Primlake Ltd v Matthews Associates & Ors [2006] EWHC 1227 (Ch)

Case No HC 03 C 04314 (TLC 137/05))

[2006] EWHC 1227 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice

Date Friday, May 26, 2006

Strand

London WC2A 2LL

Before

MR JUSTICE LAWRENCE COLLINS

Between

PRIMLAKE LIMITEDClaimant

(1) MATTHEWS ASSOCIATESDefendants

(2) DERRICK ARTHUR MATTHEWSDefendant

(3) ANN V MATTHEWSDefendant

Mr Christopher Parker and Mr William Edwards (instructed by Wedlake Bell) for Claimant

Mr Michael McParland and Mr Paul Toms (instructed by Wallace LLP) for Defendants

JUDGMENT

I Introduction

[1]David and Gwyneth Rees (“Mr and Mrs Rees”) have always been farmers. When they married in 1967 Mr Rees owned what had been his father’s farm, and Mrs Rees owned two farms, Coton Farm and South Lodge Farm, which she had inherited from her father. Mr Rees sold his father’s farm and purchased Wakeley Farm which was nearby and became their home.

[2]Coton Farm was originally all one farm. The construction of the M6 divided the land into two sections, north and south of the M6. What became known as Coton Farm South (“the land”) consisted of just under 100 acres. From the early 1970s Mr and Mrs Rees became interested in exploiting the development potential of the land.

[3]In 1987 they granted a 4 year option to the house builders Wilson Bowden Properties Ltd (“Wilson Bowden”) to purchase the land, conditional on the grant of planning permission for development. The option was not exercised. Shortly before its expiry Mr and Mrs Rees were introduced, through a mutual friend (Mr Norman White) to Mr Derrick Matthews (“Mr Matthews”), a retired architect and planning consultant.

[4]Mr Matthews was born in 1928. He qualified as an architect in 1952. For two years he worked as an in-house architect for building companies, and subsequently practised on his own until his retirement in 1988. He acted as an architect and planning consultant for a number of property developers in that period. He told me that the most he had ever earned in one year was about £50,000.

[5]Mr Matthews had had business contacts with Mr Richard Rowe (“Mr Rowe”) since the 1980s. Mr Rowe was born in Guernsey, and in 1977 he formed Channel Trust Ltd (“Channel Trust”), a Guernsey company providing company formation, administration and trust facilities. He was the managing director and major shareholder of Channel Trust until about 1993, when it sold its trust and corporate business and merged with a Guernsey firm of accountants, Chandler & Co, to form a new company Mercator Trust Co Ltd (“Mercator”). Mr Rowe remained a director and shareholder of Mercator for five years until his resignation in 1998, when he left the Channel Islands to live in Poland.

[6]Mr Rowe had since the mid 1980s instructed Mr Jonathan Foreshew (“Mr Foreshew”), a solicitor practising in London, who had qualified in 1980 and specialised in commercial property development, to act for offshore companies engaged in property related transactions in the United Kingdom. Mr Foreshew practised as Tussauds, and subsequently in partnership as Overbury Tussauds.

[7]Mr Matthews proposed to Mr and Mrs Rees that he would find a developer to buy the land, and he and Mr Rowe put forward to Mr and Mrs Rees a scheme whereby they would save capital gains tax by transferring the land to an offshore company set up by Channel Trust. At that time it was thought that the net value of the land with planning permission (in conjunction with adjoining landowners) was well in excess of £10 million.

[8]In 1992 the land was transferred to a Channel Trust company, Neyland Properties Ltd (“Neyland”), an Isle of Man company, and then by Neyland to another Channel Trust company, Primlake Ltd (“Primlake”), a Nevis company. In 1994 Primlake granted an option to purchase the land to a property company, Kyle Stewart Properties Ltd (“Kyle Stewart”), when a deposit of £1 million was paid. In 1997 the terms of the option relating (inter alia) to the incidence of infrastructure costs were varied by a Deed of Variation, and a further deposit of £1.6 million was paid. In March 2000 planning permission for a very substantial development on the land and on adjoining land was granted. Subsequently Kyle Stewart transferred its interests to a company in the Grosvenor Estates group, which (as part of a consortium) has developed much of the site. Grosvenor Estates has paid a further £400,000 due to Primlake on the first land sale in the development but has refused to make any further payments on the ground that the effect of the Deed of Variation in 1997 is that the infrastructure costs are such that as yet no further part of the deferred consideration is payable.

[9]Consequently only £3 million has been received for the land.

[10]Between 1994 and 2001 Mr Rowe authorised, at the request of Mr Matthews, payments by Primlake direct to accounts in the names of Mr and Mrs Matthews of about £900,000.

[11]Primlake is now in liquidation, and claims through its joint liquidators that most of these payments (and other payments of about £100,000) were made without legal justification. Mr Matthews claims that he was entitled to be paid these sums: mainly for his fees, but also for reimbursement of loans to Mr and Mrs Rees of about £200,000, and other miscellaneous disbursements.

II Primlake

[12]Primlake was incorporated in Nevis on June 29, 1990. Until 1993 or 1994 it was administered by Channel Trust, and later by Mercator. From about May 2000 the administration of Primlake was carried out by Mr James Turian of Richard Gray & Co in Guernsey. Its main bank was Leopold Joseph & Sons Guernsey Ltd (“Leopold Joseph”).

[13]Mr Rowe was originally president and treasurer, and from 1994 he was managing director. On February 9, 2000 he was appointed sole director of Primlake.

[14]At all material times (except for a period between February and November 2000) the shares in Primlake were held expressly as nominee for Mr Matthews, or from November 2000 for pension schemes in which Mr Matthews and Mr Rowe respectively had interests:(1) The shares in Primlake were originally held by Bridge Trust Co Ltd (“Bridge Trust”) and Channel Trust (2,500 each) who by declarations of trust dated July 20, 1990 held them as nominees for Mr Matthews. That was because (according to Mr Rowe) Primlake was originally intended to be used as a vehicle to develop a hotel on land owned by Mr Wilfred Pearce, a farmer.

(2) On February 26, 1991, the shares in the name of Bridge Trust were transferred to Fiducia Trust Co Ltd (“Fiducia Trust”), which made a similar declaration of trust in favour of Mr Matthews.

(3) On November 19, 1999 the shares in the names of Fiducia Trust and Channel Trust were transferred respectively into the names of Mercator Nominees Ltd and Mercator Trustees Ltd, each of which executed declarations of trust (in respect of one share each only, probably as a result of an error) on the same day as nominee and trustee for Mr Matthews.

(4) On February 9, 2000 Mercator Nominees Ltd and Mercator Trustees Ltd each transferred 2,500 shares to FIFO Ltd. This was, according to Mr Rowe, connected with his concern that Neyland and Primlake might be seen as connected companies for the purposes of UK tax legislation. FIFO Ltd held the shares in trust for Tiber Trust which was owned by Mr Allan Garland in Holland.

(5) On November 18, 2000 FIFO Ltd executed declarations of trust to the effect that it held 1,250 shares in Primlake as nominee and trustee for the Ramble Pension Scheme (for the benefit of Mr Rowe), and 3,750 shares as nominee and trustee for the Medoc Pension Scheme (for the benefit of Mr Matthews). III The history

[15]In about 1972 Mr and Mrs Rees applied for permission to develop the land, and transferred it to an offshore company called Marchmont Ltd. But planning permission was refused and the land was transferred back to Mrs Rees.

[16]In the 1980s Mr and Mrs Rees retained Berry Brothers, agricultural agents, to effect a sale of the land. Mr Rees agreed a fee of 2% of the sale proceeds. Berry Brothers introduced Mr and Mrs Rees to the house builders, Wilson Bowden. On December 22, 1987 Mrs Rees granted a 4 year option to Wilson Bowden to purchase the land for development. Wilson Bowden was to apply within 9 months for planning permission to develop the land, and there was provision for extension of the option period in the event of there being appeals against refusal of planning permission. The price payable if the option were exercised was £100,000 per acre (subject to a formula for an increase by reference to the retail price index), less the infrastructure costs, which were capped at £60,000, so that the option price was to be not less than £40,000 per acre.

[17]Wilson Bowden came to be part of a consortium with two developers, Britannia Property Development and Construction Ltd (“Britannia”) and Abbcott Estates Ltd (“Abbcott”), who had acquired options over adjoining properties. Wilson Bowden applied for outline planning permission in December 1989 for use classes B1, B2 and B8.

[18]On November 27, 1990 RBS Guernsey made a facility of £131,500 available to Mr and Mrs Matthews to assist with the purchase of 2 Station Road, Burnham Market, Norfolk (later called “Pebble Lodge”), subject to a first charge on the property, and also subject to a charge by way of assignment over a cash deposit of £136,500 made on Mr Matthews’ behalf by CT Management and Guarantors Ltd, a Channel Trust affiliate.

[19]Mr Matthews was introduced to Mr and Mrs Rees by their mutual friend, Mr Norman White, probably in late 1991. Mr White claims, and Mr Matthews denies, that Mr White and Mr Matthews agreed that Mr Matthews would share with Mr White the fees which Mr Matthews might earn from the introduction.

[20]In October 1991 Wilson Bowden made proposals to Mr and Mrs Rees for an extension of the option, but no agreement was reached and the option lapsed in December 1991.

[21]Mr Matthews says that in early 1992 he learned that the land was being considered for inclusion in the draft Local Plan but only on the basis of an overall joint development of 245 acres with adjoining landowners, which meant that planning permission could not be achieved soon.

[22]By the end of January 1992 Rugby Borough Council confirmed that the land was to be included in the draft Structure Plan. On February 11, 1992 Mr Bowman of Berry Brothers told Mr and Mrs Rees that the draft Local Plan would be published in May/June 1992, and that the Local Plan section was adamant that the Coton development must be comprehensive and that it would not support piecemeal applications. He told Mr and Mrs Rees that there would be substantial infrastructure costs.

[23]It was plain that Mr and Mrs Rees were in no position to fund a development themselves. Mr and Mrs Rees were under some financial pressure from Barclays Bank Rugby to clear a £500,000 overdraft for their farm business, which was secured on the land. Mr Matthews says that he had meetings with Mr Smith, the bank manager, to reassure him of the value of the land and to persuade him not to enforce the mortgage. From February 1992 Mr Matthews had discussions with several potential purchasers of the land.

[24]By late January or early February a tax planning scheme emerged from Channel Trust by which Mr Rees would sell the total site to a company formed by Channel Trust for £2.1 million. The company originally intended to be the vehicle was called Sarremont Ltd. There was to be a deposit of £50,000, and on completion a further £450,000 with the remainder of up to £2.1 million paid in stages. Sarremont Ltd would sell on the property to Neyland, an Isle of Man company (although some documents describe it as a Guernsey company). Mr Christopher Vaughan of Wilson Browne in Higham Ferrers, Northants, acted for Mr and Mrs Rees. Mr Foreshew was to act for Sarremont Ltd. Subsequently Mr John Firth of Firth & Co in Guildford was instructed to act for Sarremont Ltd, and Mr Foreshew was instructed to act for Neyland, then intended to be the purchaser from Sarremont Ltd.

[25]But by late March 1992 the plan had changed, and the initial purchaser had become Neyland (for whom Mr Firth was acting) and the re-sale was to be to Primlake (for whom Mr Foreshew was acting). Neyland came to be owned by the Dummer Trust, the beneficiaries of which were, and are, Mr and Mrs Rees and their family.

[26]By an agreement of April 13, 1992 Mrs Rees agreed to sell the land to Neyland. The signed copy of that agreement does not survive, but it is clear from the surviving drafts, subsequent correspondence, and the witness statements that the price was £2.1 million, that a deposit of £50,000 was payable on exchange, and that £450,000 was payable within 60 days thereafter (i.e. by mid-June 1992). The balance of £1.6 million was to be paid on the completion date, December 1, 1993.

[27]The deposit was paid on behalf of Neyland from money borrowed by Mr Matthews from RBS Guernsey and secured by money held for Mr Matthews on deposit at RBS Guernsey. The deposit was paid to Mr and Mrs Rees on April 23, 1992.

[28]The proposed agreement between Neyland and Primlake did not proceed at that stage.

[29]Mr Matthews then endeavoured to find a purchaser. By June 1992 Mr Matthews was negotiating with Severn Trent for the purchase of the land. On June 30, 1992, having discussed the matter with what he described as “my clients,” Mr Matthews suggested a purchase price of 85% of £230,000 per acre for the first tranche and thereafter at open market value, with infrastructure costs fixed at not more than £55,000 per acre.

[30]On July 1, 1992 Mr Matthews wrote to Mr Foreshew to say that Mr Rowe had not been able to arrange the loan of £450,000 to complete the purchase by Neyland. Mr Matthews said that “I had no problem with the £50.000” and that “Rees will sell out of our hands if I do not give him a time table and I put this problem in Richards [Mr Rowe’s] camp.” He went on: “I do not think it would be correct for me to get a valuation because this would value the land before Rees has sold. Richard feels this could be fatal”.

[31]On July 7, 1992 Severn Trent proposed 80% of £230,000 per acre minus £55,000 infrastructure costs per acre, namely 80% of £175,000 for the first phase of 20 acres.

[32]On August 5, 1992 Barclays Bank Rugby wrote to Mr and Mrs Rees expressing concern at the failure to pay off their borrowing, which was then about £432,000. The manager, Mr Smith, said that he had hoped that the bank would already have received the £450,000 (which had been due in June) promised from Channel Trust. Mr Smith wrote again on September 8, 1992 to voice his concern.

[33]Mr Matthews continued to negotiate with Severn Trent. On September 15, 1992 Mr Matthews wrote out a sketch outline of the contract proposals for the sale from Neyland to Primlake, and from Primlake to Severn Trent:(1) Primlake would buy at (£200,000 less £55,000) x 80% x 20 acres; the remainder would be bought at market value less £85,000 x 80% x the number of acres required.

(2) The figures for the sale to Severn Trent were higher in that the first set of figures was (£230,000 less £55,000) x 82% and the second set was (Market Value less £55,000) x 82%.

[34]The effect of the plan in the sketch outline was that there would have been a built-in profit to Neyland on the sale to Primlake, since Neyland would recoup the £2.1 million it would have paid to Mrs Rees on the sale of the first tranche to Primlake, and Primlake would itself have made a substantial profit on the re-sale to Severn Trent, because the base price was higher, the infrastructure cost cap was lower, and the percentage of value was higher.

[35]In October 1992 the Rugby Borough Council Local Plan consultation draft was published, and the land was included in one of five possible sites for development.

[36]By October 1992 Mr Matthews and Mr Rowe had not been able to raise funds to pay the first instalment under the Neyland contract with Mrs Rees. Mr Foreshew’s bankers were Barclays Bank Sutton, and he approached the bank for the finance. On October 8, 1992 Mr Foreshew wrote to Mr Archer, the manager at Barclays Bank Sutton, to try to raise £500,000 by way of bridging finance for the purchase of the land by Primlake, which (he said) anticipated a profit of £2.96 million on the sale to Severn Trent. On October 13, 1992 Mr Foreshew wrote to Mr Archer to say that “my Clients” can procure, by way of an additional security for a facility of £500,000, security over properties owned by Mr and Mrs Rees. A first charge would be available over the property bought by Primlake.

[37]On October 16, 1992 Mr Foreshew produced a first draft of the Neyland/Primlake agreement. The price was (Market Value - £85,000) x 80% per acre.

[38]On October 21, 1992 Barclays Bank Sutton confirmed that they were prepared to consider lending £500,000 by way of short-term bridging finance to Primlake, subject to a first charge over the land. The bank required charges over the other Rees properties, Wakeley Farm and Coton Farm North, and guarantees from Mr and Mrs Rees (for £500,000) and from Mr Matthews (for £100,000), which they executed on November 2, 1992. The £500,000 loan facility was granted on November 11, 1992.

[39]On November 13, 1992 the Mrs Rees/Neyland contract for sale dated April 13, 1992 was cancelled, and a new contract, also dated April 13, 1992, was signed. On the same day Mrs Rees executed a transfer of the land to Neyland, the Neyland/Primlake contract was executed, and the land was conveyed to Primlake. Mr Vaughan acted for Mr and Mrs Rees, Mr Firth acted for Neyland, and Mr Foreshew acted for Primlake.

[40]The purchase price in the new Mrs Rees/Neyland contract was expressed to be £500,000, of which a deposit of £50,000 had already been paid. The balance of the purchase price was payable on completion, November 13, 1992. But if Neylandwere, within the period expiring on December 1, 1995, to obtain outline planning permission (for use classes B1, B2 and B8) then it would make within one month thereafter a further payment of £1,600,000 to Mrs Rees. Consequently the purchase price was £2.1 million if planning permission were obtained, which would have been a sale at a considerable undervalue on the figures then being discussed with potential purchasers.

[41]I should add that on October 29, 1992 Mr Vaughan had advised Mr and Mrs Rees that he was concerned because the contract and conveyance that Mrs Rees would sign did not afford them the protection which they needed to secure the money due to them when planning permission was granted. He warned that after completion Mr and Mrs Rees would have no rights whatever in respect of the land. He also warned that the contract could be assigned to another company. His evidence in the witness box was that he did not know that there was to be an immediate onward sale.

[42]The main provisions of the Neyland/Primlake contract were as follows:(1) The first instalment of the purchase price was to be £500,000 payable on the Completion Date, November 13, 1992 (clauses 1.5 and 3.2).

(2) The second instalment was to be paid 26 days after, and conditional upon, the grant of outline planning permission and was to be the greater of £1.6 million or [(£200,000 - £85,000) x 80% x A] - £500,000, where “A” was that part of the property of which the purchaser required possession, being an area of not less than 20 acres (clause 3.3).

(3) Subsequent payments would be payable at the same formula except that for £200,000 would be substituted “Market Value” and would be payable 26 working days after the purchaser had re-taken possession of the property or relevant part (clause

3.1.1 ).

(4) “Market Value” meant the average market value with outline planning permission for uses within Classes B1, B2 and B8 with vacant possession on which all infrastructure works and service media had been constructed (clause

3.1.2 ).

(5) The agreement recorded that the purchaser had paid a deposit of £80,000 (clause 4.1).

(6) Until the final instalment of the purchase price was paid, Neyland was to retain possession of the land as tenant (clause 16).

(7) Neyland waived its right to the unpaid vendor’s lien (clause 17)

[43]On November 13, 1992 £475,000 was drawn down from Barclays Bank Sutton, of which £456,000 was paid to Barclays Bank Rugby to reduce the overdraft of Mr and Mrs Rees.

[44]According to Mr Matthews there was a second consortium from March 1993 to May 1994 comprising Westbury Homes Holdings Ltd (“Westbury”), Cheltenham Land (part of Britannia), Abbcott and Primlake.

[45]Severn Trent had dropped out of discussions in November 1992. By Spring 1993 Mr Matthews was having discussions with the developers Kyle Stewart. On April 28, 1993 Kyle Stewart put a proposal to Mr Matthews with base land value in the range of £200,000 to £300,000 (un-serviced) per acre, development costs funded by Kyle Stewart, a base profit to be paid to Kyle Stewart as a percentage of development costs, and the balance would be shared 75% to Primlake and 25% to Kyle Stewart.

[46]On June 23, 1993 Mr Rowe wrote to Mr Archer of Barclays Bank Sutton, with copies to Mr Matthews and Mr Foreshew, to report that Primlake had reached an agreement in principle with Kyle Stewart and he went on:

“The nature of the agreement with Kyle Stewart is such that all aspects of the agreement must remain confidential to Primlake and no information should be released to Neyland Properties Limited, David Rees or his Bankers or Solicitors.”

[47]There is an issue as to the motive behind the need not to disclose the nature of the negotiations with Kyle Stewart to Mr Rees (or his bankers and solicitors) expressed by Mr Matthews, Mr Rowe and Mr Foreshew in this and subsequent letters in June 1993 and January 1994.

[48]On June 25, 1993 Mr Matthews wrote to Mr Rowe to say:

“With the established Barclay connection and the recent letter received by Mr Rees from Smith of Rugby it is obvious our Primlake dealings cannot be assured as confidential …”

[49]By late 1993 Mr Matthews was having discussions not only with Kyle Stewart, but also with other developers, including Terrace Hill Group, and Capital & Counties.

[50]On December 20, 1993 Graham Skinner, of Michael Laurie (surveyors acting for Capital & Counties), asked Mr Matthews to confirm that he was Primlake’s “sole representative”, which Mr Matthews did on the same day, adding that he had “complete authority over the Company.”

[51]In January 1994 Rugby Borough Council published a summary of the Local Plan Deposit proposals for a comprehensive housing and employment development at Coton. It noted that the scale of the site and the different land ownerships involved meant that a comprehensive and co-ordinated approach was required for the provision of infrastructure if a satisfactory development was to be achieved. The location would be Rugby’s major new employment site.

[52]On January 20, 1994 Mr Matthews wrote to Mr Foreshew to say “… it is most important the terms of our deal with Kyle Stewart Ltd are not given to Barclays Bank Sutton in any form, not even in confidence” he went on:

“The terms we have are confidential to Primlake and only an assurance need be given to the Bank that there are enough funds from the transaction to clear the Primlake account. I have evidence that information has been passed to a third party on the Morrison transaction and this is now known by Barclays Rugby and it has been confirmed this information was passed by Sutton. It is of the utmost importance to us all that this transaction is kept completely confidential to Primlake and it seems the only way we can be sure of this is to keep the detail to ourselves.”

[53]On January 21, 1994 Mr Rowe sent to Mr Foreshew a draft of a letter for Primlake to write to Mr Archer at Barclays Bank Sutton. Mr Rowe’s draft said:

“It has come to my attention that certain information passed to yourself has passed to your branch in Rugby. You will recall my earlier letter where pointed I out [sic] the delicate nature of these negotiations and that confidentiality was of prime importance. Negotiations are now at a very delicate stage therefore you will forgive me for not including any copy correspondence at this stage as the escape of the knowledge of such correspondence could severely prejudice the company’s position.”

[54]Mr Foreshew altered the paragraph to read:

“I appreciate that the Bank is a single legal entity and that therefor [sic] knowledge to one branch is knowledge to another. However, it is important to this company that the terms of the proposed transaction are not disclosed to the previous owner of the land which appears to have happened via your … Banks Rugby branch.”

[55]On May 23, 1994 the Primlake/Kyle Stewart contract (“the Kyle Stewart contract”) for the sale of the property was signed. The principal terms of the Kyle Stewart contract were as follows:(1) A deposit of £1 million was payable on the date of the contract.

(2) Completion was to be the date 10 working days following satisfaction of the conditions precedent, which were the exchange of a consortium agreement, the exchange of a planning agreement, the grant of satisfactory planning permission, and registration of Primlake’s title with freehold title absolute.

(3) Within 6 months of the completion date Kyle Stewart would pay further consideration based on 82.5% of the land value minus the cost of infrastructure works (less the deposit), but the infrastructure works costs for this purpose were not to exceed 50% of 82.5% of the land value.

[56]From this period the consortium was Westbury, Abbcott, Britannia and Kyle Stewart.

[57]The deposit from Kyle Stewart was £1 million. There is an issue as to whether Mr Rees was told the true amount of the Kyle Stewart deposit. Mr Rees maintains that he was told that it was £600,000. £582,000 was paid to Barclays Bank Sutton to pay off the loan used to make the payment under the Neyland/Primlake contract, which in turn had been used to reduce the Barclays Bank Rugby overdraft.

