“…the statements of case ought, at the very least, to identify the issues to be determined. In that way, the parties know the issues to which they should direct their evidence and their challenges to the evidence of the other party or parties and the issues to which they should direct their submissions on the law and the evidence. Equally importantly, it enables the judge to keep the trial within manageable bounds, so that public resources as well as the parties’ own resources are not wasted, and so that the judge knows the issues on which the proceedings, and the judgment, must concentrate…That is not to say that technical points may be used to prevent the just disposal of a case or that a trial judge may not permit a departure from a pleaded case where it is just to do so (although in such a case it is good practice to amend the pleading, even at trial), but the statements of case play a critical role in civil litigation which should not be diminished.”
“From time to time, when presenting the slides, Mr McIntosh represented that certain figures within the slides could be expected to be achieved easily. He used a number of forms of words, interchangeably to express this proposition. The phraseology included statements that achieving figures in question “would be a breeze”, that the figures were “soft targets” and that the figures “should easily be beaten”.”
“Clients – increased client base due to cross selling opportunities in CSMS and development of BD [(business development)] within existing roles.”
“Confirmed Provisional A No radar 1 month 46.7%”
“Confirmed Provisional 1 month 41.2%”
“2 x UK Heads£160k 3 x US Heads£70k Office closures£195k Total£425k ”
“Mr McIntosh stated that with [UniversalProcon] forecast to achieve 2011 EBIT of£2.77 million and with each achieving steady growth along with realising the savings that had been identified the earn out targets presented on [the Joint Budget 1 slide] were “soft targets” and “should easily be beaten” and “would be a breeze”
“a. All financial information as to UniversalProcon’s prospects and performance was shared with Mr McIntosh. He was in regular and frequent contact with Mr Gordon and Mr Acaster who provided him with this information and with the performance of key accounts; b. Monthly forecasts were sent to him at the beginning of each month as to UniversalProcon’s prospects; c. He was fully apprised of the risks associated with client business and knew the likely sales that would be made; d. He had been involved in the industry for some time and, it is averred, must have known the lead time from meeting a new client to achieving substantial business.”
“…that any new claims arising out of the amendments to the Particulars of Claim set out in the draft attached to the Claimants’ solicitor’s letter of14 December 2018 (“draft Amended Particulars of Claim”) shall be deemed for limitation purposes to have been brought on the date of this Order, unless the Court determines at trial that any such claims arose out of the same facts or substantially the same facts as a claim in respect of which the Claimants had already claimed a remedy”
“The Claimants have permission to amend their particulars of claim in the form of the draft Amended Particulars of Claim on the agreed terms recorded above, such that any new claims arising out of the amendments shall be deemed for limitation purposes to have been brought on the date of this Order unless the Court determines at trial that any such claims arose out of the same facts or substantially the same facts as a claim in respect of which the Claimants had already claimed a remedy in their Particulars of Claim.”
“The Defendant concealed documents from which the deceit could have been discovered by refusing the Claimants access to information at the [Meeting] as pleaded. The [Defendant] continued to conceal that information by refusing to provide access to documents containing the information, despite the Claimants’ requests by their solicitors that it do so. The Claimants were unable to discover the fraud and the information necessary to plead it prior to disclosure in these proceedings, the last tranche of which was provided by the Defendant [on]20 September 2018 and limitation did not begin to run prior thereto.”
“This is a clear case of misrepresentation by D, an expert in the information it was providing to Cs, to persuade them to sell their shareholdings in…WEG…on partially deferred, performance-based contingent consideration terms. On the evidence which the Court heard, there were misrepresentations made during the Meeting…as to: 8.1. UniversalProcon’s forecast net revenue in 2011 and its accuracy; 8.2. The level of Lilly net revenue included within the net revenue forecast…; 8.3. UniversalProcon’s US booked business as at 12-11-10…; 8.4. The ease with which the joint targets could be achieved…”
“Given Ds’ witnesses’ acceptance that there was no basis for saying that the targets were easy and Mr McIntosh’s assertion that he knew them not to be so, if the Court accepts that these representations were made, they are misrepresentations of fact by Mr McIntosh and this amounts to deceit. A false statement of one’s own belief is such a misrepresentation. At the very least it is a negligent statement.”
“…we can say with confidence that these terms would represent a significant premium to market rates, which would only be justified on the synergy in combining World Events and UniversalProcon.”
“On balance in spite of the large premium we’d have to pay, my view, which would need to be supported by a thorough due diligence process, is that we should increase our offer [from£14.5 million ] and attempt to buy World Events. If we don’t it’ll take a long time to organically create the number 1 agency and in doing so we may well go backwards with our current business.”
“How monies may be split between Graham Keene and the management shareholders is partly an issue for the vendors rather than something for us to dictate. However we would want to be satisfied management are happy with their deal and are not caught in the middle of terms agreed by the dominant shareholders on either side of this transaction.”
“Growth of net margin of 7% should be eminently achievable but known RISKS in US relayed (sic) to Lilly, Pfizer and Shire business. Are there others?”
“Presuming the£1m conditional deferred payment is to be borne by the management team then again this is a significant proportion of their overall holding. It seems effectively to be an earn out and if that is the case then it seems to have downsides only – any earn out I have heard of has upsides too, to motivate the management team…. I feel this would be very difficult for us to agree to without knowing the state of [UniversalProcon’s] finances and having the benefit of due diligence carried out on their books. As an aside, Mac mentioned to myself and Andrew that they had lost in the region of$700k this year on a bad deal with a virtual meeting software business, how would we be meant to know about this and any other skeletons they may have? To my mind the best and fairest way for them to manage this would either be based on contribution from WEG clients or savings made… I do feel that a huge onus seems to be on the ongoing management in every respect and, as I mentioned above, it is all stick and no carrot. This does not endear them to me at the prospect of them being a future employer! The bizarre thing is that it would appear to be beneficial if one was to be exiting rather than staying. This might appear unduly negative but I suppose this is only likely at this stage of the proceedings. There is a fair amount of “devil in the detail” which I have highlighted. All of that said, the amounts concerned to fix this are not large in the overall scheme of things and obviously any future management option or incentive scheme would only pay out if they were getting a return on their investment so they cannot lose from putting something like this in place.”
“We…discussed at length the£3m of deferred consideration. I believe that we agreed in principle that some element of the consideration would be paid as interim instalments with interest? With you, Liam, to come up with a proposal. It was further suggested by you that the share consideration would be issued at the price on the day of issue (not completion). It was also left with you to consider making the entire£3m only contingent on continued employment rather than targets, as these would be difficult to agree without detailed [due diligence] on UP.”
“Business development is the key business priority for UP (and the key strategic imperative) for continued success in the UK and US. A new business model was introduced after the UK business moved to Ashby de la Zouch, incorporating a Business Development Manager/Client Account Manager model. In a relatively short space of time, this business model has proved successful. The next step is to implement a similar model in the US. In only 4 months the UK has added 13 new clients, bringing in an additional£350k of revenue. The new clients include: Celgene, Archimedes, Phadia, Rochester, Novartis, Nutricia, ProStrakan, Flynn, Leo, Allergan, Tri-ducive, and Grunenthal.”
“UD as an organisation are looking for the CSMS division to achieve double digit growth each year. The increase in revenue gives the US an increase in operating profit growth from 0.07% to 3.43%...”
