Muduroglu v Reddish LLP & Anor [2015] EWHC 1044 (Ch)

Neutral Citation No.: [2015] EWHC 1044 (Ch)

Case No HC 2013 000105

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice, Rolls Building,, Fetter Lane, London, EC4 1NL

Date 17 April 2015

Before

His Honour Judge Keyser QC

sitting as a Judge of the High Court

Between

EREN MUDUROGLUClaimant

- and –

Between

REDDISH LLPDefendant

DEREK LUCIE-SMITHDefendant

The Claimant appeared in person for in person

The First Defendant was represented by Samuel Beilin, a member

James Aldridge QC (instructed by Farrer & Co) for Second Defendant

Hearing Hearing dates: 16, 17, 18, 19 & 20 February 2015

Judgment

H.H. Judge Keyser Q.C.:

Introduction

[1]On 9 April 2010 the claimant, Mr Eren Muduroglu (“Mr Muduroglu”), transferred to the first defendant, Reddish LLP (“Reddish”), 1000 shares in Memorial Holdings Limited (“MHL”), a company incorporated in Jersey. He says that the price for the shares, as agreed orally between him and Mr Derek Lucie-Smith (“Mr Lucie-Smith”), the second defendant and a member and the beneficial owner of Reddish, was £1,300,000 and that Reddish has failed to make the payment. Accordingly his primary claim in these proceedings is for payment of the price with interest; in the alternative he claims transfer of the shares back to him.

[2]Mr Muduroglu also contends that Reddish and Mr Lucie-Smith conspired together by unlawful means to defraud him of the price to which he was entitled, by knowingly causing a false consideration of £200,000 to be entered onto the stock transfer form in respect of the shares. He claims damages for conspiracy from both defendants.

[3]The defendants deny the claims in their entirety. They say that all of the discussions and agreements concerning the shares were with the claimant’s brother, Mr Sami Muduroglu (“Sami”), who was the beneficial owner of the shares. It was agreed that the shares, representing ten per cent of the issued share capital of MHL, would be transferred to Mr Lucie-Smith for his services in introducing private equity and loan investment into MHL. At Mr Lucie-Smith’s request the shares were transferred directly into the name of Reddish, of which he was the ultimate beneficial owner. The stock transfer form was initially completed without showing any consideration, and subsequently the figure of £200,000 was entered as the result of a mistake, because it represented the notional consideration passing to Mr Lucie-Smith from Reddish, not any consideration due from him to the claimant. The defendants contend that Mr Muduroglu has brought this claim on a basis that he knows to be false and because he is in financial straits.

[4]Sami disappeared in 2012 after committing a large fraud and being made bankrupt; no-one will own to knowing his whereabouts.

[5]At the trial, Mr Muduroglu represented himself, though he had been represented by solicitors until shortly before the trial. Mr Lucie-Smith, who had represented himself during most of the proceedings, instructed solicitors shortly before the trial, at which he was represented by Mr James Aldridge QC. Reddish was represented by Mr Samuel Beilin, one of its designated members, though he played only a modest role in the hearing, as the interests of the defendants were largely identical.

[6]A number of witnesses gave evidence at the trial. The most important witnesses were Mr Muduroglu and Mr Lucie-Smith. I shall say much about their evidence in the course of this judgment. At this stage I need only remark that in the light of the documents the evidence that each of them gave presents significant difficulties. I shall spend a substantial part of this judgment setting out what the documents say.

[7]In the remainder of this judgment I shall proceed as follows. First, I shall set out a fairly lengthy narrative of the relevant facts, though leaving some of the main findings on disputed issues until later. Some of the information in the narrative is relevant only as providing background or for the light it sheds, or does not shed, on the central issue concerning the terms on which it was agreed that the shares in MHL would be transferred to Reddish. Finally, I shall set out and explain my conclusions on the case.

The facts until April 2010

[8]Mr Muduroglu is a businessman and property developer. So was Sami, before he disappeared. Sami had a business partner, one Kevin Wishart, with whom he engaged in a number of business ventures. One of Sami’s businesses failed with substantial debts, which resulted in January 2005 in him being subject of a disqualification order that disqualified him from being a director of a company or in any way, whether directly or indirectly, being concerned in or taking part in the promotion, formation or management of a company for a period of five years. Meanwhile in March 2004 Mr Wishart was remanded in custody on serious criminal charges, and after a lengthy trial at Woolwich Crown Court in 2005 he was sentenced to a term of six-and-a-half years’ imprisonment, from which he was released in June 2007. It was probably because Sami and Mr Wishart were tarnished or indisposed that in about 2004 Mr Muduroglu became involved in their joint ventures, for the purposes of which he was required as a person who could act as a company director and deal with potential business partners and sources of finance. Quite what the arrangement between the three of them was is unclear; it may not have been very precise. In these proceedings, Mr Muduroglu said, with respect to the period around 2009, that the apportionment was 30% to Sami, 30% to Mr Wishart and 10% to him, with the balance being applied to creditors. Although the point is put differently, this accords substantially with what Mr Wishart wrote in an email that he sent to Mr Lucie-Smith in July 2012 regarding his involvement at the outset of the project in which MHL was concerned and the extent of his interest when it began: “Sami told me at the time that we had around 35% of the project and I took 12% because our agreement was that I had a third of whatever our holdings were and two thirds were a third for Sami and a third for creditors including 4% for Eren”; this amounts, roughly, to a third of a third to Mr Muduroglu.

[9]The relationship among the three men was considered by Mr Tim Kerr QC, sitting as a Deputy High Court Judge, in Credit & Mercantile Plc v(1) Kaymuu Ltd,

(2) Wishart,

(3) Defty (trustee in bankruptcy for Sami Muduroglu)

[2014] EWHC 1746 (Ch)

. The evidence on the point was more detailed in that case than in this, but Mr Kerr’s findings are consistent with the position as I am able to know it from the evidence adduced before me, and they also show what Mr Muduroglu’s evidence as a witness was in those proceedings; I gratefully set out part of his judgment:

“5. … There were never any formal written contractual arrangements between Sami and Mr Wishart. Sami was the wealthier of the two, having profited from the trading of futures. He took the lead and Mr Wishart took a subordinate role. 6. I do not have any clear evidence of what the informal financial arrangements between them were in those early days. Mr Wishart’s evidence was that their understanding was that it was ’50-50’. I accept that such was their loose understanding, but I doubt whether Mr Wishart received anywhere near 50 per cent of any profits. Their financial arrangements were largely improvised and based on friendship and trust. Evidence of later payments by and to Sami, Mr Wishart and Eren (when he later became involved) is of payments of irregular ad hoc amounts, not always supported by any obvious logic, let alone formal contractual foundation or documentation. … 9. Sami’s disqualification and Mr Wishart’s incarceration meant that of the trio, Eren was the only candidate to act as director of any company set up as a vehicle for their business ventures. He took over as director of various companies in which Sami had an interest. To raise finance for their business ventures, he was required to sign personal guarantees and give security for loans. He accepted these risks and, in return, expected to participate in any profits. 10. I accept Eren’s evidence that there was a loose informal understanding between him and Sami that he, Eren, would receive 10% of the profits, if any, from the various business ventures, on the basis that he would ‘walk away’ afterwards, free of further risk and personal guarantees. However, this was subject to discussion of any more specific (but still informal) agreement about how to apportion profits, shares and risk at times when (after paying off creditors) profits were made or imminent.”

[10]This is the background against which in 2007 Mr Muduroglu, Sami and Mr Wishart became involved in a project to develop and thereafter operate a cemetery at a site in Chislehurst known as Kemnal Manor. Planning permission for the use of Kemnal Manor as a cemetery had been granted in November 2006.

[11]In June 2007 Kemnal Manor Memorial Gardens UK LLP (“KMMG”) was incorporated as a limited liability partnership in Northern Ireland, with the intention that it should be the vehicle for the acquisition and development of Kemnal Manor as a cemetery. KMMG was an equal partnership between Mr Muduroglu and Ravenblack Developments Limited, a limited company incorporated in Northern Ireland, and their Limited Liability Partnership Agreement dated 29 June 2007 provided that the profits and losses were to be shared equally between them. In the course of detailed transactions that are not relevant for present purposes, KMMG purchased the freehold estate in Kemnal Manor for £7,000,000. The money was put up by Ravenblack Developments Limited.

[12]Until a late stage of these proceedings, Mr Muduroglu’s case was expressed in a manner that gave the impression that his interest in KMMG and in the other corporate vehicles that succeeded it was beneficially his alone; in particular, that Sami had no interest in it. At trial, his evidence was to the effect that his interest was subject to the informal arrangement or understanding already mentioned, namely that any profits from it were to be divided 30% to Sami, 30% to Mr Wishart and 10% to him, with the balance being applied to paying off the creditors. The defendants contend that this late concession was forced out of him by the discovery of what his evidence had been in the Credit & Mercantile Plc case; they say that he was trying to advance a false case and has been caught out. For their part, the defendants contended that Mr Muduroglu was merely a nominee or, as they put it, “stooge” for Sami, though at trial they pressed only the weaker case that Mr Muduroglu was the junior partner in an informal arrangement and would simply rubber-stamp deals that his brother had made.

[13]The acquisition of Kemnal Manor had been cash-funded. In October 2007 KPMG reported to Ulster Bank on KMMG’s proposal to undertake a debt refinancing of its capital structure in order to finance an equity release from the business. In November 2007 KMMG gave a debenture to Ulster Bank as security for re-finance from the bank. Repayment of the loans was personally guaranteed by Mr Muduroglu and Mr David Hassard, who was the owner of Ravenblack.

[14]In 2009 KMMG was in serious financial difficulties. The financial crisis in the UK was having an adverse effect on its cash-flow and its ability to fund the development of Kemnal Manor and to make loan repayments to Ulster Bank, and the bank showed no enthusiasm for extending the existing credit facilities, far less for enlarging them. Ravenblack too was hard-hit by the fall in the value of its property in Northern Ireland. Mr Muduroglu and Ravenblack decided to end their partnership; and he, Sami and Mr Wishart decided to seek new investors in order to enable the project to continue through a new corporate structure that would acquire the assets of KMMG.

[15]Initial attempts to procure investment were unsuccessful. Sami’s obvious involvement in the venture may have been a problem. On 13 August 2009 he wrote a letter “to whom it may concern” for the purpose of explaining the circumstances that had led to his disqualification as a director, no doubt in order to provide some assurance to potential investors in the project at Kemnal Manor. Having described the events leading to the disqualification, Sami continued:

“Subsequently I myself contacted all the creditors and arranged the settlement of outstanding monies with them in the sum of £55,000 plus costs of circa £65,000. I also resigned from all of my directorships and installed Eren Muduroglu, my brother with whom I have worked for the past 23 years, in my place. I also removed myself from all bank mandates and informed all of the relevant companies … and the banks that were lending my companies money of the situation. I have continued to work closely alongside my brother as a consultant to all of his projects and as a result his business has grown significantly throughout this period.”

[16]At around this time, Sami was put in contact with Victor Librae, a financial broker in the property sector. Mr Librae’s evidence was that Sami held himself out as “the decision-maker” and “the man to deal with” and explained that the shares in KMMG were in Mr Muduroglu’s name because Sami’s disqualification and various other matters, which he could not now remember, made it difficult for Sami to hold them. Mr Librae said that he never doubted that Sami was in control; as a broker he never had cause to undertake a due diligence exercise or verify the precise nature of his involvement in the venture.

[17]Through Mr Librae and another broker, James Marshall, an introduction was forged between KMMG and Paul Turton, an associate director of Royal Bank of Scotland (“RBS”). Mr Turton went to see the site and there met Sami, with whom he subsequently had a more formal meeting. Sami told him that he was a disqualified director, and a colleague at RBS did a Google search that brought to light some other not-altogether favourable details about Sami. The proposal put to Mr Turton remained to be worked out in detail but involved the use of a property-holding company and an operating company. Mr Marshall was hoping to have the proposal considered by RBS’s Credit Committee on 4 September 2004 (in the event it was not considered then), but in an email to him on 26 August 2009 Mr Turton set out his position clearly: “Just to be clear• I like Sami

• I like the underlying proposal

• I would like to write this transaction However, I am being asked to lend £18m to a legal entity controlled by individuals where if I google their names then it does not look pretty on several different fronts. In a bull market then I could sell the story. In a bear market then the hurdle is set too high. Sami could have lowered the hurdle by challenging the disqualification through solicitors at an earlier date. Unfortunately this has not been done and the debt markets have become very tough over the last couple of years and are likely to remain that way for a while yet. A way to get round the hurdle rather than over it would be for this transaction to be presented by ANOther party with the controlling interest—Sami’s brother would not solve the issue. For the avoidance of doubt:

• Sami would need to relinquish control.

• He can still be a named beneficiary of the borrowing entity.

• He can still be an appointed consultant of the borrowing entity. I have suggested a potential controlling party may be Derek Lucie-Smith. However, to re-emphasise Ross’s point, from the Bank’s perspective we are putting you in touch with each other to see if you may benefit from mutual business but clearly you will be making your own decisions and agreements in this respect.”

• I like Sami

• I like the underlying proposal

• I would like to write this transaction

• Sami would need to relinquish control.

• He can still be a named beneficiary of the borrowing entity.

• He can still be an appointed consultant of the borrowing entity.

[18]Mr Turton’s evidence was that Mr Librae and Mr Marshall presented Sami as the owner of the Kemnal Manor Site. He was somewhat vague on what if anything he knew about Mr Muduroglu, but the gist of his evidence was that he was not concerned with him as Sami was the owner. He said that he presumed that the reason why “Sami’s brother would not solve the issue” was that he lacked experience in developing and operating cemeteries. That explanation tends to suggest that Mr Turton did have some knowledge of Mr Muduroglu, but in the light of the rest of his evidence and of what happened next I find it an unconvincing explanation. More likely is that Mr Turton thought that only a person independent of Sami’s taint would be acceptable to the Credit Committee and that a brother was not such a person, being too closely connected. The striking reason Mr Turton gave for suggesting Mr Lucie-Smith as a “potential controlling party” was that he had successfully financed a self-storage venture in which Mr Lucie-Smith was involved; it seemed to Mr Turton that self-storage and cemeteries were similar. Mr Turton’s evidence was that, to be acceptable to RBS, any “controlling party” would have to have a vested interest in the venture, that is, a shareholding.

[19]Mr Lucie-Smith is a chartered accountant. In 2009 he was the chief executive officer of Gresham House plc, a long-established investment company. He was also a member of Reddish, which he had incorporated in 2004. In 2009 the other member of Reddish was John Lorimer, who was also a director of Gresham House. On 31 March 2010 Mr Lorimer ceased to be a member and was replaced by Andrew Riley. Mr Riley explained in evidence that he had become a member purely as a favour to Mr Lucie-Smith and held his interest in Reddish on behalf of Mr Lucie-Smith. Although there was no written trust, Mr Lucie-Smith was the sole beneficial owner of Reddish; it appears that the use of an LLP was a device whereby he could avail himself of investment opportunities without being openly in breach of the investment trust rules.

[20]Mr Turton promptly forwarded to Mr Lucie-Smith the email he had sent to Mr Marshall. He explained that “the land owner”, as well as being a disqualified director, was also the subject of “other naughty stories” on Google. “Credit committee always want to know about the management, shareholders & beneficiaries. As soon as I highlight a disqualification then I get a decline”. Mr Turton said that the broker was “trying to rush [RBS] in to credit—never a good sign!” He thought that he had spoken to a number of banks but had had little success.

[21]Mr Lucie-Smith’s initial reaction was negative. But he did some research and concluded that a lack of cemetery provision in and around London might make the Kemnal Manor project attractive after all. On 28 August he met with Sami and the brokers, and on 2 September he met with Mr Turton and again with Sami. It was probably at this stage that Sami produced an initial version of a document headed “Kemnal Manor Memorial Gardens[:] Current Investment by Sami Muduroglu”:

“The purchase of the assets of Kemnal Manor Memorial Gardens UK LLP is basically structured at a purchase price of £11.5 million. The current debt of circa £8.5 million will be repaid with £2.5 million will be paid to the partners and 500k being repaid to Sami. The partners in the project are my brother Eren Muduroglu and Ravenblack Ltd, which is 99% owned by David Hassard. Based on my input to the site so far I have personally invested circa £500,000 into the Kemnal Project Costs.”

[22]Mr Lucie-Smith’s evidence was that this document clearly showed that it was Sami and not Mr Muduroglu who had put the investment into the Kemnal Manor Site and that Mr Muduroglue was “purely a nominee shareholder as [Sami] had always said”:

“I therefore had absolutely no reason to believe that [Sami] was not the ultimate beneficial owner of the shares in KMMG.”

That does not seem to me to be a plausible interpretation of the document; it plainly says that, of anticipated net sale proceeds of £3,000,000 to be received by KMMG, £500,000 would be repaid to Sami for his investment and the remaining £2,500,000 would be divided equally between the partners in the project, namely Mr Murudoglu and Ravenblack. This is clearly intended to mean that Sami was not the ultimate beneficial owner of KMMG.

[23]On 4 September 2009 Sami and Mr Lucie-Smith met with Mr Ross Davies of RBS; Mr Marshall and Mr Librae were also present. In his witness statement, Mr Lucie-Smith described what happened at the meeting:

“Mr Davies explained that RBS would take over the Ulster Bank loan and fund all of the development provided the team were credible, and he believed that I gave them this credibility. I mentioned that I thought it was ambitious for this to be 100% funded, as it may not get approved by the credit committee of RBS.”

After the meeting, Mr Marshall sent to Mr Lucie-Smith an email regarding the proposed debt structure. Part of the email said:

“I will work with Sami on a solution with regards his ‘costs to date’, we will also have to give some thought to how this is positioned with the bank as Sami’s name naturally cannot be associated with the application.”

[24]On 7 September 2009 Sami and Mr Lucie-Smith had an exchange of emails, on which the defendants rely. Mr Lucie-Smith wrote as follows:

“Dear Sami Following our agreement of my proposed involvement in Manor Memorial Gardens, I thought I would just put together some outline terms so that we can go forward on the legals. In summary I believe we have reached agreement on the following: 1. I will be remunerated at a rate of £150,000 p/a. The fee will commence once credit approval has been obtained from RBS. The contract will be with an LLP where my wife and myself will be members. I will provide details of the LLP over the course of the next week. The contract will be for a three and a half year period and will include the services of James Aumonier [a project manager employed by Mr Lucie-Smith] and my backup staff at 5 Prince’s Gate. We can insert details of my responsibilities in the agreement. I’m sure we can put this quite simply in a contract which I can get drawn up by my lawyers which will be paid for by the Operations Company. 2. I will hold the shareholdings in Prop Co as follows: a) 90% will be personally held by me as a trustee for your beneficial interest b) 10% will be held in the name of the LLP referred to in 1 above for my benefit. There will be a buy-out provision after a period of three and a half years whereby the company or your trust will buy me out at a predetermined formula should we not wish to continue the business together (I hope this is not the case). I suggest we speak to our lawyers to consider drafting a trust agreement and a shareholders agreement. 3. I will hold your share in Op Co as a trustee for your beneficial interest. I think once I have completed the cash flows we can then sit down and discuss the shareholding in Op Co. 4. We should give some thought as to the shareholding in the Maintenance Company. Again we need some advice from the lawyers on this. Sami, I will need to make sure that I am tied in to this agreement for three and a half years and we both need to discuss what happens in the event that we fall out with regards to my remuneration and shareholding. Perhaps we can chat about this later today. I would be grateful if you could confirm that this is the outline of our agreed proposals that we discussed on Wednesday 2nd September.”

Sami replied:

“The terms outlined below are in accordance with my offer to you. I am happy to discuss later today.” a) 90% will be personally held by me as a trustee for your beneficial interest b) 10% will be held in the name of the LLP referred to in 1 above for my benefit. There will be a buy-out provision after a period of three and a half years whereby the company or your trust will buy me out at a predetermined formula should we not wish to continue the business together (I hope this is not the case). I am happy to discuss later today.”

[25]Mr Lucie-Smith’s evidence was that there was never any question of him paying for the 10% shareholding in the property-holding company; the shares were by way of remuneration or reward for the pivotal role he was playing in bringing in equity and debt finance.

[26]On 10 September 2009 Sami sent to Mr Lucie-Smith by email three possible models for the corporate structure to be employed and asked for advice as to what might be acceptable to the bank. All three models involved a division of ownership between an offshore trust (90%) and Mr Lucie-Smith (10%). It was also around this time that someone, probably Mr Lucie-Smith, produced an undated document, which recorded the bones of the proposal:

“RBS are funding some £16 million which means that £3 million will have to be found by the proposed purchaser, which is an offshore limited company whose main share holder is a trust for the benefit of Mr Sami Muduroglu and family. Mr Muduroglu is a residential property developer from Kent and has been struck off to act as a director by Companies House until 1 January 2010. … It is intended that the trust will hold between 50-60% of the equity and the remainder will be sold in 5% tranches. Each of these will cost £800,000. There is a queue of a number of investors but responsibility of the allocation is with DL-S and SM.”

[27]In about November 2009 RBS’s credit committee rejected the proposal to fund the project. Mr Lucie-Smith’s statement said:

“This resulted in the urgent need for me to raise alternative debt and equity to refinance Ulster Bank and fund the development.”