[58]On May 26, 1994 Mr Rowe and Mr Matthews instructed Mr Foreshew to pay from the Kyle Stewart deposit the sum of £100,000 to Matthews Associates at Barclays Bank Leicester. On the same day Mr Rowe instructed Mr Foreshew to pay £84,000 to Citibank, London for credit Citibank, Jersey for the account of Ullman Shore Ltd (a company connected with Mr Rowe). According to an attendance note by Mr Foreshew of a telephone conversation with Mr Rowe on May 25, 1994, this was a short term loan being made to a company called Servepart Ltd (which was connected with Mr Rowe and/or Mr Foreshew). Ultimately, in July 1994, this money was credited to Mr Matthews’ account with RBS Guernsey, which released its charge over Mr and Mrs Matthews Burnham Market property, Pebble Lodge.

[59]When the £1 million became available after signature of the Kyle Stewart contract in 1994, Mr Matthews became concerned by the failure of Mr Foreshew to follow his instructions:(1) On June 29, 1994 Mr Matthews wrote to Mr Rowe to say that “I will not allow [the project] to be jeopardised by the removal of funds without authority from me.” (emphasis in original)

(2) On July 7, 1994 Mr Foreshew told Mr Matthews that Mr Rowe was the person to give him the required instructions in respect of the company’s funds. Mr Matthews replied that he was astounded since “I have authority from Primlake to instruct for and on their behalf and if you are unable to take instructions from me related to the Primlake affairs then I feel the time has come when alternatives must be arranged.” Mr Foreshew replied that he did have instructions from Primlake to accept Mr Matthews’ instructions in all matters “save and except for instructions in relation to funds.”

(3) On July 12, 1994 Mr Matthews wrote to Mr Rowe to say that he was not prepared to allow the financial control of the funds resulting from his negotiations to rest with others. The refusal of Tussauds to pay into the account the balance of the funds related to their instructions had placed him in a very dangerous position with Barclays Bank.

(4) On July 27, 1994 Mr Matthews wrote to Mr Foreshew to say:

“My authority is based on a mandate over the Company and whether you like it or not Richard has never confirmed to me my authority over the Company excluded financial instructions. I would be a fool to put my house on the line and guarantee the account if I did not have control.” (5) In response to Mr Foreshew’s letter of August 15, 1994, in which he said that Mr Matthews was not an officer of the company and that Mr Rowe, who was an officer of the company, had never advised him that Mr Matthews controlled the company, Mr Matthews said on August 24, 1994 that it was Mr Rowe’s understanding that Mr Matthews was instructing Mr Foreshew on all matters. (6) When Mr Foreshew said on September 13, 1994 that he could not accept payment instructions from Mr Matthews, on September 19, 1994 Mr Matthews wrote to Mr Foreshew to say: “Basically, I will not allow anyone to have the ‘power of the purse’ while I am securing the funds and also arranging the viability of a project when I am also making promises and giving undertakings to third parties. … I was not prepared to allow this situation to continue and thus it was necessary to change the formation of my team.” (7) On November 14, 1994 Mr Matthews wrote to Mr Foreshew: “Richard and I confirm with each other what we will do and what we will not do and it has never been confirmed to you from Richard that you are not to take financial instructions from me.”

[60]On November 14, 1994 Mr Matthews asked Mr Rowe to transfer £25,000 to Barclays Bank Leicester. On December 2, 1994 he asked Mr Rowe to transfer £10,000. On January 20, 1995 he asked for £10,000 to be transferred. On March 2, 1995 he asked for £5,000 (but Mr Rowe’s note says “now £3,500”), and £3,500 was transferred to Mr and Mrs Matthews’ account at RBS Guernsey.

[61]The application for outline planning permission was made by the consortium on February 27, 1995. It was designed generally to conform with the deposit Local Plan. The Inspector’s report on the Local Plan was available in June 1996.

[62]In the course of 1996 Mr and Mrs Rees decided to re-locate to Canada, where their son Clifford had decided to settle.

[63]The second version of the April 13, 1992 contract between Mrs Rees and Neyland was amended on October 22, 1996. It recited (inaccurately) that completion had taken place on May 23, 1995, and that the parties had agreed in November 1995 to vary the agreement. The amendment had the effect that the £1.6 million would be payable if outline planning permission were granted by December 31, 1999, instead of December 3, 1995. Payment was to be three months thereafter instead of one month.

[64]From November 1996 Mr Matthews was engaged in discussions with Mr Petrie of Kyle Stewart and with financial institutions on a variety of schemes in order to raise additional funds from or on the security of the Kyle Stewart contract, including the purchase of the Kyle Stewart contract by Threadneedle Property Fund Managers Ltdor some other financial institution. What eventually emerged was the payment of a further £1.6 million deposit by Kyle Stewart in return for substantial amendments to the contract. Mr Rees maintains that he was never told that the further payment was £1.6 million, or the nature of the substantial amendments to the contract which were made.

[65]On November 30, 1996 Mr Matthews wrote to Kyle Stewart to say that what he described as “the original owner of the site” was planning to move to Canada. He said that an offer had been received from a very large investment fund (presumably Threadneedle Property Fund Managers Ltd)to purchase the Kyle Stewart contract (which does not seem to have been true). But he said that it was only fair if the possibility was put to Kyle Stewart first. Information relating to value suggested to Mr Matthews they could expect something near £240,000 for a serviced acre, which was going up on a daily basis.

[66]On December 10, 1996 Kyle Stewart responded by saying that the possibility of advancing additional funds to “your clients” by way of advance purchase price was one which they would be happy to consider, provided some benefit accrued to Kyle Stewart in return.

[67]On December 11, 1996 Mr Matthews wrote to Kyle Stewart to say that Primlake needed £1.3 million to enable it to support the Canadian move being undertaken by Mr Rees and to cover all expenses. He suggested that the additional payment should be £1.5 million.

[68]On July 8, 1997 Fladgate Fielder, Kyle Stewart’s solicitors, wrote to Mr Foreshew to say that Kyle Stewart would make available an additional deposit of £1.5 million, subject to certain variations to the form of the contract including:(a) the land value would reduce from 82.5% to 80%;

(b) no further payment would be made until the infrastructure account was sufficient by means of a sinking fund to meet all current and future infrastructure work costs.

[69]On July 24, 1997 Mr Matthews wrote to Kyle Stewart to say that they were unable to accept the proposal because the conditions suggested would make the costs much too high. He suggested an increase in the deposit to £2 million and a reduction in the percentage to 81.5%, and that the reference to the infrastructure account was only to be to current (and not future) costs.

[70]On July 31, 1997 Mr Matthews wrote to Mr Foreshew to say that the offer from Kyle Stewart was the best they would get, but he wanted to know more about the effects which the proposals in relation to the infrastructure account would have on their returns. On the same day Mr Matthews asked Kyle Stewart to increase the deposit to £2 million.

[71]On August 4, 1997 Kyle Stewart said that they would go as far as a further advance of £1.8 million, half to be received on the resolution to grant planning consent and the other half when the consortium and section 106 agreements were signed.

[72]On August 6, 1997 Mr Matthews wrote to Kyle Stewart to say that they could not agree to the proposal. He claimed that Mr Rees needed the £2 millionto support his Canadian venture and the two instalment method would not help them. He preferred to revert to the first proposal.

[73]On August 8, 1997 Mr Matthews wrote to Mr Foreshew and Mr Rowe:

“The position of Rees related to Canada is only part of the cause of the urgency. We have all invested enough time and money in this venture and the continual delay with the Planning Resolution has not helped with our expected returns within a reasonable time, but we now have the alternatives to satisfy this problem.”

[74]On September 2, 1997 Mr Matthews wrote to Allied Dunbar:

“You have realised the delay with the Planning position has caused a crisis for the original farmer and also for myself with the delay in the return of the cash investment I have injected. … Given the Coton project has received £350.000 from me and I have also loaned the farmer £120.000 + interest (about £142.000.) all of which will be returned from the sum we hope to negotiating [sic] with Mr Woodward [TSB Bank].”

[75]In September and October 1997 Mr Lee, of CML Consultancy, who was a friend and associate of Mr Matthews, negotiated on behalf of Mr Matthews with Kyle Stewart. He reported to Mr Matthews on September 24, 1997 that Kyle Stewart was proposing the establishment of an infrastructure cost account to build up sufficient capital to cover the full infrastructure costs both present and future by utilising the draw down payments which Primlake was entitled to under the formula within the contract. The proposal which had emerged included an advance of £1.5 million and £500,000 to become payable with the first land sale, and the establishment of an infrastructure cost account.

[76]On September 26, 1997 Mr Matthews told Mr Foreshew that the proposal would mean that they would have no control over the amount of infrastructure costs, which could amount to 100%. On September 27, 1997 he wrote a memorandum to Mr Foreshew in which he said that the only way they would sign away their rights was if there were a fixed price per acre with fixed infrastructure costs. On September 29, 1997 Mr Foreshew said that he was stuck to think of some form of acceptable formula whereby they were not in effect handing over to Kyle Stewart carte blanche to debit what they could to the infrastructure works account.

[77]Between September and December 1997 Mr Matthews reported to Mr Rees on the negotiations with Kyle Stewart. There is an issue as to whether Mr Matthews ever revealed the true figures being negotiated.

[78]On September 29, 1997 Mr Matthews sent a fax to Mr Rees in Canada to say that Kyle Stewart had agreed to increase the deposit by £1 million to be paid just after the planning resolution then expected on October 15, 1997 with a further payment of £500,000 from the first land “take” which would come after the grant of outline planning permission. He said that he had instructed Mr Foreshew’s firm to have all the necessary papers prepared ready for signature to enable the transfer of funds direct to Canada without further delay.

[79]On October 2, 1997 Mr Lee put forward a proposal to Kyle Stewart on behalf of Primlake for an immediate advance of £1.6 million and £400,000 to be paid on the date of the first land sale. The infrastructure cost account would be created, as Kyle Stewart had suggested.

[80]On October 6, 1997 Mr Matthews sent a fax to Mr Rees to say that he had agreed with Kyle Stewart that £1 million would be paid just after the grant of the resolution with a further £500,000 at the point of first sale. He was trying to raise a further instalment by way of a loan but the conclusion of that would have to wait until the planning resolution.

[81]On October 8, 1997 Kyle Stewart wrote to Mr Lee with a copy to Mr Matthews to say that £1.6 million would be advanced immediately following the later of the date on which they council resolved to grant planning permission or the date of completion of the variation currently being negotiated to the existing contract, and £400,000 to be advanced on completion of the first land sale subject to a minimum of 5 acres.

[82]On October 13, 1997 Mr Matthews wrote to Mr Lee to say (under the heading “On the question of fees”) that Primlake needed at least £2 million to be able to settle all its commitments and “just with £1.6M there will not be enough to cover us all.”

[83]A resolution for planning permission subject to a section 106 agreement was passed on October 15, 1997.

[84]On October 20, 1997 Mr Matthews wrote to Mr Rowe to report that terms for a further increase of the deposit based on the Kyle Stewart contract had been agreed subject to certain clarifications in the sum of £1.6 million with a further payment of £400,000 when the first sale was made. The terms of the contract would remain the same with the payments for the various areas of land being placed in an infrastructure fund. When the fund reached the estimated total cost of the infrastructure (to their approval) payments would start to flow in their direction. He said “I do not like it” and that it would be far better for Primlake if they could just leave the Kyle Stewart contract as it was and if they could get a loan based on it for (say) £2.5 million.

[85]On October 22, 1997 Mr Matthews reported to Mr Foreshew on the outcome of the negotiations with Kyle Stewart. He said he was not all that happy with the deal. The infrastructure account would simply be a piece of paper under the control of Kyle Stewart and would in effect mean they were financing the infrastructure before it was needed and they would lose the security over the land value, and “in other words Kyle will have the right to use our land without paying”.

[86]On October 24, 1997 Mr Matthews wrote to Kyle Stewart to say that they did not want to spend the next 6 years arguing about land and infrastructure costs. Although he had the offer of £1.6 million with a further £400,000 from the first sale he felt he wanted to get rid of the future discussions and arguments. From his calculations the site would eventually net about £15.5 million to Primlake dependent on the end cost of the infrastructure. He suggested that the sum to be paid should be fixed, and set out a proposal for Kyle Stewart to pay Primlake £13 million over 3½ years.

[87]Mr Matthews’ handwritten draft of the letter of October 24, 1997 has above it a table indicating that he would receive £3 million of the £13 million (although in the witness box he denied that this was what the document meant).

[88]On November 5, 1997 Mr Matthews said to Mr Foreshew that it was very urgent that funds from the increased deposit were made available without any further delay. He said:

“I am not only under pressure from Rees but I must clear some of the borrowing I have made to support him.”

[89]On November 18, 1997 Mr Matthews told Mr Foreshew that it was the request of Mr Rees that £800,000 be transferred to his account in Canada, and £200,000 would be paid to Clydesdale (from whom Mr and Mrs Rees had borrowed £200,000 to help with their expenses).

[90]On November 28, 1997 Mr Matthews told Mr Rowe what payments should be made from the additional deposit of £1.6 million: £800,000 was to be transferred to the Rees farm account in the Bank of Montreal; £200,000 was to be transferred to the Rees farm account in the Clydesdale Bank; and £350,000 was to be paid to Matthews Associates loan account at Barclays Bank Leicester. Another document (probably from the same period) shows an instruction to transfer £130,000 (changed in handwriting from £120,000) to Matthews Associates NatWest Wigston Leicester “repayment of Rees loan.”

[91]There was a negotiating meeting at the offices of Fladgate Fielder on December 9, 1997, following which Mr Matthews and Mr Foreshew telephoned Mr Rowe to voice their concerns about the proposed amendments to the Kyle Stewart contract. They say that they advised Mr Rowe against agreeing to the amendments. There is a conflict of evidence as to whether Mr Rees was told of their misgivings or even about the details of the amendments.

[92]Mr Foreshew took the Deed of Variation to Mr Rowe in Guernsey later that day, and on the following day, December 10, 1997 Mr Foreshew confirmed in writing his misgivings about the amendments. In particular he referred to the fact that there was no infrastructure costs cap, but he said that Mr Matthews was of the opinion that the Ove Arup appraisals were a substantial overestimate of the likely costs and, having tried to impose an upper limit on these costs which had been rejected by Kyle Stewart, Mr Matthews took a pragmatic view that the risk of these costs being exceeded was very low. Mr Matthews considered this largely to be a cash-flow exercise. Mr Foreshew warned that there might be a remote possibility that no further payments would become due to Primlake at all if inflation pushed up the costs and land values fell.

[93]The Deed of Variation was dated December 12, 1997. It made the following changes to the Kyle Stewart contract:(1) HBG Kyle Stewart Ltd was added as a surety.

(2) A further deposit of £1.6 million was payable on the date of the deed and £400,000 would be payable on June 30, 1998.

(3) The cap on infrastructure costs was to be removed.

(4) A development account would be established, and no payments would be due while it showed a debit balance.

[94]Kyle Stewart’s solicitor, Mr Wodzianski (then of Messrs Fladgate Fielder), produced a composite of the Kyle Stewart contract and the Deed of Variation “to act as a guide rather than having to flick to and fro between two documents the whole time ...” (in the words of Mr Foreshew in the witness box).

[95]This composite contained in the definition section a definition of the “Deposit” to mean £1 million (i.e. the deposit payable under the original Kyle Stewart contract in 1994) and the “Further Deposit” (i.e. the additional deposit payable in 1997) to mean “The sum of £1,600,000” and the “First Payment” (i.e. the payment to be made on the first sale) to mean “The sum of £400,000.” The section dealing with Land Value and the Development Account sets out figures for illustrative purposes, including the Deposit of £1,000,000 and the Further Deposit of £1,600,000.

[96]But in the copy sent to Mr Rees the two references to the Deposit of £1,000,000 were deleted in hand and the figure £600,000 was substituted. In the definition section the reference to £1,600,000 was deleted and what was substituted was “1,000,000 + 600,000” and in the section on the Development Account the figure of £1,600,000 was crossed out and the words “see amendment” added. Primlake says that whoever made the handwritten amendments was trying to create the impression that the original deposit was £600,000 and the further deposit was £1 million, and that the changes were made by either or both of Mr Matthews and Mr Foreshew.

[97]On December 11, 1997 Mr Foreshew received £1.6 million from Fladgate Fielder, and gave instructions for £800,000 to be transferred to Canada. On December 12, 1997 Mr Matthews asked Mr Foreshew to “carry out the arrangements as approved” by Mr Rowe to transfer £200,000 to the Rees farm account in Clydesdale Bank, £350,000 into Matthews Associates loan account with Barclays Bank Leicester, and £130,000 into D A and A V Matthews account at NatWest Wigston, Leicestershire. Mr Matthews added:

“I will inform Rees by Fax today that these instructions have been given …”

There is an issue as to whether Mr Matthews ever did so.

[98]It would seem that Mr Foreshew then telephoned Mr Rowe to confirm the instructions, since on the same day Mr Foreshew faxed Mr Rowe to confirm Mr Rowe’s telephoned instruction for those payments to be made, which Mr Rowe then did (from Warsaw).

[99]On May 11, 1998 Mr Matthews wrote to Mercator asking for £20,000 to be transferred from Primlake to Charles H Moore (Solicitors) client account for what he described as an investment (together with £12,462 from Mr and Mrs Matthews’ NatWest investment account). This was for the purchase of 8 Clyde Road, Alexandra Park, London N22 by their son. On May 12, 1998 Primlake instructed Leopold Joseph to pay £19,000 to Charles H Moore’s client account at Barclays Kingston.

[100]In May 1998 Kyle Stewart proposed to transfer the land to Coton Park Ltd, which was jointly owned by HBG Properties Ltd (part of the Kyle Stewart group) and Grosvenor Developments Ltd (part of Grosvenor Estates). According to Mr Matthews, there was a deterioration in the relationship between Kyle Stewart and Primlake in this period, partly because there were delays in the planning process.

[101]On October 14, 1999 Mr Matthews wrote to Mr Norman White (probably in response to a communication from Mr White about Mr White’s claim to a share of what Mr Matthews would receive). Mr Matthews said that he “or my Company (Channel Trust Ltd) had paid out, in cash, over £349,223.00 without interest.” Mr Matthews went on to say:

“Contrary to your opinion I have yet to receive a payment towards my fees and as Architects charge, on this type of complicated project £120.00. per: hr: you will see the input my Practice has injected. My arrangement with David was ‘fees at Planning’, capital was not available and had I not agreed to this method at the beginning I would have resigned from this project many years ago.”

By the date of this letter Mr Matthews had in fact received more than £450,000 in respect of what he now claims were fees on account.

[102]What appears to be an internal Mercator note of November 1, 1999 records that in answer to a query from Mr Rowe as to the person for whom the shares in Primlake were held, he was told that they were held in favour of Mr Matthews.

[103]According to Mr Matthews, there were further delays by Kyle Stewart in the implementation of the project, and Mr Matthews became concerned at the possibility of the planning resolution being revoked. In August 1999 Primlake purported to determine the Kyle Stewart contract for breach, and registered a caution against the land, which was removed in early 2000. The dispute was resolved in February 2000.

[104]An internal Mercator note of January 26, 2000 in connection with proceedings by Kyle Stewart to remove the caution served by Primlake says that the beneficial owner of Primlake is “Barry Matthews.”

[105]On March 15, 2000 a Deed of Release and Variation was entered into, under which Kyle Stewart’s obligations were undertaken by Coton Park Ltd, and were guaranteed by Grosvenor Developments Ltd, which by then had, it seems, taken over Kyle Stewart’s interest in the development.

[106]On March 17, 2000 outline planning permission was given by Rugby Borough Council for 79.8 acres of the land, to be part of the Coton Park Industrial Estate, conditional on a section 106 Agreement which was executed on the same day.

[107]On April 11, 2000 Mr Matthews wrote to Mr Rees’ bankers, Clydesdale Bank, to say that his fees were payable on planning permission:

“We are also being pressurised for the payment of fees to Solicitors as well as our own costs which have been outstanding for over seven years based on the promise ‘you will be paid when we get Planning Permission.’ ”

[108]In this period, a number of documents are said by Primlake to suggest that Mr Matthews and Mr Rowe had decided to split the beneficial interest in Primlake between them:(1) A note by Mr Matthews of May 19, 2000 states that Primlake was an offshore company under the control of Mr Rowe and Mr Matthews and had recently been reformed, 25% being under the control of Mr Rowe and 75% being under the control of Mr Matthews.

(2) On May 26, 2000 Mr Matthews wrote to Mr Turian of Richard Gray & Co in Guernsey to say that, according to Mr Rowe, Primlake was split 25-75.

(3) On June 5, 2000 Mr Foreshew wrote to Mr Matthews to say:

“The structure as mentioned in James Turian’s letter is as explained to me by Richard when he dropped in unexpectedly just before I went away on holiday and other than knowing that the beneficial interest is split 75:25, he did not advise me of who the beneficial owners were.” (4) On June 6, 2000 Mr Rowe wrote to Mr Garland of Tiber Trust: “As previously said and unexpectedly this project has dragged on for some ten years, but now that a sale is being negotiated, Derrick feels that his position is unsecured and vulnerable. Derrick is at still at this time continuing in his role as negotiator for the company and has not yet submitted any invoices for fees as there was not much point because he knows that the company has very little cash resources. Therefore in order to protect him I have agreed that Seventy five percent of the shares of Primlake should be held to his order until such time as his fees are settled in full. … In accordance with the above and until notice is received as setout herebelow [sic], I ask that the Trustees hold 75% (seventy five percent) of the shares of Primlake Limited to the order of Derrick Matthews or in the event of his demise to the order of his wife Ann Vivien Matthews. … This security is to remain in place until Derrick has received full satisfaction for all of his claims against Primlake Limited, upon such satisfaction the release of the security will be confirmed by him in writing to you.”

[109]At about this time Mr Matthews says he became aware of the problems caused by the removal of the cap in the Kyle Stewart contract. On July 31, 2000 Mr Foreshew wrote to Mr Matthews to say that based on the rough assumptions set out in his letter the infrastructure works account was about £8 million more than the development account, and no amount was therefore due to Primlake.

[110]On July 31, 2000 Grosvenor Estates wrote to Mr Matthews to say that they had concluded their negotiations with the GAP clothing chain for warehousing on the development, and that they wished to agree land value as quickly as possible.

[111]In July 2000 RBS Cavendish Street London branch agreed in principle to lend £3 million to Primlake on the security of (inter alia) the Kyle Stewart contract. On August 3, 2000 Mr Geddes, a manager at RBS Cavendish Street, wrote to Mr Matthews to say that RBS’s solicitors had reported that the amount of infrastructure works costs were not capped and also included costs relating to the consortium site. The bank was insisting on the costs being capped and being limited to the land which was the subject of the contract. On August 4, 2000 Mr Matthews replied to Mr Geddesto say that the amount of infrastructure cost was capped within the contract and could not exceed 50% of the land value. Subsequent correspondence shows that the bank and its solicitors were not satisfied.

[112]The payment of £400,000 under the Kyle Stewart contract became due from Coton Park Ltd at this time on conclusion of the negotiations with GAP for acquisition of part of the site, and was received by Primlake in the Leopold Joseph account on August 7, 2000.

[113]On August 9, 2000 Mr Matthews wrote to Mr Turian to say that the expected funds of £400,000 had arrived and he asked Mr Turian to forward a cheque to Overbury Tussauds in the sum of about £60,000; to Tussauds in the sum of about £5,000 and to pay £35,000 to the account of DA and AV Matthews, NatWest Wigston. The payment to the account of Mr and Mrs Matthews was made on that day.

[114]On September 6, 2000 Mr Turian asked Leopold Joseph to pay £30,000 to DA and AV Matthews, NatWest Wigston and £50,100 to Bolton Consulting, NatWest Guernsey. The payment of £30,000 was made to Mr and Mrs Matthews’ account on the following day.

[115]On November 6, 2000 Mr Foreshew wroteto Mr Matthews to say that he could not get over the hurdle of the issue raised by RBS’s solicitors that the total infrastructure costs for the consortium land could be debited to the estimated infrastructure works account. He said that that was a point which had to be conceded in 1997 as a condition of the further payment. His perception was that Primlake had been forced into agreeing terms that it would not have had to agree to were it not for trying to get Mr Rees out of the problems he had occasioned for himself.

