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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 >> Barnsley & Ors v Noble [2014] EWHC 2657 (Ch) (31 July 2014) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2014/2657.html Cite as: [2014] EWHC 2657 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		31/07/2014

See also: [2015] EWCA Civ 875 , [2016] EWCA Civ 799

Mr Justice Nugee :

Introduction

1. This action is the second round of litigation arising out of the demerger of the Noble Organisation. The Second Claimant, Mrs Gillian Noble, is the widow of Michael Noble who died in April 2006. The Defendant, Philip Noble, is Michael Noble's younger brother. I will refer to them, without meaning any disrespect, as "Gill", "Michael" and "Philip" respectively. Michael and Philip built and ran an extremely successful entertainments and restaurant group that included amusement arcades, bingo halls, nightclubs and the Brighton Pier. They also built up a large property empire. The whole business was known as the Noble Organisation ("Nobles"), although it was run through a number or companies and partnerships. Before Michael's death Nobles was owned by Michael and Philip and a number of settlements set up for the benefit of their respective families. The two brothers had equal interests in Nobles, each brother holding roughly 1/3 in his own right, with another 1/6 held by trustees of his family's settlements.
2. After Michael's death agreement was reached to divide these interests up so that, very broadly, what is referred to as "Gill's side" acquired the property interests and what is referred to as "Philip's side" acquired the trading businesses. Both parties have used these labels but not entirely consistently and there has been some debate about precisely who they refer to; it is not necessary to enter into this debate and I am merely using them as convenient labels to refer to the two halves of the family and their interests without seeking to identify with any precision who was involved on each side. The general sense is clear enough: on Philip's side the main interest was held by Philip himself; on Gill's side the main interest was held by the executors ("the Executors") of Michael's estate ("the Estate") who were Gill, Mr John Barnsley (an accountant and the First Claimant) and Philip, although in the negotiations Mr Barnsley took the lead role in acting for the Estate. The trustees of the family settlements, who at the material time were in almost all cases professional trustee companies in the Capita Group ("the Capita Trustees"), were interested on both sides in their capacity as trustees of the settlements on Philip's side and Gill's side respectively: the Third and Fourth Claimants are the current trustees of the settlements on Gill's side. Gill did not personally hold any significant interest in Nobles (she had some relatively minor interests) but she was (a) an Executor and trustee of the Estate; (b) the main beneficiary under Michael's will trusts; and (c) naturally concerned with the interests of her children who were beneficiaries of both the will trusts and the settlements on her side.
3. Negotiations for the demerger took place in 2008 and early 2009. It was a very complex transaction, or rather series of transactions. Again there has been some debate as to precisely what is meant by the term "demerger" which I do not need to go into; in simple terms the basic structure was for the parties to transfer their interests into a new company, Indigo Demco Ltd ("IDL"); this was then put into voluntary liquidation and the underlying interests distributed in specie, in accordance with an agreement made under s. 110 of the Insolvency Act 1986 ("the s. 110 Agreement"), to its shareholders. These were new holding companies owned respectively by Gill's side and Philip's side. In this way Gill's side ended up owning the property assets and Philip's side the trading companies. On the way to getting to this stage however a very large number of other steps had to be taken, not least due to a desire to minimise the tax payable, and some significant steps took place that dealt with interests entirely outside the s. 110 Agreement, for example the remodelling of certain of the trusts on Philip's side that held interests in the properties so that they became held for Gill's side. PricewaterhouseCoopers ("PwC"), who were responsible for devising the mechanics of the demerger (on behalf of both sides), produced a plan detailing the various steps which had to be taken ("the Step Plan") which identified 39 Steps (no doubt, as Mr Tager QC who appeared for the Claimants said, for literary reasons), but many of these had various sub-steps. The demerger was implemented, and the very many documents required to give effect to the Step Plan signed, in the course of 9 and 10 March 2009.
4. After the demerger the parties fell out over a number of matters. One of these has already been litigated; this concerned a building in Piccadilly, Manchester. One of the companies on Gill's side acquired the freehold reversion of the building; one of the companies on Philip's side had a lease of the building and ran a number of amusement arcades on the ground floor. The landlord (on Gill's side) obtained planning permission for redevelopment of the building as, inter alia, a hotel, exercised a break clause in the lease, served a notice under the Landlord and Tenant Act 1954 and brought proceedings under the Act to obtain the termination of the lease. Philip contended that this was contrary to what had been agreed in the demerger negotiations which was to the effect that the tenant (on his side) could stay in at least the ground floor until the end of the term of the lease; and he brought proceedings asserting that the landlord was precluded from exercising the break clause in such a way as to prevent this. The claim was put in various ways including a claim in contract, a claim for rectification of the transfer of the freehold to the landlord, and claims in estoppel and constructive trust. The 1954 Act proceedings and Philip's proceedings were heard together by Morgan J from December 2010 to March 2011. In his judgment handed down on 31 March 2011 he dismissed Philip's claims and found in favour of the landlord: see Crossco No 4 Unlimited v Jolan Ltd [2011] EWHC 803 (Ch). Philip's appeal to the Court of Appeal (which was limited to the estoppel and constructive trust arguments) was dismissed on 21 December 2011: see Crossco No 4 Unlimited v Jolan Ltd [2011] EWCA Civ 1619. I will refer to these proceedings as "the Piccadilly proceedings".
5. The present action concerns another matter which has given rise to a dispute between Gill's side and Philip's side, which can be called the VAT repayment issue. In outline, it was known at the time of the demerger negotiations that some of the trading companies had possible claims for repayment of large sums of VAT from HM Revenue & Customs ("HMRC") on the grounds that the legislative regime for charging VAT on bingo games and gaming machines infringed the EU principle of fiscal neutrality. These potential repayment claims were therefore contingent assets held by the trading companies.
6. Before Michael's death the two brothers had had equal interests in the organisation. This remained the case after his death, subject to one exception, namely that one of the entities involved was a pension fund (called the Braemar Pension Fund), and on Michael's death his share of the fund was used to provide benefits for Gill and her children, which meant that the remaining assets in the fund were thereafter held for the benefit of Philip and his family. With that exception each side had an equal share in the assets. It was important that the demerger should reflect that, and that (subject to catering for the position of the pension fund) each side should end up with assets of equal value, not only out of fairness to all concerned (which included minor and unborn beneficiaries under the trusts) but also because the demerger might give rise to adverse tax consequences if there were any deliberate value shift from one side to the other.
7. As part of the discussions for the demerger the parties therefore discussed how to deal with the VAT repayment issue. The Claimants say that in the course of those discussions agreement was reached that Philip would pay Gill the equivalent of 25% of the net amount, if any, received, and that when the demerger was implemented this agreement became contractually binding. However this was not formally documented: it was not referred to in the Step Plan, nor in the s. 110 Agreement, nor in any of the very many other documents (some 200) executed to give effect to the Step Plan and complete the demerger on 9 and 10 March 2009. The Defendants say that there was never any binding contractual agreement dealing with the VAT repayment issue.
8. As well as claiming that Philip (who is the only defendant to this action) is liable in contract to pay Gill 25% of the VAT repayments, the Claimants have other complaints. The essence of these is that Mr Barnsley, who represented Gill's side in the negotiations, understood the VAT repayment claims to be worth at best about £26m and to have a remote prospect of success; but it now turns out, say the Claimants, that at the time of the demerger negotiations, the trading companies had made, or were on the brink of making, very much larger claims (amounting to some £140m plus interest), and had been advised that some at least of these claims had good prospects of success. They say that Philip must have been aware of this, and they accuse him of making a deliberate and deceitful misrepresentation in the course of negotiations as to the value of the repayment claims; they also say that in his capacity as Executor he was in breach of the self-dealing rule and hence in breach of trust; and that he was in breach of fiduciary duty, or in breach of a common law duty of care, in failing to disclose the true value of the VAT repayment claims. This is only a brief summary of the claims but is enough to give an idea.

