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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 >> Ludsin Overseas Ltd v Eco3 Capital Ltd & Ors [2012] EWHC 1980 (Ch) (19 July 2012) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/1980.html Cite as: [2012] EWHC 1980 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/07/2012

Ms Vivien Rose:

I. THE BACKGROUND

1. In August 2005 Mr Pavel Lisitsin invested £2 million via the Claimant company ("Ludsin") in an investment vehicle set up to purchase a plot of land near Reading. The intention was to increase the value of the land by obtaining additional planning permissions from the local council and then to sell the land on to developers. Mr Lisitsin thought that this was a low risk, high return investment which would enable him to get back his money with a handsome profit within about 6 months. In fact, his money was tied up in the scheme for several years and in the end his shares in the investment vehicle became worthless. Mr Lisitsin now brings these claims against the Defendants, all of whom were involved in some way in the promotion or operation of the project. His primary claim against all of them is that they fraudulently misrepresented to him certain aspects of the project. There are subsidiary claims for a breach of fiduciary duty and breach of contract pursued against the First and Second Defendants only.

(a) Ludsin's introduction to the Sandford Farm investment opportunity

2. Mr Lisitsin was born and educated in Russia and came to live in London in 1994. He became a British citizen in 2001. His business background was in oil trading but he had retired in 2001, having acquired sufficient assets to enable him and his family to live without him having to work. At a certain point in 2004 or 2005, however, he realised that a life of retirement did not suit him and he was ready to relaunch himself into the world of business. He set up Ludsin in April 2005 as his vehicle company, ready to participate in a business venture if one came along. Ludsin was operated by Mr Lisitsin via a fiduciary company in Switzerland called Comatrans. Mr Lisitsin's main contact at Comatrans was Mr Bernard Enry.
3. Mr Lisitsin was introduced to the proposed property investment by the First Defendant (Dr Shadrin). Dr Shadrin was the director of the Second Defendant (Eco3) which he has described as an independent venture capital investment firm focusing on investments in the energy sector. He and Eco3 are authorised by the Financial Services Authority to provide investment advice but their authorisation does not extend to holding client money.
4. Mr Lisitsin and Dr Shadrin met in around 2003 when they were both extensively involved in the governance of the Russian Orthodox Church known as the Cathedral of the Dormition of the Most Holy Mother of God and Holy Royal Martyrs in Chiswick ("the Church"). Prior to this investment opportunity, Mr Lisitsin and Dr Shadrin had not been involved in business ventures together. Both were experienced business men but neither had had dealings in property development. Both men gave their evidence in reasonably fluent English although naturally the discussions which took place between them in the summer of 2005 and subsequently were conducted in Russian.
5. The land which was to be the subject of this investment was a site, known as Sandford Farm, comprising about 114 acres (46 hectares) situated to the east of the Woodley interchange of the A329M ('the Site'). The Site lies within the jurisdiction of Wokingham District Council for planning purposes. The planning permission granted to the Site as at June 2005 when events giving rise to this claim started was consent for 200,000 square foot of buildings in use class C2 (institutional, training and education), a hotel and leisure centre. The Site was owned by Hicks Persimmon Limited ('Hicks Persimmon').
6. The Site at that time had various problems associated with it. Most relevant to this case is that a family called the Coffs held a ransom strip and there were various other restrictions on the title. The Site had originally been used as a gravel pit and when the excavation of the gravel was finished, it had been used as a landfill site. It therefore suffered from some contamination. Hicks Persimmon had made an unsuccessful planning application and had then lost their appeal against that refusal.
7. The scheme to buy the Site from Hicks Persimmon, improve the planning permission of part of the Site and then sell it on to developers was being put together in June and July 2005 by the third, fourth and fifth defendants whom I shall refer to respectively as WLI, Mr Maggs and Mr Balfour. Mr Maggs has been a director of WLI since its incorporation in March 2003. As well as being a director, Mr Maggs owned 50 per cent of the shares in WLI. The other 50 per cent was owned by the former Cabinet Minister, David Mellor. To all intents and purposes in this litigation WLI has been treated as one of the vehicles through which Mr Maggs does business.
8. Mr Balfour was not a director or a shareholder of WLI at the start of these events though he was appointed to be a director in April 2006. In August 2005 Mr Balfour worked for Fleming Family and Partners, the well known investment bank, as International Director. He met Dr Shadrin in 2004 and he worked intensively on behalf of Flemings with Dr Shadrin and Eco3 on a large and complex venture capital project concerning licences to exploit oil fields in Siberia and involving a company called Continental Petroleum Limited.
9. Mr Maggs and Mr Balfour had not worked together before this deal. In around 2005, David Mellor and Mr Maggs approached Mr Balfour with a view to raising capital to invest in the Sandford Farm project. Mr Mellor was a long-standing, family friend of Mr Balfour and introduced Mr Maggs and Mr Balfour to each other.
10. Mr Balfour then introduced Dr Shadrin to Mr Maggs and WLI for the purpose of raising money for the Sandford Farm project. Dr Shadrin attended a meeting on 18 July 2005 at the offices of the Mayfair solicitors Forsters LLP. Dr Shadrin described the "pitch" that Mr Maggs made to him about the investment opportunity. He said in evidence that he was told that the Site was on the outskirts of Reading, in a very nice location but that no one could develop it "because of the restrictions that existed and charges and the conflicts and the disputes between the various parties involved". He was told that other potential developers had considered the opportunity but had given up. He said that:

"the approach, and the pitch to me which was made by Mr Maggs, was that he can resolve these matters, he can resolve the kind of disputes with the Coff family. He can resolve the matters with restrictions and charges and that will inevitably immediately increase the value of the Site and will unlock the opportunity to developers."

11. Dr Shadrin said in evidence, and I fully accept, that he thought that Mr Maggs and Mr Balfour were people of the highest integrity. Mr Balfour was older than him and the range of their connections, knowledge and experience was, in his view, incomparable. Dr Shadrin was also impressed by the fact that the solicitors to the deal were Forsters, a highly respectable London firm. Forsters had advised WLI on property matters for a number of years and Tony Patterson, a partner in the property development department at Forsters had worked with Mr Maggs on very many transactions on behalf of Mr Maggs and WLI. Another partner at Forsters, Craig Eadie, worked in their Company/Commercial department and had also worked with WLI and Mr Maggs in the past. During the course of the transaction, Forsters acted both for WLI and for Eco3.
12. Dr Shadrin discussed the project with Mr Lisitsin on two occasions when the two men were together at the Church. Dr Shadrin accepted Mr Lisitsin's evidence that their joint commitment to the Church community meant that there was a stronger bond of trust and confidence between them than might otherwise be the case between two men who have not done business together before. On the first occasion Dr Shadrin only gave a brief outline of the project. On the second occasion, which Mr Lisitsin recalls was on 12 July 2005 after the Church's celebration of the Feast of St Peter and St Paul, Dr Shadrin told Mr Lisitsin that the deal was being promoted by WLI – a company that Dr Shadrin said he knew and respected. Mr Lisitsin's evidence was that Dr Shadrin told him that the increase in value of his investment was likely to be at least equivalent to 100 per cent per annum. Dr Shadrin also told him that some very important English people were associated with or involved in the deal. Mr Lisitsin recognised that Dr Shadrin was impressed by these important people and that he mentioned them because he wanted to impress Mr Lisitsin. Mr Lisitsin understood that the deal was being put together by what he referred to as "the best of the English business environment."
13. Mr Lisitsin said that what attracted him to the deal was that it was a short term arrangement with low risk and high reward. In his experience, that kind of deal was not unusual in the oil trade which he was used to and so it did not seem unlikely that what he was told would indeed come to pass.

(b) The agreement between Ludsin and Eco3 and the transfer of £2 million

14. Further discussions took place between Mr Lisitsin and Dr Shadrin when the two men were holidaying with their respective families over the summer of 2005. Mr Lisitsin went to Moscow on 6 August 2005 and then on 14 August he travelled to Cap Ferrat in France. Dr Shadrin went on a fishing holiday in Argyll in Scotland on about 6 August for two or three weeks. Nonetheless the two men were in frequent contact on various occasions over these days by email and by telephone. In mid August, Dr Shadrin was told by Mr Maggs or Mr Balfour that finalising the deal had become very urgent. In particular it was necessary to get the money in place within a matter of days to be sure of clinching the commitment of the seller to the deal. On 14 August 2005, Dr Shadrin emailed a number of documents to Mr Lisitsin via the concierge at the Grand Hotel in Cap Ferrat. These included the Eco3 Terms of Business and Terms of Operation and the Land Registry title to the Site.
15. Mr Lisitsin read these documents and as they met with his approval, on 16 August 2005, he arranged with Comatrans for Ludsin to sign the Terms of Operation and Terms of Business with Eco3. On 17 August he arranged for £2 million to be transferred by Ludsin to Forsters. The money was placed in Forsters' client account in the ledger named "Wharfland Investments Limited/Sandford Farm Reading Corp".

(c) The sale and forward sale of the Site

16. How much Mr Lisitsin knew about the mechanism put in place for the purchase of the Site is the crux of the dispute in this case but there is no dispute about what that structure actually was.
17. At all times it was the intention of Mr Maggs and Mr Balfour that the purchase of the Site would be financed in part by funding provided by investors and in part by a bank loan. The investors who ultimately contributed their money to the project included three investors under the Eco3 umbrella, namely Dr Shadrin himself (as to £300,000), Ludsin (as to £2 million) and another company operated by a colleague of Dr Shadrin (as to £200,000). Investors introduced to the scheme otherwise than by Eco3 contributed just over £2.5 million. The remainder of the money to buy the Site was provided by the loan of £7.5 million from Investec Bank UK Limited ("Investec").
18. A valuation was prepared for Investec by the surveyors Colliers CRE who valued the Site at £12.5 million on the basis that it would be developed to include a training centre, a hotel and a health and fitness facility.
19. The Site was the subject of two separate purchases which took place simultaneously. The first contract was between a company called Bound Oak Properties Limited ("Bound Oak") and a number of other parties. Bound Oak was a company originally set up as a shell company by Forsters. By 19 August 2005 Bound Oak was jointly owned by Mr Balfour (who acquired Mr Maggs' share) and a Mr Bell (a colleague of Mr Maggs who has played no part in this transaction). Mr Maggs was a director of Bound Oak from the start and Mr Balfour was appointed to be a director with effect from 3 October 2005. The other parties to that sale were Hicks Persimmon Ltd, as seller of the Site and three parties who effectively represented the Coff family, holders of the ransom strip. The purchase price for the Site under that first contract between Bound Oak and Hicks Persimmon was £9,300,000. The deposit was stated in the contract to be £930,000 payable at exchange of contracts on 12 October 2005 with the remainder of the money being payable on the completion date, set as 9 November 2005.
20. Simultaneous with the sale of the Site from Hicks Persimmon to Bound Oak was the second contract. Under this contract, the Site was sold by Bound Oak to a UK company called Sandford Farm LLP. That sale was for the sum of £12,250,000 (plus VAT). The deposit payable on exchange of contracts for that sale was £1,225,000.
21. Both the contracts for sale were exchanged on 12 October 2005. Clearly, there was a substantial difference in price - £2,950,000 – between the two sales. During the trial, Mr Cunningham QC, appearing for Ludsin, referred to this as the 'turn'; a word to which the Defendants objected on the basis that it had pejorative connotations. I will refer to the sum of £2.95 million made by Bound Oak more neutrally as 'the Differential'. I will refer to the fact that there were two simultaneous sales of the Site as the 'two-tier structure' of the deal.
22. On 2 November 2005, Sandford Farm LLP was replaced as the counterparty in the second sale by a Jersey company called Sandford Farm Properties Limited ('SFPL'). It appears that WLI, Mr Balfour and Mr Maggs had always intended that the investment vehicle acquiring the Site under the second sale would be an offshore company for tax reasons. However, because of the difficulty with complying with Jersey money laundering obligations, the Jersey vehicle could not be set up in time to become a party to the initial transaction. Once the Jersey vehicle, SFPL, was set up, it was substituted for the UK LLP in time for the completion of the second sale. I shall generally refer to the purchaser of the Site from Bound Oak as SFPL even though it was initially the UK entity. SFPL was managed by JTC Management Limited ('JTC' standing for Jersey Trust Company) who provided the directors of the company.
23. It is not disputed that the money used to pay the deposit of £930,000 on the first sale from Hicks Persimmon to Bound Oak on 12 October 2005 when both contracts were exchanged was taken from the £2 million that Mr Lisitsin had deposited with Forsters on 18 August 2005. Those monies were also used to pay £25,000 to the Coff family as part of the payment to them to remove the obstacle they presented to the development of the land. Other monies from other investors and the bank only came available to fund the project after contracts were exchanged.
24. Completion of both the Hicks Persimmon/Bound Oak sale and the Bound Oak/SFPL sale took place on 9 November 2005. Following that, loan notes from SFPL to the investors were issued reflecting the sums loaned by Eco3 (including the £2 million from Ludsin) and the other investors. In December 2005, SFPL issued shares to the investors, just under half of which were allocated to Eco3. Eco3 then held those shares as nominee for Ludsin and the other Eco3 investors.

(d) Events between the acquisition of the Site and the refinancing of the project in October 2007

25. Thereafter things did not go according to plan. On 5 December 2005 Mr Maggs sent his first progress report, advising that an additional environmental impact study was needed but that a planning application would be made in March 2006, that is at about the time that Mr Lisitsin had thought he would be repaid his investment and profit. The update concluded:

"We are receiving extremely encouraging levels of interest for the various land uses proposed for the property, and we look forward to being able to report good news in this regard shortly."

26. A further investor update issued by Mr Maggs on 20 March 2006 explained that there had been a change in the proposed use of the Site and so no planning application had been made. The intention now was to divide the Site into an area for a retirement home and assisted living accommodation with another area to be used for commercial purposes. The intention at this stage was therefore to apply to Wokingham District Council for a mixed use planning permission. If granted, this would result in the land having a value of between £28 million and £32 million. The update said that the hope was to obtain planning consent in July/August 2006. Mr Maggs reported in the update that he was very encouraged by the enthusiasm expressed by a number of potential purchasers.
27. There were various other changes to the proposed application and various other delays. No planning permission had been received and no monies therefore paid to Ludsin or the other investors by June 2007. In June 2007 the Site was released by the local authority for housing development. The practical effect of this was two fold. First it meant that the chances of obtaining planning permission for any use of the Site other than housing dropped to almost nil. But secondly, it greatly increased the potential value of the Site. Nonetheless an application for mixed use planning permission was made in July 2007.
28. By 21 September 2007, SFPL had decided to refinance the project by replacing the Investec loan with a loan from Abbey National Treasury Service ("ANTS"). Mr Eadie of Forsters wrote to Mr Maggs and Mr Balfour referring to a draft facility agreement for that loan. He asked them to confirm that the intention was to use part of the ANTS facility (at that time intended to amount to over £21 million) to make certain repayments to the investors.
29. On 2 October 2007 the directors of SFPL wrote to Eco3 informing them that repayment of the shareholders' loan notes was imminent and asking for details of the bank account to which ECO3's funds could be remitted. On 10 October 2007 Dr Shadrin was informed by SFPL that repayment of the loan notes would occur in a matter of days and on 19 October he emailed Mr Lisitsin asking for Ludsin's bank details for onward payment of the loan.
30. In the event the amount borrowed from ANTS was £15.2 million with a drawdown of £13.5 million. This meant that there was not enough money, once the Investec loan had been repaid, to repay the monies loaned by the investors. It also meant that ANTS required that all the creditors other than Investec sign a Deed of Subordination which would prevent SFPL from repaying any of their monies while the loan to ANTS remained outstanding.
31. Dr Shadrin was provided with a draft of the Deed of Subordination for Eco3 to sign, as holder of the loan note which reflected the funds which had been provided by Ludsin and the other Eco3 investors. On 29 October 2007, he forwarded the draft to Mr Lisitsin. In that email to Mr Lisitsin, Dr Shadrin referred to the ANTS loan as being provided "to refinance the shareholders' loans". He also said that the draft deed attached to his email had been recommended by Forsters and WLI:

"Although the transaction is recommended by the legal advisors, I would like to obtain an approval from Ludcin Overseas Ltd as well. Forsters are expecting the Deed to be delivered to their offices today and I would appreciate an early response very much."