“…The bottom line is that I think the risks associated with raising the Net Revenue line outweigh the potential benefits. Probably no surprise in that “I would say that wouldn’t I” but I believe the attached analysis supports that conclusion. The punch line: Leaving aside the Lilly business risk and all else being equal, the known requirement to replace HCAM$525k means an existing “new” business target for 2011 in the US of$675k just to achieve the budgeted net revenue. As a measure, this is more than we will have “won” in total in in the US and that was from relationships built over a considerable period of time. Should either or both the Shire account ($310k ) and Forest account ($300k ) require replacement this would mean a new business target for 2011 in the US of$985k or, at worst,$1,285k . None of the above figures takes account of the budget amendment request to increase the US…Logistics Net Revenue by£100k ($150k ) which would revise those targets further as follows: New Business Target incl. HCAM replacement:$825k As above but including Shire replacement:$1,135k As above but including Forest Replacement:$1,435k . No doubt we can discuss further when you have had a chance to absorb the above and attached and we can decide what level of risk is acceptable in the circumstances.”
“…Our idea, to get round [IFRS3] is to base the deferred payments instead on “soft” targets to be achieved over 3 years. …I can have Mac [(Mr McIntosh)] and Martin [(Parry)] discuss what a “soft target” might look like.”
“…Suggested link to soft targets. Either no targets and£900k or£1m x 3 with targets…”
“All are strongly against any link to targets of any density (soft or hard!) for the same reasons as when the Heads were negotiated. Namely the agreed strategy of bringing the two businesses together immediately and [WEG] having very little knowledge of the UniversalProcon numbers and therefore unable to realistically discuss targets for a joint business until post deal. Martin Parry’s deferred consideration to remain unchanged and paid fully over two years.”
“They are holding firm on resisting the “soft targets”
“To summarise Chris was very clear on the following: This was UD’s problem not ours. UD want to avoid the P&L hit and need to find a solution and “we will”
“Mac has also asked me for my thoughts on how the combined company’s management structure could be set up to meet the demands of the new business and provide a succession plan for when I leave the business in two years’ time. I have therefore sent him the attached draft organisation chart, which is an extension on how we are currently structured and which I believe would offer us all the opportunities to develop our careers within the new ownership going forwards. Mac has sent this on to Chris and I assume this will form the basis of our discussions on Monday. I do not yet know how Mac and Chris see the new structure, which may be different to my suggestion…”
“While the 2010 forecast is in line with the numbers we had in the board document, there remains a gap to meet the 2010 forecast based on contracted revenues to date. This despite enhanced profits through high FX gains this year. Also need to spend some time to understand the underlying profit performance before new office costs to make sure it fits with our earlier analysis. Our assumption was to addback new office losses to normalize profits on the basis that new offices will be at break-even or better next year. Clear from the document that there are some challenges in the new offices. Hong Kong will continue to be loss-making next year and there are planned losses from new offices in France, Spain and Italy which will be additional costs. Need to consider EPS impact of this. 2011 pipeline looks weaker than I would expect. World Events are clearly experiencing some margin pressures. Profits were enhanced in the past 2 years by some big events – more so than we were told about in our earlier analysis.”
“There are a few things in the DD document on World Events that give cause for concern: The run rate on the business seems to have dis-improved considerably. They will do very well to get to the forecast and the momentum/pipeline going into next year looks weak according to the analysis. None of the overseas offices are performing to expectations and many look like they will not reach breakeven for some time. Hong Kong for example has done 7% of expected revenues! Their numbers include add backs on directors’ bonuses which I don’t think is realistic for the future. Also EBIT includes FX and interest gains which aren’t sustainable. The recent FX gains are nearly 300k. The underlying business needs working capital and the cash we thought might be there isn’t in reality. I fear going into the transaction with a clear risk that they will miss their earn-out is always a bad formula. We may need to look at valuation again on the back of the report and before we sit down with their team for dinner in November.”
“Forecast EBIT –$2,890k Budget EBIT –$2,889k We are anticipating to be approx.$500k down on budget in terms of total net revenue and we have therefore taken out heads or delayed the appointment of heads to get us back to budget EBIT. I believe that it would be worth having a catch up in the near future to discuss the assumptions we have made on a more detailed basis including those in relation to the phasing of the forecast.”
“Theatre Meeting 261010”
“1.5M in heads 16.2M Multiple of 10.8 Most companies selling at 5-8 multiple 774K multiple 21 What is included in the number for UD, as a standalone co need a level of profitability that is repeatable… ISSUES …Add back of overseas offices set up costs if they will break even??... China & Singapore will still make losses in 2011 FRANCE Need to show the 140K relates to 1st 6 months then ADD BACK SPAIN ITALY…”
“…We are keen to get comfortable somehow regards the 2011 projected income level…[H]owever, as you have already discussed, it is difficult to do so from the review of the pipeline. Can you provide any other information that will help give us comfort on the 2011 projected fee income figure?”
“If the team recommendation is to give the agency a second chance, I would align with it with the reservation of no tolerance for any underperformance from this agency in the future.”
“At our meeting last Thursday, Grant Thornton commented that all they were doing was presenting “facts”
“WEG have been and still are investing in an international office infrastructure that is absolutely necessary if they wish to become a Global supplier. We have not made these investments, yet if this deal does not proceed we will have to make these investments. Mac is doing a review of how much it would cost to make such investment in financial terms, yet to this we need to add the fact that such an independent route taken by UP would probably take about 3 – 4 years to complete, and would cost us a great deal of potential business”; v) UniversalProcon and WEG had won “the Lilly business”
“I know this is a deal you really want to do for the reasons you set out which I understand. However the sustainable profit and cash positions are different than we had initially understood and we’re already paying a very toppy price. The outcome of the DD has to be made known to the M&A committee and I can’t simply put the DD to one side and say just do it anyway. Doing the deal to protect the position with Lilly isn’t really an issue we should consider. I think this is the right deal to do from a UP perspective but when you take out add backs, FX gains, and uncertainty about next year, the price is too high and there is a good chance we will end up fighting over the earnout. I don’t think we’ve much alternative other than to go back to [Graham Keene] and reason with him on these issues however difficult. I think we should try to have a conference call this afternoon to discuss. I am not fully up to speed on what was in the heads vs. what the DD says. However I can’t go back to the M&A committee and simply say that we really need to do the deal at this price and that you will accept responsibility. It won’t be approved on that basis.”
“The acquisition of WEG at our originally proposed terms can only be justified if the 2011 projections can be believed. At face value, these look challenging with: 1. A 40% increase in fee revenue budgeted; 2. Loss of exceptional FX gains in 2010; 3. Bonus not budgeted at this trading level; 4. Needs strong performance from the new offices. However A2IF have reviewed the projection and with new business’s (sic) coming from Lilly, GSK etc. it’s believed the target can be achieved. (GT doing additional analysis). In addition, long-term the projections require belief that the internationalisation strategy will be successful. Also worth considering is: 1. Potential lost income of£1.8m with Lilly by UniversalProcon if the merger does not complete. 2. Additional potential cost/revenue synergies for the merger. For example the model does not allow for a cost saving on closing the leased Cleckheaton offices of WEG or any venue sourcing income. 3. Neither does the valuation model factor in the costs of opening international offices to attain the infrastructure WEG currently have. This is estimated at€1.6m over 3 years.”
“I reached Precison (sic) Corporate Finance to highlight our concerns. Understanding on their side on some of the points but not agreement on all GT’s addbacks. They suggested a way forward: - they will talk to me in more detail tomorrow about our concerns and GT’s analysis. - have requested a face to face meeting to see if we can find a solution. Later this week. - GK is clear he will not budge on price. - however they believe a risk-share could be a workable solution.”
“Thanks for the update Liam, does this mean GK [(Mr Keene)] is willing to put some of his monies at risk? I will look at different scenarios on how we may shape some risk share deal. I really hope we can gain agreement as not doing the deal really puts us in a difficult position with Lilly. If we lose Lilly UK and Lilly US we lose€2M of net revenue which equates to€1.3M of lost GP........this is a real possibility. Will start work on some risk share scenarios tomorrow.”
