Thane Investments Ltd & Ors v Tomlinson & Ors [2006] EWHC 1182 (Ch)

[2006] EWHC 1182 (Ch)Case No HC02C1377
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 26 May 2006
Before
THE HONOURABLE MR JUSTICE HART
Between
(1) THANE INVESTMENTS LIMITEDClaimants(2) DENRAE LIMITEDClaimant(3) ASTIM LIMITEDClaimant(4) STARBORN PROPERTIES LIMITEDClaimant(1) BRIAN TOMLINSONDefendants(2) REYALL BUSINESS CONSULTANTS LTDDefendant(3) MALCOLM WAGNERDefendant(4) THE GRANT ARMS HOTEL LIMITEDDefendant
Mr. Mark Blackett-Ord (instructed by Messrs. Philip Ross) for Claimants.Mr Andrew Latimer (instructed by Messrs. Halliwells) for Defendants.Hearing Hearing dates: 20,21,22,23,24,27,28 February 2006
Judgment
[1]The issues in this action which I have tried are (with one exception) limited to those which arise between the third claimant (“Astim”) on the one hand and the third and fourth defendants (respectively “Mr Wagner” and “GAHL”) on the other and concern the entitlement of GAHL to remain in possession as lessee of a property known as The Grant Arms Ramsbottom, near Manchester.[2]Those issues have arisen in the context of a much wider dispute. Astim is the wholly owned subsidiary of the second claimant (“Denbrae”) which is in turn the wholly owned subsidiary of the first claimant (“Thane”). 248,998 shares of the issued share capital of 250,000 shares of Thane has at all material times been owned by the trustees of a private trust established by a Mr Derek Barnes on 31st March 1973 with an original cash sum of £250,000. The original trustees included the first defendant (“Mr Tomlinson”) and the sixth defendant (“Mr Bretherton”). Those trustees also became directors of Thane.[3]It appears that, as a result of the trustees’ having incurred liabilities in connection with certain property transactions, Mr Derek Barnes came to believe that the trust was for practical purposes defunct as from some point in the mid 1970s. In fact it was not. While the trustees did remain (subject to the effect of the Limitation Act) under considerable liabilities, they were nevertheless able through Thane to continue operating in the property market. No accounts were, however, ever rendered to the beneficiaries of the trust (Mr Barnes’ three children) nor were any distributions made to them. Mr Barnes and his children appear to have remained blithely unaware of the continued active existence of the trust until some point in the late 1990s. By that time the dominant force amongst the trustees was Mr Tomlinson. He in turn had introduced a business associate, Mr Giles Knopp (“Mr Knopp”) to the boards of Thane, Denbrae and Astim. By the time with which I am concerned the only directors of each of these companies consisted of these two gentlemen.[4]In 1999 Mr Barnes, having become aware of the existence of the trust, commenced proceedings against the then trustees for their removal. The trustees responded with their own application to the court for directions. Both sets of proceedings came on for hearing before Laddie J. and were then, on the second day of the trial, compromised on terms which were contained in a consent order dated 11th July 2000. That provided for the trustees to retire by 4.00 p.m. on 14th July 2000, for Mr Tomlinson to retire as a director of Thane on 28th July 2000, and for Mr Tomlinson to use his reasonable endeavours to procure the resignation of Mr Knopp on that date. Mr Tomlinson also gave an undertaking to the court:
“forthwith (a) to cease all drawing from Thane and taking all benefits from Thane (b) not to deal with any assets of Thane (save in the performance of any subsisting contract with third parties) or to destroy or dissipate any of Thane’s papers …”
[5]Although the quoted parts of that undertaking refer only to Thane and not to its subsidiaries, it is reasonably clear that Mr Tomlinson at the time regarded the undertaking as extending also to Astim. This is acknowledged in letters written by him to his solicitors and by them to Mr Barnes’ solicitors in July and August 2000. At the same time Mr Tomlinson made it clear that, while he acknowledged that Thane would after 28th July be in a position to procure his removal as a director of Astim, he would remain as a director of Astim unless and until he was so removed. In the event Mr Tomlinson was not formally removed as a director of Astim until September 2000. For his part Mr Knopp declined to stand down as a director of Thane, and was eventually removed as a director in January 2001. It is unclear when Mr Knopp ceased to be a director of Astim, but it has been common ground before me (although is not on the pleadings) that Astim’s board consisted solely of Mr Tomlinson and Mr Knopp at least until September 2000.[6]Mr Knopp’s removal as a director of Thane (and Denbrae) and the termination of his service contract with Thane at the same time led to his bringing proceedings against Thane and Denbrae for wrongful dismissal (“the Knopp action”). In those proceedings Thane and Denbrae counter-claimed for damages against Mr Knopp in respect of a litany of alleged abuses by him of his position as a director. Mr Knopp in turn made a Part 20 claim against Mr Tomlinson in respect of his alleged liability. The Part 20 proceedings were compromised before trial as between Mr Tomlinson and Mr Knopp, with the result that Mr Tomlinson’s participation in the eventual trial of the Knopp action was, in the event, only as a witness for Mr Knopp. The Knopp action was tried before HHJ Thompson QC, sitting as a Deputy Judge of the Queen’s Bench Division, in 2002. By his judgment, given in May 2002, HHJ Thompson upheld the defence of Thane and Denbrae and gave judgment in their favour on the counterclaim against Mr Knopp.[7]These proceedings were commenced, in the wake of the Knopp action, on 24th May 2002. Their primary thrust was to claim against Mr Tomlinson (and the second defendant, which was a company owned or controlled by Mr Tomlinson) a variety of relief based on his breaches of duty in a number of respects as a director of one or other of the claimant companies. Mr Tomlinson died in July 2005 and his estate is now being administered in insolvency. A default judgment has been obtained against the second defendant and the claim against the sixth defendant (Mr Bretherton) has been compromised. The claim against the fifth defendant (Launchfile Ltd, a company controlled by Mr Knopp) has been abandoned, and that against the seventh defendant (Mr Tomlinson’s widow) dismissed.

The claim against Mr Wagner and GAHL and its evolution

[8]One of the respects in which Mr Tomlinson was alleged to have been in breach of duty was “in relation to the acquisition by Astim of the Grant Arms Hotel”. The allegation is that Astim purchased the hotel with vacant possession in October 1998 at a price of £405,000, that this price was not fixed by reference to any market consideration, and that notwithstanding Astim’s entitlement to vacant possession Mr Wagner and GAHL failed to deliver up vacant possession of the hotel. The pleading goes on to recount three bases on which Mr Wagner and/or GAHL had asserted a right to possession of the hotel, namely: i) an agreement allegedly made with Astim prior to Astim’s purchase; ii) an agreement allegedly contained in a letter from Mr Tomlinson to Mr Wagner dated 27th November 1998; and iii) a lease purportedly made on and dated 26th June 2000 between Astim and GAHL.[9]In relation to these, Astim pleaded that i) and ii), if made, were unenforceable and that the document relied on in ii) and iii) did not come into existence:
“until after [Mr Tomlinson] had ceased to be a director of Denbrae and Astim in July 2000 and it is denied that any of the claimant companies is bound by what appears in those documents”
[10]On the basis of this allegation, the pleading claimed against Mr Wagner and GAHL a declaration that neither had any interest in the hotel and an order against them for possession and mesne profits from 23rd October 1998. On the footing that Mr Wagner and/or GAHL had acquired some interest in the hotel, Astim claimed that it had been as a result of a breach by Mr Tomlinson of his fiduciary duties, and that it was entitled to damages or equitable compensation from Mr Tomlinson.[11]The claims against Mr Wagner and GAHL were thus originally premised on the notion that the relevant documents had been manufactured by Mr Tomlinson after the date when he had ceased to be a director of Astim. Although there was (and remains) no allegation in the Particulars that Mr Wagner knew of the back-dating, that allegation was squarely made in relation to the lease by paragraphs 18 and 19 of the Reply as originally served, which alleged that:
“18. Mr Wagner knew that Messrs Tomlinson and Knopp had no authority to grant the lease because he knew that the purported lease was being back-dated and he joined with Mr Tomlinson in preparing the document amateurishly, without the assistance of any solicitors, and with intent to deceive, as is mentioned below. 19. …The purpose of the 2000 Lease was to give the false impression that [GAHL] had a valuable interest in the hotels, so that a substantial sum for this could be obtained from the Devonshire Pub Company which was at that time negotiating to purchase the premises.”