Background facts

9. I have given a brief summary of the background already. A fuller account is conveniently contained in Morgan J's judgment in the Piccadilly proceedings at [35]-[42] which I can usefully adopt, as follows:

"35 In outlining the case at the beginning of this judgment, I explained that the contract dated 10th March 2009, by which Crossco No. 4 Unlimited agreed to sell the freehold of the building to Jolan Ltd, was part of a much larger transaction or series of transactions which have been collectively described as the demerger of the companies and entities, together known as the Noble Organisation. The position in relation to the companies and entities in the Noble Organisation before the demerger on 10th March 2009 and the control of those companies and entities is somewhat complicated and, if fully described, would involve a considerable amount of detail. To some extent, the same is true of the arrangements in place after the demerger. I will attempt to describe these matters in a summary way in the expectation this will suffice for present purposes.

36 During Michael's lifetime, Michael Noble and Philip Noble together had substantial interests in a number of companies and partnerships which operated various leisure businesses including adult gaming centres, family entertainment centres, bingo premises, betting premises, bars, nightclubs, restaurants and a bowling alley. The brothers' interests were equal in extent. They were interested either directly or indirectly through family trusts. Some 32% of the equity in the various businesses was owned by family trusts and, in the event of disagreement between the brothers, the trustees of those family trusts had a casting vote. Before Michael's death, Michael Noble and Philip Noble together effectively controlled the Noble Organisation, although neither of them held office as a director of any company in the Noble Organisation.

37 On 19th April 2006, Michael Noble died leaving a widow, Gill Noble. Michael Noble died testate. The executors and trustees of Michael Noble's will were Gill Noble, Philip Noble and Mr Barnsley although Philip Noble retired as a trustee on 6th November 2008. He remained an executor of Michael Noble's will and the Estate has yet to be fully administered.

38 After the death of Michael Noble, control of the Noble Organisation rested with Philip Noble (in his personal capacity and also as executor and, until his retirement as such, as a trustee of the will of Michael Noble) together with Gill Noble and Mr Barnsley as executors and trustees of Michael Noble's will. In this period, neither Philip Noble nor Gill Noble held office as a director of any company in the Noble Organisation, although Mr Barnsley was a director of some of the companies concerned.

39 In addition to the interests described above in the companies and partnerships which operated the various leisure businesses, Michael Noble (until his death) and Philip Noble were equal partners in a number of partnerships that owned a large number of properties. The leisure businesses were run from many, but not all, of these properties. There was a high degree of separation between those involved in running the leisure businesses and those concerned with the ownership of the properties. Those who were concerned with running the leisure businesses were generally referred to as "the Trading Group" and those who were concerned with the ownership of the properties were generally referred to as "the Property Group". Prior to the demerger of the Noble Organisation, the Trading Group was commonly known as "the Noble Group" and the Property Group was known as "Associated Property Investors" or "API".

40 In addition to Philip Noble, Gill Noble and Mr Barnsley, there were executive directors and managers who were employed to run the Trading Group and the Property Group. At the date of the demerger, the directors and managers of the Trading Group were different individuals from the directors and managers of the Property Group. To some extent, the precise demarcation between the activities of the Trading Group and the Property Group was not always well defined.

41 So far as the businesses of the Trading Group were concerned, the key directors and managers at the material times were Mr Imrie, Mr Biesterfield, Mr Gill, Mr Horrocks, Mr Thompson, Mr Blain and Mr Fox. Mr Imrie was the managing director. Mr Biesterfield was the legal and development director. Mr Gill was the finance director between July 2006 and December 2007. After an interval, Mr Gill was replaced by Mr Horrocks from 1st September 2008. Mr Thompson was the property director from January 2007 onwards. Mr Blain was the company secretary of Crossco No. 4 Unlimited and of Piccadilly. Mr Fox was the estates manager.

42 The key directors and managers of the Property Group at the material times were Mr Dalzell, Mr Wooldridge and Mr Wright. Mr Dalzell was the managing director. Mr Wooldridge was the finance director and Mr Wright was the property director."

To this summary it is worth adding that the Trading Group before the demerger was in fact organised into two groups of companies, one held by a holding company called Falcombe Holdings Ltd ("Falcombe"), and the other by a holding company called Addbudget Ltd ("Addbudget"); and there were three limited partnerships which held properties called Derandd Investment Partners, Candama Investments, and Wellbark ("Derandd", "Candama" and "Wellbark" respectively).

10. Of those mentioned by Morgan J I heard evidence from the following: for the Claimants, as well as Mr Barnsley and Gill, I heard from Mr Wooldridge (and also Mr Jefferson, Mr Norman, Mr Thomas and Mr Hetherington, whose roles I describe below); for Philip, as well as Philip himself, I heard from Mr Biesterfield, Mr Gill, Mr Horrocks and Mr Blain (and also Mr Coward and Mr Wells). I may add that it does not appear to have been strictly accurate for Morgan J to say that Philip was not a director of any of the companies: Dickinson Dees, who acted as solicitors for both sides in the demerger, prepared a list of the companies and their directors in February 2009 which listed him as director of a number of companies, and among other documents prepared by Dickinson Dees as part of the demerger were a number of letters signed by Philip in which he resigned as director from those companies. Nothing however would appear to turn on this: he did not occupy any formal position in Falcombe or Addbudget but he attended meetings of the senior management and as appears below his role was akin to that of an executive chairman.

