Ultraframe (UK) Ltd v Fielding & Ors [2005] EWHC 1638(3) (Ch) (27 July 2005)

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England and Wales High Court (Chancery Division) Decisions

You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ultraframe (UK) Ltd v Fielding & Ors [2005] EWHC 1638(3) (Ch) (27 July 2005)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2005/1638(3).html
Cite as: [2005] EWHC 1638(3) (Ch)

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HAS THE CONSPIRACY BEEN PROVED?

What makes a successful conspiracy?

A really successful conspiracy would, I think, satisfy a number of conditions:

i) The number of conspirators would be as few as possible;

ii) Each conspirator would be able to rely on the others to abide by the conspiracy;

iii) Each conspirator would keep the conspiracy secret during its execution (and preferably afterwards);

iv) The conspiracy would keep as close to the truth as possible;

v) If documents or records had to be falsified or fabricated, they would be as few as possible;

vi) The conspiracy would have a real purpose which could not otherwise be achieved;

vii) It would be internally consistent; and

viii) It would avoid unnecessary complications.

Of course it may be that if a conspiracy fails to meet these criteria that is due to the ineptitude of the conspirators.

The conspirators

Ultraframe's case is that the active conspirators were Mr Fielding, Mr Birkett, Mr Naden, Mr Roche, Mr Cooper and Mr Whitelock. They say that although Mr Read was not an active conspirator, he turned a blind eye to it. They say that Mrs Fielding and her son, Ashley Walsh, have dishonestly supported the false story, out of misplaced loyalty to Mr Fielding.

Mr Fielding's credibility

Mr Fielding is not a stickler for the truth. He is prepared to conceal and to mislead. It is not necessary to enumerate all the examples, but the more telling ones were these:

i) At some stage (probably in June 1996) Mr Fielding prepared a handwritten memorandum setting out for the benefit of his accountant how the purchase of Burnden Works had been financed. The memorandum showed that of the £350,000 necessary to pay for the building, £195,000 had come from the partnership, £90,000 had come from "private funds" and £34,000 had been a loan from Con Cunningham. Mr Fielding's evidence was that he had not borrowed anything from Mr Cunningham and that his memorandum had been designed to conceal the truth from his accountant. Only two conclusions are possible. Either Mr Fielding's evidence was untruthful, or he was willing to lie to his accountant.

ii) On 25 April 1997 he wrote to Mr Howarth offering to lend him £10,500. The terms of the letter are quite clear. They state unequivocally that Mr Fielding proposed to borrow the money from the Bank with which to make the loan; and the terms on which he was prepared to lend to Mr Howarth included the payment by Mr Howarth to Mr Fielding of "an arrangement fee of £250.00 which represents the cost I will incur in bank fees". Mr Fielding's evidence was that he did not intend to borrow any money from the bank; and that the terms of his letter were no more than a justification for charging interest on the loan to Mr Howarth. There are again only two possible conclusions I can draw. Either Mr Fielding's evidence was untruthful, or he was willing to make fraudulent representations to Mr Howarth.

iii) In response to Hammond Suddards' letter of 3 July 1998 Mr Fielding, writing on behalf of Dearward, disclaimed any knowledge of Mr Davies; and denied having had any contractual dealings with Northstar. This statement was untrue, although Mr Fielding attempted to explain it by an ingenious piece of "doublethink".

iv) On about 22 December 1998 Mr Fielding prepared a chronology of events for the purpose of instructing his solicitors and counsel. The chronology deliberately omitted any mention of his dealings with Mr Davies after the end of 1997. Thus it came about that affidavits and witness statements were drafted for Mr Fielding which were misleading, and which Mr Fielding knowingly signed.

v) Mr Fielding also concealed from his solicitors the circumstances in which the stock transfers came to be signed; and acquiesced in their giving false information to the trustee.

vi) In December 1998 Mr Fielding told his solicitors that he had made investments and incurred liabilities in relation to Northstar which exceeded £1 million. As Mr Fielding accepted, this was untrue.

Standing in the shadows

Mr Fielding has also concealed his involvement in some of his business affairs. For example:

i) When he made the successful tender for the goods of Kesterwood which he had distrained on as landlord, he did so not in his own name but in the name of "Planet Heating";

ii) When he caused Kesterwood Extrusions and Kesterwood Plastic processors to be incorporated, the shares were issued to two family members (not bearing the surname "Fielding") as his nominees;

iii) In March 2000 Mr Mick Howarth was appointed as a director of BCP. But it is clear that he was no more than a front for Mr Fielding.

Mr Birkett's credibility

Mr Birkett is a self-confessed forger, thief and liar. A number of the witnesses had suspicions about Mr Birkett's role in extracting money from Northstar; and about his control over cash. His evidence about the provenance and quality of documents in his plastic wallet was, at times, demonstrably untrue. His account of the first cover story dealing with payments to Mr Davies via Bespoke Windows varied considerably as between his various accounts. So, too, did his account of how the conspiracy to move the shares to Mr Fielding came to be hatched and put into operation. At the time of his suspension from Northstar he evinced extreme animosity towards Mr Fielding; and the circumstances surrounding the arson attack on Burnden Works are decidedly suspicious. He is also entitled to be paid £25,000 under his "consultancy agreement" with Ultraframe. I approach his evidence with considerable caution.

Mr Roche

Mr Roche is not a lawyer. However, as I have already said, Mr Roche was perceived as the "legal department" of Northstar. He was also perceived as fulfilling a similar role on behalf of Mr Fielding. Mr Gray said that he "worked on a lot of legal matters" for Mr Fielding; and Mr Shaw said he believed Mr Roche to be "a Burnden Group legal adviser". Ultraframe say that Mr Roche drafted some legal documents, such as assignments of intellectual property rights in 2000; and that in so doing he worked from a template or precedent originally prepared by a qualified lawyer. However, Mr Roche said that the assignments had been drafted for him by solicitors and e-mailed to him; and that all he had done was to add his trading name (Helix Agencies) to the front cover.

Mr Fielding also said that Mr Roche was very good at digging up information. It was Mr Roche who travelled to Spain in 2001 to take a witness statement from Mr Davies. However, Mr Fielding said that this was not done at his instigation; but at the request of Burnden's solicitors, at a time when he and Burnden were separately represented.

I also take into account Mr Roche's previous conviction; although I consider that Mr Roche is thoroughly ashamed of the circumstances that led to it.

Unnecessary conspirators?

Neither the Northstar Supply Agreement nor the Seaquest Supply Agreement was a document that required to be witnessed. Yet each of them was. The Northstar Supply Agreement was witnessed by Mr Whitelock and Ms Atherton; and the Seaquest Supply Agreement was witnessed by Ms Atherton. Moreover Ms Atherton typed the Seaquest Supply Agreement but not the Northstar Supply Agreement. To involve these people as witnesses was, therefore, unnecessary.

It is, I think, common ground that the Northstar Supply Agreement was typed by Mr Walsh. What is in dispute is when he typed it. Mr Fielding had access to typing facilities both at Burnden Works and on an ad hoc basis at ABB in Telford. On the face of it, it seems unnecessary, therefore, to involve a teenager in the conspiracy.

The share sale agreement between Mr Fielding and Mr Clayton was, likewise, a document that did not require to be witnessed. Yet it was witnessed by Mr Bennett. Here, too, the conspiracy involved an unnecessary conspirator.

Secrecy

Mr Ivison's evidence about the pub meeting in Marsden, if true, is that Mr Fielding and Mr Clayton, who had never met before, had a conversation in a pub about transferring and backdating shares without attempting to conceal their conversation or keep it secret. They had their conversation in earshot of Mr Ivison.

Mr Birkett said that he had removed the plastic wallet containing forged documents from Groby Road in March 1999. He had a meeting with Mr Fielding (and others) in June 1999. At the meeting Mr Birkett revealed that he had documents that might be relevant to the litigation then in progress. He did not, however, say what they were (with the exception of a declaration of trust alleged to have been signed by Mr Naden); and he did not suggest that Mr Fielding knew that the documents in question were the alleged forgeries. On the contrary, the only document mentioned was the declaration of trust; which (if it existed) would have been genuine and would, or might, have undermined Mr Fielding's claim to have bought the shares. Mr Fielding told him to disclose the documents. On the face of it this is not the behaviour of a dishonest conspirator.

One telling piece of evidence was given by Mr Bennett. Mr Bennett's evidence was that Mr Naden and Mr Clayton spoke freely for several months both in his presence and that of others, about having "missed the deadline" for the share transfers. Again, that is not the behaviour one would expect from a conspirator.

Missing documents

Receipts for loans

It is a striking feature of the case that neither Mr Fielding nor Mr Clayton has been able to produce a receipt for any loan. This omission is extremely puzzling. On the one hand, if the loans had been genuine and innocent loans, one would have expected some written receipt to have been sought and provided. Mr Clayton explains the absence of any documentation by saying that he did obtain a receipt but that he destroyed it once his loan had been repaid. Mr Fielding had no similar explanation. On the other hand, if the conspirators were engaged in the wholesale fabrication of documents and falsification of the computerised accounts, it would have been far more obvious to have fabricated receipts for loans than the apparently inconsequential correspondence and internal memos that Ultraframe say were fabricated.

Mr Hochhauser's response is twofold. First, he says, the lack of a receipt means that the conspirators are not tied down to precise dates of payment; or precise amounts of payment. Second, he says, Mr Fielding did in fact manufacture a receipt, in the shape of his letter to Mr Naden of 17 March 1998 confirming that the capital injection of £80,000 was in place. There is a tension between these two responses. In any event, the conspirators had the financial records of Northstar available to them (including Ms Patey's cashbook); so they could have manufactured receipts corresponding to the cash book entries.

Diary annotations

Mr Fielding disclosed his diaries for the years 1997, 1998 and 1999. He used his diaries not only to record appointments prospectively, but also to record, retrospectively, what he had done. Typically he would go over his diary at the end of the week and record information about meetings that had taken place or expenses incurred during that week. Mr Fielding said that although this was not invariable, his diaries were 95 per cent accurate. However, there were surprising omissions in the diary entries. These omissions are, in a sense, equivocal. If the diary has been retrospectively falsified, one would have expected the falsification to have been carried out more thoroughly. On the other hand, if the diary has not been retrospectively falsified, the omissions to some extent either undermine Mr Fielding's case; or undermine his evidence about the accuracy of his diary.

Unnecessary complications: Occam's razor

The two supply agreements

The Northstar supply agreement and the Seaquest supply agreement have clearly been word processed on two different machines. As I have said the "£" in the Northstar supply agreement has been manually inserted. Why? If the two documents had been fabricated as part of one overall conspiracy, one would have expected that both documents would have been created at the same time and; given the similarity of their terms, processed on the same machine. Moreover, one would have expected that if the conspirators went to the trouble of fabricating the Northstar supply agreement they would have done so on a word processor that worked properly.

The missing share certificates

If the point of the conspiracy was to demonstrate that Mr Fielding had acquired control of Northstar and Seaquest through acquiring the shares in both companies from Mr Clayton, what would have been the point of manufacturing an elaborate story, complete with chasing letters, about Mr Clayton's having lost the share certificates? Would it not have been simpler to have fabricated the agreement to transfer the shares; and then simply to have executed back-dated share transfers? The fabrication of the correspondence between Mr Fielding and Mr Clayton seems a wholly unnecessary complication. Ultraframe say that the story was necessary because by July 1998 the share certificates (in Mr Clayton's name) had already been delivered up to the trustee as a result of HH Judge Behrens' order. Since the story came into existence after that date, Mr Fielding's non-receipt of the share certificates had to be explained. This had to be done by pretending that Mr Clayton had mislaid them. But even so, the simpler course would have been to execute backdated stock transfer forms, accompanied by an indemnity from Mr Clayton in respect of the missing share certificates, without the added complication of the chasing letters.

What was the point of the conspiracy?

The conspiracy hypothesis

The conspiracy hypothesis is that the conspiracy was hatched in November 1998. The Particulars of Claim allege that the challenged documents were fabricated after 19 November. Let us take stock of what the conspirators indisputably knew by that date:

i) They knew that Mr Davies had been adjudicated bankrupt in December 1997;

ii) They knew that the trustees were claiming beneficial ownership of shares in both Northstar and Seaquest;

iii) They knew that the shares in Northstar were registered in the name of Mr Clayton (and had been since 1 April 1998) and that the shares in Seaquest were also registered in his name (and had been since 13 January 1998);

iv) They knew that the share certificates relating to both parcels of shares had been delivered to the trustees;

v) They knew that no transfer of shares to Mr Fielding had been executed;

vi) They knew that the Northstar debenture and the Seaquest debenture had been granted to Mr Fielding.

It is not clear whether they knew (or had been advised) that the trustees' claim related back to the date of Mr Davies' bankruptcy.

The Northstar and Seaquest supply agreements

It is striking that the fabrication of the Northstar supply agreement seems to be entirely pointless. It contained a right of pre-emption over Mr Naden's shares in Northstar; but that right of pre-emption has never been relied on. Mr Fielding's case is that he made an offer to buy Mr Naden's shares as an entirely independent offer; and that an entirely independent agreement was made in consequence of it. It contained a charge (of sorts) over Northstar's intellectual property rights; but by November 1998 the conspirators would have known that Northstar's intellectual property rights had long since been assigned to Seaquest. Moreover, Mr Fielding's case is not that he (or the Burnden Group) has acquired the intellectual property rights themselves through the mechanism of the security; but that they are licensed to exploit them. To the extent that Mr Fielding claims to have been entitled to acquire Northstar's assets, his claim is made on the basis of the Northstar debenture; not the Northstar supply agreement.

Precisely the same points apply to the Seaquest supply agreement. The fabrication of that agreement also seems pointless.

The date of the share sale agreement

According to Mr Birkett the share transfer agreement was backdated to 5 May 1998 in an attempt to defeat the assertions of Mr Davies' trustees. But Mr Davies had been adjudicated bankrupt in December 1997. If the point of the conspiracy had been to remove control of the companies from the hands of the trustees, by means of a fabricated share transfer, why choose 5 May 1998 as the date of a fictitious agreement? This date can only make sense if it was chosen at a time when the parties to the agreement did not know that Mr Davies had been adjudicated bankrupt. In his affidavit Mr Birkett went on to say that he had been told by Mr Roche that the agreement had to predate the injunction restraining dealing in the shares (granted on 12 November 1998) and also "the bankruptcy proceedings which started on 15 June 1998" and that this explained the choice of 5 May. Legally, this was plainly wrong, since the trustees' title accrued at the date of Mr Davies' adjudication.

It is true that Mr Clayton had been registered as the principal shareholder in Northstar in April 1998; so any agreement involving him could not be backdated beyond April. But if the real intention had been to defeat the trustees' claim, any fictitious agreement would have to have pre-dated the bankruptcy. According to the documents he had been registered as the principal shareholder in Seaquest since 13 January 1998, which also post-dated Mr Davies' bankruptcy. Indeed, since Seaquest was not incorporated until after Mr Davies' bankruptcy, it would not have been possible to fabricate an agreement that would have defeated the trustees' claim. Mr Birkett's explanation of the motivation behind the backdating of the share sale agreement is not, on the face of it, a cogent one.

The agreement to buy Mr Naden's shares

The same point applies to the agreement between Mr Fielding and Mr Naden under which Mr Fielding was to acquire Mr Naden's shares. This is said to have come into existence in January 1998; after Mr Davies' adjudication. So if it is genuine, it could not have defeated the trustees' title. If, therefore, the conspirators had wished to defeat the trustees' title, surely they would have fabricated an agreement which pre-dated the bankruptcy.

In addition, it has never been suggested that the agreement between Mr Fielding and Mr Naden was the exercise by Mr Fielding of the right of pre-emption apparently conferred by the Northstar supply agreement. What, then, was the point of fabricating that right?

In addition the date of the agreement pre-dates the acquisition of Seaquest. So if the agreement is fabricated, the conspirators then had to fabricate an additional part of the story to explain how it came about that Mr Fielding acquired both the shares in Northstar and Seaquest. If part of the object of the conspiracy was to transfer control of Seaquest to Mr Fielding, surely the fabricated agreement would have been dated after the existence of Seaquest was known to the conspirators. But if that had been done, the fabricated agreement runs into the problems of timing that I have already outlined.

The possibilities

There are, in my judgment, a number of possible explanations for these puzzles:

i) The story was evolving and did not reach its final form until some time after the plot was initially hatched, as Ultraframe allege;

ii) There was a single conspiracy, but it was not as wide ranging as Ultraframe claim;

iii) There were two conspiracies, one relating to the concealment of Mr Davies' interest in Northstar and Seaquest and the transfer of the shares; and the other relating to the allegations that Mr Fielding had lent money to the companies and had been validly granted debentures over them;

iv) The conspirators were inept, and had not thought through the consequences flowing from the fabricated documents;

v) There was no conspiracy; and all the challenged documents are genuine.

In view of the matters I have mentioned, the weight of the evidence needed to prove the alleged conspiracy must be heavy. It will be necessary to examine closely the evidence on the main disputed issues of fact in order to decide which, if any, of these explanations is correct. To that task I now turn.

Did Mr Naden believe that he owed the shares beneficially?

Relevance of the question

HH Judge Behrens has decided that Mr Naden held the shares in Northstar on trust for Mr Davies. The question now posed is: did Mr Naden know that? If Mr Naden did not believe that he was the beneficial owner of the shares in Northstar but believed that he held them on trust for Mr Davies, it is a pointer towards two conclusions: first, that the Northstar supply agreement is a fabrication; and second that the agreement to buy Mr Naden's shares is also a fabrication.

Northstar shares

As I have said, Mr Naden's evidence was that he believed, in the summer of 1997, that Mr Davies had given him the company, because he was no longer interested in fabrication. The basis of his belief was a conversation with Mr Davies himself. This evidence has not, of course, been tested by cross-examination. The rationale for this gift is implausible. First, from what I have heard of Mr Davies, a gift of this kind would, in my judgment, have been out of character. It is more likely that the registration of the shares in Mr Naden's name, a year earlier, was part of a pattern of Mr Davies' behaviour to find nominees for himself. Second, at the time when Mr Naden says that Mr Davies made the gift, Northstar was not simply a fabrication business. It also sold components; and collected commission on sales of the Quickfit system. Third, a gift is not consistent with Mr Davies' saying that he would continue to support the company. Why should he if he no longer owned it? Fourth, in January 1998 Northstar assigned its intellectual property rights to Seaquest. At the date of the assignment, the consideration for the transfer had not been agreed. If Mr Naden was the beneficial owner of the shares in Northstar, and if he believed that Northstar owned the intellectual property rights, then, in economic terms, he was the owner of the intellectual property rights. Yet his evidence is that he simply went along with Mr Birkett's proposal for the assignment.

The circumstantial evidence also points towards the conclusion that Mr Naden knew that he held the shares in Northstar as Mr Davies' nominee. Although no completed declaration of trust has been found, it is clear that Mr Vibrans prepared a draft declaration. The stock transfer form itself records that the transfer of shares is from one nominee to another. Mr Davies continued to behave, at least throughout 1997, as the owner of the company. Mr Naden took no interest in any part of the company's activities, with the exception of roof fabrication, at any time during 1997. Apart from the Northstar supply agreement, which is in dispute, Mr Naden played no part in any negotiations on the company's behalf. In addition Mr Naden says that his discovery that he was the shareholder was the result of Mr Clarke telling him that he was being made a fool of. If Mr Naden was the beneficial owner of Northstar, that comment is puzzling. But if he was holding the shares as Mr Davies' nominee, the comment is readily intelligible.

I conclude that Mr Naden knew that he held the shares in Northstar as nominee for Mr Davies.

The Seaquest shares

Mr Naden never did hold any shares in Seaquest. They were allotted to Mr Clayton; and Mr Naden signed the share certificate himself. Although the share certificate bears the date 13 January, it is common ground that it was not issued until later; probably towards the end of that month. The Seaquest supply agreement was signed on 21 January. In the light of the evidence, it is not possible to conclude that Mr Naden knew, on the basis of the share certificate alone, that, at the date of the Seaquest supply agreement, he was not intended to hold any shares in Seaquest.

Mr Naden's evidence is that he was told by Mr Birkett that the shareholdings in Seaquest were to be the same as those in Northstar. If that is right, then on the basis of my finding about the Northstar shares, Mr Naden would have appreciated that he was also to hold any shares in Seaquest as Mr Davies' nominee. Moreover, since the purpose of the incorporation of Seaquest was to protect "the system"; and Seaquest had nothing to do with the actual fabrication of roofs, Mr Naden could not have thought that Mr Davies intended him to own that company beneficially. In addition, there is no evidence of any protest by Mr Naden later in January when he signed the share certificate allotting the shares in Seaquest to Mr Clayton. If he thought that they were to belong to him beneficially, the silence is surprising.

I conclude that Mr Naden did not believe that he was to be the beneficial owner of any shares in Seaquest.

Did Mr Fielding pay for new tooling or new machines?

Relevance of the question

Ultraframe's case is that the Northstar supply agreement is a fabrication; and that it was never genuinely implemented. It will be recalled that the recitals to the Northstar supply agreement envisaged that Mr Fielding would make an investment of £500,000 for new extrusion lines; and £250,000 for new extrusion tooling. This was to be in place by April 1998. Did this happen? If it did not, it would tend to suggest that the supply agreement with Northstar was a fabrication. Mr Fielding's case is that Kesterwood and/or Kesterwood Extrusions paid for tooling and machinery; and that Kesterwood Extrusions invoiced Delta Construction (which for this purpose can be equated with Mr Fielding himself) for the cost of buying and developing the tools.

The Burnden Defendants' original case

I have already mentioned that in their letter of 4 December 1998 Addleshaw Booth & Co said that Mr Fielding had invested £1 million in Northstar and Seaquest. That figure was false to Mr Fielding's knowledge; and had been inserted in order to induce the trustees to meet him. In paragraph 20 of his witness statement of 22 January 2000 Mr Fielding said:

"By January 1998 I had incurred a contingent liability of approximately £500,000.00 pursuant to the June 1997 contract by guaranteeing the financing of extrusion equipment. I had further funded the purchase and development of tooling by Kesterwood and Kesterwood Extrusions at a cost in the region of £200,000.00. If Northstar had failed at that time, then at the very least, the £200,000.00 was likely to be lost." (Emphasis added)

On a fair reading of this statement, Mr Fielding was plainly saying that he had actually spent £200,000 on the purchase and development of tooling. Otherwise the statement that the £200,000 was likely to be lost makes no real sense. However, before verifying this statement in the witness box, Mr Fielding made an important change to it. Following the change, this paragraph read:

"By January 1998 I had incurred a contingent liability of approximately £500,000.00 pursuant to the June 1997 contract by guaranteeing the financing of extrusion equipment. I had further committed to funding the purchase and development of tooling by Kesterwood and Kesterwood Extrusions at a cost in the region of £200,000.00. If Northstar had failed at that time, then at the very least, the £200,000.00 was likely to be lost." (Emphasis added)

The second and third quoted sentences do not, to my mind, sit well together. If Mr Fielding had only committed to fund £200,000, but had not yet spent it, how would Northstar's failure cause him to lose £200,000? Nor did the second sentence sit well with Mr Snowden's submission that the Northstar supply agreement was not really any sort of legally enforceable commitment on Mr Fielding's part at all.

Mr Cooper and Mr Shaw also made statements in which they said that Kesterwood had replaced all the Northstar tooling. They too made changes to their statements before verifying them; to the effect that Kesterwood had replaced or refurbished those tools. Refurbishment is a very different concept from replacement.

Kesterwood's accounts

Kesterwood's audited accounts show that in the year to 31 March 1997 there was expenditure of £322,499 on additions to fixed assets. It seems probable that this expenditure was expenditure on machinery, although none of the witnesses could really explain what the figure represented. The depreciation policy was to write down plant and machinery at 10 per cent per annum on the reducing balance. However, by 31 October 1997 Kesterwood went into liquidation. The statement of affairs showed plant and equipment with a book value of £468,694, which appears to be six months' depreciation on the amount shown in the previous set of audited accounts. This does not show the acquisition of any new equipment between March and October 1997. The realisable value of that plant and equipment was estimated at nil. That does not suggest that any of the plant was new. Of the total book value of £468,000, £124,978 was subject to finance agreements.

Kesterwood's accounts do not, therefore, support the conclusion that it acquired new machinery between 31 March 1997 and 31 October 1997. Mr Fielding agreed that Kesterwood did not spend any money on plant and machinery after 30 June 1997. There is no record of any invoice for tooling from a tool manufacturer addressed to Kesterwood, Kesterwood Extrusions or Mr Fielding personally. The absence of these documents is suggestive of the conclusion that none of them paid for tooling, although it must be accepted that, because of Kesterwood's liquidation, its records are incomplete. There are, however, entries in Kesterwood's purchase ledger.

Kesterwood's purchase ledger

Kesterwood's accounting records were made available during the course of the trial; and Mr Hall examined them. Between January and June 1998 Kesterwood paid about £35,000 in invoices rendered by Harris Extrusion Tools. Of that total, about £9,400 related to tooling for a customer called Scholes Windows. The remaining £24,500 is not specifically attributed in the accounting records, with the exception of one payment of £2,420.50 spent on a ridge cap tool.

It must be recalled, however, that when Mr Fielding distrained for rent on Kesterwood, the bailiff seized a number of dies and formers. About half of these belonged to customers (including the Northstar dies) and about half belonged to Kesterwood itself. It is, therefore, likely that some if not all of the unattributed expenditure in the purchase ledger was made on tools that Kesterwood already owned. Beyond that, I cannot make any reliable inferences on the basis of these accounting records.

Invoices addressed to Delta Construction

There are a number of invoices, bearing dates in the summer and early autumn of 1998, from Kesterwood Extrusions Ltd to Delta Construction Service Ltd. Each invoice is described as an invoice for the supply and development of tools, which are then specified by their code letters. Ultraframe's case is that those invoices are bogus. Mr Fielding accepts that the charges raised against Delta Construction Services Ltd by those invoices are "astronomical". They amount, in total to approximately £195,000, excluding VAT. The genesis of these invoices was a discussion that Mr Fielding had with Mr Sheffield in the summer of 1998 which he described as follows:

"So, in August 1998 and September 1998, I allowed Kesterwood Extrusions to invoice me significant costs to improve their balance sheet position and cash position and then the costs were attributed to the roof system."

This description does not inspire confidence in the accuracy of the invoices. The invoices all describe the nature of the services as the "supply and development" of certain tools. Mr Fielding accepted that, in most if not all cases, the reference to the "supply" of a tool was erroneous. The "development" to which the invoices referred, according to Mr Fielding's explanation was not merely the cost of commissioning the tool, but also included the cost of shop floor time in getting the tool to work and also the scrap that the tool produced, throughout the working life of the tool. Mr Sheffield said that he and Mr Jones, with Mr Fielding's agreement, decided to raise the invoices to Delta Construction. However, he said that although Mr Fielding had agreed that invoices could be raised, he had not agreed the amount of the invoices in advance; and that it was quite a surprise when he saw the figures. With one possible exception, no money actually changed hands as a result of these invoices. They were dealt with by set-off against Mr Fielding's loan account with Kesterwood Extrusions. I cannot place any weight at all on these inflated invoices. Mr Fielding's continued reliance on them to support his case on the Northstar supply agreement was, in my judgment, damaging to his credibility.

Mr Fielding was constrained to accept that at least two of the tools were paid for wholly by Northstar. One of these was a tool for the gutter. Mr Fielding's explanation was that the gutter was a project that Northstar wanted to develop independently, because it wanted to sell the gutter direct into builders' merchants. However, since the gutter was also designed to be part of the conservatory roof system, this explanation did not carry conviction. The second tool was an eaves closure. Mr Fielding said that the invoice from Harris Extrusion Tools (which he accepted had been sent to and paid by Northstar) had been sent to Northstar by mistake, and should have been invoiced to Kesterwood. This explanation, too, did not carry conviction.

Northstar's purchase ledger

Northstar's purchase ledger also records payments having been made to Harris Extrusion Tools after June 1997. This would have been unnecessary if the Northstar supply agreement had been made.

Contemporaneous correspondence relating to tooling

On 10 October 1996 Axis collected five tools from Nenplas, and acknowledged that they were in good condition. Three of these tools were subsequently used in the manufacture of the Quickfit system. The collection note recorded Nenplas' understanding that title to the tools "remains with Howard Davies of Quickfit". On 7 February 1997 Axis wrote to Mr Davies confirming the receipt of certain tools. These included the three tools that had been collected from Nenplas. They also said in the letter that four tools were "currently under construction" by a third party; and three tools, including the ridge cap tool, were "under construction" at Axis. The letter confirmed that the tools would "remain the property of Northstar Systems Ltd". On 17 March 1997 Axis acknowledged receipt from Mr Davies of a drawing approval for the ridge cover profile; and confirmed that the tool would be completed by 21 April.

On 20 March 1997 Mr Fielding quoted die costs for sixteen tools, which included the ridge cover profile, that had been referred to as having been signed off three days earlier in Axis' letter. Mr Fielding said that the die cost was only a part of the overall cost of a tool, which also included shop floor time in order to make sure it worked. He said that the die cost should be roughly doubled to arrive at the true cost of the tool. The form of the quotation does not indicate that Mr Fielding was to meet the cost of the tool. On the contrary one would infer from the form of the letter that the "quotation" was a price that Northstar would be expected to meet. Mr Fielding said that Northstar wanted these costs to see whether Kesterwood was "competitive"; but since, according to Mr Fielding, the die cost represented only a small part of the overall cost of the tool, I do not see how this explanation can be correct. On 4 June 1997 Sam Harris (of Harris Extrusion Tools) sent a drawing to Mr Davies. The drawing showed five tools with estimated delivery dates between 9 June and 14 July. Mr Harris noted on the fax that he would confirm prices with Mr Davies shortly. On 12 June 1997 Mr Cooper sent a fax to Mr Davies in which he quoted for two top caps. The quoted price included both the die cost and the development cost. There is no suggestion in the fax that Kesterwood, still less Mr Fielding himself, would bear any of the cost of the tool. These two tools were the same as two of the tools for which Mr Harris had given delivery dates in his fax some eight days earlier. On 29 September 1997 Mr Cooper sent Mr Davies confirmation of certain prices quoted for tooling. Again there is no suggestion in the quotation that Kesterwood or Mr Fielding would bear any part of the quoted cost. On 12 January 1998 Mr Harris sent a fax to Mr Davies. He reported that the tooling for the gutter profile had been delivered to Kesterwood on 6 January 1998. He asked Mr Davies to pay half the cost within the next few days and the remainder once the tool had been approved. He then reported on the progress of the roof vent tool, and acknowledged that Mr Davies had already paid for that during the previous October. The heavy top cap tool was trialled in the previous week; and Mr Harris said that he would sent a statement of account to Northstar with details of all monies owing. There was no suggestion that any of the tooling costs would be borne by anyone else. On the same day Mr Harris sent a faxed statement of account to Ms Patey at Northstar.

Mr Sheffield's letter to Mr Birkett of 7 September 1998, in which he referred to the recovery from Northstar of the cost of tooling and trialling is also inconsistent with Mr Fielding's claim to have paid for tooling. So, too is the minute of the meeting of 16 October 1998 in which Mr Birkett and Mr Naden agreed that any investment by Mr Fielding in tooling could be covered by the debenture. The only meeting at which it is said that Mr Fielding offered to fund tooling and development costs is that of 3 September 1998; but that it one of the few meetings for which there are no minutes; and Mr Birkett disagreed with Mr Fielding's evidence on that point.

Documents relating to machinery

The documents relating to the purchase or hire purchase of machinery after Northstar's appearance on the scene can be tabulated as follows:

Date	Company	Machine	Price (£)
30.06.1997	Dearward	ESMA 60mm 25/1 power pack	43,475
30.06.1997	Kesterwood	ESMA 30mm Jockey co- extruder	24,317
20.08.1997	Kesterwood Extrusions*	Boston 60 core extruder	57,545
18.05.1998	Dearward	ESMA 90mm 25 extruder	52,000
2.07.1998	Dearward	Maplan 20-25 Jockey extruder	12,000
10.08.98	Dearward	Maplan 90mm extruder	71,087

* Deposit paid by Kesterwood, assigned to Kesterwood Extrusions

However, Mr Fielding said that these costs did not include the costs of "downstream" equipment, such as vacuum tanks, saws, and haul-offs. He said that a full extrusion line costs in the region of £150,000. But there are no documents to support expenditure of that order. The co-extrusion machine, which had been a necessary acquisition in order to manufacture co-extrusions for the conservatory roof system was used by Kesterwood Extrusions not only for Northstar's business but also for Scholes Windows' business, at least from 1988. It was not, therefore, a machine dedicated to servicing Northstar's business.

Mr Read's evidence

Mr Read's evidence was that by May or June 1998 Northstar's tooling was "knackered". When he complained to Kesterwood about the poor quality of the extrusions, he was met by the response that they were unable to produce better quality with such poor tooling. He could not recall any investment coming into the business to improve the tooling. He did not discuss new tooling with Mr Davies before Mr Davies went to the USA in the summer of 1998 and his perception was that "the money necessary to procure new tools was not available to the company". Nor, at that time, was there any white knight coming to the rescue. If Northstar had secured an agreement with Mr Fielding under which Mr Fielding had agreed to supply tooling, this evidence is very surprising. As I have said, Mr Read did not recall any discussion about tooling in June 1998 (as is suggested by the letter dated 12 June 1988); and he could not explain why prices apparently quoted for new tools in June 1998 were still awaited in September of that year. His recollection was that tooling improved from September 1998. He recalled that at that time he began discussions with Mr Cooper about the replacement of tooling. Mr Read moved to Burnden Works in early 1999, when he became an employee of the Burnden Group. At that point he gave up responsibility for tooling. He was unable to say when new tooling was actually acquired. However, since he was in charge of tooling it seems unlikely that new tooling was acquired before he moved to Burnden Works.

Mr Shaw's evidence

Mr Shaw said that in order to take on systems extrusion for conservatory products it was necessary to have a co-extrusion machine which, in early 1997, Kesterwood did not have. As I have said, he said that Mr Fielding financed two new machines: a Maplan 60/30 extruder and a Boston 60 extruder and downstream. He said that a Maplan 25 jockey was also bought. So far as tooling was concerned, Mr Shaw said that of the 22 tools in use in February 1998 about 12 had come from Axis. The remaining 10 came from Harris Extrusion Tools Ltd. These included tools for the heavy duty parts, which Mr Shaw said did not exist in early 1997. He thought that Northstar paid for a gutter and eaves beam closure; and that Kesterwood paid for the rest. He did not, however, know how the cost of these tools was financed. About half the tooling that had been collected from Axis had to be refurbished in 1997 or 1998. Refurbishment, in this sense, consists of replacing some parts of the tooling, usually the front plate of the die and the forming. The remaining tooling was replaced as from 2000. Mr Shaw said that he recalled Mr Harris of Harris Extrusion Tools Ltd coming to Burnden Works to help develop the tools and refurbish them; and that he would arrange for a cheque to be drawn in Mr Harris' favour.

Mr Shaw was laid off from Kesterwood Extrusions in February 1998; but he returned to work there on a part-time basis in July 1998. He said that during his absence there had been investment in new machinery consisting of two or three extrusion machines. There had also been investment in tooling for what he called "the second half" of the full system.

Mr Shaw was prepared to accept that some of the tooling and machinery was of poor quality; but he did not agree that all of it was. However, he did agree that by October 1999 the tooling was at the end of its useful life.

Toward the end of 1999 TBG acquired a high quality Austrian machine; and new tooling was acquired in 2000.

Mr Cooper's evidence

As I have said, Mr Cooper joined Kesterwood in the summer of 1996. When he arrived at Kesterwood he formed the view that the machinery was very old. His recollection was that Kesterwood owned some of the tools; and that Kesterwood had replaced tooling. He recalled having dealt with Sam Harris on ordering new tools; but he accepted that he did not know who paid for them. By the time he left in April 1999 he thought that all the tooling or parts of it (such as calibrators or formers) had been replaced. But he thought that the dies may have been saved.

Mr Cooper said that when he sent prices of tools to Mr Davies, he did so simply as a matter of record, rather than as a way of alerting Mr Davies to the price that he would be expected to pay; although, to be fair, he resiled from it to some extent after Mr Hochhauser had taken him through the documents. I found this explanation thoroughly unconvincing; and I reject it.

Mr Whitelock's evidence

Mr Whitelock's review took place in early 1999. His conclusion about Kesterwood's tooling and equipment was that it was all of very poor quality; and that it needed a full time maintenance engineer to keep it going. Mr Shaw agreed that a full time maintenance engineer was employed. Mr Whitelock also said that new tools, purchased from Maplan and Sam Harris were "arriving soon". Mr Whitelock also said that in January 1999 information was unclear on who had paid for tooling. It did not matter so much as regards machinery, because that was mostly on finance. He did, however, say that he had been told by Mr Shaw at the time that the tools that had been collected from Axis "did not exist any more"; and that they had been improved by having new face plates cut and having had alterations made to the calibrators. He thought that some tools were owned by Northstar; but did not identify them tool by tool. He did not, in the course of his review, come across either the Northstar supply agreement or the Seaquest supply agreement.

Mr McMahon's evidence

Mr McMahon examined the tooling and equipment on joining Burnden in July 1999. His conclusion was that the system had been produced on the cheap; with poor quality tooling and makeshift design solutions. The poor quality uPVC extrusion tooling was causing problems with fit, function and surface finish on extruded products. The majority of the uPVC extrusion tooling was of such poor quality that it was only possible to run the majority of the tools by employing very unconventional production techniques. These included the use of rags, packaging tapes, water jets, and so on. However, Mr Shaw said that these were "standard tricks of the game" in wet extruding.

On 19 November 1999 Mr McMahon sent a memo to Mr Fielding on the subject of new tooling. He reported that four extrusion tools (ogee bottom cap, transom top cap, eaves/ridge/valley internal cover and gutter) were already on order at an aggregate cost of £65,000-odd; and that 11 further extrusion tools, at an aggregate cost of £144,500 were to be ordered by April 2000. The inference is that none of the tools then in use for producing these components had been new within the previous few years. His memo also indicated that injection moulding tools would need to be bought, in addition.

Mr Roche's evidence

Mr Roche produced a report on 24 August 1999. He reported that four tools were "in critical need of repair"; and that they were beyond re-chroming. The problem was most acute in relation to top and bottom caps and the like. He added that to replace the tooling with quality tools could take a year and was beyond Seaquest's capacity. There was no suggestion in the report that anyone other than Seaquest could be called upon to meet the cost of replacement.

On 6 October 1999 Mr Roche informed Mr Fielding that:

"Barry McMahon, the head of design, has confirmed our worst fears. The entire PVC tooling is at the end of its useful life."

Mr Shaw agreed that this description was broadly correct.

Conclusions

Mr Hochhauser, aided by detective work on the documents carried out by Mr Ward, took Mr Cooper through the information relating to 22 items of tooling. These items were the tools that, according to Mr Shaw, were the tools in use for uPVC extrusions used in the Quickfit system in February 1998. Mr Cooper was the man at Kesterwood who was concerned with the procurement of tools; and he also worked with the shop floor operatives to get them up and running. Making all due allowance for the lapse of time, and the intricacies of the documentation relating to tooling, I think that Mr Cooper's evidence is reliable. The results of that survey can be depicted in tabular form as follows:

No	Component	Date	Made by	Invoiced to	Comments
1	Top cap	Before 10.10.1996	Nenplas	[Assumed Northstar]	Collected from Axis
2	Victorian top cap	Before 10.10.1996	Nenplas	[Assumed Northstar]	Collected from Axis
3	Wall/end top cap	Before 10.10.1996	Nenplas	[Assumed Northstar]	Collected from Axis
4	Transom & Victorian top cap	30.6.1997	Harris	Northstar
5	Georgian top cap	18.12.97	Harris	Northstar	Manufactured after Northstar supply agreement
6	Wall/end top cap	Summer1997	Harris	Northstar
7	Ogee bottom cap	Spring 1997	Axis	[Assumed Northstar]	Collected from Axis
8	Square bottom cap	Summer 1997	Harris	[Assumed Northstar]	Sketched by Harris on 14.7.97
9	Wall/end fascia trim	Summer 1997	Harris	[Assumed Northstar]	Sketched by Harris on 14.7.97
10	Ogee eaves cover	Summer 1997	Harris	[Assumed Northstar]
11	External ridge cover	30.07.1996	Axis	Northstar [50 per cent only]	Collected from Axis
12	Eaves beam closure	Before February 1997	Nenplas	Northstar	Collected from Axis
13	Rigid eaves beam wall plate closure	Autumn 1997	Harris	Northstar
14	16mm poly end trim	May 1997	Harris	Northstar
15	20mm poly end trim				No surviving documents
16	Box gutter soffit trim				Not a part manufactured by Kesterwood
17	Ogee gutter	By January 1998	Harris	Northstar
18	Downpipe				May have been bought in
19	Downpipe				May have been bought in
20	Ogee external bay cover	On order 02.1997	Axis	[Assumed Northstar]	Collected from Axis
21	Internal bay cover	On order 02.1997	Axis	[Assumed Northstar]	Collected from Axis
22	Bolster cap	Summer 1997	Harris	[Assumed Northstar]	Price confirmed by Harris to Davies

Much of this is not controversial, but Mr Purvis made submissions about a number of individual items with which I must deal.

The invoices from Harris Extrusion Tools Ltd, which span the period from May 1997 to January 1998, all record that the order was a verbal one from Mr Davies. There are also documents which show that in 1997 and early 1998 Harris Extrusion Tools Ltd chased Northstar for payment of invoices. The significance of these documents is twofold. First, they show that, at Northstar, Mr Davies was in charge of procurement of tools both before and after the date of the Northstar supply agreement. Second, they suggest that Northstar continued to order and pay for tools after the date of that agreement.

In addition, on 4 June 1997 Mr Harris sent a fax to Mr Davies listing five tools and the order of priority in which Mr Davies wanted them to be made. The delivery dates were for days in June and July 1997.

Items 8 and 9 (square bottom cap and wall and fascia trim). Mr Purvis accepted that two of the tools sketched in the fax of 4 June (items 4 and 6 in the table) were indeed paid for by Northstar. But he submitted that the remaining items (items 8 and 9) had not been shown to have been paid for by Northstar. In the sense that no invoices to Northstar have survived, this is true. However, these two items were sketched by Mr Harris in the same fax as the two items for which Northstar are agreed to have paid. In addition, there is an annotation on a drawing in Mr Davies' hand in which he asks Mr Harris to price item 8. On the other side of the coin, there is no invoice from Harris to Kesterwood, Kesterwood Extrusions, Delta Construction or Mr Fielding. Although the evidence is circumstantial, I am satisfied that it is more probable than not that Northstar paid for these tools; and I so find.