[12]The original Reply also denied an assertion made in the Defence that the contract allegedly constituted by the letter dated 27th November 1998 had been entered into by Mr Wagner in good faith “and without any notice that Mr Tomlinson was acting in breach of duty”. On the contrary, paragraph 23 of the Reply asserted that:
“Mr Wagner knew that the purchase was at an undervalue, and that the true agreement between himself and Mr Tomlinson was not what appeared on the face of the contract, which put him on notice of breach of duty by Mr Tomlinson.”
[13]That allegation still, however, fell short of accusing Mr Wagner and/or GAHL of any knowledge that the grant of the lease was itself an act of misfeasance by Mr Tomlinson, apart from the issue of backdating. That gap was sought to be filled by an amendment of the Reply (with the permission of the court given on 18th November 2005 on an opposed application) to add the following two paragraphs:
“19(A) Alternatively, those Defendants are stopped from relying on the 2000 Lease (whether evidentially or otherwise) because it is (as mentioned above) a forgery created for a fraudulent purpose. 19(B) Alternatively, those Defendants cannot rely upon the 2000 Lease because it was granted by Mr Tomlinson as an act of misfeasance (and therefore in excess of his powers) to confer upon those Defendants a financial benefit at the expense of Astim, and those Defendants were aware of such purpose and that he was exceeding his powers and they did not take the Lease bona fide.”
[14]It has been necessary to record the evolution of the claim at some length because it is now accepted that the original claim that the Lease was executed at a time when Mr Tomlinson (and Mr Knopp) had no authority to act on Astim’s behalf is not sustainable on the facts. I should also record that, while Mr Blackett-Ord on behalf of the claimants argued that the allegation in Amended Reply 19(B) would, if made out, support a claim that Mr Wagner and/or GAHL were personally liable as constructive trustees for the damage suffered by Astim as a result of the misfeasance alleged, no such claim was being made against them in these proceedings.

Background to Astim’s acquisition of the hotel

[15]The hotel has at all material times comprised three potentially separable trading areas, the ground floor consisting of a bar, the first floor of a restaurant and associated kitchen facilities and a function room, and the upper floors consisting of hotel accommodation. Mr Wagner and two business associates had purchased the freehold of the hotel in 1993 for some £225,000. Initially they carried on business there through the medium of a limited company, Marketplace Ltd. That company, however, went into liquidation in 1996. By that time the shares in the freehold had been extended to other investors. Mr Wagner incorporated GAHL to carry on the business formerly carried on by Marketplace Ltd. Unlike Marketplace Ltd this was owned solely by Mr Wagner and his wife. By early 1998 Mr Wagner and GAHL were under considerable financial strain. Mr Wagner’s co-investors in the freehold wanted to realise their respective investments. The costs of refurbishment and trading difficulties had resulted in substantial liabilities under a brewery loan secured on the freehold.[16]In February 1998 Mr Wagner obtained two valuations of the hotel from Batemans, valuers. One of these assessed the present market value of the hotel excluding fixtures to be £600,000 “of which £400,000… is estimated to represent the land and buildings with licence and includes the bowling green”. The other valued the hotel on an assumption that certain improvements were effected with consequent increases in the trading income and including fixtures as £900,000 (but £650,000 on a forced sale basis).[17]At about this time JD Wetherspoons plc (“Wetherspoons”) expressed an interest in taking a lease of the ground floor for a 25 year term at a rent of £33,000 with 5 year rent reviews. At this point Mr Wagner consulted his old friend Mr Tomlinson as to whether and how a deal might be constructed which would enable Mr Wagner’s co-investors to be bought out, the brewery and bank loans discharged, the lease of the ground floor to Wetherspoons effected, but Mr Wagner be left with a hotel business to run from the remainder of the premises. Various proposals were constructed by Mr Tomlinson, assisted by Mr Knopp, over the succeeding months. The eventual shape of the deal was that Astim (a then dormant wholly owned subsidiary of Thane) would buy the freehold for a sum sufficient to pay off the charges (estimated in May 1998 as some £306,000) and to buy out the co-investors (for £50,000). Astim would grant a 125 year lease of the pub premises to a wholly owned subsidiary out of which the Wetherspoons lease would be carved and a further 125 year lease to another subsidiary which would in turn grant a commercial lease to a new trading subsidiary. Under these proposals it was envisaged that Mr Wagner would have an interest in the new trading subsidiary and a potential interest in Astim, subject to Astim first recouping its initial acquisition expenditure. This it expected to be able to do in large part as a consequence of the Wetherspoons lease. In July 1998 Chestertons had valued the proposed 125 year lease of the ground floor subject to the proposed Wetherspoons lease at £375,000 (and at £240,000 without the benefit of the Wetherspoons lease).[18]The precise arrangements between Mr Wagner on the one hand and Mr Tomlinson on the other as to how matters would be structured following Astim’s acquisition do not appear ever to have been finalised. In this respect Mr Wagner relied on his long relationship with Mr Tomlinson and the latter’s far greater sophistication as a businessman. In the event, however, all the proposals and projections which had been made during the summer of 1998 were rendered largely academic by the withdrawal, in early October 1998, of Wetherspoons’ interest in taking its proposed lease. By that time Astim’s progress towards its acquisition of the freehold was well advanced, but fell short of a contractual commitment. Mr Tomlinson decided, however, to press ahead.[19]On 23rd October 1998 Astim completed its purchase of the freehold at a price of £405,000. In addition Astim had agreed to pay a contribution towards the legal fees incurred by the vendors and the mortgagees and had incurred substantial legal fees of its own. The total cost to Astim of the acquisition appears to have been in the region of £429,000.[20]Although the claimants have not challenged the sale itself, they have suggested that the acquisition terms were so favourable to Mr Wagner that the purchase could not have been viewed as being in the bona fide commercial interests of Thane/Astim, and explicable only on the basis of Mr Tomlinson having wished to use Thane’s resources to do his old friend Mr Wagner a favour. I do not consider that the evidence supports that suggestion. The jointly instructed expert witness (Mr Siebert FRICS of Gillman Jones) has valued the hotel as at 27th November 1998 at £425,000. The other available contemporary valuation evidence supports the proposition that a purchase at or around that figure offered Astim a reasonable prospect of realising a profit, possibly substantial, from the deal. A lot however would depend on whether the potential from the hotel could be realised.[21]Mr Tomlinson’s thoughts on this subject were set out in a letter from him to Mr Wagner dated 23rd October 1998 which read as follows:
“I refer to our discussions regarding the Wetherspoons situation. Although not without some reservations we (Astim Limited) are prepared to proceed with the purchase as we do believe that the underlying prospects for the building are good. We will have to work on the principle of maximising the income and, in the absence of a purchaser for the whole, neither Gerard Firth nor Christies having come up with a purchaser; I believe the answer lies in breaking down the component parts. Following the principle of the Wetherspoons deal which fell down only because of their policy change on the size of units which met their criteria, we should seek an alternative tenant for the pub operation. The location is excellent but a substantial refurbishment is essential and that is beyond the scope of Astim’s activities. It clearly needs a multiple operator with buying power and an established management structure. Secondly, the restaurant operation is clearly losing money through lack of turnover which is unlikely to increase materially whilst it is effectively just a hotel dining room. What is needed is a separate operation promoted in its own right as an independent restaurant. Some of the celebrity chefs have gone into this in a big way in London hotels and one (I do not recall his name for the moment) has 4 or 5 in the Isle of Man. I do not think for a second that it would be of interest to this class of chef, but the principle of a separate business which happens to be situated on hotel premises is well established. This leaves the hotel bedroom side, together with the function room, which you wish to develop in line with the existing drawings. We need to consider rental levels and how to progress these thoughts, but the final point we want to make is that the agreement for purchase is for vacant possession on completion. This is a stipulation to ensure that no problems can emerge from your other partners but nevertheless, vis-à-vis the future of the building it will be essential for continuity for you to operate the building exactly as before, although we will need agree a financial basis both for the short and long term.”