[28]Mr Muduroglu (whose primary case is that Sami had no authority to make any agreements for the sale of his shares and who said that he knew nothing of any such agreement as is alleged) put it to Mr Lucie-Smith in cross-examination that the agreement with Sami in the email exchange on 7 September 2009 related to the proposed funding deal with RBS, which would have funded fully both the purchase of KMMG and the entire development of the cemetery (cf. paragraph 23 above); that deal did not go ahead and was very different from what eventually occurred, involving provision of funding of about £23,000,000 as against the £7,000,000 ultimately provided by Ulster Bank. Mr Lucie-Smith’s answer was that, once RBS rejected the proposal, he had told Sami that he would end his involvement unless the same terms, namely a 10% stake in the venture, continued, and Sami had agreed that he would continue to be involved on those terms. I shall say more about that evidence later in this judgment.

[29]Mr Lucie-Smith said in evidence that the rejection of the proposal by RBS increased his workload. It is true that it became necessary to find an alternative source of debt finance, though in fact the initial renewed contact with Ulster Bank was made by Sami, with Mr Lucie-Smith taking over later. As the negotiations developed, it became clear that Ulster Bank’s terms would create a funding gap that would have to be filled by equity finance; this was not necessarily known to be the case from the outset however. In his witness statement Mr Lucie-Smith said that his assistant had produced “a very detailed Information Memorandum” to give to potential investors. Again, although some document was probably produced in late 2009, the document exhibited to the witness statement was produced in 2013 and, though professionally produced and containing what seems to be the material information, is actually fairly short. More relevant is a detailed Project Report produced by Mr Lucie-Smith on 28 March 2010, shortly before the relevant transactions were completed (paragraph 46 below).

[30]More than one finance option was under consideration. Through the further involvement of Mr Librae, and without Mr Lucie-Smith’s knowledge, Sami obtained an introduction to ESO Partners LP, an investment management group, which on 16 November 2009 wrote to Sami with the terms of its proposed provision of funds for the repayment of outstanding debt and the development costs in connection with the Kemnal Manor Site. The “Borrower” was stated to be “A single purpose bankruptcy remote entity beneficially owned by Sami Muduroglu and acceptable partners”, and the “Key Principal” was stated to be “Mr Sami Muduroglu”. This presumably indicates the general nature of the understanding received from Mr Librae and Sami, though it does not necessarily imply a belief that Sami rather than Mr Muduroglu was to be the main beneficial owner. Another potential source of funding was Patron Capital, which was a contact of Mr Lucie-Smith and which he approached with the assistance of Mr Turton. In the event, neither ESO nor Patron Capital provided the finance for the restructuring. ESO did however become involved at a later date.

[31]Negotiations had resumed with Ulster Bank; so far as appears from the evidence, at this stage these were carried on directly by Sami, with additional input from Mr Lucie-Smith. In an email of 26 November 2009 to John Boyd, a director of the Ulster Bank’s Global Restructuring Group, Sami explained that what was envisaged was the purchase of Kemnal Manor from KMMG by a new company (then being called Kemnal Memorial Gardens Limited), in which the shares would be held by Mr Lucie-Smith (77%), Gresham House plc (10%), Aldred Drummond (10%) and Andrew Riley (3%). By a further email on 2 December, Sami responded to Mr Boyd’s enquiries with further information, not all of which coheres very well with the original information; it included the following:• The purchase price for Kemnal Manor would be £11,500,000.

• The proceeds of sale would be divided equally between the members in KMMG.

• The financial structure of the new company would be an “equity/debt mix”. The initial investment would be for the purchase costs, and there would be a further £6,000,000 of subordinated debt to complete the construction. “The source of funding is Derek Lucie-Smith. He will lend the company the funds to complete the construction.”

• In response to an enquiry about the “incentive structure” for Sami, he replied:

“I am to be paid a salary of £150,000 per annum plus an option to purchase 30% of the shares in the company.” • The intended corporate structure was as follows: the land would be owned by “a UK LLP” (“PropCo”), which would lease it to a UK limited company (“OpCo”). Both PropCo and OpCo would be subsidiaries of an offshore holding company (“HoldCo”); HoldCo would own 999 shares in PropCo and Mr Lucie-Smith would own one share. • In response to an enquiry as to whether there would be any management role for Sami (the enquiry apparently referred to PropCo), he replied: “My role is to support the delivery of the completed phase 1 of the cemetery within 1 year, and thereafter to manage the operational affairs from Head Office, promoting sales.” • As for OpCo, the chief executive was to be Mr Lucie-Smith, and Sami was to be employed as a consultant through the construction phase and the first year of operations and was then to be “incentivised with share options amounting to 30% of HoldCo.”

[32]The basic corporate structure set out in those responses was the structure duly employed, albeit with some refinement. HoldCo was MHL. PropCo was Memorial Property Investments Limited (“MPIL”). OpCo was Tribute Management Limited (“TML”). MHL and MPIL were incorporated in Jersey, respectively on 11 December 2009 and 5 March 2010. TML was incorporated in England and Wales on 10 March 2010; Mr Lucie-Smith was its managing director and Sami was a director. Both MPIL and TML were wholly owned subsidiaries of MHL.

[33]The emails between Sami and Mr Boyd appear to be the first documented indication that Gresham House plc was willing to be an equity investor in the project. Mr Muduroglu’s evidence, which I accept on this point, is that it was in December 2009 that Sami told him and Mr Wishart that Gresham House was willing to invest, and that they agreed that they would sell as many shares as possible while retaining control of the project. Mr Riley’s involvement had gone back as far as September 2009, when he was approached by Mr Lucie-Smith on behalf of Sami with a view to making a loan to KMMG. His involvement is enmeshed with transactions that are difficult to unravel on the state of the evidence before me and are in part the subject of other litigation; I shall say more about these matters only so far as is necessary.

[34]Events in and around December 2009 form the bridge between the position as it was when Mr Lucie-Smith became involved and the position in April 2010; they are relevant as background and also demonstrate some of the tangled web of which the present litigation is only one strand. 1) Mr Muduroglu agreed to purchase Ravenblack’s 50% interest in KMMG. The monetary consideration was only £150,000, but Mr Muduroglu also agreed to accept responsibility under certain personal guarantees; the monetary price is not a true reflection either of the value of the deal to Ravenblack or of the value of a 50% share. This deal was completed by the end of December 2009. 2) MHL was incorporated on 11 December 2009. Its registrar in Jersey was Whitmill Trust Company Limited, which provided its directors, Mr D. G. Wijsmuller and Mr F. J. Deacon. MHL’s company secretary was Whitmill Secretaries Limited. The controlling shareholder was Mr Lucie-Smith, who held his shares on a nominee basis pending the further transactions. At this stage, of course, MHL had no assets. 3) On 15 December 2009 Mr Wijsmuller and Mr Deacon wrote a letter of authority to Mr Lucie-Smith, authorising him on behalf of MHL to negotiate in respect of the acquisition of Kemnal Manor and of necessary finance and to market the undertaking in order to attract prospective investors. 4) The agreement at this stage was that MHL would acquire a 10% share of KMMG for £1,130,000. That money was itself to be provided by a purchase of the shares in MHL by Gresham House (which would pay £680,000) and Andrew Riley (who would pay £450,000). 5) There was certainly some performance either of this agreement or of an agreement akin to it. On 23 December 2009 MHL paid £630,000 to Stephenson Harwood for Mr Muduroglu. Of that money, £150,000 was paid to Ravenblack to complete Mr Muduroglu’s purchase of the remaining interest in KMMG. The rest of the money went mainly to creditors. On 14 January 2010 the shares in MHL were transferred to Mr Riley (501 shares) and Gresham House (499 shares). The result of all this was that Mr Muduroglu owned 90% of the Kemnal Manor Site (that is, through KMMG) and Mr Riley and Gresham House each owned 5% of the Kemnal Manor Site (that is, through MHL and KMMG). 6) There is an issue, however, as to what agreement was implemented and perhaps as to what payments were made. Mr Muduroglu says that he never received the outstanding balance of £500,000 for the sale of 10% of KMMG to MHL. Mr Lucie-Smith contends that Mr Riley paid £310,000 in full and final settlement for his shareholding in MHL. Mr Muduroglu’s contention is that this money was misappropriated by Sami; I think that he says also that Mr Lucie-Smith was complicit in that misappropriation. I shall say just a little about this dispute, which forms the subject matter of separate litigation. 7) A Sale and Purchase Agreement was drawn up between MHL and Mr Muduroglu; it has been referred to as “the Creed Lane Agreement” after the solicitors who drafted it. This Agreement provided for the sale by Mr Muduroglu to MHL of a 10% share in KMMG. Schedule 2 recorded that the purchase price payable by MHL was to be contributed as to £680,000 by Gresham House and as to £450,000 by Mr Riley, in each case “representing 5% of the LLP”. Gresham House and Mr Riley were not themselves parties to the Creed Lane Agreement; when shown it in cross-examination Mr Riley said that he had never previously seen it and could not comment on it. Mr Lucie-Smith signed the Creed Lane Agreement on or about 23 December 2009, but he denies that it ever came into effect. (More accurately, when cross-examined at the trial he said that he wanted to reserve his position on the question of the legal effect of the Creed Lane Agreement, because he did not want to affect legal argument in the other litigation. He did not state why it did not or might not have legal effect.) Mr Muduroglu says that the Creed Lane Agreement did come into effect and that he has not received all of the money due under it. 8) Mr Riley’s involvement predated the discussions for the Creed Lane Agreement. The proposal originally put to Mr Riley in September 2009 is not entirely clear. Its first part was that he would make an interest-free loan “to the LLP” (email of 2 October 2009 to Mr Riley from his solicitors, Boodle Hatfield) of £150,000. This advance would be repayable after six months, with the option to take instead a 2% shareholding. (The agreement would be novated with any new corporate entity that replaced the LLP.) As Mr Riley understood it, this initial advance was urgently required in order to carry out works to prevent the existing planning permission being lost. There was then, probably, to be a second loan at a later date; this was originally to be an advance of £300,000 with an option to convert it into a 3% stake in the LLP or whatever company had replaced it. 9) Mr Riley executed an undated loan agreement for £150,000, which was prepared by Boodle Hatfield. The borrower was named as Mr Muduroglu, and the loan was supported by an undated personal guarantee from Sami. The loan agreement and the guarantee purport to have been executed by, respectively, Mr Muduroglu and Sami. Mr Riley acknowledges that all his dealings in respect of the various transactions were conducted with Sami; he did not meet Mr Muduroglu until much later. Mr Muduroglu denies that he signed the loan agreement, and he denies receiving money pursuant to it. It appears that Mr Riley did advance £150,000 but paid it to Sami. The payment was probably made in October or November 2009, although a document that I shall refer to suggests that the payment was made on 24 January 2010. 10) Mr Riley’s evidence was that at some date shortly after the first payment was made he renewed the negotiations with Sami in respect of the second loan, which was not subject of any binding agreement. This resulted in an understanding, still not formally binding, that the second loan would be only £200,000, though it would still be convertible into a 3% stake. He said that in the early summer of 2010, after the restructuring had taken place, Mr Lucie-Smith, ostensibly acting on Sami’s instructions, approached Mr Riley with a request that he accelerate the payment of the second loan of £200,000 because more money was urgently needed. Aware that he was in a strong position, Mr Riley stipulated that he would advance only £160,000 for the same return as had been envisaged on a £200,000 loan. 11) Mr Riley signed a letter, addressed to Mr Muduroglu and purportedly counter-signed by him. Mr Muduroglu denies that it is his signature and says that it is a forgery by Sami. The letter, which bears the date 27 July 2010 under the counter-signature, reads:

“I write with reference to my purchase of 501 ordinary shares of £1 each in Memorial Holdings Limited (‘the Shares’) from you, in respect of which I paid you £150,000 on 24 January 2010. We have agreed in principal (sic) agreed (sic) that I will, on or about the date of this letter, pay to you a further sum of £160,000 in respect of those Shares. It is agreed that the further payment of £160,000 by me in respect of the Shares will be in full and final settlement of all sums due from me to you in respect of the Shares and on (sic) accordingly you waive all and any claims you may have (past present or future) against me in connection with the same. We understand that payment of £160,000 should be made to Derek Lucie-Smith at his designated account. Please countersign and date this letter and return a copy to me to indicate your agreement and acceptance to its terms.” 12) The £160,000 was indeed paid to Mr Lucie-Smith. Mr Riley’s evidence was that that he paid the money because he was told that the corporate structure was in desperate need of the money, and that he paid on the basis that the money would be applied to the corporate structure. However, Mr Lucie-Smith’s evidence in cross-examination was that he and Sami had done a calculation of what he was entitled to for all the funds he had raised and had agreed that, in addition to his 10% shareholding, he was entitled to a further payment of £130,000; therefore he took £130,000 and paid the balance to Sami. “This [the £130,000] was deemed to be my extra fees over and above my 10%.”

I shall say more about that evidence later.

[35]As at the end of 2009, no deal had yet been struck with Ulster Bank and other options were still being considered. Mr Marshall was in discussion with the Commercial section of Barclays Bank, and in an email to Barclays Bank on 17 December 2009 he set out his purported understanding of the background to the matter:

“• Sami Muduroglu through his brother Erin Muduroglu owns 50% of KMMG UK LLP … … • Sami Muduroglu acts as a consultant (through Propvest Land and Development Consultancy) to the project as a result of his existing disqualification as a company Director (a role that his brother Erin Muduroglu has taken over during his disqualification). • Sami Muduroglu’s disqualification period ends on the 3rd February after which point he is legally allowed to be fully involved with the project in either a management consultancy role or directly as a company director. Shareholding structure • Gresham House Plc have invested £800,000 for a 5% stake in the company, these funds have been used to “Buyout”

Ravenblack’s 50% shareholding and pay the associated legal costs. • Derek Lucie-Smith will be proportioned a 10% stake in the business for his involvement. • Sami and his Family will ‘beneficially own’ the remaining c.85% through the existing LLP, however DLS will be the ‘Legal owner’ of 100% of the shares.” Shareholding structure The reference to Mr Lucie-Smith’s “10% stake in the business” seems likely to reflect an understanding on Mr Marshall’s part that this was by way of remuneration or recompense for his work, though Mr Marshall did not give evidence to confirm that understanding or how he arrived at it.

Shareholding structure

[36]As Mr Muduroglu observed in the course of his submissions, the disclosed documents are markedly lacking in personal emails between Mr Lucie-Smith and Sami in the period between late 2009 and April 2010. However, there is a sequence of emails between Mr Lucie-Smith and solicitors at Travers Smith LLP, which was acting for Gresham House. On 21 December 2009 Travers Smith sent a detailed email to Mr Lucie-Smith, making numerous enquiries about the proposed corporate restructuring and the draft documentation, and he replied by way of comment on the email on the same day. The solicitors’ first point was that Mr Lucie-Smith might have a conflict of interest with Gresham House, “given your personal role in the proposed project”:

“This may be relevant even where you are not directly investing if you are to be involved in the project in other ways and not simply by virtue of your being a director of GH.”

Mr Lucie-Smith’s response included the following:

“I am representing Gresham’s interest and in the event that I can buy at a later date I will do so and will clear this with Evolution [referred to as Gresham House’s “sponsor”] and the Board.”

After a further part of the same enquiry, Mr Lucie-Smith responded:

“I am not investing.”

The answers given by Mr Lucie-Smith are inconsistent with him having a beneficial shareholding; a conflict of interest would be created by a transfer to him without payment as it would by a purchase. The later parts of the same email show that it was envisaged that matters would proceed on the basis of the existing Ulster Bank finance, though with options for re-finance available from both ESO and Barclays Bank.

[37]Another feature of the email exchanges was pointed to by Mr Muduroglu in his closing submissions. On 23 December 2009 Travers Smith queried a point in the draft sale and purchase agreement:

“[It] refers to Tribute Holdings Ltd having a 10% interest in the LLP through the JerseyCo (for a purchase price of £650k) and I am not sure who Tribute Holdings are.”

Mr Lucie-Smith replied: “To be deleted.” In his evidence Mr Lucie-Smith said that he did not know of Tribute Holdings or how it had come to be mentioned at all. Mr Muduroglu speculated that the reference had resulted from an early effort by Sami to obtain a 5% shareholding by deception through the use of a corporate vehicle, with Mr Lucie-Smith investing £650,000 for the remaining 5%.

[38]On 3 February 2010 Sami and Mr Lucie-Smith met with Mr Stephen Koehne and Ms Rebecca Vernon of Stephenson Harwood in order to receive advice on the tax implications of the proposed restructuring. On 5 February Mr Koehne sent them an email, copied to Mr Muduroglu, attaching a preliminary note on taxation prepared by a colleague. The note focuses on the tax implications of the corporate structure, but it proceeds on the basis that Mr Muduroglu’s personal tax position is in issue; there does not appear to be any consideration of the taxation implications for Sami. That basis is also evident in the Tax Note dated 11 February 2010, which was prepared by the same colleague and concludes with a recommendation that Mr Muduroglu take advice about his tax position. These notes on tax tend to indicate that, even if the driving force behind much of what was going on was Sami, Stephenson Harwood regarded Mr Muduroglu not only as its client but as the beneficial owner of the shares. As the advice was given pursuant to the meeting on 3 February, it is a reasonable prima facie inference that this is also the basis on which Sami and Mr Lucie-Smith were treating the shareholding in their dealings with Stephenson Harwood.

[39]Meanwhile, negotiations with Ulster Bank were continuing, though they were proving difficult. The bank initially wanted Mr Muduroglu to reinvest the proceeds of sale of the shares in the development, and although it proved willing to temper its requirements in that regard there was still a funding shortfall. Mr Lucie-Smith now took the lead in discussions with the bank, and on 26 January 2010 he met with senior officers of the bank in Belfast. On 16 February 2010 Ulster Bank produced indicative proposals for the renewal of facilities to KMMG. The document specified several preconditions to the bank’s willingness to fund, which included the following: the bank required to be satisfied that investors had raised sufficient funds to meet the development costs associated with the cemetery (then estimated to be £4,670,000); Mr Muduroglu’s shareholding in KMMG was to be reduced from 90% to 75% by the end of May 2010 and to less than 50% by 31 August 2010; full details of all proposed investors were to be provided to the bank; and all correspondence between the bank and KMMG was to be conducted via Mr Lucie-Smith. It was never a condition that Mr Lucie-Smith have any shareholding in the venture. It was at least implicit in the requirement that the bank be given details of all proposed investors that it would expect to know of anyone who was receiving shares without payment.

[40]Ulster Bank’s stance meant that it was necessary to obtain greater equity investment than had been envisaged originally. On 26 February 2010 Mr Tony Ebel, the chairman of Gresham House plc and a business associate of Mr Lucie-Smith,agreed that Holyoak Investments Inc, a Panamanian company that he used as a family trust, would take a 20% share in MHL.

[41]On 18 March Sami sent an email to Becky Vernon, which was copied to Stephen Koehne, Mr Lucie-Smith and Mr Muduroglu. It stated that the final shareholdings on completion would be Gresham House (5%), Andrew Riley (5%), Holyoak Investments Inc (20%), and Mr Muduroglu (70%), and that Holyoak was paying £3.8 million for its 20% interest.

[42]The email makes no mention of Mr Lucie-Smith’s shareholding. If Mr Lucie-Smith is right, his shareholding had been agreed several months previously; yet the final shareholdings mentioned in the email do not allow for any holding on his part and are inconsistent with it. It might possibly have been prudent not to mention such a holding to the potential equity investors; though if the holding were above board and the investors were not being misled it is not clear to me why it should not have been mentioned. But there is no obvious reason why the proposed shareholding should not have been mentioned to the solicitors and Mr Muduroglu, if Mr Lucie-Smith’s evidence as to the basis on which he was to receive it is correct.

[43]It was proposed that Gresham House plc would take an option for an additional 5% shareholding. On 22 March 2010 Ms Vernon sent an email addressed to Mr Lucie-Smith, Sami and Mr Muduroglu, and copied to Mr Koehne, enquiring as to the price for the 5% shareholding under the option agreement:

“Is £850,000 still the benchmark?”

Mr Lucie-Smith replied to all:

“It is still £850k.”

Mr Koehne also replied to all:

“I believe that the price for the 5% payable under the option remains at £850,000. I spoke this morning with both Sami and Derek and it looks likely that Tony Ebel’s share will increase from 20% to 30% and that he’ll be paying an extra £1,900,000 for the additional 10%. Derek will know about another prospective investor tomorrow. He also needs to come back. Derek is also preparing a note as to how much money is to come in and from who (sic) and how much is to be spent (and by whom) for the development costs.”

[44]Mr Muduroglu’s evidence was that the price of £850,000 for a 5% shareholding was higher than the price at which Gresham House had obtained its existing 5%, namely £680,000, because MHL was now fully funded and consideration of up to £950,000 could now be achieved for a 5% holding, as indicated by the price to be paid by Holyoak Investment.

[45]Emails in the period 22 to 26 March, and involving Stephenson Harwood, Sami and Mr Lucie-Smith, but not Mr Muduroglu, confirmed that Holyoak Investments would pay £5.7 million for a 30% interest in MHL and that the funds would be remitted to Stephenson Harwood’s client no. 2 account to be held to the order of the sender until release. However, Holyoak would itself be providing only £3.8 million, with the balance of £1.9 million being paid by three named individuals. Mr Koehne requested details and proof of identity of those three persons for the purposes of “Know Your Client” compliance, but this appears to have been specifically because Holyoak was to be acquiring an interest in excess of 20%.

