Sphere Drake Insurance Plc & Anor v Orion Insurance Company Plc [1999] EWHC 286 (Comm)

EWHC-Comm

Sphere Drake Insurance Plc & Anor v Orion Insurance Company Plc

[1999] EWHC 286 (Comm) · 1999-02-11

The circumstances which give rise to these proceedings are, perhaps to say the least of them, somewhat unusual.

At a meeting on 23rd April 1975 an oral agreement was made to which "Sphere" and "Drake", then separate companies, and the defendant company ("Orion") were parties, together with a Swiss insurance company shortly referred to as "Baloise". Between the mid 1950s and 1975 these companies had been concerned together in various capacities (as pool members, shareholders and reinsurers) in insurance business underwritten in London and by 1975 were engaged in the run-off of that business to which they were exposed in various proportions of some complexity. In 1975 it was believed that estimates could be made for the future run-off of all the business and the April 1975 agreement provided for contributions to be made to those estimates by each company to be paid to the company which was to be responsible for administering the run off of the particular business in question. In the case of marine and non-marine pool business that company was Orion. In the case of what was known as "the Sphere X account" that company was Sphere, by then a wholly-owned subsidiary company of Howden.

By at latest the mid-1980s it was apparent that the level of asbestos-related claims on, in particular, what was called the MLL (miscellaneous and legal liability) account of the marine pool account was such that not only were the estimates made in 1975 for that account totally inadequate but that the ultimate exposure would, as it did, increase by many tens of millions of dollars.

In proceedings ("The First Action") begun in 1989 Orion (as plaintiff) claimed to recover from Sphere Drake (as defendant) Sphere Drake's proportionate share of the liabilities of the pool as it had existed before the April 1975 agreement. Sphere Drake (formerly Sphere) contended that the April 1975 agreement was a final and binding settlement. Orion contended that it was merely an arrangement not intended to be legally binding or, in the alternative, if it was binding it was a term of the agreement that in the event of losses of the order which were now apparent the parties would return to the previous level of contributions established between them.

The First Action was tried by Hirst J (as he then was) in November and December 1989, over 14 years after the April 1975 agreement. Judgment was delivered on December 20, 1989. It is reported at [1990] 1 LL Rep 465 . Orion won. Hirst J held that the April 1975 agreement was not legally binding. Sphere Drake appealed. The appeal was heard in July 1991. The Judgments were delivered in August 1991. Orion also won the appeal by a majority of 2 (Lloyd and Mann LJJ) to 1 (Stuart-Smith LJ). The appeal judgments are reported at [1992] 1 LL Rep 239 . On January 31, 1992 the House of Lords dismissed Sphere Drake's petition for leave to appeal to the House. The consequence was, of course, that Orion could claim from Sphere Drake a substantial contribution to the asbestos-related claims for which Orion would otherwise alone have been responsible.

For the purposes of this Introduction (and although the degree to which it did so is in issue) it suffices to record that the evidence of a Mr Sage, who had left Orion's employment in 1980 but had been Orion's General Manager at the time of the April 1975 agreement and attended the meeting on April 23 as such, that the agreement was not intended to be legally binding played a significant part in Orion's victories both before Hirst J and in the Court of Appeal. Hirst J accepted Mr Sage as a witness of truth.

Accepting defeat, Sphere Drake agreed the quantum and other aspects of Orion's claim and the terms were incorporated in a Tomlin Order dated March 20, 1992. One of those terms was that Orion and Sphere Drake agreed to jointly pursue Baloise to recover Baloise's ultimate liability in respect of Pool business . And they did. For Sphere Drake this was really a salvage operation from the wreck of their dispute with Orion. But the claim against Baloise also depended on the April 1975 agreement not being binding as held by Hirst J and the Court of Appeal. Baloise, however, defended the claim on the basis that the April 1975 agreement was a final and binding settlement of the liabilities, the same contention which Sphere Drake had made and lost in the First Action.

The claim against Baloise by Orion and Sphere Drake ("The Baloise Action") was heard by Moore-Bick J in October 1996. By that date Mr Sage was dead, and over 21 years had elapsed since the April 1975 agreement. The court did, however, have before it (which Hirst J did not) further evidence, including an Affidavit Mr Sage had sworn in 1986, and evidence from a Mr Burtonshaw, who had been Managing Director of Orion from 1978 to 1985. Moore-Bick J's judgment was delivered in April 1997.

Moore-Bick J held that the April 1975 agreement was a binding settlement. He also concluded that in certain respects Mr Sage had not told the truth at the trial before Hirst J.

Sphere Drake thus found themselves in the unenviable position of having fought on opposite sides in the same war and lost whichever side they had supported.

The present litigation is the consequence. Orion and Sphere Drake are once again in the roles of plaintiff and defendant but the roles are reversed. Sphere Drake seeks to set aside the judgment of Hirst J on the ground that it was procured by fraud, the fraud alleged being the perjury of Mr Sage.

In summary terms, Mr Sage was believed by Hirst J in 1989. An attack on the reliability of his evidence also failed in the Court of Appeal in 1991. In 1996, with some further evidence before him, but without hearing evidence from Mr Sage who was then dead, Moore-Bick J held that Mr Sage had been untruthful in his evidence to Hirst J. Whilst it would be welcome to record that the issue for this court is only whether Hirst J or Moore-Bick J was right about Mr Sage's evidence it is not at all so simple, albeit that issue remains at the heart of the proceedings.

THE ISSUES

THE PERJURY ISSUE

The major issue is whether or not Mr Sage committed perjury in the course of his evidence in the First Action. The allegation made by Sphere Drake, derived from the findings of Moore-Bick J in the Baloise Action, is that Mr Sage did perjure himself by claiming that his evidence that he had said at the outset of the April 1975 meeting that the discussions were a goodwill agreement and not a legal contract was based on a long-held recollection independent of some notes taken at the meeting by a Mr Flint (The Flint Note ). Those notes were only identified and transcribed shortly before the hearing of the First Action. It is not alleged by Sphere Drake that Mr Sage committed perjury in saying that he had always thought that any agreement reached at the meeting was not legally binding but only by his claim to an actual recollection of the words he used independent of the Flint Note.

There are, however, other issues of importance:

THE ATTRIBUTION ISSUE Even if Mr Sage did commit perjury as alleged there are issues of both fact and law as to whether or not such perjury is a sufficient basis to set aside the judgment of Hirst J. Mr Sage had long-since ceased to be employed by Orion when he gave evidence. Orion submits that the company is not liable for perjury committed by a "mere witness" but only for perjury which the company knowingly procures and relies upon. Sphere Drake submits that perjury by a mere witness suffices in law, alternatively that Mr Sage was so closely connected with Orion and Orion's cause that his conduct is properly attributable to the company. If both those submissions are rejected Sphere Drake also contends that the conduct of certain of Orion's legal advisers and of the company's managing director was such that Mr Sage's perjury is in any event properly to be attributed to Orion. Whilst Sphere Drake has expressly not alleged that the conduct on which it relies amounted to dishonesty or intentionally misleading the court, the allegations are ones of a serious nature.

THE MATERIALITY ISSUE There is an issue as to whether or not, even if Mr Sage did make the impugned claim in his evidence to an independent recollection, that was material to the outcome of the proceedings and there are conflicting submissions as to the correct test in law of "materiality".

THE ELECTION/AFFIRMATION ISSUE Orion claims that Sphere Drake is in any event precluded from pursuing this claim because it pursued the Baloise action and in particular an application in that action to strike out those parts of Baloise defence which were inconsistent with Hirst J's findings that the April 1975 agreement was not legally binding.

THE EVIDENCE

In the present proceedings full discovery has been made of the entirety of the otherwise privileged material held by Linklaters & Paines (the solicitors for Orion before Hirst J and the Court of Appeal) and representatives of the firm together with leading counsel (Stewart Boyd QC) and (then) junior counsel (Roderick Cordara) have given evidence before me as have those responsible at Orion for the conduct of the company's claim (Mr Fordyce and Mrs Atkins). The relevance of that disclosure and evidence is to both the question whether or not Mr Sage perjured himself in giving evidence before Hirst J and in particular to enable the court to see what Mr Sage was recorded as saying and how his evidence developed throughout the preparation of the case, and to the allegations made against Orion's legal representatives and managing director.

TWO CONCLUSIONS

Because of the length of this judgment, I think it right to state at this point my two main conclusions of fact. They are that:

(1) Mr Sage did not commit the perjury alleged against him but gave evidence in the First Action which he honestly believed to be true.

(2) The allegations made against Orion's then legal advisers and managing director are wholly without foundation.

Tempted as I have been to seek to limit this judgment to my reasons for reaching the first of these conclusions as it is of itself sufficient for Sphere Drake's claim to fail, I do not think it would be right to do so. Those whose conduct has been attacked are entitled to have the matter fully considered and it is in any event not possible in the circumstances of this case to explain my conclusions without reciting and considering a history of events covering a period of over 30 years in all. To the extent that the evidence has already been considered in the earlier judgments to which I have referred, where possible I have simply adopted what is said there. The nature of the issues, the time that has elapsed and the volume of paper which has come from the waiver of privilege make for a real danger of an over-analytical approach. It remains important to keep in mind that the major issue is what did Mr Sage say on oath to Hirst J about one particular meeting and his recollection of it and whether he was lying when he said it. On the other hand it is a fact that, on much less information than is before me, two courts at first instance have reached radically different conclusions about Mr Sage's veracity and one member of the Court of Appeal considered his evidence to be unreliable and two did not.

It follows from the two conclusions I have expressed that none of the issues of law which have arisen are material to the outcome of these proceedings. They have, however, been fully argued and I have therefore expressed my conclusions on them.

THE CORPORATE AND UNDERWRITING HISTORY

The corporate and underwriting history is set out at some length in the judgments in the First Action and the Baloise Action. Both are complex. They are material to this judgment only in setting the scene for the April 1975 meeting and to provide a reference point for other evidence to which I will need to refer later. I will therefore seek to summarise it in general terms, which are far from complete, but are sufficient for the limited purposes concerned.

There is attached to this judgment a list of abbreviations and a dramatis personae which includes the names and a short description of the more important corporate entities and individuals involved.

Sphere was originally incorporated in 1953 by Orion and Baloise as a vehicle through which Baloise (a Swiss insurance company) could write business in London.

In 1953 (Marine) and 1954 (Non-Marine) two separate underwriting pools were established of which the members were Orion (50%), Sphere (25%) and Drake (25%). Orion owned a large minority shareholding in Drake. Orion was the sole underwriting agent of the pools. Orion and Baloise also reinsured part of Sphere's share in the pools and provided run-off reinsurance at the end of the third year of each account.

In 1963 Sphere appointed Howden as underwriting agent to write an excess of loss account on Sphere's behalf which became known as the" Sphere X Account". Orion and Baloise also participated in this account by way of quota share reinsurance. In 1963 Howden acquired a 20% shareholding in Sphere.

By 1965 Sphere was in serious financial difficulties. Those difficulties led to a number of agreements, collectively referred to as "The Sphere Share Sale Agreement " the effect of which was that: (i) Sphere withdrew from the Marine Pool with effect from December 31, 1966 and from the Non-Marine Pool with effect from December 31, 1967.

(ii) Orion agreed to assume liability for Sphere's Non-Marine Pool account from December 31, 1967 in return for a transfer to it of Sphere's share of the reserves established for the account.

(iii) Whilst it was recorded that a similar agreement was to be reached in respect of Sphere's Marine Pool account, in fact no such agreement was reached and so Sphere remained exposed to the development of the Marine account in the 1966 and prior years.

(iv) It was also expected that the Sphere X account would be capable of reliable assessment by the end of 1968 when Baloise would reinsure its run-off, but again no such agreement was in fact made.

(v) Orion and Baloise made immediate cash injections to increase Sphere's reserves and Howden agreed to and (in 1966 and 1967) did acquire all the share capital of Sphere. The terms of the acquisition were such that if Sphere's ultimate losses were lower than estimated the price of the shares would be increased, but if they were greater than estimated both Orion and Baloise would make return payments to Howden which could in effect result in a negative price for their shares. By the summer of 1969 Sphere's losses were such that this was the case.

The outcome of the arrangements was that Orion was interested in the business of both Pools both directly and as a reinsurer of Sphere and under the Sphere Share Sale Agreement. Baloise was in the same position save that it had no direct exposure to the Pools. Both Orion and Baloise were also interested as quota share reinsurers in the Sphere X Account administered by Howden. Howden was interested, as sole shareholder of Sphere, in Sphere's trading position arising from its involvement in both pools and the Sphere X Account.

In the course of the negotiations which led to the arrangements I have described what Mr Sage referred to as the four principles were agreed and are set out in a document recording Points arising from meeting 25th October 1966, Re: The Sphere Insurance Co. Ltd. The four principles were:

1. No loss or gain by any member of the agreement.

2. Sphere retains in full its share capital and share premium account.

3. By means of a reinsurance arrangement the projected losses arising are funded by the interested parties.

4. No adverse publicity.

The parties to the agreement were Orion, Sphere, Baloise and Howden. At the time, Sphere, Drake and Howden had a common chairman (Mr Gilbert) and a Mr Van der Velden was the Chairman of Nationale Nederlanden the Dutch parent company of Orion.

The Orion marine pool wrote a number of non-marine risks including policies which covered against legal liability. This section of the account became known as the Miscellaneous and Legal Liability or MLL account. It was the MLL account which subsequently (in the 1980s) gave rise to enormous losses as a result of claims in the United States of America against assured producers of asbestos-related products. The other relevance of the MLL account is that in 1970, at Mr Sage's suggestion, Orion, Drake, Sphere and Baloise agreed that the profits and losses on the accounts should be borne by them in proportions which reflected the cumulative proportions of each company's existing exposure whether as participants in the Marine Pool, reinsurers of Sphere or former shareholders of Sphere with liabilities under the Sphere Share Sale Agreement. Thus there came to be established single proportions of exposure for each company to replace the varying prior exposures and capacities in which they had arisen. For a number of years the parties funded the MLL section of the Marine account in accordance with the agreed percentages. From 1973 a similar funding arrangement with cumulative percentages was also operated in respect of the pure Marine account itself and the Sphere X Account.

In summary, and looking at the matter with the issues in these proceedings in mind, these events demonstrated :

(1) The parties willingness to work together to deal with the run-off of the various treaties in which they had been involved.

(2) A close relationship between the parties but one where in a commercial and developing sense, Orion, Baloise and Howden were cutting their connections as co-shareholders and underwriting agents.

(3) Whilst the principle of no loss, no gain was recorded it had not operated so as to preclude a binding settlement of Sphere's participation in the Non-Marine Pool whereby Sphere ceased to have any further exposure to the business written in exchange for the transfer to Orion of an agreed sum to reflect its estimated liability for that exposure.

NOVEMBER 1974 TO APRIL 1975

Between November 1974 and April 1975 the parties held a number of meetings in an attempt to provide a solution to the continuing exposure to and related administration of the run-off of the business. Having considered the documents relating to this period I cannot improve on the account of them given by Moore-Bick J at pages 49 to 50 and 54 of the report of his judgment and what follows is largely derived from that account.

The original instigator of the attempt to reach some final conclusion of the rather burdensome administration of the pure Marine and Sphere X accounts was Mr Russell of Sphere and Drake who was about to retire. In the autumn of 1974 he approached Mr Rousell of Orion with a proposal that they should investigate the possibility of "tidying up" the positions of the parties before the year end. Mr Rousell responded favourably and took the opportunity to raise the position in relation to the Non-Marine Pool on which Orion had suffered significant losses not provided for by the transfer of reserves from Sphere agreed as part of the Sphere Share Sale Agreement. In response Mr Russell produced proposals in an aide-memoire dated November 1, 1974 the effect of which would have been to provide Baloise with a final settlement of its liability under the Sphere Share Sale Agreement, but would not have provided a final settlement for either Orion or Sphere for whom the proposal would have amounted to little more than a "roll-over" reinsurance. Drake's position was not addressed at all.

An exchange of correspondence between Mr Russell and Mr Baumli (of Baloise) in November made clear that the proposal was one which would have offered Baloise a final settlement which would extinguish all its existing liabilities.

On December 6, 1974, Mr Rousell (in Orion's offices in Folkestone) sent a telex to Mr Sage in London in which he commented on Mr Russell's proposal making the point that it gave no benefit to Orion and suggesting an alternative Orion proposal that Orion should accept the run-off of its own underwriting (the Pools) and Sphere should accept the run-off of the Sphere X Account on payment of reinsurance premiums calculated for each company, including Drake.

On December 6 Mr Russell's aide memoire and Mr Rousell's telex to Mr Sage were discussed at a meeting between Messrs Grob, Comery and Crockett (of Howden), and Mr Russell and Mr Sage. On balance Orion's proposal was preferred and it was agreed in principle to introduce an arrangement along those lines involving all the parties which would also take into account the deterioration on the Non-Marine account.

On December 9 Mr Russell produced a memorandum setting out the Orion proposal. This memorandum set out in an attachment figures for what would be involved by way of cash payments for each party based on estimates at 30th June 1974; stated that the payments assumed that Sphere and Drake would accept in full the additional deterioration in the Non-marine Pool account not covered by their respective cut off premiums paid to Orion at 21.12.67 in full and final settlement of their liability to the Pool; flagged that the principle of re-opening such a closed commitment should be decided before discussions took place on the practical details; and added lastly :

If the proposal were given effect in total Orion would be the prime beneficiary. I do not think this was our intention in raising the issues.

On December 13 a meeting was held attended by Mr Grob, Mr Baumli, Mr Sage, Mr Comery, Mr Crockett and Mr Russell at which this memorandum was discussed. The record of the meeting was drawn up by Mr Russell on December 18. It records (interalia) that(a) the principle of settlement as proposed by Orion be accepted;

(b) Sphere and Drake would participate for their original shares in the Non-Marine Pool to the extent they were not covered by the portfolio payments made in 1968 ; and

(c) Sphere's additional liability under (b) would be accepted by Orion and Baloise for their respective shares under the Sphere Share Sale Agreement. It was also recorded that calculation of final liabilities would not be possible until February 1975 and that a further meeting would be required to consider the figures when assembled, and in paragraph numbered 4 that:

. .. once the settlements proposed had been effected all liability of Orion and Baloise under the [Sphere Share Sale Agreement] would be extinguished and that it might be necessary formally to record this fact by an exchange of letters between the parties concerned.

Towards the end of March 1975 when the accounts for the third and fourth quarters of 1974 were available the further meeting contemplated at the December meeting was arranged to be held on April, 23. On April 21, Mr Russell and Mr Rousell met to discuss the final figures. In an internal memorandum (the April, 22 1975 Memorandum ) to Mr Comery copied to Mr Crockett, Mr Sage and Mr Rousell, Mr Russell summarised the outcome of this meeting (inter alia) as follows:

Sphere Termination Agreement and Related Matters.

Please refer to the record of the meeting held on 13th December 1974.

The figures detailed in the memorandum attached to that record were reviewed by Rousell and myself yesterday .... As a result we are proposing that the settlement principles accepted by the parties to the December meeting be now implemented by cash payments of the revised amounts detailed in the attached schedule ....

We discussed the question of an interest allowance on amounts paid over and reached the conclusion that this could best be applied by a system of deferred payments of the amounts involved. In so doing we have to ensure that none of the parties is out of pocket for any length of time. A proposal for deferred payments will be tabled at the meeting on [April 23].

We have considered the question of security under the various reinsurance contracts protecting the original accounts. Estimated recoveries under such contracts have been accounted for in full in assessing outstanding liabilities and we are of the opinion that we must record some agreement on the action to be taken should any of the reinsurers fail to meet their liabilities. Similarly some consideration must be given to the impact of extreme new liabilities which may arise after the present settlements have been resolved and agreed and which may seriously distort the previously accepted figures.

The "cash payments" referred to involved net payments of £475,000 to Orion, of which more than half represented the contribution of Sphere, Drake and Baloise to the once settled but now re-opened non-marine pool account.

THE MEETING OF APRIL 23, 1975

There are three surviving documents which are material to what took place at the meeting. The two important ones are :(1) A note made by Mr Flint (of Sphere and Drake) during the course of the meeting which throughout the litigation has generally been referred to as " The Flint Note ";

(2) A record of the meeting drawn up by Mr Russell which Mr Flint sent, on May 30, to Mr Sage and which was subsequently signed by all the parties to the meeting (including Mr Sage). Mr Flint's letter to Mr Sage enclosing the record stated that:

In order to signify agreement to the decisions taken at this meeting it is suggested that the copies are initialled in order that the parties concerned can then exchange these as an agreed record.

This record has generally been referred to throughout the litigation as " The Russell Record".

The central importance of the Russell Record and the Flint Note to the issues requires me to set out their terms in full as follows. It is, however, of particular significance to the history of events and the issues to keep in mind that, unlike the Russell Record, the Flint Note was not only written by Mr Flint partly in a form of shorthand but was not identified as referable to the April 1975 meeting or transcribed until much later in the story, indeed not until a matter of months before the trial of the First Action began before Hirst J in November 1989.

THE RUSSELL RECORD

"RECORD OF A MEETING HELD AT 70/73 KING WILLIAM STREET,

LONDON on WEDNESDAY 23rd APRIL 1975

Present : R. C. Comery (in the chair) - Howden

F. Baumli - Baloise

J. L. Sage - Orion

J. E. Crockett - Howden

C. F. Russell - Sphere & Drake

J. A. Turner - Sphere & Drake

W. N. Rousell - Orion

In Attendance: R. J. Flint - Sphere & Drake

L. J. Heritage - Orion

1. The Chairman referred to the meeting of 13th December 1974 which

established the principle to govern the run-off of liability attaching

to certain continuing accounts of “Orion” and “Sphere”. He said that

the object of the present meeting was to agree the final figures

involved and the basis for cash settlement.

2. A memorandum dated 22nd April 1975 (a copy of which is attached)

detailing the respective outstanding liabilities at 31st December, 1974,

and the basis of assessment thereof, had been circulated to all

concerned prior to the meeting. After discussion it was agreed by all

the interested parties :-

(a) that the figures detailed in the schedule attached to the

memorandum of 22nd April 1975, represented, subject to the

general reservation in para 3 below, the final liabilities

of the parties involved.

(b) that such liabilities be settled in £ sterling, United States

and Canadian Dollars as appropriate and as agreed by Mr Russell

and Mr Rousell respectively.

(c) that settlement be made of the agreed liabilities under para 2 (a)

on a deferred payments basis as follows :-

35% payable on 30th June 1975

25% payable on 30th June 1976

20% payable on 30th June 1977

20% payable on 30th June 1978

(d) that all settlements be made through the agency of Alexander Howden

and Swann Limited and that since provisional figures had already

been accounted in the 1974 year they be instructed to issue balancing

debit and credit notes accordingly.

3. It was understood that the present agreement, as recorded above, did

not preclude the re-opening of discussion on the sharing arrangements if actual settlements increased to an extreme degree the commitment of any party as presently calculated and as evidenced in the memorandum attached hereto.

4. It was noted that statistics recording the development of accounts

involved in this agreement would continue to be exchanged if the previously accepted figures representing the final liabilities became seriously distorted.

THE FLINT NOTE

TRANSCRIPTION

23rd of April 1975

3.00

ORION J. E. Crockett R. C. Comery Franz Baumli

J. A. Turner Les Heritage

C. F. Russell Bill Rousell

R. J. Flint Leslie Sage

SPHERE TERMINATION AGREEMENT

LESLIE SAGE Goodwill agreement and not a legal contract

R. C. COMERY (1) Bill Rousell/Charles Russell - been fair in

applying common yardstick. Have arrived at final

figures. After this meeting a major factor affects

the issue. It is fair to leave the spirit there.

LESLIE SAGE Agrees it is essential to spirit of meeting/agreement.

FRANZ BAUMLI Agreed and will notify his successors (he retires shortly).

R. C. COMERY (2) Simple agreement on payments, 35%, 25%, 20%, 20%.

LESLIE SAGE Agrees in cash. Bill Rousell - 30th of June each

year. 35%, 25%, 20%, 20%. R. C. Comery agreed

30th of June 1975.

LESLIE SAGE Accounts in dollars. Should be fully funded in

original currencies, i.e. Sterling, US$ and CAN$.

C. F. Russell Will draft record of meeting.

The third surviving document which is arguably material to what took place at the April 1975 meeting is Mr Rousell's copy of the April, 22, 1975 Memorandum on which he made some manuscript notes in the course of the meeting. So far as relevant, against the paragraph referring to an allowance for interest Mr Rousell wrote the figure "3" and three columns of figures, against the sentence which refers to the failure of reinsurers he wrote the figure "1" in a circle and against the reference to extreme new liabilities the figure "2" and the words Proposed £10,000 + any one event . The suggestion has been, without much dissent, that the numbering represents the order in which the particular points were discussed at the meeting, although it was also common ground that the figures themselves were discussed first, albeit not for long, as no one suggested they gave rise to any dispute.

COMMENT ON THE RUSSELL RECORD

AND THE FLINT NOTE

The critical paragraphs in the Russell Record are paragraphs 2(a) and 3. There is an obvious tension between them. Paragraph 2(a) records an agreement on the figures before the meeting in terms which would usually be read as ones of final settlement. Yet it is expressly subject to the general reservation in paragraph 3, which suggests any such agreement is qualified or conditional. Paragraph 3, however, provides only that (in effect) if the figures prove so wrong that one party suffers to an extreme degree then re-opening of discussions on how the exposure should be shared between the parties is not precluded . The commercial intention is not, I think, hard to grasp : if the figures go seriously wrong something will be done about it, but the wording itself expresses that something only in terms of not precluding further discussion, which of itself is potentially either otiose or meaningless. Moreover, certainly to a contract lawyer, paragraph 3 on its own immediately inspires the question that it is an agreement to discuss which is too uncertain to have legal effect. An alternative construction might be that in the event of extreme degree any agreement on figures was "off" and the parties would go back to the pre-existing sharing arrangements. But then the lack of definition of extreme degree also creates a problem of uncertainty. Yet another possibility might be that if paragraph 3 was too uncertain to be enforceable, then as paragraph 2(a) was expressly subject to paragraph 3 the whole agreement must be considered tainted by uncertainty for otherwise there would be no basis for giving effect to what appeared to be the intention of the parties that both provisions were at least of equal importance.

The other matter which would (and did) strike a contract lawyer was that as the Russell Record stated that it was just that - a record of a meeting - rather than itself an agreement it was open to the parties in law to adduce oral evidence of what, if anything, was in fact agreed at the meeting.

The Flint Note is apparently clear in recording that Mr Sage had said the words goodwill agreement and not a legal contract at some stage and in some context at the meeting, and had stressed its importance or the importance of the "spirit" of the "meeting/agreement". But the Note is not clear, even read as a whole, at what stage or in what context Mr Sage did speak those words. Although the Note is plainly not a full record of the meeting it does contain much of the substance of what was accepted at the meeting and found its way later into the Russell Record. But among the issues to which the Note gave rise in the First Action and which have been debated again in these proceedings, were whether the words spoken by Mr Sage were spoken at the outset of the meeting and in the context of the whole agreement or only in the context of and exclusively referable to what became paragraph 3 of the Russell Record. In other words, was the whole agreement only a goodwill agreement not binding legally or was it a binding agreement with only a non-binding proviso or "let-out". Finally, it should be kept in mind that commercially both Orion and Sphere were at least potentially exposed to the risk of settlements increasing to an extreme degree ; Orion as regards the Pools, where in the event the asbestos-related claims became manifest, Sphere in respect of the Sphere X Account.

EVENTS FROM 1975 TO EARLY 1985

The figures agreed at the April 1975 meeting were the subject of payments made (as agreed) in each of the years 1975 to 1978.

Mr Sage retired as Joint Managing Director of Orion in September 1980, leaving Mr Burtonshaw as sole Managing Director. Mr Burtonshaw had been appointed Joint Managing Director of Orion with Mr Sage in 1978 when he joined Orion in that capacity. There is more than a suggestion in the papers that Mr Sage's parting from Orion was close to a dismissal. Mr Sage had a number of part-time appointments in the insurance world after he left Orion.

MR BURTONSHAW's EVIDENCE

For reasons which related to the perceived importance of his evidence on other issues which arose in the Baloise Action, Mr Burtonshaw prepared a witness statement for those proceedings and gave evidence at the hearing concerning discussions he had with Mr Sage in 1980 and 1984 about the arrangements made about the pools in 1974 and 1975.

There is an issue between the parties as to whether I should take account of Mr Burtonshaw's evidence (the subject of a Civil Evidence Act Hearsay Notice served by Sphere Drake) in considering the question of "fraud" or "perjury" in these proceedings because of the well-established principle that a party cannot make a claim of the kind that Sphere Drake and Howden are making without fresh evidence to prove the perjury alleged which was not before the first court (in this case Hirst J) and could not with reasonable diligence have been put before that court. Orion say Mr Burtonshaw's evidence could, with reasonable diligence by Sphere Drake, have been adduced by Sphere Drake before Hirst J; Sphere Drake say it could not, in particular because Mr Burtonshaw (although retired from Orion for some years by 1989) was "Orion's man", and as regards his discussions with Mr Sage in 1980, Sphere Drake knew nothing about them before seeing his statement in the Baloise Action.

In my judgment, Sphere Drake had no reason to suppose that Mr Burtonshaw could give any material evidence on the issues in the First Action which was not the subject of documentation and where it was documented it would not have been reasonable to expect Sphere Drake to approach or call Mr Burtonshaw. Indeed the probability must be, and would have been perceived to be at the time, that if approached Mr Burtonshaw would not have responded voluntarily. It was Mr Burtonshaw who authorised the original instructions to Linklaters & Paines which led to the claim by Orion against Sphere Drake.

I do therefore consider it appropriate to take account of the evidence Mr Burtonshaw gave in the Baloise Action as to events in 1980. His evidence on the 1984 lunch (see below) was in a sense before Hirst J as there was a reference to it in a document.

MR BURTONSHAW and MR SAGE IN 1980.

In paragraph 2 of his statement signed on March 6, 1996 for use in the Baloise Action, Mr Burtonshaw referred to Mr Sage discussing with him the complex arrangements and working relations which had evolved over several years between Orion, Sphere, Drake, Baloise and Howdens. He continued :

In particular I remember him stating that some liabilities of Baloise had been capped under a cut off agreement which I understand to be the agreement entered into in April 1975 between Orion, Sphere, Drake and Baloise in relation to the parties' respective liabilities arising out of a marine insurance pool ... and ... a special excess of loss account known as the Sphere X Account.... This agreement had been accompanied by a gentleman's agreement to the effect that should claims paid subsequently escalate far beyond the levels contemplated at the time of the cut off Sphere Drake and Baloise would continue to contribute to those claims. I do not remember seeing any written instrument recording this gentleman's agreement. I do not remember any more specific detail.

Whilst the date of such conversations is uncertain, in his oral evidence Mr Burtonshaw said they had taken place principally towards the end of 1980 when it was known Mr Sage was to leave Orion and Mr Burtonshaw would be taking over responsibility for the London market business from him.

On the face of it that puts the conversations in late summer and early autumn of 1980 and they represent the first known occasion since 1975 when Mr Sage spoke about the April 1975 Agreement.

It is not clear whether asbestos-related claims were a concern at the time. On the evidence it seems unlikely that they were. The account of Mr Burtonshaw obviously lends support to the analysis that to the extent Mr Sage had talked about goodwill or non-binding agreements at the April 1975 meeting he had done so only in the context of what became paragraph 3 of the Russell Record, the let-out.

Not surprisingly, when Mr Burtonshaw came to give evidence in the Baloise Action and the plaintiffs (Orion and Sphere Drake ) in that action had come to appreciate (as they only did at a late stage prior to the trial) that the binding nature of the April 1975 Agreement was very much at the front of the defences Baloise was proposing to advance, he was asked a number of supplementary questions by Mr Boyd QC (who appeared for Orion and Sphere Drake in the Baloise Action) by way of examination-in-chief. Mr Burtonshaw said he thought the words "capped" and "cut off agreement" were his not Mr Sage's but Mr Sage had used words to that effect. He acknowledged that he and Mr Sage had not discussed in terms whether the whole agreement was a gentleman's agreement or only the agreement to re-open it in the event of the escalation of claims. But I do not think the substance of what he was saying changed from the passage from his witness statement which I have quoted. Indeed in cross-examination by Mr Collins QC (for Baloise), Mr Burtonshaw repeated that Mr Sage had referred to the parties estimating their liabilities, some money changing hands as a funding operation in order to ensure the easy handling of the run-off and that this was accompanied by a gentleman's agreement to say that should the claims experience deteriorate very significantly the parties would come back to the whole matter.

On the other hand, Mr Burtonshaw's evidence is not supported by any document; Mr Sage has never been asked about it, and, as will become apparent, when Baloise first sought to rely on the statement, Mr Boyd Mr Parker (of Freshfields) and Mr Rokison QC all expressed the opinion that they did not think Mr Burtonshaw's evidence (even taken together with Mr Sage's 1986 Affidavit referred to below) was sufficient to justify a finding that Mr Sage had lied in the First Action. Indeed Mr Sumption accepted that Mr Sage may well have forgotten what he had said to Mr Burtonshaw (if he did say it) at the time he came to give evidence in the First Action. Sphere Drake's case is not that Mr Sage remembered using the words attributed to him in the Flint Note in relation only to the let out and perjured himself by saying he used them in relation to the whole agreement but that he remembered nothing about using the words at the meeting and perjured himself by saying he did.

1982 TO 1984

In 1982 Drake transferred all its liabilities to Sphere under a scheme of arrangement. Both companies were already wholly-owned subsidiaries of Howden. Sphere changed its name to Sphere Drake. From about 1981 onwards Orion established precautionary reserves on a worst case basis for the possible exposure to asbestos-related claims and in the course of 1983 Orion was advised by its then marine underwriters that it was likely to be faced with substantial liabilities as a result of liability policies written by the pool.

On November 15, 1983 Mr Rousell (who had been present at the April 1975 meeting) wrote to Mr Dean (the then Chairman and Chief Executive of Sphere Drake ) about those liabilities. The letter referred expressly to paragraph 3 of the Russell Record. It concluded :

There is no firm quantum which I would choose to attach at this time to such [ liabilities] . .. but I feel that I can validly call upon your companies under the terms of these original agreements in meeting payments of an extreme degree when and if they occur.

May I ask you at this time to accept this as a formal advance notice of such intention?

Mr Dean replied in January 1984. The answer to the question was "No". The last paragraph of his letter stated :

If the arrangements agreed at that stage (December 1974 and April 1975) were to have been re-opened, there was ample opportunity for all parties to do so before the final payment made on 30th June 1978. In my view the April, 1975 Agreement satisfactorily completed the outstanding liability between Orion, Sphere, Drake and Baloise. There was no commitment to adjust those agreed liabilities, and , as a result, I do not feel that there is any useful purpose to be served in having a meeting to discuss them.

Mr Rousell replied on February 15 1984 in a letter which included a reference to the principals concerned being no longer with our respective companies and the documents I, and I am sure yourself, have identified to date are not fully indicative of the intention and climate of goodwill at that time.

Other documents in the summer of 1984 show that Mr Rousell instigated a thorough search within Orion for what he described as evidence of intent on the basis that if they were not found our chances of a recovery are not good or even likely. The trawl for documents produced nothing, save the negative returns from the Company secretary that there were no Board minutes which recorded Mr Sage reporting a cut-off of the liability of other pool companies or the assumption of liability by Orion, and the suggestion that evidence should be sought from Mr Sage to see if there was an agreement to re-open the cut-off if subsequent settlements were unduly heavy.

MR BURTONSHAW and MR SAGE in 1984.

It was as a result of this last suggestion that Mr Sage was invited to and attended a lunch at Orion on August 21, 1984 with Mr Burtonshaw and Mr Rousell. The note referable to this lunch only records a suggestion from Mr Sage that the 1966/7 Board minutes would be relevant. In his evidence in the Baloise action Mr Burtonshaw said he did not recall what was said at this lunch. In cross-examination he agreed that the purpose of the lunch had been to try to establish from Mr Sage if he could add anything to what he had previously said but he came up with nothing new and Mr Burtonshaw was no wiser after the lunch than he was before it. When he was cross-examined about the note in the trial before Hirst J, Mr Sage said he had no recollection of the lunch but if asked he would have said the April 1975 agreement was a goodwill agreement which could not be legally binding.

ORION INSTRUCT LINKLATERS & PAINES.