32. Mr Lisitsin forwarded the email and the attached draft to Mr Enry at Comatrans and to his Swiss lawyer M. de Saugy on the same day. The circumstances in which Ludsin agreed or did not agree to Eco3 signing up to the Deed of Subordination on its behalf forms the basis of one of the claims by Ludsin against Eco3. In any event, Eco3 signed the Deed of Subordination on 29 October 2007. Following the execution of the Deed, the loan moneys of £15.2 million were received by SFPL from ANTS. The Investec loan – by this time amounting to £9,187,000 - was paid off. In accordance with the Deed of Subordination, however, the investors did not receive their capital back.

(e) Events between the refinancing in October 2007 and the liquidation of SFPL in May 2009

33. In December 2007, Wokingham District Council rejected the application for mixed development planning permission that had been made by SFPL in July 2007. In April 2008 Mr Maggs issued a further investor update. He described the current planning strategy as comprising a new application for residential planning permission and an appeal against the rejection of the mixed use application. This would, he said, put pressure on Wokingham District Council to grant the residential consent. The application for residential permission would be made at the end of April or early May 2008.
34. The application for residential planning permission for the Site was in fact made in mid June 2008. The application was not made by SFPL (still the owner of the Site) but by a company called Woodley Developments Ltd ("Woodley") which was unconnected with SFPL. The expenses of the planning application were borne by SFPL and, of course, if planning permission had been granted it would have been to the benefit of the Site, regardless who had made the application.
35. At this point Mr Lisitsin and Dr Shadrin agreed that Ludsin's shares in SFPL should no longer be held by Eco3 in a nominee capacity but held by Ludsin directly. Also at around this time, Mr Maggs, through another vehicle company, invested £475,000 in SFPL in anticipation of the residential planning permission being granted.
36. In January 2009 the application for planning permission by Woodley was rejected by Wokingham Council, even though it had been recommended by the Council's planning officers. Shortly thereafter the shareholders, including Dr Shadrin and Ludsin, became aware that SFPL had run out of money in September 2008 and had not been paying the interest payments due on the ANTS loan. In March 2009, Mr Maggs wrote to Dr Shadrin complaining about the lack of ongoing funding provided by investors in SFPL. He referred to the fact that the interest payments on SFPL's loan from ANTS had been paid by WLI on behalf of SFPL. He asked for an additional £750,000 from the investors to fund the planning applications. In the absence of a commitment to provide that funding, Mr Maggs said, WLI would advise ANTS that SFPL was unable to cover the interest on the loan.
37. Dr Shadrin's evidence is that he tried to persuade Mr Lisitsin to put in some additional funds. Mr Lisitsin was very reluctant to do so. By this time, Mr Lisitsin says, he had entirely lost faith in the Jersey directors appointed by WLI and he no longer believed that they were working in the best interests of the shareholders. He was not prepared to invest any further money until there had been a complete change in the management of SFPL. He sought the cooperation of other shareholders to vote to remove JTC Management Ltd and replace them with new directors chosen by him. Dr Shadrin sided with Mr Lisitsin at this point, against the Maggs camp and new directors were appointed.
38. Mr Lisitsin's victory was short lived. Immediately the new directors were appointed, WLI filed a petition to wind up SFPL. This in turn prompted ANTS to appoint a Law of Property Act receiver. On 29 June 2009, that receiver sold the Site to Woodley for £15 million, the purchase being financed by a loan from ANTS. Woodley was at all times owned and controlled by Mr Maggs. Thereafter planning permission for a residential development was granted to the Site and a portion of the Site was sold by Woodley for £27 million.

(f) Post script: the litigation so far

39. In May 2010, the liquidator of SFPL and SFPL itself assigned all causes of action that were capable of being assigned to Ludsin for £17,625 and a share of any damages awarded. Thereafter Ludsin and a Mr Giovanni Capodilista (another investor in the project) brought an action against JTC Management Ltd and seven named directors of SFPL. The claims mainly arose from the fact that the directors were alleged to have authorised substantial payments out of the company's funds for no apparent reason. For example, it was alleged that the directors had approved the payment of £532,000 to a company called Ultramarine Ltd, which company was another vehicle of Mr Maggs. That had been paid against an invoice in respect of services rendered. However the payment was made on the same date as that company had in fact been incorporated so that, it was alleged, it was difficult to see how the company could, on that very day, have provided services of that value. There were other large payments out to companies where there appeared to have been no contractual obligation to make the payments and where the transactions had occurred in unusual circumstances.
40. The Jersey directors entered into a mediated settlement under which they paid Ludsin, as assignee of SFPL's claims, £425,000 plus a contribution of £100,000 towards Ludsin's costs.
41. Ludsin brought these instant proceedings against Eco3, Dr Shadrin, WLI, Mr Maggs and Mr Balfour on 28 January 2010. Forsters were originally the sixth Defendant to Ludsin's claims. In February 2011 a settlement agreement was entered into between Forsters on one side and Mr Lisitsin, Ludsin, Mr Capodilista and another party on the other. Under that agreement, Forsters paid the parties £1,150,000. Ludsin accepts that £600,000 of that payment falls to be offset against any award of damages made against any of the remaining Defendants. Ludsin disputes that any further part of that £1,150,000 falls to be credited if liability is established.
42. WLI, Mr Maggs and Mr Balfour as Defendants to these proceedings brought Part 20 claims against Forsters alleging, broadly speaking, that Fosters had acted negligently and had continued to act for various parties in the deal despite that generating conflicts of interest. The Part 20 claims were settled on the morning of the start of the trial of this action. The terms of the settlement were not disclosed but I was told that they did not involve the payment of any money by Forsters to WLI, Mr Maggs or Mr Balfour.

II. LUDSIN'S CLAIMS IN SUMMARY

43. Ludsin's main claim against all the Defendants is in deceit. Ludsin alleges that there was a fraudulent misrepresentation by Eco3 and Dr Shadrin as to the true nature of the deal that Ludsin was being asked to invest in. It is further alleged that WLI, Mr Balfour and Mr Maggs are liable for this fraudulent misrepresentation because the misrepresentation was made by Dr Shadrin and Eco3 as agents for the three of them. As regards this head of claim, Ludsin claims £1.4 million, that is the £2 million invested and lost by the company, less the £600,000 recovered from Forsters in these proceedings.
44. The other claims are as follows:

i) there is a further claim of fraudulent misrepresentation against Dr Shadrin. It is alleged that during his discussions with Mr Lisitsin in June/July 2005 he knowingly misrepresented the amount of money that he (Dr Shadrin) was personally going to invest in the project.

ii) there is a claim that Eco3 and Dr Shadrin acted in breach of a fiduciary duty owed to Ludsin in that they misused part of the funds provided by Ludsin in August 2005. This relates to the fact that £955,000 of the £2 million deposited by Ludsin with Forsters on 18 August 2005 was used to fund the deposit on the purchase of the Site by Bound Oak and to make a payment to the Coff family whereas the purpose for which the money had been transferred to Forsters related solely to the purchase of the Site by SFPL, the vehicle in which Ludsin was investing.

iii) there is a claim against Eco3 and Dr Shadrin that, in breach of their fiduciary duty owed to Ludsin, they made a secret profit of £125,000 in respect of Ludsin's investment in the project. This was a payment made to Eco3 by Bound Oak pursuant to an agreement entered into on 16 August 2005 to the effect that Eco3 would be paid commission of 5 per cent of the value of the money it brought to the project.

iv) there is a claim against Eco3 and Dr Shadrin arising out of the fact that Eco3 signed the Deed of Subordination at the end of October 2007 when the ANTS refinancing was being put in place. It is alleged that this was directly contrary to the instruction of Ludsin whose acceptance of the Deed was conditional on the use of the loan being to repay the investors' capital.

45. Mr Cunningham made clear that the main claim in these proceedings is the claim for fraudulent misrepresentation concerning the nature of the transaction. If successful against all or some of the Defendants, that claim would entitle Ludsin to recover its £2 million, subject to appropriate credit being given for monies already received. In that event, the other claims could not result in additional monies being payable. The litigation was conducted on the basis that Eco3 and Dr Shadrin stand or fall together and that WLI and Mr Maggs also stand or fall together. As regards WLI, Mr Maggs and Mr Balfour, clearly if Dr Shadrin and Eco3 are not liable, then none of the other Defendants can be liable either. If Dr Shadrin and Eco3 are liable, then the question of whether Mr Maggs and Mr Balfour can also be held liable for that conduct must be assessed individually.

III. THE MAIN MISREPRESENTATION CLAIM AGAINST DR SHADRIN AND ECO3

(a) The relevant legal principles

46. There is no dispute between the parties about the ingredients of the tort of deceit or fraudulent misrepresentation. Where a defendant makes a false representation, knowing it to be untrue, or being reckless as to whether it is true, and intends that the claimant should act in reliance on it, then in so far as the latter does so and suffers loss the defendant is liable: see Clerk & Lindsell On Torts (20^th edn), paragraph 18-01.
47. As to what intention on the part of the defendant must be proved, the classic formulation is that of Lord Herschell in Derry v Peek (1889) 14 App Cas 337:

"First, in order to sustain an action of deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false. Although I have treated the second and the third as distinct cases, I think the third is but an instance of the second, for one who makes a statement in such circumstances can have no real belief in the truth of what he states. To prevent a false statement from being fraudulent, there must, I think, always be an honest belief in its truth."

48. Lord Cairns in Peek v Gurney said (at page 403):

"there must be some active misstatement of fact, or, in all events, such a partial and fragmentary statement of fact, as that withholding of that which is not stated makes that which is stated absolutely false".

49. Subsequent case law establishes that if there is the requisite degree of knowledge or recklessness, the defendant's motive in making the representation is irrelevant: "If fraud be established it is immaterial that there was no intention to cheat or injure the person to whom the false statement was made": see Bradford Third Benefit Building Society v Borders [1941] 2 All ER 205. The fact that the representor acted with the aim of facilitating a bona fide business transaction is also beside the point: see Clerk & Lindsell, paragraph 18-20.
50. Thus, in order to succeed in this claim, Ludsin must establish that:

i) there was a representation by Dr Shadrin to Ludsin, via Mr Lisitsin made with the intention that Mr Lisitsin and/or Ludsin act upon it;

ii) that representation was false;

iii) Dr Shadrin knew it to be false;

iv) Mr Lisitsin and Ludsin did in fact rely on it by investing £2 million;

v) Ludsin has suffered loss as a result.

51. The standard of proof in a claim for deceit is the civil standard, but since allegations of fraud are levelled at the Defendants, convincing evidence is needed. As Lewison J. put it in FoodCo UK LLP v Henry Boot Developments Limited [2010] EWHC 358 (Ch) ("FoodCo"), paragraph 3:

"The burden of proof lies on the [claimants] to establish their case. They must persuade me that it is more probable than not that [the Defendant] made fraudulent misrepresentations. Although the standard of proof is the same in every civil case, where fraud is alleged cogent evidence is needed to prove it, because the evidence must overcome the inherent improbability that people act dishonestly rather than carelessly. On the other hand inherent improbabilities must be assessed in the light of the actual circumstances of the case…"

52. All four of the protagonists in this case – Mr Lisitsin, Dr Shadrin, Mr Maggs and Mr Balfour - gave evidence in the form of witness statements and were cross-examined at some length by opposing counsel. In approaching the evidence in this case, and particularly in assessing the credibility of the witnesses, I have borne in mind the submissions that were made to me by counsel for the Defendants as to the seriousness of the allegations made against them and the importance to them of their reputations in the business world. I deal here with my assessment of Mr Lisitsin and Dr Shadrin and later with the evidence of Mr Maggs and Mr Balfour.
53. Mr Lisitsin gave evidence on behalf of Ludsin. He was a straightforward and helpful witness. He was engagingly frank about his reasons for climbing back into the business world saddle after his premature retirement. It is clear that he has a strong sense of grievance at having been, as he sees it, taken advantage of by the people who put this deal together and made money out of the Sandford Farm project at his expense. His decision to acquire the causes of action owned by SFPL after it had gone into liquidation and to pursue claims against the Jersey directors supports that assessment of him. His evidence was at all times consistent, careful and direct and I accept that he was telling the truth as he recollected it.
54. Dr Shadrin gave his evidence with dignity and courtesy. However, in response to some of the questioning he was evasive and inconsistent. As I explain later, there are crucial parts of his evidence that I cannot accept as true. His answers displayed a tendency to excuse and explain away the conduct of others. I have no doubt that he was dazzled by his business relationship with Mr Balfour who has extensive business and social connections in circles which are different from those to which Dr Shadrin was accustomed. I am sure that Dr Shadrin brought the deal to Mr Lisitsin believing and intending that they would both make a great deal of money from it.

(b) What were the representations made to Ludsin?

(i) The pleaded misrepresentations

55. Mr Cunningham described Ludsin's claim as founded on two principal misrepresentations, the consequence of which was the concealment of three other material factors. The two principal misrepresentations were that the seller of the land to SFPL was Hicks Persimmon and that the price at which Hicks Persimmon was selling the land to SFPL was about £12.5 million. By these misrepresentations three important elements of what actually happened were effectively concealed: first the existence of the sale from Hicks Persimmon to Bound Oak followed by the connected-party, forward-sale by Bound Oak to SFPL; secondly the substantial difference in price between the two sales; and thirdly how the Differential generated was going to be spent.
56. Mr Warwick, and to a lesser extent, Mr Bishop QC acting for Dr Shadrin and Eco3, argued that the case thus presented by Ludsin was different from the case that had been pleaded in the Particulars of Claim. They pointed to paragraphs 25 and 26 of the Particulars where the falsity of the misrepresentations is set out:

"25. The aforesaid representations were false in that:

25.1 Hicks Persimmon Limited sold the Site to Bound Oak on 12 October 2005 for £9.3 million at which price it was in truth available.

25.2 Bound Oak sold the Site to SFPL for £12.25 million on 2 November 2005.

26. Accordingly, at all time up to and including 17 August 2005, the true selling price of the Site was not £12.5 million, but was in the region of £9.3 million."

57. They argued that the only misrepresentation being asserted there is that the Site was "generally available" to be bought for the price of £9.3 million rather than for £12.25 million. They go on to say that in fact the Site was not available to anyone other than Mr Maggs at the price of £9.3 million. In other words, if the representation alleged was that Ludsin could only have acquired the Site for £12.25 million then that representation was true – Mr Ludsin could not have bought the Site at any less than that amount.
58. Mr Warwick also referred to the part of Lewison J.'s judgment in Foodco regarding the importance of focusing on the actual misrepresentations pleaded: see paragraph 179 of that judgment.
59. I do not consider that anyone reading the Particulars of Claim would have formed the view that the gravamen of Ludsin's complaint related to the price at which Hicks Persimmon might or might not have been prepared to sell the Site to anyone other than Mr Maggs. The pleading makes clear in my judgment that the deceit that Ludsin is alleging is the concealment of the two-tier structure of the transaction, namely the fact that the transaction did not comprise the straightforward sale by the owner to the entity in which Ludsin was investing for the price of £12.25 million but a sale at £9.3 million and onward sale at £12.25 million through Bound Oak. The core of the case is not therefore whether Ludsin could have bought the Site for £9.3 million but first, whether the representations made to Mr Lisitsin misled him into thinking that the Site was being bought by SFPL from Hicks Persimmon for about £12.25 million and secondly, whether that representation, if made, was untrue in a material respect.
60. Certainly the Defence lodged by Mr Maggs, Mr Balfour and WLI shows that they understood that that was what the case is about. They plead:

"19. If the Claimant should ever establish that Mr Shadrin:

(i) omitted to mention to Mr Lisitsin the existence of the first sale by HPL, at a price significantly less than the resale price; or

(ii) represented to Mr Lisitsin that there was no such sale,

then this was contrary to the structure of the transaction agreed by Messrs Maggs and Balfour with Mr Shadrin, contrary to the true position, and contrary to the assurances that Mr Shadrin gave to Mr Maggs…."