[46]On 28 March Mr Lucie-Smith produced a detailed Project Report. It said that external investors had secured 40% of MHL, the latest 10% at £1,900,000, and that a further 15% was being placed out; this would leave 45% with the “Muduroglu family”. Those figures are inconsistent with an existing agreement that Mr Lucie-Smith should have a 10% shareholding.

[47]On 29 March Ms Vernon sent an email to Holyoak’s solicitor following an earlier telephone conversation; the email was copied to Sami, Mr Muduroglu and Mr Lucie-Smith. One of the points mentioned in the email was:

“Derek is to get back to me tomorrow as to what is to happen with the additional 10%. This is in addition to the Gresham option. It is likely that the shareholders’ agreement will just be amended to include a clause confirming that Eren will transfer 10% within a certain period of time from the date of the shareholders’ agreement but I will confirm tomorrow.”

Mr Aldridge suggested to Mr Muduroglu in the course of cross-examination that the passage in the email was “plainly giving effect” to the agreement between Sami and Mr Lucie-Smith. That is clearly not the case. The reference to a transfer “within a certain period of time from the date of the shareholders’ agreement” is hardly likely to be to a transfer for which no new consideration was required. It is possible, as Mr Muduroglu thought, that it was envisaging the introduction of a last-minute purchaser who would not be able to provide the purchase moneys in time for the planned completion. More likely, it was envisaging that shares beyond those for which there were already purchasers (that is, a further 10% shareholding, in addition to Gresham House’s option for 5%) would be made available on the terms of the intended shareholders’ agreement, as mentioned in the Project Report on the previous day. Either way, Ms Vernon, so far from “plainly giving effect” to the agreement alleged by Mr Lucie-Smith, was clearly unaware of it.

[48]On 29 March Mr Lucie-Smith had an exchange of emails with Mr Ebel. Mr Ebel set out three points that remained to be settled; the third was:

“Sorting out your holding to your satisfaction—I need to talk with David Brookland …”

Mr Brookland was the other director of Holyoak; it appears that Mr Ebel wanted to be satisfied that he was content for Mr Lucie-Smith to have a shareholding in MHL. The size of that holding was shown by Mr Lucie-Smith’s response:

“I would be grateful if you would call me tomorrow as soon as you have heard about my 10% shareholding.”

Mr Lucie-Smith also wrote:

“PS: I believe that Sami would let a further 5% go.”

The natural inference to be drawn from these communications is that Mr Ebel had only recently become aware that Mr Lucie-Smith was proposing to take a shareholding. Other evidence tends to confirm that this is the correct inference.

[49]Presumably Mr Brookland was content for Holyoak to proceed on the basis that Mr Lucie-Smith would have a 10% shareholding, because on 31 March Mr Lucie-Smith sent an email to Ms Vernon, copied to Sami and Mr Koehne:

“Here are (sic) the list of shareholders. I have asked Tony [Ebel] for the addresses. Also can you add Reddish LLP whose address I will supply later on. They will own 10%.”

In an email on the same date, Mr Lucie-Smith gave some explanation to Mr Ebel of Reddish’s involvement:

“I have used an existing LLP to hold 10% and the shareholders are Andrew Riley 71% and Myself 29%. I do not have a legal arrangements (sic) with Andrew that I am the beneficiary.”

[50]Ms Vernon informed Ogier, which was dealing with the Jersey end of the transaction, that she had updated her draft of the relevant board minutes to reflect the further share transfers to Reddish and the individuals associated with Holyoak, as well as new stock transfer forms. Clearly Stephenson Harwood had not known that Reddish would take a transfer of shares before 31 March; there is no indication, indeed, that they had known that Mr Lucie-Smith would be taking any shares by whatever means. The documents contain no enquiry by Stephenson Harwood as to the price that Reddish would be paying for its shareholding; nor do they contain any record to show that no price would be paid.

[51]Mr Muduroglu’s evidence was that it was only in late March 2010, relatively shortly before completion, that he learned that Mr Lucie-Smith was proposing to take a shareholding in MHL. Until that point, he had believed that Mr Lucie-Smith’s shareholder involvement was only through what he understood to be his substantial shareholding in Gresham House. He said that he asked Sami what price Mr Lucie-Smith was proposing to pay for his shares, and Sami replied that it was to be the same price as Gresham House. “I enquired whether that was at the price of Gresham’s first share purchase in December 2011 (£680,000) or their option price (£850,000) which was due to take place within 6 months. I told SM that I was happy for DLS to match the price of Gresham’s £680,000 but that he should pay more than Mr A Riley’s [£450,000] as we were now fully funded and shares were changing hands at £950,000 per 5%. We agreed that £650,000 was a fair price for a 5% stake.” I accept the evidence so far as it relates to the first mention of a shareholding for Mr Lucie-Smith; it is entirely consistent with the contemporaneous documentation. I shall say more below about the evidence concerning price.

[52]As the time for completion drew closer, Stephenson Harwood gave thought to the sequence of the various stages of the overall transaction, a matter that has some relevance to a central issue in the case. On Monday 29 March 2010 Ms Vernon sent an email to Sami, Mr Muduroglu and Mr Lucie-Smith; I have inserted what must be the intended dates:

“If we are to complete the first stage on Wednesday [7 April] (transfer of KMMG business to MPIL and issue of shares in MPIL) followed by stage 2 (transfer of Eren’s shares in MPIL to MH for an issue of shares in MH) and stage 3 (signing of shareholders’ agreement and investment into MH) on Thursday [8 April] we need to start sending documents out to the relevant parties for signature as soon as possible. Maryanna [Stephenson Harwood’s tax specialist] has confirmed that stages 2 and 3 can happen on the same day, with stage 2 obviously having to happen first so that Eren has shares in MH to give away to the new investors. In terms of documents that need to be signed by Gresham, Eren, Derek, the LLP it may be easiest to get all parties concerned into our offices to sign everything that needs signing at once. This will obviously depend on logistics and the timing of when all of the documents are agreed.”

[53]All aspects of the transaction were set for completion on 7 and 8 April 2010. Only days before, the matter was nearly derailed when Ulster Bank suddenly stipulated that the facility letter for the continued finance should contain provision for an exit fee of £750,000 instead of the £200,000 previously discussed. Mr Lucie-Smith’s evidence, which I broadly accept, was that he was for refusing this demand as being tantamount to blackmail, but that Sami proposed to him that they should agree to it on the basis that Mr Muduroglu would sign a letter to agree personally to pay the difference, namely £550,000; however, Sami then reverted to him and said that they would agree to a letter to the extent of £400,000 but that the other shareholders in MHL would have to make up the difference. Mr Lucie-Smith thought this only fair; the shareholders should bear the responsibility pro rata. On 6 April Mr Lucie-Smith wrote an email to Ms Vernon:

“Here is the proposed letter with regard to the exit fee. I will give Sami a letter in support of Reddish LLP’s 10% as I think a letter from one person is better.”

Ms Vernon replied with comments on the draft and a question, “Is Eren happy to sign this letter?” Apparently he was, because among the completion documents dated 8 April 2010 is a letter, signed by Mr Muduroglu and addressed to the directors of MPIL, in respect of the £750,000 exit fee:

“this letter is to confirm that I agree to be personally responsible for discharging £400,000 … of the total £750,000 liability. The remaining balance is to be paid by MPIL.”

In the course of his oral evidence, Mr Muduroglu first said that he had discussed the letter directly with Ms Vernon, but it seems to me more likely that his discussions were with Sami and that Sami spoke to Ms Vernon; indeed, after his initial answer Mr Muduroglu’s evidence was that he had discussed the letter with Sami.

[54]An issue arose at trial as to the meaning of Mr Lucie-Smith’s statement in the email of 6 April:

“I will give Sami a letter in support of Reddish LLP’s 10% as I think a letter from one person is better.”

Mr Muduroglu said that this must be an acknowledgment that the obligation to pay the purchase price for the 10% shareholding was to be set out in a side letter. In my judgment, that is plainly wrong. When read in context, the statement must mean that Mr Muduroglu would be the sole undertaker to MPIL in respect of the £400,000 and that Reddish, as a 10% shareholder, would undertake to Mr Muduroglu to contribute 10% of that amount. Against this construction, Mr Muduroglu relied on the fact that, when MPIL paid the exit fee to Ulster Bank, in November 2013 its solicitors, acting on the instructions of its directors, who included Mr Lucie-Smith, sought payment of £400,000 from Mr Muduroglu. Mr Lucie-Smith frankly accepted that he had advised the board of directors to sue Mr Muduroglu for the £400,000, although in the event no such claim was brought. The stance taken by Mr Lucie-Smith in late 2013 may be in some tension with his willingness in 2010 for Reddish to contribute 10% of the liability, but it does not make Mr Muduroglu’s interpretation of the email any more plausible. By November 2013 Mr Lucie-Smith was facing both these proceedings and other hostile claims by Mr Muduroglu, and it seems at least likely that Mr Muduroglu owed £400,000 to MPIL, whatever rights of contribution he may have had against Reddish and others. Reddish may have had a liability to contribute towards any payment in respect of that obligation; that does not fall for decision. But as Mr Lucie-Smith observed in his evidence, the “letter in support of Reddish LLP’s 10%” was never sought by Sami or the claimant and was not provided. Anyway, the meaning of the email of 6 April is clear.

[55]The relevant transactions were completed on 7 and 8 April 2010. It is Mr Muduroglu’s case that on 8 April he, Sami and Mr Lucie-Smith were present together at the offices of Stephenson Harwood and there was express oral agreement and confirmation as to the price that Reddish would pay for its 10% shareholding. In his second witness statement Mr Muduroglu set out the case that he advanced at trial:

“On 8th April 2010 I, together with SM and DLS, met Mr Stephen Koehne (my lawyer) and Becky Vernon at Stephenson Harwood for a signing meeting … I informed Stephen Koehne … that the Reddish payment of £1,300,000 was to be deferred. … I asked DLS (in the presence of SK and SM) to confirm how much Reddish was paying. SM replied it was ‘£650,000’ (meaning for a 5% stake, which is how SM and I always discussed price). I looked to DLS for his confirmation of this and he nodded. I said for the sake of clarity, ‘So it is £1,300,000?’ DLS then said that we should not put this number down on the stock transfer form yet as he had to discuss this with the other incoming shareholders and also the board of Gresham because he was buying the shares at a discount. I agreed to leave the stock transfer form blank to be completed in Jersey when I received the money.”

Mr Lucie-Smith’s evidence concerning 8 April 2010 was simply that he met either Mr Koehne or Ms Vernon (he could not remember which) at the offices of Stephenson Harwood but did not meet Mr Muduroglu there or, indeed, at all before 2 November 2010. He was uncertain whether he had seen Sami but thought that he had not; he said that he had some recollection that Sami had left before he arrived. He said that he could not remember whether Sami joined a meeting by telephone on that date.

[56]Neither Reddish nor Mr Lucie-Smith paid anything for the shares upon completion; at least, they paid nothing to Mr Muduroglu or through Stephenson Harwood. In his second witness statement, with reference to the time when Sami (SM) first told him that Mr Lucie-Smith (DLS) would be acquiring a shareholding, Mr Muduroglu stated:

“I asked SM if DLS could complete his acquisition at the same time as the others. We were aiming for 1st April 2010 and SM said that it would take a couple of months for DLS to raise the funds.” 57. Then, with apparent reference to subsequent confirmation that Mr Lucie-Smith would acquire his shareholding through Reddish and would complete the transaction at the same time as the other purchasers, Mr Muduroglu stated: “On hearing that DLS would complete with the others I asked SM if DLS would have the funds in place in time as we were due to complete within a week. SM told me that the payment needed to be deferred until DLS could re-mortgage his house in Kensington as he was not cash rich at this time. I had no reason to distrust DLS as he was going to be the project manager so wasn’t going anywhere and he couldn’t sell the shares on without me knowing due to the terms of the shareholders agreement.”

[57]Among the many documents executed to complete the transactions, the following may be mentioned: 1) By an Asset Sale and Purchase Agreement dated 8 April 2010 and made between(1) KMMG,

(2) MPIL,

(3) MHL, and

(4) Mr Muduroglu, KMMG sold to MPIL its business of developing and operating cemeteries and crematoriums in the UK. The purchase price was to be satisfied by the allotment and issue of shares in MPIL to MHL and Mr Muduroglu; completion was to follow immediately upon the execution of the Agreement. The percentage shareholding in MPIL following completion was to be 90% to Mr Muduroglu and 10% to MHL, which reflected their respective proportionate shareholdings before the Agreement. 2) Ulster Bank’s facility letter to MPIL in respect of loans totalling £8,765,000 was signed in acceptance by Mr Wijsmuller and Mr Deacon and dated 8 April 2010. 3) Mr Muduroglu gave a personal guarantee for £2 million to Ulster Bank in respect of MPIL’s borrowings and another unlimited guarantee in respect of MPIL’s interest liability to Ulster Bank. 4) MHL and TML gave a guarantee and indemnity to Ulster Bank in respect of MPIL’s borrowings. 5) By a Loan Agreement dated 8 April 2010 SMU Investments Limited (“SMU”) agreed to lend MPIL up to £3,067,000 for use in the development of the cemetery. SMU’s name was based on “Sami Muduroglu” and he was its sole shareholder. The loan was by way of reinvestment of part of the proceeds of sale of shares, which were subject of an undertaking by Mr Koehne to ensure that they were available for advance. In his witness statement Mr Lucie-Smith observed that this was inconsistent with a claim by Mr Muduroglu to be the sole beneficial owner of the shares in MHL. However, it is not necessarily inconsistent with his claim to have held them for the benefit of Sami, Mr Wishart and himself, with the division of moneys to come at the fruition of the project. 6) By a Share Sale and Purchase Agreement dated 9 April 2010 and made between Mr Muduroglu and MHL, Mr Muduroglu agreed to sell and MHL agreed to buy 900 ordinary £1 shares in MPIL in consideration of the allotment and issue by MHL to him of 9000 ordinary £1 shares in MHL. The effect of this was to make MPIL a wholly owned subsidiary of MHL. 7) Most importantly for these proceedings, there was a Shareholders’ Agreement relating to MHL dated 9 April 2010, made between the existing shareholders and those to become shareholders. It recorded that the existing shareholders were Gresham House Plc (5%), Jonathan Riley (5%) and Mr Muduroglu (90%). Gresham House Plc and Jonathan Riley were to retain their shares, and Mr Muduroglu agreed to transfer shares to the new shareholders, after which the shareholding in MHL would be as follows: Gresham House Plc (5%), Jonathan Riley (5%), Mr Muduroglu (45%), Holyoak Investments (20%), Mr John Giddens (3.5%), Mr John Quinn (3.5%), Mr Lyndon Stickley (5%), Mr Julian Ebel (Tony Ebel’s brother) (1.5%), Hightown Securities Ltd (0.5%), Mr Martin Pope (1%), and Reddish (10%). In respect of each transfer, the Agreement recorded that it would be “in consideration of the payment by [the transferee] of the sum set out in an instrument of transfer duly executed by [Mr Muduroglu].” The Shareholders’ Agreement provided that Sami and a limited liability partnership owned by Mr Lucie-Smith were to have consultancy agreements with TML, and that Mr Lucie-Smith and Sami were to be the directors of TML.

[58]Mr Muduroglu signed stock transfer forms in respect of all the transfers of shares pursuant to the MHL Shareholders’ Agreement. With the exception of the stock transfer form for Holyoak Investment, the box for the statement of “Consideration Money” had been left blank on all the forms when he signed them. (MHL is incorporated in Jersey: stamp duty at a rate of the consideration is payable upon the transfer of shares in a UK company by stock transfer form, but with only limited exceptions no stamp duty or equivalent tax is payable on the transfer of a Jersey company’s shares, and therefore consideration did not need to be shown for stamping purposes.)

[59]At some point Reddish’s stock transfer form was completed by the insertion of £200,000 as the monetary consideration. The insertion of that figure forms the basis of the claim in conspiracy, and I shall consider how that came about later in this judgment.

[60]Reddish was issued with a share certificate dated 9 April 2010 in respect of its shares and was entered on the register of members.

[61]The payments made by or on behalf of the other purchasers, together comprising 35% of the shareholding, appear from the entries in the Stephenson Harwood client account:• John Quinn (3.5%): £650,000 on 30 March 2010

• Holyoak Investments Inc (20%): £3.8 million on 31 March 2010

• John Giddens (3.5%): £665,000 on 31 March 2010

• Lyndon Stickley (5%): £570,000 on 31 March and £190,000 on 1 April 2010

• Tony Ebel (2% for Julian Ebel and Hightown): £285,000 on 1 April and £285,000 on 8 April 2010

• Martin Pope (1%): £190,000 on 6 April 2010

[62]There is no record of Stephenson Harwood ever being told or enquiring how much Reddish was to pay for its 10% shareholding or seeking payment from Reddish.

[63]On 10 April Sami sent an email to Mr Lucie-Smith:

“With the greatest respect to the lawyers, I do not feel that we would ever have got this over the line without your energy and input, for which I am truly grateful. I really do feel that you have shared this roller coaster ride with me and I am determined to show you my true capabilities, as you have done for me, in the development of the business model that is so firmly ensconced in my mind. Thank you for helping to keep my dream alive.”

Thank you for helping to keep my dream alive.”

Subsequent facts

[64]Events after completion are relevant only insofar as they shed light on what went before. Further references to events and documents will therefore be selective, at the risk of disjointedness of the narrative. I shall not attempt to explain all references in the documents where these can be left obscure without affecting understanding of the issues in this case.

[65]In late April 2010 a further issue arose with regard to Ulster Bank, after the bank discovered that SMU was “a vehicle that is owned by Sami Muduroglu” (per Mr Lucie-Smith in an email dated 27 April 2010). The bank had actually been led to believe, mistakenly, that Mr Lucie-Smith was the source of the lending: see paragraph 31 above. It appears that there was a proposal that Mr Muduroglu sell further shares to Holyoak Investment but that the purchase price be paid directly to SMU, as a creditor of MPIL, and released to Sami. The bank was understandably unhappy about the proposal. At all events, no sale of shares took place at that stage.

[66]In July 2010 MPIL engaged McGee Group Limited (“McGee”) to carry out works of building and development at the cemetery site. The building contract and its performance are not relevant to the issues in this case, but they did give rise to a major source of contention regarding Sami’s conduct, and the communications between the parties in that regard bear some examination.

[67]The evidence of both Mr Muduroglu and Mr Lucie-Smith was that Sami was almost always desperately looking for money. He had received at least some part of the £160,000 paid by Mr Riley in July 2010; it may be that he had received all of it, because (as I shall explain later) I do not consider Mr Lucie-Smith’s evidence in that regard to be truthful. In August 2010 he asked Mr Lucie-Smith to lend him £300,000 for a four-month period with a return of one-third upon repayment, upon the security of a pledge of loan notes in MPIL. Mr Lucie-Smith sent an email to Tony Ebel on 27 August, asking whether Holyoak or any other investor might be interested. The email indicated that Sami was under particular pressure:

“[He] needs to pay off some loans and guarantees he has given on behalf of Erin (sic). There is one in particular that is threatening to foreclose on Erin for £700,000.”

It is not possible on the state of the evidence to know how far Sami was openly standing behind Mr Muduroglu in respect of the latter’s borrowings, but it is clear that Sami was undertaking liability to cover his brother’s debts and that these were not seen as purely the responsibility of the claimant.

[68]In September 2010 further discussions took place concerning the sale of more of Mr Muduroglu’s shares in MHL to Gresham House and others. Discussions with both Stephenson Harwood and Ulster Bank were carried on by Sami. Stephen Koehne’s email to Sami on 16 September, copied to Mr Muduroglu, was headed in the Subject field:

“Memorial Holdings Limited—disposal of a further 3% of shares in memorial (sic) Holdings Limited held in Eren’s name”

. In October 2010 1000 of the shares were sold to Gresham House for £1,712,000 and 500 were sold to other existing shareholders for a sum of £856,000. These sales reduced Mr Muduroglu’s holding in MHL to 30%.

[69]By early 2011 Mr Wishart had begun to understand that he had not been treated either honestly or fairly by Sami with respect to the sale of the interest in Kemnal Manor. When Mr Muduroglu sold the shares in April 2010, Sami agreed with Mr Wishart what he would do with the latter’s share of the proceeds. Sami told the story in a statutory declaration he made in July 2012, shortly before disappearing:

“2. Kevin requested that on his behalf, in order to purchase the property known as …, I was to set up a trust in Jersey in the name of Kaymuu Trust, which Property was to be registered in the name of Kaymuu Trust and Kevin was to [be] the beneficiary of that trust. 3. In approximately December 2009 I told Kevin that I had set up the trust referred to above in whose name the Property would be purchased. 4. When the Property was purchased, I instructed my solicitor to purchase the Property in the name of Kaymuu Limited which is a UK company and not the Jersey trust referred to above. I did not inform Kevin of this. 5. The monies to purchase the Property were provided by Kevin from his proceeds of a share sale in Kenmal Cemetery which shares were held on trust on behalf of Kevin by my brother Eren Muduroglu.”

That is not all, because, unbeknown to Mr Wishart, Sami caused Kaymuu Ltd to take a bridging loan, secured on the house. He defaulted on the repayments and the lender, Credit & Mercantile Plc, brought the possession proceedings that ended up in front of Mr Kerr QC (paragraph 9 above).