Item 11(ridge cap). Although this tool was collected from Axis, it still needed work to be done on it. When, in February 1998, Axis threatened to wind up Northstar for non-payment of its account, Mr Birkett sent a letter alleging that the ridge cap tool was poorly made. This may well be right. On 2 February 1998 Mr Harris wrote a letter apparently addressed to both Mr Sheffield and Mr Birkett quoting for two items of work on the ridge cap tool. The first item was for the manufacture of a missing section (£960 plus VAT) and the second for replacement of formers (£4,995 plus VAT). In addition he quoted a daily rate of £160 plus VAT for trialling. Mr Harris' quotation seems to support the conclusion that Axis did not make the tool properly. According to a fax that Mr Jones sent Mr Worsdall on 7 January 1999:

"The ridge cap also has a history, Kesterwood uplifted this tooling from Axis and found the formers to be bits of scrap [metal] but we tried our best to make a silk purse from a pigs ear and the product has never been right.

However, eventually decisions were made to manufacture new forming which was due for delivery end of December but the toolmakers premises were burgled and the former was stolen, this has set us back a further 2 months…"

However, it is clear from Kesterwood's purchase ledger that Kesterwood did spend £2,420.50 on work to this tool; and there is no evidence that it recharged that expenditure to Northstar. I find, therefore, that Kesterwood did spend £2,420.50 on work to the ridge cap tool. Mr Purvis submits that this expenditure shows that Kesterwood was honouring the terms of the Northstar supply agreement. I am unable to draw this inference in the light of the other evidence that Northstar continued to pay for tools even after the Northstar supply agreement is said to have been made.

Item 15 (20 mm polycarbonate trim). There are no surviving documents which clearly relate to this item. Mr Purvis invited me to infer that this tool must have been paid for by Kesterwood. Since there are no surviving documents relating to this item, I cannot reach any conclusion about it.

Item 22 (bolster cap). This was another item that Mr Harris sketched in his fax of 4 June 1997. For the reasons I have given in relation to items 8 and 9, I am satisfied that it is more probable than not that Northstar paid for it; and I so find.

The evidence shows that neither Kesterwood, Kesterwood Extrusions nor Mr Fielding paid for tooling in the manner suggested by the Northstar supply agreement. Tooling, at least up to the end of 1999, was either existing tooling owned by Northstar or was commissioned and paid for by Northstar. The poor quality of Kesterwood's tools was evident to Mr Whitelock as early as the beginning of 1999. That evaluation is not consistent with any major programme of refurbishment of tools, let alone the supply of new ones. Kesterwood or Kesterwood Extrusions may have carried out minor repairs and refurbishment of some tooling; but did not provide new tools, or embark on a major refurbishment programme. The sole exception is the expenditure of less than £2,500 on the ridge cap tool. The terms of the Northstar supply agreement were not, therefore, fulfilled. This non-fulfilment of the terms of the Northstar supply agreement is a pointer to the conclusion that it is not a genuine document.

Is the Northstar supply agreement genuine?

Relevance of the question

The Northstar supply agreement is an important document. It is the apparent genesis of Mr Fielding's financial involvement in Northstar. Ultraframe say that it is bogus. There are a number of letters connected with the share purchase agreement between Mr Fielding and Mr Naden; and subsequently between Mr Fielding and Mr Clayton which refer to the existence of the Northstar supply agreement. If the Northstar supply agreement is not genuine, that will cast considerable doubt on the authenticity of those documents. However, even if Ultraframe are right, it does not necessarily follow that Mr Fielding did not make the loan that he says he did; although obviously it has a powerful bearing on the extent to which I can accept his evidence on the questions that are directly in issue in the case.

I remind myself that:

i) The Northstar supply agreement has never been relied on to justify Mr Fielding's claims in the litigation, and, therefore, on the face of it, it was unnecessary to fabricate it;

ii) It was unnecessarily witnessed by Mr Whitelock and Mrs Atherton, who were therefore dragged into the conspiracy (if such it was); and

iii) The appearance of the document (and its covering letter) clearly indicates that it was not typed by a professional typist.

Mr Birkett said in the course of his cross-examination that "the share story" was set up for January 1998; and he agreed with Mr Snowden that there was no need to create documents going back to 1997. Naturally, Mr Snowden relied strongly on this answer as showing that the Northstar supply agreement was genuine. However, Mr Birkett repeated in re-examination that the Northstar supply agreement came into existence in November 1998; and that its purpose was to show that Mr Fielding had been involved with Northstar for a long time. It must also be recalled that it is common ground that a rental agreement and an employment contract were also fabricated; so the cut off date for fabrications may not be as clear cut as that answer suggests. I do, of course, have it in mind in considering the other evidence.

I remind myself also that I have concluded that Mr Naden did not believe that he was the beneficial owner of his registered shareholding in Northstar; and also that the terms of the agreement relating to the supply of tooling were not fulfilled.

The creation of the agreement: Mr Fielding's accounts

Ultraframe draw attention to what they say are significant discrepancies in Mr Fielding's accounts of the creation of the Northstar supply agreement. This part of the attack focuses more closely on the covering letter of 12 June 1997 under cover of which Mr Fielding sent Mr Naden the draft supply agreement.

i) In an affidavit sworn on 8 January 1999, Mr Fielding said that he called into Northstar's premises on Tuesday 10 June 1997 and invited Mr Naden to come to Burnden Works in order to look at the operation and to sign up the proposed contract. Mr Naden asked for a copy of the proposed contract before coming over to the Works, which Mr Fielding sent him under cover of his letter of 12 June 1997. Mr Naden then attended Burnden Works on 20 June 1997 and signed the agreement. This account suggests that the letter of 12 June was written some time between 10 June and 12 June at Mr Naden's prompting.

ii) In his witness statement of 22 January 2000 Mr Fielding said that the letter of 12 June 1997 to Mr Naden and the supply agreement were typed by his stepson Ashley Walsh on a computer at his home in June 1997. Mr Walsh was studying for his GCSE's at the time so he would have been fifteen or sixteen years old. Mr Fielding had drafted the letter and document by hand on a Sunday morning and, since he planned to be out of the office the following week, he asked Mr Walsh to type them up for him, which he did. Mr Fielding wrote out the documents on the Sunday morning, and they were typed by Mr Walsh either later that day or early the following week. Mr Fielding delivered the letter and contract to Mr Naden a few days later on 12 June 1997. Sunday was 8 June. But the letter twice refers to a meeting on 10 June; so it is unlikely to have been typed up before the meeting. According to this account, Mr Fielding "delivered" the letter and draft contract to Mr Naden, rather than posting it.

iii) In his witness statement of 31 August 2004 (prepared for the trial of the action), Mr Fielding says that he was working at home over the weekend of 7 and 8 June. He was not planning to be at Burnden Works that week, because of pressure of other work. It was his intention to call in at Northstar on Thursday 12 June with a draft agreement. He therefore had to arrange for the letter and draft agreement to be typed. Mr Walsh was around that weekend and Mr Fielding asked him to type the documents. Mr Fielding prepared a handwritten draft. He dated the draft 12 June because that was the date on which he expected to call in at Northstar. Mr Walsh typed up the letter and the agreement on his home computer, and printed them out. However, Mr Fielding did not ask him to save the documents, and they were not saved. Mr Fielding then says that some of his anticipated work was cancelled during the following week, so that he was able to drop into Northstar, without an appointment, on 10 June. He did not have the letter or the draft agreement with him. He and Mr Naden briefly discussed the supply agreement; and Mr Naden asked Mr Fielding to send him a copy. On his return home Mr Fielding thought that the original letter that Mr Walsh had typed needed to be changed to refer to the unscheduled meeting; so he added "an extra sentence" to refer to it. Mr Walsh then retyped it. Mr Fielding posted the letter and the draft on 12 June. This account therefore suggests that the letter was typed twice: once over the weekend of 7 and 8 June; and once again between 10 and 12 June. The letter and draft contract were posted, rather than delivered, to Mr Naden. Mr Fielding does not, in this account, explain why the letter was dated 12 June.

iv) Mr Walsh's evidence was that the letter and draft contract were typed on an old home computer which was replaced at Christmas 1997. He is able to identify the computer, because the "£" key did not work, and the "£" had to be written in by hand. Typing the letter and draft contract was the only typing task that Mr Fielding had ever given him, so he remembers it. He typed it first at a weekend; probably on a Sunday. He had a handwritten draft, which bore a date in the top right hand corner. He printed out two copies of each document; but did not save them. A few days later Mr Fielding asked him to retype the documents. He retyped them with the same date and printed one copy. Although Mr Walsh does not give a date when this typing was done, he places it in the summer (because he remembers that it was hot); and some time between May and August 1997 (because he remembers that he was not then on holiday).

Since it is so important, I think that I should quote Mr Fielding's account in the August 2004 witness statement more or less in full.

"During the weekend of 7 and 8 June 1997, I was working at home on various matters linked to my quantity surveying practice. Because of the commitments I had on district heating projects in Telford I did not have much time to deal with all the paperwork I needed to deal with. I wanted to make progress in relation to the supply contract with Northstar but did not anticipate that I would be going into Burnden Works until 13 June, the Friday of the following week. I expected that during that week I would either be working at other locations or from home. My intention was to call in at Northstar on Thursday 12 June with a draft agreement. This meant that because I would not be going in to Burnden Works I therefore needed to make other arrangements for the agreement to be typed. Ashley Walsh, Sally's son, was around that weekend and I asked him to type it with a covering letter for me. I prepared a handwritten draft of the letter and agreement and gave it to Ashley to type on the home computer that he and his sister, Ella, used for their school work. I wrote the date of 12 June 1997 on the draft letter because that was the date on which I expected to be able to give it to Jeff Naden, the Managing Director of Northstar. Ashley typed the letter on some GJ Fielding letterhead I had at home and also typed the agreement. Once the documents had come off the printer Ashley asked me if I wanted him to save them and I said no.

Because of my concerns about Kesterwood and its finances, which had been highlighted by the discussion with the Revenue, I decided that it was best to do the agreement in my name. At least then if something happened to Kesterwood I would be able to come up with a contingency plan to deal with supplies.

My plans for the following week changed on Monday 9 June 1997, when, as was usual on a Monday, I spent the day working at ABB's offices in Telford. During that day I was given some documents relating to a potential contract in South East London for a large waste to energy project called the South East London Combined Heat and Power Scheme which I needed to review, in detail, before my next visit to Telford, on 16 June. This meant that I had to cancel some site visits which I had planned for that week so that I could spend more time working from home. However, I was able to drop into Groby Road on the afternoon of Tuesday 10 June 1997, after attending a meeting with Oldham Council. I did not have the letter and agreement with me because it was still in the office at home.

On 10 June 1997, I met with Jeff Naden in the display area at the front of Groby Road and we briefly discussed the supply agreement. In essence the agreement was to be that in consideration of my financing £750,000 of capital expenditure of equipment and tooling for Kesterwood to service Northstar's work, Northstar would give me the security of its intellectual property rights in the conservatory roof system and I took "first call" on the shares in Northstar from Jeff Naden. It was supposed to be a 5 year supply agreement but I drafted it myself and having looked at it now it is not quite as I thought but it was intended as a 5 year supply agreement, justifying the capital expenditure. The charge and "first call" were supposed to have the effect of securing my position if the arrangement went wrong after I had committed to the expenditure.

I invited Jeff to come up to Burnden Works to sign the agreement and to have a look at Kesterwood's extrusion operation. Jeff asked me to provide him with a copy of the agreement before he came over to Burnden Works and I agreed to forward a copy to him. Following that meeting, I felt that the original letter that had been typed by Ashley needed to be changed slightly to include a reference to the visit, so I wrote an extra sentence on to the original letter and asked Ashley to re-type it. Ashley complained because he had not saved the original and therefore had to re-type the whole letter. On 12 June 1997, I posted the letter to Jeff, at Northstar, enclosing a copy of the proposed "contract of agreement" as I described it and requesting that we get it signed the following week."

Ultraframe say that Mr Fielding's account has evolved and become more elaborate to cope with the exposure of flaws in each of his accounts.

The drafting of the agreement

In the course of his cross-examination Mr Fielding said that the drafting of the agreement was all his own work. He had no assistance either from anyone else or, with one exception, from any pre-existing document. The one exception was that he took the expressions "intellectual property rights" and "design rights" from the standard terms and conditions of a supplier of computer equipment which he happened to have in a file at home relating to a quantity surveying project that he was working on at the time. Mr Fielding no longer had those terms and conditions. Apart from that, both the layout of the agreement and its wording were Mr Fielding's unaided creation.

On 24 March 1998 (some nine months after the date on the Northstar supply agreement) Mr Hacking sent Mr Birkett a draft supply agreement to be made between Northstar and Dearward. The similarities of layout and wording between that draft and the Northstar supply agreement are striking, as Mr Fielding agreed. I set out the two agreements, side by side for comparison

Northstar supply agreement

Mr Hacking's draft

BACKGROUND
A. Northstar Systems limited is looking for a partner to assist in the design & development of a conservatory roof system but does not have the capital to pay for the development of the u.p.v.c. products.
B. G.J. Fielding will provide the necessary investment capital to develop the u.p.v.c. products from his Burnden Road factory complex.
C. The investment required is in the region of £750,000.00 and therefore the agreement is meant to safeguard and act as security against G.J. Fielding's investment in the project.
NOW IT IS HEREBY AGREED THAT:-
1. G.J. Fielding will supply 4 extrusion lines at Burnden Works, Burnden Road, Bolton solely for the use of Northstar Systems Limited and their dealers. (Approximate cost £500,000)
2. G.J. Fielding will part supply and develop all extrusion tooling for the u.p.v.c. product range of the conservatory roof system. (Approximate cost £250,000.00)
3. All machinery and tooling referenced in 1 & 2 to be fully commissioned by April 1998.
4. Northstar Systems Limited agree to offer as security against this investment the Intellectual Property Rights and Design Rights to the conservatory roof system.
5. Jeffrey Naden hereby agreed not to sell his share holding in Northstar Systems Limited without giving first refusal on the purchase of those shares to G.J. Fielding and should G.J. Fielding not wish to purchase these shares during the term of the agreement then the agreement should pass to the new shareholder as the first charge over the intellectual property rights and the design rights to the conservatory system.
6. This agreement shall be deemed to have commenced on the date hereof and shall continue for a period of five years. Either party may terminate the agreement at the end of this period of five years by serving on the other not less than one years notice. If no such notice is served the agreement shall continue thereafter until terminated by either party serving notice on the other not less than one years notice.

BACKGROUND
A Northstar is engaged in the business of manufacturing roof systems for conservatories and other similar structures
B Dearward produces a range of extruded p.v.c. profiles
C Northstar has purchased extruded p.v.c. profiles from Dearward in the course of its business and wishes to secure arrangements with Dearward for the continued regular and reliable supply of such profiles for the next twelve (12) months and thereafter as more particularly appears
NOW IT IS HEREBY AGREED as agreed:
1 Supply of profiles
…
2 Designs and specifications
…
3 Prices
…
4 Payment
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5 Intellectual Property
Northstar shall, where the design of the item in question has been specified by Northstar indemnify and hold harmless Dearward in respect of any or all liability whether for damages, costs or otherwise in relation to the infringement or alleged infringement of any third party's intellectual property rights including (but not limited to) patents and design right. …
6 Disputes
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Term of agreement
This agreement shall be deemed to have commenced on the date hereof and shall continue for a period of one year. Either party may terminate the agreement at the end of the said period of one year by serving on the other not less that (sic) three months written notice. If no such notice is served the agreement shall continue thereafter until terminated by either party serving on the other not less than three months written notice.

Both agreements are introduced by lettered paragraphs under the heading "BACKGROUND". These paragraphs fulfil the function of recitals, traditionally introduced by the word "Whereas". Recitals are not common in commercial agreements, as opposed to more traditional conveyancing documents. The use of the word "background" to introduce recitals is itself an uncommon (and modern) drafting style. However, Mr Hacking had used this technique in earlier agreements, including agreements prepared in connection with the licensed fabricators' scheme; although even these post-dated the date of the Northstar supply agreement. The phrase "NOW IT IS HEREBY AGREED" is not layman's language, but is legalese. What is most striking, however, is the clause dealing with termination of the agreement, which is virtually identical (save for the period of notice) in each agreement. The use of the expression "deemed to have commenced" is unusual. The structure of the clause, divided into three sentences (but not into sub-clauses) is also unusual. Mr Fielding said that he had never seen Mr Hacking's draft; and that the similarities between that draft and the Northstar supply agreement were coincidental. Mr Hacking's draft also uses the phrases "intellectual property rights" and "design right". It is more likely that that is where the phrases came from; rather than from the standard terms of a supplier of computer equipment which happened to be in an unrelated file. In fact Mr Hacking had sent a very similar form of agreement to Mr Davies on 29 July 1997 (one month after the Northstar supply agreement). Mr Birkett did not claim any responsibility in the drafting of the terms of the Northstar supply agreement. Nor did he say that he had given any template or precedent to Mr Roche. Since he was the principal "whistle-blower" I would have expected him to say that, if it had happened. However, at the meeting with Mr Hacking on 12 November 1998 Mr Birkett told him that a copy of the draft agreement had been supplied to Dearward, although he did not know whether it had been signed. This means that the draft would have been available to Mr Fielding without the further intervention of Mr Birkett or, for that matter, Mr Roche. The draft must have been supplied to Dearward some time after March 1998.

Despite Mr Fielding's clear answers in cross-examination about the manner in which he had drafted the agreement, his evidence in re-examination was radically different. He said that he had in fact used other documents as a template or precedent to help him draft the Northstar supply agreement. One was the civil engineering blue form of sub-contract of 1978; one was a commercial agreement between one of his employers and a sub-contractor; and the third was the quotation he had mentioned in the course of his cross-examination. None of these documents was produced. The drafting of the Northstar supply agreement gives rise to a strong suspicion that its wording was taken from Mr Hacking's draft.

Mr Snowden submitted that the more likely explanation was that in March 1998 Mr Hacking took the Northstar supply agreement as his own template and copied Mr Fielding's draft. I do not accept this submission. First, I find it inherently implausible that an experienced solicitor would have copied a layman's agreement which, on Mr Fielding's account, had been cobbled together from various sources. Second, with the exception of the challenged Northstar and Seaquest supply agreements, and the admitted forgeries of the rental agreement and Mr Davies' employment contract, all the agreements into which Northstar entered or proposed to enter were drafted by Mr Hacking. Third, if Mr Hacking had copied Mr Fielding's draft, I would have expected a copy of that agreement to have been on Mr Hacking's file. It was not. Mr Hacking's first draft was handwritten by him. If he had had a copy of the Northstar supply agreement, he would surely have photocopied it (as he did with published precedents that he used in his drafting endeavours). Fourth, if the Northstar supply agreement (and by this time the Seaquest supply agreement too) had been in existence, it is not easy to understand why a supply agreement with Dearward would have been necessary in March 1998. Fifth, if Mr Hacking had been given the Northstar supply agreement, he would surely have commented on its very unusual (and probably unworkable) terms.

This evidence points towards the conclusion that the Northstar supply agreement came into existence some time after March 1998.

The terms of the agreement

One remarkable feature of the evidence is that Mr Fielding did not suggest that the terms of the Northstar supply agreement were ever discussed or negotiated with Northstar before he sent out the written draft. According to Mr Fielding the extent of Mr Naden's foreknowledge of the terms of the agreement was a brief reference that Mr Fielding made in the course of an impromptu visit to Groby Road on 10 June 1997 that he would require "some form of security" over the designs of the system. Once the written draft was sent out, Northstar signed the agreement without amendment. This is not the usual way in which commercial organisations make contracts.

The first recital to the agreement records that Northstar did not have the capital to pay for the development of the system. This was the commercial underpinning to the whole agreement. However, in his oral evidence Mr Fielding said that his intention was that in some shape or form Northstar would pay for new tooling; and that Mr Fielding would recover his outlay. This had not previously been mentioned in any of his earlier affidavits or witness statements. The third recital to the agreement records that Mr Fielding was looking for security in respect of an investment of £750,000. The bulk of that investment was envisaged as being made in extrusion machinery (as opposed to tooling). Mr Fielding agreed that it was ordinarily of no concern to a customer how a supplier of extrusions financed the acquisition of his own machinery; and said that the agreement had been wrongly drafted in that respect. He agreed that it did not make commercial sense for Northstar to be giving security against an investment by Mr Fielding in machinery.

The agreement contained a commitment by Mr Fielding to provide four extrusion lines dedicated to Northstar's work. Why four? The notes of earlier meetings (if genuine) envisaged a requirement for between three and six lines. Mr Shaw had a recollection of someone having mentioned that six lines would be needed. There is no suggestion that a final figure within this bracket was ever agreed. If Northstar's requirement turned out to be a requirement for only three lines, then Mr Fielding was promising too much. If Northstar's requirement turned out to be a requirement for six lines, then he was not promising enough. Moreover, apart from some vague predications that had been made at Mr Fielding's first meeting with Northstar in March 1997, and which he regarded as "tall stories", there had been no projection of Northstar's likely requirements or the volume of material that it expected to be processed. I add also that Mr Fielding did not in fact provide four extrusion lines dedicated to Northstar's work.

The agreement envisaged that Mr Fielding would spend £250,000 on tooling. Where did the figure of £250,000 come from? Mr Fielding explained that this was a broad-brush calculation of the cost of 20 tools at £12,500 per tool. But the quotation sent to Northstar in March 1997 showed a wide variety of prices for tools, with a die cost varying between about £1,000 and about £12,000, with the main cluster between £3,000 and £4,000. Moreover, in March Mr Fielding said that he thought that his total spend on tools would be about £160,000. He was unable to explain satisfactorily how the figure of £160,000 in March had risen to £250,000 in June. £250,000 appears to be a figure plucked out of the air. In addition, Northstar already had most of the extrusion tooling it needed; and the agreement envisaged that the expenditure would be in place within the space of a few months. As at the date of the Northstar supply agreement 15 of the 22 extrusion tools were either in existence (and use) or were under construction. Of the remaining 7, two were generic items that were almost certainly bought in.

Clause 4 of the agreement dealt with the provision of security by Northstar Systems Ltd in the shape of the intellectual property rights. At the time when he said he sat down to draft the agreement Mr Fielding did not know who owned the intellectual property rights. He just assumed that it was Northstar. On the face of it, clause 4 envisages a very odd form of security. The preceding parts of the agreement contemplate that Mr Fielding will invest £500,000 in machines, and £250,000 in tooling. As I have said, Mr Fielding agreed that the provision of security was irrelevant to his investment in machinery; and said that the agreement was wrongly drafted in that respect. But if Mr Fielding was also to pay for tooling outright, then the provision of security for the cost of tooling was equally irrelevant. This was one of the criticisms of the terms of the agreement that Mr Hochhauser made in his opening address. Mr Fielding's various witness statements did not suggest that Northstar were to repay the cost of tooling. However, in his oral evidence he said that it was intended Northstar were to repay the cost of tooling "in some shape manner or form" and that the question how the repayment was to be made (as opposed to the question whether the repayment was to be made) was "left in abeyance". This part of Mr Fielding's evidence seemed to me to be a direct response to the way in which Mr Hochhauser opened the case. Mr Fielding made several attempts in the course of his oral evidence to explain exactly how the costs of tooling would be dealt with under the terms of the agreement. I found these explanations both confused and confusing; and they did not indicate why Northstar should be providing security for these costs. In addition, the licensed fabricators' scheme, which was launched at the open day in September 1997, some three months after the date of the Northstar supply agreement was clearly predicated on the assumption that Mr Davies, personally, was the owner of the intellectual property rights in the system. If that is so, then Northstar could not have granted a charge over them. Mr Naden himself knew that Mr Davies claimed ownership of the intellectual property rights, because he himself wrote a letter to that effect on 26 September 1997. It was not until after Mr Davies' bankruptcy that Mr Hacking was able to put together the argument (which the Court of Appeal ultimately held to be correct) that Northstar, rather than Mr Davies, was the beneficial owner of the intellectual property rights. It is not readily explicable that Mr Naden would have allowed Northstar to enter into an agreement in June 1997 under which it purported to grant a charge over the intellectual property rights.

Clause 5 of the agreement contained the right of first refusal over Mr Naden's shares. This had never been mentioned to Mr Naden before the agreement was signed. Mr Fielding said that he had been told in June 1997 that Mr Naden was the shareholder in Northstar; but he also said that in December 1997 he had caused a company search to be carried out in order to ascertain the identity of the registered shareholder, before he made his offer to buy Mr Naden's shares. The two pieces of evidence do not sit well together. I have also concluded that Mr Naden knew that he held the shares in Northstar as Mr Davies' nominee. Yet no one suggests that Mr Davies was involved in the making of the Northstar supply agreement. How, then, was Mr Naden able to grant this right?

There are also significant gaps in the terms of the agreement, if a deal had been done along the lines that Mr Fielding said had been done. First, the agreement does not deal with how Mr Fielding would be repaid for tooling costs. Second, there is no commitment by Northstar to place orders via Mr Fielding. Third, there is no minimum volume of orders that Northstar must place.

The terms of the agreement do not suggest that it was a genuine arms' length agreement.

The typing of the agreement

By Sunday 8 June, when Mr Fielding says he sat down to draft the agreement, he had not discussed its content with Mr Naden (or anyone else at Northstar). He confirmed that he had never mentioned to Mr Naden the possibility of his having security over the intellectual property rights in the roof system before drafting the agreement; nor that he would be seeking a right of first refusal over Mr Naden's shareholding. The question of security was only mentioned in passing at an impromptu meeting two days later. The letter accompanying the agreement said:

"I therefore enclose for your perusal a proposed agreement, which, subject to your approval, we could endorse one day next week and commence developing the system to our mutually successful benefit.

Please telephone me should you wish to discuss the wording of the agreement."

Accordingly, this was on the face of it a draft agreement, for Mr Naden's approval; and Mr Naden was invited to telephone if he wanted to discuss its wording. If this were a genuine arms' length transaction, there must have been every possibility that Mr Naden would want to make some change to the detailed wording, even if he did not want to change its substance. Quite apart from anything else, there was the possibility that Northstar did not own the intellectual property rights over which security was to be granted; and that Mr Naden was not able to give a right of first refusal over the shares. There was also the possibility that four extrusion lines would not be enough. Yet, according to both Mr Fielding and Mr Walsh, when Mr Walsh asked him if he wanted the draft saved on the computer, Mr Fielding told him not to bother. Mr Fielding's explanation was that the "£" signs had to be handwritten on the agreement, which he was not happy about; and the whole document was not of good quality. So if it had to be changed, he would have had it changed at Burnden Works. I cannot accept this explanation. First, Mr Fielding's unhappiness was obviously not enough to cause him to have the agreement re-typed, since it was in fact signed with the "£" signs handwritten. If he was prepared to conclude an important contract with handwritten "£" signs, why would he not have been prepared to conclude an amended agreement with the same handwritten "£" signs? Second, as things turned out, there was every opportunity to have the agreement retyped, since it was not apparently signed until 20 June. Yet Mr Fielding did not have it retyped. Third, if it had been necessary to have the draft agreement changed at Burnden Works, it could have been transported there on a floppy disk. Fourth, Mr Fielding says he did ask Ashley Walsh to retype the covering letter (which also had a handwritten "£" sign) rather than having the letter retyped at the Burnden Works, despite the opportunity to do so. The fact that the document was not saved on the computer as a precaution against the possibility that it might need amendment is a pointer towards the conclusion that it was not a genuine draft of an agreement negotiated or to be negotiated at arms' length. Mr Walsh's additional explanation for not saving the document was that it was not his document. However, since it only requires a click of a mouse in order to save a document, and a computer user is prompted to save a document on exiting from a program, I did not find this a convincing explanation either.

Mr Walsh said that he could date the typing of the document to a period in June or July 1997; and that he typed it at the week-end. He was unhappy at having to type it and it took him "ages". He gave three reasons for his confidence in dating the typing of the document. The first reason was that the document was typed on an old computer (on which the "£" key malfunctioned) which was replaced with a new computer in late 1997. However, in her witness statement of January 2000 Ms Atherton (who witnessed the signatures on the agreement) recalled having been told by Mr Fielding that Mr Walsh had typed the agreement on his new computer. It was one of the few things about the document that she did recall. If Ms Atherton is right, that would place the typing of the Northstar supply agreement into 1998. The second reason was that he had just finished his GCSEs and was concerned that he had not done well enough to enter the sixth form. However, the examination timetable for 1997 revealed that exams were still in full swing in the week following the weekend of 7 and 8 June 1997. Indeed he would have had two exams (English and physics) the following day. So if Mr Walsh had typed the agreement when Mr Fielding said he did, he would have done so during the course of his exams and not when they were over. In the course of his cross-examination Mr Walsh said that what he had meant to say was that he typed the documents once his school year was over; and he was in a period of study leave. This explanation did not sit well with the phrasing of his witness statement. The third reason was that this was the only occasion on which Mr Fielding had asked him to type a document. Mr Fielding agreed with this last point.

Although Mrs Fielding's witness statement said that Mr Fielding regularly asked Mr Walsh to type for him, she did not in the end dissent from the evidence of her son and Mr Fielding that this was the only occasion on which Mr Walsh had been asked to type a document for Mr Fielding. She was at home during the month of June 1997, when Mr Walsh had been taking his GCSEs. Yet she was unaware, at the time, that her son had typed the Northstar supply agreement; or that a few days later he had been asked to retype the covering letter. She was unaware of any protest by her son at having to perform the latter task, notwithstanding Mr Fielding's evidence that Mr Walsh complained. Mrs Fielding's evidence was that she did not see the Northstar supply agreement until after disclosure in the litigation in April 1999. If the typing of the Northstar supply agreement and the typing and retyping of the covering letter had been a unique occasion, carried out in the middle of her son's GCSEs, it is surprising that it completely passed her by. On the other hand, it may be said that if there was a family conspiracy falsely to authenticate a fabricated document, it would have been easy for Mrs Fielding herself to have given false evidence that she had known at the time of the typing of the agreement. She herself gave no direct evidence on this issue, but said that her son was incapable of telling lies. At this point I return to the witness training. It eventually emerged that Mrs Fielding was uncomfortable with role play during the session; and asked to be cross-examined on an allegation of discreditable behaviour against her son. She duly was. It seems to me, therefore, that she had a dry run at giving evidence on what was essentially a key issue in the present case. To that extent her ringing denials of her son's capacity to engage in discreditable behaviour carry much less weight.

Why was the covering letter dated 12 June 1997?

The first shot at the covering letter was drafted and typed, according to Mr Fielding, on 8 June 1997. However, even the first version was dated 12 June. Why was it dated 12 June? The reason that Mr Fielding gave was that 12 June was the date on which he expected to be able to give the letter to Mr Naden personally. 12 June was a Thursday. At the beginning of the week, Mr Fielding's diary contained no entries for 12 June. Mr Fielding said that this was because his proposed visit to Northstar was not prearranged. But his diary did contain two entries for Tuesday 10 June: a meeting with North West Water at Burnden Works, and a meeting in Oldham at 2 p.m. Mr Fielding said that the meeting with North West Water was not one that concerned him, and that it was in his diary only as a matter of record. He therefore had no appointments for the morning of 10 June. That leaves the meeting at Oldham. Mr Fielding said that he called in at Northstar after that meeting, which had finished unexpectedly early, and that it was only a short detour on his way home. (In fact Audenshaw is not on the way from Oldham to Bolton; but is in the opposite direction). Given that Mr Fielding knew in advance that he was going to be in Oldham in the afternoon of 10 June, and given that, according to him, Audenshaw is only a short detour from Oldham, I could not understand why Mr Fielding was proposing to wait until 12 June to deliver the letter and the contract, rather than dropping it in to Northstar on his way to the meeting in Oldham. Mr Fielding could not explain. Moreover, since the letter and the agreement were, according to Mr Fielding, posted rather than delivered to Mr Naden, I could not understand why they could not both have been posted on Monday 9 June. Mr Fielding said that he did not have stamps at home; but on the Monday he was due to go to Telford (and did in fact go). Even if he could not have borrowed a stamp from ABB in Telford (who provided some secretarial services for him, and where he was "part of the furniture"), he must surely have passed somewhere to buy one. Mr Fielding's diaries also did not support his evidence that he had meetings planned for other days during the week that were subsequently cancelled at short notice. I did not find Mr Fielding's evidence on this question credible. Mr Fielding's convoluted (and to my mind incredible) explanation for the dating of the first draft of the covering letter casts considerable doubt on the authenticity of the Northstar supply agreement.

The second draft of the covering letter

Mr Fielding said that he dropped in on Northstar on his way back from the meeting in Oldham on Tuesday 10 June, which had finished unexpectedly early. He had a brief discussion with Mr Naden, during which he mentioned wanting security, but without specifying what. Since he had already drafted an agreement two days earlier which provided for both security over the intellectual property rights and a right of first refusal over Mr Naden's shares, this reticence is surprising. Mr Naden asked for a copy of the agreement. Although Mr Fielding said that he would forward (not deliver) a copy, he did not tell Mr Naden that he had already drafted it. Again this reticence is surprising.

On his return home, Mr Fielding realised that the covering letter needed to be changed. He said in his witness statement that he wrote "an extra sentence". In fact, if the first version of the letter had already been typed and printed on 8 June, there would have been more changes than that. There would have been, at the very least, two changes; since both the first and third paragraphs of the letter referred to the visit on 10 June. He says that having made the changes in manuscript, he asked Ashley Walsh to type it out again. There are a number of difficulties in accepting this evidence. First, Mr Fielding said that his step-daughter Ella was a better typist than Ashley. Yet he did not ask her to do the typing, even though the letter had to be typed out again completely since it had not been saved on the computer. Second, Mr Fielding was unhappy with the manually inserted "£" signs. Yet he knew that the computer was malfunctioning; and he also knew, by then, that he would be back at Burnden within a day or two. He could not explain why he did not arrange to have the letter retyped at Burnden Works where the computers were functioning properly. Third, even though the letter was retyped on 10 June, it still bore the date 12 June. I cannot accept Mr Fielding's evidence.

The signing of the agreement

As I have said, Mr Naden's signature was witnessed by Ms Atherton; and Mr Fielding's by Mr Whitelock. Having witnessed many agreements over the years, Ms Atherton, not surprisingly, could not recall the date on which she witnessed Mr Naden's signature; but Mr Whitelock was clear in his evidence that he witnessed Mr Fielding's signature in June 1997, even though he did not see the date of the document. However, apart from the date on the document itself (which Mr Whitelock did not see at the time), there did not seem to me to be anything to which Mr Whitelock referred that would have triggered this apparently clear recollection. He did, of course, see the dated document before making his witness statements. However, as I have also said, in Ms Atherton's earlier witness statement she recalled having been told that the Northstar supply agreement had been typed on the new computer. But it is also right to say that in the same witness statement she said that she recalled that this was in the summer of 1997; and she also said that there was a gap of some months between her witnessing the Northstar supply agreement and her typing of the Seaquest supply agreement.

Mr Whitelock's evidence

By June 1997 (when the Northstar Supply agreement is said to have been signed), Mr Whitelock was a long-standing business colleague and friend of Mr Fielding. Although he practised on his own account as a quantity surveyor, about a quarter of his work was sub-contracted from Mr Fielding. From February 1997 he occupied an office at Burnden Works on the same floor as Mr Fielding, but at the other end of the building. Mr Whitelock says that he was in his own office at Burnden Works when Mr Fielding rang and asked him to come to his office. When he arrived, he saw a man whom he did not know at the time (but who was Mr Naden). He says that Mr Fielding told him that he had made an agreement relating to an investment in Northstar. Mr Whitelock says that he did not know what Northstar was, and that Mr Fielding gave no other explanation. Mr Whitelock was asked to witness Mr Fielding's signature. In fact Mr Whitelock says that the agreement had already been signed by both Mr Fielding and Mr Naden. He cannot recall whether Ms Atherton's signature was also on the document, but he thought that it was. Mr Whitlelock added his own signature. He did not see the front page of the agreement, so he did not see what date it bore. He witnessed two copies of the agreement. His recollection was that he did this on or about 20 June 1997; and that it was the only time he had been asked to witness Mr Fielding's signature, which is why he remembered it.

Ultraframe say that Mr Whitelock's evidence about having witnessed the Northstar supply agreement is deliberately untruthful. He first gave his account of having witnessed the agreement in a witness statement made in January 2000. Ultraframe point out that:

i) By January 2000 Mr Whitelock had been a friend of Mr and Mrs Fielding for many years;

ii) By January 2000 he had been a director of the Burnden Group for about a year and was an important member of the management team;

iii) In November 1999 he had been promised a 12.5 per cent share in the shareholding of B shares in the Burnden Group. Although those shares may not have been valuable at the time, they had the potential to become so;

iv) By January 2000 he was drawing some £72,000 per annum from the company for quantity surveying work sub-contracted from Mr Fielding;

v) His witness statement of January 2000 did not mention any of this, but simply said that Mr Whitelock was a quantity surveyor and had known Mr Fielding "in a professional capacity" since 1978, and had taken a lease of part of Burnden Works in February 1997;

vi) Although Mr Whitelock claimed to have a very good memory of having witnessed the agreement in June 1997, he claimed to have little or no recollection of the circumstances in which he came to make and sign a witness statement some two and a half years later;

vii) In January 1999 Mr Whitelock was a willing participant in a fictitious offer to buy the property at Groby Road, made in the name of an acquaintance of his, but in reality made on Mr Fielding's behalf. When asked about his participation in that offer, his answer was: "That is what friends do";

viii) In the course of his cross-examination Mr Whitelock inadvertently revealed the truth in the following exchange with Mr Hochhauser:

"Q. Again, do I understand that your evidence on this is that barring the actual date of witnessing his signature all your other details concerning these issues are something that you can remember?

A. That is true. I think it was very notable for me, this signing in November 1997" (Emphasis added) Mr Whitelock corrected this "error" in re-examination.

Ultraframe say that Mr Whitelock was willing to perjure himself, in order to do a favour for his friend.

However, Ultraframe's case is that the agreement was forged in November 1998, well over a year before Mr Whitelock made his first witness statement. So the position must be considered as at the time when it is alleged that he put his name to a back-dated agreement. In November 1998, Mr Whitelock had not yet joined the Burnden Group and he had not yet been promised a shareholding in the company. He was, however, a friend of Mr and Mrs Fielding, and he did obtain a considerable amount of business via sub-contracts from Mr Fielding.

I do not consider that either Ms Atherton or Mr Whitelock are reliable witnesses on the date of the document. Ms Atherton no longer has any real recollection of the material events. It may be that Mr Whitelock cannot accept that his mentor would have fabricated a document and that he has persuaded himself that he must have witnessed the document on or about the date it bears.

Where was Mr Davies?

I have already concluded that Mr Davies was the real controller of Northstar during 1997. He was, of course, disqualified from acting as a company director in the summer of that year. But that would not have deterred him. Indeed he seems to have been under the (erroneous) impression that his disqualification as a director would not have prevented him from acting as the chairman of a new company. He was still playing an active role in Northstar's affairs. On the day before the date of the Northstar supply agreement he had been sent a quotation for extrusions by Mr Cooper. Although I would have been prepared to accept that actual signature of the agreement on Northstar's behalf might have been entrusted to Mr Naden as the sole legal director of the company, it is, to my mind, inconceivable that Mr Davies would not have taken an important role in the negotiation and agreement of its terms. Mr Davies was, after all, at the meeting on 7 March 1997 when the idea of a written contract was first raised; and all those present at the meeting agreed that Mr Davies led the meeting from the Northstar side. It was to Mr Davies that Mr Hacking sent the draft of the Alumax supply agreement on 29 July 1997. In the summer of 1997 he was plainly the man at Northstar who dealt with legal documentation. Mr Naden also stressed in his evidence that he was led by Mr Davies in commercial matters. He explained the appointment of Mr Birkett as the secretary and later a director of Northstar on the ground that Northstar needed someone to deal with commercial and administrative matters. In the light of all this I find it impossible to accept that Mr Naden would have signed the Northstar supply agreement in June 1997 without reference to Mr Davies. I also find it impossible to accept that Mr Davies would have approved or acquiesced in any agreement made before his bankruptcy which proceeded on the basis that Northstar (as opposed to Mr Davies himself) was the owner of the intellectual property rights in the system. On 27 October 1997 he signed an authority for Mr Whitby and Mr Ivison to discuss and carry out business relating to the Quickfit system. He signed the authority as "Designer and Owner of the Intellectual and Property Rights of the Quickfit Roof System". None of the witnesses suggested that Mr Davies was in any way involved in the making of the Northstar supply agreement; and he did not mention it in the witness statement he made in May 2001, the avowed purpose of which was to "regularise" his business career.

I add, also, that it is clear from the information provided to Seaquest's auditors by Mr Fielding that he knew that Mr Clayton held the shares in Seaquest on trust for Mr Davies. There is no reason to suppose that Mr Fielding thought any differently about the shares in Northstar held by Mr Naden.

Moreover, if the Northstar supply agreement had come into existence in June 1997 Mr Fielding's account of his encounter with Mr Davies at the football match in December 1997 is decidedly odd. In the first place, according to Mr Fielding, Mr Davies offered him security in the shape of a debenture when Northstar's only apparent asset of any value was already encompassed in the charge contemplated by the Northstar supply agreement. Second, neither of them mentioned the Northstar supply agreement, which would have formed important background to any loan. Even if Mr Davies did not know of its existence, Mr Fielding did. Similarly, Mr Fielding's offer to buy Mr Naden's shareholding, which Mr Fielding says he made in January 1998, contains no reference to the existing right of first refusal over Mr Naden's shares.

Other surrounding circumstances

I have already concluded that Mr Naden did not believe himself to be the beneficial owner of shares in Northstar. I have also concluded that neither Kesterwood nor Mr Fielding made any significant outlay on new tooling. Those conclusions in themselves are pointers to the conclusion that the Northstar supply agreement is not a genuine document, since its main benefit to Northstar did not materialise. I add to that the fact that the letter of 20 March 1997 appears to be a straightforward quotation of tooling costs to be borne by Northstar. Mr Fielding's evidence was that he was content with that and that if Northstar was prepared to bear the cost of tooling, then a supply agreement was unnecessary. The fact that Northstar did fund the cost of tooling therefore also points to the conclusion that the Northstar supply agreement was not made.

It was not suggested that anyone from Northstar went to Burnden Works to inspect Kesterwood's operation before Mr Naden turned up to sign the agreement. It seems to me to be implausible that Northstar would have entered into the Northstar supply agreement without at least looking at the premises of the company which would be making the supplies.

