Parallel Media LLC v Chamberlain & Anor [2014] EWHC 214 (QB)

[2014] EWHC 214 (QB)Case No HQ12X02005
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 13 February 2014
Before
HIS HONOUR JUDGE RICHARD SEYMOUR Q.C.(sitting as a Judge of the High Court)
Between
PARALLEL MEDIA LLCClaimantWILLIAM CHAMBERLAINDefendantsMARILYN CHAMBERLAINDefendant
William Willson (instructed by Elena Jacobson) for claimantJonathan Crystal (instructed by Teacher Stern) for defendantsHearing Hearing dates: 27, 28 and 29 January 2014
JudgmentHis Honour Judge Richard Seymour Q.C. :Introduction
[1]The claimant in this action, Parallel Media LLC (“Media”), was registered in the State of Nevada in the United States of America on 21 September 2006. It seems to have been brought into existence to serve as the vehicle for the purchase of a number of shares in a company incorporated in England and Wales called Parallel Pictures Ltd. (“Pictures”). Pictures, the company number of which was 3048616, was originally incorporated under the name Hudsonridge Ltd. on 21 April 1995. It appears that it changed its name in about September 1997 and altered its Memorandum of Association so as to permit it, so far as is presently material, to carry on business as a film production company. Pictures was the successor to an earlier company which seems to have been incorporated in about 1990, but that circumstance was not material to any issue in this action. By October 2006 the shareholders in Pictures included the first defendant, Mr. William Chamberlain, and the second defendant, his wife, Mrs. Marilyn Chamberlain.[2]Those behind Media were Mr. Raymond Markovich, who is an attorney and a member of the Bars of the United States Supreme Court, the Federal District Court for the Southern District of New York, the Federal District Court for the Northern District of New York, the Federal District Court for the Eastern District of New York, and the State of New York, as well as a New York licensed real estate broker and having accountancy qualifications, and Ms Olga Mirimskaya, who is a Russian businesswoman with interests in the banking and food industries in Russia. Despite his legal qualifications and his qualifications as an estate agent, Mr. Markovich had in fact spent many years – from 1993 to 2009 – residing in Russia, and had developed interests in cinema businesses in Russia. Ms Mirimskaya, as I understand it, was, in 2006, interested in becoming involved in the film industry.[3]It appears that Mr. Chamberlain was, in 2006, seeking finance to enable Pictures to produce a film called “Alpha Numeric”. With that end in view he travelled to Russia and made contact with Mr. Markovich and Ms Mirimskaya. Mr. Chamberlain and Mr. Markovich had met previously, the first time in 2001. Ms Mirimskaya had a son, Arkady, who was interested in developing a career as an actor. As a result of discussions between Mr. Chamberlain, Mr. Markovich and Ms Mirimskaya the question of Mr. Markovich and Ms Mirimskaya acquiring shares in Pictures arose. It was against that background that Media was brought into existence.[4]In the event a somewhat complicated arrangement was made between Mr. Chamberlain, Mrs. Chamberlain, Pictures and Media. Most of the complications, which concerned the financing of the purchase of a house for Mr. and Mrs. Chamberlain, were not material to any issue in this action. What was material to the issues in this action was that part of the arrangement, evidenced by a letter (“the Facility Letter”) dated 23 October 2006 written on behalf of Media to Pictures, was that Media would advance to Pictures by way of loan an amount of US$1,000,000, whilst another part provided for Media to purchase from Mr. and Mrs. Chamberlain 1020 shares in Pictures for US$2,000,000.[5]The detailed provisions of the Facility Letter were, for the most part, not relevant to any issue in this action. However, the following provisions were worthy of notice:- “Amount The amount available by way of loan shall be One Million United States Dollars (US$1,000,000) subject to drawdown as provided herein (“the Original Loan”) ... Facility Fee You will pay to us a facility fee of United States Dollars Two Million (US$2,000,000) on or before 31st October 2010 (“the Facility Payment Date”) in the manner hereinafter described. Period The Original Loan is repayable on or before 31st October 2007. … Payment of the Facility Fee The Facility Fee shall be paid by you on or before the Facility Repayment Date. However, the Facility Fee shall no longer be payable and your liability to make payment discharged in the following circumstances: 1. You have made payment of the Facility Fee in full through Facility Fee Repayments and/or Fees paid to Parallel Media LLC and/or dividends paid to Parallel Media LLC; or 2. You have received film production financing of US$30 million from a third party or parties (hereinafter “3rd Party Financing”) by the Facility Repayment Date. In calculating the 3rd Party Financing, any financing commitments that you have or will have with regard to existing projects as represented by Exhibit B attached and incorporated hereto shall not be counted in arriving at 3rd Party Financing. Additionally, 3rd Party Financing shall be calculated by taking the total budget of each film for which you have raised 3rd Party Financing and multiplying it by two times the percentage of Net Profit that Parallel Pictures Limited shall receive from the respective film(s). Thus if a film’s total budget is US$20 million and you have raised US$10 million and Parallel Pictures Limited will receive 25% of Net Profit, you would receive credit for US$10 million (US$20 million x 2 x 25%). In the event that neither of the above two events have occurred, the Facility Fee shall be paid by you in full on or before the Facility Repayment Date, however, you will be able to offset any monies paid to Parallel Media LLC whether by way of Facility Fee Repayments and/or Fees paid to Parallel Media LLC and/or dividends paid to Parallel Media LLC.” Facility Fee Period