It was at this stage in the history that Orion instructed Linklaters & Paines to advise them on the matter. Thus it is also from this time that this court has before it both documents and evidence which were not before any previous court.

The original instructions were in the form of a letter dated 24th September 1984 from Mr Rousell to Mr Harris ( a partner in Linklaters & Paines). The letter referred to the pools and the parties and stated that :

As part of the disentanglement a termination agreement was made whereby all parties agreed to fund their share of the then known liabilities suitably adjusted for 'unknowns' in the proportions in which they had participated in the original pool, with Orion accepting the appropriate amount as a premium transfer and accepting this run-off liability.

There was in the agreement at that time an understanding that in the event of an extreme degree of settlements in excess of the run-off estimates a re-opening to consider further contributions by the parties concerned was to be made. There was no formal contract embracing this position, although minutes were prepared and signed by all parties at that time.

The letter concluded by enclosing such documents as Mr Rousell had (which included the Russell Record but not, of course, the Flint Note nor the record of the December, 13, 1974 meeting which Orion could not find) and asking for a meeting which it was proposed that Mr Sage should also attend.

It is apparent from a note of Mr Rousell's dated October 2, 1984 that by this time it was appreciated within Orion that the asbestos and related product claims would have an impact on Orion extending to tens of millions of dollars and that if a recovery could be achieved from Sphere Drake the benefit to Orion could exceed £1 million. Those figures escalated further as the months went by.

Mr Rousell met Mr Harris on October 2. Mr Harris referred the papers to Mr Tapsfield as a partner in the litigation department. Mr Harris' own view of the Russell Record seems to have been that Orion had an arguable case on the basis that both paragraphs 2 and 3 were binding legal obligations.

Mr Harris and Mr Tapsfield met Mr Burtonshaw and Mr Rousell on February, 12, 1985. Mr Sage was unable to attend. It was agreed that an opinion should be sought from counsel. Mr Tapsfield's provisional advice was that the Russell Record appeared to record an agreement which was intended to be binding but as it did not appear to be a definitive summary of the agreement, but merely written evidence of it, oral evidence could properly be added to it. It was agreed that statements should be taken from the principal witnesses (including Mr Sage and Mr Heritage) before seeing counsel.

MRS GOOD.

Mr Tapsfield brought Mrs Good in to the matter to assist him and from an early stage she effectively assumed the principal role in the team advising Orion until she left to go to Linklaters & Paines' Brussels Office in early September 1989, which was shortly before the hearing of the First Action before Hirst J.

As this is the first occasion when she appears in the history and she has been the subject of cross-examination on the basis not only that her recollections are inaccurate but, in some instances, that her conduct as a solicitor has been unacceptable, I think I should express at this stage my overall impression of Mrs Good as a witness and of the evidence she gave.

I have no doubt whatever that she gave the court a wholly honest, frank and reliable account of the events with which she was concerned as she remembered them and believed them to be. She was a careful, impressive and obviously intelligent witness. Nor do I think, as Mr Sumption suggested, that she was in any way influenced by wishful thinking or the fact that her professional conduct had been questioned in the evidence she gave to the court. I would add that the confident, thoughtful and truthful manner in which she gave her evidence was such that matters of criticism which were put to her in cross-examination were not pursued as otherwise they might have been. Indeed, Mr Sumption accepted that her evidence was given honestly (as it obviously was) but sought to submit that she was "unconsciously deceiving herself" in the evidence she gave. That was not an attractive submission, it is also, I am sure, quite unjustified and wrong.

"THE MEETING ON MARCH 1 1985"

Mr Tapsfield and Mrs Good met Messrs Sage, Rousell and Heritage on March, 1, 1985. Mrs Good had by then also formed the view that the Russell Record was evidence of a binding legal contract. The hand-written notes of both Mr Tapsfield and Mrs Good taken at the meeting are available as is a typed attendance note prepared by Mrs Good. The typed note, so far as relevant, records that the background to the Pool Agreement, and the Termination Agreement in April 1975 was discussed and it was agreed that Mrs Good would prepare three statements on the basis of the discussion. Mrs Good said that Mr Sage had done most of the talking at the meeting. He was a coherent, intelligent and articulate man but one with a tendency to ramble on. He was 66 years old at the time and still held a number of consultancy positions with insurance companies.

Mrs Good's notes of the March 1, 1985 meeting include references to stopping the flow of paper; coming to an arrangement adjustable in certain events; principle: no one wins or loses; if 10% too much/too little then paid back; trusted each other to account, trust re accurate accounts and reserves; they trusted us to re-open if we were wrong, can't now suggest a fixed settlement, go back to November 1974 participation.

Mr Tapsfield's notes include : reserve very prudent (over egged). Stop mass of paper. ?Trusted each other to account. Arrangements adjustable in certain events. Remembers variation by 10% mentioned. Fairly sure. Rousell think £10,000; don't want to hurt each other, if proves inequitable we'll re-open; re-negotiate - friendly - no one to lose or gain. You'd go back to the formula on the sheet. We'd re-open all accounts and go back to a cash basis; why have para. 4? Sage can't recall and a comment by Mr Tapsfield to himself Keeps going back to 65/66/67 principles.

I have set out these references in some detail because I think they serve to illustrate why it is that it is not easy to make sense of some of the Notes and why both parties rely on differing bits of them. Another example, which I have not set out, is that the notes contain references which suggest both that Mr Sage would not have made any agreement without Board approval which he did not have and that he had consulted "the Dutch" (Orion was wholly-owned by Nationale Nederlanden-NV at the time).

Mr Tapsfield, indeed, who understandably had very little recollection of the meeting which he described as an initial meeting of the sort at which he would tend to let the witnesses say what they wanted to, did say he recollected Mr Sage saying that if the agreement had been intended to be binding he would have had the authority of the Orion Board. As an experienced litigator Mr Tapsfield viewed the legal merits of the point with some scepticism, but I do not doubt his recollection that Mr Sage made the point at the meeting.

Mrs Good's evidence about the March 1 meeting was that she remembered Mr Sage's frequent references to the 1966 principles and that they were clearly very important to him in relation to what had been agreed in 1975. She was puzzled as to what their relevance was. She accepted that Mr Sage had not used the expression "goodwill agreement " at the meeting, because if he had either she or Mr Tapsfield would have written it down; that she did not register at the time that that was (if it was ) what he was saying; and indeed that her understanding at the time was that Mr Sage was not disputing that the agreement was binding subject to the let out. But she also said that she found it very difficult in hindsight to answer the question whether Mr Sage had in fact used words which were tantamount to a goodwill agreement and said she thought that if Mr Sage could have been asked about it today he would have said that was what he was saying, and that in 1989 she had thought that was what he had been trying to say. She said she could remember thinking when the Flint Note came to light that is what he has been getting at and I have failed to appreciate it. She said that when Mr Sage was told about the Flint Note she had a very clear recollection of him saying something like perhaps you will believe me now, that is what I have been trying to say all along and she had had the same thought herself before he had made the point.

This evidence is plainly important and I shall have to return to it as the story unfolds, but I should record here that I accept it without qualification as both honest and reliable not only because I accept Mrs Good's evidence as such, as I do, but also because it is wholly consistent with and indeed supported by the documents as will become apparent. Its importance, of course, is that whether it be right or wrong as to what Mr Sage was saying or trying to say, it is compelling testimony that both Mr Sage and Mrs Good honestly believed that he was saying it was a goodwill agreement and there is in my judgment sufficient in the notes of the March 1 meeting to make that a tenable belief and so to explain why Mrs Good thought in the terms which I am sure she did and as she expressed in her evidence.

MR SAGE's 1985 STATEMENT

Following the March 1 meeting, on March 6 1985, Mrs Good sent Mr Sage a copy of your draft statement . She wrote that it was only a working draft and he should not hesitate to make any amendments which seemed appropriate to him.

At this time it was announced in the press that Howden intended to sell Sphere Drake. Linklaters & Paines drafted a letter for Orion to send to Sphere Drake which Orion did on March, 11 which stated that once figures were available we will wish discussions to be commenced with a view to considering the sharing arrangements and the adjustments that should now be made to the basis of bearing the liability between the parties. Mr Dean replied on March, 13 saying Sphere and Drake had complied in full with their obligations.

Mr Sage reacted both promptly and in detail to the draft statement. On March 12 he returned it heavily annotated and with proposed additions to it. Mrs Good had included in her draft references to the pool being based on an underlying intention that no single party was to make a profit or loss which was not shared by the other parties in the agreed proportions, and to the same spirit underlying the discussions which began in December 1974. Mr Sage left those references untouched but altered a reference to the parties seeking a settlement agreement by 1974 to seeking a method to avoid unnecessary administrative procedures and cash. The April 1975 Agreement was dealt with in three paragraphs of the Draft. Mr Sage made very few alterations to this part of the Draft and none of real significance. As re-drafted by him they read:

I attended a meeting at Orion's offices on 23rd April 1975 a note of which (prepared by Mr Russell of Drake) is attached hereto as Annex 2. At that meeting an agreement was reached (the "Settlement Agreement") whereby cash payments were to be made on a deferred basis to avoid any material advantage to Orion through holding cash before settlement became due. This agreement was made subject to a reservation that if actual settlements increased the agreed commitment of any party "to an extreme degree", then the sharing arrangements would be re-opened. I remember that there was a discussion as to what would constitute "an extreme degree". It was the clear intention of all parties at that meeting, in line with the spirit of the Agreements, that if the then estimates proved to be wrong then no single party should suffer because too much or too little had been paid under the cash adjustments. Some risks underwritten were very long-term and it was understood that the agreed figures were best estimates only and that the run-off might prove to be substantially less or more onerous than anticipated. The meeting agreed that in that event the contributions of parties to the run-off would have to be adjusted. It was for this reason that the general reservation in paragraph 3 of the note of the meeting was included and that paragraph 4 provided for exchange of statistics if the previously accepted figures became "seriously distorted". I recall that the level which would call for re-adjustment was discussed. I am reasonably certain that a figure of 10% was mentioned, namely that if the outstandings proved to be more than 10% out of line (plus or minus) with the agreed figures then the position would have to be re-opened.

Mr Flint, the Secretary to Sphere, subsequently circulated the note of the meeting (Annexe 1) together with the memorandum (Annexe 2) which each party then signed by way of agreement.

In my experience as an underwriter the amount of the losses which are now being incurred in the course of the run-off in relation to product-related hazards, and in particular asbestosis, are of an extreme degree whatever measure is applied. The losses presently being incurred were wholly unforseeable by the Market in 1974. The Settlement Agreement thus requires adjustment as was the original intention and the three parties should now continue the run-off in accordance with the original percentage contributions under the Agreements on the basis of good faith and trust.

I would make three comments on this Draft. First it was not repeating what Mr Burtonshaw had recalled Mr Sage had said in 1980, indeed there is nothing to suggest that Mr Sage ever said again (if he did then) that there was a binding settlement with a non-binding "let out". Second, the thrust of what was being put forward was that a deal had been done but the underlying intention of it was to be found in paragraph 3 of the Russell Record which now applied. Third, there is no suggestion at all that it was expressly agreed that any deal was to be only a gentleman's agreement and not legally binding.

In the course of amending his statement Mrs Good made an attendance note of a telephone conversation with Mr Sage when he telephoned her on April 10, 1985. She noted that Mr Sage told her:

that in his view the matter was very simple and that the (Russell Record) was merely the practical application of a principle which had been established and operated for some long time between the three parties with their cross shareholdings, the assets (sic) being that the agreement was to share losses pro rata to the shareholdings.

INSTRUCTIONS TO COUNSEL IN JUNE 1985

Mrs Good drafted Instructions to counsel which were finalised on June 21, 1985. Although Mr Sumption, relying on an internal Orion memorandum from Mr Rousell to Mr Burtonshaw dated April 10, 1985, suggested that an earlier draft of these Instructions had been copied to Mr Sage I do not think it probable that that happened. The memorandum itself was copied to Mr Sage, but there is nothing to suggest that the draft instructions referred to in it were also copied to him. Moreover, had they been, it seems to me improbable that Mr Sage would not have responded to them in some terms (not necessarily of relevance to the present issues) yet there is no evidence that he did.

The Instructions themselves were also seen by Mr Tapsfield and, on the evidence, they may be taken to reflect the Linklaters & Paines' view of the issues and the matter at the time. The draft statement of Mr Sage to which I have referred was an enclosure to the Instructions as was the Russell Record. On pages 7 and 8 reference was made to the April 1975 Agreement :

the substance of the agreement was that Sphere and Drake were to make cash payments by instalments to Orion by way of settlement of the outstanding liabilities calculated on the basis of the best estimates available. The agreement was made subject to a condition in the case of extreme distortion in the agreed figures.

Mr Tapsfield agreed that this was a description of a legally binding agreement. That was the view of Linklaters & Paines despite the fact that, of course, they had by now met Mr Sage, Mr Rousell and Mr Heritage and discussed the matter with them and prepared statements for them. It was also their view and expressed as such in the Instructions that paragraph 3 of the Russell Record could not be relied upon as an enforceable obligation because it did not use the language of obligation and English law does not recognise the validity of a contract to negotiate. From a reading of the Instructions as a whole it is plain, as Mrs Good readily accepted, that any possible argument that the agreement was not intended to be legally binding was not then in their minds or on their agenda. The arguments advanced for Orion were that it was an express condition that if extreme degree occurred the agreement fell away and common mistake.

The Conference with Mr Cordara in July 1985.

The first conference that took place was with (then) junior counsel only. That was Mr Cordara. Leading counsel, Mr Bathurst, was not available at the time. It was held on July 4, 1985. Mr Sage did not attend the conference seemingly because of the then rule that counsel could not meet witnesses. Mr Rousell and Mr Heritage did attend as did both Mr Tapsfield and Mrs Good.

There is a note of the conference prepared by Mrs Good which was approved by Mr Cordara. In general the advice given was that Orion's prospects of recovery from Sphere were less than 50%. Mr Cordara did raise the possible argument that the agreement was only of a very limited nature constituting a binding agreement but only as an accounting exercise in which it was implicit that the underlying agreements were to remain intact and would govern in the event that the figures became distorted. Both Mr Rousell and Mr Heritage are recorded as confirming that this was indeed the reality of the arrangement. Mr Cordara flagged the arguments that Clause 3 was too vague to enforce and no more than an agreement to agree. Mr Tapsfield is recorded as stating that:

it was agreed that the [April] 1975 agreement was intended to have a legal and binding effect. Paragraph 2 is expressly subject to paragraph 3. In the circumstances Sphere and Drake could not successfully argue that paragraphs 3 and 4 fail for uncertainty but that paragraph 2 is severable and survives.

This, in shorthand terms, has been referred to as the all or nothing argument; that it would be wrong to reject paragraph 3 but enforce paragraph 2. Mr Tapsfield said that the reference to the agreement being intended to have legal effect was a conclusion of the lawyers who were present.

The note of this conference was sent by Linklaters & Paines to Mr Sage on July 5, 1985. There is a note on the letter in Mr Sage's writing which reads

Rang 8/7/85. Entirely accounting. Feel very strongly.

That refers to a telephone conversation Mr Sage held with Mrs Good. Indeed there is a further note dated July 8 which records that Mrs Good spoke to Mr Cordara and told him that Mr Sage had said the agreement constituted an accounting exercise only. Mr Sage also prepared his own comment on the note of the conference on July 12 to the same effect. This note also referred to the underlying principle always being proportionate sharing with no advantage or disadvantage to any one party and to a discussion at the April 1975 meeting of a 10% variation plus or minus. Mr Cordara said he would have read this note of Mr Sage as amounting to paragraph 3 being an enforceable obligation resulting in the parties returning to the previous sharing arrangements. Whether Mr Sage saw it in those terms is more doubtful and was not explored because the "entirely accounting" point was firmly rejected by Mr Bathurst shortly afterwards.

The Consultation with Mr Bathurst in July 1985.

On July 30 a consultation was held with Mr Bathurst QC. Mr Cordara was unable to attend, but the note of the consultation records that he and Mr Bathurst were in agreement on the advice given. The consultation was attended by Mr Tapsfield, Mrs Good, Mr Rousell and Mr Heritage. This was effectively the end of Mr Tapsfield's involvement on behalf of Orion. The note of the consultation records that :

(1) It could not be accepted that what was agreed in April 1975 was purely a mechanical accounting arrangement and Mr Bathurst did not think it could be argued that it was anything other than a binding agreement.

(2) Counsel thought there was a good argument that if paragraph 3 of the Russell Record was triggered then no final settlement existed, because Sphere Drake would find it difficult to argue on the one hand that paragraph 3 had no legal effect while on the other paragraph 2 was binding. If paragraph 3 made no sense then the whole agreement should fall away as well.

DRAFTING MR SAGE's AFFIDAVIT 1985/6

Whilst Orion was considering whether and how to proceed Linklaters & Paines were instructed to ensure that the draft statements of Messrs Sage, Rousell and Heritage were sworn as Affidavits. In the case of Mr Sage this was because of concerns about his health. Mr Cordara was accordingly instructed on September 16 to consider the draft statements and advise on any further points he would wish to be raised before the Affidavits were sworn. Mr Cordara's response was to seek expansion of the draft as regards the December 1974 and April 1975 meetings and to raise the questions whether the references to ' intention' ' aim' and ' understanding' were ' from direct or reconstructed recall'. He also suggested that stress should be laid on 'the accounting nature of the exercise' but the telex note of his advice records in Mrs Good's writing against that suggestion No, Bathurst disagrees. This may be an early demonstration of something which came to be felt later that there was a tension between the analysis of the lawyers (understandably concentrated on the Russell Record) and what Mr Sage may have been saying. In any event, as Mrs Good put it in her statement, the lawyers advice was that a binding agreement had been entered into and the case went forward on that basis.

At an Orion Board Meeting held on October 9, 1985 Mr Burtonshaw is recorded as reporting his view that Orion had a strong moral case but possibly a weak case in law.

The question of turning the draft statements into Affidavits was taken up again in November. Mrs Good arranged for Mr Reid to assist her and they met Mr Sage on November 22, and wrote to him on December 17 enclosing a draft affidavit for his comment, which was based on the draft 1985 statement and what was said at the meeting. Mr Sage responded quickly. On December 18 he replied saying he had gone through the draft and had made alterations which I believe truly reflect the position as I recall it. The draft sent to him was in much the same terms as the 1985 draft statement save that the references to no one suffering if too much was paid were deleted and a short paragraph was added which stated that Mr Sage remembered that the April 1975 meeting had been very friendly and had ended shortly before lunch. In fact this timing was wrong, as the meeting did not begin until 3 o'clock as recorded in the Flint Note. Mr Sage made very few amendments to the draft and in those parts referring to the April 1975 meeting only altered it to restore the or too much, to add that the reference to a figure of 10% was to 10% of reserves over all accounts, and to add a reference in the last paragraph to the proportions agreed in 1966/7.

Mrs Good was concerned about Mr Sage re-instating the or too much and she expressed that concern in a letter to Mr Rousell dated January 27, 1986. She acknowledged that the reinstatement accorded with the general manner in which business was carried on between the parties but pointed out that the Russell Record ( the 1975 Agreement) referred only to the possibility of under payment of claims.

This is a small but further indication of how the lawyer's approach parted company from the approach of Mr Sage. The lawyer focused upon the Russell Record, although it said nothing about returning to or continuing with the pre-existing arrangements in the event of "extreme degree". Mr Sage, as the documents and evidence show, started from the good relations and the principle of no gain, no loss he thought had been established in 1996/7.

There was a meeting at Linklaters & Paines on March 12, 1986 which was attended by Mrs Good, Mr Reid, Mr Rousell and Mr Sage. The draft Affidavit was discussed and a re-draft prepared as a result. As a result of further exchanges with Mr Sage, by early April 1986 the relevant paragraphs of the draft Affidavit once again included no reference to paying too much and references to discussion of a 10% deviation from the figures had been deleted. The draft now read:

20: I attended the meeting at Orion's offices on 23rd April 1975 a note of which (prepared by Mr Russell of Drake) is now produced and shown to me marked "JLS10". At that meeting an agreement was reached (the "Termination Agreement") whereby cash payments were to be made on a deferred basis to avoid any material advantage to Orion through holding cash before settlement became due. This agreement was made subject to a reservation that if actual settlements increased "to an extreme degree", then the sharing arrangements would be re-opened. I remember that there was a discussion as to what would constitute "an extreme degree". All parties at that meeting agreed in line with the spirit of the Agreements, that if the then estimates proved to be significantly wrong then no single party should suffer. Some risks underwritten were very long-tail and it was understood that the agreed figures were best estimates only and that the run-off might prove to be substantially more onerous than anticipated. The meeting agreed that in that event the contributions of the parties to the run-off would have to be adjusted. It was for this reason that the general reservation in paragraph 3 of the note of the meeting was included and that paragraph 4 provided for exchange of statistics if the previously accepted figures became "seriously distorted".

21. Mr Flint, the secretary of Sphere, subsequently circulated the note of the meeting (Exhibit "JLS10" hereto ) together with the memorandum (Exhibit "JLS9" hereto ) which each party then signed by way of agreement.

22. In my experience as an underwriter the amount of the losses which are now being incurred in the course of the run-off in relation to product-related hazards, and in particular asbestosis, are of an extreme degree whatever measure is applied. The losses presently being incurred were wholly unforseeable by the Market in 1974. The Termination Agreement thus requires adjustment as was the original intention and Orion/Drake/Sphere should now continue the run-off in accordance with the original percentage contributions under the Agreements as adjusted from time to time on the basis of good faith and trust.

THE PLEADINGS AND MR SAGE's 1986 AFFIDAVIT

A consultation was held with Mr Bathurst and Mr Cordara on April 10, 1986. It was attended by Mr Rousell, Mr Heritage, Mrs Good and Mr Reid. Orion had by now decided to commence proceedings and Mr Cordara had prepared draft Points of Claim. Counsel's advice as recorded in a Note of the Consultation was that:

(i) the Points of Claim should plead the pool agreements leaving Sphere Drake to plead the April 1975 agreement by way of defence to which Orion would reply that the condition set out in clause 3 of the agreement (i.e. the Russell Record) had occurred thereby causing the agreement to fall away.

(ii) Sphere Drake would only win in relying upon the April 1975 Agreement if the Court were to decide that the agreement stood, clause 3 being either severable or merely constituting an agreement to negotiate. Orion would argue that the condition in clause 3 had been triggered. It was also possible that the Court would find that the agreement was void for uncertainty as a whole. If the Court were to find either of the latter arguments Sphere Drake's defence would fail.

On April 15, 1986 a letter before action was sent to Sphere Drake. Reflecting the advice given in consultation, the letter put forward the claim on the basis that it had been plainly understood and accepted that the parties would remain liable for their shares under the pool agreements if the estimates made in 1975 were considerably exceeded. In effect, Orion's focus was on paragraph 3 of the Russell Record but supplemented by the contention that if it applied the antecedent agreements were to remain effective.

The Writ and Points of Claim in the First Action were issued on April 25, 1986. They were drafted by Mr Cordara. A claim was made for a declaration that the original Pooling agreements remained binding on Sphere Drake. On May 16, 1986 Mr Sage swore the Affidavit which had been prepared for him. Mr Cordara had approved the draft on April 21 in the form of the existing draft save that the references to the April 1975 agreement were changed to arrangement . Mr Cordara could not recall why he made that change. Otherwise the Affidavit was sworn in the terms set out above.

The Affidavit as sworn was undoubtedly intended to record Mr Sage's best recollection of events. It:

(1) contained nothing which referred to any statement or understanding at the April 1975 meeting to the effect that the arrangement then made was not legally binding; and

(2) focused on the effect of paragraph 3 of the Russell Record as the basis on which Orion was entitled to require Sphere Drake to contribute to the losses in accordance with the antecedent agreements.

On the other hand:

(3) As will be seen, at the time of the Baloise action both counsel and solicitors advising Sphere Drake did not think the terms of the Affidavit such as to justify a finding that Mr Sage had lied in giving his evidence in the First Action; nor was that even suggested or put in cross-examination to Mrs Good or Mr Cordara. Mr Sumption's submission was that the Affidavit and Mr Burtonshaw's statement were suggestive but far from conclusive of perjury and the most potent evidence had come from the files of Linklaters & Paines.

(4) Mrs Good said that Mr Sage never described the April 1975 agreement or arrangements as "binding" and the Affidavit does not use that expression. As she put it, the only way she could make sense of what Mr Sage was saying was by reference to paragraph 3 of the Russell Record :

You see, I can remember my reaction, which was I was drawn back to paragraph 3. I think what Mr Sage may have felt he was saying was that paragraph 3 epitomised the arrangement they had entered into. So that is how we go around full circle to paragraph 3 .... I think extreme degree was entirely relevant to Mr Sage in his belief and understanding that this was, the whole thing was a gentleman's agreement.

In my words, the lawyers and the layman could meet at paragraph 3, even if they started from opposite ends of the spectrum, provided it was an "all or nothing" agreement, all binding on a gentleman or all binding in law. Moreover if as Mrs Good said and the documents suggest and I accept Mr Sage saw what became paragraph 3 of the Russell Record as the epitome of the arrangement it is a short mental step from that to a belief that if it was a gentleman's agreement then so was the whole agreement.

The Points of Defence were served on June 24. They pleaded an agreement to settle all outstanding liabilities of all the parties made at the meetings on December 13, 1974 and the April 23 1975 which agreed the final cash settlements which had been duly paid in full and final settlement of the respective liabilities of the parties.

The Points of Reply on behalf of Orion (also drafted by Mr Cordara) were served on July 16, 1986. It was pleaded in paragraph 4 that any agreement made on 13th December 1974 was provisional and/or not intended to be legally binding and in paragraph 5 it was admitted that the April 1975 meeting had occurred but pleaded that :

In so far as any agreement was reached at the said meeting (as to which no admission is made) it was agreed, inter alia, as follows:

(a) that, subject to the general reservation set out at ...

(b) ... the figures ... were deemed to represent the final liabilities of the parties to the Pool Agreements; (b) In the event that actual settlements falling due to be made in respect of the run-off under the Pooling agreements thereafter increased to an extreme degree the commitment of the parties to the Pooling agreements or any of them, any such agreement as was made at the said meeting or otherwise would be determined, and, in such circumstances and/or in default of any subsequent agreement otherwise, the arrangements prevailing prior thereto, namely the Pooling agreements ... would continue to apply to the rights and obligations of the parties.

Apart from the non-admission that any agreement was made, this was, in effect, a plea that the let-out which became paragraph 3 of the Russell Record was a legally enforceable agreement the effect of which was to restore the previous arrangements to full effect. It was not a plea that whatever was agreed was not intended to be legally binding (which would need to be specifically pleaded as it was in respect of any agreement made in December 1974). That accorded with how Linklaters & Paines and counsel saw the position at the time, and how they saw it in the context of Mr Sage's Affidavit.

AUTUMN 1986 TO AUTUMN 1988

The remainder of 1986, 1987 and the beginning of 1988 seems to have been taken up largely by discovery. Granted that Orion's case made it necessary to go back to the 1950s and the complex accounting problems to which the claims and history gave rise, discovery was obviously a major undertaking. There was therefore a hiatus of considerable length before Mr Sage was again involved in the matter. Indeed it was only a chance meeting between him and Mr Park (another partner in Linklaters & Paines )in about May 1988 which brought Mr Sage back into the picture.

Following that chance meeting, Mr Sage wrote to Mr Park on May 19, 1988, referring to himself and Mr Rousell as the two key witnesses on behalf of Orion, stating that there had been a complete lack of information on developments and that he would like to know whether the case was likely to proceed and if so when. The letter asked for advice about payment for both Mr Sage himself and Mr Rousell of expenses and for time spent on the case, suggesting £500 per day as appropriate for himself. The letter also asked if a success fee would be appropriate adding that Mr Sage appreciated it might not be possible for technical legal reasons.

This request led to a certain tension between Mr Sage (who took upon himself to act for Mr Rousell and Mr Heritage also), Orion (now under the management of Mr Fordyce with Mrs Atkins having day to day conduct of the action), and Linklaters & Paines, which took some time to resolve. Mr Sumption says it is material, because it demonstrates that Mr Sage was not, or was not behaving like, the gentleman he was portrayed to be, and that he appreciated his value to Orion's cause and its value to him. I shall therefore include in this chronology of events how Mr Sage's suggestions developed.

Mr Park replied to Mr Sage's letter on May 24. The response was in totally proper terms : payment could be made of reasonable expenses and reasonable compensation for loss of time but no payment could be made on a contingent basis. Mr Park also told Mr Sage the case had been set down for trial in November 1989.

Mr Sage wrote to the new Chairman of Orion on October 3 1988 expressing the opinion that on the facts as I know them I do not believe that Sphere Drake have a defensible case and offering the suggestion that a task force should be set up consisting of himself, Mr Rousell and Mr Heritage in effect to handle the case for Orion. The Chairman's response, dated November 4, was to suggest a lunch with Mr Sage to be attended by himself and Mrs Atkins. The lunch took place later in November but nothing of any significance occurred, save that Mr Sage was considered to be keen to help, did not discuss money and the task force idea was rejected.

The Linklaters & Paines team now consisted of Mrs Good and Mr McDonnell, who had replaced Mr Reid. There was a consultation with Mr Bathurst and Mr Cordara on November 1, 1988 to review the case in the light of discovery and to discuss strategy. The consultation was attended by (inter alios) Mr Fordyce and Mrs Atkins, Mrs Good and Mr McDonnell.

Mr Bathurst is recorded as expressing the opinion that there were only three possible conclusions open to the court about the December 1974 and April 1975 agreements :(1) that a final settlement was reached subject to a future event, extreme degree , which would cause the agreement to fall away; or

(2) that clause 3 was of no effect and could be severed from the rest of the agreement which remained valid and binding; or

(3) that clause 3 was too vague and in consequence the whole agreement was void for uncertainty. Either conclusion (1) or (3) would win Orion the case and the fact that clause 2(a) was subject to clause 3 provided a persuasive argument against conclusion (2). Counsel also said that it would be necessary to call Messrs Sage, Rousell and Heritage to give evidence because the Russell Record did not constitute an agreement itself but a note of an oral agreement. It was not absolutely clear; any of the three conclusions might be reached by the court, and the prospects of success could not be put higher than 50%.

On November 7, Mr Cordara advised that Orion should seek an order for exchange of witness statements.

MARCH 1989 AND MR HENSHAW

For whatever reason, Mr Sage does not appear to have been involved again until March 1989. Thus, apart from the correspondence and lunch in 1988 to which I have referred, he had no involvement in the matter from August 1986 to March 1989 and no involvement at all in that period as regards the evidence he could give. He was 70 in May 1988. The trial was due to start in November 1989.

There is a Note from Mrs Good to Mr McDonnell dated March 13, 1989 which records that she had spoken at length to Mr Sage that morning. Mrs Good recorded that:

[Mr Sage] is very spirited and alive to the issues and is anxious and pleased to help Orion. He tells me that he "has no doubt whatsoever" that the intention of the arrangement entered into in April 1975 was that if extreme degree was reached, the arrangement ... would fall away and the parties would go back to square one .... He is satisfied that the parties left open the opportunity to negotiate but that was negotiation from pool liability on existing percentages rather than from no liability for Sphere Drake. He is quite convinced that the whole spirit and intention of the pooling agreement (which was carried through to the arrangement in April 1975) was that no party would lose out and that accordingly in the event of extreme degree there would be recourse to Sphere Drake.

The note also recorded that Mr Sage would be coming to Linklaters & Paines offices for the whole day on March 30, and that he was keen to get down to detail and go through the documentation which Mrs Good asked Mr McDonnell to select and send to him. The March 30 date appears to have been changed later to April 19. As Mrs Good said, her note of this conversation with Mr Sage records him saying the same in substance as he had said in 1985 and 1986. She also said that Mr Sage seemed to be in much better health than he had been then.

Mrs Good wrote to Mr Sage on March 17, enclosing a file of documents and a copy of his affidavit and informing him that it was then proposed that witness statements should be exchanged by July 30. On April 5, Mrs Good briefed Mr Henshaw on the matter as he was to join the Linklaters & Paines team, and she was to leave it. She summarised the issue in her briefing note in terms which reflect Orion's then case as one of a legally binding agreement with a binding let-out.

Mr Henshaw

As this is Mr Henshaw's first appearance and he has also been the subject of serious criticisms by Sphere Drake about his professional conduct, I shall state here my overall conclusions about him as a witness. I found him careful, straightforward and professional in the best sense of that word. He was a witness in whose honesty and reliability I had complete confidence.

LINKLATERS & PAINES MEETING WITH MR SAGE ON 19th APRIL 1989

Mrs Good, Mr Henshaw and Mr McDonnell met Mr Sage on April 19, 1989. Mr Henshaw said he found Mr Sage lucid and intelligent. Notes of this meeting were taken by both Mr McDonnell and Mr Henshaw. There was no typed note presumably because what was said was to be reflected in a revised statement for Mr Sage to consider. The notes are therefore not easy to follow although both authors have provided typed transcripts of their contents. Mr Henshaw's notes include references to Mr Sage saying that the 1966 arrangements were not overridden and it was implicit that we won't let each other down, that Sphere Drake had an obligation to pay the original proportions which were the starting point if and when clause 3 came into effect, that it was not such a big deal because nothing had changed and there was no abrogation of agreements, and that if it had been a final termination the Orion Board would have had to approve and solicitors would have been used. Mr McDonnell's notes include references to ' relationship was a gentleman's club and not hurt any one'; 'appears legal agreement but friendly termination - all friendly or all legal'; what's said we not hurt each other. Implicit as 66/67 Agreement'; 'Any Agreement has the force of law'; 'nothing changed - administrative matters'; 'Subject to Board Approval'; 'discussion of extreme degree: can recall nothing at meeting - only 10% afterwards'.

Each party has again sought to make something of these notes. Indeed Sphere Drake (as Mr Sumption acknowledged) has executed a complete about-turn in the company's submissions about the meeting. In opening the company's case it was submitted that at this meeting Mr Sage had reverted to saying that the April 1975 arrangement was only an administrative arrangement not intended to abrogate the existing pooling arrangements which indicated that he regarded the April 1975 arrangement as not legally binding. In cross-examination and the company's closing submissions it was put and submitted that Mr Sage was saying in terms that the agreement was legally binding. The foundation for this was the note taken by Mr McDonnell "Any Agreement has the force of law." This, it was put and submitted, recorded a specific statement from Mr Sage the exact opposite of the evidence he came to give at the hearing of the First Action only some 7 months later and the evidence which was first set out by him less than 4 months later when he worked on his statement.

I have no hesitation in rejecting this revised submission; indeed in my judgment Sphere Drake and Mr Sumption plainly got it right in opening their case which was based on the documents and probabilities as they then perceived them to be. Far from that evidence or those probabilities changing in the course of the trial, they were greatly strengthened.

Mr Henshaw (who was primarily responsible for preparing Mr Sage's statement for the trial) said that what Linklaters & Paines had taken away from the meeting on April 19, 1989 was that Mr Sage was telling them that he had a clear recollection of the substance of what had happened at the April 1975 meeting which was that a commercial arrangement had been made to deal with the run off but one which did not abrogate the existing contractual arrangements between the parties, but he could not or at least did not say how that had been expressed at the meeting. That is consistent with the notes of

the meeting, consistent with the next draft of Mr Sage's statement and consistent with the subsequent events and documents such as the evidence that the Flint Note made little impact on Mr Sage. As Mr Henshaw said, and I accept, to suggest that Mr Sage was saying that the whole agreement was legally binding would be contrary to the whole tenor of his understanding of what Mr Sage was saying. Mr Henshaw understood Mr Sage not to be saying that the earlier agreements came back into play when paragraph 3 of the Russell Record came into effect, but that nothing had changed and there was no abrogation of those agreements.

Mrs Good's evidence was to the same effect, as was the evidence of Mr McDonnell. Mrs Good said, in answer to Mr Sumption:

I think that what Mr Sage was trying to describe to us was an agreement which was not legally binding and which, as gentlemen, they would abide by as long as extreme degree had not been reached. Looking at it from a legal perspective, I think one is inclined to say "Well that is the let-out clause or paragraph 3" but I do not think it is the way that Sage was trying to describe it to us .... I can try to remember what my impression was. I went away from the meeting understanding that he had told us nothing had changed. There had been no abrogation of the pooling agreements but there had been an agreement to extreme degree.