The VAT repayment issue

11. It is necessary to give some account of this issue, which is quite intricate. The issue concerns the legality of the regime in the United Kingdom for charging VAT on (i) bingo games and (ii) gaming machines regulated under Part III of the Gaming Act 1968. In each case the starting point is that the relevant European Directive (at the material time the Sixth VAT Directive) provided in Art 13(B)(f) for member states to exempt betting and gambling subject to conditions and limitations laid down by the member state. (The Sixth Directive dates from 1977 but no doubt in this respect continues an earlier provision to the like effect). Under the Finance Act 1972 the UK exempted betting and games of chance from VAT (in Group 4 of Schedule 5), but this was subject to a carve-out from the exemption by Note 1(b) for the granting of a right to take part in a game regulated by section 14 of the Gambling Act 1968; and from 1 November 1975 a second carve-out was added by Note 1(d) for the provision of a 'gaming machine' as defined. The exemption and the carve-outs were continued into the Value Added Tax Act 1983 (in Group 4 of Schedule 6), and the Value Added Tax Act 1994 (in Group 4 of Schedule 9). The practical effect was that certain forms of gaming were brought into charge to VAT and others were exempt.
12. On 17 February 2005 the European Court of Justice ("ECJ") handed down judgment in two references from Germany, Finanzamt Gladbeck v Linneweber and Finanzamt Herne-West v Akritidis C-453/02 and C-462/02) ("Linneweber"). Under German law the turnover of licensed public casinos was exempt from VAT. Mr Linneweber, who operated amusement arcades, was liable to VAT on his gaming machines, but claimed that he should enjoy the same exemption as the casinos did on theirs. Mr Akritidis's case concerned the imposition of VAT on card games which were run without complying with certain legal requirements. The ECJ decided two things. First it held that Art 13(B)(f) of the Sixth Directive permitted member states to lay down the conditions and limitations of the exemption for gambling but that in doing so they had to respect the principle of 'fiscal neutrality'. This was already a well established principle in the jurisprudence of the ECJ, which, as the ECJ said at paragraph [24]:

"precludes, in particular, treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes, so that those goods or supplies must be subjected to a uniform rate."

But since the identity of the provider of the services was in general irrelevant to the question whether services are comparable or not, it followed that a member state could not validly make the exemption from gambling dependent on who provided them: paragraphs [25] to [29].

13. Second, and significantly, the ECJ held that (i) Art 13(B)(f) could be relied on as having direct effect by any operator of games of chance or gambling machines; (ii) that if a member state had waived its power to lay down the conditions for the exemption, or not exercised it, an operator could therefore rely on the gambling exemption; and (iii) that the same applied where the member state had purported to exercise the power but in doing so had adopted provisions which were not compatible with the directive (for example in failing to respect fiscal neutrality): paragraphs [32] to [36]. The practical effect was that if national legislation failed to respect fiscal neutrality, an operator could rely on Art 13(B)(f) and claim exemption from VAT: see paragraphs [37] and [38]. In other words the default position was that no VAT was chargeable on gambling, and if member states wanted to impose any VAT on gambling they had to do so in a fiscally neutral way.
14. It can be seen that the actual decision in Linneweber was not concerned with fiscal neutrality as between different types of game or different types of machine, but with the question of fiscal neutrality as between different types of operator. One of the questions in fact referred to the ECJ had been whether machines operated outside casinos had to be comparable in essential respects, for example in maximum stake and maximum winnings, with those inside casinos (see the second question in Linneweber and the first in Akritidis); but in the light of its answer to the first question the ECJ did not consider it necessary to express any views.
15. Nevertheless advisers in the UK at once appreciated that it might be possible to use the Linneweber decision to mount a challenge to the UK's VAT legislation. PwC for example were advising Nobles as early as 18 February 2005 that although the actual decision might have no effect in the UK (because all gaming machines of a particular type were subject to VAT, not just those in particular establishments), the fact that certain machines were subject to VAT and others not could give rise to an argument that this infringed the principle of fiscal neutrality and there could therefore be an opportunity to recover VAT overpaid by submitting protective claims.
16. Deloittes were also seeking to sign up gaming operators with a view to a test case, and with their assistance proceedings were in the event brought by The Rank Group plc ("Rank"). This has led to a multiplicity of decisions and judgments at various levels and the litigation has not yet run its course. I will try and summarise them. They can be conveniently divided into Rank's appeal in relation to bingo games and its appeal in relation to slot machines.

(1) The Bingo appeal

This concerned mechanised cash bingo ("MCB"), which is played on terminals in bingo halls in the intervals between what is known as main stage bingo ("MSB"). The MCB machines were not gaming machines within Note 1(d) to the relevant exemption because the element of chance was not provided by the machine; but some MCB games were taxable within Note 1(b) on the basis that they were being played under s. 14 of the Gaming Act 1968. However other MCB games were exempt from VAT as they were played not under s. 14 but under s. 21. Which section applied, and hence whether the games were taxable, depended among other things on the level of prizes. Rank had set up its MCB terminals in such a way that (i) the payout on any particular game depended on the number of players who joined in the game, and (ii) players could join up to two calls into the game, with the result that a single game could switch from being a s. 21 game to a s. 14 game (and hence from being exempt to being taxable) in the course of the game (without the players' knowledge, or it making any practical difference to the players at all).

Rank claimed repayment of VAT on the s. 14 games for the accounting periods January 2003 to December 2005. (At that stage UK law contained a 3 year limitation period for recovery of overpaid VAT although, as set out below, this was ultimately held to be ineffective under EU law). HMRC refused the claim and Rank appealed to the VAT and Duties Tribunal ("the Tribunal").

(2) The Tribunal decision – 27 May 2008

The Tribunal (Theodore Wallace, Chairman) allowed Rank's appeal. HMRC did not dispute (and could not realistically do so) that the taxable s. 14 games were similar to the exempt s. 21 games – indeed they were for practical purposes identical. The only issue was whether different treatment of similar supplies was itself sufficient to show that there was a lack of fiscal neutrality; or whether it was necessary to show that this had some effect on competition between suppliers. The Tribunal held that similarity was enough.

(3) HMRC's repayment – 10 November 2008

HMRC appealed to the High Court. On 10 November 2008 Rank announced that HMRC had repaid Rank just over £59m in respect of the bingo claim, although this would be repayable in the event of a successful appeal. HMRC announced in January 2009 that it would not consider claims for repayment by anyone else until the conclusion of the litigation.

This was where matters stood in relation to bingo claims at the date of the completion of the demerger on 10 March 2009. The subsequent developments were as follows:

(4) Norris J – 8 June 2009

Norris J heard HMRC's appeal against both the Bingo decision and the Slots 1 decision (referred to below). He dismissed both appeals on 8 June 2009: Revenue and Customs Commissioners v Rank Group [2009] EWHC 1244 (Ch). So far as bingo is concerned he agreed with the Tribunal: the s.  21 and s. 14 games were all but identical; at a conceptual level they were in competition with each other; the differing VAT treatment therefore led to a differing financial outcome for the operator; and that in itself led to a distortion of competition: paragraphs [18] to [37].

(5) ECJ – 10 November 2011

HMRC appealed Norris J's decision (on both Bingo and Slots 1) to the Court of Appeal, which referred certain questions in both cases to the ECJ. The ECJ handed down judgment on 10 November 2011. So far as concerns the Bingo appeal, it held that the principle of fiscal neutrality was infringed if there was a difference in VAT treatment of two supplies of services that were identical or similar from the point of view of the consumer. It was not necessary to establish that there was actual competition between the services in question, or a distortion of competition because of such difference: paragraph [36].