[116]On March 1, 2001 Mr Matthews wrote to Mr Rowe:

“The only way we can protect our interests is to keep control of all aspects of Primlake …”

[117]On March 1, 2001 Mr Turian instructed Leopold Joseph to pay £25,100 to a company called Bolton Consulting at Barclays Bank Guernsey.

[118]On March 20, 2001 Mr Turian instructed Leopold Joseph to pay £20,000 to DA and AV Matthews account at NatWest Wigston, and £75,200 to Bridging Finance Ltd, at Barclays Bank Guernsey. The payments were made on March 22, 2001. Primlake says that the payments to Bolton Consulting and Bridging Finance Ltd were payments to Mr Matthews.

[119]By March 2001 Mr and Mrs Rees had become concerned about the Primlake scheme, and from March 2001 they instructed Mr Christopher Vaughan to act on their behalf. They (together with their son Selwyn) also had a meeting with Mr Rowe in Guernsey. On March 23, 2001 Mr Vaughan wrote to Mr Rowe to say that his clients had decided that it would be better for Primlake to be under the umbrella of the Dummer Trust, administered by Mercator and that the officers of Primlake ought to be either individuals or companies under the control of Mercator.

[120]Mr Robinson of Rees and Freres in Northampton had been advising Primlake and Mr Matthews in relation to the problems which had arisen with Grosvenor Estates, and he became involved in discussions with Mr Vaughan designed to regularise the position as between Neyland and Primlake.

[121]Mr Vaughan and Mr Robinson were to co-operate in ensuring that the land value would be resolved as soon as possible with Grosvenor Estates which would trigger the payments by Grosvenor Estates to Primlake. Under the Neyland/Primlake contract the instalment of £1.6 million was due following the grant of outline planning permission. Mr Vaughan and Mr Robinson endeavoured to agree the terms on which the money would be dealt with.

[122]There was a meeting between Mr Vaughan and Mr Robinson on May 1, 2001, following which they drafted a joint letter to Mr and Mrs Rees, Primlake, Mr Rowe and Mr Matthews, in which they described Primlake as controlled by Mr Rowe. Funds received by Mr Robinson would be held by him pending agreement with regard to whom they should be paid, subject to payment of proper legal and professional fees.

[123]On May 4, 2001 Mr Robinson wrote to Mr Rowe and reported that he had told Mr Vaughan that Mr Rowe and Mr Matthews had told him on several occasions that Mr Rowe and Mr Matthews were the sole beneficial owners of the share capital in Primlake and that therefore Mr Robinson’s view had been that he could act on Mr Rowe’s instructions. Mr Vaughan and Mr Robinson agreed, however, that neither of them had any knowledge of the terms under which Mr Rees was quite clearly acknowledged by Primlake to have an entitlement to some part of whatever overage Primlake became entitled to under the terms of the development agreement (i.e. the Kyle Stewart contract). He had no wish to become involved in a detailed examination of the extent to which Mr Rees had entitlement to the co-operation of Primlake or any control over the accounts of that company. His meeting with Mr Vaughan prompted him to a number of points which he would like to discuss with Mr Rowe including these:(1) They quite clearly had a gap as to how the entitlement of Mr Rees to share in the proceeds of the development agreement arose. They were unclear about how the subsequent entitlement of Mr Rees arose in such a way that he was entitled to receive some of the monies which Primlake would eventually get. Unless he could substantiate that entitlement, he had no means of knowing that he would have correctly disbursed the money once the transaction had been finally completed.

(2) A slightly sensitive issue was that his firm had accepted instructions on the understanding that Mr Rowe and Mr Matthews were the sole beneficial owners of the shares in Primlake:

“Having been assured by Derek [sic] Matthews that yourself and he hold the entirety of the shareholding in Primlake Limited he informed me by means of a fax yesterday that in fact the shares are all held by a company called Fifo Limited. This does lead me to the obvious question of who owns the shareholding in Fifo Limited. Whoever does, the information does seem to contradict the information which I was given originally as to the ownership of the shares in Primlake and for the sake of good order, I would like some reassurance on the point.”

[124]On about May 22, 2001 Mr Matthews wrote a memorandum for Mr Rowe, in which he made these points:(a) Mr Rees had no authority over Primlake, whose shares were owned by FIFO, Mr Rowe was the only director, and Mr Matthews had been given authority to act for and on behalf of Primlake on all matters relating to the 1994 contract;

(b) payments made to Neyland had, he assumed, been passed to Mr Rees, and all other money received by Primlake had been used for the payment of fees and was accounted for in the infrastructure account. The memorandum ended: “May I remind you that our agreement with Rees was that we would be able to take our fees etc at the point of the granting of Planning Permission. That was on March 17th: 2000, over a year ago …

[125]On June 20, 2001 Mr Matthews wrote to Mr Rowe with comments on the joint letter prepared by Mr Robinson and Mr Vaughan. Under the heading “Fees” he said “D. Rees has already offered DAM 4%. 2% to be paid by Primlake and 2% to be paid direct by Rees. DAM has made no comment to Rees but has already informed R.R. of this offer. I do not think this information should be passed to Robinson at this moment.”

[126]On July 12, 2001 Mr Matthews wrote a note stating that Mr Rees had been given all the financial information over the past 10 years. He said:

“I am afraid I include Mr Rees as one of those persons who expects everything to be done for nothing, a person who wants to continue to take with no thought to costs.”

He went on to make what appears to be the first reference to a fee of 5%:

“This is confirmed by his offer to DAM to allow 2% to be paid by Primlake and 2% direct from him and I was not to inform Primlake. He forgets in 1997 he offered 5% and 5% of £32.00.Mil: is £1.60.Mil:.”

[127]The course of the negotiations concerning fees was as follows:(1) On July 18, 2001 Mr Robinson recorded that Mr Rowe had told him that he was trying to persuade Mr Matthews to let Mr Robinson have a note of what he wanted to charge by way of architects’ fees.

(2) On July 19, 2001 Mr Robinson produced a draft agreement under which deductions were to be made by Primlake of what were described in the Second Schedule as (inter alia) “Primlake’s Architect’s Fees” before distribution to Neyland.

(3) In a letter to Mr Rowe of July 25, 2001 Mr Matthews said that all he was “now interested in is the returns for Primlake” and Mr Bodman and the Rees family had no say in what Primlake did to this end. He referred to the proposed schedule of payments, and said it must include “Architects” against which he added “(details to follow)”, “Engineers/Planning Consultants from 1990,” “Loans” and “Architects costs/expenses over 10 years.”

(4) At about this time Mr Matthews also began to commit to paper for the first time the idea of a fee based on RIBA scales. He wrote a “Summary for Fee undertakings” in which he referred to DA Matthews as “12.5% + 2% + costs 10 years.” From this period also Mr Matthews begins to make use of the concept of fees payable by reference to “gross value.”

(5) In his fax to Mr Rowe of July 31, 2001 Mr Matthews said that the proposed letter which Mr Vaughan wanted had to contain the approval to pay all the fees which he had promised or undertaken which would include for Matthews Associates “Gross valuation 12.5% + 2% + costs.” He added that when Mr Rees saw the list of payments “there will be trouble.”

(6) Mr Robinson’s draft of August 7, 2001 used a text suggested by Mr Rowe. It provided that Primlake would account to Neyland after the deduction (inter alia) of the fees of Matthews Associates calculated at 2% of the gross valuation of the sum due to Primlake pursuant to the Development Agreement (i.e. the Kyle Stewart contract) and “The fees of Primlake Limited’s Architects calculated at 12.5% of the gross valuation of the sum due to Primlake under the Development Agreement plus any disbursements and fees incurred by Primlake.”

(7) After discussion with Mr Rowe, and then with Mr Vaughan, the draft was revised by Mr Robinson on about August 9, 2001 so as to provide for the fees of Matthews Associates calculated at 2% of the gross valuation, and the fees of Primlake’s Architects calculated by reference to the RIBA scale of fees on the gross valuation, in each case to be determined by an expert, where to the gross value was to be added the value of infrastructure equalisation payments due from Grosvenor on the land, and also in the case of Primlake’s “Architects” plus any disbursements and fees incurred by Primlake.

(8) In an undated handwritten note (probably from this period) Mr Matthews calculated his 12.5% (planning) and 2% (selling) as £3,790, 937 and £606,550 respectively, a total of £4,397,487 on a gross value of the land. He also referred to the loan as £120,000 “+ %”.

(9) At a meeting on August 28, 2001 Mr Mark Gill of Mercator was recorded in an attendance note by Mr Robinson as having said that he could see no reason why Mr Matthews should be paid on a return on the gross value when he, as the principal shareholder in Primlake, would obtain a share of the proceeds of the valuation on the basis of the Primlake/Neyland agreement of November 13, 1992. After seeing the attendance note, Mr Rowe complained in a telephone conversation to Mr Robinson of September 3, 2001 that the beneficial interest of Mr Matthews in Primlake had been disclosed to the Rees family. Mr Robinson said that it had not been disclosed and he had been told at the meeting that the Rees family had no knowledge of Mr Matthews’ interest in the property.

(10) On August 30, 2001 Mr Matthews wrote to Mr Rowe to say that he was still very worried about the situation developing with Mr Vaughan. He knew they could secure their funds from the proceeds of the sale within the Primlake “setup”. He said he was supposed to hold 75% of Primlake but this did not seem to affect the actions of Mr Robinson. He said:

“I promised [Mr Rees] I would not expect payment of my accounts until Planning Permission had been granted on Coton South (March 17th: 2000).” (11) In a handwritten note in this period Mr Matthews refers to his attendance at consortium meetings prior to the sale to Kyle Stewart, and the time spent on the continued negotiations since 1994 and up to the present time: “These costs are not covered by a simple fee of 4%.”

He said that the estimated fee situation existing between Primlake and Neyland to be 75-25% based on the gross value of the total site. (12) Mr Matthews commented in a memorandum for Mr Rowe on September 10, 2001 that the set-up had been well known to Mr Rees for many years. The only reason he was in control of Primlake through Mr Rowe was to make sure that Mr Rees was secure and Mr Rees had always been informed of the “set-up”. Mr Rees had always known that Mr Matthews had control of Primlake through Mr Rowe and that was for the only purpose of being able to make sure Mr Rees’ interests were always supported. Mr Matthews said that Mr Rees always knew Primlake would be paying for Mr Matthews’ services from 1994 when HBG (i.e. Kyle Stewart) took over the site negotiations in part. The only security Mr Matthews had for his fees was through Primlake. He said:

“It seems obvious to DAM that the reason for all this discussion is because payment is about to become due from Grosvenor and while we were all working for nothing Rees was happy to let us continue. Let us not forget, Rees has already offered DAM 4% (2% on the table and 2% round the back) Architects always work on Gross Value, if not, DAM will not go through the process of agreeing the quantum of the ISW a/c. (see the Terms of the Contract)” (13) Wedlake Bell in Guernsey were then instructed to act for Mercator in connection with the Neyland/Primlake contract in relation to what they described in their letter of September 14, 2001 to Mr Vaughan as the profit sharing arrangements. (14) At a meeting on October 11, 2001 Mr Matthews confirmed to Mr Robinson that the Primlake/Neyland contract provided for a split of the proceeds on the basis of 80% to Neyland and 20% to Primlake. Mr Matthews thought that Primlake had subsequently secured an additional 2½% by virtue of the Kyle Stewart contract. In fact the Primlake/Neyland contract did not provide for such a split. What it provided was that Neyland would sell for 80% of market value (less £85,000), and the Kyle Stewart contract was a sale for 82.5% of market value (less infrastructure costs, originally capped). (15) Mr Robinson made the suggestion (which Mr Matthews accepted) that the parties merely agreed to divide the net proceeds from any overage arising out of the expert’s determination according to the 1992 Agreement, i.e. 20% to Primlake and 80% to Neyland. But there were certain sums which needed to be deducted at source from the gross payment before it was divided, and Mr Matthews thought that those sums were the Clydesdale Bank mortgage and the loans made by Mr Matthews (£120,000) and Mr Rowe (£100,000) to Mr Rees together with interest. (16) In a letter of October 12, 2001 Mr Matthews suggested to Mr Robinson that Neyland would be paid the equivalent of 80% and Primlake would be paid the equivalent of 20% of gross value, but “from the sum to be paid to Neyland the cost of infrastructure would be included.”

This would be deducted prior to payment by Grosvenor. (17) On November 23, 2001 Mr Matthews wrote to Mr Robinson to say that rather than start court action it was “better to get the 20% …. from the Neyland-Primlake deal, but I do not want to leave these until he has received his money and returned to Canada.” (18) Mr Robinson’s draft of the Primlake/Neyland letter of November 29, 2001 contained in the third schedule in (in conjunction with paragraph 4 of the draft letter) the provision that monies received by Primlake would be disbursed in the proportions 80% to Neyland and 20% to Primlake subject to the deduction of the fees of Rees & Freres (second schedule). (19) Subsequent drafts on November 30, December 12, 2001, and December 14, 2001 contained the same 80%/20% formula. The December 14, 2001 draft was subsequently amended to suggest that Mr Matthews should be paid for work on the settlement of the infrastructure works account. Further drafts containing these provisions were circulated until March 2002.

[128]The negotiations also involved deductions by Primlake from the payments due to Neyland, so as to reimburse Primlake for having discharged loans made by Mr Matthews to Mr Rees. On November 22, 2001 Mr Matthews instructed Mr Robinson that he had lent Mr Rees £125,000 in two separate amounts of £50,000 and £75,000 secured on Pebble Lodge. He said that subsequently Primlake had repaid the money and the loan had been redeemed, which meant that Primlake was owed £125,000 plus whatever interest it proposed to ask for.

[129]In his letter to Wedlake Bell (representing Mercator) of November 29, 2001 Mr Robinson said:

“Primlake are now seeking to recover only the loans which have made to David Rees by Primlake or by Derek Matthews (and subsequently re-paid by Primlake) and not any of the project related fees which were referred to in the previous version of the First Schedule to the letter.”

[130]The draft prepared on November 30, 2001 (and subsequent drafts) provided that Primlake could deduct (among other amounts) £120,000 representing the sum paid by Primlake to Mr Matthews in order to discharge the loan from RBS, Guernsey to fund a payment made by Mr Matthews to Mr Rees.

[131]During this period an independent expert determination of the Market Value of the land for the purposes of the Kyle Stewart contract was conducted by Mr Corn of Lambert Smith Hampton. His determination was dated December 7, 2001. The property consisted of two plots, which had been or were to be made available to GAP for a major central warehouse and distribution depot. The plots were 35.417 acres and 36.163 acres respectively. He valued one plot as at March 29, 2000 at £11.15 million and the other plot as at July 27, 2000 at £11.125 million. All but 1.695 acres were valued at £315, 000 per acre.

[132]On June 20, 2002 Mr Matthews wrote direct to Mr Rees’ solicitors, Gateley Wareing, to say that £3 million had been received under the Kyle Stewart contract. He stated (falsely) that Mr Rees had received £2.5 million, although (he said) his own records showed £2.6 million. From the remaining balance payments had been made direct from Primlake or through Mr Matthews to solicitors, company formation fees, agent fees etc. But he said “I cannot see any Architects fees, and this was for work carried out up to 1994, some four years of work including many many meetings …”.

[133]The discussions came to nothing, and a winding up petition was presented against Primlake on August 9, 2002 by Neyland based on a debt of £1.6 million demanded by letter of July 29, 2002, and Primlake was wound up on October 2, 2002.

[134]In the following year enquiries were made by the joint liquidators and the advisers to Mr Rees and Mercator about the payments to Mr Matthews, and some of the correspondence relating to these enquiries was relied on in the trial:(1) Mr Matthews said in a letter to the liquidators on January 17, 2003, that he had no doubt that all the accountable sums were related to payments of fees to professionals who had carried out services on the project since 1989, loans to Mr Rees and also some of their fees and expenses paid on account of the past 12 years. The fullest details would have been given to Channel Trust/Mercator at the time of payment. They would not have been paid had they not have provided the details. He said that their fees for the project had been agreed at 5% of the gross value. The negotiations carried out by them up to the point of the liquidation indicated a value of £38 million.

(2) On January 13, 2003 the liquidators asked Mr Rowe:

“On whose authority were such large payments made to Mr Matthews and as to why further payments were made when supporting documentation for previous payments had not been received.”

On January 22, 2003 Mr Rowe replied:

“Mr. Matthews is the eventual beneficiary of 75% of Primlake Ltd. He had authority to instruct the administrators of Primlake.” (3) In letters to Wedlake Bell of March 18 and March 21, 2003 Mr Matthews again said that the agreed fee was 5% of the gross valuation, and that it had been agreed with Mr Rees prior to the involvement of Neyland. (4) On March 25, 2003 Mr Matthews wrote to Mr Rowe suggesting that Mr Rowe should write to Wedlake Bell to say that Mr Matthews was at no time concerned with any fee negotiations with Matthews Associates, and that the arrangements had already been agreed with Mr Rees before the Dummer Trust, Neyland Properties and Primlake had been established. He also suggested that Mr Rowe should mention that Mr Matthews had mentioned his fee agreement with Mr Rees, and that Mr Rees informed Mr Rowe that he had reached an agreement with Matthews Associates on the matter of fees, and that fees had been drawn down in part payment in the same way as other fees and costs had been paid including payments to Mr Rees. Mr Rowe then wrote to Wedlake Bell in those terms on March 26, 2003. (5) Mr Matthews himself wrote to Wedlake Bell on March 26, 2003 to say that the acceptance of the fee arrangement originally made with Mr Rees was prior to the formation of the various companies and trusts. 5% was the offer made by Mr Rees, but was not confirmed in writing. The arrangement was accepted by Channel Trust when the site was sold by Mr Rees to Neyland. Payments on account had been paid from time to time by Channel Trust (Neyland/Primlake) when under the direction of Mr Rowe which confirmed that Mr Rowe was aware of and was in agreement with the arranged fee. No claim for payment would be made until funds became available from the sales contract. (6) On August 12, 2003, in answer to a question from Mr Rees’ solicitors “What evidence do you have to support the fact that your fee of 5% of the gross value was accepted”

Mr Matthews replied “This is a matter between Primlake and MA and has nothing to do with Rees or the present case.”

[135]The dispute with Grosvenor Estates concerning the amount deductible for infrastructure works costs still continues. Only £3 million has been paid under the Kyle Stewart contract: £1 million in May 1994; £1.6 million in December 1997; and £400,000 in August 2000. IV Payments claimed by Primlake

[136]The claim is based on a schedule of payments produced by Mr Turian in September 2002, which simply gives a list of payments and payees.

[137]The accounts in Barclays Bank Leicester, RBS Guernsey and NatWest Wigston are all in the joint names of Mr and Mrs Matthews, and in the case of Barclays Bank Leicester “Matthews Associates Arthur Derrick Matthews Esq and Mrs Ann Viviane [sic] Matthews t/a.” The fourth column below indicates the payee and/or account identified in the instruction. A. Challenged payments admitted to have been made 1. May 26, 1994 £100,000 Matthews Associates Barclays Bank, Leicester A/C 50630470 2. May 26, 1994 £84,000 Ullman Shore Ltd Citibank, Jersey Received July 19, 1994 by RBS, Guernsey A/C Mr and Mrs Matthews 3. November 14, 1994 £25,000 Barclays Bank, Leicester A/C 80630136 4. December 2, 1994 £10,000 Barclays Bank, Leicester A/C 80630136 5. January 23, 1995 £10,000 Barclays Bank, Leicester A/C 80630136 6. March 8, 1995 £3,500 Barclays Bank, Leicester A/C 80630136 7. December 12, 1997 £350,000 Matthews Associates Loan Account Barclays Bank, Leicester A/C 44487664 8. December 12, 1997 £130,000 DA and AV Matthews NatWest Bank, Wigston A/C 68085206 9. May 12, 1998 £19,000 Charles R Moore (Solicitors) Client Account Barclays Bank, Kingston 10. August 9, 2000 £35,000 DA and AV Matthews NatWest Bank, Wigston A/C 68085206 11. September 7, 2000 £30,000 DA and AV Matthews NatWest Bank, Wigston A/C 68085206 12. December 13, 2000 £20,000 DA and AV Matthews NatWest Bank, Wigston A/C 68085206 13. March 22, 2001 £20,000 DA and AV Matthews NatWest Bank, Wigston A/C 68085206 TOTAL £836,500

[138]There was also a payment of £35,000 to the Barclays Bank Leicester account on July 8, 1994, but no claim is now made in respect of it. It represented money lent by Mr Matthews for the payment of the deposit by Mr and Mrs Rees on a farm (Poultney Grange Farm) close to Wakeley Farm for which they bid at auction in about 1992. The sale did not proceed and the deposit was forfeited. B Challenged payments denied made 1. March 1, 2001 £25,000 “DA Matthews” in Turian schedule. £25,100 paid to Bolton Consulting, Barclays Bank, Guernsey 2. March 22, 2001 £75,200 £75,000 to “DA Matthews” in Turian schedule. £75,200 paid to Bridging Finance Ltd, Barclays Bank, Guernsey

[139]Mr Turian’s schedule of payments states that sums of £25,000 and £75,000 were paid to Mr Matthews on March 1, 2001 and March 22, 2001 respectively. On February 27, 2001 Mr Turian instructed Leopold Joseph to take £25,000 from the Primlake deposit account and pay £25,100 (not £25,000) to Bolton Consulting at Barclays Bank Guernsey. As regards the latter payment, on March 20, 2001 Mr Turian instructed Leopold Joseph to pay £75,200 (not £75,000) to Bridging Finance Ltd, at Barclays Bank Guernsey. V The pleaded case

[140]So far as is now material, Primlake claims that Mr Matthews acted as a de facto director of Primlake, and owed it a duty to act in good faith in its interests and a duty to act for the proper purposes of Primlake in relation to its affairs.

[141]In causing or procuring the disputed payments to be made to Matthews Associates and to Mr and Mrs Matthews, between May 26, 1994 and March 22, 2001, Mr Matthews acted in bad faith and against the interests of Primlake, and for improper purposes in relation to its affairs, in that the recipients gave no consideration for the payments, and Mr Matthews was aware that no consideration for the payments was given to Primlake by Matthews Associates or by Mr or Mrs Matthews.

[142]In causing or procuring the payments, Mr Matthews acted for the improper purpose of benefiting himself. Mr Rowe purported to authorise the payments, or acquiesced in their being made, although he did not honestly believe them to be in the interests of Primlake and purportedly authorised them, or acquiesced in their being made, for the improper purpose of benefiting Mr Matthews, as Mr Matthews knew. Accordingly the payments were unauthorised and Mr Matthews is liable to repay them. Since Mr Matthews knew that Mr Rowe purported to authorise the payments, or acquiesced in their being made, although he did not believe them to be in the interests of Primlake and purportedly authorised them, or acquiesced in their being made, for the improper purpose of benefiting Mr Matthews, it would be unconscionable for Mr Matthews to retain them.

[143]The particulars of the dishonesty of Mr Rowe and Mr Matthews are:(a) Mr Rowe and Mr Matthews knew that there was no agreement between Primlake and Mr Matthews under which Primlake was obliged to make the payments to Mr Matthews;

(b) Mr Matthews knew, and Mr Rowe knew or suspected, that Mr Matthews had no agreement with Mr Rees under which the payments would be payable to Mr Matthews;

(c) Mr Matthews and Mr Rowe knew that no one had considered on behalf of Primlake whether any services had been provided by Mr Matthews to Primlake and (if so) whether such services justified making the payments.