Payment of the Facility Fee

[6]What was described in the Facility Letter as “Exhibit B” was in fact the same document as that described in an agreement (“the Share Sale Agreement”) dated 24 October 2006 and made between(1) Mr. and Mrs. Chamberlain and(2) Media as “Exhibit A”. For the avoidance of confusion I shall refer to that document in this judgment as “Exhibit A”.[7]The copy of the Facility Letter adduced during the course of the trial which had been signed on behalf of Pictures was marked as having been sent by facsimile transmission by Pictures to Media at 15.30 hours on 24 October 2006.[8]So far as is presently material the terms of the Share Sale Agreement were:- “1.1 In consideration of the purchase price of US$2 million (two million United States dollars) to be paid by the Purchaser [Media] to the Vendors [Mr. and Mrs. Chamberlain] and subject to the terms and conditions hereof, the Vendors shall sell (with full title guarantee) and the Purchaser shall purchase the Shares [1020 issued shares in Pictures], free from all claims, liens, charges, encumbrances and equities, together with all rights attached or accruing thereto (including without limitation accrued dividends, if any). … 2.4 Purchaser, upon the events described in paragraph 2.2 and/or 2.3 above taking place, which such events must take place within six months from the execution of this agreement, shall loan such US$1 million (one million United States dollars) to the Company [Pictures] at no interest for a term of up to one year in accordance with the Facility Letter of even date. …4.1 The Vendors warrant that as of the date of this agreement, the Company has full right, title and interest to the assets listed on Exhibit A and such Exhibit A is hereby incorporated into this agreement.4.2 The Vendors warrant that as of the date of this agreement, the Company has no liabilities except those listed on Exhibita. A.4.3 The Vendors warrant that as of the date of this agreement, the Company has no loans or other indebtedness outstanding.4.4 The Vendors warrant that the Company has full right, title and interest in all of the library titles listed on Exhibit A such rights being as stated in Exhibit A.4.5 The Vendors warrant that the Company has full rights in all of the projects listed on Exhibit A such rights being as stated in Exhibit A. … 5.1 The Vendors, in consideration thereof, will enter into a 5 (five) year Directors Service Agreement, the terms and conditions in respect of which are to be agreed between the parties and annexed hereto as Exhibit B and incorporated in the terms and conditions hereof. … 7.4 As an essential pre-condition for Purchaser entering into this Agreement, the Vendors hereby agree and warrant that within 28 days of execution of this Agreement, a General Meeting of the Company will be held. 7.5 As an essential pre-condition for Purchaser entering into this Agreement, the Vendors hereby agree and warrant that at such General Meeting as required by 7.4 above, the Company’s Articles of Association shall be amended so that from that date forward, the Board of Directors of the Company shall be composed of five Directors. 7.6 As an essential pre-condition for the Purchaser entering into this Agreement, the Vendors hereby agree and warrant that at such General Meeting as required by 7.4 above, the Purchaser’s nominees shall be elected to a minimum of three of the five seats on the Company’s Board of Directors. 7.7 As an essential pre-condition for Purchaser entering into this Agreement, the Vendors hereby agree and warrant that at such General Meeting as required by 7.4 above, the Company’s Articles of Association shall be amended so that from that date forward, any three Directors may call a meeting of the Board of Directors. 7.8 As an essential pre-condition for Purchaser entering into this Agreement, the Vendors hereby agree and warrant that at such General Meeting as required by 7.4 above, the Company’s Articles of Association shall be amended so that from that date forward, any two Directors may call an Annual General Meeting or Extraordinary General Meeting. 7.9 As an essential pre-condition for Purchaser entering into this Agreement, the Vendors hereby agree and warrant that the following shall be the order of payments (in this order) made from the subsequent Revenues of the Company: a. pre-agreed annual overhead of the Company;b. repayment of the Loan of US$1 million to Parallel Media LLC;c. fees to Parallel Media LLC until the Facility Fee of US$2 million has been paid in full; and only then,d. fees to other shareholders and/or employees and/or dividend distributions to other shareholders. … 11.1 The terms and conditions hereof, including the attached Exhibits, comprise the complete Agreement between the parties and may not be varied by any oral representation and any such variation must be agreed in writing by the parties hereto.”[9]The copy of the Share Sale Agreement which was adduced in evidence at the trial was marked to indicate that the version signed by Mr. and Mrs. Chamberlain had been sent by Pictures to Media by facsimile transmission at 14.15 hours on 24 October 2006.[10]Exhibit A was a most curious document. It was a series of Excel spreadsheets. In the order in which they were included in Exhibit A the first of the spreadsheets was entitled “Bill’s P&L (USD)”. It appeared to set out cashflow projections over the period 2006 to 2011 inclusive. The next spreadsheet was entitled “Pessimistic P&L (USD)”. That seemed to deal with the same matters as “Bill’s P&L (USD)”, but making different assumptions.[11]There followed in Exhibit A two balance sheets. One was expressed in sterling, the other in United States dollars. The balance sheets appeared to be similar, with that expressed in United States dollars differing from the one expressed in sterling in that an exchange rate of £1 = $1.87 had been applied to recalculate the original sterling figures. The balance sheets set out the position of Pictures as at 31 December 2005 and as at 30 September 2006. In the balance sheets values were placed upon various assets and liabilities. The elements identified in the balance sheets as going to make up the total, on the sterling version as at 30 September 2006, of assets of £276,680, were:- “Fixed Assets Plant and machinery Fixtures and fittings Motor vehicles Computer equipment Investments 1 Current Assets Work in Progress 2 Trade Debtors VAT debtor Other debtors Bank current account Current Liabilities Bank Account #2 3 Trade creditors Hire purchase Other creditors 4 Social security & other taxes Accrued expenses Long Term Liabilities Hire Purchase Capital And Reserves Called up share capital Share premium Profit and loss account” Plant and machinery Fixtures and fittings Motor vehicles Computer equipment Investments 1 Current Assets Work in Progress 2 Trade Debtors VAT debtor Other debtors Bank current account Current Liabilities Bank Account #2 3 Trade creditors Hire purchase Other creditors 4 Social security & other taxes Accrued expenses Long Term Liabilities Hire Purchase Capital And Reserves Called up share capital Share premium Profit and loss account”