61. In my judgment, therefore, there is no inconsistency between the pleaded case and the case put forward by Ludsin at trial.

(ii) Oral and written representations

62. The particulars of the misrepresentations set out in the Particulars of Claim allege that during the initial discussions between them, Dr Shadrin told Mr Lisitsin that the Site was available for purchase at a price of £12.5 million. However, the main thrust of Ludsin's case depends not on those oral representations but on the wording of the Terms of Operation emailed by Dr Shadrin to Mr Lisitsin on 16 August 2005 when Mr Lisitsin was in Cap Ferrat. The Terms were signed by Dr Shadrin on behalf of Eco3 on 16 August 2005 and by Mr Jerome Hayoz of Comatrans on behalf of Ludsin on 17 August 2005. Mr Cunningham described this document as "the last visible representation" which was likely to have been operative and intended to be operative.
63. The Terms of Operation signed by Ludsin and Eco3 describe the Site in some detail (albeit not entirely accurately) and describe the existing planning consent in place. They then state:

"Oracle planned to use the site as a location for its training and alliance programme centre. Recently, Oracle has decided to sell the site. The selling price of the site is £12.5 million"

64. The Terms explain the potential for development concluding that the selling value of the site with planning permission for a storage facility is expected to be between £15.5 million and £18.5 million. The structure of the deal is then described:

"A UK limited liability partnership (SPV – special purpose investment vehicle) will be formed to acquire the site ("the Acquisition"). Investors will invest up to £5.5 million in SPV in which each investor will acquire a share pro rata the size of investment. The Client will invest £2 million in SPV ("the Investment") and the respective share will be registered in the Client's name. … The Client will transfer funds to the following client account with Forsters ("the Deposit Account") not later than 12 noon on 18 August 2005 :[account details set out]. The funds will not be released by Forsters until completion of the site purchase which will take place within four weeks after the funds have been transferred to the Deposit Account."

65. The Terms of Operation then describe the proposed bank borrowing of £7.5 million and the undertaking given by Forsters to return Ludsin's £2 million in the event that the sale did not go ahead. The Terms continue:

"After the Acquisition, SPV will apply for a planning permission to develop the Storage Facility. SPV will employ WLI as an adviser with reference to obtaining the planning permission. SPV will pay WLI a commission as a percentage of the gross profit received from sale of the site. It is expected that planning permission can be obtained by January 2006."

SPV will either sell the site or re-finance the asset not later than 31 March 2006. Proceeds from the sale or re-financing (the "Proceeds") will be used by SPV to buy out shares of investors in SPV, the Client's share including (sic). …"

66. On the face of it, therefore, there is a clear representation in the Terms of Operation that the owner of the site (in fact Hicks Persimmon rather than Oracle) was selling the site for £12.5 million. There is nothing said elsewhere in the document to disclose the two-tier structure of the deal or the existence of the Differential.

(iii) The nature of the Terms of Operation document

67. Dr Shadrin says that the description of the transaction in the Terms of Operation did not comprise a representation because that document was not intended to be a disclosure document informing Ludsin about the nature of the transaction. He described the Terms of Operation as being the client's instruction to Eco3, as investment manager, as to what the investment strategy will be and the scope of the permission being granted to the investment manager by the client. The statement in the document that "Oracle has decided to sell this site. The selling price of the site is £12.5 million" meant in this context only that Ludsin gave permission to Eco3 to invest Ludsin's money in the acquisition of the Site for price of up to £12.5 million.
68. I do not accept that characterisation of the Terms of Operation document. This was the document that Dr Shadrin emailed to Mr Lisitsin via the concierge at the hotel in Cap Ferrat when he was trying to finalise the deal and ensure the immediate transfer of the £2 million to Forsters. He knew that Mr Lisitsin would not authorise Ludsin to send the money to Forsters unless and until a contract between them was signed. That contract had to set out the nature of the investment to which Mr Lisitsin was committing a substantial amount of Ludsin's money. There is no other document provided by Dr Shadrin setting out a different or fuller description of the transaction - so far as written material provided to Ludsin to support the transfer of the money was concerned, this was it.
69. Mr Lisitsin sent a handwritten fax to Mr Enry at Comatrans on 16 August 2005 attaching what he described as "the Terms of Operation for an investment of £2,000,000 into the acquisition of a Sandford Farm in the UK within a strategy as developed by Eco3 Capital". He said in that fax that the Terms met with his approval and authorised Mr Enry to arrange for Ludsin to execute the Terms of Business and Terms of Operation and, on receipt of those documents signed by Eco3, to transfer the £2 million to Forsters' client account. I am sure that Mr Lisitsin regarded the Terms of Operation and the Terms of Business as the written record of what was agreed as being the nature of the deal that he was causing Ludsin to enter into.

(iv) Was the statement in the Terms of Operation cancelled out by earlier explanation of the true position?

70. Dr Shadrin's and Eco3's second line of defence is that the Terms of Operation did not contain a misrepresentation, or at least not one on which Mr Lisitsin could have relied, because Dr Shadrin had explained to Mr Lisitsin the two-tier structure of the deal in their conversations about the Sandford Farm project, right from the start. If Mr Lisitsin knew from the outset that the deal involved two simultaneous sales with a difference in the price, he could not have read the Terms of Operation as meaning that Hicks Persimmon were selling the Site directly to the investment vehicle for about £12.5 million.
71. Dr Shadrin says that his disclosure of the true position to Mr Lisitsin is evidenced by a hand-written memorandum he wrote when he was in Scotland to record a conversation he had on 12 August 2005 with Mr Lisitsin who was at that time in Moscow. The memorandum was written on two consecutive pages of a bound A4 notebook containing blank ruled pages, one of a series of day books which he was in the habit of keeping. The notebook was produced in court as were other notebooks of the same kind covering other periods. The memorandum in dispute was at the end of the book though it was not the last note made in the book and there were further blank pages at the end of the book. Earlier in the notebook are many other notes, in different inks, some in Russian and some in English and all, as I understand it, in Dr Shadrin's hand.
72. Dr Shadrin's evidence was that his practice was to use such books to make "notes about significant matters, about crucial deals, also good notes about major proposals that were made by the clients or outlines of investment opportunities". He also used the notebooks to make notes that were necessary for the performance of his Financial Services Act functions. He said that he took the notebook up to Scotland with him on his holiday and made the relevant note in it while he was there.
73. The memorandum written in the notebook and dated 12 August 2005 reads as follows:

"12 August 2005 Pavel Lisitsin

AS:

(1) Wharf: it is urgent to exchange or we can miss the deal + deposit is needed

(2) Total selling price agreed between Wharfland and Oracle - £12.25m including costs £9.8 m – paid directly to Oracle costs & settlements – via SPV

(3) Funding: £5 m – equity investors

£7.5 m – bank loan

(4) Investors put money in UK LLP and get shares in LLP

(5) Effectively, investors transfer money to Forsters.

Forsters manage the funds and release them only in case the site is acquired!

(6) Forsters are still working on the final transaction structure

Eco3 demands to reduce risks of investors to a minimum.

(7) Eco3 will charge a corporate finance fee

Pavel:

(8) Key task – to ensure that the funds are returned in case the deal does not happen (!)

(9) Whatever internal mechanics, the funds shall not be released until the transaction is completed."

74. The references in the memorandum to Oracle there are mistaken, it is accepted, because in fact the seller was Hicks Persimmon.
75. Dr Shadrin's evidence was not that the existence of the two sales and the Differential was actually revealed to Mr Lisitsin in the 12 August 2005 conversation or that that disclosure is recorded in the memorandum. By that time, Dr Shadrin says, Mr Lisitsin already knew about the structure of the transaction and the size of the Differential because this had been explained in earlier conversations (though there is no memorandum in the notebook relating to those conversations). He says the memorandum shows that the structure of the deal was referred to again in the 12 August conversation and that is what is recorded. When he was being cross-examined by Mr Cunningham, Dr Shadrin said the following:

"Q. Your position, I think, is that at some stage, either on 12 August or earlier, but at least by the time that Mr Lisitsin's money came in, the £2 million, he knew -- and you had made clear to him, the following: one, that there were two sales.

A. Correct.

Q. Two, that there were two vehicles --

A. Two vehicles, yes, correct.

Q. And that he knew about Bound Oak.

A. No, he didn't.

Q. Is it part of your case that Bound Oak was disclosed to him?

A. Bound Oak was not disclosed to him.

Q. Was it disclosed to him that there were two purchases and that there were a connection between the two purchasers?

A. Well, it was disclosed that there are two vehicles and they are doing this transaction, yes.

Q. That's not the question. Was it disclosed to him that there was a connection between the two vehicles or the people behind the two vehicles?

A. No."

76. Ludsin strongly disputes that the two-tier structure of the deal or the existence of the Differential were ever disclosed to Mr Lisitsin. Mr Lisitsin's evidence was that when he was in Moscow (before leaving for Cap Ferrat on 14 August 2005) he had a number of conversations with Dr Shadrin. Dr Shadrin was stressing to him the urgency of making a commitment to invest because he risked losing the opportunity. One of these conversations may well have been on 12 August 2005 but Mr Lisitsin was not able to confirm the precise dates of the various conversations as he did not himself make notes. He agreed that some of the points listed in the memorandum in the notebook were discussed between them over this period. He denied that the Russian words used by Dr Shadrin to describe the price during these conversations had the connotation of being the "total" price – the Russian word used simply referred to the price at which the Site was being bought. In cross-examination by Mr Bishop, Mr Lisitsin also denied that the figure of £9.8 million was discussed:

"A. There are some things that are normal in one language and need -- because I don't quite understand what you put in the total selling price. The selling price is the selling price.

Q. The price that would be needed to be paid to obtain the asset.

A. No, that was not what was said.

Q. I'm sure it wasn't said in those terms. What I'm trying to paraphrase, what you understood by the Russian words which you have told us were used.

A. I can tell you what I understood and what was told to me. I can tell you.

Q. What you understood was that what it was going to cost was 12.25 million?

A. No.

Q. I'm sorry?

A. No.

Q. What was your understanding?

A. My understanding was that negotiations are underway and the selling price is about 12.5.

Q. Yes. All right.

A. That Oracle sells to SPV, where I'm invited to be an investor, and that Wharf Land is negotiating this deal. This was what was told to me.

Q. And then, going on –

A. Not 12,250,000, about 12.5.

Q. What did you understand to be meant by the phrase "including costs"?

A. You mean what is written in this note?

Q. Yes. Would -- did you get the -- was it explained to you that the total cost would be 12.25 and that would include everything to do with the sale?

A. No.

Q. No? Were there other costs as well which were not included, were there?

A. That's how I took it, yes.

Q. What were the costs which were not included?

A. The way I understand things work in England, that you pay stamp duty, you pay legal fees, bits and bobs, maybe a retainer or a fee to the real estate agent because the selling price is what you pay to the vendor, to the one who sells you, and also there are some extra costs, of course.

Q. Right. And then we go on: "9.8 million paid directly to Oracle. Costs and settlements via the SPV." Did Dr Shadrin tell you that?

A. I have never heard from him or anyone else any numbers starting with nine as referred to the price of purchase from Oracle from anyone else, so this description was never given to me."

77. Mr Lisitsin accepted that he knew about the restrictions on the title of the Site because a copy of the Land Registry title had also been sent to him at Cap Ferrat on about 15 August 2005. At a later point in his evidence when he was pressed about how he thought those additional costs would be met if not out of the £12.5 million, he referred to the fact that he understood that the funding being put together was £5.5 million from investors and £7.5 million from the bank, making a pool of £13 million; enough to cover any incidental costs in addition to the £12.5 million being paid to the seller of the Site.
78. Ludsin's case is that the memorandum of 12 August 2005 is a fabrication, created either in August 2005 or much later to support a contention that the two-tier structure of the deal was disclosed to Mr Lisitsin. As to when the document first came to light as far as Ludsin is concerned, the list of documents provided by Eco3 and Dr Shadrin to Ludsin in fulfilment of their disclosure obligations in this litigation, referred to "extracts from Dr Shadrin's diaries" as a category of hard copy documents being disclosed. Dr Shadrin and Eco3 say that the memorandum was one of the documents in that category. After lists of documents were exchanged, there was some toing and froing between the parties but copies of the items in this category, including a copy of the 12 August memorandum, were provided to Ludsin's solicitors on 9 March 2012.
79. Ludsin relies on a number of arguments as casting strong doubt on the provenance of the memorandum.
80. The first is the fact that it was not until shortly before the start of the trial that Dr Shadrin asserted, in answer to Ludsin's claim, that he had told Mr Lisitsin about the two-tier structure and the Differential. On 7 December 2009, in response to the letter before action from Ludsin's solicitors, Dr Shadrin sent a six page email giving a detailed account of his understanding of the deal, seeking to explain his own conduct vis à vis Mr Lisitsin. He explains how he was introduced to the deal by Mr Balfour as "a unique opportunity to acquire extremely valuable land site that would hugely appreciate in the future". He describes the two-tier structure and says in his response that the margin made by the acquisition vehicle (that is, in the event, Bound Oak) would cover "various costs related to the transaction, including costs involved in settling the dispute with Michael Coff". He then says:

"It is fair to note that the detailed costs related to the transaction were not disclosed to Eco3 Capital. There is no evidence that any payments were made by the Acquisition Vehicle to Michael Coff as well as there is no evidence that they were not. Forsters never gave me any information with regard to the costs, but they clearly and unequivocally stated that without these costs the transaction was not possible. Therefore, in our presentation of the investment opportunity to Ludcin (sic) we identified that the total acquisition cost was gbp 12.5 million, including costs of the transaction." (emphasis added)

81. Thus, far from asserting that the two-tier structure and the existence of the Differential had been explained to Mr Lisitsin all along, Dr Shadrin here was instead trying to justify why he had not explained that to him, namely because he had been told by Forsters that the Differential was needed to pay off "various costs related to the transaction" such as a payment to the Coff family.
82. Similarly, in the Defence, which was served in March 2010 (before Dr Shadrin had the benefit of legal representation), the emphasis is again on explaining that Mr Maggs, Mr Eadie and Mr Balfour told him that the two-tier structure and the Differential were needed to ensure that the transaction took place. The Defence states "While presenting the investment opportunity to the Claimant ECO3 provided it with correct information prepared to the best of their knowledge" and then lists six items that it is alleged Dr Shadrin told Mr Lisitsin. These do not refer to the two-tier structure or the fact that the Site was in fact purchased from the original vendor for £9.3 million. The closest it comes to alleging actual disclosure is to say that the investment proposal was "based upon the total acquisition cost of £12.5 million, all costs included". Dr Shadrin appended to his Defence 14 contemporaneous documents which he clearly regarded as the most important documents supporting his case. The memorandum of 12 August 2005 was not among them.
83. In his witness statement signed on 25 January 2012, Dr Shadrin sets out the terms on which he offered the investment opportunity to his family and friends. The terms refer only to the investment vehicle acquiring the Site for £12.5 million including costs – Dr Shadrin's evidence at that stage does not assert that he told his family and friends about the prior sale for £9.8 or 9.3 million.
84. It was only in the Skeleton served by Dr Shadrin and Eco3 shortly before the start of the trial that the assertion appears that:

"Dr Shadrin made clear to Mr Lisitsin from the outset that although the acquisition cost to the investors would be £12.5 million or thereabouts, £9.8 million of which would be paid directly to Oracle Persimmon, the original landowners and the balance would be paid to a SPV (Special Purpose Vehicle) on account of expenses, commissions, fees and other costs. …

85. If the memorandum was genuine, Dr Shadrin could not have failed to recognise its significance, given that he was being accused of having concealed the existence of the two-tier structure. Dr Shadrin's failure to refer to the memorandum indicates strongly to me that either the document did not exist at that stage or that Dr Shadrin had thought better of trying to rely on it.
86. The second factor Ludsin relies on as showing that the memorandum is not an accurate record of a discussion with Mr Lisitsin is the reference at paragraph 7 of the note to Eco3 charging "a corporate finance fee". The Particulars of Claim allege that Eco3 had, in breach of its fiduciary duty, made a secret profit by accepting a fee of £125,000 from Bound Oak. The memorandum of the conversation on 12 August 2005 purports to record that Dr Shadrin had told Mr Lisitsin that Eco3 was being paid a corporate finance fee, so that the commission was not secret at all but disclosed to and presumably approved by Mr Lisitsin. This would provide a complete answer to this aspect of Ludsin's claim. In his Defence, Dr Shadrin does not assert that he told Mr Lisitsin about the commission. His Defence deals only with the point that Eco3 was entitled, in accordance with the Terms of Business, to earn a separate fee and that the payment of that commission to Eco3 was not the same as payment of that amount to Dr Shadrin personally. There is no mention there of Mr Lisitsin having been told about the corporate finance fee. Again, if this memorandum genuinely recorded a phone conversation in which Mr Lisitsin was told that Eco3 would be paid a fee, I cannot see why Dr Shadrin, even without the benefit of legal representation, would not have put it at the forefront of his argument immediately he was challenged about the secret commission.
87. The third factor which points to the memorandum not being a true record of a conversation is the concealment of the existence of Bound Oak from the letter that Dr Shadrin sent to Comatrans, Ludsin's Swiss fiduciary. I explain this point later in this judgment: see paragraphs 161, onwards below. Here, it suffices to say that there would have been no need to conceal the existence of the intermediate purchaser from Ludsin at that point if, as Dr Shadrin claims, Mr Lisitsin knew all about the two-tier structure of the deal.
88. I therefore accept the evidence of Mr Lisitsin that Dr Shadrin never told him about the two-tier structure of the deal and that, as he said, he never heard "any numbers starting with nine as referred to the price of purchase" of the Site from Hicks Persimmon. I do not know at what stage the memorandum in the notebook produced in court were written. It is not necessary for me to find that the whole notebook with all the notes written in was an elaborate fabrication. But I find that either the note was made at the time, but significantly embellished the actual content of the conversation or the note was added some time later onto some of the blank pages towards the end of the notebook. In either case I do not consider that it is an accurate record of a conversation that occurred between Dr Shadrin and Mr Lisitsin.
89. I therefore find that there was a representation both orally and in the Terms of Operation made by Dr Shadrin to Mr Lisitsin that the Site was being sold to the investment vehicle in a straightforward sale by the owner (whether Oracle or Hicks Persimmon) for the sum of about £12.5 million. There was consequently no disclosure of the two-tier structure of the deal or the existence of the Differential. Those representations were not negated by earlier oral disclosure by Dr Shadrin to Mr Lisitsin of the true nature of the deal.
90. I also find that the representations, both those made orally and those made in the Terms of Operation, were made by Dr Shadrin with the intention that Mr Lisitsin would rely on it by investing himself, or by causing Ludsin to invest, in the Sandford Farm project.

(c) Were the representations untrue?

91. Clearly the representation was untrue in the literal sense: the structure of the deal was very different from that described in the Terms of Operation and explained to Mr Lisitsin. The second major issue in these proceedings is: does it really matter that the transaction was not a straightforward purchase of the Site by SFPL from Hicks Persimmon for £12.25 million but rather a two-tier sale generating a Differential of £2.9 million?
92. Eco3 and Dr Shadrin's case, as I understood it, is that the existence of the two-tier structure and the generation of the Differential did not make any difference to the nature of the investment opportunity being presented to Mr Lisitsin. This assertion rests on two premises. The first is that the land would not have been sold to anyone else other than Mr Maggs at the price of £9.3 million; it was not, as Ludsin alleged "in truth available" to SFPL at £9.3 million. Secondly, Dr Shadrin says that although the two sales took place simultaneously, the asset that SFPL bought from Bound Oak was not the same as the asset that Bound Oak had bought from Hicks Persimmon. He understood from Mr Maggs and Forsters that the £2.95 million Differential was needed to clear the restrictions from the Land Registry title and enable SFPL to acquire an unencumbered title. If it was indeed the case that the £9.3 million was some special price that would not have been offered to anyone other than Mr Maggs and that the Differential was used to clear the restrictions from the title and thereby significantly enhance the value of the Site, then I can see that much of the sting of Ludsin's complaint about non-disclosure would be drawn.

(i) The "availability" of the Site at £9.3 million to anyone other than Mr Maggs

93. As to the first point, Mr Lisitsin's view, as expressed in the witness box, was that the fact that Hicks Persimmon sold the Site to Bound Oak for £9.3 million is the best evidence of the price at which the Site was available:

"Q. Is it your case that you could have acquired the land for 9.8 million?

A. You mean me personally?

Q. Well, either you personally or any investment vehicle in which you were interested?

A. I think there could be such a possibility, yes.

Q. How?

A. What do you mean "how"?

Q. How?

A. If something is for sale, then something is to buy and it's a matter who sells, when, why, what is the market, who knows about this deal. If Oracle was happy to receive 9.3 million, or whatever he received for this deal from one person, then unless the deal is restricted - that the only way the seller could sell [is] only to this person - if the deal was not restricted, then one could assume that if the market price is there, it could be bought.

…

Q. … Do you accept that the valuation of the site at 12.5 or thereabouts represented its true value at the time that you bought it?

A. I don't know if it's true or not.

Q. Do you have any evidence to challenge that it was?

A. I have a fundamental belief that the price at which one sells and the other buys, if it is a free market, as I said, without a particular restriction that no one else can buy but this person, is the market price, and I have this fundamental belief."

94. The Defendants' case however is that the £9.3 million price was a special price only available to Mr Maggs and WLI. That appears to be what Mr Maggs told Dr Shadrin. Yet I have not seen any explanation as to the basis of this assertion. I was not shown any correspondence between WLI and Hicks Persimmon in which the special nature of this relationship was explained or expressed. On the contrary, Mr Maggs's evidence did not describe any particular effort on his part in putting together the deal. In his witness statement he said that he had been keeping his eye on the Site for some years. He had first looked at it in 1999/2000 but that he started to look at it "more seriously" in around 2003. Because the land had previously been used for land fill there were contamination problems which would need to be cleaned up before the Site was developed. He goes on to say that someone at Oracle asked him to make an offer for the Site:

"the owners had become disenchanted with various failed applications for planning permission and having spent a great deal of money getting nowhere over a long period of time, they wanted to get the asset off their books. The site also suffered from contamination that would require extensive and expensive remediation. An adjoining owner, Mr Coff, held a ransom strip. For these reasons the site was available for £9,300.000."

95. There is certainly nothing said there to gainsay Mr Lisitsin's belief that if he or any property developer other than Mr Maggs had gone to Hicks Persimmon in August 2005 and offered them, say, £9.5 million, Hicks Persimmon would have refused to sell it to them at that price.
96. In his oral evidence Mr Maggs described what had happened in rather different terms. He said that as an experienced property developer, he knows that a landfill site, once it has been filled up can be valuable. He said that the "accepted wisdom" is that commercial use is the best use because the site can be capped, sealing in the contamination from the landfill. He said that this was the kind of opportunity which property developers keep their eyes open for and that he has a network of chartered surveyors and agents who bring these opportunities to him. The Site was not on the market and there was no agent instructed to sell it. What triggered the deal was that Simon Holley who worked for the surveyors CBRE came to him in June 2005 and told him about the opportunity. Mr Holley had been working with Oracle when they were interested in the Site but once Oracle had abandoned any thought of buying it, he raised the proposal with Mr Maggs. Mr Maggs said that he had not organised or paid for the remediation of the contamination at the Site.
97. There is thus no evidence before me to support the contention that this deal at £9.3 million was only available to Mr Maggs and no reason why that should be so has been put forward. If it is suggested that the deal was special to Mr Maggs because he alone was able to smooth the path for a successful planning application then that suggestion is contradicted by subsequent events which showed that path to be very rocky indeed. For many years Mr Maggs had no better luck with the planning authorities than any previous owner and it seems it was only because of the unexpected release of the Site for residential housing that Mr Maggs, through his vehicle Woodley, was able finally to improve the planning permission for the Site and sell it at a profit.
98. I accept that the land was valued by Colliers CRE at £12.5 million and no one has attempted to cast doubt on the thoroughness and integrity of those preparing that report. However, the report fairly states that the authors have relied on information about the Site provided to them by WLI and it is not clear that they were informed, before they drafted their report, that the Site was in fact being sold by Hicks Persimmon to Bound Oak for £9.3 million at the same time as it was being sold by Bound Oak to SFPL for £12.25 million.

(ii) The clearance of the restrictions on the title to the Site

99. Much emphasis was placed, particularly by Dr Shadrin, on the fact that between the purchase of the Site by Bound Oak and the forward sale to SFPL, the restrictions on the Land Register were removed. I have referred earlier to the ransom strip owned by the Coff family. The title document emailed to Mr Lisitsin at the Grand Hotel in Cap Ferrat showed a list of restrictions some of which refer to the Coff family and some to other entities. Mr Lisitsin confirmed that he had read this document before signing the Terms of Operation.
100. In cross-examination, Dr Shadrin described the position as he saw it as follows:

"The role of the acquisition vehicle was not only to make turn but the role of the acquisition vehicle was to make all the agreements with those conflicting parties, to settle all that and basically clean up title for the land of all restrictions and charges. Then this acquisition vehicle was going to sell the site for the two investment vehicles in which all the investors were coming free of any restrictions and charges. So in fact it was not just for acquisition vehicle to buy the site and then resell the invite. In fact it was actually buy the site with a lot of problems, which was undeveloppable, completely, which was not available for any development whatsoever, and then sell to development vehicle into which investors are coming, a free site; absolutely free of any charges and restrictions. That is effectively is the same as, you know, buying a car which cannot drive and then reselling actually fixing this car, updating this car, upgrading this car and then selling it, the car which can make, you know, 60 miles in 5 seconds.

101. I understood from this and from his Defence that Dr Shadrin's case is that the Differential generated by the sale and the forward sale was needed to clear the restrictions from the title so that SFPL acquired a Site which was not encumbered by expensive and worrisome restrictions. In his witness statement Dr Shadrin says that his understanding was that:

"The selling price of the Site for the incoming investors was £12.25 million and the margin to be made by ACV [that is, the vehicle acquiring the Site from Hicks Persimmon] was non-negotiable. My major concern was a possible conflict of interests for WLI, in case WLI had received a massive commission from the Transactions via the ACV and would not be interested in further success of [SFPL]. However, Mr Balfour assured me that the payments to be made by ACV, apart from legal and fundraising fees and commissions, would be made to various third parties for good causes, including payments to settle a land dispute with the land owner Michael Coff and payments to facilitators of the Transaction, but in any case not to WLI or Mr Maggs.

I questioned the reasons for using ACV rather than paying costs, fees and commissions directly via [SFPL]. Mr Maggs, Mr Eadie and Mr Balfour explained that Mr Maggs needed to give their personal undertakings to certain third parties that such parties would be paid commissions and fees for facilitating the Transaction upon its completion. … As I trusted Mr Balfour, the aforementioned explanation for using the ACV/[SFPL] structure was quite satisfactory". (emphasis added)

102. In order to decide whether the Differential was in fact needed and used for the clearance of the restrictions on the Site, it is necessary to look at what happened to money after Bound Oak bought the Site from Hicks Persimmon for £9.3 million and sold it on to SFPL for £12.25 million.
103. So far as removing the restrictions was concerned, it is not disputed that in fact, only £25,000 of the Differential was paid by Bound Oak to Mr Coff. Hicks Persimmon paid the Coff family a very much more substantial sum, over £5 million, expressed to be in full and final settlement of their family's claims. That sum came out of the £9.3 million paid to Hicks Persimmon by Bound Oak.
104. The destination of the rest of the Differential, amounting to £2,925,000 is apparent from the ledger of the Forsters' client account of monies held for the benefit of WLI. Following the receipt of Ludsin's £2 million on 18 August 2005 and the crediting of interest on that sum, the first payment out was the sum of £125,000 to a company called L&H Estate Management Acquisition. It is accepted that this is a vehicle of Mr Maggs. This payment was made on 20 October 2005, that is shortly after exchange but before completion of the two sales.
105. Other payments out of this part of Forsters' client account took place after completion of the sales on 9 November 2005:

i) on 10 November 2005 a further payment of £1 million described on the ledger as purchase proceeds was made to L&H Estate Management Acquisition (that is, to Mr Maggs);

ii) on 11 November 2005 a payment of £587,500 described as for "Consultancy Services" was made to David Mellor trading as DM Consultancy;

iii) on 22 November 2005 a payment of £587,500 described as "fee relating to sale" was made to Simon Holley;

iv) on 25 November 2005 a payment of £125,000 was made to Eco3 described as "commission";

v) on 30 November 2005 a payment of £500,000 was made to Catchphrase Holdings Limited described as "Sandford fees".

106. The question at this point is not whether these payments were justified but whether, as Dr Shadrin asserts, they were necessary for, and were used to bring about, the clearance of the restrictions on title so that it could fairly be said that the land, as acquired by SFPL, had cost £12.25 million rather than £9.3 million.
107. As regards the payments of £1,125,000 to Mr Maggs, he has not suggested that any of this money was paid out by him or his company to deal with restrictions on the title or for any other purpose to do with improving the value of the asset transferred to SFPL. He was asked by Mr Bishop whether he had been involved in the negotiations with Mr Coff to deal with the problem of the ransom strip and he said "only very peripherally"; it was Mr Hicks of Hicks Persimmon who conducted the negotiations to settle with Mr Coff.
108. As regards the payment of £587,000 to Mr Mellor, this comprised a payment of £500,000 plus VAT. Mr Mellor was the joint owner, with Mr Maggs, of WLI and was said, in evidence from Mr Maggs, to have stepped in and played a crucial role in getting the sale of the Site agreed. Mr Balfour's evidence was that he (Mr Balfour) went to Venice on 7 October 2005:

"I remember while I was away that David Mellor from [WLI] called me to say that negotiations with the vendors were not going well and asked me if I would put in a call to my contacts on the Board of Persimmon plc. These problems were resolved and contracts were exchanged on 12 October."