[144]Accordingly Mr Matthews is liable to account as a constructive trustee. To the extent that Mr Matthews personally received any of the payments he holds them, or their traceable proceeds, on trust for Primlake. By reason of the absence of consideration for the payments, the defendants have had and received the payments to their use. Matthews Associates and/or Mrs Matthews received the payments in circumstances where they knew or ought to have known that no consideration for the payments was given to Primlake and that the payments procured by Mr Matthews amounted to a breach of his fiduciary duties, and their knowledge makes it unconscionable for them to retain the benefit of the payments, and they therefore hold the payments or their traceable proceeds on trust.

[145]Alternatively, if there was any agreement as to remuneration, any such agreement would be on the same terms as agreed with Mr Rees, namely that Mr Matthews’ remuneration would be 2% of the net value of the sale proceeds.

[146]Primlake claims the disputed payments and a declaration that the defendants hold the money on trust, and a declaration that Primlake is subrogated to the charge formerly held by RBS Guernsey over Pebble Lodge, Burnham Market.

[147]The defence is that, so far as material, Mr Rowe was the sole, alternatively a, director of Primlake and/or the sole authority for all payments made by or on behalf of Primlake. Primlake held out and/or represented that Mr Rowe had sole authority to make payments by or on behalf of Primlake, and if he did not have actual authority, he had ostensible authority. All payments made by Primlake were authorised by Mr Rowe and made with the approval, knowledge, consent and/or acquiescence of Mr Rees.

[148]As a result of the dispute between Primlake and Grosvenor Developments Ltd Mr T J Corns of Lambert Smith Hampton on December 7, 2001 valued the land in respect of which planning permission had been granted at £315,000 per acre, giving a total value of about £25 million.

[149]Mr Matthews did not act as a director of Primlake, whether as an actual, shadow or de facto director. He was not concerned in its management, and acted only as an architect. Consequently he did not owe any duties as a director or any fiduciary duties.

[150]Mr Matthews did not cause or procure Primlake to pay any sums, and was not concerned with the management or control of Primlake. All payments were made as authorised by Mr Rowe.

[151]Mr Matthews was paid sums by Primlake by way of payment on account of his agreed remuneration as an architect, being a fee of 5% of the gross value of the land with planning permission. The sums were properly paid and are not recoverable. If there was no fee agreement, then Mr Matthews seeks payment of a fee on a quantum meruit basis, which should be assessed at least as 5% of the gross value with planning permission.

[152]Interim payments were appropriate given the lengthy duration of the project, and payments were made by Primlake when funds were received.

[153]As a result of Mr Corns’ valuation Mr Matthews is entitled to a fee of 5% of the gross value, namely £1,256,850.

[154]Primlake held out and/or represented that Mr Rowe was authorised to make the payments, and Mr Matthews received them in reliance on and/or on faith of such holding out, and Mr Rowe had ostensible authority to make the payments.

[155]The payments were authorised by Mr Rowe in the honest belief that they were in the interests of Primlake, in that Mr Rowe honestly believed that Mr Matthews was entitled to the payments as his remuneration; Mr Rowe knew that Mr Matthews had reached an agreement with Mr Rees under which the payments would be payable to Mr Matthews; under Mr Matthews’ fee agreement with Mr Rees, Mr Matthews was entitled to be paid interim payments on account of his agreed remuneration; Mr Rowe knew and honestly believed that Mr Matthews was and would be entitled to interim payments just like other professionals; Mr Rowe knew and was aware of the services provided by Mr Matthews; Mr Rowe knew and honestly believed that the services provided by Mr Matthews to Primlake justified the making of the payments; Mr Rowe knew and honestly believed that in addition to sums in respect of the services Mr Matthews had provided, Mr Matthews was entitled to payments for the purpose of paying other contractors and/or by way of reimbursement of sums paid by him to or for the benefit of Mr Rees and/or Neyland and/or Primlake; the sums received by Mr Matthews were honestly believed by Mr Rowe to be in accordance with Mr Matthews’ fee agreement with Mr Rees, which had been adopted by Primlake by its conduct in utilising Mr Matthews’ services since November 13, 1992; the sums paid by Primlake and authorised by Mr Rowe were in accordance with the fee arrangements; the fee agreement was ultimately 5% of the gross value, having been increased from the original 2% of gross value during the course of the project; at all material times Mr Rowe knew or honestly believed that the payments were in accordance with the fee agreement (as varied); if there was no fee agreement, then Mr Rowe honestly believed that Mr Matthews was entitled to the payments on a quantum meruit basis.

[156]It is denied that Mr Rowe did not honestly believe the payments to be in the interest of Primlake and/or made them for the improper purpose of benefiting Mr Matthews. It is denied that Mr Matthews knew, believed or suspected that Mr Rowe did not honestly believe the payments to be in the interest of Primlake and/or made them for the improper purpose of benefiting Mr Matthews. The particulars of the dishonesty of Mr Rowe and Mr Matthews are denied. In particular it is denied that Mr Rowe did not consider on behalf of Primlake whether any services had been provided by Mr Matthews and whether they justified making the payments. If he had not considered them, Mr Matthews was not aware of that.

[157]Mr Matthews counterclaims on the basis of an agreement that he be paid a fee of 5% of the gross value, or that he be remunerated on a quantum meruit basis at 5% of the gross value.

[158]There is also an issue as to whether, as Primlake claims, Matthews Associates is a partnership, of which Mr and Mrs Matthews are the partners. It is denied that Mrs Matthews is liable to be sued, and it is pleaded by the defendants that if, which is denied, Matthews Associates constituted a partnership between Mr and Mrs Matthews, then in any event the work undertaken had nothing to do with the partnership.

[159]Primlake is a Nevis company, but the parties had been proceeding on the basis that, to the extent that Nevis law as the law of incorporation might be relevant, there was no relevant difference between Nevis law and English law.

[160]Shortly before the trial Primlake sought to amend to plead that Mr Matthews owed Primlake a duty not to make a profit in the course of his relationship and by reason of his fiduciary position without the informed consent of Primlake in general meeting and to account to it for any profit made without such consent, and that he had a duty not, without the informed consent of Primlake in general meeting, to place himself in a position of conflict of interest and to account for any profit made by preferring his own interest without such consent. Primlake sought to amend to plead similar duties owed by Mr Rowe. I disallowed these amendments because it would have been necessary for the trial to have been adjourned to enable the defendants to consider whether they could rely on Nevis law.

[161]I also refused an application to allow an amendment which would have pleaded in the particulars of the dishonesty of Mr Rowe and Mr Matthews that the land was transferred to Primlake for no good reason in circumstances where, unknown to Mr Rees, the ultimate beneficial ownership at all material times belonged to Mr Matthews and/or Mr Matthews and Mr Rowe. VI The fee agreement

[162]The substance of the amended particulars of claim and the reply is that there was no agreement between Primlake and Mr Matthews, but in any event if there was such an agreement the remuneration was to be 2% of the net value of the sale proceeds of the land, payable as and when the sale proceeds were actually received by Primlake.

[163]The original defence was that Primlake was liable to pay a fee of 5% of the gross value of the land with planning permission. It had been initially agreed orally by Mr Rees, and subsequently confirmed and adopted by Mr Rees, Neyland and then by Primlake in line with legal ownership of the land. The sums were paid on account. The amended defence (in conjunction with the Answers to Part 18 Requests) pleaded that the original agreement (before the transfer of the land in November 1992) was for 2% of gross value but that it had been increased to 5% during the course of the project. It was also pleaded that it was agreed that Mr Matthews was entitled to interim payments. Primlake’s case

[164]In the interlocutory stages Mr Arnold, Primlake’s solicitor, dealt with Mr Matthews’ claim to a fee of 5% of the gross value and accepted (witness statement, October 4, 2004) that Mr Matthews would be entitled, once the final purchase monies were received, to a fee of 2% of the net sales proceeds.

[165]Mr Rees’ evidence (fourth witness statement) was that in Spring 1992 he agreed that Mr Matthews would be entitled to a fee of 2% calculated on the net monies received on completion. Mr Matthews had proposed 1.5% as it was such a big job, but Mr Rees insisted on paying him the same as Berry Brothers would have received, i.e. 2% of what Mr and Mrs Rees received for the land. Mr Rees denied any agreement for 5% of the gross value of the land. “Gross valuation” was not in their minds and meaningless. In his fifth witness statement he confirmed that there was a discussion at Wakeley Farm sometime prior to 1997, probably in 1996, of an increase to 4% of sale proceeds. Mr Rees stated something along the lines that he would be happy to give 4% for a job well done. He had no recollection of discussing any split between himself and Primlake. He denied any offer or agreement in 1997 for an uplift to 5%. There was no mention of a fee based on gross value. The whole concept of having a percentage fee was to ensure that Mr Matthews got Mr and Mrs Rees the best possible deal and so the theoretical value of the land was of no consideration. Mr Rees denies that he ever mentioned to Mr Rowe in March 2001 any secondary arrangement or a fee of 5% or that Mr Matthews had negotiated any kind of higher fee.

[166]In the witness box Mr Rees said that he was not told that Mr Matthews’ fee would be 2% of the gross value of the land. “What I wanted to know, sir, at that time was the amount of money that myself and my wife were going to receive.” A 5% fee was never discussed. The offer of 4% was merely that – an offer, and only that if the job were “well done.” His evidence was that he was not asked about payments on account and did not agree to them. He did accept, however, that the fees would be paid by Primlake.

[167]Mrs Rees confirmed Mr Rees’ evidence of the discussion in Spring 1992. Mr White’s evidence was that Mr Matthews told him that he had agreed a fee of 2%. Selwyn Rees’ evidence was that at the meeting with Mr Rowe in March 2001, Mr Rowe mentioned that Mr Matthews was unhappy with his original 2% fee. There was no reference to gross value being the basis for such a percentage nor to 2% being no more than a land agent would receive. The fee of 2% had been discussed between the family many times and there was no mention made of round the back payments or any other percentages. Mr Rees did mention that he might pay an increased fee if the job was well done but this was entirely discretionary. Mr Matthews’ case

[168]Mr Matthews’ evidence developed in the following way. In his second witness statement (December 4, 2004) he said that he and Mr Rees agreed orally that Mr Matthews would be remunerated for work carried out at the rate of 5% calculated on the gross value of the land with planning permission. Mr Rees had proposed the arrangement in view of the immense amount of work Mr Matthews would undertake and the very substantial profit anticipated. It was agreed also he would be entitled to payment on account of fees when monies became available.

[169]In his fourth witness statement (December 16, 2005) he gave an account of three separate fee agreements. First Agreement: 2%

[170]Mr Matthews said that at the beginning of the project a fee of 2% on acceptance into the draft Local Plan was proposed by Mr Matthews and agreed.

[171]Mr Rowe in his second witness statement said that at the first meeting with Mr and Mrs Rees it was agreed that the offshore company holding the land would meet Mr Matthews’ fees. He did not think that the level of fees was communicated to him at that time. But shortly afterwards Mr Matthews told him that he had agreed what he termed “his usual fee” of 2% gross up to the acceptance of the land by the local authority for planning purposes, but that the fee need not be payable until there was sufficient money in the project to pay him.

[172]That the 2% was payable on acceptance into the draft Local Plan was justified in submissions for Mr Matthews in the following way: although the land would not at that stage have been granted planning permission, inclusion in the Local Plan was the next best thing and all but guaranteed that permission of some description would be granted. If the land were not accepted, no fee would be payable and the feasibility work that Mr Matthews would have had to carry out to have the land accepted into the Local Plan would have been for nothing.

[173]Reliance was also placed on behalf of Mr Matthews on these matters:(1) in cross-examination Mr Rees accepted that he had hired Mr Matthews because he had skills and expertise which a selling agent would not have had;

(2) it was put to Mr Matthews in cross-examination (and he agreed) that at the time the 2% was agreed with Mr Rees, it was “a fee for finding a purchaser whilst progressing planning matters;”

(3) the totality of Mr Matthews’ oral evidence was consistent with his witness statement evidence and with the fact that the exact ambit of the work covered by the 2% agreement may well have changed over time in the period 1992 – 1994 from what was originally anticipated at the time of the agreement.

[174]It was said on Mr Matthews’ behalf that whatever the exact ambit of the agreement in January 1992, Mr Matthews performed substantial services for Primlake’s (and Mr and Mrs Rees’) benefit from January 1992 to May 1994 (and indeed in the latter part of 1991) which went far beyond the work that selling agents such as Berry Brothers would have been required to have done for their 2% net fee. Second Agreement: 4%

[175]Mr Matthews’ evidence is that as the complexity and enormity of the project increased Mr Rees re-negotiated a 4% fee in 1994. The discussion took place on the telephone just after the Kyle Stewart contract had been finalised. Mr Rees suggested an increase to beyond 4% of the gross sale proceeds in the light of the work being undertaken by Mr Matthews. Mr Matthews agreed and said it was fine for the time being but that a final percentage level should be discussed nearer the end of the development. He denied that Mr Rees had offered a further 2% dependent on a good job.

[176]On Mr Matthews’ behalf reliance was placed on these matters:(1) through Mr Matthews’ efforts the land was included within the draft Local Plan in late 1992 and, ultimately, the Local Plan in 1994;

(2) Mr Rees accepted in cross-examination that he “needed someone with the technical and planning related skills and knowledge to persuade a local authority board that [his] land was to be included in any scheme” and that he needed “professional assistance” to get the land into the draft Local Plan;

(3) it was only after the fee agreement that it became clear that Rugby Borough Council would only entertain a single comprehensive application for planning permission on a consortium basis and it became necessary to find a buyer to take the land through the development phase;

(4) Mr Matthews was to: (a) work towards getting the land into the draft Local Plan (which happened in late 1992); (b) assist the project in finding financing to allow the land to be purchased and Mr and Mrs Rees’ financial problems with Barclays Bank Rugby to be alleviated; (c) provide professional representation among the development consortium to try and promote the land within the project and to deal with matters of planning strategy; and (d) find a developer buyer for the land as part of the offshore scheme to ensure that the development would maximise the returns for the Channel Trust Company owning the land (and thus ultimately benefit Mr and Mrs Rees).

[177]It was also argued on Mr Matthews’ behalf that the 1994 Agreement was a great success in that it ensured a substantial initial payment. Further by virtue of fixing the deferred consideration to the market value at the point in the future that the payments fell due it ensured that Primlake would benefit from the likely increased value in land and, by imposing a cap on the infrastructure costs, it limited its exposure to infrastructure costs, which might (and did in fact) exceed their anticipated estimate. All concerned with the project thought that with planning permission the land would be roughly worth at least £200,000 per acre, which was probably conservative given the earlier offer from Severn Trent in 1992. “Gross” this valued the 98.1 acres in the region of £20 million pounds (£200,000 x 98.1 = £19,620,000.00). Mr Matthews and Mr Rees thought that this would (after the actual infrastructure costs had been deducted) produce a net figure of probably £12 million.

[178]It was in those circumstances and in the light of the extensive work that Mr Matthews had performed which went beyond that anticipated in 1992 that Mr Rees was prepared to offer 4% and Mr Matthews accepted such an offer. Mr Rees’ claim that the offer was dependent on a condition for a “job well done” is not credible. On Mr Rees’ own account, Mr Matthews’ principal job was to “get the best price for the land”. This Mr Matthews had done by negotiating the Kyle Stewart contract on behalf of Primlake and it is incredible to suggest that a condition of a “job well done” would have been attached to the offer at that time. Third Agreement: 5%

[179]Mr Matthews’ evidence is that the third agreement took place in a conversation with Mr Rees in early 1998, shortly after the Deed of Variation. In a telephone conversation Mr Rees offered to agree his fees at a total of 5% of the gross value. They discussed it briefly and Mr Matthews indicated that he considered 5% to be about right and acceptable to him. Mr Rees then said that only 3% of this would be paid by Primlake, with the remaining 2% payable by some means which he described as “round the back”. That proposal would have put him in Mr Rees’ hands regarding payment of the balance, and he was not prepared to accept it. Mr Rees had a reputation as a bad payer, and Mr Matthews therefore declined. He told Mr Rees that he was happy to agree his fee at 5%, but the 5% should payable by Primlake. There was little further discussion and Mr Rees accepted what he said.

[180]Mr Rowe’s evidence was that at some time (probably between 1996 and 1998) Mr Matthews told Mr Rowe that he had re-negotiated the fee upwards by 1% or 2% (as corrected in his third witness statement). In March 2001 he met Mr and Mrs Rees and Selwyn Rees at the Grange Lodge Hotel, St Peter Port, Guernsey, where the Reeses were staying. Mr Rees confirmed to him that he had proposed to pay to Mr Matthews a fee of 2% of the gross value of the land. Mr Rees also said that he accepted that Mr Matthews had done an extraordinary large amount of work but that 2% was not in fact the agreed fee. He said that 2% was intended to be the “official payment” but there had been what he termed a “secondary arrangement” by which Mr Matthews was to be paid a further fee to reflect the work he had carried out. Mr Rowe decided not to press for details of how this arrangement operated and he could not now remember whether Mr Rees told him that the total fee was 5%, although he tended to think he did. I should add that in an earlier witness statement he said:

“Mr Rees did not explain the details of this arrangement and I did [not] press him.” (first witness statement, para 7). Mr Rowe then discussed what Mr Rees had told him with Mr Matthews who said that Mr Rees had originally agreed a fee of 2% of the gross value of the land once it was accepted for planning, but that later the fee had been increased and it currently stood at 5% of the gross value, on the basis of an open payment through Primlake of 2% or 3% with the balance being made by some indirect means. Mr Matthews told Mr Rowe that he had rejected this, and that Mr Rees had agreed to Primlake paying the 5%. In the witness box, when confronted with documents emanating from Mr Matthews speaking of an aggregate of 4%, Mr Rowe suggested that the 5% might include his own fee of 1% which, he claimed, Mr Rees had promised him at the outset. He accepted that in July 2001 he did not know precisely what the fee agreement was, but he “had sufficient indication from what I had heard and what had been indicated to me by the parties that it was what I expected it to be in the 4 or 5 per cent arena.”

Conclusions

[181]I am satisfied that Mr Rees was a truthful witness and that there was no agreement other than the agreement between Mr Rees and Mr Matthews that Mr Matthews would be entitled to a fee of 2% of the sale proceeds when they were received. I found Mrs Rees, and their son Selwyn Rees, credible and reliable witnesses. Their friend Mr Norman White was not an altogether satisfactory witness and I have not relied on his evidence in coming to my conclusions.

[182]I am equally satisfied that Mr Matthews lied in many respects in his evidence. I shall deal with the documentary evidence in detail, but I am satisfied that he lied when he said that he sent Mr Rees details of his instructions about the disbursement of the £1.6 million in December 1997; and when he said that he told Mr Rees that the increased payment from Kyle Stewart was £1.6 million, and not (as his letters suggested) £1 million. In particular he lied when it was put to him that he never told Mr Rees that the figure would be £1.6 million, and he replied “I most certainly did. I do not quite know what we spoke about every day, two or three times a day on the telephone, if I did not. But he was most certainly kept informed.” He lied when he claimed that his failure to tell Mr Rees about the £1.6 million in several letters was due to the fact that matters were still being negotiated. When asked why he told Mr Rees that the figure was £1 million he answered:

“I cannot recall why I did that … because at some time or other Mr Rowe was wanting to keep all the negotiations within the close circle of Tussauds, Matthews and Primlake, and my instructions were to keep away from Mr Rees if I could not. The words were: do not establish a paper trail. We could not disguise anything within this deal because eventually, and it was proved fact, Mr Rees was given a copy of the deed of novation.”

[183]He lied when he said that the letters in which he had said he had not been paid fees meant that he had not been paid by Mr Rees, and that he was being “rather humorous” or “frivolous” when he told Gateley Wareing on June 26, 2002 that he could not see any architect’s fees in the figures.

[184]He was untruthful when he said that he gave the “fullest details” of proposed payments to Mr Rowe and that “every application that I made to Mr Rowe was analysed by Mr Rowe and was approved by him,” and that the payments were authorised by Mr Rowe with “consideration.” When he was asked whether he informed Mr Rees of any of the payments apart from the £1 million which went to Mr Rees’ accounts, he lied when he replied that “Mr Rees was fully informed of everything … if not by me, by Mr Rowe. I was told really to keep my distance a little bit, and the paper trail which was pretty essential in 1997 had got to be maintained. In short, Mr Rees had not got to have any possible connection with Primlake to support his tax avoidance scheme.” But when it was put to him that he was corresponding regularly with Mr Rees at the time he replied:

“I was … and I was criticised by Mr Rowe.”

That was a lie.

[185]He lied when he said that the £2.96 million profit for Primlake mentioned by Mr Foreshew in his letter to Barclays Bank Sutton of October 8, 1992 was:

“purely to include something for Primlake to pay their professional fees … it was there simply to pay the fees and any surplus would go immediately to Neyland.”

[186]Nor was Mr Rowe a truthful witness. Mr Rowe made two revealing statements in his evidence:

“I find that when I do not ask questions I do not have to deal with answers” and “When information is not volunteered to me I do not seek it. It is often prudent not to do so.”

[187]Mr Rowe was being evasive and dishonest(a) when he said in the witness box that he had no explanation for what would have happened to the £2.96 million profit referred to by Mr Foreshew in his letter to Barclays Bank Sutton of October 8, 1992, except to say that it was not intended;

(b) when he claimed that the reason why the Kyle Stewart negotiations were being kept secret from Mr Rees in 1993 and 1994 was for tax reasons;

(c) when he denied that he told Mr Robinson that Mr Matthews would take fees out of Primlake by way of director's fees; and

(d) when he explained his statement in his letter of January 13, 2003 that Mr Matthews had authority to give instructions by saying that it meant he had authority to request.

[188]I did not find Mr Foreshew a reliable or helpful witness, and there was evidence that he was not scrupulous about his own dealings. It emerged that Mr Foreshew had procured Mercator to pay in 1997 and 1998 some of his fees for work for Primlake direct to his children’s schools, or to credit card companies, or to his private bank accounts. In evidence he claimed that this was to avoid his firm’s bank taking the money in satisfaction of debts, and that he told his firm’s bookkeeper about the payments and paid VAT on them. He was evasive and muddled in his evidence, which I did not find of assistance in resolving the factual issues.

[189]The conclusion to which I have come on the oral evidence is wholly supported by the documents. First, it is plain that there is no contemporaneous document which supports Mr Matthews’ version of(a) a 2% fee payable at the Local Plan stage; or

(b) two agreed increases; or

(c) an agreement for a fee of 5% of gross value (i.e. including infrastructure costs). The documents are either inconsistent with his account, or are self-serving.

[190]On October 21, 1999 Mr Matthews wrote to Mr Rees said:

“ … we have only once discussed the fee situation as it was agreed some many years ago that fees could only be paid when the project was in funds.”

This document is inconsistent with his story of several agreements, and also inconsistent with his theory that fees could be taken before funds are received, but it is consistent with Mr Rees’ account of one agreement at the time when Mr Matthews was first instructed.

[191]From 1999 he maintained that fees (without any mention of quantum) were payable at the point of the grant of planning permission (and no mention was made of acceptance into the Local Plan). These documents are also inconsistent with his account of three agreements:(1) On October 14, 1999 Mr Matthews wrote to Mr White “My arrangement with David was ‘fees at Planning’ …”

(2) On April 11, 2000 Mr Matthews wrote to Mr Rees’ bankers, Clydesdale Bank, to say that his fees were payable on planning permission:

“We are also being pressurised for the payment of fees to Solicitors as well as our own costs which have been outstanding for over seven years based on the promise ‘you will be paid when we get Planning Permission.’” (3) On March 2, 2001 Mr Matthews wrote to Mr Rees to say that his agreement was with Mr Rees until Primlake took over in 1994, and that fees were payable at the point of planning permission: “… I have acted, at the beginning since Nov: 22nd: 1991 to May 23rd: 1994 when Primlake took over my services without any suggestion of payment because our agreement was at the point of Planning Permission …” (4) In a set of notes to Mr Rowe, dated May 22, 2001, Mr Matthews says: “May I remind you that our agreement with Rees was that we would be able to take our fees etc. at the point of the granting of Planning Permission. That was on March 17th: 2000, over a year ago, perhaps we should ask Mr Rees what he intends to do about this agreement.”