[70]Mr Wishart was less than pleased when in early 2011 he found out what had happened, and in February he addressed the matter on two fronts that may be mentioned here. First, he sought assurance from Sami as to how his interest in the remaining shares was protected. In consequence, on 10 February 2011 Sami sent an email to Stephen Koehne, asking for the updated shareholders register of MHL. Mr Koehne sent a copy of the register as an email attachment that day, and Sami forwarded the email and the attachment to Kevin Wishart, by an email that read:

“Shares in Eren’s name plus half of the shares in Reddish LLP, held on trust by Derek.”

Mr Lucie-Smith did not see that email until Mr Wishart forwarded it to him in July 2012.

[71]Second, Mr Wishart procured the execution by Mr Muduroglu of a Declaration of Trust dated 18 February 2011, by which Mr Muduroglu declared that he held 1200 shares in MHL, registered in his name, on trust for Mr Wishart. He was at this time the registered holder of 3000 shares in MHL; the Declaration of Trust did not identify specific shares.

[72]By a Loan Agreement dated 3 April 2011 and made between SMU and Gresham House, Gresham House agreed to lend SMU up to £486,000. The Agreement was signed on behalf of SMU by Mr Lucie-Smith as a director. Mr Muduroglu suggests that the Loan Agreement was fraudulent, and he points in particular to the fact that the AP01 filed at Companies House in respect of Mr Lucie-Smith’s appointment as a director shows his date of appointment as being 11 April 2011, some eight days after he purportedly executed the Agreement. I mention this matter only because Mr Muduroglu set some store by it, but I have not found the evidence on the point to be sufficient to enable me to consider it as relevant to the matters before me.

[73]On 27 April 2011 Mr Muduroglu sent an email to Sami, on which the defendants place reliance:

“Based on our conversation I don’t really see any way for us going forward, it’s just another delay and another set of problems. You didn’t save the school fees from Dulwich monies and you haven’t sorted out Finbar, putting me in grave risk of bankruptcy. You are working to your own agenda and unfortunately it doesn’t work for me. Here’s the facts: I’ve sold in excess of £8m of shares in the last year no questions asked[,] no delays[,] I’ve signed whatever you’ve put in front of me and not questioned whatever you’ve signed in my name. I’m left with £10M of personal guarantees, a £520k cjc and not a lot else. None of the conditions we agreed last April have been met and I can’t keep taking the risk when I have no influence in what is going on. I am moving into a smaller rented house to save money whilst Kevin [Wishart] is living in a £1m house, with about £2m worth of shares in his name?? You have your own reasons for what you do with the money and you’re perfectly entitled to that, except when it is putting me and my family at greater risk. Here are my options, if you’ve got a better idea let me know but they will need to be documented and they will need to be immediate. Scenario 1: You get me £43k this week, £13k school fees, £5k living money and a £25k trading account. Put in writing what percentage of shares I own in Kemnal and Dulwich and I’ll oversee Stadplex purchase of Ravenblack shares and sit as shareholder in both until September when we will review positions and I will need school fees again. Scenario 2: You get me £18k this week for school fees and living and we contact Ulster and Derek [Lucie-Smith] and start the process of moving all of the shares and pgs [personal guarantees] into your name and get Derek to place 1% of shares for me as my sale price of Kemnal. Scenario 3: You don’t get me anything and I arrange a meeting with Koehne and Derek in order to liquidate my positions asap. I am only looking for ways of getting this done not reasons for it not to get done so you may want to speak to Derek today as to his opinion. I am happy to go along any line you want me to as to my reasons for the exit but I have to start the ball rolling today.”

[74]The defendants relied strongly on this email and it is convenient to make some observations concerning it. 1) The communication was a personal and impassioned one between brothers. It is reasonable to suppose that it was written without artifice or any eye to third parties. On the other hand, it is not necessarily correct to apply to it the same standards of precision as might be expected of a different kind of document. 2) The defendants say that the second paragraph is a clear recognition that Sami was in control and “calling the shots”. There is some truth in that. But what is said in the email is consistent with the position as set out in paragraphs 8 and 9 above, namely that Mr Muduroglu was financially the junior partner in the enterprise with Sami and Mr Wishart; it does not necessarily imply that Mr Muduroglu was simply a nominee or a “stooge” who acted as directed by Sami as beneficial owner, and the evidence as a whole suggests that he was not. 3) The defendants say that the email shows that Mr Muduroglu simply allowed Sami to make any deal he wanted; he signed whatever deal was put to him and even allowed Sami to sign on his behalf. It seems to me that too much can be made of this point. Mr Muduroglu made the perfectly fair observation that it is one thing to go along with the proposals actually presented to him for signature; it is quite another to suppose that he had no control over what he signed. This is an important distinction, because Mr Muduroglu’s case is that Sami never put to him that Reddish should have a 10% shareholding without payment and that Sami knew perfectly well that such a deal would not have been acceptable, not least because of Mr Wishart’s position. 4) Similarly, I am not persuaded that the words “I have no influence in what is going on” are greatly significant. They refer to a present state of affairs, not to the past. Mr Muduroglu pointed out that after the completion of the transactions in April 2010 he had no further part in the management of the Kemnal Manor project and was only a minority shareholder. 5) The reference to shares worth £8,000,000 is (say the defendants) consistent with the sales of shares in April and November 2010, the proceeds of which were roughly £8,000,000, but inconsistent with the notion that a further £1,300,000 was due to be paid for the Reddish shares, as is now alleged. Mr Muduroglu explained the figure of £8,000,000 as referring specifically to the sales under the MHL Shareholders’ Agreement, for which £6,635,000 was received at the time and the further sum of £1,300,000 million was (as he says) due from Mr Lucie-Smith. Neither of these contentions is without difficulty. The combined total of the values of the shares sold in 2010, including £1,300,000 for the Reddish shares, would actually be £10,500,000; even if the Reddish shares are excluded the figure is £9,203,000; reference to “in excess of £8m of shares” is awkward, though strictly accurate, on those figures. On the other hand, Mr Muduroglu’s explanation is problematic: if the transactions in October 2010 are omitted, the agreed price for the shares is, on his case, less than £8,000,000; his explanation of why the transactions in October 2010 were excluded was, to say the least, complicated and not clearly demonstrated by the evidence, and the contemporary documentation that does exist suggests that the later transaction was at least as much driven by Sami as was the earlier one; and the use of the perfect tense (“I have sold”) rather than the simple past tense (“I sold”) is not entirely natural for a sale occurring in a single transaction one year previously. 6) However, so far as the composition of the “in excess of £8m of shares” is concerned, a further complication is that the first paragraph of the email refers to Sami’s failure to retain part of the “Dulwich monies”, which refers to realisations from the sale of shares in DHPD Limited, a separate company in which the brothers were involved. 7) The defendants say that the complaint made against Sami in the email is not that he has disposed of money belonging to Mr Muduroglu—his right to dispose of money as he wishes is acknowledged—but that his affairs are putting his brother at risk. However, this, again, is consistent with the account of the business relationship mentioned in paragraphs 8 and 9 above, as is the reference to “the conditions we agreed last April”. 8) The acknowledgment that Sami had been responsible for the disposal of the moneys raises the question what Mr Muduroglu knew of what had become of the moneys. 9) “Scenario 1” suggests that Mr Muduroglu did not know how much of the cemetery project he owned; this is consistent with the notion that the business was really Sami’s and that decisions about share transactions were made by him. However, it is also consistent with a rather fluid and imprecise relationship such as Mr Kerr QC found to have existed. 10) In circumstances where there was apparently an urgent need for money, the question arises why Mr Muduroglu was not looking to Mr Lucie-Smith for at least some part of the £1,300,000 said to be outstanding. That is particularly so, because Mr Muduroglu’s shares in MHL were charged to Ulster Bank as security for MPIL’s debt and Mr Muduroglu’s personal guarantee, and at the very same time that Mr Muduroglu was writing in these terms to his brother there were urgent communications between Mr Lucie-Smith and the bank and Holyoak Investment’s solicitors with a view to receiving confirmation that the charge would be released upon a proposed refinancing.

[75]On 9 May 2011 Northfleet Limited served on Mr Muduroglu a demand for £5,975,000 under a personal guarantee of the debts of DHPD Limited. The demand shows the financial pressure that Mr Muduroglu was under; this is relevant to a consideration of his conduct regarding the allegedly outstanding payment due from Reddish.

[76]In June 2011 Mr Lucie-Smith sent an email to Dermot McGale of Ulster Bank:

“I would like to discuss Sami’s PG position as I don’t want his shares in Memorial Holdings to be sold if we can help it.”

The terms of the email might be an indication of Mr Lucie-Smith’s understanding of the true position, but they are perhaps of more relevance in showing how Ulster Bank was believed to understand the position. A few days later an internal email by Mr Turton to a colleague in RBS’s Global Restructuring Group (GRG) showed a similar understanding:

“Both DLS [Mr Lucie-Smith] and Gresham have shares in a new cemetery located in Greater London. One of the other shareholders is an individual called Sami Muduroglu (SM). SM is also an investor in a company called Stadplex Ltd which I understand has recently been transferred to you/GRG. SM has pledged his shares in the cemetery IFO [in favour of] Stadplex.”

[77]Two important things happened in October 2011. On 18 October 2011 Sami was made bankrupt. And it became apparent that there were irregularities in the invoices that Sami had presented on behalf of MPIL to McGee.

[78]Before the end of 2011 the truth about those irregularities was clear: Sami had committed a substantial fraud on McGee and MPIL. In December 2011 Mr Lucie-Smith met with Mr Muduroglu; he told him that Sami had stolen a large amount of money from McGee and asked him to make his remaining shareholding in MHL (apparently 2800; I do not know how the reduction from 3000 occurred) available for the purpose of enabling it to be applied to make good the deficit. To that end, Mr Lucie-Smith presented Mr Muduroglu with two draft documents, namely a power of attorney and a declaration of trust, that would give him an effective power of disposition of the shares. On 17 December Mr Muduroglu sent an email to Mr Lucie-Smith, in which he referred to their conversation and the draft documents and continued:

“I fully understand the gravity of the situation and am willing to try and help to rectify it in any way possible. While I am willing to secure the position by handing over my shares we need to make sure that the transaction is legally sound in terms of current bank facilities and existing legal undertakings so that it is not challenged at a later date.”

[79]On 5 January 2012 Mr Muduroglu and Mr Lucie-Smith executed three documents: 1) By a Power of Attorney, Mr Muduroglu appointed Mr Lucie-Smith as his attorney with full power to exercise all rights in relation to his remaining 2800 shares in MHL. 2) By a Declaration of Trust, Mr Muduroglu declared that from the date of the deed he held those shares upon trust for Mr Lucie-Smith absolutely. (This clearly did not reflect the true position agreed between the parties.) 3) By a side letter to Mr Muduroglu, Mr Lucie-Smith agreed that, upon release of the Ulster Bank charge on the shares, he would transfer 600 shares to Holyoak Investment Inc pursuant to an option it held and would endeavour to sell the remaining 2200 shares at a price close to market value, which was estimated at between £2.5 million and £3 million. Of the proceeds of sale £500,000 would be remitted to MPIL “in respect of sums due by Propvest” (Propvest was Sami’s consultancy company) and the balance would be distributed in accordance with Mr Muduroglu’s instructions.

[80]That transaction was curious in several respects. For present purposes I may note that, as the defendants point out, it sits uncomfortably with the existence of a belief on Mr Muduroglu’s part that Reddish owed £1,300,000 for its 10% shareholding in MHL.

[81]Also in some tension with a belief that Reddish owed him £1,300,000 is an email that Mr Muduroglu sent to Mr Lucie-Smith, and copied to Sami, on 11 January 2012. The email concerned the potential restoration to the register of another company in which the Muduroglus been involved, Stadplex Limited, which had been struck off and dissolved. It read in part:

“My suggestion to Ulster would be to give me 4 months grace to reinstate company, gain 100% control and obtain necessary planning consent (Sami said 14 weeks?). During this time I will endeavour to place my shares in Kemnal in order to release funds sufficient to clear my creditors and lodge a sizeable sum (minimum £1m) with Ulster against my personal guarantees. At this point I would need 3 further months to dispose of the site at best price, ideally equal to the bank debt therefore releasing my PG back to me. Let me know your thoughts please.”

Let me know your thoughts please.”

[82]At that stage, Mr Librae, acting as a broker for Scion Structured Finance LLP, was attempting to arrange a deal for the sale of shares belonging to Mr Muduroglu and to others to ESO Capital UK Limited. Mr Librae’s discussions were with Mr Lucie-Smith, with whom he was discussing the level of his fees. He was proposing a fee of 4% of the equity investment that he introduced. When Mr Lucie-Smith said, “I can’t comment on what Erin (sic) will pay” (email of 14 January 2012), Mr Librae replied, “Please speak to Sami, and let him know that there will be a deduction of fees from his gross payment as I know that although they are in Erin’s name it is Sami who calls the shots.” That understanding is consistent with Mr Librae’s evidence and with an email sent two days later by Mr Benkirane of ESO, referring to “Sami’s shares”; whether it has any wider significance, particularly in the light of Mr Lucie-Smith’s apparent understanding that the agreement was for Mr Muduroglu to make, is another matter.

[83]A fee agreement dated 8 February 2012 was later signed, providing for payment of fees equal to 3% of the total aggregate value of the share purchase investment. The signature on the agreement purports to be that of Mr Muduroglu; he however denies that he signed it and suggests that his signature was forged by Sami. I am unable to resolve that question on the evidence before me and do not have to do so.

[84]In an email sent to Mr Lucie-Smith and Mr Koehne on 26 January 2012, Mr Muduroglu listed his main assets and liabilities. The only asset that he listed was “Shares in Kemnal Manor”. He did not list any outstanding consideration due for the sale of his shares to Reddish. In evidence he said that the list was provided for the purpose of trying to persuade Ulster Bank to do a deal, on the basis that he had little net worth; therefore it was not advantageous to volunteer the existence of debts that would encourage the bank to seek a larger settlement.

[85]On 8 February 2012 Mr Muduroglu sent an email to Mr Koehne and Mr Lucie-Smith, informing them that Ulster Bank was appointing a receiver in respect of two of his businesses. “This doesn’t come as a complete shock but it does now make it urgent that I sort out my PGs.” Again, the email did not raise the question of outstanding payments due for the Reddish shares.

[86]On 16 February 2012 Ulster Bank served letters of demand on Mr Muduroglu in respect of debts in the total sum of £1.78 million in respect of his guarantees of the debts of Stadplex Ltd and 54 Trundley LLP, two entities that were not involved in the Kemnal Manor project. Over the next weeks there were ongoing negotiations with the bank, involving Sami, Mr Muduroglu and Mr Lucie-Smith, with a view to persuading the bank to accept partial repayment of the debts. Throughout the communications among those three, there is no indication that Mr Lucie-Smith was believed to be liable for outstanding moneys in respect of the MHL shares.

[87]On 22 March 2012 Mr Muduroglu sent to Sami and Mr Lucie-Smith an email proposing a way of using his remaining shares in MHL to address “the need to raise between £300k and £370k immediately”; no suggestion was made in that email that Mr Lucie-Smith pay that amount towards the purchase price of the shares, or even that he sell enough of his own shares to realise that amount. However, in his second witness statement Mr Muduroglu stated that he had indeed tried to obtain payment from Mr Lucie-Smith but had not pressed the point:

“In March 2012 I went to see DLS in London. We met in a wine bar round the corner from his Victoria offices. I asked him for £300,000 of the money he owed me. DLS broke down and said that because of the construction debacle with SM he had been removed by the MHL board as project manager on the site and that Mr Anthony Ebel was trying to oust him from Gresham. At the time I was sympathetic to his cause as I had realised from the shareholder meeting in February 2012 that Mr Anthony Ebel was a sharp operator[.] I suggested that he sell up, settle everything and move on. He said that he had to stay in control of Gresham to maximise his share value.”

That was also the tenor of his oral evidence, where he indicated that he did not press Mr Lucie-Smith for payment because he trusted him when he claimed not to have the money to make payment.

[88]On 23 April 2012 Mr Muduroglu sent to Mr Lucie-Smith an email concerning the proposals for the sale of his shares and the re-financing of the cemetery project. The general complaint in the email was that the other shareholders had delayed in implementing proposals that Mr Muduroglu had thought agreed. The email said:

“Unfortunately the reason for the sale was based on the necessity for me to extradite [extricate?] myself and MPIL from a situation of which I had absolutely no bearing. Out of a sense of fairness and correctness [I] have gone along with whatever is required of me by way of commitments and agreements to the project going forward. Unfortunately the time frame has now moved to a point whereby the negative impact on me personally is becoming unmanageable and the current ESO deal is starting to look unattractive. If I cannot raise funds of circa £75,000 by the end of this month (end of the week) then I will reassess my position … If there is a way forward on this I am happy to negotiate and I will try to limit the outgoings below the £75,000 but I cannot continue with nothing.”

The question arises why Mr Muduroglu wrote in those terms if he believed that Mr Lucie-Smith or Reddish owed him £1.3 million, or indeed any substantial amount, for shares in MHL.

[89]On 26 April Mr Lucie-Smith forwarded to Mr Muduroglu a document for him to sign in respect of the proposed re-financing of the cemetery project by ESO Capital UK Limited. Mr Muduroglu replied to the effect that he would need to consider carefully before signing:

“I don’t mean to put a spanner in the works but everything I have signed in the last 4 years has been under desperate conditions and often against my better judgement so I need to make sure this works in some way for me.”

[90]That email was followed by another on 1 May 2012, again addressed to Sami and Mr Lucie-Smith. It is of interest as a retrospect of what had gone on, as the first major indication of an incipient breakdown of the relationships of the main characters, and for the possible light cast by some of its passages: “Based on my current situation and the lack of support or consideration for the position my family and I have been left in, I need to make some points absolutely clear as to why I have no interest in either of your predicaments at the moment. 1) I have sold whatever shares in MHL that has been asked of me and not questioned who or where the money has gone to. 2) I transferred all my shares in Dulwich to facilitate the release of the SMU loan funds. 3) I have been left with personal debt and a pile of shit with the Gibraltar Fund when there should have been £600,000 in there. 4) The Cemetery dealings and Dulwich have apparently resulted in 100’s of thousands of pounds being paid in commissions to Derek. All of the above was done on the basis that I a roof kept over my head, my children in school and enough to cover the personal guarantees I signed to support your ventures. All three of these are now at immediate risk ... I came to you both last year and said sell my shares before the situation deteriorates any further, your collective response was that Sami was an integral part of the scheme and the other shareholders would question him leaving … On 5th January I was called out of the blue and forced to sign my shares over the Derek on threat of the Fraud Squad being called in on Sami if I didn’t. I subsequently sat through 6 hours of humiliation trying to defend the indefensible with the resulting outcome a deal with an indicated exit in 4 weeks for £3m to extradite us all from this situation. We are now 10 weeks from there with another possible 4 weeks to any sort of completion even at a vastly reduced £2.35m. … My next move is to call a shareholder meeting to reject the ESO deal and start an investigation to all prior transactions around this deal and who else was responsible for the construction nightmare, the SMU loan not being linked to the completion of the project and the subsequent devaluation of my shares. I am not being held to ransom by everything being blamed on Sami as this in my opinion is not the case. The ball is now in both of your courts, and words, documents or promises will not suffice at this juncture.” 1) I have sold whatever shares in MHL that has been asked of me and not questioned who or where the money has gone to. 2) I transferred all my shares in Dulwich to facilitate the release of the SMU loan funds. 3) I have been left with personal debt and a pile of shit with the Gibraltar Fund when there should have been £600,000 in there. 4) The Cemetery dealings and Dulwich have apparently resulted in 100’s of thousands of pounds being paid in commissions to Derek.

[91]On 4 May Mr Muduroglu was asking Mr Lucie-Smith and Tony Ebel for £10,000 or £13,000 to keep “everyone at bay” until the end of the month. Mr Lucie-Smith complained that the claimant could not insult and threaten people and then expect them to help him. Nevertheless, on 15 May Mr Muduroglu signed a receipt for a £10,000 loan received from MPIL and to be repaid upon the sale of his remaining 2200 shares in MHL to ESO Cayman Partners LP. ESO submitted proposed terms for the purchase on that day. Mr Muduroglu signed them on the following day, 16 May, but he continued to make clear to the other shareholders in MHL that he would not proceed with the deal unless he were satisfied that it was of benefit to him. On 19 June he expressed concern about Sami’s indication that, if he tried to block the deal, Mr Lucie-Smith would use the power of attorney to complete the sale.

[92]In the event, Mr Muduroglu’s remaining 2200 shares in MHL were sold to ESO Cayman Partners LP in July 2012 for a price of £2,250,000. That same month Sami disappeared, leaving his wife and children; everyone involved in this case denies all knowledge of his whereabouts. Mr Muduroglu’s evidence was that he had been told that Mr Lucie-Smith gave Sami £8000 to help him to get away. Mr Lucie-Smith said that he had lent money to Sami shortly before his disappearance but had not knowingly assisted him to disappear.

[93]It was in July 2012, too, that Kevin Wishart came forward, asserted his interest in what had been going on at the cemetery project, and asked Mr Lucie-Smith for information that would enable him to work out why he had not received moneys from it. The two men met at a hotel, though no more is known of what transpired than can be gleaned from the emails that followed. Unfortunately the beginning of the email communications is not in evidence; there are other omissions. In the course of an exchange of emails on 23 July 2012 Mr Lucie-Smith wrote:

“This is the first time that I have ever heard that you were involved in any shareholding in Memorial Holdings Ltd. Did you know that the shares were never owned by Sami but by his brother Eren[?]”