109. The payment to Mr Holley was the subject of some dispute arising in part from the fact that Mr Maggs in his witness statement described Mr Holley as "the vendor's agent". Mr Maggs agreed that if this had indeed been the case, then there could be no honest reason for the buyer paying Mr Holley a fee. However, it seems clear to me that Mr Holley was not in fact the vendor's agent but the agent of Oracle who had previously considered buying the Site but had decided not to do so. The contemporaneous documents all show that there was a prevailing misconception that Oracle were owners or part owners of the Site but this was not the case. I accept therefore that there was nothing inherently dishonest about making a payment to Mr Holley for bringing the Site to the attention of Mr Maggs.
110. The payment to Eco3 is the subject of the separate claim for secret profit in breach of fiduciary duty.
111. The payment to Catchphrase is the subject of a dispute between the parties. It was said by Mr Balfour to be a reward paid to his wife's trust fund for providing a loan facility of £1 million to underwrite the whole transaction. Ludsin argued that it effectively represented Mr Balfour's 'cut' of the profit. Where the truth lies is a matter I consider later in this judgment. But either way, the payment had nothing to do with clearing the restrictions from the title of the Site, settling with the Coff family or otherwise improving the value of the asset.
112. It is therefore clear to me that the Differential was not needed to add £2.9 million of value to the Site nor that it was distributed among the recipients to be used for that purpose. It would not, therefore, be fair to say that total price for the land, in the state that it was acquired by SFPL was £12.5 million or that the two-tier structure of the deal was immaterial so far as investors in SFPL were concerned.

(d) Did Dr Shadrin know that the representation was false and did he intend Mr Lisitsin to rely on it?

113. Dr Shadrin accepts that he knew about the two-tier structure of the deal and of the existence of the Differential all along. There is plenty of contemporaneous documentation showing this to be the case. It cannot seriously be contested therefore that Dr Shadrin made the misrepresentations to Mr Lisitsin, knowing that they were untrue and intending that Mr Lisitsin should rely on them.
114. Whether Dr Shadrin knew the precise details of how the Differential was divided up and who was going to benefit was another issue in dispute between the parties. It is not part of Ludsin's case that there was a misrepresentation about the use of the Differential since of course Ludsin's case is that it was unaware of the existence of the two-tier structure. I do not therefore have to resolve that issue. It is fair to say, however, that neither Mr Maggs nor Mr Balfour said that they had explained to Dr Shadrin how the Differential would be spent other than in generic terms.

(e) Did Ludsin act in reliance on the misrepresentation and suffer loss thereby?

115. In order to succeed in its claim, Ludsin must establish that Ludsin relied on the representation. The Particulars of Claim state that Ludsin "would not have invested in the SPV had it been told that a vehicle for WharfLand and/or Mr Maggs and/or Mr Balfour would make a profit of £2.95 million on a purchase and sale of the site prior to its acquisition by the investment vehicle", that is by SFPL. In his witness statement, Mr Lisitsin described why that was the case in these terms:

"Had I been told that Bound Oak Limited was buying the site for £9.3 million, and then immediately selling it on to the special purpose vehicle for £12.25 million, I would not have been interested in the deal and would not have authorised Ludsin to invest in it. My reasons are simple: Bound Oak Limited was owned by the same people behind the promoters of the investment (WLI), and, in short, you don't buy from someone who is telling you that you are on to a great deal but who is also selling to you at the same time and on top of that, is using the investors' money for his own deal, rather than the deal the investors were investing in.

….

"For the same reason that I would not have caused Ludsin to invest if I had been told about Bound Oak Limited's involvement, if I had been told about the true use of Ludsin's money I also would not have gone ahead with the investment.

"Nor was I told about the use of the profit made by Bound Oak Limited when it sold the site to the special purpose vehicle. As I have said, I did not know about Bound Oak's involvement. I was always of the understanding that Ludsin's money was to be used to fund the purchase of the site by the special purpose vehicle. It never occurred to me that Ludsin's money would be used to pay commissions or generate a profit for third parties, who were also promoting the deal."

116. In cross-examination by Mr Bishop, Mr Lisitsin said this:

"Q. But your -- as I understand it -- prime grievance is that the land was sold originally at 9.8 million or thereabouts, and you had to pay -- the vehicle that you invested in had to pay 12.5 or thereabouts?

A. … I must say that this is -- this phrase could be accepted but it's a very simplistic view. It's not that originally it was that, maybe 10 years ago it was 5 million, I don't care. My grievance was that it was a back-to-back deal for which my money was used and it was not originally bought some time before for money of other people, is that my money was used for a back-to-back deal and that the second it was bought at 9.3, it was resold at 12.5. That was my grievance. It's not that originally, it has to be specific that in the same moment that it was a back-to-back deal, yes, this is my grievance, that the upside of the value, the ability to appreciate was taken away at the first second of the deal, that it was not something for all shareholders, someone took it, took the first better fat piece and then everyone else had to be left with a higher price. That is my grievance."

117. I have no difficulty in finding that Mr Lisitsin would not have caused Ludsin to invest £2 million in SFPL if he had known that the Site was not being bought by SFPL from Hicks Persimmon for £12.25 million but was in fact being bought by Bound Oak for £9.3 million, using Ludsin's money, and then sold on to SFPL for £12.25 million.
118. It was not disputed that the loss suffered by Ludsin by their reliance on the misrepresentation is the value of the £2 million investment lost, subject to setting off monies already received in respect of those losses.

(f) Conclusion

119. I therefore find that Eco3 and Dr Shadrin are liable to Ludsin for fraudulent misrepresentation.

IV. THE MAIN MISREPRESENTATION: MR BALFOUR, MR MAGGS AND WLI

120. Having found that there was a fraudulent misrepresentation by Eco3 and Dr Shadrin, the next step is to consider whether Mr Maggs, Mr Balfour and WLI are also liable to Ludsin for that misrepresentation. In the course of the trial, Mr Maggs, Mr Balfour and WLI were referred to collectively as "BMW" and I adopt that term in the remainder of this judgment.
121. Ludsin accepts that there was no direct contact between BMW and Mr Lisitsin until some years after 2005 and that no representations were made directly to Mr Lisitsin by Mr Balfour or Mr Maggs. Paragraph 23 of the Particulars of Claim alleges that it was the "common intention" of Mr Maggs, Mr Balfour and Dr Shadrin that

i) the deal would have the two-tier structure I have described;

ii) Dr Shadrin through Eco3 would solicit investment into SFPL;

iii) investors in SFPL would be paid out upon the grant of planning permission for the Site and sale or refinancing of it; but that

iv) Mr Lisitsin and Ludsin would not be informed that Eco3 and WLI were profiting from the sale of the Site before SFPL acquired it.

122. Paragraph 24 then alleges:

"Accordingly, [Ludsin] will say that the Court should draw the inference that [Dr] Shadrin's and Eco3's representations were made by them as agents for [BMW]."

123. So far as the relevant legal principles are concerned, Ludsin's case was put forward on the basis of Rule 2.1(a) of Article 90 in Bowstead & Reynolds on Agency (19^th edn). That states that a principal is liable for loss or injury caused by the tort of his agent, whether or not that agent is his servant, if "the wrongful act was specifically instigated, authorised or ratified by the principal". There are other passages in Bowstead & Reynolds, and in Clerk & Lindsell which discuss the circumstances in which one or other or both of an agent and principal can be liable in deceit where only one of them has the requisite knowledge of the falsity of the representation. However, Ludsin's case has always been that there was a "common intention" of all the Defendants that the two-tier structure of the deal be concealed from Mr Lisitsin. I have therefore approached the case on that basis.
124. I regard the issues that need to be resolved in this part of the claim as follows:

i) Were Eco3 and Dr Shadrin soliciting investment in SFPL as agent for BMW?

ii) Did BMW know that Dr Shadrin had misrepresented to Mr Lisitsin the identity of the vendor of the Site and the price at which the Site was being acquired from that vendor - or, to put it another way, did they know that Dr Shadrin had not disclosed to Mr Lisitsin the two-tier structure of the deal and the existence of the Differential?

(a) Mr Maggs and Mr Balfour

(i) Their involvement in the Sandford Farm project

125. Mr Maggs was the person who masterminded the Sandford Farm project and was at all times the moving force behind the arrangements that were put in place to make the investment. He was the part owner of WLI which stood to make a considerable profit if planning permission was obtained and the Site sold by SFPL for more than £12.5 million. He also, as I have described, received substantial payments via L&H Estate Management Acquisition very shortly after the purchase of the land by SFPL. The contemporaneous documents show that he was closely involved in all aspects of the deal, to the extent that Forsters sought his approval for letters that they were sending out to Dr Shadrin and Eco3, even though they were also acting as solicitors for Eco3. I consider that he would throughout the relevant period have been keeping a very close eye on all the email traffic concerning the Sandford Farm project.
126. Mr Balfour has sought in his evidence to distance himself to a certain extent from the detail of the transaction. I accept that, like many business people, he receives many hundreds of emails each month and does not always read those of which he is only a copy recipient. I also take into account the fact that the events at the core of this case took place at a difficult time for him personally. In considering how much attention he paid to what was happening over the period that is important for this claim, I bear in mind that his involvement in the project was considerably greater than that of simply introducing Eco3 to the project and then acting as a means by which Forsters could get in touch with Dr Shadrin. There are several factors here that point to his active involvement in and responsibility for what happened during the summer and autumn of 2005.
127. First, the key events took place over a short period of time during 2005 when Mr Balfour was involved in intensive activity to get all the elements of the deal in place. In particular, the flurry of emails sent to Dr Shadrin in mid August 2005, urging him immediately to arrange the transfer of the funds were sent by Mr Balfour. His anxiety about the arrival of the money from Ludsin was expressed to Dr Shadrin in an email on 17 August 2005:

"Alexander

You need to find out where the first load of money is which you said would be sent on Friday, then Monday, and now it is Wednesday and still no sign. What is the truth? In addition I told you that we had another investor if you could not deliver and now that looks like it is too late to get them up to speed."

128. Secondly, Mr Balfour was a shareholder in Bound Oak as from 17 August 2005 and a director of Bound Oak as from 3 October 2005. He was also made a designated member of Sandford Farm LLP, the UK entity which initially bought the Site from Bound Oak.
129. Thirdly, Mr Balfour was, during 2005, a director of Eco3. Mr Balfour attempted to play down the significance of this, portraying his role in Eco3 as being related to the Continental Petroleum project and nothing to do with Sandford Farm. I cannot believe that, after a long career in the City which involved being a Board director of several different companies, he did not have a full understanding of the responsibilities that being a non-executive director entails. In any event, he was in fact actively involved as a director of Eco3 in that, in the absence of Dr Shadrin on business in Siberia, it was Mr Balfour who gave the approval on behalf of the Board of Eco3 to Mr Eadie for the transaction to proceed in September 2005.
130. I therefore assess the evidence on the basis that both Mr Maggs and Mr Balfour were very much involved in and focused on organising and implementing the Sandford Farm deal between August and October 2005. In the light of this it would not be appropriate in my judgment to distinguish between them when considering the two questions that I have posed: either Dr Shadrin and Eco3 was acting as agent for both of them or for neither of them and either they both knew about and were complicit in the misrepresentations or neither of them was.

(ii) Mr Maggs' and Mr Balfour's evidence

131. Mr Maggs and Mr Balfour both provided witness statement which were drafted partly with an eye to defending themselves against the claims from Ludsin and partly with an eye on their own Part 20 claims against Forsters. Both were also cross-examined at length by Mr Cunningham on behalf of Ludsin and by Mr Bishop on behalf of Eco3 and Dr Shadrin. I found the written and oral evidence of both men unsatisfactory in a number of respects.
132. Their written statements contained statements which I cannot accept as true. So far as Mr Balfour is concerned, in seeking to minimise the significance of his role as non-executive director of Eco3, he states that he never had a service contract with Eco3. In fact he did sign a service contract in December 2004. Mr Balfour states that he did not know that he was a shareholder and director of Bound Oak; that if shares in Bound Oak were transferred to him then it was done against his will; that he must have signed the letter appointing him as a director of Bound Oak in October 2005 without appreciating what he was signing. I find it wholly implausible that a man of his business experience would sign a two line letter agreeing to be appointed as a director of Bound Oak without noticing or appreciating what he was signing.
133. As regards his involvement in Sandford Farm LLP, the UK company that preceded SFPL as the counterparty to the purchase of the Site from Bound Oak, Mr Balfour says in his witness statement:

"… I was not consulted about becoming a Member of this LLP and I can only assume that someone at WLIL with Forsters' approval installed me as a Member. … no one condescended to ask my permission before putting me on the company's paperwork. Suffice to say I performed no active role in SFLLP and earned no remuneration from it. In view of my being nominated as a member without my knowledge, I confidently refute any suggestion that this was intentional on my part."

134. This evidence is contradicted by the contemporaneous documents. Mr Balfour not only signed the application form for the incorporation of the LLP on 16 August 2005 on his own behalf as a designated member but he also signed the form in his capacity as director of Eco3, that company being the only other member of the LLP. Far from performing no active role, it was Mr Balfour who then signed the contract for the purchase of the Site for and on behalf of Sandford Farm LLP on 12 October 2005. Again, I cannot accept that a man of his experience signs these important documents blindly because they are put in front of him by a solicitor. In my judgment, his evidence in this regard shows how far he is prepared to go in attempting to distance himself from the detail of this transaction and to deflect responsibility for what happened onto other people.
135. So far as Mr Maggs' witness statement is concerned, it also contains a number of statements which had to be corrected in examination in chief before he could confirm the truth of it. For example he says of Dr Shadrin:

"Later Shadrin states in an email … 'I decided to invest GBP 500,000 myself' … I don't believe he actually invested a penny of his own money. He applied other people's money… but not his own."

In fact Mr Maggs had to accept Dr Shadrin invested and lost £300,000 of his own money in SFPL.

136. I describe later his evidence about an email sent to him by Mr Eadie on 18 August 2005 when Mr Maggs had to accept in the witness box that how he described it in his statement was in fact the very opposite of the truth.
137. In their oral evidence both men were defensive, long winded and unwilling to give a straight answer even to preliminary questions from counsel which should have been uncontroversial. They were unable to give any explanation of the contemporaneous documents put to them rather than maintain dogged denials of wrong doing. As I describe below, there are aspects of both their oral evidence that I find impossible to accept.
138. As regards Mr Balfour, there is a particular matter on which I find his evidence entirely incredible. This relates to the payment of £500,000 made to Catchphrase Holdings Limited ("Catchphrase") on 30 November 2005 from the Forsters' client account. Ludsin's case is that this payment was effectively Mr Balfour's share of the Differential, paid to him at about the same time Mr Maggs was paid £1 million and Mr Mellor and Mr Holley both received their payments of £500,000 each for their roles in bringing about the acquisition of the Site by SFPL. Mr Balfour denied that this was the case. He said that Catchphrase is a company controlled by a trust fund of which his wife is a beneficiary. He arranged for that trust fund to obtain a loan facility from the bankers C Hoare & Co effectively to underwrite the transaction. The Hoare facility was undoubtedly provided and, in the event Mrs Balfour funded £112,500 of the purchase. The payment of £500,000 to Catchphrase was, he said, an ex gratia payment made by Mr Maggs to Mrs Balfour's trust fund in return for her help. He denied that the payment was connected to his role in the deal or that he could derive any benefit from the money paid to the trust. Indeed, he denied that he knew at the time that Mr Maggs or Mr Mellor received payments from the Differential.
139. This denial is inconsistent both with the way that Catchphrase is referred to by him in the correspondence and with common sense. I have already described Mr Balfour's extensive role in the Sandford Farm project even beyond the fact that he introduced Eco3 and thereby the money used for the deposit for the purchase of the Site. I cannot believe that Mr Balfour was involved to the considerable extent that he was in this deal and yet that he did not know that his partners in the deal were receiving substantial payments out of the Differential. It is also incredible that he expected to receive no payment himself and in fact received nothing for all his work.
140. In his witness statement, Mr Balfour criticises Mr Lisitsin's naivety for not appreciating that "turns" or variations thereon are very common in property transactions. He says:

"Indeed, one would have been foolish to think that people involved in a project do their work at cost without making, or at least attempting to make a profit from their work."