Kesterwood's own financial position in mid-June 1997 is of relevance. Although Kesterwood is not mentioned by name in the Northstar supply agreement (because Mr Fielding said he wanted to keep his options open), he did, at the time, envisage that it would be Kesterwood that supplied the uPVC extrusions. But Kesterwood's financial situation was precarious. It had not paid rent to Mr Fielding for its accommodation at Burnden Works since it moved in in November 1996. Mr Fielding had been compelled to pay the Inland Revenue on its behalf under threat of distress at the end of May. After Mr Sheffield's return from holiday at the beginning of June 1997 he and Mr Fielding had a row about Kesterwood's financial position. It was shortly after that that Mr Hindley set in motion the train of events that led to the receipt of advice from Mr Ratcliffe, the licensed insolvency practitioner. It seems unlikely that Mr Fielding would have been comfortable about entering into the Northstar supply agreement if the envisaged supplier of uPVC extrusions had been Kesterwood.

Mr Sheffield was the managing director of Kesterwood at the time. His evidence was that he had no knowledge of any supply agreement with Northstar at any time before Kesterwood's entry into liquidation. He was aware of Northstar having supplied projections of expected volumes of orders; but he confirmed that there was, so far as he was aware, no guaranteed minimum either in terms of volume or value of order.

The dogs that did not bark

If the Northstar supply agreement had been made in June 1997, Kesterwood was on the verge of securing a valuable source of revenue. Yet when Mr Hindley reviewed the state of the business in the summer of 1997, he took the view that the plastics processing side of the business had a bright future and that the uPVC extrusions side of the business did not. Mr Fielding did not mention to him the existence of the Northstar supply agreement. I could not understand why not, if it had then been in existence. Moreover, Mr Hindley said that he did not hear the name Northstar until October 1998, when he was asked by Mr Fielding to review Northstar's accounts.

If the Northstar supply agreement had been made in June 1997, a charge over the intellectual property rights would have been created in Mr Fielding's favour. However, in September 1997 Mr Davies came up with the idea of the licensed fabricators' scheme. It will be recalled that the main idea was that fabricators would make a lump sum payment of £50,000 to HD Systems in return for a licence to use the system. There are two consequences inherent in this idea. The first is that the payment would be made to HD Systems rather than to Northstar. The implication is that Northstar did not own the intellectual property rights; otherwise the payment would have been made to it. The second is that the extraction of a one-off lump sum payment, rather than a continuing royalty or licence payment would have devalued the remaining value of the intellectual property rights. The scheme had been explained to Mr Fielding at the meeting on 5 September 1997 (a week before the open day).Yet the floating of the idea of the licensed fabricators scheme (and its presentation at the open day) evoked no comment from Mr Fielding. It is difficult to understand why not; for the value of his security would have been seriously imperilled. Mr Fielding said that he regarded the licensed fabricators scheme as something of a joke, because the idea that anyone would make an up-front payment of £50,000 was ridiculous. That is probably true, but it only deals with the second of the two main implications of the scheme. Even if the idea that a fabricator would pay £50,000 was ridiculous, I would have expected Mr Fielding to have questioned how HD Systems could licence the system at all, since the assumption underlying the Northstar supply agreement is that Northstar was the owner of the intellectual property rights. Mr Fielding did, however, say that he thought that the lump sum payment was to be made to Northstar; and that he did not hear of HD Systems until later. Mr Snowden submitted that since the dealers under the licensed fabricators' scheme were paying the lump sum in return for being appointed exclusive dealers in a particular territory, and that since the "mills" would continue to be liable to pay commission to the owner of the intellectual property rights, there was no devaluation of the rights. I did not find this submission convincing; and it was not Mr Fielding's evidence. It seems to me that any lump sum payment (even if £50,000 was absurdly high) would have stripped out part of the value of the intellectual property rights which, under the Northstar supply agreement, were charged to Mr Fielding. This could only have operated against Mr Fielding's interests, if the charge had then been in place. In September 1997 Mr Naden (who was the signatory of the agreement on behalf of Northstar) had himself asserted in writing that the intellectual property rights in the system were owned by Mr Davies. Clearly, this is inconsistent with the terms of the Northstar supply agreement.

Mr Whitby and Mr Ivison conducted their due diligence on Northstar in the late summer and autumn of 1997. Mr Whitby in particular was an assiduous writer of notes and memoranda. He was a man with an eye for detail; and an interest in the financial affairs of the company and its relations with suppliers. Yet there is no trace of his having discovered the existence of the Northstar supply agreement.

Mr Roche said that he did not see the Northstar supply agreement until disclosure in April 1999.

Conclusion

I recognise that a conclusion that the Northstar supply agreement has been fabricated inevitably means that Mr Fielding has been deliberately untruthful on this important question. There is no real escape from a similar conclusion in relation to Mr Walsh. I have therefore considered anxiously whether the evidence is such that Ultraframe have discharged the heavy burden of proof in this respect. The most cogent factor in favour of the conclusion that the Northstar supply agreement is genuine is the pointlessness of fabricating it; and the danger of involving Mr Walsh, Ms Atherton and Mr Whitelock in the process. Mr Hochhauser submitted that Mr Fielding's game plan was to arrange a meeting with the trustees; and that he never dreamed that the Northstar supply agreement would be subjected to the detailed scrutiny that has taken place in the course of the trial. He was therefore prepared to take the risk that Mr Walsh, Ms Atherton and Mr Whitelock would never have to give evidence. There is, I think some truth in that; at least to the extent that Mr Fielding's game plan was to secure a speedy meeting with the trustees in order to sit round a table and resolve the dispute. Nevertheless, I have been very resistant to accepting Ultraframe's case on this issue. No single one of the factors I have discussed is conclusive. But a rope is made of many strands, no single one of which will bear the weight that a rope can support. Weighing together all the factors I have listed above, they cumulatively drive me to the conclusion that the Northstar supply agreement is a fabrication; and probably came into existence some time after the end of March 1998 and before the end of November 1998; by which time Mr Hacking had sent his draft, which had been passed on to Dearward.

Was Mr Fielding's agreement to buy Mr Naden's shares genuine?

Relevance of the question

The agreement between Mr Naden and Mr Fielding is the backdrop to Mr Fielding's claim to have lent Northstar £80,000. The acquisition of the shares was the quid pro quo for the loan. If the agreement was not made, then it is a pointer to the conclusion that he did not make the loan.

Mr Naden as shareholder

The agreement between Mr Fielding and Mr Naden is said to have come into existence in early January 1998. I have already concluded that Mr Naden did not believe that he was the beneficial owner of shares in either Northstar or Seaquest. On this basis, it is unlikely that the agreement between him and Mr Fielding, without reference to Mr Davies, to sell his shares to Mr Fielding was genuine. No one suggests that Mr Davies was the real force behind the apparent agreement with Mr Naden.

Inconsistent behaviour

There are other pieces of circumstantial evidence that support this conclusion. The principal benefit that Mr Naden was said to have obtained from his agreement with Mr Fielding was the role of managing director for a period of five years. It is implausible that Mr Fielding made this promise; and even if he did, he took no steps to carry it into effect. First, Mr Fielding accepts that by December 1997 at the latest, he knew that Mr Davies "called the shots" at Northstar. Yet his promise of the position of managing director to Mr Naden was made without reference to Mr Davies. Second, at least until Glassex 1998 Mr Davies continued to behave as the controller of Northstar, without any protest from Mr Naden and without his having complained to Mr Fielding. Third, the contract for the purchase of the laminating machines, and the lease of premises in Warrington were signed in April and May 1998 respectively by Mr Naden and Mr Birkett as joint managing directors of Northstar. Thus within months of Mr Fielding's promise, Mr Birkett had been appointed joint managing director, by a process that none of the witnesses could explain. Fourth, although he had agreed to sell his shares to Mr Fielding, Mr Naden, without reference to Mr Fielding, said that almost immediately he gave "his" shares in Northstar to Mr Clayton as security for the latter's loan. Fifth, despite that agreement, Mr Naden signed a share certificate recording Mr Clayton as shareholder in Seaquest towards the end of January 1998. Sixth, despite that agreement Mr Naden signed a share certificate recording Mr Clayton as shareholder in Northstar in April 1998. Seventh, according to his own evidence, Mr Fielding was not informed of the assignment of the intellectual property rights from Northstar to Seaquest until October 1998, despite being the beneficial owner of both companies.

I deal with other subsequent events that are inconsistent with this alleged agreement in my consideration of the genuineness of the share transfer agreement between Mr Fielding and Mr Clayton.

Conclusion

I conclude that the agreement to buy Mr Naden's shares was not genuine. I emphasise that although this conclusion is a pointer to the further conclusion that Mr Fielding did not make the loan he claims to have made, it is by no means conclusive. As I have said one of the possibilities is that there was a conspiracy relating to the claim to ownership of the shares, but that the other documents are genuine.

Is the Seaquest supply agreement genuine?

Relevance of the question

Mr Fielding says that he agreed to make the loan to Northstar before finding out about the incorporation of Seaquest; and that his discovery of Seaquest's existence caused him to postpone the making of the loan and to insist on the Seaquest supply agreement. If the Seaquest supply agreement is not genuine, then it is a pointer to the further conclusion that the loan was not made.

Findings so far

My finding that the Northstar supply agreement was not genuine is a strong indication that the Seaquest supply agreement was not genuine either. But there are additional factors that I must consider.

The drafting of the Seaquest supply agreement

Mr Fielding says that he drafted it over the weekend of 17 or 18 January 1998; and left it in his in-tray for typing at Burnden Works. Mr Fielding thought that it was typed on Monday 19 January and dropped off by a driver on Tuesday 20 January. The template for the Seaquest supply agreement was the Northstar supply agreement, to which he made amendments in manuscript. The agreement was typed by Ms Atherton who made some changes to the layout, based on her previous experience as a legal secretary. If, as I have found, the Northstar supply agreement was based on a template which did not come into existence until March 1998, the inevitable inference must be that the Seaquest supply agreement has also been fabricated.

The terms of the Seaquest supply agreement

The Seaquest supply agreement recites that of the projected investment of £750,000, £300,000 had been "committed" by January 1998. This recital does not take the form of a prediction; it takes the form of a statement of existing fact. The evidence relating to tooling and machinery does not support this statement.

Clause 5 of the Seaquest supply agreement contains a right of first refusal over Mr Naden's shares in Seaquest; as the Northstar supply agreement had done. Yet Mr Fielding says that in the case of Seaquest he had agreed to acquire Mr Naden's shares; not merely to have a right of first refusal over them. The agreement does not contain any binding agreement for the acquisition of Mr Naden's shares. He says that he included clause 5 by mistake; and that he should have deleted clause 5 and replaced it with a different provision. Mr Fielding said that he ought to have dealt with this by a separate letter. Even this does not make sense. Mr Naden never had any shares in Seaquest; and I have concluded that he did not believe that he was intended to.

In addition although the background to the Seaquest supply agreement was Mr Fielding's insistence that it should be entered into as a condition of his loan of £80,000, the agreement does not mention the loan at all.

Why is there a charge over the intellectual property rights?

At the time when Mr Fielding drafted the Seaquest supply agreement, Seaquest had no intellectual property rights. Although the assignment which was eventually made bore the date 13 January 1998, it was not in fact executed until the end of that month. Mr Fielding's evidence was that intellectual property rights were not discussed at the meeting on 16 January, which was the trigger for the drafting of the Seaquest supply agreement; and he did not suggest that either Mr Naden or Mr Birkett had mentioned intellectual property rights to him in his telephone conversations with them over the immediately following weekend. He said that the clause relating to intellectual property rights in the Seaquest supply agreement was simply "a direct crib" from the Northstar supply agreement; and that he gave no thought to it. He did not find out about the assignment of intellectual property rights from Northstar to Seaquest until October 1998 in the course of a meeting with Mr Roche. The inclusion of a charge over Seaquest's intellectual property rights before the end of January 1998 is something of a mystery.

However, if the Seaquest supply agreement came into existence after October 1998, one can see why it included a charge by Seaquest in favour of Mr Fielding over the intellectual property rights; since the date borne by the Seaquest supply agreement is later than the date borne by the assignments of the intellectual property rights from Northstar to Seaquest. Mr Fielding would not necessarily have known that the assignments were executed after the dates they bore. The inclusion of this charge, therefore, is some additional indication that the Seaquest supply agreement has been back-dated.

The typing of the Seaquest supply agreement

Ms Atherton recognised the style and layout of the Seaquest supply agreement as having been her work. She said that she typed it from a marked up copy of the Northstar supply agreement. She typed the year (1998), but otherwise the date was blank; and she had no recollection of when she typed it. Ultraframe do not challenge Mrs Atherton's evidence that she typed the Seaquest supply agreement from a marked up copy of the Northstar supply agreement. The fact that Ms Atherton typed the Seaquest supply agreement from a marked up copy of the Northstar supply agreement means that it must have been the second of the two to be typed. The fact that Ms Atherton typed the year does not indicate when, during the course of the year, she typed it.

The signing of the Seaquest supply agreement

The Seaquest supply agreement bears the date 21 January 1998. The agreement was delivered on 20 January, for signature on 21 January; so there was little time for Seaquest to take any advice about its terms. Mr Fielding said that Mr Birkett and Mr Naden came to the Burnden Works to sign the Seaquest supply agreement on 21 January. Three original copies had been prepared. Mr Fielding, Mr Naden and Mr Birkett all signed each copy; and Mr Fielding then took the signed agreements to reception where he got Ms Atherton to witness his signature.

Mr Birkett could not remember who asked him to sign the Seaquest supply agreement. It was brought to him for signature at Groby Road; and he signed it there. He and Mr Naden signed together. When he signed, Mr Fielding's signature was not on the agreement; nor was that of Ms Atherton, the witness. After Mr Fielding signed, the agreement was brought back to Mr Birkett; and it ended up in his plastic wallet. It seems strange for conspirators to have gone through this charade. If the object of the exercise was to forge an agreement signed by Mr Fielding Mr Naden and Mr Birkett, the obvious thing to have done was for Mr Fielding to have signed first and, once Mr Birkett and Mr Naden had signed, for them to have retained a completed copy, rather to have had a completed copy returned to them later. This has obviously given me great pause for thought.

Subsequent events

It will be recalled that Mr Fielding said that he had agreed to lend Northstar £80,000 in early January 1998; and that he had taken the first instalment of £10,000 with him to the meeting on 16 January. It was the discovery of the existence of Seaquest that caused him to postpone payment and insist on the Seaquest supply agreement. Although the Seaquest agreement is alleged to have been signed on 21 January 1998, no payment was made until 27 January. If the loan was both urgent and dependant on the signing of the Seaquest supply agreement, it is difficult to understand why Mr Fielding did not make the first instalment available sooner (perhaps on completion of the agreement).

It will be recalled that in the summer of 1998 Mr Read who dealt with tooling was unaware of the prospect of any white knight coming to the rescue. The tenor of Mr McMahon's evidence and Mr Whitelock's evidence points in the same direction. Moreover, Mr Hindley said that he did not hear the name Seaquest until October 1998, when he was asked by Mr Fielding to review Northstar's accounts. Mr Roche did not see the Seaquest supply agreement until disclosure in April 1999.

Conclusion

I conclude that the Seaquest supply agreement, like the Northstar supply agreement, came into existence at some time between March 1998 and the end of November 1998.

Why were shares held by Mr Clayton?

Relevance of the question

If Mr Clayton knew that he held shares in both Northstar and Seaquest on trust for Mr Davies, not only will it seriously undermine his credibility on other issues, it will point to the conclusion that the share transfer agreement between him and Mr Fielding is a fabrication.

HH Judge Behrens' judgment

HH Judge Behrens has already decided that the shares in both Northstar and Seaquest belonged to Mr Davies beneficially; and that his interest passed to the trustees on his bankruptcy. He did not need to decide why the shares were issued to Mr Clayton in the first place, because Mr Clayton only claimed to hold shares as security for a loan that had been repaid. The issue of fact for me is whether Mr Clayton held these shares on trust for Mr Davies; and if so, whether he knew that.

The Seaquest shares

The Seaquest shares were registered in Mr Clayton's name on 13 January 1998. It will be recalled that Mr Naden's evidence was that the trigger for his approach to Mr Clayton for a loan was Mr Fielding's failure to pay over the first instalment of £10,000 on 16 January. Mr Clayton maintains that at the time of the agreement he had never heard of Seaquest. In addition, Mr Clayton says that no share certificate was issued to him while his loan was outstanding; and that when he was offered the Seaquest shares, after his loan had been repaid, he rejected the offer. If that is right, then the allotment of shares in Seaquest to Mr Clayton cannot have been part of any agreement for a loan.

The Northstar shares

If Mr Clayton had been repaid his loan by March 1998, why were shares in Northstar registered in his name on 1 April? It cannot have been as security for a loan, because by that time his case now is that he had been repaid. Mr Naden's evidence is that Mr Clayton was repaid his loan on about 12 March 1998, and in his oral evidence Mr Clayton said that he could not contradict that.

This evidence leads to the conclusion that the issue of the Seaquest and Northstar shares had nothing to do with any loan by Mr Clayton. The fact that the share certificates remained in Seaquest's and Northstar's custody, whence they were handed over to the trustees also suggests that they had nothing to do with any loan.

I conclude, therefore, that no shares in Seaquest or Northstar were issued to Mr Clayton as security for a loan. If they were not issued as security for a loan, why were they issued? Mr Clayton does not claim to have paid for the shares and, unlike Mr Fielding, he does not claim that the issue of shares to him beneficially was a condition of any loan. The only possible answer is that Mr Clayton was holding them as nominee for someone else. And the only plausible candidate is Mr Davies. In the case of the Seaquest shares, this is corroborated by the information given by Mr Fielding to Seaquest's auditors, to the effect that the Seaquest shares were held by Mr Clayton as Mr Davies' nominee. In the case of Northstar this is corroborated by the draft stock transfer form from Mr Naden to Mr Clayton, which described the transfer as a transfer from one nominee to another. I conclude, therefore, that Mr Clayton held shares in both Northstar and Seaquest as nominee for Mr Davies.

Mr Clayton's knowledge

Did Mr Clayton know that? In a witness statement made on 21 January 2000 Mr Clayton said that:

i) He did not get the 98 shares in Northstar that were put in his name straight away, but in due course he did receive the certificate;

ii) At the time that he did the deal with Mr Naden he had no knowledge of Seaquest, but regarded getting the shares in that company as "a bonus" in return for making the loan.

In a witness statement made on 8 February 2000 Mr Clayton said that:

i) Mr Clayton did not receive any shares immediately, but Mr Naden gave him two share certificates (one in respect of Northstar and the other in respect of Seaquest) at the beginning of April 1998;

ii) This was the first intimation that he had of the existence of Seaquest; but he did not question Mr Naden giving him the two share certificates;

In his witness statement made on 8 September 2004 Mr Clayton said that:

i) He provided the cash to Mr Naden on the day after the agreement to make the loan was made and received a share certificate for shares in Northstar, registered in Mr Naden's name, "in exchange"; together with a receipt for the money and a promise to let him have a certificate for the same shares in his own name;

ii) He received no new certificate for shares while his loan remained outstanding;

iii) After the repayment of his loan he was handed an envelope by Mr Birkett containing share certificates relating to shares in both Northstar and Seaquest in his own name; but he refused to accept them and told both Mr Birkett and Mr Naden that he did not wish to have them;

iv) Despite his having refused the certificates he had the feeling that they were posted to him subsequently, and he put them in a box of papers.

In his oral evidence Mr Clayton said that:

i) When he handed over the cash he did not receive any share certificate: that came later;

ii) But he also said that he was given a share certificate at the time of handing over the cash; and that he took the certificate home where he put it in a box in his dining room;

iii) He was, however, given a receipt.

The discrepancies between these various versions of events do much to damage Mr Clayton's credibility. I add also that although Mr Clayton never actually became a director of Northstar or Seaquest, forms of appointment (Form 288a) for both companies were prepared for him by Mr Vibrans. Mr Vibrans must have been told to prepare them by someone; and the only plausible candidate is Mr Davies. Mr Clayton also went to the meeting at which Mr Whitby was sacked in April 1998.

Ultraframe submit that I should find:

"that by virtue of his dealings with Tom Clarke prior to his death, Jeff Naden, Dave Hardman, Janice Bardsley and Howard Davies, Mr Clayton knew of [Mr Davies' disqualification as a director and his bankruptcy] by the beginning of 1998. He needed someone who he trusted who was prepared to act as a front for him in relation to Northstar and the new company, Seaquest, which was to take assignments of the IPR. … [Mr] Clayton needed help and support in his new business venture, including favourable prices for the necessary component parts. …

The truth is that when Seaquest was established, Howard Davies asked Mr Clayton if he would act as a nominee shareholder for him. He did so because he trusted him and Clayton, with Naden's participation, agreed to do so.

Somewhat later in 1998, Mr Davies also asked him to take over from Mr Naden as nominee shareholder in Northstar and also to become a director of both Northstar and Seaquest."

Conclusion

In my judgment this is the truth; and I so find. I conclude that Mr Clayton did know that he held shares in both Seaquest and Northstar as nominee for Mr Davies. In the light of this finding, I must also conclude that Mr Clayton has deliberately given untruthful evidence.

Who provided the cash to Northstar?

The starting point

Ultraframe say that the accounts of Mr Clayton's loan and Mr Fielding's loan are fictitious; and that the cash which is recorded as having gone through Northstar's accounting records was in fact provided by Mr Davies. They say that Mr Fielding paid Mr Davies £100,000 to take over the business of Northstar and Seaquest; and that the agreement was made in the autumn of 1998. The fact that I have found that the Northstar supply agreement and the Seaquest supply agreement were later fabrications does not necessarily mean that Mr Fielding did not lend money to Northstar. Indeed Ultraframe have stressed on more than one occasion that Mr Fielding's "appropriation" of corporate businesses follows a pattern. If so, that pattern begins with a loan.

In my judgment the bedrock is the fact that Northstar's bank statements record counter payments amounting to £60,935. I take this as the starting point.

The accounting records: a recapitulation

Based on the accounting records, for the reasons I have given, I am disinclined to accept that Mr Clayton made the loan to Northstar that he said he did. I am inclined to accept that Mr Davies lent Northstar at least £9,685. I am inclined to accept that Mr Fielding could have lent money to Northstar; but that the accounting records do not fully support his case.

Did Mr Davies provide the cash?

I have already provisionally concluded, based on the accounting records, that Mr Davies lent Northstar the sum of £9,686.35 out of the £114,686.35 in cash that he withdrew from the Amberbale account. There is nothing else in the evidence that displaces that provisional conclusion. I find, therefore, that the sum of £9,686.35 came from Mr Davies. But £9,686.35 is not a large amount of money; it was provided almost immediately after Mr Davies' bankruptcy and well before his second departure for the USA; and even if he did provide it, it sheds little light on the provision of the much more substantial cash sums later on.

On 29 January 1998 Mr Hacking wrote to Mr Deane of the DTI. The letter had been sent to Mr Naden in draft, but was sent to Mr Deane without amendment. Mr Hacking said that he had spoken to Mr Davies. Mr Hacking explained that he understood that from time to time Mr Davies advanced money to the company; but that equally he was paid money by the company. Mr Hacking said that it was quite likely that the monies paid to Mr Davies "may well" have exceeded the monies that he paid the company; but that the company's accountants were looking into it. If Mr Davies had very recently made large loans to Northstar which were still outstanding, I would (even bearing in mind his secretiveness) have expected him to have mentioned it to Mr Hacking.

Mr Birkett says that he saw Mr Davies bring cash in "in chunks" five or six times as and when required between January and March 1998; and that the total of the cash was £80,000. He recalled the occasion on 11 March 1998, which I will describe in due course.

Ms Owen recalled that she had seen Mr Davies put money into the business in the period before his bankruptcy in December 1997. However, she said in her witness statement that after his bankruptcy, and particularly when he discovered that he would be liable not only for his personal debts but also for the debts of the defunct Quickfit companies, this stopped. He collected as much cash as he could; and decided that, instead of using the cash to pay off his debts, he would use the money to "disappear". Before she gave her oral evidence she modified this account. She said that Mr Davies had lent £10,000 to Northstar in early January 1998 on his return from the USA and that this amount had been repaid to him in cash shortly afterwards. Ms Owen said that Mr Davies had told her, in the first week in January that Ms Patey had asked him for the money; and that, so far as she was aware, Mr Davies made the loan by the middle of the month. She also said that a couple of weeks later Mr Davies came to her flat and told her that his loan had been repaid. Both the loan and the repayment were in cash. However, she disclaimed any knowledge of the entry of £9,686.35 in the bank statements and Ms Patey's cash book. Ultraframe do not challenge her evidence that the loan in cash was made; but they do challenge her evidence that it was repaid.

In his witness statement made in May 2001 (which I must treat with considerable caution) Mr Davies himself said:

"I still had money (around £127,000) in the Amberbale account from a property sale in early 1998, but I needed that for myself, I was sick of the whole affair. There was plenty of money left in Groby Road to deal with all the debts, so I left. Amazingly, NatWest just let me have it in cash on the strength of a phone call. In my view I had paid all my debts with the loss of Groby Road and this money was properly mine and I did not steal it."

I pause to note that the aggregate of the cash that Mr Davies drew out of Amberbale's account together with the loan of around £10,000 that Ms Owen says he made on his return from the USA is £124,000-odd. It will also be recalled that the Official Receiver's report to Mr Davies' creditors recorded that he had recently sold his BMW.

At the Glassex exhibition in March 1998 Mr Davies is recorded as having said that "he had a good source of finance which was coming from his anonymous backer". This, too, is an indication that the cash was not coming from Mr Davies himself.

In a letter written on 2 January 1999 Mr Ivison said that he was prepared to say on oath that he had never seen Mr Davies with "plastic bags full of money". However, in his witness statement he said that he did once see Mr Davies with a plastic bag that he suspected contained a large sum of cash. His suspicion was based on the shape of the bag. In his oral evidence Mr Ivison said that he "did not actually ever see Mr Davies produce large sums of cash"; but added that it would not have surprised him, as that was the way he worked. Later in his evidence he accepted that what he knew of Mr Davies' way of working was based on second hand information. There does seem to have been a well-known legend about Mr Davies and his access to cash. Laddie J found that Mr Davies was "awash with cash"; and the evidence I heard leads me to the same conclusion, with one significant difference. In my judgment there was a change in Mr Davies' access to cash and his willingness to put it at Northstar's disposal before and after the date of his bankruptcy. I cannot place any weight on Mr Ivison's evidence.

Mr Hochhauser also relied heavily on the business plan that Mr Roche prepared in August 1998. First, the plan referred to a loan of £70,000 having been made by Mr Davies. Second, it contemplated finding a new investor, which is not consistent with Mr Fielding having already invested. However, since Mr Roche prepared this plan on the basis of information he had been given by Mr Birkett (especially in relation to events that were before his time at Northstar), the weight I can attribute to this document is only as good as Mr Birkett's evidence.

There are also the accounting records to consider. If (as I find) the 1998 account maintained on Northstar's Sage DOS represented the account between Northstar and Mr Davies, it contains a record of large payments made by Mr Davies to Northstar up to the summer of 1997. By contrast the 1998 account maintained on Opera contains no record of any substantial receipt after 1 June 1997. On the contrary, it records a series of payments by Northstar to Mr Davies. If the cash in Mr Davies' possession on 11 March 1998 really emanated from his own resources, one would have expected it to be recorded in the 1998 account, as well as in the manually maintained cash-book.

Conclusion on Mr Davies

I now come to my conclusion. On the one hand, if Mr Davies had access to large amounts of cash, it is very strange that he allowed himself to be made bankrupt over a debt of £31,000. Not only was the bankruptcy order made against him, he also attempted to have the bankruptcy order annulled. In order to secure the annulment, he would have had to pay off his debts; and must have been advised of that before the application for annulment was made. If he had simply decided to call it quits even though he had access to large amounts of cash, why did he bother to make the application for annulment? On the other hand, the extraction of over £100,000 in cash from Amberbale does appear to demonstrate that he did in fact have access to large amounts of cash. He also had a substantial and valuable asset in the shape of Groby Road. The answer to this apparent conundrum may be, as Ms Owen suggested, that Mr Davies' liability for the debts of the defunct Quickfit companies put a very different complexion on his application for annulment. Mr Davies' own explanation: that Groby Road was an asset valuable enough to pay off his debts in full, also has force. Yet assuming that he did have access to large amounts of cash, why would he put it into Northstar, which was in dire financial straits and which was vulnerable to attack by the trustees in bankruptcy; not to mention attack by Ultraframe? In addition by the time that the substantial payments came to be made the intellectual property rights in the system had been transferred to Seaquest. Mr Davies regarded the system as "his baby". He did not seem to be particularly interested in the fabrication of roofs or the supply of bought in components, which was Northstar's business at the time. If he had placed cash at the disposal of either company, it would have been Seaquest. In addition, Mr Davies was a man who thought, in words attributed to Sam Goldwyn, that bankruptcy is a legal process in which you put your cash in your pants pocket and give your coat to your creditors. Is it not more likely that Mr Davies would have extracted as much cash as he could from sources available to him, and attempted to make it "disappear"? This explanation was the one that Ms Owen and Mr Davies himself gave.

In addition, the evidence of Mr Roberts is more consistent with Mr Davies having been a recipient of cash from Northstar, rather than a provider of cash. He also said that before he went to the USA Mr Davies took "a money bag full of money", which he thought had come from Mr Birkett. The cash bag that he saw was a cloth bag, about the size of an A4 sheet of paper. If cash was potentially available to Northstar from its own trading, the simpler (and obvious) course would have been to let Northstar receive it, rather than for Mr Davies to have made loans from his own resources.

Although I do not rely on it, Laddie J found on the trial of the preliminary issues that, on the balance of probability, Mr Davies never made any significant loans to the companies. I reach the same conclusion, with the exceptions of the recorded loan of £9,686.35, and the cash loan which Ms Owen says that Mr Davies made to Northstar in January 1998. The upshot is that I find that Mr Davies lent Northstar just under £20,000 in January 1998; and no more.

I also find that Mr Davies was repaid amounts that he had lent Northstar earlier, through the mechanism of the "Alan Clayton loan account". It is also probable that the two postings to the 2301 account of £10,000 and £16,170 represent money which, one way or another, made its way to Mr Davies.

Did Mr Clayton make a loan to Northstar?

Mr Fielding said that at the time when he was discussing lending money to Northstar; and at the time when the money was actually paid, Mr Naden did not mention to him that Northstar was borrowing money from any other source. He did not find out about Mr Clayton until later, at Easter 1998. At that time, according to Mr Fielding, Mr Naden said that Northstar had been forced to borrow money from Mr Clayton because Mr Fielding had not come up with the money on 16 January 1998.

Ms Owen said that she remembered Mr Naden coming in with £20,000 in cash in January 1998. She said that he told her he had some money "that needed banking" and asked her to check it. She took the money up to the office that she shared with Ms Patey; and sat down and counted it out. It was in denominations of £20, mostly in used notes. Having counted it she gave it to Ms Patey for banking; and, as far as she was aware, Mr Patey banked it. Later in the day she asked Mr Naden where the money had come from; and he told her that it had been lent by Mr Clayton; although whether the loan was to Northstar or to Mr Naden personally was not clear. Ms Owen did not see any written acknowledgment of Mr Clayton's loan. Ms Owen said that Mr Clayton was repaid on 11 March; but, again, she saw no written record of that. The cash book and the bank statements record a loan and a counter receipt of that amount on or about 27 January 1998.

Mr Clayton's accounts

Mr Clayton has given a number of different and inconsistent accounts of the details of the making and repayment of the loan of £20,000 that he says he made. First, as regards the making of the loan:

i) In a letter to Hammond Suddards dated 18 November 1998 Mr Clayton said:

"It is a fact that I held the shares. The basis of this was a loan of £20,000 to Jeff Naden in January 1998 when he was struggling financially and seeking to develop his business. In return for this loan I took shares by way of security until the loan was repaid. This loan was repaid in a matter of weeks and the shares relinquished."

This letter was drafted for him by Mr Roche.

ii) In his witness statement of 21 January 2000 Mr Clayton said

a) In the early part of January 1998 he agreed to advance the sum of £20,000 to Mr Naden for Northstar and Mr Naden agreed to transfer to Mr Clayton his shares in Northstar;

b) The money was in fact advanced in mid-January.

iii) In his witness statement of 8 September 2004 Mr Clayton said that he began discussions with Mr Naden in December 1997. but did not reach agreement until January 1998; and that the money came from the sale of his Bentley;

iv) In his oral evidence:

a) He said that he had a cash hoard of some £70,000 under his bath;

b) He was very unclear about whether he had lent money to Northstar or to Mr Naden personally.

Second, as regards the repayment of the loan:

i) In his letter of 18 November 1998, Mr Clayton said that the loan had been repaid "in a matter of weeks".

ii) In a letter dated 23 December 1998 Mr Clayton said that he had been repaid towards the end of March 1998. Mr Wordsall said that he typed a draft of this letter on 19 December 1998, at Mr Birkett's dictation, on his computer at Groby Road. The draft differed in some immaterial respects from the letter as sent four days later. Mr Wordsall did not make the amendments. Mr Roche was not involved in the drafting of this letter.

iii) In a witness statement made on 21 January 2000 Mr Clayton said that he was repaid near the beginning of April 1998 and that he believed that when he was repaid he gave back to Mr Naden the receipt and the share certificates.

iv) In his witness statement of 8 February 2000 Mr Clayton said that the loan was repaid some time after 14 April 1998. He had heard from Mr Fielding a few days earlier, and explained to Mr Fielding that he was holding the shares in Northstar and Seaquest because he had not been repaid;

v) In his witness statement of 8 September 2004 Mr Clayton said that:

a) his initial belief was that the loan had been repaid some time in April although it could have been in late March;

b) when he was repaid the loan he destroyed the receipt in Mr Naden's presence, but did not give him back the share certificate because he could not find it;

c) having destroyed the receipt he gave it back to Mr Naden

vi) In his oral evidence Mr Clayton said:

a) He was repaid the money in cash at Groby Road, having met Mr Naden outside Northstar's premises;

b) Mr Naden was wrong in suggesting that he went to see Mr Clayton to make the repayment;

c) He could not pinpoint the date of repayment, but that it was in March rather than April;

d) His earlier statements suggesting that he had not been repaid until April were wrong;

e) At the time of repayment he might have given back to Mr Naden the share certificate for the Northstar shares registered in Mr Naden's name, but he might not have done because he had lost it;

f) He could not have both destroyed the receipt and also given it back to Mr Naden.

Once again, the inconsistencies in Mr Clayton's accounts seriously harm his credibility.

Other inconsistent accounts

Ultraframe also point to other accounts of Mr Clayton's involvement given at different times in the story:

i) On 30 June 1998 Messrs Birkett, Ivison and Roche attended a meeting with Mr Hacking, Northstar's solicitor. Mr Hacking's file note records that the shares in Northstar had originally been held to Mr Davies' order. There had then been a transfer to Mr Naden, but Mr Hacking did not know on what basis he held the shares. The note continued:

"However, the subsequent transfer to Alan Clayton was, I believed, one for value (I understand about £70,000 was paid). I understood from Eddie [Birkett] that this had been paid into the company's bank account to provide further working capital."

On 12 November 1998 Mr Birkett told Mr Hacking that Mr Naden had held the shares in Northstar until he transferred 98 per cent to Mr Clayton "as security for his £70,000 loan".

I should also mention the early drafts of Mr Roche's report of 24 November 1998 in which he suggested that Mr Clayton lent Northstar the money in tranches. Mr Clayton does not claim to have done this.

I have already concluded that the fact that shares in Northstar and Seaquest were registered in Mr Clayton's name had nothing to do with any loan. This casts considerable doubt on his claim to have made a loan at all. There are a number of factors that point in the same direction. First, at the time when he claims to have made the loan, Mr Clayton had only been a customer of Northstar for a few months. Apart from his friendship with Mr Davies, he was not an obvious candidate for an interest free loan. Second, there are the serious inconsistencies in his account of when he says the loan was made. Third, the accounting records do not support his claim. Fourth, the motivation for the loan does not stand scrutiny. By January 1998, with the incorporation of Seaquest, the licensed fabricators scheme had been abandoned. There is no trace of anyone in fact having paid £50,000 for a licence to fabricate roofs. Why then should Mr Clayton have lent Northstar £20,000 for something that he could have got anyway? Moreover, once Seaquest had been incorporated, the idea was that the "direct from the mill" system would come into operation. The prices would be in Seaquest's control: not Northstar's. Yet Mr Clayton was adamant that he had never heard of Seaquest. Fifth, he said in his witness statement that he sold his Bentley (which raised £20,000) to further his business interests. Given that he had only recently started trading, it is unlikely that he would have sunk the whole proceeds into a loan to Northstar. And in any event, if he had £70,000 in cash hidden under his bath, the Bentley is an irrelevance. Sixth, his holding of the shares in both Northstar and Seaquest demonstrates that he was willing to act as a front for Mr Davies.

Conclusion on Mr Clayton

I conclude that the story of Mr Clayton's loan is an invention. In my judgment the reality is that Mr Davies lent Northstar a little under £20,000 in January 1998; and the story of Mr Clayton's loan was a means of repaying Mr Davies. It is quite possible that this is the story that Ms Owen was told by Mr Naden. If, as Mr Naden and Mr Clayton say, Mr Naden handed £20,000 in cash to Mr Clayton on March 11 1998, that sum was used to repay Mr Davies.

Mr Fielding's access to cash

Mr Fielding says that he made a number of investments in businesses at about the time that he says he lent £80,000 to Northstar. As set out in his witness statement, as amplified by his oral evidence, they are:

Date	Amount £	Purpose	Derivation
August 1994	£10,000	Loan to Kilohurst Ltd	Seathurst
August 1994	£67,880	Loan to Kilohurst Ltd	Share proceeds
January 1995	£20,000	Paid to Kilohurst Plastics Ltd in return for the issue of shares
December 1995	£13,000	Loan to Kesterwood	Cash
Early 1996	£87,000	Loan to Kesterwood in return for 66 per cent of the shares	Joint account with Mr Fielding's mother
February 1996	£30,000	Paid to Mr Hopwood in return for his shareholding in ASM Ltd	Cash
February 1996	£15,000	Loan to Mr Howarth of ASM	Cash
June 1996	£35,000	Deposit for Burnden Works
April 1997	£10,000	Loan to Mr Howarth of ASM
May 1997	£20,000	Paid on behalf of Kesterwood	Cash
11 November 1997	£10,750	Paid for the assets of Kesterwood
November 1997	£40,000	Paid to Dearward to cover its payment of Kesterwood's debt
27 January 1998	£10,000	Loan to Northstar	Cash
4 February 1998	£10,000	Loan to Northstar	Cash
11 February 1998	£10,000	Loan to Northstar	Cash
11 March 1998	£50,000	Loan to Northstar	Cash
May 1998	£30,000	Paid to Mr Davies	Cash
September 2000	£70,000	Paid to Mr Davies via Con Cunningham	Cunningham's bank

In addition he said in his oral evidence that all the holidays that he has had for the last ten years have been paid for in cash. Mr Fielding also says that he made the loan of £80,000 to Northstar in cash, part of which Mrs Fielding helped him count out. Mrs Fielding also gave other examples of having helped Mr Fielding count out cash (in amounts of £30,000 or so) on at least four other occasions. She also helped count out incoming amounts of cash, although not in the same quantities.

Ultraframe say that Mr Fielding did not have the resources to make the payments he claims to have made. In order to evaluate Mr Fielding's evidence it is necessary to go back over many years. Mr Fielding's evidence was that he had large amounts of cash available to him. This cash was originally kept in a suitcase (first in his bedroom and then in the loft in his mother's house); and then in a safe at his home. Mr Fielding estimated his cash hoard at various times as follows:

Date	Amount £
1976	£25,000
1979	£30,000, plus £10,000 in the bank
July 1992	£400,000
August 1994	of the order of £350,000
October 1995	about £300,000
Early 1996	about £300,000
Christmas 1998	£160,000
August 2000	Over £70,000
At trial (December 2004)	£40,000 to £50,000

In the early years, Mr Fielding says that his cash hoard derived from gambling. However, he retired from playing cards in 1976. From 1984 onwards, he says that he was placing bets of up to £20,000 at a time. £20,000 was approximately double his annual salary at the time (he earned £12,000 a year as from June 1986). Mr Fielding accepts that he did not always win his bets. Mr Fielding also says that in 1994 or 1995 he stopped gambling for large stakes; although he still goes to the races once a month, and might expect to wager £2,000 to £5,000 a time.

From about July 1986 Mr Fielding carried out some freelance quantity surveying work; in particular for Seathurst Ltd, which was owned by Con Cunningham. He said that Seathurst often paid him large sums of money in cash. These sums were not accounted for in his accounts; but Mr Fielding says that the payments to him were net of tax. He referred to one project in 1991 as a result of which, he said, he was paid over £200,000 in cash, after tax had been deducted. Also in 1991 he sold the then matrimonial home, generating a surplus of £52,000 which he invested in the stock market. In July 1992 he bought a house for his estranged wife and their children. He paid £50,000 towards the cost of the house, raising the balance of £80,000 on mortgage. By this time, he says that his cash hoard had reached £400,000. But he did not use the cash to pay for the house because he did not want his estranged wife to find out about it. At some stage Mr Fielding negotiated a settlement of his matrimonial proceedings; but I was not given any details of the settlement.

Two years later, in August 1994, Mr Fielding agreed to lend money to Kilohurst. I have already touched on this. In his witness statement Mr Fielding said that he agreed to lend £20,000, while he and Mr Owen were on holiday in Portugal. The money was to come from the proceeds of sale of some shares which he had just sold for about £68,000. He would arrange for the proceeds to be sent to Kilohurst; Kilohurst could use £20,000 for its own purposes, and he would collect the balance on his return to England. However, on his return, the proceeds had not been released; and Mr Owen was in urgent need of £10,000. In his witness statement Mr Fielding said that he gave Mr Owen "£10,000 in cash". Although Mr Fielding did lend Kilohurst £10,000, he did not do so in cash. The sum of £10,000 came by cheque from Seathurst. Mr Fielding was unable to explain why, in view of the urgency of Mr Owen's need for cash, he did not have recourse to his cash hoard, which at that time stood at something of the order of £350,000. This piece of evidence undermined both Mr Fielding's claim to have had a large cash hoard; and also his evidence that Seathurst paid him in cash. In addition to this payment from Seathurst, the documents revealed other payments by Seathurst, which were also not made in cash (or at least did not end up in Mr Fielding's safe). One such payment of £125,000 was made by Mr Cunningham personally in February 1997; and another, of £60,000, in April of that year. Mr Fielding said that these payments represented payment for his share of a contract that he had undertaken with Seathurst, some time after 1991. But Mr Fielding also said that Seathurst had become insolvent in 1987 or 1988 or thereabouts. Mr Fielding's business relationship with Mr Cunningham and Seathurst was given scant attention in his witness statement. Overall, Mr Fielding's oral evidence about his business dealings with Seathurst and Mr Cunningham, and in particular the large cash receipts he alleged, was vague and self-contradictory.

