in November 1996. Both before and after the move to Burnden Works it was operating with old machinery which gave rise to both problems of product quality and also excessive waste. Early in 1997 it entered into a ten year lease with Mr Fielding. However, it never paid him any rent. Mr Sheffield said that after the move to Burnden Works Kesterwood continued to operate as an independent business, although it shared site services with other companies operating from Burnden Works. Mr Hindley said much the same. Towards the end of May 1997 Kesterwood was in trouble with the Inland Revenue again. They wanted £20,000 in overdue tax, and threatened to distrain for it. Mr Sheffield was on holiday at the time. After some interchange with the Inland Revenue, Mr Fielding paid the amount claimed. He paid by cheque from his own funds. Mr Gray, who was working for Kesterwood at the time, knew of the Inland Revenue's visit, and was concerned for his future. He went to see Mr Fielding, who reassured him that he was an important member of "his staff", and told him not to worry about the future. Mr Gray assumed that Mr Fielding meant that he would continue to support Kesterwood financially. Mr Gray's assumption turned out to be wrong. In June 1997 Mr Fielding met Mr Sheffield to discuss Kesterwood. Mr Sheffield said that the cashflow problems were only temporary. Mr Fielding said that he had no choice but to take Mr Sheffield's word. Mr Fielding's management role[225]In August 1997 Mr Shaw was given what amounted to a job description. That said that he was to carry out certain duties, and any other duties he was asked to carry out by the directors and shareholders. Mr Shaw was aware by then that Mr Fielding was a shareholder; but he said that his instructions always came from Mr Sheffield. Mr Gray said that they very rarely saw Mr Fielding; and he denied the suggestion that, after the move to Burnden Works, Mr Fielding took charge of operations on site.[226]Mr Sheffield also said that Mr Fielding did not play an active part in the business; and that is also what he told the creditors' meeting when, later in the year, Kesterwood went into liquidation. He said in evidence that:
"Mr Fielding was there as the funder and he allowed us to get on with the business. He had implicit trust in me, unfortunately."
[227]The question of Mr Fielding becoming a director of Kesterwood was never discussed, although Mr Sheffield was surprised that he never asked to join the board. However, he did agree that, as Mr Fielding was the major shareholder, he was entitled to "a say" in how the business was run. Mr Sheffield accepted that the answers he gave to the creditors' meeting were misleading. But his objective at the meeting was to deflect blame for Kesterwood's financial failure from himself. In that context, his statement that Mr Fielding played no active part in the management of Kesterwood (and hence could not have shared the blame) is likely to be reliable. Kesterwood Extrusions is incorporated[228]Mr Fielding had a private meeting with Mr Hindley, who was providing accountancy services to Kesterwood. He spent about one day a week at Kesterwood for this purpose. Although Mr Fielding's witness statement suggested that this meeting took place in June or July 1997, in his oral evidence he said that it took place in March or April 1997. At that meeting, Mr Hindley said that the two sides of Kesterwood's business, namely uPVC extrusions and plastic processing, should be split into "two entities". Mr Hindley confirmed in his oral evidence that he said that the businesses should be segregated by which he meant that they should be separated and accounted for separately. This did not necessarily entail the incorporation of two new companies, as opposed to two trading divisions within a single company, although he might have mentioned the incorporation of two new companies as a possibility. The rationale for Mr Hindley's suggestion was his perception that the plastics processing side of the business had good future prospects, but that the uPVC extrusion side did not. However, it is not clear from Mr Fielding's evidence whether this was explained to him at the meeting in March or April; or whether it was only explained to him later in the summer. Following Mr Hindley's suggestion, Mr Fielding arranged the incorporation of two new companies: Kesterwood Extrusions Ltd and Kesterwood Plastic Processors Ltd. The shares in the companies were issued to Mr Fielding's father-in-law and sister-in-law (neither of whom had the surname "Fielding"). At Mr Fielding's request Mrs Fielding had asked them to hold the shares; and she thought that in making the request to her he had used the phrase "nominee shareholders". Mr Fielding said that at this stage these two companies were "a contingency plan" in case Kesterwood failed. The two new companies would then be in a position to bid for Kesterwood's assets and to acquire parts of Kesterwood's business. Neither Mr Sheffield nor Mr Hindley knew anything about this at the time. Mr Hindley discovered later that the two new companies had been incorporated; but he was unaware that the shareholders in those companies were nominees. However, Mr Hindley agreed that there would be a need for a survival plan if Kesterwood went down; and he said that, in his view, one should always have a disaster plan to cover all eventualities.[229]In the summer of 1997 Mr Hindley advised Kesterwood to take the advice of a licensed insolvency practitioner. Mr Fielding and Mr Sheffield met Mr Hindley and Mr Ges Ratcliffe (the insolvency practitioner) to discuss the business. Mr Ratcliffe suggested that Kesterwood could provide security for Mr Fielding in the form of a debenture. The grant of a debenture was discussed between Mr Fielding and Mr Sheffield; and agreed. Knowing that Kesterwood had not paid Mr Fielding any rent, Mr Sheffield did not argue. Kesterwood granted a debenture to Mr Fielding, securing all monies due, on 8 July 1997. The debenture was drafted by a solicitor whom Mr Ratcliffe had recommended. By the date of grant it had become clear that Kesterwood was facing the prospect of insolvency. Even Mr Sheffield who, with hindsight, was over-optimistic about Kesterwood's prospects, could see that. Mr Gray also became aware that an insolvency practitioner had become involved. But he was not unduly worried because he thought that he would have a future working for Mr Fielding somewhere.[230]By August 1997 Kesterwood had contracted to buy a new co-extrusion machine, specifically for the anticipated work from Northstar; and had paid a deposit on it. It could not afford to complete the purchase and assigned the benefit of the contract (and the deposit) to Kesterwood Extrusions, which completed the purchase. Although Mr Sheffield was involved in correspondence about this, he said that he did not understand the implications; and rejected the suggestion that he knew that Mr Fielding, through Kesterwood Extrusions, was planning to take over Kesterwood's business, shorn of its debts.[231]Some time in the summer of 1997 Mr Fielding "headhunted" Mr Ian Jones, who was working for a customer of Dearward's. Mr Jones began a review and feasibility study of Kesterwood in September 1997. Mr Shaw recalled that Mr Jones asked him questions about machinery, equipment and tooling. Mr Sheffield was not responsible for Mr Jones' appointment. This was Mr Fielding's project. Kesterwood goes into liquidation[232]On 10 October 1997 Mr Fielding and Mr Sheffield met Mr Ratcliffe and explained that they thought Kesterwood was insolvent. The arrears of rent that Kesterwood owed Mr Fielding amounted, at that time, to about £66,660. Mr Ratcliffe advised that Kesterwood should incur no more debt; and that Mr Sheffield was at risk if it did so. By the end of the meeting it had become clear that Kesterwood would have to go into liquidation: the only question was when. On 23 October Mr Fielding spoke to Mr Ratcliffe about Kesterwood's impending insolvency. Mr Fielding agreed to underwrite Mr Ratcliffe's fees of £10,000. Mr Ratcliffe gave Mr Fielding the name of a certificated bailiff, so that Mr Fielding could arrange a distress for rent. The distress took place on 31 October; and the distrained goods were sold by tender on 11 November for £10,750. Mr Fielding was the successful tenderer; having been told in advance by the auctioneer that a bid in excess of £10,000 was likely to be successful. Mr Fielding did not bid in his own name; but in the name of "Planet Heating", which was a company in Manchester with which Mr Fielding was dealing at the time. The purchase price (minus the auctioneer's and bailiff's fees) was paid over to Mr Fielding in partial discharge of the arrears of rent. Among the goods distrained and subsequently sold were some dies or formers that belonged to Kesterwood; and some that belonged to Northstar itself and were used for Northstar's business. The same goods also included the machines referred to in Mr Sheffield's fax of 4 December 1995 as having been transferred to Mr Fielding pending repayment of his loan of £13,000 to Kesterwood. In the meantime the Bank had called in Mr Fielding's guarantee; but on 6 November 1997 it agreed to allow him to seek to recover Kesterwood's outstanding book debts.[233]Kesterwood went into liquidation on 19 November 1997. Mr Ratcliffe was appointed as liquidator. A meeting of Kesterwood's creditors was held on the same day. Kesterwood's deficiency vis-à-vis creditors exceeded £500,000. Contemporaneous notes of the meeting (taken by BDO Stoy Hayward) record the following:
"Mr Sheffield, the Managing Director of Kesterwood Limited, was unable to explain the losses of he company to the meeting. He advised creditors present that he had been unaware of the losses that had accrued and therefore could not explain the deficiency. When questioned about the rent arrears Mr Sheffield claimed that the company had never paid any rent to the landlord since occupying the unit in 1996. It was established that the landlord is Mr Gary Fielding who is shown in the statutory information as holding one third of the share capital in Kesterwood Limited. Mr Fielding is also listed as an unsecured creditor in the statement of affairs in the sum of £154661. Included within this amount is the rental arrears and £88000 Mr Fielding invested into Kesterwood Limited last year. When questioned, Mr Sheffield denied that Mr Fielding had an active role in the company but he did inform creditors that in May 1997 he had a dispute with Mr Fielding regarding the management of the company."