Whilst none of the participants at the meeting could remember what the words "any agreement has the force of law" related to, Mr McDonnell offered the possibility that they referred to the original agreements in 1966/7 on which Mr Sage placed so much emphasis. That may well be right; but what matters is that they did not, as I find they did not, relate to the April 1975 meeting or any agreement made at that meeting.

The significance of this meeting, and no doubt part of the explanation for the about-turn by Sphere Drake, is that it took place before the discovery of the Flint Note. What Mr Sage was saying could not therefore have been influenced by the contents of the Flint Note. Mr Sumption opened the case (and it is pleaded) on the basis that whilst Mr Sage may honestly have believed when he gave his evidence to Hirst J that the April 1975 agreement was not binding he perjured himself in claiming an independent recollection of the words he had used at the meeting. The "about turn" was a belated attempt to make a case that Mr Sage had no such honest belief either and had said the opposite only shortly before he gave evidence. If the attempt had succeeded not only would it have resulted in a more compelling ( even if unpleaded) case for perjury of what might be termed the direct kind where a witness is alleged to have contradicted an earlier statement but it would also have exposed Mr Henshaw, Mrs Good ( and indeed Mr McDonnell) to an allegation that they knew Mr Sage had contradicted himself and lied when he gave his evidence to Hirst J.

Yet Mr Sumption has expressly and rightly not pursued such an allegation.

PAYMENT TO MR SAGE

Whilst work was being done to prepare a revised statement for Mr Sage the question of payment arose again. On April 27, 1989 Mrs Good wrote to Mrs Atkins, in response to the latter's request for a firm opinion on the payment of sums to the witnesses. Mrs Good's opinion was that £20 or £25 an hour would be a reasonable sum to pay. Mr Sage was due to attend a further meeting on his statement on May 12. On May 3 Mrs Atkins told Mrs Good Mr Sage would not come on that day because he was affronted by Mrs Atkins' speaking to him (presumably about payment) rather than Mr Fordyce and he wanted his pension and termination deal with Orion re-opened. Mrs Good's note of the conversation recorded that Orion reckoned this was tantamount to blackmail.

On May 5, Mrs Good had a long telephone conference with Mr Cordara. It was noted that Mr Bathurst could not conduct the hearing and it was intended to instruct Mr Boyd in his place, but also that each of Mr Sage, Mr Rousell and Mr Heritage claimed he had been effectively sacked by Orion, were not invited to any parties given by Orion and did not receive proper pensions, and were not anxious to give up their retirement time to work up the case. Orion's annoyance was noted and the fact that both Mr Sage and Mr Rousell had nonetheless been helpful on April 19. Mr Cordara's view was that Orion's suggested figures of £50 per hour for Mr Sage, £35 per hour for Mr Rousell and £30 per hour for Mr Heritage were both appropriate and reasonable, despite Mrs Good's repeated suggestion (which she described as "rather stingy") that only in the region of £25 per hour should be offered. In the course of a telephone conversation with Mrs Good on May 9, Mr Fordyce approved the figures endorsed by Mr Cordara and agreed that they should be paid retrospectively giving a generous interpretation to past time and effort spent. The previous day he had had lunch with Mr Sage. It seems Mr Sage had raised again the question of a profit commission and had also said that he could win the case tomorrow but he would not reveal how unless Mr Rousell and Mr Heritage were dealt with correctly. In fact the reference to winning the case turned out to be a matter of no real relevance to the issues before this court (see The Meeting on 26th May 1989, below). It certainly was not anything related to the Flint Note or what that Note recorded as Mr Sumption accepted. Mrs Good spoke to Mr Sage and Mr Rousell on May 12 and got the same message from Mr Sage, but coupled with both Mr Sage and Mr Rousell saying that they did not actually want to receive any money and things had much improved and the way forward was much clearer and happier than it was before. In other words ruffled feathers had been smoothed, the suggested hourly rates were acceptable (and in the event, paid) and in effect the matter was resolved when Mrs Good wrote to Mr Sage on May 17 saying Orion had decided to compensate him for loss of time in preparation for but not attending the trial at a rate of £50 an hour, together with out of pocket expenses.

It is true, albeit to a limited extent, that these exchanges and in particular the references to a profit commission on the second occasion after it had earlier been made clear that no contingent payment could be countenanced, do not redound to Mr Sage's credit. On the other hand, I, like Mr Cordara, see nothing wrong or surprising in the request for payment for time spent nor in Orion agreeing to it on the advice of the company's solicitors and counsel nor in the rates agreed to be paid. There was no contingency element, the payments were properly and openly sought, recorded and accounted for, and in many respects the exchanges were more likely to (and did) engender bad rather than good feeling between Orion and Mr Sage, in particular because Mr Fordyce would not countenance any enhanced pension arrangements. Nor is there anything to suggest that Mr Sage, any more than Mr Rousell or Mr Heritage, was in any way influenced by the fact that he was receiving payment in the evidence he gave or his attitude to the proceedings or the issues. The evidence I have heard about Mr Sage's character suggests to me (as Mrs Good said) that his concerns that he should be treated with the respect and courtesy due to a former Managing Director of Orion and for Mr Rousell and Mr Heritage to be treated properly were just as, if not more, important to him as being paid or the amount of any payment. I therefore reject Mr Sumption's submission that these events played any relevant part in the issues I have to consider. I would add that despite the mechanism used to pay Mr Sage which involved putting him on the "payroll" at Orion, in my judgment it is quite unrealistic and wrong to describe Mr Sage as becoming an employee of Orion or as being re-engaged by Orion as Mr Sumption sought to do in support of Sphere Drake's case on the attribution issue. The mechanism ensured that the payments were properly taxed. None of the other established features of employment were present.

THE DISCOVERY OF THE FLINT NOTE

It was in early May 1989 that Mr Henshaw found the Flint Note amongst the papers disclosed by Sphere Drake in 1987. He got his secretary to interpret the shorthand. Whilst that interpretation (dated May 10) proved to be substantially accurate it had within it areas of real uncertainty as is apparent from the way it was then set out, one of which was whether a squiggle meant the words "and not" appeared before "a legal contract". It is also apparent from page 17 of a draft of Instructions prepared by Mr Henshaw to counsel on May 15 that at that date the most that was said about the Note was that:

the first line may indicate that Mr Sage stated that the "settlement" was not intended to be legally binding and instructing solicitors will be reviewing this point with Mr Sage as part of the work to be done on his witness statement.

Whilst this caution about the Flint Note was understandable, Mrs Good said that she had:

a visual memory of Mr Henshaw coming down the corridor with the Flint Note and saying "look at this" and he had got his secretary to interpret the squiggle and this was what it appeared to say. I can remember thinking "that is what he has been on about", and, you know, I did not get it. How could I not have got it? I can remember feeling that, because I can remember feeling a sense of embarrassment about it.

I accept this evidence without qualification. Mrs Good was not deceiving herself or "reconstructing in her mind" as Mr Sumption suggested. The evidence is supported by the documents (in particular the note of the "Tardis" meeting on July 18, 1991) and the recollections of Mr McDonnell and Mr Legg and Mr Henshaw himself.

THE MAY 1989 DRAFT OF MR. SAGE's STATEMENT

Work on Mr Sage's statement had been proceeding after the meeting on April 19. Various drafts were prepared by Mr Henshaw and reviewed by Mrs Good.

On May 17, the current draft of his statement was sent by Mrs Good to Mr Sage, described in her letter as a working draft for further discussion. A great deal of the draft was taken up with setting out the background history prior to April 1975 because it is vital to an appreciation of the nature of the arrangement reached in April 1975 and because if extreme degree caused the arrangements to fall away Orion had to establish what the position was before April. The importance of Mr Sage considering these parts of the draft was stressed in the letter and it was suggested that once he had read the draft there should be a meeting to go through it. The letter also informed Mr Sage that the trial was fixed to commence on November 13, an order had been made for the exchange of witness statements no later than September 1, and a team meeting was to take place on May 26 with suggestions as to what should be discussed then which apart from a reference to there may be points of principle arising out of the draft statements which you (i.e. Mr Sage) w ould like to discuss referred to a number of matters of importance to the proceedings but not to the issues before me. The letter itself made no reference to the Flint Note.

The draft of Mr Sage's statement which was enclosed with this letter now ran to 31 paragraphs. It did refer to the Flint Note in a paragraph numbered 29 which contained no text but only a series of questions for Mr Sage including the two final sentences in parentheses added by Mr Henshaw at Mrs Good's request.

The description of the April 1975 meeting began in Paragraph 27 of the Draft. So far as relevant it read:

We discussed [Mr] Russell's memorandum dated 22nd April, and agreed on the figures and a series of payments to be made on a deferred basis .... we hoped and believed that the estimates of outstanding liabilities, on which the figures were based, would prove to be reasonably adequate. At the same time all parties recognised, as any prudent insurer would, that it was possible that actual liabilities might turn out to be seriously out of proportion to the estimates, and it was understood and agreed that, if this proved to be so, no single party should suffer. Consequently, we agreed that one party would not ask another party, pursuant to the Pooling agreements, for further contributions to pool business claims, unless the claims situation deteriorated to an extreme degree. There was some discussion of the meaning of "extreme degree", although the concept was not precisely formulated as between the parties. In the event that the claim situation did so deteriorate, then the liabilities under the Pooling agreements would continue .... In this way, it would be ensured that no party would be out of pocket, consistent with the essential general principle underlying all these arrangements, including the Pooling agreements themselves, and the Sphere termination arrangements.

28. Neither I nor any of the other Orion representatives at the meeting agreed to abrogate the Pooling agreements. We did not accept, or give any indication of accepting, that the "settlement" was in any way a final, irrevocable termination of the parties' underlying obligations to share liabilities in the appropriate proportions. In the event that "extreme degree" was reached, the parties would be obliged to meet those liabilities: this would be the starting point of any discussions of the kind referred to in paragraph 4 of [Sphere's] note of the meeting (referred to in paragraph 30 below).

29. [Qs - the first line of the contemporaneous manuscript notes made at the meeting (Exhibit 39) (see also L&P's retyped version, immediately following the copy of the one in the file) appears to indicate that you said words to the effect of "Goodwill agreement - not a legal contract". Is that consistent with your recollection? If so,(a) were you referring to the termination agreement as a whole, or only the "let-out" clause?

(b) what was the reaction of the other persons at the meeting? Are you able to reconstruct the approximate sense of the remainder of the note, (where the interpretation of the shorthand is unclear)? (This point is significant, because Orion, in its pleadings, does not admit that the arrangements made at the meeting were intended to be legally binding. It would be of great assistance if we could establish, with the note as corroboration, that the parties actually accepted this point at the meeting.)]

30. Mr Flint, the Secretary of Sphere, subsequently circulated a note [the Russell Record] of the meeting together with the memorandum (Exhibit 40), and asked each party to initial them....

31. In my experience as an underwriter, the amount of the losses which are now being incurred in the course of the run-off in relation to product related hazards, and in particular asbestosis, are of an extreme degree whatever measure is applied. The losses presently being incurred were wholly unforseeable by the Market in 1974. According to what we agreed on 23rd April 1975, therefore, Orion, Drake and Sphere are now obliged to continue to contribute to the run-off liabilities in accordance with the original proportions under the Pooling agreements, subject to any modified arrangements that result from discussions.

In their opening submissions in this action Sphere Drake characterised this draft as one in which the significance of the agreement of 23rd April 1975 was diminished to vanishing point and anything smacking of contractual intent was removed. It was, of course, prepared by Mr Henshaw on the basis of what Mr Sage had said at the meeting on April 19. That submission was consistent with Sphere Drake's opening submission about the meeting itself and Mr Henshaw's stated intention in drafting the statement.

Mr Sumption's closing submissions involved the same about turn on this draft statement as on the meeting. He submitted that the statement was clearly not saying that the agreement was not legally binding but was assuming that it was binding subject to the let out which itself was binding because if extreme degree occurred the agreement would fall away leaving the parties to their pre-existing agreements.

There was, again, nothing in the hearing before me to explain or justify this change in Sphere Drake's case indeed to the contrary. What the change may perhaps fairly serve to demonstrate is that the draft statement can be read both ways and thus that the line between all binding and all not binding is as a matter of expression a fine one.

The transcription of the Flint Note was, as is apparent from paragraph 29 of the Draft, sent with the draft to Mr Sage in a Bundle of Exhibits as part of the enclosure to the letter of May 17. It was Exhibit 39 of the 40 Exhibits which were enclosed.

INSTRUCTIONS TO COUNSEL 18th MAY 1989

On May 18, Linklaters & Paines sent instructions to Mr Boyd and Mr Cordara. These Instructions (which first introduced Mr Boyd to the case) were drafted by Mr Henshaw and approved by Mrs Good. They stated, as regards the April 1975 meeting , that Orion's position was that if any binding agreement was reached, it was subject to a definite reservation that the pre-existing sharing arrangement would revive if extreme degree was reached, and continued:

The recollection of the Orion representatives at the meeting, Messrs. Sage, Rousell and Heritage, is that it was understood and agreed that if the agreed figures for outstanding liabilities did prove to be seriously under estimated, then no single party should suffer - i. e., further contributions under the sharing arrangements would be made. Mr Sage's firm view is that the settlement reached at the meeting was not a final, irrevocable abrogation of the Pooling agreements, and if the claims situation did deteriorate to an "extreme degree", Sphere and Drake would be obliged to make further contributions in accordance with the sharing arrangements.

In terms of reconciling this with the note of the meeting, counsel will note that the part of the note, paragraph 2(a), which records the alleged agreement that the agreed figures represented the parties final liabilities, is expressly made subject to the reservation in paragraph 3 of the note ....

Orion has, in its pleadings, not admitted that a binding agreement was reached at the meeting. The documents produced on discovery include a manuscript note, apparently made at the meeting by Mr Flint of Sphere Drake. (Counsel's papers include, immediately following the copy of the note, a re-typed version prepared by instructing solicitors which attempts to translate the shorthand parts of the note.) The first line indicates that Mr Sage stated that the "settlement", or possibly some part of it, was not intended to be legally binding. Instructing solicitors will be reviewing this note with Mr Sage as part of the work to be done on his witness statement, including the question of whether the comment referred to the arrangements as a whole ( as opposed to, for example, the "extreme degree" reservation only), and whether it was concurred in by the other persons present at the meeting.

No reference to the arrangements or prior negotiations appears in the board minutes of Orion, Sphere or Drake.

When cross-examined about the terms of these Instructions, whilst agreeing that he would have read the references to the recollection of the witnesses as in effect a reference to paragraph 3 of the Russell Record and so consistent with what he had understood in 1985 and 1986, Mr Cordara also said that the discovery of the Flint Note had not been a "Eureka" moment for him:

. .. there had been, I think I can fairly say, from the beginning a tension between what the witnesses were saying was the position on the ground and the documented position in terms of the note of the meeting. That was a tension ... with which I had apparently been grappling over the years, the suggestion that one could somehow return to the underlying pooling arrangements, which was not ... actually stated in the Russell Record. And these matters had seemed to be matters which the witnesses had been persuaded of from the beginning .... So when I say it was not a Eureka moment, it began perhaps to make sense of that tension which I think I had been conscious of over the previous years.

I find this evidence compelling. It has the same flavour as Mrs Good's evidence and indeed, as regards the impact of the Flint Note, the evidence about its impact on Mr Sage. Mrs Good acknowledged that the reference to the witnesses in the instructions was substantially unchanged from earlier instructions but, as she put it, she was beginning to realise that she needed to adjust her thinking on the legal analysis.

I would add that these instructions could not properly have taken this form had Mr Sage said on April 19 that the whole agreement was legally binding as Sphere Drake now contend.

THE MEETING ON 26th MAY 1989

The "team meeting" planned for May 26 duly took place. It was attended by Orion's chairman (Mr Smith), Mr Fordyce, Mrs Atkins, Mr Sage, Mr Rousell and Mr Heritage together with Mrs Good, Mr Henshaw and Mr McDonnell. The meeting lasted 7 hours. Mr McDonnell prepared a typed note of the meeting. There is no reference to the Flint Note in this note; nor to the contents of any of the draft witness statements. The note does include a reference to Mr Sage being certain that the April 1975 arrangement was an administrative one to assist in cutting down on the paperwork involving 8 accounts in 3 currencies. On the evidence before me (and despite Mr Sumption's submissions to the contrary) I think it most improbable that the Flint Note was referred to. That was not the nature of the meeting. The draft statements were known to require detailed work. The meeting was, as Mr McDonnell put it, an update and a bit of a team-building exercise. It is true that Mr Sage's records of the time he spent on the case show that on May 21 he had spent 3 hours studying the witness file he had received on the previous day (Mrs Good's letter of May 17 and enclosures). But I do not think he focused on the Flint Note, nor did anyone draw it to his attention at this meeting. If he or they had done so I think it would have been noted, which it was not. There remained uncertainty about what the Flint Note recorded and later documents strongly suggest Mr Sage only addressed it later. The note of the meeting does record that all 3 witnesses had more work to do, that Mr Sage had yet to complete his comments on the draft statements, and to fixing another meeting to be held on June 14. Mr Henshaw's hand-written notes of the meeting record that the June 14 meeting was to be for the purpose of dealing with the draft statements. Mr Henshaw said he had the impression at the time that Mr Sage had not actually got down to the hard work of going through the documents. I think that impression was right.

These conclusions are further supported by the fact that following the meeting Mr Sage sent Mr Smith, Mr Fordyce and Mrs Good a "memorandum" dated May 29 which also said nothing about the Flint Note. The memorandum repeated and amplified the point about administrative simplification . It also said that it had just come to Mr Sage's mind that the most important and relevant point which he should have recalled earlier was the verbal agreement between Philip Gilbert (in his capacity as Chairman of Howdens, Sphere, Drake and Orion) and Jan Van der Velden then in charge of Nationale Nederlanden in the 1960s to the effect that the shareholders of Sphere and Drake would bear losses incurred in proportion to their shareholdings, and that this agreement had been the underlying basis on which all decisions thereafter were made.

In Mrs Good's understanding this was the point Mr Sage had had in mind when he had referred to his ability to crack the case in the course of the negotiations about the payment to be made to him.

THE MEETING ON 14th JUNE 1989

On June 13 Mr Henshaw prepared a lengthy list of further questions on Mr Sage's statement which were to be asked in addition to discussion of flow charts and a draft analysis of accounts. None of these questions were directly material to Mr Sage's account of the April 1975 meeting, but they did include a reference to what sort of statistics paragraph 4 of the Russell Record envisaged being exchanged and to what was said about a 10% change amounting to extreme degree. An agenda prepared for the June 14 meeting included Mr Sage's statement as item 7. The meeting duly took place. Once again Mr Fordyce, Mrs Atkins, Mr Sage, Mr Rousell, Mr Heritage, Mrs Good, Mr Henshaw and Mr McDonnell were present. Much of the discussion, as recorded in the Note of the meeting prepared by Mr McDonnell, was about recent amendments to Sphere Drake's defence which raised a number of complex accounting and allocation points about Orion's claim. This was also a long meeting, but again nothing immediately material to the present issues is recorded as having been discussed in Mr McDonnell's note.

However Mr Henshaw did discuss Mr Sage's draft statement with Mr Sage on this occasion and he made a number of notes of those discussions on the draft. Those notes end at paragraph 19 of the draft. I think it wholly probable, as Mr Henshaw suggested, that the explanation is that time ran out before the exercise could be completed and in effect Mr Henshaw got to paragraph 19, covered the points in his June 13 list of further questions and left the rest to another day. Whilst in the present proceedings the Flint Note is at the forefront of events, and it is true that it made an impact on Linklaters & Paines when it was discovered, it is not a surprise to me that a methodical start-to-finish approach was taken to Mr Sage's statement and there is no other sensible explanation of the documents. Further, on July 6, Mr Henshaw sent Mr Sage a revised version of his draft statement which aims to take account of the discussions at our last meeting. The revised draft was dated July 4. Two new paragraphs were added referring to discussion of the meaning of extreme degree and the continued exchange of statistics reflected in paragraph 4 of the Russell Record. Those paragraphs are readily explicable by Mr Henshaw covering his list of questions. What did not change was any of the paragraphs of the May draft which I have set out above and the questions in paragraph 29 arising from the Flint Note remained in the new draft just as before

The suggestions put to Mr Henshaw in cross-examination, that he had asked Mr Sage at this meeting if he had any recollection of saying what was in the first line of the Flint Note and got a negative answer but had then left the questions in the draft because he "intended to have a further go at him on this subject at a later stage" are ones which Mr Henshaw refuted in terms which I found wholly compelling and commendably restrained.

THE CONSULTATION ON 22nd JUNE 1989

There is a typed note of the consultation held on June 22 which was prepared by Mr Henshaw from notes taken by a trainee solicitor. Mrs Good was not present. Mr Boyd and Mr Cordara were present as were Mr Smith, Mr Fordyce and Mrs Atkins. The note records that Mr Boyd opened the consultation by explaining he was still feeling his way into the case. It also records that Mr Boyd said he had read the principal documents (which included Mr Sage's 1986 Affidavit) but he said in evidence that he had a recollection that whilst he had looked at the Flint Note he was caught slightly off guard when he was asked questions about it. The note bears that out and I accept it.

The typed note records Mr Boyd stating his initial reaction on the central issue of the April 1975 agreement that the evidence of the witnesses on both sides would not now be of much value because it was 14 years ago, Orion's witnesses remembered very little about it and were likely to be contradicted by Sphere Drake's witnesses. Mr Boyd is also recorded as being doubtful about arguing that the April 1975 meeting and Russell Record did not constitute a legally binding agreement. Mr Henshaw asked if Mr Boyd felt the point was so unconvincing as to be not worth pursuing. Mr Boyd said he felt it striking that none of the witnesses had previously mentioned it. He was not clear about the significance of the [Flint Note] unless some of it was in shorthand ....

the note also records :

[Mr Henshaw] pointed out that although, as counsel had said, the witnesses did not have detailed recollections of events from many years ago, they (and Mr Sage in particular) had a very firm conviction that they had not agreed to a final cut-off of liabilities without a reservation. In addition, Mr Sage had indicated that had he intended a final cut-off of the liabilities, he would not have arranged it in such an informal manner, and would certainly have sought Board approval.

Mr Boyd apparently remained unimpressed but stressed that no one should take decisions on the basis of his present views. In context, I am not surprised that Mr Henshaw did not seek to make more of the matter and I do not think it can be said (as Sphere Drake have said) that Mr Boyd's reference to Orion's witnesses was left without comment or qualification and to the extent it was I do not think it is significant.

PROOFING ON 11th JULY 1989

At about the beginning of July it was Linklaters & Paines intention that Mr Legg should succeed Mrs Good in conducting Orion's claim. Mrs Good and Mr Legg met Mr Sage on July 11 to continue the preparation of his statement. No one has been able to explain why Mr Henshaw did not attend the meeting but I do not think that has any significance. Mr Sumption did suggest that the team changed in the hope of inspiring Mr Sage to be more forthcoming but that seems to me to be fanciful and, more importantly, I accept the rejection of the suggestion by all 3 solicitors in their evidence.

There is a hand-written note by Mr Legg of the July 11 meeting and he also made some annotations on the latest draft of Mr Sage's statement.

The hand-written note includes the following :

para. 36 : goodwill = good spirit between parties - beginning with Philip Gilbert (10/66) - no friction between parties.

very important: "not a legal contract" - wished to deal with outstanding matters in a way that was sensible - if problems then would expect contribution on basis of original pooling agreements as amended in accordance with note of 10/66.

The reference to paragraph 36 was a reference to the now renumbered paragraph 29 which consisted only of questions and comments about the Flint Note. The note does not establish one way or another whether the Flint Note itself was being discussed or only the wording of paragraph 36 itself. Mr Legg thought Mr Sage might still not have done his homework on the documents at this time. The note does not say one way or the other whether Mr Sage recollected using the words attributed to him or not, although it certainly does not suggest that he challenged that attribution in any way. Nor does the note suggest that the Flint Note, or the references in paragraph 36, were seen by Mr Sage as some revelation, rather the contrary. It does show, yet again, how in Mr Sage's mind the historic arrangements and goodwill relationship between the parties was important.

The annotations made by Mr Legg on the then draft statement of Mr Sage itself included(1) a note that abrogation of the Pooling agreements was not mentioned or raised by either party. The point was simply not in issue - it was not what the meeting was about;

(2) at the top of the page on which paragraph 36 appears the words if legally binding document intended would have involved solicitors; and

(3) against paragraph 37 (previously 30) and a question did you scrutinise the Russell Record in detail? A note reading seemed to reflect what was agreed as goodwill system - not a legal agreement. What does not appear on the draft is any annotation against any of the questions in paragraph 36 itself. Both Mrs Good and Mr Legg said that if they had asked those questions Mr Sage's answers to them (whatever they were) would have been noted. The whole appearance of the annotated document and the nature of the annotations (which for example frequently note cannot recall ) demonstrate that evidence to be true. In any event I have no hesitation in accepting Mr Legg as a witness of complete integrity and accuracy both on this particular matter where he was challenged by Mr Sumption and generally in relation to all his evidence.

It was in relation to this meeting with Mr Sage that, relying on a passage in some notes of the meeting at "the Tardis" two years later on July 21, 1991, Mr Sumption submitted and put to Mrs Good that she had "tried and tried" to get Mr Sage to say that he remembered saying at the April 1975 meeting the words attributed to him by the Flint Note but Mr Sage had said he did not remember the meeting and could not say that. I have addressed this submission in the context of the Tardis meeting but I should record here that I am quite satisfied it is wholly without foundation. As she said, in the passage in question Mrs Good was talking of events in 1985 and 1986 not in 1989. The context of the Tardis meeting was to provide an explanation for why the not legally binding point had not been pleaded and it makes no sense to respond to that by a reference to events in July 1989 as the point was (see below) pleaded in that very month. I would add that I accept without qualification Mrs Good's evidence that she would not tell or try to tell a witness what to say. The suggestion was not even pursued by Mr Sumption with Mr Legg when he gave evidence.

Following the meeting Mr Legg prepared a further draft of Mr Sage's statement which was dated July 13, 1989. This draft referred twice to the April 1975 agreement as a "goodwill agreement" and stated that Mr Sage "did not consider that we were entering into a legally binding arrangement." Mr Henshaw's questions arising from the Flint Note remained unanswered in the draft as before.

THE CONSULTATIONS ON 20TH and 24TH JULY 1989

On July 14 further instructions were prepared by Mrs Good for Mr Boyd and Mr Cordara to advise on evidence and a particular plea by Sphere Drake in their amended defence that breach of paragraph 4 of the Russell Record by Orion was breach of a condition precedent entitling Sphere Drake to rescind any obligation to meet further run-off liabilities even if there was such an obligation. Page 4 of these instructions drew the attention of counsel to the (seemingly) contemporaneous Flint Note and the understanding that the first line read Goodwill agreement and not a legal contract adding that this interpretation of the first line of the note, if correct, supports Orion's contention that the arrangement reached on 23rd April 1975 was not a binding legal agreement.

Thus these instructions not only flag a continuing uncertainty about what the Flint Note actually said but also show that Mrs Good considered that it was Orion's contention that the April 1975 agreement was not legally binding. Further, had Mr Sage made any material comment on the Flint Note by this stage I would have expected to see a reference to it in these instructions.

On July 19 Mr Henshaw and Mr Legg met Mr Rousell and Mr Heritage at Orion's offices in Folkestone. When asked about the Flint Note Mr Heritage said the reference to a goodwill agreement did not ring much of a bell with him. Mr Rousell could not recall any discussion about the matters which became paragraphs 3 and 4 of the Russell Record. That is a further demonstration of the willingness of Linklaters & Paines to record negative responses, and of their integrity in doing so.

A consultation was held with Mr Boyd and Mr Cordara on July 20. The conclusion was that Mr Cordara was to draft amended pleadings and a protective writ against Baloise. Linklaters & Paines were to obtain a shorthand report on the meaning of the Flint Note.

A further consultation with Mr Boyd and Mr Cordara took place on July 24. Mrs Good, Mr Henshaw and Mr McDonnell were present. It is recorded in the note of the consultation that shorthand writers had confirmed the wording of the Flint Note and that Mr Boyd expressed the view that the Flint Note was arguably evidence of an understanding that the arrangement was to be a goodwill agreement only. He proposed an amendment to the Points of Reply accordingly. Mrs Good said she saw that proposal as consistent with Mr Sage's current proof and the same must apply to the others present at the consultation.

Mrs Good prepared a Memorandum dated July 26 to serve as a brief for insurance experts whom it was proposed to instruct for the trial. This Memorandum also stated that Orion's case was that the April 1975 agreement was no more than a goodwill agreement but if it was legally binding it was subject to a reservation that in the event of extreme degree the parties would continue to be liable under the pooling agreements.

THE 27th JULY 1989 LETTERS

On July 27 Mrs Good wrote letters in similar terms to Mr Sage and Mr Rousell copying the letter to Mr Rousell to Mr Heritage. The letters included the following passages:

We will be serving our amended pleading (tomorrow) in response to the amended defence and counterclaim. I will let you have a copy of this in due course. The contents do not affect your evidence but rather reflect the evidence you have given us.

The main purpose of this letter is to assist you in preparing your draft statement.... I have been going back through the discovery documents to see whether there are any further documents which may assist in reminding you of events at the time. I enclose the following:

(1) The manuscript note seemingly prepared by Richard Flint during the meeting on 23rd April 1975. (You have, I believe, seen this before). It contains certain notes in shorthand. We are obtaining the opinion of a short-hand expert as to what these notes mean and we understand that the first line refers to L.S. having said,

"Goodwill agreement and not a legal agreement."

There are also various references to the "spirit" of the agreement. All of this is consistent with what you have told us about the intention of the meeting. It is vital to our case that we establish that what was agreed on 23rd April 1975 was a goodwill agreement only and not a legally binding full and final settlement. I trust this note may help to confirm what you have already told us.

The letter continued to refer to a number of other documents, and concluded by saying that Mrs Good looked forward to hearing from them when they would be ready to discuss their statements further.

Although Mr Sumption said Sphere Drake was not making any submissions on whether the letters were proper letters for a solicitor to write his submissions about them plainly amounted to a serious criticism of the author, Mrs Good.

The thrust of that criticism was that Mrs Good having failed to get Mr Sage or Mr Rousell to "endorse" the Flint Note was now putting them under insistent pressure to persuade them to do so and to adopt the new pleading, in particular by saying that the Flint Note and the amended pleadings were consistent with what they had already said and stating that it was "vital" to Orion's case to establish that the April 1975 agreement was not legally binding.

The underlying theses of this criticism were that(1) Mr Sage had in fact already told Linklaters & Paines at the April 19 meeting that the agreement was legally binding,

(2) that Mr Sage must have focused on the Flint Note before and yet it had made no impact on him, and

(3) that Mrs Good had "tried and tried " on July 11, only a fortnight earlier, to get Mr Sage to adopt the Flint Note but he had not done so but had done the opposite. I reject all of these theses. The first is derived from the notes of the April 19, 1989 meeting and I have considered and rejected it there. The second is in my judgment both accurate and inaccurate. It is accurate in that the Flint Note did not make any significant impact on Mr Sage when he first saw it. It is inaccurate if it is intended to suggest that Mr Sage had yet paid any great attention to it. The third I have also considered and rejected when addressing the July 11 meeting. Having seen and heard Mrs Good give evidence I accept unhesitatingly her evidence that had Mr Sage or Mr Rousell to her knowledge or belief said anything inconsistent with the contents of her letter she would not have written it in the terms she did. She, like Mr Legg, said her impression was that Mr Sage had not yet worked on the documents and the documents before me give me the same impression. She also said frankly that she regretted the use of the word "vital". Revealingly, her reaction to the suggestion that she would have sought to tell or to influence Mr Sage as to what he should say or that Mr Sage would be influenced by her or anything she said was one of genuine incredulity. Mr Sage, she said, would have been astonished to hear any such suggestion.

He was a fair minded person. He was well capable of taking his own view about things and expressing it. His view was that he had been trying to tell me that this was, in different words, not a legally binding agreement, a goodwill agreement, for a very long time, and it was my fault that I had failed to understand that.

That fits the picture I have of Mr Sage. It was also, I am sure, wholly truthful evidence.

The terms of the letters, in my judgment, are wholly supportive of Mrs Good's (and Mr Henshaw's) evidence that Mr Sage had indeed already said as much about the intention of the April 1975 meeting which was by then also stated in the current (July 13) draft of his witness statement.

As to the letter to Mr Rousell (and indirectly Mr Heritage) their current statements recorded that they had no recollection of what was recorded in the Flint Note but they were not inconsistent with it. In fact Mrs Good's letter had no effect on either of them as the effect of their statements remained unchanged.

THE AMENDED REPLY

Amended Points of Reply were sent by Linklaters & Paines to Denton Hall on July 28, 1989. Most of the amendments were directed to responding to Sphere Drake's case on the pre-1974/5 arrangements (which were the basis of Orion's claim assuming as it did that there had been no settlement). The material amendments to the pleading in relation to the April 1975 meeting (paragraph 5 and new paragraph 5A) were as follows (the amendments are shown underlined or deleted save that the whole of paragraph 5A was new):

5. It is admitted that the meeting referred to at paragraph 13 20 of the Amended Points of Defence occurred. Any such agreement as was reached at the meeting (as to which no admission is made) was a goodwill agreement only and not intended to be a legally binding agreement. Without prejudice to the foregoing denial, insofar as any legally binding agreement was reached as the said meeting (as to which no admission is made) it was agreed, inter alia as follows:

(a) That, subject to the general reservations set out at sub-para

(b) below, the figures set out in sub-paragraph 20(a) of the Amended Points of Defence were deemed to represent the final liabilities of the parties to the Pooling agreements; (b) in the event that the actual settlements falling due to be made in respect of the run-off under the Pooling agreements thereafter increased to an extreme degree the commitment of the parties to the Pooling agreements or any of them, any such agreement as was made at the said meeting or otherwise would be determined and, in such circumstances and/or in default of any subsequent agreement otherwise, the arrangements prevailing prior thereto, namely the Pooling agreements as referred to in the Points of Claim, would continue to apply to the rights and obligations of the parties.

5A Save insofar as hereinafter set out, the last two sentences of paragraph 20 of the Amended Defence are denied. A draft minute relating to the discussions of 23 April 1975 was drawn up by C. F. Russell acting on behalf of the Defendants. Some 5 to 7 weeks after the meeting, it was circulated and initialled. No admission is made as to the accuracy of the said minute. At no material time was it the intention of the parties that the said minute would constitute a written legally binding agreement. Alternatively, if and insofar as the effect of initialling and exchanging copies of the said minute was to constitute or evidence a written legally binding agreement (which is denied), the Defendants are estopped from alleging or relying upon the same. At the meeting of 23rd April 1975 it was expressly agreed and understood by all parties that the discussions which then occurred could only lead to a goodwill agreement which was not legally binding, and it was upon this basis that the minute thereof was initialled.

On August, 1 Mrs Good sent Mr Sage a copy of the Amended Points of Reply. Amongst other matters she pointed out that Orion was arguing at paragraph 5 that the April 1975 arrangement was a goodwill agreement only but if it were binding it was subject to the reservation as to reopening. She asked Mr Sage to telephone to arrange a meeting to discuss his statement. The target was to discuss near final statements with counsel on August, 11.

Sphere Drake opposed Orion's application to make the amendments to paragraph 5 and to add paragraph 5A. Sphere Drake was successful in its opposition at first instance but Orion successfully appealed to the Court of Appeal and in October 1989 was given leave by that Court.

THE 7TH AUGUST 1989 MEETING AND MR SAGE'S DRAFT STATEMENT

Mrs Good's letter to Mr Sage dated July 27 had referred to Mr Sage preparing his draft statement. His "time sheet" shows that Mr Sage did just that on July 31 and August 2, 5 and 6 spending some 18 hours in all on the exercise.

Mr Sage met Mrs Good and Mr Henshaw at the offices of Linklaters & Paines on August 7. He brought with him a hand-written document and a copy of the latest draft of his statement which he had annotated.

Much of the hand-written document addressed the background to the relationship of Orion and Howden. But the first page contained a response to Mrs Good's letter of July 27. The reference in that letter to the pleadings produced the comment Pleadings noted - we have discussed. Mrs Good could not remember what they had talked about. The reference to the Flint Note produced the comment:

Yes - it certainly supports Goodwill and not legal agreement. I have enlarged in my evidence. [Mr Comery's] comment - refers also to spirit of agreement. Q. Have you been able to "decipher" more?