Share premium

[12]The numbers which appeared beside the words identifying the elements included in the balance sheets, other than that which identified “Bank account #2” were references to footnotes to the balance sheet. The footnotes were as follows:- “1 Estimated library value 2 Parallel investments in ongoing film projects 3 Obligation of current shareholders by guarantee (draft documentation attached [it was not]). No recourse against Parallel and thus written off Parallel Pictures’ Balance Sheet on 30 September 2006. 4 Development financing against the budget for Alpha Numeric (documentation attached [again it was not]). No recourse against Parallel and thus written off Parallel Pictures’ Balance Sheet on 30 September 2006.”[13]The sterling balance sheet showed as the liability in respect of “Bank account #2” as at 31 December 2005 the sum of £99,449 and a liability in respect of “Other creditors” of £95,000. The equivalent figures as at 30 September 2006 were zero in each case. The treatment of what were in fact, on the face of it, liabilities of Pictures as at 31 December 2005 as having “no recourse” to Pictures as at 30 September 2006 wiped, it would seem, £194,449 of debt off the balance sheet. The “Estimated library value” recorded in the sterling balance sheet was £100,000. If one omitted that valuation, but added back as liabilities of Pictures the amounts of “Bank account #2” and “Other creditors” as shown at 31 December 2005 the balance sheet would have shown a deficiency of £17,769.The profit and loss account element as at 30 September 2006 was recorded in the sterling balance sheet as a loss of £79,978.[14]The next part of Exhibit A was entitled “Overheads & Salaries”. Listed elements of cost were valued both in sterling and in United States dollars, again adopting a rate of exchange of £1 = US$1.87.[15]The final part of Exhibit A concerned “Projects”. The first sheet was entitled “Project Summary”. That included details of what was called “Library”, comprising five named films made, on the face of the document, between 1999 and 2003. Various details of the making of the films and elements of budget and profit were recorded, but not a current alleged value of any of the films. There was no record of any particular “rights” which Pictures was said to have in any of the films in its library. The second part of the “Project Summary” set out some details relating to eight films of which more details were set out in the ensuing five pages, each entitled “Projects”. For each of the films set out in the “Project” pages, other than a film called “Two Families”, it was indicated that the status of the film was “Final Development”. “Two Families” was described as “Finishing Post-Production”. Each of the eight films had a section dealing with “Financing”. That section in relation to a film called “Alpha Numeric” was noted as “(subject to contract)”, but no similar indication appeared by any of the others. In the “Financing” section was set out a list of percentages and an indication of where the noted percentage of “Financing” was to come from. Those indications of source were sometimes specific, identifying a name, and sometimes not. Thus for “Alpha Numeric” one element of “Financing” was “5% Equity – Italy”. In other instances what seemed to be recorded was a deficiency in funding. So, in the “Financing” section concerning a film called “Echo’s Pond” appeared “25% Debt – Bank gap”. In the “Financing” section relating to a film called “Sisters” was written “50% Equity – ZAAL (UK) 50% Other”. The “Financing” for a film called “Speakeasy” was noted as “50% Equity – UK Fund 50% Equity US Fund”. For a film called “Broken” there appeared in the “Financing” section, among other, more specific indications of source of funds, “25% Tax Credit – Ontario/Canada”, “9% Distribution Advance – Canada”, “12% Pre-Sales”, “10% Equity – Canada” and “15% Debt – Bank Gap”. ZAAL was identified as a source of financing not only for “Sisters”, but also for “Alpha Numeric” (50%) and “15 Million Fires” (60%). Media was identified as a source of funds for “Echo’s Pond” (30%) and “Broken” (3%), and as a guarantor of 50% of the cost of “Ruthie”. Arkady Golubovich, who seems to have been the son of Ms Mirimskaya, was to participate as an actor in “Echo’s Pond”, “Broken” and “Ruthie”, according to the cast lists in the “Projects” pages.[16]The details given in the “Projects” pages concerning the film “Two Families” included “Budget $3,000,000” and “Profit Participation $200,000”.[17]A version of Exhibit A signed on each page by Mr. Chamberlain was marked to indicate that it had been sent to Media by Pictures by facsimile transmission at 14.22 hours on 24 October 2006.[18]The “Directors Service Agreement” referred to in clause 5 of the Share Sale Agreement was only entered into by Mr. Chamberlain. Mrs. Chamberlain had never been a director of Pictures. The “Directors Service Agreement” (“the Service Agreement”) was made between Pictures and Mr. Chamberlain and dated 24 October 2006. It provided for Mr. Chamberlain to be employed by Pictures as managing director for a period of five years from 1 November 2006. It also included these provisions:- “3.2 Since the Executive shall receive a payment of US$2 million from Parallel Media LLC, a major shareholder in the Company, in return for 1020 ordinary shares in the Company and such payment is being made by Parallel Media LLC as an inducement for the Executive to provide his services to the Company for the full Period of this Agreement, the Executive shall have no right to terminate this Agreement. In the event that the Executive ceases to be employed by the Company for whatever reason, the Executive shall be prohibited from working in any capacity in the film industry, anywhere in the world, for the remainder of the Period of this Agreement or the Executive shall immediately repay US$2 million to Parallel Media LLC less any amounts in fees and/or in dividends already received by Parallel Media LLC from the Company up to the date of his departure from the Company. … 4.2 During the period of this Agreement the Executive shall (without prejudice to the generality of sub-clause 4.3) in the course of his duties:-4.2.1 will faithfully and diligently serve the Company and the rest of the Group in all respects and use his utmost endeavours to maintain extend develop and promote the interests of the Company and the remainder of the Group and its/their respective reputations; and4.2.2 give to the Board or such persons as it shall nominate such information regarding the affairs of the Company and any member of the Group as it shall reasonably require; and4.2.3 at all times conform to the reasonable directions of the Board; and4.2.4 … 4.3 The executive shall unless prevented by ill health from so doing devote the whole of his time and attention and abilities to the businesses and affairs of the Company and of the Group as directed by the Board from time to time. 4.4 The executive shall not without the consent of the Company directly or indirectly retain any fee, gratuity, commission or payment whether in kind or otherwise from a third party for any service matter or thing connected directly or indirectly with his duties and services hereunder. … 11.1 The Company shall be entitled to summarily terminate this Agreement forthwith in writing and not subject to the notice period as defined in Schedule 1, if the Executive:- … 11.1.2 shall (in the reasonable opinion of a majority of the Board) be responsible for any serious misconduct or shall, without reasonable cause, seriously neglect or refuse to discharge his duties hereunder or commit any serious material breach of any of the provisions of this Agreement, other than a breach which (being capable of being remedied) is fully remedied by him to the satisfaction of the Board within a reasonable period of his being called upon to do so in writing by the Board.”[19]The copy of the Service Agreement signed by Mr. Chamberlain adduced in evidence was marked to indicate that it had been sent by Pictures by facsimile transmission to Media at 15.56 hours on 24 October 2006. At the same time there was sent to Media a document entitled “Director’s Service Guarantee” (“the Guarantee”) expressed to be made between Mr. Chamberlain, Media and Pictures and dated 24 October 2006. This document mirrored the provisions of clause 3.2 of the Service Agreement:- “Since the Executive shall receive a payment of US$2 million from Parallel Media LLC, which shall become major shareholder in the Company, in return for 1020 ordinary shares in the Company and such payment is being made by Parallel Media LLC as an inducement for the Executive to provide his services to the Company for the Period of five (5) years from the date of this Guarantee, the Executive shall have no right to terminate his Service Agreement For Company Director. In the event that the Executive ceases to be employed by the Company for whatever reason, the Executive shall be prohibited from working in any capacity in the film industry, anywhere in the world, for the remainder of the Period of his Service Agreement For Company Director or the Executive shall immediately repay US$2 million to Parallel Media LLC less any amounts in fees and/or dividends already received by Parallel Media LLC from the Company up to his date of departure from the Company.”[20]As at October 2006 the latest filed accounts of Pictures at Companies House were those in respect of the period 1 January 2003 to 30 June 2004. Pictures was exempt from audit by reason of the provisions of Companies Act 1985 s.249A(1) and the actual information included in the filed accounts was simply a balance sheet as at 30 June 2004. That showed a deficiency of £267,450. The balance sheet was an abbreviated balance sheet and included only these elements in relation to the calculation of the deficiency of £267,450:- “FIXED ASSETS Tangible assets 16,841 Investments 3 CURRENT ASSETS Stocks 113,842 Debtors 2,384 Cash at bank 48,312 164,538 CREDITORS: Amounts falling due within one year 438,316 NET CURRENT LIABILITIES: (273,778) TOTAL ASSETS LESS CURRENT LIABILITIES (256,934) CREDITORS: Amounts falling due after more than one year 10,516 £(267,450)” Tangible assets 16,841 Investments 3 CURRENT ASSETS Stocks 113,842 Debtors 2,384 164,538 within one year 438,316 NET CURRENT LIABILITIES: (273,778) TOTAL ASSETS LESS CURRENT LIABILITIES (256,934) CREDITORS: Amounts falling due £(267,450)”