[192]From June 2001 he said that the fee was 2% payable by Primlake and 2% direct by Mr Rees. On June 20, 2001 (and the same occurs in handwritten notes at this period) Mr Matthews wrote to Mr Rowe with comments on Mr Robinson’s draft letter. Under the heading “Fees” to say:

“D. Rees has already offered DAM 4%. 2% to be paid by Primlake and 2% to be paid direct by Rees. DAM has made no comment to Rees but has already informed R.R. of this offer. I do not think this information should be passed to Robinson at this moment.”

[193]Other documents to the same effect are:(1) On July 12, 2001 Mr Matthews wrote a note in which he referred to Mr Rees’ “offer to DAM to allow 2% to be paid by Primlake and 2% direct from him and I was not to inform Primlake.”

(2) In a draft letter to Mr Rowe dated September 10, 2001 Mr Matthews said:

“Let us not forget, Rees has already offered DAM 4% (2% on the table and 2% round the back).”

[194]The ideas of(a) a 5% fee; or

(b) a fee based on gross value (in the sense of including infrastructure costs); and

[195]The 5% figure for fees first surfaced in July 2001. On July 12, 2001 Mr Matthews wrote a note in which he said Mr Rees “forgets in 1997 he offered 5% and 5% of £32.00.Mil: is £1.60.Mil:.”

[196]In his fax to Mr Rowe of July 31, 2001 Mr Matthews said that the proposed letter which Mr Vaughan wanted had to contain the approval to pay all the sums and fees which he has promised or undertaken which would include for Matthews Associates “Gross valuation 12.5% + 2% + costs.”

[197]Mr Robinson’s draft of August 7, 2001 used a text suggested by Mr Rowe. It provided that Primlake would account to Neyland after the deduction (inter alia) of the fees of Matthews Associates calculated at 2% of the gross valuation of the sum due to Primlake pursuant to the Development Agreement (i.e. the Kyle Stewart contract) and “The fees of Primlake Limited’s Architects calculated at 12.5% of the gross valuation of the sum due to Primlake under the Development Agreement plus any disbursements and fees incurred by Primlake.” In the draft letter to Mr Rowe dated September 10, 2001 Mr Matthews said “Architects always work on Gross Value …”

[198]In letters to Wedlake Bell of March 18 and March 21, 2003 Mr Matthews again said that the agreed fee was 5% of the gross valuation, and the second letter said that it had been agreed with Mr Rees prior to the involvement of Neyland.

[199]On March 25, 2003 Mr Matthews wrote to Mr Rowe suggesting that Mr Rowe should write to Wedlake Bell to say (which was plainly untrue) that Mr Matthews was at no time concerned with any fee negotiations with Matthews Associates, and that the arrangements had already been agreed with Mr Rees before the Dummer Trust, Neyland Properties and Primlake had been established. He also suggested that Mr Rowe should mention that Mr Matthews had mentioned his fee agreement with Mr Rees, and that Mr Rees informed Mr Rowe that he had reached an agreement with Matthews Associates on the matter of fees, and that fees had been drawn down in part payment in the same way as other fees and costs had been paid including payments to Mr Rees. Mr Rowe then wrote to Wedlake Bell in those terms on March 26, 2003.

[200]Mr Matthews himself wrote to Wedlake Bell on March 26, 2003 to say that the acceptance of the fee arrangement originally made with Mr Rees was prior to the formation of the various companies and trusts. 5% was the offer made by Mr Rees, but was not confirmed in writing.

[201]In my judgment, Mr Matthews’ concept of a fee based on a meaning of gross value with a serviced site (i.e. with the benefit of infrastructure), but without deduction for the costs of constructing that infrastructure, makes no commercial sense, and I accept the submission for Primlake that it is absurd. In my judgment it was an invention in 2001in an effort to justify the fact that notwithstanding only £3 million had been received, he had taken out more than £900,000from the receipts, of which he now claims more than £600,000 was on account of his fees.

[202]In cross-examination Mr Matthews accepted that, not only had he never explained to Mr Rees what he meant by “gross value,” he had never even used the word “gross” to Mr Rees. Mr Matthews’ evidence was:

“I did not think I needed to explain to him. I thought he understood … [T]he word ‘gross’ never came into it. Neither did the word ‘net’.”

[203]But in one of his handwritten memoranda in the course of the 2001 negotiations says that any schedule had to include Primlake costs (including “Architects 12.5 + 2%”) as “at least 25% of gross value.” This would have meant that on a gross value of £32 million the fees would have been £8 million. When it was put to him that this could not mean that the overall costs would be £8 million, he agreed, and when I suggested to him that in this document by “gross value” he must have meant net proceeds, his answer at first was “ … I can see what the problem is here ..” and he later recovered himself to suggest that it was just an internal note which never went to Mr Robinson. This document demonstrates that the concept of gross value to include infrastructure costs was an opportunistic invention by Mr Matthews.

[204]I accept Primlake’s submission that the whole course of the correspondence in 2001 shows that he was making up his entitlement to fees as he went along. I consider that the suggestion that Mr Rees agreed to a 2% fee of gross value on acceptance into the Local Plan is not only commercially absurd, but I also consider that that suggestion, as well as the case that there are three separate agreements, are pure inventions devised for the purpose of defending these proceedings.

[205]It is sufficient for the purposes of the claim that there was no agreement between Primlake and Mr Matthews for the payment of fees, but there is also a great deal of material to support Primlake’s contentions that the payments were not made even purportedly in payment of fees, that Mr Matthews and Mr Rowe were simply treating Primlake and the money coming into it as their own, and that there was no fee agreement.

[206]First, even though he had received what on his present case is between £500,000 and £600,000 on account of fees, Mr Matthews claimed in several documents between 1999 and 2002 that he had not been paid fees:(1) On October 14, 1999 Mr Matthews wrote to Mr White to say “Contrary to your opinion I have yet to receive a payment towards my fees and as Architects charge, on this type of complicated project £120.00. per: hr: you will see the input my Practice has injected.”

(2) On April 11, 2000 Mr Matthews wrote to Mr Rees’ bankers, Clydesdale Bank, to say that “our own costs … have been outstanding for over seven years based on the promise ‘you will be paid when we get Planning Permission.’ ”

(3) On March 2, 2001 Mr Matthews wrote to Mr Rees to say: “… I have acted, at the beginning since Nov: 22nd: 1991 to May 23rd: 1994 when Primlake took over my services without any suggestion of payment because our agreement was at the point of Planning Permission, I really fail to understand and I now also realise how stupid I have been to finance this project from the beginning without emolument.”

(4) In a set of notes to Mr Rowe, dated May 22, 2001, Mr Matthews says: “May I remind you that our agreement with Rees was that we would be able to take our fees etc. at the point of the granting of Planning Permission. That was on March 17th: 2000, over a year ago, perhaps we should ask Mr Rees what he intends to do about this agreement.”

(5) On December 31, 2001 Mr Matthews wrote to Mr White to say: “At the moment I have not received any fee from Mr Rees although I have expended considerable sums and time acting for him … It is very fortunate our Practice has many other projects whose fee income has supported the Rees Projects over the past ten years and it is a pity Mr Rees is unable to appreciate the goodwill we have extended, even to our direct financial support.”

(6) In a note of January 7, 2002 Mr Matthews said (in a document not explored in evidence) that he had carried out many negotiations direct for Mr Rees and had not received any payment towards the fees or costs for those services.

(7) After requests from Mr Rees’ solicitors, Mr Robinson wrote on June 18, 2002 to Mr Matthews to say that he had been again asked by Mr Rees’ solicitors if Mr Matthews would confirm that he had received no payment from Primlake in relation to the work that he had undertaken but “I have left it to you as to whether or not you wish to confirm this to them.”

(8) On June 20, 2002 Mr Matthews wrote direct to Mr Rees’ solicitors, Gateley Wareing, to say that £3 million had been received under the Primlake/Kyle Stewart contract. Mr Rees had received £2.5 million although Mr Matthews’ records showed £2.6 million. From the remaining balance payments had been made direct from Primlake or through Mr Matthews to solicitors, company formation fees, agent fees etc. But he said “I cannot see any Architects fees, and this was for work carried out up to 1994, some four years of work including many many meetings …”.

[207]Mr Matthews had no adequate explanation for these apparent lies. In the witness box Mr Matthews emphasised that the letter of December 31, 2001 was literally true because he had not received fees from Mr Rees, but he had no coherent explanation for his statement to Mr Rees on March 2, 2001 that he had acted “from the beginning without emolument.” In answer to a question why it was important to emphasise that he had not had any payment from Mr Rees, he said:

“Because in the process of forming this tax avoidance scheme for Mr Rees, I was told by Mr Rowe not to leave a paper trail and I was to limit my correspondence and my contact with Mr Rees because the thought that an established connection between Mr Rees, Primlake and Neyland would cause a problem, I think, within the tax avoidance scheme that Mr Rowe had set up for Mr Rees.”

That was a lie.

[208]When asked about the reason for saying to Gateley Wareing on June 20, 2002 that he could not “see any Architects fees”, Mr Matthews’ answer was that he was being “rather humorous” and “frivolous.” I accept Primlake’s contention that the letter was intended to deceive, and his answer in the witness box was a deliberate falsehood.

[209]Second, there are strong indications in the documents that Mr Matthews did not intend to take fees at all from Primlake, but to use his control or ownership of Primlake to make a direct profit, which he hid from Mr Rees. The failure to inform Mr Rees of the true amounts of the Kyle Stewart deposit in 1994, and the further payment in 1997 are strong indications of the absence of any fee agreement.

[210]From the start Mr Matthews planned that Primlake would make a profit when it sold on the land to a developer, and Mr Matthews and Mr Rowe were anxious that Mr Rees and his bankers, Barclays Bank Rugby, did not learn about the Kyle Stewart contract:(1) When he and Mr Rowe had difficulty in raising the £450,000 for Neyland to pay Mrs Rees the balance of the purchase price in June 1992, on July 1, 1992 Mr Matthews wrote to Mr Foreshew: “Rees will sell out of our hands if I do not give him a time table and I put this problem in Richards camp.”

(2) Mr Matthews’ sketch outline of the sale from Neyland to Primlake and from Primlake to Severn Trent shows a substantial profit to be made by Primlake, and on October 8, 1992 Mr Foreshew wrote to Barclays Bank Sutton to say that the contract (i.e. Neyland/Primlake) would have a deduction for each acre of £85,000 “thus showing a profit of £30,000 per acre for 98.7 acres and anticipate a profit of £2.96 million.”

(3) On June 23, 1993 Mr Rowe wrote to Mr Archer of Barclays Bank Sutton with copies to Mr Matthews and Mr Foreshew to say that “the nature of the agreement with Kyle Stewart is such that all aspects of the agreement must remain confidential to Primlake and no information should be released to Neyland Properties Limited, David Rees or his Bankers or Solicitors.”

(4) On June 25, 1993 Mr Matthews wrote to Mr Rowe to say: “With the established Barclays connection and the recent letter received by Mr Rees from Smith of Rugby it is obvious our Primlake dealings cannot be assured as confidential …”

(5) On January 20, 1994 Mr Matthews wrote to Mr Foreshew to say: “… it is most important the terms of our deal with Kyle Stewart Ltd are not given to Barclays Bank Sutton in any form, not even in confidence” he went on: “The terms we have are confidential to Primlake and only an assurance need be given to the Bank that there are enough funds from the transaction to clear the Primlake account. I have evidence that information has been passed to a third party on the Morrison transaction and this is now known by Barclays Rugbyand it has been confirmed this information was passed by Sutton. It is of the utmost importance to us all that this transaction is kept completely confidential to Primlake and it seems the only way we can be sure of this is to keep the detail to ourselves.” (7) On January 21, 1994 Mr Foreshew drafted part of a letter for Mr Rowe to send to Mr Archer at Barclays Bank Sutton: “I appreciate that the Bank is a single legal entity and that therefor [sic] knowledge to one branch is knowledge to another. However, it is important to this company that the terms of the proposed transaction are not disclosed to the previous owner of the land which appears to have happened via your … Banks Rugby branch”.

[211]Mr Matthews’ evidence on Mr Foreshew’s statement to Barclays Bank Sutton in his letter of October 8, 1992that Primlake would make a £2.96 million profit was that the profit was “purely to include something for Primlake to pay their professional fees … it was there simply to pay the fees and any surplus would go immediately to Neyland”. He had no answer to the question why the £2.96 million was needed if there was an immediate sale to Severn Trent.

[212]The explanation advanced by Mr Matthews for the correspondence about the need for secrecy about the Kyle Stewart contract was this:

“Because, sir, when I was negotiating with Kyle Stewart, Kyle Stewart insisted that they were the only ones that I negotiated with, and if they had learnt that I was negotiating with others, which I was at the time, I think it was their intention that they would pull out. And the reason that I said that that should not be known was because Kyle Stewart also banked with Barclays Bank, as Mr Rees did. And I felt that if word got around that I was negotiating with others, which I should not have been, then Kyle Stewart would have pulled out and we would have lost a very, very good company with a possible purchase possibility.”

[213]Mr Rowe’s evidence as to the reason why he requested Barclays Bank not to pass on information was that he was concerned that if the information were “floating about the UK” it might get into the “wrong hands,” by which he meant the hands of the Revenue.

[214]Both of these explanations were false. It could not possibly prejudice Mr Matthews’ negotiations with Kyle Stewart if Mr Rees came to know the terms of the deal with Kyle Stewart. Mr Rowe’s evidence is equally incredible. The real reason was to keep Primlake’s profit secret from Mr Rees.

[215]I am satisfied that Mr Rees was not told by Mr Matthews that £1.6 million would be paid as a result of the Deed of Variation in 1997, and was falsely told that the figure was £1 million:(1) All of the correspondence between Mr Matthews (and Mr Lee) and Kyle Stewart (and its solicitors) from July 1997 until conclusion of the Deed of Variation refers to a further deposit of between £1.5 million and £2 million. But after Kyle Stewart had offered £1.5 million (as reported in Mr Lee’s letter of September 24, 1997), on September 29, 1997 Mr Matthews wrote to Mr Rees to say that Kyle Stewart had agreed to increase the deposit by £1 million.

(2) After Mr Lee had written to Kyle Stewart on October 2, 1997 confirming Kyle Stewart’s agreement of the additional £2 million deposit (£1.6 million immediately following the resolution to grant planning permission, and £400,000 on the first land sale) on October 6, 1997 Mr Matthews again wrote to Mr Rees to say that he had agreed with Kyle Stewart that £1 million would be paid just after the planning resolution and £500,000 at the point of first sale.

(3) On December 12, 1997 Mr Matthews wrote to Mr Foreshew confirming that he should carry out Mr Rowe’s instructions to pay a total of £1 million to Mr Rees’ accounts, and £480,000 to two accounts held by Mr and Mrs Matthews. He said he would inform Mr Rees by fax that the instructions had been given and would send a copy of the letter to Mr Rowe. There is no such letter to Mr Rees, and I believe Mr Rees’ evidence that he was never told, and disbelieve Mr Matthews’ evidence to the contrary.

[216]Mr Matthews’ account of what he told Mr Rees was preposterous. First, he said that his letter to Mr Rees of September 29, 1997 (in which he referred to Kyle Stewart’s offer to increase the deposit by £1 million) was simply a report of “the process of the negotiations that were taking place". Second, he was asked about the contradiction between Mr Lee’s letter to Mr Petrie of October 2, 1997 (confirming Kyle Stewart’s agreement to an immediate additional £1.6 million) and his letter to Mr Rees of October 6, 1997 (reporting Kyle Stewart’s agreement to £1 million). He said:

“…Yes, fair enough. We had not settled the deal with Kyle Stewart by then, and in any case it was settled when Mr Rees was given a copy of the document”

. It was put to him that he had told Mr Rees that he would get £1 million but that the agreement in principle was £1.6 million plus £400,000, to which he responded: “I accept that, but you must also remember that I was instructed to keep my distance from Mr Rees”.

[217]I am satisfied that he lied when he said that he had told Mr Rees it would be £1.6 million and not £1 million. “I most certainly did. I do not know quite what we spoke about every day, two or three times a day on the telephone, if I did not. But he was most certainly kept informed”.

[218]Mr Matthews had positively relied on the fact that Mr Rees had a copy of the amendments to the Kyle Stewart contract as the reason why he knew the amount received in December 1997 was £1.6 million. But the copy of the composite of the 1994 Agreement and the Deed of Variation produced by Mr Wodzianski had been doctored to hide the fact the 1997 payment was £1.6 million rather than the £1 million which Mr Rees was told (and also that the 1994 payment was £1 million, rather than the £600,000 which Mr Rees was probably told).

[219]Mr Foreshew was asked if he accepted that he had given the composite document to Mr Matthews. He accepted that “It would have come from my office but I do not know to whom it was sent. The logical thing would be that it went to Mr Matthews, but it may, you know – I have no recollection of sending an amended document with the number of 1,000,000 owed instead of 1.6 million to Mr Matthews.”. He was then asked if he understood that the changes on the document accorded with the Reeses understanding of the 1997 Deed of Variation. He replied:

“I do not know that -- I mean, I cannot comment on whether it was sent to Mr Rees or was not sent to Mr Rees”

. It was then put to him that the purpose of the changes was that the Reeses would not realise the true position. He responded: “I am not able to tell you, no. If you are saying, did I collude in an effort to mislead Mr and Mrs Rees, the answer is no”.

[220]Mr Foreshew accepted that some at least of the manuscript changes were made by him, and he was not able to provide any explanation as to why a document should have been put into circulation showing the additional payment reduced to £1 million apparently in his handwriting. I accept the submission for Primlake that the only explanation is that he made the alteration at the request of Mr Matthews. I am satisfied that Mr Matthews gave Mr Rees the doctored document.

[221]Consequently I am satisfied that Mr Matthews was untruthful to Mr Rees about the amount of the payment by Kyle Stewart, and that in particular the statement in his second witness statement that “Mr Rees was at all times kept fully informed of … the payments made to his and Primlake’s advisers” was a lie.

[222]Third, Mr Matthews and Mr Rowe hid from Mr Rees the payments made from Primlake to Mr Matthews. If the payments were in accordance with the agreement with Mr Rees, there would have been no need to hide them. In his fax to Mr Rowe of July 31, 2001 Mr Matthews said that when Mr Rees saw the list of payments “there will be trouble.”

[223]Mr Matthews accepted that he had not told Mr Rees that he had taken the money from Primlake. He said both in his fourth witness statement and in the witness box that he assumed Mr Rowe would have done. His reason for not telling Mr Rees was: “Mr Rowe had told me to keep my distance from Mr Rees. I understood that he or Mr Foreshew would keep Mr Rees updated as to the level of fees paid to me. As far as I was concerned … Mr Rees knew through Mr Rowe of those payments and agreed with them being made” (fourth witness statement, para 74). This is inconsistent with his letter of instruction to Mr Foreshew of December 12, 1997, in which he said he would fax Mr Rees with details of the payments, which he never did. Mr Rowe said Mr Matthews dealt directly with Mr Rees (witness statement, para 36), which he confirmed in the witness box. He said that Mr Rees had been told about the payment of the fees, but he could not recall whether it was himself or Mr Matthews who told Mr Rees.

[224]Fourth, another important factor which underlines the conclusion that Mr Matthews was not taking the payments as fees is that there are several documents (none of them addressed or sent to Mr Rees) in which Mr Matthews treats his entitlement to Primlake funds as some form of equity or investment interest:(1) On August 8, 1997 Mr Matthews wrote to Mr Foreshew and Mr Rowe in terms of their investment: “The position of Rees related to Canada is only part of the cause of the urgency. We have all invested enough time and money in this venture and the continual delay with the Planning Resolution has not helped with our expected returns within a reasonable time, but we now have the alternatives to satisfy this problem.”

(2) So also on September 2, 1997 Mr Matthews wrote to Allied Dunbar: “You have realised the delay with the Planning position has caused a crisis for the original farmer and also for myself with the delay in the return of the cash investment I have injected. … Given the Coton project has received £350.000 from me and I have also loaned the farmer £120.000 + interest (about £142.000.) all of which will be returned from the sum we hope to negotiating [sic] with Mr Woodward [TSB Bank]”

(3) On October 22, 1997 Mr Matthews reported to Mr Foreshew on the outcome of the negotiations with Kyle Stewart. He said he was not all that happy with the deal. The infrastructure account would simply be a piece of paper under the control of Kyle Stewart and would in effect mean they were financing the infrastructure before it was needed and they would lose the security over the land value, and “in other words Kyle will have the right to use our land without paying”.

(4) On October 24, 1997 Mr Matthews wrote to Kyle Stewart suggesting that Kyle Stewart should agree to fixed payments totalling £13 million over 3½ years. His handwritten draft of that letter has above it a table with a column headed “DAM” forecasting that Mr Matthews would receive £3 million of the £13 million.

[225]Fifth, this conclusion is supported by many documents in which Mr Matthews and Mr Rowe assert a beneficial interest in Primlake. The beneficial ownership of Primlake is not in issue on the pleadings. As I have said, I disallowed an amendment to the particulars of claim raising an issue on beneficial ownership as an additional particular of dishonesty. It is not necessary to decide whether Primlake was in fact owned by Mr Matthews (and Mr Rowe) but there are many documents showing that they considered that they were, and I am entitled, in my judgment, to take them into account, in deciding whether Mr Rowe was making, and Mr Matthews was taking, the payments pursuant to a fee agreement.

[226]As I have said, it is clear that at all material times (except for a period between February and November 2000) the shares in Primlake were held expressly as nominee for Mr Matthews, or from November 2000 for pension schemes in which Mr Matthews and Mr Rowe respectively had interests.

[227]Mr Matthews’ fourth witness statement said that until the litigation began he had no idea that he held any shares in Primlake. He had never heard of either the Ramble or the Medoc Pension Schemes in which he understood those shares were held at the time of the liquidation in 2002. It came as a complete surprise to him to learn that any shares were held by him. Mr Matthews said in his fifth witness statement that he was in no doubt that under his agreement with Primlake and Mr Rees he was entitled only to his fees on the agreed basis and not to any equity in Primlake. At no time did he believe he had a beneficial interest in Primlake.

[228]Mr Rowe says that declarations of trust were issued by Channel Trust, Fiducia and Mercator in favour of Mr Matthews, but as means only of evidencing that there was no beneficial relationship between Neyland and Primlake. Mr Matthews had no connection with Neyland, and it was a very common practice of Mr Rowe to allocate shares in this way simply to distinguish companies which otherwise might be considered connected. There was no other reason for those declarations being executed, and Mr Matthews did not, and never had, a beneficial interest in Primlake.

[229]Until mid-2000 Channel Trust treated Mr Matthews as the sole beneficial owner of Primlake:(1) What appears to be an internal Mercator note of November 1, 1999 records that in answer to a query from Mr Rowe as to the person for whom the shares in Primlake were held, he was told that they were held in favour of Mr Matthews.

(2) An internal Mercator note of January 26, 2000 in connection with proceedings by Kyle Stewart to remove the caution served by Primlake says that the beneficial owner of Primlake is “Barry Matthews.”

(3) A note by Mr Matthews of May 19, 2000 states that Primlake was an offshore company under the control of Mr Rowe and Mr Matthews and had recently been reformed, 25% being under the control of Mr Rowe and 75% being under the control of Mr Matthews.

(4) On May 26, 2000 Mr Matthews wrote to Mr Turian of Richard Gray & Co in Guernsey to say that, according to Mr Rowe, Primlake was split 25-75.