I deduce two things from this comment. First that Mr Sage had not focused on the Flint Note before and second that he saw the Flint Note as consistent with and supporting what he had been saying about the April 1975 meeting and agreement, and not some new and startling revelation.

The annotations on the draft statement and suggested additions to it were very extensive and must have reflected many hours of work by Mr Sage. Mr Henshaw also annotated the same document at the meeting. Mr Sage had written answers to the questions about the Flint Note (set out at "The May 1989 Draft of Mr Sage's Statement" above). To the question whether it was consistent with his recollection that he had said words to the effect of goodwill agreement - not a legal contract he wrote Yes. To the next two questions he wrote that he was referring to the agreement as a whole and as to those present that they agreed .

Mr Sage also put forward an insertion which was, no doubt, the expansion of his statement to which he had referred in his hand-written document. As written by him (it was amended at the meeting by Mr Henshaw but not in respects which altered the substance of what Mr Sage had himself written and brought with him to the meeting) it read:

I recall clearly that I made the point that this, I referred to the agreement as a whole, was a goodwill agreement and could not be a legal contract. I could not override the earlier agreements ratified by the Orion Board except by their authority (this also I would suggest applied to all the parties). The reaction of other parties was one of agreement, viz. R. Comery's remark in ( the Flint Note ).

As Mr Henshaw said, this was the first occasion that Mr Sage had said to him, and so far as he was aware to anyone, that he (Mr Sage) had actually said at the April 1975 meeting that the discussions could not lead to a legally binding agreement. The evidence establishes that and Mr Grabiner accepts it. It was also the first occasion on which Mr Henshaw could recollect discussing the Flint Note with Mr Sage.

Mr Henshaw said that whilst what Mr Sage was saying "clearly went beyond" what he had said on April 19, 1989 in expressing a present recollection "prompted no doubt by the Flint Note" of things said at the April 1975 meeting, he ( Mr Henshaw) certainly did not remember thinking "there was anything different in terms of substance or consistency". Mrs Good's evidence was to the same effect. She did not remember being surprised by what Mr Sage had written. He regarded the Flint Note as being corroborative of what he had been trying to say for a long time. I accept this evidence. It also strongly suggests that while the lawyers (rightly in law) saw the use of express words such as recorded in the Flint Note as of the first importance, Mr Sage did not. Hence, as will become further apparent, the references to the Flint Note having a large impact on the lawyers but little impact on Mr Sage.

The revised draft of the statement was typed up on August 7. There is a typed up copy which is annotated by Mr Legg:

Did he remember this before or after he saw the Flint Note.

Mr Legg said he thought it was important to know the answer to this question which he left to Mr Henshaw to deal with. Another copy of the typed draft has a note by Mr Henshaw against the relevant paragraph which reads introductory remark clear before start.

A fair copy of this new draft was sent to Mr Cordara on August 10. Mr Legg, Mr Henshaw and Mr McDonnell attended a conference with Mr Cordara on August 14. Mr Henshaw's notes show that the draft of Mr Sage's statement was considered and questions to be put to him about it noted. They included the question whether the references to the April 1975 meeting were a matter of independent recollection. The same question which it had struck Mr Legg to raise. August 14 also happened to be the day when a statement by Mr Flint confirmed that his note recorded what is set out earlier in this judgment.

On August 22 and 24, Mr Henshaw met Mr Sage and went through the questions with him. The answer to the question about his recollection covered various meetings (including those in December 1974) and as noted by Mr Henshaw was:

Documents mainly. Remember 23/4/75 meeting not detail.

A trainee solicitor's note of the August 24 meeting includes a note that the reference to a goodwill agreement was an introductory remark and that spirit meant the spirit that there ought not to be any gain or loss.

It was put to Mr Henshaw in cross-examination that he must have asked Mr Sage at these meetings whether Mr Sage had an independent recollection of the words attributed to him in the Flint Note and Mr Henshaw agreed that he thought he would have done so. Asked what Mr Sage's answer was, Mr Henshaw said:

I do not remember the specific occasion, but his answer on this topic generally was "I have always told Diana (Good) that it was a goodwill agreement".

He added that that was an answer which he heard over and over again from Mr Sage.

Mr Henshaw also agreed that he would have explored with Mr Sage whether his evidence about what he had said at the April 23 meeting was recollection or reconstruction. Mr Henshaw said he could not remember the specific answer Mr Sage had given but the conclusion Mr Henshaw came to was that the Flint Note had prompted or refreshed his recollection: " it was a refreshed recollection. He was saying that having seen the Flint Note he now remembered not just the substance of the meeting but the actual comment he had made".

Again I have no hesitation in accepting and do accept Mr Henshaw's evidence on this. I would add that the suggestion that Mrs Good and Mr Legg had pressured Mr Sage into adopting the words attributed to him in the Flint Note (which in any event I reject) can hardly stand with these references to testing the quality and timing of his recollection once he had expressed it. In fact the documents are consistent and consistent only with an entirely proper and professional proofing process.

A further Draft (Draft 6) of Mr Sage's statement was typed up on August 27, to reflect the meetings with him on August 22 and 24. On one copy, against the words I recall clearly Mr Legg wrote how clearly. The 7th Draft dated August 30 deleted the words I recall clearly . Mr Henshaw could not remember why this happened. Although Mr Sumption sought to suggest it was of some significance that all three words were deleted and not just the word clearly , I do not think it was. I can well understand why the words were considered inappropriate after 14 years and the effect of their deletion was not (as Mr Sumption seemed to suggest but Mr Henshaw rightly denied) to put the resulting draft outside the realm of recollection but only outside the realm of clear recollection. Mr Legg said he thought it was a drafting point. So do I.

MR SAGE's WITNESS STATEMENT FOR THE FIRST ACTION

The final version of the statement was signed by Mr Sage on September 4, 1989 (the date on which statements were exchanged). Under the heading "Meeting on 23 April 1975" it included the following paragraphs:

Meeting on 23 April 1975

63. On 23 April 1975 I attended a fairly brief meeting (in the afternoon, I believe) at Orion's offices in King William Street, together with Mr Rousell and Mr Heritage. Mr Comery (who chaired the meeting) and Mr J. Crockett were there from Howden, Mr Baumli from Baloise, and Messrs Russell, Turner and Flint for Sphere and Drake. (Mr Grob was unfortunately unable to attend, as I believe he had more pressing matters to attend to).

64. At the meeting we discussed Mr Russell's memorandum of 22 April, and agreed the figures and a series of payments to be made on a deferred basis. We hoped and believed that the estimates of outstanding liabilities, on which the figures were based, would prove to be reasonably accurate. At the same time all parties recognised, as any person experienced in London market insurance would, that it was possible that actual liabilities might turn out to be seriously out of line with the estimates, and it was understood and agreed that, if this proved to be so, no single party should suffer. Consequently, it was decided that one party would not ask another party, pursuant to the Pooling agreements and subsequent arrangements, for further contributions to Pool business claims, unless the claims situation deteriorated to a material extent. In the event that the claims situation did so deteriorate, then the parties would continue to perform their obligations under the Pooling agreements, together with the other arrangements as they stood immediately prior to the meeting. (Similarly, if the figures seriously over-estimated the liabilities, refunds would be paid to Drake and Sphere.) In this way, it would be ensured that no party would be out of pocket: consistent with the essential general principle underlying all these arrangements, including the Pooling agreements themselves, and the Sphere termination arrangements.

65 I made the point at the outset that this (meaning the agreement as a whole) was a goodwill agreement and could not be a legal contract. (Indeed, I could not override the earlier agreements ratified by the Orion Board except with its authority and in the proper form. So far as I was aware, the other persons present were in the same position.) I believe this was clearly understood and agreed by the other parties. My comment appears to be reflected in notes made by Mr Flint of Sphere Drake, partly in shorthand, of which I have subsequently seen a copy. (The last sentence was included in the Statement as signed but deleted later for reasons which are not material).

66. Neither I nor any of the other Orion representatives at the meeting agreed to abrogate the Pooling agreements. Such action would have required formal approval by all the Boards concerned and subsequent legal documentation. (In my case, it would have been necessary for me to have sought and obtained the approval of Orion's Board, and the Nationale-Nederlanden representatives. If such approval had been sought and given, then solicitors would have been instructed to draft a suitable document.) The point was simply not discussed as it was not what the meeting was about. We did not accept, or give any indication of accepting, that the "settlement" was in any way a final, irrevocable termination of the parties' underlying obligations to share liabilities in the appropriate proportions. In the event that substantial new liabilities arose, the parties would be obliged to meet those liabilities: this would be the starting point, for all parties, of any discussions of the kind referred to in paragraph 3 of Mr Russell's note of the meeting.

The hearing of the First Action (limited to liability issues) was to commence on November 13. Linklaters & Paines arranged with Mr Sage for him to attend their offices on November 9 for what might perhaps be termed a trial run as a witness which included the use of a video. On November 8 Mr Cordara had prepared a document setting out the principal areas where he believed Mr Sage would face cross-examination which it would be useful for him to bear in mind in advance. Mr Henshaw added to this document

actual recollection of what said at 23/4/75 meeting and bindingness of the extreme degree resn.

Mr Henshaw was the person who had most responsibility for the preparation of Mr Sage's witness statement. He said it was his impression in working with Mr Sage on the statement and generally that Mr Sage was conscientiously trying to give as accurate and candid a picture as he could of the events which had occurred. Mr Henshaw said he believed he had tested Mr Sage's recollection fairly rigorously. He was well placed to form such a judgment about Mr Sage and what Mr Sage was saying.

MR SAGE's EVIDENCE IN THE FIRST ACTION

Mr Sage gave evidence in the First Action on November 16, 20 and 23, 1989. He was then 71 years old and the most relevant events had occurred 14 years earlier. Mr Henshaw was present in court throughout Mr Sage's evidence (except on the morning of November 20) when Mrs Good and Mr Legg (who was present for most of the trial) were in court.

Mr Sage confirmed his written statement. His cross-examination by Mr Mance lasted all day on Thursday November 16 when the day concluded with the commencement of questions about the April 1975 meeting. It is his evidence on the following Monday (which lasted until 3 p.m.) which is the subject of the allegation of perjury. Both parties have stressed the importance of my reading the whole of the transcript of the cross-examination, rather than selected passages, in order to get a feeling for its nature and the substance of what Mr Sage was saying. I have done so. The overall impression it makes on me is that many of the questions appear to have been lengthy, involving, as Mr Sumption put it, multiple options, and not always easy to follow and the consequent judicial interventions sometimes did not improve the flow of the exchanges or make for an easy understanding of precisely what was being asked or being said by Mr Sage.

Read in the context that the allegation of perjury against Mr Sage (however significant in the context of the dispute) is a closely and narrowly defined one this is of some relevance. The allegation is not that Mr Sage lied in saying that he believed that anything agreed at the April 1975 meeting was not legally binding, nor in saying that he had always believed that, but only in claiming that he had a recollection that he had said as much at the meeting held independently of the Flint Note. The attack is not on his memory or the length of his recollection of the effect of the meeting but only as to the length of his recollection of what he is recorded in the Flint Note as saying at it.

There are four passages in particular on which Sphere Drake relies. They are the passages (all in his evidence on November 20, Day 5) at T5 pages 17G-18A, 24A-E, 27E-28B and 31 B-C which are included in the references set out below. In an attempt to reflect some of the overall flavour of the cross-examination I have sought to add a little to those passages. They must also be read in the context that Mr Mance made it quite clear that he was not suggesting that Mr Sage was being untruthful in his evidence but only mistaken.

(1) The first attack on Mr Sage's evidence was to suggest that he had not used the words attributed to him in the first line of the Flint Note at all but that if he had, by saying at the meeting that it was a goodwill agreement and not a legal agreement he simply meant that no lawyers were to be involved in drafting the agreement, it was not going to be a formal signed contract drawn up by solicitors. Mr Sage would not have that (T5/12-13).

(2) The second attack was to suggest that what he had said was we are making a goodwill agreement not just a legal agreement. Mr Sage said There was no suggestion of " not just a legal agreement." It was quite clear in my mind that so far as Orion was concerned it was not - repeat not - a legal agreement. (T5/14A-B).

(3) The third attack was that the words used referred to what became paragraph 3 of the Russell Record and not to the whole agreement. The answer to that question and the ensuing exchange was:

A. No, because the statement I made - or whatever it may be called - the Orion position, if you like, was made right at the beginning of the meeting - just that. It applied, in my view and in my understanding and my intention, to the whole agreement.

Q. Is it on your case fundamental to everything that followed?

A. Is what fundamental?

Q. That statement. You say it was not dissented from - are you saying it is fundamental to understanding what happened on that day? A. The position was on that day that all parties had agreed on a course of action. The one outstanding point that had to be dealt with was the position that Orion could not - repeat not - have a situation where a big, large, huge claim arose without contribution from the others. To that extent the wording, I think, is clear - extreme degree - to that extent it was not a final agreement. Being an underwriter with a lot of experience and being surprised on many occasions, there is no way you can assume anything. What was eliminated were all the small claims which were covered by the normal provisions for an IBNR.

Q. Can we take up what you said there. Is what you are saying that to the extent that actual settlements increased to an extreme degree the commitment of any party, it was agreed and understood that the agreement was simply a matter of goodwill and was not to bind?

MR. JUSTICE HIRST : What you are putting to him is that the rest of the agreement was legal but that bit was not. Is that right?

MR. MANCE : Yes. (To the witness) Is that what you are saying?

A. No, I didn't say that.

MR. JUSTICE HIRST : He was saying the opposite, Mr. Mance.

(T5/14C-G).

When Mr Mance returned to the same point (at 29C) Mr Sage repeated that "the goodwill agreement applied to the whole contract" adding "to me, you cannot have any separation and it either applies or it does not". In effect, the "all or nothing point" as it would be seen by gentlemen.

(4) The fourth attack was to question how something of such importance to Mr Sage had not appeared in the Russell Record :

Q. How can it be that you allowed that record to go by without any reference to so important a point? A. I didn't think it was necessary.

Q. If you are right then this was a very fundamental point. (After a pause) What is the answer to the reason why you did not have it put in? A. The point was made at the meeting, full minutes of the meeting were not prepared. The essence of the outcome of that meeting which was circulated and I believe signed was, in my view, sufficient and adequate to cover the point which I was making, that is that Orion could not by itself take on a big one and Mr Sage considered paragraph 3 was adequate to deal with the problem. (T5/15F to 16A).

(5) The next attack was to question Mr Sage's recollection :

MR MANCE: I think you have given evidence that the meeting was uncontractual, that is simply because of what you say you said at the outset which you say was consented to - tacitly or otherwise - by others. Is that right? A. Yes, what I said was there was nothing said in answer to that particular point.

MR. JUSTICE HIRST: As I understand your evidence - and will you please tell me if I am wrong - both in your proof and in the witness box this morning your position is that all these documents had been floating round prior to the meeting, there had been the previous meeting in December and you started off by putting your and Orion's position on the table at the outset - goodwill only? A. Agreed, my Lord, that is precisely the position.

MR. MANCE: May I just put the kernel of my client's case to you on that, it is that that is an astonishing proposition for this reason, that everybody's aim was to come to a final agreement, no doubt in the relatively informal way in the insurance way, but to come to a final agreement? A. It was the wish of Orion also to terminate and to finish it all, but there was one thing that had to be taken care of, that is that if a big one came along - because all the minor ones were dealt with or should have been dealt with - if a big one came along it wasn't up to Orion to pay 100% of it, they had their line of 65% of it and they didn't want another 50% of that 65%. It had to be provided for and it was for this reason that I made that point at the beginning of the meeting. It was unlikely and it wasn't considered one in a hundred thousand but it had to be provided for.

Q. If that was the aim, may I put it to you again that it is not necessary to have a non-binding agreement to achieve that aim. The obvious way, and the way I put to you, that it was dealt with was to have a binding agreement but to consider whether and what provision might be made if, as you said, the big one came along, and that is what happened, is it not? A. No, it is not. It's quite clear what happened was that we all wished to terminate this agreement - it had been hanging around for the period I have just said - it seemed to have reached a stage where estimates were to be more relied upon and indeed I understand that they have held excluding certain matters.

Q. Has this always been your case, Mr Sage? Has it always been your recollection that there was specific agreement that the whole agreement was not to be legally binding, was not to be more than a matter of mere goodwill and not to be a legal agreement. Is that your recollection? A. Yes, and for one specific reason. We were terminating board approved arrangements and I had the choice of accepting an informal arrangement like this with mutual trust at that time, or to make it a fully binding agreement. Do remember the pressure at that time - we are looking at this in hindsight - the pressure at that time was to firm the figures up for 1974 balance sheets and have a full legal agreement taking care of all the possibilities that could happen, it wasn't one that I felt in those circumstances should be done. That is why it is mentioned in the manner it has been.

(T5/17A to 18A).

(6) Cross-examination on documents and events such as the 1984 lunch and exchanges of correspondence in the 1980's met some judicial objection and led to the following exchanges :

MR. JUSTICE HIRST: Has it ever been your standpoint from start to finish that what was "agreed" in 1974/5 was a legally binding agreement? A. I don't agree that it was, no.

Q Have you ever thought that? A. No.

MR MANCE: Could I - again, his Lordship will indicate to me if as it may be, this is not a helpful line of cross-examination - but I would just like to show you the way in which the matter was expressed by Orion's solicitors and ask you whether that causes you to have any doubt about your statement ---

MR. JUSTICE HIRST: Put the question and then we will decide whether I think it is all right.

Mr. MANCE: --- that it is your recollection throughout --- May I look at 6A 154. Perhaps one ought to have 155 -- no, that is not, I am afraid, a helpful reference. This is a letter from Linklaters and Paines to the instructing solicitors for Sphere Drake, Mr. Sage, and they write:

"We are writing with a view to identifying the outstanding issues in dispute....

"Essentially, it is our clients' contention that Clause 3 of the Minutes of the meeting on 23rd April 1975 made provision whereby, if actual settlements in respect of the run-off under the Pooling agreements increased to an extreme degree the commitment of any of the parties thereto and any agreement made at the meeting (which is not admitted), would be determined ..."

- it must be "then any agreement made at the meeting (which is not admitted) would be determined ..."

"... and the arrangements prevailing prior thereto would continue to apply".

And without asking you to interpret that, Mr. Sage, it is your recollection, is it, that throughout you have always thought and understood and remembered that any agreement made on 23rd April 1975 was expressly agreed not to be a legally binding agreement?

A. Yes.

Q Well, I put it to you that that is not the thought process throughout, Mr Sage, and that in fact what has given rise to the recollection to that effect is a much more recent matter and that is the discovery of the significance of Mr. Flint's note ...

MR. JUSTICE HIRST: That is near a suggestion of doctoring his evidence - is that intended?

MR. MANCE: No, my Lord, certainly not. What it is intended to suggest is that once one reviews the matter and puts in that factor it is easy in utmost good faith, Mr. Sage, to convince oneself that not only was that said but also that it had a certain meaning which, in fact, at the time, if one had been present, it did not bear. I am not for the moment suggesting that you are not giving your evidence in perfect good faith, what I am suggesting is that you have convinced yourself, albeit in fact, wrongly, that certain words in a memorandum of Mr Flint's had a certain meaning and were to a certain effect. A. I am not sure of the question or

MR. JUSTICE HIRST : I think you had better show him the memorandum.

(T5/23D to 24D).

(7) The questions contrasting recollection and reconstruction were developed further in the next passage on which Sphere Drake relies :

MR. JUSTICE HIRST : Leave aside the word "contract versus agreement", do you understand that? Does this [ the first line of the Flint Note] accord or disaccord with your recollection of what you said at the start of that meeting? A. It is, my Lord.

Q. It accords with your recollection? A. It does, my Lord, yes.

MR. MANCE: Now, when was the first time you saw - well, the note - and have interpreted to you its significance? When was the first time you saw the note? A. I can't recall when I saw the note. I know I have seen it.

Q. Was it recently or a long time ago? A. Probably three to four months ago, but I cannot be specific and, indeed, it is by deduction and not by remembrance. But I have seen the note.

Q. And at about the same time or at the same time you were given a transcription, were you, of the wording? A. That came later, yes.

Q. And on 25th August the point was raised with us - and I am suggesting to you that this has been in point of fact very influential in your reconstruction of what you think now happened on 23rd April and in particular if one takes paragraph 65 [of Mr Sage's witness statement] I suggest to you that the first sentence of that paragraph is really due in its entirety to the Flint Note, is it not? A. No, it is not. I remember at that meeting stating that it was a goodwill agreement but as to legal contract of agreement to me they don't vary.

MR. JUSTICE HIRST: What I think is being suggested to you is not that you made this up but that you never thought about it or remembered it as a goodwill agreement until you suddenly saw this document in August when you said "Hey presto, of course that is what I said after all", is that correct? A. No, not in its entirety, my Lord, in the sense that I had it in mind - in my mind - and this did, perhaps, confirm - only confirm - my recollection was correct.

MR. MANCE: The way in which the first sentence is formulated "I made the point at the outset that this [meaning the agreement as a whole] was a goodwill agreement

MR. JUSTICE HIRST: You are now referring to his proof?

MR. MANCE: The proof.

MR. JUSTICE HIRST: Is it paragraph 65?

MR. MANCE: Yes, my Lord. "... was a goodwill agreement and could not be a legal contract". Firstly, it appears - the relevant sentence of the Flint Note - "at the outset", secondly it says "goodwill agreement" and then thirdly it says "and not a legal contract" and that order of events is represented precisely in the first sentence of paragraph 65 of your proof, and I suggest to you that can only be because you are relying heavily on Mr. Flint's note, is that correct? A. No, it is not correct. I remember the circumstances of that meeting and what was said. Both notes confirmed my thoughts on the matter - my remembrance of the matter - it was not in itself more than that.

(T5/27B to 28B)

(8) The final passage on which Sphere Drake specifically relies is an exchange with Hirst J. :

MR. JUSTICE HIRST : I would like just to ask him a question.

MR. MANCE : Yes, my Lord.

MR. JUSTICE HIRST : It has been put to you a great many times, possible alternative theories, and it is also challenged that you ever said this at all, this first remark on this piece of paper. A. Yes

Q. Are you saying quite categorically that your clear recollection is that you did open off with that remark? A. It is quite clear in my mind, my Lord.

Q. Thank you.

MR. MANCE: May I just go back to paragraph 65 in your statement, Mr Sage, and I will leave your notes. You said in the second sentence :

" .... (Indeed, I could not override the earlier agreements ratified by the Orion Board except with its authority and in the proper form. So far as I was aware, the other persons present were in the same position). I believe this was clearly understood and agreed by the other parties".

Now, Mr Sage, did you ever make, in either the meeting of the 6th December or the meeting of the 13th December or the meeting of the 23rd April, any caveat about your authority or any reference to any need for approval from anyone else? A. I cannot recall having made a caveat but it could have been made.

Q. May I suggest to you that as General Manager of one of London's reputable and well established insurance market Companies that is not a reservation which you would have made in the circumstances? If there was a question of making a binding agreement you would have been able to make it, would you not?

A. I think it is a question of discipline and in Orion I had the discipline that if there was a document involving matters of principle or, from Orion's Board, approved documents, it was essential that in the event of it being altered in legal form that I had,(a) to report it to the Board and,

(b) to have their authority. This would have been done possibly prior to such an action but it was a discipline to which I worked and I think it was wise to make sure that everybody was aware of where they stood.

(T5/31A - G).

(9) Mr Sage also said that he would have regarded it as necessary to bring the lawyers in if it was going to be a binding agreement. (T5 page 35C-D).

Mr Sage was recalled on Thursday November 23, Day 8 of the trial. This was to enable Mr Mance to ask him some questions about the August, 1984 lunch. Mr Sage's response to those questions was that he did not remember anything about the lunch. The questions continued :

MR. MANCE : I will conclude very soon. (To the witness) :Mr Sage, you have given evidence that your state of mind has been consistent throughout but what I suggest to you is that at this time your state of mind was that there had been a cut-off and what you were doing was explaining the source of your authority to make the cut-off which went back to the original decision of the Orion board, which I can refer you to, if you like, on 1st February 1967, to authorise and ratify the heads of agreement and cut-off. A. My Lord, I do know enough about myself to know that that would not be in my mind. If I said what I did, I can say with certainty that what I would have said is "You had better go and read all about it in the board minutes in 1966/7".

I can't recall the meeting but that is what I know I would have said because I do know myself.

Q. And the one thing you did not say was that there had been no final or binding cut-off at all? A. Well, there wasn't. As I have said to this court, it was a

Q. No, I am not suggesting You are saying there was not, now. Could you just focus on the question. I am saying the one thing you clearly did not say at that time and did not think at that time was that there had been no final cut-off at all.

A. I would have said that there had been an arrangement, basically administrative, to avoid all this coming and going, with an amount - if I had said anything, this is my mind - with an amount which represented the considered opinion acceptable to parties, as representing the future claims to be expected on figures at 31st December 1974, and saying it was a goodwill agreement - and I have said this time and time again, particularly to instructing solicitors - and that it wasn't legally binding. It could not be legally binding. I have had sufficient experience as an underwriter to know the unexpected happens. Where it is going to come from you don't know, but you provide for it. You still had policies, as is evidenced by what has happened, which were still running with liabilities. That is why it occurred in this manner.

Q. If it is the case - if it is the case - that no one on Orion's behalf ever suggested in 1984 or subsequently until the summer of 1989 that any arrangement finalised in April 1975 was expressly agreed not to be legally binding, do you know of any explanation for that? A. Sorry, I have explained why.

MR. JUSTICE HIRST: He can only explain his own position. He was not there.

THE WITNESS : I left Orion

MR. JUSTICE HIRST: Stop, please, Mr Sage. (To Mr Mance) : He can only explain his own position. You are asking him again to comment.

MR. MANCE : Can I ask you - do you see this note - this is the last point on 2102 - at the foot of the page, it is very difficult to read but "Mr Wright informs that minutes show discussion did take place but not on dissolution of Pool. Not helpful on our case. Suggests that an approach be made to Linklaters (R. Harris) for an initial view of the position with Mr Sage to accompany. WHR to arrange." And that was presumably arranged? A. I don't recall it. As I said in my main evidence it is quite possible it did.

Q. And quite probably fairly shortly after that. A. I am sorry, I cannot recall it.

Q. Thank you very much.

MR. MANCE: Thank you, my Lord.

MR. JUSTICE HIRST: Thank you very much, Mr. Sage. You are now released once and for all.

(The Witness withdrew)

MR. JUSTICE HIRST: Mr Baumli, could you very kindly come back in the witness box. I am very sorry your evidence was interrupted.

MR FRANZ BAUMLI, Recalled

Cross-examined by Mr BOYD (Page 28)

MR BOYD: If it is going to be said as a result of that line of questioning that it has been put to Mr Sage that his evidence is a fabrication

MR. JUSTICE HIRST: I do not think that has been suggested or is suggested, is it, Mr Mance?

MR. MANCE: Your Lordship knows that I would put my case.

MR. JUSTICE HIRST: Thank you very much indeed. As I understand it your case is that when he saw the Flint Note then that convinced him honestly that something had been said which was not said.

MR. MANCE: Your Lordship is absolutely right. (Pause) Well, something was said that does not bear the meaning which he puts on it.

(T8/26E to 28B).

OTHER EVIDENCE ABOUT THE APRIL 1975 MEETING

Of those who attended the April 1975 meeting apart from Mr Sage evidence was given by Mr Baumli, Mr Russell, Mr Flint and Mr Heritage. Mr Baumli's evidence was that he could not remember whether Mr Sage had said the words recorded in the Flint Note, but if he had he would immediately have taken a stand against it. Mr Russell's evidence was that he could not say Mr Sage had not said those words, he did not remember him doing so and if he had said it with sufficient emphasis he would have included it in his record of the meeting. Mr Flint had no independent recollection of the meeting, he was a compulsive notetaker and had written his note during the course of the meeting. Mr Heritage also had almost no memory of the meeting except for the final remarks as the meeting broke up by Mr Sage and Mr Comery that we don't want to hurt each other. Orion did not call Mr Roussel to give evidence.

Mr Grob

On November 20, Mr Boyd and Mr Cordara had discussed with Mr Fordyce, Mrs Atkins, Mr Legg and Mr Henshaw whether or not Mr Grob should be called to give evidence for Orion. Mr Grob had been Chairman of Howdens in the l970’s and had made encouraging remarks to Mrs Good in the course of a telephone conversation in the middle of July l989 about it being unthinkable that Orion should go on paying for the run off on its own. Mr Henshaw told the meeting, however, that Mr Grob was saying that not legally binding meant that he would not stick to the letter of the agreement and the parties could and almost invariably did agree to alter it. Mr Henshaw described that as a trap and Mr Boyd said it was a terrible trap and could undo two day’s work a reference, no doubt, to Mr Sage’s evidence. Mr Grob was not called to give evidence.

COMMENT ON MR SAGE's EVIDENCE

As I have already indicated, I do not find it easy to be sure exactly what Mr Sage was saying (or understood he was saying) in his evidence about his recollection of the April 1975 meeting and the relationship of that recollection to the Flint Note. Sphere Drake submits (as it must to found its case of perjury) that he was claiming always to have had a recollection independent of the Flint Note of using the words attributed to him in the first line of the Note. The other possibilities are that he was claiming only always to have had a recollection that the substance of the meeting gave rise to a goodwill agreement and to have a present or refreshed recollection derived from the Flint Note of using the words the Note attributed to him.

As Mr Boyd put it, he had read Mr Sage's evidence more times than he cared to number and he had never been able to be sure in his own mind exactly what Mr Sage was saying, but he did not doubt that his evidence was given truthfully and was at no point prompted to question his honesty. Mr Boyd said in his Witness Statement, and I accept, that whilst he could not say how much of what Mr Sage remembered after seeing the Flint Note was in truth reconstruction or revived memory of half-forgotten events Mr Boyd had at the time and when he gave evidence at this trial no doubt that Mr Sage's account to Hirst J of the part the Flint Note had played in his evidence was honest. Possibly it was mistaken : I do not know.

Mr Henshaw said that it did not strike him that Mr Sage was giving evidence to the effect that he had always recalled an express agreement or understanding at the outset of the April 1975 meeting that it was a goodwill agreement and not a legal contract because it would have given Mr Henshaw "a jolt" if Mr Sage had given such evidence because Mr Henshaw did not believe that Mr Sage had always recalled that. Mr Henshaw considered that the thrust of what Mr Sage was saying (and had said before) was that he had always recalled and told people that it was a goodwill and not a legally binding agreement and that that was the basis on which the meeting had proceeded, and that at the time he was giving evidence he had a recollection of the words he had used to achieve that which had been prompted by the Flint Note. Mr Henshaw also said he was convinced that Mr Sage gave his evidence truthfully and conscientiously.

Mr Sumption, whilst accepting that Mr Henshaw's expressed understanding of Mr Sage's evidence was genuine at the time he gave evidence, described it as "classic reconstruction" and "neither probable nor consistent with the documents." I, however accept Mr Henshaw's evidence as both truthful and reliable when he gave it and as an account of his belief when he heard Mr Sage give evidence and read the transcripts of it. The submission that Mr Henshaw honestly misled himself between the First Action and these proceedings as to his understanding of what Mr Sage was saying in his evidence was an analytical attempt to bridge the gap between Mr Henshaw's obvious truthfulness when he gave his evidence and the inconsistency of that evidence with Sphere Drake's case. It failed. The gap was not bridgeable.

Mrs Good said in her statement:

I had no reason to suppose that Sage would lie or was lying and nothing which he said caused me to question the truthfulness of his evidence at the time. I recall thinking that Mr Sage had answered the questions fairly and acquitted himself well .... I have now read the transcripts of Sage's evidence ... there is nothing in my reading of the transcripts which causes me to doubt Sage's honesty.

Mrs Good was cross-examined at some length about that evidence. She said she remembered Mr Sage giving the "in my mind" answer to Hirst J (T5/27B to 28B and 31) which she thought "a very careful answer" and added

What I thought he was being asked about was the nature of the agreement and whether or not he remembered that, and the extent to which that had been affected by the Flint Note, and in any event what he is saying is that the Flint Note confirmed - only confirmed - that his recollection was correct .... As to his recollection ... of the words that were actually used that seems to have been prompted by the Flint Note.

Mrs Good could not say whether the Flint Note had brought forth something which he had in the back of his mind before "or something that happened inside his own head". She did not think Mr Sage had said that he had always remembered using the words attributed to him in the Flint Note at the outset of the meeting but only that he did remember doing so when he gave his evidence.

Again, I have no hesitation in accepting Mrs Good's evidence.

Mr Cordara also said that at no point during his involvement in the case did he harbour any doubt regarding the honesty of Mr Sage. Mr Cordara, of course, (unlike Mr Boyd) had been instructed throughout, had been party to the drafting of Mr Sage's 1986 Affidavit and 1989 statement and was present throughout the hearing before Hirst J. Again, I accept this evidence without hesitation; indeed it was not challenged and no allegations of any sort are made about Mr Cordara's conduct.

Mrs Atkins, who also heard Mr Sage give his evidence, said she recalled the "in my mind" answer which she said had stayed with her because it struck me as very thoughtful and, in my view, an honest expression of the way in which one might remember events of nearly fifteen years before. She said she had no concern that Mr Sage had gone beyond the truth and no one else expressed such a concern to her knowledge. This evidence also was not challenged; it was plainly truthful. Mr McDonnell also attended the whole trial. He, too, believed Mr Sage gave honest evidence and could recall no one saying or suggesting any doubts to the contrary. Mr Legg's evidence was to the same effect. So too was the evidence of Mr Fordyce, who also attended the trial.

Whilst I think some of the passages in Mr Sage's evidence are open to the interpretation which Sphere Drake seeks to put on them, the very fact that Mr Boyd, Mrs Good and Mr Henshaw, all experienced in litigation, could, as I am sure they did, honestly express these views about what he had said coupled with the importance of the precise allegation made against him, at the least raises real doubts and is a most unpromising basis for an allegation of perjury.

MR BOYD’S CLOSING SUBMISSIONS FOR ORION

The evidence at the trial concluded on Thursday November 23 and closing speeches began on Monday November 27. In the event Mr Mance’s submissions lasted until shortly before the court adjourned on November 29.

On Friday November 24 Mr Cordara provided Messrs Legg, Henshaw and McDonnell with his digest of witnesses . It was a very lengthy document. It stressed the importance of Mr Sage’s answer to Hirst J. at T5/31 it is quite clear in my mind . Mr Sage himself spoke to Mr Henshaw on November 24 to make some points of which Mr Henshaw made a note, and which included the point :

goodwill agreement , told [Mrs Good] right from the word go .

That, to my mind, is of some considerable importance. I cannot think that Mr Sage would have made such a remark to Mr Henshaw unless he believed it to be true. There would be no point. Mrs Good was present in court when Mr Sage gave evidence on November 20. She came over from Brussels as a matter of good client relations. She said (paragraph 29 of her statement) that when she heard Mr Sage give evidence and in particular the in my mind answer she remembered thinking that he

Should just go ahead and blame me for not having understood him and accepted what he had said earlier if he wanted to but I realised he was too much of a gentleman to say that. His reference to “in my mind” signified to me that Sage was saying that he had always thought that the l975 arrangement was a goodwill agreement .

Mr Sumption, whilst not challenging and indeed expressly accepting Mrs Good’s belief that Mr Sage had been saying this earlier and that she had failed to grasp it, characterised it as in fact wholly unsustainable and utter nonsense . She had convinced herself of something which was not true, the documents demonstrated it was not true, and Mr Sage was a man who was perfectly capable of making himself clear. I reject this. I accept that Mrs Good felt this at the time, as she did on seeing the Flint Note, and that her recollection of doing so as given in evidence to this court is accurate and indeed supported by the documents including this note of Mr Henshaw. Mr Sumption rightly balked at attacking her evidence as untruthful, the suggestion that it was mistaken let alone utter nonsense is no more compelling. The significance of the evidence is that it shows that both Mr Good and Mr Sage believed it to be true, and of course Mr Henshaw had every reason to believe the same also.

On Monday 27 November Mr Henshaw provided a note for counsel after he had read the transcripts of the evidence over the weekend. The note included the following paragraph:

Sphere Drake appear to intend to argue that Sage did not recollect the goodwill agreement point until the Flint Note was discovered: See 8/28. It would be possible for Diana Good to give firm evidence to the contrary. On the other hand(a) this could open a Pandora’s box as to why the point was not explicitly pleaded earlier, and

(b) Sage seems to have given a very firm rebuttal already, so that on balance it would probably be better not to try to re-open this matter (even if it were possible): do you agree?