“Spoke briefly with Liam L [(Logue)]. The earn out will need to be 3 years and targets will need to be about 4.4m, 4.8m and 5m to get the returns we need to justify the upfront payment. They seem reasonable to me. But don’t mention to Martin or anyone at WEG yet. Might be worth dropping in to conversation with Martin that the earn out might have to be 3 years and it might be worth arranging a day when they can come to see our UP performance this week, plus what we expect as savings/synergies. Ps we will build an upside in for them.”
“Think you need to get Martin, Jeremy and any others to Ashby this week to go through any questions they have re [UniversalProcon] so that we can agree some targets for the earn out. This will allow us hopefully to move onwards. You’ll need to be able to go through the numbers and proposed synergy expectations.”
“We have another meeting lined up with [Mr Logue] and the other members of UD this Friday. We do not feel that it is appropriate to provide further information until things are clearer following that meeting.”
“As you are aware we are at a critical point in the…acquisition. What will be on offer is the same upfront payment with one BIG difference....they will have to agree to hit combined EBIT numbers over the next three years. Graham Keene will leave with his money with all the risk left with the remaining directors to earn a further£2.7m payment over the three years. If they do not agree to this the deal is off. This is now the only way UD will agree to the acquisition. As the structure of the deal has now changed and if they agree to the joint EBIT budgets I am sure each individual is going to want to play a part in ensuring the numbers are met. We are meeting with them on Thursday to share the EBIT budget numbers. Our objective at the meeting is to present a picture which gives them confidence that we are comfortable in playing our part in hitting the numbers. I have started to work on a presentation (see attached), basically a dump of info which I think the USA may want to follow and then we probably need to pull the two different stats into one. Myself and the two Steves are working on the presentation this afternoon and tomorrow.”
“14.1 EBIT over 3 yrs”, which is clearly a reference to the earn out target. Then there is a reference to “11.4m”, which a reference to the EBIT which had to be achieved for any contingent consideration to be payable. Adjacent to the columns of writing which include the “11.4m” note, Mr Wilson wrote: “0.5m upside.£1m over 14.1m split 50/50”
“pound for pound from 11.4 => 14.1. Then 50p/£1 to£15.6m i.e.£750k upside”
“Project Theatre 12/11/10 Meeting 5/11 – GT DD had painted diff picture to one started with… Proposal (has approval of Liam F) [i.e. Mr FitzGerald] Need to keep upfront paymt the same i.e.£13.5m …£2.7m deferred on target based earn out on combined entity – based on trading profits of UP + WEG over 3 yrs get to£14.1m EBIT£4.4m calendar yr 2011£4.7m [ditto] 2012£5m [ditto] 2013 [To the right of this table, in apparently slightly smaller handwriting, is a further three column table which mirrors the table labelled “UP Budget” in the Wilson note] [The note continues under the left hand table]…£0.5m upside for every£1 over£14.1m split 50/50 up to£0.5m … Martin Parry – risk on mangmt team of getting nothing is a serious factor as over 50% of their £ is deferred… Would prefer equitable downside to upside i.e. guaranteed minm paymt of£2.2m Must show return on capital employed Want confirmation will still get their director bonus. Mac’s presentation Slide 2 [the UP EBIT 1 slide] Despite GP [net revenue] lower, increased EBIT In 2010 lost [EMOP], Duke…Improvement Fdtn… * consolidated numbers for US + UK – can be provided split roughly 60:40 US:UK for 2011. Slide 3 [the UP Group Sales 2009 v 2010 slide] Total sales dropped due to losing clients… * Breakdown of # mtgs per month + # delegates per month 13 [the 2010/11 Savings slide] …close Yeadon + Indie… Poss pushback from Lilly re Indie closure but keep key client facing people [This note appears to be in smaller handwriting and between lines in the daybook Ms Bates was using]. 14 [the UP EBIT 3 slide] Ivyland headcount will increase to accommodate Indie closure… 20 Joint Budget (split by co contbn + savings) [either the Joint Budget 2 slide or the Joint Budget 3 slide] Way in excess of earn out targets”
“much more diverse client base”; ii) In relation to the “other small wins” slide, Ms Bates wrote: “Warner Chilcott will be big”; iii) In relation to one of the slides showing other UK opportunities, Ms Bates wrote: “not leveraged all AI2F’s client relationships. Not leveraged InforMed clients. InforMed – easy wins for UP are investigator meetings – just introduced InforMed to Archimedes – working together”; iv) In relation to the Emerging Markets opportunities slides, Ms Bates wrote: “James Thompson – focus on Pfizer emerging markets…he brings in$1.6m ”
“Same as 2010 Lilly”
“Close Yeadon & Indianapolis”
“Further to our meeting today I volunteered to have a stab at summarising what was put on the table today – Jeremy is driving us after all. - the 2.7m is wholly at risk if targets are not met - targets are based on a combination of UP and WE EBIT plus savings arising from the consolidation of the two businesses - the targets were set as follows: 2011 4.4 2012 4.7m and 2013 5.0m (total 14.1) - in order for the deferred amount payment to be triggered a figure of 11.4m has to be achieved over 3 years - once the 11.4 amount is reached then payment will be made on a 1 for 1 basis up to 14.1m - on any amount over 14.1m an additional payment above the 2.7m will be made on the basis of 50p for every 1 up to a ceiling of 15.6 - this would be the equivalent to a total of 750k - the payment schedule for each year will be based on the targets for each year as above - exact details to be confirmed but one would assume that payment would be triggered once 80% of the target has been reached each year i.e. on a pro-rata basis to the 3 year target - should a target not be met in any given year then the cumulative numbers over the three year period would apply to create in effect a “roll-over scenario”
“…The general view was that this was a positive position, particularly now that the additional£500k has increased to£750k for the remaining shareholders, for achieving agreed targets. We reconfirmed however that the remaining shareholders were still concerned that the whole of the deferred consideration was at risk for the remaining shareholders only and got no response from either Graham or Neil on this point.”
“I have just finished my call with [Mr Keene] which was friendly but probably as we all expected did not see any change in his position, although he did recognise the points being made. I did not structure the call as a formal business discussion but purely as me catching up with him as he had contacted me to look at dates for a potential visit to Amsterdam so we agreed to catch up this morning. I did position the state of the market and pressure on pricing etc. plus that the management team see this deal as the best way forward for the business. He is very relaxed as to whether the deal goes forward or not. I cannot detect any real need or want from his point of view which makes any form of negotiation/discussion very hard as he is not desperate to sell and does seem ambivalent as to whether the deal goes through or not. I advised the meeting on Friday had gone well and there was definitely a willingness on UD’s side to make the deal work and to give the management team realistic and achievable targets BUT there was still the risk of getting nothing as a worst case scenario. I highlighted that this risk was still a concern to the management team (plus my own personal situation in this which he acknowledged) but he did not give any feedback outside the fact that the numbers are in our control and based on the initial feedback from Martin & Jeremy on Friday the chances of not hitting them are probably quite low plus there is now a potential upside that was not on the table before. I did broach the property being used to protect the deferred payment for all shareholders and is that something he would be prepared to consider (I said this was my idea and that I advised the management team I would discuss this with GLK). Graham did not really see how this could be managed due to other shareholders such as Frances & the Wrighton boys have shares in the property and felt they would want their cash on the value of the property not to be put at risk. In summary I think Graham will not change his position despite the fact that the deferred payment is at risk for the rest of the management team moving forwards. I think it was Neil who said on Friday that Graham does not seem to be worried if the deal does not go through or not, I can only reiterate this point, and without becoming confrontational with him which I know from past experience does not work we are very much as we were in our discussions. Gary & Mark you may want to reiterate the management team’s concerns regarding the deferred payment being completely at risk (plus mention my idea regarding the property) but I do not see Graham changing his position on this based on our informal friendly conversation this morning.”
“When the deal was such that the earn out figures were guaranteed it gave me the certainty that I needed. We were persuaded that the target figures were “really soft” and it would be a breeze, so they were as good as guaranteed, on that basis, and in good faith we agreed to change the structure of the deal.”