[234]The meeting was also told that there had been a significant write down of stock, which Mr Sheffield explained as having been due to obsolete stock. Mr Sheffield accepts that he was less than candid with Kesterwood's creditors. He described his answers to their questions as "a cop out" to get himself out of trouble.[235]The bank, which was a secured creditor, arranged for Mr Fielding to co-ordinate the recovery of debt from Kesterwood's debtors. This was largely successful; and Mr Fielding recovered all but £19,000-odd which he himself paid in settlement of his liability under a guarantee given to the bank. Most of Kesterwood's machinery was held under finance agreements. Mr Fielding did deals with three of the four finance companies; and paid off the fourth in full. The machines were transferred to Dearward. Kesterwood Extrusions takes over[236]Kesterwood Extrusions had been incorporated on 2 July 1997. Kesterwood Plastic Processors was incorporated at the same time.[237]Following Kesterwood's entry into liquidation, its employees were made redundant, but, after being interviewed by Mr Jones, almost all of them were offered new employment with one or other of the two new companies. From the perspective of those who became employees of Kesterwood Extrusions, such as Mr Shaw, it was a seamless transition. Mr Cooper confirmed that as far as the day to day running of activity at Burnden Works was concerned, things seemed to continue as normal. However, Mr Gray, who was in charge of plastics processing and transferred to Kesterwood Plastics Processing, said that there were interruptions in production; and that not all the staff on that side of Kesterwood's business transferred to the new company. Mr Shaw and Mr Jones did not hit it off; and Mr Shaw took up the disagreement with Mr Fielding, who he perceived as the man in charge. However, Mr Fielding backed Mr Jones; and Mr Shaw was laid off in February 1998.[238]Mr Sheffield ceased to work for Kesterwood when it went into liquidation. He and Mr Fielding say that they met by accident at a football match some 10 days later; and Mr Fielding offered him a job at Burnden Works, which Mr Sheffield accepted. He began work within another day or two. In fact Mr Sheffield had two jobs: one for Kesterwood Extrusions as sales co-ordinator; and one for Mr and Mrs Fielding personally as site manager of Burnden Works. In his capacity as sales co-ordinator of Kesterwood Extrusions, Mr Sheffield reported to management meetings. In addition to these roles, Mr Sheffield also "mucked in" with whatever needed to be done for other companies operating at the Burnden Works. He engagingly described himself as the "works cat". His overall description of his role was that he "tried to make things happen".[239]Kesterwood's customers were not formally notified of the liquidation and the formation of the new companies. The new companies retained the same address and the same telephone and fax numbers as the old. The letter head (and especially the fax cover sheets) were almost identical. Approximately 90 per cent of Kesterwood's customers transferred their business to the new companies. Mr Read, for instance, was not aware of the liquidation of Kesterwood; and did not distinguish between Kesterwood and Kesterwood Extrusions. Scholes Windows, which had begun negotiating with Kesterwood before its liquidation for the placing of business, concluded the negotiations, after the liquidation and apparently seamlessly, with Kesterwood Extrusions. Kesterwood: a summary[240]In summary, what happened was that: i) Mr Fielding lent money to Kesterwood, at a time when it was in financial difficulty; ii) Mr Fielding took a debenture over the assets of Kesterwood shortly before it became insolvent; iii) Mr Fielding acquired some of Kesterwood's assets as a result of a sale following distress; iv) The two new companies, incorporated by Mr Fielding, employed almost all Kesterwood's staff; v) The two new companies carried on the business that had formerly been carried on by Kesterwood; vi) From the perspective of both the employees and the customers there was a seamless transition between the old business and the new.[241]The similarity with the fate of Kilohurst is striking. The major difference is that, this time, Mr Fielding was a secured creditor, whereas he had been an unsecured creditor in Kilohurst's liquidation. THE INCORPORATION OF SEAQUEST Introductory[242]Mr Fielding met Mr Davies at a football match at the Reebok stadium on 14 December 1997. Mr Davies was there as a guest of Kesterwood, which shared the use of a number of executive seats; but Mr Fielding could not remember who had invited him. This was the third time that Mr Fielding had met Mr Davies (the previous occasions having been meetings at Groby Road in March and September 1997). Mr Fielding says that the genesis of his loan to Northstar was the conversation he had had with Mr Davies at that match. Mr Davies told Mr Fielding that Northstar needed money (which Mr Fielding said was obvious) and asked Mr Fielding whether he would be interested in lending Northstar £80,000. Mr Davies said that the money would be needed between January 1998 and the following Easter and could be introduced gradually. He also asked whether Kesterwood could provide Northstar with extended credit; and suggested that Mr Fielding could have a debenture as security. Mr Fielding said that he did not mention the Northstar supply agreement which, it will be recalled, gave him security over Northstar's intellectual property rights. Mr Fielding said in his oral evidence that up to Christmas Kesterwood had been supplying Northstar on 30 days' credit; and Mr Davies wanted to extend that to 60 days. According to Mr Fielding, Mr Davies also asked whether Kesterwood Extrusions would take back some Northstar stock and give Northstar credit for it. Mr Davies said that he was going to the USA for a month, and would not be around much. According to Mr Fielding, Mr Davies also said that because Kesterwood had gone into liquidation, the Kesterwood name could not be associated with the dealer programme; and that distribution to dealers would have to be through Dearward. Mr Fielding said that although he knew that Mr Davies was not a director of Northstar, he realised that he "called the shots". He said that he would consider Mr Davies' proposal. Mr Fielding did not mention this encounter in the affidavits or witness statements that he made earlier in the litigation. He says that he had forgotten about it; and was only reminded of it when his wife recalled having met Mr Davies at a subsequent football match.[243]In early January 1998 the decision was taken to set up a new company to market the Quickfit system. Seaquest was incorporated in 8 January 1998. So far as the evidence goes, it was acquired as an "off the shelf" company. There was some debate whether the name (with the same nautical flavour as "Northstar" and with the word "Systems" in its full corporate name) was a coincidence; or whether Mr Birkett had himself chosen the name. I do not think that it matters. As far as Mr Ivison was concerned the company was an "off the shelf" company; and the name "Seaquest" was simply a coincidence. On 13 January 1998 Messrs Naden, Birkett, Ivison and Whitby were appointed as its directors. It had an issued share capital of £100, divided into 100 shares, of which 98 were issued to Mr Clayton and the remaining 2 to Mr Birkett. The share certificates were signed by Mr Naden. Although they are dated 13 January, they were not in fact issued until some time towards the end of that month. The idea behind the incorporation of Seaquest was a variant on the "approved fabricators" scheme that had been launched at the September open day. The idea of a lump sum payment by "approved fabricators" was scrapped. Instead, Northstar would grant a licence to Seaquest to exploit the "Quickfit" system. Seaquest would, in turn licence others to do so, in return for a modest fee. These sub-licensees would be free to approach directly the licensed manufacturers of components for the system; and Northstar would receive commissions on sales to sub-licensees. Seaquest was, in effect, to be a broker. This method of selling was known as the "mill direct" scheme. It was also part of the scheme to rebrand the "Quickfit" system; so that it would henceforth be known as the "Seaquest system". In fact, the idea of a licence was quickly abandoned. Northstar assigned the intellectual property rights to Seaquest instead.[244]One of the benefits for Northstar was that it would not have to lay out money on stock, which it could ill afford. Stock would be held by the suppliers of aluminium and uPVC extrusions. From Mr Ivison's perspective, Seaquest would be a "clean company" without the credit problems that had beset Northstar. Ms Owen said that another reason behind the incorporation of Seaquest was to protect the business and the "system" from Ultraframe's attacks. At the stage of Seaquest's incorporation in January 1998, Ultraframe's main attack on Northstar, via the patent action, was based on patent infringement and breach of undertaking as a result of the "trap purchase".[245]Mr Ivison recalls attending a meeting at Groby Road in early January 1998 when he was told about the incorporation of the new company. Although Mr Davies was at the meeting, most of the talking was done by Mr Birkett, Mr Ivison and Mr Whitby. Mr Ivison said that he could not recall whether the name of the new company was mentioned at the meeting. He thought that he was told about it by Mr Birkett in about the second week of January.[246]Mr Naden's evidence was that he thought that he would own 98 per cent of the shares in Seaquest, because he had been told by Mr Birkett that the shareholdings in Seaquest would be the same as those in Northstar. Mr Birkett agreed that he probably said something to that effect to Mr Naden. In fact, however, no shares in Seaquest were ever allotted or transferred to Mr Naden; and he himself signed share certificates recording Mr Clayton as the registered shareholder of 98 shares in Seaquest later in January.[247]Mr Birkett told Mr Read about the incorporation of Seaquest some time in mid-January 1998. Mr Read's understanding was that at least part of the purpose of the incorporation of the company and the assignment of the intellectual property rights was to protect the intellectual property rights from attack by Ultraframe. Mr Fielding is informed[248]On the afternoon of Friday 16 January 1998 a meeting took place at Burnden Works. It was attended by Mr Fielding (for part of the time), and Messrs Sheffield, Birkett, Naden, Ivison and Whitby. Mr Birkett took with him a presentation document outlining the new scheme. It appears that some projection of numbers of dealerships and volumes of sales (which were included in the presentation pack) had been faxed through to Kesterwood in advance. There are also two sets of typed minutes of the meeting. Both sets of minutes begin by saying:
"As Kesterwood had not met the representatives of Northstar on a formal basis before, everyone introduced themselves and gave their job title."
[249]The shorter form of minutes describes Mr Fielding and Mr Sheffield as "Majority Shareholder" and "Business Manager" respectively. The longer form of minutes does not give them any job title or description. The longer form of minutes continues:
"Eddie Birkett explained that they had split the company into 2 clear and separate entities: Northstar: Who would continue to work for their own Fabricated Roof System. Seaquest: Who would deal with the dealers expected to come into the system. Mike Whitby stated that everyone responsible with running the two businesses was present at the meeting. Gary enquired about Martin Read and Howard Davies. Mike Whitby told him Martin Read was continuing to improve and enhance System Design. Howard Davies was no longer involved at all due to lowering Company image."
[250]The shorter form of minutes does not contain any reference to Mr Birkett's explanation. However it does say:
"Gary Fielding asked why Howard Davies was absent. Mike Whitby explained that Howard Davies was not involved in the two business's in any capacity and that the people responsible for the business were here today."
[251]Mr Fielding said that he did ask about Mr Davies and was told that he was not involved in either of the two businesses. According to Mr Fielding he thought that that did not sound right from what he had heard; but he just sat and listened. He did not raise any queries, despite the fact that only a month earlier it had been Mr Davies who had suggested a loan to Northstar and the grant of a debenture. Mr Fielding said that Mr Birkett explained that Northstar was going to be responsible for fabricated roofs only; and that Seaquest was going to be pushing forward as a separate entity taking on board the dealers; and that Seaquest would be the company promoting the roof system. Precisely how this was to be done was not explained to Mr Fielding at the meeting; and he did not ask. Mr Fielding said that he believed that he showed his annoyance at the unheralded arrival of Seaquest; and Mr Sheffield recalled that Mr Fielding was taken aback.[252]It is not clear who produced the minutes. Mr Sheffield thought that they were not his style, but no other candidate has been identified. Mr Birkett says that the shorter form is authentic, but that the longer form was subsequently altered to include a fictitious reference to Seaquest. Mr Birkett also says that the meeting on 16 January was the first time that he had met Mr Fielding; or, indeed, had become aware of his surname. Mr Fielding attended only part of the meeting as it clashed with a VAT inspection that was going on at the time. He produced his own manuscript notes of the meeting. They do not contain any reference to Seaquest, despite the fact that Mr Fielding says that he was very concerned about its appearance on the scene. He said that that was a private matter which he would take up with Mr Naden; and did take up over the weekend.[253]Mr Fielding says that on the same day he wrote to Mr Birkett and Mr Naden and that a copy of the letter was delivered to each of them by hand. The letter apologised for Mr Fielding having been "off colour" at the meeting and explained that it was because he had been informed that they had formed a new company to service the dealers. It continued:
"In view of not only my agreement dated 20 June 1997 but also my agreement to take your stock and my further agreement to assist in the cash-flow of the Company by the injection of capital I find it, to say the least, disturbing that I was not a party to the incorporation of Seaquest Systems Limited."
[254]The letter suggested an urgent meeting. Three copies of this letter have survived. Two were in Mr Birkett's plastic wallet. One of these has Mr Birkett's name highlighted, and the other Mr Naden's. The third copy is unhighlighted, and was disclosed by Mr Fielding. Mr Birkett says that the letter is a forgery and was created as part of the conspiracy in November 1998. Mr Sheffield recalled that Mr Fielding gave him two envelopes, addressed to Mr Birkett and Mr Naden respectively. He did not know what was in them, but he delivered them personally either to Groby Road or to a local pub called the Hanging Gate later in the afternoon on that same day.[255]On 19 January 1998 Mr Vibrans sent Mr Birkett the necessary forms for the appointment of directors of Seaquest and for the appointment of additional directors of Northstar. The assignment of the intellectual property rights[256]Throughout 1997 the personnel at Northstar asserted that ownership of the intellectual property rights belonged to Mr Davies personally. This is best demonstrated by the participation in the approved dealers scheme of "HD Systems" as licensor of the system; and Mr Naden's letter to Mr Hacking of 26 September 1997 in which he gave instructions that the intellectual property rights belonged to Mr Davies. Mr Davies himself would tell anyone who would listen that he was the owner of the system.[257]However, in the autumn of 1997 Mr Ivison and Mr Whitby had taken advice from Mr Hacking. He was also acting for Northstar in the litigation with Ultraframe. They attended meetings with Mr Hacking on 12 and 16 January 1998. At the first of those meetings Mr Hacking advised that it was arguable that intellectual property rights in the Quickfit system belonged to Northstar and not, as had previously been supposed, to Mr Davies personally. Since Mr Davies was bankrupt, this was obviously important advice. At the second of the meetings, Mr Hacking advised that it would be possible for Northstar to assign the intellectual property rights to Seaquest; but that any assignment had to be for full consideration. As a result of Mr Hacking's advice, Mr Whitby and Mr Ivison wrote to Messrs Birkett and Naden at Northstar on 19 January 1998. They said that Mr Davies had not been involved in the management of Northstar for some months, although he had been providing finance. But they said that even taking that into account, having regard to the amount of money that Northstar had paid Mr Davies, Northstar had in fact paid for the design of the system. They recorded that, on the basis of the advice they had received, they believed that Northstar, rather than Mr Davies personally, was the party properly entitled to exploit rights in the roof system. They pointed out that although Northstar was well set up to deal with manufacture and administration, it had no capacity to market the system. They continued:
"What we propose, therefore, is that we should take over responsibility for the marketing of this System through Seaquest Systems Limited. Because the marketing arrangements are intimately connected with the intellectual property rights in the System, we would propose that they should be assigned by Northstar Systems Limited to Seaquest Systems Limited in return for which Northstar Systems Limited will act as the central administration point of the licensed distributor system and be paid for undertaking this role. We appreciate that the cost of fulfilling this role will be something which can only accurately be determined after a period of time operating the licensed dealer system. Northstar will, of course, also benefit as a result of the success of the scheme by virtue of its supply of components as one of the nominated licensed manufacturers."