[22]The final paragraph of that letter made it clear that Mr Wagner/GAHL was to continue to operate the business as hitherto, pending the sale off, or letting, of the pub and restaurant elements assuming that that could be achieved. The relatively short term nature of this arrangement in Mr Tomlinson’s mind can be inferred from the fact that, unknown to Mr Wagner, he had instructed Astim’s solicitors (The Head Partnership) earlier in October 1998 to prepare a draft lease of the hotel in favour of GAHL for a term of 6 months with statutory protection excluded. It is not suggested that GAHL had, at this stage, more than a licence or tenancy at will in respect of the premises.[23]As from 23rd October 1998 Mr Wagner/GAHL found themselves continuing to operate the hotel business as before, paying all the property outgoings and endeavouring to find commercial lessees and/or purchasers of the pub and restaurant elements. This was all on the basis of Mr Wagner’s understanding that Mr Tomlinson would ensure that GAHL would, at least in the short term, continue to operate the hotel business and that Mr Wagner would be able to participate in any profit realised by Astim from its investment. According to Mr Wagner’s evidence he kept pressing Mr Tomlinson to formalise this understanding, to which pressure Mr Tomlinson eventually yielded by writing a letter dated 27th November 1998.[24]That important letter was in the following terms:
“As requested. I set out my understanding of our agreement concerning your position, and, for simplicity, I will continue to use “you” or “Grant” as synonymous. 1. Grant under your control will continue to operate the pub (The Grant Arms Hotel), bedrooms and restaurant in precisely the same manner as before, rent-free until 1st January 1999. 2. From 1st January 1999, The Grant Arms will be entitled to a 21-year FRI lease on normal commercial terms at initial rent of £15,000 pa, subject to 5 yearly upward only reviews. I acknowledge that, from seeing your financial records, this is the maximum you can afford, as I do not believe the pub is making money at present and the restaurant is undoubtedly losing money. However I believe that we will be able to improve on that rent from our experience of the Wetherspoon negotiations. 3. Accordingly, whilst I accept your need for protection in the event of our failing to find a purchaser, it is important for us to pursue all alternatives and I do not wish to finalise your lease until we have exhausted these possibilities. Accordingly we should seek separate tenants for the pub and the restaurant with a view to building an income for the property on the basis of which we will either sell as an investment property or re-finance and hold for the income. 4. In consideration of you introducing the deal and keeping the property operational you will be entitled to an option (at a nominal price of £1) over 49% of Astim’s share capital once the capital investment has been recouped. We should give ourselves a period of, say, 6 months to explore these alternatives before completing documentation and if a more advantageous proposition emerges in that time we will review the position. If you agree that this sets out the effect of our discussions, please confirm by signing and returning the attached copy of this letter.”
[25]The copy letter was duly counter-signed by Mr Wagner and returned to Mr Tomlinson. From about 1st January 1999 GAHL began to pay the sum of £300 per week to Astim by standing order and has continued to do so until the present time.[26]From the end of 1998 Mr Wagner continued with efforts to find separate operators for the first and ground floor premises. In relation to the first floor Mr Wagner succeeded in finding an acceptable restaurant operator in the person of a Mr Phil Lomax and his company Arvensis Ltd. By a lease dated 6th July 1999 Astim granted a 125 year term of the first floor at a nominal rent to a wholly owned Astim subsidiary, Intye Properties Ltd (“Intye”), and Intye granted a sub-lease (also dated 6th July 1999) to Arvensis for a term of 25 years at a rent of £11,000.00 per annum with 5 year reviews. A separate agreement was entered into between GHAL and Arvensis enabling the hotel business to share, inter alia, the kitchen facilities with the restaurant business. That agreement recited GAHL’s entitlement to a lease of the hotel element without identifying it, but the agreement only made sense from Arvensis’ point of view on the assumption that GAHL’s leasehold interest would co-exist with its own.[27]Mr Wagner also continued with efforts to find a pub operator for the ground floor, entering into new negotiations with Wetherspoons to that end. For that purpose Mr Wagner/GAHL incurred expenditure in preparing architects’ plans for desired alterations and in preparing for the necessary planning and licensing applications. At some stage in the negotiations Wetherspoons suggested that they might be interested in purchasing the freehold of the ground floor and this possibility was explored with Wetherspoons by Mr Tomlinson. Mr Wagner’s understanding of the proposed deal at this stage (which derived from what he was told by Mr Tomlinson) was that Wetherspoons might purchase the freehold of the ground floor for £330,000. If that happened then Astim would have recouped all but £75,000 of its original purchase price, and Thane/Intye/Astim would continue to have the reversion to the Arvensis lease and the reversion to GAHL’s interest in the hotel element (the bedrooms, function rooms, bowling green and car park). Such a result would have been, in Mr Wagner’s perception, a good result for Thane/Astim.[28]In the event proposed sale of the freehold of the ground floor to Wetherspoons did not proceed. Mr Wagner therefore approached another potential pub operator, the Devonshire Pub Company Ltd (“Devonshire”). Devonshire, however, proved to be interested only in purchasing the whole of the hotel with vacant possession, indicating that they were prepared to offer £650,000.00 for the freehold with vacant possession, of which £200,000 would be paid for buying in the leasehold interests of Arvensis and GAHL. The £200,000 was to be paid to Mr Wagner/GAHL, who were to be responsible for procuring the surrender of the Arvensis lease. Mr Wagner calculated that, once account was taken of the amount which he would have to pay Arvensis (negotiated as £39000), the cost of making the GAHL staff redundant and capital gains tax liabilities, he would be left with some £40,000.00. He did not regard this as sufficiently compensating him for his years of investment in the hotel and the fact that he would be giving up his livelihood. He therefore successfully sought Devonshire’s agreement to pay a further £25,000.00. Accordingly, by about the middle of June 2000 the Devonshire deal had been agreed in principle as one under which the leasehold interests would be purchased for £225,000.00 and Astim’s freehold interest would be purchased for £450,000.00. Mr Wagner/GAHL were at this stage using, or contemplating using a firm of solicitors called Clough & Willis so far as their side of the transaction was concerned. Mr Tomlinson/Astim were using The Head Partnership.[29]At some point between 26th June and 21st August 2000 Astim executed what purported to be a lease in favour of GAHL of the hotel for a term of 21 years from 1st January 1999 at a rent of £15,000.00 per annum. It is common ground that this document was composed, or “cobbled together”, by Mr Tomlinson. The main issue in this action is whether GAHL is entitled, as against Astim, to rely on this document as an effective lease. Astim contends that GAHL is not so entitled for one of two possible reasons. First, it is alleged that the document was not in fact executed on the date which it bears (26th June 2000) but at a subsequent date. It is, accordingly, alleged that the back-dating of the document entitles Astim to say that it is a forgery, and therefore a nullity. Secondly, it is alleged that in procuring its execution Mr Tomlinson was acting in breach of his duties as a director of Astim, and that GAHL (through Mr Wagner) was sufficiently complicit in that breach to estop it now relying on that breach as against Astim. The principal evidence relied on to show that GAHL had been so complicit was, as I understood the way in which the case was eventually put by Mr Blackett-Ord on behalf of Astim, the very fact of the back-dating.