“To effect the change a presentation was made in Sept/Oct 2010 and a document provided demonstrating that UP would hit an EBIT of£2.8m in 2010/11 and that this combined with an EBIT of£1.0m from WE and cost savings of£0.5m would make a first year target of£4.3m . The target would then increase in the successive two years. These targets were described as “soft” and that achieving them would be a “breeze”
“In the final three weeks leading up to your purchase of the Company, you asked the Sellers to renegotiate a change in the structure of the sale of the Company, specifically the Sellers were advised in order to avoid the deferred consideration payments being paid out of the United Drug plc profit and loss accounts and for certain tax reasons. At a meeting held on12 November 2010 a written Powerpoint presentation was made to the Sellers by Chris Corbin, Board Director of United Drug plc and Graham McIntosh, Managing Director of UniversalProcon. At the same time a hard copy of this presentation document was provided to each of the Sellers. This document set out financial data and analysis featuring actuals, forecasts and targets for UniversalProcon, the Company together with budgets and combined savings on the merger of the two businesses. At the meeting, Chris Corbin and Graham McIntosh represented that the targets set out in the presentation document were “soft targets which should be easily beaten”
“Draft extracts of the Grant Thornton report were also shown to Jeremy Wilson, Finance Director of the Company, so that he could provide further information to you and your advisers. Jeremy Wilson went to Dublin to Grant Thornton’s offices specifically to answer questions from Fergal Fitzmaurice. He was not afforded the opportunity to ask any questions on behalf of the Company.”
“An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory. While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people’s memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate. Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called “flashbulb” memories, that is memories of experiencing or learning of a particularly shocking or traumatic event…External information can intrude into a witness’s memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory). Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time. The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party’s lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces. Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness’s memory has been “refreshed” by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness’s memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events. …In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”
“The credibility of witness evidence should be evaluated against the contemporary documentation and overall probabilities: see e.g. per Robert Goff LJ in Armagas Ltd. v. Mundogas SA[1985] 1 Lloyd’s Rep 1 at pages [56] – [57]: “…I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives and to the overall probabilities can be of very great assistance to a judge in ascertaining the truth.””
“…I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between the parties, but with even greater force to a party’s internal documents including e-mails and instant messaging. Those tend to be the documents where a witness’s guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of the contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence.”
“The burden and standard of proof: In relation to a claim raising allegations of fraud, the burden of proof is upon the claimant as in an ordinary civil claim, and the fact that fraud is alleged does not change the standard from being on the balance of probability – see In Re B (Children)[2009] 1 AC 11 at [13] per Lord Hoffmann. As was said by Lord Hoffman in In Re H (Minors)[1996] AC 563 , 586E – G: “The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence…Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established.”
“Having reviewed the evidence to date, we do not believe that we need to call Mr Ackroyd to give evidence”
“…The claimant submits that it is a basic tenet of natural justice that it is unjust for a claimant to have to defend herself in the civil courts against calculated silence. This is particularly so in clinical negligence cases where there is an asymmetry between the knowledge of the patient and their doctors. The claimant relies on Wisniewski v. Central Manchester Health Authority [1998] PIQR P324. In that case Brooke LJ derived four principles from previous case law: (1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action. (2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. (3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. (4) If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified. …Wisniewski is not authority for the proposition that there is an obligation to draw an adverse inference where the four principles are engaged. As the first principle adequately makes plain, there is a discretion i.e. “the court is entitled [emphasis added] to draw adverse inferences”
“…I advised the meeting on Friday had gone well and there was definitely a willingness on UD’s side to make the deal work and to give the management team realistic and achievable targets BUT there was still the risk of getting nothing as a worst case scenario. I highlighted that this risk was still a concern to the management team… Gary & Mark you may want to reiterate the management team’s concerns regarding the deferred payment being completely at risk…”
“In my experience McIntosh had a unilateral approach to the way he presented UP/WEG monthly accounts back to the Ashfield division and ultimately UD at a group level. He would manage the numbers to show a more positive forecast. One specific example I recall is that one year the end of year accounts for the Dutch office showed a significant profit in excess of£450K but this was moved to the UK business without any consultation with Penny Callaghan or myself who were the Directors responsible for this area of the business…[to bolster the UK end of year position]…”
“…WEG, as a pharma events business providing logistical services – meaning it was not subject to the subjectivity of the marketing communications nor creative events world – for meetings scheduled to take place months and months in advance with long term client relationships in place, usually had in excess of around 75% of the business being confirmed, business under discussion (BUD) (repeat business) and expected other business at the start of the financial year. This means that business was confirmed or well underway in terms of being planned or we were very certain would happen, given that we had dealt with those events for a number of years.”
“I recall McIntosh explaining that this slide included a breakdown of the proposed EBIT budget for UP and WEG, also taking into account savings and it was for the calendar year, in line with the earn-out periods rather than financial year. For example, between 1 January and31 December 2011 , WEG (which I refer to as WE in my notes) was budgeted to achieve EBIT of£900,000 [(i.e. the yellow bar)], UP was budgeted to achieve EBIT of£2.7m and there would be combined costs savings of£1.3m [(i.e. the green bar)]…”
“…I am saying that [Mr Logue] may have but I wasn’t in the room at the time if he did because I don’t remember it and if he had have made that offer at that point that would have been a very dramatic change because previously it had always been closed down.”
“…We are keen to get comfortable somehow regards the 2011 projected income level…[H]owever, as you have already discussed, it is difficult to do so from the review of the pipeline. Can you provide any other information that will help give us comfort on the 2011 projected fee income figure?”
“During the call, Graham asked each of us in turn what we thought about the deal and specifically, whether we were in favour of going ahead with it. Martin, Gary, Andrew and Mark all gave similar answers which were along the lines of being concerned that a lot of our consideration was at risk but that they had been convinced by Corbin and McIntosh that the earnout targets were easily achievable and that they were prepared to support the deal. I was last in line and I said that there was too much risk on the Ongoing Shareholders and that we could lose half of our consideration. I wanted Graham to share in the risk so that my risk would be reduced. I was put in my place. Graham said something along the lines of “So Jeremy, am I going to go back to United Drug and say you’re the only one which doesn’t support the deal?”