In October 1994 Mr Fielding moved into the house where he now lives, St Anne's House. He raised £200,000 on mortgage; and paid the balance of £110,000 by cheque, using funds in a bank account for that purpose. This money did not come from the cash hoard. The purchase of the house may have taken place in April 1994; because Mr Fielding said that a lot of work had to be done to it before he moved in. The cost of the work is not accounted for in any of the figures I was shown.

Mr Fielding explained that the cash hoard was in banknotes of £20 and £50 denominations. A new £20 note was issued in 1991. At that time the cash hoard was approaching its peak of £400,000. The old £20 note ceased to be legal tender in March 1993. A new £50 note was issued in April 1994. The cash hoard at that time would have been between £400,000 and £350,000. However, Mr Fielding said that he did not take any of the cash to the bank in order to exchange old notes for new ones. Rather, he said, he "was recirculating" the money. If the cash was being "recirculated" to such an extent as to avoid the need to exchange out of date banknotes for new ones, there must have been large influxes of cash into the hoard. When asked to explain what he meant by that expression he said that he was using the money "to do all sorts of things" and replacing it. But the only use that came to mind was gambling and using some of it to live on. Mrs Fielding knew of the cash hoard in the safe; but her evidence was that she and her husband did not use it to live on. I cannot accept Mr Fielding's evidence on this point.

Mr Fielding's income

It is not possible to reach any firm conclusions about the extent of Mr Fielding's income. Although he disclosed accounts of his partnerships and of companies in which he had an interest, his evidence was that he had sources of income (apart from gambling) that these documents did not reveal. However, he declined to answer questions about the source of this income; relying on his undoubted privilege against self-incrimination. The reason he gave for lying to his accountant about the source of funds for the purchase of Burnden Works was that there was "too much" money for him to be able to justify. This was a particularly evasive passage in Mr Fielding's evidence:

"Q. Where does the money come from at item b if not from Con Cunningham?

A. It came from the account with my mother.

Q. Why do you not identify that as the source, if it comes – if the account contains what you say it did, which is the proceeds of share sales? What is the problem with that?

A. Because I did not want my accountant enquiring into the accounts I had with my mother.

Q. Why not?

A. I just did not want to.

Q. Why not?

A. Because it would have involved too many questions and too many answers.

Q. Why? What questions, what answers?

A. (Pause). Just to whether the money – where the money had come from. He would not –

Q. You could tell him what you have told my Lord: it comes from the proceeds of shares I had bought and sold, could you not? What was the difficulty with that?

A. (Pause) Because there was – there was too much money there.

Q. Too much money there?

A. Yes.

Q. Why? In what way "too much"? He is probably used to figures. What was the problem?

A. (Pause)

Q. Do you want to take the privilege against self-incrimination here?

A. I think I am going to have to."

Mr Fielding also said that he maintained two bank accounts and one building society account jointly with his mother. Between 1985 and 1995 the proceeds of share sales was paid into these accounts. At the peak, between 1992 and 1994, the cumulative credit balance on these accounts was of the order of £500,000; and although Mr Fielding stopped making deposits into them in 1995 (with one or two exceptions), the cumulative credit balance in mid-1996 was still several hundred thousand pounds. Mr Fielding did not reveal the existence of these accounts in his witness statement. He also refused to give general disclosure of all his bank accounts, despite being warned (by me) that a failure to do so might result in adverse inferences being drawn against him.

The only positive evidence of investment in the stock market that Mr Fielding gave was the investment of £52,000 from the sale of the then matrimonial home in 1991. Mr Fielding says that he stopped investing in the stock market when he married Sally Fielding in July 1995. A schedule of sale proceeds of shares sold by Mr Fielding since 1995 amounts to some £200,000. The proceeds of sale of these shares was not paid into the joint accounts; but was paid to Mr Fielding's companies. It thus follows, that if Mr Fielding is correct, by 1995 his investment of £52,000 in the stock market in 1991 had turned into about £700,000 by 1995 (£500,000 paid into the joint account with his mother; and £200,000 described in the schedule of share sales since 1995). The stock market did not even double between 1991 and 1995. The FTSE 100 increased in that period by about 50 per cent. Moreover, since the recorded proceeds of the share sales were paid into the joint account or to Mr Fielding's companies, they cannot have contributed to the cash hoard. In addition the loan to Kilohurst of £70,000 came from the proceeds of share sales; and this money was still owing to Mr Fielding when Kilohurst went into liquidation.

In my judgment Mr Fielding grossly exaggerated his access to cash from legitimate sources. However, leaving aside his claim to have invested £80,000 in cash in Northstar, there is no real doubt that he has made substantial cash investments in small companies; often companies on the verge of insolvency. It is also common ground, as I have described, that he caused substantial inflows of cash into Seaquest (even if the payments out of that cash were "circular"). In addition, this sector of business activities seems to be peopled with men who regularly carry tens of thousands of pounds in banknotes in carrier bags. So although I do not accept Mr Fielding's evidence about the extent of his access to cash, I am prepared to accept that he had access to at least £80,000.

The first three instalments of cash

Mr Fielding said that he had told Mr Naden that he would lend Northstar the money in weekly instalments of £10,000 cash. He took the first instalment of £10,000 to the meeting at Burnden Works on 16 January 1998. He had taken it out of his safe at home, either that morning or the previous evening, and put it into his locked briefcase. He left the briefcase under his desk in his office. Mr Fielding was very vague in his oral evidence on whether he had told Mr Naden, in advance, that he would pay the first instalment that day; but he said that he thought that Mr Naden expected to receive it. He had, however, said in his witness statement that he had told Mr Naden that he would start the payments on 16 January. Mr Birkett said that he did not know that Mr Naden expected to receive a payment that day. Mr Fielding said that the money was not mentioned at the meeting; but that Mr Naden would have realised from the look on Mr Fielding's face that because of the appearance of Seaquest the money would not be paid that day. Nor did Mr Naden raise the question when the money would be paid before he left Burnden Works at the end of the meeting. Mr Fielding says that he took the money home with him at the end of the day.

In his witness statement of 22 January 2000 Mr Naden said that the first instalment of £10,000 was due in the middle of January and that he expected to receive it at the meeting on 16 January. However: "the meeting turned sour for Mr Fielding because when the idea of Seaquest was floated, he was livid and he ended up not giving me the first payment of £10,000". His witness statement prepared for trial contained a similar account.

Mr Fielding says that it was a condition of his making the loan to Northstar that the Seaquest supply agreement be made. It was signed on 21 January 1998. Mr Naden and Mr Birkett came to Burnden Works to sign it. But Mr Fielding did not pay over the first instalment of £10,000 that day. He said that he did not have the money with him; but that he had left it at home, even though the signing of the agreement had been pre-arranged, and even though he knew that Northstar were "desperate" for the money. Mr Fielding says that on 21 January he told Mr Naden and Mr Birkett that he would give them the money "next week". He said that as Mr Birkett and Mr Naden had messed him about, he was not going to jump to their tune. So he made them wait. In response to the question why he made them wait, Mr Fielding's answer was: "Because I could".

On the following Tuesday, 27 January 1998, Mr Fielding says that he took the first instalment of £10,000, in an A4 envelope, to Groby Road. He called in, without an appointment, on his way back from Sheffield. He asked for Mr Naden at reception and handed over the cash. He told Mr Naden that he would give him another £10,000 the next week. He neither asked for nor obtained a receipt. However, at the end of the week, Mr Fielding says that he annotated his diary for 27 January "N/S 10" as a note to himself that he had paid Northstar the first £10,000. Northstar's cash book records a loan of £20,000 on that day, and the bank statements record a credit of a similar amount.

Mr Fielding says that he arranged for Mr Naden to come to Burnden Works on 4 February to collect the second instalment, but he did not fix a time. He took £10,000 out of his safe and put in it an envelope. Mr Fielding says that Mr Naden turned up in the afternoon, after banking hours. Mr Fielding met him in his office and handed over the second instalment of £10,000. Their meeting lasted for no more than five minutes; and Mr Fielding did not discuss the business with Mr Naden. Mr Fielding says that they arranged to meet again seven days later. Once again Mr Fielding annotated his diary "N/S 10". Northstar's cash book records a loan of £10,000 on that day, and the bank statements record a credit of a similar amount

On 11 February Mr Naden again came to Burnden Works in the late afternoon. Once again Mr Fielding handed over £10,000 in cash which he had removed from his safe. Northstar's cash book records a loan of £10,000 on that day, and the bank statements record a credit of a similar amount. Once again Mr Fielding annotated his diary "N/S 10". He said that they agreed to meet during the following week, on 19 February. However, Mr Fielding said that he had to cancel the meeting; which he did, by telephone, on the morning of 19 February. By then, he had already taken the money with him to Burnden Works. However, he did not leave the money with anyone (for example Mr Sheffield, or his wife who also had an office at Burnden Works). Instead he took the money home with him. When Mr Fielding cancelled the planned meeting with Mr Naden for 19 February he told Mr Naden that he would get back to him. However, Mr Fielding went on holiday to Mauritius on 23 February and did not return until 9 March. He did not get back to Mr Naden until his return. The reason for this according to Mr Fielding was a crisis in the project in the Shetland Isles, which occupied his time until he went on holiday.

March 11 1998 and the final instalment

It is common ground that on 11 March 1998 Mr Davies was seen with a large quantity of cash at Groby Road. In his witness statement Mr Birkett said that he saw Mr Davies give around £30,000 in cash to Maureen Patey for her to pay into the bank. It was in a plastic carrier bag. He saw this from his office, which overlooked the general office. Mr Birkett said in cross-examination that he saw Mr Davies ranting. This was not a particularly memorable thing, as Mr Davies often ranted. He saw Mr Davies throw the money at Mrs Patey. Some of the money was in sealed packs. He did not take much notice until Mrs Patey came back from the bank. Mrs Patey told him that she had asked Mr Davies for £30,000 and he gave it to her in cash, in sealed plastic envelopes or packages. When she took it to the bank and they counted it they found a £5 note in one of the packages instead of a £20 note so they gave her that back. As a result, only £29,980 was banked. The bank statements support the fact that £29,980 was banked on or about 11 March 1998. Ms Patey's cash book also records a loan of £29,980 on 11 March. It does not record a loan of any greater amount. Mr Birkett agreed that he did not observe anything before Mr Davies came into the office with the cash.

So much is common ground. What is hotly disputed is where Mr Davies got the cash from. Ultraframe have no direct evidence of the provenance of the cash; and ask me to infer that it came from Mr Davies' private resources.

Mr Fielding says that on the day after his return from holiday, while he was at ABB's offices in Telford, he spoke to Mr Naden and asked him to come to Burnden Works on the following day, 11 March. Mr Naden said that they were "absolutely desperate" for cash; not least because there was a delivery of aluminium "on hold", which they needed in order to continue to fabricate roofs. By this time, Mr Fielding had paid £30,000 in cash to Northstar out of the promised £80,000. But he did not tell Mr Naden that he would hand over the balance of £50,000 on the following day. Indeed Mr Fielding says that he had not decided to do that when he spoke to Mr Naden; but probably made the decision while driving home. There was no logic to this decision, but Mr Fielding said that it slightly made up to Mr Naden for not having got back to him before his holiday. Mr Fielding's diary records a hospital appointment for his wife for 11 March; and does not record a meeting with Mr Naden. But Mr Fielding says that he wanted an excuse not to accompany his wife to the hospital; and that he did not record in his diary any meeting with Mr Naden for the purpose of handing over cash.

On the evening of 10 February Mr Fielding removed £50,000 in cash from his safe; and counted it out with the help of his wife. Mr Fielding thought that he had told her that he was going to give the cash to Mr Naden. Mrs Fielding's response was simply: "that is a lot of money". Mrs Fielding said that she recalled counting out money with her husband. She could fix the date because it was the day before a hospital appointment, which Mr Fielding was supposed to attend with her, but in the event did not. She said that she and her husband counted out about half each, and that the total amount was in the region of £40,000 to £50,000. She has a vague recollection of his having told her that the money was for Mr Naden, or that he was investing in Northstar; or words to that effect. She did not, at the time, know that her husband had any shareholding in Northstar.

Just over half the money fitted into a cloth banker's bag; and the remainder was put into a supermarket carrier bag, into which the cloth bag was also placed. Some of the bundles were unused notes, secured with banker's straps, and others were secured with elastic bands. Mr Fielding says that he put the carrier bag, with the cloth bag inside it, into his brief case and took it with him to work. Mr Fielding arrived a little late for work that day; and Mr Naden turned up shortly afterwards, at about 10.30 a.m. Mr Fielding apologised for not getting back to him. Mr Naden said that he had to get back to Groby Road to get money into the bank so that Northstar could pay for aluminium. Mr Fielding then told Mr Naden that he was going to give him the whole £50,000. Mr Naden seemed "reasonably pleased" and said "Thanks very much". The meeting was not long because Mr Naden was "desperate to get away", and "desperate" to get money for the aluminium. Having handed over the money, Mr Fielding told Mr Naden that he would send him a letter in the post confirming that all the money was in place. Once again, Mr Fielding did not ask for or obtain a receipt. Nor, this time, did Mr Fielding annotate his diary. Mr Fielding did send the letter; but not until 17 March 1998.

Mr Naden says that the balance of the loan, amounting to £50,000 was paid to him by Mr Fielding in cash when they met at Burnden Works. He says that shortly after receiving that money, possibly on the following day, he "met up with" Mr Clayton and repaid his loan of £20,000, leaving a balance of £30,000, which he passed to the accounts staff at Northstar. In a previous witness statement Mr Naden says that he "visited" Mr Clayton to repay him. Mr Clayton says that he was in his car outside Northstar's premises at Groby Road and Mr Naden brought the money out to him.

In her witness statement Ms Owen says that she was in Northstar's offices on 11 March at about lunchtime. Mr Naden came in with a carrier bag containing £50,000 in cash. Inside the bag there was a cloth bag containing bundles of notes. She says that Mr Naden told her that he had got £50,000 from Mr Fielding; and that he needed to pay back £20,000 to Mr Clayton. Ms Owen helped him count out £20,000, which Mr Naden took away with him. She was clear in her oral evidence that she and Mr Naden split the £50,000: £20,000 was counted out for Mr Naden to give to Mr Clayton; and the remaining £30,000 went back into the bag. She was also clear in her oral evidence that the bag was a cloth bag; not a plastic bag. She then took the balance, still in the cloth bag, up to Ms Patey, but on the way she bumped into Mr Davies in the yard. She told him that she was carrying money from Mr Fielding. Mr Davies said that he wanted to count it; and took the bag into his office. He emerged about five minutes later and threw the cloth bag, still containing the cash, across the table to Ms Patey, saying that it was £30,000 and she could bank it. Ms Owen said in her oral evidence that she followed Mr Davies up to the office floor, and went to the office that she shared with Ms Patey. She told Ms Patey that they had the money they needed; that it had come from Gary Fielding and that they had the money they needed for the aluminium. However, in giving her evidence at the trial of the preliminary issues before Laddie J, Ms Patey accepted that the money was in a plastic bag, rather than a cloth one; and she did not mention that the source of the money was Mr Fielding. The tenor of the questions and answers certainly proceeded on the assumption that the source of the money was Mr Davies; although I do not think that this was specifically put to Ms Patey. Ms Patey did not give evidence before me.

Ms Owen's oral evidence differed from her witness statement in some respects. She was not clear whether Mr Naden told her that the money had come from Mr Fielding when he arrived with the money (as the witness statement said) or while they were counting it out; or when they were in the yard after having counted it out. She had also said in her witness statement that she had been told in advance that there would be a cash injection from Mr Fielding on 11 March, which did not sit easily with her oral evidence that she only found out the source of the funds on 11 March itself. Ms Owen said that this was an error on her part in writing her statement.

At 2.30 p.m. Ms Owen sent a fax to Alumax, saying that £19274-odd was being transferred to Alumax' bank account. Mr Langford, Northstar's driver, was waiting at Alumax' factory in Wales for the release of a load of aluminium, which Alumax would release only on receipt of funds. The money was indeed transferred that day, and the aluminium released. It was this incident which triggered Ms Owen's memory of the events of that day. Ms Owen also said that she must have known in advance that there was to be a cash injection on 11 March (even if not the source of the funds), otherwise she would not have arranged for Mr Langford to drive down to Alumax in Wales. There is force in this point. I think also that the timing of the fax at 2.30 p.m. is some corroboration for Ms Owen's evidence that the money was received at about lunchtime.

Mr Roberts said that he was responsible for receiving cash from drivers who had delivered orders to customers; and who had been paid cash on delivery. He said that he would take the cash to the office, where Mrs Patey, Ms Owen or Mr Naden would take it from him. In his oral evidence, however, he said that he handed cash to Mr Birkett and continued to do so throughout 1998. Mr Birkett denied this. Mr Roberts said that any cash went straight into Mr Davies' pocket and rarely found its way to the bank. Mr Roberts said that he saw Mr Davies take cash from the business in 1997, but he did not see this happen after January 1998. He also saw Mr Birkett with bags of money which he assumed were on their way to Mr Davies.

Mr Fielding's investments in previous ventures

Mr Fielding's involvement in Kilohurst began with a loan. His involvement ended with his taking control of the company. Mr Fielding's involvement with Kesterwood also began with a cash loan. It ended with Kesterwood going into liquidation; and its business being transferred to Kesterwood Extrusions and Kesterwood Plastic Processors. In both cases Mr Fielding acquired a substantial shareholding in the company along the way. In the case of Kilohurst the loan was £70,000. In the case of Kesterwood it was £100,000. It is not, therefore, implausible that Mr Fielding might have seen an opportunity to lend money to Northstar as the precursor to acquiring control of the company. Although it is only a straw in the wind, I should also refer to the note made by Mr Luke of Alumax, summarising his meeting with Mr Fielding on 11 November 1998. Mr Luke said that Mr Fielding had "exposed himself" to Northstar, as a means of acquiring leverage over the company. This is at least consistent with his having exposed himself through lending money to the company. So too is Mr Birkett's evidence that Mr Fielding was to be given "protection" by means of a debenture. The obvious thing to "protect" by a debenture is a loan.

When Mr Fielding described in his oral evidence what prompted him to approach Mr Naden over Christmas following his encounter with Mr Davies at the football match on 14 December 1997 he said:

"I saw it as an opportunity to see whether I could get a better foothold into Northstar."

The idea of a loan as a foothold into a company is, in my judgment, consistent with what Mr Fielding had done before.

Is Mr Fielding's loan a fabrication?

If Mr Fielding's account of the making of a loan to Northstar is a fabrication, forming part of a dishonest conspiracy involving the forging of documents, the conspirators have made two very surprising mistakes. The first is that the amount that Mr Fielding claims to have lent Northstar does not completely tally with the accounting records. The loan is said to have been made in cash, and is therefore untraceable at Mr Fielding's end. So there are no bank statements at his end with which they must tally. But Northstar had its own accounting records and bank statements. They were readily available to the alleged conspirators. Surely a fabricated story would have been made to tally with those. This is particularly so in relation to the final payment of £50,000. The second mistake is even more surprising. If the conspirators are prepared to fabricate documents, why did they not fabricate a simple series of receipts for the money? Paradoxically, the absence of any receipt gives more rather than less credence to Mr Fielding's case.

As I began by saying in this section of the judgment, the bedrock is the bank statements and the cashbook. Apart from the sum of £9,685 which came from Mr Davies, someone lent another £70,000 to Northstar. The only candidates are Mr Davies, Mr Clayton and Mr Fielding. Apart from Mr Davies' additional loan of £10,000, I have concluded that he was not the lender. I have also concluded that Mr Clayton was not the lender. Mr Hochhauser warns me against adopting the Sherlock Homes fallacy and concluding that, having eliminated Mr Davies and Mr Clayton, I must conclude that the lender was Mr Fielding. He says that, in such a situation, I should fall back on the burden of proof; and hold that Mr Fielding has not discharged it. However, as Lord Hoffmann explained, the concept of the burden of proof deals primarily with lack of knowledge. In this case, I have all the evidence. The burden of proof therefore comes down to the question whether or not I believe Mr Fielding's evidence on this question, corroborated as it is by that of Mr Naden, Mrs Fielding and Ms Owen. Whether oral evidence is or is not credible is not an exceptional question. I think that that is a question which I must decide.

Conclusion

I treat Mr Fielding's account of his cash hoard with caution. I think that it is grossly exaggerated; and I view his description of its derivation with scepticism. It is difficult to avoid the conclusion that Mr Fielding has sources of income which he would rather not reveal. I have also found that Mr Fielding has given untruthful evidence and that he is implicated in the fabrication of documents. I have also found that the Seaquest supply agreement is a fabrication; and had nothing to do with any loan. Again, paradoxically, this helps Mr Fielding's case in some respects, because it blunts the force of Mr Hochhauser's submission that the delay between the date borne by the Seaquest supply agreement and the making of the first cash payment is inexplicable given Northstar's need for money.

I do not find it implausible that Mr Fielding lent Northstar the money that he said he did. A loan in cash was a technique he had used before in gaining a foothold in small companies. The business world in which all the main players operate was, to a large extent, a world of cash payments, many of which are untraceable. If the alleged loan was a fiction invented in November 1998 as part of a dishonest conspiracy, it is inexplicable that the conspirators did not fabricate receipts. Mr Fielding's case is also, to some extent, corroborated by the bank statements and cash book entries, although they do not entirely tally. I find that Mr Fielding did make the first three payments of £10,000 each. What about the last payment of £50,000? The story about what happened to the cash once it arrived at Groby Road is convoluted, to be sure. Ms Patey was plainly not told about a loan of £50,000, otherwise she would have recorded it in her cash book. Mr Hochhauser relied strongly on the discrepancies in Ms Owen's evidence. However, although the details did vary from time to time, the essence of her evidence was unshaken. I find that Mr Fielding did make the final payment of £50,000. Of that sum £20,000 made its way to Mr Davies, and was not, therefore, recorded in the books. It may be that Mr Naden handed it to Mr Clayton (as they say he did); or it may be that Mr Davies himself removed £20,000 from the bag before he threw it to Ms Patey. I conclude therefore that Mr Fielding did lend Northstar £80,000 as he claims.

Is the share transfer agreement genuine?

Introductory

It is an incontestable fact that on 1 April 1998 Mr Clayton was the registered owner of 98 shares in Northstar and 98 shares in Seaquest. The Seaquest shares were registered in his name on 13 January 1998 and the Northstar shares on 1 April 1998. The share certificates were in fact delivered to the trustees in bankruptcy by July 1998. They were delivered by Northstar and Seaquest respectively; not by Mr Clayton.

Ultraframe say that the apparent dealings between Mr Fielding and Mr Clayton have been fabricated in order to overcome these facts. The most important of the documents relating to this is the share transfer agreement bearing the date 5 May 1998.

What share certificates did Mr Clayton have?

If Mr Clayton ever had certificates for shares in Northstar registered in his name, he must have acquired them after 1 April 1998 but returned them to Northstar before 15 June 1998. If he ever had shares in Seaquest registered in his name, he must have acquired them some time after 13 January 1998 and returned them to Seaquest before 15 June 1998. Mr Clayton was, however, adamant that the only share certificate he received while his loan was outstanding was the certificate for the shares in Northstar registered in Mr Naden's name. Although in his first account he says that he regarded the Seaquest shares as a "bonus" and in his second account he said that he did not question his receipt of them, he now says that he was not offered these shares until after his loan had been repaid; and that he forcefully rejected the offer. He accepted that his earlier accounts were wrong. Although his witness statement prepared for the trial said that they had subsequently been posted to him, he resiled from this in his oral evidence. His final position was that he had never had them in his possession.

The terms of the share transfer agreement

For ease of reference I set out the terms of the share transfer agreement again:

"I refer to our recent telephone conversation and would now hope that Jeff Naden has informed you that the shares in the above Companies [i.e. Northstar and Seaquest] actually belong to myself.

I have also asked Jeff to return the loan against which you hold the shares as security. Jeff was in breach of agreements I had with him when he gave you the shares so your real ownership was actually in dispute.

Nevertheless, and in order to tie up loose ends, I would ask you to endorse the agreement below transferring the shares into my name once you have had the return of your £20,000. Also, please forward the share certificates that you have.

ALAN CLAYTON HEREBY AGREES to the transfer of his 98% shareholding in Northstar Systems Limited and 98% shareholding in Seaquest Systems Limited to G.J. FIELDING on the date stated below."

This document was, as I have said, witnessed by Mr Duncan Bennett, who was an employee of Mr Clayton's. In his original witness statement Mr Bennett said that he remembered witnessing Mr Clayton's signature; although he could not remember the date on which he did so. He did, however, say that he remembered that it was a sunny day. He said that a man from Mr Fielding's company (whom he did not recognise) came to Bespoke Windows' offices with the letter. Mr Bennett was called in to witness Mr Clayton's signature. The offices at which the letter was signed were Bespoke Windows' offices in Duckinfield. These were not acquired until the summer of 1998. Mr Bennett says that before Mr Clayton signed the letter he telephoned Mr Fielding and asked what date he should put on the letter. Mr Bennett says that Mr Clayton was told to leave the date blank. In cross-examination he accepted that he could not hear what Mr Fielding said to Mr Clayton on the telephone. But he said that Mr Clayton repeated to him what he had been told by Mr Fielding. This, in itself, seems unlikely. Mr Bennett says that at the time when he witnessed Mr Clayton's signature he was aware that Mr Clayton, Mr Naden and Mr Fielding were involved in a court case about the shareholdings in Northstar and Seaquest; that he knew from Mr Clayton that it was important that Mr Clayton and Mr Fielding had to establish that the transfer of shares had taken place by a particular date; and that they had "missed the deadline". He told me that by the time he came to witness the document the court case had been going on for over a year; and that the discussions he heard about missing the deadline had been some two months before he witnessed the document. Mr Naden and Mr Clayton had spoken freely about it; not only in Mr Bennett's presence but in the presence of two or three others as well. The first Leeds action had begun in November 1998, and Mr Fielding was not joined as a defendant until the second Leeds action begun on 1 December 1998; so this evidence would place the signing of the document some time after November 1999, and the discussions about missing the deadline in the early autumn of 1999. The evidence that Mr Bennett gave was the third time that he had signed a witness statement. His statement made in 2002 contained an account which was much the same as the one he gave to me. However, in his first statement, made in 2000, he said that although he could not remember the date on which he witnessed Mr Clayton's signature, it was in the spring of 1998. Mr Bennett's first statement was prepared by Mr Clayton's solicitor, Mr Greenhalgh. It was not prepared on the basis of instructions that Mr Greenhalgh took directly from Mr Bennett; but on the basis of what he had been told by Mr Clayton. The statement is a short one. It runs to two paragraphs. However, Mr Bennett said that when he came to sign his second statement he did not "take in" his first statement, even though the second statement says that he was shown the first one. But he did accept, in the course of his cross-examination by Mrs Walmisley, that before he signed his first statement he confirmed to Mr Clayton that although he was not sure of the date on which he witnessed Mr Clayton's signature, it was some time in the spring. In re-examination Mr Bennett seemed to me to be very confused about what precisely his evidence was. That confusion was typified by the following exchange:

"Q. Are the contents of this statement true?

A. Yes. Which statement?"

Mr Fielding and Mr Clayton say that Mr Bennett has confused two events. They say that Mr Bennett did indeed witness Mr Clayton's signature on the letter on about 5 May 1998. However, they accept that the stock transfer forms, which would have been needed to give effect to the agreement for the share transfers were not in fact completed until November 1998 and back-dated to 5 May. Mr Fielding says that he sent the stock transfer forms over to Bespoke Windows by driver. Mr Clayton telephoned him and asked what the problem was; and Mr Fielding replied that the form was just ratifying what he had agreed in May. Mr Fielding says that he heard him talking to someone and, when he asked who it was, Mr Clayton said that it was "only Duncan". However, since Mr Fielding did not know who "Duncan" was, this answer cannot, without more, have provided much reassurance. Mr Clayton also says that he was at work in November 1998 when a messenger came in with some documents that he wanted Mr Clayton to sign. He telephoned Mr Fielding to find out what it was about; and Mr Fielding said that it was to effect the transaction that had been carried out in May. Mr Clayton then signed the documents and gave them back to the courier.

I did not find Mr Bennett a reliable witness; and I cannot attribute any significant weight to his evidence in establishing the date on which the share sale agreement was signed.

The text of the letter recording the agreement to transfer the shares contains a reference to Mr Clayton's loan; and to Mr Clayton holding the shares as security. If, as I have held, Mr Clayton did not make a loan, it must follow that the letter is not genuine, unless Mr Fielding was falsely told by both Mr Naden and Mr Clayton that a loan had been made. There are a number of features of the letter which are puzzling:

i) The letter refers both to Northstar and Seaquest. Mr Clayton's evidence was that at the date of the letter he had not heard of Seaquest; and he did not recall Mr Fielding having mentioned Seaquest during the course of their telephone conversation on Good Friday;

ii) The letter referred to the prospective repayment of Mr Clayton's loan. Mr Naden's evidence was that the loan had been repaid on about 12 March 1998. Mr Clayton was also clear in his oral evidence (despite earlier inconsistent statements) that by 14 April his loan had been repaid. It therefore follows that he was not, in any event, entitled to retain any security for a loan;

iii) Mr Clayton never had any share certificates in his possession relating to Seaquest; and says that he did not even see the certificate dated 13 January 1998 until after the date of this letter. How then, did he come to sign a letter promising to transfer "his shareholding" in Seaquest?

iv) Similarly, although Mr Clayton says that he was given a share certificate relating to Northstar, the shares were registered in Mr Naden's name. If any transfer of those shares needed to take place, it would be Mr Naden and not Mr Clayton who would have to sign the necessary share transfer forms. How then, did he come to sign a letter promising to transfer "his" shareholding in Northstar?

The picture of himself that Mr Clayton painted in the course of his oral evidence was of someone who pays very little attention to the contents of letters; who does nothing in response to letters unless pressed to do so; but who, when asked to sign something, just signs it. On the other hand, Mr Clayton also said that although other people typed letters for him, the contents of letters to which he subscribed his name were his own words; and he did not accept that he did as he was told by Mr Davies. Even if I take Mr Clayton's self-depiction at face value, it does not satisfactorily explain these anomalies.

It is also an important feature of the letter that Mr Fielding asserts that when Mr Naden gave the shares to Mr Clayton he "was in breach of agreement I had with him". It is not entirely clear from the text of the letter whether the agreement referred to is one (or both) of the supply agreements, each of which contained a right of pre-emption; or the oral agreement to buy the shares which Mr Fielding said he made with Mr Naden in January 1998. However, since I have found that neither supply agreement was genuine; and the agreement with Mr Naden was not genuine either, this does not matter. But the reference in the letter to the agreement (whatever it was) is, itself, a strong indication that the share sale agreement is not genuine either.

Subsequent correspondence between Mr Fielding and Mr Clayton

The letter of 14 April to Mr Clayton was followed by two chasing letters, each of which Ultraframe say is fabricated. Each of those letters refers to the preceding one. If therefore, the letter of 14 April is fabricated, that is a strong pointer to the conclusion that the letter of 8 May is also fabricated. And if the letter of 8 May is fabricated that, in turn, is a strong pointer to the conclusion that the letter of 20 May is also fabricated. It is, however, fair to say, as Mr Snowden submitted, that if the share transfer agreement was fabricated, the fabrication of the subsequent correspondence is, on the face of it, an unnecessary layer of complication.

However, the letter of 1 June may be different. It does not refer to previous correspondence; does not refer to any loan by Mr Clayton; and does not give any context in which Mr Clayton might have held the share certificate which he acknowledges he has lost. If, therefore, there were some reason, independent of the allegation that Mr Clayton had lent money to Northstar, which might explain his possession of the share certificates, the letter of 1 June may well be genuine. The difficulty with concluding that the letter of 1 June is genuine is Mr Clayton's evidence that he never did have in his possession any share certificates in his own name; and never thought that he had lost any such certificate. He also said that he had not told Mr Fielding that he had lost the share certificates. As he put it: "The only certificate I thought I had lost was the single certificate in Jeff Naden's name." So far as the letter of 1 June was concerned, Mr Clayton said: "I was asked to sign it so I signed it." He was unable to say when he signed it, except by reference to the date it bore.

In addition, on 9 July 1998 Mr Clayton replied to a letter from the trustees' solicitors asking for documentation relating to ownership of the shares. He said that he had no documentation; and did not mention or produce any of the correspondence between him and Mr Fielding. The explanation that Mr Clayton gave was that he did not understand that letters were included in the expression "documentation". However, Mr Clayton accepted that, with hindsight, he ought to have disclosed the letters. Moreover, Mr Clayton also accepted that he had had help in composing his reply, so that if there was a misunderstanding about the scope of the meaning of "documentation", it was not his alone. I regard the failure to disclose that correspondence as a pointer towards the conclusion that it did not exist in July 1998.

The subsequent search for an investor

On the face of the documents, by 5 May 1998 Mr Fielding had secured the agreement of Mr Clayton to the transfer of his shares in Northstar and Seaquest. As from that date, therefore, he was the beneficial owner of both companies. If that was the reality, one would have expected that when Northstar subsequently ran into financial trouble, Mr Fielding would have been the first port of call for financial support.

However:

i) In a draft letter dated 6 July 1998 to be signed by Mr Birkett (and prepared by Mr Roche) shortly after the share certificates had been delivered up to the trustees, it was said that "the beneficial ownership is as per the share certificates already lodged with yourselves" (i.e. in Mr Birkett and Mr Clayton). It seems that this draft was sent to Mr Hacking for him to check it; but that it was not sent to the trustees. Nevertheless it is an indication of the position as perceived at the time;

ii) Mr Roche's "Orpheos Report" was produced in August 1998 for the purpose of finding an investor for Northstar; and his only approaches were to banks and to Mr Fieldsend;

iii) On 2 October 1998 Mr Hacking told the trustees that:

"Mr Birkett's understanding is that Mr Alan Clayton is the principal proprietor of the shares at the present time. (He holds we believe some 98% of the issued share capital of Northstar and Seaquest)."

iv) On 16 October 1998 Mr Roche, in his fax to Southern Cooper, referred to the need to make a presentation "to a new investor"; and on the same day told Mr Hacking that "we have an investor who is willing to support the company by purchasing the shares in Seaquest from Mr Clayton" (emphasis added). If Mr Fielding had already acquired the shares registered in Mr Clayton's name the latter comment is inexplicable;

v) On 18 October 1998 Mr Fielding took out a bank loan, one purpose of which was to acquire a majority shareholding in a competitor of Dearward Ltd. On the face of it, this seems to refer to Northstar and/or Seaquest;

vi) On 21 October 1998 Mr Roche told Southern Cooper that Northstar would "have to sell some of its shares" to meet demands.

All these statements and events are inconsistent with a pre-existing agreement between Mr Fielding and Mr Clayton. They all point to Mr Fielding being the new investor.

Mr Fielding's silence

There are, in addition, a number of occasions on which one would have expected Mr Fielding's ownership of the shares in Northstar and Seaquest to have been revealed, if it then existed. Despite the fact that the trustees were asking questions about the beneficial ownership of shares from July 1998 onwards, no one informed them that Mr Fielding claimed ownership until late November.

More remarkable is Mr Fielding's account of the meeting with Northstar on 3 September 1998. According to Mr Fielding, at the meeting:

"Eddie Birkett said that Hammonds, Ultraframe's Solicitors, were trying to prove that Howard Davies owned the shares in Northstar and Seaquest. I confirmed that Dearward had corresponded with Hammonds on the matter but it was generally agreed that it was not serious, because they were carrying out a "fishing expedition" without any reliable information."

If Mr Fielding believed that he already owned the shares as a result of his agreement with Mr Naden back in January 1998, or as a result of his agreement with Mr Clayton in May 1998, the fish would already have been caught. Yet he did not say so.

In addition, when Mr Hindley was first asked to give an account of what he had done, his first draft said in relation to November 1998: "Mr Fielding decided to involve himself with the companies." This sentence was deleted from the draft at Mr Fielding's request.

Conclusion

In my judgment there are too many anomalies and inconsistencies for the share transfer agreement to be genuine. I find that it was a later fabrication.

What other documents (if any) were fabricated?

The early correspondence

It will be recalled that Mr Birkett's evidence was that the first batch of fabricated documents was made by Mr Sheffield in response to an instruction by Mr Davies to remove all references to himself from the Kesterwood correspondence. However, it is plain that this was not done. Mr Fielding's note of his meeting with Mr Cooper on 19 February 1997; his note of his meeting with Northstar on 9 March 1997 and his letter to Mr Naden dated 20 March 1997 all contain references to Mr Davies. Yet these are documents that Ultraframe (partly on the basis of Mr Birkett's evidence) say have been fabricated. If Mr Birkett's evidence is true, then far from having expunged references to Mr Davies, the conspirators fabricated documents which contained bogus references to Mr Davies; flatly contrary to the latter's instructions.

Mr Cooper's memorandum of 13 February 1997

It is not disputed that Mr Cooper signed this memo. Accordingly, Ultraframe say that Mr Cooper was involved in the dishonest fabrication of the document.

Ultraframe say that the memorandum of 13 February 1997, which purports to record Mr Cooper's first meeting is a later fabrication, signed by Mr Cooper as part of the conspiracy. The allegation rests primarily on clues in the text of the memorandum which can be summarised as follows:

i) The memorandum refers to "Northstar". However, Mr Cooper was not sure when he became aware that the name of the company was "Northstar", as opposed to "Quickfit";

ii) The memorandum says that Northstar is "a new company". However, Northstar was not a new company in February 1997. It had been trading since May 1996;

iii) The memorandum says that Northstar wanted to "launch a new system". However, the Quickfit system was an existing system in February 1997, and did not need to be launched;

iv) The memo is typed rather than handwritten;

v) The memo is printed on headed Kesterwood's paper.

It must, I think, be remembered that Mr Cooper's memorandum was purporting to record the upshot of his meeting with Mr Davies. It is common ground that there was such a meeting in February 1997. Moreover, it is common ground that Mr Davies is unreliable in what he says. In my judgment inaccuracies in the information recorded in the memorandum are just as likely to have been a faithful record of what Mr Davies told Mr Cooper, as inventions by Mr Cooper (or, for that matter, any of the other conspirators). In fact Mr Davies told his bank in April and June 1997 that he was developing a new system. He may well have said the same thing to Mr Cooper. In addition, if the conspirators had gone to the trouble of fabricating this relatively unimportant memorandum, they would surely have got their facts right. One might also have expected that if the memorandum had been fabricated as part of the conspiracy, Mr Naden's name (at least as one of the contact points) would have been mentioned. Finally, if (as Ultraframe allege) part of the motivation behind the conspiracy was to write Mr Davies out of history, why fabricate a record of a meeting with him? I do not place weight on the fact that the memo is typed, or that it is printed on headed paper. I am not prepared to find that this memorandum was fabricated.

Mr Fielding's note of 19 February 1997

This note purports to record Mr Fielding's meeting with Mr Cooper following on from Mr Cooper's memorandum of 13 February. Many of the points that Ultraframe make about the authenticity of this document are the same as they make about the authenticity of Mr Cooper's memorandum of 13 February. In addition, however, they say that Mr Fielding's record of Northstar's projected requirement of 3 to 6 dedicated extrusion lines does not sit with Mr Fielding's record of the meeting on 7 March 1997. Part of his note of that meeting reads:

"They need, depending on time of year between 3 and 6 lines working 7 days a week just for them!"

Ultraframe say that the exclamation mark is an indication that Mr Fielding was hearing this requirement for the first time; and could not therefore have recorded this same requirement in the note of 19 February. This is a very slender basis for alleging that the note of 19 February 1997 is a fabrication. Moreover, the note of 7 March records, which the note of 19 February does not, that the 3 to 6 lines would be working seven days a week. That alone might have justified the exclamation mark. I do not find it surprising that Mr Naden is referred to as the managing director. That is, no doubt, how he was introduced, since Mr Davies required someone other than him to undertake that role (even if only nominally). It is entirely plausible that although Mr Naden was introduced as the managing director, he played little active role in the meeting. Ultraframe also say that Mr Fielding's note records an apparent willingness on the part of Northstar to enter into a sole supply agreement, in return for investment in tooling. That, they say, was not mentioned by Mr Davies; and points towards Mr Fielding's note having been fabricated. But I do not have any reason to doubt that the possibility of a supply agreement was discussed. Mr Davies himself had raised the possibility of tying up "suppliers for confirmation of supply" with Mr Hacking back in the autumn of 1996, when he had been advised that it was something to think about for the future; and the same question resurfaced in 1997. The fact that the possibility of such an agreement was discussed does not mean that it was completed. I have concluded that it was not. But that is consistent with discussions having taken place. I am not prepared to find that this note was fabricated.

The letter of 20 March 1997

The letter purports to have been written on Mr Fielding's headed paper. Mr Birkett said in evidence that he recalled having been sent a letter in similar terms on Kesterwood headed paper in March 1998. That letter had been authentic. He said that the letterhead had been changed in an attempt to make it appear that Mr Fielding, personally, had had an earlier involvement than was in fact the case. The letter begins by referring to a meeting that took place on 7 March 1998. Yet the letter itself is dated 20 March 1997. Ultraframe say that "1998" is not simply a typographical error made in 1997. It is a clue to the fact that the letter was not written until 1998. The flaw in the quotation itself is that it does not refer to any design drawings or sample numbers. On the face of it, it appears to have been prepared without reference to any drawings, since even the introductory rubric does not refer to Mr Fielding having been given any drawings to take away at the meeting of 7 March. Nor have any drawings been disclosed. The obvious inference is that no such drawings exist. But it is impossible for an extruder to estimate prices without a detailed design of the extrusion. Mr Birkett also said that the prices quoted were prices prevailing in March 1998 and not in March 1997. Moreover, the quotation appears to place the responsibility of paying for dies onto Northstar which is:

i) Contrary to the project as explained to Mr Fielding on 19 February 1997, when it was said that the extrusion company would bear the cost of tooling; and

ii) Contrary to the supply agreement itself.

iii) In addition the closing paragraph of the letter refers to Mr Tom Clarke as a possible contact. Mr Birkett said that this reference to Mr Clarke had not been part of the original authentic letter that he had received in March 1998 because, by then, Mr Clarke had died.