[30]According to Mr Wagner’s evidence the execution of the lease was the result of his having once again pestered Mr Tomlinson for a formal recognition of his status. His reasons for wanting the formality were, in part, because the deal struck informally with Devonshire required that he have something to deliver but, more significantly, because he had learned from Mr Tomlinson that the latter’s control of Thane/Astim was now under attack from Mr Barnes. Mr Barnes had in fact commenced proceedings for Mr Tomlinson’s removal as a trustee in the middle of 1999 and a date had been fixed for trial in July 2000 (see paragraph 4 above).[31]A letter written by Mr Tomlinson to Mr Wagner bearing the date 21st June 2000 set the scene for what followed. It was in the following terms:
“Further to our discussions, the hearing on the Barnes Settlement issue is likely to be heard in the week beginning 10th July and whilst our solicitors and counsel are confident of the Trustees success, as you know, I have had one or two pretty bad experiences of the law. If things go wrong, I would not wish you to be unprotected because of the informal nature of your tenancy and accordingly I agree that our arrangement should now be properly documented. Accordingly, I enclose two copies of the lease in the agreed terms and would be pleased if you would execute as indicated and return to me for execution by Astim.”
[32]The only copy of that letter which has ever been produced is a faxed copy which appears from the fax footer to have been transmitted and/or received by fax on 27th July 2000. Mr Wagner produced this copy as a witness at the Knopp trial, then asserting that he retained the original. He has, however, been unable to produce the original and was unable to account for that fact. The claimant’s theory is that this letter was in fact composed on or immediately before 27th July and was deliberately back-dated to 21st June in order to lend verisimilitude to the deliberately back-dated lease.[33]According to Mr Wagner he responded to this letter by having the enclosed documents signed by himself and his wife as director and secretary of GAHL and then sending them back to Mr Tomlinson as requested. He says that he was shortly thereafter supplied by Mr Tomlinson with one of those documents executed by Astim and dated 26th June 2000. He cannot remember whether this was received from Mr Tomlinson in person or by post.[34]The lease as produced by Mr Wagner has a number of unusual features. Its front sheet is headed “Agreement made between Astim Limited and The Grant Arms Hotel Limited”, the date there being entered in Mr Tomlinson’s hand. Under that are the words “Lease of Public House and Hotel (excluding part first floor)”. The following page consists of a typed sheet describing the landlord’s registered title and identifying the property as “The Grant Arms Hotel, Market Place, Ramsbottom, and then, under the heading “PARTICULARS”, the date of the deed, the identification of the landlord (Astim) and the tenant (GAHL), a description of the Premises and of the Term, a description of the Basic Rent as £15,000, a specification of the Rent Commencement Date as 1st January 1999, and a definition of Specified User. The dates have all been completed in manuscript by Mr Tomlinson. The Premises are defined as “The Building and grounds known as The Grant Arms Hotel and which are described in the First Schedule” The Specified User is “Public House and Residential Hotel with function rooms and ancillary catering facilities”[35]The next two unnumbered pages consist of an index. This is identical to (and contains the same errors) as the index to the October 1998 draft lease (see paragraph 22 above): the errors lie in the description of Clauses 8.9, 8.10, 8.11 and 9 in the index.[36]There then follow the operative provisions of the Lease, which only make sense by reference to the definitions contained in the Particulars, followed by three schedules. These pages are paginated as pages 1 through to 26 save that one un-numbered page exists immediately before page 26 and contains Part II of the Third Schedule and the execution by Astim. Page 26 contains the execution by GAHL.[37]The numbered pages from 1 to 21 are identical both in format and content to the equivalent pages in the October 1998 draft Lease (save that the root directory footer in the latter does not appear). Page 22 of the 2000 Lease consists of a re-type of three of the provisions (Clauses 8.4, 8.5, and 8.6) in the October 1998 draft, but omits Clauses 8.7, 8.8, 8.9 and 9.1 (which in the 1998 October draft ran in to page 23). The re-type fails to pick up the concluding words of Clause 8.3.[38]Page 23 of the 2000 Lease is in an altogether different type-face from pages 1-22 although similar to that used for the Particulars sheet. Its most significant feature for present purposes is that it bears a fax footer date of 24th July 2000. If the Lease was executed on the 26th June 2000 it cannot at that date have included this page.[39]Page 23 contains the First Schedule (description of the Premises) and the Second Schedule (Rights granted). The First Schedule is in the following terms:
“ALL THOSE Premises at and known as The Grant Arms Hotel, Market Place, Ramsbottom which are shown edged red on plan being registered at H M Land Registry under titles nos GM34930 and GM 341739 subject to the lease of part first floor between the Landlord and Intye Properties Limited annexed hereto”
Up to 341739 the wording is identical to that in the October 1998 draft, the following words representing an addition. The Intye lease is not annexed.[40]Paragraphs 1 and 2 of the Second Schedule are identical to the October 1998 draft, but paragraphs 3, 4 and 5 contain text which does not appear in the Second Schedule to that draft and which, so far as it is not gobbledegook, plainly does not belong in the Second Schedule since it contains matters reserved to the landlord. What has obviously happened is that the copyist (possibly Mrs Tomlinson) has re-typed part of page 25 of the October 1998 draft in the mistaken belief that it was a continuation of page 23 (i.e. he/she has skipped a page) and inserted a number (3) to make numerical sense of it.[41]Pages 24 and 25 contain Part 1 of the Third Schedule (Exceptions and Reservations). These are similar but not identical to the equivalent provisions in the October 1998 draft, and must be the result of a re-typing exercise albeit in a type face which looks similar to that used for pages 1-22. The Schedule is headed “THID” and not “THIRD” and it contains a new paragraph 6 in the following terms “Laundry and Boiler Room The right of way over and through the entrance lobby area hatched yellow for the purposes of using and gaining access to and egress from the laundry and boiler room edged yellow on the plan annexed hereto” No plan is annexed.[42]The penultimate (un-numbered) page of the 2000 Lease contains Part II of the Third Schedule (same wording as in the October 1998 draft) and provision for the execution by Astim. This is in a typeface similar to page 24.[43]Page 26 (which contains only provision for execution by GAHL) is identical in wording to page 26 of the October 1998 draft lease save that in the latter GAHL is described as Grant Arms Hotel Limited whereas in the 2000 Lease it is The Grant Arms Hotel Limited. The 2000 Lease bears Astim’s seal, Mr Wagner’s signature as director and Mrs Wagner’s signature as secretary. It is accepted by Mr Wagner that Astim’s seal was not purchased until about 27th July 2000.