141. I have no doubt that the £500,000 to Catchphrase was Mr Balfour's share of the Differential. The fact that Mr Balfour persisted in his account of the Catchphrase payment causes me to treat all his evidence with considerable caution.

(b) Were Eco3 and Dr Shadrin acting as agents in soliciting investments in SFPL?

142. In my judgment, it cannot seriously be disputed that Eco3 and Dr Shadrin were acting as agents for BMW in soliciting the investment in SFPL from Ludsin.
143. Mr Bishop on behalf of Dr Shadrin adopted a neutral stance on the question of whether Dr Shadrin had been acting as agent for BMW. From his evidence, it was clear that Dr Shadrin understood what that was what was expected of him:

"Q. … your job was to solicit -- do you understand that word -- obtain investors in their opportunity?

A. Yes, sir.

Q. Thank you. They gave you authority to do that?

A. They just put an offer -- they provided me with an offer.

Q. And go and find some investors?

A. No, they just provided me with an offer and enquired whether any of my clients would be interested.

Q. Yes. So they were looking, through you, for investment, to your clients?

A. As via any financial house."

144. Mr Maggs' evidence was that Dr Shadrin's role in the project:

"was to assist my company Wharf, the property managers, in finding investors for the development project. He co-ordinated with the investors on the Sandford Farm project. He was very secretive about his supposed network of high net worth Russian oligarchs who were to invest, so Charles [that is Mr Balfour], myself and Wharf never knew the identities of the sub-investors who invested via Eco3 into the project".

He also said that Eco3 "acted as the go-between" for the Eco3 investors including Ludsin.

145. The secretiveness or otherwise of Dr Shadrin about the identity of his investors is relevant to another aspect of this case, but it is clear from this that Mr Maggs realised that Dr Shadrin was soliciting investment in the project on behalf of WLI.
146. A further pointer the existence of an agency relationship is the fact that Eco3 was paid £125,000 commission. Eco3's invoice addressed to Douglas Maggs at Bound Oak and dated 15 November 2005 describes the payment as "Commission for corporate finance services in relation to raising funds to acquire Sandford Farm, Woodley, Reading".
147. The grounds on which BMW deny that Dr Shadrin and Eco3 acted as their agent in promoting the deal to investors was that they did not realise that Eco3 was seeking funds from outside sources. This point was mainly addressed by Mr Balfour when he was questioned about passages in his solicitors' response to the letter before action. In the letter that his solicitors sent to the solicitors for Ludsin on 8 October 2009, his solicitors said:

"… it comes as a surprise to our client now to learn that the risk was not actually being taken by Dr Shadrin or Eco3, because those parties had unilaterally and without our client's knowledge, delegated or sub-contracted the investment opportunity to parties such as your client so as to abuse the commission arrangement by persuading others to invest the money it itself was purporting to invest, whilst in fact it was merely acting as a middle man and taking a commission on the introduction of funds by other parties (such as Mr Lisitsin who were taking the risk. Our client is shocked to learn that [Dr Shadrin] should engage in such practices at the expense of [Mr Lisitsin]. …

Our client… had understood at all times that Eco3 were acting as principal and contributing their own money."

148. When challenged about this in the witness box, Mr Balfour said that he did not necessarily believe that the £2 million was all Dr Shadrin's "own money" in the sense of being his personal money. He thought that the money came from discretionary funds managed by Eco3, as contrasted with non-discretionary funds provided by an outside investor specifically for this project.
149. I cannot accept that evidence from Mr Balfour. There are plenty of references in the documents to Eco3's "clients" and "investors". For example Mr Balfour wrote to Dr Shadrin on 1 July 2005 telling him "We have a short time to go firm. Can you talk to your clients tomorrow". That wording is not consistent with a belief that Dr Shadrin was going to invest only his own money or money which he controlled in discretionary funds. On 27 July 2005, Mr Balfour was again chasing Dr Shadrin asking "Are your clients in place and ready to go subject to documentation?". This indicates that he was aware that it was not Dr Shadrin's decision whether to invest but that of his clients.
150. Further, the structure of the transaction in July and early August 2005 proposed that the investors brought to the deal by Eco3 would have direct shareholdings in the investment vehicle. Thus on 8 August 2005, Mr Eadie wrote to Mr Balfour saying:

"As Alexander wants a property Fund and [not] merely a company for his investors to invest in, the short note he sends his investors has to be approved by the Jersey authorities as a PPM. Since I have yet to see a draft of this note, it seems unlikely this will be done by Friday"

151. Mr Balfour was himself pushing Dr Shadrin to provide information about the individual investors for this purpose. Forsters emailed Mr Balfour on 16 August 2005 saying that "the Russian investors" needed to answer questions for money laundering clearance whether they were corporate or individuals. Mr Balfour forwarded the request to Dr Shadrin saying "Alex, you need to get this moving with the individuals asap". In the event it was not possible for the Eco3 investors to hold their shares directly in SFPL because of difficulties with completing those money laundering inquiries in time. Instead the shares were issued to Eco3 as nominee for those investors. Mr Balfour wrote to Dr Shadrin on 9 August 2005 to explain why it was not possible, within the necessary timeframe, for the investors brought to the deal by Eco3 to have their own shareholdings in the investment vehicle:

"As we discussed on the telephone last night the only way of doing this in the time is via a Jersey SPV with ECO at least initially being the shareholder on behalf of its clients. We can set up a fund structure at our leisure later …"

152. In cross-examination, Mr Balfour conceded that he did not know whether Eco3 actually held any discretionary funds under management. He also claimed not to be aware that Eco3's Financial Services Act authorisation did not extend to holding client money. This is surprising given that Mr Balfour was a director of Eco3 throughout the material time and had been working closely with Dr Shadrin for some time on the Continental Petroleum deal. I found his answers to these questions entirely unconvincing.
153. In the light of this I find that BMW did know and intend that the funds brought to the deal by Eco3 would be from independent investors and not made up of Dr Shadrin's own money or from discretionary funds held and managed by Eco3. Whether they knew the identity of the individuals is not material for this point. They knew that Dr Shadrin was soliciting investment primarily from his Russian contacts.
154. Neither Mr Maggs nor Mr Balfour was in contact personally with any of Dr Shadrin's contacts. They must have recognised that they were relying on Dr Shadrin to convey to those would-be investors any information about the project that the investors needed to help them decide whether to invest.
155. I find therefore that Dr Shadrin and Eco3 did solicit the investment from Ludsin as agent for BMW.

(c) Did BMW know that Dr Shadrin had not disclosed to Mr Lisitsin the two-tier structure and the existence of the Differential?

156. BMW's primary defence to Ludsin's claim against them is that they had made full disclosure to Dr Shadrin about the two-tier nature of the deal and the existence of the Differential. They expected and assumed that he would pass this information on to his own investors at the appropriate time. In his witness statement, after analysing in some detail the wording of the Eco3 Terms of Operation, Mr Maggs concludes:

"In summary, it is plain that Ludsin's remedy arising out of its investment starts and stops with Eco3. The totality of its relationship, contractual or otherwise, and therefore any remedies arising out the same are embodied in Eco3's Terms of Operation and Terms of Business".

157. Mr Maggs accepted it was important that investors in Sandford Farm should at least have known about the sale and the sub-sale and about the existence of the Differential. He also accepted that BMW had a duty to take reasonable steps to ensure that every investor understood the structure of the deal and that there was a margin between the purchase and the onward sale. However he denied that this meant that he was under a duty to inform Ludsin because he relied on Dr Shadrin to do so. Mr Balfour's evidence was also to the effect that he relied entirely on Dr Shadrin to make disclosure to his own investors and that he did not see it as his responsibility, even though he was a director of Eco3, to take steps to ensure that this had happened.
158. In putting forward Ludsin's case against BMW, Mr Cunningham urged me to "follow the money". By this he meant that although the primary source of the fraudulent misrepresentation is clearly Dr Shadrin, when looking for who is really responsible for the fraud, one should look for who has profited from the deception. Dr Shadrin himself lost money on the deal. The financial winners were Mr Maggs and Mr Balfour.
159. Although in some cases such a course may be attractive, I do not consider that that is the right way to approach the evidence in this case. In his judgment in Three Rivers District Council v The Bank of England (No 3) [2003] AC 1 (quoted by Lewison J. in Foodco at paragraph 179), Lord Millett emphasised the importance of relying only on facts which are not consistent with innocence. This case is not about general notions as to the fairness or unfairness of what ultimately happened to SFPL. The question I have to decide is much more specific: is there cogent evidence to establish that Mr Maggs and Mr Balfour were complicit in concealing the existence of the two-tier structure of the transaction from Mr Lisitsin and Ludsin? If there is such cogent evidence, their conduct is explicable only on the basis that they knew that Dr Shadrin had misrepresented to Mr Lisitsin the true position and that they intended, with him, that that misrepresentation should influence Mr Lisitsin's decision whether to cause Ludsin to invest in the Sandford Farm project.
160. Ludsin accepts that there is here no single trump card establishing that BMW knew that Dr Shadrin had not disclosed to Mr Lisitsin the existence of the two-tier structure and the Differential. Ludsin relies on a number of incidents which show that they must have known that the misrepresentations had been made and that they took steps to ensure that Ludsin was not alerted to the true position. These elements can be described as:

i) BMW's complicity in the suppression of the reference to Bound Oak in documents prepared for Ludsin;

ii) their active involvement in the suppression, or their connivance in the concealment, of the two-tier structure from other investors;

iii) their failure to respond to repeated warnings from Forsters of the importance of making disclosure to those providing funds for the project.

I consider each of these elements in turn.

(i) Concealing the two-tier structure from Ludsin

161. The first element is the concealment of the existence of Bound Oak in a letter sent by Forsters to Comatrans, the Swiss fiduciary which controlled Ludsin on Mr Lisitsin's behalf. The background to the document is this. Mr Lisitsin knew that he was being asked to transfer Ludsin's £2 million to the project before contracts for the purchase of the Site were exchanged and before the remainder of the money needed to finance the purchase was in place. He was concerned, understandably, to ensure that if for whatever reason, the purchase of the Site did not go ahead, Ludsin's £2 million would be returned. Dr Shadrin was also concerned to provide Ludsin with some comfort that the early transfer of the money did not create a risk of the £2 million going astray. The comfort was to be provided by the fact that the money would be transferred not to WLI but to Forsters, to be held by them in their client account and to be released by them only for certain purposes. Forsters were asked to write a letter to be shown to Comatrans, saying that they would make sure that the money was used only for the purpose for which it was being transferred and that it would be returned intact if the sale did not proceed.
162. On 16 August 2005, therefore, Dr Shadrin wrote to Mr Eadie at Forsters, asking him to prepare the letter that Forsters would send to Eco3 for this purpose and setting out the text that Dr Shadrin wanted Mr Eadie to use. Mr Maggs and Mr Balfour were copy recipients of the email. The proposed draft sent by Dr Shadrin did not mention the use of the funds for the purchase of the Site by Bound Oak from Hicks Persimmon. It referred only to the prospective use of the Ludsin funds for the purchase of the Site by "the Partnership". That term was defined as the vehicle in which Eco3, on behalf of the investors would have a proportionate share. In fact it was already clear by this date that the Ludsin money would not just be used for that second purchase – it would be used for the purchase of the Site by Bound Oak from Hicks Persimmon.
163. The Forsters undertaking in the draft sent by Dr Shadrin to Mr Eadie was expressed as follows:

"3. We will not release the funds until completion of the Property purchase by the Partnership"

164. Mr Eadie prepared and sent to Dr Shadrin a revised draft of the letter which replaced that text with a paragraph which read:

"We will not release the Funds until completion of the Property purchase by the Partnership, save that up to £500,000 will be released to fund the payment of the deposit in respect of the Property payable by Boundoak Properties Ltd".

165. Thus, Mr Eadie's draft disclosed two additional points: first that part of the money was going to be used to fund the deposit on exchange of contracts (and would therefore be released before the completion of the sale) and secondly, that the funds provided by the investors were to be used not for the purchase of the Site by the Partnership but for the prior purchase by Bound Oak.
166. Dr Shadrin wrote back to Mr Eadie on 17 August 2005, again copying in Mr Maggs and Mr Balfour, raising various questions about the deal itself. He enclosed "the corrected version of the letter" and asked Mr Eadie to sign it and fax it to Comatrans as soon as possible. That version has an amended version of the relevant paragraph with some of Mr Eadie's wording struck through, appearing thus:

"We will not release the Funds until completion of the Property purchase by the Partnership, save that up to £500,000 will be released to fund the payment of the deposit in respect of the Property purchase payable by Boundoak Properties Ltd."

167. A copy of the final version of the letter was sent on 17 August 2005 by Mr Eadie to Mr Enry (the Swiss fiduciary who managed Ludsin's affairs). The relevant paragraph in that final version read:

"We will not release the Funds until completion of the Property purchase by the Partnership, save for the amount required to fund payment of the deposit under the purchase contract in respect of the Property."

168. It thus contained no mention of Bound Oak and nothing to alert the reader to the fact that the "purchase contract in respect of the Property" was in fact not the same contract as the "purchase by the Partnership".
169. When the document was put to him in cross-examination, Dr Shadrin said that he had deleted the reference to Bound Oak only because he was not sure that was the name of the vehicle that was going to be used for the prior purchase. If that was really his concern he could have used some more general wording that would not tie the point in to Bound Oak but would still make clear that the deposit was to be used to fund a contract with an entity other than the Partnership, as had been Mr Eadie's intention.
170. Mr Maggs, in his evidence said that he was not aware of this exchange taking place even though he is copied in to the emails. Although one must always be careful about assuming, even with business people, that a person reads every email of which he is sent a copy, I cannot accept that he did not know what was happening. He was in the thick of the arrangements for this deal which was coming to the boil at precisely this moment. He thought that the deal needed to be finalised with urgency and that the letter was needed before the funds to be used to pay the deposit could be transferred. Mr Maggs was not able to explain why, if Mr Lisitsin had been told about the existence of the two-tier structure of the deal, it was appropriate to delete the reference to Bound Oak and lead the reader to believe that the funds were being used to pay the deposit on the purchase by the investment vehicle into which they were putting their money. Mr Balfour said he could not remember reading this email exchange as there were many different negotiations going on at the time.
171. I am sure that Mr Maggs and Mr Balfour saw and appreciated the significance of the exchange of drafts between Mr Eadie and Mr Shadrin of this important letter to go to Comatrans. They must have realised that the effect of Mr Eadie's revision was to alert the reader, however obliquely, that the monies were going to be used for a purchase other than the purchase being made by the investment vehicle. The effect of Dr Shadrin's further revision was to remove any such alert.
172. A second instance when something similar was done occurred in March 2009 when solicitors acting for Ludsin were making inquiries of the Jersey directors of SFPL about the history of the transaction. Mr Judah of Wallace LLP wrote to the Jersey Trust company, JTC Management who were effectively the directors of SFPL. He asked for an explanation of the relationship between Woodley and SFPL or WLI. The Jersey director drafted a response which she sent to WLI on 17 March 2009 asking for urgent comments before she replied to Mr Judah. Her proposed reply to the question contained the sentence:

"When SFPL acquired the site from Bound Oak Properties Limited it provided covenants that it would not seek to develop the site."

173. A holding reply was sent by email from Rob Murphy, the financial director at WLI, to the Jersey director saying "Doug is just going into a meeting but suggested he might want to alter a couple of things so I will revert asap".
174. Shortly after, the draft was sent back to the Jersey director with the following amendment to that paragraph:

When SFPL acquired the site from Bound Oak Properties Limited it provided covenants that it would not seek to [Rob Murphy] gain consent as a housing site.