The reference to 8/28 was a reference to that part of the transcript of Mr Sage’s evidence which is the last part of the last extract I have set out above beginning with the recall of Mr Baumli.

Mr Henshaw said in evidence that the reference to what Mrs Good could say was a reference to her belief that Mr Sage had always said it was a goodwill agreement not that he had always remembered the words he had used at the April 23, meeting. Mr Henshaw said he was concerned that there had been a very strong challenge to the effect that Mr Sage had never thought of it as being not legally binding until the discovery of the Flint Note and he believed that was wrong and could be refuted by Mrs Good. I accept that evidence. I see nothing in the reference to 8/28 to contradict it as Mr Sumption submitted. Mr Henshaw was entirely straightforward in saying that Mr Sage had not said he had expressly raised the matter at the meeting before he did so on August 7 l989. So too was Mrs Good. Mr Henshaw could not have meant to suggest that Mrs Good could say that. There is also every reason to give credence to this note, written to counsel as it was, as an accurate expression of Mr Henshaw’s understanding at the time. It is further compelling evidence that Mrs Good (and so also Mr Henshaw) did believe that Mr Sage had recollected the goodwill agreement point prior to discovery of the Flint Note.

In the course of his closing submissions on November 30 Mr Boyd came to address the point made by Mr Mance, in the context of Mr Sage’s reliability, that if Mr Sage had recollected that the April l975 agreement was only a goodwill agreement the point would have been pleaded from the outset and appeared in the correspondence.

At T12/17-18 Mr Boyd submitted, first, that there might be any number of reasons why evidence was not reflected in a pleading and said he had listed some of them:

failure of communication; faulty or cautious pleading; unwillingness to plead a case based on oral evidence which is uncorroborated by documentary evidence, particularly if the witness’ credit is relevant to other issues in the case; misunderstanding of the evidence or a failure to take it seriously without corroboration....Tactical considerations and so on.

Counsel trying to meet such a pleading point is in an invidious position. He must not mislead the court by inviting the court to consider possible explanations which he knows to be wrong. He cannot tender evidence as to what actually happened without a wholesale waiver of privilege....

I hope that I have explained the matter carefully to your Lordship as a problem which is a general problem, and I am not in any way trying to give your Lordship a hint as to what the true explanation is. I say nothing as to what actually happened before or after I was instructed in the matter.

Having dealt with the correspondence prior to the claim being pleaded, Mr Boyd returned to the point again at T12/27-28, and repeated that he was not asking Hirst J to infer anything about what had actually happened but simply asking the Court not to treat the late pleading point as something which reflected upon Mr Sage’s reliability. However, a few exchanges later (T12/29) Mr Boyd took up the reference in Mr Sage’s evidence, when he was recalled on Day 8, to his having said time and time again, particularly to instructing solicitors , that it was not a legally binding agreement. Mr Boyd did submit that Hirst J. should not infer from the fact that it was not pleaded that this evidence of Mr Sage was not true. That led Mr Mance to say that in all probability he would make an application for disclosure of what was said to Linklaters & Paines. The matter was, however, resolved on Day 13 (T13/38) by an agreement that Orion would not rely for any purpose on Mr Sage’s statement that he had said something at any time to Linklaters & Paines and Sphere Drake would not pursue any application for discovery based on waiver of privilege.

The consequence of course is that this passage in Mr Sage's evidence cannot have been in any way material to the decision of Hirst J or the Court of Appeal.

THE CONDUCT OF THE FIRST ACTION BEFORE HIRST J.

In the course of his closing address, Mr Sumption very significantly resiled from Sphere Drake's case as pleaded and opened in relation to the conduct of Orion's lawyers at the trial. The pleaded case alleged that both Mrs Good and Mr Henshaw, whilst not intending to mislead Hirst J., in fact did so by permitting submissions to be made by Mr Boyd by way of explanation for the failure to plead the non-binding nature of the April 1975 agreement which were inconsistent with the facts as they knew them to be. It was alleged that each of them knew not only that Mr Sage's evidence was wrong but also that it was dishonest in saying that he had a long-held recollection of using at the outset of the April 1975 meeting the words attributed to him by the Flint Note independent of the Flint Note itself.

Perhaps ironically, in the light of Mr Henshaw's evidence and my findings about it, Sphere Drake made no criticism of Mr Boyd's conduct of the hearing on the basis that he was entitled to accept and act upon Mr Henshaw's instructions about the evidence which Mrs Good could give and thus to make the submission that Mr Sage had recollected "the goodwill agreement point" prior to the discovery of the Flint Note and to offer explanations for Orion's failure to take the point earlier because he did not appreciate they were wrong. I should, however, make it clear that even if there had been a criticism of Mr Boyd I would have rejected it as the passages which I have quoted from his closing submissions are in my judgment unambiguous: Mr Boyd was expressly not hinting at any true explanation for Orion's failure and very conscious of avoiding the consequence if he did of a waiver of privilege. Mr Cordara said he regarded Mr Boyd's approach to that issue as impeccable. I agree.

In his closing speech Mr Sumption withdrew all Sphere Drake's allegations against Mrs Good in relation to the hearing before Hirst J., because, he said, she had only made a flying visit to the trial and had progressively withdrawn from handling the case in the course of August 1989. In answer to me, Mr Sumption also accepted that Mrs Good (and Mr Henshaw) were telling the truth when each said they believed that Mr Sage was not lying when he gave his evidence to Hirst J. In my judgment the reality is that the whole basis for any criticism of Mrs Good collapsed in the course of the hearing.

As for Mr Henshaw, and despite accepting "entirely" that he did not realise Mr Sage was lying, Mr Sumption submitted that Mr Henshaw had the material from which he should have drawn that conclusion, that Mr Henshaw did realise Mr Sage's evidence was wrong, and that was itself sufficient in law to attribute to Orion the perjury of Mr Sage.

I reject totally the factual basis for this submission. Mr Henshaw did not think or believe that Mr Sage's evidence was "wrong" (let alone perjured) nor did he think or believe that anything Mr Boyd submitted to Hirst J was inconsistent with the facts or in any way liable to mislead the court. Nor, in my judgment, did he have any reason to think or believe otherwise.

THE JUDGMENT OF HIRST J.

The hearing concluded on 1 December 1989. Judgment was reserved. It was delivered on 20 December. It is reported in [1990] 1 Ll Rep 465.

It is quite apparent from the preface to the judgment (page 466) that Hirst J saw the main issue for the court to be whether the meeting in April 1975 and the Russell Record gave rise to a final and binding settlement or whether it was agreed at the meeting that the agreement should be a goodwill agreement only and not legally binding, and that in consequence the pool agreements still stand. Hirst J, (page 468), described the meeting on 23 April 1975 as the crucial meeting which gives rise to the main issues which require to be resolved.

The judge referred to the contention of Sphere Drake ( central to their case on the meeting)

that [Orion's] conduct and attitude up to, in between, and after the two meetings was inconsistent with their present case which (Sphere Drake submit) only emerged as an afterthought in the summer of 1989 when the significance of the Flint Note first became apparent.

Having set out his summary of the documentary evidence, the oral evidence, and the law, Hirst J’s conclusions begin at page 494 of the report. With the respectful and necessary caveat that it is the words of Hirst J and not my attempt to summarise them which matter nonetheless to make sense of this judgment I must seek to condense what I think are the material matters in my own words save where the judgment itself can be readily quoted. References are to the pages of the report.

(1) Hirst J had an excellent opportunity to evaluate the reliability of the witnesses. The three main witnesses were Mr Sage, Mr Baumli and Mr Russell. All three were in their seventies but their intellectual powers were not in any way diminished. In no case was there any suggestion of lack of sincerity let alone any desire to mislead the court . (Page 495)

(2) The main focus of the evidence was on events which took place nearly 15 years ago.

The combination of age and lapse of time made it inevitable that in the case of each witness there would be areas of the case where his memory was either seriously dimmed or non-existent, and where, to a greater or lesser extent, there was a natural and understandable tendency to reconstruct his recollection by reference to the documents most of which he had not seen for upwards of 15 years or more prior to the preparation of his statement. This makes the documentary evidence especially important. (Page 495).

(3) The documentation between 1966 and 1974 seemed to show that the parties hoped to achieve a final conclusive settlement but not at the cost of infringing the no loss no gain principle, and it was recognised on all sides that there were important areas where it was difficult or impossible to assess the run off. (Page 495).

(4) the exchanges in November/December 1974 prior to the 13 December meeting did not point in favour of a final settlement except in relation to Baloise. (Page 496).

(5) The record of the December 13 meeting contained nothing which pointed decisively in either direction (final or non-final) (Page 496).

(6) The April 22 1975 Memorandum, in raising the questions of failure of reinsurance security and extreme new liabilities showed (as Mr Boyd had submitted) that Mr Russell and Mr Rousell were beginning to have cold feet, and contained some significant pointers against finality (Page 497).

(7) The Flint Note and Mr Russell’s annotations on The April 22 Memorandum were to be interpreted (as Mr Boyd had submitted) as showing that Mr Sage

when confronted with the problem of failure of security and the impact of extreme new liabilities, indicated that the agreement as a whole was to be a goodwill agreement and not a legal contract as the only practical solution to the problem. (Page 497)

Hirst J said (Page 498) that he attached very great importance to the Flint Note. He rejected Mr Mance’s submissions about it that the opening remarks could refer to paragraph 3 only, or meant only that there was no need for the lawyers formally to draw up an agreement or that it was a goodwill agreement in addition to a legal agreement (page 497).

(8) the Russell Record did not have the status of a written agreement (as Mr Mance had submitted) but was no more than a record of the meeting which, by signing it, the parties had acknowledged to be accurate as such.

(9) That the terms of paragraph 2 of the Russell Record taken as a whole were not a pointer towards finality.

(10) That, on the assumption that the agreement as a whole was legally binding paragraph 3 was not promissory and would not have been enforceable because it was expressed only as an agreement to discuss or agree (Page 499).

(11) But the question remained whether the terms of paragraph 3 threw any light on the parties intentions as to the status of the agreement as a whole and (for the reasons stated on page 500 of the report), Hirst J considered it improbable that the parties would have included paragraph 3 in its present form if the agreement as a whole was intended to be legally binding. Those reasons were that:

there would be little point in agreeing a non-binding let out to cover extreme liabilities which would be just the sort of situation where parties would be unlikely to re-open the settlement and indeed the more extreme the liabilities the less likely they would be to do so; and that

paragraph 3 made sense if the agreement as a whole was not intended to be binding because it would be on the footing that the parties would stick to the gentleman’s agreement in all foreseeable circumstances but would be free to re-open it if unforeseen and extreme distortion were to occur.

(12) Hirst J ‘s conclusions on the oral evidence begin on page 501 of the judgment. Obviously, in the present context, it is his conclusions about Mr Sage’s evidence and its importance to the issues (pages 501 to 503) which is of concern and which it is therefore necessary to set out at some length:

(A) Mr Sage affirmed clearly that his testimony concerning his crucial statement at the outset of the April 1975 meeting was based on his recollection, confirmed by the Flint Note when he first saw it in the summer of 1989 (T5 page 27F).

(B) The crux of Mr Mance’s attack upon Mr Sage is that his evidence was an afterthought; that Mr Sage did not and cannot have had any independent recollection whatsoever, and that he embraced the Flint Note when it first came into his hands.....

(C) Had Mr Sage’s evidence been based entirely on a belated adoption of the Flint Note, it is most improbable that ... he would not have adopted it in its entirety... whereas he did not, despite Hirst J’s view that the ensuing remarks attributed to Mr Sage, Mr Comery and Mr Baumli were all extremely favourable to his case.

(D) Although the omission in the pleadings and Linklaters’ correspondence is undoubtedly capable of constituting a serious reflection on Mr Sage’s evidence as Mr Mance so powerfully urges, there are a number of other possible explanations which cannot be explored without infringing legal professional privilege. Mr Sage was in no way responsible either for the drafting of the pleadings or for the solicitors’ correspondence. In all the circumstances I do not think it would be right to draw any adverse inferences against him on this count .(Page 502)

(E) He found Mr Sage’s explanation as to why the Russell Record had not been corrected satisfactory . The explanation was (T5 pages 15 to 16) that the essence of the meeting was that Orion could not by itself take on a big claim and that was covered by paragraph 3. (Page 502)

(F) Mr Mance had developed his attack on Mr Sage’s reliability with a number of detailed criticisms which Hirst J summarised in view of [Mr Sage’s] importance as a witness but concluded that none of them seemed to him to have any substance whatsoever. (Page 502)

(G) All in all Hirst J found Mr Sage a most impressive witness, who answered the questions put to him clearly and candidly, and with no disposition to avoid concessions even though adverse to [Orion's] case.... (Pages 502-3)

(H) There was nothing improbable in Mr Sage, an experienced and competent underwriter, having insisted on protecting Orion by stipulating that the agreement was to be goodwill only and not legally binding when the dangers of a big one had been explicitly drawn to his attention in the April 22, 1975 Memorandum. Moreover and most significantly his evidence as to his opening remark is corroborated by the Flint Note, the cardinal importance of which I have already stressed. (Page 503)

(I) Hirst J expressly rejected Mr Mance’s suggestion , which he described as central to the attack on Mr Sage’s evidence, that Mr Sage's evidence that he opened the meeting by stipulating that the agreement was to be goodwill only and not legally binding was an afterthought and found that he has ever since 1975 held this in his memory, though of course, as he himself acknowledged, such recollection was confirmed and strengthened once his attention was drawn to the Flint Note. (Page 503)

(13) Finally in reviewing what he described as the overall probabilities (page 504) Hirst J set out the points made:

(a) for Sphere Drake that the parties had wanted finality (as Mr Sage had admitted) and why should they otherwise have been willing to re-open the non-marine account;

(b) for Orion that why should the company (and indeed Sphere Drake itself) accept the risk of the big one rather than follow the no gain, no loss philosophy, noting that the risk of extreme new liabilities had undoubtedly been raised in the April 22, 1975 Memorandum which had formed the agenda for the April 23 meeting, and concluded that they too favoured Orion.

(14) Hirst J’s conclusion on the main point (page 505) was:

drawing all these strands together, I accept Mr Sage’s evidence and find as a fact that very near the outset of the meeting of April 23 1975 Mr Sage did stipulate that the agreement was a goodwill agreement and not a legal contract; I also find as a fact that the immediately ensuing exchanges... were as recorded in the Flint Note, and that both Mr Comery and Mr Baumli accepted and assented to Mr Sage’s stipulation ... [Orion] . .. have proved that the agreement concluded at the meeting was made without any intention of creating legal relations and is therefore not binding as a contract.

Comment

The following important matters, in my judgment, emerge from this summary:

(1) while the Flint Note was a vital plank in the judge's reasoning, so too was the evidence of Mr Sage.

(2) the attack on Mr Sage's reliability asserting that his evidence was all an afterthought inspired by the Flint Note was rejected on the basis of belief in Mr Sage's evidence that he had held the words in his memory since 1975 although his recollection had been confirmed by the Flint Note.

(3) Hirst J's assessment of the overall probabilities as favouring Orion's case was a matter of balance and employed, as one would expect, to test Mr Sage's evidence that he stipulated that the agreement was a goodwill agreement and not a legal contract and thus to conclude that evidence was to be accepted.

THE 19 TH JUNE 1991 CONSULTATION

Sphere Drake appealed against the decision of Hirst J. On June 19, l991 a consultation was held with Mr Boyd and Mr Cordara to discuss the impending (on July 8) hearing in the Court of Appeal. Mrs Good and Mr Henshaw were no longer involved for Linklaters & Paines. Miss Barttram, a trainee solicitor, took notes at the consultation which was attended by Mr Collings and Mr Humphries (with Mr Legg, the new Linklaters & Paines team) and Mr Fordyce and others from Orion. Mr Collings approved a typed note of the consultation and Mr Humphries also made some hand-written notes.

The typed note records Mr Boyd heralding the argument to be advanced on behalf of Orion on the appeal that even if the parties had been aiming for finality prior to April 23, they had got cold feet at the last moment when they considered the consequences of a final cut off. To show this one must rely both on the Flint Note and on Leslie Sage’s evidence.

The typed note continues:-

The basis for disregarding Sage’s evidence would be that it was introduced at such a late stage in the pleadings. There was some discussion as to whether Sage had originally said that the agreement in l975 was a goodwill agreement, or he had only used this wording when the Flint Note was found. The wording which [Mr Boyd] remembered him using beforehand was that the agreement was to do with funding and administration which he said was consistent with, but not the same as a goodwill agreement. Sage himself claims that he said all along that the agreement was one of goodwill. If this is the case Linklaters & Paines or counsel may have decided not to pursue the argument as there was no documentary evidence to back it up. It was left that the position would be clarified with Diana Good, who was involved in taking Sage’s initial evidence, and that she would look at our files for any evidence that he had put the goodwill argument, but that we had chosen not to pursue it. There was a warning from [Mr Boyd] however that we did not want the other side to be able to look at privileged documents, and that we were on ‘thin ice’ in saying that Sage had claimed it was goodwill all along, but that his solicitors had not taken the point up and pleaded it.

In reading this note it must be remembered that Mr Boyd had not, of course, met Mr Sage to discuss his evidence and Mr Boyd said and I accept that the “thin ice " was a reference to coming close to the line of waiving privilege before Hirst J and not to any concern about Mr Sage's honesty as a witness or (as Mr Sumption suggested) to Mr Boyd hinting at an explanation of the delayed pleading consistent with Mr Sage's evidence whilst professing not to do so.

This is another occasion on which the hand-written notes have been referred to at some length. I do not think they contain anything of real importance which differs in substance from the typed note. Miss Barttram’s notes attribute to Mr Boyd a remark that Mr Sage did not realise the sequence of events at the April 1975 Meeting until he saw the Flint Note but that Mr Sage believed that he did. They also record Mr Boyd referring to the difference between Mr Sage always saying it was a goodwill agreement and saying he remembered saying so at the meeting itself.

I find none of this surprising let alone sinister. There is effectively no dispute that Mr Sage had not said to anyone prior to August 7, 1989 that he had said he had told the meeting that the agreement was only a goodwill agreement and not a legal contract. On the other hand, the note also demonstrates Mr Boyd’s belief (confirmed in his evidence) that Mr Sage was telling the truth as he believed it to be when he gave evidence at the trial before Hirst J. Miss Barttram said she had no recollection of anyone at this meeting suggesting that Mr Sage had given lying evidence at the trial. The evidence of Mr Collins and Mr Humphries was to the same effect, and I accept it.

Mr Humphries notes also do not affect the substance of what was said at this consultation. They do, however, record, with reference to the possibility of the Court of Appeal wondering why the goodwill point was not pleaded earlier, that Orion would submit that the Court should not draw any inference without ruling out all the other possibilities but that it could not be suggested that the explanation was in fact one of those possibilities without waiving privilege. I read that as Mr Boyd saying, as he emphasised he did in his evidence, that in effect he could only repeat the submissions he had made to Hirst J.

THE HEARING IN THE COURT OF APPEAL AND THE MEETING IN "THE TARDIS" ON 18 th JULY l991.

There is no surviving transcript of the argument in the Court of Appeal. What does survive are notes taken by the representatives (in particular Mr Collings) of both parties' solicitors who attended the trial. The hearing began on July 8, 1991. In opening the appeal on behalf of Sphere Drake, Mr Rokison QC accepted that Mr Sage had spoken the words attributed to him in the Flint Note at the April 1975 meeting and so that the parties had agreed that something was not to be legally binding. The issue was whether that something was the whole agreement or only what was to happen in the event of extreme degree.

Mr Boyd’s submissions in response to Mr Rokison began on July 16. Mr Boyd began by referring to the attack on Mr Sage’s reliability by alleging that he had reconstructed his evidence on seeing the Flint Note. Mr Boyd made the point that there was and had been no attack on Mr Sage’s sincerity and that as Mr Sage had seen the Flint Note only some few months before the trial, he could not have forgotten his thought processes when he saw it and thus if he was wrong when he said his reference to a goodwill agreement had been always in his mind he must have been lying. In other words, the forensic point that it had to be a lie or true and Sphere Drake did not suggest it was a lie. Mr Sumption understandably submits that it was more than a forensic point; it was an accurate reflection of the real choice on the evidence. In that submission, as will appear, he gains support from the fact that both Lloyd LJ and Mann LJ relied on Mr Boyd's submission in reaching their decision in favour of Orion.

It was apparent from the moment Mr Boyd began his submissions that Lord Justice Stuart Smith was concerned about the reliability of Mr Sage’s evidence. Mr Collings’ notes record the following exchanges:

“SS - What does “in my mind” mean - hadn’t been mentioned for 15 years.

SB - don’t accept that - Orion were looking for doc[umentary] support. SD orig[inal] pleading = reliance on Dec[ember] [l9]74 meeting. No-one could find that at Orion. Without Flint Note, any case based solely on Sage’s ev[idence] - stone dead, a non-starter. However reliable, intelligent, trustworthy he was, w/o corrobora[tion] of Flint Note we w[ould] have been disbelieved.

KR - interrupts - seeks clarification. [A prelude to a possible further discovery application]

SB - don’t want c[our]t to draw any inference ab[out] what Sage said. It is pure specula[tion]. Don’t want to waive privilege + have trawl thro[ough] doc[ument]s.

SS: proof from LS in 86? SB: C[oul]d have done + wasn’t.

Need to address you later re inferences to be drawn.

Mr Boyd was still addressing the court on July 18. Lord Justice Stuart Smith’s concerns were still apparent. It was arranged that Mrs Good should come from Brussels to see Mr Boyd after court that day. The meeting took place in Linklaters & Paines office near the Law Courts known as The Tardis . It was attended by Mr Boyd (for part of the time) Mrs Good, Mr Fordyce, Mr Collings and Miss Barttram. Mrs Good had little time to prepare for the meeting.

It is this meeting in particular which lies at the heart of the allegations Sphere Drake make against Mr Boyd, Mr Fordyce and Mrs Good. There is no dispute that the main purpose of the meeting was to decide whether there was any advantage to Orion in waiving privilege.

Once again a typed note of the meeting was prepared. A draft of that note was prepared by Mr Collings and Miss Barttram and it was reviewed and re-drafted by Mrs Good and typed up as finalised on June 22. The hand-written notes taken at the meeting by both Mr Collings and Miss Barttram (who sought to take a verbatim note) also survive. Miss Barttram's notes are good examples of the sort of notes which are not easy to follow and which have given rise to attempts by both parties to make something extra out of them. For my part, accepting as I do that the authors are and were people of integrity recording what was considered material in a context where whether that was good, bad or indifferent to the merits of Orion's case before the Court of Appeal, let alone before me, was of no significance, whilst I take the typed note as an accurate reflection of the essence of what was discussed at the meeting, I must also consider some of Miss Barttram's notes as Mr Sumption placed considerable emphasis on them. I should add that Mr Boyd said, and I accept, that he attended the meeting with some reluctance. He saw it as raising again the question whether privilege should be waived which he considered had been rightly rejected before and had even less to be said for it in the context of the appeal at least unless a single “knockout” document could be produced, which it could not. Mr Boyd said the only alternative course would be to call witnesses from Linklaters & Paines and produce all the documents, probably involving also the recall of Mr Sage, and to do that on the third day of his speech on the appeal "was quite frankly an appalling thought." He said he did not think a waiver of privilege would damage Mr Sage's credibility but only if the whole history could be gone into, including Mrs Good's explanation. But if only documents were to be disclosed it would be difficult to sustain Mr Sage's credibility because there was no document to show that he had said earlier what the Flint Note attributed to him.

Mr Boyd also, I am sure, was keen to get on with preparing for the next day rather than debating matters to which he understandably saw only one sensible answer. His evidence that he "laid it on thick" at the meeting is wholly credible.

The final typed note of the meeting records that it had been suggested by Mr Park to Mrs Good that it might be helpful if she gave some background to Mr Sage’s evidence. Mr Boyd made it plain at once that there was no point in discussing the background unless there was evidence that Mr Sage had said, before seeing the Flint Note, that at the outset of the April 1975 meeting he had said it was a goodwill agreement and not a legal contract. Mrs Good nonetheless persisted. As this meeting forms such an important part of Sphere Drake’s submissions, I must set out a large part of what follows in her note:

DFG said that it might be helpful if she were to explain the context in which Sage’s evidence had been obtained in any event. She explained the events between late l984 (when we were first instructed by Orion) and l989 (when the significance of the Flint Note became apparent and the pleadings were amended). DFG used her own recollections and the notes which she, RHT and, in turn, Andrew Henshaw had made.

Sage was already retired and an old man when we first interviewed him in late l984 (early l985?), ten years after the critical events had taken place. His recollection was poor and it was very difficult to get him to focus on events and read the documents. Prior to preparation of the pleadings which were served in l986, Orion had very little documentation. Sage was, though, absolutely clear that the overall context of all dealings between Orion and Sphere Drake was very close and he often made reference to a “gentleman’s agreement”. RHT’s manuscript notes of the first meeting with Sage, Rousell and Heritage include the following phrases:

trusted each other to account;

we do not want to hurt each other;

if proves inequitable we’ll re-open;

common chairman;

renegotiate - friendly - no-one to lose or gain;

you’d go back to the formula on the sheet;

why have paragraph 4. S can’t recall;

[keeps going back to 65/66/67 principles];

memo - ensure no-one is out of pocket.

At this early stage of proceedings Sage had no vivid recollection of the meeting on 23 April l975. What he did remember was the importance of the events of 65/66/67 when the guidelines by which Orion and Sphere Drake subsequently operated were established. Sage never talked about a “goodwill agreement” as such. What he did talk about frequently were the guiding principles, a “gentleman’s understanding”, and “we won’t hurt one another will we?” He was absolutely certain that no underwriter of his experience would have entered into such an agreement without what he described as “a let out”. The difficulty was that this always seemed to point to paragraph 3 of Russell’s record of the meting of 23 April l975. If this were the gentleman’s understanding, this supports Sphere Drake’s case and does not help Orion, as it does not provide Orion with an enforceable right but only the opportunity to discuss.

DFG said that it was important to understand the circumstances at Orion at the time. Sage had not left Orion in entirely happy circumstances. (There were joint managing directors and he was the one to go). He was not in good physical shape and tended to be rather worse for wear after lunch. Bill Rousell was so worried about his state of health that he wanted Sage to swear an affidavit at an early stage (before we had full documentation) in case he died. Sage talked about anything but the detail we were asking for. It was very hard to get him to focus on any level of detail and he would not do his “homework”. We had very little documentation to work on. There was then a period of some months during which Orion had no management and it was difficult to get instructions. Once the new management was “up and running” we then experienced a period of some months during which Sage, Rousell (who had been made to take early retirement) and Heritage refused to help at all unless they were paid. All of this goes to explain why it was relatively late in the day when Sage’s evidence began to take proper shape.

DFG said that there was a striking change in Sage when he started to do his “homework”. When he actually started to do the work which was necessary to refresh his memory, DFG recalled Sage saying how much he enjoyed the work because it had “got his mind going again”. He was a changed man.

DFG said that the Flint Note did not make a critical difference to Sage. She thought that perhaps Andrew Henshaw had first drawn it to Sage’s attention, and said it may be worth contacting him to ask for his recollection of events. DFG paraphrased Sage’s reaction to the note as, “perhaps you will believe me now”. DFG said that the Flint Note had indeed made a huge difference to L & P, as it provided documentary evidence. There were, though, other important factors for Sage:

1. His discovery of the l966 note of the four (golden) principles. This was most important to Sage and he wrote DFG a letter on the subject.

2. Ken Grob’s conversation with DFG in which Grob (who Sage greatly admired) corroborated Sage’s evidence, and independently used the phrase “we do not want to hurt each other”. This gave Sage a considerable morale boost.

Stewart Boyd said that he could not argue any of this without waiving privilege. To waive privilege would be a “disaster” . The documents would show that there is no clear record that Leslie Sage had always told us that he said that this was not a legal contract at the outset of the meeting. To waive privilege in these circumstances would destroy Sage’s credibility.

Boyd said that it was possible that Sage always believed that this was a goodwill agreement but that his evidence had been unclear. Even if Sage had been entirely clear, without any documentary documentation to support his oral evidence (and, indeed, with only contradictory documentary evidence available), it would have been most unwise to plead it. As it was, it took some time (and the evidence of various shorthand experts) to be sure of the critical shorthand notes for the words “and not”. Boyd said that he was most unsure as to what Flint would actually say about those notes when in the box.

DFG summarised by saying that Sage had always talked about the context of relations between Orion and Sphere Drake, the spirit of good faith and trust which were laid down in the golden rules of 1966 and the fact that he would never have entered into an agreement of this kind without a “let out”. She was certain that Sage believes he had always told us that the agreement reached in l975 was a goodwill agreement. As he said in the witness box, he had it in his mind and it is possible that this was what he was always trying to explain in a rather unfocused manner. Stewart Boyd went on to say that once we had the Flint Note this was better evidence than Sage trying to remember what had been said. Sage had, in fact, gone too far in the witness box in saying that he recalled saying this at the outset of the meeting and had always said so.

Boyd added that he finds the Defence’s case that the Flint Note relates to paragraph 3 of Russell’s record rather than the agreement as a whole, very weak. Boyd proposes telling the Court that it is inconceivable that the words “goodwill agreement and not a legal contract” could have been said by Sage with reference to anything other than the agreement as a whole.

After Stewart Boyd left, we went on discussing the matter with John Fordyce. John Fordyce then queried something that had been said in court that day. Stuart Smith LJ had asked why the Flint Note had not been relied upon until l989 when it had been in our possession since l986. DFG explained that Sphere Drake’s list had not in fact been served until l987 and that it then took a long time to put all the relevant documentation together ....

. ...there was also the period when Sage, Rousell and Heritage refused to attend meetings without payments. This took several months to resolve. Once the significance of the Flint Note became apparent, it had to be transcribed. We had to go to several shorthand transcribers as there was controversy about the word “not”, which is perhaps the most important word in the note.

Fordyce again asked why the goodwill agreement had not been pleaded originally. DFG repeated what Boyd had said, that without documentary evidence even if Sage had been clear, it would have been dangerous to plead the point. As it was, Sage was unclear. We also had the evidence of Rousell and Heritage who were also at the meeting. For the early stages of these proceedings, they were still employed by Orion and were allowed to attend consultations with counsel. As a result, they contributed a great deal to the early stages of proceedings. They did not recall a gentleman’s agreement but rather an agreement subject to the condition precedent of “extreme degree”.

Mr Boyd, when he gave evidence, said the note was wrong to attribute to him both the reference to waiving privilege destroying Sage’s credibility (because he did not believe that, provided the whole history was gone into) and the statement that Sage had gone too far in the witness box in saying that he recalled saying at the outset of the meeting that it was a goodwill agreement and not a legal contract and had always done so (because he was not at all clear that Mr Sage had actually said that in his evidence). Mrs Good agreed that at the meeting she had said that Mr Sage had no recollection of the April l975 meeting when first asked about it but she had changed that in the typed note to no vivid recollection because Mr Sage had had some recollection of it.

The important points which emerge from this note in my judgment are that:

All the participants at the meeting qualified to do so, in their evidence to this court, expressed belief in the honesty of Mr Sage, despite the fact that none of them thought he had expressed a recollection of what he had said at the meeting before seeing the Flint Note. The note of the Tardis meeting is not just consistent with but supports that evidence and belief. Further Miss Barttram, Mr Collings and Mr Fordyce each said they did not understand anyone at the meeting to be suggesting otherwise. I accept that evidence.

Equally, the same participants believed Mr Sage had been saying, or at least trying to say, that the whole agreement was only a gentleman’s or goodwill agreement. The most telling proof of this is Mrs Good’s reference to Mr Sage’s reaction to the Flint Note as perhaps you will believe me now.

In reaching these judgments I have had in mind the particular passages in Miss Barttram’s notes of the meeting on which both Mr Sumption and Mr Grabiner rely, and to which I will now turn. The Bundle references to the passages as transcribed by Miss Barttram, are to Bundle 9.7, pages 1799/E and following.

The first passage (E), which is Mrs Good talking, reads "In Sage's mind it was always clear it was not a binding agreement, part and parcel of the principle do not hurt one another, but until he did his homework he had no clear recollection of the 1975 meeting".

The second passage (F) records Mr Boyd indicating that he could not put forward possible explanations for the late pleading of the "no intention to create legal relations point" without waiving privilege.

The next passage (also F) records Mr Boyd answering a question from Mr Fordyce as to why giving discovery of privileged documents was bad by saying it would be a disaster because Mr Sage would be cross-examined as to why there was no clear record of what he says he always said . Mrs Good said in evidence that she was not concerned about this but Mr Boyd was because there was no one clear document which supported Mr Sage. Mr Boyd said, and I accept, that the "disaster" was the "appalling thought" of what would happen if privilege was waived to the conduct of the appeal.

The next passage (I), doing the best I can to follow it, records someone expressing the problem to be that Mr Sage had said he had always remembered saying it was a goodwill agreement and not a legal contract and that was not true and that was the same as Lord Justice Stuart Smith’s "problem". Mr Boyd, Mrs Good and Miss Barttram each said that what followed was hypothetical or a bit of play acting as to how the argument might develop against Orion with Mr Rokison saying "if you always said it prove it by producing an earlier document". Miss Barttram’s note then records

What we have demonstrates Sage told untruth in witness box. Abomination re credibility.

Both Mr Boyd and Mrs Good said these remarks must also have been part of the play-acting: Miss Barttram’s evidence was that the play-acting ended before it. As I accept the evidence of all three (and Mr Fordyce) that no one at the meeting suggested or gave the impression he or she thought that Mr Sage was lying or had lied, this conflict (even if it is properly so described) is of no importance as whether as actors or participants none of those present were expressing their own view as to Mr Sage's credibility in the words recorded. That that is so is also clear from other passages in these notes of the meeting at (J), (K) and (Q) to which I refer below. This passage may also underlie the references in the typed note to a waiver of privilege destroying Mr Sage's credibility. That would be the argument and without a knockout document it would have force.

I think it would be wrong to make anything of the words recorded beyond what is not in real issue. Mr Sage had not said before August 7 that he had said at the outset of the meeting or at any time during it that it was a goodwill agreement and not a legal agreement, and, even if he had, he had not done so clearly, and there was and is no document to show that he had.

A passage a little later in the notes (J) records Mrs Good saying she was sure that Mr Sage did not understand the legal implications of the different combinations of an all legal agreement, an all goodwill agreement and a binding legal agreement with a goodwill let out clause, and that it was therefore understandable why he appeared to be telling Linklaters & Paines that paragraph 3 of the Russell Record was a goodwill agreement when maybe he said something different, namely that the whole agreement was a goodwill agreement. It also records Mrs Good’s belief that Mr Sage had not invented it: it was in his mind and (at K) that those who had spoken to Mr Sage had let him down in not understanding what he had tried to say.

I find these comments both revealing and perceptive: indeed in my judgment it brings together what I think are some of the important strands of the evidence required to assess Mr Sage’s veracity. I have no doubt that Mr Sage was convinced that Orion was in the right and entitled to pursue the claim against Sphere Drake. Like Mr Fordyce, I also have no doubt that Mr Sage did not consider that the agreement could be split in two by enforcing the agreement on figures and ignoring the expressed intention to re-open matters in the event of extreme degree , and to him the important part ("the epitome") of the agreement was the "let out". Whilst I cannot be certain whether Mrs Good was in fact right in her thoughts that Mr Sage had been saying all along that the entire agreement was only a goodwill agreement I have no doubt that she believed he had and indeed that Mr Sage believed he had also. It is of course possible that each unconsciously helped to convince the other. Further if, as it must be, the Flint Note is accepted as demonstrating that Mr Sage did speak the words “goodwill agreement and not a legal contract” at the April 1975 meeting then it is not difficult to see how Mr Sage could at the least honestly convince himself that he remembered using them and that they must have applied to the whole agreement.

A further passage of Miss Barttram's notes (N) refers to the part of the meeting which occurred after Mr Boyd had left. It is apparent that Mr Fordyce was asking critically how it was that the matter had not been pleaded earlier and expressing his own disbelief that only part of an agreement could be legally enforceable. As a matter of commonsense that was a reference to the original pleading of the Points of Reply in July 1986 not to the precise timing of the amendments which were made (or prepared) in July 1989. Mrs Good’s response was that her understanding had been that the witnesses were saying that the whole agreement recorded in the Russell Record was binding and that the problem was that paragraph 3 did not say the parties were obliged to re-open the matter in the event of "extreme degree". She referred to her then understanding that references to a gentleman’s agreement had been in the context of paragraph 3 not the whole agreement but also referred again to her failure to understand what Mr Sage had been saying.