That question would be inappropriate if the point were simply that Eren was a nominee (or “stooge”, as Mr Aldridge repeatedly put it) for Sami; the point being made is that the shares were not Sami’s but Eren’s. In his reply Mr Wishart said that he had an email from Sami which said that Mr Lucie-Smith was holding shares on his (Sami’s) behalf and had paid nothing for the shares. Mr Wishart forwarded to Mr Lucie-Smith Sami’s email of 10 February 2011 concerning shares held on trust by Reddish (paragraph 70 above). Mr Lucie-Smith immediately sent an email to Sami:

“How can you say things like this. I helped you more than anyone else and you end up telling lies that could prejudice my future. Why?”

Mr Wishart, who saw that email, answered it:

“The answer to your question below is that he is poison.”

After Mr Wishart had set out his position in further emails, he and Mr Lucie-Smith met on 31 July 2012; as appears from Mr Wishart’s email that evening, the meeting was amicable but made it clear that there was a significant dispute likely to result in litigation.

[94]The possession proceedings brought by Credit & Mercantile Plc in respect of Mr Wishart’s house, owned by Kaymuu Ltd, were proceeding in Tunbridge Wells County Court. On 25 August 2012 Mr Muduroglu made a witness statement in those proceedings in support of Mr Wishart’s claim to be the beneficial owner of the property. That statement came to light at a late stage of these proceedings and is heavily relied on by the defendants, in particular for the following passage:

“3. I have known Kevin Wishart (‘Kevin’) since 2003 as a business partner of my brother Sami Muduroglu (‘Sami’). Their business was that of property development and in 2004 I joined the business as a financial director … 4. The development project we worked on most recently was that relating to a cemetery site known as Kemnal Manor Cemetery which we identified as having enormous potential as a business. As was usual with the projects that we worked on I held in my name all the shares owned by myself, Sami and Kevin as it made the financing easier because of my relationship with Ulster Bank, who provided the finance to back this project. However it was always clear in my mind and agreed with Sami and Kevin that I was holding the shares on trust and the agreed beneficial ownership of the shares was 30% of the shareholding to Sami, 30% to Kevin and 10% to me. The balance was to be used to pay off investors in various property developments that we partook in. 5. In late 2009 we were desperate to bring in outside equity investment to the cemetery site. I was advised that Kevin had facilitated a meeting with Derrick (sic) Lucie-Smith of Gresham Plc who in turn brought in several private investors. Sami then took over as the main point of contact with the investors. 6. Completion took place on or about 8 April 2010. Part of the completion monies were received on 23 December 2009 and these were distributed to various parties with Kevin receiving £15,000 on that date. … The net proceeds of the sale were approximately £6 million and at a meeting between myself, Sami and Kevin we agreed the disbursement of these funds and in particular that after paying approximately £1 million to repay urgent debts and interest payments on other sites Kevin and Sami would each take £1.1 million in cash.”

[95]By October 2012 Mr Wishart was growing noticeably impatient and irritated at what he saw as Mr Lucie-Smith’s failure to provide information in respect of the matters of concern to him. He had two main substantive complaints: first, that Reddish alone of all the purchasers of the shares had paid nothing for them (the complaint was not that it had a deal to receive the shares without payment); second, that Mr Lucie-Smith had persuaded—Mr Wishart said he had forced—Mr Muduroglu to set aside money from the remaining MHL shares (in which Mr Wishart claimed to be beneficially interested) to compensate McGee for Sami’s fraud, although it was a fraud that had been committed under Mr Lucie-Smith’s nose:

“You had no right to make me pay for what your project manager stole on YOUR watch.”

Regarding the former grievance, in an email of 23 October he recorded with scepticism what Mr Lucie-Smith had told him:

“Then there is the highly dubious 200k cash payment you claim you paid for your 10% of a project that your colleagues paid 6 times more for”. 97. Mr Lucie-Smith did not respond to that point; it is clear that it accurately reflects what he had told Mr Wishart in response to the complaint that he alone had paid nothing for his shares. On 25 October Mr Wishart returned to the attack: “You will be finished once the SFO and FSA have feasted on all this and the negative publicity that will affect Kemnal[,] what with your cash in hand purchase of shares significantly under value. Then of course you will have to prove that the cash was legitimate to satisfy the money laundering act. How much did you tell Gresham you paid[?]”

Mr Lucie-Smith replied to the effect that he would meet Mr Wishart but that abusive emails would not procure his help. On 26 October Mr Wishart said:

“You either do something to compensate me or I open Pandora’s box.”

[96]Emails continued to pass between Mr Wishart and Mr Lucie-Smith. On 21 November Mr Lucie-Smith wrote a response that he said had been “approved by the board”: “I need to make very clear to you that no one was aware of any third party interest in Eren’s shares apart form the Royal Bank of Scotland, who were categoric that they would not allow any other party to have an interest in the shares until they had been repaid in full. The sale of the shares was part of a complicated refinancing of the company, which had it not taken place would have potentially threatened the value for shareholders. Eren was insistent that his shares should be sold and it was only possible to do this on the terms agreed. There was considerable reluctance by the parties involved to purchase any shares. As I have said to you before the matters you mention are solely between you and Eren, the Company had no notice of any other interest in the shares …”99. The case being presented there is clearly not that Mr Lucie-Smith thought that Mr Muduroglu was merely a rubber stamp and nominee for Sami; the obvious meaning is that everyone believed Mr Muduroglu to be the beneficial owner of the shares. That is clearly how Mr Wishart understood Mr Lucie-Smith’s case, and on 26 November he linked that point in to the question of the cash payment for the shares: “The main issue for you to consider is this: You pay, you say, 200k in cash to the brother of the shareholder. This is a man you are stating has no interest in the shares? Do you think that would stack up with a judge!”

100. He came back to the point the following day: “You cannot maintain that you did not at least know that Eren was holding shares for Sami in trust. Your stance on that is preposterous. The money that went into SMU came from the sale of our shares[,] so if Sami ended up pocketing that money then how can you still maintain that he did not have shares in the first place. Be realistic here …

101. And on 30 November: “[W]hy did you deal with Sami on your share purchase when you say he had no interest in them and then why did you supposedly give him 200k in cash[?] Why not to the person who owned the shares? ALL UTTER COBBLERS!”

102. And on 1 December: “Like I said in a previous email[,] you will need to explain why you gave cash, as you purport, to a man with no share interest in the project”.

[97]Although it involves some disruption to the chronology, it is convenient to consider at this point a further email from Mr Wishart to Mr Lucie-Smith on 22 March 2013:

“I am so pleased that I have two emails from you and one of those purporting to be from the board denying any knowledge of third party interests in Eren’s shares making Eren sole owner and beneficiary of any money coming from those shares. You are about to regret that stance.”

There is no reply to that email in the documents adduced at trial; there is no contradiction of the assertion that that was Mr Lucie-Smith’s stance at the time, and I have sufficiently indicated that it was indeed his stance.

[98]A number of observations may be made about the communications between Mr Lucie-Smith and Mr Wishart: 1) Mr Lucie-Smith’s stance then was that he had always believed Mr Muduroglu to be the sole beneficial owner of the shares. He was not saying, as he is saying now, that he believed him to be no more than Sami’s stooge, a nominee who did as he was told. Whichever of those accounts is true (if indeed either is true), the conflict shows that little weight can be put on what Mr Lucie-Smith says. 2) Mr Lucie-Smith did not say that he had received the shares as remuneration for his work. He said that he had paid £200,000 for them, in cash to Sami. Whether or not he did make that payment (and Mr Wishart did not believe that he had done so), the figure was not plucked out of thin air; it was the figure that had already been entered into Reddish’s accounts. 3) Mr Wishart and Mr Muduroglu clearly had some level of contact with each other. When Mr Koehne was interviewed by Sami’s trustee in bankruptcy, he said that Mr Muduroglu had introduced him to Mr Wishart in the summer of 2012. There is also evidence of contact between them at the end of 2012; in an email on 19 December Mr Wishart wrote to Mr Muduroglu, “You must take this to court as no one is actually answering anything. They are like politicians. They talk around everything but actually avoid all the issues. It is now time for you to do what I have done and go legal.” However, Mr Wishart’s emails to Mr Lucie-Smith do not state a positive case about the price payable for the shares, such as the case now advanced by Mr Muduroglu. This may indicate that Mr Muduroglu had not told Mr Wishart that there was an agreed price of £1,300,000. However, firm conclusions are difficult to draw, especially as Mr Muduroglu was, understandably, not cross-examined about the communications between Mr Lucie-Smith and Mr Wishart.

[99]At all events, Mr Muduroglu too was unhappy at the lack of support from the other shareholders in respect of “the situation we have been left with by Sami” and the fact that he was “the only one who [was] left having to deal with creditors, receivers and gangsters.” In November 2012 he told Mr Lucie-Smith that, unless he were prepared to discuss his grievances, he would go to the authorities. He then sent two relevant emails. The first, dated 19 December 2012, was sent to the shareholders in MHL; among the enquiries it made was:

“I am trying to reconcile the mess left behind by Sami. There are some distinct anomalies around the purchase of shares by Reddish. I need full details of payments made to Sami or any other party. Dates, amounts and accounts paid into.” 106. The second email, dated 30 January 2013, was to Mr Lucie-Smith: “[A]s per previous requests I still cannot find any trace of any monies paid by Reddish for the 10% holding you received in MPIL. Could you please explain this.”

[100]It was probably the latter email that led Mr Lucie-Smith to send an email to Becky Vernon on 21 February 2013:

“Could you get someone to see if they could find a share transfer form between Erin Muduroglu and Reddish LLP when we completed all the shareholder transfers in April 2010.”

Mr Lucie-Smith’s evidence was that Sami had called him by telephone in May or June 2012 and told him that Ms Vernon had contacted him to ask what figure was to be put on the form; he had told Sami, “Put in £200,000”; Sami later told him that he had instructed Ms Vernon accordingly. I do not believe that account; although it could be true, it is unlikely to be true. First, Ms Vernon is unlikely to have made this enquiry of Sami; it is more likely to have been directed to Mr Muduroglu or even to Mr Lucie-Smith as the person in control of the transferee. Second, Sami was in crisis at the time and was shortly to disappear; he is unlikely to have been greatly interested in this question. Mr Aldridge acknowledged that neither he nor Mr Lucie-Smith could explain why Sami got involved. This does not demonstrate that there is no explanation or that he did not get involved; however, it tends to count against the truth of the account. Third, there is no reason why anyone should have asked Mr Lucie-Smith what to put on the stock transfer form; the figure to be entered was simply the agreed consideration—it is not a matter over which there is any choice. Such specious plausibility as Mr Lucie-Smith’s account has results only from the fact that he explains the figure of £200,000 in terms that would show it to be a false figure. Fourth, on balance one would expect enquiries and responses of this sort to be contained or referred to in emails. Fifth, if Sami had taken the trouble to pass on the enquiry to Mr Lucie-Smith and to tell him that he had conveyed the necessary information to Ms Vernon, it is likely that he would indeed have conveyed it; and, if he had done so, it is likely that she would have acted on it. The fact that the stock transfer form was not completed by Ms Vernon in 2012 counts against the account. Sixth, if the account is correct, it is surprising that Mr Lucie-Smith did not refer to the completion of the stock transfer form some nine months earlier when he sent the email of 21 February 2013 or his subsequent email (below).

[101]After receiving Mr Lucie-Smith’s email, Ms Vernon apparently discovered that the stock transfer forms on file, though signed by Mr Muduroglu, did not state the monetary consideration. She informed Mr Lucie-Smith of this, and on 27 February he sent to her a list of the payments made by the individual shareholders; that information was also available on Stephenson Harwood’s ledgers. However, neither the list nor the ledgers included any payment from Reddish. Mr Lucie-Smith’s email said:

“Reddish paid £200,000. I think that should be it.”

Ms Vernon replied:

“Thanks Derek. I will complete the forms and send you the originals of all documents.”

In a later email to Mr Muduroglu, Ms Vernon confirmed how she had completed the stock transfer forms:

“In one instance, the transfer to Reddish LLP, we did not have such information [i.e. as to the price]; the figure was sought from and provided to us by Reddish. I confirm the figure provided by Reddish and noted on the STF is £200,000. If there is, as you suggest, any difficulty in confirming that amount from your own records, no doubt you will take it up with Reddish.”

Mr Lucie-Smith’s decision to cause Ms Vernon to place £200,000 on the stock transfer form cannot be dismissed as a momentary aberration: it brought the document into accord with the case that he had been advancing towards Mr Wishart in the previous months and the case that he was to assert towards Mr Muduroglu shortly afterwards, namely that he had agreed and paid £200,000.

[102]On 20 March 2013 Mr Muduroglu asked Whitmill Trust Company Limited for the completed stock transfer forms from April 2009 for his records and his tax submissions. Whitmill initially replied that the documents would have to be retrieved from storage, but on 21 March an employee responded further:

“I am advised by Gresham House that they have already requested copies of STFs from Stephenson Harwood and they are to be received shortly (this manner to be most efficient). Once received I will email these to you.”

Mr Muduroglu asked Whitmill to keep looking, as Gresham House’s request was nothing to do with him. On 4 April Whitmill sent an email to Mr Muduroglu:

“Please note that we are instructed by our clients not to disclose the company information to third parties.”

Despite this, on 9 April Whitmill sent to Mr Muduroglu as email attachments copies of the signed stock transfer forms. In answer to an enquiry by Mr Muduroglu as to the source of those stock transfer forms, Whitmill confirmed that they had been sent to them by Stephenson Harwood on 8 April 2013.

[103]Some mystery surrounds the fact that there apparently exist two versions of the stock transfer form: one on which the figure of £200,000 could be mistaken for £260,000; the other on which it is written clearly. The unclear version appears, somewhat confusingly, to be the one sent by email attachment by Whitmill to Mr Muduroglu. The clear one was subsequently sent to Mr Muduroglu by Mr Lucie-Smith; this one was produced at court and is the original signed by Mr Muduroglu. I agree with Mr Aldridge that it is more likely than not that there was only one signed original. I am satisfied that Mr Muduroglu did not sign a stock transfer form for Reddish on which the consideration had already been completed; no one has suggested that he did. It must be regarded as uncertain how or when the clear version came to be in Reddish’s possession, or when or by whom it was completed. The probability, in my view, is that Ms Vernon did as she had promised and sent the original stock transfer form to Mr Lucie-Smith, which is how he came to hold it. The degree of speculation involved in trying to explain what happened regarding the unclear version of the stock transfer form means that this point does not represent a convenient means of ascertaining the truth regarding the issues in the case.

[104]Meanwhile, by a letter of 27 March 2013, Mr Muduroglu first intimated his claim against Reddish:

“I … cannot trace any receipt by myself or Stephenson Harwood of any payment for these shares, which were sold by me for £1,700,000. Unless you can demonstrate to my satisfaction that the amount has been paid, and it was certainly not paid through Stephenson Harwood, who received the proceeds from the other purchasers of shares in Memorial Holdings Limited from me, the sale of which was completed on 9 April 2010. The payment would therefore appear to be still outstanding and this is a matter which I will need to pursue against you.”

The letter states a different price from that now said by Mr Muduroglu to have been agreed between him and Mr Lucie-Smith.

[105]However, on 5 June 2013 Mr Muduroglu signed a statutory demand against Reddish for a debt of £1,300,000. The particulars of debt read as follows:

“9th April 2010 I sold 10% of my shares in Memorial Holding Limited to Reddish LLP for a deferred consideration of £1,300,000 (one million three hundred thousand pounds only). Despite numerous attempts to resolve the issue with Derek Lucie-Smith (partner in Reddish LLP) no payment has been made. The shares were sold to various investors at the same time for circa £850,000 for 5%. Reddish LLP received their shares at a reduced rate of £650,000 for 5% as Derek Lucie-Smith was an introducer to Gresham House Plc, Holyoak Investment Inc, and private shareholders.”

Although the statutory demand did not say how the discount had been agreed, it claimed the amount that Mr Muduroglu has ever since claimed.

[106]Mr Lucie-Smith responded to the demand by a letter dated 10 June 2013; his evidence at the trial was that the letter was solely his own work. He stated the grounds for disputing the demand:

“1. In April 2010 the Company agreed to pay the sum of £200,000 for 1000 shares (10% of your shareholding) in Memorial Holdings Limited. The Company paid the sum of £200,000 for these shares as instructed by your brother Sami Muduroglu and the shares were transferred to the Company. Please find enclosed a stock transfer form signed by you confirming this. 2. The sum of £200,000 was full consideration for the shares. There was no element of deferred consideration or any further consideration for the shares. You have not provided any evidence for your claim that further amounts are due. 3. In the statutory demand you refer to ‘numerous attempts to resolve the issue with Derek Lucie-Smith (partner in Reddish LLP)’. At no point after the Company purchased the shares in April 2010 have you contacted Mr Lucie-Smith or any other officer of the Company to allege that any further sums are due and explain the basis on which you allege this.”

Points 1 and 2 in the letter amount to a clear statement that £200,000 had been both agreed and paid; to that extent it expressed precisely the stance that Mr Lucie-Smith had taken in his communications with Mr Wishart.

[107]By an undated letter sent on 13 June 2013, Mr Muduroglu replied to the three points as follows:

“1. In April 2010 there was no agreement in place that Reddish would pay £200,000 for the 10% interest. It is my contention that they were on the same agreement as Gresham House Plc paying £650,000 for 5%, hence the £1,300,000 demand. Sami Muduroglu was not authorised by me to instruct any payments to go anywhere other than to my client account at Stephenson Harwood. If you have paid money to him, I suggest you ask him to return it. The stock transfer form you sent to me was filled in by Becky Vernon of Stephenson Harwood I believe on the instruction of Derek Lucie-Smith. This was done without my knowledge or agreement and nearly 3 years after the event, which makes it invalid and also subject to further investigation. 2. It was agreed that Reddish would pay a reduced sum of £650,000 per 5% as Derek Lucie-Smith was instrumental in raising capital from Holyoak and others. This was a saving of circa £400,000 on true value. 3. I have emails requesting information about the Reddish payment dating back over 1 year, all of which have gone unanswered. I was told on numerous occasions by Sami Muduroglu that Derek Lucie-Smith was firstly selling a property in America and then selling his shares in Gresham House Plc to raise the funds to pay for the shares. None of the above has transpired and the failure of the directors to explain their situation has led me to take legal action. Reddish have failed to pay 1 penny for the shares I transferred to them and after Sami Muduroglu had conveniently absconded, they say that they paid, with no evidence, a sum not agreed or documented, to an individual that they knew did not own the shares in the first place.”

[108]Mr Muduroglu instructed Mills & Reeve, the solicitors who acted for him in these proceedings until shortly before the trial. They wrote to Reddish on 14 June 2013; I do not have a copy of that letter. Reddish replied on 25 June; for present purposes Reddish is Mr Lucie-Smith, whose vehicle it is. The letter read in part:

“In your client’s undated letter he stated that there was no agreement in place that Reddish LLP would pay £200,000 for the 10% interest in Memorial Holdings Limited. We would like to draw your attention to a shareholder agreement dated 9 April 2010 signed by, inter alios, your client and Reddish LLP (enclosed). Clause 2.12 of this agreement states that ‘EM [Eren Muduroglu] will transfer 1000 shares registered in his name to RLLP [Reddish LLP] in consideration of the payment by RLLP of the sum set out in an instrument of transfer duly executed by EM.’ Please find enclosed a stock transfer form also dated 9 April 2010 and signed by your client. This transfers 1000 shares in Memorial Holdings Limited to Reddish LLP for the sum of £200,000. The enclosed shareholder agreement and stock transfer form document what was agreed between Reddish LLP and your client. In his undated letter to us, your client states that the stock transfer form was filled in by Stephenson Harwood on the instruction of Reddish LLP. This is incorrect. Stephenson Harwood was not acting for Reddish LLP on this transaction. If they filled in the stock transfer form then they did this on your client’s instructions.”

[109]Mills & Reeve replied, observing that Reddish’s claim as to how the stock transfer form was completed was at odds with what Ms Vernon had told them, disputing the contention that there was agreement of a price of £200,000, and asking how the alleged consideration was paid to their client.

[110]On 18 July 2013 Reddish responded further to Mills & Reeve. This time the letter was signed by Mr Samuel Beilin, another property developer, who had become a member of Reddish and who represented them at the trial of this claim. However, the letter can only have been written on the instructions of Mr Lucie-Smith. The letter sets out substantially, though not precisely, the case now advanced by the defendants: Sami made all the decisions on the project and held himself out as the beneficial owner and was so regarded by everyone else involved; the first conversation between Mr Lucie-Smith and Mr Muduroglu did not take place until October 2010; there was an agreement between Mr Lucie-Smith and Sami that the former would take a 10% stake in MHL “at nil cost” “as reward for introducing new investors who would acquire shares”, and the other shareholders also agreed to this course. Regarding the £200,000 the letter said:

“There was absolutely no question that we would pay any consideration whatsoever for our 10% shareholding. However, for accounting/financial planning/taxation purposes the 10% shareholding was transferred into this Limited Liability Partnership. Again, for accounting/financial planning/taxation purposes the consideration for this transfer was £200,000. This was a nominal figure that we believed to be appropriate and it could have been £2.00, £200.00, £20,000.00 or £2m. We were not in any event paying for our shareholding and it was simply a matter for us to decide how to complete the transfer and to whom.”