“Mr Potts: You refer to the fact of going round in turn and it being said that the concern was that a lot of consideration was at risk but they had been convinced by Mr Corbin and Mr McIntosh that they were easily achievable and were prepared to support the deal…But what you said here is that you said that there was too much risk on the ongoing shareholders that they could lose half of the consideration. Yes? A. That’s what I say there, but when I was referring to risk I was thinking about risk from a weighted perspective. So, I was combining together kind of the likelihood that we wouldn’t get it, combined with the amount of value that was at risk, if that slim likelihood of not getting it had turned out to be the case. Q. Just to be clear, what you were saying here was that you were saying that you did not think that you should proceed because of the risk. That is what you expressed. Correct? A. I was expressing my concern around the level of combined value and small percentage likelihood of risk. Q. I am not sure that is an answer to my question, Mr Wilson. I am so sorry. I will put it again. You were saying that because of the risk you did not want to proceed. That is right, is it not? A. No. I was expressing concern. Q. You said it is too much risk --- too much risk to proceed. That is what you are saying, is it not? A. No. I’ve just explained what I meant by too much risk… Judge: Mr Wilson, all Mr Potts is asking you is, when you say too much risk, too much risk for what? A. Too much risk to be completely comfortable. Judge: About? A. About proceeding with the deal and so I was hoping that by expressing that view that Mr Keene might find a way to help us mitigate against that total level of risk in a combination of the slim likelihood and value. Mr Potts: What you were saying is as currently structured you were saying that there was too much risk to proceed as that was as structured. That is right, is it not? A. As I’ve just said, I was saying that there was too much combined risk for me to be comfortable, so I was hoping that Mr Keene might find a way to help mitigate that risk. Judge: Just so I am clear, at this stage you were still uncomfortable about the transaction? A. I was still --- I was trying to position to Mr Keene that there was still, um, significant total risk because, although we had been given soft targets that we were very comfortable we would achieve, there was always the slim chance that something, some kind of force majeure type of event might have meant that we wouldn’t get our consideration…I was just going to add that since the first consideration element was so significant, I hoped that Mr Keene might find a way to help mitigate that. Judge: The note I have got of your evidence just now is that there was too much risk for you to be comfortable to proceed with the deal. If there is too much risk for you to be comfortable, does it not follow that you were uncomfortable about something? A. Yes, I was uncomfortable about the potential force majeure type event that might mean that we might not get our consideration…I think it’s because I was just trying to --- I was just trying to persuade Mr Keene to help mitigate that risk. So, I was positioning that I felt uncomfortable with the deal… Mr Potts: The reference, the matter that you say that you were uncomfortable about, was the reference, you say, to force majeure. That is right, is it not? That is the only thing you have mentioned to my Lord. A. Yes, that’s right, yes. Q. But you were aware, Mr Wilson, that there had already --- the offer which had been made contained an offer to deal with force majeure, act of god, did it not? A. It helped, but it didn’t go all the way --- it didn’t cover all of it…. Q. So, you would get that there would be a guaranteed amount of 50 per cent of the money in the events of a force majeure. Correct? A. Correct…That’s only 50 per cent. It still left a considerable amount of consideration at risk. Q. Mr Wilson, I suggest to you that what you have said in your statement is clear and what you said to my Lord is also the case, that at the time you expressed a view that there was too much risk to proceed with the transaction. That is the true position, is it not? A. No. As I said, I was positioning to Mr Keene that a significant proportion of our consideration was at risk, albeit it’s a minimal risk, but still nevertheless a risk. Q. You do not just say a minimal risk. You [did not] just say: well, I said that there was a minimal risk on the ongoing shareholders that we could lose half our consideration. It does not say that. It says that you say there was too much risk, not minimal. A. That’s because any level of risk was too much to be completely comfortable and that’s what I was trying to convey to Mr Keene.”
“Mark and I did meet on 14 November in Princeton NJ along with my wife. He explained what had happened at the Meeting, in that a Powerpoint presentation had been given and earn out targets had been set which he and the other shareholders who had attended…had been assured by what they had been told by McIntosh and Corbin would very likely be hit. I accepted and relied on what Mark told me in deciding to agree to accept the deal. I do not think that Mark showed me a copy of the Powerpoint presentation document. I remember that he was frustrated that the deferred consideration was not guaranteed but I trusted Mark and was reassured. From what he said McIntosh and Corbin had said in the Meeting that the targets were easily achievable.”
“Q. Well, I suggest to you, Mr Dickinson, that you are mistaken about that and obviously this is a long time ago and there is a danger of hindsight. I suggest to you that you are mistaken about that and there was nothing said to you, said at the meeting, about these targets being easy to achieve. You have misremembered on that point. A. It might have been, yes. It might have been mis-remembered but as I say, there was a time between that and the actual assigning the SPA we could have pulled out beyond that. Q. So, I think you are accepting --- firstly, you are accepting that you may have misremembered? A. Yes, I might have misremembered. It’s a long time ago.”
“Q. I understand that you understand what your case is meant to be and what hinges on it, Mr Dickinson, but I am not asking about that. I am asking you that this email represents your understanding at the time, which is that you appreciated that this was a real target in the context of due diligence issues. Correct? A. I guess so, yes. Q. And you accepted at the time that what had been presented is what is said here, which was that there was a willingness to give you realistic and achievable targets. That is right, is it not? You can see that in the second line of the third paragraph. A. Yes. Q. And that represented your understanding at the time? A. Yes.”
“A. Just to set the scene, my Lord, we were in a hotel in downtown Princeton. My wife and I were living in Princeton downtown at the time, and we met with Mark because he was coming over to Princeton to help me present to an industry meeting about what was going on in the pharmaceutical meeting industry at the time. And it was very convivial, we actually went out for dinner, the three of us, and I was asking Mark: well, how had it gone, how did the meeting go down, what happened? Mark just basically gave me the top line in terms of what had happened, and that whilst he was still not a hundred per cent happy with the terms and was still a little bit -- I think we were all a little bit aggrieved that Mr Keene was walking away with all this money and we had to wait for ours, he convinced me, and again the words at this stage I can’t remember but he convinced me that he had been assured by UDG that these numbers --- they had done it before and these numbers, we could achieve these numbers over the next three years, and that it was fine, and that he had turned – and he was going to sign the deal…I also would add that it wasn’t just Mark; he was kind of speaking on behalf of the other three, so Mr Winterburn, Mr Wilson and Mr Parry. Mr Pipe: And in your witness statement you have talked about being told that there were soft targets, and I think you indicated today you were not sure precisely you were told about that. When do you think it is likely that you were told about that? A. I think it’s likely that I was told about it at that meeting. I’m feeling that that was the first time that there was an opportunity to say that, but, you know, I’m on oath to say the truth, and I honestly can’t remember. I can’t recall. We’ve been talking about this for 10 years.”
“During the meeting, the Management Shareholders [(i.e. Mr Parry and Mr Wilson)] raised the point that they felt like they were relying on projections of [UniversalProcon] and had not performed due diligence on the business in detail. I was very clear that they could request more information if they wished and we could wait until they were comfortable with the deal. At the meeting I recall that the vendors were seeking some form of warranty to underwrite the [UniversalProcon] projections. I made it clear warranties around future projections are not customary in acquisitions. We were not receiving any such warrant from WEG’s vendors and in turn would not provide such a warranty for [UniversalProcon]. I made clear that if the vendors were uncomfortable with [UniversalProcon’s] projections, they were entitled to do more diligence.”
“The timescales for winning new work depends on a number of factors, including the nature of the client and the type of work we are pitching for. A big account, capable of needing services equating to half a million pound in revenue, can take many months to win, but depending on the nature of the process, the competition, the work involved and how you gel with the client, the chemistry and personality in pitches, it can be much shorter. I remember the process for the Lilly pitch in 2010 took almost a year, whereas a pitch we did to Boehringer Ingelheim only took a few months.”
“They made comments along the lines of: “Yes we know you lost this customer and this is why we think it happened”, “We will send in our people to turn it around because we have them as a client too” and “We will get Pfizer back on side”.”
“…It was my business that I was responsible for – my credibility as a Managing Director was on the line. I wanted it to grow, to hit its targets, to pay its staff bonuses and be a good place to work. My own bonus and performance review was also based on meeting the budget. There is no advantage to me whatsoever in setting impossible budgets.”
“Millennium was a new client and I seem to remember going to several dinners, and I forget the gentleman’s name, but he was responsible within Millennium, which is part of Takeda, of giving out all the events throughout that year. And Gavin Houston --- sorry, my apologies, Adam, and I can’t remember the lady’s name in UniversalProcon, they had a fantastic relationship with that gentleman and I’d been to dinner with that gentleman. So I knew that gentleman was there. Part of my thinking would be that Millennium is going to do better than what we believe it’s going to do.”
“Q. I think it is fair to say that Mr Corbin was of the view that the targets which had been set would easily be exceeded. Correct? A.Yes.”