(5) On June 5, 2000 Mr Foreshew wrote to Mr Matthews to say:

“The structure as mentioned in James Turian’s letter is as explained to me by Richard when he dropped in unexpectedly just before I went away on holiday and other than knowing that the beneficial interest is split 75:25, he did not advise me of who the beneficial owners were.” (6) On June 6, 2000 Mr Rowe wrote to Mr Garland of Tiber Trust: “As previously said and unexpectedly this project has dragged on for some ten years, but now that a sale is being negotiated, Derrick feels that his position is unsecured and vulnerable. Derrick is at still at this time continuing in his role as negotiator for the company and has not yet submitted any invoices for fees as there was not much point because he knows that the company has very little cash resources. Therefore in order to protect him I have agreed that Seventy-five percent of the shares of Primlake should be held to his order until such time as his fees are settled in full. … In accordance with the above and until notice is received as set out here below, I ask that the Trustees hold 75% (Seventy-five percent) of the shares of Primlake Limited to the order of Derrick Matthews or in the event of his demise to the order of his wife Ann Vivien Matthews. … This security is to remain in place until Derrick has received full satisfaction for all of his claims against Primlake Limited, upon such satisfaction the release of the security will be confirmed by him in writing to you.” (7) On May 4, 2001 Mr Robinson wrote to Mr Rowe to say that he had told Mr Vaughan that Mr Rowe and Mr Matthews had told him on several occasions that Mr Rowe and Mr Matthews were the sole beneficial owners of the share capital in Primlake and that therefore Mr Robinson’s view had been that he could act on Mr Rowe’s instructions. Mr Vaughan and Mr Robinson agreed, however, that neither of them had any knowledge of the terms under which Mr Rees was quite clearly acknowledged by Primlake to have an entitlement to some part of whatever overage Primlake became entitled to under the terms of the development agreement. He said that a slightly sensitive issue was that his firm had accepted instructions on the understanding that Mr Rowe and Mr Matthews were the sole beneficial owners of the shares in Primlake: “Having been assured by Derek [sic] Matthews that yourself and he hold the entirety of the shareholding in Primlake Limited he informed me by means of a fax yesterday that in fact the shares are all held by a company called Fifo Limited. This does lead me to the obvious question of who owns the shareholding in Fifo Limited. Whoever does, the information does seem to contradict the information which I was given originally as to the ownership of the shares in Primlake and for the sake of good order, I would like some reassurance on the point.” (8) On July 18, 2001 Mr Robinson’s attendance note of a conversation with Mr Rowe records that Mr Rowe said that Mr Matthews would take the fees out of Primlake by way of dividend and director’s fees. (9) In a letter to Mr Rowe of July 25, 2001 Mr Matthews said that all he was “now interested in is the returns for Primlake” and Mr Bodman (Mercator) and the Rees family had no say in what Primlake did to this end. (10) Mr Robinson’s attendance note of a meeting August 28, 2001 between Mr Gill/Mr Bodman (Mercator) and Mr Vaughan and Mr Robinson says that Mr Vaughan said that from a conversation with Mr and Mrs Rees, it appeared the Rees family did not know that Mr Matthews was the principal shareholder of Primlake. Mr Gill said that he thought it “did not look good” that Mr Matthews was a beneficiary of Primlake without the Rees family knowing. Mr Robinson said that in his opinion he did not see what difference it made now whether or not the Rees family knew Mr Matthews was a principal beneficiary of the arrangements although his impression was that it was known to Mr Rees. (11) On August 30, 2001 Mr Matthews wrote to Mr Rowe to say that he was still very worried about the situation developing with Mr Vaughan. He knew they could secure their funds from the proceeds of the “sale” within the Primlake “setup”

. He said he was supposed to hold 75% of Primlake but this did not seem to affect the actions of Mr Robinson. (12) Mr Robinson’s attendance note dated September 4, 2001 of a conversation with Mr Rowe on September 3, 2001 recorded that Mr Rowe was concerned to see that the beneficial interest of Mr Matthews in Primlake had been disclosed to the Rees family. Mr Robinson said that it had not and that what Mr Robinson had been told at the meeting was that the Rees family had no knowledge of Mr Matthews’ interest in the property. Mr Rowe said that he was pleased to hear that and he would certainly not want anyone to disclose that interest at this stage. In fact Mr Rowe said that if anyone cared to look at the appropriate register they would find that the principal shareholder of the shares in Primlake was a pension fund rather than any named individual. Mr Rowe would send a copy of Mr Robinson’s note, appropriately annotated, to indicate that no disclosure of the beneficial interest in Primlake had been made to Mr Matthews and that Mr Robinson would receive instructions on the points which he had identified in the attendance note as requiring instruction in due course.

[230]On January 13, 2003 Mr Cooper, one of the joint liquidators, asked Mr Rowe:

“On whose authority were such large payments made to Mr Matthews and as to why further payments were made when supporting documentation for previous payments had not been received.”

On January 22, 2003 Mr Rowe replied:

“Mr. Matthews is the eventual beneficiary of 75% of Primlake Ltd. He had authority to instruct the administrators of Primlake.”

Mr Rowe’s explanation in the witness box of the statement that “Mr Matthews is the eventual beneficiary ...” was gibberish:

“Well, that was the -- that was the recorded position. I do not talk about, you know, the trust situation here at all. Or the fact that he was acting as trustee for. I have to divide it, and it is very difficult sometimes to determine how much one can say and how much one cannot say, unfortunately.”

[231]Mr Matthews sought to justify his holding of the shares on the ground that it was security for his fees. Since Mr Rowe was at all times a director of Primlake and a signatory on its bank accounts, there was no need for Mr Matthews and Mr Rowe to own the shares in Primlake as “security” for fees. It is clear from the documents that Mr Matthews treated himself as the owner, and this is another powerful reason for the conclusion that he was not taking agreed fees from Primlake.

[232]There is no basis for an implied agreement that Primlake would pay fees to Mr Matthews. Nor is there any evidential basis for an “adoption” by Primlake of an agreement between Mr Rees and Mr Matthews for a fee of 2% of proceeds. Mr Rowe’s evidence was that in March 2001 he “was not fully conversant” with the fee agreement, and that prior to that date he had not discussed fees with Mr Rees at all. The substance of Mr Rowe’s evidence was that he deliberately avoided finding out what the true position was. I accept Primlake’s submission that Mr Rowe did not concern himself with the fee arrangements, chose not to find out what they were, and did not discuss them with Mr Rees. VII Payments of March 1, 2001 and March 22, 2001

[233]Mr Turian’s schedule identifies the payments of £25,000 (in fact £25,100) to Bolton Consulting and £75,000 (in fact £75,200) to Bridging Finance Ltd as payments to Mr Matthews. When Mr Turian’s schedule was sent to Mr Matthews at the end of 2002, in a letter to Mr Rowe of December 2, 2002 Mr Matthews queried a number of the payments said to have been made to him, but he did not query these two payments. There was no denial until shortly before trial (December 16, 2005) and Mr Matthews said in his Part 18 Response that he had received all the payments. Mr Matthews now denies receipt of the payments.

[234]In his second witness statement, Mr Rowe stated that Bolton Consulting was a company controlled by him and that the payment of £25,000 to Bolton Consulting was almost certainly a payment in respect of his fees, and that he could not recall Bridging Finance Ltd. But in the witness box he said that the payment of £25,000 was in fact a payment to Mr Matthews.

[235]Primlake says thatthe following additional factors support Primlake’s case that Mr Matthews received the payments.First, on September 17, 2002 Mr Turian sent details to Mr Rowe of the use of the £400,000 received in August 2000, from the proceeds of which the payments were made, including against the words “Consultants/Legal/Architects” the figure of £367,617. 221. Second, there has never been any suggestion from anyone that Bridging Finance Ltd did anything on the project. Third, there has been no suggestion that the monies could have been used to discharge legitimate expenses of Primlake.

[236]Mr Matthews’ position is that Primlake has no evidence to make out its claim that the payment of £25,000 to Bolton Consulting on March 1, 2001 and the payment of £75,000 to Bridging Finance Limited on March 22, 2001 were payments that ultimately were received by Mr Matthews. Mr Matthews denies that they were. Mr Turian has not given evidence on behalf of Primlake. It is possible that the sum was paid to Bolton Consulting but not onwards to Mr Rowe by way of payment of his fees. But that has no evidential value in determining whether the sums were received by Mr Matthews. Indeed, insofar as Mr Rowe did receive his fees through Bolton Consulting and Mr Matthews direct, it is more likely than not that the sum of £25,000 was received by Mr Rowe. There is no evidence before the court to support the accuracy of the draft accounts showing the payment of £367,617 to “Consultants/Legal/Architects.”

[237]On the available and very limited material I consider on the balance of probabilities that the £25,100 paid to Bolton Consulting was indeed a payment to Mr Rowe, as he first said. I have also come to the conclusion that Primlake has not shown that the payment to Bridging Finance Ltd was a payment to Mr Matthews. VIII Loans and disbursements A Disbursements

[238]I set out in a schedule to this judgment the amounts which Mr Matthews claims he disbursed on behalf of Primlake. As I have noted in section IVabove, there is no longer any claim in respect of the £35,000 payment made on July 8, 1994.

[239]Primlake submits that for Mr Matthews to be able to retain any part of the monies received as reimbursement of expenses or loans made to Mr Rees then, in view of the separate personality of companies consequential on the off-shore structure that was being used, he must show:(a) that there was a loan or an expense to be discharged;

(b) that he appropriated the payment to discharge that expense or loan;

(c) that, with respect to loans to Mr Rees or Neyland, Primlake acted as agent for Mr Rees (or Neyland) with the knowledge of, or subsequent ratification by, Mr Rees (or Neyland). If the payment was not actually appropriated to such expenses or loan before liquidation, Mr Matthews cannot do so now. He cannot now set off any implied right to reimbursement against the sums that were unlawfully taken. The third requirement arises out of the fact that any debt from Mr Rees (or Neyland) would not be discharged unless Primlake paid as agent for Mr Rees (or Neyland): Chitty on Contracts, 29th ed., Vol 1, para 21-041.

[240]Primlake accepts that Mr Matthews made most of the payments, other than the two amounts of £2,000 to Mr Rees and his son. There is a difference on the net amount which Mr Matthews says is still outstanding in relation to the payments for a tractor for Mr Rees’ farm. On Mr Matthews’ figures it is £8,493.36, and on Mr Rees’ figures it would be £5,373.36.

[241]Primlake also accepts that some of the payments could have been legitimate Primlake expenses: the payments to counsel of £323.12 on January 27, 2000; £275 to the RICS on January 4, 2001; and Mr Corns’ fee of £18,572.34. But it submits that Mr Matthews has not satisfied the second requirement in respect of any of the payments. This is self-evident with respect to payments made after March 2001, by which time he had received all of the payments in respect of which there are claims. There is no evidence of his appropriating part of the monies previously received to the amounts subsequently paid on Primlake’s behalf. Indeed, far from viewing Primlake as having reimbursed him for payment of Mr Corns’ fee, on November 19, 2002 Mr Matthews was claiming to be reimbursed for this payment “on behalf of Neyland.”

[242]My conclusion on these payments is that Mr Matthews can only rely on payments made by him before March 22, 2001 to justify the payments to him from Primlake. The only payments in that period which would have been for the benefit of Primlake are the two small payments to counsel and the RICS, but Mr Matthews did not appropriate the payments to these sums. Mr Matthews never presented any records to Primlake or made any request for payment on the basis that he was reimbursing himself. Mr Matthews told the liquidators on January 17, 2003:

“The fullest details [of fees and expenses] would have been given to Channel Trust/ Mercator at the time of payment. We do not think we would have been paid had we not provided these details.”

No such details have ever been found, and I am satisfied on the evidence that Mr Rowe never asked for details and Mr Matthews never gave them. If it were necessary to decide, I would have preferred Mr Selwyn Rees’ evidence on the question whether (as he denied and Mr Matthews asserted) Mr Matthews made a loan to him of £2,000. B Loan of £80,000 by Mr Matthews to Neyland Primlake’s case

[243]Primlake says that there is no credible evidence of a loan to Neyland of £80,000. There is no evidence that Primlake paid as agent of Neyland or that Neyland knew or approved. Mr Matthews says it borrowed £50,000 to pay a deposit to Mrs Rees, but there is no evidence that it actually borrowed £80,000. Moreover, any repayment of a loan with interest is most unlikely to be the round sum of £84,000. The only thing that £84,000 bears any relation to is the amount that Mr Matthews needed to clear the borrowing taken out to buy (and secured on) his Pebble Lodge property. Furthermore, even if Neyland had borrowed £80,000 and there had arisen an implied right on the part of Mr Matthews to be reimbursed £80,000 by Neyland, there is no evidence that Primlake purported to pay him the £84,000 as agent of Neyland, or that Neyland approved of such a payment on its behalf or even knew of it.

[244]When asked about the £84,000 payment, Mr Rees accepted that Mr Matthews was entitled to be repaid from Primlake. That is really no more than agreement that if Mr Matthews had repaid a loan, he was entitled to be reimbursed. It was not suggested to Mr Rees – nor could it have been – that he agreed to it at the time or knew of it at the time. What Mr Rees may think of the matter now (when he did not know of it at the time) is irrelevant to the question whether the payment was properly made at the time it was made. Mr Matthews’ case

[245]Mr Matthews’ case is that in April 1992 RBS Guernsey made a short-term facility (initially for 3 months) to Neyland of £80,000 secured on Mr Matthews’ cash deposit. £50,000 was drawn down on April 9, 1992 and used to pay the Neyland deposit. The balance of £30,000 was used for setting up the offshore structures or was used by Neyland and/or Primlake to cover the costs of the contract and conveyances. In a letter dated October 30, 1992, Mr Foreshew wrote to Firth & Co on behalf of Primlake:

“As regards payment, my client has already made pre-payments totalling some £80,000 but I believe our clients will be discussing the amounts to pass on completion as soon as this has been set up.”

The Neyland/Primlake contract dated November 13, 1992 subsequently recorded the fact of payment of £80,000 having been paid by Primlake to Neyland prior to the date of the agreement.

[246]On about March 18, 1993 RBS took repayment by using money belonging to Mr and Mrs Matthews in the CT Management and Guarantors Ltd fund. As a result Neyland was indebted to Mr and Mrs Matthews, and the £84,000 was Primlake’s payment to Mr and Mrs Matthews for their discharge of the Neyland loan. It was authorised by Mr Rowe, who arranged for payment.

[247]Mr Matthews’ evidence is that he presumed the balance of the £80,000 (i.e. £30,000) was “utilised for setting up the offshore structures or was used by Neyland and/or Primlake to cover the costs of the contract and conveyances”. Mr Rowe in his third witness statement stated that “the remaining £30,000 may have been retained by Firth & Co. Neyland had no bank account and it may have been used to meet the set up costs of the corporate structure for legal fees involved in the Primlake Neyland and Neyland Rees transfer that was effected in November 1992”.

[248]In his fifth witness statement Mr Matthews says that he cannot recall why the monies were not returned to him until July 1994 nor why he received £84,000. He presumed that the additional £4,000 was nominal interest to cover the period of the loan between April 1992 and July 1994 or may well have been interest which was charged by RBS Guernsey when it repaid the loan from the sum secured out of the sums held in the CT Management & Guarantors’ fund. He has no recollection of Servepart Ltd nor Ullman Shore Ltd nor did he understand or know why Mr Rowe made the repayment to him in such a way. He insists that the payment was the repayment of sums he had lent to Neyland and which was properly reimbursed in 1994 out of the Primlake sums.

[249]Mr Rowe’s evidence was that he intended to repay Mr Matthews the £80,000 loan plus interest from the £1 million that came into Primlake in May 1994. He accepted that it was returned to Mr Matthews by a circuitous route through Tussauds to Servepart and Ullman Shore. He thought Servepart Ltd was a company which held assets in Poland but he was not certain. He had no clear recollection of the purpose for which he transferred £80,000 from Primlake to Servepart through Tussauds. The sum of £84,000 was entirely properly returned to Mr Matthews in July 1994, and he thought that the £4,000 was a payment of interest.

[250]It is argued for Mr Matthews that it is clear from the documentary evidence and the unchallenged evidence of Mr Matthews that Mr and/or Mrs Matthews had discharged Neyland’s loan with RBS Guernsey when the bank executed its security over the sums held for Mr and/or Mrs Matthews’ benefit in the CT Management and Guarantors Ltd account.

[251]The only question that might then arise is whether Mr and Mrs Matthews were entitled to repayment of such sums from Primlake (as opposed to Neyland or Mr and Mrs Rees). It was not suggested to Mr Matthews or indeed Mr Rowe that they were not and Mr Rees, consistent with his evidence throughout, accepted that the repayment of such loan was to come from Primlake, as being the owner of the land.

[252]Accordingly it is said that Mr Matthews was to be re-paid the monies due to him from Primlake when funds came into the project in 1994 after the Kyle Stewart contract. No evidence was adduced by Primlake to deny the contention that Mr Matthews, in effect, discharged a loan to Neyland or that if he did, he was not entitled to repayment by Primlake. Conclusion

[253]On November 27, 1990 RBS Guernsey made a facility of £131,500 available to Mr and Mrs Matthews to assist with the purchase of 2 Station Road, Burnham Market, Norfolk, subject to a first legal charge on the property. On November 30, 1990 RBS Guernsey wrote to Mr and Mrs Matthews to say that the bank had obtained as additional security an assignment over a cash deposit for £136,500 from CT Management and Guarantors Ltd.

[254]It seems from the contemporaneous documents that RBS Guernsey made a loan to Neyland secured by Mr Matthews’ cash deposits at the bank, which was probably used to fund the deposit of £50,000 paid by Neyland to Mrs Rees in April 1992. On December 24, 1992 RBS Guernsey pressed Mr Rowe for repayment of a facility described as having been drawn down in April 1992 and to be initially available for no more than 3 months. The amount then owed was £79,705. On January 8, 1993 RBS Guernsey wrote to Mr Matthews to say that unless the borrowings of Neylandwere cleared within a reasonable timescale then they would have to close out the borrowing by utilising funds currently held as part-security for Mr Matthews’ own joint loan facility. Should that happen then the bank would have to reassess the outstanding borrowing which would no longer benefit from the cash security. On February 18, 1993 RBS Guernsey wrote to Mr Rowe to say that if payment of £82,065was not made in full by March 17, 1993 the bank would close out the borrowing by utilising security given by CT Management and Guarantors Ltd. It seems that RBS Guernsey carried out this threat, because on March 31, 1993 Mr Matthews wrote to RBS Guernsey to say the actions the bank had taken would “eventually cause a problem with the repayment of the loan back to Primlake from the proceeds of sale that I am about to conclude.”

[255]On May 26, 1994 Mr Rowe instructed Mr Foreshew to pay £84,000 from funds in his client account to Citibank, London for credit Citibank, Jersey for the sub-account of Ullman Shore Ltd.

[256]Mr Foreshew wrote an attendance note of a conversation with Mr Rowe. He said he had received Mr Rowe’s faxed instructions. Mr Rowe confirmed that “this” was a “short term loan being made by Primlake Ltd to Servepart Ltd for the account of Ullman Shore Ltd pending receipt of $176,000 which were in the process of transfer to him but would probably not arrive in time today”. Mr Matthews had appraised and agreed the arrangement. The attendance note is dated May 25, 1994 but it would seem that either the fax or (more probably) the attendance note has the wrong date.

[257]Servepart Ltd is an English company, now dissolved. In 1994 Mr Foreshew was its secretary. Its shareholders included Mercator Trustees Ltd. Mr Rowe was a director and shareholder of Ullman Shore Ltd.

[258]On May 26, 1994 Mr Foreshew wrote to Citibank Jersey to say that instructions had been given to his firm’s bankers, Barclays Bank Sutton, to transfer £84,000 to Citibank Jersey for the credit of Ullman Shore Ltd.

[259]Mr Foreshew confirmed in his fax of May 26, 1994 to Mr Rowe that the transfer of £84,000 had been effected from the client account of Primlake to the client account of Servepart and onward transmission to Citibank.

[260]It seems from what appears to be a client account statement of Primlake that $127,200 was received by Mr Foreshew on May 31, 1994 as “repayment of loan”. This client account (from instructions given by Mr Foreshew on July 7, 1994) appears to have been with Banco Bilbao Vizcaya, London.

[261]On June 30, 1994 Mr Rowe gave instructions to Mr Foreshew to remit $126,000 to Citibank New York for the credit of Citibank Jersey for the sub-account Ullman Shore, and on July 7, 1994 he instructed him in similar terms except that the figure was $127,100.

[262]On July 7, 1994 Mr Matthews faxed to Mr Rowe to say that the information given by Mr Rowe was that the £84,000 rested in Tussauds’ dollar account and would be repaid to RBS Guernsey on Friday July 1, 1994 along with part of the deposit already existing at the RBS. This had not been done. On the same day he faxed to Mr Foreshew that the £84,000 to be paid to RBS from Tussauds’ dollar account had not arrived.

[263]On July 7, 1994 Mr Foreshew gave instructions to Banco Bilbao VizcayaLondon to transfer $127,100 to Citibank, New York for the account of Citibank, Jersey for the credit of Ullman Shore.

[264]On July 19, 1994 RBS Guernsey acknowledged receipt of the £84,000, and confirmed that the bank was releasing its charge over the Burnham Market property owned by Mr and Mrs Matthews.

[265]In a letter to Mr Rowe dated December 2, 2002 commenting on Mr Turian’s schedule Mr Matthews said that the £84,000 was a “loan made by Tussauds to Servepart.”

[266]In my judgment, there is evidence of a loan of £80,000 to Neyland by Mr Matthews. There is also evidence that Mr Matthews’ indebtedness to RBS Guernsey, which was secured on Pebble Lodge, was discharged by the payment of £84,000. But there is nothing to link the payment of £84,000 to Mr and Mrs Matthews with anything other than discharge of the mortgage on Pebble Lodge. I find therefore as a matter of fact that there is no evidence that(a) the £84,000 was used by Primlake to discharge an indebtedness of Primlake;

(b) it was used by Primlake to discharge an indebtedness of Neyland. The most that could be said is that the money was paid by Primlake to discharge an indebtedness of Mr Matthews to RBS Guernsey incurred in making a loan to Neyland. There was no basis for the payment by Primlake. C Loans of £120,000/£130,000

[267]It is common ground that at some stage Mr Matthews borrowed about £120,000 from RBS Guernsey to lend on to Mr Rees.

[268]Mr Matthews says that in early 1994 Mr Rees’ financial difficulties were so acute that he agreed to make him a personal loan of £130,000. The loan was arranged through RBS Guernsey. It was made in tranches of £50,000 and £70,000 with (according to Mr Matthews) the bank retaining £10,000 in respect of the first year’s interest. The money went direct to Mr Foreshew who arranged for Mr Rees to receive £120,000. It was repaid by Primlake to him in December 1997. The figure of £130,000 did not cover the interest charges to 1997 of £19,994, and Mr Rees paid that sum directly into Mr Matthews’ NatWest account on November 3, 1999.

[269]Mr Rowe confirms that he assisted Mr Matthews to arrange funding for Mr and Mrs Rees through his contacts at RBS in Guernsey and Mr Matthews lent a total of £130,000 which was secured by the deposit of deeds to Pebble Lodge, Burnham Market, and he specifically remembers authorising the repayment of the loan in December 1997 with the express approval of Mr Rees.

[270]Mr Matthews relies in particular on the fact that it was recorded in the draft letter prepared by Mr Robinson in conjunction with Mr Vaughan dated December 12, 2001 (and in several other drafts) that Primlake was entitled to deduct from the payments that fell to be made to Neyland:

“£120,000 which represents the sum paid by Primlake to D. Matthews in order to discharge a loan from the Royal Bank of Scotland PLC…to fund a payment made by D. Matthews to D. Rees”

. Mr Vaughan wrote on December 13, 2001 to Wedlake Bell to say that he had been through this version of the letter with Mr and Mrs Rees, who were perfectly happy with it.