[258]They went on to say that draft assignments of copyright and design right had been prepared by Hill Dickinson. They said that the arrangements could "come unstuck" if Mr Davies claimed rights in the system, but they were reasonably confident that he would not do so. Mr Ivison explained in his oral evidence that the intention was that Northstar should have the benefit of a payment for the amount of money, time and energy it had put into developing the system. Mr Birkett also agreed that he understood that the price to be paid by Seaquest to Northstar would include the tooling costs, the cost of Mr Whitby and Mr Ivison from the day they joined; and other costs that had been paid by Northstar but which were attributable to Seaquest.[259]Mr Whitby, in particular, pressed Mr Davies to allow the assignment of the intellectual property rights from Northstar to Seaquest to go ahead. In a memo of 31 January he said that it was of the utmost importance for this to happen. The two reasons he gave were that any dealership contracts signed before the assignment would technically be void; and that if the DTI were to "impound" Northstar's assets, the rights to the system could be frozen indefinitely. He complained that Seaquest, as yet, had no bank account; and he also complained that Mr Davies would " not allow" Messrs Naden and Birkett to sign the contracts with him and Mr Ivison. Mr Ivison saw the assignment of the intellectual property rights from Northstar to Seaquest as a sensible commercial transaction which would allow the system to be properly exploited; and one which was in Northstar's interests, as well as his own.[260]The assignments of copyright and design right were executed at the end of January 1998 and back-dated to 13 January 1998, which was the day on which the directors had been appointed. There is no board minute which resolves to enter into the assignments. Mr Naden signed each assignment as director of both Northstar and Seaquest; and Mr Birkett signed both assignments as secretary of both of those companies. Each assignment described the consideration as:
"one pound (£1) … and other good and valuable consideration"
[261]Each assignment contained a certificate that the transaction did not form part of a larger transaction or series of transactions in respect of which the aggregate consideration exceeded £60,000. The sum of £60,000 represented the threshold for the payment of stamp duty which, at that time, was payable on an assignment of intellectual property rights. Mr Ivison received the draft assignments from Mr Hacking and passed them to Mr Birkett for signature. Mr Ivison said that when he did so he thought that they were perfectly proper documents to be executed. He said that he understood at the time that a proper price would have to be paid by Seaquest for the intellectual property rights; but his concern was that, as a newly incorporated company, Seaquest could not pay immediately. He also said that at the point in time when the assignment took place it was "probably far too early to be talking about putting an actual figure on it".[262]Mr Naden's evidence was that Mr Birkett envisaged that Seaquest would pay Northstar for the intellectual property rights and that the price would include Northstar's development costs. Mr Ivison agreed that this was a fair summary.[263]In early February 1998 Mr Whitby prepared a memorandum (typed by Mrs Ivison) raising a number of questions. It appears to contemplate that the true consideration for the assignment of the intellectual property rights was (or would be) £250,000; but questioned whether the intellectual property rights were worth that sum. Mr Ivison recalled having discussed a figure of that magnitude with Mr Whitby. Although Mr Ivison's recollection was somewhat vague he thought that it had been envisaged that the company's accountants would put a price on the assignment.[264]The new Quickfit system was launched at Glassex in March 1998. It appears to have been a succes d'estime. However, although this brought in a lot of orders, it was a mixed blessing. Northstar was unable to cope with the increased volume of orders. The volume of roofs that Northstar fabricated increased to between 40 and 50 a week. As Mr Ivison put it:
"To say that we were swamped was possibly the understatement of the year"
. Northstar simply could not cope.[265]Part of Mr Ivison's reasons for wishing to set up a "clean" company was his desire to keep Mr Davies in the background, as far as that was possible. If anyone asked (and some customers did), they would be told that Mr Davies no longer had anything to do with the new company. Mr Whitby left the company, in less than friendly circumstances, in April 1998.[266]By June 1998 the DTI were actively investigating Northstar's affairs. On 8 June 1998 Mr Hacking wrote to Mr Deane at the DTI explaining some of the changes in marketing that had taken place since their first meeting. He dealt with the incorporation of Seaquest and the assignment of the intellectual property rights as follows:
"To accommodate the aspirations of Mr Ivison and Mr Whitby and also because Northstar wished to keep the sale side of its business quite separate from its manufacturing and administrative role, a new company was set up, Seaquest Systems Limited of which I think you are aware. Seaquest rather than Northstar became the licensor of the system. For this purpose an assignment of the intellectual property rights in the system was executed by Northstar in favour of Seaquest. The consideration for this assignment was a debt due from Seaquest to Northstar, the precise value of which is being ascertained as a result of an accounting exercise presently being carried out by the company's accountants."
[267]Mr Ivison agreed that Mr Hacking's account reflected discussions that had taken place in January between himself, Mr Birkett and Mr Naden.[268]Ultraframe's case on the assignment is pleaded as follows:
"In purporting to transfer the intellectual property rights to Seaquest Mr Naden and Mr Birkett were not motivated or not principally motivated by the legitimate commercial interests of Northstar but were prompted by Mr Davies' bankruptcy and/or the DTI's investigation of Northstar. Mr Davies wanted to ensure that the valuable design rights used in the System should remain available to the business then conducted by Northstar. Mr Naden acted on or concurred in Mr Davies' instructions, which were to put the design right in the ownership of a new company in which Mr Davies had an undisclosed interest."
[269]However, despite this plea, neither Northstar nor Seaquest challenges the authenticity or validity of the assignment. Why this allegation was pleaded remains a mystery. Seaquest's business[270]Seaquest's business operated as follows: i) Dealers would send orders for bar lengths and roof components to Seaquest; ii) Seaquest would pass on the orders to the relevant suppliers; iii) The supplier would then invoice the dealer with the goods and deliver them direct; iv) Each supplier would become liable to pay commission to Seaquest.[271]Until early 1999 the supplier of aluminium was Alumax; the supplier of uPVC extrusions was Dearward or Dearward Profiles; and the supplier of components was Northstar.[272]Seaquest initially had no bank account and was not registered for VAT. Seaquest was in effect a broker. It carried out no manufacturing itself. However, since Northstar already owed money to the suppliers, the commissions due to Seaquest were set off against Northstar's debts. Seaquest employed no staff. Its business was run by Northstar's employees. Seaquest's first bank account was opened on 26 October 1998, by Mr Sheffield. On 29 October 1998 Mr Sheffield wrote to Mr Birkett saying that all orders from Northstar would be processed through Dearward Profiles Ltd. On 6 November 1998 Seaquest resolved that Mr Fielding would be the sole signatory on the bank mandate.[273]In order for a fabricator (or dealer) to fabricate a roof, he would need to order (at least) aluminium, uPVC extrusions and components. Under Seaquest's business model, supplies of these parts were made direct to the fabricators. Consequently, every supplier would have known who all Seaquest's customers were; and would have known who all Northstar's customers were; apart from those who bought fabricated roofs from Northstar.[274]In September 1998, following a suggestion made by Mr Roche, Northstar began to charge Seaquest for management. Mr Birkett and Mr Roche agreed the amount of the charge, which was £1,600 per week. This covered the services of Northstar's employees, Seaquest's use of Northstar's accounting system and use of the premises at Groby Road. The charge was introduced with retrospective effect as from June 1998. Northstar's business after the incorporation of Seaquest[275]Following the incorporation of Seaquest Northstar's business fell into two parts. One part consisted of the fabrication of complete roofs. The other consisted of the supply of components. The component side of the business operated as follows: i) Dealers would place their orders with Seaquest; ii) Seaquest would send the relevant component orders to Northstar; iii) Northstar would invoice and supply the dealers directly; iv) Northstar would be liable to pay Seaquest commission on those orders.[276]To this extent Northstar was one of the "mills" involved in Seaquest's "direct from the mill" scheme as the supplier of components. Northstar did not manufacture any of the components itself. The components were of two kinds: the nuts and bolts needed to secure the aluminium and uPVC parts together; and certain injection moulded components. Both these kinds of component were bought in from other sources. Some minor modifications to these components also took place before they were actually supplied to customers.[277]Northstar also fabricated complete roofs for conservatory installers. To the extent that Northstar fabricated and sold roofs, it did so in direct competition with fabricators who also supplied conservatory installers and who bought components via Seaquest. This was a source of complaint by some fabricators. NORTHSTAR'S FINANCIAL POSITION IN 1998 Introductory[278]I deal here, slightly out of chronological order, with Northstar's financial position during 1998; because it forms the backdrop against which I must consider the allegations that first Mr Clayton, and then Mr Fielding, made loans to Northstar.[279]There is no real doubt but that Northstar was struggling financially throughout 1998. In February 1998 the factory went on to a three day week. By the end of October, Northstar was laying off staff. Northstar's financial position was particularly precarious in the early part of 1998. First, the winter months are traditionally slow months in the conservatory business. Second, in anticipation of Glassex in March 1998, Northstar began to build up stock, which necessitated a financial outlay and squeezed its cashflow. Third, a cheque from one of Northstar's customers, in the sum of £20,000 was dishonoured several times on presentation. Fourth, the patent action, which had started in September 1997, was gathering speed; and money for legal costs was required. Mr Read described Northstar's finances during the summer of 1998 as "very poor"; and said that it was "struggling for money". The Ultraframe litigation[280]In part, Northstar's troubles were caused by the drain on its resources attributable to the litigation with Ultraframe. Ultraframe had applied for summary judgment in the patent infringement action. On 19 January Mr Hacking wrote with a request to be put in funds to the tune of £17,000-odd, saying that he realised that this was "a lot of money at a time when you can ill afford it". In June 1998 Mr Hacking recorded:
"I explained to Mr Roche the delicate nature of the present proceedings which were unsatisfactorily affecting the operation of the company, a fact of which he was only too well aware. Apparently Eddie Birkett and Steve Ivison have been doing little else over the past few weeks than fending off Process Servers, getting together information of one sort or another either for the Court or, alternatively, for the DTI or the Inland Revenue."
[281]Ultraframe succeeded on the application for summary judgment and were awarded their costs. The costs were taxed in August 1998. Northstar became liable for approximately £70,000. Hill Dickinson's own fees were not paid; and although Northstar had agreed to set up a standing order to pay at the rate of £1,000 per month, this was not done. On 29 October 1998 Mr Hacking announced that he was "stopping work entirely". Ultimately the costs order in favour of Ultraframe was set aside by consent; but that was later in the story. Poor administration[282]A number of customers were deterred from buying the Quickfit system as a result of the Ultraframe litigation. But there were other causes as well. The administration was inadequate and the accounts were a shambles. At the end of September 1998 Northstar sent a circular letter to its customers, which included the following:
"You may have experienced all sorts of frustrations and logistics problems when dealing with us over the past year – for this we apologise – but by the same token we are addressing all of the areas that have 'taken the shine' off a real opportunity for your business to make money using the Quickfit Conservatory Roof System… It has been a difficult year in terms of litigation from Ultraframe…The turn of the year will see disputes resolved and maybe then we can all concentrate on running our respective businesses without the deliberate diversions that get put in our way."