[44]The October 1998 Lease has therefore been extensively used in the compilation of the 2000 Lease. It is suggested that this explains two curious features of the 2000 Lease, namely the omission of any provision for rent review, and the inclusion of an absolute prohibition on assignment or underletting.[45]I should for the sake of completeness record one further observation which I have made of the 2000 Lease since the conclusion of the trial. The pages in the 2000 Lease as produced to me are bound together by a red plastic spine. However, the top left hand corner of each page contains traces of previous stapling. I heard no evidence as to when this stapling occurred, but the alignment of the holes means that it must have been after the document had taken what was to be its final form. I have not, in the event, found this observation of assistance in deciding any issue in the case. I merely record the fact.[46]Before considering Mr Wagner’s explanation for the various oddities, it is convenient to consider what the documentary record shows in relation to subsequent events. At the end of July 2000 there was a flurry of correspondence between the Barnes’ solicitors (Black Norman), Mr Tomlinson’s solicitors Davis Black Furniss, and Astim’s solicitors (instructed by Mr Tomlinson), The Head Partnership, as to whether Mr Tomlinson was entitled to instruct the latter to send out a contract to Devonshire. During the course of this correspondence Mr Tomlinson maintained the position that, as directors of Astim, he and Mr Knopp were entitled and obliged to manage Astim in its best interests, and that a sale to Devonshire for £450,000 represented a good deal for Astim and should meet the apparent desire of the Barnes camp that Astim’s assets be liquidated. He accepted, however, that the terms of the court order prevented him from causing Astim actually to conclude a contract for the sale without the consent of the new trustees of the settlement. He repeated this in a letter dated 25th August 2000 to Black Norman.[47]On 31st July 2000 Clough & Willis (for GAHL) wrote to Devonshire’s solicitors (Last Cawthra Feather) with a draft contract for the sale of “the Business” as defined for £225,000 plus a sum in respect of stock. The draft described the Business as including the Hotel Property, that being defined by reference to the premises “demised to the vendor by way of a lease dated [ ] made between Astim Limited (1) and the Vendor (2)”, and the Restaurant Property, the latter being defined as the premises demised to Arvensis by Intye by the 6th July 1999 lease. The accompanying letter explained:
“As you will be aware from our previous telephone conversation, our client has possession of The Grant Arms Hotel except for the restaurant on the ground floor. Our client will procure that the restaurant lease is assigned to them prior to completion of this deal. However, this is conditional upon your clients purchasing the freehold interest in the property directly from the present Lessor.”
[48]That letter excited a request by Last Cawthra Feather to be supplied with the lease under which Intye held its interest in the property and to have the role of Intye explained to them. No response was received to that request which was repeated in a letter dated 10th August 2000. To that letter Clough & Willis responded by saying that they had been disinstructed. It appears that Mr Wagner then instructed Wacks Caller to act for GAHL in relation to the transfer. They wrote on 21st August 2000 to Last Cawthra Feather with a fresh draft transfer agreement. This did include amongst the property being sold “the lease dated 26th June 2000 between the Astim Limited (1) and the Vendor (2).” The writer of the letter (Mr Simpson) indicated that a copy of this document would be supplied separately. This was done, but the document puzzled Last Cawthra Feather, who were in any case still waiting to have the Intye situation explained to them. By 5th September they wrote in a tone of some exasperation to the Head Partnership reiterating their request for information about the Intye lease and pointing out that neither the Arvensis sub-lease nor the 2000 Lease had been stamped.[49]In the meantime Mr Derek Barnes and his son Dominic had, it seems, come to the view that they should consent to the sale to Devonshire for £450,000 and so indicated in a letter from Black Norman to the Head Partnership dated 14th September 2000. It would appear from the documentary record that Black Norman (and those they represented) were unaware at this stage of the existence of the 2000 Lease or of the existence of the separate agreement for its sale for £225,000. The existence of the Lease appears only to have come to their attention following receipt by Black Norman, at some time after 15th September, of the draft agreement between Astim and Devonshire which by this time had been revised so as to refer to the 2000 Lease and the fact that the sale was conditional on simultaneous completion of the sale by GAHL of that lease, as well to provide inter alia for the remedying of the position in relation to stamp duty. This provoked inquiry from Black Norman as to the 2000 Lease and an explanation as to why no copy of it existed among the Astim documentation which had been supplied by Mr Tomlinson to Dominic Barnes. The Head Partnership responded with a short explanation, enclosing a copy of the 2000 Lease. Thereafter the Barnes family decided to abort the transaction with Devonshire. It is not clear exactly when this happened. The first step seems to have been to disinstruct The Head Partnership: there is a letter from Mr Tomlinson protesting this decision dated 6th October 2000. By letter dated 17th October 2000 Black Norman informed Wacks Caller that the transaction would not be proceeding. It would appear that in the meantime the 2000 Lease had been submitted for stamping: the date of the stamp is 19th October 2000.[50]Mr Derek Barnes visited Mr Wagner at the hotel on 2nd November 2000 asserting that he intended to have the 2000 Lease set aside, and advising Mr Wagner that it would be in his best interests to walk away from the situation rather than be the target of hostile court proceedings in which he would be accused of collusion with Mr Tomlinson. Mr Wagner told him that his intention was to carry on running the hotel as before and that he had only agreed the Devonshire deal under pressure from Mr Tomlinson and what he understood to be instructions from the trust.[51]In November 2000 Mr Wagner consulted Wacks Caller (Mr Parkinson) about the 2000 Lease, as a result of which Mr Parkinson wrote a letter dated 14th November 2000 to Mr Tomlinson seeking his agreement to a rectification of the lease so as include 5 year rent reviews and a removal of the prohibition against assignment. The letter contained the following material passages:
“I am aware of conversations which both yourself and Malcolm Wagner of my client company have had with regard to the above-mentioned Lease and in particular the manner in which the Lease was prepared. Given that the Lease was I understand, prepared in haste, certain clauses in the document are agreed by both parties as not accurately reflecting what was actually agreed and intended by the parties…. I believe from having been party to a telephone conversation which you had with Malcolm Wagner last week, the Lease was indeed prepared in haste not least as evidenced by the fact that pages 23 and the particulars page of the Lease is of a different typeface. You confirmed that these pages had been slotted into what had previously been utilised in an earlier transaction the terms of which were clearly inappropriate for The Grant Arms Lease..”