The change in the case as to the £200,000 is clear: it is no longer said to be a matter of agreement with Sami, and it is no longer said to have been paid. Whether true or false, the new explanation is not cogent, because the stock transfer form was in respect of a transaction between Reddish and Mr Muduroglu, and it was not open to Reddish to place a false consideration on the form. The letter specifically denied any knowledge that Mr Muduroglu had any beneficial interest in the shares; this is diametrically opposed to the case that had been advanced in communications with Mr Wishart.

[111]There is what appears to be an earlier document in which the £200,000 consideration was denied, namely a letter, marked “not sent” and dated 24 June 2013, from Mr Lucie-Smith to Mr Muduroglu. The second page of the letter said:

“Sami Muduroglu agreed to give me the shareholding in Reddish LLP. There is no question of any consideration being given apart from a nominal amount and I am not sure where the £200,000 consideration came from.”

Although Mr Muduroglu suggested that the draft might be a later fabrication, I think that unlikely. Mr Lucie-Smith’s evidence was that the unsent draft was his own work and that the letter actually sent on 25 June was the product of tidying up by a solicitor. Whether or not there was legal input into the letter that was sent, the conflict between the draft and what Mr Lucie-Smith had previously said remains stark. It is clearly impossible for Mr Lucie-Smith to say credibly that he “[was] not sure where the £200,000 consideration came from.”

[112]When Reddish’s letter of 18 July 2013 was received, Mills & Reeve asked Mr Muduroglu to “comment on each paragraph, following the layout of the letter.” The copy of the letter in the trial bundle has Mr Muduroglu’s manuscript annotations in the margin. Next to the paragraph in which it is asserted that “we”, that is, Mr Lucie-Smith, never met or even had a conversation with Mr Muduroglu before October 2010, the manuscript note reads:

“Sept 2009 & April 2010 SH offices”

. I cannot be certain that the annotation was made in the summer of 2013, but it is probable that it was; no one referred me to the manuscript annotations in the course of the trial, and I do not think it likely that it is a later creation. It is relevant because it appears to be the first mention by Mr Muduroglu of a meeting between him and Mr Lucie-Smith in April 2010, which is where he now says that the price for the shares was expressly agreed.

[113]Meanwhile a substantial adjudication had taken place between McGee and MPIL. On 7 May 2013 the adjudicator, Mr Tim Elliott QC, gave his decision in favour of McGee for approximately £800,000 in respect of losses suffered by McGee on account of fraudulent misrepresentations made by Sami acting with the apparent, though not the actual, authority of MPIL.

The claim for payment for the Reddish shares

[114]After this survey of the course of events, I turn to consider Mr Muduroglu’s claim against Reddish for payment of the alleged price of the shares transferred to Reddish.

The pleadings

[115]In the particulars of claim, which are dated 23 August 2013 and which he signed, Mr Muduroglu set out the following case: 1) The price at which the MHL shares were sold in April 2010 was based on a valuation of the site by Drivers Jonas, which valued the land at £35,000,000. After deducting build-and-carry costs and bank borrowing, the net value of MHL was assessed as being about £1,700,000. Therefore a 5% shareholding was worth £850,000. 2) “In recognition of the assistance provided by the second defendant (who introduced all of the investors to the claimant, including Gresham) the claimant offered the second defendant a similar discount as that agreed with Gresham; namely that he could acquire 1000 shares or 10% of the issued share capital in MHL for the sum of £1,300,000. The discount was agreed with the second defendant verbally on or about 18 March 2010” (paragraphs 12 and 13).

[116]The pleaded case is consistent with Mr Muduroglu’s contention since June 2013 that the price was £1,300,000. The particulars of claim appear to contain the first recorded assertion that an agreement had been made directly between Mr Muduroglu and Mr Lucie-Smith, but the pleaded date, “on or about 18 March 2010”, did not reflect Mr Muduroglu’s own evidence, which was that prior to 8 April 2010 he had met Mr Lucie-Smith only once, in September 2009, and had never spoken to him by telephone and that such discussion as they had concerning shares was on 8 April.

[117]The reply dated 30 October 2013 does not in terms affirm that there was a direct agreement between Mr Muduroglu and Mr Lucie-Smith; it certainly does not mention a meeting on 8 April 2010. It refers to an email sent by Sami on 18 March, in which he asks Mr Muduroglu to come along to a meeting with himself and Mr Lucie-Smith and the solicitors on the following day “to square off all outstanding matters so that we can try to work to a completion next week”. That email does not appear in the bundle, but I have no reason to doubt that it was sent, and other emails are consistent with such an email having indeed been sent. However, there is no record of such meeting as took place on that date, and it is not known who was present. Further, the narrative set out above shows that even by 19 March 2010 Mr Lucie-Smith and Reddish were not identified as potential shareholders, so it is unlikely that any meeting on that date would have dealt with the terms of their acquisition of shares. What the reply states is that “it was around this date [i.e. 18 March 2010] that the claimant and Sami Muduroglu first discussed the potential purchase of a 10% shareholding in MHL by the second defendant”. The reply also states that “[Mr Muduroglu] agreed a deferred payment with the second defendant in relation to the second defendant’s acquisition of shares in MHL although there was no exact time stipulation.”

[118]The defendants’ case in the defence signed by Mr Lucie-Smith on 23 September 2013 is as follows: 1) The going rate for a 5% shareholding in MHL was £950,000. This was based on a Drivers Jonas valuation of £30,000,000, from which was deducted £9,000,000 in respect of the borrowing from Ulster Bank; the net asset value of £21,000,000 was further reduced by 10% to take account of MHL’s status as a private limited company. This gave a figure of £1,900,000 for the price of a 10% shareholding. 2) RBS insisted that Mr Lucie-Smith hold a meaningful shareholding in MHL. “This meaningful shareholding later became, by agreement between DLS, Sami Muduroglu and the claimant, a 10% free carried interest in Memorial Holdings Limited in consideration for services rendered and more specially as a result of DLS raising substantial monies from private investors to invest in Memorial Holdings Limited, without which the claimant and Sami Muduroglu would have fallen into financial collapse and most likely insolvency of one form or another” (paragraph 12). “It is recognised that for raising money for a ‘new start’ private limited company that (sic) the fee or commission payable to brokers or agents introducing investors is between 20% and 30% of monies raised which in this instance would equate to a figure of between £1,478,000 and £2,217,000” (paragraph 13). 3) For estate planning purposes, Mr Lucie-Smith chose to transfer the shares to Reddish; he chose to do this by taking the transfer directly from Mr Muduroglu to Reddish, and, again for estate planning purposes, he placed a value on his transfer to Reddish of £200,000 and agreed with Sami that this figure would be placed onto the stock transfer forms.

[119]The defendants’ pleaded case accurately states the figure in the Drivers Jonas valuation, though it is unconvincing as an explanation of how the sale price of a 5% shareholding—which actually had a benchmark of £1,700,000 rather than £1,900,000—was arrived at. The pleaded case is also consistent with the case advanced by the defendants at trial. It is, however, glaringly at odds with the initial explanations given by Mr Lucie-Smith to Mr Muduroglu in respect of the £200,000. And, as Mr Lucie-Smith will know perfectly well as an accountant, it does not work as an explanation of the entry of £200,000 on the stock transfer forms, which can only refer to monetary consideration passing from Reddish to Mr Muduroglu; it cannot accurately reflect a chain of transactions in which Mr Lucie-Smith paid to Mr Muduroglu a nil consideration and then himself received, even if only notionally, a £200,000 consideration from Reddish. The treatment of the shares in Reddish’s accounts is consistent with either of two explanations: first, that Reddish paid £200,000 for the shares with money borrowed from Mr Lucie-Smith for that purpose (that is, that he paid for the shares and the payment was entered on his loan account); second, that Reddish bought the shares from Mr Lucie-Smith for £200,000 but that the price was notionally paid and then loaned back to Reddish (resulting only in an entry in Mr Lucie-Smith’s loan account). Only the former of these possibilities adequately explains the entry of £200,000 onto the stock transfer form.

[120]As to the figure of £200,000 itself, in his witness statement Mr Lucie-Smith stated:

“The transfer to Reddish was done for tax and estate planning purposes as the base value of the shares were (sic) exchanged for Loan Notes in Reddish LLP. … The £200,000 consideration was based on a conservative estimate of the value of the shares and potentially the estimated sale proceeds that Ravenblack Developments were being paid for the sale of their 50% interest to Eren Muduroglu. In reality, the transfer to Reddish LLP could have been at £1, £1m or £5m, but that was my business and not that of either Sami or Eren Muduroglu …”

Insofar as this passage suggests that £200,000 was a figure chosen to reflect, even on a conservative basis, the value of a 10% shareholding in MHL, it is both inconsistent with the defendants’ pleaded case and plainly false.

[121]The defendants’ pleaded case also relates the agreement for the 10% shareholding to the funding deal via RBS, which did not proceed. I have already mentioned this point and what the parties say about it; see paragraph 28 above.

General comments on the witnesses

[122]In my judgment, although certain findings of fact are easily arrived at, very great difficulty attends any attempt to piece together a coherent account of events that makes perfect sense of all of the evidence. Having had the advantage of observing both Mr Muduroglu and Mr Lucie-Smith give evidence over prolonged periods, and having thoroughly reviewed both their evidence and the extensive documentation adduced at trial, I shall say something about these two principal witnesses before setting out and explaining the conclusions that I have reached.

[123]Mr Muduroglu was, despite Mr Aldridge’s submissions to the contrary, an impressive witness. The transcript that I have of a morning of his evidence shows that his manner of answering questions translates poorly to paper; the appearance of incoherence in the transcript does not fairly represent the manner in which he communicated orally, largely because he tended to analyse aloud the expressed or implied case that was being put to him in order to understand it and see whether it made sense. Contrary to Mr Aldridge’s submission, I did not find him to be evasive. Indeed, as a witness I found him generally convincing. The question with which that presents me is whether he created this impression because he was largely telling the truth or because, as Mr Aldridge urged me to find, he is a fraudster who was weaving a web of deceit. His case regarding the meeting on 8 April 2010 certainly gives rise to serious questions, which I consider below. I also think it true that he initially presented his case in these proceedings in a manner that was calculated to give the impression that he was the sole beneficial owner of the MHL shares and that Sami was no more than his assistant; this was at best misleading. On the other hand, I consider that too much has been made of what Mr Muduroglu’s counsel at the time said on 23 January 2015 concerning paragraph 4 of his statement in the Credit & Mercantile proceedings (paragraph 9 above), which appeared to attempt to wriggle out of the implications of that evidence. By the time of that hearing, Mr Muduroglu had, albeit belatedly, acknowledged that he and Sami and Mr Wishart were partners on an informal basis in the Kemnal Manor project; and the truth, as both Mr Kerr QC and I think, is that the relationship among those three men was a somewhat untidy and informal one. (I refer also to the evidence concerning Mr Koehne’s understanding of the position; see paragraph 130 below. This illustrates the potential for different perspectives on questions of ownership of shares and entitlement to a profit-share.) The biggest problem with Mr Muduroglu’s evidence is the difficulty in understanding how his present case accords with his failure to assert either the direct agreement with Mr Lucie-Smith for payment of £1,300,000 or his entitlement to payment of that amount at times when he might have been expected to do so.

[125]Mr Lucie-Smith gave evidence with greater poise and polish; this is perhaps to be expected of someone who, as Mr Aldridge reminded me, is an experienced professional with some standing in the financial world. Mr Aldridge submitted that he was “manifestly honest” and that, subject only to the possible question of the stock transfer forms, his evidence was “consistent with everything he [had] said and done previously”. That submission is plausible only if one ignores the documents (and many of them were indeed ignored at trial, for differing reasons); these leave no doubt but that Mr Lucie-Smith is seriously dishonest. I do not feel able to accept any of his evidence unless compelled to do so by inherent probabilities or by other evidence. The most striking problems with his credibility have already emerged in the narrative and will be mentioned further below, but some of the less central matters may conveniently be touched on here. 1) The use of Reddish to disguise financial involvement that would place him in breach of trust investment rules was described by Mr Aldridge as “unwise”, but it was in fact deliberate wrongdoing. It also seems to me to be probable that Reddish, with its informal and undocumented trust arrangement, was specifically intended as a device to enable Mr Lucie-Smith to evade applicable regulatory requirements. 2) I reject Mr Lucie-Smith’s explanation of his supposed entitlement to £130,000 of the moneys paid by Mr Riley (see paragraph 34 above). The contention that he was entitled to additional moneys, over and above a 10% shareholding, on account of a totting up of the investments he had secured is inconsistent with the deal that he says he had made with Sami; the deal is said to have been for a 10% shareholding and thereafter a consultancy at an annual salary, not for a package of shares and money equal to a certain (though actually unspecified) percentage of the value of the finance (whether equity only, or also debt) introduced by Mr Lucie-Smith. No agreement for additional remuneration is mentioned in Mr Lucie-Smith’s witness statement, and he did not explain in evidence what the basis was for any such remuneration. I find that he has invented an account to explain why he received the moneys and did not account for them. I also accept Mr Riley’s evidence that he was told that the reduced amount he was paying was to be invested into the business, and I find that that was a deception by Sami. It is most improbable that Mr Muduroglu was privy to that deception. In the light of his receipt of the moneys, his inability to give a credible explanation for that receipt, and what I judge to be his false evidence in other material respects, it is more probable than not that Mr Lucie-Smith was privy to the deception. For completeness, I mention that the receipt of £160,000 preceded by more than two months the sale of two further tranches of Mr Muduroglu’s shares in October 2010, for which Mr Lucie-Smith claims some credit. He has not claimed in these proceedings that the £160,000 or £130,000 represented remuneration for acting as broker in respect of those transactions, but on the evidence before me I should not have accepted any such claim in any event. 3) Mr Lucie-Smith’s conduct regarding the power of attorney and associated documents between December 2011 and February 2012 was remarkable. I accept Mr Muduroglu’s evidence as to what happened. MPIL’s liability to McGee had been incurred at a time when Mr Lucie-Smith was a director actively involved in the project. He personally was instrumental in persuading the board of directors not to report the matter to the police. Yet without prior discussion he presented the documents for the purpose of obtaining control of Mr Muduroglu’s remaining shares for the purpose of using them to cover the deficit. Further, although Mr Lucie-Smith would have it that this was an application of Sami’s property to cover liabilities that he had created, I think it very doubtful whether the documentation presented by Mr Lucie-Smith is properly intelligible on any basis other than acceptance that the shares were Mr Muduroglu’s to dispose of as he chose. The matter goes further, because when Mr Muduroglu sold the remainder of his shares in MHL in July 2012 he handed over some £500,000 to be applied in discharging the liability to McGee. (This is what upset Mr Wishart.) When he made his witness statement dated 19 December 2014, Mr Muduroglu believed that the “mediation” with McGee arising out of Sami’s fraud had been settled with a confidentiality agreement. In fact, that was not so: MPIL contested liability and quantum, and on 7 May 2013 the adjudicator ordered it to pay to McGee £799,623 plus interest.

[126]One further point should be made concerning Mr Lucie-Smith’s evidence, in view of one of Mr Aldridge’s submissions. I accept that the severe ill-health from which Mr Lucie-Smith has suffered for some years may well have affected his memory adversely, in that he may have some difficulty recalling matters of detail. However, I reject the suggestion that his ill health provides a credible explanation for the substantial falsehoods that can be identified in his evidence.

Some findings of fact

[127]Many of the relevant facts appear sufficiently from the narrative above, but it is convenient to bring together some of the main points here.

[128]I find that the relationship between Mr Muduroglu, Sami and Mr Wishart was as is set out in paragraphs 8 and 9 above. Mr Muduroglu said in evidence before me that he understood the arrangement to mean that the shares belonged solely to him, legally and beneficially, but that there was an agreement for the sharing of profits. It is unnecessary for present purposes to be too concerned with the precise legal analysis. The substance of the matter was that there was a joint venture between the three men, in which Mr Muduroglu had the legal control but the smallest financial stake.

[129]I find that Sami, as a natural salesman who liked to appear as the “main man”, took on the role of primary contact with third parties such as financial brokers and potential lenders. It may well be that some of those third parties believed that he was the owner of the project and that Mr Muduroglu was no more than his nominee who would rubber-stamp his decisions. Thus Mr Turton appeared to have no interest in details about Mr Muduroglu; Mr Librae said that Sami had told him that the shares were being held for him; and Mr Marshall appears also to have held that belief. It may be noted, however, that although Mr Riley said that all his contact was with Sami, who held himself out as being the beneficial owner of the shares, the communications between Mr Riley and his solicitors in the autumn of 2009 are more consistent with recognition of some form of partnership between the brothers. Mr Muduroglu rightly points out that these persons had no standing in the transaction that was actually carried through in April 2010; none of them had to undertake any due diligence enquiries, and it is important not to lose sight of the fact that the actual contracts would have been made in writing and not by the preliminary discussions. Further, despite some of the evidence of the witnesses I have mentioned, I think it likely that their beliefs owed more to the general impression created by Sami than to any specific claim he made. Thus his document “Kemnal Manor Memorial Gardens[:] Current Investment by Sami Muduroglu” does not claim ownership on his behalf. It ought also to be remembered that, as Mr Lucie-Smith was quick to point out to Mr Wishart, it was important that prospective funders could be assured that Mr Muduroglu was the true owner of the shares. The apparent beliefs to the contrary of some third parties have some relevance but have to be set in the wider context. Moreover, Sami’s role is explicable by the fact that he acted ostensibly as financial consultant to the project by his business Propvest.

[130]Such evidence as there is shows that Stephenson Harwood, with whom Mr Lucie-Smith had considerable contact, did not believe Mr Muduroglu to be a mere nominee for the real decision-maker, Sami. 1) No evidence was given by the solicitors. Mr Aldridge drew attention to Mr Muduroglu’s failure to call his own solicitor. Mr Muduroglu’s position at trial was that he was not keen to call Mr Koehne because, to paraphrase his position, he would be likely to “cover his back” after creating the present situation by his failure to ensure that the stock transfer forms were properly completed. He also said that Ms Vernon was now located overseas and, anyway, had been close to Mr Lucie-Smith; he had in mind in particular, I think, the circumstances of the completion of the Reddish stock transfer form. 2) Mr Lucie-Smith did make an approach to Mr Koehne as a potential witness. (The terms of the approach are of interest and I shall mention them later.) Mr Koehne declined to provide a witness statement on the ground of client confidentiality, though his response did imply that he would be able to make a statement with Mr Muduroglu’s consent. There was no suggestion at trial that Mr Muduroglu had been asked but refused to waive privilege to permit a statement to be taken from Mr Koehne. I infer that the defendants probably decided not to pursue Mr Koehne as a potential witness; this may have been in part because of the terms of an email that he wrote to Mr Lucie-Smith’s sister-in-law: “I was asked by you on behalf of Derek as to Sami Muduroglu’s role and although he was very much to the forefront of any face to face discussions, through his business Propvest[,] to my mind it was always understood that Eren would have to approve any important issues and also any payments out had to be approved by him. Sami was treated as the financial adviser whose fee was based on the monies received. This was not the case where I was acting for entities which were owned by Sami and where he was a director.” 3) That response is consistent with the inference to be drawn from the tax advice in February 2010, which shows that Stephenson Harwood regarded Mr Muduroglu as its true client and as the beneficial owner of the shares (paragraph 37 above). 4) The documents at trial included a transcript of the interview of Mr Koehne carried out by Sami’s trustee in bankruptcy on 27 June 2013 pursuant to section 366 of the Insolvency Act 1986. Mr Koehne’s position in that formal interview was that, although Sami was the person who had had ideas and initiative, it was Mr Muduroglu who had access to money and who was the decision-maker. And while he acknowledged an understanding that there was probably some arrangement between them whereby Sami would receive money out of any profits, he maintained that so far as he was concerned it was Mr Muduroglu who was the owner of the assets and that Sami had no ownership interest in them. Although it must be acknowledged that Mr Koehne may have been desirous of protecting his own position, these answers, which were given at a formal interview, are consistent with the tax notes, as well as with Mr Koehne’s email response quoted above, and I have no sound basis for concluding that they were falsely given. 5) Indeed, Mr Koehne’s responses to the trustee in bankruptcy probably reflect an understanding more generally held: the shares were Mr Muduroglu’s, not Sami’s, despite the latter’s more prominent role; but there was probably some private family arrangement behind the scenes.

[131]I reject Mr Lucie-Smith’s evidence that he always believed Mr Muduroglu to be nothing more than a nominee holding the shares for Sami. I also reject his evidence that:

“I … had absolutely no reason to believe that [Sami] was not the ultimate beneficial owner of the shares in KMMG.”