(6) HMRC's acceptance of the position – 6 December 2011

That effectively put an end to HMRC's arguments in relation to the Bingo appeal. HMRC had already said on 14 July 2009 after Norris J's decision that they would accept repayment claims for MCB; and then on 8 December 2009 that they accepted that his decision also applied to other types of bingo, namely MSB. Now in the light of the ECJ's judgment they announced on 6 December 2011 that they would not seek repayment of amounts paid out in relation to bingo claims.

17. Rank's other appeal was in relation to slot machines. As to this:

(1) Regulation of slot machines

Slot machines, such as are found in amusement arcades, were regulated as 'gaming machines' under Part III of the Gaming Act 1968 provided they fell within the definition in s. 26 of that Act. This required that (a) the machine was constructed or adapted for playing a game of chance by means of the machine; (b) the machine had a slot or other aperture for insertion of money or tokens; and (c) the element of chance in the game was provided "by means of the machine". In a typical slot machine, all 3 conditions were satisfied: a player put money in the slot and played a game of chance, the element of chance being provided by the machine itself. In the machines with which the appeal was concerned this was done by means of an electronic random number generator ("RNG"), although this replaced what had formerly been mechanical methods of providing the element of chance (for example by pulling the lever in a one-armed bandit to spin the reels) and later electro-mechanical means. Such machines were sometimes referred to as 's. 34 machines' as they were regulated under s. 34 of the Gaming Act 1968.

From 1 November 1975 to 5 December 2005 such machines were subject to VAT under Note 1(d) to the relevant exemption provided that they satisfied the definition of 'gaming machine' there set out. This was very similar (although not quite identical) to the definition in the Gaming Act 1968. In particular it was a requirement that the element of chance was provided by means of the machine.

Machines that were not 'gaming machines' and regulated under Part III of the Gaming Act 1968 could be regulated either under s. 21 of the Gaming Act 1968 or s. 16 of the Lotteries and Amusement Act 1976, depending on where they were located. These machines, sometimes referred to as 's. 16 / s. 21 machines', had a number of advantages for the operator: they were not subject to the same limit on numbers as the Part III machines; they were exempt from VAT; and they were subject to a lower level of Amusement Machine Licence Duty ("AMLD") or exempt from AMLD altogether.

At some stage (at the latest by 2003) machines began to appear that were marketed as s. 16 / s. 21 machines but were to all intents and purposes similar to the gaming machines regulated under Part III of the Gaming Act 1968, the only significant difference being that the RNG was not located inside the terminal. Some of them were single-terminal machines where the RNG was physically separated from the terminal, being hung on the wall, or in a separate box, and connected by wires or cables, sometimes with the RNG having its own power supply. In some cases operators simply opened up the machine and took the RNG out: this is what Nobles did. Other machines were multi-terminal set-ups with a single RNG supplying a number of terminals and not being contained in any of them. The main purpose of doing this was to avoid the machines being regulated under Part III of the Gaming Act 1968 on the basis that the element of chance was not provided by means of the machine.

In September 2004 Mr O'Kane of HM Customs & Excise ("HMC&E", the predecessors to HMRC) accepted, in a letter to BACTA (the British Amusement Catering Trade Association, the gaming industry's largest trade association), that machines where the RNG "is not an integral part of the terminal, ie a random number generator that is remote from the terminals" could not be classed as gaming machines (as the element of chance was not provided by the machine) and so were exempt from VAT. HMRC later changed their mind and decided that such machines were gaming machines, and taxable as such, after all.

(2) Rank's Slots appeal

Rank claimed repayment of VAT on its slot machines taxed under Note 1(d) for the accounting periods January 2003 to December 2005. The basis on which it did so was that the machines on which it had paid VAT under Note 1(d) (the Part III machines) were similar to the s. 16 / s. 21 machines which were exempt from VAT and hence that there was a breach of fiscal neutrality.

Rank also relied on other exempt machines as comparators, namely fixed odd betting terminals ("FOBTs"), described further below.

(3) The Tribunal Slots 1 decision – 19 August 2008

The Tribunal (Theodore Wallace, Chairman) allowed Rank's appeal. It focussed on the multi-terminal products, finding as a fact that they were in use by November 2003 at the latest: paragraph [45]. It agreed with Rank that where the RNG was outside the terminals and served a number of terminals, the terminals were not 'gaming machines' because the RNG was not part of any terminal and hence the element of chance was not provided by means of 'the machine', this meaning the terminal containing the slots: paragraphs [50], [53]. In any event Customs had in practice treated such machines as exempt: paragraph [59]. The taxable machines and exempt machines were similar supplies, the evidence that they met the same needs of the players not being challenged: paragraph [72]. The disparity in treatment was in itself a breach of the principle of fiscal neutrality, without the need to consider why any particular operator had installed a s. 21 machine (as the position had to be the same for all operators), and without the need to identify any distortion of competition as an additional requirement (for the same reasons as in the Bingo decision): paragraphs [71] to [72]. They reserved the question whether HMRC could rely on a due diligence defence, as this required further evidence, although inclining to the view that there was no such defence in law.

(4) HMRC appeal

HMRC appealed the Tribunal decision to the High Court.

This was where matters stood in relation to Slots claims at the date of the completion of the demerger on 10 March 2009. The subsequent developments were as follows:

(5) Norris J – 8 June 2009

Norris J heard the Slots 1 appeal together with the Bingo appeal. So far as Slots 1 is concerned, he again agreed with the Tribunal: the random generation of a number in a separate unit which served various terminals was an external event and not one produced by the machine that the player was playing (paragraph [67]); the games played on such machines and taxable machines were interchangeable (paragraph [69]); and the differing VAT treatment of similar supplies that were (at a conceptual level) in competition with each other meant that there was a breach of the principle of fiscal neutrality (ibid).

(6) Tribunal Slots 2 decision – 11 December 2009

Following Norris J's decision, the Tribunal, by now reconstituted as the First-tier Tribunal (Tax Chamber), (Judge Wallace, Chairman) heard the remaining issues in the Slots appeal. One was an argument raised by HMRC that where different supplies were subject to different regulatory regimes they could not be 'similar' or used as comparators for the purposes of fiscal neutrality. The Tribunal rejected this argument: paragraph [22]. Another issue was when the s. 16 / s. 21 machines relied on as comparators were introduced. The Tribunal considered the evidence of various machines dating back to the late 1970s and found that all such machines were exempt from VAT, although similar to the Part III taxed machines for the purposes of fiscal neutrality: paragraph [47]. A third was whether FOBTs were available as comparators. FOBTs, which were introduced in 1998, look like traditional gaming machines and allow a variety of simulated games to be played on them with fixed odds, such as roulette. They are located in betting shops, with the terminal connected to a remote server containing an RNG. HMRC argued that there were various differences between FOBTs and Part III gaming machines such as different stake and prize limits, and the complex betting patterns available on FOBTs; the Tribunal found that the comparison had to be made at a high level of abstraction and from the viewpoint of the generality of players FOBTs and Part III gaming machines had similar characteristics and met the same needs; they were therefore similar for the purposes of fiscal neutrality: paragraph [49]. The Tribunal also made findings of fact as to when the Gaming Board and Customs were aware of the comparator machines for the purposes of the suggested due diligence defence, although adhering to the view that there was no such defence in law.