There is a passage in the notes (at O), in which Mrs Good refers to Mr Sage not remembering the April 1975 meeting “at all” but just the general principles and atmosphere. There follow some passages on which Mr Sumption placed considerable emphasis in his criticisms of the conduct of Mrs Good, Mr Boyd and Mr Fordyce.

As transcribed by Miss Barttram, with some interpolation, the passage reads (the speaker is Mrs Good):

It is possible that Mr Sage had in mind saying it was equal to a gentlemen’s agreement. The truth is though he did not remember the meeting and could not say that. I tried and tried to get him to but he could not. Whatever agreement was made in 1966 could not help Orion because on the day people can change their minds and enter into a legally binding agreement.

Fair to say Sage did go on about a gentlemen’s understanding. He did not see the Flint Note as a revelation but said [now] you will believe what I say. Only way [I] could make sense of what he said about a gentlemen’s agreement was paragraph 3.

As I have mentioned when considering the Proofing Meeting on July 11, 1989, Mr Sumption asserted that this passage ( I tried and tried ) related to Mrs Good seeking to persuade Mr Sage to adopt the Flint Note at that meeting. As I have also said there I accept unhesitatingly Mrs Good’s rejection of this suggestion. The context (the pleading point) and the words themselves and the documents all point to Mrs Good referring to the early stages of the matter leading to the original pleading of the case. That was the time when Mr Sage was hard to pin down and kept on talking about 1966. Moreover had Mrs Good sought and failed to get Mr Sage to adopt the Flint Note in July 1989 but then seen that he did adopt it on August 7 it would have been bound to have impacted on her and she could hardly have thought, as she did, that Mr Sage had been trying to say as much before.

There are two other passages in Miss Barttram's notes of some significance. At (P) Mrs Good is noted to have said Probably/Problem Sage carried away in witness box in saying " I recall and have always recalled it" . That suggests Mr Boyd may well be right in saying this comment was not rightly attributed to him in the typed note. At (Q) Mrs Good is noted to have said that she was sure Mr Sage believes he always told us and he would say he told us and was not understood . That is a further powerful endorsement of Mr Sage’s honesty and none the less so for being in a context where his reliability was to some extent doubted.

I should add a further word about Mr Boyd's evidence concerning the Tardis meeting and Mr Sage because it is this meeting which is the foundation of the criticism Sphere Drake make of Mr Boyd's conduct of the Appeal in the First Action.

Mr Boyd said he was not in a position to know whether Mr Sage had or had not earlier expressed to Mrs Good anything and if so in what terms about what he might have said at the April 1975 meeting about the nature of the discussions. As Mr Boyd said Mr Sage was claiming and Mrs Good was accepting that she had misunderstood what Mr Sage had been saying. Mr Boyd, in his witness statement and in the course of his cross-examination by Mr Sumption summarised his own opinion at the end of the Tardis meeting as one of being left in considerable doubt as to what had happened, but if it had been up to him to decide he would have concluded on balance that Mr Sage had all along remembered that it was not a legally binding agreement and had said so in one way or another to Linklaters & Paines; that Mr Sage also recollected the reasons why that was so which were firstly the 1966/7 principles and secondly the need to provide for "the world catching fire" (extreme degree); but that Mr Sage had not been able to formulate in his mind exactly how he had achieved that result at the meeting, until he saw the Flint Note.

Again I unhesitatingly accept this evidence of Mr Boyd as a reliable account of how he saw the matter after attending the Tardis meeting. Mr Boyd also said he was quite satisfied that Mr Sage had given honest answers at the trial and his belief in Mr Sage's evidence had never wavered since he had heard and seen him give it. As he put it in answer to Mr Sumption :

"it is very unfortunate [Mr Sage] is not here. You would know exactly what I mean if you saw him ...."

It was Mr Sumption's submission that because the focus of the Tardis meeting was on waiver of privilege and those attending it (Mr Boyd, Mrs Good and Mr Fordyce) were men and women of integrity who would not intentionally breach their duty to the court, Sphere Drake's submission was that they had failed to apply their minds to the implications of what was being said for the proper discharge of the duty they owed to the Court of Appeal. The truth is, in my judgment, that there were no such implications arising from anything which was said at the meeting; had there been, having seen those who attended give evidence, I am sure the matter would have been raised and discussed. That it was not is a further reason why I conclude that Sphere Drake's submissions about the Tardis meeting and the records of it are misconceived. Indeed I find the submission itself, intended no doubt to be comforting to those criticised, both unfair and revealing. Unfair because it hides a reluctance to face the implications of the criticism in fact made; revealing because it suggests that criticism is, as in my judgment it is, unsustainable.

Mr Boyd continued his submissions in the Court of Appeal after the Tardis meeting and on Tuesday July 23 returned to the inference from the correspondence and pleadings that Mr Sage had never told Linklaters & Paines of what he had said at the meeting. Mr Collings’ notes (Bundle 5.10 page 92/T) suggest that (as he had done before Hirst J.) Mr Boyd put forward a number of other possible inferences which had to be rejected before an inference adverse to Mr Sage was drawn. They included disbelief, misunderstanding and tactical reasons. Mr Collings’ notes also record the words must be careful not to tell you which is right . Mr Boyd however was "absolutely sure" in his evidence in this court that he did not suggest to the Court any one or other of the inferences was right because that was precisely what he had to avoid if he was not to re-open the question of disclosure of privileged documents, and so he did not want the court to think he was even hinting at what had in fact happened. Mr Boyd said that, unusually for him, he had written down what he was going to say and read it to the court so as to be sure he got it right.

It should be noted that Mr Boyd also submitted (page 93/T) that even if it was supposed that the Flint Note had brought back to Mr Sage’s mind the actual words used the question remained whether Mr Sage’s reconstruction aided by the Flint Note (even if it was not pure recollection) was reliable and persuasive as to the meaning of the Flint Note.

It was Mr Rokison’s submission in reply that Mr Sage cannot have had a clear recollection until he saw the Flint Note and that after that his evidence was merely reconstruction and he was misled by the Flint Note (page 104/T).

The notes of the submissions made in the Court of Appeal taken by a representative of Denton Hall are to the same effect. They also record Mr Boyd’s submission that if Mr Sage was wrong in saying he had not reconstructed his evidence it must have been a downright fib which had not been put to him; show that both Mr Boyd and Mr Rokison were very much alive to the need for Mr Boyd to limit his submissions so as not to suggest that there was a reason why the matter had not been pleaded earlier or privilege would be waived; record that on Tuesday July 23 (day 11) after Mr Boyd had put forward other possible inferences from the late pleading he said he was being careful not to say which of (them) was right and he was not waiving privilege ; but also note that in the course of his reply on July 26 (Day 14) Mr Rokison referred to Mr Boyd’s “attempts to hint at what may have happened without waiving privilege” which led to Mr Boyd interrupting to say that he was not hinting if it did or did not happen and he was not putting forward inferences .

That is wholly consistent with Mr Boyd's evidence in this court and, as will be seen, with the reference to the "pleading point" in the judgment of Mann LJ in the Court of Appeal. Mr Boyd acknowledged that his submission was "rather feeble" and I think for that reason and indeed generally it was capable of being misunderstood as both note-takers misunderstood it, if Mr Boyd was speaking wholly in the abstract. But I accept Mr Boyd's evidence borne out as it is by the exchanges on Day 14 and the judgment of Mann LJ.

THE CONDUCT OF ORION IN THE COURT OF APPEAL

Despite the "exoneration" of Mr Boyd and Mrs Good from any allegation of misconduct in the hearing before Hirst J., as regards the hearing in the Court of Appeal Sphere Drake maintained the company's pleaded case that whilst not intending to mislead the Court of Appeal both of them in fact did so by respectively making and permitting to be made submissions as to why the non-legally binding point had not been advanced earlier which were inconsistent with the facts as they knew them to be because both knew at that time that Mr Sage's evidence was in fact wrong and dishonest in saying that he had a long-held recollection of the words attributed to him in the Flint Note independent of the Note itself. The same allegation is made against Mr Fordyce, "the client", as against Mrs Good.

The basis for this allegation is and is only, what Sphere Drake submit was said at the Tardis meeting. Part of its inherent improbability is demonstrated by the undisputed fact that neither Mrs Good nor Mr Fordyce were aware or had any reason to be aware of what submissions Mr Boyd was to make or did make to the Court of Appeal.

In any event, my findings about the Tardis meeting and the submissions in fact made by Mr Boyd to the Court of Appeal mean that there is no basis to any of the allegations against Mr Boyd, Mrs Good or Mr Fordyce.

THE JUDGMENTS IN THE COURT OF APPEAL

The hearing in the Court of Appeal lasted for 12 days ending on July 26 when the Court reserved judgment. Judgment was delivered on August 6. It is reported at [1992] 1 LL Rep 239.

Again I think it necessary to this judgment to summarise what I see as the essential points in the three judgments. At least so far as the majority (Lloyd and Mann LJJ) are concerned it is their judgments, dismissing Sphere Drake's appeal, which Sphere Drake seek to set aside.

The Judgment of Lord Justice Lloyd

The first judgment was delivered by Lloyd LJ (as he then was):

(1) The judgment sets out a full account of the history of the relationship of the parties and the documentary and oral evidence.

(2) At pages 241 and 252 of the report Lloyd LJ described the main issue at the trial as formulated by Hirst J as whether it was agreed at the meeting on April 23, 1975, that any agreement reached was a goodwill agreement only and not intended to be legally binding and noted that on that issue

the learned judge accepted Mr Sage's evidence and there is now an appeal to this Court on the ground that the Judge was wrong. The Judge regarded Mr Sage as a most impressive witness. Mr Rokison ...accepts that Mr Sage was a most impressive man : but he submits that he was an unsatisfactory witness. According to Mr Rokison, Mr Sage's evidence in cross-examination was inconsistent with his evidence-in-chief; and was contrary to the contemporaneous documents, and what Mr Rokison called the overwhelming probabilities.

(3) The grounds of appeal also alleged that frequent interventions by Hirst J in the course of Mr Sage's evidence had interrupted the flow of cross-examination and led the witness to his answers so as to make it difficult for the judge to assess the oral evidence fairly and dispassionately. Lloyd LJ rejected the allegation out of hand. But the fact that it was made shows that counsel for Sphere Drake at least believed it to be supportable.

(4) Lloyd LJ accepted (pages 263-4) Mr Rokison's submission that the two planks in Orion's case were Mr Sage's evidence and the Flint Note. Before the Court of Appeal it was accepted that the words goodwill agreement and not a legal contract were indeed spoken by Mr Sage as recorded in the Flint Note and thus that the parties had expressly agreed that something was not to be legally binding. The issue was the context in which Mr Sage spoke them, whether they related to the whole discussion or only to what became paragraph 3 of the Russell Record.

(5) Lloyd LJ said (page 264) that on the critical question [Mr Sage's] evidence could not have been clearer or more precise and, after quoting some of the transcript of his evidence, said that

if the Judge was entitled to accept those answers at their face value, then they fully justify his finding of fact that very near the outset of the meeting on April 23 1975 Mr Sage did stipulate that the agreement as a whole was a goodwill agreement and not a legal contract...

(6) the issue was therefore whether Mr Sage's evidence to that effect was worthy of belief (page 265).

(7) the first attack on his evidence by Mr Rokison was that Mr Sage's evidence as a whole was unsatisfactory. In the course of this attack Mr Rokison made the point (page 265) that if Mr Sage had a clear recollection that the agreement as a whole was not to be legally binding it would have been mentioned at the lunch with Mr Burtonshaw and Mr Rousell on August 21 1984 and would have been pleaded in the reply and thus the inference was inevitable that it was the Flint Note and nothing else that brought the memory back to Mr Sage's mind. Lloyd LJ quoted from Mr Sage's evidence refuting that suggestion at the trial and in particular the answer to Hirst J's hey presto question (T5/27B to 28B) and added (page 266):

Mr Rokison relied on the words "not in its entirety." They showed, he said, that Mr Sage's memory was largely dependant on the Flint Note. But the sentence which follows shows that the Flint Note only confirmed what had been in Mr Sage's mind all along. This is an important answer. For Mr Sage had only seen the Flint Note for the first time a few months before. He could not have forgotten what had been in his mind before he saw the Flint Note. Either his explanation was the truth or he was lying. There is no other alternative. Yet it was never put to Mr Sage that he was lying.

Lloyd LJ also found Mr Sage's explanation as to why he signed the Russell Record without insisting on the insertion of something about the non-binding nature of the agreement, namely that in Mr Sage's view paragraph 3 showed as much, one which was easily understandable (page 266). Overall Lloyd LJ agreed with Hirst J's assessment of Mr Sage as a most impressive witness adding that he would in any event hesitate long before taking a different view from the Judge who had seen and heard him give evidence.

(8) the second attack on Mr Sage's evidence was that it was contrary to the overall probabilities . Lloyd LJ rejected that (page 269) referring to the argument of Mr Boyd that as the Russell Record demonstrated that there was a need to deal with extreme new liabilities and there was no dispute that Mr Sage had used the words recorded in the Flint Note it would have been mad for Mr Sage to agree that everything should be legally binding apart from the one matter he was concerned about.

(9) The third attack on Mr Sage's evidence was that it was inconsistent with the documents. Lloyd LJ did not agree. In particular he pointed out that, if paragraph 3 of the Russell Record was intended to reflect the reference to a non-binding agreement, it was also referred to as the general reservation in clause 2(a) which purported to record agreement on final liabilities (page 270). Lloyd LJ did, however, differ from Hirst J to the extent that he considered the documents relating to the December 13, 1974 meeting pointed towards finality, but he considered that of no materiality to the overall outcome (page 271).

(10) Lloyd LJ plainly did not think there was merit in Speculating why the non-binding agreement was never pleaded until [Orion] amended their reply (page 272).

(11) Finally it is worth noting that, Lloyd LJ said this about the status of paragraph 3 of the Russell Record (page 273):

[Hirst J] regarded the clause as so vague and imprecise in its language as to be unenforceable. This was indeed one of the factors which led him to the view that the agreement as a whole was unenforceable. For my part I would hesitate before holding that clause 3 is unenforceable, if the agreement as a whole (contrary to my view) is enforceable.

I agree that the clause is not cast in what lawyers would regard as contractual language. But as against that it was clearly intended to have some legal effect since it is the provision to which clause 2 (a) is subject. There is a conceptual difficulty (if the parties had thought in such terms) in making a legally binding provision subject to a non-legally binding provision. If, therefore, it had mattered I would have held, contrary to the view of the Judge, that the proper construction of clauses 2 and 3 together is as follows: clause 2 governs so long as there are no extreme liabilities. But in the event of such liabilities clause 3 prevails. The effect of clause 3 is, by implication, to repeal clause 2. The parties are then free to discuss their former sharing arrangements. If they fail to reach agreement, the former sharing arrangements would prevail. This gives a sensible business construction, and some legal effect, to all parts of the agreement.

I mention this passage at some length because it encapsulates the tension to which I have referred and which in my judgment has run through this matter from beginning to end. With the exception of Lloyd LJ in this passage, every lawyer who has looked at the Russell Record on its own has formed the opinion that "paragraph 3" was too uncertain to be enforceable but the balance of the document recorded on its face a binding and enforceable agreement. That opinion, however, does little justice to the express general reservation in paragraph 2(a) to which that paragraph is "subject". To a businessman, however, I can well imagine that the concept of an agreement which is partly binding and partly not (whether for uncertainty or a want of intention to create legal relations) is alien. Either it all binds or none of it does because it is all important and all "agreed".

The Dissenting Judgment of Lord Justice Stuart-Smith

(1) The issue in the appeal was within a narrow compass :

in what context did Mr Sage say words to the effect 'goodwill agreement and not a legal contract?' Was it, as the plaintiffs contended and the Judge found, in the context of the whole agreement that was reached that day; or was it, as the defendants contend, in the context only of what was to happen if extreme new liabilities should arise after the settlement reached on that day? (Page 273).

(2) For three reasons, this was not a case in which the importance to be attached to the oral testimony of witnesses was very great:

First the Judge expressly found that all the witnesses were honest men attempting to assist the court. There is no question here of dishonesty or perjury . Secondly there is a wealth of contemporaneous documentation and most importantly an agreed written record of the vital meeting of April 23, 1975..... Thirdly, and this is a most unusual feature, the events about which the witnesses were speaking occurred 15 years ago. But that is not all. The three main witnesses (Mr Sage, Mr Russell and Mr Baumli) were all in their 70s; they had long since retired and they had not been asked to recall the events in question for many years (Page 274).

(3) The documentation prior to April 23, 1975 did, contrary to the view of Hirst J, point to the parties seeking finality (Pages 279, 280 and 281).

(4) Hirst J had been influenced in his decision by the vague wording of paragraphs 3 and 4 of the Russell Record and the fact that they gave no substantive relief to Orion (or Sphere) in the event of extreme new liabilities and the Judge had thought that the fact that the provision was unenforceable supported the conclusion that the agreement as a whole was intended not to be and whilst it was

at first sight a little surprising that the parties should be content to discuss the reopening of the settlement and rely on the goodwill of the others rather than have a legally enforceable reservation, it does not seem so improbable in the light of the fact that they did not envisage any such event occurring and in the light of the history of the non-marine account which, as a matter of goodwill and not legal obligation, Sphere, Drake and Baloise had agreed to reopen . (Page 282).

(5) The Judge accepted Mr Sage's evidence that he had a recollection confirmed by the Flint Note of stipulating very near the outset of the meeting on April 23... or after agreement of the figures ... that the agreement as a whole was a goodwill agreement and not a legal contract. Mr Boyd, not unnaturally, places great reliance on this finding .... He also submits that a rejection of this evidence means that Mr Sage must have been telling lies. He had only recently seen the Flint Note and he cannot be mistaken when he said that he had a recollection of what happened independently of the Flint Note, but merely confirmed by it. I do not accept this submission for a number of reasons.

First the crucial answer on this point (T5 page 27F, The "Hey presto" answer ) is curiously guarded ....

Secondly, as Mr Rokison submitted, it is probable that Mr Sage did recall something about goodwill and not a legal contract, the crucial thing is the context in which these words were spoken. It is by no means unlikely that Mr Sage has been misled by the Flint Note into thinking that he said this at the outset of the meeting, since this is the first item on the Flint Note, whereas it was not said at the outset of the meeting, but only after agreement of the figures and then in the context of the matters which eventually became the subject of para. 3 of the Record as the Judge found. It is remarkable that Mr Sage insisted that he had said these words at the start of the meeting .... Yet in this he was plainly wrong, and the Judge so found.

Thirdly, it was Mr Sage's recollection that there was no reaction or discussion when he said these words, yet the Flint Note itself plainly shows that this is wrong ....

Fourthly, for reasons which I shall have to develop later in this judgment, I consider that it is an inevitable inference to be drawn from the later correspondence and late amendment of the points of reply that Mr Sage cannot have had this recollection in 1984 or 1985. (Page 283).

(6) The evidence of what happened after April 23, 1975 on which Stuart-Smith LJ relied was :

(i) the letter first raising the question of further payment from Mr Russell in 1983 and the correspondence which followed it in which he could see nothing which in any way supported the view that the whole contract was not to be legally binding.

(ii) the lunch attended by Mr Sage, Mr Rousell and Mr Burtonshaw on August 21, 1984 where the note of what Mr Sage had said contained no suggestion whatever that he had said at the outset of the April 1975 meeting that the whole arrangement was not to be legally binding.

(iii) the subsequent correspondence in which Orion invoked clause 3 and the pleadings and the fact that

it was not until the Flint Note was deciphered and [Orion's] solicitors apparently considered it of significance that for the first time in July 1989 the present factual case that the whole agreement was not legally binding was raised.... In my judgment the irresistible inference from these facts is that no-one on Orion's side can have put forward such a case or recollection until after discovery of the Flint Note. Such an inference might have been rebutted by calling Mr Rousell; but it is plain that he had no recollection of such an important matter even after the Flint Note came to light .... But so far as Mr Sage is concerned the inference could have been rebutted by production of a statement made by Mr Sage before he had seen the Flint Note, if such a statement had existed. This is perfectly standard procedure to rebut a suggestion that an account is a recent invention or a recollection has only recently developed .... The Judge appears to have thought that he could not draw such an inference because it in some way might infringe on the plaintiffs' legal privilege. In my judgment there can be no other conclusion but that Mr Sage did not have a recollection in August 1984 or 1986 that he said at the outset of the meeting that the whole agreement was not to be a legal contract or legally binding.

For all these reasons in my opinion, Mr Sage's evidence to this effect cannot be regarded as reliable. (Pages 285-6)

(7) The late mention of the point was emphasised again (page 291) in these terms:

I find it almost incredible that the plaintiffs never raised the point until July, 1989, 14 years after the agreement in question. If their case is right, it was the solution to all their problems which by then had reached monumental proportions. Yet seemingly neither Mr Rousell, Mr Heritage, nor, for the reasons I have already explained, Mr Sage thought of it. Instead they relied on clause 3 of the record for what it was worth.

The Judgment of Lord Justice Mann

(1) Mann LJ described Hirst J's decision that the April 1975 agreement was not made with the intention of creating legal relations between the parties as

critically dependent upon his acceptance of Mr Sage's evidence which enabled him to find as a fact:

"that very near the outset of the meeting ... Mr Sage did stipulate that the agreement was a goodwill agreement and not a legal contract". (Page 292).

(2) Mann LJ considered, in disagreement with Hirst J , that the documents prior to April 23, 1975 did point in favour of finality (Page 295).

(3) He considered, like Hirst J, the only plausible interpretation of the Flint Note taken together with Mr Rousell's annotated copy of the April 22, 1975 Memorandum (which was taken as signifying the order in which the topics discussed at the meeting were discussed) was that when confronted with the problem of the impact of extreme new liabilities Mr Sage had indicated that the agreement as a whole was to be a goodwill agreement and not a legal contract as the only practical solution to that problem .... (Page 296).

(4) Dealing with paragraph 2(a) of the Russell Record and the important qualification in it that it was subject to the general reservation in paragraph 3, Mann LJ said:

It seems to me to be strange that a promissory obligation as to final liability should be expressly subject to an "understanding" admitting the reopening of "discussions" in the apparently uncertain event of "extreme degree" .... As it is the structure of the record seems to me, as it seemed to the judge, to point against finality. The structure of the document is coherent on the basis that the whole is not more than an agreement between gentlemen. (Page 296).

(5) Mann LJ regarded it as important that uniquely among the witnesses, Mr Sage said that he was speaking from an actual remembrance. He remembered using the words "goodwill" and "not a legal agreement ". He was quite clear in his mind that they had opened the meeting with the remark attributed to him in the Flint Note. Mann LJ referred to Mr Rokison's attack on Mr Sage's evidence

that it was likely that Mr Sage had no recollection of the position which he now said Orion had taken at the meeting, until he first saw the Flint Note (which was probably in July or August 1989). There was, said Mr Rokison, no other reasonable explanation of the plaintiffs' failure to raise the point in correspondence or on the pleadings until the amendment to the reply was intimated on July 28, 1989. The failure is remarkable and no explanation has been vouchsafed (my emphasis). However, the Judge did not think he should draw any inference adverse to Mr Sage from the unexplained failure. In my judgment he was right not to do so, for the inference would have the unacceptable consequence that Mr Sage was lying when he said he had an independent recollection which was "only confirmed" by the Flint Note. There was not and is not any suggestion of mendacity. (Page 297).

It was this passage in Mann LJ's judgment to which I was referring when considering Mr Boyd's submissions to the Court of Appeal.

(6) At page 301, at the conclusion of his judgment on this issue, Mann LJ said:

In assessing the probabilities, I believe it is important for me to bear in mind that in April 1975 the parties (mistakenly) thought the possibility of large unexpected claims arising in the future was a remote one. With that in mind it is my judgment that the overall probability is in favour of the agreement of April 23 being a goodwill agreement. I have formed my view first, because it is probable that Orion would have required protection beyond that afforded by a soothing recognition of the availability of discussion. Second, because it is probable that the other parties would have been content to let the agreement rest in goodwill in their then expectation that claims arising from the underwriting on the various accounts would diminish with the passage of time and would be met within the assessed limits for which Orion had been funded. What Mr Russell described as a "very messy situation" would for any practical purpose have been cleared away.

COMMENT ON THE JUDGMENTS IN THE COURT OF APPEAL

I would make the following comments on the judgments in the Court of Appeal :

(1) The only issue was the apparently short one of fact of whether Mr Sage had used the words "goodwill agreement and not a legal contract" at the April 1975 meeting to describe the whole discussion or only the let out in the event of extreme degree.

(2) The judgments demonstrate what the whole history of the proceedings makes obvious that the resolution of that issue was a matter of real difficulty on which the opposing arguments were well balanced.

(3) The whole focus of the appeal was on the reliability of Mr Sage's evidence about his recollection of the April 1975 meeting and it was in that context that the documents and overall probabilities were considered by the members of the court. I cannot accept Mr Grabiner's submission that it can be spelt out of the judgments that the majority concluded that the Flint Note and Russell Record and the overall probabilities alone justified the finding that the whole agreement was not legally binding. As Mr Boyd put it, whilst he thought Orion would have had a very good chance of winning even without Mr Sage's evidence based on the Flint Note and the probabilities that was only a secondary submission before the Court of Appeal because "we had the evidence of Mr Sage " and "it was obviously critical to support it".

(4) Stuart-Smith LJ was able to reach the conclusion that Mr Sage's evidence of his recollection was unreliable but honestly given. The majority thought, as Mr Boyd submitted, the choice was between reliable or lying, but they did so on the basis that because Mr Sage had only seen the Flint Note recently before giving evidence he could not honestly have forgotten what was in his mind before he saw it. Those conclusions were, of course, expressed without seeing the privileged material and pre-suppose that the Flint Note would have made much the same impact on Mr Sage as it would be expected to make on a lawyer. But on the evidence before me and my findings about it not only was that supposition wrong but the impact of the Flint Note on the lawyer mostly involved (Mrs Good) and indeed Mr Sage himself was that the Flint Note did reflect what Mr Sage had at least been trying to say all along. What is more Mr Sage had said the agreement was not legally binding before he saw the Flint Note or had "adopted" the words it attributed to him. He had done so at the meetings on April 19 and July 11, 1989 as reflected in the July 13 draft of his statement.

EVENTS FOLLOWING THE DECISION

OF THE COURT OF APPEAL

On August 16, 1991 Mr Sage came to the offices of Linklaters & Paines where he was seen by Miss Barttram. He had come for a copy of the judgments of the Court of Appeal and Miss Barttram gave one to him. Miss Barttram (TKB) prepared a typed note of their conversation which contains the passage:

TKB and Leslie Sage chatted for a while about his role as a witness in the trial. They discussed the importance of the Flint Note. Leslie Sage talked about how he had always said that the agreement with Sphere Drake was a goodwill agreement. TKB said that it was not the case that L&P had not believed what he had said before the Flint Note was discovered, rather DFG had seen that it would be very difficult to plead a goodwill or gentlemen’s agreement when the documentary evidence and the evidence of Mr Heritage and Mr Roussel was not to that effect. Leslie Sage said he was aware of that but he would, however, continue to pull our leg.

This note adds further support both to Mrs Good’s recollection of her reaction to the Flint Note and what she believed Mr Sage had been saying and to Mr Sage’s own belief in the evidence he gave before Hirst J.

Mr Sage also wrote to Mr Smith (the Chairman of Orion) on October 26 1991. By then he had read the judgments in the Court of Appeal. The purpose of the letter was to offer his (and Mr Rousell’s and Mr Heritage’s) assistance for the quantum trial. The letter contained a passage reading:

I have followed the progress of the Appeal and seen the three learned Judges opinions which supported Orion's position by two to one. I was personally irritated to say the least, by Lord Justice Stuart Smith’s interpretation of events. For the record I advised L & P in my 1986 interviews with them “it was a good-will agreement”!

It is in my mind also that when we met at lunch in December 1988 I stressed to you that the Understanding as recorded in the agreed April note amounted to a “good-will agreement”.

It appears that the advice given to L & P was that such a pleading was not strong enough for the case to succeed.

Then in early 1989 the Flint note was discovered.

The same comment applies to this passage in Mr Sage’s letter. It also suggests that Mr Sage was not, even at this time, seeing a significant distinction between the agreement being a goodwill agreement and his saying and everyone accepting as much at the meeting. The letter does not have even a suspicion of the authorship of a man who has given perjured evidence and been believed; but rather of one who has been rightly vindicated.

On January 31, 1992 Sphere Drake’s Petition for leave to appeal to the House of Lords was dismissed.

THE TOMLIN ORDER

On March 20, 1992 a Tomlin Order was made staying all further proceedings in the First Action on the agreed terms of settlement scheduled to the Order. In short the parties agreed the complex issues (due to be tried) arising on the quantum of Orion's claim and the principles to be applied to its assessment.

Paragraph 12 of the Schedule to the Order provided that:

12 Orion and Sphere Drake agree:

(a) To jointly pursue and to fund in equal shares any litigation which Orion and/or Sphere Drake consider necessary or desirable from time to time ... in order to recover sums due to Orion and/or Sphere Drake in respect of Baloise’s ultimate liability in respect of Pool business.

(b) If either Orion or Sphere Drake disagree as to whether such litigation should be commenced or continued, it shall be open to either party to withdraw from any further litigation on terms that the party choosing to withdraw must assign to the party wishing to continue such litigation the whole of its rights and obligations in respect of the claims it has, or may have, in relation to the operation of the Pool Agreement, against Baloise ... and thereafter such litigation shall be conducted wholly at the expense ... and wholly at the risk of the party choosing to continue such litigation and any sums recovered from Baloise and/or such other parties shall belong to that party alone.

. ..

(e) Notwithstanding sub-clause (b) ... Orion and Sphere Drake agree to provide each other with all assistance reasonably required, whether by way of information, documents or otherwise howsoever, and co-operate with each other in the conduct of the said litigation.

It is not and could not be suggested that at this time Sphere Drake were aware of any basis on which the decisions of Hirst J and the Court of Appeal could be set aside. The whole basis of the settlement and the order was that those decisions were valid and unimpeachable.

Moreover, the effect of the settlement was that Sphere Drake could not unilaterally withdraw from the claim against Baloise unless the value of the company's claim was assigned to Orion and even then Sphere Drake had to co-operate with Orion in the pursuit of Orion's claim against Baloise.

THE BALOISE ACTION

Both Orion and Sphere Drake had issued protective Writs against Baloise in late 1989. In May 1994 Freshfields were instructed to pursue both claims. In October 1994 Orion was placed into provisional liquidation. In March 1995 the two actions were ordered to be heard together. In December 1995 Orion disclosed Mr Sage’s 1986 Affidavit in the Baloise Action. In March 1996 Freshfields obtained the statement from Mr Burtonshaw and on May 7, 1996 served it on Baloise. The trial of the Baloise Action was fixed to commence on October 8. On October 1, Mr Boyd and Mr Rowland (who were instructed by Freshfields on behalf of both Orion and Sphere Drake) advised that an application should be made after each party had opened its case to strike out the plea by Baloise that there was a binding settlement made at the April 1975 meeting on the grounds of issue estoppel and that it was an abuse of process given the decisions of Hirst J. and the Court of Appeal.

Mr Parker of Freshfields informed Jane Owen (on behalf of Sphere Drake) about the advice given at this consultation and she agreed that the proposed application should be made. On October 4 Freshfields sent Jane Owen a copy of the written opening submissions prepared by counsel for Baloise in which it was alleged that Mr Sage’s evidence in the First Action had been untruthful. Mr Parker's unchallenged evidence was that until then it had not been appreciated that Baloise were intending to allege that Mr Sage had lied in his evidence in the first Action.

There is an attendance note by Mr Parker dated Monday October 7, 1996 which records that he spoke that day to Mr Boyd who told him that Mr Rowland was concerned that Mr Sage's 1986 Affidavit and Mr Burtonshaw’s statement might persuade Moore-Bick J. to depart from Hirst J’s findings. The note records that both Mr Boyd and Mr Parker did not think that was likely

but in any event it may be sensible for Sphere Drake to have separate representation on the question of whether the issue estoppel was run,

and it was noted that if Moore-Bick J. did decide the agreement was legally binding Sphere Drake might apply for a re-trial because Mr Sage had been dishonest, a possibility which had not previously occurred to anyone.

Mr Parker then spoke to Jane Owen and told her his and Mr Boyd’s view that they did not consider that the new evidence would produce a different finding but he advised her that Sphere Drake should seek independent advice and they agreed that she should see Mr Rokison as someone who was familiar with the issues. It was agreed that Mr Parker would provide Mr Rokison with the relevant papers and fix the time of the consultation.

There is an apparent difference of no real significance between Mr Parker's evidence and Jane Owen's evidence about precisely on what Mr Parker was advising Jane Owen to take independent advice. Jane Owen said it was to seek advice generally in connection with the strike out application and what Sphere Drake could do to protect its position should the application fail whereas Mr Parker believed he had expressly referred to seeking advice on whether or not Sphere Drake should continue to participate in the strike out application itself. What is undoubtedly the case is that Mr Parker was telling Jane Owen that both he and Mr Boyd did not consider that any different finding would be made on the status of the April 1975 agreement and she and Sphere Drake had no reason to think otherwise.

There is a further apparent conflict in the evidence of Mr Parker and Mr Rokison as to the advice the latter in the event was asked to give and gave. Mr Parker, accepting it was only a matter of reconstruction not recollection, and so possibly not the case or at least open to misunderstanding, believed he would have told Mr Rokison on the telephone the same day that one of the things on which Sphere Drake needed advice was the question whether the company should participate in the strike out application. Mr Rokison's best recollection was that his advice was sought on the assumption and in the context that the strike out application was going ahead.

The trial began on October 8 and on the same day Mr Parker sent by hand to Mr Rokison a letter (copied also by hand to Jane Owen) confirming a consultation arranged with him for Friday October 11. The letter referred to and enclosed for Mr Rokison Mr Sage’s Affidavit, and Jane Owen believes she asked Mr Parker for a copy of the Affidavit which he then supplied to her also. Mr Parker's letter expressed the opinion that the issue estoppel/abuse of process application should succeed .

On October 9 Mr Parker had a conversation with Mr Evans of Price Waterhouse (a joint provisional liquidator of Orion) in the back of a car on the way to a football match at Wembley stadium. Mr Evans was not knowledgeable about the litigation (which he had left largely to be handled by an assistant) and had little recall of the conversation save that Mr Parker had referred to a possible conflict of interest between Orion and Sphere Drake but had assured him Freshfields could still act for Orion even if there was a conflict. Mr Parker's evidence was that he would have explained the matter and said that Sphere Drake was going to seek independent advice to preserve the company's position and Mr Evans should await developments.

There is no note of the consultation held with Mr Rokison on Friday October 11. Jane Owen attended on her own. The strike out application had not then begun. There is no dispute that Mr Rokison advised that Sphere Drake should send "a reservation of rights" letter. There is also no dispute that Mr Rokison, like Mr Boyd and Mr Parker, thought and said that he did not think either Mr Sage's 1986 Affidavit or Mr Burtonshaw's statement demonstrated that Mr Sage had committed perjury. Jane Owen said she remembered asking Mr Rokison whether the letter he proposed should be sent by Sphere Drake to Orion before or after the strike out application and Mr Rokison had advised that it should be sent only if the application failed because there would be no need

for it otherwise. Mr Rokison did not think he had been asked to advise when the letter should be sent nor that he had done so.

On October 11 Mr Parker made an attendance note of a telephone call he received from Jane Owen after the consultation with Mr Rokison. It is obvious from the note that Jane Owen told him the advice Mr Rokison had given but Mr Parker did not record that but what is expressed to be his own advice that there was no need to do anything unless and until the strike out application failed and that a letter could then be written to Price Waterhouse. Mr Parker thought the note should have attributed this to what Jane Owen had told him Mr Rokison had advised rather than his own advice. Jane Owen said Mr Parker had expressed agreement with Mr Rokison's advice when she told him what it was.

