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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 >> Sears & Anor v Minco Plc & Ors [2016] EWHC 433 (Ch) (04 March 2016) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2016/433.html Cite as: [2016] EWHC 433 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		The Rolls Building 7 Rolls Buildings London EC4A 1NL
		4 March 2016

His Honour Judge Hodge QC:

1. The first claimant (Mr Sears) is a private investor who, between 1 April 2010 and 11 April 2011, caused almost 8 million shares to be purchased in the first defendant (Minco), an AIM listed company incorporated and registered in the Republic of Ireland which is engaged in investing in mining exploration projects, principally through a 43% interest in Xtierra Inc (involved in the Central Mexican silver belt) and, relevantly for this litigation, at that time (through a wholly-owned Irish subsidiary, Minco Ireland Ltd) a 23.6% interest in a joint venture with a subsidiary of Xstrata Plc (a major mining company then listed in the FTSE 100) in a zinc-lead exploration project at Pallas Green, near Limerick, Ireland (Pallas Green). All but a small number of the shares were purchased at Mr Sears's direction and on his behalf through a self-administered personal pension scheme which is held by the second claimant as trustee for Mr Sears (as explained in an unchallenged witness statement dated 29 October 2015 of Mr Bruce Robinson, the Group Legal Service Director of the Scheme Administrator). For the purposes of this judgment, it is unnecessary to distinguish between the claims of Mr Sears and his pension trustee. By a claim form issued on 30 October 2013 it is claimed that Mr Sears was induced to purchase and/or retain the shares by misrepresentations on the part of Minco and the two individual defendants, Mr Terence McKillen (Mr McKillen), a professional geologist with over 40 years' experience in the mining industry who was then the chief executive officer of Minco (based in Canada) and was (and remains) a member of its board of directors, and Mr Danesh Varma (Mr Varma), a qualified chartered accountant with over 35 years' experience in the mining finance industry who was and is the chief financial officer and company secretary of Minco and the only director in its UK administrative office. As against all three defendants, damages are claimed for fraudulent misrepresentation or the tort of deceit. As against Minco there are also claims for damages for negligent misstatement (on the basis that, on the particular facts of this case, Minco assumed a duty of care to Mr Sears in respect of the shares purchased and/or retained) and/or under s.2 (1) of the Misrepresentation Act 1967 in respect of those shares which were purchased from Minco by way of share placement, rather than on the AIM, in August 2010 and April 2011.
2. The nature of the claim is summarised in broad terms at paragraphs 5 to 9 of Mr Sears's 3^rd witness statement. Mr Sears claims that he was induced to purchase and retain his shares in Minco on the strength of representations by the defendants that the terms of the governing Joint Venture Agreement (the JVA) provided that Minco's interest in the Pallas Green project could not be diluted below 10% and that the defendants knew and were familiar with the terms of the JVA in general and the dilution provision (contained in clause 16.7) in particular. Mr Sears believes that those representations were made by the defendants with the intention of inducing him to purchase and to retain shares in Minco. Those representations turned out to be false. In particular, Minco's position under the JVA was clear and unambiguous: Under the heading "Elimination of Minority Interest" clause 16.7.4 provided that if Minco's interest was diluted to less than 5% then Minco would be deemed to have withdrawn from the joint venture and would relinquish its entire interest in Pallas Green and instead become entitled to a 15% net profit payment from 8 [sic: in fact, 7] of the 10 exploration licences at Pallas Green. Mr Sears claims that he (or his pension fund) have suffered significant loss and damage as a result (in particular, by way of loss of profits on alternative investments that would otherwise have been made). Since (by paragraph 13 of an Order made on 20 July 2015) this trial is limited to the issue of liability only, the quantum of that loss will (if necessary) be the subject of a trial on quantum at a later date.
3. At paragraphs 191-2 of his 3^rd witness statement Mr Sears records that the defendants have sought to ascribe the falsity of their representations to misfortune or memory lapse or otherwise to their own "honest but erroneous" recollection of the JVA. However, Mr Sears asserts that the information provided was so often repeated and so far from the truth that this cannot be accepted. The directors confirmed to him, in face to face meetings, the existence of a clause in the JVA which gave Minco an invulnerable 10% interest in Pallas Green. That turned out to be untrue. Even if the defendants somehow gave that confirmation in ignorance, it is said to have been incumbent on them to correct the misrepresentations as soon as they discovered their error, which they failed to do. Mr Sears believes that they must have reviewed the JVA and discovered that the minimum dilution representation was false either in the course of (1) a further share placement in April 2011, or (2) during later negotiations for the sale of Minco's interest in Pallas Green to Xstrata, or (3) in any event, by 31 May 2011 when Mr McKillen responded to a question by email from Mr Tim Melia (a private investor in Minco) asking "Do we have a 'guaranteed' 10% carry on Pallas Green come what may even if we were not to provide any more project funding or be unable to do so?" by an email asserting that "There is provision for a carried net profits interest". Mr Sears claims that the defendants should not be able to evade responsibility for the losses he has suffered because of their conduct, which cannot simply be dismissed as mere "casualness" as Minco's executive chairman and (in succession to Mr McKillen) presently its chief executive officer, Mr John Kearney (Mr Kearney), a qualified solicitor, is said to have done in response to a question posed by Mr Sears at the extraordinary general meeting held on 24 October 2011 to approve the sale of Minco's interest in the Pallas Green project to Xstrata.
4. In her written closing counsel for the claimants submitted that their case was and always had been a simple one. It is that the nature of Minco's interest in Pallas Green had been materially misrepresented to Mr Sears (for whose benefit shares in Minco had been purchased and retained within a pension fund held by the second claimant) in that he had been told only that Minco's interest in Pallas Green could not be diluted below 10% (the minimum dilution representation); yet the terms of the JVA were clear and (as the court had observed during the course of Mr Varma's cross-examination) to understand the true extent of Minco's interest in Pallas Green, "all one needs to do is just to look at the Joint Venture Agreement… if one looks at the Joint Venture Agreement it is absolutely clear what one has" (Transcript Day 7, p. 128, lines 9-15; hereafter cited in the form T7/128/9-15). In fact the dilution provisions in clause 16.7.4 of the JVA did not provide that Minco's interest could not be diluted below 10%, but rather that "If any Participant's Participating Interest is diluted to less than 5% such Participant shall be deemed to have withdrawn from this Joint Venture and shall relinquish its entire Participating Interest which relinquished Participating Interest shall be deemed to have accrued automatically to the other Participant and the withdrawing Participant shall be entitled to receive in lieu of its Participating Interest a Net Profit Payment thereafter" (emphasis added by counsel). "Net Profit Payment" was defined (by clause 1.1 of the JVA) as an annual payment of 15% of Net Profits from operations in relation to seven of the prospecting licences for Pallas Green calculated as provided in the 2^nd Schedule to the JVA (less any underlying royalties).
5. The defendants' position is ...amongst other matters) that the JVA was not consulted at any material time and that any misrepresentation was simply an "honest error" made by Mr McKillen which accorded with his understanding that the JVA provided for Minco's interest to be reduced to a 10% "carried interest" (in the sense of a 10% net profit payment) which, so the defendants say, is not materially different to a conversion to a 15% net profit payment if Minco's interest was reduced to less than 5%, which was thus their only real error. The defendants assert that what Minco enjoyed under the JVA was in fact better than what Mr Sears had been told, i.e. an entitlement to a 15% net profit payment rather than to a 10% net profit payment. The claimants say that the difficulty with the defendants' position is that Mr Sears was never told that Minco's interest in Pallas Green would convert to something different, and that the minimum dilution representation was obviously wrong or misleading in the following ways: First, the point to which Minco's interest in Pallas Green might be diluted was misstated to be 10%, rather than the 5% provided by the JVA. Secondly, Mr Sears was never informed that, following dilution, there would be a change in the nature of Minco's interest in Pallas Green (then a 23.6% "participating interest", or, loosely, "equity") so as to suggest that, if reduced to 10% (or in fact 5%), Minco would be deemed to have withdrawn from the joint venture and cease to have a participating interest therein. Thirdly, and given the above, Mr Sears was also not told what 'interest' Minco would receive in the event that it was deemed to have withdrawn from the Pallas Green joint venture (in the event, a 15% Net Profit Payment). Alternative claims are also advanced, first, on the basis that the defendants represented that they knew or were familiar with the provisions of the JVA, and in particular those clauses which related to the dilution of Minco's interest in Pallas Green, intending that Mr Sears should rely upon the same in retaining and/or purchasing shares, when (on the defendants' own case) they had no such knowledge; and, secondly, in respect of Minco's failure to correct the minimum dilution representation in circumstances when it must have come to appreciate, if it did not know when it was made, that the minimum dilution representation was false.
6. The defendants emphasise that the material pleaded particulars of knowledge or recklessness (at paragraph 13.1 of the re-amended particulars of claim) are that Minco was privy to the terms of the JVA and Mr McKillen and/or Mr Varma knew the terms of the JVA, or otherwise have been reckless as regards these when making the minimum dilution representation. During the course of the hearing, counsel for the claimants made it clear that they stood by their pleaded case: see T6/117/12 - 123/7. In support of their case on recklessness, the claimants point to the assertion (at the end of paragraph 27.1 of the re-re-amended defence) that both Mr McKillen and Mr Varma "did not have a perfect recall of the terms of the JVA and would have needed to see the terms of the JVA to refresh their memory as to its terms or to ascertain the precise terms relating to Minco's entitlement to the retained carried interest in the event of dilution of interest below a specified percentage."
7. This trial of the issue of liability started on Tuesday 19 January (preceded by 1 day's judicial pre-reading of the parties' detailed trial skeletons, the statements of case, the witness statements and certain core documents). The claimants were represented by Ms Ruth den Besten (of counsel) and the defendants by Mr Christopher Lundie (also of counsel). After oral openings from both counsel I heard first from Mr Sears for about 11 hours, starting after the luncheon adjournment on Day 1 and concluding just before the luncheon adjournment on Day 3. I then heard from the claimants' only other live witness, Mr Peter (or Pete) Bevan (Mr Bevan), a friend, golfing partner and investment associate of Mr Sears. Unfortunately, Mr Bevan was unable to attend court on Day 4 because he had to accompany his wife to an emergency radiotherapy appointment at a hospital in Basingstoke on that day. Mr Bevan therefore gave evidence for about 2 ¾ hours in total, spread over the afternoon of Day 3 and the morning of Day 5 of the trial, with the defendants' first witness, Mr Kearney, being interposed on Day 4 before the conclusion of Mr Bevan's evidence. At the suggestion of the court, and with the parties' agreement, Mr Bevan was not present in court during Mr Sears's evidence and was not supplied with a copy of the daily transcript. The written evidence of the claimants' only other witness, Mr Bruce Robinson, was accepted without challenge.
8. The defendants' first witness, Mr Kearney, gave evidence for about 5 ¼ hours in total starting on Day 4 and (after the conclusion of Mr Bevan's evidence) continuing either side of the luncheon adjournment on Day 5. Mr McKillen gave evidence for about 5 ½ hours, starting at about 2.45 pm on Day 5 and concluding at about 3.45 on Day 6. Mr Varma gave evidence for about 4 ¼ hours, starting at about 4.00 pm on Day 6 and concluding at about 2.30 pm on Day 7. The defendants' fourth, and final, witness was Mr Barry Gibb (Mr Gibb) who was a research analyst and later head of Corporate Finance at Beaufort International Associates Limited (Beaufort), which was Minco's corporate broker at all material times in 2010 and 2011. Mr Gibb gave evidence for about 2 hours on the afternoon of Day 7, concluding at about 4.35 pm. At the suggestion of the court, and with the parties' agreement, Mr Gibb was not present in court during the evidence of the other witnesses (apart from the final half hour of Mr Varma's evidence) and he was not supplied with a copy of the daily transcript. At the conclusion of Mr Gibb's evidence, I adjourned until 10.30 am on Friday 29 January 2016 for counsel to prepare written closing submissions which I received by email that morning at about 8.15 (from the claimants) and 8.35 (from the defendants). Both counsel then addressed me orally in closing between 10.30 am and 4.30 pm. I reserved judgment, arranging for the trial bundles to be sent up from London to Manchester. In the course of preparing this judgment, I have re-read the witness statements, the transcripts of the evidence and opening submissions, the material documents, the parties' written submissions, and my notes of their oral submissions.
9. I make it clear that in the course of drafting this written judgment I have considered in detail the documents, the evidence, and the submissions presented to me. Inevitably in a case like the present, there will be particular matters of evidence, some authorities and certain submissions (both factual and legal) to which I have been referred, or on which I have been addressed, that I do not consider to be of sufficient relevance or importance to my decision to deserve mention in a judgment prepared under the inevitable pressure of the court lists (and after my work in London should have been concluded). The mere fact that I do not mention a particular matter does not mean that I have overlooked it or that it has not been considered in the course of my deliberations. It would be unrealistic to mention every single point that has been raised and to do so would have delayed unnecessarily the production and handing-down of this judgment.
10. It is appropriate at this point to set out the background facts and to give some indication of the principal areas of dispute between the parties. In or about February 2002 Minco Ireland Ltd entered into the JVA with Xstrata Zinc Ireland Limited (the former name of Noranda Exploration Ireland Limited). The JVA had been negotiated on behalf of Minco by Mr Kearney and it was he, together with Mr McKillen, who executed it on behalf of Minco Ireland Ltd. The JVA replaced a series of letter agreements the first of which, dated 30 September 1998, had provided that "in the event that either party's interest is diluted below 10% it shall cease to have the right to participate in further programmes and shall be deemed to have assigned and conveyed its interest to the other party for nil consideration". In September 2003 Minco's original 25% participating interest in Pallas Green was diluted to 23.6% following its decision not to participate in a 2002 infill drilling programme. In 2005 Mr Varma was appointed as the chief financial officer and (later in that year) a director and the company secretary of Minco. In June 2008 Mr Kearney was appointed Executive Chairman and Mr McKillen (previously Director of Exploration and Business Development and a founding shareholder) was appointed Chief Executive of Minco. By letter dated 22 November 2009, Beaufort was appointed to act as Minco's Corporate Finance Adviser and Corporate Broker. Clause 2 of the letter required Minco to ensure that all information provided to Beaufort "was true and accurate in all material respects and not misleading".