CREDITORS: Amounts falling due

[21]It was not possible from the balance sheet as at 30 June 2004 to derive any of the information set out in the sterling balance sheet included in Exhibit A. However, the “CAPITAL AND RESERVES” part of the balance sheet recorded a loss on trading over the period 1 January 2003 to 30 June 2004 of £624,108.[22]Accounts for Pictures were produced in respect of the period 1 July 2004 to 31 December 2005. Again the accounts comprised only a balance sheet, this time as at 31 December 2005. The accounts were not approved until 26 January 2007. What they showed was a further deficiency, this time of £580,445. The loss on trading over the period was recorded as £937,103.[23]The next accounts produced for Pictures covered the period 1 January 2006 to 31 October 2006. The accounts took the same format as those which I have already mentioned, so a balance sheet as at 31 October 2006. At that date what was noted was a deficiency of £725,269 and a loss on trading over the period of £1,082,733. Those accounts were approved on 20 July 2007.[24]In a letter dated 23 October 2009 addressed to Mr. Chamberlain Ms Mirimskaya, Mr. Markovich and a Mr. Ilya Golubovich, describing themselves each as a director of Pictures, wrote as follows:- “In accordance with your Service Agreement For Company Director dated 24 October 2006, a majority of the Board of Parallel Pictures Limited (hereinafter “Company”) and Parallel Media LLC as the majority shareholder of the Company hereby inform you that you are terminated immediately under Section 11.1.2 of such Agreement. The specific grounds for termination under such Section 11.1.2 are as follows: 1. For on or about a year now, despite our repeated requests and your knowledge from day one that monthly financial reporting is required, you have failed to provide the Board any financial reports, whether from a Chartered Accountant or even simple monthly P&L’s that any competent Managing Director/Chief Executive Officer should be capable of preparing. Such failure to provide information is a serious material breach (incapable of being remedied) of Sections 4.2.1, 4.2.2 and/or 4.2.3 of such Agreement. 2. For on or about a year now, you have failed to provide the Board any information on the status of Company projects or affairs of the Company. Such failure to provide information is a serious material breach (incapable of being remedied) of Sections 4.2.1, 4.2.2 and/or 4.2.3 of such Agreement. 3. Based upon information from IMDB it appears that you are employed on one or more other films that were not disclosed to and approved by the Board and in all likelihood, you have received fees or other compensation from such film(s) which was likewise not disclosed to and approved by the Board. Such failure to disclose and obtain the Board’s consent is a serious material breach (incapable of being remedied) of Sections 4.2.1, 4.2.2, 4.2.3, 4.3 and/or 4.4 of such Agreement. We will be contacting you shortly with the name of our authorized representative to whom you should turn over all Company property including, but not limited to, office keys, your Company car, computer(s), phone(s), contracts, financial documentation and intellectual property.”[25]Pictures was struck off the Register of Companies and dissolved on 5 October 2010.