[52]Mr Tomlinson eventually responded in April of the following year with a statutory declaration confirming the two points in relation to which rectification had been sought.[53]Mr Wagner’s version of events in relation to the execution of the 2000 Lease is that the letter dated 21st June 2000 was received by him by post shortly after its date, and that it enclosed the documents there referred to. He and his wife signed the lease and counterpart and sent them back to Mr Tomlinson. Shortly after 26th June he was supplied with the lease signed and sealed by Astim and dated 26th June 2000. In late June or early July he decided to take the lease to Mr Philbin of Wacks Caller to ask his advice about stamping. In his oral evidence he was insistent that he sought this advice from Mr Philbin not in the latter’s capacity as a solicitor but as a friend who was a solicitor. Mr Philbin was told that the lease had been prepared by Mr Tomlinson. He pointed out that GAHL’s seal had not been affixed to it. He also pointed out that the schedule describing the property had not been included in the lease, that there was no provision for assignment or provision for rent reviews. Mr Philbin said that as the lease was going to be surrendered to Devonshire the only thing that needed to be sorted out at this stage was the lack of any description of the property. Mr Wagner then rang Mr Tomlinson to tell him of the omission of the schedule. Mr Tomlinson thereupon on 24th July faxed the page which is page 23 of the Lease. That was then inserted at the relevant place.[54]Mr Wagner’s written evidence did not say who physically inserted the new page into the document, but in his oral evidence he suggested that it might have been either himself (page 23 being sent to the hotel) or Mr Philbin (page 23 being sent to Wacks Caller). He inclined to think that the latter was the more probable hypothesis. Later Mr Wagner purchased a company seal and applied it to the final page of the document.[55]Mr Blackett-Ord submitted that I should reject this whole account. He submitted that the evidence as a whole pointed to the document having been created for the first time in late July 2000. He relied on the following matters as supporting his hypothesis: i) If there had been an agreement in June 2000 that the lease be granted, there was no reason why Mr Tomlinson should have taken upon himself the task of compiling the document rather than instructing The Head Partnership to produce it. The explanations given for the self-assembly, that Mr Tomlinson had wanted to save money and had been under time pressure because he was about to go on holiday, did not hold water: The expense of instructing solicitors to prepare the document would have been borne by Astim and not Mr Tomlinson, and Mr Tomlinson’s credit card statements did not support the thesis that he had been about to go on holiday. In any event, there was every reason to suppose that The Head Partnership would have been able to produce a draft lease in appropriate terms in short order had it been asked; ii) The advice allegedly given by Mr Philbin was inherently improbable. As a matter of law the affixing of GAHL’s seal was not critical. On the other hand it was likely that Devonshire would expect to see a stamped lease. Moreover, the story that Mr Philbin had noticed the omission of the rent review clause, and the inappropriateness of the covenant against assignment, only made sense if Mr Philbin had been instructed as to the terms of the November 1998 letter, and Mr Wagner did not claim that he had been. Furthermore, the existence of the covenant against assignment was potentially obstructive to the Devonshire deal. There had been no mention of any involvement by a solicitor in the process until the Rejoinder in December 2005, and no identification of Mr Philbin as that solicitor until Mr Wagner’s witness statement dated 8th February 2006. Mr Philbin had not been called to support the story. It could be inferred from Mr Parkinson’s letter dated 14th November 2000 (see paragraph 51 above) that no reference had been made by Mr Wagner or Mr Tomlinson to Mr Philbin’s alleged involvement in the process in the conversations to which Mr Parkinson had been a party; iii) If Mr Wagner’s story were true the documents which he was sent under cover of the letter purportedly dated 21st June 2000 must have been in a form where the pagination meant either that there was a page 23 (in a different form from that ultimately produced on 24th July) or that page 23 was obviously missing. iv) Mr Wagner had produced no satisfactory explanation as to why he had sought Mr Philbin’s advice as a friend, rather than producing the document to Clough & Willis who were acting for GAHL on the Devonshire deal. Mr Wagner had not revealed the involvement of Clough & Willis either in his witness statement or in his disclosure. Mr Wagner’s assertion under cross-examination that he had not instructed Clough & Willis until the middle of July could easily have been corroborated by disclosure of the papers held by them were it correct; v) It was clear that Clough & Willis were not told that the lease had been granted. The draft agreement produced by them and sent to Last Cawthra Feather under cover of their letter dated 31st July (see paragraph 47 above) showed that they had been instructed as to the date of the Arvensis sub-lease but that the date of GAHL’s lease was then unknown. Their letter simply refers to the fact that GAHL is “in possession”. vi) If the lease was not in fact cobbled together until late July, Mr Tomlinson had a motive for ensuring that it was backdated to some date prior to 11th July. He believed that the Court Order prevented him from procuring the execution by Astim of any binding commitments. He also knew that, following his resignation as a director of Thane on 28th July 2000 his continued directorship of Astim was precarious, and could be determined at any time. If the lease was going to be back-dated for that reason, Mr Tomlinson had a motive for not involving solicitors in its production.[56]On behalf of Mr Wagner/GAHL Mr Latimer submitted that there was no good reason for the court to find that Mr Wagner was not telling the truth. He submitted that Mr Tomlinson would have had no motive in late July for creating and back-dating a lease. That would have been to expose himself to the risk of being found in contempt of court and/or exposed to a criminal prosecution for forgery. If the claimant’s theory that the lease had not been created until late July were correct, Mr Tomlinson’s obvious course was to date it genuinely on the footing that it constituted the performance of an existing pre-11th July contract (which would have been permitted by the court order). Moreover, if Mr Tomlinson was forging a document in late July (with all the attendant risks involved in such a process) he would not have been so crass as to include a page 23 with the tell-tale 24th July fax footer on it.[57]With some regret I have come to the conclusion that, so far at least as concerns the date when Astim and GAHL executed the 2000 Lease, Mr Blackett-Ord’s submissions on the evidence on this point are to be preferred. My regret stems from my assessment of Mr Wagner as a witness: in general he gave his evidence in a straightforward way, and he did not strike me as a man naturally given to dishonesty. Nevertheless I have concluded that the evidence pointing to his having invented his version of events is sufficiently cogent to justify the conclusion that he has. All the points made by Mr Blackett-Ord seem to me to be telling. In particular the letter dated 31st July 2000 from Clough & Willis, together with its enclosure seems to me to be powerful evidence that that firm had been told by Mr Wagner that the date of GAHL’s lease was not yet known, and indeed that the precise terms on which GAHL were in possession were not known. It is practically inconceivable that, if not instructed until mid July and if the lease had been executed on 26th June, they would have obtained from Mr Wagner the detailed information which they had obtained about the Arvensis lease but not at the same time obtained equivalent information about the lease to their client GAHL. It seems to me likely that they were told that the latter had not yet been perfected. That, additionally, provides an explanation for why, when the lease was executed with its false date, it was necessary for Clough & Willis to be disinstructed and for Wacks Caller to be instructed in their place. I find the lack of any evidence from Clough & Willis, and/or disclosure of their file, highly suspicious in this context. I also find the failure to call Mr Philbin suspicious. Mr Latimer suggested that I should infer that nothing that Mr Philbin would have been able to say would have been adverse to Mr Wagner’s evidence since Wacks Caller had been acting for Mr Wagner in the litigation until the partner concerned left to join Halliwells in 2005, and that it would have been improper for Wacks Caller to have acted for Mr Wagner had they known that Mr Philbin’s recollections (if any) did not support Mr Wagner’s case. That submission does not, however, answer the point. Mr Philbin was plainly a potentially critical witness if Mr Wagner’s account was to be independently corroborated. Even if his evidence had only been to the effect that he could remember nothing about the incident at all but had no reason to believe that Mr Wagner’s recollection was imperfect, it would have had some corroborative effect – if only to show that the advice allegedly given by Mr Philbin was advice he himself believed that he might have given in the hypothesised circumstances. As for the proposition that if Mr Tomlinson had been engaged in an exercise of forgery he would have made a better job of it, the fact is that on any possible version of events what was done was done in great haste. The mistakes that were made were attributable to that haste.[58]Accordingly I have concluded that it is more probable than not that the 2000 Lease was executed by the parties in late July/early August 2000, that at the date of its execution it took the form which we now see, and that it was deliberately back-dated by Mr Tomlinson since he feared that its execution after 11th July 2000 would be a contempt of court.[59]It does not follow from that conclusion that Mr Tomlinson also created the letter dated 21st June 2000 at the same time. In fact it seems to me possible that that letter was a genuine letter. I need make no finding about that.