(7) ECJ – 10 November 2011

HMRC appealed both Norris J's decision on Slots 1 to the Court of Appeal, and the Tribunal's decision on Slots 2 to the Upper Tribunal. As already indicated the Court of Appeal referred certain questions on slots as well as bingo to the ECJ; the Upper Tribunal (Norris J) also referred further questions. The ECJ heard the references together and handed down judgment on 10 November 2011. So far as concerns slots, their answers to the various questions were: (i) that for the purposes of fiscal neutrality, the fact that two games were subject to different regulatory regimes was irrelevant (Slots 1 and 2): paragraph [51]; (ii) that in assessing whether two types of slot machine are similar, the question is whether the use of the two types of machine is comparable from the point of view of the average consumer and that matters such as minimum and maximum stakes and prizes and chances of winning must be taken into account (Slots 2): paragraph [58]; (iii) that a taxpayer could not rely, for the purposes of fiscal neutrality, on the tax authorities having in practice treated similar supplies as exempt if they were in fact subject to VAT under the relevant national legislation (Slots 1): paragraph [64]; (iv) that there was no due diligence defence in law (Slots 2): paragraph [74].

(8) Upper Tribunal (Slots 2) – 4 October 2012

Slots 2 went back to Norris J sitting in the Upper Tribunal. He held that it could be seen in the light of the ECJ's answers to the questions referred that the Tribunal's decision in relation to FOBTs contained two errors of law, first in not taking into account the differences in stakes, prize limits and available betting patterns; and second in making the relevant comparison at a high level of abstraction: paragraph [19]. He therefore remitted the case to the Tribunal for rehearing.

(9) Court of Appeal (Slots 1) – 30 October 2013

Slots 1 went back to the Court of Appeal. Rimer LJ held that in the case of a single terminal system it did not make any difference that the RNG was physically separate: the terminal and RNG were both parts of the one machine. And in the case of a multi-terminal system, it did not make any difference that there was only one RNG serving several terminals: each terminal and the single RNG constituted a machine. It followed that the Tribunal and Norris J were wrong to regard the multi-terminal systems as exempt from VAT. They were 'gaming machines'.

That is how matters currently stand. The upshot for the two comparators relied on by Rank in its Slots appeal is that (i) subject to any successful appeal to the Supreme Court, the so-called s. 16 / s. 21 machines are not available as comparators as they were properly classifiable as gaming machines and hence not exempt from VAT; (ii) whether the FOBTs are available as comparators depends on whether the Tribunal finds that they are comparable from the point of view of the consumer taking into account such matters as the stakes, prizes and available betting patterns. It can be seen that unlike the Bingo appeal, Rank's Slots appeal is still far from being resolved.

18. There is one other aspect to the VAT repayment claims which I should mention and that is the periods for which claims can be made. This is itself an issue with a long and complex history but for present purposes I can summarise it quite briefly. Under the UK's VAT legislation taxpayers could claim repayment of overpaid VAT under s. 80 of the Value Added Tax Act 1994, subject to a time limit of 6 years which could be extended in cases of mistake. In 1996 the time limit was reduced to 3 years and the exception for cases of mistake removed. This was fully retrospective in that it applied not only to past overpayments before 1996, but also to existing claims, the legislation providing no transitional period.
19. The validity and consequences of this ill-fated amendment were much litigated between taxpayers and HMC&E / HMRC. By 2002 the ECJ had held that it infringed the principle of effectiveness and was in breach of EU law. Ultimately in 2008 the House of Lords held (not in fact in relation to claims for repayment of overpaid VAT under s. 80 VATA 1994 but in relation to claims under regulations for underdeclared input tax, where a similar 3 year time limit had been introduced without transitional provisions in 1997) that until an adequate transitional period had been introduced, the time limit was to be disapplied in respect of all claims dating back before the introduction of the time limit: Fleming (trading as Bodycraft) v Revenue and Customs Commissioners, Condé Nast Publications Ltd v Revenue and Customs Commissioners [2008] UKHL 2.
20. The result of that was that HMRC on 20 February 2008 announced that claims could be made for output tax overpaid or overdeclared in accounting periods ending before 4 December 1996. These were generally referred to as Fleming claims.

VAT repayment claims made by Nobles

21. As already referred to, by the time of the demerger in March 2009 the trading companies in Nobles had made, or were just about to make, their own claims for VAT repayment based on the principles of fiscal neutrality. These were generally referred to as Linneweber claims. There was also a separate, but related, issue relating to Nobles' potential liability for AMLD (and VAT but conveniently referred to as the "AMLD claim" to distinguish it from the Linneweber claims.) I must now set out the history of these claims in some detail.
22. It starts with a letter dated 26 October 2004 from Mr John Alderman addressed to Mr Robert Whitelaw at Mechanised Project Management ("MPM"). MPM was a company within Nobles' Trading Group and was under the care of HMC&E's Large Business Group; Mr Alderman was the National Business Manager allocated to manage the relationship between MPM and HMC&E; and Mr Whitelaw was Nobles' then Group Finance Director. Mr Alderman's letter was a follow up to a visit he had made in which he had said among other things that he would confirm the tax treatment of s. 16 and s. 21 machines. His letter said:

"It is our view that for tax purposes these terminals (if they rely on a remote random number generator to determine the outcome of their 'virtual games') will be required to hold a Category A Licence (£250 per 12 months) under s23(3) of the Betting and Gaming Duties Act (BGDA) 1981 – "any machine which is not a gaming machine".

Although these are not gaming machines, they do provide gaming opportunities as described in the 68 and 76 Acts. As such, they would continue to enjoy VAT exemption under Group 4 of Schedule 9 to the VAT Act."

It can be seen that this letter (later referred to as "the Alderman letter" and something on which Nobles placed considerable reliance) treated machines with a remote RNG as not being gaming machines, which meant both that they were exempt from VAT, and that they were subject to a low level of AMLD, being classified as Category A (rather than Category E which the s. 34 machines were). Category A machines were subject to the lowest level of duty (£250 per year in 2004) and Category E the highest (£1,915 in 2004). The letter went on to explain that they were exempt from AMLD altogether if the total cost per player did not exceed 50p each time the game was played. Mr Alderman had sent a similar letter to Rank in August 2004; and as already mentioned (paragraph 17(1) above) Mr O'Kane of HMC&E had written along the same lines to BACTA in September 2004.