[271]Mr Rees accepts that Mr Matthews arranged for a loan to be made to him for about £80,000, which he believes came from Channel Trust. It could have been £70,000. His evidence is that he recalls paying interest on the loan when Mr Matthews requested it. Mr Rees exhibits a number of cheque stubs in the period 1994 to 1996 which he says were interest payments to Mr Matthews. In 1999 he was advanced a further £40,000 or £50,000; and although Mr Matthews claims to have repaid the loan of £120,000 in December 1997, he was still charging interest in 1999.

[272]The relevant documents leading up to the payment in December 1997 are:(1) In September 1997 Mr Matthews was in discussion with Allied Dunbar and TSB Bank with a view to raising a loan on the security of the Kyle Stewart contract. On September 2, 1997 Mr Matthews wrote to Allied Dunbar a letter in which he said that the project had received £350,000 from him (which was not true) and he had also lent the farmer (Mr Rees) £120,000 plus interest (about £142,000), all of which would be returned from the sum he was hoping to negotiate with the TSB Bank.

(2) On November 5, 1997 Mr Matthews wrote to Mr Foreshew to say that it was very urgent that funds from the increased deposit were made available without any further delay. He said “I am not only under pressure from Rees but I must clear some of the borrowing I have made to support him.”

[273]The documents relating to the transfer of the £130,000 from Primlake are the following:(1) the second page of a letter from Mr Matthews to (probably) Mr Rowe asking for a payment of £130,000 (altered in handwriting from a typewritten £120,000) to “DA & AV Matthews. repayment of Rees loan.” This was originally treated as the second page of a letter to Mr Rowe dated November 28, 1997, but the item is numbered “2” and there is no surviving letter with only item 1 on the first page of which it could be the second page.

(2) A fax from Mr Matthews to Mr Foreshew dated December 12, 1997 asking him to carry out the arrangements “as approved by Richard” including £130,000 to be transferred to the account of DA and AV Matthews at NatWest Wigston.

(3) A fax on the same day from Mr Foreshew to Mr Rowe asking him to confirm the instruction, and Mr Rowe’s handwritten confirmation.

[274]On October 21, 1999 Mr Matthews wrote to Mr Rees:

“Within the financial arrangements, apart from the costs, we have the loan of £120,000 via Channel Trust via RBS. As you know, this was developing into a problem (relating to the time being taken) and you will recall an interest payment was made by you to cover the RBS problem. After this I arranged for this loan to be restructured by passing it to my fund within CT which I guarantee. Thinking the main project would be in funds well within two years and knowing everything was well covered, this was the period arranged. However it is getting near three years and demands are being made for a further interest payment to be made. I have explained the position of the project and I think I have managed to get a ‘stay of execution’ for the payment of interest for the third year provided a payment is made to cover the last two years (£19.968.00.) I do not have enough funds within my CT ‘kitty’ to cover this sum and as I have been keeping them ‘on a string’ for the last six, or so months, you will understand the problem. We all expected the Coton Funds to be up and running before now but because of the HBG problem we are affected by further delay. Help !!!.”

[275]This letter is wholly inconsistent with Mr Matthews’ account that he had paid off the loan in December 1997 with Primlake funds. Mr Rees paid the interest (£19,994) to Mr Matthews on December 3, 1999.

[276]In the course of the negotiations in 2001 Mr Matthews took the position that his loans to Mr Rees had been discharged by Primlake, which therefore stood in his shoes. An attendance note by Mr Robinson of November 22, 2001 records a telephone conversation with Mr Matthews:

“PR and DM then discussed briefly the terms of the letter which PR had prepared a draft of and DM said that he would write to PR on this. DM said that the actual sum of money that he had lent David Rees was £125,000 in two separate amounts of £50,000 and £75,000 secured on his property in Norfolk. Subsequently, Primlake had re-paid the monies and the loan had been redeemed. This did mean, however, that Primlake were owed £125,000 plus whatever interest they proposed to ask for and PR said that this would need to be documented in a letter somehow even if Primlake were effectively writing off that amount as a predisposal payment to DR.”

[277]On November 23, 2001 Mr Matthews wrote to Mr Robinson to say that when the land was sold to Primlake by Neyland a loan was obtained and this was supported by a further payment to Mr Rees by two instalments (£70,000 and £50,000) paid through Tussauds. They were first obtained by a loan from the RBS in Guernsey to Mr Matthews supported by a charge on his house in Burnham Market. From payments received by Primlake Mr Matthews had been repaid. The effect was that, from the sums received from Kyle Stewart, Mr Rees had received the additional £120,000.

[278]On August 7, 2002 Mr Matthews wrote to Mr Robinson to say that he and Mr Rowe had provided private loans to Mr Rees in the sums of £100,000 and £120,000, and that “I feel Richard and I will need to serve a … Notice on Rees for repayment of these sums with interest at 4% above BR.”

[279]On September 2, 2002 Mr Matthews threatened bankruptcy proceedings against Mr and Mrs Rees in relation to the “various loans made to Mr Rees personally.” When Wedlake Bell asked about the loans, Mr Matthews replied on September 13, 2002 to say:

“The loans were made direct to Mr & Mrs Rees by myself and Mr Rowe …”

[280]On October 9, 2002 Mr Matthews wrote to Mr Foreshew, in reply to a letter of October 7, 2002 (which is not among the papers) about “the loan made direct to Mr Rees” to say that the loan direct to Mr Rees (£50,000 and £70,000) was arranged with RBS Guernsey. He had charged Pebble Lodge, and he attached an RBS Guernsey statement showing a balance of £131,500 as at December 31, 1990. Mr Matthews now accepts that reference to Pebble Lodge was in error, and that the statement related to the money borrowed to purchase it.

[281]Primlake says that the £130,000 taken by Mr Matthews on December 12, 1997 was not taken in repayment of an alleged indebtedness under loans to Mr Rees.

[282]I accept Primlake’s submission that Mr Matthews’ explanations of the documents in which he continued to assert the existence of the loan were incredible. They were said by Mr Matthews in the witness box not to say that at all, but to be a reminder or explanation of the loan. But, when confronted with the documents, Mr Matthews said “I can see that there is a possible problem ...”

[283]I am satisfied that what happened was that, to adapt Mr Matthews’ words to Mr Foreshew, he had cleared some of the borrowing which he made to support Mr Rees. The money was simply taken in order to discharge Mr Matthews’ own indebtedness, and he treated the loans as still outstanding from Mr Rees to himself. There is absolutely no basis for Mr Matthews’ claim that Primlake in effect paid him £130,000 to take over the Rees loan. IX Breach of fiduciary duty: control and management of Primlake

[284]It is not disputed that a de facto director owes the same fiduciary duties as a de jure director: Re Canadian Land Reclaiming and Colonizing Co

(1880) 14 Ch D 660

, 670 (C.A.); Ultraframe UK Ltd vFielding

[2004] RPC 24

, para 39; Ultraframe UK Ltd vFielding

[2005] EWHC 1638

(Ch.), para 1257. If Mr Matthews was a de facto director and if Mr Matthews had no entitlement to the payments, he was in breach of his fiduciary duties as a director in procuring them to be made. In Re Hydrodam (Corby) Ltd

[1994] 2 BCLC 180

, 183 Millett J described a de facto director as: “a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could probably be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company’s affairs or undertook tasks in relation to its business which can probably be performed by a manager below board level. A de facto director, I repeat, is one who claims to act and purports to act as a director, although not validly appointed as such”.

[285]The point has arisen in several cases under the Company Directors Disqualification Act 1986, where it has been held that the crucial issue is whether the individual has assumed the status and functions of a company director so as to make himself responsible as if he were a de jure director: Re Kaytech International plc

[1999] 2 BCLC 351

, 424, per Robert Walker LJ. It has been said that the question is whether the individual is a part of the “the corporate governing structure”: Secretary of State for Trade and Industry v Tjolle

[1998] 1 BCLC 333

, 344 per Jacob J.

[286]Between 1994 and 2000 Mr Rowe was managing director of Primlake, and was a sole director from February 9, 2000. Mr Matthews was never appointed as an officer of Primlake. Mr Matthews’ position

[287]Mr Matthews’ position is thatthe evidence shows that he was not, and was never intended to be, a director of either of the offshore companies to be used in the tax avoidance scheme, and that Mr Rees accepted that Mr Matthews’ role was not to be a director.

[288]All the major transactions undertaken by Primlake had to be approved by its duly constituted Board of Directors: the contract with Neyland, the Barclays Bank Sutton loan, the Kyle Stewart contract, and the Deed of Variation. None of these board decisions involved Mr Matthews.

[289]Mr Matthews’ written evidence was that he had “responsibility for all aspects of the development other than financial matters which were to be the sole preserve of Mr Rowe, as managing director of Primlake” and that he was not a director nor involved in the management of Primlake. This account was echoed by Mr Rowe and Mr Foreshew. Such responsibility would not be enough to constitute Mr Matthews a de facto director as the functions he performed were matters that could have been performed by “a manager below board level”.

[290]Mr Matthews’ oral evidence on this subject was that Mr Rowe was 100% in control of Primlake and that to the extent there was any re-organisation of the shareholding of Primlake in 2000/2001 this was done by Mr Rowe to give him security over his outstanding fees. Mr Matthews confirmed he had no authority over the funds whatsoever.

[291]In respect of the disagreement that arose between Mr Matthews and Mr Foreshew in 1994 as to the payment of Primlake’s disbursements out of the £1 million deposit received by Primlake from Kyle Stewart, Mr Matthews accepted that he was, at that time, mistaken as to the extent of his authority and that he was concerned that Primlake did not have enough funds available to make payment in respect of promises made by Mr Matthews on behalf of Primlake. Mr Foreshew’s oral evidence confirmed that Mr Matthews was not a director of Primlake (whether de facto or shadow) and Mr Rowe’s authorisation of matters such as the distribution of funds was not “something of a formality.”

[292]Mr Rees accepted in cross-examination that Mr Matthews was not to be a director of any of the offshore companies involved in the project. This view was confirmed by Mr Selwyn Rees in cross-examination concerning his visit with his father to see Mr Rowe in Guernsey. He said that Mr Rowe was the person running the show. Mr Rowe gave evidence that Mr Matthews had no authority to make financial instructions. The only authority that had been given was to act for Primlake on all matters to do with the planning negotiations, with third parties, and any aspect to do with the site. He was not authorised to make board decisions such as entering into contracts but only to negotiate; Mr Rowe did not hold out Mr Matthews as a director of the company. Mr Matthews was entitled only to fees and not director’s fees.

[293]The important thing about the correspondence between Mr Matthews and Mr Foreshew in 1994 was not what Mr Matthews may or may not have (mistakenly) believed his authority to be but rather(a) Mr Foreshew’s insistence that he had no instructions from Primlake to accept Mr Matthews’ instructions in respect of financial matters;

(b) Mr Rowe had never informed Mr Foreshew that Mr Matthews was an officer of Primlake or in control of it.

[294]Mr Matthews relies on documents which are said to show that Mr Matthews was not a director of Primlake but a consultant acting on behalf of Primlake:(1) On July 30, 1993 Mr Rowe wrote to Barclays Bank Sutton: “I asked Derek Matthews our Consultant to reply to your letter as he is better placed to provide you with up to the minute information on the current position.”

(2) In the Kyle Stewart contract, Mr Matthews was specifically defined as Primlake’s architect.

(3) In a letter dated June 6, 2000 to Mr Garland, Mr Rowe described Mr Matthews as follows: “At the start of its interest in the land, Primlake engaged the services of Derrick Matthews Dipl. Arch. ARIBA MA to negotiate with the local planning authorities and to submit a planning application for the land…Derrick is still at the time continuing in his role as negotiator for the company…”

(4) In a letter dated December 7, 2000 from Mr Rowe to Mr Robinson, Mr Rowe said: “Derrick has acted for the company for many years negotiating the planning of the site and is continuing in this capacity with the sale land valuation aspects of the negotiations now taking place with Grosvenor. Derrick is responsible for all these technical matters and he should work closely with you”

(5) In 2000, after the shift in administration of Primlake from Mercator to Richard Gray & Co, Mr Matthews wrote to Mr Rowe on June 1, 2000 seeking to obtain information from Mr Rowe about the constitution of the company for RBS Guernsey, who were at that time considering making a loan to Primlake. In that letter, he stated: “It will be necessary for us to have copies of the Articles of Association which I assume will have the details of the directors etc. Details of the Trust that holds the shares and for whom and the full addresses etc. I am beginning to look a ‘Charlie’ because I am unable to get this information to Mr Geddes within a normal time.”

(6) In the first draft of the joint letter prepared by Mr Robinson and Mr Vaughan, at the beginning of May 2001, Mr Matthews was described as follows: “an Architect and Consultant to Primlake Limited and has over the last nine years effectively been running the whole transaction on behalf of Primlake”.

[295]Insofar as Mr Matthews may have made representations to third parties (but not to Mr and Mrs Rees) that he had authority over Primlake or control of it, such comments should be considered in the light of all the evidence and in particular how Primlake described Mr Matthews and also Mr Matthews’ evidence as to why he on occasion used such language. Mr Matthews also confirmed when asked questions in respect of the alleged partnership that he, like other architects, would talk as a matter of habit of projects he was involved in, and companies he was representing, as being “his” project or “his” company. He described this as “just a way of speaking”.

[296]All those close to the offshore tax avoidance scheme, namely Mr Rowe, Mr Foreshew and Mr and Mrs Rees (and indeed Mr Matthews too) had no doubt that Mr Matthews was not a director nor in control of the Company but that the control rested firmly in Mr Rowe.

[297]The following are said to be examples in the documents of significant situations in which Mr Rowe did not do as Mr Matthews told him (and demonstrate that Mr Rowe was not accustomed to act in accordance with his instructions):(1) In a letter dated July 1, 1994 from Mr Rowe referring to Mr Matthews’ fax dated June 24, 1994 in which Mr Matthews stated, “you will understand why I pressed so hard for the deal to be done with Terrace Hill,” Mr Rowe said (according to the defendants) that it was Primlake’s (and not Mr Matthews’) decision to discontinue negotiations with Terrace Hill Group and accept the offer from Kyle Stewart: “As you are aware extensive negotiations took place with Terrace Hill but at the end of the day they were unable to complete within an acceptable time scale and it was the decision of the principal not to continue negotiations and therefore to accept the offer from Kyle Stewart. Although Terrace Hill offered an additional £100,000 deposit they were unable to sign the purchase documents for a further two weeks which delay was too long for the company to accept. Furthermore no firm date had been set by Terrace Hill and the suggested two weeks could have extended to an indefinite date”.

(2) In 1994 Mr Foreshew followed Mr Rowe’s instructions, and not those of Mr Matthews, as to the disbursement of sums.

(3) The evidence of Mr Foreshew and Mr Matthews is that they advised Mr Rowe not to agree to the Deed of Variation but that Mr Rowe instructed that the conditions insisted upon by Kyle Stewart had to be acceded to. Mr Wodzianski said in a witness statement prepared for the purpose of the litigation against Mr Foreshew: “My clear perception was that Mr Matthews was attempting to reduce or avoid the removal of this cap because he understood (as did we all) that it might affect the amount of Deferred Consideration Primlake received subsequently.”

(4) Mr Rowe’s evidence was that he had had a telephone call from Mr Rees in which he had made clear his financial desperation and that, despite Mr Foreshew and Mr Matthews’ advice, he instructed them to agree the variation. In cross-examination, it was never put to Mr Rowe that he had not instructed Mr Matthews and Mr Foreshew, against their advice, to agree to the Deed of Variation. Mr Rees accepted in cross-examination that he had had a telephone conversation with Mr Rowe at the end of 1997 in which he had made clear to Mr Rowe that he was in a desperate financial situation. In this very important regard, Mr Rowe did not act in accordance with the professional advice of Mr Matthews, presumably to serve the interests of Mr and Mrs Rees and to resolve their significant financial problems in Canada. Conclusion

[298]In my judgment the overwhelming evidence is that Mr Matthews was allowed by Mr Rowe to perform of all the management functions of Primlake (apart from the signing of cheques or giving instructions to banks) and that he took all effective decisions.

[299]There are numerous documents which indicate that the principal actors thought that Mr Matthews was in effective control of Primlake. Thus:(1) On December 20, 1993 Graham Skinner, of Michael Laurie (surveyors acting for Capital & Counties) asked Mr Matthews to confirm that he was Primlake’s “sole representative”, which Mr Matthews did on the same day, adding that he had “complete authority over the Company.”

(2) When the £1 million became available after signature of the Kyle Stewart contract in 1994, Mr Matthews became concerned by the failure of Mr Foreshew to follow his instructions. On June 29, 1994 Mr Matthews wrote to Mr Rowe to say that “I will not allow [the project] to be jeopardised by the removal of funds without authority from me.”

(3) On July 7, 1994 Mr Foreshew told Mr Matthews that Mr Rowe was the person to give him the required instructions in respect of the company’s funds. Mr Matthews replied that he was astounded since “I have authority from Primlake to instruct for and on their behalf and if you are unable to take instructions from me related to the Primlake affairs then I feel the time has come when alternatives must be arranged.” Mr Foreshew replied that he did have instructions from Primlake to accept Mr Matthews’ instructions in all matters “save and except for instructions in relation to funds.”

(4) On July 12, 1994 Mr Matthews wrote to Mr Rowe to say that he was not prepared to allow the financial control of the funds resulting from his negotiations to rest with others. The refusal of Tussauds to pay into the account the balance of the funds related to their instructions had placed him in a very dangerous position with Barclays Bank.

(5) On July 27, 1994 Mr Matthews wrote to Mr Foreshew to say:

“My authority is based on a mandate over the Company and whether you like it or not Richard has never confirmed to me my authority over the Company excluded financial instructions. I would be a fool to put my house on the line and guarantee the account if I did not have control.” (6) In response to Mr Foreshew’s letter of August 15, 1994, in which he said that Mr Matthews was not an officer of the company and that Mr Rowe, who was an officer of the company, had never advised him that Mr Matthews controlled the company, Mr Matthews said on August 24, 1994 that it was Mr Rowe’s understanding that Mr Matthews was instructing Mr Foreshew on all matters. (7) When Mr Foreshew said on September 13, 1994 that he could not accept payment instructions from Mr Matthews, on September 19, 1994 Mr Matthews wrote to Mr Foreshew to say: “Basically, I will not allow anyone to have the ‘power of the purse’ while I am securing the funds and also arranging the viability of a project when I am also making promises and giving undertakings to third parties. … I was not prepared to allow this situation to continue and thus it was necessary to change the formation of my team.” (8) On November 14, 1994 Mr Matthews wrote to Mr Foreshew: “Richard and I confirm with each other what we will do and what we will not do and it has never been confirmed to you from Richard that you are not to take financial instructions from me.” (9) A note by Mr Matthews of May 19, 2000 states that Primlake was an offshore company under the control of Mr Rowe and Mr Matthews and had recently been reformed, 25% being under the control of Mr Rowe and 75% being under the control of Mr Matthews. (10) On June 5, 2000 Mr Foreshew wrote to Mr Matthews to say that Mr Rowe “did confirm his instructions as a director of Primlake Limited that it was in order for me to take all instructions relating to Coton Park” from Mr Matthews. (11) On March 1, 2001 Mr Matthews wrote to Mr Rowe: “The only way we can protect our interests is to keep control of all aspects of Primlake …” (12) When Mr Robinson and Mr Vaughan jointly drafted in early May 2001 a letter of instruction, Mr Matthews was described as having “over the last nine years effectively been running the whole transaction on behalf of Primlake.” (13) On June 20, 2001 Mr Matthews wrote to Mr Rowe: “The chain of command is DAM & RR to P. Robinson …” (14) On July 18, 2001 Mr Robinson’s attendance note of a conversation with Mr Rowe records that Mr Rowe said that Mr Matthews would then take the fees out of Primlake by way of dividend and director’s fees. (15) In a memorandum to Mr Rowe dated July 25, 2001 Mr Matthews said: “We cannot give control of Primlake to Vaughan or Rees….We must not give any authority to anyone else over the payments of Primlake’s commitments.” (16) In a letter to Mr Rowe dated September 10, 2001 (and in a surviving draft) Mr Matthews said: “The only reason DAM is in control of Primlake through [Mr Rowe] was to make sure Rees was secure and Rees has always been informed of this ‘set-up’. This security goes both ways and it now looks as if my control of Primlake will help to secure both the costs and fees of Primlake as well as DAM, a 180' shift.” (17) On October 14, 2002 Mr Foreshew sent a memorandum to one of his partners attaching a letter from Mr Matthews, and made an attendance note of a conversation with Mr Rowe of October 14, 2002. In his memorandum Mr Foreshew referred to Mr Rowe as Mr Matthews’ “co-director (I believe) in Primlake Limited.”

In his attendance note of the conversation with Mr Rowe he recorded that he had advised Mr Rowe that he could supply him with a copy of a letter from Mr Matthews since “they were both officers of Primlake.”

[300]The explanations given for these documents by Mr Matthews and Mr Rowe were wholly unconvincing. Thus Mr Matthews’ explanation of the letter in October 1993 stating that he had complete authority over Primlake was as follows:

“You have to give this impression to somebody that you are trying to do a multimillion deal with. You cannot go in there and say: I am just the office boy. You have got to go in with some authority. And this is what we say. It does not mean that we have complete authority, it just means that we have the authority to negotiate for and on behalf of Primlake.”

I accept Primlake’s submission that this is an incredible explanation.

[301]Mr Rowe denied he told Mr Robinson that Mr Matthews would take remuneration by way of director’s fees. His evidence was that Mr Robinson had misinterpreted what he said, but there is no explanation of how Mr Robinson might have misinterpreted what he was told.

[302]Mr Foreshew’s explanation of the reference in his memorandum of October 14, 2002 to Mr Matthews being a director was that he was simply using “loose phraseology” or a “euphemism” because it would have been abhorrent to the tax structure. That explanation is not credible; a solicitor would not describe someone as a “co-director in Primlake” or as one of its “officers,” when he had been dealing with the company for some 8 years, without good reason.

[303]Mr Matthews’ explanation of the July/November 1994 documents was that:

“I had authority to recommend where the funds should go to related to the arrangements and promises that I had given. This period of time, June 1994, was the time when the first contract for the sale of this land had been prepared by the solicitors, Mr Foreshew of Tussauds. And I think that this little period, you will see that poor Mr Matthews had the wrong impression of what he was entitled to do within the contract, and I admit that, and I have said to Mr Foreshew, and the little contretemps that this produced was eventually settled because eventually, I knew what was happening with the funds.”

He went on to say that he “had obviously misunderstood the authority that I had over recommending what should happen with Primlake.” I accept Primlake’s submission that this explanation does not withstand scrutiny: first, it does not accord with the way Mr Matthews was expressing himself at the time; second, it is inconsistent with what he said to Mr Rowe throughout the course of his involvement with the project.

[304]Nor do I consider that in any way is this overwhelming body of evidence counterbalanced by the documents showing Mr Matthews as a consultant or as an architect.

[305]Nor is there anything in the examples said to be significant situations in which Mr Rowe did not do as Mr Matthews told him. The exchange of correspondence in June/July 1994 on the negotiations with Terrace Hill Group does not suggest anything more than that Mr Matthews and Mr Rowe took instructions from Mr Rees to go with Kyle Stewart, although Mr Matthews may have favoured a higher offer from Terrace Hill Group. But no witness gave evidence about the negotiations with Terrace Hill Group, and neither of these documents was put to any of the witnesses. There is no basis for suggesting that it was Mr Rowe rather than Mr Matthews who took the decision. I have dealt with exchange of correspondence in 1994 with Mr Foreshew, which shows nothing more than that Mr Foreshew was looking to Mr Rowe for formal instructions. It is not a requirement of being a director that he have drawing rights over the company’s bank account, and the fact that Mr Rowe had formally to approve all payments does not mean that Mr Matthews was not a director. Mr Rowe always did as Mr Matthews asked. The only example of Mr Matthews not getting exactly what he wanted was when he asked for £5,000 and got only £3,500, but that was because there was insufficient in the bank account to pay the whole £5,000.