A copy of this letter was contained in Mr Birkett's plastic wallet. However, that copy did not bear the annotations which Mr Fielding said he made after his conversation with Mr Clarke on 26 March. If, therefore, the letter was fabricated, there must have been a double fabrication: one unannotated version for Northstar's files; and one annotated for Kesterwood's. This attributes a high degree of sophistication to the conspirators. So also does the reference to Mr Clarke, who had died by the time of the alleged conspiracy. To add his name to a fabricated letter would have been an unnecessary complication. In addition, as I have noted the letter itself refers to Howard Davies, which is contrary to the instructions that Mr Birkett says were given. Next, a fair reading of the letter does not, to my mind, suggest that it was envisaged that Kesterwood (or Mr Fielding) would pay the die costs. On the contrary, the natural reading of the letter is that Northstar will pay the die costs, in accordance with the usual trade custom. If the letter had been fabricated to give colour to the Northstar supply agreement, surely it would have made it clear that Kesterwood would pay for the tools. Lastly, in his affidavit of August 1999 the only allegation that Mr Birkett made about the authenticity of this letter was that the letterhead had been changed from a Kesterwood letterhead to Mr Fielding's personal letterhead. He did not question the text of the letter itself. In his witness statement of May 2002 Mr Birkett said that he had no direct knowledge that this letter had been forged. However, in his oral evidence Mr Birkett said that a version of the letter had been sent to him in March 1998, which was well before the inception of the alleged conspiracy. Although he suggested (for the first time in his oral evidence) that the text of the version sent to him in March 1998 might have differed from an earlier version, no earlier version of the letter has been found. As his evidence went on the list of changes to the text grew and grew. I am not prepared to accept Mr Birkett's evidence on this point. It is true that the letter refers to a meeting on 7 March 1998 (as opposed to 7 March 1997); but that is plainly a mistake, whether the letter was fabricated or not.

On the other hand, the letter is addressed to Mr Naden at Northstar Systems Ltd. I do not find it surprising that the letter was addressed to Mr Naden. Although Mr Davies was the man in charge of Northstar, he knew that for appearances' sake Mr Naden had to be the front man, at least in financial matters. But the name "Northstar" did not feature prominently in the way that the business was carried on. For example the telephones were answered "Quickfit"; and the fax cover sheet was headed "Quickfit Conservatory Systems", although the small print at the bottom said that it was a division of Northstar Systems Ltd. But the first written communication from Northstar to Kesterwood is the authority to collect tools from Axis, which post-dates the letter of 20 March. Even if the preceding internal memo and meeting notes are authentic, they refer only to "Northstar" and not "Northstar Systems". Mr Cooper said that he had not seen the letter (either with or without Mr Fielding's manuscript annotations) before he made his witness statement in the summer of 2004. However, Mr Fielding was convinced that he had.

Despite the fact of the use of Northstar's full corporate name of "Northstar Systems Ltd", I am not prepared to find that this letter has been fabricated. In my judgment it points towards the conclusion that what was under discussion was a normal relationship between extruder and customer under which the customer would pay for and own the tooling. The possibility of a supply agreement may well have been discussed at an earlier meeting; but that idea did not come to fruition.

Mr Fielding's annotations

These annotations are unspecific about what "project" was to be moved forward. They are consistent with an ordinary relationship between customer and supplier. I place no weight on Mr Cooper's failure to recall, many years later, having seen these annotations. But whether he saw them at the time or not, I am not prepared to find that these annotations have been fabricated.

The letter of 25 April 1997

This is the letter in which Mr Fielding told Mr Naden that he would be organising a contract between himself and Northstar. The reason he gave was that he would be "financing deposits and personal guarantees on the new machinery etc." Mr Fielding agreed (as is the case) that the letter does not explicitly refer to the cost of new tooling; and that it was no concern of Northstar how the cost of new machinery was to be financed. However, he said that he intended to refer to the cost of new tooling by the use of the abbreviation "etc." I did not find this plausible, especially since the letter of 25 April referred back to that of 20 March, in which quotations for the cost of new tooling had been given to Northstar. The letter of 25 April was written a little less than two months before the date borne by the Northstar supply agreement. The timing does not make it an obvious precursor of that agreement. I have already found that the Northstar supply agreement was a later fabrication. Does it follow that the letter of 25 April was also fabricated? I do not think that it does. It is consistent with there having been discussions about a supply agreement that never came to fruition. Moreover, if it were a fabrication designed to support the Northstar supply agreement, the reference to tooling would have been explicit and not concealed within the gnomic "etc". I am not prepared to find that this letter was fabricated.

The meeting note of 5 September 1997

Mr Fielding accepts that the date that this note originally bore (Friday 4 September 1997) has been rubbed out and replaced. 4 September was not a Friday. He also accepts that his earlier accounts of this meeting, which said that Mr Birkett "attended" it, were misleading. I did not find his account of how Mr Birkett's name came to be added to the list of those present to have been credible. I find that Mr Birkett did not attend a meeting on 5 September; and is unlikely to have popped in to ask a question. To that extent, therefore, I find that the note has been fabricated. However, I find that:

i) The meeting did take place on Friday 5 September 1997;

ii) Nothing recorded in the note of the meeting indicates that Mr Fielding was to pay for tooling;

iii) There was no reference to the Northstar supply agreement.

This note is, therefore, consistent with a customer simply making sure that his supplier will be in a position to supply on the usual trade terms. I reject Mr Birkett's evidence, save as to his non-attendance. I am not prepared to find that this note has been fabricated, except for the insertion of Mr Birkett's name.

Consent to Mr Birkett's shareholding

Mr Fielding says that he wrote to Mr Naden on 7 October 1997 confirming his agreement to "you giving 2% of the Company Shares to Eddie Birkett in lieu of him taking on the increased responsibilities associated with being a Director of the Company." If, as I have concluded, the Northstar supply agreement was bogus, Mr Fielding did not have, in October 1997, any right of first refusal over Mr Naden's shares. Consequently, there was no occasion for him to have given his consent to Mr Birkett having a shareholding in Northstar. It must, therefore, follow, that the letter of 7 October 1997 was also bogus.

Mr Hochhauser relied on two other pieces of evidence to point to the same conclusion. First there is Mr Birkett's evidence. It will be recalled that the original of the letter of 7 October was in Mr Birkett's plastic wallet. I have already said that I cannot rely on the fact that documents were contained in Mr Birkett's plastic wallet. Second there is the misuse of the phrase "in lieu of". The ordinary meaning of the phrase is "instead of". The letter does not make sense if the conventional meaning of "in lieu of" is attributed to that phrase. The author of the letter clearly uses the phrase to mean "in exchange for". Mr Fielding referred to the letter of 7 October in an earlier witness statement as having consented to a transfer of shares to Mr Birkett "as a reward for" having taken on increased responsibilities. That is what one would expect such a letter to say. Mr Fielding confirmed in his oral evidence that he understood the conventional meaning of the phrase "in lieu of". There is no other example in the papers of Mr Fielding having wrongly used that phrase. But there are two examples of Mr Roche having misused the phrase in attributing to it the meaning that it must bear in the letter of 7 October. The first is in the minute of the meeting of 16 September in which it is recorded that a debenture was being raised "in lieu" of monies owed by Northstar to Kesterwood. The second is the entry in Mr Roche's report recording that Mr Naden agreed to sell his shares to Mr Fielding "in lieu of" a capital injection of £80,000. Mr Roche said in his oral evidence that his understanding of the phrase "in lieu of" meant "in exchange for". But Mr Roche did not join Northstar until March 1998. Therefore Mr Hochhauser submitted that the inference I should draw is that Mr Roche drafted the letter dated 7 October 1997 some time after March 1998. Although I would not usually place much reliance on forensic linguistics in the absence of expert evidence, I consider that this striking use of language does give some slight corroborative support to the conclusion about the authenticity of the letter that I would have reached anyway.

I find that this letter is a later fabrication.

The letter of 15 December 1997

Mr Birkett's suggestion was that the letter was fabricated in order to suggest that Mr Fielding had a greater involvement with Northstar than was in fact the case at the end of 1997. However, he agreed that Mr Sheffield had sent him a draft of the letter; and that all he had asked for was that the references to Mr Davies be removed. That was done. The draft (which Mr Birkett accepted was contemporaneous with the date it bore) contained exactly the same references to Mr Fielding as the version that Mr Birkett alleged was the forgery. In the light of that Mr Birkett agreed that the forgery added nothing to the existing genuine documents; but he said that "it added paperwork to the already evolving story". Moreover, this letter bore the signature of Ms Atherton, although it was written in the name of Mr Sheffield. This prompts the question: why? If the letter had been fabricated, surely it would have been signed by the person in whose name it had been written. And why involve yet another person (Ms Atherton) in the conspiracy? It was, in fact, not suggested to Ms Atherton that she was engaged in any dishonest conduct. I find that this letter was altered, but that it was altered to replace references to Mr Davies with references to Mr Naden. Apart from that, it is a genuine letter. The reason why Mr Davies' name was removed from the original draft was because he had been disqualified as a director, and could not be seen to be involved in the financial affairs of Northstar.

The letter of 22 December 1997

The impugned letter of 22 December was the one of two bearing that date. It was the second, more conciliatory, letter to Northstar dealing with the return of stock; and the one in which it was said that "Gary" had requested a meeting. In his affidavit of August 1999 Mr Birkett said that this was a genuine letter. In his witness statement of May 2002 he did not suggest that it was fabricated. It was not among the documents in his plastic wallet, where one would have expected it to be if it was a fabricated letter addressed to Northstar and manufactured as part of the conspiracy in November 1998. However, the original of the first of the two letters dated 22 December (which Mr Birkett accepts as genuine) was in his plastic wallet. Mr Birkett was unable to explain why a conspiracy to forge documents would have resulted in the genuine letter being placed among the forgeries, while the forged letter was left out. I am not prepared to find that this letter was fabricated.

Mr Fielding's letter to Mr Naden of 14 April 1998

This letter was the letter in which Mr Fielding complained that shares in Northstar and Seaquest had been passed to Mr Clayton as security for a loan, in breach of the Northstar supply agreement and the Seaquest supply agreement. If, as I have found, neither the Northstar supply agreement nor the Seaquest supply agreement are genuine documents, it must follow that this letter is not a genuine document either.

In addition, as I have said, Mr Clayton's evidence was that he never did have a share certificate relating to shares in Seaquest; and the only share certificate he had relating to shares in Northstar was one in Mr Naden's name. That evidence does not sit with the terms of Mr Fielding's letter.

I conclude that the letter of 14 April 1998 is a fabricated document.

The letters of 23 October 1998

Mr Birkett accepted that these letters were genuine and were signed on the date they bore. There is no other evidence to contradict him. I find that these letters were genuine.

Was the conspiracy hatched at the pub meetings?

The Nag's Head, Altrincham

There is no doubt that this gathering did take place. Whether it can be called a meeting is open to more doubt. There is also no doubt that Mr Davies was there. I am prepared to accept that Mr Davies said that the future of Northstar lay with Mr Fielding. However, as both sides invited me to do, I accept Mr Read's account of the meeting; and I find that Mr Davies did not instruct those present to transfer shares to Mr Fielding. It was, however, understood that Mr Fielding would have more control over both companies. In its essentials, Ms Owen's account of the meeting was the same as Mr Read's; and I accept it too.

The Riverhead Brewery Tap, Marsden

Leaving aside the denials of many of those alleged to have been present at the Marsden meeting, the major problem with Mr Birkett's account is the timing. If, as he says (and as Mr Ivison says too) the purpose of the meeting was to plan the transfer of shares to Mr Fielding without breaching the orders obtained by the trustees, the meeting must have taken place after 13 November. Yet on 12 November, before the order had been obtained, the transfer of shares to Mr Fielding had already been mentioned to Mr Lucas and to counsel. These two pieces of evidence simply cannot be reconciled. There is no doubt that Mr Lucas' note of 12 November is an authentic document. It means that Mr Birkett's account cannot be true. Nor can Mr Ivison's.

I add also that:

i) Mr Birkett did not mention this apparently crucial meeting in his earlier affidavits;

ii) It is, in my judgment, inherently implausible that a conspiracy of the type that Mr Birkett alleges would have been discussed in a public place;

iii) Mr Ivison's evidence that he overheard a private conversation between Mr Fielding and Mr Clayton is implausible.

In his final submissions Mr Snowden posed a number of questions about this meeting:

"Why, if there was to be merely a private conversation between Mr Clayton and Mr Fielding, were others asked to attend? If this was a general discussion, why would that conversation be held in front of others, unless all concerned could be certain over the "commitment" of the others present? Why would Mr Fielding have such an alleged conversation with someone who, to Mr Ivison's eyes, he had only just met? Why have it in the presence of others who were not intended to be part of the "plan" and who would be able to overhear what was intended?"

In my judgment there are no satisfactory answers to these questions. I find that the Marsden meeting did not take place.

Were the debentures genuine transactions?

Mr Ivison

Mr Ivison (who was a director of Seaquest) was not personally involved in the negotiations leading up to the grant of the debentures. However, he raised no objection to the grant of either debenture. He was enthusiastic about Mr Fielding's financial support being given to the companies at that time, as it was common knowledge that without funding the companies would collapse. Mr Roche said that Mr Ivison had been invited to the meetings during the autumn of 1998, but had chosen not to attend

Mr Birkett

Mr Birkett was a director of both Northstar and Seaquest. In his witness statement he said that he did not read the Seaquest debenture before signing it. It was presented to him by Mr Fielding who told him to sign it; which he did. However, Mr Birkett was clear in his oral evidence that the execution of the Northstar debenture was not part of any conspiracy. It was a necessary step for Northstar to take if it wanted to continue to receive supplies of aluminium from Alumax, via Dearward. He saw advantages in the Seaquest debenture too. He agreed that the benefits to Northstar and Seaquest respectively were that Northstar would have its debt eradicated; and Seaquest would have its liability to Northstar reduced. It was also in Seaquest's interest that Northstar should continue to obtain supplies of aluminium from Alumax. Moreover, unless Northstar's debt to Kesterwood Extrusions was reduced, continuing supplies of uPVC extrusions were also in jeopardy. Northstar also needed money (so it was thought at the time) to discharge its costs liability to Ultraframe; and that money would only come from Mr Fielding through Seaquest. Mr Birkett saw nothing wrong in the transactions, which he viewed as commercially sensible. He said that the execution of the debentures "had no ulterior purpose".

Mr Naden

Mr Naden was also a director of both Northstar and Seaquest. He said that Mr Fielding's offer of a cash injection secured by the Seaquest debenture allowed Seaquest to pay its debt to Northstar; Northstar to clear its debt to Kesterwood and thus to guarantee the continued supply of uPVC to Northstar. Although he did not understand the technicalities of a debenture, Mr Birkett and Mr Roche were keen on the idea and he saw no reason to disagree. From his perspective, both Northstar and Seaquest would benefit from the arrangements. So far as the Northstar debenture was concerned, Mr Naden thought that it appeared to make good business sense, because it would resolve the aluminium supply problem with Alumax.

Mr Roche

Mr Roche thought that the debenture was a good thing for Northstar to try to secure its future; and was good for its directors, as they would not have to put their houses on the line. He said that in his view the creation of the debenture was "honourable and genuine". The prime mover behind the debenture was "the dire economic position that Northstar found itself in". Mr Roche was not a director of either company, although he did offer commercial advice to both.

Mr Fielding

Mr Fielding said that the Northstar debenture was not put in place to secure the loan of £80,000 which he had already made to Northstar. The trigger for the debenture was the continuing support that he gave Northstar over the supply of aluminium from Alumax. The fact that the debenture attached retrospectively to the £80,000 loan was a fortuitous coincidence.

Conclusion on the Northstar debenture

Mr Birkett was clear in his evidence that the Northstar debenture was not part of any grand conspiracy. Since he was the principal witness called by Ultraframe to prove the existence of the conspiracy, I regard this evidence as significant. He agreed that Mr Fielding's intervention in the supply chain for aluminium was necessary in order for Northstar to continue to receive supplies. I have already found that Alumax released a load of aluminium on 11 November 1998. That was the trigger for the grant of the Northstar debenture. Mr Birkett, Mr Ivison and Mr Naden all thought that the debentures were in the interests of Northstar. Although Mr Naden's evidence was not tested by cross-examination, it coincides with Mr Birkett's evidence on this point; and I accept it. I find that the Northstar debenture was a genuine transaction.

The Seaquest debenture

Mr Birkett was also clear in his evidence that the Seaquest debenture was not part of any conspiracy relating to the shares. He said, however, that the idea of the debenture was to give Mr Fielding "extra protection". The question of a debenture had been raised in September 1998. Ultraframe say, nevertheless, that the decision to grant the debenture had been taken before any debt came into existence to support it, and that what followed was an attempt to find a spurious justification for its grant. They point particularly to the exchange of correspondence relating to the alleged debt for tooling and trialling which was referred to by Mr Sheffield in his letter of 7 September and by Mr Williams in his of 2 October. In the light of my findings about tooling, I agree that this alleged debt did not exist. This plainly casts doubt on the genuineness of the Seaquest debenture, even though it was not, in the end, the avowed reason for its grant.

Nevertheless, the fact remains that Northstar was heavily in debt to Kesterwood Extrusions. I accept that this was a cause of genuine concern. The avowed justification for the grant of the debenture was the "netting off" of the various inter-company debts. The benefits to Northstar were twofold. First, it paid off Kesterwood Extrusions at a time when it had no cash. Second, it was thus enabled to resume the purchase of uPVC extrusions which, otherwise, Kesterwood Extrusions would have ceased to supply. The benefits to Seaquest were also twofold. First, it reduced its indebtedness to Northstar (although it replaced that indebtedness with a similar debt to Mr Fielding). Second, since Northstar was a vital part of its own business (being the manufacturing arm of the accessories part of the system), it was enabled to continue to trade. Third, if Kesterwood Extrusions had ceased to supply, the "direct from the mill scheme" would have broken down. Mr Birkett agreed that he saw these benefits to both companies. He also agreed that, from Mr Fielding's perspective, it made sense to lend the money to Seaquest, as the company with the intellectual property rights, rather than to Northstar.

There is some difficulty in concluding that the "netting off" arrangement was finally agreed at the meeting on 16 October. The difficulty arises principally out of Mr Hindley's very limited involvement by that date. Yet Mr Birkett agreed that the "netting off" arrangement was indeed agreed at the meeting on 16 October. It is also right to say that the idea of set off as between the various companies involved had been under discussion since the beginning of September 1998, well before Mr Hindley became involved. So even if Mr Hindley was not the originator of the idea, there is no reason to doubt that this was an idea that was in the air.

Mr Hochhauser mounted a full-scale attack on the authenticity of Mr Fielding's record of the meeting of 16 October, despite Mr Birkett's agreement that the record was accurate. The main points of the attack were as follows:

i) The timing of Mr Hindley's involvement which I have already mentioned;

ii) Mr Roche's fax to Southern Cooper of 16 October, which indicated that the consideration for the debenture was to be the costs of trialling and development rather than any "netting off";

iii) The failure of Mr Fielding's letter of 23 October (which set out his "proposal" for the "netting off") to refer to any previous agreement, or, indeed, to any debenture;

iv) Mr Hindley's evidence that, in his mind, the "netting off" was not linked to the grant of a debenture.

These are powerful points. However, in the light of Mr Birkett's acceptance that Mr Fielding's note of the meeting of 16 October was an accurate record of what was discussed, I am not prepared to find that it is a later fabrication.

Mr Birkett had a shaky grasp of the mechanics of the "netting off" arrangement, even though he thought that it had commercial benefits all round. Mr Naden said in his witness statement:

"By mid-October or thereabouts Gary had agreed to loan Seaquest £70,000 that would allow it to pay Northstar what was then believed was due under the two assignments. I wasn't aware of the figure of £350,000 at that time. These new funds would allow Northstar to clear its outstanding debts to Kesterwood thereby guaranteeing the continued supply of UPVC to Northstar. In return, Gary wanted security by way of a debenture over Seaquest's assets and Eddie and I agreed. Again I didn't understand the technicalities of a debenture but I had a general idea. Eddie was very keen, Howard Roche was also in favour and I saw no reason not to agree."

Mr Birkett was not alone in his shaky grasp of the "netting off" arrangement. In fact, for technical reasons it did not work. But that, in my judgment, was a genuine error on the part of those involved.

Mr Ivison had not been consulted about the debenture in advance but, as I have said, he was enthusiastic about Mr Fielding's financial support.

Conclusion on the Seaquest debenture

In my judgment the directors of Seaquest thought that the grant of the debenture to Mr Fielding would secure financial support for Seaquest. Mr Naden's appreciation coincides with Mr Read's evidence about the Altrincham pub meeting at which he says he understood that Mr Fielding would release funds to the two companies. These funds included the amount necessary to discharge Northstar's anticipated liability under the order for costs made in Ultraframe's favour, which Mr Fielding was not willing to lend directly to Northstar; but was prepared to lend to Seaquest, which he regarded as being "the best horse in the race".

I add also that I am satisfied that Mr Fielding would not have subsequently lent money to Seaquest (and it is common ground that he did) unless he had thought that the Seaquest debenture was valid.

I conclude that the grant of the Seaquest debenture was a genuine transaction, albeit based on a misapprehension of the effect of the "netting off" arrangement.

Why did Mr Fielding pay £100,000 to Mr Davies?

Mr Fielding's payment of £30,000 to Mr Davies

As I have said, Mr Fielding said that he paid Mr Davies £30,000 in cash in May 1998, just before Mr Davies' departure for the USA. His explanation was that Mr Davies was claiming that Northstar owed him money; and that Mr Fielding paid up to get Mr Davies off his back. On the face of it, even on the basis of his own case Mr Fielding had no legal liability to pay Mr Davies any amount that Northstar might have owed him. Nor did he investigate the truth of Mr Davies' claim; or ask to see any paperwork. He explained that he paid Mr Davies the £30,000 "to get him off my back". But it seems that the only occasions on which Mr Davies mentioned being owed money by Northstar were the football match on 2 May and his telephone call just before the meeting at TGI Friday's. To my mind, this is hardly being "on Mr Fielding's back". Mr Fielding did not mention this encounter or transaction in his earlier affidavit or witness statements. He explained that, although he did not know in May 1998 that Mr Davies had been declared bankrupt, he had found that out by the time he came to swear his first affidavit. He thought that there might be adverse consequences arising out of having given money to a bankrupt. So he omitted any mention of his financial dealings with Mr Davies from the chronology he prepared for his legal team; and, as a result, he swore a draft affidavit which asserted that he had not had any dealings with Mr Davies.

I did not find Mr Fielding's explanation for the payment credible. There was no reason for him to have discharged any part of Northstar's debt to Mr Davies; Mr Davies was not, at least at that stage, on his back; and, moreover, Mr Fielding knew that Mr Davies was on the point of departing for the USA. If Mr Fielding's explanation of the reason for the payment is untrue, as in my judgment it is: what was the real reason for the payment?

The meeting between Mr Fielding and Mr Davies took place in an interlude. Mr Davies had been declared bankrupt in December 1997. But Mr Fielding says that he was unaware of that in May 1998. During 1997 Mr Davies was in control of Northstar. Until April 1998 Mr Davies continued to play a full role in Northstar's business, as is demonstrated by his ordering of the laminating machines at or shortly after Glassex 1998. The trustees began asking questions at the end of May 1998; but did not contact Dearward until July. Mr Birkett suggested that Mr Fielding was informed of Mr Davies' bankruptcy at the meeting of 16 January 1998, but there is no trace of this in any of the contemporaneous documentation; and it is implausible that Mr Fielding would have handed over £30,000 to a bankrupt without getting anything in return. It is, therefore, credible that Mr Fielding did not know of Mr Davies' bankruptcy in May. I am therefore prepared to accept that. Mr Fielding also knew by May 1998 that Mr Davies "called the shots" at Northstar. The information given to Seaquest's auditors that Mr Clayton held the shares in Seaquest on trust for Mr Davies is strongly suggestive of the conclusion that Mr Fielding knew, well before Judge Behrens' decision, that Mr Davies was the beneficial owner of the company. That same information provided to the auditors indicated that Mr Fielding believed that he had acquired "the rights" which, in the context, must mean Mr Davies' rights. There is no reason to suppose that any distinction was made between Northstar and Seaquest in this respect. Mr Fielding's knowledge of the mechanism of nominee shareholders is demonstrated by the issue of shares in Kesterwood Extrusions, at his request, to his father-in-law and sister-in-law. It will also be recalled that the agreement between Mr Fielding and Mr Clayton relating to the transfer of the shares in both companies is dated 5 May 1998. This is a few days after Mr Fielding and Mr Davies had met at the football match. Mr Fielding said that he had asked Mr Davies, at that match, to see whether he could get Mr Clayton to sign the letter, and Mr Davies had said that Mr Fielding should leave it with him. Mr Fielding said that he had received back the letter endorsed by Mr Clayton and that was one of the reasons why he was happy to pay Mr Davies. Although I do not accept the details of this evidence, I am prepared to accept that discussion of the shares took place at that football match. Mr Fielding had also told Mr Davies that he would see what he could do about paying off Mr Davies once the company was on its feet. Mr Roberts also said that before he went to the USA Mr Davies took "a money bag full of money", although he thought that it had come from Mr Birkett. At the end of June 1998 Mr Hacking was told that Mr Roche had been brought in to assist with "the management restructuring". The inference I would draw (although Mr Fielding denied it) is that in May 1998, and in ignorance of Mr Davies' bankruptcy, Mr Fielding had bought out Mr Davies' interests in Northstar and Seaquest for an initial payment of £30,000.

Mr Fielding's previous dealings with companies in financial trouble had followed a similar pattern. First, he would lend money to the company in question. Then, when things began to go wrong, he would acquire a shareholding. This is what happened with Kilohurst and with Kesterwood. If he had lent some money to Northstar in the early part of 1998, it would be consistent with his past dealings for him to have bought out Mr Davies in the summer of 1998. This also makes sense from Mr Davies' perspective. By May 1998 he knew that he had been made bankrupt and that his attempt to annul the bankruptcy order had failed. He knew that he was being investigated by the DTI. He had decided to go to the USA to make a fresh start. It makes sense for him to have attempted to realise as much cash as possible, as quickly as he could. Who better to go to than Mr Fielding? This conclusion also fits the accounting records, which appear to show that by the end of May 1998 Mr Davies had been repaid everything that Northstar owed him. Mr Ivison said that he could not "imagine Howard walking away from the baby that he had created". If he were paid for his "baby", I think he would have done. As early as the late summer of 1997 Mr Davies had expressed a willingness to Mr Whitby to sell Northstar because he was fed up and wanted to go and live in the sun. He had told a Mr Porter (who made the trap purchase that set off the patent action) in September 1997 that his objective was to sell out. A down payment of £30,000 in cash for his interest in Northstar and Seaquest would have been an attractive proposition. It also seems to me to fit with Mr Fielding's question to Mr Davies during the telephone call in the course of the meeting of 16 September 1998, in which he asked Mr Davies what was the position about the shares. If Mr Fielding had paid Mr Davies in May, but had not received any formal documentation by September, the question would have been a natural one to have asked.

Mr Fielding pays £70,000 to Mr Davies

It is convenient to deal here with a further payment that Mr Fielding made to Mr Davies in 2000. Mr Fielding's account of it is as follows. Towards the end of August 2000 Mr Davies telephoned him from Spain. Mr Fielding was unable to speak to him and said that he would call back; which he did that evening. Mr Davies said "I want my £70,000". Mr Davies did not say that the £70,000 was owed to him by Northstar. However, Mr Fielding did tell him that, by that time, Northstar had gone into liquidation. This did not deter Mr Davies. He made violent threats, including a threat to gouge out the children's eyes with a spoon (which Mr Fielding took to be a threat against his own children) if he did not get "his £70,000". Mr Fielding did not report these threats to the police; nor did he tell his wife about them. Instead he spoke to Con Cunningham, who advised him to pay the money. Despite Mr Davies' violent threats, Mr Fielding also spoke to him again and complained that he was being blackmailed. Mr Davies said that if the £70,000 was paid, Mr Fielding would never hear from him again. Although Mr Fielding says he had enough money at the time in his cash hoard to make the payment, the money was in fact paid to Mr Davies by means of a payment from Con Cunningham via Seathurst who, Mr Fielding said, owed him £100,000. The reason that the payment was made in this way was that Mr Fielding did not wish to create a link between him and Mr Davies.

It is not disputed that the payment was made. What is in dispute is why it was made. I do not accept Mr Fielding's account of the threats made against his children which he never revealed before stepping into the witness box. The payment of £70,000 was, in my judgment, the second instalment of what Mr Fielding agreed to pay Mr Davies for his interest in Northstar and Seaquest. That is why Mr Davies said that if the money was paid Mr Fielding would never hear from him again. It is also why the payment was routed via Mr Cunningham. By this time Mr Fielding knew that Mr Davies was a bankrupt; and it makes sense that he wanted to conceal and to distance himself from payments made to him. It is also why Mr Davies was prepared to co-operate with Burnden to the extent of providing a witness statement (although his hatred of Ultraframe may also have been influential). It is also why Mr Davies was prepared to assign legal title to intellectual property rights in certain designs to Burnden without consideration following the decision of the Court of Appeal in 2003.

When was the deal done?

If, as I find, the payments that Mr Fielding made to Mr Davies were made to buy him out, when was the deal done? There are, I think, three real possibilities. One possibility is that at or following the encounter between Mr Fielding and Mr Davies at the football match in December 1997, Mr Fielding agreed to buy out Mr Davies. The second is that the deal was done in May 1998. The third is that, as Ultraframe say, the deal was done in the late summer or early autumn of 1998. I do not think that the legal consequences differ, whichever of these dates is the right one.

However, I do not consider that it is plausible that Mr Fielding would have done the deal after he knew that Mr Davies was bankrupt; and that the trustees were in hot pursuit of his assets. More likely, in my judgment, is that the deal was done in May 1998 before Mr Fielding found out about Mr Davies' bankruptcy; and that a false paper trail relating to the shares was put in place in an attempt to rescue a done deal that had gone badly wrong. I have found that the Marsden meeting did not take place; and I have also found that at the Altrincham meeting Mr Davies did not instruct those present to transfer shares to Mr Fielding. If the deal had already been done, this makes sense. Mr Snowden pointed out that the pleaded case does not allege that the conspiracy was hatched anywhere other than at the two pub meetings. However many of the witnesses (Mr Birkett and Mr Read among them) gave evidence of many meetings between Mr Naden, Mr Roche and Mr Fielding during the autumn of 1998. It seems likely that the false paper trial was created during or as a result of one or more of those meetings.

Continuing contacts with Mr Davies

Mr Roche

From 2001 Mr Roche has been in contact with Mr Davies. They met in February 2001 and spent some hours together. The trigger for the meeting was a complaint by Ms Owen that Mr Davies was threatening her. Mr Roche said that during the course of a long and disturbing meeting he persuaded Mr Davies that the best option for progressing his vendetta against Ultraframe was to help Burnden in the litigation. In 2002 Mr Roche went out to Spain on several occasions to meet Mr Davies, for the purpose of producing a witness statement from him. Since then Mr Davies had telephoned him from time to time (sometimes as frequently as once a month) to find out how the litigation has been going. Mr Roche said that he had reported Mr Davies' "adventures" to Mr Fielding. However, Mr Roche said that he was unaware that Mr Fielding had had any direct contact with Mr Davies; and was unaware that he had made substantial cash payments to Mr Davies.

Ms Owen

Mr Davies telephoned Ms Owen on a fairly regular basis during 1999 and 2000. In 1999 she arranged car hire for him on a visit to this country. Ms Owen said that it was in 2000 that Mr Davies wrote to her threatening to send sensitive information to her parents unless she paid him £2,000. She showed the letter to Mr Roche, who said that he would try to deal with it. Since 2000 she has not had any contact with Mr Davies. Ms Owen's evidence about the letter was unsatisfactory. She said in the course of her cross-examination that she had not looked at it "since 2000" and a few minutes later that she had looked at it "last week" and "previously as well" in preparation for being cross-examined about it. But the letter was not mentioned in any of her witness statements, and its existence only emerged in the course of Mr Roche's cross-examination which took place a few days before Ms Owen herself gave evidence. Ms Owen stoutly maintained that she had not read any transcripts of evidence, and had not spoken to Mr Roche. Yet she said that she was unable to recall how she had found out, only a few days earlier, that the letter had been mentioned in evidence. Be that as it may, she produced the letter overnight; and its contents were broadly as she described them, although with some significant differences. Had the letter been fabricated, those differences would not have existed. It was not suggested that that letter was itself a fabrication, and I accept it as genuine.

"Jim Johnson"

Mr Roche said that Jim Johnson was a structural engineer who worked for Northstar, principally in collaboration with Mr Read. Mr Wordsall, on the other hand, said that "Jim Johnson" was a pseudonym for Mr Davies. Mr Wordsall said that "Jim Johnson" had produced design drawings for Burnden which he had seen at Burnden Works. Mr Roche said that Mr Wordsall was confused. He agreed that Mr Davies had produced unsolicited designs for parts of a roof system which he (Mr Roche) had brought back with him from Spain; and that Mr Wordsall may have seen them at Burnden Works. But he said that these were nothing to do with "Jim Johnson". Mr Roche said that an examination of Northstar's accounting records would reveal an account in the name of "JS Johnson Associates", who was a structural engineer with whom Northstar did business. An examination of those records did, indeed, reveal an account in the name of "JS Johnson Associates", at an address in Rossendale, which had not previously been in the bundles in hard copy form (although an electronic version of Northstar's complete records, such as they were, had been disclosed). This discovery corroborated Mr Roche's evidence.

Mr Fielding made a number of entries in his diary recording meetings with "Jim Johnson" at Sale and elsewhere. Mr Fielding said that this Jim Johnson was an engineer with whom he had worked on a project in Islington, in London. The diary entries also contain annotations of expenditure, which are not easy to interpret. Mr Fielding says that they are probably records of minor expenditure.

Ultraframe ask me to infer that they represent further payments to Mr Davies, using the pseudonym "Jim Johnson". I decline to draw this inference.

Summary and conclusions

My conclusions thus far are:

i) Mr Naden did not believe that he was the beneficial owner of shares in either Northstar or Seaquest;

ii) Mr Fielding did not pay for new tooling for use in uPVC extrusions of the Quickfit system;

iii) Both the Northstar supply agreement and the Seaquest supply agreement are later fabrications;

iv) Mr Fielding's alleged agreement to buy Mr Naden's shares was not genuine;

v) Mr Clayton knew that he held shares in Seaquest (and, from April 1998 Northstar) as Mr Davies' nominee;

vi) Mr Clayton made no loan to Northstar;

vii) Mr Davies made no loan to Northstar after January 1998 (although he did make a loan of just under £20,000 in that month which was repaid by mid- March);

viii) Mr Fielding did lend Northstar £80,000 between January and March 1998, with a view to securing a foothold in Northstar;

ix) The share transfer agreement between Mr Fielding and Mr Clayton was not genuine;

x) Mr Fielding and Mr Davies did a deal in May 1998, which resulted in Mr Fielding paying £100,000 to Mr Davies;

xi) When it subsequently emerged that Mr Davies was a bankrupt at the time, a false paper trail was put in place relating principally to the shares;

xii) No conspiracy was hatched at the two pub meetings; but the false paper trail relating to the shares was put in place as a result of other meetings;

xiii) The Northstar debenture was, however, a genuine transaction, prompted by Northstar's need to secure its supplies of aluminium;

xiv) The Seaquest debenture was also a genuine transaction, albeit based on a misapprehension of the effect of the "netting off" arrangement.

It will be recalled that the trustees' claim was a claim to the shares in Northstar and Seaquest. They advanced no other claim until 1999. All those involved with Northstar and Seaquest knew that Ultraframe were behind the trustees. They knew also that Ultraframe had been attacking both Northstar (and later Seaquest) since September 1997. They believed, rightly or wrongly, that Ultraframe's intention was to drive Northstar and Seaquest out of business. In my judgment they believed that it would be in the interests of both Northstar and Seaquest if the companies were owned by Mr Fielding rather than by Ultraframe. That, in my view, is why the conspiracy relating to the shares was hatched. Why the two supply agreements were fabricated remains a mystery. The answer may be that the possibility of a supply agreement was in fact discussed, although the discussions never came to fruition; and that this suggested that the supply agreement should be fabricated.

There was also another conspiracy (to which Mr Fielding was not a party) by which shares were held by Mr Naden, and then Mr Clayton, as nominee for Mr Davies; and money was siphoned out of Northstar for his benefit.

Accordingly, I conclude that although there were two dishonest conspiracies, they were not as extensive as Ultraframe allege.

THE INTELLECTUAL PROPERTY RIGHTS LICENCE

Background

I have already recorded that, in the course of the audit of Seaquest's accounts, Mr Morlidge was not prepared to prepare accounts on a going concern basis unless Mr Fielding postponed a large part of his loan. Mr Morlidge was clearly of the view (rightly) that Seaquest was otherwise insolvent. Seaquest's only major asset was its ownership of the intellectual property rights. As I have also recorded Mr Morlidge entered the value of these in the balance sheet, but qualified the value attributed to them. The intellectual property rights themselves were under attack by Ultraframe in the litigation.

Two particular additional problems emerged in the summer of 1999. When the "mill direct" scheme began in early 1998, it was of the essence of the scheme that the various mills would supply individual dealers directly. Alumax had been willing to do this. However, as the number of dealers increased, Alumax became dissatisfied with this arrangement. It was simply not practical or cost-effective for them to operate in this way, and in July 1999 they decided to terminate the arrangement, announcing that they would refuse to deliver to new customers with immediate effect. Seaquest did not have the capability to supply dealers themselves.

The second problem concerned tooling. I have already recorded (and made findings about) much of the evidence relating to tooling; and I will return to the subject when dealing with the business of the Burnden Group. Suffice it to say, at this stage, that the system required very substantial investment in tooling; both the extrusion tooling and the injection moulding tooling. Seaquest did not have the resources to fund this expenditure.

In September 1999 Mr Fielding tried to interest PVC Group plc in doing some sort of deal with Seaquest to exploit the intellectual property rights. However, largely in view of the continuing litigation PVC Group were advised by their lawyers not to proceed; and they did not. Mr Roche also floated the possibility of bank borrowings in his memorandum of 6 September 1999. But it is unlikely that a bank would have lent Seaquest any substantial amount of money, since its only asset was under attack by Ultraframe and its value was uncertain. As I have said, the question of Seaquest's intellectual property rights and their value also came up during the course of the audit of Seaquest's accounts. A tentative proposal to obtain a valuation from Ernst & Young was mooted; but it came to nothing.

The remaining options, compatible with keeping Seaquest afloat, would have been to sell or licence the intellectual property rights. On 11 November 1999 Mr Fielding wrote to Mr Morlidge:

"Helix Agencies have suggested that the I.P.R.'s be crystallised in their present form and that the Company contracts with someone/company to use these I.P.R.'s for an agreed period at an agreed level of remuneration thus maximising the potential revenue that can be recovered for the system.

I have requested Helix to evaluate this and attempt to put together a financial proposal, which, if the figures are reasonable, may well give the best method of survival for the Company."

Mr Fielding said (and I accept) that a sale of the intellectual property rights would not have been easy; largely in view of the difficulty of placing a value on them, supported by a professional valuation. The continuing litigation would also have deterred would-be buyers (as had already happened in the case of PVC Group). So the grant of a licence was really the only solution left.

The licence is granted

On 18 November 1999 a board meeting of Seaquest was held. Mr Naden and Mr Fielding were present, attended by Mr Roche. The minutes record the following relevant events:

"1. Purpose of meeting

It was noted that the meeting had been duly convened to consider and, if thought appropriate, approve … the granting of a 5 year licence to B.C.P. to use the design rights etc in the conservatory system.

2. Disclosure of interests

All relevant interests of the directors of the Company were disclosed pursuant to both the Companies Act 1985 and the Articles of Association of the Company.

9. Execution of Licence Agreement

[It] was resolved that it was in the best interest and for the benefit of the Company to execute a Licence Agreement between B.C.P. and the company for a period of 5 years. It was further resolved that the Licence Agreement be executed by any director."

Mr Naden said in his witness statement:

"As for the licence agreement with BCP, my understanding was that it was agreed in order to guarantee Seaquest an income stream. Despite the further monies that Gary had provided earlier that year, by late 1999 Seaquest's position had got worse. It needed new tooling but couldn't afford it and it was also restricted as to what it could and couldn't do given the litigation that was then on foot. It was suggested that urgent steps had to be taken to secure Seaquest's position and the licence was suggested. My understanding was that although Seaquest would no longer trade as it had done before, the licence would generate £500,000 over five years and these funds would pay off Seaquest's creditors. Given the likely alternatives this too seemed like a good deal and I agreed."

Mr Roche reported on 19 November that he had made arrangements for the grant of a licence by Seaquest to BCP. On 23 November 1999, Seaquest purported to grant BCP an irrevocable worldwide exclusive licence until 31 December 2004 to reproduce certain designs by manufacturing and selling goods in accordance with those designs and to develop and improve them in consideration for BCP paying Seaquest £500,000 over the term of the licence by specified instalments. Seaquest were advised by Hill Dickinson who drafted the licence. Although there is correspondence addressed to and signed by Mr Gray on behalf of BCP, in reality the licence was dealt with by Mr Fielding. Mr Naden signed this licence on behalf of Seaquest and Mr Fielding on behalf of BCP. Mr Fielding reported to his own solicitors on 23 November 1999 that the licence "gives the company its only realistic chance of solvency and [protects] the Company from debts and liabilities that it cannot meet in the future".

The licence fee of £500,000 was arrived at in the following way. At the board meeting of 18 November 1999 Mr Naden and Mr Roche suggested a consideration of £300,000 which Mr Fielding understood was based upon what Seaquest had agreed to pay in January 1998 for the intellectual property rights and tooling acquired from Northstar with an allowance for depreciation since then. Mr Fielding then increased the figure to £500,000. Approximately £50,000 of this was to make up for the advantage that BCP had had in terms of rent during 1999; a further £50,000 was to cover any commissions that BCP had not paid and the use of some intellectual property rights up until that date; the figure was then rounded up to £500,000, in Mr Fielding's words:

"for good luck to make sure that nobody in five or six years time would have me in a courtroom criticising me for paying too little."

In this respect Mr Fielding was right. Ultraframe did not suggest that £500,000 was not a fair price for the licence.

After the licence

Once the licence from Seaquest to BCP had been granted, Seaquest's business effectively came to an end. From then on its only remaining function was to collect the licence fee. However, the only payment pursuant to this licence credited to BCP has been a payment of £48,000 made in about January 2000.