“Q. …What are the targets there that you are referring to? A. So, I think my understanding was that it was in relation to the targets within the Grant Thornton document. Because I think in previous emails Chris [Corbin] is saying that Grant Thornton aren’t looking at the bigger picture, which is correct, and I think his email drafts out why he mentioned add backs, et cetera, why you should be looking at that figure more than the initial report of Grant Thornton. Q: What targets were referred to in the Grant Thornton reports? A. I’m guessing the --- I’m thinking of the difference between the Grant Thornton numbers, then with the add backs back in, which would WEG achieve these three year numbers as their part. It would be useful, my Lord, if I could see the next page of the transcript to see what moved on, if that’s possible. Q: That is not a problem. Page 81 [of the transcript]. You can see there the reference to page 2336 [of the trial bundle]…: “Question: Can we have a look at page 2336, the second page of the email. Mr Corbin says, about a third of the way down: “If the deal falls apart at this late stage I have some real concerns about the viability of our arrangement with Lilly. If WEG decided to go alone, they have the ability to deliver all of Lilly’s needs in the US, BUT we do not have the ability to deliver in Europe. So we run the risk of losing ALL of the Lilly business, with net revenues of about£6m and EBIT of circa£1.4m .”
“It was a risk, yes.”
“If the deal falls apart at this late stage I have some real concerns about the viability of our arrangement with Lilly. If WEG decided to go alone, they have the ability to deliver all of Lilly’s needs in the US, BUT we do not have the ability to deliver in Europe. So we run the risk of losing ALL of the Lilly business, with net revenues of about£6m and EBIT of circa£1.4m .”
“Mac [(Mr McIntosh)] put a presentation together for the meeting with members of his team. I do not remember being involved in the drafting of the presentation. The presentation gave reassurance that [UniversalProcon] was in good health and set out our budgets and forecasts for the coming years. These were the same budgets and forecasts that we used for the entire business…and which we used whether the acquisition completed or not – they were not just for this deal. We presented that the earn-outs were very achievable, as this is what we thought at the time. I believed the business would be a success.”
“A. I’m able to say that the comment that was made in the witness statements about “easy” and “soft” and “a breeze”, from other documentation, appear to be very incorrect. Q. But you cannot actually remember whether it was said or not? A. I can tell you that wouldn’t have been terminology used, but I cannot remember whether it was said or not. …My Lord, I was asked about whether I remember it being said and I can’t remember, because I don’t remember what was said in the meeting, I’m sorry... But the point I was trying to make is that there is ample evidence, if we look for it, that words like “easy”, “soft” and other things that have been referred to would not have been used because it had been clarified before the meeting, there is a document from Mr Keene which he notes a meeting with myself, or a telephone call, I’m sorry, on 11 October, I believe. He talks about me being supportive, explaining the problems we were having with the earn out and he states very clearly in it that the auditors would not allow weak targets. And that email that Mr Keene sent is copied to Mr Parry. Mr Parry was in the meeting. I just found it interesting that Mr Parry isn’t part of the complainants. So, he knew weak targets, which then you could transfer I suppose into this phrase that everybody likes to use of “easy and soft”, were not going to be applicable. So, I can’t imagine those words would have been used. And in addition, Mr Winterburn after the meeting refers to the targets in another memo as “reasonable and achievable” and in a memo, an email, sorry, that I wrote to Mr McIntosh after I had been given the targets by UDG, because I didn’t create them, I referred to the line: “They seem reasonable to me.” …Sorry, just to finish, the point I am trying to make is the words “reasonable and achievable” are words that have been used by Mr Winterburn in relation to the targets. That’s how, I’m sure, I would have referred to the targets. There’s no note that I’ve seen in Ms Bates’ notes that I thought the targets were easy or soft. And I had previously asked some time ago, if we remember, on 30 September, I think you showed me an email yesterday, where I asked for easy to achieve targets. And it was obvious that had been declined. And Mr Parry was aware that it had been declined and I think potentially, it looks from the previous witness statement that you showed me, that Mr Wilson knows what the content of the email that Mr Keene sent out was and the email clearly stated that weak targets were not acceptable to the auditors.”
“Q. …So, my first question is: what do you mean by the phrase “very achievable”? A. It calls to mind to me that there was considerable potential leeway in the achievement of the numbers. Q. …Does “very achievable” mean the same thing as “soft” or “a breeze”…? A. No, not at all, my Lord. Q. Does…“very achievable” mean the same thing as “easily achievable”? A. No, my Lord. Q. …Are you able to explain to me what you think the difference is between, on the one hand, “very achievable” and, on the other hand, “easily achievable”? A. Yes. I would never use the word “easy” in relation to business. I think business is tough. I think the business environment is tough. Some things are more achievable than others in business and in the world and I was trying very clearly, as part of that presentation Mr McIntosh has put together and his team, to demonstrate that here is something which is, I could have said “eminently achievable” or “seriously achievable”
“We presented that the earn outs were very achievable.”
“I can see no legitimate explanation for a sudden reversal of the previous reduction in the cost of sales if [UniversalProcon] forecast with any degree of diligence or accuracy as their witnesses claim to be the case. It is for the court to determine, absent evidence to the contrary, whether the pattern of cost of sales forecasts is indicative of a simple mistake, reckless inaccuracy or deliberate massaging of the figures up to March 2011 to conceal the true scale of the problems facing UPUS.”
“Gordon raises many concerns…and, whilst it is a matter for his evidence, I am surprised that a request for an insignificant£100,000 increase in net revenue – or less than 2% – would 496. prompt such a lengthy email from Mr Gordon. From the language in the email it seems to me that he was materially concerned at the level of the US budget. I will deal with each element in turn below, but I note here that he sets out the following serious issues under the headings “Risks/threats” in the attachment to his email…: 497. Lilly – no business! 498. Pfizer HCAM –$525k net revenue “hole” 499. Roche – Qtr2 still unknown...second most aggressively budgeted account 500. Shire – real possibility that this account will not renew in 2011 501. Millennium – unknown volume and commitment.$75k in 2010 due to one event that is unlikely to repeat 502. Forest – unknown volume and no commitment/known 503. programs yet in 2011.”
“Within 15 days of the SPA, UPUS produced the December 2010 forecast which showed a reduction in net revenue of £(1,012,570). I have seen no evidence in disclosure of any event or news which caused such a reduction in forecast net revenue.”
“I…have shown that, especially in the USA, the net revenue in the budget was materially at risk given the fact that, at the time of the November Presentation, clients were lost or at risk. The FY2011 budget set in August 2010 and included as a forecast in the November Presentation was not achievable and was a fantasy.”
“…UPUS included in its budget and forecasts net revenue of very significant sums from clients who were either lost or at risk and therefore, unless other elements of the UP Group were to hugely over-perform (which they were not forecast to do), the chances of meeting the budgets or forecast were a fantasy.”
“given the nature of the business and the lead time for work, it is inconceivable that the level of lower net revenue [shown in the post-November 2010 UPUS forecasts] was not able to be contemplated…in November 2010”
“It is clear that Pfizer EM was officially lost to BCD and UP had known about this for some time prior to November 2010. The inclusion of any amount in any representation to the WEG directors was misleading and a fantasy.”
“It appears that at the time of finalising the FY2011 budget (August 2010), based on the emails forwarded from Lisa Thompson, [UniversalProcon] should have been aware it was 532. unlikely that it would be receiving work from…HCAM in the calendar year 2011. 533. For Pfizer HCAM,$224k was budgeted for the first quarter of FY2011 (October to December 2010) and$526k for the final three quarters (January to September 2011), making the total of 534.$750k … 535. It appears that for this client the budgeted net revenue was too high given the notification that work would not be provided in 2011. Net revenue budgeted for Pfizer HCAM for the final three quarters should therefore have been excluded from the budget or have been reclassified under the heading of new business needing to be sourced elsewhere… 536. In the context of longer lead terms to win larger projects, the re-allocation of the…HCAM quarters 2 to 4 figure of$526k to unidentified new business sources appears a more challenging target than for identified clients with an existing relationship.”