The very document that he cites as supporting that understanding plainly contradicts that evidence (see paragraphs 22 and 23 above), as does the document quoted in paragraph 26 above, which indicates knowledge that other members of Sami’s family were beneficiaries. Mr Lucie-Smith’s evidence is also directly contrary to what he told Mr Wishart: his case then stated was that so far as he had been concerned Mr Muduroglu was the sole beneficial owner of the shares. It might be contended, unattractively, that Mr Lucie-Smith was lying then and is telling the truth now. What is certain, in my judgment, is that he will say whatever best suits his own advantage, without regard to its truth or falsity. I find, however, that his stance vis-à-vis Mr Wishart is closer to the truth than his stance in these proceedings. It may be that, when first he was introduced to the Kemnal Manor project, he assumed that Sami was the true owner and that his understanding of the position developed thereafter. Like Stephenson Harwood, he probably regarded Mr Muduroglu as the true owner of the shares and, indeed, as the ultimate decision-maker, while understanding that Sami was “the ideas man” and that there was some sort of agreement whereby Sami would participate in the profits.

[132]The question of Mr Lucie-Smith’s discussions with Sami concerning the former’s shareholding in MHL and his reward for his work takes us into murky waters. There is an almost complete lack of documentation that would show what the subject-matter of the discussions was between September 2009 and April 2010. Mr Lucie-Smith’s evidence cannot be relied on. Sami has not given evidence; there is no reason to suppose that he would have been any more reliable as a witness. In the circumstances, I consider that three findings can be made with confidence regarding Mr Lucie-Smith’s discussions with Sami. First, there must have been discussions as to what Mr Lucie-Smith was to get in return for his involvement. Second, there was no agreement for a free 10% shareholding; certainly there was no such agreement that Mr Lucie-Smith believed to be open and above-board and made with Mr Muduroglu’s authority or even likely to be acceptable to Mr Muduroglu (I shall refer to this as an “above-board agreement” for convenience). Third, as Mr Muduroglu opined in the course of his evidence, there were probably two deals being done: one that was presented to him, and the other that was a private and corrupt side deal between Mr Lucie-Smith and Sami. In other words: Mr Muduroglu was told that Reddish would be paying a certain price for the shares, but Mr Lucie-Smith and Sami probably intended that this price should not actually be paid but that private arrangements should be implemented to their mutual advantage. This third conclusion is less certain than the other two, only because it is possible that the deal put to and approved by Mr Muduroglu was the only deal and that Mr Lucie-Smith has simply taken the opportunity presented by Sami’s disappearance to deny that deal.

[133]Two main pieces of positive evidence are relied on to support Mr Lucie-Smith’s case: first, his own evidence of the agreement; second, the email exchange with Sami on 7 September 2009.

[134]As for Mr Lucie-Smith’s evidence, it is directly contrary to what he was saying in 2012 and 2013 in response to enquiries from Mr Wishart and Mr Muduroglu. Further, as I have said, Mr Lucie-Smith’s evidence is incapable of bearing much weight without support from other sources. Such objective evidence as there is does not lend much if any support to his case.

[135]As for the email exchange with Sami on 7 September 2009, I have referred (paragraph 28 above) to Mr Lucie-Smith’s evidence in cross-examination that he had told Sami that he would end his involvement unless the same terms, namely a 10% stake in the venture, continued, and that Sami had agreed that he would continue to be involved on those terms. A number of observations may be made about that evidence. 1) The particular conversation is not mentioned in Mr Lucie-Smith’s witness statement; he gave evidence of it only in cross-examination. The furthest that his witness statement went was to say:

“[Sami] constantly re-confirmed my 10% shareholding as consideration for extending or replacing debt and raising equity”. 2) The “agreement” in the email exchange of 7 September 2009 was not on any view a fully worked out contractual agreement, but rather a statement of mutual understanding that would form the basis on which the parties would move forward to a legal agreement. I return to this point below. 3) The “agreement” was premised on the RBS proposal that had been discussed with Mr Ross Davies earlier in the week. That was for full funding; just what a singular proposal it was is clear from the passage in Mr Lucie-Smith’s witness statement concerning the meeting with Mr Davies—see paragraph 23 above. The proposal was also apparently conditional on Mr Lucie-Smith’s equity involvement. Once that proposal had been revoked, the basis of the “agreement” had gone; indeed, the funding that was eventually obtained from Ulster Bank was not full debt funding and was not conditional on equity participation by Mr Lucie-Smith at all. (It will be noted that the eventual funding arrangements had reached a high degree of finality before ever Mr Lucie-Smith was named as a prospective purchaser of shares in MHL.) 4) The level of remuneration or recompense Mr Lucie-Smith might receive for his efforts would plainly depend on what funding was obtained and what role he played in obtaining it. The claim that he said he would “end [his] involvement” if the previously agreed terms did not continue to apply begs the question what that involvement was to be, now that the RBS proposal was no longer on the table. In those new circumstances, it was (on the basis of Mr Lucie-Smith’s evidence) far from clear what the condition for the receipt of a 10% stake was now to be. That is important, because Mr Lucie-Smith’s evidence was to the effect that this agreement was made when RBS refused funding; that is, it is said to have been made before there was any new funding proposal and at a time when any stipulations that a debt financer might make concerning the level of equity finance and the existence of any stake on Mr Lucie-Smith’s part were undefined. 5) Mr Lucie-Smith sought to support his case by the argument that, after he had made an initial agreement with Sami for a 10% shareholding, it was inconceivable that he would thereafter agree to pay £1,300,000 for such a shareholding. That argument is not entirely without attraction, but I find it unpersuasive. (a) As I have said, there was never an “agreement” as such, merely a record of the common basis on which they were proposing to go forward on the “legals”. (b) The basis of that proposal—Mr Lucie-Smith’s indispensability to the RBS funding—had fallen away. (c) Mr Lucie-Smith was not indispensable after RBS withdrew, not only because his involvement was no longer a pre-condition of funding even on the eventual transaction but because other avenues were available. In particular, ESO Partners LP made an offer of a loan of £24,000,000—that is, full funding—in November 2009. (d) It is entirely possible, and I should think more likely than not, that Mr Lucie-Smith, having initially become involved at a pre-legal stage when Sami’s role as a front man had led people to assume that he was the true owner of the shares, had come to appreciate more fully that this was not the case. (e) Mr Lucie-Smith had been initially attracted to the venture because he thought that it might have business potential; at the very outset, he did not get involved because of the promise of a shareholding. He cannot deny that he continued to consider it an attractive proposition, because he was responsible (subject to board approval) for Gresham House’s investment in MHL. Therefore there is nothing axiomatic in the supposition that he should only be interested in acquiring shares if he did not have to pay for them. (f) The proposal remained throughout that Mr Lucie-Smith should have a lucrative consultancy; he explained in evidence that he was contracted to work three days a week for Gresham House and was looking for something else to keep him occupied for the rest of the week. (g) Even on Mr Muduroglu’s case, Mr Lucie-Smith would be receiving his shares at significantly less than their apparent value. 6) In paragraph 65 of his witness statement Mr Lucie-Smith said: “The shares were the payment for bringing about the refinance of the cemetery at Kemnal Park and obtaining the funding for the development through SMU Investments totalling £4,817,000, the raising of £7,580,000 of equity on behalf of the Muduroglu brothers … and the renewal of the Ulster Bank loan.”

As for the specific matters relied on: (a) SMU was essentially a reinvestment by Sami, through a corporate vehicle, of part of the proceeds of sale; (b) Mr Lucie-Smith did not introduce Ulster Bank, and Ulster Bank did not require him to have a shareholding; (c) Mr Lucie-Smith was indeed instrumental in bringing in equity finance, but his position is complicated by the fact that the first investor he introduced—at a time when he claims to have had an agreement with Sami for a 10% shareholding—was Gresham House, of which he was a director; see below. 7) There is no doubt that Mr Lucie-Smith did a considerable amount of work. However, in the absence of the uniquely strong bargaining position offered by RBS, that is a far cry from a justification for remuneration worth in excess of £1,500,000 and maybe as much as £1,900,000 (which is the value at the time of a 10% shareholding according to the defendants’ pleaded case) or a reward equal to 20-30% of the finance raised; Mr Lucie-Smith claimed that this was a normal rate of remuneration but I do not accept that evidence. It may be noted that when, in February 2012, Scion Structured Finance LLP “acted as a commercial finance intermediary for the introduction of ESO Capital UK Ltd to Memorial Property Investments Ltd” for the purchase of Mr Muduroglu’s shares in MPIL, its fee agreement provided for a fee “equal to 3% of the total aggregate value of the Share Purchase investment”; it had originally asked for a fee of 4%. (For present purposes it is immaterial that Mr Muduroglu asserts that his signature on that letter was forged.) Mr Lucie-Smith relied on the evidence of Mr Librae, who said that he considered a 10% reward to be reasonable. Four points may be noted about Mr Librae’s position. First, he was not giving expert evidence. Second, although involved in the abortive RBS deal, he was not directly involved in the transactions that ultimately took place. Third, he was the broker at Scion Structured Finance LLP in respect of the ESO Capital deal, mentioned above. Fourth, he was also the broker for the proposed full-funding loan of £24,000,000 offered by ESO Partners LP in November 2009. Page 2 of the terms and conditions of the offer showed that his fee as broker was £180,000.

[136]There are two further documents that could be thought to provide some support to Mr Lucie-Smith’s present case as to the true origin of the figure of £200,000: first, Reddish’s financial statements for the year ended 31 March 2011, which were signed off on 14 February 2012; second, a document headed “Reddish LLP Loan Notes”, signed by Mr Lucie-Smith both on his own behalf and on behalf of Reddish, and said to have been prepared more or less contemporaneously with the share transaction in 2010. This second document bears the date “July 2009” against each signature and its text reads as follows:

“These Participating Loan Notes are granted by Reddish LLP (OC 310750) of 5 Princes Gate, London, SW7 1QJ on the 9th July, 2009 to Derek Lucie-Smith of 17 South Eaton Place, London SW1 9ER in consideration for 1,000 ordinary shares in Memorial Holdings Limited whose registered offices are in St Helier, Jersey. The consideration and terms of these Loan Notes are as follows:- 1. The consideration for the shares in Memorial Holdings is £200,000. 2. The Loan notes carry no interest until such time as Reddish LLP receives a dividend from Memorial Holdings Limited. When a dividend is paid then such sums received by way of a dividend will be distributed to Derek Lucie-Smith as interest. 3. Reddish LLP shall not charge these shares to secure any borrowings unless agreed by all the members of Reddish LLP and Derek Lucie-Smith. 4. No other assets may be purchased by Reddish LLP unless they are shares issued by Memorial Holdings LLP (sic) or such other cemetery sites. 5. The Loan Notes will be repaid on the sale or part sale of the shares in Memorial Holdings Limited.”

As I have already stated, Reddish’s financial statements showed the shares as having been purchased for £200,000 (from whom is not stated) by way of a loan from Mr Lucie-Smith.

[137]I do not think that the financial statements and the Loan Note materially assist the defendants; indeed, they raise questions of their own. 1) The financial statements for the year 1 April 2010 to 31 March 2011 were signed on 14 February 2012 by Mr Lucie-Smith and Mr Riley and were filed at Companies House on 1 March 2012. This is before Mr Wishart became involved in communications with Mr Lucie-Smith; it therefore shows that the £200,000 had some origin before their email correspondence. However, it is of some interest to note (though no firm conclusions can be drawn from the fact) that the only activities on the accounts since those for the previous year were(i) the entries for the shares and the corresponding loan from Mr Lucie-Smith and

(ii) a notional expense of £30 for office costs in the profit and loss account; there had been no trading and no other transactions. Nevertheless, and despite the fact that Mr Lucie-Smith is an accountant, the accounts do not date from less than 10 months after the end of the financial year and post-date the share transaction by some 22 months. They are not a contemporary record. 2) Mr Riley’s evidence was that he did not know any details of the transaction between Mr Lucie-Smith and Reddish and he did not know anything about the Loan Note. This is hardly surprising, since he said that he agreed to be a member of Reddish purely as a favour to Mr Lucie-Smith. 3) The Loan Note was, as mentioned, signed for both parties by Mr Lucie-Smith. Mr Riley did not sign. The document is also clearly a home-drawn document; it was not prepared by lawyers. 4) The Loan Note three times states the wrong year: 2009 instead of 2010. If it was produced in the period April to July 2009, as Mr Lucie-Smith claims, this is an extremely surprising mistake. The incorrect mention of the previous year usually only occurs at the turn of the year, when the habit of stating the new date has not been formed; it is unusual by the middle of the year. Moreover, the mistake was made not once but three times: once in the text and twice alongside the signatures. It is therefore necessary to suppose that somebody, presumably Mr Lucie-Smith himself, typed the wrong date three times and then signed the document twice without realising the mistake. I think it more likely that the document was produced some time afterwards and backdated, at a time when he had (perhaps temporarily) forgotten that the transaction was completed not in 2009 but in 2010. This conclusion is perhaps marginally strengthened by the observation that the document also gets Mr Lucie-Smith’s address in 2009/2010 wrong, in that it misstates the postcode, which was actually SW1W 9ER. That mistake is slightly more likely to have occurred at a later date when Mr Lucie-Smith had ceased to live at 17 South Eaton Place. 5) Regardless of these last observations, which cannot be regarded as having a strong degree of probability, the documents only show how the shares were treated internally at Reddish. They do not explain the entry of £200,000 on the stock transfer form, or the reason why that figure should have been selected, unless it were indeed an amount paid by Mr Lucie-Smith to Sami, as he formerly claimed.

[138]There are several reasons for concluding that there was no above-board agreement of the kind that Mr Lucie-Smith alleges. 1) For reasons already stated, there is a lack of reliable evidence to support the conclusion that there was such an agreement. 2) If there had been such an agreement, it is strongly probable that there would have been a written record of it. Mr Lucie-Smith is an experienced professional; he would have been unlikely to rely on unminuted conversations with Sami. It is notable that in September 2009 he was keen to have Sami’s confirmation of what had been discussed. Further, even if he had not specifically wanted a written record of what was proposed, it is probable that the continuing proposal that he receive a 10% shareholding without having to pay for it would have found its way into some form of writing. I think it likely that Mr Lucie-Smith’s position was indeed discussed in email exchanges with Sami between September 2009 and April 2010, but they have not been produced. 3) The emails of 7 September 2009 were, on their face, not a commission agreement. They were an “outline of … agreed proposals” dealing with the corporate structure and the envisaged consultancy agreement; all these matters were discussed in outline “so that we can go forward on the legals”. Draft legal documents were indeed being circulated from December 2009 onwards, but it was not until shortly before the completion of the transactions in April 2010 that Mr Lucie-Smith, in the guise of Reddish, was mentioned as a shareholder. 4) The emails from Mr Lucie-Smith to Travers Smith shortly before Christmas 2009, commenting on issues concerning the current drafts of the legal agreements, including the sale and purchase agreement, make clear that Mr Lucie-Smith was disavowing any intention to be a shareholder. Subject only to a speculative doubt concerning the significance of the reference to Tribute Holdings Ltd (see paragraph 37 above), there was no mention of Mr Lucie-Smith having any shareholding, and his answer to the concern about a conflict of interest can only mean that he was not going to take a shareholding at all. If when the board of Gresham House approved the decision to invest in MHL he had an agreement to take a shareholding, he had a duty to disclose it to the board. That he did not disclose any such conflict of interest suggests that either it did not exist or the arrangements whereby he proposed to take such an interest were not an above-board agreement. 5) If what Mr Lucie-Smith now says were indeed true, there would be no valid reason why he should only have emerged as a shareholder at a very late stage. What the documents show is not merely a late disclosure of his interest to new investors; it is a late adjustment of the shareholdings to allow for his introduction as a previously unexpected shareholder. 6) If there were an above-board agreement such as Mr Lucie-Smith alleges, he would have mentioned it to Mr Wishart in 2012 and to Mr Muduroglu without prevarication in 2013. It is impossible to reconcile what he said then with what he says now. This not only shows that he has lied in giving starkly inconsistent accounts at different times. It also provides significant support for the conclusion that his present account, which could easily have been given at the earlier time if it were true, is actually false; it is far less complicated than the claim to have agreed a price of £200,000 and paid it in cash to Sami. 7) Mr Aldridge pointed to the fact that the disclosed papers do not show any enquiry by Mr Koehne or Ms Vernon as to the price at which Reddish was to acquire its shares. The point is correct, but I do not think that it assists the defendants. The lack of enquiry could indicate that oral information was passed, or it could suggest the inference that the solicitors assumed the price would be the same as Gresham House had paid or that it would be the “benchmark” figure of £1,700,000. It may simply show that, because of the way the documents were drawn, with the price to be filled in on the stock transfer forms, they were not greatly interested in what the consideration was to be. It must be remembered that not only was there no record of an enquiry as to the price for the Reddish shares, there was no record to the effect that no consideration was to pass for the shares. Given the last-minute introduction of Mr Lucie-Smith and the absence of any record that he was to have the shares without payment, it is less probable that it was simply known that no new consideration was passing for the shares. In this regard, two interesting remarks of Mr Lucie-Smith himself may be noted. First, in evidence before me, he claimed to be unsure whether Mr Koehne knew the price of the Reddish shares, but he said that Mr Koehne had said (presumably to him, in response to his approach to him to act as a witness) that he did not know the price. Mr Lucie-Smith did not suggest that Mr Koehne was wrong about that and knew that the shares were passing for no new consideration. Second, in his email to Mr Koehne requesting him to provide a witness statement, Mr Lucie-Smith asked him whether he could “confirm that you knew that [the shares issued to Reddish] were being issued at a discount”. That is a strange way of putting it, if indeed there had never been any question of him paying for his shares and if there were an above-board agreement for a 10% shareholding at a nil consideration. 8) I note in passing that Mr Lucie-Smith’s evidence—which I reject—that Ms Vernon, or possibly Mr Koehne, had contacted Sami in the early summer of 2012 to ask what figure to place on the Reddish stock transfer form sits uneasily with any claim that the solicitors knew that the shares were to be transferred for no payment. 9) The episode concerning the completion of the stock transfer form would itself suffice to seriously undermine Mr Lucie-Smith’s credibility. When viewed in the context of the communications that had preceded it and those that followed, it is properly to be understood as an attempt to mislead. It is impossible to view the entry of £200,000 as a confused attempt to reflect a transaction between Mr Lucie-Smith and Reddish; it was the belated creation of a document to support the case then being advanced, that that price had been agreed for the purchase of shares from Mr Muduroglu and had been paid to Sami. 10) It is very improbable that Mr Muduroglu would have agreed that Mr Lucie-Smith could have the shareholding without monetary consideration. This is because, first, there was no compelling or obvious need for such largesse and, second, because he was, as I accept, mindful of his responsibility to Mr Wishart. It is no doubt the case that Sami was the prime mover in the business and that Mr Muduroglu, as very much the junior partner, was generally content to fall in with Sami’s plans. But that is very far from meaning that he would be willing to dispose of 10% of the business without clear need and without having regard to the fact that Mr Wishart’s interests were equal to Sami’s. It is reasonably clear that no one told Mr Wishart that a 10% shareholding was being given as a form of brokerage commission.

[139]The most likely conclusion, in my judgment, is that Mr Lucie-Smith and Sami agreed that they would present ad extra,and in particular towards Mr Muduroglu, a proposal that Reddish take the shares at a discounted price to take account of Mr Lucie-Smith’s work, but that as between themselves they privately arrange matters differently. This would involve either some or all of the consideration not passing, or part of it passing as a form of “kick-back” to Sami personally, or part of the Reddish shares being secretly agreed to be held for Sami’s benefit, or a combination of all of these. (I think it probable, though far from certain, that this is the origin of Mr Lucie-Smith’s claim to Mr Wishart that he had paid £200,000 in cash to Sami. He probably did pass money to Sami, of which Mr Muduroglu was not intended to know anything. That Sami was frequently scrabbling around desperately for money was common ground between the parties, so there is nothing improbable in such a scenario.) In this way, the matter could be presented in a manner acceptable to Mr Muduroglu but with ulterior and undisclosed motive. The proposal actually put to Mr Muduroglu was by no means disadvantageous to Mr Lucie-Smith and Reddish, because it involved a substantial discount from the true value of the shares and meant that he was receiving the equivalent of several hundred thousands of pounds for his work between September 2009 and April 2010. But there was a real prospect of achieving the ulterior purpose, because the proposal was made on the basis that Mr Lucie-Smith would not be able to come up with the purchase price for some time. Mr Muduroglu was meanwhile to withdraw from an active role in the Kemnal Manor project, which after the restructuring in April 2010 would be managed primarily by Sami and Mr Lucie-Smith, who were being remunerated for their work. Mr Wishart was not himself actively involved in the management. As the principal purpose of the realisation of proceeds from the sale of the shares was not distribution but reinvestment in the project, it was realistic to think that a private arrangement between Sami and Mr Lucie-Smith could be made to work.

[140]It is possible, in the alternative, that there was no such side-deal and that Mr Lucie-Smith has simply taken advantage of later circumstances, including in particular Sami’s disappearance and the discovery that no price had ever been entered onto the stock transfer form, to advance a false case as to the agreed price. In view of what was being said in 2012, before Sami’s disappearance, the close relationship that was manifest between Sami and Mr Lucie-Smith before, during and after the McGee debacle, the apparent co-operation of the two men regarding the moneys received from Mr Riley, and the lack of any indication that Sami tried to procure payment for the Reddish shares (a fact that is not, in my judgment, to be explained by the absence of any agreement for payment), I consider this alternative to be less likely.