11. On 23 March 2010 Mr Sears first emailed Mr Bevan identifying Minco as a potential investment. Mr Sears first purchased 250,000 shares in Minco through the AIM on 1 April 2010 at a cost of some £7,800. He purchased further shares in Minco on the AIM on 7, 15, 16, 22, and 26 April, 28 May, 3 June, 22 July and 5 August 2010, and on 1 and 4 April 2011. He also acquired over 2 million newly issued shares in each of two share placings on or about 27 August 2010 and 11 April 2011. In total, Mr Sears purchased almost 8 million shares in Minco at a total cost of some £340,000. On two occasions prior to the announcement of the proposed sale of Minco's interest in Pallas Green to Xstrata on 13 July 2011, Mr Sears also sold shares in Minco: he sold 650,000 shares in three batches on 5 July 2010 because (as he said) he thought it prudent to reduce his weighting in mining shares (although he partly reversed this decision shortly thereafter by acquiring a total of 350,000 shares at a lower price); and he sold a further 157,692 shares (for some £7,000) on or about 11 November 2010. Mr Bevan first purchased 50,000 shares in Minco on 7 April 2010; and he purchased further shares during April, May, June, September and October 2010, and in January, March, April, May and on 13 July 2011, investing some £640,000 in total.
12. On 13 April 2010 Mr Sears and Mr Bevan attended an event for investors by Minesite Forums in the City of London at which they were first introduced to Mr Gibb. Mr Sears described Mr Gibb as the sort of person who was "inclined to talk quite a lot" and said that "a lot of information came tumbling out of him all at the same time": T1/111/6-20. On the following day Beaufort issued a one-page "non-independent" research note prepared by Mr Gibb. This reported that Minco had successfully raised gross proceeds of £1.04 million through the placement of 34.7 million new shares priced at £0.03 each. The price target for shares in Minco was said to be 13p against a current price of 3.75p. The second bullet point of the note included the statement: "Should Minco have failed to secure funding in proportion to its current Pallas Green participation, its shareholding could have been diluted to an agreed 'base' level of 10%. In successfully raising this new funding, however, Minco's management is underlining its determination to remain fully involved in the project." Mr Gibb had forwarded a draft of this research note to Mr Varma by email for him to provide "any comments, etc regarding any factual inaccuracies, etc". Mr Varma forwarded it on to Mr McKillen with a request that he approve it "for issue later today". Mr McKillen returned it about an hour later with his comments attached: see 5/957 - 969. Although Mr McKillen did make minor corrections to the second bullet point he did not alter the passage I have cited. In an email to Mr McKillen timed at just before 3.30 pm BST Mr Gibb thanked him for his comments and said that he would incorporate them into his final version and release them that afternoon. Mr Sears does not recall having seen this research note at that time. As Mr Lundie points out, the terms of the second bullet point suggest that the reference to dilution to an agreed 'base' level of 10% was simply to provide emphasis to Minco's determination to avoid dilution; and, I should add, the reference to dilution to an agreed 'base' level of 10% is not in terms expressed to apply generally to future fundraising exercises.
13. On 15 April 2010 Mr Bevan states that he telephoned Mr Gibb to discuss his participation in future private placings of shares in Minco (as foreshadowed by an email from Mr Bevan to Mr Sears at about 10 am on that day at 5/970). During the course of their conversation, Mr Gibb is said to have mentioned (for the first time) that Minco's interest in Pallas Green could not be diluted below 10%. Mr Bevan related the details of this conversation to Mr Sears later the same day. Mr Sears could not recall whether this was before or after he had purchased a further 250,000 Minco shares on that day. The precise time of the purchase should have been apparent from Mr Sears's relevant Barclays contract note and tax invoice but this was not put before me. At paragraph 55 of his 3^rd witness statement, Mr Sears recalls "that I was not particularly surprised when Pete told me that Minco's interest in Pallas Green could not be diluted below 10%; it seemed to me to be consistent with what Barry had already said. However, once Pete relayed the news, I did immediately recognise its significance. The guaranteed interest of 10% in the venture meant that, come what may, Minco's holding in Pallas Green could be valued on the basis of an invulnerable 10% equity share in the venture, although ideally its level of interest would be higher and so the upside would be even greater. This was absolutely critical to my interest in buying further shares in Minco, and in continuing to hold the shares I had already brought. I return to the point below, but in summary the [minimum dilution representation] was sufficiently important to change the way in which I regarded Minco, from a short-term to a long-investment."
14. Both Mr Sears and Mr Bevan are clear that this telephone conversation between Mr Bevan and Mr Gibb had taken place on 15 April 2010. In paragraph 24 of his witness statement Mr Gibb had originally stated that his "conversation with Mr Bevan on 15 April" had taken place "after the preparation of the 14 April research note"; but that he did not recall discussing the dilution provisions in the JVA with Mr Bevan at that time. At the beginning of his oral evidence (T7/140/25 - 141/11) Mr Gibb corrected that paragraph to make it clear that he had no recollection as to the date of his conversation with Mr Bevan. In cross-examination of Mr Bevan, Mr Lundie suggested that this conversation may have taken place on 4 May 2010 (when Mr Sears and Mr Bevan had been due to play golf together), founding his suggestion on an email from Mr Bevan to Mr Sears at 4.55 pm that day (at 5/994) wherein Mr Bevan had referred to a conversation with Mr Gibb, describing him as "very chatty". In cross-examination, Mr Gibb said that he really did not have a clue about the date of the conversation but that if he was going to guess he would say it was maybe one or two weeks later than 15 April: T7/185/21 - 186/11. The only apparent significance of this dispute about the date of the conversation between Mr Gibb and Mr Bevan is that if the relevant conversation did not take place until 4 May 2010, then Mr Sears's share purchases on 15, 16, 22 and 26 April could not have been induced by anything said by Mr Gibb.
15. At Mr Sears's request, Mr McKillen arranged for Mr Sears and Mr Bevan to receive a presentation from the Xstrata's site geologists when they visited the Pallas Green joint venture on 24 May 2010. In evidence Mr McKillen said that in 40 years he had never arranged any other site visit for a shareholder or potential shareholder: T6/85/2-4.
16. On 2 June 2010 Mr Sears and Mr Bevan met with Mr Gibb. Mr Gibb could not recall this meeting. Mr Sears and Mr Bevan assert that at this meeting Mr Gibb stated that the terms of the JVA did not permit Minco's holding in Pallas Green to be cut below 10% even if it was unable to contribute to continuing exploration programmes. In cross-examination, Mr Sears acknowledged that he did not remember that Mr Gibb particularly added to their knowledge of the 10% minimum dilution: see T1/125/2-4. Mr Sears described Mr Gibb as "garrulous" and as someone who "tends to bombard and keep on and on talking. I find it quite difficult to absorb all of what he says": T1/122/20-23.
17. On the following day Beaufort issued a further detailed 17-page research note on Minco re-iterating their previous 13p price target. On page 4 the note stated: "Additional funding will be required as phased payments become due later this year. Management's confidence in the [Pallas Green] Project suggests that it will make every effort to retain its current participation, although it is worth noting that the JV agreement with Xstrata does not permit Minco's holding to be cut below 10%, even if it is unable to contribute to continuing exploration programmes." Mr Gibb had sent a draft of this research note to Mr McKillen and Mr Varma by email on 28 May inviting them to read the same "with a view to correcting factual errors or statistical inaccuracies". Mr McKillen did indeed make a number of amendments and corrections to the draft note, including to page 4 (see 5/1046), which were submitted to Mr Gibb by email on 31 May, but he did not make any correction to the passage I have just cited. The 3 June research note (like the 14 April research note) was described as a "Marketing communication" and included a final page (headed "Important Information") which stated that Beaufort had produced the report "for information purposes only" and that "Whilst Beaufort uses reasonable efforts to obtain information from sources which it believes to be reliable, it makes no representations that the information or opinions contained in this report are accurate, reliable or complete". Mr Varma described it as "a marketing document drafted by Beaufort for the purpose of their clients": T7/47/18-19. During the course of his evidence, Mr Gibb repeatedly stated that his research notes were written for well-versed, experienced, professional investors. The defendants accept that the Beaufort research notes were published from time to time on Minco's own website. I was not taken to the form in which they appeared on the website.
18. Mr Fernyhough of Beaufort sent a copy of the 3 June research note to Mr Bevan, stating "please find attached our latest research on Minco" and commenting: "Obviously Barry was restricted from telling you this was in composition yesterday under FSA rules". At 18.23 on 3 June 2010 Mr Bevan forwarded the research note to Mr Sears by email with the comment: "Looks as though its exactly what Barry told us yesterday". Mr Sears responded a little under 4 hours later saying that he had read the note and that "a couple of comments stick out". The first related to the sentence cited above beginning "Additional funding", etc. Mr Sears said: "This is what you remembered and I didn't. I suppose we can expect a further cash call some time in Q3 or Q4 this year. Did you call them to confirm our interest in participation in a placing? On Barry's inclusion of the above point, I would change my view and expect that they may be interested." The second comment related to a statement on page 7 of the research note about Beaufort raising the value of Minco's participation in Pallas Green from 2p to 6.5p per share and expressed Mr Sears's estimation that it should be much higher. Mr Sears did not comment specifically on the sentence beginning "Management's confidence…". In cross-examination Mr Sears explained that his email was addressing "new information" and that "the point about the minimum 10 per cent had already been established and it wasn't something which [I] needed to comment on as a new item": T2/79/5-14. A little later Mr Sears said: "What it said to me was, taking both of those parts, there is good news that we think the resource is growing and because of that the management is very keen to stay fully invested in it, but it's also good news that we cannot be diluted below 10 per cent. So I always thought that the first part was the reason why I would become rich through this and the second part was the reason why I wouldn't become poor. So, in other words, one was highlighting the defensive quality of the investment, because the interest could not be cut below 10 per cent, and the other was pointing out the enormous opportunity for growth": T2/82/11-23.
19. On 23 June 2010 Mr Sears and Mr Bevan met with Mr Varma to discuss the price of Minco's shares. Even on the claimants' case, the minimum dilution representation was not repeated at this meeting. Minco's Annual Report and Accounts for 2009 were issued on 30 June 2010. Mr Sears accepted that at some stage he had either received the document or downloaded it from Minco's website and that he had read it: T2/91/8 – 92/12. A section of the Directors' Report was headed (in bold type): "Principal risks and uncertainties". Under the heading "Failure to Obtain Additional Financing" the report stated: "Failure to obtain additional financing on a timely basis could cause the Group to forfeit its interest in [the Group's exploration] properties. If additional financing is raised through the issuance of equity or convertible debt securities of the Group, the interest of the shareholders in the net assets of the Group may be diluted." When (after prompting by the court) Mr Sears was asked about this in cross-examination, he said that "it didn't cause alarm bells to ring … because of the understanding that I'd got, that the company had raised enough money to see through its currently planned activities and that it had a minimum 10% position in the joint venture: T2/96/13 – 97/8. This was in contrast to the position Mr Sears was later to adopt in relation to the 2010 accounts (released on 30 June 2011) when Mr Sears identified a number of points which gave rise for concern on his part: see paragraph 138 of Mr Sears's witness statement and T2/99/23 – 103/9. When pressed about the difference in his approach to the two sets of accounts, Mr Sears said that he "would have read the forfeit point as being a standard term which didn't apply to Pallas Green because we had been specifically and individually told we had a guaranteed 10% stake." However, Mr Sears did accept "that the discussions we'd had was …. that the company wanted to avoid dilution at all costs and so dilution wasn't a likely event. I think that's a fair point": see T2/105/7 – 106/17.
20. On 9 September 2010 Mr Gibb sent an email to Mr McKillen posing "… a minor question. Clearly something that I should already know but I find I do not. The question came from an investor and I was embarrassed to tell him that I did not know the answer but 'would find out'." I interpose to mention that (1) it is accepted by the claimants that the query did not come from Mr Sears or Mr Bevan and (2) that Mr Gibb could not remember who had posed the question in the first place, but he acknowledged in cross-examination that he had possibly been making the query up to try to have an excuse to ask Mr McKillen what was obviously a sensitive question about the dilution formula. Returning to the email: "The question regards Xstrata's contractual right to effect a diminution of Minco's current 23.6% stake in Pallas Green in circumstances (unlikely, of course) that Minco was not able to service its share of any approved exploration costs. The investor wanted to know the exact basis on which Xstrata would be able to force this diminution, on what basis the shares involved in the diminution would be valued, whether it had to be effected through a transaction on the stock market together with the time period in which it would need to be completed. A lot of this is legal and contractual stuff and so might be a bit laborious to answer. Nevertheless, any help on this front would be most appreciated." Mr McKillen's substantive response, by email on 10 September 2010, was: "If Minco were not to participate at its full … level of interest such interest will be diluted gradually. That is why [Minco] currently has 23.6% interest and not 25% because we could not fully participate one year. It is a complex formula based on total expenditure on the property and the contribution made by the parties. If either party is diluted below a 10% participating interest then the interest is converted to a 10% carried interest in the project. Hopefully this give [sic] you some clearer insight." Mr McKillen's email did not state that this information should not be passed on to any actual or potential investors in Minco. In cross-examination, Mr McKillen reiterated (see T6/49/1-3) that he had thought that he had an accurate recollection of the minimum dilution terms and had not needed to consult the JVA in order to respond to Mr Gibb's query. He also said that he had been expecting Mr Gibb to keep the details of his response confidential: T6/86/4 – 93/3. In answer to questions from the bench at the end of his evidence, Mr McKillen acknowledged that it would have been better, and clearer, to have told Mr Gibb not to pass the information on to the relevant investor: T6/169/2 – 172/9. Mr Gibb's evidence was that Mr McKillen's email response added nothing at all to his fund of knowledge: T7/184/15 – 185/20.
21. Also on 10 September 2010 Xstrata and Minco held an updating meeting at which Xstrata first proposed a work programme and budget proposal for Pallas Green for 2011 of some 13 million euros. Xstrata only delivered the detailed document on 2 December 2010. This then gave rise to a dispute between Minco and Xstrata over the 2011 budget since the allocation of funding was different to that previously discussed. Minco became concerned that the two parties to the joint venture were pursuing different strategic objectives. Mr McKillen was involved in the ensuing discussions and he formed the view that Xstrata was deliberately increasing expenditure to squeeze Minco out of the joint venture by proposing to explore areas of Pallas Green that did not need to be explored at that time but only later. In September 2010, however, this lay in the future.