[283]The "logistics problems" to which the letter referred included short delivery of components; late deliveries; deliveries of the wrong components; and complaints about quality. One component, the box gutter, caused more than its fair share of problems. It was a frequent complaint from customers that the gutter leaked. Mr Sheffield organised a customer survey during August and September 1998 in the course of which many of these complaints surfaced. Mr Ivison estimated that Northstar had lost about 70 per cent of its regular users during 1998. Mr Fielding summarised the results of the survey in a letter to Mr Birkett dated 14 October 1998:
"The main focus of complaints about the system are due to Northstar not servicing the accounts. Reasons of complaint being:- 1. Telephone lines always engaged 2. Deliveries 1. Short supplies, no delivery notes and items do not match the orders sent to Northstar 2. Deliveries have been very late and received in cases weeks after the goods from Alumax and Dearward 3. No after sales service. There is dismay from the dealers of the lack of service offered after the dealership has been installed. 4. Invoices not sent through until way after the goods have been received and then in some instances they get charged the wrong amount and also charged for items they have not received. 5. There is lack of leadership at Northstar which gives existing and potential new customers no confidence that the company will be in business for any length of time 6. They think the advert in the Windows Industries magazine undermines the idea of a dealership. It is a partnership which is between the dealers and the suppliers and Northstar advertising a cheaper roof does not instil confidence that the future is as outlined in the initial Dealership form. 7. There is concern that when Martin [Read] is out of the office there is no technical back-up… 8. There is a major problem with the Gutter System as nearly every dealer visited so far has complained about the fittings… 9. One or two dealers have expressed their concerns regarding the availability of further supplies and are considering going back to [Ultraframe] because the cost saving is not worth the considerable hassle… With the foregoing points in mind we find it inconceivable that you can approach the dealers with a view to price increases but we await your comments on how we can progress the matter. As a matter of priority these problems need addressing otherwise, in our opinion, the current low level of dealer sales will only go down."
Stock levels[284]Another of Northstar's problems was that of maintaining stock levels. As I have said, one of the reasons for the establishment of Seaquest and the "mill direct" scheme was that it would avoid the need for Northstar to hold (and pay for) quantities of stock, which it could not afford. This manifested itself particularly in the early months of 1998, when Northstar began to build up stocks in anticipation of Glassex. However, by the summer Mr Read recalled that items were out of stock and that there were frequent shortages.[285]In addition, by the end of 1998 Mr Birkett and others (including Ms Owen) thought that some of the employees both at Wilton Street (where the stock of components was held) and at Groby Road were stealing stock and materials and selling them for cash. Too much business[286]Paradoxically, the very success of the Quickfit system at Glassex 1998 added to Northstar's problems. It did not have the staff or the resources to cope with the increase in orders. This contributed to the administrative problems to which I have just referred. When a business expands rapidly, it can cause a financial crisis even if the business is potentially profitable. Costs, such as staff costs, have to be paid in advance of the receipt of the proceeds of sale of product. Likewise suppliers may have to be paid before customers pay their bills. If the business is undercapitalised, a rapid expansion may put severe pressure on its solvency. This phenomenon is known as overtrading. Cash-flow[287]It was indeed the case that Northstar were experiencing serious difficulties in paying suppliers. On 26 January 1998 the liquidator of Axis Profiles Ltd served a statutory demand in respect of a debt of £3,200-odd. This was followed on 23 February by the threat of a winding up petition. At the end of January a cheque for VAT in the sum of £10,000 was not met on presentation. There were frequent complaints from Alumax Ltd, Northstar's supplier of aluminium, about non-payment of bills. In March 1998 Alumax withdrew credit. On 11 March Alumax refused to supply any more aluminium unless cleared funds of £19,200-odd were received. On that day Northstar managed to obtain just under £30,000 in cash. (This is the day on which Mr Fielding says that he paid Northstar £50,000 in cash). The sum required by Alumax was sent by bank transfer shortly after 2.30 p.m.; and aluminium on order was released to Northstar's driver, Tony Langford, who was waiting at Alumax's premises in South Wales for the required funds to be cleared. The provenance of this cash is hotly disputed; and I will return to it later. Although Alumax appear to have subsequently allowed Northstar £25,000 credit for 30 days, there were still complaints that the credit limit had been breached; and complaints that cheques were not honoured on presentation. In order to ease the position with Alumax, Mr Birkett agreed on 8 July 1998 that Alumax could set off commissions due from Alumax to Seaquest on sales of aluminium components to dealers against sums due from Northstar to Alumax for supplies of aluminium. This arrangement came to an end in November 1998 in circumstances that I shall describe.[288]Mr Sheffield wrote to Mr Birkett on 10 August 1998 to say that no more deliveries would be made to Northstar until the financial situation was resolved. The letter said that the indebtedness of Northstar to Kesterwood and Dearward was becoming "a matter of great concern".[289]Other suppliers (including the utility companies) sent final notices; and there were also other threats to wind up the company. Even Northstar's own solicitors stopped work because of non-payment of legal fees; and they themselves threatened to come off the record or even to wind up the company. In his affidavit of August 1999 Mr Birkett said that he felt that Northstar should have gone into liquidation in August 1998, largely as a result of its cash-flow problems and stock levels.[290]An analysis of Northstar's bank statements revealed that five cheques drawn by Northstar were not met on first presentation; although three were subsequently met on re-presentation and a fourth was dealt with by the issue of a replacement cheque which was honoured. There were also some ten cheques drawn by Northstar that were never presented. Quite why they were not presented remains obscure; although one possibility is that the payees preferred to receive cash rather than take the risk of a cheque not being met. Again, the early part of 1998 was a time of acute crisis in this respect. Credit[291]Northstar was also having problems with obtaining credit. Mr Ivison was struck by the fact that it could not obtain credit for the two company cars that he thought that he and Mr Whitby were entitled to. If Northstar could not get credit for two company cars, how was it going to get credit for the financing of the development of the system? Missing cash[292]Some of Northstar's business was conducted in cash. It is impossible to be precise about the proportion. Of the business that was conducted in cash, it is very likely that not all of it was recorded in Northstar's accounting records. Mr Roberts said that he would take cash up to Mr Birkett, who would put it in a drawer in his office desk. This continued right through 1998. He said that the cash was kept aside and given to Mr Davies, going straight into his pocket. He thought that this happened not only while Mr Davies was in the country, but also after he went abroad in the summer of 1998. But he could not recall having seen Mr Davies take cash after January 1998. In addition Mr Roberts said that he had had disagreements with Mr Birkett about cash; specifically cash that he had passed to Mr Birkett but which had gone missing. Mr Roberts was unable to say how much of the business was in cash; save that it was less than 50 per cent. Mr Birkett said that Mr Davies took considerable sums of cash out of the company until January (or possibly May) 1998. Mr Birkett also said (contrary to Mr Roberts' evidence) that he himself did not receive cash; but that it was given to Ms Patey or Ms Owen. I view Mr Birkett's evidence in this respect with suspicion.[293]As well as receiving cash, Northstar also made payments in cash. For example on 6 November 1998 Mr Birkett claimed that Northstar had paid £10,000 in cash to Hill Dickinson. On checking their records Hill Dickinson confirmed that this was the case. Mr Roche[294]Mr Roche started to work for Northstar in March 1998. He trades under the name of Helix Agencies, which provides management services to businesses. He was introduced to Northstar by Mr Read, with whom he had worked at another company, and with whom he had remained friendly. Mr Birkett told him that the three immediate areas he was to work on were problems with VAT; the organisation of quotations, and "to sort out the chaos in Jeff Naden's office in the fabrication area". Mr Roche said that cash payments were very frequent in the business. He was concerned that not all the cash was finding its way into the company's accounts. His concern was so deep that he advised Mr Roberts and Mr Naden to keep a record of what cash payments they had received for fabricated roofs, and to whom they had given the cash. If this was done, the record has not survived. Mr Roche did not know where the cash was disappearing to. As far as he was aware it was taken up to Ms Patey and the accounts team in Unit 5. Mr Birkett's office was in Unit 5. MR CLAYTON'S LOAN Introductory[295]Mr Clayton says that he lent £20,000 to Northstar on the security of Mr Naden's shares. The loan was eventually repaid. Ultraframe say that this story is bogus; and that in so far as money was provided to Northstar, it came from Mr Davies. Mr Clayton and Mr Davies[296]Mr Davies and Mr Clayton had known each other for many years, going back to the 1980s, and had at one time been relatively close friends. Their friendship continued for some twelve years. In that period Mr Clayton was prepared to accept that Mr Davies trusted him. However, Ms Bardsley, who was Mr Davies' girlfriend at the time, began an affair with Mr Clayton's business partner. This infuriated Mr Davies, and he and Mr Clayton fell out. They met again in the autumn of 1997 at the funeral of Mr Clarke (who was Mr Clayton's brother in law) and rekindled their relationship. However, Mr Clayton said that it was not the same as before. Mr Clayton's trading[297]Mr Clayton had run his own business from Groby Road, in a unit that he rented from Mr Davies. He knew Mr Naden from the latter's time at Quickfit. Mr Clayton says that he and Mr Naden struck up a relationship; and that Mr Naden used to talk to him about business problems. He says that he drank with Mr Naden who would also bemoan the financial difficulties Northstar was in. He began trading as Bespoke Conservatories some time in the autumn of 1997, so that by the end of the year he had been a customer of Northstar for a few months. He set up an account with Northstar for that business. On 1 April 1998 Mrs Clayton incorporated Bespoke Windows and Conservatories Ltd; and Mr Clayton became the manager of that company. It, too, traded with Northstar. Mr Clayton says that Bespoke relied on Northstar for its supplies of conservatory components; and it was in his interest to ensure that Northstar was in a position to continue to supply them. However, Mr Clayton is not a director of the company; nor is he a shareholder. The shares are held by his long-term partner, Jean Clayton. Mr Clayton's case[298]Mr Clayton says that in January 1998 Mr Naden told him that Northstar were desperate for a cash injection and inquired whether Mr Clayton would be able to lend him or Northstar any money. The need arose because Northstar was unable to pay the wages bill. Mr Clayton agreed that this was in early to mid-January 1998. Mr Clayton had sold a Bentley in December 1997 and had £20,000 available in cash. In fact Mr Clayton said that he had his own cash hoard, of some £70,000 (although he never counted it) which he kept hidden under the bath at home. Mr Naden did not know of this cash hoard, but did know that Mr Clayton had sold his Bentley for £20,000. He agreed to lend that sum, repayable in three months, in return for getting discounts on products supplied to Bespoke Windows. Mr Clayton explained that the discounts he was given were in fact the lower prices on the dealers' price list as opposed to normal trade prices. He said that there had been a proposal for dealers to get lower prices in return for a lump sum payment (i.e. the licensed fabricators scheme); and his idea was that in return for the loan he would get the same prices, but without having to make the lump sum payment. Mr Naden also agreed to provide his shares in Northstar as security for the loan. Mr Clayton says that all his dealings were with Mr Naden. Shortly afterwards Mr Clayton says that he went to Northstar's premises at Groby Road with £20,000 in cash in a carrier bag. He gave the money to Mr Naden. In return Mr Naden gave him a share certificate relating to shares in Northstar, registered in Mr Naden's name, and a receipt for the £20,000. Mr Naden said that he would arrange to let Mr Clayton have a certificate for the shares in his own name, but that this was Mr Birkett's responsibility. Mr Clayton says that the loan was repaid in late March or April. It was repaid in cash. On repayment, Mr Clayton destroyed the receipt that Mr Naden had given him. He did not immediately return the share certificate, because he could not find it. Mr Clayton said that after his loan had been repaid he was at Groby Road when he was handed an envelope by Mr Birkett. Inside the envelope were share certificates in Mr Clayton's name relating not only to shares in Northstar but also to shares in Seaquest. Mr Clayton had never heard of Seaquest. He said that he did not want to get involved, as his loan had already been repaid; but he put the certificates back in the envelope and handed them back in the office. Mr Clayton was not able to pinpoint the date on which he was given the envelope; but it was not before May 1998. In his oral evidence Mr Clayton was clear that the only share certificate he ever had in his possession was the certificate relating to the shares in Northstar registered in Mr Naden's name; and that he never had in his possession any share certificate relating to shares in Seaquest.