23. Philip explained in evidence that manufacturers were producing machines which had a remote RNG, but he did not think it was worth buying a new machine simply for the tax savings. So he himself came up with the idea of modifying existing s. 34 machines (such as fruit machines) by removing the RNG and putting it somewhere else. He said they discussed with the Revenue whether it should be put in a separate office, but after discussion they agreed that it could be hung on the wall near a machine, and eventually hung on the back of the machine itself. He said that the Revenue took the view at the time that it didn't make any difference whether the wire was 3 feet long or 300 feet long: you had done what you needed to do to take the machine from being a s. 34 machine to a s. 16 machine.
24. Linneweber was decided by the ECJ on 17 February 2005, and the next day PwC advised Nobles that there could be an opportunity to submit protective refund claims for any VAT overpaid on gaming machines in the last 3 years (paragraph 15 above).
25. By 19 October 2005 PwC had compiled a claim for Nobles, which was submitted by Mr Whitelaw. This was a claim for repayment of overpaid VAT on supplies made by way of gaming for the VAT periods ending January 2003 to July 2005. The claims were made in the names of MPM VAT Group and 7 other companies, of which two with comparatively small claims (William Noble Automatics Ltd and its subsidiary Edenpace Ltd) were not in fact part of Nobles but were separately owned by Philip and his mother (Mrs Muriel Noble). The total amount of the claim was £28,088,890.95, of which about £27.3m was attributable to the Nobles companies.
26. Mr Barnsley had a conversation with Mr Whitelaw about the Linneweber claims around this time. Mr Barnsley is an accountant. He qualified in 1972 with PwC Newcastle, and remained with the firm until he retired in 2001. He specialised in tax from about 1978, moved to PwC London in 1989 to take up the role of a senior Tax Partner, and was Managing Partner from 1992 to 1998. He was introduced to Nobles in about 1980 and thereafter was extensively involved in assisting the business with tax and structuring advice. After he retired from PwC Michael asked him to undertake consultancy work for Nobles, which he did. He was, as appears below, centrally involved in the demerger negotiations, not least in his capacity as Executor of the Estate, and he remains an advisor to Gill and her family.
27. In late 2005 Mr Whitelaw told him that there was a possibility of a claim for a rebate of VAT from HMRC following the Linneweber case. Mr Whitelaw told him he was preparing a protective claim (which Mr Barnsley understood to be something to do with limitation) and explained that the claim was based on the principle of fiscal neutrality in the context of gaming machines. Mr Barnsley was not a VAT specialist but he knew enough to know, in broad terms, about the principle of fiscal neutrality, as he had come across it in connection with litigation involving Marks & Spencer. His recollection is that Mr Whitelaw mentioned a figure of around £26m (to which, as he appreciated, interest could be added), but described the claims as very "iffy". This was a short conversation and not intended to be a full briefing on the claims.
28. Mr Robert Jefferson also had a brief conversation with Mr Whitelaw at around the same time. Mr Jefferson is an accountant who had been Group Finance Director of Nobles from 1980 until he left in 1984, and had rejoined Nobles in 2004 as Managing Director of the property side where he remained until January 2007. He subsequently took on a role looking after the affairs of the Estate, and Gill's and Philip's personal affairs. For some 8 months in 2008 when Nobles did not have a Group Finance Director (Mr Christopher Gill, who took over from Mr Whitelaw, having left at the end of 2007 and his replacement, Mr David Horrocks, not being appointed until September 2008), Mr Jefferson also played a role which he described as "babysitting" the senior managers in the finance department (such as Mr Phillip Blain, who was an accountant employed by Nobles as Group Financial Controller and who had reported to Mr Gill), or as a "mentor" or "go to" person: if they had a problem they would come to him.
29. Mr Jefferson's recollection was that Mr Whitelaw told him in 2005 that he was preparing VAT claims, that he mentioned a case in the European Court and that it was about "fiscal neutrality", that Mr Whitelaw told him it was a long shot and that the sum that might be recovered was about £28m.
30. In Business Brief 23/05 dated 5 December 2005 HMRC announced that changes were being made to the definition of gaming machines for VAT purposes, among other things by "confirming" that where the element of chance in the game was provided was not relevant. They referred to recent attempts to avoid VAT by reconfiguring machines so that the RNG was sited outside the machine, and to suggestions that because certain machines fell outside the definition of taxable gaming machines, UK law breached the principle of fiscal neutrality, adding that they did not accept either that the avoidance was successful or that there was any breach of fiscal neutrality. The change was implemented by the Value Added Tax (Betting, Gaming and Lotteries) Order 2005, with the result that from 6 December 2005 both s. 16 / s. 21 machines and FOBTs were brought within the charge to VAT. This was intended to put a stop to Linneweber claims going forward.
31. Nobles' representative on BACTA was Mr Biesterfield, a solicitor and Nobles' legal and development director. In February 2006 he attended meetings of what were known as the Divisional Committees of BACTA where mention was made of the fact that Deloittes were "advertising regarding challenging VAT on gaming machines following the German VAT case." It was agreed that this was a commercial matter for members but that BACTA should make information available to them.
32. In March 2006 BACTA therefore circulated (to Mr Biesterfield among others) some general background information on Linneweber which included the statement:

"Attitude of the Treasury

The Treasurer, John Healy, believes that the conclusions of the Linneweber are not relevant in the UK and that they will fight hard against all claims that have been filed."

(This is no doubt a reference to Mr John Healey MP who was then Financial Secretary to the Treasury.) It also stated:

"It is uncertain whether the courts will take the view that there has been a breach of neutrality and therefore have the right to an exemption across all activities."

Mr Biesterfield passed this on to Mr Whitelaw saying "Not sure what we are doing ourselves"; and Mr Whitelaw sent it to Mr Tom Stokoe at PwC who was one of the team handling the Linneweber claims for Nobles. Mr Stokoe reassured Mr Whitelaw that PwC (who he said had submitted 75% of the "25-30" claims HMRC had received) were well advanced with the claims and had a dialogue going with the Treasury and HMRC, and said he would keep him informed of developments.

33. In Business Brief 15/06 issued on 27 September 2006, HMRC referred again to the attempts to avoid VAT by reconfiguring machines so that the RNG was sited outside the machine, and said:

"HMRC consider that the majority of these machines were in fact gaming machines, even before the change in the definition in December 2005, despite having their RNGs fitted outside the main body of the machine. As such VAT should have been accounted for, and the machines licensed as gaming machines."

HMRC indicated that since VAT was correctly payable, repayments would not be made and if tax had been underdeclared assessments would be issued.