From early August 2000 onwards, BCP had allowed TBG to exploit the designs for which they had the exclusive licence. Burnden's solicitors raised the question whether there was a formal licence in existence; and were told that there was not. They therefore suggested that the arrangement be formalised. It was formalised by a written sub-licence dated 19 February 2001, under which BCP granted TBG the irrevocable rights from 23 November 1999 to 31 December 2004 to exploit such rights as were properly licensed to BCP under its licence. This was in consideration of TBG agreeing to manufacture and supply BCP with goods made to the designs there mentioned and make a payment to BCP.

On 6 July 2001 Seaquest, acting through its liquidator, demanded payment of £309,000 due under the licence. They threatened a winding up petition if the arrears were not paid within seven days. BCP replied on 12 July 2001 disputing liability to pay; essentially on the ground that it was not clear that Seaquest owned the intellectual property rights which the licence had purported to deal with. The liquidator's response was that he would await the outcome of the court case to decide whether Seaquest owned the intellectual property rights and would then take the benefit of any judgment.

TBG later took the benefit of assignments of the intellectual property rights in conservatory roofing systems, goodwill and all infringement claims of each of NIS, QL, QCL and QWL, if any, from the liquidators or from the Duchy of Lancaster. The validity of the QCL assignments was challenged by Ultraframe. Although that challenge failed at first instance, the Court of Appeal, during the course of the trial, allowed Ultraframe's appeal.

Following the judgment of Laddie J on the preliminary issues, the Burnden Group tendered payment of the sums due under the licence.

BURNDEN'S BUSINESS

Ultraframe's case

Ultraframe's case is that the business of Northstar and Seaquest was more or less seamlessly transferred to Burnden.

BCP's business

In March 2000 Mr Howarth was appointed as a director of BCP at Mr Fielding's request. He said that he was chosen because he was located at Burnden Works and could therefore sign documents and cheques. He said that the majority of the documents that he signed were drafted by Mr Roche; and that he signed them without question. These included letters relating to the licence of the intellectual property rights. He had no input into BCP's accounts. BCP were not, however, doing much; and it was Mr Howarth's intention to resign his directorship if and when BCP became "a proper trading company". Mr Howarth also took transfers of Mr and Mrs Fielding's shares in BCP. The consideration was stated to be a nominal £2; but Mr Howarth did not even pay that. Mr Howarth was no more than a figurehead for Mr and Mrs Fielding, as Mr Roche agreed.

BCP effectively ceased trading during 2002. On 15 August 2002 Mr Gray accepted appointment as a director of BCP. It was a dormant company at that time; and has not traded since.

TBG picks up the baton

On 5 March 1999 Mr Fielding offered Mr Read (who was still working for Northstar) a job as design and development manager for TBG. Mr Read accepted the offer. Following his employment by TBG his services were recharged by TBG to Seaquest. I deal with the amount of the charge later.

Following Northstar's entry into receivership on 21 June 1999, TBG began to fabricate roofs. I have already described the work that TBG did with the consent of Northstar's receiver.

The presentation to the bank

Mr Whitelock was the principal author of a report on the Burnden Group which was made to the bank for the purpose of increasing its banking facilities. Mr Whitelock said that it was written in the first quarter of 2000. Internal evidence in the report itself suggests that it was written after the end of January 2000 ("Indeed, at the end of January, the 50 dealer mark was passed") and before the end of February 2000 ("New tooling and equipment due to arrive in March will bring with it new product designs….The newly branded conservatory roof system "K2" will be launched in the trade press in February 2000 … An integrated advertising and direct mail programme … will be launched in February 2000").

The report set out a number of "divisions" of the Burnden Group. First among these was the "Conservatory Roof Division". It presented an upbeat picture of prospects for growth. One section of the Conservatory Roof Division was entitled "Roof Fabrications". It said:

"Despite an indifferent financial performance thus far, due mainly to the fact that roof fabrications has had no real business development programme to date, the roof fabrications function has a pivotal role to play in the overall growth of the conservatory roof business. …

Roof fabrications will perform several roles.

The roof fabrication function will be used to provide fabricated roofs to new dealers as part of a start-up package. This package has been introduced in the advertising campaign.

The roof fabrication department will also be used as a training school for new and existing customers of the "K2" conservatory roof system and as an example of best practice in the manufacture and installation of the "K2" conservatory roof system."

It was not suggested that this description of the role of roof fabrications was inaccurate. The accompanying figures showed that in the five months to December 1999, roof fabrications had made a loss of about £21,000. Mr Whitelock explained that the pivotal role that the roof fabrication business was to play in the new group structure was that if new dealers were to be brought on, they needed to be trained, properly accredited and shown best practice. The fabrication division was to undertake that role. It was not seen as an independent profit centre, because it was, at that time, loss-making. Unlike Northstar, therefore, the Burnden Group does not fabricate roofs for dealers. Rather it uses roof fabrication as a means of training dealers; and to sell the system to them. It does also fabricate roofs on behalf of other fabricators who need its capacity for overflow work. It does not compete with them.

The report also dealt with the Extrusion Division. It described the principal function of that division as servicing the K2 brand of conservatory roof. Mr Whitelock said that although this was not its sole function, it was an important one. However, he agreed that in order to have a viable extrusion division, it was necessary to have a conservatory business. That conservatory business, in Mr Whitelock's perception, was going to come from Seaquest, as owner of the system.

The database

The Northstar and Seaquest database

Northstar and Seaquest used a computer program called "Conservatory Designer", supplied by First Degree. It operated by links to a "roof file" or "database". In essence, the components of a roofing system are loaded into the roof file, with their precise dimensions, stock codes and so on. Although the Computer Designer software is generic, in the sense that it can operate with many different roofing systems, the roof file is unique to each manufacturer. The fabricator is usually supplied with the software and the roof file by the manufacturer of the roofing system, rather than by the software house. The fabricator, wishing to order the components for a roof, enters the style and dimensions of the conservatory; the colour; the glazing material and the pitch and style of roof that he wishes to fabricate; and the computer program does the rest. It produces a list of the components that will be needed. One of the pieces of mathematics that it has to do is to calculate "deductions". The basic data loaded onto the system is a one-dimensional representation of the components, which was referred to as a "wire frame" or "string lines". But of course the components are in fact three dimensional. If, therefore, say a glazing bar is represented as a straight line, and the ridge beam is represented as another straight line, the computer program will calculate the precise length that the glazing bar will need to be, depending on (among other things) the pitch of the roof. The differences between the "wire frame" and the real thing are called "deductions". The deductions compensate for things like the thickness of the ridge beam and the thickness of the cladding on the eaves beam of the conservatory.

Conservatory Designer had been installed at Northstar by Mr Read. It is probable that he carried out this task between January and April 1998, although he is not sure about the dates. It occupied about one third of his working time. The process of creating the roof file consists, essentially, of filling in boxes on electronic screens, prompted by the software. The manufacturer has to input the precise dimensions of the principal component parts of his system, so that the computer can calculate the necessary deductions. The manufacturer also inputs the product codes of these various components. Other components (screws, clips, finials and so on) can simply be entered by their product codes. The person who creates the roof file can identify particular deductions by his own custom made shorthand, which will be an abbreviation that he can remember easily (for example "ABWP" stands for "Any Bar to Wall Plate"). Each compiler is likely to have his own idiolect. As new products are developed, or old ones modified, the roof file needs to be amended in accordance with the changes. Mr Read compiled the roof file mainly by taking dimensions from drawings of components. Although it was suggested to him that the compilation of the roof file would have necessitated complex mathematical calculations, he disagreed. His view was that the necessary mathematics were relatively simple trigonometric calculations, based on right-angled triangles, which could be done with a pocket calculator. Mr Read then arranged for roofs to be physically built in order to provide an empirical test of the accuracy of the database. The roof file that Mr Read created was on Northstar's computers. These computers were sold by Northstar to Seaquest at the time of the move to Burnden Works.

Mr Colley, of First Degree, provides the liaison between the software engineers and the customer. In about April 2001 he went to Burnden Works to help Burnden with problems with the database. Although he thought that Mr Read was competent to create the roof file, it had in fact got into "a bit of a mess"; and Mr Colley thought that it needed a lot of work to sort it out. Mr Colley went back to Burnden Works on a fairly regular basis to assist. Although Mr Colley did not himself do the donkey work, he supervised Burnden employees who did. Part of the problem, it seems, is that Mr Read had not realised the full capability of the program and had not properly updated it. There had been a major upgrade of the program in 2000. Although roofing manufacturers did not have to re-input all their data as a result of the upgrade, the process of upgrading did cause bugs. Mr Colley thought that the mathematics required to compile an accurate roof file were complex; but, as I have said, Mr Read disagreed. So in addition, it may be that Mr Read underestimated the complexity of the necessary mathematical calculations.

The Quickfit system included a spine piece for the ridge assembly which allowed for varying roof pitches. It did this by allowing the wings (which actually held the glazing bars) to pivot about a point towards the bottom of the spine. As the wings pivoted, the deductions changed. To calculate the deductions was a complicated piece of three-dimensional trigonometry; and the computer program could not really do that effectively.

The K2 database

Mr McMahon said in his witness statement that the database had been rewritten in 2001. There was a dispute about the extent to which the K2 database contained information that had been on the Quickfit database. On one reading of Mr McMahon's witness statement, it might have been thought that the K2 database had been created without reference to the Quickfit database. But Mr McMahon explained that this was not so. He had been advised by Mr Colley that the Quickfit database needed to be "completely rewritten"; and had asked Mr Colley to "sort out the database". He was not able to say whether the database had in fact been completely rewritten; although he readily accepted that information contained on the Quickfit database that continued to be accurate would simply have been copied across from one database to another. However, it is clear that as components of the K2 system were modified, the roof file would also have to be modified to accommodate the changes; and as new components for the K2 system were introduced, the roof file would have to be amended to incorporate them.

The K2 System

Introductory

The roofing system that Burnden sell has the brand name "K2". One of the questions that was debated in the evidence is the extent to which it differs from the Quickfit system. Whether the answer to this question is legally relevant is another issue, to which I will return. Ultraframe's witness on this question was their Technical Director, Mr Chris Richardson. Although Mr Richardson is a director and employee of Ultraframe, he had his attention drawn to the duties of expert witnesses; and did his best to comply with them. He had, however, been intimately involved with the litigation for many years; and he acknowledged that, emotionally, he was not neutral. But he said that in dealing with the question whether the K2 system differed from the Quickfit system he had been rational and balanced, so far as he could. The Burnden defendants' witness was Mr McMahon. He is, of course, employed by the Burnden Group and is in charge of its technical department.

Development of the K2 system

On his arrival at Burnden in July 1999, Mr McMahon undertook a review of the Quickfit system. He came to the conclusion that the system left a lot to be desired. Some of the shortcomings related to the poor quality of extrusions or the material in which they were manufactured (e.g. injection mouldings made from polypropelene and eaves plates made of aluminium); some related to an excessive number of components required for key assemblies (e.g. the ridge assembly and the wallplate assembly); some related to the lack of flexibility in the system to accommodate a wide range of roof pitches (e.g. the design of the ridge, the boss end and the eaves beam). The most pressing problem was the gutter system, which was made of poor quality materials and was difficult to seal so as to make it watertight. Mr McMahon's preferred solution to the problem of the gutter would have been to buy in the necessary components; but Burnden's management disagreed with him. Mr McMahon therefore had to design a new gutter system.

Mr McMahon summarised the development of the K2 system. I accept his factual evidence. Strategy meetings were held during the summer and autumn of 1999. By November 1999 the decision had been taken to design a system that would be both compatible with the existing Quickfit system and capable of forming the nucleus of a new system. The expectation was that in the course of time, all the components of the Quickfit system would be replaced, but that continuity would be maintained in the interim. The management team thought that it was important to have a new brand name, and settled on "K2". Mr McMahon had to decide on the priorities for redesign and replacement. The areas that he identified as needing most urgent attention were:

i) Re-tooling and redesign of the gutter system, which leaked badly;

ii) Re-tooling and redesign of the caps for the glazing bars and the universal cover for the eaves beam, the ridge and the valley. The main design change was the incorporation of an ovolo shape into the visible sides of the glazing bar top caps;

iii) New designs for crests and finials;

iv) Design of aluminium glazing bars capable of accepting 25mm polycarbonate sheets, 24mm double glazed units and 35 mm polycarbonate sheets. This had a knock-on effect on the design of the ridge wings and the boss end covers;

v) A new eaves beam specially designed for low pitch roofs; and a change from aluminium to stainless steel in the material used to manufacture the eaves beam jointing plates

On 17 November 1999 Mr Wordsall sent a memorandum to Mr Whitelock in which he said that:

"the existing (Seaquest) drawing file needs to be completely re-issued with drawing numbers replaced by Part Nos. and the company/logo changed to Burnden Group. From that point on we can tweak and re-design whilst leaving the old Seaquest design file as a historical document untouched by further changes."

The K2 system was launched as a brand at Glassex in March 2000. Mr McMahon said that by that time a number of new or modified components had been introduced into the Quickfit system to address the most urgent problems that I have described. The principal new or modified components were: the gutter, the finial, the cresting and the glazing bars. The number of new components was 59; although Mr McMahon readily accepted that they were not all of equal complexity or importance. Mr McMahon also accepted that, as launched at Glassex in March 2000, K2 could not fairly be described as a "new system"; it was an improved and re-branded version of the Quickfit system, with some new components. Mr Whitelock agreed with this. Further changes were introduced at exhibitions in September 2000, March 2001, March 2002, March 2003 and February 2004. By the end of this process it was Mr McMahon's evidence that of the 288 components making up the K2 system, only 5 still survived unchanged from the old Quickfit system.

It was also Burnden's desire to manufacture a roofing system that had the ability to compete with the market leaders. It was common ground that one way to increase market share is to broaden the range of components included within the system. Even though some of these components (such as a lantern ridge) might be rarely fabricated, their availability as part of the system will tend to attract customers. This led to the broadening of the range of components within the K2 system.

Main components

The Quickfit system consisted of some 99 components, whereas the K2 system now consists of some 288. Mr Richardson identified six components or assemblies of components that he described as being the "guts" of a roofing system. Mr McMahon agreed. They are:

i) The ridge;

ii) The valley;

iii) The eaves beam;

iv) The wallplate;

v) The box gutter; and

vi) The glazing bars.

The ridge. Mr Richardson compared the ridge in the Quickfit system and the ridge in K2. The ridge assembly consists of a central component and two wings. The design principle common to each assembly is that each is capable of being pre-set to accommodate roofs of different pitches. However, he accepted that the two ridges worked in mechanically different ways. The K2 ridge has fewer components than the Quickfit ridge; works better than the Quickfit ridge; gives rise to fewer customer complaints, and could accommodate a larger variety of roof pitches. One of the mechanical differences between the two valley assemblies is that the wings pivot around a different point. One knock-on effect of this is that the deductions applicable to the Quickfit assembly decrease as the pitch of the roof increases; whereas the deductions applicable to the K2 assembly increase as the pitch of the roof increases. However, Mr Richardson pointed to the similarity (within a millimetre or two) in the deductions between the two systems when the roof pitch was 25 degrees which, he said, was the most popular roof pitch. Mr Richardson accepted that the K2 ridge is different in shape to the Quickfit ridge; that it was the product of considerable design work; and that new tooling would have been required to extrude it. Ultraframe accept that the internal aluminium parts of this component underwent significant change. Mr Richardson's point was that the design concept (of a pre-settable ridge) was unique in the industry. The first modifications to the ridge were made in about September 2000; but the new ridge appeared at Glassex 2001.

The valley. Mr Richardson said that the essential concept of a central spine with wings was common to both the Quickfit system and K2. This concept was not commonplace in 1999, but by 2001 it was known. Ultraframe itself had such a design in the early 1990s. The design concept, he said, was common to both the Quickfit and K2 systems, although the detailed design was different. In particular the central spines of the two systems were of different heights and different configurations. One of the problems with the Quickfit system was that the set out point (i.e. the point from which deductions were measured) was below the pivot point of the valley wings. The distance between the two will vary according to the angle at which the wings pivot. Conservatory Designer was unable to cope with the mathematics required for the calculations of the deductions applicable to the K2 assembly; and the computer had to be abandoned in favour of a table of deductions applied to a variety of fixed roof pitches. The valley was therefore redesigned. The main change was that the male and female parts of the ball and socket design were reversed; although the pivot point was retained. This redesign took place by Glassex 2001.

The eaves beam. The eaves beam cover can also be used as a cover for the underside of the box gutter. This is what Mr Richardson called a "universal part"; and he said that it was a striking feature of both the Quickfit system and K2. However, the same principle of universal parts is found in other systems too. Mr Richardson accepted that the eaves beam itself was new as of February 2004.

The wallplate. Unlike the Quickfit system K2 has two different wallplates: one fixed and the other capable of accommodating different pitches of roof. Mr Richardson accepted that the K2 fixed wallplate had been completely redesigned as an assembly; and that the variable wallplate was completely new. Laddie J held that design right in the fixed wallplate did not in fact belong to Northstar, but belonged to QCL. The new wallplate also made its first appearance at Glassex 2001.

The box gutter. The box gutter itself was a component that gave rise to many complaints. Considerable effort had to be put into redesigning it to make it work efficiently. It was among the first of the components to be redesigned and this was done by Glassex 2000.

The glazing bars. A typical glazing bar is an aluminium extrusion in the shape of an inverted "T". The inverted "T" shape is a commonplace design (in design right terms). The glazing bars in the Quickfit system and in K2 are no exception. However, Ultraframe assert that the glazing bar in the Quickfit system is a copy of its own glazing bar, and is therefore an infringement of its own design right. If that assertion is correct, then the form of the glazing bar in the Quickfit system is not an asset of Northstar, since it was no more than an infringing copy of someone else's design. Since an aluminium extrusion will usually be covered by a more aesthetically pleasing material, a glazing bar will usually have a means of attaching a top cap to it. Commonly, the method of attachment is a clip. The detailed design of the clip on the Quickfit glazing bar and that on the K2 glazing bar are different. Minor modifications to the glazing bar were made before the launch of K2 at Glassex 2000. More substantial changes were made between then and Glassex 2001.

Universal parts. Mr Richardson stressed that the Quickfit system used "universal parts". By this he meant that a piece of uPVC cladding could be used to cover more than one aluminium component. He regarded this as a striking design feature of both the Quickfit and the K2 systems; which was very unusual in the industry. The use of universal components was, in Mr Richardson's opinion, one of the "key drivers" in the design of the K2 system. Mr Richardson did, however, acknowledge that a company called Synseal used universal components, and it was also demonstrated that another company called Rickmans did so too. Other companies (including Ultraframe) also manufactured cladding that could fit both the box gutter and the eaves beam; but Mr Richardson said that since the box gutter was designed to run round the eaves beam, this was only to be expected. In the case of the Quickfit system the same piece of uPVC cladding could be fixed to the eaves beam, the box gutter and the underside of the valley. The length and depth of this component remained unchanged in the K2 system (and remains unchanged to this day). So also do the fixing points. However, the method of fixing and the details of the shape have changed; but not radically.

Minor components

Mr Richardson examined a number of other components, on which he was closely cross-examined by Mr Purvis. Mr McMahon was equally closely cross-examined by Mr Speck. My conclusions about these components are as follows:

i) Gable end ridge cap. This was a new component, designed some time before February 2001.

ii) Glazing bar end cap. This is an injection moulded component made of plastic. The Quickfit system did not include any injection moulded end caps. The Quickfit glazing bar end cap was a flat aluminium plate. Mr Richardson acknowledged that this was a new design. The change to injection moulded plastic took place in time for Glassex 2001.

iii) Ridge end cap. The Quickfit system did not include a ridge end cap. The K2 design was a new component.

iv) Low pitch fascia trim. The Quickfit version of this component was made of uPVC. The K2 version was made of aluminium; was longer than the Quickfit equivalent; and had an extra projection in the middle of the component.

v) Low pitch firring. The Quickfit system did not include this component. The K2 system did. Although it is not quite clear who designed it, it was manufactured by Burnden.

vi) Aluminium glazing bar top caps. Although the Quickfit system included some designs for aluminium glazing bar top caps, they were never manufactured. The K2 aluminium top caps were designed to attach to the glazing bars in a different way to the Quickfit design, although the shape and proportions of the cap are similar. They are, however, substantially different to the uPVC top caps that formed part of the Quickfit system. The uPVC top caps were modified for Glassex 2000 by the picking out of an ogee feature which already formed part of the system. This was done for greater uniformity of appearance.

vii) Wide box gutter system. Mr Richardson acknowledged that this was a new design. Part of the new design was the introduction of a new gutter brace.

viii) Bolster bar. Mr Richardson acknowledged that this was a new design.

ix) Eaves trim corner joints. The change made to the eaves trim corner joint was that it had added lugs on the rear so that it could be fitted into the serrated legs at the back of the eaves beam. This overcame a problem in the Quickfit system, in that the eaves trim had to be stuck onto the eaves beam; and was liable to fall off. The change was introduced in 2002.

x) Half boss end. There was no such component in the Quickfit system. The K2 system includes one.

xi) Gutter bracket adaptor. Mr Richardson acknowledged that this was a new component.

xii) Eaves jointer. Mr Richardson acknowledged that this was a new component.

xiii) Valley top cap. Mr Richardson acknowledged that this was a new component.

xiv) Box gutter adaptors. The design of this component did not change significantly, but its method of production did. Having been made by vacuum forming, it was changed to an injection moulded component.

xv) Roof vent. This was a new feature of the K2 system.

xvi) Lantern ridge. A lantern ridge seems to have been available as part of the Quickfit system, but it required the fabricators to adapt standard parts by cutting and welding them. K2 introduced dedicated components for the fabrication of a lantern ridge.

xvii) Polycarbonate end trims. This is a relatively simple component. Nevertheless, within its limitations, it was redesigned. The old end trim gripped the end of the polycarbonate sheeting, whereas the new one gripped the top and bottom surfaces of the sheeting, by means of two lugs and a serrated top edge.

As is apparent from the number of components making up both the Quickfit system and K2, there are many other minor components. Mr McMahon supervised modifications to these components. The modifications took place incrementally over a period of some years. Mr McMahon agreed that these modifications were minor.

Additions to the range

The K2 system added a gazebo to the styles of structure available in its range. This necessitated the design of a number of dedicated components. The Quickfit system did not include a gazebo.

At Glassex 2003 Burnden introduced a "roof in a pack" called "L2". This was a pack of components designed for fabricating a low pitch roof. The components were largely taken from components in the existing range (but repackaged) together with some new components, such as a new low pitch eaves beam, and a new dedicated glazing bar.

The K2 system introduced a commercial portal frame system. This did not form part of the Quickfit system.

New or upgraded tooling

On 19 November 1999 Mr McMahon summarised the tools on order and to be ordered before April 2000, solely for the conservatory roofing system. The tools were extrusion tools and injection mould tools. About £110,000-worth were already on order and an estimated £194,500-worth were to be ordered.

Fabrication methods

The methods of fabricating a Quickfit roof and a K2 roof were the same. For some time Burnden used the same installation manual as Seaquest had used.

Evolution

Ultraframe say that the K2 system is not a "new" system. It has evolved from the Quickfit system. The design changes and the introduction of new components and new ranges are all the things that one would expect a roof system manufacturer to do in order to continue to develop and improve its system. In the sense that K2 is not what is called a "clean room design" Ultraframe are plainly right. BCP and then the Burnden Group continued to reproduce Seaquest designs because they believed that they were entitled to do under the intellectual property rights licence. Although K2 as launched at Glassex 2000 was in substance the Quickfit system with some new or modified parts, by Glassex 2001 there had been a substantial redesign of most of the key components or assemblies. This process could be described as "evolution". Mr McMahon accepted that K2 has evolved in a way that one would expect a roof system to evolve. His evidence on this question in cross-examination included the following:

"Q. The truth of the matter is your system has evolved in a way that one would expect systems to evolve?

A. Yes.

Q. And the process started when you took over in July 1999?

A. Yes.

Q. It has continued to the present day?

A. Yes.

Q. And fairly viewed, it is the system that you started with, with your evolution added to it?

A. It has been an evolutionary process to develop a new system."

Again, I have no difficulty in concluding that this is so. I shall return to the legal consequences of this later.

The purchase of Emlyn Street

As I have described, the components formerly stored at Wilton Street were moved to Burnden Works at the end of January 1999. During 1999 Alumax (which had merged with Alcoa) became increasingly reluctant to supply aluminium direct to dealers. So aluminium was also delivered to Burnden Works. Extrusions were produced at Burnden Works too. Both Mr Gray and Mr Sheffield said that the storage problem at Burnden Works was not related to the components that had been moved from Wilton Street, but to the storage of aluminium and uPVC extrusions. Mr Whitelock, in my judgment, said the same thing in his witness statement, although this interpretation of his witness statement was disputed. The storage facilities at Burnden Works were insufficient for all these products, so it was decided to acquire a larger building to house them all. The decision was made by Mr Fielding, Mrs Fielding and Mr Whitelock. It does not appear that the directors of Northstar or Seaquest were part of the decision-making process.

That building was a warehouse at Emlyn Street of about 90,000 square feet in area. The purchase price was £1.95 million. Burnden Group paid a deposit of £350,000 from its own resources and the rest was raised on mortgage.

Mr Whitelock said that once the building at Emlyn Street had been acquired, Dearward (which made cardboard tubes) and Kesterwood Plastic Processors moved into it. This enabled a rationalisation of space to take place at Burnden Works. BCP also used the building at Emlyn Street for the storage and distribution of the conservatory roof system.

THE FATE OF NORTHSTAR AND SEAQUEST

Towards the end of 1999 Mr Fielding consulted Lathams, a firm of accountants. He specifically asked for a solvency review of Seaquest. Mr Michael Hall (no relation to Mr Martin Hall, Ultraframe's expert) was the person who did that. Mr Fielding provided him with financial information. Mr Hall did not independently verify it. He spent between 7 and 10 hours working on his instructions. His time included at least one fairly long meeting with Mr Fielding, at which he asked questions about the documents with which he had been supplied. On the basis of the information which Mr Fielding had given him, Mr Hall formed the view that although there was no immediate likelihood of Seaquest going into insolvent liquidation, it was "balance sheet" insolvent; and was only able to pay its debts as they fell due because of Mr Fielding's continuing support in not calling in his loan. Seaquest's "balance sheet" insolvency was entirely attributable to the debt that Mr Fielding claimed to be owed. Mr Hall also formed the view that it was not possible to say whether Seaquest might avoid going into insolvent liquidation; and that the payments due under the licence agreement might be enough to pay off all its creditors. Mr Hall knew that there was a hearing of an application for summary judgment fixed for the near future; but it was not suggested to him that an adverse judgment on that application might cause Seaquest to go into liquidation.

HH Judge Behrens gave judgment on 25 February 2000. He held that Mr Fielding had no interest in Northstar's or Seaquest's shares having priority over the trustees. On 29 February 2000 Mr Hall reported his conclusions to Mr Fielding. On the same day Mr Fielding demanded repayment from Seaquest of a debt of £330,360 plus interest, alleged to be due under the loan agreement of 22 December 1999. When Seaquest failed to pay, Mr Fielding appointed Mr Long as receiver of Seaquest, on 1 March 2000.

On 10 April 2000 Northstar went into creditors' voluntary liquidation. On the same day Seaquest went into members' voluntary liquidation. This was subsequently converted into a creditors' voluntary liquidation. Both companies are insolvent, subject to their claims in these proceedings.

THE BURNDEN GROUP TODAY

Since Ultraframe claim that the success of the Burnden group has been built on the proceeds of Mr Fielding's dishonest behaviour, I must give a short account of the group and its principal activities.

Burnden Holdings (UK) Ltd

Burnden Holdings (UK) Ltd ("BHU") is a holding company and is the parent company of the group. BHU does not trade itself but merely holds investments. Its principal assets consist of investments in its subsidiaries and two freehold properties. The first of these is the warehouse at Emlyn Street. The second is a residential property in Crown Gardens (Bolton) which was bought to house a Danish employee. These two properties were transferred from TBG to BHU as a dividend in specie. The property at Crown Gardens was in the course of being sold during the trial. BHU has never declared or paid a dividend. Leaving aside dormant companies, the main companies in the group are as follows.

The Burnden Group Trustee Ltd

The Burnden Group Trustee Ltd is a trustee company. Its shares are owned by Burnden Holdings (UK) Ltd. It was established to administer the Employee Benefit Trust Incentive Plan for the senior managers and directors of Burnden Holdings (UK) Ltd and its subsidiaries. Its assets consist of a shareholding in Burnden Holdings (UK) Ltd. It does not trade.

K2 Glass Ltd

K2 Glass Ltd ("K2G") was originally called Conservatory Coloured Glass Limited and its name was changed to K2 Glass Limited on 13 April 2003. It manufactures and markets sealed glazing units; i.e. the actual glass part of a double-glazed installation. These are used in the manufacture of windows and conservatories and K2G sells those units to the trade. K2G (under its former name) was originally formed by two private individuals named David Bradshaw and Lee Perry. They formed the company in 1991. Burnden Holdings (UK) Ltd acquired the entire issued share capital of K2G from Messrs Bradshaw and Perry on 1 April 2003 for a consideration of £2,534,737 paid partly in cash on completion and partly by way of a deferred payment linked to its subsequent trading performance. Burnden Holdings (UK) Ltd borrowed the purchase price from the bank. Neither Northstar nor Seaquest has ever carried on a business of this kind.

DCI Power Limited

DCI Power Limited was a joint venture manufacturing insulated pipes for combined heat and power projects. Burnden Holdings (UK) Ltd acquired 50% of the share capital of DCI in April 2003 for £750. The nature of DCI's business was similar to that of Vital Energi Utilities Limited, which is another group company. Neither Northstar nor Seaquest has ever carried on a business of this kind. However, this company was loss-making and at the end of December 2003 Burnden Holdings (UK) Ltd sold its shareholding back to the original owners for the same price that it had paid; namely £750.

Vital Energi Utilities Limited

Vital Energi Utilities Limited provides consultancy and construction services in combined heat and power and district energy schemes to local authorities, hospitals and housing associations. These schemes use energy efficient power and heat engines generating electricity locally and using the heat by-product to provide district heating through insulated piping. Vital grew out of Mr Fielding's quantity surveying business. Vital traded as a trading division of The Burnden Group plc until 30 June 2001. After that it was run as a separate company. The company itself started trading in December 2000. Thus from December 2000 to June 2001, there was an overlap with some trade being accounted through TBG and some through Vital. In November 2002 The Burnden Group plc transferred its shares in Vital to Burnden Holdings (UK) Ltd. Vital is now a wholly owned subsidiary of Burnden Holdings (UK) Ltd. Neither Northstar nor Seaquest has ever carried on a business of this kind. Vital declared a dividend of £120,000 in 2002, which it paid to TBG; but, apart from that, it has never declared or paid a dividend.

Automated Stone Machinery Limited

Automated Stone Machinery Limited manufactures and sells stone cutting and milling machinery. It was originally set up by Mr Michael Howarth. Mr Fielding acquired an 80 per cent interest in ASM from Mr Howarth and his two fellow shareholders, Mr Hawkins and Mr Hopwood. Mr Fielding acquired an 18 per cent interest in 1996, increasing it to 34 per cent in 1997, 50 per cent in 1999 and 80 per cent in 2000. Burnden Holdings (UK) Ltd acquired the 20 per cent interest not held by Mr Fielding in 2002 and then acquired Mr Fielding's 80 per cent interest in ASM from him in 2003. As a result ASM is now a wholly owned subsidiary of Burnden Holdings (UK) Ltd. Neither Northstar nor Seaquest has ever carried on a business of this kind.

Canterbury Conservatories Limited

Canterbury Conservatories Limited was incorporated on 6 October 2003. Its business is a retail conservatory business. It began trading in January 2004 selling and installing conservatories at the premium end of the retail market. CCL has its own staff and premises in Derby. It was a start-up venture by Burnden Holdings (UK) Ltd using the services of a number of people who previously worked for Coldseal. Neither Northstar nor Seaquest has ever carried on a business of this kind.

Cestrum Conservatories Limited

Burnden Holdings (UK) Ltd acquired Cestrum Conservatories Limited from Haywood Williams in February 2004 for a consideration of £1.7 million. The purchase price was borrowed from the bank. It manufactures complete conservatories for sale to multiple retailers, such as B & Q. Neither Northstar nor Seaquest has ever carried on a business of this kind.

SGI Tooling Limited

SGI Tooling Limited had an injection-moulding and tooling business which was acquired on 19 June 2001 by The Burnden Group plc. Following the acquisition by The Burnden Group plc, its business and assets were transferred to The Burnden Group Ltd. Thereafter The Burnden Group plc conducted the business as a trading division with the result that SGI Tooling Limited became a dormant company. It was dissolved on 25 February 2003. Neither Northstar nor Seaquest has ever carried on a business of this kind.

K2 Window & Door Systems Limited

K2 Window & Door Systems Ltd ("K2W&D") started trading in October 2002 as a Joint Venture with Alan Rees. It was acquired by Burnden Holdings (UK) Ltd on 1 September 2003. It supplies bar length to fabricators with window profile and components and operates from Burnden Works, Bolton as well as a site in Kinmel Bay in North Wales. The business does not deal in conservatories or conservatory roofs. Neither Northstar nor Seaquest has ever carried on a business of this kind.

The Burnden Group PLC

The Burnden Group Ltd ("TBG") was incorporated on 21 January 1999. On incorporation it acquired the entire issued share capital of each of Delta Construction Services Ltd; Kesterwood Plastic Processors Ltd, Dearward Ltd and Dearward Profiles Ltd. Those companies had previously been owned by Mr Fielding and were acquired from him by TBG in exchange for the issue of shares in TBG to Mr Fielding. The businesses of those companies were transferred to TBG; and those businesses were thereafter carried out by TBG as trading divisions. Thus, following incorporation, TBG carried out the following businesses:

i) A quantity surveying/commercial management business in district energy schemes (this was the business previously carried out by Delta Construction Services Limited);

ii) The business of the GJ & SA Fielding Partnership including the Vital Energi business;

iii) The manufacture and sale of plastic products (this was the business previously carried out by Kesterwood Plastic Processors Ltd);

iv) The manufacture of uPVC extrusions (this was the business previously carried on by Kesterwood Extrusions Ltd);

v) The manufacture of cardboard cores (this was the business previously carried on by Dearward Limited). This business included the manufacture of cardboard cores for use in toilet rolls, carpets, packaging etc.

vi) Laminating uPVC extrusions (this was the business carried on by Dearward Profiles Limited and included laminating plastic extrusions).

Neither Northstar nor Seaquest has ever carried on businesses of this kind.

The Burnden Group plc has one subsidiary, namely BCP Plastics Ltd. This company does not now trade, but it remains the holder of the licence from Seaquest permitting it to reproduce the Quickfit system.

TBG declared dividends in specie to BHU consisting of:

i) The two properties at Emlyn Street and Crown Gardens; and

ii) Its shares in Vital Energi.

Apart from that it has never declared or paid a dividend.

K2 Conservatory Roof Systems Limited

After the introduction of the K2 brand at Glassex 2000, The Burnden Group plc traded under the trading style of "K2 Conservatory Roof Systems". A company called "K2 Conservatory Roof Systems Limited" was incorporated and kept as a dormant name in order to ensure that no third party started a company with that name. From July 2002, K2 Conservatory Roof Systems Limited has traded in its own right and has become the main "customer facing" company in the group. It is the marketing and selling arm of the Burnden Group. TBG continues to manufacture the roofs, and then sells them at a price fixed internally to K2 which, in turn, sells them on to customers. There has been no transfer of business assets from TBG to K2.

Banking arrangements

All the companies in the group share a group banking facility. This sets off balances on group accounts against each other. Interest charges on overdraft facilities are likewise charged against the group as a whole. The overall account goes into overdraft from time to time; and the group uses its overdraft facility to fund expenditure. In addition it negotiates specific secured loans from time to time (such as the loan used in the acquisition of the premises at Emlyn Street). From time to time the group is refinanced. This happened when K2 Glass was acquired. The whole of the group's finances were renegotiated with the Royal Bank of Scotland, and the finance thus raised was secured by a debenture in favour of the Bank over the assets of the group.

MRS FIELDING'S ROLE

Dearward

Mrs Fielding was appointed a director of Dearward in September 1995, although she did not actually start work until the beginning of 1996. Her title was "sales director", although since Dearward was a small company, her responsibilities went beyond sales. She was also involved in purchasing and transport issues as well. By May 1996 she had become the effective managing director of Dearward.

Northstar

Mrs Fielding had no role, either formal or informal, in Northstar. Although Ultraframe submitted that Mrs Fielding "acted as a senior figure in the new management" of Northstar after October 1998, in my judgment there is simply no evidence to that effect. Mrs Fielding was not concerned with the sale of components by Northstar; nor was she concerned with the fabrication of conservatory roofs. She met Mr Birkett once, at a meeting at Burnden Works on 21 January 1999; and that was principally concerned with Glassex, which was a Seaquest matter. She did not even visit Groby Road until later in 1999; and even then she only went there once. Nor did Mrs Fielding participate in the decision to employ Northstar fabricators whom the administrative receiver had made redundant in June 1999. Mr Birkett was asked what Mrs Fielding's position was at Burnden Works. His answer was:

"Her position? Mr Fielding's wife. I do not know what she did there other than to operate Dearward."

Seaquest

Ultraframe say that Mrs Fielding was a "senior figure in the new management" of Seaquest from October 1998. I do not agree. There is no cogent evidence that she had any part to play in Seaquest's management before Mr Ivison resigned. After Mr Ivison's resignation in January 1999, Mrs Fielding became involved with Seaquest. Mr Ivison's resignation took place a few weeks before Glassex; and Seaquest had to organise its presence at the exhibition. Mrs Fielding took charge of that. It was Mrs Fielding who co-ordinated advertising and decided on which staff would attend the stand at Glassex. This required her attendance at three or four meetings, although some of them were long ones. From then on, her involvement grew. In February 1999 she began to accompany Mr Sheffield on visits to customers and potential customers. In August 1999 an internal memorandum was sent to the sales and marketing staff, telling them that no sample cases were to leave Burnden Works without the written approval of either Mrs Fielding or Mr Sheffield. By September 1999 Mr Sheffield was giving Mrs Fielding as a contact point when writing to customers.

Her role was a marketing and customer liaison one. In that role she promoted sales of the system on behalf of Seaquest. I am, however, unable to find that Mrs Fielding participated in the decision to change the supplier of components from Northstar to BCP. There is simply no evidence to that effect.

The Burnden Group

Formation of the group

Mrs Fielding had been a partner in the quantity surveying business which, at least in the early years, provided the bulk of the family income. However, I accept her evidence that she played no active role in that business. Mr Fielding said that she was a partner only for tax reasons; and I accept that too. When the Burnden Group was formed, that business was one of the first to be hived up into it. Mrs Fielding said that she played no active role in the formation of the Burnden Group; and that she was told about it half an hour before Mr Fielding told everyone else. This was not the impression given by her witness statement in which she said that Mr Fielding "had previously discussed the establishment of The Burnden Group with me … and I was content with the decision." Mr Whitelock also said that he had had discussions with Mrs Fielding (separate from his discussions with Mr Fielding) in December 1998. Mr Whitelock also said that the question of which businesses were "worthy" to be hived up into the newly formed Burnden Group were decided upon after discussions that he had with both Mr and Mrs Fielding. In my judgment Mrs Fielding downplayed her role in the formation of the Burnden Group. She was more involved than she was prepared to accept.

Mrs Fielding's role at the Burnden Group

On 21 January 1999 Mrs Fielding was appointed a director of TBG. She was also a shareholder. Mrs Fielding was described as the "sales and marketing director". Her involvement was fairly limited at first; but it increased after October 1999.

BCP

BCP did not become part of the Burnden Group on its formation. Mrs Fielding was the company secretary of BCP between 12 November 1998 (when it was incorporated) and 23 March 2000. She was not a de jure director. When BCP began trading in March 1999, its primary activity was sales and marketing. Mrs Fielding was undoubtedly involved in those activities, as she herself accepted. By 27 July 1999 a "SWOT" analysis for BCP recorded that:

"JS, SF generally seen as targets for just about everything."

This statement relates to customer complaints. There is, however, no evidence that Mrs Fielding was involved in the transfer of stock to Burnden Works; or in the subsequent accounting for it. Nor is there any evidence that she was involved in the grant of the intellectual property rights licence by Seaquest to BCP.

Mrs Fielding's role today

There is no doubt in my mind that Mrs Fielding is, today, a full business partner with her husband. She plays a full and active role in the current business activities of the Burnden Group. Together they are the public face of the group; and they both feature prominently in its publicity material. However, I consider that her role has grown over the years. In particular I accept her evidence that the launch of K2 at Glassex 2000 represented a real change in the extent of her role. It would, in my judgment, be wrong to extrapolate from her role today a perception of what her role was in 1999.

WHAT ASSETS OF NORTHSTAR AND SEAQUEST DID THE BURNDEN GROUP ACQUIRE?

Appropriation of Northstar's business

The pleaded allegations are as follows:

"Northstar's component business was taken over as a going concern by BCP on 1^st March 1999 for no or no adequate consideration." (Paragraph 15.3)

"By, at latest June 1999, TBG (or TBG and BCP) had taken over from Northstar and Seaquest the manufacture and/or sourcing, and the sale and distribution of components for and/or roofs in accordance with the System, with Dearward and Dearward Profiles supplying parts for BCP such that

(1) BCP and/or TBG and/or BCP had effectively appropriated the entire or a substantial part of the business of Northstar and Seaquest without payment" (Paragraph 15.7)

"The employees of Northstar (along with the technical, operational and other business know-how and documentation of Northstar) were taken over by TBG…" (Paragraph 15.8)

In the course of his final address Mr Parker submitted that Northstar in effect had a captive market. Anyone who wanted to acquire components for the system had to acquire them from Northstar. It was this captive market that, so far as the component side of the business was concerned, was diverted to BCP. The Burnden Defendants say that the concept of appropriation of a business (as opposed to the appropriation of business assets or the appropriation of a company by acquiring its shares) is unknown to the law. I shall deal with this legal point later. For the moment I find the facts.

Northstar's components business

Premises

Before the move to Burnden Works, the components part of Northstar's business operated from the multi-story mill at Wilton Street. The premises were held under a lease. BCP did not acquire the lease. Burnden Works were already owned by Mr and Mrs Fielding.

Stock

Northstar's stock was first acquired by Seaquest; and then sold on by Seaquest to BCP. I have already described this, and the valuation of the stock, in detail. Accordingly, by the time that BCP acquired any stock of components, Northstar no longer had any stock. The stock that BCP acquired has long since been reground, thrown away or incorporated into conservatories. It has not been established that any of the component stock once owned by Northstar has passed to TBG. The true value of the stock (if it exceeded the net sum of £7,000-odd) has not been established.