[299]Mr Naden said that he was the one who approached Mr Clayton. He thought that, as a customer of Northstar, Mr Clayton would have an interest in ensuring continuity of supply. He says that Mr Clayton offered to lend £20,000; but wanted security for his loan. In order to give him security, Mr Naden agreed to transfer his shares to Mr Clayton for the period of the loan. Neither Mr Naden nor Mr Clayton took legal advice, and there was no formal documentation; but Mr Naden thinks that he wrote out a receipt. Mr Naden says that he used the £20,000 he received from Mr Clayton to pay wages. In his witness statement prepared for trial Mr Naden said that he could not recall when this agreement was made; but the money was advanced "some time during early to mid-January 1998".[300]Mr Roberts said that he recalled Mr Clayton selling his Bentley at around Christmas 1997. He also says that he recalls being told that Mr Clayton "claimed to have invested" in Northstar; but says that Mr Clayton was struggling to pay off his own creditors, and could not have invested in Northstar with the proceeds of the Bentley. Mr Roberts says that it was about the time that Mr Clayton sold his Bentley that he was told about Mr Clayton's claim to have invested in Northstar. Although Mr Roberts was vague about dates, this would seem to suggest that he was told about Mr Clayton's claim in the early part of 1998.[301]Ms Owen said that she recalled a cash payment of £20,000 having been brought in by Mr Naden in January 1998. She asked Mr Naden about the cash shortly afterwards; and he told her that Mr Clayton had lent the money to Northstar.[302]The documents show that on 13 January 1998 98 shares in Seaquest were allotted to Mr Clayton. They also show that on 1 April 1998 98 shares in Northstar were transferred from the name of Mr Naden to that of Mr Clayton. On 6 April 1998 Mr Vibrans wrote to Mr Birkett enclosing a number of company documents. These included Form 288a (appointment of director) appointing Mr Clayton as a director of both Northstar and Seaquest. However, Mr Clayton never completed these forms; and consequently never became a director of either company. Mr Birkett agreed that Mr Clayton never carried out any functions of a director of either Northstar or Seaquest; and that he did not have any access to financial or other information. However, he was invited to a meeting on 20 April 1988 at which Mr Whitby was dismissed. Mr Birkett said that Mr Clayton attended in his capacity as shareholder. Mr Birkett did not inform Mr Vibrans that Mr Clayton had declined to take up the directorship until July 1998. Ultraframe's attack on Mr Clayton's case Introductory[303]Ultraframe say that the original story about Mr Clayton's loan was a cover story. The purpose of the cover story was to attribute cash which Mr Davies had put into Northstar to Mr Clayton. The idea was formulated in order to enable Mr Davies indirectly to extract cash out of Northstar, while concealing that from the trustee. The way the scheme worked was that Northstar would invoice Bespoke Windows (Mr Clayton's business) for the price of goods delivered. The invoice would show the full price. Mr Clayton would only pay for the cost price of the goods; and the profit element of the full price would be applied in reduction of the fictitious loan. Meanwhile Mr Clayton would pass the profit element in cash to Mr Davies "under the table". Variations in Mr Clayton's account[304]Ultraframe point to what they say are significant differences in Mr Clayton's various accounts of the circumstances surrounding the making and repayment of the loan. I deal with these in detail later. Northstar's accounting records[305]Mr Hall investigated Northstar's accounting records to see whether they recorded a loan of £20,000 from Mr Clayton. I summarise his conclusions: i) The Opera software does not record any receipt of £20,000 from Mr Clayton. Opera was the software in use for the year ending 31 May 1998, which was the year in which the loan is said to have been made. The Sage software also does not record any loan from Mr Clayton. ii) Northstar's cashbook records a receipt of £20,000 on 27 January 1998. There is a bank deposit of about the same amount on the same day. However, Mr Fielding says that he made a cash payment of £10,000 to Northstar on or about that date. If Mr Fielding is right, then that receipt cannot be wholly attributed to Mr Clayton's loan. Mr Naden says that Mr Clayton's loan was paid in cash and that he used it to pay the week's wages. However, the weekly wages bill was only £6,000. Accordingly, there would have been a significant balance left after paying the wages. iii) There is no deposit into Northstar's bank account that can be correlated with a loan of £20,000 (apart from the deposit on 27 January 1998, which is the subject of conflicting claims by Mr Clayton and Mr Fielding). iv) Neither the Opera nor the Sage software records any repayment to Mr Clayton. Nor do Northstar's bank statement contain any record of a withdrawal of that amount. v) Northstar's accounting records include an account (on both Opera and Sage) entitled "Alan Clayton Loan Account". However, a backup copy of the Opera software created on or about 8 January 1998 shows the same account entitled "H Davies Loan A/c". The backup copy records 23 transactions; and the fuller version includes an additional 41 transactions (making 64 in all). The narrative attached to the vast majority of these transactions describes the postings as "repayment of loan". The aggregate of these amounts is some £31,000. Many of the others have the initials "HD" as part of the narrative; and 2 have the initials "SO" attached. None have the initials "AC".[306]I deal with the accounting records in more detail later.[307]Mr Clayton disclaimed any knowledge of a loan account in his name in Northstar's accounting records. The draft stock transfer and the share certificate[308]There is a draft stock transfer form which, if executed, would have transferred 98 shares in Northstar from Mr Naden to Mr Clayton. It bears the date 1 April 1998. It claims exemption from stamp duty on the ground that the transfer is from one nominee to another of the same beneficial owner. The share certificate recording Mr Clayton's title to the shares is also dated 1 April 1998. The date of both the stock transfer form and the share certificate is later than the date on which Mr Clayton says that he was repaid his loan. Moreover, the declaration on the draft transfer is inconsistent with the shares having been transferred by way of security. HH Judge Behrens' decision[309]As a result of HH Judge Behrens' decision, the parties are bound by the finding that Mr Clayton held his shares on trust for Mr Davies, subject to any security interest arising out of his loan. HH Judge Behrens did not need to decide whether there was in fact any such security interest, because by the time of the hearing before him Mr Clayton did not allege that any part of his loan remained unpaid. Nor did HH Judge Behrens need to decide whether Mr Clayton knew that he held shares on trust for Mr Davies. Mr Birkett's evidence[310]Ultraframe also rely on Mr Birkett's evidence. Mr Birkett says that the shares were transferred to Mr Clayton on Mr Davies' instructions. He says that the deception involving the fictitious loan by Mr Clayton came about in two stages. At the first stage he says that in around April 1998 it was agreed, on the instructions of Mr Davies, that Northstar would pretend that the monies supplied by Mr Davies had come from Mr Clayton. This fitted in nicely with Mr Clayton holding shares apparently on his own account, but in fact as nominee for Mr Davies. Accordingly, on Mr Davies' instructions, a loan account was set up in Mr Clayton's name on the Opera accounting system as income received which indicated that Mr Clayton had lent £70,000 to Northstar. By the time that the accounting records were transferred to the Sage system in June 1998 the balance had been reduced to some £57,000; so the loan account set up on the Sage system started with that balance. Mr Birkett did not himself tell Mr Clayton that a loan account had been set up in his name. Nor did he recall Mr Davies having told him that he had informed Mr Clayton. It is not suggested that Mr Fielding had anything to do with this stage of the cover story.[311]He says that some time in November 1998 Mr Roche and Mr Fielding instructed him that Mr Clayton would say that he had the shares as security for a loan for £70,000. At a subsequent meeting Mr Clayton got nervous and said that they could not say he had lent £70,000 as he would not be able to justify where that money had come from and would have been "stung for tax" on it. He said that they could only say he had lent £20,000, which he had received from the sale of his Bentley in late 1997/early 1998. They then decided that they would say that the £70,000 came from Mr Fielding. Thus, according to Mr Birkett, the whole story of Mr Clayton's loan is a fiction.[312]Mr Birkett explained how they hit upon the figure of £70,000. He said that it came about because Mr Davies had put £80,000 into Northstar; and had withdrawn £10,000. The withdrawal of the £10,000 came about in the following way. Northstar had written a cheque to HM Customs & Excise on 31 January 1998 in order to pay VAT. Mr Davies got to learn about this, and was angry. He therefore withdrew £10,000 from Northstar's bank account, for the very purpose of causing the cheque to HM Customs & Excise to "bounce"; which it duly did. The £10,000 withdrawn by Mr Davies was deducted from his initial cash injection of £80,000 and the balance was attributed to a fictitious loan from Mr Clayton. An examination of Northstar's bank statement revealed that a cheque for £10,000 in favour of HM Customs and Excise was indeed "bounced" by the bank on several occasions during February 1998. However, an examination of the same statements revealed that there was no withdrawal of £10,000 from Northstar's bank account; and that the reason that the cheque bounced was in fact attributable to the "bouncing" of a cheque for £20,000 drawn in Northstar's favour by one of its customers. Mr Birkett's explanation of the genesis of the fictitious loan to Mr Clayton cannot, therefore, be correct. Mr Birkett accepted this in cross-examination. Moreover, in his witness statement of 16 August 1999 Mr Birkett said that the original cover story was that it was to be said that Mr Clayton had lent Northstar £55,000, because Mr Davies had already received back £25,000 of the £80,000 that had been introduced into the company between January and March 1998. Clearly, the two sets of figures do not tally.[313]In his witness statement, prepared for the trial of the action, Mr Birkett said the way the fictitious loan worked was as follows. Northstar would supply goods to Mr Clayton's company, Bespoke Windows, at a knock down price and the difference between the price paid and the standard price was to be given to Mr Davies by Mr Clayton in cash. This system was supposed to continue until the loan account was reduced to zero. This account of how the system was to work differed, despite Mr Birkett's protestations to the contrary, from his earlier accounts. In his affidavit of 16 August 1999 he explained that Mr Clayton was to buy goods over a period up to the value of £55,000. "An invoice would be raised by Northstar and subsequently a credit note would be raised at the end of the month. Then a corresponding debit would be made against the loan account." This account seems to suggest that it was the full price of the goods that would be deducted from the loan account, rather than the difference between the "knockdown price" and the standard price. Any doubt about this is resolved by Mr Birkett's affidavit of 19 November 1999. In that affidavit he says:
"It was then made to look as if Northstar was supplying goods to Mr Clayton's company, Bespoke Windows, for free so as to repay Mr Clayton for his loan. In accounting terms this was achieved by issuing invoices for the goods, crediting the value of those invoices in the Bespoke Windows customer account … and debiting the value of those invoices against the outstanding loan account balance." (Emphasis added)
[314]I note also that a straightforward reading of this statement suggests that the whole of the cover story was put in place in October or November 1998; and not, as Mr Birkett now says, in two stages: one in April 1998 and the second in November 1998. It is fair to say, however, that the two stage plan was what Mr Birkett had deposed to in his affidavit of 16 August 1999.[315]In his oral evidence Mr Birkett said that the scheme worked as follows. Northstar would send out an invoice to Bespoke Windows for the full price of the goods supplied. Bespoke Windows would make a real payment to Northstar. The real payment was the equivalent of the cost price of the goods to Northstar. Bespoke Windows would also make a notional payment equivalent to Northstar's profit element. That notional payment would be applied in reduction of the loan account. Mr Clayton would then pass on that notional payment, in real cash, to Mr Davies. Mr Birkett's justification of the scheme was that "there was no other way we could do it, other than taking physical lumps of cash out and giving it to Mr Davies." This was yet another variation in the same theme.[316]There is no document emanating from Mr Clayton (nor any document addressed to Mr Clayton or recording a meeting at which Mr Clayton was present) which refers to a loan of £70,000. Mr Clayton does not claim to have lent £70,000 either to Northstar or to Mr Naden; and he disclaims all knowledge of any plan that he should pretend to do so. Other witnesses[317]Ms Shirley Almond, who was the manager at Wilton Street from the summer of 1998, says that when she took over as manager Mr Clayton seemed to be getting special treatment; but that she soon put a stop to it.[318]Mr Ivison said that he learned in June 1998 that Mr Clayton held shares in Northstar. He said that as far as he understood it, this was part of a plan to distance Mr Davies from Northstar.[319]Mr Roche said that, until October 1998, he thought that Mr Clayton was the shareholder in Northstar and Seaquest. MR FIELDING'S LOAN Introductory[320]Mr Fielding says that he lent Northstar £80,000, which was handed over in cash, between January and March 1998. Ultraframe say that this story is also bogus; and that in so far as money was provided to Northstar, it came from Mr Davies. In order to deal with this part of the case, it is necessary to back-track a little. Mr Fielding's case[321]Mr Fielding says that he made the loan in four payments, each in cash, as follows: Date Amount 27 January 1998 £10,000 4 February 1998 £10,000 11 February 1998 £10,000 11 March 1998 £50,000 Total £80,000[322]Mr Fielding's diary entries for 27 January 1998, 4 February 1998 and 11 February 1998 are all annotated "N/S 10". There is no corresponding entry for 11 March 1998. There are no written receipts for any of the payments. The return of stock and the offer for Mr Naden's shares[323]The question of the return of stock by Northstar to Kesterwood loomed large in the evidence; not, I think because the issue was of particular importance in itself, but because it formed the background to Mr Fielding's claim that he agreed to buy Mr Naden's shares in Northstar.[324]As I have said, Mr Fielding had met Mr Davies at a football match at the Reebok stadium on 14 December 1997. On 6 December 1997 Mr Birkett had sent Mr Cooper at Kesterwood Extrusions Ltd a fax in which he asked a number of questions. Mr Sheffield sent a draft reply by fax on 15 December 1997, as a discussion document. It is unsigned. Mr Birkett recalled having seen this draft. One copy of this document has been annotated in manuscript, which Mr Ivison recognised as being Mr Whitby's handwriting. Paragraph 13 of the letter stressed the need for urgent credit checks on customers. Mr Ivison particularly remembers the question of credit checks having been discussed at a meeting between Kesterwood and Northstar on 16 January 1998; although he could not recall whether Mr Whitby had the letter in front of him at the meeting. The draft contained two references to "Howard"; and, despite his denials in earlier witness statements (which in his oral evidence he accepted were false denials), Mr Birkett recalled having asked for them to be removed. There are, in the bundles, two copies of a letter in the same form, but in which the references to "Howard" have been replaced by references to "Jeff" (i.e. Mr Naden). One copy, annotated "copy", is unsigned. The other bears the signature of Ms Atherton, who worked for Mr Fielding. Mr Birkett says that he never received the amended version. Both the draft and the amended versions indicated that "Gary" would deal with the question of return of certain stock from Northstar; and both also indicate that "Gary" is available to discuss the matter further. The reason for the deletion of references to "Howard" was the DTI investigation.[325]Mr Fielding says that he discussed the return of stock with Mr Sheffield on the following day. Mr Sheffield showed him the draft of the letter addressed to Mr Birkett. So far as the stock was concerned, the letter said:
"Regarding the stock from Northstar, may I suggest that Jeff speaks to Gary regarding the financial implications."
[326]In other words, Mr Fielding says that he saw the second version of the draft. Mr Fielding agreed that by this time he knew that Mr Naden's title did not fit the role he was performing. He had also met Mr Davies at the football match on 14 December 1997 on which occasion it had been Mr Davies who had raised the question of a loan to Northstar, and had floated the idea of a debenture.[327]Mr Fielding says that he sent an unsigned copy of Mr Sheffield's letter to Mr Birkett under cover of his own letter dated 15 December 1997. Mr Fielding's letter read:
"With reference to your facsimile to Adrian Cooper of the 6 th December 1997 I would enclose a copy of Jim Sheffield's response but with reference to the transfer of stock this has major cash-flow implications on Kesterwood Extrusions Limited. Namely from owing them money they now owe money. I agree with the principle that we are better equipped to distribute the stock but I reserve the right to review the funding of the transaction and would suggest that we re-approve the overall business plan to accommodate your latest forecasts."
[328]Mr Cooper had not carried out any stock valuation, and it was not, at that stage, known how much stock Northstar would return. Thus the amount of the credit to Northstar was also unknown. It is therefore surprising that Mr Fielding could assert that the effect of the transaction would be to turn Kesterwood Extrusions Ltd from a creditor to a debtor. Mr Fielding said that he was only guessing. Mr Fielding also agreed that there was no need for him to have sent his own letter, enclosing a copy of Mr Sheffield's response to the very person to whom that response had been addressed. Mr Birkett says that he never received Mr Fielding's letter; and that it is a forgery.[329]Between 15 and 23 December Mr Fielding says he spoke to both Mr Naden and Mr Birkett and agreed to finance the return of stock. Both Mr Naden and Mr Birkett indicated that Northstar was struggling financially. On 22 December 1997 Mr Cooper sent a letter to Mr Birkett. The subject matter of this letter was a request for information; and a refusal to be invoiced for the returned stock. Mr Birkett accepts this letter as genuine. However, the original of this letter was one of the documents contained within Mr Birkett's plastic wallet of documents which, he says were given to him by Mr Roche in November 1998 as part of the conspiracy. There is another letter, bearing the same date covering the same subject-matter. It is more conciliatory in tone; and it says that "Gary" had requested a meeting to resolve the question of the returned stock. Mr Birkett says that this is a forgery; but it is not among the documents in the plastic wallet. According to Mr Fielding, it was found in a box of Northstar papers in April 2004. The original of the letter was examined by Dr Audrey Giles, a forensic document examiner. She concluded that the signature on the letter "A Cooper" was not Mr Cooper's genuine signature, but was a forgery. Her conclusion is not challenged. Mr Fielding could not explain how a forged version of Mr Cooper's signature came to be on the letter; but he denied having been the forger himself.[330]Mr Fielding says that he thought over what Mr Davies had said to him at the football match on 14 December, and that by the end of the Christmas break he had decided to make Mr Naden an offer for his shares. He had decided against the debenture that Mr Davies had suggested, because he thought that there was more potential "upside" in acquiring the shares. The acquisition of the shares was not, however, something that he had raised with Mr Davies at the match on 14 December. Mr Fielding says that he spoke to Mr Naden over Christmas and raised with him the possibility of lending £80,000 to Northstar. He did not mention to Mr Naden his conversation with Mr Davies on 14 December, because he did not think he needed to. He also says that he raised with Mr Naden the possibility of acquiring a 98 per cent shareholding in Northstar. Mr Fielding said that he knew that Mr Naden was the registered shareholder of the shares in Northstar because he had arranged for a company search to be carried out in late December 1997. He arranged for the search to be carried out to make sure that his offer was made to the right person.[331]Mr Fielding says that he wrote to Mr Naden on 5 January 1998. The letter is headed "PRIVATE & CONFIDENTIAL"; and its text reads as follows:
" RE: TRANSFER OF STOCK FROM NORTHSTAR SYSTEMS LIMITED I trust you had a welcome and well earned holiday during the festive season. Following numerous telephone conversations with Eddie and yourself I have instructed Kesterwood to accept your stock, subject to checking quantities, and agree the value to deduct from monies that Northstar owe them. But, as agreed, all future business will be cash on delivery and I would urge you to adhere to this. With reference to the obvious cash-flow problems that Northstar are encountering I would use this letter to offer to purchase either part or all of your shares in the Company whereupon I could give it the necessary capital injection it obviously needs."
[332]Mr Fielding agreed that deliveries to Northstar were never made on "cash on delivery terms"; and that by January it had been agreed that Northstar would be supplied on 60 days' credit. He said that although his letter described the cash on delivery as "agreed", it had not in fact been agreed before 5 January; and that within a day or two Mr Naden had telephoned to say that Northstar would not be able to pay cash on delivery, to which Mr Fielding had agreed. Subsequent invoices are consistent with credit facilities having always been offered. The letter does not, of course, refer to any right of first refusal over Mr Naden's shares, as provided for by the Northstar supply agreement. Mr Fielding did not suggest that his offer to acquire Mr Naden's shares was the exercise of that right. He said it was an independent transaction.[333]Mr Fielding said that his thinking at the time was that he would lend money to Northstar and that, in return, he would acquire Mr Naden's shares. The result of the transaction, if successful, would be that he would be repaid the amount of his loan; and would also retain the shares. He agreed, however, that the letter did not refer to a loan and that it might have been read as indicating that he would buy the shares and that, following the purchase, he would make the cash injection into the company. In his affidavit of August 1999 Mr Birkett said that only the last paragraph of the letter was a later fabrication. In his oral evidence he said that he had had no conversation with Mr Fielding about the return of stock; and that the entirety of the letter was a fabrication. He had, however, made the latter point in his witness statement of May 2002.[334]Mr Fielding says that he spoke to Mr Naden again. He offered to provide Northstar with £80,000 and in return would take Mr Naden's shares in the company. He also says that he told Mr Naden that he would be offered a five year contract of employment, which would incorporate a bonus element based on the profitability of the company. He says that Mr Naden replied that that was very fair. He also explained that he would introduce the £80,000 at the rate of £10,000 per week for eight weeks. Mr Fielding says he wrote to Mr Naden again on 9 January 1998. He referred to his letter of 5 January and subsequent telephone conversations and to the fact that the company would find it difficult to operate its business through normal trading terms, and might become insolvent. He continued:
"I therefore propose an injection of capital of £80,000.00 (Eighty thousand pounds) against which I would want to purchase your 98% share holding in the company."