34. In a further Business Brief 20/06 issued on 9 November 2006, HMRC reiterated that they did not consider that the UK's tax treatment of gaming machines breached the principle of fiscal neutrality and said that they would reject claims that were received without evidence that identical or substantially similar machines had been treated differently for VAT purposes and that this had distorted competition. On 16 January 2007 Mr Alderman rejected the claims which PwC had filed in October 2005 for failure to provide this evidence; PwC filed a notice of appeal to the Tribunal on 14 February 2007, asking that it be stayed until after the Tribunal's decision in the Rank case.
35. Meanwhile Mr Biesterfield, who as well as representing Nobles on BACTA, was also Nobles' representative on the Bingo Association, the trade association for bingo operators, had on 23 January 2007 attended a meeting of the Association. There he learned that it was taking legal advice with a view to the pursuit of a Linneweber-style argument, the preliminary advice suggesting that bingo should not be liable for VAT. He reported this to Philip and Mr Ian Imrie (Nobles' Managing Director) in a memo of 25 January 2007 saying that he had not looked at it in any detail but would try and put some flesh on the prospective VAT arguments.
36. On 13 February 2007 Mr Biesterfield sent a detailed 4-page memo to Philip, copied to Mr Gill (who had by then taken over from Mr Whitelaw), raising a number of points on Linneweber. The thrust of his advice was that he had a concern that PwC were advancing a claim on too narrow a basis. They were basing the claim on the (exempt) s. 16 / s. 21 machines competing with the (taxable) s. 34 machines; but he was uneasy with this given that the Government had never accepted that the s. 16 / s. 21 machines were lawful, and the extent to which Nobles had been able to convert s. 34 machines to s. 16 machines. He thought that there was a broader argument to be run on the basis that the various gambling sectors (bingo halls, arcades, casinos, betting offices) all competed with each other; and that widening the argument should at least be given serious consideration. He concluded that it might be appropriate for him and Mr Gill to meet with the PwC partner responsible for the claims.
37. The relevant PwC partner was Mr Mike Bailey. Mr Biesterfield duly met him, and reported back to Philip and Mr Imrie in a memo of 27 February 2007. Among other points he reported that "we are looking at a very prolonged process", which was not going to be resolved for some years; that PwC agreed with him that the claims needed to be mounted on a much broader basis; and that Mr Bailey would liaise with Deloittes (who were handling the Rank claim). He also mentioned what became known as the Fleming claims as follows:

"Very interestingly, the view that one can only clam VAT for a retrospective period of 3 years may well be wrong. Roderick Cordara (who is representing PWC and their clients – Deloittes are using Paul Lazac and Jonathan Peacock) believes that the rules limiting claims to that period are "ineffective in relation to certain periods". This is a complex area which I have not researched but apparently claims between 1973 and 1996 are more likely to be effective than those between 1996 and the date upon which the present dispute arose. There is already some precedent on this – the Conde Naste and Michael Fleming cases are going to the House of Lords later this year. Potentially this means that the back duty claims across the industry could be vastly higher even that they are now. This would no doubt give the Government a very serious headache."

He ended:

"I have left matters on the basis that Mike [Mr Bailey] will keep us abreast of developments – I suppose that is so much as we would want to see, in terms of our involvement, but this is one that is sure to run and run and may well have very extensive repercussions."

38. On 1 March 2007 Mr Gill reported to Mr Biesterfield that Mr Billy Blyth (one of Mr Alderman's team at HMRC) had visited. Mr Blyth had raised a number of matters, one being whether Nobles had appealed the rejection of their Linneweber claim and whether they would be putting in evidence. Mr Gill had confirmed that they had appealed, but would not be putting evidence in as the appeal centred around the fact that HMRC had created two different tax regimes for essentially the same product, which Mr Blyth acknowledged might be a point although he could not accept it. Mr Blyth also said that they would be receiving a letter asking for details of the take from s. 16 machines during the 'VAT exempt' period. Mr Gill's comment was:

"I think they are trying to complete their rewrite of history whilst preparing their Linewebber defence. A by product may be they try and pursue a claim for the 'missing' VAT and machine licence duty during the VAT free period."

This was a perceptive comment as this is exactly what HMRC did do; it is the first indication in the documentary record that Nobles might have a liability for what became the AMLD claim in respect of the machines it had modified.

39. The agenda for a Board Meeting of Nobles on 6 March 2007 included reference under "Other Finance stuff - VAT" to "Linewebber appealed" and "Impromptu VAT visit"; and the agenda for another Board Meeting on 1 May 2007 again referred to "Linewebber appeal" and a s. 16 / s. 21 meeting on 11 May (about which there is no further evidence). There are no notes of these meetings available. They were not formal meetings of the board of directors of any particular company, but meetings attended by the senior management of Nobles (Mr Imrie, Mr Biesterfield, Mr Gill) and Philip himself. As to Philip's role, Mr Blain agreed in evidence that it would be a fair description that he was "treated like the executive chairman of the group"; Philip himself did not accept this description but agreed in cross-examination that he took an active part at the board meetings, that after Michael's death he was conscious that he was bearing sole responsibility for heading Nobles at the high strategic level, that he could not remember any decision being made at the board meetings with which he disagreed, and that he was a "very proactive, hard-working boss of the company".
40. In May 2007 PwC were engaged in auditing Nobles' accounts for the year ended 31 October 2006. On 29 May 2007 Ms Helen Curran of PwC sent Mr Blain a list of outstanding issues to talk through the next day in relation to the audit, one of which was "MPM – status of VAT claim". She followed this up on 4 June with an "Audit clearance agenda" which, under MPM, said:

"There is an ongoing VAT case with a potential upside of £28 million and downside of £3.4 million. The case which is being fronted by Rank plc against H M Revenue and Customs is not expected to be resolved in the near future. Unless the likelihood of having to repay the £3.4m is remote then disclosure should be made in the financial statements. On finalisation of the accounts management should determine the likely outcome of the claims and make the appropriate provisions and disclosures as necessary."

This runs together (i) MPM's outstanding appeal against the rejection of its claim for repayment of VAT and (ii) HMRC's potential AMLD claim for arrears of VAT and AMLD on the s. 16 / s. 21 machines which it did not accept as exempt from VAT and duty. It shows that the latter claim was at that stage estimated at £3.4m, although as appears below this was later quantified at £4.2m. The two were indeed connected as the question whether the machines which Nobles had modified by taking the RNG out of the machine were gaming machines was common to both of them, but it is not quite accurate to say they were two sides of the same claim. The reference to making "appropriate provisions and disclosures" is a reference to the requirements of Financial Reporting Standard 12 (on provisions, contingent liabilities and contingent assets) which can be summarised as follows: contingent liabilities should not be recognised in the accounts but should be disclosed unless the possibility of having to pay them is remote; contingent assets should not be recognised, and should be disclosed where a receipt is probable.

41. Mr Blain marked up a copy of the list of outstanding issues sent to him by Ms Curran with some informal notes that he made, either in preparation for a meeting with Ms Curran, or at the meeting itself. These include a note under "MPM – status of VAT claim" recording Mr Gill's explanation of the 2 claims, the first being "Linewebber claim from Germany". After explaining the case Mr Blain's note continues:

"Here in the UK, we then claim that all of the machines that we have paid VAT over, should have been exempt also so can we have our £28m back please. Industry wide this is approx £400m. Rank is the test case. We think we have a good probability (say 60%) of winning this."

The note then explains the AMLD claim on s. 16 machines, as follows:

"HMRC said these were exempt so that is how we accounted for it. They now say they were mistaken and that they should have been vatable all the time. We think they are trying to construct it to be able to say that there hasn't been 2 treatments of vat and that awps were always vatable other than a short period where HMRC were mistaken. We think they will raise assessments (to support that it always was only one treatment for awps) but will probably forgive them. Amount for Nobles is approx £2.5m with approx £700k penalties)."

("awps" is a reference to "amusements with prizes" which is how s. 16 of the Lotteries and Amusements Act 1976 describes them).