At the same time Mr Parker had been seeking the views of Mrs Good about Mr Sage’s Affidavit and considering whether or not she might give evidence at the trial of the Baloise Action. Mrs Good wrote to Mr Parker on October 11 about Mr Sage and his evidence. The letter included the following:

Sage was no longer with Orion when we were instructed by them and although I had a few meetings with him before his affidavit was sworn on 16 May 1986, he did not attend conferences with counsel and he did not review draft pleadings or the letter before action and correspondence with the other side. By contrast, Bill Rousell and Leslie Heritage (who were still with Orion and from whom I took instructions) were present at all meetings and conferences with counsel. Bill Rousell reviewed, and received copies of, correspondence with the other side. Both Bill Rousell and Leslie Heritage were at the meeting on 23 April 1975 but at no point did either of them say that we could not and should not refer to the 1975 agreement as a legally binding contract. If our files are disclosed, it will raise some serious questions as to Bill Rousell’s evidence on the subject. The reason we did not call Bill Rousell as a witness was not simply because Leslie Sage had already done a good job in the witness box but because Bill Rousell had no real recollection of the April 1975 meeting and had never to my recollection actually said or inferred that this was a goodwill

agreement. Have you had a chance to speak to Bill Rousell and, if so, what is his evidence?

In my view, Sage did believe that the 1975 arrangement was not a binding contract but I can find no evidence of his describing it as a “goodwill agreement” or “not a legal contract” until 1989. What he did say from our first meeting onwards was that it was based on the 1966/1967 principles of utmost good faith and that “no-one would hurt the other”, no-one would be “out of pocket”, it was an “administrative and accounting exercise”, it was “all very simple” etc. etc. The fact is that it looked like a legal document and the lawyers never contemplated or discussed the idea that it was a goodwill agreement until 1989. The only part of the contract which looked as if it might be unenforceable was paragraph 3.

Once again, this letter from Mrs Good is in accord with her evidence in this court and what I have said about it.

Also on October 11, Mr Parker attended a further consultation with Mr Boyd and Mr Rowland. It was agreed that Mrs Good should not be called to give evidence. The Note of the Consultation also refers to Mr Parker telling the meeting that Sphere Drake had obtained separate advice:

they had been advised to write a reservation of rights letter by Mr Rokison. Mr Parker had suggested that the letter should be written in the event that the application was not successful.

Mr Parker also wondered if this should not have referred to Mr Rokison's advice and his own agreement with that advice.

On October 18 Jane Owen wrote to Mr Rokison saying as we agreed at the meeting she had drafted a letter to be sent to Price Waterhouse should the application jointly made by Sphere Drake and Orion this week fail .... Your advice was that there was little that Sphere Drake could do at this stage other than reserve its position as regards any application for a new trial vis a vis Orion . She asked Mr Rokison to approve her draft. She copied the letter to Mr Parker.

Mr Rokison readily accepted that this letter is consistent with Jane Owen's recollection that they had discussed the timing of the sending of the reservation of rights letter and in any event that if he had considered (which he did not) that Sphere Drake would be prejudiced by continuing with the strike out application he would have advised the company to do something different.

The issue estoppel application was dismissed by Moore-Bick J. on October 23. On October 25, Sphere Drake sent a letter (approved by Mr Rokison) to Mr Evans of Price Waterhouse which stated:

I refer to the position being taken by the Defendants in the above actions that the agreement reached between Sphere, Drake, Orion and Baloise in 1975 was a legally binding contract and that they are entitled to disregard the judgment of Hirst J. in the 1989 decision.

We supported the application made by Stuart Boyd QC on both our behalves to stop Baloise raising this matter but the Judge took the view that Baloise should be able to argue this issue. In the circumstances we must reserve any rights we may have to ask for a new trial in the proceedings between Orion and Sphere Drake should Moore-Bick J. decide that the evidence now produced by Baloise would have made a difference in the earlier trial.

I am sure you will agree that it is in our mutual interest that any application by Sphere Drake for a new trial based on the further evidence which has come to light should be made after the conclusion of these proceedings. At the same time we would propose that any payments that are made pursuant to the Quantum Agreement will be made subject to this reservation of rights .

There was a subsequent agreement as to how future payments to be made by Sphere Drake under the terms of the agreement scheduled to the Tomlin Order should be treated which is of no relevance to the Election/Affirmation Issue. The response of Mr Evans to the October 25 reservation of rights letter was dated December 19. Subject to the question of future payments and whilst stating that Mr Evans did not see that there were in fact any rights to reserve, he agreed that any payment made would not constitute a waiver of Sphere Drake’s rights in relation to the issue of the binding nature of the April 1975 agreement. There was, not surprisingly, no suggestion that Sphere Drake had already lost any rights.

For the purpose of deciding the Election/Affirmation Issue, I see no need to resolve the apparent conflicts in the evidence to which I have referred. The essential facts as I find them are that:

(1) Sphere Drake and Jane Owen had no reason to believe that pursuing the strike out application or, if it failed, the claim against Baloise could or would prejudice the company's rights. That was because Sphere Drake did not know that the company had any such rights, had been competently advised that it did not, and so had no intention of prejudicing them even if it did, and did nothing which objectively could be construed as doing so.

(2) Orion, whether through Price Waterhouse or Mr Parker could not have thought that Sphere Drake was prejudicing any such rights it might have; to the contrary Orion knew Sphere Drake was seeking advice to avoid any risk of doing so and, as Mr Parker said, one thing which was clear was that Sphere Drake did not want to do anything to prejudice the company's rights and he was concerned to see that the company did not do so.

(3) There were therefore no alternative courses open to the company other than to pursue the claim against Baloise or to withdraw with the consequences spelt out in the settlement agreement. No "election" was under consideration between going on against Baloise and suing Orion to set aside the judgments in the First Action. Jane Owen said, and I wholly accept, that, consistent with the advice of counsel and Mr Parker, she had no reason to believe Mr Sage had committed perjury until after she had read the judgment of Moore- Bick J.

(4) After the reservation of rights letter had been sent and accepted as such no election or affirmation can be spelt out from the continued pursuit of the claim against Baloise.

THE JUDGMENT OF MOORE-BICK J.

The judgment was delivered on April, 29, 1997. Mr Boyd and Mr Rowland appeared for Orion and Sphere Drake. Mr Michael Collins QC and Mr Victor Lyon appeared for Baloise instructed by Beaumonts. The judgment is reported at [1998] 2 LL Rep (IR) 35 .

(1) The judgment records (Page 42) that the status of the April 1975 agreement had become the central issue in the case.

(2) Both Orion and Sphere Drake maintained that the agreement was not legally binding and therefore left the pre-existing arrangements between the parties intact (page 45). Baloise' case was that the agreement was legally binding save for paragraph 3 which was not intended to be so or, even if it was, was too vague to give rise to a legally enforceable obligation and thus the agreement operated as a complete discharge of all Baloise' obligations, and a complete answer to the claims made against the company. (Page 46).

(3) There was no dispute that the Russell Record correctly reflected what had in fact been agreed nor was there any dispute as to the accuracy of the Flint Note as a record of certain remarks that were made at the meeting. (Page 46).

The dispute was whether the words goodwill agreement and not a legal contract meant the parties' intention was that the whole agreement was not to be legally binding or only what became paragraph 3 of the Russell Record (Page 48).

(4) Oral evidence was given by Mr Crockett, Mr Baumli and Mr Rousell of those who were present at the April 1975 meeting. Neither Mr Crockett nor Mr Rousell gave evidence in the First action. The statements and transcripts of the evidence given at the First Action were also before the court and agreed to form part of the evidence in the proceedings (Page 48). Mr Russell did not give oral evidence because of the state of his health.

(5) Before Moore-Bick J it was common ground that the parties were looking for finality by December 1974. He concluded, after reviewing the documentary and witness evidence as a whole that :

I am left in no doubt that the parties were working towards a final settlement of their outstanding liabilities and that the meeting of December 13 culminated in an agreement in principle between them to enter into a final settlement of their obligations to each other on payment of lump sums in respect of outstanding liabilities. The documents themselves strongly support that conclusion as does the evidence of Mr Crockett, Mr Russell (in writing) and Mr Baumli ....

Moore-Bick J found Mr Rousell's evidence (that the proposal was simply one that Orion should take over the administration of the run-off) unsatisfactory and found that he was unable to accept the whole of Mr Sage's evidence in relation to this part of the case. (Page 53).

(6) As to the meeting on April 23, 1975 :

(i) Mr Crockett gave evidence that it was his understanding that the meeting was intended to achieve a final settlement subject to the parties being able to reopen discussions should settlements reach an extreme degree. He recalled the meeting as having been short and uncontroversial. He was not conscious of any change of direction from December. He did not dispute the Flint Note but if Mr Sage had been referring to the whole agreement as a goodwill non-binding agreement that would have been contrary to the tenor of the meeting as Mr Crockett recalled it. Moore-Bick J found Mr Crockett an impressive and reliable witness. (Page 56).

(ii) Mr Rousell said in his evidence in answer to Mr Boyd, having been shown the Flint Note, that he recollected that Mr Sage had opened the meeting saying this is a goodwill meeting at which we are trying to solve our problems . In the light of his earlier statements and affidavit and the correspondence, in which no such recollection was recorded, Moore-Bick J concluded that Mr Rousell' evidence was not reliable in this respect. (Page 57).

(iii) Mr Baumli was 85 years old when he gave evidence by video link from Switzerland. His evidence was to the same substantial effect as the evidence he gave to Hirst J. Moore-Bick J's view of Mr Baumli was that despite a measure of truth in some of Mr Boyd's criticisms of him nonetheless he did not strike me as a witness ... whose memory was generally unreliable when it came to dealing with the substance and general nature of the discussions between the parties. (Page 58).

(iv) Mr Russell's evidence was given by way of a statement and the transcripts of his evidence before Hirst J. Like Mr Crockett and Mr Baumli he said he had understood the arrangements to be a full and final settlement subject to the parties being able to re-open discussions should settlements increase to an extreme degree. (Page 59).

(v) Mr Heritage's evidence consisted of his statement and the transcript of his evidence in the First Action. (Page 59).

(7) Moore-Bick J addressed Mr Sage's evidence at pages 59 to 66 of the report of his judgment. That evidence consisted of his statement and the transcript of his evidence in the First Action and the Affidavit he had sworn in May 1986. The important passages which contain Moore-Bick J's reasoning which led him to conclude that Mr Sage was not telling the truth to Hirst J are at pages 62 to 66 of the report. Any paraphrase is inadequate but I think I must attempt to set out the key factors which, as I read those pages, led to this conclusion. First and significantly Moore-Bick J's conclusion as to the extent to which Mr Sage was not telling the truth is to be found at page 65 of the Report as follows :

In the light of that evidence I cannot see any answer to Mr Collins' submission that at that stage (1986) neither Mr Sage nor Mr Rousell believed that the 1975 Agreement was not legally binding. It follows that I am unable to accept Mr Sage's evidence that it had always been his recollection that it had been specifically agreed that the whole agreement was not to be legally binding. Nor can I accept that prior to seeing the Flint Note, he had had any recollection of using the words "goodwill" or "not a legal agreement," in the way he suggested or that he recalled stating right at the outset of the meeting any words to the effect that the agreement was to be a goodwill agreement and not a legal contract. (My emphasis) I am conscious that the mind sometimes plays tricks and that people persuade themselves that they can remember things which are not in fact genuine recollections. In other circumstances I could understand that, having seen the Flint Note, Mr Sage might have reconstructed the events of April 23, 1975, in his mind and after a time genuinely thought that that is what he had remembered all along. However in this case he had been shown the Flint Note only a few months earlier. I find it hard to believe therefore that he had forgotten the effect it had had on him. Reluctantly therefore I am driven to the conclusion that he was not telling the truth when he told Hirst J that his evidence was based on a long-held recollection independent of the Flint Note.

(8) If I may seek to paraphrase that :(a) (A) the untruth was to claim a recollection of the words he had used at the meeting and the context in which he had used them as applying to the whole agreement and spoken at the outset of the meeting independently of the Flint Note and

(b) (B) it was a deliberate untruth, as distinct from faulty recollection or self-deception, because the effect on Mr Sage and his evidence of the Flint Note was recent and must have been something he would recall. That was, in effect, the converse of the submission made by Mr Boyd to and accepted by Hirst J and the Court of Appeal that if those courts did not accept Mr Sage's evidence of his recollection independent of the Flint Note, then he must have been lying because the Flint Note had only been shown to him recently. It is this finding which gave rise to the present proceedings. It also depends on the presumed impact of the Flint Note on Mr Sage and assumptions about what he said before seeing it in the same way as the judgments of the majority of the Court of Appeal who of course relied on the point to reach the opposite conclusion.

(9) It is not entirely clear from the judgment why Moore-Bick J felt it necessary to his decision to conclude that Mr Sage was lying as opposed to mistaken about his recollection. That was, however, the submission made by Mr Collins for Baloise and it may well be, as Mr Sumption has submitted to me, that it was to counter this argument (now advanced on behalf of Orion and Sphere Drake) that Mr Sage's evidence of his recollection could only be rejected by a finding that he was lying.

(10) The "evidence" to which Moore-Bick J referred at the opening of the passage I have quoted in paragraph (7) above was, in addition to the evidence available at the first trial, the affidavits sworn by Mr Sage and Mr Rousell in 1986 and the evidence given at the second trial by Mr Burtonshaw, Mr Crockett and Mr Rousell (Page 62). Mr Burtonshaw's evidence understandably struck Moore-Bick J as being consistent with the correspondence and the 1984 lunch. The correspondence was characterised, as Mr Sumption characterised it before me, as Orion asserting that the agreement had ceased to be effective throwing the parties back on the pre-existing obligations. Moore-Bick J added that : In practical terms that is exactly the position they would have been in if the agreement had never been legally binding. It is significant therefore that there was no suggestion in the correspondence at that stage that that was the case. (Page 63).

The account of the April meeting in Mr Sage's affidavit was broadly consistent with what Mr Burtonshaw recalled having been told by Mr Sage in 1980, which was that the parties had reached a final cut-off agreement, subject only to the reservation which found its expression in paragraph 3 of the Russell Record not that they had made an agreement which was not legally binding. (Page 64).

(11) I would add that Moore-Bick J's view of the wording of the Russell Record itself was (Page 68) that:

It might be said that the fact that paragraph 2 is expressly subject to the general reservation in paragraph 3 points to both of them having the same (non-binding) status, but in my view that would be to overlook the fact that this is very much a businessman's document. I do not find it altogether surprising in a document of this kind to find that a legally binding agreement has been made subject to a morally binding reservation. On the whole I think the language of the record favours Baloise's case, although I do not think that the indications are by any means overwhelming. (Page 68).

(12) As to the Flint Note, Moore-Bick J. described it as ultimately disappointing because although it showed that Mr Sage had at some point used the words goodwill agreement and not a legal contract or words to that effect and that the others present had agreed with him, it did not indicate clearly when or in what context he had done so. He concluded that it was more likely that the recorded words were spoken at the end of the discussion about new liabilities and were used in that limited context. (Page 69).

(13) The overall conclusion was that the agreement was intended to be legally binding except for that part of it which eventually found expression in paragraph 3 of the Russell Record which it was specifically agreed should be binding in goodwill only. (Page 70).

The decision of Moore-Bick J is under appeal. The hearing of that appeal has been deferred until after this judgment has become available.

THE PRESENT PROCEEDINGS.

The Plaintiffs (Sphere Drake and Howdens) issued the Writ in the present proceedings on July 17, 1997. The claim sought an Order that the judgment of Hirst J as confirmed on appeal and the Tomlin order be set aside on the basis that the judgment was procured by fraud.

The Perjury Alleged

The Points of Claim were served on August 7. The fraud alleged was the perjured evidence of Mr Sage as found by Moore-Bick J in the passage I have quoted from his judgment at sub-paragraph (7) above. This was summarised in Further and Better Particulars to be Mr Sage's evidence to the effect that what was said at the April 1975 meeting was based on a long-held recollection independent of the Flint Note.

The Allegations of Misleading The Court

The Claim also alleged that it would be unconscionable and not in the interests of justice for Orion to be able to rely upon a judgment procured by the perjured evidence of Orion's principal witness and former general manager where Orion and its legal advisers knew what Mr Sage had said in his 1986 Affidavit but decided not to disclose it and Knew that it was not until 1989, after seeing the Flint Note that Mr Sage had described the April 1975 agreement as a goodwill agreement or not a legal contract or said that he had used those words at the April 1975 meeting.

It should be noted that it has never been Sphere Drake's case that anyone other than Mr Sage acted dishonestly but it has always been the company's case (whilst contending that the allegation was not a necessary part of the case) that Linklaters & Paines acted in breach of their duty not to mislead the court (Original Further and Better Particulars of the Points of Claim served October 13, 1997) and, since the Amended Particulars were served on September 4, 1998, that Orion and Mr Boyd did so also.

The basis of those allegations as set out in the Amended Particulars was that

(1) Mr Sage had not referred in his April 1985 statement nor his 1986 Affidavit nor in any discussions or correspondence between 1985 and August 1989 to an express statement at the April 1975 meeting that the agreement was not legally binding or was a goodwill agreement only.

(2) At the June 22, 1989 consultation no one present (Mr Henshaw, Mr Fordyce and Ms. Atkins) corrected Mr Boyd's statement that none of the witnesses had previously mentioned that the April 1975 meeting was not legally binding.

(3) Mr Henshaw had drafted the questions about the Flint Note and inserted them in the May 1989 draft of Mr Sage's statement but they had remained unanswered until early August 1989 when Mr Sage first claimed to recall making the point at the outset of the meeting and so Mr Henshaw was aware that Mr Sage's recollection was not based on a long-held recollection independent of the Flint note.

(4) Mr Fordyce and Mrs Atkins were also so aware by reason of their responsibility for the conduct of the litigation from at least March 1989 onwards; that Mrs Good was so aware because she participated in the Tardis meeting on July 18, 1991 and that Mr Boyd was so aware from the discussions at that meeting and at the consultation on June 19.

(5) The reference to the consultation on June 19 was, however, based in part on a reading of the notes of the consultation to the effect that Mr Boyd's reference to skating on thin ice was to Orion submitting that Mr Sage had claimed it was a goodwill agreement all along but Linklaters & Paines had not taken the point up and pleaded it. It is now rightly conceded this was, as Mr Boyd said it was, a misreading of what Mr Boyd had said. He was referring not to any such submission but to avoiding a waiver of privilege by submitting that there was an explanation for the point not being pleaded until shortly before the trial.

(6) The various notes of the Tardis meeting were relied upon to show that(i) prior to being shown the Flint Note, Mr Sage had no recollection of saying at the April 1975 meeting that the agreement was a goodwill agreement and not a legal contract;

(ii) his evidence that he had always recalled saying this was not true and he had gone too far in the witness box;

(iii) if his earlier statements were to be revealed it would be a disaster as his credibility would be destroyed; and

(iv) the same (misconceived) thin ice point.

(7) On this basis it was alleged that Linklaters & Paines (through Mr Henshaw and Mrs Good) Orion (through Mr Fordyce and Mrs Atkins) and/or Mr Boyd owed a duty to take steps to avoid the danger that the court (including the Court of Appeal) would be misled into thinking that Mr Sage's evidence was in fact based on a long-held recollection independent of the Flint Note and/or that there might be explanations other than an alteration in Mr Sage's recollection following his being shown the Flint Note as to why Orion's case had not been originally formulated on the basis that the 1975 Agreement was a goodwill agreement and not a legal contract.

(8) The duty owed is said to have required disclosure to Sphere Drake, Hirst J and the Court of Appeal of Mr Sage's Affidavit and previous statements, or advice to Orion that such disclosure should be made or the lawyers would no longer continue to act for them, and in any event that no case was advanced before the courts that Mr Sage had a long-held recollection independent of the Flint Note and /or that the fact that Orion's case had not originally been formulated on that basis did not reflect on his reliability.

(9) It is right to record that in opening the case Mr Sumption expressly withdrew all the allegations against Mrs Atkins.

Election / Affirmation

Orion pleaded a case of estoppel and affirmation in the company's original Points of Defence served on October 31, 1997 which was extended in subsequent amendments to allege election waiver and laches. At the trial the plea was effectively limited to affirmation and election.

The basis for the plea (however expressed) was the agreement on quantum reflected in the Tomlin Order and the pursuit of the claim against Baloise on the basis that the April 1975 Agreement was not legally binding and Mr Sage's evidence in the First Action should be accepted. In particular reliance is and was placed on the decision to proceed before Moore-Bick J with the application for an order striking out Baloise' defence so far as it alleged that the April 1975 Agreement was legally binding made at a time when it was known that Baloise were relying on Mr Sage's 1986 Affidavit and Mr Burtonshaw's statement in support of their case. Reliance was placed on the fact that the reservation of rights letter was only sent following judgment on the strike out application. The essence of the plea was that by such conduct Sphere Drake chose to affirm the quantum agreement and to elect between two alternative and mutually exclusive courses of action.

The pleaded response to the allegation was, in summary, that:

(1) It was not until October 1996 that Sphere Drake were first supplied with a copy of Mr Sage's 1986 Affidavit and June 1997 before the company was supplied with other privileged documents demonstrating the developments in Mr Sage's statements and evidence;

(2) Sphere Drake did not know of the rights which it seeks to enforce in these proceedings or the material facts giving rise to them prior to the judgment of Moore-Bick J in April 1997 and the finding that Mr Sage had been untruthful, and, in any event, after Freshfields advised Sphere Drake to seek independent advice, Mr Evans of Price Waterhouse on behalf of Orion was aware that Sphere Drake was doing so and was aware from the letter of October 25, 1996 that Sphere Drake was reserving its rights to which he did not object.

THE LAW

JUDGMENTS OBTAINED BY FRAUD

There is no doubt that in law a judgment obtained by fraud is liable to be set aside and that a judgment obtained by perjury is a judgment obtained by fraud for the purposes of that principle: Hunter v Chief Constable of the West Midlands Police

[1982] AC 529

on appeal from McIlkenny v Chief Constable of the Midlands

[1980] QB 283

There is also no doubt that the courts have been concerned to ensure that the circumstances in which claims to set aside judgments on this ground can be made are defined and restricted to secure the obvious public policy interest in the finality and sanctity of judgments between the same parties.

In this case there is no dispute that to succeed in an action on this basis the Plaintiff must adduce fresh evidence, meaning evidence which was not before the court or courts which tried the first action and which could not with reasonable diligence have been placed before them. There are, as I have said, disputes as to whether or not in law and if so how the perjured evidence must be attributable to the party which was successful in the first action (The Attribution Issue) and as to the quality of and degree to which the fresh evidence must be material to the issues and the impugned decision (The Materiality Issue).

It follows, of course, from what is not in issue and is in any event clear on the authorities, that there is no right to have a judgment set aside in circumstances where all that can be proved is that the judgment was founded on evidence which can be shown to have been mistakenly but not dishonestly given nor indeed where evidence was dishonestly given but there is no fresh evidence to prove it.

PERJURY AND THE STANDARD OF PROOF

Perjury is defined in Section 1(1) of the Perjury Act 1911 as follows:

If any person lawfully sworn as a witness ... in a judicial proceeding wilfully makes a statement material in that proceeding, which he knows to be false or does not believe to be true, he shall be guilty of perjury.

The standard of proof is the civil standard, the balance of probabilities. In Re H

[1996] AC 563

Lord Nicholls, at pages 586-7, said that the more serious the allegation to be proved the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it. He also referred to "the instinctive feeling" that "a court should be more sure before finding serious allegations proved than when deciding less serious or trivial matters." Perjury is on any view a serious allegation to make. To make it against a man now dead, who cannot defend himself, in respect of evidence which whilst challenged as unreliable when he gave it was expressly accepted to have been honestly given, in my judgment serves to underline the importance of that approach in this case. I accept the way Mr Sumption put the matter in Sphere Drake's Closing Summary "the court should find perjury if, in all the circumstances of the case, it remains a distinctly more probable explanation than any other".

THE ATTRIBUTION ISSUE

There are, as Mr Sumption submitted, a number of possible views that might be taken of the answer to the question by whom must the fraud or perjury be committed for the court to order a judgment to be set aside:

(1) that if the court has been materially and dishonestly misled, the judgment must be set aside regardless of who has misled it;

(2) that the judgment should be set aside if a witness responsible for materially and dishonestly misleading the court is so clearly connected with the party which calls his evidence or the conduct of that party's case that (even if that party is ignorant of the dishonesty) it is "unjust that that party should be allowed to retain the benefit of the judgment";

(3) that the judgment is only to be set aside if the successful party is aware that the evidence is untrue and yet procures it to be given or relies upon it in that knowledge.

Mr Sumption submitted that the correct answer in law is (1) but if attribution to a party was required it was (2). Mr Grabiner submitted it was (3). Mr Sumption submits that authority on the point is meagre and inconclusive. Mr Grabiner submits it plainly supports the third proposition.

Before turning to the authorities, I would make the following comments:

(1) As I have said, the acknowledged limitations on this jurisdiction presuppose that not all fraud or perjury leads to the setting aside of a judgment.

It follows that the juridical basis for the jurisdiction cannot be, as Mr Sumption submits it is, that any judgment obtained by fraud is "vitiated", or "fraud unravels everything".

(2) Knowledge is a familiar concept both with individuals and corporations. What is "unjust" must depend on the circumstances of each case and would potentially extend the category of cases in which collateral attacks on judgments could be made and so prejudice the established public policy interest in the finality of judgments.

(3) There is a recognisable justice and policy in depriving a party of the fruits of a victory which he has knowingly obtained dishonestly and which can readily be seen to justify an exception to the finality principle.

There is not the same ready justification for an exception in the case of perjury for which the winning party has no moral responsibility, perhaps particularly so in a jurisdiction to which no limitation period would apply.

(4) The policy interest in the punishment of perjury itself is primarily met by the criminal law.

The Authorities

In Abouloff v Oppenheimer

(1883) 10 QB 295

the Court of Appeal held that in an action on a foreign judgment a plea that the plaintiff obtained the judgment by a fraudulent representation of fact to the foreign court was, if proved, a good defence. Lord Coleridge CJ at pages 300-301 referred to :

the broad proposition that where a judgment has been obtained by the fraud of a party to a suit in a foreign country, he cannot prevent the question of fraud being litigated in the courts of this country when he seeks to enforce the judgment so obtained. The justice of that proposition is obvious: if it was not so, we should have to disregard a well-established rule of law that no man shall take advantage of his own wrong. ... it has always been held in the courts of this country to be an answer to an action upon a judgment that the judgment has been obtained by the fraud of the party seeking to enforce it. (My emphases).

At pages 307-8 Brett LJ said:

With one exception, none of the authorities cited before us in the least militate against our decision; they all seem to shew that the fraud of a party to a suit is an intrinsic and collateral act which will vitiate the judgment. That exception is to be found in the doubts expressed by James, L.J., with the assent of Thesiger, L.J., in Flower v Lloyd. It seems to me that the fraud alleged in that action was probably fraud on the part of certain servants of the party, and not fraud brought home to the party himself; moreover it was, as I understand, fraud committed, not before the Court itself at the trial of the action, but previously to the case being brought to a hearing before the Court. If it is to be taken that the doubts of James and Thesiger L.JJ., related to a fraud of a party to the action, committed before the Court itself for the purpose of deceiving the Court, I cannot, after having heard the present argument, agree with the doubts expressed by them. These doubts are not binding, and no decision as to the effect of fraud was pronounced by these Lords Justices in Flower v Lloyd. (Also my emphases).

The requirement that the fraud or perjury must be committed by the successful party is further to be found in the unreported judgment of the Court of Appeal in Boswell v Coaks (November 5, 1892) and Birch v Birch (1902) p130.

The authorities on which Mr Sumption relies are cases in which the High Court was exercising its supervisory jurisdiction over an inferior court.

In R. (Burns) v County Court Judge of Tyrone [1961] NI 167 an affiliation order was granted in the County Court against Mr Burns. He sought an order of certiorari to quash the decision on the basis that two of the three witnesses who had given evidence corroborating the complaint against him had pleaded guilty to a charge of perjury in giving that evidence. The complainant herself had, however, been charged with but acquitted of subornation of perjury. Corroborative evidence was required by statute for an affiliation order to be made and as is apparent from the judgments of both Lord MacDermott LCJ. and Sheil J (at pages 169 and 174) although the third witness who gave corroborating evidence was not charged with perjury the guilty plea by one of the other two witnesses also made his evidence worthless as corroboration.

Lord MacDermott referred to the jurisdiction to bring up and quash orders of inferior courts procured by fraud; said that fraud included perjury; and concluded that the affiliation order was manifestly obtained by the fraud of the two witnesses but that the court must proceed on the basis that it was not procured by perjury committed at the complainant's instigation or with her knowledge.

Thus (page 170) the issue was clearly presented as to whether to allow certiorari it sufficed that the challenged decision was procured by perjured evidence in the sense that without such evidence the decision manifestly would not have been given? Or is it necessary to show in addition that such perjury was instigated or at any rate connived at, by the party who sought the challenged decision? Lord MacDermott's answers to these questions were "Yes" and "No". His reasoning is, I think, to be found at page 172, where having referred to the absence of authority he said:

Here we have an order undoubtedly obtained by the perjured testimony to which I have referred, and it is clearly in the interest of the due administration of justice that it should not stand. The supervisory jurisdiction of this court is not at large, but the general aim of that jurisdiction is to promote the due administration of justice and if a distinction is to be drawn between cases where a decision is procured by perjury and cases where a decision is procured by perjury to which one of the parties is privy, it ought to rest on some basis of principle. I am unable to discern any such basis here. Litigation between parties, whether civil or criminal, does not necessarily mean that there are not others anxious or interested to sway the issue one way or the other, and it would, I think, be a grave defect in the procedure of this court if one of these forms of fraud could be noticed but not the other. I can find no rational ground for the sort of discrimination which must prevail if we are to accede to the submission under discussion. If certiorari does not lie in such circumstances there is no other redress and an order undoubtedly founded on perjury remains effective. In my view this court is not bound to accept that situation merely because of a lack of authority. Though the main branches of certiorari have long since been shaped and fixed by precedent, they are still alive and capable of growth in the furtherance of their established purposes. In my opinion, the distinction relied upon by Mr McConnell is more apparent than real and of no weight or relevance as respects the due administration of justice. This order has manifestly been procured by fraud and that, I think, is enough to allow this court to intervene. I would, therefore, make the conditional order absolute, so that the decision of quarter sessions may be quashed and the order at petty sessions restored.

This decision has been cited with approval by all three members of the Court of Appeal in Reg. v West Sussex Quarter Sessions

[1974] QB 24

and by Lord Bridge in Reg. v Home Secretary, ex parte Al-Mehdawi at page 895 as an example of "the principle that fraud unravels everything".

It is notable that in none of these cases (all of which concerned the exercise of a supervisory jurisdiction) were any of the authorities cited which addressed the principles on which decisions of courts of collateral jurisdiction could be set aside for fraud. It is also the case that, in current terms, remedies by way of judicial review are subject to their own regime of substantive and procedural safeguards designed to balance the need for finality with the right of review.

In my judgment, the directly relevant authorities are clear as are the principles which underlie them and they require that a judgment of a court of collateral jurisdiction is only to be set aside for fraud if the fraud or perjury is known to the successful party and procured by that party to deceive the court or at the least relied upon by that party to that end.

There remains the question how in law those questions are to be judged in a case such as this. The law of agency is, as is agreed, an inappropriate test. No witness gives evidence as an agent of a party. In my judgment the position is no different from any other case where the law requires that knowledge be attributed to a corporate entity. The knowledge must be held by the corporation's "directing mind" and where that is to be found must depend on the context in which the question arises: c.f. Meridian Global Funds Management Asia Ltd. v Securities Commission

[1995] 2 AC 500

. In the circumstances of this case the directing mind would in my judgment include Mr Fordyce and Mrs Atkins as those who were responsible for the conduct by Orion of the appeal hearing and those at Linklaters & Paines and counsel whose conduct of Orion's case is criticised.

But what is required in law on their part for Sphere Drake to succeed would be actual knowledge that Mr Sage's evidence was perjured. It would not suffice that Mr Sage committed perjury but that was unknown to those responsible at Orion for conducting the claim. Nor would it suffice, as Mr Sumption submitted it would, that it was only believed that Mr Sage's evidence was wrong or unreliable. It is true, as Mr Sumption also submitted, that Mr Sage was of course responsible at Orion for the events which gave rise to the claim and whilst he had long ceased to be employed by Orion at the time of the trial he was both pleased and anxious to assist Orion at the trial. But that would not in my judgment suffice to fix Orion with his perjury unless it was known to those who were responsible for the conduct of or conducting the company's claim. The principle is that a judgment is only to be set aside in circumstances where the successful party has obtained it by knowingly procuring or relying on perjured evidence, and nothing in this case encourages me to think that there is any justification for extending that principle.

THE DUTY TO THE COURT

In my judgment, the parameters of the duty a barrister or solicitor or a party owes to a court not to mislead it are strictly irrelevant to the questions I have to decide. The question is not whether there was a breach of this duty, but whether those representing Orion knew that Mr Sage's evidence was perjured and yet procured or relied upon it.

There is no dispute about the scope of the duty. A barrister must not wilfully mislead the court as to the law, nor may he actively mislead the court as to the facts: Lord Diplock in Saif Ali v Sydney Mitchell & Co

[1980] AC 198

at 220. A solicitor owes the same duty but normally fulfils it by giving appropriate instructions to counsel. The same must apply to the client. It follows that the duty does require that a fact known to be incorrect must not be adopted as part of a submission to the court nor must the court be led to believe something known to be untrue. The decision in Vernon v Bosley (No 2)

[1997] 1 All ER 614

is, I think, an example of the application of these principles to circumstances in which the duty requires an incorrect appreciation which the court has acquired from the conduct of the case to be corrected. I accept Mr Sumption's submission that the exchange and use of witness statements requires that the observance of the duty be monitored with greater vigilance.

On the other hand, it is also well-established that counsel is not the judge of the credibility of the witnesses : Tombling v Universal Bulb Co. Ltd.

[1951] 2 TLR 289

at 297 per Denning LJ.

As I have already made clear addressing the evidence, I am quite satisfied that (irrelevant in law as I believe it to be) there is no basis for any of the allegations of breach of duty made against any of those involved on behalf of Orion. No one misled counsel as to the facts and counsel did nothing to mislead the court. Mr Henshaw dealt impeccably with the preparation of Mr Sage's statement and evidence to be given at the trial. Counsel were properly instructed by him. Mrs Good gave an honest account of events at the Tardis meeting when Mr Fordyce was present. Mr Boyd did not in any way mislead the Court of Appeal in the submissions he made to the Court.

The basis for the allegations is that after the Tardis meeting Mrs Good, Mr Fordyce and Mr Boyd knew that Mr Sage's evidence had not been based on recollection and that Mr Boyd's possible explanations for the delay in pleading that the April 1975 agreement was not legally binding were untrue or misleading and should therefore have been corrected and not repeated. The basis does not exist because as I find that was not what was said or concluded about Mr Sage's evidence at the Tardis meeting and in any event Mr Boyd did not advance "possible explanations" to the Court of Appeal.

THE MATERIALITY ISSUE

Before summarising the authorities, I should state the competing submissions and some practical factors which in my judgment must impact on the correct approach in law and in this case in particular.

Mr Grabiner's submission, relying on Hunter and McIlkenny is that the fresh evidence relied upon must be "likely to be decisive" on the result of the case. Mr Sumption's submission, relying on dicta in Hip Foong Hong v H. Neotia and Company

[1918] AC 888

and other authorities which have quoted them with approval is that the test is whether the perjured evidence was material to the reasoning in the impugned judgment and might have led to a different decision.

Although Mr Grabiner submits that the authorities on which Mr Sumption relies are distinguishable because they concerned appellate hearings and not collateral attacks on previous judgments I do not think that distinction can explain the differences there are between the two lines of authority because the judgments on which Mr Sumption relies, often in terms, make clear that the proper procedure is to proceed by way of a claim such as Sphere Drake make and address the principles in that context.

On the other hand, Mr Sumption's submission that Hunter's case was concerned only with the quality of the fresh evidence and not its materiality to the impugned decision (because that was obvious) is to my mind equally unconvincing, as is his submission that all that was decided is that the evidence must be decisive of the particular issue to which the allegedly perjured evidence itself was relevant (in this case whether Mr Sage had an independent recollection of the exchange recorded in the Flint Note ) for that leads to the logical but I think plainly wrong conclusion that any proved perjury on any relevant issue must lead to a judgment being set aside regardless of its materiality to the decision itself.