Legal consequences of the back-dating

[60]By section 1 of the Forgery and Counterfeiting Act 1981 a person is guilty of forgery “if he makes a false instrument, with the intention that he or another shall use it to induce somebody to accept it as genuine, and by reason of so accepting it to do or not to do some act to his own or any other person’s prejudice” An instrument is “false” for the purposes of the offence created by section 1 if it “purports to have been made...on a date on which….it was not in fact made”: see s. 9(1)(g) of the 1981 Act.[61]It was submitted by Mr Blackett-Ord on behalf of Astim that, the 2000 Lease being a forgery, GAHL cannot rely upon it. He submitted that this was a matter of public policy, citing in support the proposition in paragraph 16-10 of Chitty on Contracts, 29th edition that “Neither party can sue upon a contract if:
“(a) both knew that its performance involved the commission of an act which, to their knowledge, is legally objectionable, that it is illegal or otherwise against public policy..”
[62]Mr Latimer, on behalf of GAHL, resisted that conclusion. He submitted that the mere fact that the lease had been back-dated by one of Astim’s directors made it nonetheless Astim’s act and deed as of the date on which it was in fact executed. The date at which it purported to have been executed was entirely irrelevant to the substantive legal effect of the document. He submitted that a distinction had to be drawn between a forgery the effect of which was to corrupt the whole instrument (such as a false signature) and forgery in the more technical sense of making an unauthorised change to an instrument (such as changing the text to correct a mistake). He submitted that this distinction was supported by the cases, in particular Lombard Finance Ltd v Brookplain Trading Ltd [1991] 1 WLR 271.[63]In that case, somebody had corrected an error of description in a guarantee after it had been executed and without the consent of the guarantor in a manner which sought to give the impression that the alteration had been initialled by the guarantor. The issue before the Court of Appeal (Dillon LJ and Thorpe J) was whether the alteration had the effect of avoiding the original instrument. Applying the judgment of Devlin J in Kwei Tek Chao v British Traders & Shippers Ltd [1954] 2 QB 459 ( a case involving the insertion of an incorrect date in a bill of lading), Dillon LJ held ( at p 277) that “In the present case the alteration does not go to the whole or to the essence of the instrument. It is an immaterial alteration. Therefore I do not see why the forgery should be treated as corrupting the whole of the instrument so as to destroy it.”[64]On the findings of fact which I have made I do not consider that this line of authority is directly in point. Those findings assume that the 2000 Lease bore its false date at the time of its execution, or at least that there was agreement between the parties that the false date would be inserted following its execution. This is not therefore a case where a deed has been altered, materially or otherwise, after its execution. It is a case where the execution of the lease in the form which it in fact took involved the parties (or at least their human agents) in illegality. It was, however, not relevant to GAHL’s claim to be entitled to possession under the lease that it should have been executed at the date which it bears as opposed to the date on which (on my findings) it was in fact executed. In the absence of authority compelling a different conclusion, I do not consider that there is any reason in principle why in those circumstances GAHL should not be entitled to assert the existence of the 2000 Lease as its justification for being in possession or, to put the point the other way round, why Astim should be entitled to avoid the 2000 Lease.[65]Accordingly, while I consider that this way of putting Astim’s claim succeeds so far as the facts are concerned, I have not been persuaded that the consequence is that the 2000 Lease is void.

The alternative case

[66]I have already recorded (see paragraph 13 above) the late stage of the proceedings at which this alternative claim came to be introduced into the case. Oddly, it had been the way in which Astim’s solicitors had originally put the claim in a letter dated 3rd August 2001 (subsequently elaborated in a letter dated 12th December 2001). The claim as now pleaded (in paragraph 19(B) of the Reply) is that the grant of the 2000 Lease was a breach of Mr Tomlinson’s duty as a director of Astim because its purpose and effect was to confer on GAHL and/or Mr Wagner a financial benefit at the expense of Astim, that GAHL and/or Mr Wagner were aware of this purpose and effect and did not take the 2000 Lease bona fide.[67]I examine first whether the effect of the grant of the 2000 Lease was to confer a financial benefit on Astim. The absence of a rent review clause meant that it inevitably did. I will, however, put that aspect of the matter on one side since I have not been persuaded that its omission was not a simple rectifiable mistake. However, treating the 2000 Lease as notionally containing a rent review clause, and assuming that but for its grant Astim was entitled to vacant possession of the hotel as against GAHL, the expert evidence clearly shows a substantial adverse financial impact on Astim: see Mr Siebert’s supplementary report dated 16th January 2006. On the other hand if, immediately before the grant of the 2000 Lease GAHL was in a position, by virtue of the letter dated 27th November 1998, to insist upon its grant, the financial effect of the 2000 Lease itself is neutral.[68]Although his pleadings had canvassed a different scenario, Mr Blackett-Ord did not seek to argue before me that the 27th November 1998 letter was other than a genuine document. He submitted, however, that it had involved Astim in no commitment to grant a lease to GAHL. In my judgment that is a correct legal analysis of the 27th November 1998 letter. Mr Latimer submitted that, while paragraphs 3 and 4 of the letter constituted merely an agreement to agree, paragraphs 1 and 2 set out a contractually binding “default” position. However, in my judgment the letter has to be read as a whole, and, so reading it, the predominant flavour one gets is of Mr Tomlinson (on behalf of Astim) not wishing to commit Astim at that stage. As I have already indicated (see paragraph 20) my finding is that the decision to purchase the hotel was taken in the bona fide commercial interests of Thane/Astim. The commercial purpose of the transaction could only be realised if purchasers/lessees of the ground and first floors could be found within a reasonably short time scale and if the hotel could be kept open while the search for such purchasers/lessees was in progress. Mr Wagner’s co-operation in this process was achieved by offering him a cut in the eventual profits (via an option to acquire shares in Astim) coupled with the promise that, if nothing eventuated, GAHL would be entitled to a lease. From Mr Wagner/GAHL’s perspective the ideal scenario would be one under which alternative purchasers/lessees were found for pub and restaurant elements, leaving Mr Wagner/GAHL free to continue running a hotel business on the upper floors.[69]The subsequent dealings between the parties in connection with the grant of the Intye/Arvensis lease and sub-lease are consistent with this interpretation of how they saw their commercial relationship but do not prove that they believed there was no contractual entitlement. There was no question of GAHL seeking to obstruct this transaction on the grounds of its contractual entitlement to a 21 year lease of the whole. Similarly there was no question of Mr Wagner/GAHL seeking to obstruct the second Wetherspoons deal. On the contrary on each occasion Mr Wagner/GAHL spent time, energy and money in seeking to progress and finalise the deals. However, given the carrot represented by the option to acquire shares, Mr Wagner/GAHL had no incentive to assert any contractual entitlement which, if asserted, would have obstructed either of those deals. I have little doubt, however, that Mr Wagner believed that Astim was committed, as a fall-back position, to grant GAHL a lease.