The claims made in this action

[26]This action was commenced by a claim form issued on 22 May 2012. In this action Media sought to recover from Mr. and Mrs. Chamberlain the sum of US$2,000,000 which it had paid for the 1020 shares in Pictures the subject of the Share Sale Agreement and the US$1,000,000 loan made to Pictures pursuant to the terms of the Facility Letter. The primary basis upon which it was sought to recover those sums was that it was contended that Media had entered into the whole arrangement with Mr. and Mrs. Chamberlain and Pictures as a result of what were said to be fraudulent misrepresentations made by Mr. Chamberlain. It was not contended that Mrs. Chamberlain had made any representations, fraudulent or otherwise. However, as an alternative to the claim in fraudulent misrepresentation it was asserted that there had been breaches of the warranties made in clause 4 of the Share Sale Agreement. It was also contended that there had been breaches of the terms contained in clause 7.4 to 7.9 inclusive of the Share Sale Agreement, and that Mr. Chamberlain had been in breach of clauses 4.2.1, 4.2.2, 4.2.3, 4.3 and 4.4 of the Service Agreement. However, the ways in which the claims were formulated in the Re-Amended Particulars of Claim were unusual and were important to the outcome of the trial.[27]It was common ground before me that a convenient summary of the elements of the tort of deceit – fraudulent misrepresentation – was to be found in the judgment of Jackson LJ in ECO3 Capital Ltd. v. Ludsin Overseas Ltd. [2013] EWCA Civ 413 at paragraph 77:- “I do not agree with the analysis of the authorities which the appellants advance. What the cases show is that the tort of deceit contains four ingredients, namely: i) The defendant makes a false representation to the claimant. ii) The defendant knows that the representation is false, alternatively he is reckless as to whether it is true or false. iii) The defendant intends that the claimant should act in reliance on it. iv) The claimant does act in reliance on the representation and in consequence suffers loss. Ingredient(i) describes what the defendant does. Ingredients(ii) and(iii) describe the defendant’s state of mind. Ingredient(iv) describes what the claimant does.”[28]One of the strange features of the present case was that there was imprecision as to what was said to be the occasion upon which alleged fraudulent misrepresentations were made. Another peculiar feature was that it appeared that, essentially, reliance was placed upon a written document, but the status and significance of that document, as well as its proper construction, were in dispute.[29]Mr. Jonathan Crystal, who appeared on behalf of Mr. and Mrs. Chamberlain, submitted that the written document relied upon fell to be construed in accordance with the guidance given by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896 at pages 912H to 913E as to the principles to be applied in construing a document:- “The principles may be summarised as follows.(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] AC 749.(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v. Salen Rederierna AB [1985] AC 191, 201:
“if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion which flouts business commonsense, it must be made to yield to business commonsense.”
[30]Mr. William Willson, who appeared on behalf of Media, did not challenge that submission of Mr. Crystal, and I accept it. However, as we shall see, the case of Media involved asserting that the document relied upon meant, so far as was material, something other than what the words used appeared to say.[31]Another unusual feature of this case was that it did not appear to be contended that Media had suffered any loss other than as a result of the alleged fraudulent misrepresentations, notwithstanding the making of allegations in the Re-Amended Particulars of Claim of breaches of the warranties in clause 4 of the Share Sale Agreement, breaches of clause 7 of the Share Sale Agreement and breaches on the part of Mr. Chamberlain of clause 4 of the Service Agreement. It was, of course, striking that Media was not actually a party to the Service Agreement, yet appeared to wish to assert that Mr. Chamberlain had been in breach of terms of it.[32]In the Re-Amended Particulars of Claim the purchase by Media of 1020 shares in Pictures from Mr. and Mrs. Chamberlain and the making of the loan of US$1,000,000 by Media to Pictures were together called “the Transaction”. The alleged fraudulent misrepresentation case was pleaded as follows:- “7. In order to induce the Claimant into entering the Transaction, the First Defendant made certain oral and written representations to the Claimant (and, in particular, its chief executive officer at the time, Raymond Markovich) in relation to PPL’s [that is, Picture’s] business. In particular, the First Defendant made certain representations in relation to 8 films (“Alpha Numeric”, “Echo’s Pond”, “15 Million Fires”, “Sisters”, “Speakeasy”, “Broken”, “Ruthie” and “Two Families”) that he asserted were in either “Final Development”, “Development” or, in one case, “Finishing Post-Production” (the “Film Projects”). 8. The written representations (the “Representations”) in relation to the Film Projects were set out in a document entitled “Exhibit A” (which was incorporated into terms of the Share Sale Agreement and which is at Appendix A to these Particulars of Claim). 9. In particular, the First Defendant represented that:(a) With the exception of Alpha Numeric (which was subject to contract) 100% film financing was place in relation to each of the Film Projects.(b) PPL had full rights, title and interest in each of the Film Projects.(c) PPL’s film library was valued at £100,000.(d) The Film Projects would all be delivered by, at the latest, February 2008.(e) PPL would generate revenues of over $3 million from the Film Projects (from overhead charges, production fees and profit participation).(f) After the recoupment of its entire $3 million investment, PPL would generate substantial profits by 2008 or, at the latest, 2009. 10. Further, it was represented to Mr. Markovich both orally and in Exhibit A that Two Families (the film allegedly already in post-production) had been made for a budget of $3,000,000. 11. Finally, it was represented to Mr. Markovich both orally and in Exhibit A that PPL had a balance sheet surplus of £276,680 as of 30 September 2006 (having had a balance sheet deficit of £46,020 as of 30 September 2005). 12. Induced by and acting in reliance on the Representations, the Claimant agreed to invest in PPL, and entered a share sale agreement with the Defendants dated 24 October 2006 (the “Share Sale Agreement”) (a copy of which is at Appendix B to these Particulars of Claim) and a Facility Letter with PPL dated 23 October 2006 (the “Facility Letter”) (a copy of which is at Appendix C to these Particulars of Claim).”[33]It was notable that there was no specific allegation as to the date, the time or the place in which it was said that any alleged oral representation had been made. Moreover, although it was pleaded that the representations alleged were made “in particular” to Mr. Markovich, no other person was identified as a person to whom it was contended that representations had been made. The contention that, insofar as in writing, the representations were contained in Exhibit A drew attention to the question whether, in truth, Exhibit A had existed prior to the making of the Share Sale Agreement and the production of the Facility Letter, and, if so, whether it had been presented by Mr. Chamberlain to someone on behalf of Media as including statements to be relied upon in deciding whether to enter into the Share Sale Agreement and the Facility Letter.[34]It was, I think, common ground, that, in order to be able to be relied upon as a representation which could found a claim for misrepresentation, what was represented had to be a statement as to an existing fact, as opposed to an opinion, an estimate or a projection. However, none of the representations pleaded at paragraph 9 (d), (e) or (f) of the Re-Amended Particulars of Claim was put as a representation of existing fact, but as an opinion or projection as to what might be achieved in the future. Thus, on the face of it, claims for fraudulent misrepresentation based on those alleged statements were bound to fail. Mr. Willson submitted, correctly, that there was implicit in the making of a statement of opinion the statement of fact that the person expressing the opinion genuinely held that opinion at the time he expressed it. However, it was not pleaded anywhere in the Re-Amended Particulars of Claim that Mr. Chamberlain did not hold a particular opinion which he was alleged to have expressed. I shall come shortly to the respects in which it was pleaded in the Re-Amended Particulars of Claim that the representations pleaded at paragraph 9 were false.[35]The case of Media as to the effect of the warranties contained in clause 4 of the Share Sale Agreement was pleaded at paragraph 14 of the Re-Amended Particulars of Claim:- “Clause 4 of the Share Sale Agreement contained certain warranties. Pursuant to Clause 4.1, the Representations in “Exhibit A” were expressly incorporated into the Share Sale Agreement as express terms of the agreement. Further, under Clause 4 the Defendants both agreed that as at the date of the Share Sale Agreement:(a) PPL had full right, title and interest to the assets listed in Exhibit A.(b) PPL had no liabilities except those in Exhibit A.(c) PPL had no loans or other indebtedness outstanding.(d) PPL had full right, title and interest in all the library titles listed in Exhibit A, such rights being as stated in Exhibit A.(e) PPL had full rights in all of the projects listed in Exhibit A, such rights being as stated in Exhibit A.”[36]As we shall see, when it came to the pleading of breaches of warranty, there was a mismatch between what was pleaded as the effect of the warranties and what were alleged to be breaches.[37]At paragraph 16 of the Re-Amended Particulars of Claim it was asserted that:- “The Share Sale Agreement also contained the following implied terms:(a) The First Defendant was obliged to manage the business of PPL with reasonable care and skill.(b) The First Defendant was obliged to make best, alternatively all reasonable endeavors [sic] to produce and deliver the Film Projects.”[38]That was an odd contention. Terms along the lines of those pleaded might, perhaps, have been appropriate terms to imply into the Service Agreement, but there seemed no conceivable justification for implying them into the Share Sale Agreement. The modern approach to the question whether or not to imply a term into a contract was explained by Lord Hoffmann, giving the advice of the Privy Council, in Attorney-General of Belize v. Belize Telecom Ltd. [2009] 1 WLR 1988 at page 1993C-F:- “17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.19. The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority. [to which Lord Hoffmann then turned].”[39]Paragraph 17 of the Re-Amended Particulars of Claim contained an even odder assertion:- “Under Clause 5 of the Share Sale Agreement, the parties agreed that the First Defendant would enter into a director’s service agreement, the terms of which were annexed at “Exhibit B” to the Share Sale Agreement and incorporated into it as express terms of the Share Sale Agreement.”[40]I have already set out clause 5 of the Share Sale Agreement. Insofar as it provided for Mr. Chamberlain to enter into the Service Agreement, or Mrs. Chamberlain to enter into an agreement to like effect, well and good. However, the reason for the attempt to incorporate the terms of the Service Agreement into the Share Sale Agreement was obscure, and the effect of that attempt, in my judgment, was not to achieve anything worthwhile. It was not provided that the terms of the Service Agreement were, as incorporated into the Share Sale Agreement, to be modified in any way, so the obligations accepted in the Service Agreement remained, insofar as assumed by Mr. Chamberlain, owed to Pictures, and, insofar as assumed by Pictures, owed to Mr. Chamberlain. If the object of the exercise was somehow to enable Media to enforce obligations of Mr. Chamberlain owed to Pictures, it simply failed. Consequently the pleading of paragraph 17 of the Re-Amended Particulars of Claim, and the pleading of the two paragraphs dependent on it, paragraphs 18 and 19, did not give rise to any claim justiciable as between Media and Mr. Chamberlain, whatever breaches of the Service Agreement might be alleged.[41]The alleged misrepresentations, breaches of contract and loss contained in the Re-Amended Particulars of Claim were:- “30. In fact, the Representations were false (and the First Defendant knew them to be false, alternatively was careless as to whether they were true or false, alternatively there were no reasonable grounds for a reasonable belief as to their truth) and the Defendants were in breach of the Share Sale Agreement for the following reasons:(a) The Film Projects did not in fact have the third party financing that the Defendants had represented and/or were not financed either in the manner or to the extent represented by the Defendants in Exhibit A.(b) Despite the Defendants’ representations in Exhibit A, PPL did not have full rights, title and interests in each of the Film Projects (e.g. PPL did not control the rights to Echo’s Pond).(c) As a result of the Defendants’ material misrepresentations, PPL did not deliver all the Film Projects by February 2008.(d) In fact, only three of the Film Projects were delivered at all: one by PPL (“Two Families”), one by the Claimant/PPL (“Broken”) and one by the Claimant/another producer (“Echo’s Pond”). The other five films were never made.(e) The Film Projects did not generate revenues of over $3 million for PPL, and the company posted heavy losses up until its dissolution in October 2010.(f) PPL’s film library was not in fact worth £100,000. 31. Further, it transpired that Two Families had not been made (as represented to the Claimant) for $3 million. It had in fact been made for only $1.3 million. The film was a commercial failure, ultimately leading to litigation with the Italian co-financiers (in which they were successful). 32. Finally, notwithstanding express representations that PPL were balance sheet solvent, PPL’s abbreviated accounts for the period 31 October 2006 (signed by the First Defendant in his capacity of the director of PPL on 20 July 2007) show that PPL had a balance sheet deficit of £725,269 as at 31 October 2006 and had sustained losses of over £1 million on its profit and loss account. For its previous accounting period, as at 31 December 2005, PPL had a balance sheet deficit of £580,445 and had losses of £937,000 on its profit and loss account. 33. Therefore, though it was represented to the Claimant that PPL was a solvent company with few creditors, in reality at the time of the Transaction PPL was making heavy losses, had significant liabilities and was balance-sheet insolvent. 34. The Defendants committed the following further breaches of the Share Sale Agreement: (a) In breach of Clauses 7.4 to 7.8, the Defendants failed to call a general meeting, failed to appoint the Claimant’s nominees to the Board of PPL and failed to fulfill [sic] any of the pre-conditions of the agreement provided for in those clauses. (b) In breach of Clause 7.9, the Defendants failed to pay out the revenues of PPL in the pre-agreed order and, in particular, did not procure the repayment of the PPL Loan to the Claimant. (c) In breach of the implied terms set out above, the First Defendant failed to manage PPL with the requisite degree of care and skill and failed to make best, alternatively all reasonable endeavors [sic] to produce and/or deliver the Film Projects on time or at all. (d) In breach of the Service Guarantee (as incorporated by reference into the Share Sale Agreement [? is the Service Agreement meant], though the First Defendant’s services were terminated in 2009, he continued to work in the film industry up to and including 23 October 2011 (being the date 5 years’ [sic] after the execution of the Service Guarantee). 35. The First Defendant committed the following breaches of the Service Agreement (which was incorporated by reference into the Share Sale Agreement at Clause 5): (a) In breach of Clauses 4.2.1, 4.2.2 and/or 4.2.3, the First Defendant failed to provide the Board with financial reports. (b) In breach of Clauses 4.2.1, 4.2.2 and/or 4.2.3, the First Defendant failed to provide the Board with any information about the projects or affairs of PPL. (c) In breach of Clauses 4.2.1, 4.2.2, 4.2.3, 4.5 [sic – there was no such clause] and/or 4.4, the First Defendant was employed in relation to other films and received fees/compensation from such films without the prior approval of the board. 36. As a result of the various matters set out above, the Claimant has suffered loss and damage. In particular, the Claimant has lost the entire value of his investment into PPL, both through the purchase of the Shares (which are now valueless) and the provision of the PPL Loan (which has never been repaid). 37. Accordingly, the Claimant seeks the following relief against the Defendants: (a) Rescission of the Share Sale Agreement [This was not pursued at trial] (b) Damages in the sum of not less than $3 million for breach of contract and for fraudulent misrepresentation, alternatively for negligent misrepresentation pursuant to Section 2 of the Misrepresentation Act 1967. (c) Interest pursuant to Section 35A of the Senior Courts Act 1981 to be assessed. ”[42]It was common ground at the trial that damages for misrepresentation fall to be assessed as the sum necessary to put the innocent party in the position in which it would have been had it never entered into the transaction in relation to which the misrepresentations were made (Doyle v. Olby (Ironmongers)Ltd. [1969] 2 QB 158), whilst damages for breach of warranty fall to be assessed as that amount which would put the innocent party in the position in which it would have been had the warranty been true (see, for example, per Jacob J in Thomas Witter Ltd. v. TBP Industries Ltd. [1996] 2 All ER 573 at p.606B), and damages for breach of contract more generally fall to be assessed as the amount necessary to put the innocent party in the position in which it would have been had there been no breach. Part 16.4(1)(a) of Civil Procedure Rules requires that particulars of claim include “a concise statement of the facts on which the claimant relies” and that, in my judgment, includes the facts relied upon as justifying an award of damages. In other words, it is necessary to plead both the amount of an alleged loss and the facts relied upon as proving that amount. In the present case no loss was alleged consequent upon any of the matters pleaded at paragraphs 34 and 35 of the Re-Amended Particulars of Claim. Consequently, if any of those alleged breaches were made out and were justiciable at the suit of Media, Media could only recover nominal damages, traditionally of 40 shillings, but in decimal currency, £2. While it was alleged that Media had lost its entire investment in Pictures as a result of the breaches of warranty alleged, in fact that allegation could not succeed because of the proper approach to the assessment of damages for breach of warranty. No other alleged loss was contended for and no facts were alleged relevant to assessing what the position of Media would have been had the warranties which it was alleged had been breached had been true. Again, therefore, the best that could result from making good allegations of breaches of the warranties in clause 4 of the Share Sale Agreement was an award of nominal damages of £2. In order to recover the sum of US$3,000,000 Media had to succeed in the claims based on misrepresentation. However, the alleged misrepresentations pleaded at paragraph 30 (c), (d) and (e) could not succeed as claims because what was contended in each case was not that a statement of existing fact had not been correct, or that an opinion or estimate as to future performance had not genuinely been held, but merely that matters had not turned out as predicted or hoped. Moreover, there was, potentially, a serious question as to the reason for Media paying Mr. and Mrs. Chamberlain US$2,000,000. If one looked only at the Share Sale Agreement it appeared that the money was paid for 1020 shares in Pictures. However, if one looked only at the Service Agreement it seemed that the money was actually paid either to secure for Pictures the services of Mr. Chamberlain for five years from 1 November 2006 or to secure his exclusion from participation in the film industry for that period, if he would not work for Pictures.