[306]Finally it is said that the evidence of Mr Foreshew and Mr Matthews is that they advised Mr Rowe not to agree to the Deed of Variation but that Mr Rowe instructed that the conditions insisted upon by Kyle Stewart had to be acceded to. In the course of the trial I indicated that this question was not an issue and would have required a mini-trial to resolve it.

[307]The witness statement evidence on the removal of the cap was as follows:(1) Mr Rowe said that he recalled discussing the matter with Mr Foreshew and Mr Matthews, who both explained the very major drawbacks and advised that the variation should not be entered into and that to do so might have major repercussions. Mr Rowe said that he raised this with Mr Rees by telephone but he was adamant that his short term financial needs must take priority. The matter was one of such urgency to Mr Rees that Mr Foreshew had to fly to Guernsey to go through and explain the documentation to Mr Rowe.

(2) Mr Foreshew’s evidence was that Mr Matthews had continued to press Kyle Stewart for the retention of some form of control over the infrastructure costs by seeking to resist the removal of the cap but Kyle Stewart was not prepared to negotiate. After the meeting he and Mr Matthews went to a café where they both spoke to Mr Rowe and expressed their concerns and advised against executing the deed. They both received the same instruction from Mr Rowe that the conditions insisted upon by Kyle Stewart had to be acceded to because of Mr Rees’ deteriorating financial situation. Mr Foreshew reiterated his concerns in writing to Mr Rowe on December 10, 1997 after he had taken the Deed of Variation over to him in Guernsey in person.

(3) Mr Matthews’ evidence was that he advised Mr Rowe on numerous occasions against varying the 1994 Agreement and he knows that Mr Foreshew gave the same advice. Mr Matthews says he had absolutely no doubt that he made the practical consequences of the Deed of Variation clear to Mr Rees before it was signed. Despite advising him against accepting the Deed of Variation in the strongest possible terms, his only concern seemed to be how much and when he would receive his money.

(4) Mr Rees’ evidence was that he knew nothing of the removal of the cap.

[308]In the witness box Mr Matthews’ evidence was that he was very concerned about the practical impact of the Deed of Variation, and advised Mr Rees against it on numerous occasions. He claimed that he had fought hard against it and this was reflected in the last meeting he had with Mr Wodzianski at the offices of McKennas. After that he and Mr Foreshew went into a café/hotel across the road:

“We sat there, and we waited. As far as my recollection goes, Mr Rowe, we think, I think, must have spoken to Mr Rees because Mr Rowe came back on Mr Foreshew’s telephone and said: we have no alternative, we will have to agree the cap.”

Accordingly Mr Matthews’ evidence was that Mr Rowe “must have” told Mr Rees about the removal of the cap. But Mr Rowe’s evidence was that he did not telephone Mr Rees about the removal of the cap, nor could he recall “specifically” that he told Mr Rees about it, but he must have known that if money was to flow, the cap had to come off.

[309]I do not consider that it is necessary to decide this question. On the available material I would have accepted that Mr Matthews and Mr Foreshew resisted the removal of the cap, but I would have considered it extremely unlikely(a) that Mr Rowe in any sense overruled Mr Matthews’ advice

(b) that either Mr Matthews or Mr Rowe fully informed Mr Rees of the circumstances, given my conclusions on the doctoring of the composite contract, and in the light of Mr Matthews’ obvious anxiety to be put in funds. But even on Mr Matthews’ own case, all this incident would show was that Mr Rees insisted that the variation be agreed.

[310]I accept Primlake’s submission that the whole tenor of Mr Rowe’s evidence was that it was Mr Matthews who was running Primlake. He was the person who negotiated the crucial contracts and made the decisions. Mr Rowe’s evidence was that he knew nothing about the substance of the Severn Trent deal. The only way that could be so is if it were Mr Matthews making the decisions. I reject Mr Matthews’ evidence that Mr Rowe was aware of the Severn Trent negotiations.

[311]I am satisfied that Mr Matthews was a de facto director. Mr Matthews controlled Primlake, and ran Primlake’s entire business. All decisions, both tactical and strategic were taken by Mr Matthews. When payments needed to be made, there is no suggestion that his word was not a fiat. He was not required by Mr Rowe to produce receipts. He was not required by Mr Rowe to produce invoices. The only reason that Mr Matthews was not named as the managing director and a director of Primlake was because of the need to avoid the tax consequences of Primlake being controlled by a director resident in the United Kingdom.

[312]If, as I have found, Mr Matthews was a de facto director, it follows that he was in breach of duty by enriching himself at the expense of Primlake in paying large sums to himself to which he was not, and knew he was not, entitled.

[313]I am satisfied that neither Mr Rowe nor Mr Matthews had an honest belief that Mr Matthews was entitled to the payments. If my conclusion that Mr Matthews was a de facto director is wrong, he is any event liable as a constructive trustee because he knew that Mr Rowe was simply following Mr Matthews’ instructions, in breach of his fiduciary duties, to make payments to which Mr Matthews knew he was not entitled and which were not in the interests of Primlake. On my findings Mr Rowe did not know, or did not enquire, whether there was an agreement between Mr Rees and Mr Matthews which might have justified the substantial payments which he authorised.

[314]I am satisfied that Mr Matthews acted dishonestly because he procured that the payments were made to him by Mr Rowe in breach of fiduciary duty; and of course it would follow that it would be unconscionable for Mr Matthews to retain the sums paid to him by Mr Rowe. X Partnership Primlake’s arguments

[315]Primlake relies on the following matters. First, there was a trading name “Matthews Associates”. At the foot of business correspondence two names appeared: the names of Mr and Mrs Matthews (“DA Matthews…AV Matthews”). The correspondence with the liquidators and their solicitors was conducted on writing-paper in that form.

[316]Second, Mr and Mrs Matthews operated joint accounts in the firm name: “Matthews Associates/ Arthur Derrick Matthews Esq & Mrs Ann Viviane [sic] Matthews t/a.”, and cheques must have been drawn in that form.

[317]Third, in witness statements and other formal documents Mr Matthews referred to the partnership as such. In June 2004, Mr Matthews made a witness statement in this action, “both on behalf of myself and, with her authority, the Third Defendant, Ann Vivien Matthews….” In that witness statement, Mr Matthews (and Mrs Matthews, because he made the witness statement on her behalf with her authority) positively asserted that he and his wife were in partnership:

“The claim against my wife … Ann and our partnership….” (para 4); “Ann and I also ran the architects’ practice, Matthews Associates….” (para 6). The application to RICS for the appointment of an arbitrator was completed on the footing that there was a partnership, as “I/ We Matthews Associates acting for Primlake Limited….”

An invoice was issued to Mercator Trust Co on November 19, 2002 in the same form as all the other formal correspondence emanating from Matthews Associates. It is headed “Matthews Associates” and bears the names “DA Matthews…AV Matthews” at the foot. These documents are explicable only on the basis that there was a partnership between Mr and Mrs Matthews using the trading name “Matthews Associates”.

[318]When in 2003 an action was brought against Mr Rees it was brought in the name of “Matthews Associates” – there being no suggestion that that was anything but a firm name. Mr Matthews made a witness statement in that action in which he described himself as: “Senior Partner of Matthews Associates” (para 1); “the Senior Partner of Matthews Associates Claimant” (para 25). That witness statement went on to refer to Matthews Associates in the plural and in a manner consistent only with it being a firm (“Our work…”); “Matthews Associates have acted…”; “Matthews Associates were instructed…” (paras 3, 4 and 6).

[319]Primlake’s submission is that all but two of the payments went into joint bank accounts, with some of them in the name “Matthews Associates.” Accordingly, prima facie, as the profits of Matthews Associates have been shared with Mrs Matthews, she is a partner. Mrs Matthews gave no evidence of having any income other than from Matthews Associates. Clearly, or at least on the balance of probabilities, her interest in those properties is derived from the income of the business of Matthews Associates consistent with her position as a partner therein. Mrs Matthews’ position

[320]Mrs Matthews said in her witness statement: “Derrick and I began married life at 13 Chapel Lane, Knighton, Leicester where Derrick started practising from home, for I believe the first time. When he did so he put my name on the business notepaper. Although I do not now recall a specific conversation, I have no doubt that Derrick consulted me about this at the time the notepaper was changed. I did not object and it never occurred to me that the addition of my name could in any way be construed as suggesting that I was a partner in the practice. This has, I understand, been alleged by Primlake’s solicitors. I confirm that I am and was never a partner in the First Defendant. My name continues to appear on the notepaper following our move to our current address in East Norton in 1986. I have not worked since 1983, having spent most of my married life bringing up my children although I did work as a medical receptionist from 1967 to 1976 and following our marriage on a part time basis until 1983. I have no architectural or other professional qualifications”.

[321]Mr Matthews’ evidence in his fourth witness statement was that:

“I practised on my own account, as a sole practitioner for very many years. When I married Ann in 1977 I did put her name on the notepaper. I had been practising under the style Matthews Associates for several years before then and thought it would be sensible to include her name on the business notepaper. I was very often out and therefore she took numerous messages for me. Callers would more readily know who she was by this means. Ann was never a partner in the business. That was well known to everyone as far as I am aware. It was certainly appreciated by both Mr Rees and Mr Rowe.”

[322]Mr Foreshew said in his witness statement: “I have … spoken to Mrs Matthews by telephone on countless occasions over the years. To all appearances Mrs Matthews has never played any part in Mr Matthews’ business affairs. Mrs Matthews certainly took messages when her husband was out but as far as I am aware she did nothing more”.

[323]Based on this evidence, the case for Mrs Matthews is as follows. First, there was no agreement that a business would be undertaken in common with a view of profit, expressly or impliedly, reached: nothing was done by Mr and Mrs Matthews with the intention to create legal relations of that nature. Second, there is no evidence to suggest that(a) Mrs Matthews did or would share in the profits and losses of the business;

(b) Mrs Matthews benefited as “a business partner” from Mr Matthews’ business by way of any salary, share of profits or otherwise;

(c) Mrs Matthews did anything more than assisted her work-at-home husband with answering the telephone and occasionally writing a cheque for him in his pursuit of his own business and his own profit.

[324]Third, Mr Matthews’ evidence in his fourth witness statement of being a sole practitioner was confirmed by a letter from Mr John Royal, HM Inspector of Taxes stating that:

“I can confirm that Mr Matthews is assessable to tax as a sole practitioner for all relevant years and that his only source of earned income is that of ‘Architect Surveyor’. So far as I am aware, Mrs Matthews has never been a partner in any partnership and has never been assessed to tax as such…”

The evidence of Mr Matthews’ tax status is a clear indication that he was not practising in partnership as alleged or at all: Ward v Newalls Insulation Co Ltd

[1998] 1 WLR 1722

. Fourth, Mrs Matthews was not paid anything under any partnership arrangements. Nothing appears in Mr Matthew’s accounts as disclosed for any such payments and Mrs Matthew’s evidence is that she was not paid any monies.

[325]Fifth, the existence of a Matthews Associates bank account is not evidence of a partnership on the facts of this case. Mrs Matthews’ evidence was that this was just a facet of their marriage, whereby she and her husband always had a joint cheque book account: cf Jackson v White and Midland Bank Ltd

[1967] 2 Lloyd’s Rep 68

, 75 (joint account insufficient; a “definite bargain” required). Conclusion

[326]“Partnership is the relation which subsists between persons carrying on a business in common with a view of profit:” Partnership Act 1890, section 1(1). Business includes every trade, occupation or profession: section 45. “In view of the current editor, this [a business carried on “in common”] also presupposes that the parties are carrying on that business for their common benefit and that they have, as regards the business, expressly or impliedly accepted some level of mutual rights and obligations as between themselves”: Lindley & Banks, Partnership, 18th ed 2002,para 2-06.

[327]The overriding question is whether the parties have entered into an agreement to carry on business together and to constitute each the agent of the other for all acts done in the course of the business: see Lees v M Young Legal Associates Ltd

[2006] EWCA Civ 613

; and 1890 Act, section 5. Joint property does not of itself create a partnership: section 2(1). The sharing of profits is prima facie evidence of the existence of a partnership, but it does not of itself constitute the parties partners (section 2(3)) and the absence of a direct link between the level of payments and profits is in most cases a strong negative pointer to the recipient being one of those carrying on business: Lees v M Young Legal Associates Ltd

[2006] EWCA Civ 613

, para 33. Compliance with the Business Names Act 1985 will often facilitate proof of the existence of a partnership, given the obligation imposed on any firm carrying on business under a name which does not merely comprise the surnames of all the partners to disclose their name on all business letters and documents issued by the firm….” Lindley & Banks, para 7-29. Other indications of the existence of a partnership may include (ibid. para 7-30):(a) draft or final accounts (citing Ward v Newalls Insulation Co Ltd

[1998] 1 WLR 1722

(CA));

(b) an admission by a person of partnership;

(d) the manner in which bills have been drawn, accepted or endorsed has frequently been treated as providing evidence of partnership: ibid. para 7-32;

(e) the operation of joint bank accounts in connection with a business may be evidence of the existence of a partnership, although it is not conclusive or even prima facie evidence of the existence of a partnership: ibid.

[328]It is not argued that Mrs Matthews is to be treated as a partner because she was held out be a partner (as she plainly was), no doubt because there was no evidence that anyone relied on her being a partner. The case is put solely on the basis that she actually was a partner.

[329]In my judgment Mr Matthews’ explanation of why he put her name on the notepaper (so that telephone callers would know who she was) was wholly unconvincing. So also was his explanation of why he referred in documents to a partnership. Mr Matthews’ evidence in the witness box was that Matthews Associates was a trading name used by him as a sole practitioner, and not a firm. When he referred to “our partnership” it was a reference to his marriage. The reference to his being the “senior partner” in his witness statement in the county court action against Mr Rees action was an “error”. These were all lies.

[330]But I have come to the conclusion that Mrs Matthews was not in fact a partner. If this were a holding out case, of course the position would be quite different since Mrs Matthews was held out (to her knowledge) as a partner, but I am satisfied that she did not agree to be a partner in the business and that her acquiescence in the use of her name did not amount to an agreement. Her inclusion on the notepaper, the use of invoices and bank accounts in the name of Matthews Associates, as well as Mr Matthews’ many references to the firm are simply reflections of his own grandiose and dishonest nature. The only documents to which Mrs Matthews herself actually put her name were cheques on the Barclays Bank Leicester account. She did nothing of any substance in the practice, and only shared in the profits in the sense that she had no income of her own and had the benefit of Mr Matthews’ income.

[331]It follows that the mere receipt by her of the money into the joint accounts does not impose an obligation to repay. It is not necessary to decide whether, had she been a partner, she would have been liable for money which was, but is no longer, in the joint accounts, in the absence of notice of wrongdoing by Mr Matthews: see Bass Brewers Ltd v Appleby

[1997] 2 BCLC 700

, discussing sections 11 and 13 of the Partnership Act 1890. XI Overall conclusion

[332]Accordingly I am satisfied that there was no legal justification for the payment of £836,500 by Primlake to Mr Matthews, and that he knew it. Mr Rowe was in breach of his fiduciary duties as a director. He knew that Mr Matthews had no legal entitlement, or at the very least merely followed Mr Matthews’ instructions without regard to whether Mr Rowe was entitled to pay the money or whether Mr Matthews was entitled to receive it. The money was not paid for Primlake’s benefit.

[333]On my findings Mr Matthews is liable under several possible heads, and I accept Primlake’s submission that it is not necessary that the causes of action need to be identified in the particulars of claim, provided that the facts giving rise to the cause of action are spelled out: see e.g. Re Vandervell’s Trusts (No.2)

[1974] 1 Ch 269

[334]Plainly Mr Matthews is liable, on my findings, as constructive trustee of funds which he procured in breach of his own fiduciary duty, or by virtue of his dishonest assistance and knowing receipt. If, as I have found, Mr Matthews was a de facto director, it follows that he was in breach of duty by enriching himself at its expense in paying large sums to himself to which he was not, and knew he was not, entitled. That gives rise both to a personal remedy and a proprietary remedy: Clark v Cutland

[2004] 1 WLR 783

, paras 23 and 26. If my conclusion that Mr Matthews was a de facto director is wrong, he is any event liable as a constructive trustee on the basis of dishonest assistance and knowing receipt: El Ajou v Dollar Land Holdings

[1994] 2 All ER 685

, 700; Brown v Bennett

[1999] BCC 525

, 530; BCCI v Akindele

[2001] Ch 437

, 455.

[335]The prevailing view is that there is no separate cause of action for unjust enrichment as such, and that it is necessary for the case to be brought within one of the recognised restitutionary heads, such as money had and received, constructive trust, and resulting trust. In my judgment the authorities would justify the conclusion that Mr Matthews is liable for money had and received (and also, probably, as a trustee on resulting trust) on the basis of an absence of consideration in the sense of no legal basis for the payments: Woolwich Equitable Building Society v Commissioners of Inland Revenue

[1993] AC 70

, 197; Westdeutsche Landesbank Girozentrale v Islington LBC

[1996] AC 669

, 683 and 710; Guinness Mahon & Co Ltd v Kensington and Chelsea RLBC

[1999] QB 215

; Goff & Jones, Restitution, 6th ed., para 1-055.

[336]So far as concerns Mrs Matthews, she would be liable, as a volunteer, to make restitution of the money still in her control. But, subject to what is said in paragraph 341 below, she would not be liable for money which went through the joint accounts, but is no longer held by her, except on the basis of dishonest assistance or knowing receipt. But there is no evidential basis for such claims, and no suggestion was put to her in cross-examination which might have provided a basis for a claim in dishonest assistance or knowing receipt.

[337]Primlake claims to be subrogated to the RBS Guernsey charge over Pebble Lodge. I have found that the £84,000 was paid to Mr and Mrs Matthews for the improper purpose of discharging their secured debt to RBS Guernsey.

[338]Mr and Mrs Matthews deny that, even if Primlake is able to establish an entitlement to be repaid the sum of £84,000, it is entitled to a charge over the property by way of subrogation but rather it has only a personal remedy for repayment of such sum. They say that there is no evidence that Primlake, acting through Mr Rowe, had any knowledge that the £84,000 was to be applied by Mr and Mrs Matthews in discharge of their mortgage with RBS Guernsey and, furthermore, no evidence that the payment to Mr and Mrs Matthews was made with the intention that the sum should be so applied and, if so applied, that Primlake had an intention that the mortgage be kept alive for the purposes of a subrogated claim or that Mr and Mrs Matthews would provide it with some form of security for the payment. In the absence of such evidence, the £84,000 was simply a payment that was made without reference to the existence of the charge and to grant Primlake security would result in an unbargained for benefit.

[339]Lord Hoffmann said in Banque Financiere de la Cite v Parc (Battersea) Ltd

[1999] 1 AC 221

at 234:

“I think it should be recognised that one is here concerned with a restitutionary remedy and that the appropriate questions are therefore, first, whether the defendant would be enriched at the plaintiff’s expense; secondly, whether such enrichment would be unjust; and thirdly, whether there was nevertheless reasons of policy for denying a remedy…. This does not of course mean that questions of intention may not be highly relevant to the question of whether or not enrichment has been unjust. I would certainly not wish to question the proposition of Oliver J. in Paul v. Speirway Ltd. [1976] Ch. 220 that, as against a borrower, subrogation to security will not be available where the transaction was intended merely to create an unsecured loan …”

[340]I have no doubt that Primlake is entitled to be subrogated to the security. The question is whether the enrichment of Mr and Mrs Matthews was unjust, and the use of Primlake’s money to pay off a secured debt and the intention whether it should succeed to the security “are only materials on which a court may decide that the defendant’s enrichment would be unjust” ([1999] AC at 234). Mr Rowe gave evidence that he intended that Mr Matthews should be repaid, but he gave no consideration to how he was going to be repaid, although he plainly knew that Mr and Mrs Matthews had given security for a loan by RBS. As a de facto director Mr Matthews intended to discharge the debt and the security. Mr and Mrs Matthews were unjustly enriched by the unlawful use of Primlake’s funds to repay their loan and redeem the charge, and the restitutionary remedy of subrogation is appropriate.

[341]Primlake is also entitled to an enquiry into what dealings have been effected by Mr and Mrs Matthews with the receipts pursuant to paragraph 17 of the Amended Particulars of Claim, and Primlake is entitled to trace the monies on the basis that the payments are to be treated as unauthorised: Clark v Cutland

[2004] 1 WLR 783

(CA). Whether Primlake is entitled to any particular relief of remedy on that enquiry, and whether Mrs Matthews must make restitution, will be a matter for the enquiry.

[342]Mr Matthews counterclaims for 5% of the gross value of the land, either on the basis of contract or quantum meruit. Mr Rees accepted that Primlake could pay any fees from the sale proceeds (but not the deposits): but there was no evidence of any such agreement being entered into on behalf of Primlake. There is, on my findings, no basis for the counterclaim for contractual fees.

[343]This case comes under none of the recognised heads of quantum meruit claim: see e.g. Chitty on Contracts, 29th ed. 2004, paras 29-067 et seq: Goff and Jones, Restitution, 6th ed. 2002, Chapter 1; Halsbury’s Laws of England, Vol 40(2), Restitution, paras 1413 et seq (Professor McKendrick and Mr A Tolley). These include quantum meruit for work done where the contract is terminated by breach; where no scale of remuneration is fixed in a contract for work to be done; where extra work is done which goes beyond the scope of the contract; services rendered under a void contract or under an illegal or unenforceable contract. The only possible head would be on the basis of a contract to be inferred by an express or implied request for services to be rendered. The court will not lightly infer a contract: The Aramis

[1989] 1 Lloyd’s Rep 213

, 224; Blackpool & Flyde Aero Club Ltd v Blackpool BC

[1990] 1 WLR 1195

, 1202. I accept Primlake’s submission that Mr Matthews has established no conduct from which a contract between him and Primlake could be inferred. The conduct of the parties is entirely explicable on the basis that Mr Matthews was to be remunerated by Mr Rees (when he received the proceeds of sale) and not by Primlake. It would in any event be a travesty if Mr Matthews were to receive payment on a quantum meruit basis in the circumstances of this case, where he has been instrumental in arriving at a situation where Primlake has received only £3 million for land which was plainly worth much more.

[344]It follows from my findings that Mr Matthews was in breach of fiduciary duty or is a constructive trustee as a result of dishonest assistance or knowing receipt that Primlake is entitled to ask for compound interest: Westdeutsche Landesbank Girozentrale v Islington Borough Council

[1996] AC 669

, 702. Schedule Date Amount claimed in Defence Matter June 22, 1992 £2,000 David Rees loan October 19, 1992 £35,000 Poultney Grange deposit May 25, 1993 £35.25 Bray & Bray May 25, 1993 to August 3, 1995 £8,493.36 County Leasing Ltd and Bletchley Motor Group Finance (balance for farm machinery) April 25, 1994 £289.20 Bray & Bray June 22, 1994 £200 Barclays Bank May 22, 1995 £411.25 Peter Tew January 27, 2000 £323.12 Mr N Taggart, Counsel. January 4, 2001 £275 RICS January 2002 £18,572.34 T. Corns valuation October 24, 2002 £1,500 Rees & Freres November 25, 2002 £950 Rees & Freres Unknown date £2,000 Loan to Selwyn Rees

Primlake Ltd v Matthews Associates & Ors [2006] EWHC 1227 (Ch)

I Introduction

II Primlake

Cited in 8 later judgments