[141]Whatever may privately have been discussed between Sami and Mr Lucie-Smith, and regardless of whether any side-deal was discussed, I accept the broad substance of Mr Muduroglu’s evidence regarding the way the matter was put to him in late March 2010 (paragraph 51 above). That something must have been spoken between the brothers about the Reddish shares is obvious. I regard it as overwhelmingly unlikely that a free transfer of shares was discussed. Therefore it is extremely likely that a price was discussed. Mr Muduroglu’s account of his conversation with Sami does not make perfect sense on its face; reference to the price at which Mr Riley was acquiring shares was a non sequitur after mention of the higher Gresham House price, and £650,000 for a 5% stake was not the same as either Gresham House’s purchase price or its option price. However, Mr Muduroglu was not cross-examined on his evidence as to the content, as opposed to the occurrence, of the conversation, and his evidence as to the gist of the conversation is plausible and I accept that it is broadly accurate. The brothers will have had regard to the work that Mr Lucie-Smith had done and to the need to reflect a commission element in the discount. To allow a price of £900,000 for a 10% share, on the basis of Mr Riley’s deal, would be to give a discount of a full £1,000,000 on the latest achievable price and of £800,000 on the Gresham House option price; Mr Muduroglu considered that to be too much. But a price of £1,300,000 was acceptable. I think it likely that this price was rationalised by reference to both prices paid by Gresham House: it represented the application of a substantial discount, for Mr Lucie-Smith’s commission/remuneration, to the rate applicable to Gresham House’s option price (£850,000 for a 5% share); it was also in effect a rounding down of the original Gresham House purchase price of £680,000 for a 5% share.

[142]I am satisfied that Mr Lucie-Smith knew that a price would have to be agreed with Mr Muduroglu and that he knew and approved of Sami’s discussions and agreement with Mr Muduroglu.

[143]I should consider these findings as sufficient to establish the claimant’s case that there was an agreed price of £1,300,000. However, I shall proceed to consider the question whether there was a direct confirmation of the agreement in a face-to-face conversation between Mr Muduroglu and Mr Lucie-Smith, which is the case advanced by Mr Muduroglu.

[144]In cross-examination Mr Aldridge spent considerable time attempting to establish that Mr Muduroglu and Mr Lucie-Smith are unlikely to have met at the offices of Stephenson Harwood on 8 April 2010. However, in my judgment the probability is that they did meet. 1) It is certain that Mr Lucie-Smith did attend at the offices in the late afternoon. That is his evidence. It is also confirmed by the visitors’ book kept at the ground floor of the building in which the offices were situated; this shows that Mr Lucie-Smith arrived at 4.33 p.m. and left at 6.02 p.m. 2) The computerised Condeco log kept by Stephenson Harwood in respect of conferences shows that Mr Koehne had reserved a room at 10 a.m. for a conference with Mr Muduroglu, Sami, Mr Lucie-Smith and Stephen Young. An email sent by a solicitor at Stephenson Harwood to the defendants’ solicitors on 13 February 2013 interprets the log as indicating that the room was booked for the full day until 6 p.m., and as the log does not specify a time-limit on use of the room that seems likely. 3) The log shows an “arrival time” of 10.23 a.m. It is inherently unlikely that this refers to the arrival of the solicitor; it is more likely to refer to the arrival of the visitor. That this is so is confirmed in the email of 13 February 2015:

“Visitors would be directed [by the ground floor security staff] to our main Reception area on the 5th floor where they would be met by the Stephenson Harwood host and taken to the arranged meeting room. Once the attendees (or some of them) had arrived, the 5th floor Reception staff would log the meeting as having started on Condeco.”

Mr Aldridge’s suggestion that the log would have shown the meeting as commencing when a solicitor, such as Mr Koehne, took papers into the conference room, even if no client had arrived, seems to me to have nothing to commend it. 4) Mr Lucie-Smith did not arrive until well the late afternoon. Stephen Young was his assistant, and Mr Lucie-Smith confirmed in evidence that he did not bring Mr Young to the offices that day. 5) There is no record in the visitors’ book of either Sami or Mr Muduroglu attending on 8 April. This is not persuasive evidence that neither of them did so. First, the Condeco log shows that it is reasonably likely that one or both of them attended. Second, Stephenson Harwood’s email of 13 February 2015 states:

“An entry in the Visitor Management Register indicates that such person visited our offices, but the absence of an entry does not necessarily mean that such person did not visit us. In some cases, a single guest in a party of visitors would sign in for that party. The physical layout of the ground floor security desk and lift lobby at One, St Paul’s Churchyard was such that visitors could bypass the security desk and proceed directly to the 5th floor Reception without signing; this did happen on occasions, for example, when the security staff were busy or guests had visited our offices before.”

The state of affairs described is likely to accord with the experience of those familiar with similar arrangements at other business premises. 6) Mr Muduroglu’s evidence was that the email accurately described the state of affairs at the premises and that he frequently went straight to Stephenson Harwood’s offices without signing in at the ground floor and did so on this occasion. As the Condeco log shows that it is likely that either Mr Muduroglu or Sami or both of them were at the offices before 10.30 a.m., this evidence is inherently credible. 7) Ms Vernon’s email of 29 March 2010 (above) had envisaged a significant amount of signing of documents at the offices of Stephenson Harwood. That is the most obvious purpose for the all-day reservation of a conference room on 8 April. 8) Mr Aldridge sought to make much of a document produced by Stephenson Harwood and headed “Kemnal Manor Cemetery Development[:] Implementation of Corporate Group Structure and Financing[:] List of Documents—status as at 7 April 2010”. This showed many documents, including documents to be signed by Mr Muduroglu, as having a “Drafting Status” of “Completed”; a few others were said to be “In progress” or “To be finalised”. This is at best inconclusive. The drafting status of a document says nothing about whether it has been signed; it merely records the progress that had been made with drafting. That is obvious from the words “Drafting Status”. It is also indicated by the fact that, in the column showing “Responsibility” for each document, the responsible party is in all cases the drafter, regardless of who would execute the document. Documents that were “Completed” may or may not have been signed before the notional date of their execution. One “Completed” document that Mr Lucie-Smith probably signed at the offices of Stephenson Harwood on 8 April was number 24 on the List, namely “Committee minutes of KMMG authorising the corporate transactions”; I shall call this “document 24”. 9) Document 24 apparently puts Mr Muduroglu and Mr Lucie-Smith together. A typed document has been completed by the addition in manuscript of particular information: the meeting of the committee took place at the offices of Stephenson Harwood; the date was 8 April; the time was 5.45 p.m.; and present were Mr Lucie-Smith and Mr Muduroglu, the former being appointed chairman of the meeting. These details were inserted by a solicitor at Stephenson Harwood. 10) Although it is possible that the information on Document 24 is false, it is inherently more probable that it is true. Decisions of a board of directors can generally be made other than by resolution at board meetings; for example, in most cases they can be made informally by unanimous agreement, or formally by a written resolution (cf. model article 8). A meeting involves some form of mutual communication during the course of the meeting. That used to require physical presence together; cf. regulation 88 in the old Table A. More modern articles envisage that communication may take place by means of technology, such as telephone or video link. But the signing of a document does not constitute a meeting of those named on it; that is why a written resolution is not a meeting. Section 248 of the Companies Act 2006 requires that meetings be minuted. Section 249 provides that minutes of a directors’ meeting, duly signed, are evidence of what transpired at the meeting. The document, signed by Mr Lucie-Smith and completed by the solicitor, clearly means that Mr Muduroglu was present. Of course, it is possible that a short cut was taken and that no meeting took place. However, that is irregular and I should not expect that the solicitors would take such a course. It is not to be expected that Document 24 would be completed as it was be if both men were not present together. 11) The probability that both men were present together is strengthened by a comparison of the document with another set of minutes signed by Mr Lucie-Smith, namely item 27 on the List: “Board minutes of TML authorising entry into the finance documents” (“Document 27”). The List had shown the Drafting Status of document 27 as “In progress” and the responsible party as Ulster Bank. Document 27 is in a slightly different format from Document 24, and both the address (Mr Lucie-Smith’s business premises) and those present (Mr Lucie-Smith and Sami) had been completed in typescript. Manuscript alterations, again made by the solicitor who had written on Document 24, corrected the address to the offices of Stephenson Harwood, inserted the date and time as 8 April and 5.45 p.m., and added “(telephone)” after Sami’s name. Mr Aldridge’s suggestion, put to Mr Muduroglu in cross-examination, that the solicitor “had the presence of mind to say, ‘Well, Sami wasn’t here; let’s say he did it by telephone’” is wholly unconvincing and would just mean that the solicitor, unwilling to participate in one falsehood, manufactured another. The manuscript addition indicates a proper scruple on the solicitor’s part with respect to the fact that Sami was not present with Mr Lucie-Smith; she was apparently concerned to secure his attendance by telephone. (Mr Muduroglu’s evidence was to the effect that Sami had left before 5.45 p.m. and that a call had to be made to him when document 27 came to be signed. Although it would be unsafe to rely on that evidence by itself, it is consistent with the indication on the document that a call was made.) The scruple over Sami’s presence at the board meeting makes it less likely that the record of his presence on Document 24 is false. 12) Mr Aldridge relied on another document to counter this inference. This is Document 53 on the list. It is in the same form as Document 27, and purports to be minutes of a meeting of the directors of Tribute Management Ltd; Mr Lucie-Smith and Sami are recorded in typescript as present; the date 9 April has been inserted in manuscript in the heading; and the document is signed by Mr Lucie-Smith but not dated at the foot. Mr Lucie-Smith’s evidence was that he did not attend at the offices of Stephenson Harwood, or indeed at any other business meeting, on 9 April 2010 but must have signed that document in advance. I do not find it to be persuasive evidence against the inference to be drawn from Document 24. Document 53 was produced by Mr Lucie-Smith in the course of the hearing and added to the trial bundle. The differences between Document 53 and Document 27 are noteworthy. The typed address, 5 Princes Gate (Mr Lucie-Smith’s business address), has not been altered; although the digit “9” has been added in front of April in the heading, no time has been inserted for the meeting; and the document is not dated at the foot. The document does not purport to record a meeting at Stephenson Harwood’s offices on 9 April and is incomplete. The fact, if it be such, that Mr Lucie-Smith signed the document without holding a meeting takes matters little further forward. 13) Even if more weight could be attached to Document 53, it would not show that Mr Muduroglu was not present on 8 April. The evidence that he was not is that of Mr Lucie-Smith, who is an untrustworthy witness. Other evidence, including the evidence constituted by the minutes that place them together, has to be considered. 14) Regardless of the documents, I should think it very unlikely that Mr Muduroglu would take the process of completion of the connected transactions in April 2010 with anything less than the utmost seriousness. Whether or not he is to be regarded as a “stooge” of Sami (as the defendants would have it), he is at the least a highly intelligent and astute businessman, and having observed him in the course of the trial I have no doubt that he would have made himself available for a full day to see the paperwork concluded. The idea, pressed by Mr Aldridge, that Mr Muduroglu had signed all the papers in advance and did not attend at all on 8 April is extremely unlikely to be correct. In his “speaking note” for closing submissions, Mr Aldridge suggested that “for all [Mr Muduroglu] cared”, Sami could have signed the documents on his behalf. That suggestion, made in the context of a consideration of the email of 27 April 2011, is in my judgment false insofar as it implies that Mr Muduroglu was both uninterested and disinterested in the transactions.

[145]The fact that Mr Muduroglu and Mr Lucie-Smith were present together on 8 April does not itself entail the conclusion that Mr Muduroglu is telling the truth on the important question of what if anything was said concerning the price of the Reddish shares. However, if the two men were present together and if Mr Lucie-Smith was purchasing a shareholding in the name of Reddish, it is unlikely that the matter was passed over in silence. I think it likely that the matter was dealt with more informally than Mr Muduroglu’s statement might suggest, with little more than an exchange to the effect:

“You’re buying at £1.3 million, right?” “Yes.”

The question whether Sami was present is relevant to the accuracy of Mr Muduroglu’s purported recollection of the detail of the conversation, but it is not in my view of overriding significance in deciding whether or not there was a conversation in which the price of the shares was acknowledged. On balance, I think it slightly more probable than not that Mr Muduroglu is correct and that Sami was present and left shortly afterwards. Mr Lucie-Smith said that he could not recollect whether Sami was present at all on 8 April. Mr Muduroglu said that he was present for part of the time. The documents do not show whether or not he was present at all, though they do show that he was not present at the time when the minutes at Document 27 were signed. As Sami was clearly the person who did most of the face-to-face work with the solicitors and who had the primary financial involvement in the Kemnal Manor project, it is more likely than not that he did attend on the day when the major signing off took place. Accordingly I accept Mr Muduroglu’s evidence as to Sami’s presence when the relevant conversation took place.

[146]In reaching these conclusions as to what happened on 8 April 2010, I have borne in mind the obvious objection that the meeting and agreement on that date between Mr Muduroglu and Mr Lucie-Smith were not mentioned in the pleadings or prior to Mr Muduroglu’s second witness statement. Having considered all of the evidence, including Mr Muduroglu’s oral evidence, I have formed the view that this is not a determinative obstacle to my findings. The pleadings point to the fact, which I regard as very strongly probable, that the discussions in which Mr Muduroglu initially agreed to the price at which Reddish would take its shares were with Sami. All that happened at a face-to-face meeting with Mr Lucie-Smith was mutual acknowledgment of the previously agreed position. In all likelihood, Mr Muduroglu has had more difficulty in identifying the precise time when the meeting took place than he was inclined to admit. It may be that he has previously thought that it was likely to have been around 18 March 2010, when some form of meeting appears to have taken place, though it is uncertain whether Mr Muduroglu attended, and that he has subsequently thought (as I also think) the later date more likely to be correct in view of the evidence as to when the Reddish shares were first mentioned. Further, as I have already mentioned (paragraph 112 above), it is likely that well before the commencement of the proceedings Mr Muduroglu made a note to the effect that he had met with Mr Lucie-Smith in April 2010; this is unlikely to be a late invention.

[147]I have also had very much in mind other grounds of objection, which arise from a consideration of the documents and were forcibly advanced by Mr Aldridge. Those matters have been mentioned in connection with the documents in the foregoing narrative and I do not need to recite them here in detail. In summary, the main questions include the following. Why did Mr Muduroglu not chase Mr Lucie-Smith for payment? Why, when in urgent need of money, did he not ask Mr Lucie-Smith to come up with even some part of the purchase price but, on the contrary, sought his help in obtaining money on an urgent basis? Why did Mr Muduroglu not list the outstanding price as a debt owed to him when he compiled a list of his assets?

[148]These questions arise on any scenario in which it was expected that Reddish would pay a price for the shares; they do not arise only if that price was £1,300,000. However, for reasons indicated I have a high degree of confidence that Mr Lucie-Smith’s evidence regarding the consideration for the shares is false. Therefore the fact that the questions arise does not tell strongly against Mr Muduroglu having believed that moneys were payable for the shares.

[149]The evidence in Mr Muduroglu’s second witness statement concerning his efforts to obtain payment from Mr Lucie-Smith was as follows:

“In August 2010 I asked SM what was happening with the Mr A Riley and DLS share payments. He informed me that DLS couldn’t get a mortgage and that he was selling his house in America to raise funds. Mr A Riley had put the shares into his brother Jonathan’s name and was trying to get the money out of Jersey … I sold another 15% in MHL in November 2010, which took the financial pressure off me so I was more relaxed in chasing up DLS and Mr A Riley. … In April 2011 I again asked SM to chase DLS for his payment and he informed me that he was still trying to sell the American house and that he was working on a share transaction with Gresham that would effectively double the value of his shareholding in Gresham. I asked SM to arrange a meeting with both DLS and Mr A Riley as I was losing faith in all of our projects. SM told me that DLS was spending a lot of time in an oxygen bubble as his lung cancer had resurfaced. As such I did not want to push matters too hard at this point.”

I also refer to the passage concerning what happened in March 2012, which is set out in paragraph 87 above.

[150]The likely explanation for the difficulties to which the documents give rise lies, in my judgment, in a number of factors. At first, as Mr Muduroglu says, the payment for the Reddish shares was to be deferred, so that Mr Lucie-Smith could come up with the money. At the same time, Mr Muduroglu withdrew from active involvement in the Kemnal Manor project; as he put it in evidence, he “walked away” upon the promise from Sami that he would in due course receive a substantial payment when the project came to fruition. It was this situation that led to his frustration at having, as merely a minority shareholder with no managerial involvement in the ongoing project, “no influence” on what was going on (email of 27 April 2011; paragraph 73 above). Despite the financial stresses caused by his own liability under personal guarantees, Mr Muduroglu did not at that stage press Mr Lucie-Smith for payment for the Reddish shares, because he understood from Sami that the property transaction on which the funds depended had been delayed and because Mr Lucie-Smith’s continued involvement in the project as an executive director (for which he was being paid £150,000 p.a. for a two-day week) was critical to its success. As he became increasingly disillusioned with the project and, it seems, with Mr Ebel’s attitude towards him, he turned his attentions in early 2012 to extricating himself from the project and from his financial commitments by selling his remaining shares, but the negotiations in that regard became unexpectedly prolonged, adding to his frustrations. I think it likely that his account of what happened in March 2012 (paragraph 87 above) is broadly correct and that he felt a degree of fellow-feeling with Mr Lucie-Smith as another person to whom Mr Ebel was, as he saw it, behaving unfairly. As further time passed, however, he felt that he was being given no support, and his sympathies for Mr Lucie-Smith were waning; as he said in his email of 1 May 2012, he was no longer interested in his or Sami’s predicaments. In July 2012 Sami disappeared; it was about that time also that Mr Wishart started asking questions of Mr Lucie-Smith. Mr Muduroglu’s oral evidence was that it was only after Sami’s disappearance that the possibility began to occur to him that Mr Lucie-Smith had indeed paid money, but directly to Sami by way of a side deal for their mutual advantage and with the effect of cutting him and Mr Wishart out of the picture. This led to his communications in November and December 2012 and January 2013 (paragraph 99 above). I think it likely that that evidence is broadly correct. So far as concerns Mr Muduroglu’s failure to mention a debt owed by Mr Lucie-Smith in a list of his assets in January 2012, having heard his evidence concerning the way in which he sought successfully to extricate himself at low cost from large liabilities to those to whom he had given personal guarantees (paragraph 84 above), I accept his explanation as being probably correct.

[151]I should add that, if I had taken a different view of Mr Muduroglu’s evidence on these matters, I should not have been at all inclined to conclude that he had known that no money was payable for the Reddish shares. The most likely alternative explanation would be that he simply did not know what money had been paid directly to Sami and assumed that the price had been paid, and perhaps channelled through SMU. However, that is not the conclusion that I have ultimately reached.

[152]Accordingly, the claim against Reddish for payment of the price of the shares succeeds.

Conspiracy

[153]The secondary claim brought by Mr Muduroglu, and the only claim brought against Mr Lucie-Smith in these proceedings, is for damages for unlawful means conspiracy. I can deal with this head of claim very shortly.

[154]The tort of unlawful means conspiracy “involves an arrangement between two or more parties, whereby they effectively agree that at least one of them will use ‘unlawful means’ against the claimant, and, although damage to the claimant need not be the predominant intention of any of the parties, the claimant must have suffered loss or damage as a result”: Total Network

[2008] UKHL 19

[2008] 1 AC 1174

, per Lord Neuberger of Abbotsbury at [213].

[155]The pleaded case is set out in paragraphs 25 and 26 of the particulars of claim. It is there said that Mr Lucie-Smith and Reddish conspired to defraud Mr Muduroglu in respect of the consideration due to him in respect of the Reddish shares. The particular facts relied on are that Mr Lucie-Smith informed Ms Vernon that the consideration for the shares was £200,000, rather than the agreed sum of £1,300,000, and that he thereby procured the entry of a false price onto the stock transfer form.

[156]The simplest reason why this claim must fail is that Mr Muduroglu has failed to establish that he suffered any loss by reason of the matters complained of. His complaint is that a false price was entered onto the stock transfer forms. I agree. But he was not deceived, and in the light of my findings it is impossible to see how the saga of the stock transfer forms has resulted in any actionable damage.

[157]I should anyway have inclined to doubt that a conspiracy could be established, regardless of loss and damage. It seems to me that there was no arrangement between two parties; there was only the conduct of Mr Lucie-Smith. It may well be the case that, for the purposes of tortious liability, there can be a conspiracy by agreement, arrangement or combination between an individual and a corporate entity of which he is the sole controlling mind: cf. Taylor v Smyth [1991] IR 142, per McCarthy J at 165; Barclays Pharmaceuticals Ltd v Waypharm LP

[2012] EWHC 306 (Comm)

, per Gloster J at [220-229]. However, it is quite a different thing to say that any unlawful action of an individual who stands to benefit via a corporate entity that he controls, or any unlawful action of a corporate entity performed by the person who controls it, is a conspiracy. This is not a case where the corporate entity was itself at the material time engaged in an activity, such as receiving or paying away moneys. What happened was simply that Mr Lucie-Smith caused a price to be placed on the stock transfer form and gave an explanation of how that figure had come to be on the form. To call that a conspiracy because he was supposedly wearing two hats, his own and Reddish’s, seems to run the risk of evacuating the concept of meaningful content. However, it is unnecessary to decide this point or to express any firm conclusion on it.

[158]Accordingly, I dismiss the claim in conspiracy.

[159]I have previously provided this judgment in draft to the parties. As they have been unable to reach agreement on consequential matters, I shall give judgment for Mr Muduroglu against Reddish and dismiss the claim against Mr Lucie-Smith but shall adjourn to a further hearing consideration of outstanding matters, including costs, interest and any application for permission to appeal. ______________________