The defence of Mr. and Mrs. Chamberlain

[43]In the Amended Defence, at paragraph 4, it was admitted that Exhibit A had been produced and signed by Mr. Chamberlain, but it was contended that it did not contain representations, but rather matters which were the subject of warranties in the Share Sale Agreement. Each of the alleged representations set out in paragraph 9 of the Re-Amended Particulars of Claim was denied in paragraph 9 of the Amended Defence, and the other alleged representations pleaded in paragraphs 10 and 11 of the Re-Amended Particulars of Claim were denied in paragraphs 10 and 11 of the Amended Defence. Importantly, in relation to the contention that Exhibit A indicated in respect of each film included in the “Projects” pages, other than “Alpha Numeric”, that the making of that film was fully financed, it was pleaded at paragraph 9(a) of the Amended Defence that, “The information showed the structure of the proposed financing not that financing was in place.”[44]It was admitted at paragraph 23 of the Amended Defence that Mr. Chamberlain had done some unpaid work on two films, “Last Hove” and “Kiz Vuk”, in the period of five years following the making of the Service Agreement in respect of which he was merely given a credit in the films.[45]The case of Mr. and Mrs. Chamberlain about the allegation that Pictures had not had full rights, title and interest to each of the films set out in the “Projects” pages of Exhibit A was pleaded at paragraph 33 (b) of the Amended Defence in this way:- “there was no such representation. PPL had the rights to raise finance and produce the films, “Echo’s Pond” was in fact produced [as accepted at paragraph 30(d) of the Re-Amended Particulars of Claim].”