“Q. Can I suggest to you that the budget is not actually a forecast at all, it is a target. Is that fair? A. At the time it is produced I would think it was both, my Lord. Q. If it has to show growth, is that not a clear indication that the imperative of targeting takes precedence over the accuracy of forecasting? A. I think that would be quite a short term view, my Lord, because if you simply put a budget which one had no hope of achieving, then you would be on the back foot very quickly. But again it is a matter for the witnesses, but I think they would be expected to put in a budget that they could try and achieve but mindful of the need for growth and controlling costs and the other things that are referred to in the budget instructions. Q. So it is a target. A. It is both, is it not? When it is first produced it is: what do you think you can do next year? There has to be – it is a target, and at that stage I think most people would regard it as a forecast. They would not produce a budget and say: “We have a totally different forecast.”
“We are looking for growth,” then there is an element of target in there to motivate people to achieve that result. No doubt people’s remuneration – it would typically be the case that if there are incentives for performance, then usually they would be linked to overachievement of budget. Q. Given at least the partial target nature of a budget, do you agree with me that presenting in this slide [(the Financials for UP Group slide)] that on the right hand column the figures were forecast rather than budget is misleading in itself? A. Not necessarily, my Lord, because again if the people applying their judgment have said: “Okay, we still think our budget is as good as anything for where we think we will end up,” then the budget is still the forecast. What typically happens in large corporate environments and Plc environments is a budget is produced and then perhaps at the end of each month or possibly at the end of each quarter they would revise – they would take the actual for the month and add that to the budget for the rest of the year. It is quite common to say that is now the revised forecast. Sometimes they produce a full revised forecast, but during the first month or with the benefit of the first month’s account, can I say that somebody applying their judgment says: “We are just not going to hit budget, so our forecast needs to come down”? I am not sure I can. If they did not think they could achieve the budget at that time then, yes, it is wrong to show the forecast at the budget level.”
“Q. Now, by 12 November, the date of the slide show, we have seen that Mr Acaster, on 25 October, was saying that the net revenue for the USA was down by half a million – you have seen that, have you not? A. Yes. Q. The forecast net revenue. We know that HCAM was lost even before the budget was set, yes? A. Even before it was finalised, yes, my Lord. Q. We know that nobody was saying, at least nobody said, that the$500,000 hole, which Mr Acaster had identified in October, had been filled by anything in the budget. A. …There was nothing specifically identified in that document we looked at, that they were going to have a discussion about. Q. Mr Parry, have you seen anything between 25 October and 12 November which indicates that the net revenue hole that Mr Acaster identifies is made up by forecast business from anyone else? A. No, I don’t think I have, my Lord. Q. …By reference to the evidence that you have seen do you agree with me that, on the 12 November, it would be inaccurate to say that the forecast net revenue for UniversalProcon was as per the budget figure? A. …Yes, if you were to take the 25 October document and say there is no judgment applied beyond that, then, no, it’s not fair to assume that the forecast is the same as budget. If the people at the time – and I think this is the witness evidence for his Lordship – say, “Well, actually, we thought the hole could be made up” – obviously, we don’t, as far as I’m aware, have specific indications of who it would be made up by – so, if we’re to say they apply their judgment and think they can still do it, well, that’s a matter for them based on their experience. If it’s purely in terms of the budget document and anything else we’ve seen subsequently – so, not assuming there’s going to be any new business and not assuming there’s going to be any extra business for existing clients – then, no, it’s not fair to assume they could still hit budget, that net revenue level. Q. Have you seen anything at all that indicates that, within the United Kingdom part of UniversalProcon, there was any new business which was forecast to make up for that net revenue shortfall element, that forecast that net revenue shortfall being made up? A. I’m not aware of any document that specifically says, “We would make up that net revenue by this client”, either in the UK or the US.”
“…Just on the contemporaneous documents alone, I can understand why at that time, one month, effectively, into the new year, the management of the business might say, “Well, actually, our best guess at the outturn for the year is still the budget.”
“I have seen no evidence in disclosure of any event or news which caused such a reduction in forecast net revenue.”
“2.1 Expert evidence should be the independent product of the expert uninfluenced by the pressures of litigation. 2.2 Experts should assist the court by providing objective, unbiased opinions on matters within their expertise, and should not assume the role of an advocate. 2.3 Experts should consider all material facts, including those which might detract from their opinions. 2.4 Experts should make it clear – (a) when a question or issue falls outside their expertise; and (b) when they are not able to reach a definite opinion, for example because they have insufficient information. 2.5 If, after producing a report, an expert’s view changes on any material matter, such change of view should be communicated to all the parties without delay, and when appropriate to the court.”
“…Where the alleged misrepresentation was express, the question is how a reasonable person in the claimant’s position would have understood the words used. Where it is alleged that there was an implied representation, the question is what a reasonable person would have inferred was being impliedly represented by the representor’s words and conduct in their context. The Court of Appeal has recently said that a helpful test is “whether a reasonable representee would naturally assume that the true state of facts did not exist and that, if it did, he would necessarily have been informed of it”, although it also emphasised that this was not to water down the requirement that there must be clear words or clear conduct of the representor from which the relevant representation can be implied [(see, for example, per Picken J in in Marme Inversiones 2007 SL v. Natwest Markets plc[2019] All ER (D) 140 (Feb) at [119])]. It is possible that, even when tested objectively, a statement could equally well be understood in different senses: it is simply ambiguous. It will then be for the representee to establish the meaning of the words which he actually understood; it is not enough for him simply to claim that one of the meanings was actionable, or to leave it to the court to decide the “ordinary” meaning. …The interpretation of communications is always dependent on their context, and this is no less true for (mis)representations. If, for example, the statement which is alleged to have been a misrepresentation was made by the defendant in answer to a question put by the claimant, it may be necessary to construe the question in order to ascertain the true meaning of the answer… … A statement of fact which is literally true may (on its proper interpretation) be a misrepresentation by reason of the concealment of relevant facts; or it may contain further statements by implication which are false and therefore actionable.”
“A representation may be true without being entirely correct, as long as it is substantially correct and the difference between what is represented and what is actually correct was not material – that is, it would not have been likely to induce a reasonable person in the position of the representee to enter into the contract.”
“…a misrepresentation which is made but is adequately corrected before the representee acts upon it is no longer actionable. In such a case it can be said either that there is no longer a misrepresentation, or that the representee in acting in the knowledge of the truth is no longer relying on the representation. The correction may be made by the representor, or by a third party, or by the representee independently discovering the truth. But the correction must be sufficient to remove the effect of the original misrepresentation: a partial or inadequate statement is not sufficient…”
“Where the insured or reinsured corrects the misrepresentation or discloses the material fact before the insurer or reinsurer enters into the contract, the latter will not be entitled to avoid the contract for misrepresentation or non-disclosure. In such circumstances it may be said that there was no longer any or any material misrepresentation or non-disclosure or it may be said that there was no inducement. Perhaps it does not matter. The correction must be fairly made to the insurer or reinsurer such that the corrected picture is fairly presented on behalf of the insured or reinsured and comes to the knowledge of the insurer or reinsurer. It is not sufficient to say that he would have discovered the true position if he had acted with all due care...As I see it, it will in each case be a question of fact whether the misrepresentation was corrected so as to ensure that the corrected facts came to the knowledge of the insurer or reinsurer or whether, when the contract was made, the insurer or reinsurer was induced to make it by the original material misrepresentation or non-disclosure.”