[70]Both the transactions referred to above were transactions of a type which had been contemplated by the 27th November 1998 letter. The Devonshire proposal was not. That required Mr Wagner/GAHL to give up for good the hotel business which Mr Wagner had always perceived as being the provision for his retirement and to which he had devoted himself for the last ten years or so. Mr Wagner’s evidence is that he was not prepared to co-operate with Mr Tomlinson’s desire that the hotel be sold with vacant possession unless he received £225,000 out of the purchase price. The exact way in which Devonshire calculated its offer on the one hand, and Astim and GAHL negotiated the split of the consideration between themselves on the other, is unclear on the documents. Mr Wagner’s version that he was holding out for £225,000 in respect of the leasehold interests is supported by the witness statement of Mr Padgett of Devonshire which deposed that Devonshire originally offered £200,000 for the leases held by GAHL and Arvensis. It is not, however, clear what Devonshire was told about the exact nature of GAHL’s lease, or how Devonshire arrived at its offer of £450,000 for Astim’s freehold. Nor is it clear on what basis Mr Tomlinson (and Mr Knopp) decided that it was in Astim’s interests to accept £450,000 for the freehold.[71]Mr Blackett-Ord’s submissions on behalf of Astim assumed throughout that the grant of the 2000 Lease was a device invented by Mr Tomlinson and Mr Wagner in order to justify the diversion of £225,000 of the price which Devonshire was otherwise willing to pay Astim for the freehold. That assumes in turn that Mr Tomlinson had some motive for procuring that diversion. I am unable to see that he did have any motive other than a desire, under pressure from the Barnes family, to liquidate Thane’s investment in the hotel. I accept Mr Wagner’s evidence that there was no agreement between himself and Mr Tomlinson under which Mr Tomlinson was to share in the “diverted” money. Mr Tomlinson was faced with a situation where(a) a sale with vacant possession at £650,000-675,000 appeared to be a very good deal and(b) the deal was only achievable if both GAHL and Arvensis could be persuaded to join in the deal. Having ascertained what it would require for him to buy out Arvensis, Mr Wagner was only willing to cooperate on being paid £225,000.[72]It does not seem to me clear that in agreeing these terms Mr Tomlinson was acting in breach of the duties he owed Astim. If the Devonshire offer was otherwise a good one, the question is whether Astim could have driven a harder bargain with GAHL (and Arvensis), and whether Mr Tomlinson deliberately, recklessly or negligently failed to drive that bargain. I am not satisfied that a better bargain was available. It is true that, had the parties been bargaining fully at arms length, Astim would have been able to argue that GAHL had no greater rights in relation to the hotel than that of a tenant at will of that portion of it not comprised in the Intye lease. On that basis Astim might have offered GAHL something in the nature of a nuisance value for immediate possession. As against that, however, GAHL would have had the argument that the November 27th 1998 letter contractually bound Astim in the events which had now happened to grant the lease thereby contemplated, or, even if it did not, that GAHL had in any event a periodic tenancy enjoying statutory protection. If GAHL had an entitlement to a grant of a 21 year term, then it may well have been perceived that the combined value of GAHL’s and Arvensis’ interests would have justified their taking a larger percentage of a vacant possession value than that represented by a payment of £225,000.[73]There is no evidence that Mr Tomlinson did this sort of calculation. On the other hand there is no evidence that he did not. What we know is that he was prepared to fall in with Mr Wagner’s requirement that GAHL be paid £225,000 of which £39,000 was to be paid to Arvensis. We also know that he thought it politic, when seeking to persuade the Barnes’ family of the merits of the sale to Devonshire for £450,000, to conceal the fact that Devonshire was paying a total of £675,000. No doubt he feared that if the Barnes family were to learn this, they would abort the transaction and his old friend Mr Wagner would be left vulnerable to their vindictiveness. To that extent it was no doubt the case that he was motivated not simply by a desire to further Astim’s commercial interests but by a desire to do right by Mr Wagner.[74]Assuming that such a mixture of motives rendered Mr Tomlinson in breach of his duties to Astim, the question I have to determine is whether Mr Wagner was so complicit in that breach as to render him liable as a constructive trustee in relation to the property (i.e. the 2000 Lease) received by him as a result of it. Mr Blackett-Ord, after referring me to a number of the authorities which have most recently been reviewed and explained in the decision of the Court of Appeal in Criterion Properties plc v. Stratford UK Properties LLC [2002] EWCA Civ. 1783, [2003] 1 WLR 2108, submitted that the test was whether Mr Wagner’s state of knowledge of Mr Tomlinson’s breach of duty was such as to make it “unconscionable for him to retain the benefit of the receipt”.[75]I do not consider that it was. So far as Mr Wagner was concerned he bona fide believed that, in the events which had happened, GAHL was entitled to insist on the grant of a lease in accordance with the terms of the letter dated 27th November 1998. He had no reason to suppose that Mr Tomlinson did not hold the same belief. In pestering Mr Tomlinson for the grant of a lease, Mr Wagner was not therefore seeking to persuade Mr Tomlinson, in breach of his duty to Astim, to divert Astim’s property in his favour but, rather, was seeking to assert what he believed were GAHL’s rights as against Astim. Similarly, when holding out for the £225,000 payment from Devonshire, Mr Wagner was doing no more than pursue his (and GAHL’s) commercial interests in the light of the situation as he then perceived it, and had no reason to suppose that Mr Tomlinson, in falling in with that proposal, was not acting in Astim’s commercial interests.[76]Accordingly I do not think that this alternative method of putting Astim’s case succeeds.[77]In those circumstances it is unnecessary for me to decide what the position would have been had GAHL not been entitled to assert the 2000 Lease. I should, however, record my findings of fact relevant to the issues which it is unnecessary for me to decide, namely whether the 2000 Lease (if voidable) was nevertheless affirmed, whether the payment and receipt of rent gave rise to a periodic tenancy and whether GAHL and/or Mr Wagner has a claim by way of proprietary estoppel. Those findings of fact are as follows. First, as already mentioned GAHL has continued to pay the £300 per week rent into Astim’s bank account up to the present day. Despite Mr Barnes’ visit to the hotel on 2nd November 2000 the first intimation officially given by Astim that it intended to set aside the 2000 Lease was by the letter dated 3rd August 2001. Notwithstanding that letter, and the fuller one dated 12th December 2001, Astim continued to receive the payments of rent made to it by GAHL by standing order. It was suggested by Mr Dominic Barnes in his evidence that Astim’s bankers had advised that there was nothing that could be done to stop those payments being received. That may have been the case, but there was nothing to prevent Astim from returning the money to GAHL. This it never did. Secondly Astim has since the autumn of 2000 asked Mr Wagner/GAHL to confirm that the hotel has been kept insured in the respects required by the 2000 Lease. Thirdly, even as late as the autumn of 2004, Astim was directing occupiers’ liability claims to GAHL as “the tenant”. Fourthly, I accept the evidence which Mr Wagner gave, confirming his pleaded case, as to the payments made by himself and GAHL in respect of the maintenance repair and improvement of the hotel in the period following the collapse of the Devonshire deal.