22. Towards the end of September 2010 Beaufort arranged for directors of Minco to attend a series of meetings and a group investor lunch with actual and potential investors in advance of the annual general meeting on 28 September. As an alternative to attending any of those meetings or the AGM, Messrs Sears and Bevan attended a private lunch meeting at the National Liberal Club in Whitehall Place with Messrs McKillen, Varma and Gibb on 23 September. This (and a later lunch meeting which took place on 15 November 2010) were the only two occasions on which Mr McKillen met investors privately in this way; and Mr McKillen anticipated that Mr Sears and Mr Bevan would be interested, and would rely upon, what he had to say about Minco: T6/100/19 – 101/7. In advance of the lunch, on 21 September, Mr Sears had prepared a list of issues, the first of which was to satisfy himself and Mr Bevan that Minco was a good investment. Under the heading "4. Valuation", Mr Sears wanted to know (a) Minco's valuation of Pallas Green, (b) whether there were any pre-emption clauses in the JVA and their implications, and (c) whether they could have the text of those clauses for their own analysis: see 6/1238 - 1241. There was no express mention of the minimum dilution provisions in Mr Sears's note; but Mr Sears's evidence was that question 4 (b) (referred to above) would have been a trigger for him to ask a question about the 10% minimum dilution provision: T1/127/13 – 132/3. There is a major dispute of fact about what was said at this lunch meeting. It is the claimants' case that at the lunch: (1) although he did not have the document before him, Mr Sears referred to the passage in the 3 June Beaufort research note which said that Minco's interest could not be cut below 10% even if it could not afford to pay its share of the exploration costs and Mr McKillen interjected to say "That's correct"; (2) Mr McKillen also answered a query by Mr Sears that Minco "had done the maths" and had concluded that it was better to keep its percentage interest in the Pallas Green joint venture at its existing 23.6% by continuing to raise money to pay its share of research expenditure than reducing its interest to the 10% minimum; (3) Mr Varma heard and understood what Mr McKillen was saying and apparently agreed with it; and (4) Mr Sears asked whether there were any pre-emptive or similar clauses in the JVA and Mr McKillen responded that he thought that there were but (in contrast to his positive averments relating to the dilution provisions) he was unable to remember them.
23. At paragraph 110 of his 3^rd witness statement Mr Sears relates that he had intended to attend Minco's AGM on 28 September 2010 but he had changed his plans when the directors had arranged to meet with Mr Bevan and Mr Sears in London. Mr Sears asserts that at this AGM investors heard Mr McKillen "introduce and discuss the supposed minimum dilution clause". The basis for this assertion is said to be postings on the Advanced Financial Network website for Minco which Mr Sears says he would have seen at or around the time they were made, including one made on 13 July 2011 (after the announcement of the proposed sale of Minco's interest in Pallas Green to Xstrata). This posting (at 10/2987), which refers to the board of Minco as "corrupt", asserts that: "At the last AGM Mr Killen [sic] praised Mr Kearney for having the foresight of negotiating the 10% free carry option with Xstrata. It was to be our safety net if all else failed. We have 10% profit from a world class resource in 2017 until possible 2032. .." On the day of the meeting itself another posting (at 10/2857) asserts that: "The option of 'opting' for a free carry on Pallas Green for a reduced 10% (free carry) royalty on mine output is available. This was mentioned given the need to inject up to $8mil into Xtierra [sic] to hold Minco's share of that company at current levels, i.e. Minco raises this on the market. This is the Nuclear option if the share price stays depressed and in order not to dilute shareholders into oblivion and to keep a reasonable share of both projects." In cross-examination (at T4/120/21 – 125/15) , Mr Kearney (who chaired and spoke at the AGM) said that he did not believe that Mr McKillen had spoken at the AGM, and that he doubted that Mr McKillen would have praised him about anything. Mr Kearney was adamant that what was attributed to Mr McKillen was not said in Mr Kearney's presence and was not said during the course of the AGM. In chief, Mr McKillen said (at T5/125/9-15) that he had not spoken at the AGM: "… it was traditional for Mr Kearney to lead the business portions of the annual meetings. Other directors were in attendance and we were available for chats later over tea." Neither Mr Sears nor Mr Bevan attended the 2010 AGM and neither can give direct evidence about what passed there. The authors of the internet postings did not give evidence and were not available for cross-examination. The author of the 13 July 2011 posting certainly entertained a critical and hostile view of the Minco board by that time. I find that these internet postings do not suggest that anything more was said about the minimum dilution position under the JVA than had already been set out in Beaufort's published research notes. Even if it is to be treated as reliable, the 13 July 2011 posting is consistent with Mr McKillen having mentioned over tea, and after the conclusion of the formal part of the AGM, that Mr Kearney had negotiated a 10% carried interest, in the sense of a net profit interest.
24. On 11 October 2011 Mr Sears sent an email to Mr McKillen thanking him for the meeting on 23 September and stating that "when we met we briefly touched upon the terms of the JV agreement with Xstrata. I am particularly interested in any clauses that bear upon either the integrity or the scale of our interest. I understand that there are provisions for our holding to reduce to no less than 10% and that there is a right of pre-emption. As you know, I would like to participate in future fund raisings (subject to timing and terms) which would raise my interest above the present level of 1.48% and feel it would be sensible to improve my understanding of the strength of our security. Would it be possible to let me have a copy of the JV agreement or at least those sections of it that deal with pre-emption or changes to interest? If necessary, I would be happy to sign a confidentiality agreement." Mr McKillen's response was to forward Mr Sears's email to Mr Varma and Mr Kearney on 19 October 2010 stating: "FYI. I don't think we should let him see the JV agreement with or without a confidentiality agreement in place. He knows already that the bottom line is a 10% carried interest and that Xstrata has a pre-emptive right on the sale of our interest." Mr McKillen's evidence is that when he referred to a "10% carried interest", he was "just repeating what Mr Sears had said in his email". Mr McKillen expressed no surprise that Mr Sears should have known about this "10% carried interest".
25. On 1 November 2010 Mr Sears emailed Mr Varma asking about the next exploration budget and the amount that would need to be raised to meet it. Mr Sears also noted that at their recent meeting they had asked about the pre-emptive rights clauses and, unsurprisingly, no-one could remember their wording. Mr Sears thought that their own "informal risk management" required them to read the JVA. He asked for a meeting during the week commencing 22 November. On 2 November 2010 Mr Gibb emailed Mr Bevan and Mr Sears suggesting a meeting when Mr McKillen and Mr Varma were in London in mid-November. This prompted a further email from Mr Sears to Mr Varma on 2 November inquiring how he wanted to handle their reading of the JVA. On the same day Mr Varma forwarded the email to Mr McKillen; but neither replied to the query about the JVA.
26. On 15 November 2010 Mr Sears and Mr Bevan met with Messrs McKillen, Varma, Gibb and Franklin (of Beaufort) for a second private lunch at the National Liberal Club. Again, the terms of the discussions are hotly disputed. It is the claimants' case that Mr McKillen (1) speaking "gravely", told Mr Sears and Mr Bevan that "We have re-read the JVA and concluded that there is nothing of concern to you"; and (2) also said that "when we reviewed the terms of the JVA we found that it was confidential" and "The problem is, if we showed it to you, it would make you insiders and we prefer to have you as outsiders". Mr Varma is said to have behaved as he had done on 23 September: "He said little but listened intently to everything and was engaged in the discussion at all times". There was no doubt in Mr Sears's mind that Mr Varma had heard everything that was said but he did not at any time intervene to correct what was said by Mr McKillen, which Mr Sears took to mean that he endorsed it: see paragraph 125 of Mr Sears's 3^rd witness statement.
27. It is unnecessary for me to relate in detail the dispute that began in December 2010 between Minco and Xstrata over the revised 2011 works programme and budget or the participation of Mr Sears and Mr Bevan in the April 2011 share placement beyond recording that in an email dated 31 March 2011 Chris Fernyhough (of Beaufort) confirmed that Mr Sears had 2,720,000 shares allocated to him coming to a value of £142,800 with a trade date of Monday 4 April and a settlement date of 18 April and asked Mr Sears to arrange payment either by cheque or bank transfer. On the same day, Mr Gibb emailed Mr Varma enclosing a table of final allocations in the share placement and stating that placing letters would be transmitted that day and were expected to be returned signed either that day or the following day. On 10 May 2011 Mr McKillen prepared a "dilution matrix" projecting forward the potential dilution of Minco's interest in Pallas Green on the basis of the 2011, and an assumed 2012, budgets, and on the assumption that Minco made no further contributions to the exploration budget. Mr McKillen used the original dilution calculations from 2003 as the basis for his projections. It is the defendants' evidence and case that as May 2011 progressed it became clear that Xstrata could not be prevailed upon to modify its exploration programme or budget, and that at the end of May Xstrata proposed, for the first time, buying out Minco's interest in the joint venture. Despite the claimants' challenge to this timetable, I see no reason to reject the defendants' evidence on this point.
28. On 31 May 2011 an investor in Minco, Mr Tim Melia, emailed Mr McKillen inquiring (amongst other things) whether it had "a 'guaranteed' 10% carry on Pallas Green come what may even if we were not to provide any more project funding or be unable to do so". On the same day Mr McKillen replied: "There is provision for a carried net profits interest."
29. On 15 June 2011 Mr McKillen sent an email to Mr Kearney and Mr Varma attaching a draft letter to shareholders in the event that the proposal for Xstrata to buy out Minco's interest in Pallas Green should go ahead and querying how much of it would have to appear in the letter to shareholders accompanying the forthcoming 2010 Annual Report and Accounts (which were released on 30 June 2011). The draft contained a reference to the dilution of Minco's interest in the Pallas Green joint venture to "a non-participating 15% net profits interest" should Minco choose not to participate in any further funding following an estimated further expenditure by Xstrata of $19 million. Mr McKillen does not think that it was he who prepared this part of the draft letter and believes that it was Mr Kearney or someone in his office. At the time, Mr McKillen thought that conversion was to a 10% interest. Mr McKillen asserted in his witness statement (and maintained under a probing cross-examination) that he had no "road to Damascus" conversion about the true nature of the dilution and carried interest provisions at any time during the negotiations with Xstrata over the 2011 works programme and budget or the process of the sale of Minco's interest in the Pallas Green joint venture. In his witness statement Mr McKillen also referred to an email he sent to Mr Kearney and Mr Varma on 18 July 2011 in which he said that "it would take a further 19 million euros expenditure by Xstrata to reduce Minco's interest to 10% and conversion to a 15% NPI". That was written in response to an email from Mr Varma of 17 July referring to "a Legal Opinion on the 10% carried interest (or 15% Net profits)". In his witness statement Mr McKillen acknowledged that by 18 July 2011 he had found out that non-participation would eventually convert Minco's interest in the joint venture to a 15% Net Profits Interest; but he stated that he had no recollection of the circumstances in which he had come to know that. He also made the valid point that he still believed that conversion to a Net Profits Interest took place on the dilution of Minco's interest to below 10%, as opposed to below 5%.
30. It is unnecessary for me to relate in any detail the bombshell announcement on 13 July 2011 of the proposed sale of Minco's interest in Pallas Green (which was eventually approved by shareholders at an extraordinary general meeting on 24 October 2011), the deep disappointment felt by Mr Bevan and Mr Sears at this announcement, and the recriminations and discussions that followed. I should however mention an email that Mr Sears sent to Mr McKillen (with copies to Mr Kearney and Mr Varma) on 19 July 2011 in which Mr Sears asked what had happened to "… our dilution backstop? As you know, the company's broker wrote in their research note dated 3 June 2010 that 'Management's confidence in the project suggests that it will make every effort to retain its current participation, although it is worth noting that the JV agreement with Xstrata does not permit Minco's holding to be cut below 10%, even if it is unable to contribute to continuing exploration programmes'. As you will recall, you confirmed this orally at our meeting on November 15. Can you confirm that this option remains available to the company, as described." The letter circulated to shareholders on 30 September 2011, relating to the proposed disposal of Minco's interest in the Pallas Green joint venture, recorded that under the JVA "… should Minco's participating interest be diluted to less then 5% Minco would be deemed to have withdrawn from the Joint Venture and would thereupon become entitled to a 15% carried net profits interest on eight of the ten Pallas Green Licences…" The expression "net profits" was then explained.
31. In November 2011 solicitors formerly instructed by both Mr Sears and Mr Bevan, Francis Piesse, wrote a letter before action to Mr Kearney of Minco indicating their intention to bring proceedings against Minco and Messrs Kearney, McKillen and Varma in respect of certain misrepresentations allegedly made by or on behalf of Minco and its directors. (The letter is undated but it was apparently received by Minco on 23 November 2011.) It was alleged that the intended claimants had relied upon these misrepresentations in purchasing shares in the company, including through their participation in the April 2011 share placement. The minimum dilution representation was said to have been made by Mr Gibb to Mr Bevan orally by telephone on at least one occasion in April 2010 and in Beaufort's 3 June 2010 research note. Mr McKillen is alleged to have confirmed the minimum dilution representation orally to Mr Bevan and Mr Sears at meetings on 23 September and again on 15 November 2010, and it was said this representation had not been corrected by Mr Varma. Complaint was also made about a further alleged misrepresentation, said to have arisen from the failure to disclose the inevitability of a sale of Minco's interest in the Pallas Green joint venture at the time when the April 2011 share placing took place, which is no longer pursued in this litigation. The letter said that Mr Sears had purchased some 7.87 million shares in Minco between 1 April 2010 and 11 April 2011 in reliance on the representations. No reference was made to Mr Sears retaining any shares in reliance on the representations.
32. A further letter before action was written to Minco (and copied to Messrs Varma and McKillen) by Russell-Cooke LLP on behalf of Mr Sears alone on 28 March 2012. On the same day Russell-Cooke wrote to Beaufort complaining about the untruth of the minimum dilution representation contained within its 3 June 2010 research note and indicating that Mr Sears was considering referring the matter to the appropriate regulatory authorities to investigate potential breaches of various rules. Solicitors appointed by Beaufort, HSR Solicitors, responded by letters dated 12 April and 22 August 2012. These letters referred to private lunch meetings with members of Minco's board on at least two occasions, one being on 15 November 2010 at the National Liberal Club, at which Messrs Sears and Bevan "specifically questioned Mr McKillen and Mr Varma … regarding the intricacies and details governing the so-called '10% carried interest' contained within the JVA". In cross-examination, Mr Gibb sought to distance himself from the contents of these two letters, reiterating that he could not say that "the details of the 10% carried interest were discussed because I simply don't remember them": T7/200/7 – 207/18. These letters were written on behalf of Beaufort, and not the defendants, and (from the claimants' point of view) are something of a mixed blessing (as explored during the cross-examination of Mr McKillen at T6/116/21 – 123/7).