The practical factors to which I have referred are these:

(1) both parties are agreed that it is not for me on this application to re-try the question of the liability of Sphere Drake to Orion and so the question whether or not the April 1975 agreement was legally binding. If Sphere Drake succeed I must set aside the judgment of Hirst J and order a re-trial by another judge. Yet to determine whether or not Mr Sage committed perjury and whether or not that perjury (if such it was) is attributable to Orion requires that question at least to be considered. If the test of materiality is "likely to be decisive" all the more so.

(2) There is a difference in principle between a test of materiality which looks only to the materiality of the evidence to the impugned decision and one which looks to its materiality to the final result in the sense of what the decision might be if the matter were re-tried with honest evidence. I think this distinction (which could often be expected to be irrelevant in practice) is not reflected in the language of many of the authorities. But in my judgment the relevant test must look to the impugned judgment which it is alleged was "obtained" by fraud. That may help to resolve the dilemma in (1). Moreover, if a case arose in which the court could readily determine that despite some perjury the outcome would not have changed I see no reason why it should not and every reason why it should so decide on ordinary principles of causation.

(3) There are real difficulties in this case of seeking to factor in to the reasoning of other judges (three of them) what the effect on their decisions would have been had the allegedly perjured evidence not been given or given but exposed as such. Mr Sumption submits, logically in my judgment, that the question in relation to the first instance judgment of Hirst J is "what if the perjured evidence had not been given" because it would be wrong to assume it would have been and was given if the fresh evidence had been available, but the question in relation to the Court of Appeal is "what if the perjured evidence had been exposed as such" because it was right to assume it would have been and was given. In either case there remains the question whether the later court should seek to determine and take into account evidence which might honestly have been given and how it is to judge the effect of possible changes in the first instance decision on the reasoning or approach of the appellate court.

(4) Cases such as this are rare, and, it is to be hoped, will remain so, but it does serve to illustrate that a decision on whether or not perjured evidence has been given may itself involve a consideration of a vast quantity of "fresh" evidence both documentary and oral.

I have not set out these factors to demonstrate that I am faced with a difficult task, but simply to demonstrate that this jurisdiction is one which unless it is kept within strict limits is capable of over analysis and indeed over use. The existence of the jurisdiction will be self-defeating unless it is limited to circumstances in which it can be plainly demonstrated that the successful party has dishonestly obtained the fruits of victory.

The authorities

I have been referred to a considerable number of authorities from the 18th century onwards, both in this and other jurisdictions.

In Hunter's case the appellant was one of the six accused who were convicted of murder arising from the deaths of 21 people in bomb explosions in two Birmingham public houses in 1974. All six accused were originally in police custody. On November 22 and 23 the appellant and the other accused had made statements or oral confessions to police officers. On November 25 all six appeared at a magistrates court apparently uninjured save in one case which he said was the result of a fall. Thereafter all six were remanded in custody in prison. On November 28, at their next appearance in the magistrates court, all six had visible injuries which showed they had been seriously assaulted. At a voir dire, the trial judge ruled that the prosecution had proved that the six men had not been assaulted by the police and thus their statements should be admitted in evidence. The plain inference was that the assaults had been committed whilst the men were in prison after the police had obtained their statements and not while they were in police custody. The jury heard the statements and the allegations that they had been induced by violence by the police. They were directed that the statements were an essential part of the prosecution case but that if those allegations were or might be true they were worthless. All six were convicted.

Writs were then issued claiming damages against the police and the Home Office (responsible for the prison service) for the injuries suffered in assaults, which, so far as the police were concerned, were the same allegations as had been made both on the voir dire and at the trial.

The claim was supported by new medico-forensic evidence as to the timing of the injuries and statements from three prison officers that the six men had been bruised and injured on their arrival at the prison.

The Defendant Chief Constable applied to strike out the claim against the police as an abuse of process. The House of Lords, dismissing the men's appeal from the Court of Appeal, held that it was a general rule of public policy that where a final decision had been made by a criminal court of competent jurisdiction the use of a civil action to initiate a collateral attack on the decision was an abuse of process and that the fresh evidence which the appellants sought to advance in the civil action fell far short of satisfying the test to be applied in considering whether an exception to the general rule should be made, which, in the case of a collateral attack in a court of coordinate jurisdiction, was whether the fresh evidence "entirely changes the aspect of the case".

In a speech with which all the other members of the House agreed, Lord Diplock referred to the general rule derived from civil cases, explained why it should and did apply with equal if not greater force to the decisions of a criminal court, and, at page 545, turned to the exception to the rule where there was fresh evidence.

He said:

I can deal with this very shortly, for I find myself in full agreement with the judgment of Goff L.J. He points out that on this aspect of the case Hunter and the other Birmingham Bombers fail in limine because the so-called "fresh evidence" on which they seek to rely in the civil action was available to them at the trial or could by reasonable diligence have been obtained then. He examines also the two suggested tests as to the character of fresh evidence which would justify departing from the general policy by permitting the plaintiff to challenge a previous final decision against him by a court of competent jurisdiction, and he adopts as the proper test that laid down by Earl Cairns L.C. in Phosphate Sewage Co. Ltd v. Molleson

(1879) 4 App Cas 801

, 814, namely that the new evidence must be such as "entirely changes the aspect of the case." This is perhaps a little stronger than that suggested by Denning L.J. in Ladd v. Marshall

[1954] 1 WLR 1489

, 1491 as justifying the reception of fresh evidence by the Court of Appeal in a civil action, viz., that the evidence "...would probably have an important influence on the result of the case, though it need not be decisive:..."

The latter test, however, is applicable where the proper course to upset the decision of a court of first instance is being taken, that is to say, by appealing to a court with jurisdiction to hear appeals from the first-instance court and whose procedure like that of the Court of Appeal (Civil Division), is by way of a rehearing. I agree with Goff L.J. that in the case of collateral attack in a court of coordinate jurisdiction the more rigorous test laid down by Earl Cairns is appropriate.

In his judgment in the Court of Appeal, Goff L.J. (as he then was) said, at page 334G, after referring to Reg. V. Humphrys [1977] A.C.1; Flower v. Lloyd

(1879) 10 Ch D 327

; and Birch v. Birch :

So the fraud and fresh evidence points merge into one, and that is probably why Mr. Turner-Samuels did not rely on the fraud point on behalf of the plaintiffs he represents; and the questions are whether the plaintiffs are entitled to adduce the additional evidence on which they seek to rely and whether that evidence is sufficient.

The defendants say that the proper test is that laid down by Lord Cairns L.C. with regard to estoppel in Phosphate Sewage Co. Ltd. v. Molleson, 4 App Cas 801 , 814, namely that the new evidence must be such as "entirely changes the aspect of the case". Alternatively they say that the court should apply the rule which it observes with regard to appeals; see Ladd v. Marshall

[1954] 1 WLR 1489

, at 1491, per Denning L.J.:

"To justify the reception of fresh evidence or a new trial, three conditions must be fulfilled: first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible".

In my judgment the former is the correct view.

So, it is not permissible to call further evidence which was available at the trial or could by reasonable diligence have been obtained and the fresh evidence must be likely to be decisive. In my judgment, the plaintiffs fail on both heads.

In my judgment, Hunter's case is authority that:

(1) The principle of finality in litigation is one to which the courts will not lightly find or apply exceptions.

(2) Consistent with that principle there is a real distinction between an appellate process and so the rules as to when and what fresh evidence may be admissible in that process and a collateral attack on a judgment of a court of coordinate jurisdiction which is the case before me.

(3) In the latter case a judgment obtained by perjured evidence is, like any judgment obtained by fraud, liable to be set aside but there must be apparently credible evidence as to the fraud or perjury which not only was not available at the trial and could not have been obtained with reasonable diligence for use at the trial, but which is such as entirely changes the aspect of the case in the sense that it must be likely to be decisive of the outcome of the claim in question. A reading of Goff LJ's judgment and the judgment of Lord Cairns in Phosphate Sewage makes it impossible to accept Mr Sumption's submission that "the aspect of the case" should be read as "an" aspect of the case or even an important aspect of it.

In Boswell v Coaks (1894) 6 R 167 the Earl of Selborne, in a speech with which the other members of the House of Lords concurred, at page 174, expressed the test of materiality in terms of it being absolutely necessary to show that the alleged fraud was one bearing upon the decision in the case.

The authority on which Mr Sumption relies starts with the decision of the Privy Council in Hip Foong Hong . The judgment was delivered by Lord Buckmaster. The appellants sought a new trial of an action on the basis that the respondents had committed perjury and fraud in obtaining a judgment against them. Lord Buckmaster (strictly obiter as the court agreed with the court below that the case of fraudulent conduct had not been established), at page 894, contrasted the law applicable to an application for a new trial on the ground of the discovery of new evidence with a case of "fraud or surprise". He said

In all applications for a new trial the fundamental ground must be that there has been a miscarriage of justice. If no charge of fraud or surprise is brought forward, it is not sufficient to show that there was further evidence that could have been adduced to support the claim of the losing parties; the applicant must go further and show that the evidence was of such a character that it would, so far as can be foreseen, have formed a determining factor in the result. Such considerations do not apply to questions of surprise, and still less to questions of fraud. A judgment that is tainted and affected by fraudulent conduct is tainted throughout, and the whole must fail, but in the present case their Lordships are unable to say that such a case has been established.

No authority was cited. Nor is it apparent how a court is to judge whether a judgment is "tainted and affected by fraudulent conduct". The contrast, however, appears to be between fresh evidence which the second court can conclude would or probably would have provided a different result and perjured evidence which substantially undermines the reasoning of the first court so that its judgment is affected by the fraud and should not be allowed to stand.

Lord Buckmaster returned to the same theme in the House of Lords in Jonesco Beard

[1930] AC 298

. The plaintiff in the original action, who was a race horse trainer, made two claims against the defendant owner alleging first that the defendant had agreed to give him a share in some horses and second that the plaintiff had sold two horses to him but not been paid for them.

The trial judge disbelieved the plaintiff's account and gave judgment for the defendant owner. The plaintiff appealed and was given leave to adduce fresh evidence which alleged fraud against the defendant as regards documents relied upon by him to defeat the second claim. The Court of Appeal decided that a prima facie case of fraud had been made out, set aside the judgment and ordered a retrial. The defendant appealed. The House decided that there was no evidence of fraud and restored the judgment below. But in the course of his speech (with which the other members of the House agreed) Lord Buckmaster said, at page 301:

The fraud charged related to the claim for the price of the two horses alleged to have been sold by the appellant. Were such fraud properly established I agree with the Court of Appeal in holding that the whole judgment would thereby have been vitiated. Fraud is an insidious disease, and if clearly proved to have been used so that it might deceive the court, it spreads and infects the whole body of the judgment.

It is not entirely clear from the report, but almost certainly was the case, that both the plaintiff's claims depended on issues of fact and the defendant's credibility. In such a case it is not difficult to understand that the whole judgment would be "vitiated" by fresh evidence showing the defendant had set out to deceive the court on one of the claims. On the other hand, if the judgment in the first claim had turned on matters entirely distinct from the second claim I do not understand why it should be "infected" by such deceit.

Two unreported decisions of the Court of Appeal also adopt this line of authority. The first is Trodden v Bhatti (23rd January 1980) in which Buckley LJ cited Hip Foong Hong in support of the proposition that it was not necessary for the new evidence to be conclusive but only such as would have a material effect upon the original decision in the sense that that decision "might well have been other than it was". Whilst that decision might be explained as applicable only to applications to strike out claims, the same cannot be said for Phillips LJ's judgment in Gaillermar Sarl v McClelland (19th February 1996) even though that was the context. The Court of Appeal was there concerned with an appeal from an order striking out a claim to set aside a judgment on the ground that it had been obtained by fraud. The fraud alleged was that one of the defendants, with the complicity of the others, had lied to the first court. One of the grounds of appeal was that the judge had been wrong to hold that in an action to set aside a judgment on the ground of fraud the fraud must be the effective cause of the judgment but ought to have held that "it need do no more than relate to a material matter". Phillips LJ, delivering the judgment of the court, said at pages 10G to 12A of the transcript:

In the comparatively few cases where actions to set aside judgments on the grounds of fraud have succeeded, the fraud has been blatant and its effect on the judgment obvious. But I do not think it is clear on the authorities that the parties seeking to set aside a judgment must go so far as to show that on the balance of probabilities the judgment would not have been given but for the fraud.

After a reference to Jonesco v Beard , Phillips LJ continued:

What is the proper test to be applied? In my judgment, the fraud must be such as at least to put the validity of the judgment in doubt before it can so taint the judgment as to justify setting it aside.

The principles applicable to a claim of this kind have also been considered in the High Court of Australia in McDonald v McDonald

(1965) 113 CLR 529

. The Plaintiff brought an action against the Defendant for defamation and an assault said to have been committed at a street corner in Toowoomba in Queensland. At the trial the jury found that any assault by the defendant was in self defence. The defendant's account was supported by a witness called Maloney. The application for a new trial was made on the basis of fresh evidence said to show that Maloney had not in fact been a witness to the events at all and that he and the defendant had conspired together to present false evidence.

The Court (Barwick C.J., Kitto, Taylor, Menzies and Windeyer JJ) held that the fresh evidence had little value either standing alone or in conjunction with the evidence given at the trial and dismissed the application. But in the course of his judgment, Barwick C.J., at pages 532-3, expressly adopted the distinction made by Lord Buckmaster in Hip Foong Hong and Jonesco Beard between a case of non-fraud where the fresh evidence has to be of such probative value and significance that, taken with the evidence already given at the trial, it will in all probability be decisive of the issues between the parties in a sense opposite to that of the verdict and a case where the fresh evidence does tend to establish that the verdict was obtained by fraud where it was not necessary ... that it should be found to be probably conclusive of those issues.

The Court's conclusion upon the fresh evidence before it that the verdict was obtained by fraud, by surprise or that witnesses were suborned, is sufficient to justify setting aside the verdict and ordering a new trial. Whether or not the Court does so must finally depend on the Court's view as to whether or not the interests of justice, either particularly in relation to the parties or generally in relation to the administration of justice, require such a course.

In my judgment there is no easy distinction to be drawn between these two lines of authority. Remarkably, no case has been cited to me which has considered them both. That may well be because the question has arisen directly only rarely and in the cases relied upon by Mr Sumption the point has arisen in appellate courts and on applications to stay or strike out claims and the courts have turned to the authority in that context.

In my judgment the judgments and test in Hunter's case are to be preferred, and in particular as expressed in the words of Lord Cairns that the fresh evidence must be such as entirely changes the aspect of the case. Those words require that the court must form the impression that the fresh evidence would have entirely changed the way in which the first court approached and came to its decision. Not only is Hunter's case recent and high authority and authority directly in point but in establishing a slightly stricter test it gives preference to the justice of the finality of judgments between the same parties. Insofar as the principles on which a judgment may be set aside for fraud require re-examination or re-expression in my judgment they should be more not less restrictive of the circumstances in which such a course is permissible. It is one thing to apply them to a short case which turns on the credibility of two witnesses or the authenticity of a single document, it is quite another to apply them to a case such as this and especially so where the judgments sought to be impugned are now many years in the past and the events to which they relate began in the 1950s, and the prospect of a yet further trial is unattractive in the extreme. Courts do make mistakes, including mistakes in accepting evidence which is unreliable. The trial system is designed to minimise that risk. The appeal system exists to the same end. There is nothing illogical or unjust in limiting the circumstances in which a resulting final judgment can be impugned by one of the parties to cases where fresh evidence demonstrates that a party has dishonestly set out to deceive and in effect succeeded in deceiving the court. If it were otherwise the risk of never-ending litigation and thus injustice to the successful party is apparent.

ELECTION/AFFIRMATION

The relevant legal principles are not in dispute. Affirmation is one form of the general doctrine of election. An Election requires that the electing party, with knowledge of both the material facts which present him with a choice and that they give rise in law to a right or duty to make that choice does an unequivocal act which clearly demonstrates to the other party that he has made a particular choice: Peyman v Lanjani

[1985] 1 Ch 457

; The Kanchenjunga [1990] 1 LL Rep 391 per Lord Goff at page 398 and ICCI v Royal Hotel Ltd [1998] LL Rep (IR) 151 at p. 161 per Mance J. Unlike estoppel, an election once made is final and is not dependent upon reliance upon it by the other party. Also unlike estoppel an election requires an informed choice made with knowledge of the facts giving rise to and of the existence of the right. Both require an unequivocal representation.

I should add that there can be no doubt that the quantum agreement was made by both parties on the basic assumption that Hirst J's judgment was binding and effective and Sphere Drake had exhausted any prospect of appeal or, so far as they knew, of setting it aside. Insofar as the agreement had by consent become an Order of the Court, it had not lost its status as an agreement or acquired some extra status which rendered it immune from the usual consequences where an agreement can be shown to have been entered into on the basis of a common mistake: Chitty on Contracts 27th Edition (1994) para 5-066. Those consequences include (at least) the agreement being voidable in equity : Solle v Butcher

[1950] 1 KB 671

and see Magee v Penine Insurance Co Ltd

[1969] 2 QB 507

per Lord Denning at page 514 and Fenton Atkinson LJ at page 517 and Associated Japanese Bank v Credit du Nord S.A.

[1989] 1 WLR 255

at 266 to 268. It follows that if the judgment of Hirst J is set aside on the ground it was obtained by fraud then the quantum agreement and Tomlin Order must also be set aside.

CONCLUSIONS

THE PERJURY ISSUE

I have already stated my conclusion that Mr Sage did not commit perjury in giving his evidence to Hirst J in the First Action. My reasons for that conclusion can be found in my findings on the evidence as I have recounted it and expressed them in doing so. By way of summary:

(1) There are real doubts about what Mr Sage did say or should fairly be taken to have said in his evidence about the state of his recollection and the effect upon it of the contents of the Flint Note. The allegation of perjury is (as it must be) in precise and limited terms. It is that Mr Sage lied in saying he had a long-held recollection independent of the Flint Note of using the words the Note attributed to him at the April 1975 meeting. It is not alleged that he lied in saying that he had always believed that any agreement made at the April 1975 meeting was only a goodwill agreement nor in claiming a present recollection at the trial of using the words prompted by the Flint Note.

(2) The reasons for the limited terms of the allegation are not hard to find and on my findings of fact no wider allegation could possibly have been sustained. There is no dispute that Mr Sage did speak the words attributed to him by the Flint Note at the meeting. The evidence is that he had said and at the least honestly believed before anyone had discovered the Flint Note that the substance of any agreement made at the meeting was that it was only a goodwill agreement. Thus the perjury allegation is in essence an allegation that Mr Sage, reading the Flint Note, dishonestly characterised as recollection what was in truth reconstruction his evidence that he used the words which he did in fact use in a context which was consistent with what he did recollect had been the substance of the outcome of the meeting. That is a long way from what might be considered the usual case in which an allegation of perjury is made where there is evidence often documented that the alleged perjurer has contradicted himself and one of the two accounts must be false and probably deliberately untruthful. Sphere Drake's case is only that Mr Sage dishonestly claimed to have a recollection he did not have.

(3) One of the key planks in Mr Sumption's submissions in support of the allegation of perjury was that the discovery of the Flint Note and the circumstances in which, in August 1989, Mr Sage came to include it in paragraph 65 of his witness statement could not have been forgotten by Mr Sage at the time he came to give his evidence only some three months later in November 1989. Hence, it was submitted, that this was a case where the witness must have been conscious of what was reconstruction and what was recollection about the words attributed to him. However, on my findings, it is clear that the Flint Note did not make an impact on Mr Sage. There was no conversion, Damascene or otherwise, on the part of Mr Sage (unlike, maybe, the lawyers) when he saw it, as Mr Sumption submitted was the case. Nor, like Mr Fordyce and Mrs Atkins, did Mr Sage see as important a distinction between using the words the Flint Note attributed to him and what he had been saying from the start or at least believed he had been saying from the start namely that the meeting had given rise only to a goodwill agreement. There can be no other sensible explanation of his leg-pulling of Mrs Good and Linklaters & Paines about the Flint Note : perhaps you will believe me now. For the same reasons Mr Boyd's submission that there was no half-way house between Mr Sage being right or telling lies can now be seen, as Stuart-Smith LJ and indeed Mr Mance saw it, as a forensic success but wrong.

(4) Once it is accepted that Mr Sage did use the words attributed to him by the Flint Note and did believe before seeing the Note that the April 1975 agreement had resulted in only a goodwill agreement and that he had said so, I do not find it in the least surprising and certainly cannot exclude the real possibility that, whatever in fact happened at the April 1975 meeting, Mr Sage could honestly have convinced himself and believed he recollected that he must have used the words about the whole agreement and indeed that as the let out was to him the epitome of the agreement the precise context in which the words were used was unimportant. That, as it seems to me, also deprives of much of its force Mr Sumption's argument that Mr Sage was a man well able to express himself who could and would have said much earlier that he recalled using the words in the Flint Note if he truly had done so.

In my judgment this is the not uncommon case, where, almost by definition, there is always a real risk that a witness may honestly fail to distinguish between original recollection, a refreshed recollection and reconstruction, and one of those is a far more probable explanation of Mr Sage's evidence than an allegation that he perjured himself in claiming to recollect what he knew he had only reconstructed.

(5) Mr Sage has never faced the serious allegation now made against him. He was expressly accepted by Sphere Drake as an honest witness at the trial. Those who heard him give evidence and those who took part in its development and preparation without exception expressed the opinion, which I am sure in each case was honestly held both at the time and when they gave evidence, that Mr Sage was an honest witness and gave his evidence honestly. That is true of counsel, Mr Boyd and Mr Cordara, of the solicitors, in particular Mrs Good and Mr Henshaw, but also Mr McDonnell and Mr Legg, and of Mr Fordyce and Mrs Atkins. It is also of course true of Hirst J and, in a sense of Mr Mance and so Sphere Drake. That is not of course conclusive but it is compelling particularly so when those concerned were mostly well placed to make and experienced in making such judgments.

(6) Mr Sumption never came close to providing a satisfactory explanation for why Mr Sage should have given perjured evidence and indeed done so on what is, however important in the event, a very narrow point. The suggestions were that Mr Sage did not care for being questioned about the reliability of his recollection and so was going to see Mr Mance off ; that he believed strongly in Orion's case and thought Sphere Drake's refusal to pay was extremely caddish ; that if Sphere Drake was right Mr Sage had made a disastrous deal for Orion and he wanted to vindicate his reputation; and possibly that he wanted to make money out of the case. Insofar as these suggested motives were put to the witnesses they were rejected save that Mrs Good acknowledged that Mr Sage believed that justice was very much on the side of Orion. For my part, leaving aside the question of payment which I have already rejected, I see nothing exceptional in any of these suggestions to explain why a 71 year old man of unblemished personal reputation should give dishonest evidence on oath. Apart from the possible heat generated by cross-examination (which is not of itself a promising basis for an allegation of perjury) the other suggestions, if truly a motive for perjury, would one might have thought have led Mr Sage to leap upon and adopt the Flint Note (which he did not) and not to turn round and blame Linklaters & Paines for not believing him before (which he did).

(7) I would add that whilst the standard of proof is not important to my conclusion it serves to confirm it. I have already referred to my rejection of most if not all of the matters on which Sphere Drake relied in support of the perjury allegation. In particular I reject the interpretation Sphere Drake seek to put on what was said at the meeting in the Tardis.

It, of course, follows from my conclusion that Mr Sage did not commit perjury that Sphere Drake's claim fails and must be dismissed. Nonetheless I will state my views on the other issues.

THE ATTRIBUTION ISSUE

As I have said, in my judgment, even if Mr Sage did commit the alleged perjury, the law requires that at least one of those responsible for the management of Orion or the conduct of the litigation on the company's behalf must have procured him to do so or at the least relied on his evidence to deceive the court in the knowledge that it was perjured. Sphere Drake have wholly failed to establish a case of such knowledge on the part of anyone. Indeed to the contrary, I am quite satisfied that all those concerned on behalf of Orion believed that Mr Sage had given honest evidence and that the company was entitled to rely on it.

For this reason, even had I concluded that Mr Sage committed perjury, I would still have dismissed Sphere Drake's claim. I would add that although I do not think that a breach of the duty not to mislead the court on the part of Orion or its advisers would of itself be material to the outcome of Sphere Drake's claim, I unhesitatingly acquit Mr Boyd, Mrs Good, Mr Henshaw and Mr Fordyce of the surviving allegations made against them in that respect. In my judgment each carried out their duties impeccably and there is nothing in the preparation for or conduct of Orion's claim from beginning to end for which any of them or anyone else involved for Orion has any reason to reproach themselves.

THE MATERIALITY ISSUE

I have stated that in my judgment the test in law which I must apply is that even if Mr Sage did commit the alleged perjury it would not entitle Sphere Drake to an order setting aside the judgment in the First Action unless the evidence was such that it entirely changed the aspect of the case. The relevant aspect of the case was whether the April 1975 agreement gave rise to a legally binding agreement.

Despite the narrow compass of the alleged perjury, in my judgment, had it been established , this test would have been satisfied. My reasons are that:

(1) The documents, in particular the Flint Note and the Russell Record, were not conclusive and contained material on which both "sides" could properly rely. The "probabilities" also seem to me to have been nicely balanced.

(2) The oral evidence, apart from Mr Sage's evidence, was either neutral or self-cancelling.

(3) Reading the judgments of Hirst J and Lloyd and Mann LJJ the focus of the trial and even more the appeal was upon the reliability of the evidence Mr Sage gave that it was understood at the meeting that the discussions were not to result in a legally binding agreement. The allegation of perjury is of course directed to that issue, and the length and existence of Mr Sage's recollection became an important part of the attack on his reliability.

(4) The consideration of the documents and the probabilities by Hirst J and the majority of the Court of Appeal not only led them to different conclusions about whether the parties were aiming for finality but was substantially in the context of testing, and reaching an assessment of Mr Sage's reliability. It would be artificial to suggest that a lie about the length of his recollection would not have affected an assessment of the fact of recollection itself. Nor, as I have said, can I accept Mr Grabiner's submission that even without Mr Sage's evidence the outcome of the First Action would have been the same.

(5) Whilst it is not conclusive it is persuasive that Moore-Bick J, having concluded that Mr Sage had been untruthful about his recollection, reached the opposite conclusion to Hirst J as to the binding nature of the agreement.

THE ELECTION/AFFIRMATION ISSUE

Prior to the judgment of Moore-Bick J, no one concerned on behalf of Sphere Drake knew or believed that there was evidence to show that Mr Sage had committed perjury in the First Action nor did they think or believe that the company had any right it could exercise to set aside the decision in the First Action. Nothing done on behalf of Sphere Drake demonstrated in any way that the company was electing not to pursue such rights if it had them. Indeed Sphere Drake was advised that the company could and need do no more than send the reservation of rights letter at the time and in the terms it did and those acting for Orion were in no doubt that the company was not intending to waive any rights.

Orion's plea of election or affirmation therefore fails at every hurdle and had I concluded that Mr Sage had committed perjury and that Orion was responsible for his doing so the plea would not have availed Orion to defeat Sphere Drake's claim to set aside the decision in the First Action.

APPENDIX 1 ABBREVIATIONS

A. CORPORATE NAMES

BALOISE Basler Versicherungs Gesellschaft. A Swiss Insurance company, known in the U.K. as the Baloise Insurance Company.

DRAKE Drake Insurance Company Limited. Drake was incorporated in 1947. Orion was a minority shareholder until 1967 when its shareholding was acquired by Howden. In 1972 Howden acquired the remainder of the share capital. In 1982 Drake transferred all its liabilities to Sphere under a scheme of arrangement. At all relevant times Orion was Drake's sole underwriting agent.

HOWDEN Alexander Howden Holdings Ltd (subsequently PLC). From 1963 the Underwriter of the "Sphere X account". Orion and Baloise were quota share reinsurers of the Sphere X account. In 1966 and 1967 Howden acquired all the share capital of Sphere, and in 1972 all the share capital of Drake.

ORION The Orion insurance Company Ltd (subsequently PLC). In 1976 became a wholly-owned subsidiary of Nationale- Nederlanden NV. Underwriting agent of both the Marine and Non-Marine Pools formed in 1953 and 1954 of which Orion, Sphere and Drake were members. Placed into provisional liquidation by Court Order on October 21, 1994. Now in a Scheme of Arrangement and renamed OIC Runoff Limited.

SPHERE Sphere Insurance Company Limited. Sphere was incorporated in 1953 by Orion and Baloise as a vehicle through which Baloise could underwrite in the London market. Orion and Baloise originally owned 50% each of the shares. In about 1963 Howden acquired a holding of about 20% in Sphere, and in 1966 and 1967 the entire share capital. Changed name to Sphere Drake in 1982.

SPHERE DRAKE Sphere Drake Insurance PLC. Sphere changed its name to Sphere Drake in 1982 following the transfer of Drake's liabilities to Sphere under the scheme of arrangement.

B. OTHER

THE FIRST ACTION The hearing in November/ December 1989 before Hirst J in which Orion was Plaintiff and Sphere Drake Defendant.

THE APPEAL IN THE The appeal by Sphere Drake against the decision of FIRST ACTION Hirst J, heard by Lords Justices Lloyd, Stuart-Smith and Mann in July 1991.

THE BALOISE ACTION The hearing, which began in October 1996, before Moore-Bick J, in which Sphere Drake, Howdens and Orion were Plaintiffs and Baloise was Defendant.

THE APRIL 22, 1975 MEMORANDUM The Memorandum made by Mr Russell summarising his meeting with Mr Rousell on April 21 which included reference to the need to address "extreme new liabilities" at the April 23, 1975 meeting.(Pages 16-17)

THE APRIL 1975 AGREEMENT/MEETING The Meeting on April 23, 1975 and the matters agreed at it.

THE RUSSELL RECORD The typed record of the April 1975 meeting prepared by Mr Russell and signed by all the parties as an agreed record of the meeting. (Pages 19-20)

THE FLINT NOTE The partly shorthand manuscript note made by Mr Flint during the April 1975 meeting. (Pages 20-21)

APPENDIX 2 DRAMATIS PERSONAE

ATKINS Amanda A Chartered Accountant. Worked for ORION as Assistant General Manager from July 1987 to January 1991, when she left to become Chief Financial Officer of Zurich Re. Gave evidence at the present trial at the instance of Orion. By early 1989 she had day to day responsibility at Orion for the First Action.

BARTTRAM Tiffany Now Mrs Sanders. Trainee solicitor at Linklaters & Paines in June and July 1991. Now employed by Clifford Chance, solicitors for Sphere Drake. Gave evidence at the present trial on subpoena issued by Sphere Drake.

BATHURST Christopher, QC Instructed by Linklaters & Paines on behalf of Orion in June 1985. Succeeded by Stewart Boyd QC in May 1989.

BAUMLI Mr. F. Senior Executive of Baloise. Retired at end of January 1977. Gave evidence in both the First Action and (by video link) the Baloise Action at the instance of Sphere Drake and Baloise respectively.

BOYD Stewart, QC Instructed by Linklaters & Paines for Orion in May 1989. Appeared for Orion in the First Action and the Appeal in the First Action. Appeared (instructed by Freshfields) for Orion and Sphere Drake in the Baloise Action. Gave evidence in the present trial at the instance of Orion.

BURTONSHAW Mr M. Joint Managing Director of Orion with Mr Sage from 1978. Sole Managing Director on Mr Sage’s retirement from Orion from September 30 1980 until 1985. Gave evidence in the Baloise Action at the instance of Orion. A transcript of that evidence was in evidence at the present trial.

COLLINGS James Solicitor at Linklaters & Paines 1990 to 1998. Responsible for the day to day conduct of the Appeal in the First Action reporting to Mr Legg. His statement was accepted in evidence on behalf of Orion as Sphere Drake had no questions for him in cross-examination.

COMERY Mr. R. C. Director of Howden. Had died by the time of the trial of the First Action.

CORDARA Roderick, QC Instructed by Linklaters & Paines as junior counsel for Orion in June 1985. Junior counsel for Orion in the First Action and the Appeal in the First Action. Gave evidence at the present trial at the instance of Orion.

CROCKETT Mr. J. E. Director of Howden (1961) and Sphere (1966). Employed as a consultant for Howden until 1978. Did not give evidence in the First Action but did in the Baloise Action.

DENTON HALL Solicitors for Sphere Drake in the First Action and the Appeal in the First Action.

EVANS Paul Joint Provisional Liquidator of Orion since October 21, 1994. A Partner in Price Waterhouse. Gave evidence at the present trial at the instance of Orion.

FLINT Charles Joined Sphere Drake in 1972. In April 1975 assistant company secretary to Charles Russell and his designated successor. Gave evidence on subpoena issued by Orion in the First Action.

FORDYCE John Managing Director of Orion from May 1986 to September 1991. Gave evidence at the present trial at the instance of Orion.

FRESHFIELDS Solicitors instructed by Orion and Sphere Drake in the Baloise Action

GOOD Diana Assistant in the litigation department of Linklaters & Paines between 1982-8. Partner May 1988. Resident partner in the Brussels office from September 1, 1989 to April 1993. Gave evidence at the present trial at the instance of Orion.

GROB Kenneth Chairman of Howden in the 1970s.

HENSHAW Andrew Partner in Linklaters & Paines from May 1994. Solicitor in litigation department April 1989 to the end of 1990 and July 1991 to 1994. Began work on Orion's case in April 1989. Not involved in the Appeal in the First Action Gave evidence at the present trial at the instance of Orion.

HERITAGE Leslie Employed by Orion from September 1967 until he retired at the end of 1986. Born on January 3, 1925. Responsible for statistics reporting to Mr Rousell. Gave evidence in the First Action at the instance of Orion.

HUMPHRIES Mark Solicitor at Linklaters & Paines since 1986. Partner 1993. His statement was accepted in evidence on behalf of Orion as Sphere Drake had no questions for him in cross-examination.

LEGG Andrew Solicitor at Linklaters & Paines 1982. Partner May 1990, and the partner in charge of Orion's case for the Appeal in the First Action. Gave evidence in the present action at the instance of Orion.

LINKLATERS & PAINES Solicitors for Orion in the First Action and on the Appeal in the First Action.

McDONNELL Justin Solicitor at Linklaters & Paines from September 1986 to December 1990. Involved in the First Action from about September 1988 to the end of 1989. Gave evidence in the present trial at the instance of Orion.

MANCE Jonathan, QC Instructed by Denton Hall for Sphere Drake as leading counsel in the First Action and with Mr Rokison QC on the Appeal in the First Action.

OWEN Jane Barrister. Group Legal Adviser to A & A Services UK PLC from 1991. Responsible for the conduct of the Baloise Action on behalf of Sphere Drake. Gave evidence in the present action at the instance of Sphere Drake.

PARKER Raj Partner in Freshfields. Instructed by Orion and Sphere Drake in the Baloise Action from May 1994. Gave evidence in the present action at the instance of Orion.

REID Nigel Solicitor at Linklaters & Paines from September 1985. In Paris office from January 1988. Gave evidence in the present action at the instance of Orion.

ROKISON Kenneth, QC Instructed by Denton Hall for Sphere Drake on the Appeal in the First Action. Advised Sphere Drake in October 1996 concerning the Baloise Action.Gave evidence in the present action at the instance of Sphere Drake.

ROUSELL Mr. W. N. (Bill) Born July 25, 1929. Chief Accountant of Orion from August 1967 until he retired in October, 1987. Reported directly to Mr Sage. Did not give evidence in the First Action but did in the Baloise Action.

ROWLAND John, QC Instructed by Denton Hall as junior counsel to Mr Mance in the First Action and the Appeal in the First Action and instructed by Freshfields with Mr Boyd for Orion and Sphere Drake in The Baloise Action.

RUSSELL Charles Company Secretary of Drake from 1954 and Director from 1969. Company Secretary of Sphere from 1968 and Director from 1969. Retired December 31, 1974. Gave evidence at the instance of Sphere Drake in the First Action. Did not give oral evidence in the Baloise Action because of the state of his health.

SAGE Leslie Born on May 21, 1918. Director of Orion from April 1971. Joint Managing Director with Mr Burtonshaw from September 1978 until he retired on September 30, 1980. Gave evidence at the instance of Orion in the First Action. Died in March 1993 before the hearing of the Baloise Action.

TAPSFIELD Richard Partner in Linklaters & Paines between 1982 and 1995; now a part time employee with partner status. Gave evidence in the present trial at the instance of Orion.

Cited in 1 later judgment

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