Witness evidence

[46]The sole witness actually called in person to give evidence on behalf of Media was Mr. Raymond Markovich. In addition, a witness statement of Mr. Graham Bradstreet on behalf of Media was put before me, but Mr. Bradstreet’s evidence was of a rather marginal nature.[47]Mr. Markovich made a witness statement dated 14 December 2013 for the purposes of the trial. At paragraph 32 of that witness statement he said:- “On the basis of information provided to me by Mr. Chamberlain, I started compiling a document setting out this information in an Excel spreadsheet. I refer to that document as “Exhibit A” (a copy of which is at pages 19 to 31). Ultimately all of the information in this document was confirmed as true and correct by Mr. Chamberlain and Mr. Chamberlain put his signature in the lower right hand corner to indicate his acceptance of these representations. Importantly, the information contained in Exhibit A was information that was provided to me by Mr. Chamberlain.”[48]The effect of that paragraph, in my judgment, was that, even on the evidence of Mr. Markovich, Exhibit A did not amount to a collection of representations made to him by Mr. Chamberlain. It could not. Exhibit A was prepared by Mr. Markovich himself. It seems that it contained statements and projections that Mr. Markovich wanted Mr. Chamberlain to assent to, but that is not the same as Mr. Chamberlain making the statements contained in Exhibit A in order to induce Media to enter into the Share Sale Agreement or the Facility Letter. Rather the true position seems to have been that Mr. Markovich wished Mr. Chamberlain to verify propositions which Mr. Markovich himself formulated, and Mr. Chamberlain did so. In English law that amounted to the giving of warranties, not the making of representations. In my judgment the case of alleged fraudulent misrepresentation, or negligent misrepresentation, collapsed on this point – no representations were made even on the evidence of Media.[49]I do not overlook that earlier in his witness statement Mr. Markovich had said:- “16. I believe that in April or May 2006, Mr. Chamberlain called me and discussed his desire to have Park and/or Ms Mirimskaya invest into Parallel Pictures. 17. At the time Mr. Chamberlain represented that Parallel Pictures had 8 film projects in pre-production, production or post-production:
“Alpha Numeric”, “Echo’s Pond”, “15 Million Fires”, “Sisters”, “Speakeasy”, “Broken”, “Ruthie” and “Two Families”
. Mr. Chamberlain represented that all of these films with the exception of Alpha Numeric was fully financed. Mr. Chamberlain was adamant that all of these films would be produced since he already had the financing arranged. 18. One of my first questions to Mr. Chamberlain was, if all of these films (with the exception of Alpha Numeric) were fully financed, why would he require investment from Park and /or Ms Mirimskaya? 19. Mr. Chamberlain confirmed that he had all of these projects fully financed and owned all necessary rights, title and interest but he had been wanting for a long time to buy his family a better and bigger house. … 24. I believe that Mr. Chamberlain first began to send me financial information on Parallel Pictures’ fully financed projects sometime in May 2006 and he continued to send me additional financial information on the fully financed projects and concerning Parallel Pictures itself for the next several months.”[50]However, what was there recorded related only to the full financing of the films, not to any other of the representations alleged, and was inconsistent with the pleaded case and what was recorded in Exhibit A insofar as Mr. Markovich asserted that Mr. Chamberlain had told him that each of the films was in pre-production, production or post-production. In Exhibit A only “Two Families” was noted as being in post-production. The remaining films were said to be in development. Thus Mr. Markovich’s evidence contradicted Media’s case in relation to any alleged oral representations.[51]Unfortunately I was not impressed by Mr. Markovich as a witness. He was combative in cross-examination and seemed more interested in seeking to advance the case of Media than in giving simple answers to questions put to him by Mr. Crystal. The most blatant example of an attempt to advance the case of Media was Mr. Markovich’s gratuitous additional evidence in chief, when he came to give evidence following some exchanges I had had with Mr. Willson about when, where and how exactly it was contended that the representations alleged had been made by Mr. Chamberlain, that Exhibit A had been finalised at least two weeks before 23 October 2006, that Mr. Chamberlain (Mr. Markovich professed to believe) had signed Exhibit A on or before 23 October 2006, and the Facility Letter had been done on 23 October 2006 before the making of the Share Sale Agreement. It may well be that Exhibit A had been finalised by Mr. Markovich a couple of weeks before 23 October 2006. However, it was clear from the documentary evidence that, although dated 23 October 2006, the Facility Letter was actually signed by Mr. Chamberlain on 24 October 2006 and after the Share Sale Agreement had been signed by Mr. Chamberlain and Mrs. Chamberlain, and that Mr. Chamberlain had not before 24 October 2006 provided Media with a copy signed by him of Exhibit A. The signed Share Sale Agreement was sent to Media by facsimile transmission at 14.15 hours on 24 October 2006, followed by Exhibit A at 14.22 hours and the Facility Letter at 15.30 hours. The only reason for any of those documents to have been sent by Pictures by facsimile transmission was so that Media would have copies signed by Mr. or Mrs. Chamberlain, or by Mr. John Roddison, the finance director of Pictures, as appropriate, which Media did not already have.[52]Another troubling inconsistency between the evidence of Mr. Markovich and the documentary evidence concerned a document a copy of which was sent to Mr. Markovich, as he accepted in cross-examination, by Mr. Chamberlain by facsimile transmission on 21 October 2006 and which Mr. Markovich accepted he had read. The document in question was an umbrella agreement between ZAAL Entertainment Ltd. and Pictures. It had been signed on 18 May 2006. The essence of the agreement was set out in the preamble:- “ZAAL has US$100M available for the development and production of motion pictures (“Pictures”). PP [what I have called Pictures] is a motion picture production company developing and producing a slate of Pictures. ZAAL and PP wish to enter an agreement under which ZAAL has the right of first refusal to provide development funding and production finance for PP’s Projects and PP has the right to offer its Projects to NEWCO for development funding and production finance by ZAAL, on the following terms and conditions.”[53]Clause 9 of the agreement was in these terms:- “Subject to meeting the criteria required by ZAAL to provide Production Finance the following Pictures are pre-approved “Alpha Numeric”, “15 Million Dreams” [which film was otherwise known as 15 Million Fires]”[54]The date and contents of that document indicated that it was improbable that Mr. Chamberlain would have said in April or May 2006 that all of the eight films identified in the “Projects” pages of Exhibit A were fully financed. The fact that Mr. Chamberlain sent a copy of the ZAAL agreement to Mr. Markovich on 21 October 2006 meant that it was unlikely that Mr. Chamberlain had said earlier than that date, or said after it, that any of the relevant films was fully financed. In any event, having read the ZAAL agreement Mr. Markovich knew perfectly well that that was not so.[55]A consideration of the “Projects” pages of Exhibit A, in my judgment, makes it plain that not even there, on proper construction, was it being said that any of the relevant films was fully financed. The references which I have already noted to vaguely defined sources of funds, and in particular references to “Debt – Bank gap” and “50% Other” make it plain, as it seems to me, that, as Mr. Chamberlain contended, what was shown in the “Projects” pages of Exhibit A were anticipated or proposed sources of funding, not financing in place.[56]I regret that I do not think that Mr. Markovich could have been mistaken at the time as to what the “Projects” pages showed, or that, given the central significance of the issue in this trial, his recollection now is at fault. I am afraid that Mr. Markovich has just made up this part of his evidence.[57]Mr. Chamberlain and Mr. Roddison were called to give evidence on behalf of the defendants at the trial. Mrs. Chamberlain had made a witness statement, but nothing in that witness statement was challenged, so it was unnecessary for her actually to enter the witness box. The evidence of Mr. Roddison was not the subject of challenge – he was merely asked a couple of questions by way of clarification. The cross-examination of Mr. Chamberlain was most notable because of what he was not asked. It was not suggested to him that he had made an oral statement about anything specific to anyone on behalf of Media on any identified occasion. What was put to him amounted to little more than the assertion, which he accepted, that he provided to Mr. Markovich information about Pictures. Mr. Chamberlain’s evidence was that he and Mr. Markovich then discussed the information which Mr. Chamberlain had provided, and Mr. Markovich used that information in whatever way Mr. Markovich thought fit to produce Exhibit A, which Mr. Markovich wanted Mr. Chamberlain to sign, and he did sign. I accept that evidence.