[335]Mr Fielding said that by the letter he was guaranteeing Mr Naden five year's employment as managing director of the company, in charge of all roof fabrication. However, Mr Fielding knew, at the date of this letter, that Mr Naden was the managing director in name only, and that his title did not describe his true role. The letter ended by inviting Mr Naden to endorse one copy of the letter to signify his agreement. The letter did not refer to the proposal to advance the cash in instalments of £10,000 per week, although Mr Fielding insisted that he had made this clear to Mr Naden before he sent the letter. He could not explain why the letter did not refer to this. There are three versions of this letter. The text of each is the same, but the signatures on each are different. It appears that Mr Fielding signed all three copies. He put one into his file (bearing only his own signature) and sent two to Mr Naden. One of those was endorsed as "agreed" by both Mr Fielding and Mr Naden. Mr Birkett says that this letter is a forgery; and was one of the documents in the plastic wallet that Mr Roche gave him in November 1998. The document in Mr Birkett's plastic wallet bore "wet ink signatures". Mr Naden says that both the letter of 5 January and that of 7 January are genuine documents, sent to him at the time.[336]Mr Fielding said that he did not speak to Mr Naden about the letter after he had sent it; but that Mr Naden returned an endorsed copy to him, without a covering letter or note, on about 14 January 1998. The original of this endorsed copy with "wet ink signatures", has not been produced. The meeting of 16 January 1998[337]I have already described the meeting of 16 January 1998 at which Mr Fielding was informed of the incorporation of Seaquest; and the letter that he says he wrote both to Mr Birkett and Mr Naden on that day, referring to the Northstar supply agreement and his agreement to assist in the cash flow of the company by the injection of capital. Mr Fielding said that Mr Naden was expecting to receive the first instalment of £10,000 on that day. The letter of 16 January does not refer to this expressly. He says that the revelation of the incorporation of Seaquest temporarily derailed the proposal to lend £80,000 to Northstar; and caused him to insist on entering into a supply agreement with Seaquest along the lines of the agreement he had made with Northstar in June of the previous year. He says that he made this clear to both Mr Birkett and Mr Naden in telephone conversations that he had with them over the weekend of 17 and 18 January. The reason underlying his insistence on entering into a supply agreement with Seaquest was his perception that by splitting the company, Northstar had been devalued; and he did not wish to lend to a devalued company. In the course of his conversation with Mr Naden Mr Fielding says that it was agreed that he could acquire Mr Naden's shareholding in Seaquest, which he understood was the same as his shareholding in Northstar, in return for reinstating the loan to Northstar. Mr Fielding says that he agreed with Mr Naden and Mr Birkett that he would prepare a draft agreement. The Seaquest supply agreement[338]Mr Fielding says he wrote to Mr Naden and Mr Birkett at Seaquest on 19 January 1998. The letter reads:
"Further to the numerous telephone discussions in respect of my letter dated 16 January 1998 I now enclose a Contract of Agreement that is intended to run back to back with my agreement with Northstar Systems Limited. Please review, take advice if necessary, and make arrangements to meet me at Burnden Works on the 21 January to sign it."
[339]The letter included what became the Seaquest supply agreement. I deal with the details of this later. On 20 January, the day after Mr Fielding sent the letter and draft contract to Mr Naden and Mr Birkett, he says that he received a telephone call from Mr Davies. Mr Davies said that he understood that Mr Fielding was "not happy". Mr Fielding said that he was not; and that Mr Davies "could forget the £80,000 and the extended credit" unless a supply agreement with Seaquest was signed. Mr Davies said that Mr Fielding should leave it with him; and that he would speak to Mr Naden and Mr Birkett.[340]A supply agreement bearing the date 21 January 1998 is among the papers. Although this agreement broadly follows the same format as the Northstar supply agreement, it had clearly been word processed on a different computer (not least because the "£" has not had to be added in manuscript). Ms Atherton, who did Mr Fielding's typing at the time, typed the Seaquest supply agreement.[341]Mr Fielding says that the agreement was indeed signed at Burnden Works on 21 January. Three original copies of the agreement were signed. Two of them were among the documents that Mr Birkett says Mr Roche gave him in the plastic wallet in November 1998. The third was produced by Mr Fielding on disclosure. Mr Birkett says that this agreement is a forgery.[342]It might be helpful to set out the text of the two agreements, side by side, with the changes in italics: Northstar supply agreement Seaquest supply agreement BACKGROUNDa. A. Northstar Systems limited is looking for a partner to assist in the design & development of a conservatory roof system but does not have the capital to pay for the development of the u.p.v.c. products.b. B. G.J. Fielding will provide the necessary investment capital to develop the u.p.v.c. products from his Burnden Road factory complex.c. C. The investment required is in the region of £750,000.00 and therefore the agreement is meant to safeguard and act as security against G.J. Fielding's investment in the project. NOW IT IS HEREBY AGREED THAT:- 1. G.J. Fielding will supply 4 extrusion lines at Burnden Works, Burnden Road, Bolton solely for the use of Northstar Systems Limited and their dealers. (Approximate cost £500,000) 2. G.J. Fielding will part supply and develop all extrusion tooling for the u.p.v.c. product range of the conservatory roof system. (Approximate cost £250,000.00) 3. All machinery and tooling referenced in 1 & 2 to be fully commissioned by April 1998. 4. Northstar Systems Limited agree to offer as security against this investment the Intellectual Property Rights and Design Rights to the conservatory roof system. 5. Jeffrey Naden hereby agreed not to sell his share holding in Northstar Systems Limited without giving first refusal on the purchase of those shares to G.J. Fielding and should G.J. Fielding not wish to purchase these shares during the term of the agreement then the agreement should pass to the new shareholder as the first charge over the intellectual property rights and the design rights to the conservatory system. 6. This agreement shall be deemed to have commenced on the date hereof and shall continue for a period of five years. Either party may terminate the agreement at the end of this period of five years by serving on the other not less than one years notice. If no such notice is served the agreement shall continue thereafter until terminated by either party serving notice on the other not less than one years notice. BACKGROUND A. Seaquest Systems limited is looking for a partner to continue assistance in the design and development of a conservatory roof system but does not have the capital to pay for the development of the U.P.V.C. products. B. G.J. Fielding will provide the necessary investment capital to develop the U.P.V.C. products from his Burnden Road factory complex. C. The investment required is in the region of £750,000.00 and therefore the agreement is meant to safeguard and act as security against G.J. Fielding's investment in the project. To date the spend of approximately £300,000 has been committed NOW IT IS HEREBY AGREED THAT:- 1. G.J. Fielding will supply four extrusion lines at Burnden Works, Burnden Road, Bolton solely for the use of Seaquest Systems Limited and their dealers. (Approximate cost £500,000) 2. G.J. Fielding will part supply and develop all extrusion tooling for the U.P.V.C. product range of the conservatory roof system. (Approximate cost £250,000.00) 3. All machinery and tooling referenced in 1 & 2 to be fully commissioned by June 1998. 4. Seaquest Systems Limited agree to offer as security against this investment the Intellectual Property Rights and Design Rights to the conservatory roof system. 5. Jeffrey Naden hereby agreed not to sell his share holding in Seaquest Systems Limited without giving first refusal on the purchase of those shares to G.J. Fielding and should G.J. Fielding not wish to purchase these shares during the term of the agreement then the agreement should pass to the new shareholder as the first charge over the intellectual property rights and the design rights to the conservatory system. 6. This agreement shall be deemed to have commenced on the date hereof and shall continue for a period of five years. Either party may terminate the agreement at the end of this period of five years by serving on the other not less than one year's notice. If no such notice is served the agreement shall continue thereafter until terminated by either party serving notice on the other not less than one year's notice.[343]This agreement is signed by Mr Naden and Mr Birkett on behalf of Seaquest; and by Mr Fielding (witnessed by Ms Atherton) on his own behalf.[344]On 19 February 1998 Mr Fielding says that he had a conversation with Mr Birkett, as a result of which he agreed to build up stock levels to £150,000. His note of the conversation records that if it does not perform in line with the business plan, Northstar would assist with the funding. The cash is paid[345]Mr Fielding says that he made the first payment of £10,000 in cash on 27 January 1998 at Burnden Works. He had been going to make the first payment on 16 January; but he says that he did not do so in view of the revelation that Seaquest had just been set up. He says he made the second one (also of £10,000 and also in cash) at Burnden Works on 4 February 1998; and the third (also of £10,000 and also in cash) at Burnden Works on 11 February 1998.[346]Mr Fielding says that on 19 February 1998 he had a conversation with Mr Birkett in which he agreed that Kesterwood would increase its stocks of extrusions to the value of £150,000 in anticipation of the demand that the launch of the new system would create. He made a note of the conversation. Mr Birkett says that the conversation never took place, and that the note is falsified.[347]Mr Fielding says that on 11 March he made the final cash payment of £50,000, again at Burnden Works. I deal with the details of all the cash payments later. 11 March 1998 was the day on which Northstar's driver, Mr Tony Langford, was waiting in his lorry at the Alumax plant for a load of aluminium to be released on receipt of cash, as a result of the withdrawal of Northstar's credit. The load was released when the money was transferred to Alumax.[348]Ms Owen said that during the first few months of 1998 money started coming into the business in larger amounts than was usual. She remembered one cash sum of £10,000 which she was told, either by Mr Birkett or Mr Naden, had come from Mr Fielding. She also recalled the events of 11 March 1998, which I deal with in more detail later. Dealings between Mr Fielding and Mr Clayton Mr Fielding learns of Mr Clayton's loan[349]On 17 March 1998 Mr Fielding says that he wrote to Mr Naden (at his home address). The letter was marked "Private and confidential". It said:
"I refer to our agreement on the sale of the 98% share holding in both Northstar Systems Limited and Seaquest Systems Limited and would confirm that the capital injection of £80,000 is now in place. Please endorse both copies of this letter as confirmation that ownership of these shares has been relinquished by yourself and that you have passed the ownership of the shares to myself."
[350]The letter had a space for signature by both Mr Fielding and Mr Naden. One copy of it is signed by both Mr Naden and Mr Fielding; and two copies by Mr Fielding alone. The circumstances in which Mr Fielding says that the letter came to be signed by Mr Naden are as follows. Mr Fielding was away on holiday until 25 March; and on his return he realised that Mr Naden had not returned an endorsed copy of the letter. He tried to telephone Mr Naden three or four times at Groby Road, without success. So on Good Friday, 10 April, he telephoned Mr Naden at home. He had still not received the endorsed letter. Mr Naden apologised for not having returned Mr Fielding's calls. He did not say that he had already put the letter in the post; and Mr Fielding assumed that he still had it in his possession. He said that he would forward the letter to Mr Fielding. Mr Naden then revealed that he had been forced to borrow money from Mr Clayton at the beginning of January, and that he had given Mr Clayton the share certificates as a temporary measure. Mr Fielding protested that Mr Naden had asked him to lend Northstar the money, but Mr Naden said that because there had been a falling out on 16 January, he had resorted to Mr Clayton. Mr Fielding thought that Mr Naden had told him that the amount of Mr Clayton's loan was £20,000. Mr Fielding said that he assumed that the shares that Mr Clayton had were the Seaquest shares as well as the Northstar shares, even though Northstar was the only trading company at the time. Mr Naden also told him that Mr Clayton had been repaid. Mr Naden did not, however, tell Mr Fielding the source of the funds from which Mr Clayton had been repaid. Mr Fielding then told Mr Naden that he had to get Mr Clayton to return the share certificates. However, he also asked Mr Naden for Mr Clayton's home telephone number; which Mr Naden gave him.[351]Mr Fielding then telephoned Mr Clayton on the same day. He introduced himself to Mr Clayton and said that he was the owner of the company that was supplying extrusions to Northstar and Seaquest; that he had lent some money to Northstar and Seaquest and thought that he had got the shares as a benefit for that loan. He had the impression that Mr Clayton had not by then spoken to Mr Naden. Mr Clayton said that he had not been paid his money back. This, of course, was directly contrary to what Mr Fielding says that Mr Naden had just told him. Mr Fielding told Mr Clayton that Mr Naden had said that he had been repaid; but Mr Clayton repeated that he had not. Mr Fielding did not ask, and Mr Clayton did not say, what shares he was holding as security. Mr Fielding said that he left it with Mr Clayton that he would make sure that Mr Naden "got his £20,000 back to him". This is a puzzling response, since Mr Fielding, as he accepted, had no way of knowing which of Mr Naden and Mr Clayton was correct. Mr Fielding said that he was concerned about the two conflicting versions of events, but not worried. He also said that he told Mr Clayton that he would send him a letter to sign in which he was to accept that he had no claim on the shares. Mr Clayton said that that would be no problem once he had had his money back. Mr Fielding tried to telephone Mr Naden again, but got no reply. So he drafted letters to Mr Naden and Mr Clayton that same day, although they were not typed until the following Tuesday, 14 April.[352]Mr Clayton recalled that Mr Fielding telephoned him on Good Friday. He was at home, but he was busy building an extension. He had never heard of Mr Fielding. Mr Fielding introduced himself and said that he had lent money to Northstar and that the shares belonged to him. Mr Clayton did not think that Mr Fielding mentioned Seaquest, which Mr Clayton had never heard of. Mr Clayton told Mr Fielding that he had not been repaid his own loan; a statement which he accepts was a lie.[353]In the letter to Mr Naden, Mr Fielding referred to his letter of 17 March and said that that letter was to "cover" Seaquest, because the agreement of 9 January only covered Northstar. He continued:
"After wasting several hours on the telephone during the last three weeks trying to contact you, I was totally astonished when I finally made contact with you on Good Friday to be told that Alan Clayton had got the shares as a "temporary measure"
. I have made telephone contact with Alan Clayton and he explained that he had the shares as security against £20,000 that he lent to Northstar in January of this year. The shares in Northstar Systems Ltd were offered by yourself in breach of our contract of agreement dated 20 th June 1997. If the transfer of the Seaquest Systems Ltd shares postdated our agreement of 21 st January 1998, then that contract has also been breached."[354]The letter continued by saying that Mr Clayton had said that he "only wants the return of his loan whereupon he will transfer the shares" into Mr Fielding's name. Mr Fielding said that he would deal with Mr Clayton direct. The letter concluded with a postscript:
" PLUS PAY HIM HIS MONEY! Any problems with this, then ring me."