33. Mr Lundie began his oral closing by reminding me of Goff LJ's outline of the proper approach to the assessment of disputed oral evidence in a fraud case in Armagas [1985] 1 Lloyd's Rep 1, at 57 (as cited at para 21.01 of the 5^th edition of Spencer Bower & Handley: Actionable Misrepresentation): "…[I]t is essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not, and where there is a conflict of evidence … reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities can be of very great assistance." I have borne these observations firmly in mind. I also bear in mind that a document may be just as revealing for what it omits to say as for what it actually says.
34. All of the witnesses were subjected to sustained, detailed and probing cross-examinations which, at times, seemed to me to fail adequately to take account of the passage of time since the meetings and conversations in question, the circumstances in which they had taken place, and the significance (or otherwise) which they must have assumed to the participants at the time. Both counsel made much use of the forensic microscope.
35. Having (1) carefully observed each of the witnesses during the course of the trial (particularly during their sustained cross-examinations), (2) re-read their witness statements and the transcripts of evidence, and (3) considered the totality of the evidence in the light of my observations and re-reading, and also the written and oral submissions of counsel, I have concluded that none of the witnesses were seeking deliberately to lie to or to mislead the court but that each of them (with the possible exception of Mr Kearney) was unconsciously adjusting his evidence so as to promote and advance the case of the party calling him.
36. Before turning to my assessment of the witnesses and the evidence it is appropriate that I should make two preliminary points: First, in a case where there are conflicts of evidence between apparently honest, credible and reliable witnesses it is always appropriate to consider the inherent likelihood of the recollection of one set of witnesses or the other being the more accurate. In the present case the disputed conversations are inherently more likely to have made an impact upon Mr Sears and Mr Bevan than upon Mr McKillen and Mr Varma. The former were receiving and the latter were imparting information. The information was unfamiliar to the former but familiar to the latter. The nature of the occasions on which the conversations took place was of more importance and significance to the former than to the latter. It is inherently more credible that Mr Sears and Mr Bevan should recall rather more of the thrust and of the detail of what was being said than Mr McKillen and Mr Varma. Secondly, and as Mr Lundie points out, the claimants' case on fraud principally relates to certain words which are said to have been spoken in informal meetings some 5 to 6 years ago.
37. I find certain parts of the witness statement of Mr Sears to be contrived, strained, over-emphatic and deliberately self-serving: see, in particular, passages at paragraphs 52, 55, 58, 73, 99, 100, 108, 109, 123 and 125. The same is true of parts of his oral evidence under cross-examination, which tended to "parrot" his witness statement: see, for example, T1/139/14 – T1/141-4 and T1/153/18-21. In cross-examination, Mr Sears spoke of the anxiety and excitement which he had felt immediately after the announcement of the sale of Minco's interest in Pallas Green to Xstrata: "I mean my pension fund was terrifically overweight in Minco and I just heard that the main asset of the company was being sold at a fire sale price": T3/54/15 - 55/5. I have no doubt that this came as most unwelcome news to Mr Sears and that he has convinced himself that others are responsible for what has proved to be a poor investment decision on his part. I do not find him to be guilty of deliberate fabrication of evidence; but I am satisfied that this conviction has coloured Mr Sears's recollection of events. I do not consider Mr Sears to be an entirely reliable witness. I consider that he has exaggerated his evidence of Mr McKillen's utterances at the two lunch meetings, and also of his contemporaneous perception of the significance of the minimum dilution representation.
38. Mr Bevan was clearly under considerable personal strain when giving his evidence: see T5/31/6-22; and I make due allowances for this given his wife's medical condition. I entirely reject the suggestions made by Mr Lundie (at T5/63/14-23) that Mr Bevan's belief – which I am satisfied is genuinely held - that Mr McKillen and Mr Varma had deliberately misled him has very much coloured the way in which he gave his evidence, and that he has given evidence to support Mr Sears even though he knew that some of what he said was simply not true. I also reject Mr Lundie's submission in closing that Mr Bevan was an unreliable witness who was lacking in credibility. However, I do find that Mr Bevan had a poor recollection of the details of the two lunch meetings. During his cross-examination (at T5/57/2-10) Mr Bevan acknowledged that his "recollection" was prompted by his reading of Mr Sears's account. Although Mr Bevan twice expressly disclaimed any intention of bringing his own claim against any of the defendants, I also find that Mr Bevan's friendship with, and clear sympathy for, his friend and associate, Mr Sears, has allowed him to be influenced, albeit unconsciously, by Mr Sears's recollections and evidence. Mr Bevan's evidence is undoubtedly corroborative, and supportive, of Mr Sears's evidence and case; but I consider that the quality of his evidence is such that I cannot accept it with complete confidence.
39. At times during his evidence I found Mr Kearney to be agitated, ill-tempered and visibly irritated by counsel's questioning. However, I am satisfied that he was genuinely trying to assist the court, and I accept his evidence. But, although Mr Kearney's evidence is generally supportive of Mr McKillen's account of his state of mind in 2010 and the first half of 2011, the assistance which Mr Kearney can give the court is limited since he was not present at, nor was he a party to, any of the discussions upon which the claim in misrepresentation is founded.
40. Mr McKillen's evidence and his honesty were subjected to sustained challenge in cross-examination. I acknowledge that it is difficult to believe parts of Mr McKillen's evidence, particularly his professed failures to notice the relevant parts of the Beaufort research notes and to consult the detailed provisions of the JVA at any time before about the middle of 2011. I also find that Mr McKillen's detailed recollection of material events is unreliable. Mr McKillen had originally thought that he had first met Mr Gibb in September 2010 but by the time he first came to give evidence he had recalled doing so in January 2010 (T5/119/16 - 120/1 in chief); and in cross-examination he expanded his evidence to refer to a further meeting in February 2010 (T6/37/3 - 39/21 and 43/22 - 45/10). Mr McKillen had not remembered Mr Franklin's presence at the 15 November 2010 lunch meeting at the time he made his witness statement, although he corrected this at the beginning of his oral evidence. Further details of the 23 September lunch meeting only emerged during the course of Mr McKillen's cross-examination. First, in paragraph 41 of his witness statement, Mr McKillen had said that he did not believe that "dilution or carried interests" were discussed at the 23 September lunch meeting. In cross-examination, he said that "the only time we spoke about dilution was to explain why Minco's interest had dropped from 25% to 23.6% and I related that back in 2003 Minco couldn't afford to pay its full share of that particular year's budget and consequently it was diluted": T6/105/12 – 108/14. (Mr Varma was later to say that he thought that the dilution from 25% to 23.6% was mentioned in passing in the context of Mr McKillen providing a background to the project and saying that one year there had been an overrun that Minco could not meet which it regretted. Mr Varma also accepted that it would then have been a natural follow-on to discuss what Minco might be diluted to. However, Mr Varma went on to explain that he did not actually recall that discussion himself; rather he was basing his evidence upon Mr McKillen's evidence: T7/70/5 - 71/8.) Secondly, and again at paragraph 41 of his statement, Mr McKillen had said that he did not remember "there being any discussion of the pre-emptive rights"; but in cross-examination Mr McKillen recalled Mr Sears asking whether there were pre-emption rights: T6/124/6 – 128/6. Mr McKillen also acknowledged that the suggestion that he had transposed the dilution provisions from another joint venture agreement was "just speculation" on his part: T6/157/20 – 158/12. I also confess to having found it difficult to follow Mr McKillen's evidence in answer to the question: "How can you have confirmed the pre-emption terms of the joint venture if you believed them to be confidential?" which was : "I had to give them something and that struck me as not being particularly contentious": see T6/140/14-17. As Miss den Besten observed in closing: "Either the terms of the JVA were confidential in which case they ought not to have been disclosed at all or (as was in fact the case) they were not".
41. I further confess to finding Mr McKillen's professed understanding of both the meaning, and the significance, of a "carried interest", in the context of a mining exploration licence, difficult to follow. As to the meaning, at paragraph 19 of his witness statement, Mr McKillen explained that a '10% carried interest' meant simply that "Minco would not then be required to contribute to further project costs". In cross-examination, however, he said that "a carried interest in the mining industry is generally accepted to be a net profit interest": T6/40/16–21, although he did accept that the statement (in the 3 June research note) that the JVA did not permit Minco's holding to be cut below 10% did not convey the sense that it was a 'carried interest' and it therefore had the potential to mislead someone who was not familiar with the mining exploration industry in general: see T6/83/2 – 84/7. As to the significance of the change from a participating to a carried interest, at times Mr McKillen accepted that "the parties would have assumed that the carried interest wasn't worth the same as a participating interest": see T6/82/5-7; but at another point in his cross-examination Mr McKillen seemed to be suggesting that he had not seen any difference between a 10% holding and a 10% carried interest: see T6/131/6 – 132/13. In answer to questions from the Bench at the end of his evidence (at T6/172/10-25) Mr McKillen told the court that he would not have considered there to be a material difference between a 10% participating interest in the Pallas Green project and a 10% carried interest in the net profits: "I would have considered both of those terms to be more or less the same. I don't see that they would have been materially different." (Interestingly, when he came to give evidence, Mr Varma said that he understood the difference between a 'participating interest' and a 'net profit interest or a net profit payment', and that he was aware that at some stage, if Minco could not carry on meeting its cash calls, it would have to "convert" into some interest, possibly even a royalty, whether it was net smelter or gross profits or net profits: T7/6/7 – 7/5. Later he said that Minco would be "entitled to either a royalty based on the smelter, which is known as the net smelter royalty, or we would get a gross profits interest or a net profits interest which would take into account selling expenses and amortisation of capital expenditure": T7/37/3 – 13; and that Minco's interest "had to convert into something from a participating interest to become a carried interest": T7/75/17 - 19). I also bear in mind Ms den Besten's strictures upon the differing accounts provided by Mr McKillen at different times in his written evidence about his understanding of the nature of Minco's carried interest in the Pallas Green JVA.
42. Nor, for the reasons that follow, can I accept Mr McKillen's evidence that he (1) did not notice the references in the two Beaufort research notes to the dilution of Minco's interest in the Pallas Green joint venture to an agreed base level of 10% or (2) considered this to be confidential information which should not be disclosed to actual or potential investors. The first research note was only one page in length, and Mr McKillen clearly considered and amended that page; and he also clearly considered and amended the relevant page of the later (and much longer) research note. Nor did Mr McKillen ever query Mr Sears's reference to "provisions for our holding to reduce to no less than 10%" in his email of 11 October 2010. Mr McKillen did not think that Minco had told Mr Gibb that the information it was providing to him was confidential, nor did Mr McKillen ever inquire, or find out, whether the information he had provided in response to Mr Gibb's email inquiry of 9 September 2010 had been passed on to the unnamed investor. I am satisfied that Mr McKillen has accelerated in point of time his appreciation of Xstrata's contemporaneous concerns about the confidential nature of the JVA (which were articulated only after the second of the two lunch meetings, in letters dated 18 and 24 November 2010 at 6/1378 and 6/1380) and that he has genuinely convinced himself that he could not have noticed the references to dilution in the two Beaufort research notes. However, having closely observed and listened to Mr McKillen, I am satisfied that he is not a man who would knowingly tell an untruth in a business or professional context, still less on oath in court. Whilst at times I found Mr McKillen to be uncomfortable under cross-examination, I ascribe this to the fact that he was embarrassed about his professed failures to notice the relevant parts of the Beaufort research notes, and to consult the detailed provisions of the JVA at any time before about the middle of 2011, rather than because he was lying in his evidence.
43. I have taken all of these matters, and the submissions of counsel (both written and oral), into account. I have concluded that where there is a difference between the evidence of Mr Sears and Mr McKillen, on the whole I prefer the evidence of Mr Sears except where this would cast any doubt upon the honesty and the integrity of Mr McKillen. My reasons are that (as explained above) I am satisfied (1) that Mr Sears generally has a better, and more reliable, recollection of events and conversations than Mr McKillen (and that that recollection derives some support from the evidence of Mr Bevan and the contemporaneous documents), although I find that Mr Sears's recollection is not entirely reliable; but (2) that Mr McKillen would not tell a deliberate lie (knowing it to be such), either to an actual or potential investor, or, and still less, on oath to the court; nor would he have ventured to express a personal opinion as to the true value of Minco's shares, at least to an outside investor such as Mr Sears or Mr Bevan. Indeed, I cannot see that Mr McKillen (or Mr Varma) had any reason or motive deliberately to lie to Mr Sears (or to Mr Bevan) or to seek to mislead them in the manner alleged by the claimants, and none was put to them. To the extent that Mr Sears's evidence indicates that Mr McKillen has done this, then I am satisfied that it is Mr Sears who is mistaken in his recollection and evidence, and that he has allowed his perception that he was misled and deceived by Minco's directors, and his consequent sense of personal betrayal, and also the fact of his pecuniary losses, to cloud, and to affect, his recollection of events and have led him to embellish his evidence.
44. I accept Mr McKillen's evidence (at, for example, T6/49/1-3) that he "thought [he] had the terms [of the JVA] in [his] head at the time". Whilst this was said in the immediate context of cross-examination about what he had told Mr Gibb about the dilution of Minco's interest in the Pallas Green joint venture, I am satisfied that this was Mr McKillen's state of mind throughout 2010 and certainly up to about the middle of 2011: compare, for example, T6/90/17 – 91/18. I accept the evidence of Mr McKillen (which derives some support from the evidence of Mr Kearney) that Mr McKillen did not find it necessary to consult the JVA during this period and that he did not do so. I am also satisfied that Mr McKillen did not tell Mr Sears, at the second of the two lunch meetings, that "we" had "re-read" the JVA and had "concluded that there was nothing to concern" Mr Sears, thereby meaning him to understand that what Mr McKillen had previously told him about the dilution provisions was true, or otherwise confirming that the minimum dilution representation was correct, or that Mr McKillen used words to the like effect: this would have been a deliberate lie and I am satisfied that Mr McKillen would not have lied deliberately to Mr Sears. I accept the evidence of Mr McKillen (at, for example, T6/74/10 – 78/1) that (1) his understanding at all material times was that "if Minco did not participate and carry its participating interest, then dilution below 10% would convert it to a 10% carried interest", i.e. a net profit payment in lieu, (2) "at this point in time [i.e. in 2010] nobody [was] anticipating that Minco [would] not continue to fully participate", and (3) if he had actually checked the JVA, Mr McKillen would have said that Minco's interest would convert to a 15% carried interest at 5%. Mr McKillen's understanding that Minco's participating interest would convert at 10% to a 10% carried interest is evidenced by his emails, either side of the 23 September 2010 lunch meeting, of 10 September to Mr Gibb (at 2/492: "If either party is diluted below a 10% participating interest then the interest is converted to a 10% carried interest") and 19 October to Mr Varma and Mr Kearney (at 2/494: "[Mr Sears] knows already that the bottom line is a 10% carried interest…"). I accept Mr McKillen's evidence that in 2010 nobody at Minco was anticipating diluting its interest in Pallas Green; rather they were determined that they were going to participate fully: see T6/112/14 – 116/12. I find that it was for that reason that Mr McKillen felt it unnecessary to refer back to the precise terms of the JVA regarding dilution. I expressly reject the claimants' case in fraud which was put to Mr McKillen at, for example, T6/137/23 – 141/3.