Staff

Of the staff who worked at Wilton Street in the components side of the business, only Shirley Almond transferred to Burnden Works. The accounts staff transferred at the same time. I have already dealt with the staff and what happened to them.

Intellectual property rights

After the assignments of the intellectual property rights in January 1998, Northstar had no intellectual property rights. They had been assigned to Seaquest.

Data

Northstar did not manufacture components. It bought and sold them. The customers to whom it sold components placed their orders with Seaquest, and these orders were passed on to Northstar. It is not alleged that any information that Northstar had was confidential information. It is true that some of the Northstar personnel had skills in making minor adaptations to components before they were sent out. But, as I have said, this knowledge could be acquired in a short training session.

Although the pleaded case referred to "programs", it is common ground that the only relevant program was "Conservatory Designer". Northstar only had a non-exclusive and non-transferable licence to use this program. First Degree Systems Ltd was the owner of the intellectual property rights in that program; and it was willing to sell licences to potential users. Ultraframe did suggest that there was value in the roof file. But the roof file was available to all the dealers who bought the system. Indeed its whole purpose was to enable them to place orders easily and efficiently. Moreover, the utility of the roof file was utility to the fabrication of roofs and not to the supply of components. Northstar must have retained a copy of the roof file after the component business moved to Burnden Works in order for it to have continued to fabricate roofs until June 1999.

Furniture and equipment

This consisted of some computers, office furniture and one or two tools. I have already described this. Most of the value of these resided in the computers; but they were used for accounting rather than for stock control. Although the computers appear to have belonged to Northstar, their principal user was Seaquest. As I have recorded, Mr Brown installed the new computer network at Burnden Works, in which the computer terminals were new.

Goodwill

Since Northstar obtained its custom in so far as it consisted of the supply of components from Seaquest, it is not obvious that it had any goodwill. It had no independent relationship with Seaquest's dealers, whose orders were sent to Seaquest for onward transmission. It was always open (at least in theory) to Seaquest to change its supplier of components. Once it did so, the custom would be lost. It is also the case that BCP did not use the name "Northstar". But is fair to say that dealers who bought components from Northstar (because Northstar was Seaquest's nominated "mill" for that purpose) subsequently bought them from BCP.

BCP's components business

It is not disputed that once BCP became Seaquest's nominated "mill" for the supply of components, it carried on the business of supply in much the same way as Northstar had done.

Northstar's fabrication business

The nature of the business

The Burnden Defendants submit that anyone could make fabricated roofs to the Quickfit system, and there were a number of dealers up and down the country who were doing so. There was no secret formula involved. On the contrary, the success of the system depended on encouraging as many fabricators as possible to use it. The fabrication manuals explained exactly how to build the roofs: any skilled roofer could do so, provided he acquired the necessary parts. This submission is obviously correct.

Premises

Northstar's fabrication business was carried on at Groby Road. Groby Road was abandoned on Northstar's entry into receivership. The freehold was, in any event, owned by Mr Davies personally, and has passed to the trustees. The facilities Northstar occupied at Burnden Works were owned by Mr and Mrs Fielding.

Tools and equipment

Mr Roberts' evidence was that the tools and equipment at Burnden Works were new; and were paid for by the Burnden Group. I accept this evidence.

Staff

Most of the fabricators were re-employed at Burnden Works. But this was after they had been made redundant by the receiver.

The order book

I have already described how, with the consent of the receiver, BCP or TBG carried out certain unfinished orders that Northstar had started to fulfil; and how it carried out orders that had been placed with Northstar but had not been started before the receivership.

Goodwill

The goodwill to consider under this head is any goodwill that Northstar had as a fabricator of roofs. In this activity it competed with other fabricators. Some of the attractive force that brought in custom may have been attributable to Mr Naden personally; but his personal reputation and popularity with Northstar's clientele does not amount to Northstar's goodwill. Northstar traded under its own name (and under the name "Quickfit", although "Quickfit" was a name principally associated with the roof system itself, rather than with roofs specifically fabricated by Northstar). Neither of these names was used by BCP or TBG.

Data

I have already described the data. Moreover, since the fabrication business continued until June 1999, Northstar must have retained a working copy of the roof file at its premises at Groby Road. Mr Read's computer, which contained his copy of the roof file, was transferred to Burnden Works in January 1999; and Northstar invoiced Seaquest for it in May 1999. All this was concurrent with Northstar's continuing fabrication business. It is not clear what happened to any computers left at Groby Road after the receivership.

TBG's fabrication business

As I have already said, TBG did not (with very limited exceptions) fabricate roofs in competition with other dealers. It did not fabricate roofs at all until after Northstar went into receivership. As is clear from Mr Whitelock's presentation to the bank, roof fabrication is a loss leader, principally used to sell the system; to train dealers; and to enable new dealers to start up. The scale of fabrication of roofs is modest. Between June 1999 and June 2000 TBG fabricated about four roofs per week. At its height Northstar had been fabricating about ten times that number. There were very few customers whose roofs got into double figures. There were about six major customers who had a personal connection with Mr Naden; and followed him when he went to TBG. Depending on how central overheads are allocated, the roof fabrication business either made a loss; or a modest profit. The premises it occupied were owned by Mr and Mrs Fielding. The equipment that it used at the Burnden Works was new, and had been paid for by TBG. It did not use the name "Northstar" or "Quickfit". I am unable to conclude that it capitalised on Northstar's goodwill. It re-employed Northstar's fabricators; but only after the receiver had made them redundant.

Appropriation of Seaquest's business

The pleaded allegation in paragraph 15.7 of the Re-Re-Amended Particulars of Claim is that:

"As from June 1999 Mr Fielding caused the manufacture and/or sourcing, and sale of the components for and/or roofs in accordance with the System to be undertaken by TBG rather than, or in addition to, BCP such that what had been the business of … Seaquest was entirely or principally conducted by TBG (or TBG and BCP). By, at latest June 1999, TBG (or TBG and BCP) had taken over from Northstar and Seaquest the manufacture and/or sourcing, and the sale and distribution of components for and/or roofs in accordance with the System, with Dearward and Dearward Profiles supplying parts for BCP such that:

(1) BCP and/or TBG and/or BCP had effectively appropriated the entire or a substantial part of the business of …Seaquest without payment;

(2) Dearward, and Dearward Profiles were able to manufacture parts for the System without paying any commission to Seaquest or Northstar."

This is supplemented by the allegation in paragraph 21.1 that:

"Mr Naden, Mr Birkett and Mr Fielding have caused, permitted or procured the business and assets of … Seaquest to be taken over by BCP and TBG as a going concern for no or no sufficient consideration."

Parts of this allegation can be disposed of simply. Seaquest did not have a business of manufacturing anything. Nor did it have a business of selling anything (except for the sale of components for a few months between about January and April 1999). Its business was that of a broker; and of the exploitation of its intellectual property rights. Its intellectual property rights were its only asset.

Intellectual property rights

Following the assignments of January 1998 Seaquest became the owner of the intellectual property rights in the system. BCP did not acquire the intellectual property rights themselves; it acquired an exclusive licence to exploit them. TBG acquired a sub-licence. Whether the licence is valid is a question to which I will return.

Tooling

The pleaded allegation in paragraph 20.1 of the Re-Re-Amended Particulars of Claim is that:

"Mr Fielding has caused his companies to retain and exploit tooling the property or formerly the property of Northstar and/or Seaquest."

The pleading does not differentiate between tooling owned by Northstar and tooling owned by Seaquest, so I have considered it under a separate head. Although the pleading does not give details of the tooling (with the exception of nine injection moulding tools held by Arnwell Injection Moulding Ltd), and Ultraframe's final submissions dealt only with uPVC extrusion tooling, it is necessary to consider three kinds of tooling:

i) uPVC extrusion tooling;

ii) Injection moulding tooling and

iii) Aluminium extrusion tooling.

uPVC extrusion tooling

I have already found that Northstar paid for all the uPVC extrusion tooling, both before and after the Northstar supply agreement. One of the factors that led me to that conclusion was the consensus among the witnesses that the uPVC extrusion tooling was at the end of its life by mid-1999. It is now necessary to take up the story of the tooling from mid-1999.

When Mr McMahon reviewed the Seaquest System in July and August 1999 he concluded that the uPVC extrusion tools were of poor quality. He decided that it would be a false economy to replace them with cheap tools; and therefore decided to approach two Austrian toolmakers who produced high quality steel tools. The purchase of these tools began in December 1999. Between then and mid-2004 the Burnden Group have spent over £2 million on new tools and machinery. Of this expenditure, approximately £670,000 was spent between July 1999 and June 2000. Although the details of this expenditure were not explored in evidence, the result (so far as tools are concerned) appears to be as follows:

Tool	Date
Standard Victorian ogee top cap	December 1999
Standard Georgian ogee top cap	December 1999
Standard ogee wall bar top cap	December 1999
Heavy duty ogee transom top cap	December 1999
Heavy duty Victorian ogee top cap	December 1999
Heavy duty Georgian ogee top cap	December 1999
Heavy duty ogee end cap	December 1999
180mm sill	December 1999
Ridge top cap	September 2000
Low Pitch internal eaves cover	November 2000
Box profile 25mm	April 2001
Box profile 46mm	April 2001
Ogee bottom cap	October 2001
Bottom cap	April 2002
Ogee internal eaves and ridge cover	April 2002
Ridge top cap	April 2002
Roof panel 240mm	July 2002
K2 internal eaves cover	July 2002
Firring adaptor trim	September 2002
Sash liner insert	September 2003

The new tools were not simply replications of the previous tools; they incorporated modifications to the designs of particular extruded components. As each new tool came on stream, the old one ceased to be used.

I conclude, therefore, that TBG used these tools in the manufacture of uPVC extrusions until such time as they replaced them with tools of their own.

Injection moulding tooling

Northstar bought injection moulding tools from IMS Toolmakers Ltd to manufacture its gutter components (including elbows and wall-mounting components). Northstar were invoiced weekly from 3 October 1997 until 5 June 1998 at the rate of £1,500 per week. According to the unchallenged evidence of Mr Dobson (of IMS Toolmakers), the total payments covered 7 or 8 tools at a cost of between £6,000 and £7,000 each. Northstar continued to pay the invoices even after the assignment of the intellectual property rights from Northstar to Seaquest in January 1998. Once the tools had been made they were delivered to Arnwell Injection Moulders Ltd who manufactured the injection moulded components on behalf of Northstar and (after January 1998) Seaquest.

The IMS Toolmakers' invoices do not identify each tool but it seems likely that a number of those tools may have been the ones referred to in paragraph 20.1 (2) of the Re-Amended Particulars of Claim; that is to say: (a) 90º external angle; (b) 90º internal angle; (c) crest & finial; (d) external boss and dentil rail; (e) ogee internal boss; (f) 90º pipe bend and 112º pipe bend; (g) pipe clip; (h) joint cover. These tools continued to be used until at least the beginning of 2000.

In the course of his review, Mr McMahon also identified a number of problems with the injection moulded components. The gutter system caused particular concern and had been a regular cause of complaint. Mr McMahon concluded that the cause of the problems was the inferior material in which the gutter components were manufactured and its poor design, which meant that it was difficult to put together and prone to leaking. The box gutter adaptors were also of a poor design: they were poor at sealing and a bad fit. As a result he gave priority to the full redesign and re-tooling of the gutter system, including the box gutter adaptors. The work was completed by February 2000; and the new gutter system (consisting of 27 components) and the new box gutter connector were exhibited at Glassex 2000. From February 2000 the IMS tools relating to the gutter system ceased to be used.

Mr McMahon also gave priority to the redesign of the crest and finials. This required new tooling. Two new styles of crestings and finials were exhibited at Glassex 2000. From March 2000 onwards the IMS crest and finial tools ceased to be used.

In June 2001, as I have described, TBG bought a dedicated injection moulding company, called SGI Tooling Ltd, in order to service the injection moulding requirements of the conservatory roof business. SGI Tooling had its own injection moulding machines and its own tool making facilities.

I conclude that the manufacturer of the injection components used the tools. The manufacturer was Arnwell until June 2001 and thereafter was SGI Tooling.

Aluminium extrusion tools

Alumax was the supplier of aluminium extrusions throughout the relevant period. It seems probable that Northstar paid for (and owned) the tools; but there is no record of any payment for tools after the end of 1998 (and the last surviving invoice is dated 9 February 1998). The condition of these tools and their utility in mid-1999 was not explored in evidence. I am unable to make any findings of fact about them.

As between Northstar and Seaquest, who owned the tools?

The intellectual property rights assignments of January 1998 contained no express reference to the tools. Mr Ward and Mr Speck persuaded me that there is no necessity to imply any term into the assignments dealing with ownership of the tools. However, the accounting records of both Northstar and Seaquest show a liability of Seaquest to Northstar of £350,000. When that liability was investigated it turned out that £250,000 related to the intellectual property rights themselves; and the remaining £100,000 to tooling. Mr Birkett's evidence was that he understood that the price to be agreed between Northstar and Seaquest for the assignment would include the cost of tooling. I infer, therefore, and I find, that as between Northstar and Seaquest, the tools belonged to Seaquest.

WAS NORTHSTAR A PROFITABLE BUSINESS?

The accounts and records

It is common ground that over the course of its trading life, Northstar's accounts and records show that it made a cumulative loss of £30,709. Although it made a modest profit of £24,954 in its first year of trading (which is recorded in the audited accounts), it made a loss of £91,501 in the year from June 1997 to May 1998 and a loss of £100,912 between June 1998 and the end of May 1999. The overall loss for the entire period was £117,459.

Adjustments to the accounts

Mr Hall considered that in order to present a fair picture of Northstar's underlying profitability, certain adjustments to the accounts and records needed to be made. Once these adjustments have been made, the overall loss of £117,459 becomes a profit of £91,435.

Legal fees

As is obvious, Northstar had been embroiled in litigation throughout most of its trading life. Mr Hall's view was that these legal fees were exceptional items which should not be reflected in the underlying profitability of its business. These expenses should be added back, thus diminishing the loss recorded in Northstar's books and records. The amount Mr Hall added back was quantified in his first Supplemental Report as £73,378. The legal fees were principally concerned with litigation by or on behalf of Ultraframe. The thrust of Ultraframe's attack was on the ground of infringement of its intellectual property rights. The litigation had not reached its conclusion by the time that Northstar stopped trading. So further legal costs would have had to have been incurred until such time as the litigation had been resolved either by agreement or determination. Moreover, if Ultraframe were to have succeeded in its claims the whole of Northstar's business would have been imperilled. Mr Hall's adding back of the legal expenses contains the unexpressed assumption that those claims would have failed and that Northstar could have continued its business which included manufacturing components which Ultraframe claimed were infringing components.

Accepting, as I do, that the litigation has been unusually complex, bitter and protracted, I do not think it realistic to assume that had it continued to trade Northstar would have escaped legal costs. Those costs might well have been more than the amounts recorded if the patent action had come to trial. It is the melancholy experience of judges that the costs of an interim application routinely run into tens of thousands of pounds. Mr Davies' trustees had a duty to realise Mr Davies' assets for the benefit of all his creditors, and those included his intellectual property rights. If, therefore, there was an issue whether the intellectual property rights belonged to Mr Davies or to Northstar, that issue would have to be resolved. I do not consider that any figure should be added back under this head.

Expenses incurred on behalf of Seaquest

Seaquest had no assets and employed no staff. Consequently all these kinds of expense were incurred by Northstar for the benefit of Seaquest. Mr Hall identified a number of other heads of expenditure which were incurred by Northstar but from which Seaquest benefited. His estimate of Seaquest's expenses aggregated to £132,386 which he also said should be added back to diminish Northstar's recorded losses. However, in relation to two heads of expenditure (exhibition, showroom and advertising; and accountancy and audit) the amount added back exceeded the amount that Northstar had actually spent under these heads. The excess aggregated to £20,668. Mr Hall agreed that the figure he added back was overstated to that extent.

In addition Mr Hall added back to Northstar's figures the sum of £1,500 per month for Mr Whitby's salary for the period from 1 March 1998 to 31 December 1998. However, in so doing he overlooked the fact that Mr Whitby left in April 1998. Since Mr Whitby left in April, it follows that Northstar did not pay his salary for the remainder of the year. The amount added back is therefore overstated by the equivalent of eight months of Mr Whitby's salary amounting to £12,000.

Accordingly, Mr Hall's figure was overstated by at least £32,668; and should not have exceeded £99,718, assuming that all his other estimates are correct.

Administration charges

Northstar paid commission on sales of aluminium procured from Alumax via Dearward. Mr Hall said that these charges, amounting to £3,130, should be added back into Northstar's figures. The cause of the charge seems to me to have been the unwillingness of Alumax to supply Northstar direct. This, in turn, was due to Northstar's cashflow problems. Had Northstar been better capitalised, these problems might not have arisen; and the charge would have been avoided. In assessing the underlying profitability of Northstar, I agree that this charge should be added back.

Rent

Neither Northstar's audited accounts nor its records showed any identifiable liability for rent. Whatever may have been the position up to the date of Mr Davies' bankruptcy in December 1997, his trustees would have been entitled to claim at least compensation for use and occupation of Groby Road as from that date. In addition, whatever may have been the position as between Mr Davies and Northstar while he was in control of both the building and the business, if the two became separate, any objective assessment of the underlying profitability of the business must include provision for rent. Taking a figure of £300 a week (which was the amount that Mr Birkett said was paid to Mr Davies), Mr Hall calculated that Northstar's liability for rent over the period of trading should be £48,000. Mr Wilkinson said that a rental liability was an adjustment that ought to be made to the audited accounts as well. If this is done, then the modest profit recorded in Northstar's audited accounts is turned into a loss.

In addition to Groby Road, Northstar occupied premises at Wilton Street. It paid rent of £6,730 for Wilton Street between June 1997 and January 1999, when the component business moved to Burnden Works. This liability does not appear to have been reflected in Mr Hall's initial calculations; and he said that this liability should be factored into the equation.

The aggregate rental liability is, therefore, not less than £54,730.

Charges incurred by Seaquest on Northstar's behalf

Northstar's component business moved to Burnden Works in January 1999 and its fabrication business moved in June 1999. No lease of any part of Burnden Works was granted to Northstar; but Seaquest took leases of Units G3, LG3 and G1, for which it agreed to pay a rent. If Northstar is to be assumed to have carried on the components business, it would have needed accommodation for (at least) the storage of the components. It seems to me to follow that some additional charge ought to be made to Northstar's account for the potential liability for that accommodation. I have no means of determining how much.

Trading stock

Mr Hall's starting point included a credit of £78,000 for trading stock which Northstar held when it ceased trading. This figure, however, was derived from an accounting entry made some months before Northstar ceased to trade. Mr Hall agreed that it might be inaccurate; but said that the amount he had allowed might as easily be understated as overstated. Any inaccuracy would feed, pound for pound, into the bottom line figure.

Design right

In January 1998 Northstar sold its intellectual property rights to Seaquest. If that assignment was valid, then as from the assignment Northstar could not have carried on its business of fabricating roofs or selling components without Seaquest's licence. An assessment of Northstar's underlying profitability after that date must factor in something that it would have expected to pay Seaquest for licence to exploit the intellectual property rights. If, on the other hand, it was not valid, then the price that Seaquest agreed to pay would not be an asset of Northstar.

Unrecorded cash sales

Mr Hall made the fair point that if there were unrecorded cash sales they would not, by their very nature show up on Northstar's records. Any such sales would increase Northstar's profits (or diminish its losses). However, as I have said it is all but impossible to determine what proportion of Northstar's cash sales were unrecorded; or the effect on the "bottom line" of what the failure to record them might have been.

Ghost wages

It will be recalled that the immediate cause of Mr Birkett's suspension in March 1999 was that he had been drawing payments for ghost employees. It seems likely therefore, that Northstar's apparent wages bill was greater than was really the case. Mr Hall, at my request prepared a calculation to reflect this. The amount in question was modest.

Overtrading

Mr Wilkinson expressed the opinion that Northstar showed classic signs of overtrading, which are commonplace in a company on the brink of insolvency. In my judgment he is right.

Conclusions

Taking the recorded loss of £117,459 as my starting point, I consider that the appropriate adjustments are as follows:

Starting loss	(117,459)
Deduct rent	(54,730)
Add back expenses borne by Northstar on Seaquest's behalf	99,718
Add back administration charge	3130
	(69,341)

This assessment is necessarily broad brush; and takes no account of unrecorded cash sales or ghost wages on the credit side; nor premises costs at Burnden Works or any licence fee for the intellectual property rights on the debit side. These may well cancel each other out. Nor does it alter the figure for trading stock, which might as easily be understated as overstated. Nevertheless, my assessment of the accountancy evidence leads me to the conclusion that Northstar was not a profitable business.

The exercise is an accountancy exercise, based on records that are to a large extent unreliable, and must be evaluated in the light of all the evidence. The bank statements alone show that Northstar needed to borrow money to survive. I have already set out Northstar's financial position in 1998. This, to my mind, reinforces the impression that Northstar was not a profitable business.

WAS SEAQUEST A PROFITABLE BUSINESS?

The accounts and records

As I have described, Seaquest's accounts were audited for the period from the start of its trading to 30 June 1999. The auditors qualified their audit report, because they were not satisfied about the value attributed to the intellectual property rights or the tooling.

I did not understand Mr Hall to dispute the accuracy of the audited accounts, with the exception of three items. The first was the values attributed to the intellectual property rights and the tooling. Even there, he did not dispute the method by which depreciation had been applied, or the rate of depreciation. His concern was the starting figures in each case. He did not question the algebra; he questioned the arithmetic. The second was an amount of £113,803 incurred as a purchase of deleted stock which was written off. The third was the exceptional level of legal fees.

Mr Hall also examined Seaquest's computer records. From those records Mr Hall calculated that between 1 March 1998 and 29 February 2000 Seaquest recorded an overall loss of £81,656.46.

Adjustments to the accounts

Mr Hall considered that in order to present a fair picture of Seaquest's underlying profitability, certain adjustments to the accounts and records needed to be made. Once these adjustments have been made, the overall loss of £81,656.46 becomes a profit of £51,806.65.

Estimated costs borne by Northstar

Consistently with the figure added back to Northstar's accounting records to reflect costs borne by Northstar for the benefit of Seaquest, Mr Hall increased Seaquest's recorded loss by the same amount. This figure was £132,385.87. I have discussed this figure in the context of adjustments to Northstar's accounts. For the reasons I have explained, I consider that the correct figure is £99,718.

Kesterwood Extrusions' deleted stock purchase

Seaquest's accounting records disclose a payment of £113,803 (exclusive of VAT) made to Kesterwood Extrusions for deleted stock. Mr Hall's objection to the inclusion of this figure in Seaquest's accounting records is that Seaquest had no liability to pay for it. It is, of course, the case that this payment was included in the material considered by Seaquest's auditors. They raised no question about it; and must, therefore, have satisfied themselves that it was a proper expense of Seaquest.

Exceptional legal fees

Mr Hall added back £75,335 on account of exceptional legal fees. For the reasons I have explained in dealing with the same question arising on Northstar's accounting records, I am not satisfied that it is an appropriate adjustment.

Bad debt

Seaquest incurred a bad debt arising out of Northstar's receivership. BCP had sold goods (principally aluminium for fabricated roofs) to Seaquest which had in turn sold them on to Northstar. Seaquest settled its debt to BCP by way of set-off against commission due from BCP to Seaquest. However, Northstar did not pay Seaquest. Mr Hall's point was that Seaquest's bad debt arose only because of the interposition of Seaquest between BCP and Northstar. Seaquest made no profit out of the deal and it was not, therefore, to be regarded as a debt incurred in the normal course of its business.

In my judgment there is force in Mr Hall's point. Seaquest was not a supplier: it was a broker. Its business model left the risk of non-payment for supplies with the supplier, not with the broker.

Depreciation

As I have said, Mr Hall's quarrel is not with the method or rate of depreciation; but with the starting figure, which was the subject of the auditors' qualification. Although Mr Hall suggested that the amount recorded by way of depreciation might have been overstated by as much as £64,500, he was not able to propose a different starting figure.

A flawed business model?

Confidential information

Customer lists and contact details are often highly prized commercial assets. However, in the case of the Seaquest business model, all the mills that supplied product supplied direct to the customers. So every supplier knew all the details of Seaquest's customers. As Mr Ivison put it: "that was actually the whole point".

Logistics

From the perspective of Alumax Seaquest's business model was uneconomic. Instead of shipping large quantities of aluminium to a central source, they had to make small deliveries to dealers all round the country. As the dealership network grew, the problem got worse. Mr Botham said that Alumax were keen to stop dealing with the dealers direct. This problem was eventually resolved in about June 1999 by all deliveries being made to BCP.

Conclusions

On the basis that the assignment of the intellectual property rights was valid, Seaquest had a valuable asset. But it had a flawed business model, and had it continued to operate in the way that it did before the grant of the licence it would have been only marginally profitable at best. Seaquest's best hope of financial survival was to exploit the value of its intellectual property rights in a more direct way. The grant of the intellectual property rights licence was one such way.

MR NADEN AND MAJESTIC ROOFS

Mr Naden continued to work for the Burnden Group until February 2000. He then left, taking two Burnden employees with him and started his own business. It is called Majestic Roofs; and fabricates conservatory roofs. Majestic Roofs takes its supplies from the Burnden Group. It is a relatively small business and occupies modest premises. The two employees had previously been Northstar employees before its entry into receivership.

Mr Naden receives some support in his business from the Burnden Group; but no more than it offers others of its preferred dealers. The support consists of extended credit and software support; together with some marketing and technical support.

Some key customers who had been customers of both Northstar and TBG followed Mr Naden. They did so because of his personal reputation as a good fabricator of roofs; and because the Burnden Group was not really interested in fabricating conservatory roofs for retailers.

THE LEGAL FRAMEWORK

Terminology

Much of the discussion that follows is an attempt to identify and apply principles of equity. I was referred to a bewildering array of cases, statutes, textbooks and articles (over 200 in all), which are not easy to reconcile. In part this may be due to the flexibility of the relevant principles; but in part it may be due to loose use of language, even in the judgments of the most eminent judges.

Who owed directors' duties to Northstar and Seaquest?

Properly appointed directors

Obviously, persons properly and formally appointed as directors (de jure directors) owe directors' fiduciary duties to the company. The rationale underlying the imposition of fiduciary duties on directors was explained by the Court of Appeal in Re Lands Allotment Company [1894] 1 Ch 616. Directors are not regarded as trustees merely by virtue of their office; but they are treated as trustees "of money which comes to their hands or which is actually under their control" (per Lindley LJ at p. 631); or "they are only trustees qua the particular property which is put into their hands or under their control" (per Kay LJ at p. 639). Similarly in Re Forest of Dean Mining Co (1878) LR 10 Ch 450, 453 Jessel MR said:

"Again, directors are called trustees. They are no doubt trustees of assets which have come into their hands, or which are under their control, but they are not trustees of a debt due to the company. The company is the creditor, and, as I said before, they are only the managing partners. In my opinion it is extravagant to call them trustees of a debt when it has not been received. You may of course have an actual trust of a debt, as in the case I put before, where trustees have assigned to them a debt to get in, but that is not the case with directors of a company. A director is the managing partner of the concern, and although a debt is due to the concern I do not think it is right to call him a trustee of that debt which remains unpaid, though his liability in respect of it may in certain cases and in some respects be analogous to the liability of a trustee."

See also Selangor United Rubber Estates Ltd v. Cradock (No 3) [1968] 1 WLR 1555, 1575. It is, therefore, the actual control of assets belonging beneficially to a company which causes the law to treat directors as analogous to trustees of those assets.

De facto directors

Persons who undertake the functions of directors, even though not formally appointed as such, are called de facto directors. In Re Hydrodam (Corby) Ltd [1994] BCC 161 Millett J described a de facto director as:

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

In considering whether a person "assumes to act as a director" what is important is not what he calls himself, but what he did. In Secretary of State for Trade and Industry v. Tjolle [1998] 1 BCLC 333, 343, Jacob J cited with approval the following passage from the judgment of Judge Cooke in Secretary of State for Trade and Industry v. Elms (unreported 16 January 1997):

"At the forefront of the test I think I have to go on to consider by way of further analysis both what Millett J meant by "functions properly discharged only by a director", and Mr Lloyd QC meant by "on an equal footing". As to one it seems to me clear that this cannot be limited simply to statutory functions and to my mind it would mean and include any one or more of the following: directing others, putting it very compendiously, committing the company to major obligations, and thirdly (really I think what we are concerned with here) taking part in an equally based collective decision process at board level, i.e. at the level of a director in effect with a foot in the board room. As to Mr Lloyd's test, I think it is very much on the lines of that third test to which I have just referred. It is not, I think, in any way a question of equality of power but equality of ability to participate in the notional board room. Is he somebody who is simply advising and, as it were, withdrawing having advised, or somebody who joins the other directors, de facto or de jure, in decisions which affect the future of the company?"

Jacob J concluded:

"It may be difficult to postulate any one decisive test. I think what is involved is very much a question of degree. The court takes into account all the relevant factors. Those factors include at least whether or not there was a holding out by the company of the individual as a director, whether the individual used the title, whether the individual had proper information (e.g. management accounts) on which to base decisions, and whether the individual had to make major decisions and so on. Taking all these factors into account, one asks "was this individual part of the corporate governing structure", answering it as a kind of jury question. In deciding this, one bears very much in mind why one is asking the question. That is why I think the passage I quoted from Millett J is important. There would be no justification for the law making a person liable to misfeasance or disqualification proceedings unless they were truly in a position to exercise the powers and discharge the functions of a director. Otherwise they would be made liable for events over which they had no real control, either in fact or law."

A de facto director owes directors' duties to the company in relation to which he performs those functions: Re Canadian Land Reclaiming and Colonizing Co (1880) 14 ChD 660, 670; Ultraframe UK Ltd v. Fielding [2004] RPC 24 para 39.

Shadow director

The expression "shadow director" is defined by s. 741 (2) of the Companies Act 1985 as follows:

"In relation to a company, "shadow director" means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.

However, a person is not deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity."

A similar definition appears in other statutes. Ultraframe argue that Mr Fielding became a shadow director of both Northstar and Seaquest from about October 1998. The consequence of this is, according to Ultraframe, twofold. First, Mr Fielding became subject to specific obligations and disabilities imposed on shadow directors by the Companies Act. This consequence is common ground. Second, Mr Fielding owed the same fiduciary obligations to Northstar and Seaquest as if he had been a de jure director of both companies. This consequence is in dispute.

The meaning of the definition of shadow director was considered by the Court of Appeal in Secretary of State for Trade and Industry v. Deverell [2001] Ch. 340. Morritt LJ summarised the law in a number of propositions as follows:

i) The definition of a shadow director is to be construed in the normal way to give effect to the parliamentary intention ascertainable from the mischief to be dealt with and the words used. In particular, as the purpose of the Act is the protection of the public and as the definition is used in other legislative contexts, it should not be strictly construed merely because it also has quasi-penal consequences in the context of the Company Directors Disqualification Act 1986.

ii) The purpose of the legislation is to identify those, other than professional advisers, with real influence in the corporate affairs of the company. But it is not necessary that such influence should be exercised over the whole field of its corporate activities.

iii) Whether any particular communication from the alleged shadow director, whether by words or conduct, is to be classified as a direction or instruction must be objectively ascertained by the court in the light of all the evidence. In that connection it is not necessary to prove the understanding or expectation of either giver or receiver. In many, if not most, cases it will suffice to prove the communication and its consequence. Evidence of such understanding or expectation may be relevant but it cannot be conclusive. Certainly the label attached by either or both parties then or thereafter cannot be more than a factor in considering whether the communication came within the statutory description of direction or instruction.

iv) Non-professional advice may come within that statutory description. The proviso excepting advice given in a professional capacity appears to assume that advice generally is or may be included. Moreover the concepts of "direction" and "instruction" do not exclude the concept of "advice" for all three share the common feature of "guidance".

v) It will, no doubt, be sufficient to show that in the face of "directions or instructions" from the alleged shadow director the properly appointed directors or some of them cast themselves in a subservient role or surrendered their respective discretions. But it is not necessary to do so in all cases. Such a requirement would be to put a gloss on the statutory requirement that the board are "accustomed to act" "in accordance with" such directions or instructions.

In addition, Morritt LJ said that:

i) If the directors usually took the advice of the putative shadow director, it is irrelevant that on the occasions when he did not give advice the board did exercise its own discretion; and

ii) If the board were accustomed to act on the directions or instructions of the putative shadow director it is not necessary to demonstrate that their action was mechanical rather than considered.

It has been said that the concepts of shadow director and de facto director are mutually exclusive. In Hydrodam Millett J went as far as to say that a plea that someone was a shadow or de facto director (without specifying which) was embarrassing. But in Re Kaytech International plc [1999] 2 BCLC 351 at 423 Robert Walker LJ added "a tentative comment" on this. He said that the two different labels were not necessarily mutually exclusive. He said:

"However the two concepts do have at least this much in common, that an individual who was not a de jure director is alleged to have exercised real influence (otherwise than as a professional adviser) in the corporate governance of a company. Sometimes that influence may be concealed and sometimes it may be open. Sometimes it may be something of a mixture, as the facts of the present case show."

In most cases, however, it seems to me that it is unlikely on the facts that a person will be simultaneously a shadow director and a de facto director; although he may be both in succession.

Funders and lenders

Mr Hochhauser referred me to Re a Company No. 005009 of 1987 (1988) 4 BCC 424 in support of his submission that a funder or lender could become a shadow director of the borrower company. That case was the first in the MC Bacon saga. MC Bacon Ltd had borrowed money from a bank. The loan was unsecured. The company got into financial difficulty. The bank commissioned a report on the company's financial affairs; and insisted on the grant of a debenture to secure the company's borrowings. The report made various recommendations, which the company implemented. The company subsequently went into liquidation; and the liquidator alleged that the fact that the board of directors had acted on the bank's recommendations, led to the conclusion that the bank had become a shadow director of the company, and was consequently liable for wrongful trading. The bank applied to strike out the claim on the ground that it was obviously unsustainable. Knox J refused the application and allowed the claim to go to trial. However, Knox J declined to give any reasons for his conclusion on the ground that to do so would embarrass the trial judge. Plainly this detracts from the value of the decision as a precedent. In fact, when the claim did go to trial, the allegation that the bank was a shadow director was "rightly abandoned": Re MC Bacon Ltd [1990] BCLC 324, 325.

In Re PTZFM Ltd [1995] 2 BCLC 354 it was alleged that a lender had become a shadow director of the borrower company. Having quoted the statutory definition of "shadow director" Judge Baker QC said:

"This definition is directed to the case where the nominees are put up but in fact behind them strings are being pulled by some other persons who do not put themselves forward as appointed directors. In this case the involvement of the applicants here was thrust upon them by the insolvency of the company. They were not accustomed to give directions. The actions they took, as I see it, were simply directed to trying to rescue what they could out of the company using their undoubted rights as secured creditors. It was submitted to me that it was a prima facie case of shadow directors, but I am bound to say that that is far from obvious."

He then concluded:

"I find that there is no prima facie case made out, and it is unlikely that further information will come to light to show that they are shadow directors. The central point, as I see it, is that they were not acting as directors of the company, they were acting in defence of their own interests. This is not a case where the directors of the company, Steven and his colleagues, were accustomed to act in accordance with the directions of others i.e. the applicants here. It is a case here where the creditor made terms for the continuation of credit in the light of threatened default. The directors of the company were quite free to take the offer or leave it."

Although the reference to "pulling strings" may be overstated in the light of Deverell, in my judgment the thrust of the decision remains valid. In my judgment, where the alleged shadow director is also a creditor of the company, he is entitled to protect his own interests as creditor without necessarily becoming a shadow director.

Mr Snowden submitted that it is critical to distinguish the position of a lender (whether or not also a shareholder) from that of a director. A lender is entitled to keep a close eye on what is done with his money, and to impose conditions on his support for the company. This does not mean he is running the company or is emasculating the powers of the directors, even if (given their situation) the directors feel that they have little practical choice but to accede to his requests. Similarly with customers who may, because of their buying power, be able effectively to dictate conditions to their suppliers (or the other way around). In other words a position of influence (even a position of strong influence) is not necessarily a fiduciary position. To find otherwise would place a wholly unfair and unnatural burden on men of business. In broad terms, I accept this submission.

Mr Hochhauser accepted that a potential lender was entitled to lay down terms relating to the running of the business in the absence of which he would not be prepared to lend, without constituting himself a shadow director. He was also inclined to accept that a lender could lay down terms relating to the running of the business, in the absence of which he would call in his loan, without becoming a shadow director. However, he submitted that Mr Fielding had clearly crossed the line, wherever that line should, in theory, be drawn. I will examine the factual contention in due course.

Who is accustomed to act?

The statutory definition of "shadow director" is that he is a person on whose instructions or directions "the directors of the company" are accustomed to act. In Re Unisoft Group Ltd (No. 3) [1994] 1 BCLC 609, 620 Harman J said:

"In my view, there can be no way in which the acts of any one of several directors of a company in complying with the directions of an outsider could constitute that outsider a shadow director of that company. Of course, if the board of the company be one person only and that person is a 'cat's paw' for an outsider, the outsider may be the shadow director of that company. But in a case such as this, with a multi-member board, unless the whole of the board, or at the very least a governing majority of it – in my belief the whole, but I need not exclude a governing majority – are accustomed to act on the directions of an outsider, such an outsider cannot be a shadow director."

Similarly, in Lord v. Sinai Securities Ltd [2004] EWHC 1764 (Ch) Hart J held that it must be shown that "all the directors, or at least a consistent majority of them," had been accustomed to act on the directions of the alleged shadow director.

There is, no doubt a difficulty, as a pure matter of language, in construing the phrase "the directors of the company" as meaning "some of the directors of the company" or even "a majority of the directors of the company". However, the policy underlying the definition is that a person who effectively controls the activities of a company is to be subject to the same statutory liabilities and disabilities as a person who is a de jure director. Since a de jure director is subject to those liabilities and disabilities even if he is non-executive, or even inactive, it would undermine the policy of the definition if the fact that an inactive director did not act on the instructions of an alleged shadow director (because he did not act at all) could prevent that person from being a shadow director, even though in reality he controlled the activities of the company. In my judgment, therefore, a person at whose direction a governing majority of the board is accustomed to act is capable of being a shadow director.

Accustomed to act: retrospective operation?

As noted, a shadow director is a person in accordance with whose directions or instructions the directors of the company "are accustomed to act". In Re Unisoft Group Ltd (No. 3) [1994] 1 BCLC 609, 620 Harman J said:

"[The directors] must be people who act on the directions or instructions of the shadow director as a matter of regular practice. That last requirement follows from the reference in the subsection to the directors being 'accustomed to act'. That must refer to acts not on one individual occasion but over a period of time and as a regular course of conduct."

This requirement gives rise to this question: if it is shown that, over a period, the directors of a company were accustomed to act on the directions or instructions of another person, is that person a shadow director from the beginning of the period; or only from the point at which it can be said that the directors are "accustomed" to act on his directions or instructions?

The context in which the question arises is this. The Companies Act imposes a number of requirements on directors (including shadow directors) who enter into transactions with the company. The particular restrictions relied on in the present case are those imposed by section 320 of the Act; with which I deal fully later. This section requires certain transactions between a company and a shadow director to be approved by the company in general meeting. In the absence of approval the transaction is voidable. Suppose that the company enters into a transaction of the relevant kind with X who is neither a de jure or de facto director. It does so because the board of directors follow X's instructions to enter into the transaction. That is the only occasion on which the board follow X's instructions. In those circumstances, X is not a shadow director, and the transaction will be valid, despite not having been approved by the company in general meeting. But suppose that, at monthly intervals thereafter the company enters into further similar transactions with X, in each case because the board follows X's instructions. At some point during that period, it can fairly be said that the board are "accustomed to act" on X's instructions, with the result that he can be seen to be a shadow director. From that point onwards future transactions of the same kind will be voidable unless the requisite formalities are observed. But what about transactions that took place before that point? Are any of those transactions retrospectively invalidated? Mr Snowden submits no; Mr Hochhauser submits yes.

There is no authority on the point. In my judgment Mr Snowden's submission is to be preferred. First, as a matter of principle a statute should not be construed so as to interfere with vested rights, unless it is unambiguous. Under the first transaction in the given example, vested rights have been acquired by a person who, at the time, is not a shadow director. Second, the disability imposed on transactions between companies and their shadow directors is not absolute. It is open to a shadow director to seek the consent of the company in general meeting. But a person who is not a shadow director at the time of a transaction would not be able to seek the company's consent under the statute, since that only applies to a person who is a shadow director and not to a person who may (or may not) become one. Accordingly, the practical prophylactic action open to a shadow director is not available to a potential one.

I conclude, therefore, that if a person becomes a shadow director as a result of the board being accustomed to act on his instructions or directions, transactions entered into before it can be said that the board is so accustomed are not retrospectively invalidated.

There is one further point arising out of the phrase "accustomed to act". The operative word here is "act". Unless and until the board do something in conformity with the putative shadow director's directions or instructions, it does not seem to me that the question of shadow directorship arises. The mere giving of instructions does not make someone a shadow director. It is only when they are translated into action by the board that the question can arise.

Do shadow directors owe directors' duties to the company?

The statutory definition of "shadow director" has been enacted for specific purposes of company legislation. These include many prohibitions relating to transactions between companies and their directors; duties of disclosure and liability for wrongful trading or to the making of disqualification orders. There is no specific statutory provision that says that a shadow director owes the same duties to a company as a de jure or de facto director. Mr Snowden submitted that a shadow director owes no fiduciary duties to a company in relation to which he is a shadow director. He said that the term "shadow director" is a limited statutory concept, not a concept of the general law. From its statutory use, it is clear that the expression is used for far narrower purposes than the definition of a "director", even where that definition is extended. If the intention of Parliament had been to equate "shadow directors" with "directors" for all statutory purposes, this could have been simply achieved by extending the definition of "director" to include a "shadow director". This was not done. If Parliament had intended to impose all directors' duties on shadow directors, this would have been easy to achieve by the simple expedient of providing that a shadow director owes the same duties to a company as a director. Parliament has done this, for example, in section 417 (1) of the Financial Services and Markets Act 2000. Instead, in the Companies Act 1985 Parliament has specified those duties which apply to shadow directors, while remaining silent on others. It is notable, for example that the prohibition in section 310 of the Companies Act 1985 on making contracts that exempt "officers" of a company (defined in section 744) from liability for breach of duty or breach of trust does not expressly extend to shadow directors; and likewise the court's power under section 727 to relieve "officers" of a company from such liability also does not expressly extend to shadow directors.