175. That email was copied to Mr Balfour and Mr Maggs. Mr Maggs said he had no recollection of the exchange. In my judgment the clear inference is that Mr Maggs directed that the reference to Bound Oak be deleted from the response so that there was nothing in the answer to alert the reader to the fact that SFPL had bought the Site from a connected company rather than directly from the owner.
176. These deletions may at first sight seem small points in themselves. But none of the Defendants has claimed that Ludsin, Comatrans or Mr Lisitsin were sent any other documents or letters which set out the nature of the transaction. The only documents Ludsin had sight of in August 2005 that contained any description of the transaction were the Terms of Operation and this letter to Comatrans. As I have described, the Terms of Operation contain the primary misrepresentation, the letter to Comatrans was amended to delete any reference to Bound Oak and that deletion of Bound Oak from the picture was repeated in March 2009.
177. These two instances show a clear intention on the part of Mr Maggs, to the knowledge of Mr Balfour, to excise references to Bound Oak from documents being sent to those acting for Ludsin. This intention does not make sense if, as Mr Maggs and Mr Balfour claim, they thought that Dr Shadrin had explained to Mr Lisitsin the two-tier structure of the deal.

(ii) Concealment of the two-tier structure from Investec and other investors

178. Ludsin also relies on evidence that BMW sought to suppress or at least minimise references to the two-tier structure from other people who were providing funding for the transaction. Mr Maggs and Mr Balfour were asked about the documentation that was sent to Investec who provided a substantial proportion of the funds used to finance the two sales of the Site. The people dealing with the negotiations for that loan were Mr William Scoular at Investec and Mr Mike Murray at WLI. Eversheds were the lawyers acting for Investec in this matter.
179. On 15 August 2005, Mr Scoular at Investec sent Mr Murray an indicative term sheet covering what he said had been discussed. This identified the property as Sandford Farm and stated that the facility being provided was the lower of £9,187,500 or 75 per cent of the valuation. The term sheet stated that "The site is under offer for £12.25m". In fact Hicks Persimmon had already accepted the offer of £9.3 million for the Site at the end of July 2005. Mr Murray forwarded a copy of the term sheet to Mr Patterson at Forsters. This prompted Mr Patterson to email Mr Maggs, copying in Mr Murray and Mr Balfour on 17 August saying:

"Mike has sent to me the indicative term sheet from Investec. I understand that you have made full disclosure to Investec about the circumstances of the transaction".

180. Mr Murray then sent an email an hour or so later to Mr Patterson, copying Mr Maggs saying:

"To be clear I have told them that we are purchasing an unencumbered freehold for £12.5m, which price will be split in several directions to cope with the overage, option holders slice, and the vendor. I also said that the property would be held in a new SPV"

181. I note here that Mr Murray's description of what he told them falls short of what Mr Eadie is saying they should be told and, further, what he says would happen to the £12.5 million was not, in the event, what did happen to it. Mr Patterson then replied to Mr Murray copying in Mr Maggs an hour or so after that saying:

"I assume that Investec are also aware of the fact that the property has been purchased for £9.3 million with a back to back contract to sell for £12.25 million. Douglas told me yesterday that there had been full disclosure to Investec so I assume all this has been covered."

182. Thereafter there were a number of emails and notes from Mr Eadie to Mr Murray or Mr Balfour or Mr Maggs asking for confirmation that the bank had been told about the price of £9.3 million being paid by Bound Oak and the fact that the purchase on which the bank was loaning the money was a connected party transaction.
183. In an email of 18 August 2005 to which I will return later, Mr Eadie wrote to Mr Balfour and Mr Maggs:

"The bank need clear disclosure of the £9.3m purchase price and of the fact that the £12.25m sub sale is a connected party transaction. … failure to establish that you did this gives rise potentially to criminal as well as civil liability".

184. On 9 September 2005 Mr Eadie wrote to Mr Murray copying in Mr Maggs and Mr Balfour. The first item on the email asks them expressly to confirm that "the bank knows that the price from the third party sellers is £9.3m?"
185. On 14 September 2005 Mr Patterson wrote to Mr Maggs commenting on a draft facility letter that had been prepared by Investec and which envisaged that Hicks Persimmon would give Investec a full indemnity for any future environmental claims in relation to the Site. Mr Patterson realised that this might create a problem because Investec was funding the purchase from Bound Oak as the seller not from Hicks Persimmon so that there is no reason why they should expect Hicks Persimmon to indemnify them. He notes:

"In addition, of course, the Investec offer is in relation to the second purchase and not in relation to the purchase from Hicks Persimmon for £9.3 million. This is confusing as I thought the Bank were fully aware of the back to back contracts".

186. On 20 September 2005 there was a meeting between Mr Murray and Mr Eadie to discuss the structure of the transaction. There is a file note of the meeting prepared by Mr Eadie. The final item of the file note records:

"Mike confirming that Investec are aware of the general structure although they have not asked too many details about how the money in Bound Oak is to be allocated. I said the main thing from my point of view was that the bank knew that the purchase was from a company controlled by Douglas and Charles [not] under an arm's length purchase. The same applies to the investor."

187. Neither Mr Maggs nor Mr Balfour said in evidence that they had in fact disclosed the necessary information to Investec. Mr Maggs' evidence when he was cross-examined about this was that he largely left the negotiations with Investec to Mr Murray and that he was advised by Mr Murray that Investec knew of the original purchase and the onward sale. He could not explain why, if disclosure had been made, Forsters appeared to remain unaware of this and to be repeating during August and September their concerns to him on that score. Mr Balfour's evidence was to the same effect. He took no steps to make sure that Investec knew about the two-tier structure because he was confident that Mr Murray and Mr Maggs were handling matters properly.
188. Following exchange of contracts of both sales of the Site, Mr Patterson prepared a draft Report on Title to be provided to Investec. He sent a draft to Mr Murray, copying in Mr Maggs. The covering email from Mr Patterson to Mr Murray dated 4 November 2005 says:

"In particular you will note that I am proposing to attach a copy of the Bound Oak contract with Hicks Persimmon".

189. That draft report on title drawn up by Mr Eadie did indeed append both the sale contracts. Further, in the section of the report headed "The Contract" there was a paragraph stating:

"As Bound Oak will be taking a transfer of the Property just prior to the transfer to the Buyer provision is made for Bound Oak to deal with the land transaction return."

190. The next email in the chain is from Mr Patterson to Mr Murray later that afternoon on 4 November 2005. It reads:

"I refer to our recent telephone conversation when you asked me not to append the contract to Bound Oak within the report on title which I find somewhat surprising bearing in mind the history of this transaction.

However, I am amending the report accordingly and lets see if Eversheds request a copy of it – the good news is I suppose time is short!"

191. The final Report on Title sent to Investec did not include the contract between Hicks Persimmon and Bound Oak among the 17 documents appended to the Report. The paragraph in the earlier draft referring to the prior transfer was omitted.
192. Mr Maggs was not able to explain why, if disclosure of the prior sale had in truth been made to Investec, Mr Murray would have asked Mr Patterson to remove references to it from the Report on Title. Mr Maggs said any thoughts he might express as to why Mr Murray had done this would be speculation on his part – it might have been that Mr Murray did not want "to set any hares running" about the restrictions on title.
193. Mr Warwick on behalf of BMW pointed out that the contract which was appended to the final version of the Report on Title – that between Bound Oak and SFPL - contained various references to the prior contract between Hicks Persimmon and Bound Oak. He conceded that there was nothing in that contract however which disclosed that the two sales had been at different prices. There was also among the papers a copy of the contract between Hicks Persimmon and Bound Oak with an Eversheds' received stamp and the date 19 January 2006, indicating that at least at some later stage Eversheds did see a copy of the prior sale.
194. Whether or not Investec were in fact misled by the way the deal was described to them or by the amendments to the Report on Title made between Mr Patterson's draft and the final version is not material to this case. What is material is that I accept Mr Cunningham's submission that the conduct of Mr Maggs, Mr Balfour and WLI in this regard demonstrates a clear intention to avoid so far as possible drawing attention to the two-tier structure of the deal in the hope that it would pass unnoticed. I cannot think of any other explanation for the request to omit the Hicks Persimmon/Bound Oak contract from the Report on Title despite all the previous warning about the importance of Investec being told the details of the connected party, back to back sales. Neither Mr Maggs nor Mr Balfour was able to proffer any plausible alternative explanation when cross-examined on this point.
195. There is a further exchange of correspondence to other investors. On 29 September 2005, Mr Eadie wrote to Mr Balfour with a draft note to be sent out to potential investors. He said:

"You may feel it is too detailed, but please remember that this is a much simpler summary than we normally see given to investors on these transactions and it is unusual these days that an investment memorandum of some kind has not been put out by you and Douglas in the normal way. If I do anything with my firm's name on I think this is a minimum now that you have approached several potential investors who may not be FSMA investment professionals (albeit that I understand they are all overseas). I am happy to look at any amendments or additional you want to suggest." (emphasis added)

196. The draft note contains the paragraph:

"6. Contracts have been exchanged for the purchase of the property at £12.25m. [The purchase is from Boundoak Property, a company controlled by Douglas Maggs and Charles Balfour.] [To be discussed]."

197. Thus Mr Eadie was expressing concern about the paucity of information being provided by Mr Maggs and Mr Balfour to investors and making clear that he was not prepared to put his firm's name to any summary of the transaction which did not expressly state that the purchase of the Site by the investment vehicle was from a connected company and not directly from the owner of the Site. It is clear he was already aware that this would be a sensitive matter for Mr Maggs and Mr Balfour.
198. In fact what happened was that the note was sent out not under Forsters' name but by Mr Maggs on 3 October 2005 to Mr Capodilista, someone who went on to invest in SFPL. Paragraph 6 of the note had been amended to read simply:

"6. Contracts have been exchanged for the purchase of the property at £12.25m"

199. The note makes no reference to the prior sale, to the purchase price of £9.3 million or to the fact that the vehicle in which the recipient of the note is invited to invest money is buying the Site not from the owners but from a company controlled by Mr Maggs and Mr Balfour.
200. Mr Warwick sought to counteract this evidence by showing that Mr Maggs and Mr Balfour did disclose the two-tier structure of the transaction and the existence of the Differential at an earlier stage both to Mr Capodilista and to other potential investors. On 25 August 2005 WLI sent Mr Capodilista information about Sandford Farm which included a transaction note. That note said:

"The Transaction

It is proposed to purchase the entire shareholding of the SPV … that currently holds the site in a newly formed special purpose vehicle in the sum of £9,500,000. This newly formed SPV will then transfer the site to the proposed development company in the sum of £12.250,000. This transaction will facilitate the settlement of external interests and purchase costs. The effect of these transactions is to give the joint venture company free title to the development land".

201. A transaction note in the same terms was sent to other potential investors who were contacts of Mr Maggs and WLI.
202. I do not see that the fact that Mr Maggs and Mr Balfour were prepared to make proper disclosure to their own contacts when seeking to persuade them to invest in Sandford Farm means that they did not knowingly conceal the existence of the two-tier structure from the investor introduced to them by Dr Shadrin. This does not detract from the significance of the other documents as regards how Ludsin was treated.

(iii) Failure to heed warnings of the need for disclosure to investors

203. The correspondence to which I have already referred shows that Forsters repeatedly stressed to Mr Maggs and Mr Balfour the importance of disclosing to Investec the existence of the prior sale, the difference in price and the fact that the purchase by SFPL of the Site was from a connected company rather than from the original owner.
204. The correspondence also shows that on several occasions, Forsters emphasised to BMW the importance of making these things clear to the investors too. The response, or rather the lack of response, by Mr Maggs and Mr Balfour to these warnings establishes beyond doubt that they were fully aware that no proper disclosure had been made by Dr Shadrin to Mr Lisitsin and that they were complicit in this state of affairs.
205. The warnings and reminders from Mr Eadie to Mr Maggs and Mr Balfour start at the beginning of August 2005. On 9 August 2005, Mr Eadie emailed Mr Balfour and Mr Maggs with a draft note that he intended to send Dr Shadrin:

"This is confirmation of the various points I gave to you on the phone today and also reminds Alexander of his obligations to [disclose] to his investors precisely where the money is going that represents the profit on the sub-sale. As Alexander has FSA requirements to meet, the document Alexander was putting out needs Jersey regulatory approval, I cannot see anyway of not making precise [disclosure] for costs being incurred and paid out of the sub-sale profits, as you would normally do with a UK transaction."

206. On 11 August 2005, Mr Balfour rang Mr Eadie. A manuscript note written by Mr Eadie records that Mr Balfour confirmed to him that he would make full disclosure about how the profit on the re-sale will be applied, including any sums payable to Mr Maggs or to him.
207. The warnings culminated in an email sent by Mr Eadie to Mr Balfour and Mr Maggs on 18 August 2005, which I shall refer to as the "18 August Email". I have already set out the paragraph of that email relating to the disclosure to Investec (see paragraph 183, above). The email states that Mr Eadie is confirming the position as to disclosure obligations as he sees them for Mr Maggs, Mr Balfour and Dr Shadrin. First, he deals with their obligations to the Eco3 investors:

"As you already know, if the Eco3 investors may be investing personally into the ultimate purchasing entity… I consider that on general UK law principles disclosure needs to be made to them of the mark-up between the first and second purchasers. And to the extent that the amounts concerned are directly or indirectly paid for the benefit of either of you or of Alexander personally, or entities designated by any of you, they need to be informed of this. You (Charles) have agreed to deal with this, and I assume that it will be something that you and Alexander also have to do as directors of Eco3, as these investors are your clients. For these purposes, and subject to any FSA requirements relating to Eco3 in this respect, disclosure needs to be as specific as to the amounts, the reasons for the payment and the payee, and it ought to be in writing. If it has to be made orally, it should be accompanied by a detailed contemporaneous note recording exactly what was said. Otherwise, should there in future be any misunderstanding as to what was in fact disclosed, a judge is unlikely to accept evidence of the completeness of the disclosure based simply on your recollection: he will take the view that there is no reason not to do it in writing and therefore the lack of writing suggests that it was not done. These obligations may involve both civil and criminal law liability." (emphasis added)

208. Mr Eadie then discussed disclosure of the two-tier structure to Investec and then addressed Mr Balfour's separate obligations as a director of Eco3:

"In addition as I am sure you know Charles you have separate obligations as a director of Eco3. You are obliged to account to Eco3 for any profit you or anyone connected with you makes from these transactions, including any share in the profit made by the first purchaser of the site, and also any benefit from any interest you acquired in the LLP or other second purchasing entity. This is likely to apply even if Alexander is aware that you have interests of this kind unless you have the specific approval of both Alexander and the other shareholder in Eco3 (which I think is the Dutch company) to your interests – again with details. To the extent that Douglas has worked with you on the matters creating the profit, he could also be personally liable to Eco3 for the amounts you owe it under this rule. This obligation is only a civil law one".