“When it is said that a statement, to be actionable, must be one of fact, it means that the statement must be of present fact: not “future fact”, that is, not a statement of what will happen in the future, nor a statement of what the speaker will do in the future. A statement of what will happen in the future is a representation of the speaker’s present belief about future events. A statement of intention is a representation of the speaker’s present plan for his future conduct. If he does not have that belief or that plan at the time he speaks, he is not telling the truth about his present state of mind. His representation can be characterised as a fraudulent representation of fact and therefore actionable… An honest statement of what will happen in the future is quite different from a statement of fact. It is simply a prediction, not a representation. “A statement as to a future state of affairs can in itself neither be true nor false at the time it is made, since the future cannot be foretold.”…If one party wishes to hold the other liable in the event that the prediction is not borne out by the facts as the future finds them, or the promise is not kept, he has the means available within the law to do so, but not within the rules of pre-contractual misrepresentations. The mechanism provided by the law for remedying such mispredictions or promises is the contract itself. If a contract contains as a term guaranteeing that a future event will happen, or that the party will do some identified act, then there will be a breach of contract if that event does not happen, or if the party fails to keep his promise. Put this way, it ought to be clear that a person who receives a statement of future fact or intention ought generally not to be entitled to rely on it: if he wishes to obtain a remedy he should ask for a warranty in the contract to the effect that the fact will turn out as represented, or that the promise will be kept. …As with all representations, however, it is necessary to examine carefully any statement of the future facts or of intention, to ensure that there is no sufficient statement of (present) fact contained within it. If there is, then it might be an actionable representation. It has been held that a statement of future fact could contain an implication not only that the statement is made honestly, but also that it is made on reasonable grounds. Although a statement of the likely future profits of a business may be simply a prediction (and therefore not actionable) it can sometimes be construed as a statement of the existing profitability of the company – its present capacity to make a particular return – and therefore be characterised as a present fact, or a statement that the representor had reasonable grounds of fact for making the prediction…This, then, is similar to the approach described earlier in relation to statements of opinion: normally such a statement is not actionable because the recipient is not entitled to rely on it. In the case of statements as to the future, this is because there is no more than a misprediction or an unwarranted promise. But the words of the statement must be considered carefully, to see whether there is more than this: and in particular whether the particular statement, in its particular context (looking therefore also at the particular positions of the parties, their knowledge and the interpretation which can reasonably be placed by the representee on the statement), can be characterised as one of fact, on which reliance can therefore properly be placed.”
“…In deciding whether there is such an implied statement of fact, the question is what the representee was entitled to understand. A key issue is the balance of information (or access to relevant information) held by the representor and the representee respectively. If the representee has significantly less information than the representor about facts or other circumstances which are relevant to the “opinion” expressed, it is more likely that he will be held to be entitled to rely on the statement as being more than just an opinion…”
“[The representee must establish] that in making the statement [the representor] fell below the standard of care imposed on him by the duty [of care]. The duty is only one of reasonable care: a duty to take such care as a reasonable person would take in the defendant’s position. It is not a duty to be accurate…”
“It is sometimes said that all the remedies have a minimum requirement as to the defendant’s state of mind: he cannot be held responsible for the consequences of his statement unless he intended the representee to act on it. This requirement should not, however, be viewed as a significant hurdle for the representee to overcome. It is usually stated most explicitly in relation to the tort of deceit, where the courts often couple it with the requirement to prove the defendant’s fraud, and in that context it can be seen naturally to have a positive subjective content. However, in relation to the other remedies, it means only that the representor, in making the statement, realised that his statement would be received by the representee and that he might therefore act upon it…”
“…the statement must have been present to the claimant’s mind at the time when he took the course of action on which he bases his claim (such as entering into the contract), but the claimant need not prove that he believed that the statement was true: it is sufficient that, as a matter of fact, he was influenced by the misrepresentation, that the fact of the misrepresentation was a material cause of his entering into the contract…”
“The burden of proof of reliance is on the claimant. But if a representation is such that it was likely that a person in the representee’s position would rely on it, a court may find it easier to believe the representee’s assertion that he did rely on it: the materiality of the statement is evidence that goes towards establishing reliance. Materiality is not necessary to establish reliance: the question is whether the court is satisfied that the representee actually relied on the statement. And materiality of the statement is not sufficient of itself to establish reliance. It was once said that there is an inference in law that a statement, if material, was relied on by the person to whom it was addressed. But this has been rejected in favour of a rule, now well established in the context of a range of remedies for misrepresentation, that materiality of a statement raises an inference in fact that it was relied on…. The weight which such an inference of fact can carry will depend on the circumstances of the contract: the degree to which action by the representee on the basis of the particular misrepresentation was likely, and the available evidence of other grounds for the representee’s actions. But in substance the effect of the rule is that, once a statement is shown to be material, the representor will have the burden of adducing evidence to rebut the inference that his representation was relied on by the representee. It has sometimes been suggested that this inference (of fact) of inducement is limited to cases of fraud; it may well be easy to establish the representee’s reliance where that was the fraudulent representor’s intention, but it is not limited to such cases.”
“To establish a claim in the tort of deceit the representee must show that the representor was fraudulent, in that he did not honestly believe that his representation was true; and that he intended the representee to act upon the statement. The tort is one of intention; simple lack of care does not suffice, either as to the truth of the statement, or as to the realisation that the statement might have the consequence that a person in the representee’s position might suffer harm by acting on it. In any claim in the tort of deceit, therefore, the enquiry into the defendant’s state of mind is a very significant element – and one which the courts require to be proved strictly. …[I]f he knew the truth but it was not present to his mind when he made the statement and so he had forgotten it, or did not realise the significance of the information he had at his disposal, he is not dishonest for the purposes of the tort of deceit… The questions which arise in the case of a misrepresentation made not by the defendant, but by his agent or employee, have been mentioned already. A little more detail is necessary here, to examine how the courts analyse the issue with particular reference to the need to show fraud before a claim in deceit is established. Three separate cases can be addressed (in each case assuming that the statement is made to the representee who then acts on it and suffers loss): (1) The defendant, D, authorises the statement to be made by his agent or employee, A. D knows that it is false. In this case there is no difficulty in establishing D’s liability in deceit. He is clearly fraudulent for the purposes of his primary liability under the tort: the fact that he uses an agent to make the statement does not prevent it being his representation for the purposes of the tort. If A also knows that the statement is false, or at least does not honestly believe that it is true, he too will be liable personally in deceit. (2) D does not know that A is making the statement. A, who makes the statement, knows that it is false. Here D is not liable as a primary tortfeasor in deceit, because he does not personally have the necessary fraudulent state of mind. But the elements of the tort are satisfied as regards A, who is therefore personally liable in deceit. Whether D is liable, not as a primary tortfeasor but vicariously, depends on the application of the normal rules of agency and vicarious liability: if A made the statement in the course of his employment or within the scope of his authority as agent, then D is liable. It makes no difference that D was not himself fraudulent, nor that (if such is the case) D did not gain personally by A’s tort. (3) D does not know that A is making the statement. A, who makes the statement, does not know that it is false. But D does know the circumstances which make the statement false: that is, if D had known that the statement was being made, he would have known that it was false. The tort of deceit is not here committed at all. Neither D nor A has the necessary fraudulent state of mind. Even on the assumption that A’s statement was made in the course of his agency or employment, the fact that D would have had the necessary state of mind had he known that the statement was being made does not make him in fact fraudulent: “You cannot add an innocent state of mind to an innocent state of mind and get as a result a dishonest state of mind.””
“It is more likely that the first page of Ms Bates note reflects internal, pre-meeting discussions. This fits with the visually apparent insertion of the three columns of figures in her notes which appear to have been added sometime after this note was originally penned…”
“…reference was made by Mr McIntosh to the 2011 forecast EBIT of£2.77m and that it would be achieved by building on the same management principles as the previous three years through reducing overheads, the efficient use of productive labour and increasing net revenue through existing and new customers…”
“UDG…had done it before and…we could achieve these numbers over the next three years…”
“Way in excess of earn out targets”
“Our objective at the meeting is to present a picture which gives them confidence that we are comfortable in playing our part in hitting the numbers.”
“We presented that the earn-outs were very achievable”
“any earn out I have heard of has upsides too”