Conclusions

[58]Where one therefore gets to is that the case of Media based on misrepresentations fails because Media has not proved, on the evidence, that any representations were made to it. What I am satisfied about is something which was never in dispute, that there are in Exhibit A warranties incorporated into the Share Sale Agreement by clause 4. Although, for the reasons which I have explained, if any breach of warranty relied on by Media was made out all Media would be entitled to is nominal damages of £2, it is necessary to consider whether any of the alleged breaches of warranty had been established. I express myself as I have in the last sentence because although the evidence did indicate that there was a breach in relation to the warranty at clause 4.3 of the Share Sale Agreement, for example, that was not a breach in respect of which any allegation was made in the Re-Amended Particulars of Claim.[59]I have already indicated my conclusion that, on proper construction of Exhibit A, it was not contended in the “Projects” pages that any of the films there detailed was fully financed. However, on proper construction of clause 4 of the Share Sale Agreement it seems to me there was no warranty in relation to any information contained in the “Projects” pages. There was no specific such warranty in clause 4 and, in my judgment, the casual reference, “and such Exhibit A is hereby incorporated into this agreement” is not sufficient to enable such a warranty to be constructed. As I have pointed out, Exhibit A included documents which were contradictory – “Bill’s P&L (USD)” and “Pessimistic P&L (USD)” – and other documents which existed in two forms – the balance sheets – in relation to which there was no indication which was to prevail. One could not make any sense of a wholesale incorporation of Exhibit A having some ascertainable effect. The only sensible construction of the words which I have mentioned is that Exhibit A was incorporated into clause 4 of the Share Sale Agreement only insofar as particular provisions of clause 4 referred to it.[60]Contractual rights to exploit film scripts by making films are, as it seems to me, assets. Consequently, insofar as Pictures had such contractual rights which were “assets listed on Exhibit A”, clause 4.1 was a warranty that Pictures had full right, title and interest to those contractual rights. However, it was common ground between Mr. Crystal and Mr. Willson that the reference to “assets” in clause 4.1 was to the assets listed in the balance sheets. Those did not include contractual rights, nor were contractual rights otherwise “listed on Exhibit A”. The evidence of Mr. Chamberlain in cross-examination was that in three instances concerning the films detailed in the “Projects” pages no formal contract with a scriptwriter had been entered into. That, in my judgment, did not amount to a breach of warranty.[61]No warranty was given, on proper construction of clause 4 of the Share Sale Agreement, as to the future performance or achievements of Pictures, so the alleged breaches of warranty pleaded at paragraph 30(c), (d) and (e) of the Re-Amended Particulars of Claim were not made out.[62]The contention at paragraph 30(f) of the Re-Amended Particulars of Claim that there had been a breach of warranty because “PPL’s film library was not in fact worth £100,000” must fail because there was no such warranty. The warranty in relation to the library at clause 4.4 was merely that Pictures “has full right, title and interest in all of the library titles listed on Exhibit A such rights being as stated in Exhibit A”. As I have pointed out, no rights in respect of library films were stated in Exhibit A. In any event even the balance sheets in Exhibit A noted the value of £100,000 not as warranted, but as “Estimated library value”.[63]What was pleaded at paragraph 31 of the Re-Amended Particulars of Claim did not appear to be alleged to be a breach of warranty. It was not contended at paragraph 14 of the Re-Amended Particulars of Claim, where the alleged warranties were pleaded, that there was such a warranty. In fact, on proper construction of clause 4 of the Share Sale Agreement, in my judgment, no warranty was given that the cost of producing “Two Families” had been $3,000,000. In any event a statement of a “budget” cannot, as it seems to me, sensibly be interpreted as equivalent to the actual expenditure.[64]It does seem to me that what was pleaded at paragraph 32 of the Re-Amended Particulars of Claim, although expressed in terms of representations, is capable of entitling Media to allege that there was a breach of the warranty in clause 4.2 of the Share Sale Agreement. In the light of the balance sheet of Pictures as at 31 October 2006 I am satisfied that there was indeed that breach of warranty. Media is entitled to £2.[65]The allegation in paragraph 34(a) of the Re-Amended Particulars of Claim that, “In breach of Clauses 7.4 to 7.8, the Defendants failed to call a general meeting, failed to appoint the Claimant’s nominees to the Board of PPL and failed to fulfill [sic] any of the pre-conditions of the agreement provided for in those clauses” seemed to be unsustainable in the light of the evidence of Mr. Markovich at paragraphs 62 and 63 of his witness statement:- “62. We arranged to have a shareholders’ meeting in London in November 2006. 63. The shareholders’ meeting went ahead and myself, Ms Mirimskaya and Ilya Golubovich (“Ilya”), Ms Mirimskaya’s son, were elected to the board of directors of Parallel Pictures.”[66]Certainly Mr. Chamberlain disputed that there had been any breach of the provisions in clause 7.4 to 7.8 inclusive and there was no positive evidence of breach, although it may be that appropriate returns to Companies House consequent upon the performance of those obligations were not made. I have already noted that the letter by which Mr. Chamberlain was dismissed by Pictures was signed by Mr. Markovich, Ms Mirimskaya and Mr. Ilya Golubovich as directors of Pictures.[67]Mr. Chamberlain’s answer to the allegation that there had been a breach of the obligation in clause 7.9 was that there had been no revenues to be disbursed. That did not really seem to be in dispute, so this allegation also fails.[68]The alleged breaches of implied terms of the Share Sale Agreement fail because the terms in question were not to be implied into the Share Sale Agreement, for the reasons which I have already explained.[69]Again for the reasons which I have already explained, it was not open to Media to recover damages against Mr. Chamberlain for breach of any of the provisions of the Service Agreement. It is consequently unnecessary for me to consider whether in fact on the evidence Mr. Chamberlain had been in breach of the Service Agreement.[70]In the result there will be judgment for Media against Mr. and Mrs. Chamberlain jointly and severally in the sum of £2 for breach of the warranty in clause 4.2 of the Share Sale Agreement.

Cited in 2 later judgments