45. I am equally satisfied that Mr Varma is not a man who would knowingly tell an untruth in a business or professional context, still less on oath in court. Surprising as it too may be, I accept Mr Varma's evidence that he never had any occasion to read the JVA until after May 2011. He relied upon the knowledge (respectively actual and assumed) of the lawyer, Mr Kearney (who had negotiated the JVA) and the geologist, Mr McKillen (who was responsible for overseeing its practical operation), the relevant involvement of both of whom had pre-dated that of Mr Varma. It is common ground that Mr Varma took little part in the relevant discussions at the two lunch meetings; and I am satisfied that he has very little personal recollection of those discussions. I accept Mr Varma's evidence that there were multiple conversations going on and that he might not have been within hearing of what Mr McKillen was saying: T6/59/10 – 60/17. Later, and in answer to questions from the Bench, Mr Varma indicated that when there were private conversations going on at the 23 September lunch, Mr Varma was primarily conversing with Mr Gibb (who has been described by Mr Sears as "garrulous": T1/111/9, 117/6 and 122/21). Of course this cuts both ways because (whilst it may serve to assist in exonerating Mr Varma) it means that he is less able to provide support for Mr McKillen's account of events; and I have factored this into my assessment of the evidence. I accept Mr Varma's evidence that, to the extent that he did hear what was said by Mr McKillen at either of the two lunch meetings, he had no reason to doubt its accuracy (although if he had done so, his evidence was that he would not have interrupted, challenged or corrected Mr McKillen openly in front of others but would have taken him to one side after the conclusion of the meeting and raised the matter then). After overnight consideration, Mr Varma was prepared freely to acknowledge that, with hindsight, it would have been better to have checked the terms of the JVA: T7/91/13 – 93/21. Mr Varma also emphasised during the course of his cross-examination that the two lunch meetings with Mr Sears and Mr Bevan were both "off the record" discussions: T7/16/10-22 and T7/102/23 – 103/21.
46. Turning to Mr Gibb, there is no allegation that he knowingly misrepresented the dilution provisions of the JVA to Mr Bevan or Mr Sears, either in his conversations with them or in his research notes. Although none is alleged, I make it clear that I find no fraudulent intent on the part of Mr Gibb. I accept Mr Gibb's evidence that Mr McKillen was the source of the minimum dilution representation in the Beaufort research notes. Indeed, Mr McKillen acknowledged that it was possible that he had mentioned to Mr Gibb his belief and understanding that if Minco's interest in the Pallas Green joint venture were diluted to 10%, it would then be converted into a 10% carried interest: see paragraph 13 of Mr McKillen's witness statement and T6/39/16 – 40/19. I find that Mr Gibb had very little recollection of relevant events, including the two lunch meetings. In that sense, his evidence was of limited assistance to the court.
47. Against that background, I turn to make my findings of fact, many of which are foreshadowed by what I have already said. On his own evidence and case, Mr Sears does not claim that he had seen or read the 14 April research note at the time it was released. However, I find that on 15 April 2010 Mr Gibb did inform Mr Bevan that Minco's interest in the Pallas Green project could not be diluted below 10% and that Mr Bevan conveyed this information to Mr Sears later that day. I see no reason to reject the evidence of Mr Sears and Mr Bevan to this effect. It is consistent with the publication of Mr Gibb's research note. Mr Gibb's recent lack of certainty as to the precise date of his conversation with Mr Bevan does not lead me to accept Mr Lundie's suggestion that this conversation in fact took place on 4 May 2010. However, Mr Sears has not satisfied me that his conversation with Mr Bevan took place before he had purchased further shares in Minco on 15 April.
48. I find that on 2 June 2010 Mr Gibb informed Mr Sears and Mr Bevan that Minco's interest in the Pallas Green project could not be diluted below 10%. Again I see no reason to reject the evidence of Mr Sears and Mr Bevan to this effect. However, I also accept Mr Sears's acknowledgment that this information did not add materially to their existing store of knowledge.
49. I find that the minimum dilution representations made by Mr Gibb to Mr Bevan and Mr Sears were made by him in his capacity as a non-independent research analyst employed by Beaufort in precisely the same the same way as he released his research notes. The fact that (as I find) Mr Gibb had derived his knowledge about the perceived 10% minimum dilution position from Mr McKillen does not mean that he was disseminating this information on behalf of Minco or as its agent. I do not consider that the facts that (1) Mr McKillen was the source of Mr Gibb's knowledge of the perceived 10% minimum dilution position, (2) Mr McKillen corrected aspects of the research notes, and (3) the research notes were posted on Minco's website, whether taken separately or together, mean that Minco thereby assumed any duty of care to actual or potential investors in relation to the contents of the research notes. In my judgment, the necessary relationship of proximity is absent; and, in any event, it would not be fair, just and reasonable for the law to impose a duty of care on Minco towards an indeterminate number of actual or potential investors in Minco, particularly when the terms of the research notes themselves clearly negatived any assumption of responsibility on the part of Beaufort as the publisher of the research notes. Although Mr McKillen accepted in cross-examination (at T6/77/19 – 78/1) that investors would rely upon what was said in the 3 June research note about the minimum dilution provisions of the JVA, the research notes were clearly marketing communications produced for information purposes only for the benefit of Beaufort's clients and it was not reasonably foreseeable that they should be relied upon by investors in Minco in relation to any particular share purchase without independent verification from Minco itself (in the way Mr Sears and Mr Bevan were later to seek confirmation of the potential implications of the minimum dilution provisions from two of the executive directors of Minco at their lunch meeting on 23 September 2010).
50. I find that at the first lunch meeting at the National Liberal Club on 23 September 2010 Mr McKillen confirmed the minimum dilution representation to Mr Sears. He did so both explicitly and implicitly. I accept the evidence of Mr Sears and Mr Bevan that Mr McKillen confirmed that the minimum dilution representation contained within the 3 June research note was correct, and also that Minco had concluded that it would not wish its participating interest in the Pallas Green joint venture to be diluted to 10% but was determined to continue to participate fully in the project. I find that Mr McKillen understood, and intended to convey to Mr Sears and Mr Bevan, that if and when Minco's interest fell below 10%, it would convert to a "carried interest", meaning that Minco would no longer be required to contribute to further project costs but would instead become entitled to 10% of net profits. I find that Mr Sears (and also Mr Bevan) did not appreciate that there would be any change in the nature of Minco's entitlement to participate in the Pallas Green project beyond the extinguishment of its liability to contribute to future project costs. I find that they gave no real consideration to the nature of Minco's "carried" interest in the Pallas Green project, simply assuming that Minco would be entitled to 10% of the resource without giving any real thought to the fact that the joint venture was merely interested in prospecting licences rather than in the land itself, and without considering how the costs of extracting the minerals were to be borne as between the joint venturers. For his part, Mr McKillen did not appreciate that Mr Sears (or Mr Bevan) might not have shared his understanding as to the conversion to, and the concept of, a "carried interest". Because Mr McKillen testified that he would not have used the word "maths" (see T6/114/7-13) I am not satisfied that Mr McKillen himself actually used the words Minco had "done the maths"; but I am satisfied that he did use a form of words which made it clear that, after full consideration, Minco was determined not to see its interest diluted to the perceived 10% base interest in the Pallas green joint venture. I find that throughout 2010, and up to the middle of 2011, Mr McKillen genuinely believed that he could sufficiently recall the minimum dilution provisions of the JVA without express reference to that document, and that those provisions provided for conversion from a participating interest to a carried interest of 10% at the point when Minco's existing interest fell below a 10% participation level. I do not find that in confirming the minimum dilution representation, Mr McKillen impliedly represented anything more than that this accurately reflected his genuine understanding of the terms of the JVA. I find that Mr McKillen's statements at the two lunch meetings were made in his capacity as Minco's chief executive officer and on its behalf.
51. I find that when Mr McKillen, on behalf of Minco, confirmed the minimum dilution representation at the 23 September 2010 lunch meeting, Minco assumed a duty to Mr Sears to take reasonable care to ensure that the information thereby conveyed to Mr Sears was correct. Unlike the position in relation to the correction of the Beaufort research notes, and their later posting on Minco's web-site, this was a face-to-face meeting with identified investors who were clearly seeking information relevant to the company's business and position which was not freely available from publicly ascertainable sources. Although Mr Varma considered them to be 'off-the-record', I cannot regard the two lunch meetings as being in the nature of purely informal, social occasions. Mr Lundie emphasises that in cross-examination (at T1/142/1-15) Mr Sears accepted that he had not been thinking of selling any shares in Minco at the time of the 23 September 2010 meeting so there would have been no reason for him to mention that he was thinking of selling his shares; and that he had not informed Mr McKillen or Mr Varma that he required certain information in order to work out whether to sell or retain his existing Minco shares or to determine whether to buy any further shares in Minco. In his own cross-examination, however, Mr McKillen accepted that the two lunch meetings with Mr Sears and Mr Bevan were the only occasions on which he could recall ever having had a private lunch with two investors in Minco, that he appreciated that they would be interested to hear what he had to say about the company, and that in all likelihood they would rely upon what he had to say about Minco: see T6/100/23 – 101/7. Earlier in his cross-examination (at T5/130/16-25) Mr McKillen had accepted that it was always possible that if he, as the CEO of Minco, had any discussion with shareholders, they might well rely upon what Mr McKillen was saying, particularly if they were unable to verify what he was saying from other sources themselves. In my judgment, there was a sufficient relationship of proximity between Minco and Mr Sears to warrant imposing upon Minco a duty to take care in relation to the accuracy of the information provided to Mr Sears, at least in respect of decisions taken by him in relation to the purchase and retention of shares in Minco acquired on the open market; and it would be fair, just and reasonable to impose such a duty. In respect of shares acquired from Minco by way of any share placing, however, in my judgment the assumption of any such duty of care in tort would fall to be qualified by the express terms of the relevant share placing. Since Mr McKillen had not consulted the precise terms of the JVA, and was relying entirely upon his recollection of those terms dating back to 2002, when (with Mr Kearney) Mr McKillen had signed the JVA on behalf of Minco, I find that Minco (through Mr McKillen) was in breach of its duty of care to Mr Sears when Mr McKillen confirmed the terms of the minimum dilution representation to him at the 23 September 2010 lunch meeting.
52. I reject Mr Sears's evidence that at the first lunch meeting Mr McKillen either (1) asked Mr Sears whether he would sell if he were offered 30p per share and said that he (Mr McKillen) knew that he would not do so or (2) said that he thought Minco's shares were worth at least a pound a share: see paragraph 105 of Mr Sears's 3^rd witness statement, confirmed in cross-examination at T1/140/8 -141/24. I also reject Mr Bevan's evidence (at paragraph 42 of his 2^nd witness statement, and confirmed in cross-examination at T5/50/12 – 51/21) that he remembers Mr McKillen saying that he "would not take a pound a share". These two accounts are at variance with each other, and I am satisfied that they are the product of false and self-serving (in the case of Mr Sears) or partial (in the sense of biased in the case of Mr Bevan) recollections on their part. At paragraph 42 of his 3^rd witness statement Mr McKillen described Mr Sears's assertions as "nonsense"; and in cross-examination (at T6/128/14-16) Mr McKillen categorically denied saying that he would not sell if he were offered 30p per share. Having seen Mr McKillen under cross-examination, I am satisfied that he would not have ventured to express a personal opinion as to the true value of Minco's shares, at least to an outside investor such as Mr Sears or Mr Bevan. In the extract from the transcript cited above, Mr Sears himself described Mr McKillen's words as "really quite a strange thing to say"; and he added "that it was quite a surprise to me he would say something like that". Mr Sears also said in cross-examination that he had related the conversation to Mr Kearney when he had met him by chance in December 2010: see T1/141/12–24. However, it later emerged in cross-examination (at T3/15/19 – 16/18), and was confirmed in re-examination (at T67/18 – 68/23), that that meeting had in fact taken place a year later, in December 2011. I find it most unlikely that Mr Sears should have mentioned a statement, allegedly made by Mr McKillen in September 2010 about his perception of the value of shares in Minco at that time, during the course of an impromptu meeting in December 2011, and after Minco had already agreed to the sale of its interest in Pallas Green to Xstrata, and also after Mr Sears and Mr Bevan had caused Francis Piesse to write the letter before action which Minco received on 23 November 2011 (and which contains no reference to this alleged statement). I do not think that Mr Bevan ever gave any evidence about this December meeting or that either Mr Kearney or Mr Varma was asked about it (despite Mr Sears's suggestion during his cross-examination that "it may be a question that we can ask Mr Kearney"). If (as I think likely) the account of this conversation is an example of Mr Sears embellishing his evidence, then this provides additional support for my rejection of Mr Sears's evidence on this particular issue (although I make it clear that I would have rejected this evidence without this further support).
53. For the reasons previously stated, I find that at the second lunch meeting at the National Liberal Club on 15 November 2010, which he again attended in his capacity as Minco's chief executive officer and on its behalf, Mr McKillen did not say that "they had re-read" the JVA and had "concluded that there was nothing to concern" Mr Sears. I therefore find that Mr McKillen did not impliedly confirm the minimum dilution representation at this lunch meeting. It is not suggested that he did so expressly.