[355]The postscript does not refer to the fact that Mr Naden had told Mr Fielding that Mr Clayton had actually been repaid; and appears to accept Mr Clayton's version at face value. Mr Fielding says that he wrote a letter to Mr Clayton, also dated 14 April. The letter was captioned "98% shareholding in Northstar Systems Ltd and Seaquest Systems Ltd " . In the letter Mr Fielding said:
"I refer to our recent telephone conversation and would now hope that Jeff Naden has informed you that the shares in the above Companies actually belong to myself. I have also asked Jeff to return the loan against which you hold the shares as security. Jeff was in breach of agreement I had with him when he gave you the shares so your real ownership was actually in dispute. Nevertheless, and in order to tie up loose ends, I would ask you to endorse the agreement below transferring the shares into my name once you have had the return of your £20,000. Also, please forward the share certificates that you have. ALAN CLAYTON HEREBY AGREES to the transfer of his 98% shareholding in Northstar Systems Limited and 98% shareholding in Seaquest Systems Limited to G.J. FIELDING on the date stated below."
[356]Again this letter assumes that Mr Clayton's version of events is correct, and that Mr Naden had been wrong in saying that Mr Clayton had been repaid.[357]Mr Fielding says that on 2 May 1998 he met Mr Davies at another football match in Bolton. Mr Davies was at Dearward's corporate hospitality table by invitation. Ms Owen and Mrs Fielding were also among the party. Although they did not sit together during the game, they had a drink in the bar afterwards. Mr Davies and Mr Fielding had at least one private conversation on that occasion. Mr Davies told Mr Fielding that Northstar owed him £100,000. Mr Fielding was not surprised. Mr Fielding said that he, too, was owed a lot of money by Northstar. But he said to Mr Davies that he would see what he could do when he got the company on its feet; that is to say to pay off Mr Davies. According to Mr Fielding, Mr Davies was unhappy about the deal over the shares that Mr Fielding had made with Mr Naden in January. Mr Fielding did not suggest that Mr Davies made any reference to either of the Northstar supply agreement or the Seaquest supply agreement. Mr Fielding brought up the subject of Mr Clayton; and asked Mr Davies if he could get Mr Clayton to sign the letter that he had already sent him. Mr Davies told Mr Fielding to leave it with him. Mr Fielding said in his oral evidence that he asked Mr Davies to intervene because he thought that he might have "some better influence" with Mr Clayton. However, he said that he did not know what connection there was between Mr Davies and Mr Clayton. On the same occasion Mrs Fielding invited Mr Davies and Ms Owen to another corporate hospitality event at Royal Ascot; but in the event they did not come. Mr Clayton said that he did not have any dealings with Mr Davies about the letter. The signing and dating of the agreement between Mr Fielding and Mr Clayton[358]The letter of 14 April 1998 recording Mr Clayton's agreement to transfer the shares in Northstar and Seaquest is apparently signed by Mr Clayton and dated 5 May 1998. "5 th " and "May" are in manuscript, in Mr Fielding's writing. Mr Clayton's signature is witnessed by Mr Duncan Bennett, who was Bespoke Windows' Technical Manager at the time. Although I deal with Mr Bennett's evidence in more detail later, it is sufficient to record at this stage that his evidence at trial was that he witnessed the signing of this agreement in November 1998. Mr Fielding and Mr Clayton say that Mr Bennett has confused two events; and that what he remembers in November 1998 is the signing of the stock transfer forms themselves, which it is accepted were signed in November 1998 and back-dated to May.[359]In his affidavit of January 1999 Mr Fielding said that Mr Clayton "signed and returned a copy of my letter dated 14 April 1998 on 5 May 1998". In paragraph 81 of his witness statement of 22 January 2000 Mr Fielding said that he had "obtained the signed agreement of Mr Clayton on 5 May." In his witness statement of 18 February 2000 Mr Fielding said that he inserted the date "5 May 1998" on the letter because that was the day on which he received the signed letter back from Mr Clayton and "I considered that date to be the date of my agreement with Mr Clayton". However, 5 May 1998 was a Bank Holiday; and so Mr Fielding could not have received a letter from Mr Clayton on that day, because there was no post. He now says that he believes that he received Mr Clayton's signed copy of the letter on 6 May and himself dated it 5 May on the basis that that must have been the date when Mr Clayton signed and posted it.[360]Mr Clayton says that he signed and returned the share transfer forms, receipt of which was acknowledged by a letter from Mr Fielding dated 8 May 1998. It thanked him for returning an endorsed copy of Mr Fielding's letter of 14 April. The same letter pointed out that the share certificates themselves had not been enclosed. Ultraframe say that the letter is a forgery. Mr Fielding says that he sent a letter dated 20 May, referring to his letter of 8 May, chasing the share certificates. Ultraframe say that this letter is also a forgery. Mr Fielding and Mr Clayton signed a letter dated 1 June 1998, the text of which reads:
"Dear Alan, RE: SHARE CERTIFICATES FOR NORTHSTAR SYSTEMS LIMITED AND SEAQUEST SYSTEMS LIMITED I confirm that you have lost the Share Certificates for the above companies. Please sign one copy of this letter in confirmation of your agreement that should you find them, they are null and void."
[361]The letter is signed by Mr Fielding and counter-signed by Mr Clayton under the heading:
"Agreed that share certificates are null and void"
. Ultraframe say that this letter is also a forgery. It will be observed that this letter does not refer to previous correspondence; and does not indicate the circumstances in which Mr Clayton came to have the share certificates.[362]Mr Birkett said that the invention of Mr Fielding's loan came about after Mr Clayton had got cold feet about saying that he had lent Northstar £70,000. In his witness statement he said that "we" then decided that "we" would say that the £70,000 had come from Mr Fielding. In cross-examination on Day 12 he said that the "we" had to be himself and Mr Naden. But on Day 13 he said that the only person who could have given him that information was Mr Roche. Mr Clayton says that he has never heard the suggestion that he should say he lent Northstar £70,000; and denies Mr Birkett's account. Mr Fielding pays £30,000 to Mr Davies[363]Mr Fielding says that in the third week of May 1998 he met Mr Davies at TGI Fridays in Sale. Mr Davies had rung him to say that he needed money, as he was going out of the country. He again mentioned that Northstar owed him £100,000. Mr Davies was pressurising Mr Fielding to see if he could get money off him. He asked Mr Fielding whether he had any US dollars. Mr Fielding said no. Mr Fielding said that he could get Mr Davies £25,000 in cash. Mr Fielding says that although he suspected that there would be no paperwork supporting Mr Davies' claim to be owed £100,000, he was willing to pay him in order to get rid of him. They agreed to meet a few days later. By the time of the telephone call Mr Fielding had received the signed letter from Mr Clayton agreeing to the share transfer; and he was pleased about that. They met at TGI Fridays. Mr Fielding had taken £30,000 with him in cash, which he had removed from his safe at home. He did not tell his wife that he was going to make this payment to Mr Davies. Mr Fielding says that Mr Davies told him that he had had enough and was going to Texas to start a new business. After about 45 minutes, during which Mr Davies did most of the talking, the two men went out to the car park, and Mr Fielding handed over the cash which he had left in the boot of his car. He did not ask for or receive a receipt. Ultraframe's attack on Mr Fielding's case Other cash payments by Mr Fielding[364]Ultraframe say that Mr Fielding could not have made the cash payments he claimed to have made because he did not have enough money at the time. Contrary to Mr Fielding's case, they say that he was short of money. I deal with this in more detail later. The accounting records[365]Mr Hall examined Northstar's accounting records to see whether they were consistent with Mr Fielding's claim to have lent Northstar £80,000. He concluded that they were not. I deal with the accounting records in more detail later. Mr Birkett's evidence[366]Mr Birkett said that the original plan was to pretend that Mr Clayton had lent Northstar £70,000. When Mr Clayton got cold feet about going along with this story, it was changed to say that Mr Fielding had lent the £70,000. This was some time in early November 1998. However, by 20 November 1998 Mr Birkett and his co-conspirators agreed the false story that Mr Fielding had invested £80,000 into Northstar between January and March 1998 as a way of Mr Fielding being able to acquire the shares before the trustee obtained the injunctions in June 1998 prohibiting further transfers of the shares. Mr Ivison's evidence[367]In his witness statement Mr Ivison said that from the time that he joined Northstar (in October 1997) until April/May 1998 when rumours began to circulate, he did not believe that "there might be any external provider of support for Northstar". But in his oral evidence he accepted that his knowledge of Northstar's finances was such that he would not have known whether or not there was an external provider of support. Mr Gray's evidence[368]Mr Gray said that he became aware at the end of 1997 or early in 1998 that Mr Fielding had "put substantial cash into Northstar". He did not know how much. He said that he had been told this by Mr Fielding. Mr Shaw's evidence[369]Mr Shaw recalled that some time in 1998 he was having a smoke outside at Burnden Works when he and Mr Fielding had a chat. He said that Mr Fielding expressed concern about Northstar's finances and Kesterwood's finances. Mr Fielding said that Northstar wanted £250,000 of which he had already given them £80,000. Mr Shaw was unable to say whether this conversation took place before he was laid off in February 1998 or after his return in July 1998. However, since the question of making £250,000 available to Northstar did not arise until after February 1998, it must have been after his return in July. Mr Hindley's evidence[370]In his witness statement of January 2000, Mr Hindley said that Mr Fielding introduced him to Northstar and Seaquest:
"two companies that he had invested in"
. He said that Mr Fielding told him, at that stage, that he owned both companies. In his witness statement of October 2004 Mr Hindley said that he first heard of Northstar and Seaquest in October 1998 when he received a telephone call from Mr Sheffield saying that Mr Fielding "was looking at investing in these companies" and wanted Mr Hindley to look at their accounts. Ý Þ

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