209. How did the two men respond to this email? Mr Maggs and Mr Balfour agree that Mr Balfour rang Mr Maggs when he received the email and asked Mr Maggs to deal with it. The BMW Defence asserts that Mr Maggs telephoned Dr Shadrin on Dr Shadrin's mobile phone:

"He asked Mr Shadrin for the details of his investors, in order that he could communicate with them and carry out his "disclosure obligations", which obligations he identified by reference to the Eadie e-mail. Mr Shadrin refused to disclose the details of the investors. Mr Maggs asked if Mr Shadrin had access to his email, so that Mr Maggs could forward the Eadie e-mail to him. Mr Shadrin explained that he was on a boat somewhere off the Western Isles on holiday with his son and had no access to e-mail. However he promised Mr Maggs that he would himself deal with disclosure. Furthermore, he assured Mr Maggs that the deal was transparent and that the (unnamed) investors were well aware of the sale and sub-sale. On the basis of Mr Shadrin's refusal to identify the investors, coupled with his assurances, Mr Maggs was unable to take any further action relating to the Eadie e-mail and did not do so." (emphasis in the original)

210. That, both men agree, is the totality of their response to the warnings contained in the 18 August Email.
211. As to whether the phone call referred to in the Defence actually took place, Dr Shadrin said he did not recall it. In cross-examination he explained that did have access to email when he was on holiday as he had a modem which fitted into a USB port on his laptop computer. Clearly he was able to send the emails to the Grand Hotel in Cap Ferrat on 14 and 15 August when, according to his evidence, he was in Argyll and Mr Balfour himself emailed Dr Shadrin when he was in Argyll on 10 August 2005 and subsequent days. If the phone call really did take place and Mr Maggs considered that to be an adequate response to the 18 August Email, it is surprising to say the least that he did not make a note of the phone call for the record, or write to Mr Eadie and Mr Balfour explaining that he had tried his best to comply.
212. The two men gave various explanations as to why they failed to take decisive action in response to the warnings from Mr Eadie.
213. First, in their witness statements Mr Maggs and Mr Balfour pour scorn on the email and on Mr Eadie's motives for sending it. Mr Maggs describes the 18 August Email in the following terms:

"Craig Eadie of Forsters produced what I regard as a self-serving 18 August 2005 note referring to various unspecific disclosure obligations under "general UK law principles". The email is a one-page back-covering memorandum, not prepared for the benefit of his clients, but with one eye on his firm being [sued] for negligence. I regard this as an example of negative lawyering in the extreme".

…

"The email represents a pathetic attempt by an experienced solicitor to pass the buck to a longstanding client. It would have been very simple for Craig Eadie to copy in Alexander Shadrin. Instead, and for reasons best known to Craig he chose not to. Remember that Eco3 were Forsters' clients too; why was Craig engineering a situation whereby he was asking one client to make a disclosure to discharge a potentially far-reaching liability when he was too timid or reluctant to do it himself? I remember reading Craig's email about this and being reasonably relaxed about its contents, notwithstanding the choice of words included at the insistence of his alarmist litigation colleagues… It smacks of being very much "for the file". …"

214. He then sets out what he sees as the context for the note concluding that it was "very late in the day for Craig to issue these vague warnings". He criticises Mr Eadie for failing to be more specific about the sanctions to which they might be exposed saying that Mr Eadie "refers in passing to wide-ranging sanctions to alarm us, but without walking us through the steps required with any particularity or at all". He refers to the email as containing "bland warnings" about civil and criminal law liability.
215. Not surprisingly, Mr Cunningham questioned Mr Maggs at some length about these passages in his witness statement. Mr Maggs had to concede that rather than being "unspecific" about the disclosure obligations, the email was in fact "specific" about what the men needed to do. He also accepted that to describe the warnings about civil and criminal penalties as "vague" was not accurate.
216. Mr Balfour also referred in his witness statement to his disappointment that Mr Eadie should express himself in the Email in "such guarded terms" using "loose verbiage" about disclosure obligations. He described the note as "diluted" or "watered-down" and said "I do not think it is putting it too strongly to say that it is barely worth the paper it is written on, being a bland, self-serving email".
217. I do not understand this response. If Mr Maggs and Mr Balfour believed that the email was sent as "backcovering" or "for the file" that indicates that they recognised that Forsters were trying to prevent any future blame for non-disclosure to the investors landing on their shoulders by making sure that there was, on everyone's file, a note from them explaining clearly what Mr Maggs and Mr Balfour needed to do. Far from being a reason to do nothing, one would have expected to see a slew of correspondence being placed on the file by Mr Maggs and Mr Balfour showing that they had done their best to notify the investors or to insist that Dr Shadrin did so and prove to them that he had done so. Their evidence is that they did nothing other than make that inconclusive phone call to Dr Shadrin without even recording that that had been done.
218. The second reason why Mr Maggs and Mr Balfour say they did not respond fully to the 18 August Email was that the email was followed up by a phone call from Mr Eadie to Mr Maggs telling him that the wording of the note had been insisted upon by the head of Litigation at Forsters. Mr Maggs says in his witness statement:

"Craig actually telephoned me to say that his note should be treated as having been written tongue-in-cheek and not to take its contents too seriously. We were relaxed."

219. Again, I do not see why they should have interpreted this as meaning that they need do nothing. On the contrary, the fact that the Head of Litigation at Forsters had become involved and had insisted that her firm write to them in these terms should have been all the more reason for them to take prompt and decisive action unless they had a reason not to do so.
220. The third reason for their lack of response, and the one particularly stressed by Mr Balfour, was that he and Mr Maggs were convinced that Dr Shadrin would refuse to disclose to them the identity of the investors. There was thus no point in trying themselves to make the disclosure required because Dr Shadrin would not have given them the necessary information.
221. Mr Balfour referred on several occasions to the supposed secretive attitude of Dr Shadrin to the identity of his investor clients. For example, he said in response to questions about the 9 August 2005 email (see paragraph 205, above):

"Q. Yes. The question is: what did you do to make sure? Did you ask him for the identity of the clients, so you could check with them whether he had made the disclosure? And if not, why not?

A. No, because I -- I know with Alexander that he wouldn't give me the identity of anyone.

Q. Then you couldn't make sure, could you?

A. He handles his own business and keeps it very close to his own chest, and that is normal in someone of his position with a client.

Q. Your words --

A. Or a client or a fund or anything else. He would make sure that everything is kept by him. He is the CEO, chief investment officer, owner of the thing. He would not give me, because it is his intellectual property right, he would not give me -- but he says -- he says, and he has given that in evidence, my Lady -- that he divulged."

222. I entirely reject this explanation. The evidence is clear that Dr Shadrin referred in correspondence to Ludsin as the provider of the money. It is simply not true that he was secretive about them vis a vis Mr Maggs and Mr Balfour. There is a Forsters file note dated 2 August 2005 which refers to "Paul Lisitsin" as one of the three initial investors. On 16 August 2005, as I have described earlier, Dr Shadrin sent Mr Eadie a draft of a letter to be sent from Forsters about the use of the £2 million, see paragraph 167, above. That email was copied to Mr Maggs and Mr Balfour and referred to Bernard Enry at Comatrans reference "Ludcin Limited" as the person to whom Forsters should send the letter. On 17 August 2005, Dr Shadrin wrote to Mr Maggs and Mr Balfour explaining why there was a delay in the receipt of the £2 million:

"I managed to get in contact with Comatrans in Switzerland regarding transfer of £2 million which one of the investors agreed to transfer before receiving the letter from Forsters. Mr Bernard Enry, who manages the account for Ludcin Limited (the investor), is on vacation till next Monday. Mr Jerome Hayoz who is handling the account while Mr Enry is out of the office, confirmed to me that he had been instructed to transfer £2 million to the client account of Forsters by the beneficiary and had been advised about the transaction.

Mr Hayoz also confirmed that he had received all the documents from Eco3 Capital yesterday and letter from Forsters this morning. However, Mr Hayoz has decided to withhold the documents before transferring the funds.

I'm not able to get hold of the beneficiary as yet".

223. Mr Maggs and Mr Balfour both said that despite these emails, the name Ludsin did not register with them as the name of the person who was providing the £2 million. Even if that is true, the emails demonstrate that there was no reluctance on Dr Shadrin's part about telling Mr Balfour and Mr Maggs the name of the investor providing the funds.
224. Mr Maggs' and Mr Balfour's evidence about Dr Shadrin's secretive attitude towards his clients was supposedly supported by the evidence of Ms Dariya Davison. She was formerly Dr Shadrin's assistant at Eco3 but gave evidence on behalf of BMW about how the Eco3 offices were run. Her evidence seemed to me to amount to little more than that Dr Shadrin did not discuss with her, or give her access to, any information about clients other than what she needed to know in order to do her work. There does not seem to me to be anything suspicious or untoward in that.
225. For Mr Balfour and Mr Maggs to suggest that the reason they did not take action in response to the 18 August Email was because they were sure that Dr Shadrin would refuse to disclose to them the identity of the investor is entirely inconsistent with the contemporaneous correspondence.
226. In addition, of course, Mr Balfour was at this time a director of Eco3. The 18 August Email expressly addresses the additional obligations on Mr Balfour arising from this position; the investors were as much Mr Balfour's responsibility as they were Dr Shadrin's. I have already said that I reject Mr Balfour's evidence to the effect that he thought his role as a non-executive director was limited to Eco3's involvement in the Continental Petroleum deal (see paragraph 129, above).
227. Mr Balfour's evidence was also that, because Eco3 was FSA authorised, he had absolute confidence in Dr Shadrin having made appropriate disclosure and so did not consider he needed to take any steps himself. This is contradicted by other parts of his evidence. In his witness statement he says that he took on the directorship of Eco3 at the behest of Flemings when they were working on the Continental Petroleum deal because he formed the view that Dr Shadrin was "an odd chap" and he knew that Dr Shadrin "needed monitoring to get anything done". His role as a director was "to keep an eye on him" on behalf of Flemings for the purpose of the Continental Petroleum deal.
228. Finally, as regards the 18 August Email, I should make clear that I fully accept that the receipt of the email coincided with a very difficult time for Mr Balfour. He had just experienced a personal tragedy during his holiday in Sardinia and he returned to England not only to face the aftermath of that but also to undergo treatment for serious medical problems. However, this does not explain his complete failure to take action when he returned to work later in August and took up the reins of this transaction again. He knew that the £2 million transferred to Forsters at around the time of the 18 August Email was lying unused in the client account until contracts for the sales of the Site were exchanged in October 2005. There was plenty of time between Mr Balfour's return to work in August 2005 and the release of the Ludsin money for Mr Balfour to put matters right if he had really intended that Ludsin should know about the true position.
229. None of the excuses put forward by Mr Maggs and Mr Balfour for their failure to heed the warnings repeatedly given by Mr Eadie that disclosure must be made to the investors stands up to any scrutiny. There appears to me to be no honest reason why Mr Maggs and Mr Balfour acted as they did. If they took the view that they were not personally under a duty to do anything, one would have expected them to query the note with Forsters and seek their own advice. The simplest way to respond would be either actually to find out who the investor was and inform him or to instruct Forsters to do so or to insist that Dr Shadrin show them that he had, for example, sent Comatrans a copy of the transaction note. One would expect to see on the file a clear record of their attempts to do so, even if they ultimately failed in those attempts. There is nothing of the kind here.
230. I therefore conclude that Mr Maggs and Mr Balfour were fully aware of and complicit in the fact that Dr Shadrin had not disclosed the two-tier structure of the deal to Mr Lisitsin and that that so far as Mr Lisitsin was concerned, the deal was a straightforward purchase of the Site from Hicks Persimmon by SFPL for about £12.25 million.
231. BMW accepted that if the structure of the sale had indeed been misrepresented to Ludsin, that would be a significant non-disclosure. They did not challenge Mr Lisitsin's evidence that he would not have caused Ludsin to invest in the project if he had known the truth.
232. I therefore find that Mr Maggs, Mr Balfour and WLI are jointly and severally liable with Dr Shadrin and Eco3 in deceit.
233. In the light of that finding, I do not need to lengthen this already long judgment with a consideration of the other causes of action against Dr Shadrin and Eco3.

V. THE LOSS SUFFERED BY LUDSIN

234. There was no dispute between the parties that prima facie the loss suffered by Ludsin was the whole £2 million which was invested and which would not have been invested had Mr Lisitsin been told the truth. All that £2 million was lost when SFPL went into liquidation.
235. I referred in the first section of this judgment to the litigation that has proceeded thus far in relation to the claims. Ludsin has accepted that if it succeeds against any or all of the Defendants, it must give credit against the £2 million for the £600,000 received from Forsters who were originally the Sixth Defendant in this action and who settled their part in these proceedings vis a vis Ludsin on 17 February 2011.
236. The Defendants argue that there are two further sums for which Ludsin must give credit. The first arises from that same settlement agreement made by Forsters on 17 February 2011. The parties to that agreement were Mr Lisitsin, Ludsin, Mr Capodilista and Hyposwiss Private Bank Geneve on one side and Forsters on the other. Mr Capodilista and Hyposwiss were also clients of Forsters. The total payment made by Forsters under the settlement (without admission of liability) was in fact £1,150,000 and is expressed to be:

"in full and final settlement of all claims in [the current proceedings] and the proposed proceedings as well as any other claims, including interest and costs, any of them may have against Forsters arising directly or indirectly in connection with the Deal including all those which have been raised in correspondence between the solicitors acting for Forsters and Wallace and those against Forsters listed in Schedule to the assignment agreement between the Liquidators of SFPL, SFPL and Ludsin dated 19th May 2010".

237. The 'Wallace' referred to there are the solicitors for Ludsin and 'the Deal' is defined in the agreement as encompassing the back to back sales of the Site and also the refinancing of SFPL in October 2007.
238. The apportionment of the total sum is set out in the agreement:

i) £600,000 for the current proceedings;

ii) £90,000 by way of contribution to the costs of those proceedings;

iii) £400,000 to "the proposed proceedings";

iv) £60,000 by way of contribution to the costs of those "proposed proceedings".

239. In his witness statement, Mr Maggs complains that Forsters settled their own part in the proceedings rather than insisting that the settlement relieve all the Defendants of further liability. He goes on to say:

"In fact what Forsters actually did when they settled the claim as against themselves, was far more insidious. They connived with the Claimant so that of the £1.15m they were prepared to put on the table by way of settlement, only £600,000 was appropriated towards settling the Main Proceedings, and they agreed that the remaining £550,000 could be appropriated towards costs and also to a non-existent set of threatened proceedings and (astonishingly!) the costs of the threatened non-existent proceedings."

240. The Defendants therefore assert that at least the £400,000 supposedly paid to settle the "proposed proceedings" should also be offset against the loss suffered by Ludsin.
241. I do not accept Mr Maggs' allegation that there was something improper about the settlement. The settlement agreement covers matters that go wider than the current proceedings against Forsters since they cover any claims by Mr Capodilista and Hyposwiss against Forsters and any claims that SFPL may have had against Forsters that have been assigned to Ludsin. It does not seem at all unlikely that there were proposed proceedings threatened by the other investors against Forsters. There is nothing before me to suggest that the apportionment of the sum among the different heads was anything other than the parties' fair assessment of the respective values of the different claims.
242. The Defendants also submit that the monies paid by the Jersey directors in settlement of the claims brought by Ludsin as assignee of the claims of SFPL should be set off against the sums due in these proceedings. I described these proceedings and the payment of £425,000 (plus £100,000 costs) in paragraph 40, above. This submission seems to me misconceived. Those sums do not relate to the same cause of action as pursued in these current proceedings at all but are the losses incurred by SFPL because of alleged breaches by the directors of SFPL of their duties towards that company. I do not agree that they should be set off against the sums due from these Defendants for the fraudulent misrepresentation.

VI. CONCLUSION

243. For the reasons I have given, I find that Dr Shadrin and Eco3 did fraudulently misrepresent to Ludsin the nature of the transaction in which Ludsin was investing £2 million. I also find that in making those misrepresentations, Dr Shadrin and Eco3 acted as agents for WLI, Mr Maggs and Mr Balfour and that those Defendants knew about and connived in the making of those misrepresentations. All the Defendants are therefore jointly and severally liable to Ludsin for the loss suffered which amounts to £1,400,000.
244. I will hear counsel as to the appropriate form of order and costs.