54. I have already indicated that I accept Mr Varma's evidence that, to the extent that he heard what was said by Mr McKillen at either of the two lunch meetings, he had no reason to doubt the accuracy of what Mr McKillen was saying. I decline the claimants' invitation to find that Mr Varma, who attended both meetings in his capacity as Minco's chief financial officer and company secretary, and on its behalf, misrepresented by omission that Minco's interest in the Pallas Green project could not be diluted below 10%: I am satisfied that Mr Varma did not appreciate that there was any misstatement of fact that required correction. I should add, in relation to any alleged misrepresentation by silence on the part of Mr Varma at the second lunch meeting, that it would seem to me to be a necessary ingredient of any cause of action against Mr Varma in this regard that the claimants should prove knowledge on Mr Varma's part that Mr McKillen had not in fact re-read the JVA (as he is alleged to have said that he had done). I find absolutely no basis for finding any such knowledge on Mr Varma's part. This is not a case where Mr Varma associated himself with any statement which he knew to be false, or did not honestly believe to be true, or was consciously indifferent as to its truth. For completeness, I acquit Mr Varma of any personal negligence in placing reliance upon Mr McKillen's perceived knowledge and understanding of the terms of the JVA in general, and the minimum dilution provisions in particular.
55. Ms den Besten contended that the defendants had actual knowledge of the relevant provisions of the JVA, and had wilfully misstated the same, alternatively that the minimum dilution representation was made by the defendants either without any honest belief in its truth or recklessly, without caring whether the representation was true or false. She relied on the well-known observations of Lord Herschell in Derry v Peek (1889) 14 App Cas 337 at 374: "…fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief." Ms den Besten relied upon the terms of paragraph 27.1 of the re-re-amended defence (cited at paragraph 6 above) and submitted that on the defendants' own case, the minimum dilution representation was made even though they did not have a perfect recall of the terms of the JVA, and would have need to see it to refresh their memory as to its terms, or to ascertain the precise terms relating to Minco's entitlement to the retained carried interest in the event of dilution of interest below a specified percentage. She contended that a representor can have no real belief in the truth of what he says if he does not know whether it is true or not. Ms den Besten also relied upon observations of (1) Lord Cairns in Reese River Silver Mining Co v Smith (1869) LR 4 HL 64 at 79-80: "I apprehend it to be the rule of law, that if persons take upon themselves to make assertions as to which they are ignorant whether they are true or untrue, they must, in a civil point of view, be held as responsible as if they had asserted that which they knew to be untrue. Upon that part of the case, my Lords, I apprehend there to be no doubt"; (2) Simon Brown LJ in Economides v Commercial Assurance Co. Plc [1998] QB 587 at 598D-E to the effect that a representor cannot "simply make a blind guess: one cannot believe to be true that which one has not the least idea about"; and (3) Chitty on Contracts (32^nd ed.) at para 7-050, citing Reese River (above): "The requirement of proof of the absence of honest belief does not, however, mean that the claimant must prove the defendant's knowledge of the falsity of the statement. It is enough to establish that the latter suspected that his statement might be inaccurate, or that he neglected to inquire into its accuracy, without proving that he actually knew that it was false. Thus where directors issued a prospectus setting out the advantages of a particular mine, without having ascertained the truth of these representations, they were held to have committed a fraud."
56. In closing, Ms den Besten submitted that if a defendant knows that he does not know the truth of what is being stated, but says it anyway, then that is carelessness as to the truth or otherwise of the statement and it satisfies Lord Herschell's classic definition of recklessness. The test in Economides was said to be obviously met as regards Mr McKillen: the minimum dilution representation was made to his knowledge, in circumstances where he had (on his own evidence) not looked at the JVA for many years and knew that he had no fresh recall as to its term. Mr McKillen had enjoyed ready access to the JVA, and he had had numerous opportunities to look at it, including when specifically invited to do so by Mr Gibb on 9 September 2010, and yet he had failed to do so. Miss den Besten submitted that it is obviously right that, in these circumstances, Mr McKillen cannot have cared about the truth of the minimum dilution representation (including the statements in the 14 April and 3 June research notes) because otherwise he would have checked the JVA. The same point is said to apply as regards Mr Varma if the court is satisfied that by his conduct he affirmed the minimum dilution representation.
57. Citing observations of Rix LJ in The Kriti Palm [2006] EWCA Civ 1601, [2007] 1 Lloyd's Rep 555 at [251] – [260] Mr Lundie emphasised the elements of the tort of deceit, which require (1) a representation which is (2) false, (3) dishonestly made, and (4) intended to be relied on and in fact relied on. As for the element of dishonesty, Rix LJ recorded that "the leading cases are replete with statements of its vital importance and of warnings against watering down this ingredient into something akin to negligence, however gross … In effect, recklessness is a species of dishonest knowledge, for in both cases there is an absence of belief in truth." Rix LJ cited from the judgments of Bowen LJ in Angus v Clifford [1891] 2 Ch 449 at 471 (including the statement that "Not caring, in that context, did not mean not taking care, it meant indifference to the truth…") and of Devlin J in Armstrong v Strain [1951] 1 TLR 856 at 871: "A man may be said to know a fact when once he has been told it and pigeon-holed it somewhere in his brain where it is more or less accessible in case of need. In another sense of the word a man knows a fact only when he is fully conscious of it. For an action of deceit there must be knowledge in the narrower sense; and conscious knowledge of falsity must always amount to wickedness and dishonesty. When judges say, therefore, that wickedness and dishonesty must be present, they are not requiring a new ingredient for the tort of deceit so much as describing the sort of knowledge which is necessary." Mr Lundie also took me to passages in the judgments of (1) Lindley LJ in Angus v Clifford (above) at 465-6 (culminating in the statement that: "The passages about knowledge – knowingly making it, and making a statement without believing its truth, are based upon the supposition that the matter was really before the mind of the person making the statement, and if the evidence is that he never really intended to mislead, that he did not see the effect, or dream that the effect of what he was saying could mislead, and that the particular part of what he was saying was not present to his mind at all, that I should say is proof of carelessness rather than of fraud.") and (2) Bowen LJ in Le Lievre v Gould [1893] 1 QB 491 at 500-1 emphasising that even gross negligence, in the absence of dishonesty, did not of itself amount to fraud and that "not caring" about the truth of the representation did not mean "not taking care to find out whether the statement was true or false; it meant not caring in the man's own heart and conscience whether it was true or false", which would be "wicked indifference and recklessness". In short, recklessness might be evidence of dishonesty but it is not a substitute for that state of mind.
58. I have already rejected the claimants' case that any of the defendants had actual knowledge of the relevant provisions of the JVA and had wilfully misstated the same. I also reject the claimants' alternative case founded upon either absence of any honest belief in the truth of the minimum dilution representation or recklessness as to its truth. I accept the submissions of Mr Lundie that while recklessness may be evidence of dishonesty, it is no substitute for that state of mind, and that even gross carelessness cannot be equated with indifference as to the truth of a representation. Ms den Besten is entitled to pray in aid the terms of paragraph 27.1 of the re-re-amended defence, which pleads that both Mr McKillen and Mr Varma "did not have a perfect recall of the terms of the JVA and would have needed to see the terms of the JVA to refresh their memory as to its terms or to ascertain the precise terms relating to Minco's entitlement to the retained carried interest in the event of dilution of interest below a specified percentage". But, as Mr Lundie pointed out in his oral closing, paragraph 27.1 contains no admission or acknowledgment that either Mr McKillen or Mr Varma knew that they did not have a perfect recall of the terms of the JVA and would have needed to see that document to refresh their memory in order to ascertain the precise terms relating to Minco's entitlement to the retained carried interest in the event of the dilution of Minco's participating interest below any particular percentage level. The defendants' case, which I find to be made out on the evidence, is that both Mr McKillen and Mr Varma genuinely believed that the former sufficiently knew the terms of the JVA governing the dilution of Minco's participating interest, and that Mr McKillen was simply, but genuinely, mistaken as to what those terms were. I hold that that is not sufficient to justify a finding of fraud or deceit; and I reject the claimants' case on fraud and deceit. I do not find that Mr McKillen (still less Mr Varma) consciously appreciated that Mr McKillen's understanding of the minimum dilution provisions of the JVA was wrong. Nor is this a case where either of them simply did not give a damn about what those provisions were. I find that Mr McKillen had no reason to suspect that his understanding of the minimum dilution provisions of the JVA was inaccurate, and he had no reason to consider that he needed to consult or refer to the JVA to confirm that or to check whether his understanding was correct. I find that Mr Varma had no reason to suspect that anything that Mr McKillen had said was inaccurate, or founded upon inadequate knowledge, still less to challenge any of Mr McKillen's statements in any respect.
59. I find that it was both foreseeable and reasonable for Mr Sears to rely upon what was said by Mr McKillen about the provisions of the JVA at the two lunch meetings at the National Liberal Club (although I have previously found that nothing relevant was in fact said about the minimum dilution provisions at the second of those two meetings). Mr McKillen was Minco's chief executive officer and a professionally qualified, and practically experienced, geologist who had been involved in the Pallas Green project from the outset. He could be expected to be familiar with the provisions of the JVA (even though I find that his recollection of them was wrong). The JVA was not a publicly available or accessible document and so actual or potential investors in Minco would inevitably have to look to its management for information as to the terms of the JVA. Mr McKillen accepted in cross-examination (at T6/77/19 – 78/1) that investors would rely upon what was said in the 3 June research note about the minimum dilution provisions of the JVA. Still more then could they be expected to rely upon anything that was said to them about the JVA by executive members of Minco's board (as Mr McKillen freely acknowledged in cross-examination). For the same reasons, I find that the minimum dilution representation was "material", in the sense that it was capable of influencing a reasonable person in deciding whether to purchase or to retain shares in Minco. Whether or not it in fact influenced Mr Sears is another matter.
60. I do not find that either Mr McKillen or Mr Varma consciously intended Mr Sears to rely upon anything that was said at either of the two lunch meetings about the level below which Minco's interest in the Pallas Green joint venture could not be diluted in order to induce him either to purchase further shares in Minco or to retain such shares as he already held. This is because I find that Mr McKillen made it clear at the first of the two lunch meetings that at that point in time nobody at Minco was anticipating that Minco should not continue to participate fully in the project; and this remained the case at the time of the second lunch meeting. However, I find that it was reasonably, and entirely, foreseeable that Mr Sears should rely upon anything that was said about the minimum dilution provisions of the JVA at either of those two lunch meetings. Mr McKillen had previously (and exceptionally) arranged for both Mr Sears and Mr Bevan to visit the Pallas Green site in their capacity as investors in Minco, and the purpose of the two lunch meetings was to enable them (again exceptionally) to receive further information from, and to pose questions to, two of Minco's executive directors. I accept Ms den Besten's submission that the requirement that the representation must be made with intention that the claimant (or a person in the position of the claimant) should act upon the representation is satisfied not only where the representor actually desires the claimant to rely on what he says, but also where he appreciates that he will actually do so. Provided the representor intends the representee to act on the representation (in either of these senses), it is immaterial whether he intended him to act in the precise way in which he did. I find that this test is clearly satisfied on the facts of the present case. It must readily have been appreciated that Mr Sears was likely to purchase shares in Minco as a result of anything that was said to him; and it was a natural consequence of what was said that he would want to continue to hold his shares in Minco for the time being. Although (as I find) neither Mr McKillen nor Mr Varma were aware of the involvement of the second claimant, I do not consider that this matters since, on the unchallenged evidence, the second claimant at all times acted at the direction, and effectively on behalf, of Mr Sears.
61. I find that the minimum dilution representation was false or misleading in the three respects identified by Ms den Besten in her written closing (as recited at paragraph 5 of this judgment): First, (which is common ground) the point at which Minco's interest in Pallas Green might be diluted was misstated to be 10%, rather than the 5% actually provided by the JVA. Secondly, Mr Sears was never informed that, following dilution, there would be a change in the nature of Minco's interest in Pallas Green (then a 23.6% "participating interest", or, loosely, "equity") so as to suggest that, if reduced to 10% (or in fact 5%), Minco would be deemed to have withdrawn from the joint venture and cease to have a participating interest therein. Thirdly, and in the light of the foregoing, Mr Sears was also not told the precise nature, or the true extent, of the 'interest' Minco would receive in the event that it was deemed to have withdrawn from the Pallas Green joint venture (in the event, a 15% Net Profit Payment). As Mr McKillen conceded in cross-examination, the representation that the JVA did not permit Minco's holding to be cut below 10% did not convey the sense that it was a "carried interest" (in the sense of an interest in the net profits of the venture, rather than a fully participating interest) and it therefore had the potential to mislead someone (such as I find Mr Sears to have been) who was not familiar with the mining exploration industry in general. However, whilst I find (1) that the representation was ambiguous, (2) that Mr Sears actually understood it in the sense which was false, and (3) that that was the sense which, on its true construction, it ought to bear, I also find that Mr McKillen intended the representation to be understood in the alternative sense of a "carried interest" (as explained above). This presents a still further obstacle to the success of the claimants' case in fraud and deceit because a person who makes a statement honestly believing it to be true in the sense which he understands it to bear is not guilty of fraud merely because the representee understands it in a different sense which is false to the knowledge of the representor, even though the court agrees that the sense in which the representee understands the statement is the meaning which, on its true construction, it ought to bear: see Chitty on Contracts, 32^nd edn (2015), Vol 1, para 7-052.
62. In the course of her oral opening Ms den Besten submitted (at T1/32/22 – 34/17) that in relation to deceit the question was whether the minimum dilution representation was material and induced Mr Sears to purchase the shares in Minco whereas in negligence the court would be looking at the "but for reliance causation test". Reference was made to observations of Briggs J in Ross River Ltd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch), [2008] 1 All ER 1004 at [200] – [202]:

"200. Turning to the issues of materiality and inducement, there is a material misrepresentation where the false part of a statement is objectively likely to have constituted an inducement to the recipient to enter the contract, not in the sense of being the sole or the predominant cause but merely one of the inducing causes.

201. Once the misstatement is shown to have been material, then there is 'a fair inference of fact' that the recipient was induced by the statement: see Chitty on Contracts (29^th Ed) at Para 6-035 and the numerous cases cited in note 162.

202. In cases of fraudulent misrepresentation a more rigorous rule is applied, sometimes described as being by way of deterrence: see Chitty (op. cit.) at para 6-034. It is not enough for the representor to show that the representee would, even if the representation had not been made, still have entered the contract. It is sufficient for the representee to show that the misrepresentation 'was actively present to his mind' (per Bowen LJ in Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483)."

Ms den Besten submits that as regards deceit, the questions are whether the minimum dilution representation was actively present in Mr Sears's mind? Whether it was part of the thought process which caused him to purchase or retain the shares in Minco? The claimants say that it was, and that that is initially apparent from the chronology by which he purchased those shares.

63. In closing Ms den Besten submitted that both in retaining his shares in Minco and in purchasing further shares the minimum dilution representation was operative in Mr Sears's mind so as to satisfy the required threshold of materiality. It was not sufficient for the defendants to contend that Mr Sears might, even if either misrepresentation had not been made, still have acted in the same way. Indeed, in order to rebut a prima facie inference of inducement, it was submitted that the defendants had to show that Mr Sears "did not allow the representation to affect his judgment" and that it had "absolutely nothing to do with the result", referencing Spencer Bower & Handley: Actionable Representation, 5^th edn, at paragraph 6.09, citing Barton v Armstrong [1976] AC 104 and Corben [1974] 2 NSWLR 202 at 208-9. Ms den Besten submitted that this would be completely contrary to the evidence heard by the court.
64. The corresponding paragraphs in the current (32^nd) edition of Chitty to those which were referred to by Briggs J in Ross River are paragraphs 6-039 (headed "'But for' causation not required for rescission for fraud") and 6-040 (headed "Material misrepresentation and a presumption of inducement"). Also of relevance are paragraphs 7-038 (headed "'But for' causation normally required") and 7-037 (headed "Need not be sole inducement"). I have read all of those paragraphs in full. It is important to note that Briggs J's observations are to be found in a section of his judgment (beginning at paragraph 193) headed, and addressing, "Rescission for Misrepresentation" rather than the remedy of damages for misrepresentation which is the issue here. Where damages are in issue, I accept that once it is proved that a false statement was made which is "material", in the sense that it was likely to induce the contract, and that the representee entered into the contract, it is a fair inference of fact (though not an inference of law) that he was influenced by the statement, and that that inference is particularly strong where the misrepresentation was fraudulent: see para 7-040. But, except where the remedy claimed is rescission for fraud (as to which see para 7-039), a party who enters into a contract after a misrepresentation has been made to him will not have a remedy unless he would not have entered into the contract (or at least not on the same terms) but for the misrepresentation: see para 7-038. It is not necessary that the representation should have been the sole cause which induced the representee to make the contract; it is sufficient if it is one of the inducing causes. What is required is that the misrepresentee would not have entered the contract but for the misrepresentation: see para 7-037. In my judgment, adopting what is said at foot-notes 199 and 200 of Chitty, the test is whether the representee would have entered into the contract had the representation not been made, rather than what he would have done had he known the truth. The presumption of inducement is rebutted by the representor showing that the representation did not play a real and substantial part in the representee's decision to enter into the transaction; the representor does not have to go so far as to show that the representation played no part at all in that decision. Nor is it sufficient for the representee to show that the representation was actively present to his mind if the representor succeeds in showing that the representation did not play a real and substantial part in the representee's decision to enter into the transaction.
65. On the evidence, the defendants have satisfied me that the minimum dilution representation did not play any real or substantial part in Mr Sears's decision to purchase or retain shares in Minco. I am satisfied that he would have done so had that representation not been made. I expressly reject Mr Sears's evidence (at paragraph 55 of his witness statement, cited at paragraph 13 above) that when Mr Bevan first related the minimum dilution representation to Mr Sears on 15 April 2010 it was "absolutely critical to my interest in buying further shares in Minco, and in continuing to hold the shares I had already bought…. [It] was sufficiently important to change the way in which I regarded Minco, from a short-term to a long-term investment." My reasons (which are in no particular order of importance, and should be viewed cumulatively) are as follows.
66. First, from about the first quarter of 2009 Mr Sears was concerned to redress the massive fall in the value of his self-invested pension funds caused by the global recession. He came to hold the view that speculative investment in small companies in the mining sector might afford the short-term capital gains he required. During the first half of 2010 he came to conclude that Minco afforded the potential for substantial short-term capital gains because the positive drilling results from Pallas Green suggested a value substantially in excess of Minco's current market capitalisation and Mr Sears was led to understand that Xstrata (whose involvement as the major joint venture partner was itself an indication of the perceived quality and value of the Pallas Green site) would move to buy out Minco's minority interest. As a result of his visit to Pallas Green with Mr Bevan on 24 May 2010, Mr Sears records (at paragraph 71 of his 3^rd witness statement) that they "were left with no doubt that the area contained substantial zinc deposits and that it would be developed into a mine". Mr Lundie submits that it is difficult to see how, in these circumstances (and, apparently, notwithstanding his self-serving assertion, at paragraph 73, that the minimum dilution representation "underpinned" his interest in Minco and was "fundamental" to his perception of the value of its shares), Mr Sears can say that he would not have purchased shares in Minco (and/or would have sold his existing shares in Minco) if the minimum dilution representation had not been made to him. Mr Lundie also points to an Advanced Financial Network posting on 5 January 2011, following up on an earlier third party posting which referred to a "10% carrying royalty", in which Mr Sears wrote (under his alias of "Corydon"): "… There is a question as to whether we shareholders would be better off not suffering further dilution and allowing our interest to fall to 10% but I think we would only come out ahead if the company was to see 2.3 times the present number of shares. I'm in here because I think the combination of a diminutive company with a decent-sized resource and the backing of a global mining giant is unusual and gives Minco a stamp of credibility that I can't find elsewhere. If anyone else can, I'd be delighted to hear from you … - the above are of course simply my opinions." I see considerable force in Mr Lundie's submissions.
67. Secondly, there is no clear correlation between Mr Sears's purchases, or his sales, of shares in Minco and the making, and the reiteration, of the minimum dilution representation. Mr Sears began purchasing shares in Minco before the making of the minimum dilution representation. Notwithstanding that representation, he sold 650,000 shares on 5 July 2010 because he thought it prudent to reduce his weighting in mining shares (although he soon partly reversed this decision). Mr Sears purchased no new shares after the two lunch meetings on 23 September and 15 November 2010 until April 2011. Rather, he sold a relatively modest number of shares (for some £7,000) on or about 11 November 2010, shortly before the second lunch meeting.
68. Thirdly, Mr Sears's email of 3 June 2010, commenting on Beaufort's 3 June research note, contained no reference to the minimum dilution representation despite its professed importance to Mr Sears. That importance finds no expression in any of the contemporaneous email traffic between Mr Sears and Mr Bevan. Nor did Mr Sears ever question what was meant by a 10% "holding" or how this was to be calculated or quantified, although his email to Mr McKillen on 11 October 2010 (at 6/13150), composed and sent after the 23 September lunch meeting, requested "a copy of the JV agreement or at least those sections of it that deal with pre-emption or changes to interest". Mr Sears never received any satisfactory response to this request yet he does not suggest that this omission affected his investment decisions.
69. Fourthly, at no time did Mr Sears comment upon, or raise any question about, the statement in the section of Minco's Annual Report and Accounts for 2009 (published in 30 June 2010) which addressed "principal risks and uncertainties" that: "Failure to obtain additional financing on a timely basis could cause the Group to forfeit its interest in [the Group's exploration] properties". That is in stark contrast to Mr Sears's approach to concerns raised by the following year's Report and Accounts. Had Mr Sears considered the minimum dilution representation to be so critical to his decision to invest in Minco, I am satisfied that he would have queried the discrepancy between this statement and the minimum dilution representation in the 3 June Beaufort research note. I do not find Mr Sears's explanation for this omission at all satisfactory or acceptable.
70. Fifthly, the minimum dilution representation did not feature in the list of issues which Mr Sears had prepared for the lunch meeting on 23 September 2010 even though the first was directed in terms to satisfying Mr Sears and Mr Bevan that Minco was a "good investment". Again, I do not find Mr Sears's explanation for this omission at all satisfactory or acceptable. The fact that this list apparently remained in Mr Sears's pocket during the lunch meeting (see T1/131/8 – 132/3) does not affect this point.
71. Sixthly, as Mr Sears acknowledged in cross-examination as a "fair point" (at T2/105/7 – 106/17), the consistent effect of all of the statements made by and on behalf of Minco was that "the company wanted to avoid dilution at all costs and so dilution wasn't a likely event". On this basis, the minimum dilution provision was of no significance.
72. In assessing the significance of each of these factors, both individually and cumulatively, I have borne in mind all of the evidence given, and the submissions made, to me in relation to them. Insofar as he sought to explain them away in the course of his evidence, I do not regard as satisfactory the answers provided by Mr Sears to the various matters I have identified. The defendants have satisfied me, on the totality of the evidence, that Mr Sears did not allow the minimum dilution representation to affect his judgment to purchase or retain shares in Minco.
73. I find that Minco did not review the terms of the JVA or identify the falsity of the minimum dilution representation before about the end of May 2011. I find that it did not do so in response to the revisions to Xstrata's exploration budget in December 2010, or during the course of the April 2011 share placing, or whilst first negotiating the sale of Minco's interest in Pallas Green to Xstrata. I accept the evidence of Minco's witnesses in this regard. It was only when (as I find) Mr Kearney, or someone in his office, came to produce a revised draft of the letter to shareholders explaining Xstrata's purchase proposal and the other available options at some time between 31 May and 15 June 2011 that the first documented reference was made to dilution to "a non-participating 15% net profits interest". I accept Mr McKillen's evidence that even at this time he still thought that conversion was to a 10% interest; and that whilst, by 18 July 2011, he had found out that non-participation would eventually convert Minco's interest in the joint venture to a 15% net profits interest, he still believed that dilution would occur at 10% rather than 5%: see paragraphs 56 to 60 of his 3^rd witness statement (which I accept). In these circumstances, I do not consider that Minco owed any duty of care or otherwise to Mr Sears to correct the minimum dilution representation. The only representation for which Minco was responsible had been made at the 23 September 2010 lunch meeting, over 8 months earlier. Minco did not know that Mr Sears had misunderstood the nature of the carried interest to which Minco's participating interest converted when it fell below a particular base level, or the significance which Mr Sears claims to have attached to the minimum dilution representation. In any event, I have previously found that the defendants have satisfied me that the minimum dilution representation played no real or substantial part in Mr Sears's decision to retain his existing shares in Minco; and Mr Sears purchased no more shares in Minco after 11 April 2011.
74. So far as the claimants' claims for damages under section 2 of the Misrepresentation Act 1967 are concerned, these cannot apply to purchases of shares from existing investors on the AIM and are only engaged in relation to the two share placements in August 2010 and April 2011. The first of these pre-dated the 23 September 2010 lunch meeting. I have already found that Minco was not responsible for the earlier minimum dilution representations made by Mr Gibb and Beaufort to Mr Bevan and Mr Sears. Therefore, Mr Sears cannot successfully assert, still less maintain, that he was induced to participate in the August 2010 share placing by any minimum dilution representation made by Minco. In any event, I hold that Mr Sears is bound by the terms of the standard-form subscription agreement in the form of a letter dated 27 August 2010 which his agent, Barclays Wealth, entered into with Beaufort as Minco's placing agent for the share offer. That agreement contained (in clause 5.6) Barclays's confirmation and warranty (for itself and Mr Sears) that it was acknowledging and agreeing that (1) it had relied upon its own representatives as to investment or other matters relating to Minco and its decision to subscribe for shares, and (2) the share subscription had not been made on the basis of any information or representations, including any presentation made by Minco and/or Beaufort prior to the date of the letter, and accordingly neither Beaufort nor Minco should have any liability for any other information or representations except in the case of fraud.
75. Mr Lundie pointed out that there was no prospectus for this private share placing in which Minco could carefully review the precise representations which it wished to make to investors and therefore, under the applicable Financial Services & Markets Act 2000 rules and regulations, only qualified or professional investors were permitted to participate in the placement. Minco was entitled to assume that Barclays would look after the interest of its clients and that the certified status of the applicant was correct. The subscription shares were offered on a 'take it or leave it' basis, and persons not qualified to participate were still able to buy shares on the AIM. Mr Sears wished to participate in the placing because it represented the opportunity to acquire shares in Minco at a discount on the market price. In such circumstances, any argument that the non-reliance clause was unreasonable and unenforceable was said to be hopeless.
76. Ms den Besten submitted that the purported 'non-reliance' clauses were in substance attempts to exclude liability, and did not satisfy the reasonableness test under section 3 of the Misrepresentation Act 1967 (as amended). In particular, the defendants' contention that these clauses were 'in the nature of basis clauses and not exclusion clauses', such that they gave rise to a contractual estoppel, was said to be wrong. A non-reliance clause was only capable of giving rise to a contractual estoppel if it was a genuine representation of the basis on which both parties were contracting. Such clauses were not automatically immune from scrutiny under section 3 of the Act; if the clause was in reality an attempt to exclude or restrict liability for misrepresentations which had already occurred, then it would fall to be examined under section 3 and the reasonableness test would be applied. In other words, the existence of a contractual estoppel was not a logically prior question but must be looked at in the round with section 3. It was said that to do otherwise would defeat the statutory purpose of section 3, citing Cartwright: Mistake, Misrepresentation and Non-Disclosure 3^rd edn (2012) at para 9-21 and Raiffeisen Zentralbank Osterreich AG v The Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd's Rep 123. Passages in the judgment of Christopher Clarke J in the latter authority, in particular at [314] – [315], were said to identify the correct approach to distinguishing between so called 'basis of the contract' clauses and clauses which were, in substance, exclusions of liability:

"314. In this respect, the key question, as it seems to me, is whether the clause attempts to rewrite history or parts company with reality. If sophisticated commercial parties agree, in terms of which they are both aware, to regulate their future relationship by prescribing the basis on which they will be dealing with each other and what representations they are or are not making, a suitably drafted clause may properly be regarded as establishing that no representations (or none other than honest belief) are being made or are intended to be relied on…

315. Per contra, to tell the man in the street that the car you are selling him is perfect and then agree that the basis of your contract is that no representations have been made or relied on, may be nothing more than an attempt retrospectively to alter the character and effect of what has gone before, and in substance an attempt to exclude or restrict liability."

It was the claimants' case that Mr Sears was "the man in the street", and that the non-reliance clauses relied upon by the defendants were in substance an attempt to exclude liability for misrepresentations that had in fact been made, and so to 'rewrite history'. As such, they were plainly open to scrutiny under section 3 of the 1967 Act.

77. Ms den Besten submitted that the relevant clauses of the subscription agreement were unreasonable given that: (1) Mr Sears had been treated as a retail investor: his account with Beaufort had been a private client account and Mr Gibb's timetable for the placement had stated that retail subscribers were to be given longer to settle (on a T+10 rather than a T+3 basis) and Mr Sears had indeed been given the longer period; (2) these clauses operated only in favour of Minco and to the claimants' detriment; (3) these clauses were obviously only intended to apply to contractual arrangements with institutional and/or qualified investors; and (4) the subscription letters contained no information upon which purchasers were to be entitled to rely in purchasing shares but excluded liability for information otherwise provided, leaving no real basis upon which a purchaser might buy shares in Minco.
78. In response to Ms den Besten's citation of Raiffeisen Mr Lundie took me to the decision of Her Honour Judge Moulder, sitting as a Judge of the Queen's Bench Division in the Manchester District Registry, in Thornbridge Ltd v Barclays Bank Plc [2015] EWHC 3430 (QB). He took me first to Judge Moulder's summary of the argument for the counsel for the claimant at [99]:

"For the claimant Mr Coleman submits that these representations are not contractual warranties and therefore contractual estoppel does not apply. Further Mr Coleman submits that the clauses are not 'basis clauses' but clauses which exclude liability and submits that the representations seek to rewrite history and part company with reality. The claimant relies on the authority of Raffeisen Zentral Bank v Royal Bank of Scotland [2011] 1 Lloyd's Rep 123 at 313 – 315 that to the extent the clause seeks to change the character of the parties' previous dealings, it will be treated as an exclusion clause. To the extent that the effect of such clauses is to exclude liability for negligence they are subject to the test of reasonableness in section 2(2) of the Unfair Contract Terms Act 1977."

79. Judge Moulder set out her conclusions on the law at [105] – [112] as follows:

"105. It seems to me that the passages on which the claimant seeks to rely have to be read as a whole and in my view the test is not whether the clause attempts to rewrite history or parts company with reality. The first step is to determine as a matter of construction whether the terms defined the basis upon which the parties were transacting business or whether they were clauses inserted as a means of evading liability…

111. In my view recent authorities have been very clear that parties may agree the basis on which they are entering into a relationship. The effect of such a clause is that the party is contractually estopped from denying to the contrary. This is so even where for example parties agree that one party has not made any pre-contract representations about a particular matter and both parties knew that such representations have in fact been made… Thus I reject the submission that the test is whether the clause 'rewrites history'. Nor does anything turn, in my view, on the fact that the confirmation was not received back for some months after the deal was entered into. It was signed by the claimant and returned to Barclays and this is the basis on which the parties agreed to enter into the relationship.

112. It follows from this that no question of reasonableness arises and as a matter of construction of the relevant provisions, even if I had concluded that recommendations or advice had been given, the claimant is contractually estopped from asserting that Barclays gave advice or a recommendation to enter into the swap transaction. The essence of the claim is that the claimant alleges that Barclays assumed an advisory relationship through its information and explanations. This is the specific matter which is addressed in paragraph (a) 'non-reliance' in the confirmation and the claimant is therefore estopped from asserting this."

80. Although I am told by Miss den Besten that Thornbridge is presently the subject of an appeal, I respectfully agree with Judge Moulder's analysis and conclusions. I do not accept that the decision is one on the particular facts of the case. Judge Moulder was professing to state the effect of the recent authorities. In my judgment, as a matter of construction, the particular provisions of the subscription agreement dated 27 August 2010 are in the nature of basis clauses and not exclusion clauses. Consistently with the views of Judge Moulder, I accept Mr Lundie's submissions that the claimants are contractually estopped from asserting that they purchased shares in the 2010 share placing in reliance on the minimum dilution representation.
81. If I am wrong on this, and the relevant provisions should be regarded as a clause which seeks to exclude liability for negligence, in that they prevent a duty of care being owed where otherwise it would do so, then the provisions would have to satisfy the requirement of reasonableness under the Unfair Contract Terms Act 1977. I bear in mind the factors listed in Schedule 2 to the Act, in particular the relative strengths of the bargaining positions of the parties taking into account (among other things) alternative means by which Mr Sears's share requirements could have been met, and also whether he knew, or ought reasonably to have known, of the existence and extent of the relevant term. I accept Mr Lundie's submissions and hold that there is no reason why, in the particular circumstances of this case, the provisions should be held to be unreasonable and therefore fall foul of section 3 of the 1967 Act (as amended) and the test of reasonableness stated in the 1977 Act. Mr Sears chose to participate in the 2010 share placing through his stockbroker and agent, Barclays Wealth, rather than through the purchase of shares in the AIM. The evidence is that he (and Mr Bevan) were anxious to participate in share placings by Minco because they understood that they would thereby have the opportunity of acquiring a substantial number of shares at a discount to the price in the open market. Mr Sears is to be treated as knowing of the relevant terms of the subscription agreement through his agent, who signed the subscription agreement at his behest. The shares offered for sale in the placing were offered on a 'take it or leave it basis' to all who wished to participate in the placing, and I see nothing unfair or unreasonable in holding Mr Sears, as an experienced and sophisticated investor, to the same terms as were applied to all the other participants. Indeed, it would seem to me to be potentially unreasonable and unfair to the other participants to do otherwise.
82. The April 2011 share placing post-dated Minco's confirmation of the minimum dilution representation at the 23 September 2010 lunch meeting. However, I have already held that the defendants have satisfied me that that representation played no real or substantial part in Mr Sears's decision to purchase more shares in Minco. Accordingly, Mr Sears's claim for damages for negligent misrepresentation under section 2 of the 1967 (or for breach of the common law duty of care) in relation to the April 2011 share placing fails for want of the necessary element of reliance. However, I am also satisfied that Mr Sears is precluded from successfully pursuing such a claim by the terms of the standard-form subscription agreement in (on this occasion) the form of a letter dated 5 April 2011 which his agent, Barclays Wealth Management, entered into with Beaufort as Minco's broker and the person arranging for the distribution of the placing shares. That agreement contained Barclays's representation, warranty, acknowledgment, undertaking and agreement that (1) by paragraph (ii), without prejudice to any liability for fraudulent misrepresentation, Barclays had not relied on any information given or any representations, warranties or statements made at any time by any person in connection with the placing, or by Minco, or any of its subsidiaries in respect of the shares, or otherwise than the information contained in the letter, and (2) by paragraph (iii), Barclays was not subscribing for placing shares on the basis of any information other than that contained in the investor pack prepared in connection with the placing. (It would appear that there was no such pack.) Paragraph (xx) was Barclays's representation, etc that if it was acquiring any placing shares as fiduciary or agent for one or more investor accounts, it had full power to make the earlier acknowledgments, representations and warranties on behalf of such an account. That clearly extended to Mr Sears.
83. Ms den Besten pointed out that the 5 April 2011 letter was provided only after the share placement had already taken place on 4 April 2011. It was only signed on behalf of Barclays on 6 April 2011. However, as Mr Lundie pointed out (and I accept), there is nothing in this point because no shares would have been issued to Mr Sears's account if the subscription agreement had not been completed, signed, and returned to Beaufort. I note that in Thornbridge v Barclays at [116] Judge Moulder noted that although the claimant in that case had not received the swap confirmation containing the relevant provisions until after the deal had been done, "the issue of whether advice had been provided could nevertheless have been raised at that stage had it been a matter of concern".
84. For the same reasons as in relation to the August 2010 share placement, I hold (1) that the claimants are contractually estopped from asserting that they purchased shares in the 2011 share placing in reliance on the minimum dilution representation and (2) that, in any event, the relevant provisions satisfy the requirement of reasonableness under the Unfair Contract Terms Act 1977.
85. For all of the foregoing reasons, this claim fails and falls to be dismissed.