The rationale for this distinction, he said, is apparent. In contrast to a de jure or de facto director, a shadow director does not undertake or agree to act in relation to the company in any such way. A shadow director directs or instructs those who themselves owe a fiduciary duty to the company and will not fall under the definition of shadow director until it is clear that the fiduciaries are accustomed to follow his directions or instructions. He does not thereby assume any obligation of loyalty to the company, and the company does not look to him to promote its interests. Instead, the company continues to look, at all times, to the de facto or de jure directors it has in place. It is against those persons that the company may have a complaint for breach of a fiduciary duty. If the company has a complaint in equity against the "shadow director" this can only be based upon an allegation of dishonest assistance by procuring a breach of fiduciary duty or for knowing receipt of trust property. Accordingly, he submitted, even if Mr Fielding did become a shadow director of Northstar or Seaquest, he did not owe them any general fiduciary duty by reason of that fact.

Mr Hochhauser referred me to a dictum of Lord Esher MR in Soar v. Ashwell [1893] 2 QB 390, in which he said:

"The cases seem to me to decide that, where a person has assumed, either with or without consent, to act as a trustee of money or other property, i.e., to act in a fiduciary relation with regard to it, and has in consequence been in possession of or has exercised command or control over such money or property, a Court of Equity will impose upon him all the liabilities of an express trustee, and will class him with and will call him an express trustee of an express trust."

Roxburgh J followed and applied this dictum in Tintin Exploration Syndicate Ltd v. Sandys (1947) 111 LT 412. That case concerned the ability of a de facto director to rely on the Limitation Act 1939 as a defence to an action by the company to recover "trust property". Roxburgh J held that the defence failed. He considered the circumstances in which fiduciary duties might arise. He said that the de facto directors exercised command and control over the company's property and were consequently trustees for the purposes of the Limitation Act. However, since this case concerned de facto rather than shadow directors, it is not directly in point. Moreover Lord Esher MR appears to have been contemplating a situation in which the putative trustee was exercising direct command or control over assets belonging to another. I do not consider that this dictum advances Ultraframe's case.

With one exception, there is no authority on the point. The one exception is Yukong Line of Korea Ltd v. Rendsburg Corp Investments of Liberia Inc [1998] 1 WLR 294 in which Toulson J said:

"As to an unlawful means conspiracy, Mr. Yamvrias undoubtedly owed a fiduciary duty to Rendsburg. Although he was not formally a director, he was a "shadow director" and controlled the company's activities."

Toulson J did not explain the reasons that led him to the conclusion that a shadow director "undoubtedly" owes fiduciary duties to the company. Indeed at least one distinguished academic commentator has expressed the opposite view (Pennington: Company Law (1995) p. 712). The findings of fact that Toulson J made more naturally lead to the conclusion that Mr Yamvrias was a de facto rather than a shadow director. It seems to me, therefore, that I must be cautious before accepting that a shadow director "undoubtedly" owes fiduciary duties to the company of which he is a shadow director. The instructions that a shadow director gives (and which the de jure directors act upon) may be quite inimical to the company's interests. It would be odd if, in those circumstances, a person who has no direct relationship with the company and who consistently gives instructions inimical to its interests were nevertheless held to have undertaken a duty of loyalty to the company; and to have agreed to subordinate his own interest to those of the company. Moreover the wider the interpretation of the statutory definition, the less easy it becomes to impose upon one who falls within the definition the full range of fiduciary duties imposed upon a de jure or de facto director. I am not persuaded that the mere fact that a person falls within the statutory definition of "shadow director" is enough to impose upon him the same fiduciary duties to the relevant company as are owed by a de jure or de facto director.

In truth, it seems to me that the use of labels such as "shadow director", which is a statutory definition, may serve only to obscure the real question. The real question is not what is the proper label to attach? It is: in what circumstances will equity impose fiduciary obligations on a person with regard to property belonging to another? Somewhat depressingly, Snell's Equity (31^st ed. 7-07) says:

"Identifying the kind of circumstances that justify the imposition of fiduciary duties is made difficult by the fact that the courts have consistently declined to provide a definition, or even a uniform description, of a fiduciary relationship, preferring to preserve flexibility in the concept. Numerous academic commentators have offered suggestions, but none has garnered universal support. The fiduciary relationship is a concept in search of a principle.

There is, however, growing judicial support for the view that a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relation of trust and confidence. The concept encaptures a situation where one person is in a relationship with another which gives rise to a legitimate expectation, which equity will recognise that the fiduciary will not utilise his or her position in such a way which is adverse to the interests of the principal."

The formulation in the second of these paragraphs is taken from the judgment of Millett LJ in Bristol & West BS v. Mothew [1998] Ch 1 and the opinion of the Privy Council in Arklow Investments Ltd v. Maclean [2000] 1 WLR 594. Mr Snowden thus submitted that the key component of a fiduciary duty is the obligation of loyalty. I must, therefore, he said look for facts which support the inference that the company was in a relation of trust and confidence with the putative fiduciary. The relation must be a direct one between the putative fiduciary and the person on whose behalf he acts.

In Paragon Finance v. BB Thakrar & Co [1999] 1 All ER 400 Millett LJ revisited this question. He distinguished between two types of fact situations. He said:

"A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. … In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.

The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be 'liable to account as constructive trustee'. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions 'constructive trust' and 'constructive trustee' are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are 'nothing more than a formula for equitable relief': Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555 at 1582 per Ungoed-Thomas J."

In my judgment this analysis supports Mr Snowden's submission. It gains further support from a paragraph in the speech of Lord Millett in Dubai Aluminium Co Ltd v. Salaam [2003] 2 AC 366, 404. Lord Millet was considering the position of Mr Amherst who (it was assumed) had dishonestly participated in a breach of trust by drafting sham documents, and giving advice and assistance to others involved in the fraud. Lord Millett said:

"… Mr Amhurst did not assume the position of a trustee on behalf of others. He never had title to the trust funds or claimed the right to deal with them on behalf of those properly entitled to them. He acted throughout on his own or his confederates' behalf. The claim against him is simply that he participated in a fraud. Equity gives relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally (and I have suggested unfortunately) described as a "constructive trustee" and is said to be "liable to account as a constructive trustee". But he is not in fact a trustee at all, even though he may be liable to account as if he were. He never claims to assume the position of trustee on behalf of others, and he may be liable without ever receiving or handling the trust property. If he receives the trust property at all he receives it adversely to the claimant and by an unlawful transaction which is impugned by the claimant. He is not a fiduciary or subject to fiduciary obligations; and he could plead the Limitation Acts as a defence to the claim."

The indirect influence exerted by a paradigm shadow director who does not directly deal with or claim the right to deal directly with the company's assets will not usually, in my judgment, be enough to impose fiduciary duties upon him; although he will, of course be subject to those statutory duties and disabilities that the Companies Act creates. The case is the stronger where the shadow director has been acting throughout in furtherance of his own, rather than the company's, interests. However, on the facts of a particular case, the activities of a shadow director may go beyond the mere exertion of indirect influence.

For example, in the present case it is common ground that Mr Fielding became the sole signatory on Seaquest's bank account. It is, in my judgment, indisputable that as sole signatory on that account he was not entitled to draw on the account for his personal benefit. By voluntarily becoming the sole signatory on that account, he took it upon himself to assume control of an asset belonging to another. That voluntary assumption must, in my judgment, carry with it a duty to use the asset for the benefit of the person to whom it belongs. That duty is properly called a fiduciary duty. However, it is important to recognise that this fact alone does not mean that wider fiduciary duties are imposed upon him. In the case of Northstar, for example, Ms Patey was a signatory on the bank account. She was only a book-keeper. It is plain that she could not have applied Northstar's money for her own benefit, and hence had fiduciary duties as regards the money under her control; but that does not mean that she owed the full range of directors' fiduciary duties to Northstar.

By the same token, in Brink's Ltd v. Abu-Saleh [1999] CLC 133, 148 Rimer J held that a security guard was employed in a position of trust in which he possessed valuable information; and as a result owed a fiduciary duty to his employer not to divulge that information to anyone not entitled to it. But it could not have been suggested that a security guard owed his employer the full range of directors' fiduciary duties.

The relevant general duties of the directors

Acting in the interest of the company

It is, of course, common ground that directors must exercise their powers in what they consider to be the best interests of the company; and must not exercise them for an improper purpose. The classic statement is that of Lord Greene MR in Re Smith and Fawcett Ltd [1942] Ch. 304:

"They must exercise their discretion bona fide in what they consider - not what a court may consider - is in the interests of the company, and not for any collateral purpose."

Mr Snowden emphasised that this formulation does not entitle the court to substitute its own judgment for that of the directors. Moreover, he submitted, the good faith of the directors is decisive; and this must be determined subjectively. The question is the director's state of mind: Regentcrest plc v. Cohen [2001] 2 BCLC 80. The good faith of the directors is not, however, the be-all and end-all. If they act in good faith, but for a purpose which is outside the ambit of their powers, their good faith will not validate their action. Similarly, if they act for a collateral purpose, their good faith will not validate their action. As Lord Wilberforce explained in Howard Smith Ltd v. Ampol Petroleum Ltd [1974] AC 821:

"Having ascertained, on a fair view, the nature of this power, and having defined as can best be done in the light of modern conditions the, or some, limits within which it may be exercised, it is then necessary for the court, if a particular exercise of it is challenged, to examine the substantial purpose for which it was exercised, and to reach a conclusion whether that purpose was proper or not. In doing so it will necessarily give credit to the bona fide opinion of the directors, if such is found to exist, and will respect their judgment as to matters of management; having done this, the ultimate conclusion has to be as to the side of a fairly broad line on which the case falls".

Even where the directors act in good faith for a purpose which is ostensibly within their powers, the court may intervene in exceptional circumstances. As Bowen LJ graphically put it in Hutton v West Cork Rly Co (1883) 23 Ch D 654, at 671:

"Bona fides cannot be the sole test, otherwise you might have a lunatic conducting the affairs of the company, and paying away its money with both hands in a manner perfectly bona fide yet perfectly irrational."

These duties are generally characterised as fiduciary duties, even though directors are not trustees in the strict sense.

Collective responsibility and delegation

Mr Maynard-Connor relied, on Mr Naden's behalf, on the principle that a director is entitled, in the absence of suspicion, to trust his fellow directors and others in positions of responsibility.

In Re Barings plc (No 5), Secretary of State for Trade and Industry v Baker (No 5) [2000] 1 BCLC 523, 536 the Court of Appeal approved the following statement by Jonathan Parker J:

"(i) Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties as directors.

(ii) Whilst directors are entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions.

(iii) No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it has been discharged, must depend on the facts of each particular case, including the director's role in the management of the company."

Similarly, in Re Westmid Packing Services Ltd [1998] 2 BCLC 646, 653 Lord Woolf MR said:

"A proper degree of delegation and division of responsibility is of course permissible, and often necessary, but total abrogation of responsibility is not. A board of directors must not permit one individual to dominate them and use them, as Mr Griffiths plainly did in this case. Mr Davis commented that the appellants' contention (in their affidavits) that Mr Griffiths was the person who must carry the whole blame was itself a depressing failure, even then, to acknowledge the nature of a director's responsibility. There is a good deal of force in that point."

Mr Griffiths (whose activities were under consideration in Westmid) was, for most of the period under consideration in that case, not a de jure director of the relevant company; although he appears to have been a de facto director. Nevertheless it appears to have been the view of the Court of Appeal that some reliance on him by the de jure directors would have been unexceptionable.

The quoted statements were made in the context of applications for the disqualification of company directors. In such applications it is not necessary to distinguish between breaches of directors' fiduciary duties, on the one hand, and breaches of other duties (e.g. a duty of skill and care) on the other. Mr Maynard-Connor emphasised that the two kinds of duty were different. In Extrasure Travel Insurance Ltd v. Scattergood [2003] 1 BCLC 598, 617-8 Mr Jonathan Crow (sitting as a judge of the Chancery Division) said:

"Fiduciary duties are concerned with concepts of honesty and loyalty, not with competence. In my view, the law draws a clear distinction between fiduciary duties and other duties that may be owed by a person in a fiduciary position. A fiduciary may also owe tortious and contractual duties to the cestui que trust: but that does not mean that those duties are fiduciary duties. Bearing all that in mind, I find nothing surprising in the proposition that crass incompetence might give rise to a claim for breach of a duty of care, or for breach of contract, but not for a breach of fiduciary duty….

The fact that his alleged belief was unreasonable may provide evidence that it was not in fact honestly held at the time: but if, having considered all the evidence, it appears that the director did honestly believe that he was acting in the best interests of the company, then he is not in breach of his fiduciary duty merely because that belief appears to the trial judge to be unreasonable, or because his actions happen, in the event, to cause injury to the company."

As Millett LJ put it in Bristol & West BS v. Mothew [1998] Ch 1:

"Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity. Mere incompetence is not enough. A servant who loyally does his incompetent best for his master is not unfaithful and is not guilty of a breach of fiduciary duty."

I accept this submission.

To whom do directors owe duties?

Leaving aside duties imposed by statute (such as the duty to have regard to the interests of employees), at common law the directors owe duties to the company itself, rather than to the shareholders. This follows from the separate legal personality of the company, as distinct from its shareholders. As Dillon LJ put it in Multinational Gas and Petrochemical Co Ltd v. Multinational Gas and Petrochemical Services Ltd [1983] Ch 258, 288:

"The directors indeed stand in a fiduciary relationship to the company, as they are appointed to manage the affairs of the company and they owe fiduciary duties to the company though not to the creditors, present or future, or to individual shareholders."

The shareholders as a general body may be regarded as the company when the company is solvent; but the directors do not owe fiduciary duties to any particular shareholder. However, when a company, whether technically insolvent or not, is in financial difficulties to the extent that its creditors are at risk, the duties which the directors owe to the company are extended so as to encompass the interests of the company's creditors as a whole, as well as those of the shareholders: see for example West Mercia Safetywear Ltd v Dodd [1988] BCLC 250, 252; Facia Footwear v Hinchliffe [1998] 1 BCLC 218, 228; MDA Investment Management Ltd [2004] 1 BCLC 217.

The two strands of fiduciary duties

In Chan v. Zacharia (1984) 154 CLR 178, 198 (cited with approval in Don King Productions Inc v. Warren [2000] Ch 291) Deane J said that the fundamental rule that obliged fiduciaries to account for personal benefit or gain had two separate themes:

"The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage."

These two strands have been conveniently labelled the "no conflict rule" and the "no profit rule"; and must be considered separately: see Don King Productions Inc v. Warren and In Plus Group Ltd v. Pyke [2002] 2 BCLC 201, 220. The two strands are also dealt with separately by Lewin on Trusts (17^th ed.) paras 40-40 and 40-41 – 40-43.

The no conflict rule

The general rule

In Aberdeen Railway Co v. Blaikie Brothers (1854) 1 Macq 461, 471 Lord Cranworth LC said:

"[It] is a rule of universal application, that no one, having [fiduciary] duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which may conflict, with the interests of those whom he is bound to protect.

So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into."

Disapplication of the rule

As Deane J stated in Chan v. Zacharia, the object of the "no conflict rule" is to prevent the fiduciary from being swayed by considerations of his personal interests. Swayed in what? The answer must be: swayed in the exercise of those powers which are his to exercise in a fiduciary capacity. If he has no powers to exercise, then the foundation for the rule has been undermined and the rule will not apply.

This can be seen in two groups of cases. The first is the case in which a director resigns his office, and thus ceases to have powers to exercise. Once a director resigns his office, the "no conflict rule" ceases to apply to his future activities. Such was held to be the law in CMS Dolphin v. Simonet [2001] 2 BCLC 704 (Lawrence Collins J); Quarter Master UK Ltd v. Pyke [2005] 1 BCLC 245, 264 (Mr Paul Morgan QC) and British Midland Tool Ltd v. Midland International Tooling Ltd [2003] 2 BCLC 523 (Hart J). Resignation will not preclude a director from being in breach of the "no profit rule" if, after his resignation, he uses for his own benefit property of the company or information which he has acquired while a director. But that is the second of the two rules.

The second group is where the director in fact has no powers to exercise even during the currency of his directorship. In Plus Group Ltd v. Pyke [2002] 2 BCLC 201 Mr Pyke was a director of In Plus. However, he had fallen out with his co-director; and had been effectively excluded from the management of the company. While still a director, he set up his own company which entered into contracts on its own behalf with a major customer of In Plus. In so doing, he used no property belonging to In Plus and made use of no confidential information which had come to him as a director of In Plus. In those circumstances, the Court of Appeal held that he was not in breach of his fiduciary duties to In Plus, even though he remained a de jure director of it. Sedley LJ said:

"Quite exceptionally, the defendant's duty to the claimants had been reduced to vanishing point by the acts (explicable and even justifiable though they may have been) of his sole fellow director and fellow shareholder Mr Plank. Accepting as I do that the claimants' relationship with Constructive was consistent with successful poaching on Mr Pyke's part, the critical fact is that it was done in a situation in which the dual role which is the necessary predicate of [the claimants'] case is absent. The defendant's role as a director of the claimants was throughout the relevant period entirely nominal, not in the sense in which a non-executive director's position might (probably wrongly) be called nominal but in the concrete sense that he was entirely excluded from all decision-making and all participation in the claimant company's affairs. For all the influence he had, he might as well have resigned."

In addition, where a person already has contractual relations with another, his assumption of a fiduciary role in relation to that other will not necessarily require him to abandon his own contractual interests: Vyse v. Foster (1874-5) LR 7 HL 318.

A servant with two masters

Since those who are alleged to owe fiduciary duties owed fiduciary duties both to Northstar and Seaquest, it is also necessary to consider the position of a fiduciary who owes duties to more than one person and whose interests may conflict.

So far as company directors are concerned, the Court of Appeal held in In Plus Group Ltd v. Pyke [2002] 2 BCLC 201 that as the law stands:

"There is no completely rigid rule that a director may not be involved in the business of a company which is in competition with another company of which he was a director."

This quotation is taken from the judgment of Brooke LJ with whom Jonathan Parker LJ agreed. But even Sedley LJ, who was more critical of the authority on which this proposition is based, said:

"London & Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891] WN 165, in its solitary and briefly reported form, establishes that there is nothing inherently objectionable in the position of a company director (and chairman) who, without breaching any express restrictive agreement or disclosing any confidential information, becomes engaged, whether personally or as a director of another company, in the same line of business. The extempore judgment of Chitty J on what appears to have been an interlocutory motion for injunctive relief was given the imprimatur of the House of Lords by Lord Blanesburgh in Bell v Lever Bros Ltd [1932] AC 161 at 195. … This, therefore, is the law which binds us."

The position of fiduciaries generally was discussed by Millet LJ in Bristol and West BS v. Mothew [1998] Ch 1, 18. He said (omitting citation of authority):

"A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other…. This is sometimes described as "the double employment rule." Breach of the rule automatically constitutes a breach of fiduciary duty. But this is not something of which the society can complain. It knew that the defendant was acting for the purchasers when it instructed him. Indeed, that was the very reason why it chose the defendant to act for it. The potential conflict was of the society's own making. …

That, of course, is not the end of the matter. Even if a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other…. I shall call this "the duty of good faith." But it goes further than this. He must not allow the performance of his obligations to one principal to be influenced by his relationship with the other. He must serve each as faithfully and loyally as if he were his only principal."

Applying this principle, a director of Northstar, acting as such, is required to exercise his powers in relation to Northstar for the benefit of Northstar; and the same person, acting as a director of Seaquest, must exercise his powers in relation to Seaquest for the benefit of Seaquest.

However, it also follows from the above passage that if the informed consent of both principals is obtained, there is no breach of fiduciary duty in acting for both, for as long as the conflict between the interests of the principals is only a potential one. Consent may be express or implied (as in the case where a seller of property employs an estate agent whom he knows will act for competing sellers: Kelly v. Cooper [1993] AC 205).

The no profit rule

The general rule

The second theme that Deane J identified in Chan v. Zacharia is the "no profit rule". His particular formulation is, perhaps, not entirely accurate. The rule does not preclude a fiduciary from retaining a benefit or gain which comes his way as a result of his fiduciary position, if those to whom he owes fiduciary duties have given informed consent to the benefit or gain. The consent in question may be given ad hoc; or it may be given in an instrument creating the trust (e.g. a professional charging clause in a will or settlement). In the case of a company, consent to certain transactions is usually given by the articles of association of the company.

The relevant principle in relation to companies was "forcefully expressed and elegantly explained" in the joint judgment of Rich, Dixon and Evatt JJ in the High Court of Australia in Furs Ltd v Tomkies (1936) 54 CLR 583 at 592 as follows:

"…..the inflexible rule that, except under the authority of a provision in the articles of association, no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all material facts are disclosed to the shareholders and by resolution a general meeting approves of his doing so or all the shareholders acquiesce. An undisclosed profit which a director derives from the execution of his fiduciary duties belongs in equity to the company. It is no answer to the application of the rule that the profit is of a kind which the company itself could not have obtained, or that no loss is caused to the company by the gain of the director. It is a principle resting upon the impossibility of allowing the conflict of duty and interest which is involved in the pursuit of private advantage in the course of dealing in a fiduciary capacity with the affairs of the company. If, when it is his duty to safeguard and further the interests of the company, he uses the occasion as a means of profit to himself, he raises an opposition between the duty he has undertaken and his own self interest, beyond which it is neither wise nor practicable for the law to look for a criterion of liability. The consequences of such a conflict are not discoverable. Both justice and policy are against their investigation."

This passage was recently cited with approval by the Court of Appeal in Gwembe Valley Development v Koshy (No. 3) [2004] 1 BCLC 131, 146 at paragraph 44, who noted at paragraph 45 that this was

"the same equitable doctrine of accountability for unauthorised profits as was applied by the House of Lords in Regal (Hastings) v Gulliver [1967] 2 AC 134n."

In Regal Hastings v. Gulliver the House of Lords stressed that the "no profit" rule applies even where the fiduciary has acted in good faith. As Lord Russell put it [1967] 2 AC 134, 144:

"The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account."

As the Court of Appeal pointed out in Gwembe Valley, the "no profit" rule does not apply to all profits; it applies to unauthorised profits. In the case of a director of a company, some profits may be (and usually are) authorised by the company's articles of association.

Dealings with directors authorised by the articles

Northstar's articles of association incorporate Table A in the Schedule to the Companies (Tables A to F) Regulations 1985 as in force at the date of incorporation of the company, with certain modifications. So do Seaquest's.

Article 85 of Table A states that subject to the provisions of the Companies Act, and provided that he has disclosed to the directors the nature and extent of any material interest of his, a director, notwithstanding his office:

i) may be a party to or otherwise interested in any transaction or arrangement with the company or in which the company is otherwise interested and

ii) is not, by reason of his office, accountable to the company for any benefit which he derives from any such transaction or arrangement and no such transaction or arrangement is liable to be avoided on the ground of any such interest or benefit.

Table A incorporates the definitions of terms contained in the Companies Act 1985. These include the definition of "director" in section 741 (1) which defines that word as including "any person occupying the position of director, by whatever name called". This includes both de jure and de facto directors. It does not appear to include shadow directors, who are separately defined in the Act.

The effect of the appointment of an administrative receiver

Mr Snowden submitted that once an administrative receiver is appointed, he replaces the board of directors as the person entitled to take decisions on behalf of the company. The consequence of this, he submits, is that the fiduciary duties of the directors (in so far as they overlap with the authority of the receiver) are suspended. He relied on Gomba Holdings UK Ltd v. Homan [1986] 3 All ER 94 in which Hoffmann J applied the statement of Lord Atkinson in Moss Steamship Co v. Whinney [1912] AC 254, 263 that the appointment of a receiver:

"entirely supersedes the company in the conduct of its business, deprives it of all power to enter into contracts in relation to that business, or to sell, pledge or otherwise dispose of the property put into the possession or under the control of the receiver and manager. Its powers in these respects are entirely in abeyance."

He also submitted that one further consequence is that, because an administrative receiver replaces the board of directors, and the directors' own powers to act on behalf of the company have been suspended or curtailed, it will almost invariably be the case that someone who was a shadow director will cease to be such.

Directors remain in office despite the appointment of an administrative receiver. That being so, it seems to me that it is unlikely to be the case that all their fiduciary obligations to the company are suspended on the occasion of the appointment of an administrative receiver. The quoted statement of Lord Atkinson applies only to assets of which the receiver has taken possession or control. This is, I think borne out by Hoffmann J's subsequent reference in Gomba to the decision of the Court of Appeal in Newhart Developments Ltd v Co-op Commercial Bank [1978] 1 QB 814, which recognised that even though the directors may lack power to dispose of an asset they might remain under a duty to exploit it for the benefit of the company. It is also worthy of note that in the Burnden Action the Burnden Group itself alleges that even after the appointment of a liquidator a director of a company in liquidation continues to owe it fiduciary duties, at least to the extent of identifying its assets, and delivering to the liquidator such of the company's assets as are in his custody or control.

It seems to me that, even after the appointment of an administrative receiver, a director still has the core obligation of loyalty to the company; and, in my judgment, must account to the company for any profit that he makes because of his position as director. It is true that the appointment of an administrative receiver will deprive a director of his executive control over the company and will remove (or at least curtail) his ability to deal with the assets that actually belong to the company. But all that that means is that a director will have fewer opportunities to act in breach of his fiduciary obligations: not that they cease to exist or are suspended. Accordingly I reject Mr Snowden's first submission in the broad terms in which it was put.

However, as I have said, if a person has no powers to exercise (because of resignation or exclusion from office) the "no conflict" rule ceases to apply. But the "no profit" rule does not. Thus Mr Snowden is correct to this extent: that the appointment of an administrative receiver suspends the operation of the "no conflict" rule in relation to assets within the administrative receiver's control.

The question whether a person is a shadow director is one of fact. I accept that in the usual case it cannot be said that an administrative receiver is accustomed to act on the directions of the shadow. Moreover, an administrative receiver is not the board of directors. To this extent, therefore, I accept Mr Snowden's second submission.

The "corporate opportunity" cases

I was taken to a large number of cases dealing with the liability of a director or senior officer of a company for diverting a maturing corporate opportunity. Many of the cases discussed both the scope of the duty and the scope of the appropriate remedy. At this stage I deal with the duty only. I will return to some of the cases when discussing the extent of the liability.

I start with Cook v. Deeks [1916] 1 AC 554, a decision of the Privy Council. Messrs Deeks and Hinds were the directors of the Toronto Construction Company. They negotiated a lucrative construction contract with the Canadian Pacific Railway. During the course of the negotiations, they decided to enter into the contract personally, on their own behalves. However, they incorporated a new company, the Dominion Construction Company to carry out the work. Precisely what happened next is obscure, but the report records that: "The contract was accordingly taken over by this company, by whom the work was carried out and the profits made." A shareholder in the Toronto Construction Company brought a derivative action against the directors and the Dominion Construction Company. Because this was a derivative action, the Toronto Construction Company was also joined as a defendant. The Privy Council held that Messrs Deeks and Hinds were guilty of a breach of duty in the course they took to secure the contract, and must be regarded as holding it for the benefit of the Toronto Construction Company. The factual finding on which this conclusion was based was that that "while entrusted with the conduct of the affairs of the company they deliberately designed to exclude, and used their influence and position to exclude, the company whose interest it was their first duty to protect." This led to the legal conclusion that:

"men who assume the complete control of a company's business must remember that they are not at liberty to sacrifice the interests which they are bound to protect, and, while ostensibly acting for the company, divert in their own favour business which should properly belong to the company they represent."

Although not expressly articulated, the thinking behind this conclusion seems to me to be an application of the "no conflict" rule; based on the finding that Messrs Deeks and Hind had put their own interest first, while still in office and entrusted with the conduct of the company's affairs. I will return to this case later, when dealing with remedies.

In Industrial Development Consultants Ltd v. Cooley [1972] 1 WLR 443 Mr Cooley was the managing director of the claimant. His duties included procuring business in the field of developing gas depots. The company had unsuccessful negotiations with the Eastern Gas Board for the development of four depots. However, the Gas Board were not prepared to let the contracts to the company. The Gas Board subsequently approached Mr Cooley in his private capacity; and indicated that they would be prepared to contract with him personally. In the course of the meeting, Mr Cooley acquired knowledge that the company did not have; and would have wanted to have. Mr Cooley therefore resigned his office (on the basis of a false excuse) and entered into the contracts with the Gas Board. He was held to be accountable for the profits. Roskill J found that there was no doubt that Mr Cooley got the contract for himself as a result of work that he did while still the company's managing director. He said:

"Therefore, I feel impelled to the conclusion that when the defendant embarked on this course of conduct of getting information … using that information and preparing those documents … and sending them off…, he was guilty of putting himself into the position in which his duty to his employers, the plaintiffs, and his own private interests conflicted and conflicted grievously. There being the fiduciary relationship I have described, it seems to me plain that it was his duty once he got this information to pass it to his employers and not to guard it for his own personal purposes and profit. He put himself into the position when his duty and his interests conflicted."

Again, the reasoning underlying this decision is an application of the "no conflict" rule; based on the finding that Mr Cooley had used information that came to him while he was still managing director of the company.

In Canadian Aero Services Ltd v. O'Malley (1973) 40 DLR (3d) 371 Mr O'Malley and Dr Zarzycki were senior officers of the claimant ("Canaero"). Having attempted, unsuccessfully, to procure a contract for Canaero to carry out a topographical survey and mapping of part of Guyana, they resigned from the company. Subsequently, they incorporated their own company, Terra Surveys Ltd ("Terra"). Terra was successful, shortly afterwards, in obtaining the contract for the topographical survey and mapping. Canaero brought a claim against Mr O'Malley, Dr Zarzycki and Terra.

By the time the case reached the Supreme Court, the argument concentrated on breach of fiduciary duty; which was not how the case had been argued below. Laskin J said:

"Descending from the generality, the fiduciary relationship goes at least this far: a director or a senior officer like [the defendants] is precluded from obtaining for himself, either secretly or without the approval of the company (which would have to be properly manifested on full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so when the director or officer is a participant in the negotiations on behalf of the company…An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of an ethic in this area of the law. In my opinion, this ethic disqualifies a director or other senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired."

Laskin J's reference to a director or senior officer seems to me to refer to persons who actually hold those positions when the maturing business opportunity is diverted. If they are in active office, then they continue to be governed by the "no conflict rule". He also went on to say that one who has ceased to hold office is also liable if:

i) His resignation was prompted by a wish to acquire the opportunity for himself or

ii) It was his position as fiduciary that led him to the opportunity.

It is tempting to regard these two situations (and especially the second of them) as applications of the "no profit rule". However, having considered Regal (Hastings) v. Gulliver [1967] 2 AC 134, Laskin J said that neither the "no conflict" rule nor the "no profit" rule should be considered as "the exclusive touchstones of liability."

"In this, as in other branches of the law, new fact situations may require a reformulation of existing principles to maintain its vigour in the new setting."

Clearly, this is a much broader approach. Laskin J concluded that both Mr O'Malley and Dr Zarzycki were in breach of their fiduciary duties. Again, I will return to this case when discussing remedies.

In Brown v. Bennett [1999] BCC 525 the corporate opportunity cases were relied on in argument, although it was not a corporate opportunity case. Morritt LJ said of them:

"Those are cases in which a beneficial commercial opportunity comes the company's way and forms knowledge owned or possessed by the directors as agents for the company. Those directors then seek to use that knowledge or opportunity for themselves and are subsequently held to be constructive trustees of it and of its fruits for the company whence they took it."

Having referred to Cook v. Deeks he said:

"… it seems to me that in cases such as that there is a distribution or a disposal of the property of the company in breach of trust."

This formulation of the principle shifts from the application of a personal rule to a proprietary basis for liability. Since the maturing business opportunity is treated as the property of the company, he who takes advantage of the opportunity misappropriates trust property. This seems to be a variant on the "no profit" rule. There are signs that the proprietary analysis is gaining ground.

In CMS Dolphin Ltd v. Simonet [2001] 2 BCLC 704 Mr Ball and Mr Simonet formed an advertising agency called CMS Dolphin. Mr Simonet was the managing director. Following a period of tension between Mr Ball and Mr Simonet, Mr Simonet resigned and set up a rival agency called Blue. All the staff of CMS Dolphin left and joined Blue; and its principal clients changed their allegiance too. Blue subsequently became insolvent. CMS Dolphin claimed that Mr Simonet was in breach of his fiduciary duties as a director in diverting business opportunities from CMS Dolphin to Blue. Lawrence Collins J held that that claim had been established. He examined a number of authorities (including those I have referred to) in a search for the underlying principle. Lawrence Collins J concluded:

"In my judgment the underlying basis of the liability of a director who exploits after his resignation a maturing business opportunity of the company is that the opportunity is to be treated as if it were property of the company in relation to which the director had fiduciary duties. By seeking to exploit the opportunity after resignation he is appropriating for himself that property. He is just as accountable as a trustee who retires without properly accounting for trust property. In the case of the director he becomes a constructive trustee of the fruits of his abuse of the company's property, which he has acquired in circumstances where he knowingly had a conflict of interest, and exploited it by resigning from the company."

In In Plus Group Ltd v. Pyke [2002] 2 BCLC 201, Brooke LJ said:

"The governing principles in this type of case are found in what are sometimes called the no conflict rule and the no profit rule. The judgment of Malins V-C in Imperial Mercantile Credit Association (liquidators) v Coleman (1871) 6 Ch App 558 at 563 represents an early statement of the relevant principles. Under the former rule, certain consequences can flow if directors place themselves in a position where their personal interests or duties to other persons are liable to conflict with their duties to the company of which they are directors unless the company gives its informed consent. Under the latter, directors are not permitted to retain secret profits which they make by using information or property or opportunities which belong to their company. Even if their company would not itself have benefited from the opportunity, equity treats the profits which the director, or former director, has made as property which he is under a duty to pay over to the company which he has betrayed by his disloyalty."

Brooke LJ refers to opportunities which "belong to" the company, which has at least a proprietary flavour. He then referred to the "valuable recent analysis of the law" by Lawrence Collins J in CMS Dolphin where the judge plainly dealt with the corporate opportunity as a species of trust property. However, it is to be noted that the proprietary analysis is presented under the "no profit" rule, rather than the "no conflict" rule; and that the liability of the delinquent director is (at least to my mind) formulated in terms of a personal duty to pay over the profits.

In Bhullar v. Bhullar [2003] 2 BCLC 241 two directors of a property investment company ("Bhullar Bros Ltd") acquired a property adjacent to property already owned by the company. They did so through the medium of another company ("Silvercrest") which they controlled. The Court of Appeal decided that the two directors were accountable for profits and also liable to procure the transfer of the property to the company. The trial judge appears to have granted a declaration that Silvercrest held the property on trust for Bhullar Bros Ltd, even though it was not a party to the proceedings. This does not appear to have been challenged on appeal, where the argument turned on the question of liability. The Court of Appeal analysed the case as an application of the "no conflict rule" rather than the "no profit rule". But this was a case in which the fiduciaries were still active directors of the company; so no question of the cessation of the "no conflict rule" arose. Jonathan Parker LJ said:

"In a case such as the present, where a fiduciary has exploited a commercial opportunity for his own benefit, the relevant question, in my judgment, is not whether the party to whom the duty is owed (the company, in the instant case) had some kind of beneficial interest in the opportunity: in my judgment that would be too formalistic and restrictive an approach. Rather, the question is simply whether the fiduciary's exploitation of the opportunity is such as to attract the application of the rule."

In Crown Dilmun v. Sutton [2004] 1 BCLC 468 Peter Smith J also dealt with a "corporate opportunity" case under the "no conflict rule". But that, too, was a case in which the corporate opportunity materialised while the fiduciary was still the managing director of the company which lost the corporate opportunity.

Lindsley v. Woodfull [2004] 2 BCLC 131 concerned a partnership. Mr Woodfull, while still a partner, incorporated a company which entered into a valuable contract with one of the partnership's main customers (Colt), for which Mr Woodfull had been negotiating on behalf of the partnership. He was held to be accountable for the profits. The issue in the Court of Appeal was the date down to which the account should have been ordered. However, in the course of her judgment Arden LJ (with whom Thorpe LJ agreed) made some general observations about the basis of Mr Woodfull's liability. She said (p. 139):

"The Colt contract clearly fell within the partnership's area of business. No question arises as to whether the opportunity to obtain that contract was outside the scope of Mr Woodfull's duties. That opportunity was, in my judgment, an intangible asset of the partnership which Mr Woodfull ought (in the absence of fully informed consent from his partners) to have taken up for the benefit of the partnership."

She added (p. 140):

"The result looks extreme, but the purpose of imposing liability for breach of the fiduciary duty not to make a secret profit is partly to act as a deterrent … The facts of this case do not suggest that the need for this deterrent has diminished since the eighteenth century. Moreover, it is obvious that if (as here) a fiduciary holds trust property at the cesser of his fiduciary relationship, he remains accountable for it. His duty is to hand it back to the person or persons to whom the fiduciary duty was owed."

This time the reasoning is based on the application of the "no profit" rule, even though Mr Woodfull was still a partner when he incorporated the company. In addition, Arden LJ again deploys a proprietary analysis, treating the opportunity as an "intangible asset" of the partnership and treating the fiduciary as holding "trust property".

In Quarter Master UK Ltd v. Pyke [2005] 1 BCLC 245, 264 Mr Paul Morgan QC, having held that the "no conflict rule" ceased to apply once a director had resigned his office went on to consider the "no profit rule". He said:

"The position is less straightforward in relation to the rules described above as to profiting from the property of the company or from a fiduciary position. If Mr Newson and Mr Pyke acquired property or had available to them the use of property, which was the property of the company, and then Mr Newson and Mr Pyke ceased to be directors of the company but retained the property described above, then it would seem that the mere fact that they had ceased to be directors of the company would not enable them to deal with the company's property for their own benefit, and in disregard of the fiduciary obligations they owed the company in relation to that property: see the Simonet case at [para] 96. Accordingly, there will be cases where directors who have effectively resigned their directorships will continue to owe fiduciary obligations to the company in relation to the company's property retained by the directors. There is also a group of cases dealing with what has been described as a "maturing business opportunity" where former directors have continued to owe fiduciary obligations to the company in relation to such a business opportunity even after the termination of the relevant directorships: see the decision of the Supreme Court of Canada in Canadian Aero Services Ltd v O'Malley … and the Simonet case."

Again, the "corporate opportunity" cases are analysed under the "no profit" rule.

The law relating to the accountability of a director (or former director) for profits derived from the diversion of corporate opportunities is still developing. As the cases stand it is I think possible to draw the following conclusions:

i) If a person diverts to himself a business opportunity while in office, he may be liable to account for profits under the "no conflict rule" or the "no profit rule" or both;

ii) The application of the "no conflict rule" does not depend on establishing that the company has a proprietary interest in the business opportunity that has been diverted;

iii) After a person ceases to be in office, he may be liable for the diversion of a business opportunity either under the "no profit rule"; or because the business opportunity itself is to be treated as the property of the company (in the sense of an intangible asset) and hence is treated for this purpose as trust property.

However, if the business opportunity is treated as trust property, there still remains the question whether the exploitation of that opportunity (its "fruits") can itself be regarded as trust property or a substitute for it. This, in my judgment, depends on the law of tracing, which I will consider in due course.

Appropriation of a business

The Burnden Defendants submit that there is no such thing as "appropriation of a business". They accept that it is possible to appropriate a company by acquiring the shares. But this is because a company has legal personality and shares are recognizable pieces of property. In contrast, they say, a "business" does not have a legal personality and is not an identifiable piece of property. On a proper analysis, they submit, a business is no more than a bundle of assets: in particular physical assets, goodwill, intellectual property and confidential information. Those assets may be removed or damaged by third parties by means of acts which constitute torts; or by directors by acts which constitute breaches of fiduciary duty. But in each case it is necessary (a) to identify the particular asset or property alleged to have been removed or damaged; and (b) to identify when and how a tort or a breach of fiduciary duty has taken place in relation to that asset. They go on to say that the phrase "appropriation of business" is either meaningless or misleading, because it is perfectly apt to describe a series of legitimate actions, none of which is actionable, as it is to describe actions which amount to torts or breaches of trust. The Burnden Defendants illustrate the submission by a hypothetical example:

"X is a director of company Y which trades under a particular trade mark. Y produces a number of products which may or may not be protected by any IP rights. Y stops trading and X ceases to be a director. He then sets up another company (Z) in business next door making and selling the same products to the same designs. All the customers who used to buy from Y now buy from Z. X could well be described as having "appropriated the business" of Y, in that one can see something similar to the business of Y now being carried on by his new company. However, X may be guilty of no tort and no breach of trust. There is no property in customers, and there are no protectable interests in the designs."

In this hypothetical example, the Burnden Defendants submit that legal liability depends on establishing a legal wrong: passing off; conversion; infringement of intellectual property rights; breach of fiduciary duty and so on.

Ultraframe submit that this analysis is flawed. Businesses are bought and sold every day of the week. Whether they are "property" strictly so-called does not matter. A business has a value as a going concern which is more than the sum of its constituent parts. A ready-made business which is up and running is obviously more attractive than a start-up. Even if the employees of such a business do not have trade secrets or confidential information, they have "know how" and by working together, and being used to work together, they contribute more than the aggregate of their individual contributions. Thus, they say, it makes perfect sense to say that someone has appropriated a business belonging to someone else.

I agree with the Burnden Defendants that there is no such thing as the "appropriation of a business" in the abstract. It depends on the area of the law that is under consideration. The appropriation of a business is not itself a tort. If a claim is brought under the common law, a specific tort or torts would have to be identified. But, as the Burnden Defendants recognise, equity is more flexible. If (as in my judgment the cases show) something so amorphous as a "business opportunity" can be regarded as "belonging" to a company and a diversion of that opportunity by a fiduciary can result in the fiduciary becoming accountable for the profits derived from that diversion, then whether that breach of fiduciary duty is described as an "appropriation of a business" is, to my mind, merely a question of semantics. Moreover, in such a case it is not always necessary to show that the company has a proprietary interest in the business opportunity: an application of the "no conflict rule" in appropriate circumstances is all that is required.

Where, however, the law requires that a claimant identify a specific asset which has been wrongfully taken or another asset that has been substituted for an asset wrongfully taken, then it seems to me that the Burnden Defendants' submission has much greater force. This may impact on the remedy to which a claimant is entitled on establishing a breach of fiduciary duty. It is also an aspect of the law of tracing which I deal with later.

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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ultraframe (UK) Ltd v Fielding & Ors [2005] EWHC 1638(3) (Ch) (27 July 2005) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2005/1638(3).html Cite as: [2005] EWHC 1638(3) (Ch)