42. In the light of this explanation Ms Curran sent Mr Blain a revised version of the audit clearance agenda which now read, instead of the sentence beginning "Unless the likelihood of having to repay the £3.4m is remote…":

"Management consider the likelihood of having to repay the £3.4m is remote."

43. On 18 July 2007 Mr Biesterfield made a file note of a conversation with Mr Bailey, who had had a meeting with HMRC. Among other things Mr Bailey told him that HMRC now accepted that FOBTs were exempt which seemed to Mr Biesterfield to be "very helpful on Linneweber". He also referred to:

"taking Counsel's advice to ensure we get the best silk lined up on our side of the debate & progress to the ultimate Tribunal/Court case on the basis of joined-up thinking from the outset (or near it)."

This shows that Mr Biesterfield was at this stage contemplating Nobles having to progress its own proceedings in due course.

44. Mr Biesterfield attended another meeting of the Bingo Association on 11 September 2007. He sent a memo to Mr Imrie (copied to Philip) afterwards. The Association had recommended that all operators claim back the VAT on par (participation) fees on which Mr Biesterfield commented "We have already done that." He also reported on a meeting between the Association and PwC, but his comment was "The report did not tell me anything we did not already know."
45. On 24 September 2007 Mr Stokoe sent Mr Gill (copied to Mr Biesterfield) a general update on Linneweber claims saying:

"I know that both you and David are directly involved with the VAT claims/negotiations./appeals in connection with bingo participation fees and gaming machine takings. However for completeness I am forwarding the update below…"

The update explained that PwC were assisting BACTA to challenge the claims by HMRC that s. 16 machines were subject to VAT prior to 5 December 2005 and that Category E AMLD was due on them. It also referred to the possibility of bringing retrospective Linneweber claims back further than 3 years; and to claiming compound interest; and said that it was considered that the principle engaged in the gaming machines claims also extended to cash bingo.

46. As this e-mail recognises, Nobles were already aware that a Linneweber-style claim could be made in respect of VAT on participation or par fees for cash bingo. This was formally lodged by Mr Gill on behalf of MPM on 24 October 2007. It covered the 3 years of VAT periods ending October 2004 to July 2007, although the letter showed that Mr Gill was aware of the possibility that the Fleming and Condé Nast cases might have the effect of disapplying the 3 years limitation in which case further claims would be submitted. The sum claimed was about £2.6m. It can be seen that for Nobles bingo was much less significant than the machines claim, the comparable claim which had been lodged by Mr Whitelaw for 2002 to 2005 being some £27m.
47. The Fleming and Condé Nast appeals were heard by the House of Lords on 12 to 14 November 2007. On 20 November Mr Stokoe e-mailed Mr Gill (copied to Mr Biesterfield) saying that PwC were considering the impact of the hearing on the validity of the 3 year cap, and the possibility of a Linneweber claim going back to 1975 for gaming machines and bingo. He said he understood from Mr Bailey that someone in the industry was already preparing such a claim. Mr Gill's response was:

"How can you consider retiring prior to the Fleming/Conde Nast hearing being reported…..there could be a decades fees in the making"

48. Mr Gill stood down as Finance Director in December 2007. Before he left he convened a tax meeting on 3 December 2007 at Nobles' offices at 1A Dukesway Court in Gateshead. Mr Peter Coward and Mr David Ward attended from PwC. Mr Coward is a tax partner who specialises in tax planning and who has acted for Nobles (and for Michael, and the Estate, and Philip) for many years. He was in due course the partner of PwC responsible for overseeing the Step Plan setting out the steps necessary for the demerger. Mr Ward was a senior manager in the Corporate Tax department of PwC. The principal purpose of the meeting was to get all the strands of outstanding tax work onto one piece of paper, ideally with some sense of priority, and maybe a name attached to each, by way of a "handover" from Mr Gill (although his successor had not then been identified and as already referred to was not in fact appointed for a good many months); and Mr Gill invited Messrs Wooldridge, Jefferson and Blain to attend as well, which they did. Mr Thomas Wooldridge, another accountant, had been recruited by Mr Jefferson to be the Financial Controller of the Property Group.
49. The "running order" or agenda for the handover meeting covered a large number of different tax issues, of which one was VAT, under which were listed "Linewebber", "S16/S21" and "Bingo claim" (and also Betting Duty which related to FOBTs and is not relevant). Mr Blain made manuscript notes at the meeting. Against "Linewebber", he wrote "awaiting Rank (4 yrs)". Against "S16/S21" he noted that the claim was for £4m, but with a "£600k offset re partial exemption (will stand behind Linewebber)". These figures no doubt explain the £3.4m value placed on the AMLD claim at the time of the audit clearance process. Against "Bingo claim" Mr Blain wrote "similar to Linewebber". Both Mr Wooldridge and Mr Jefferson were at this meeting, although neither could remember it; Mr Barnsley, although not present, was copied into the e-mail inviting them. It is to be noted that there is nothing to suggest that the bingo claim was being kept from any of them.
50. On 28 December 2007 Ms Glenda Bloxham, a senior avoidance investigator at HMRC, wrote to Nobles in relation to the AMLD claim explaining that HMRC had to raise assessments due to time limits but that these would not be enforced until Nobles' misdirection claim had been dealt with. It is apparent from this letter that Nobles had relied on the Alderman letter of 26 October 2004 in support of a so-called misdirection claim to the effect that even if the s. 16 / s. 21 machines should have been subject to VAT and AMLD, Nobles had been misled by Mr Alderman into thinking that tax was not due. 'Misdirection' is an established principle of VAT law (given effect to by extra statutory concession) to the effect that where an HMRC officer, knowing the full facts, has misled a trader to his detriment, HMRC will only raise an assessment from the date the error was brought to the trader's attention. HMRC had accepted that if a misdirection claim prevented the recovery of VAT on s. 16 / s. 21 machines, they would apply a similar principle to the recovery of AMLD as well.
51. The House of Lords handed down their decision in the Fleming and Condé Nast cases on 23 January 2008. PwC issued a case note to its clients (including Nobles) on 25 January describing it as a seminal judgment which hopefully brought to an end the sorry saga of the introduction of the 3 year cap. Although noting that the cases concerned input tax, PwC advised that it seemed highly likely that the same principles would apply to late claims for overdeclared VAT (ie under s. 80 VATA) prior to 4 December 1996, and recommended that businesses that had failed to recover overpaid VAT for that period should review their position and take action where claims had not yet been submitted. (KPMG had issued a note to its clients containing similar advice, a copy of which was also received by Nobles). On 28 January Mr Stokoe sent an e-mail to Mr Biesterfield which mainly concerned the AMLD claim, but added:

"Another issue we should be considering now, after the taxpayers (Fleming/Conde Nast) favourable judgment in the House of Lords 3 year time limit [sic] is extending the claim we made for VAT overpaid on the takings from these machines (and Cash Bingo) which was restricted to 3 years. We are awaiting HMRC's reaction to last weeks judgement."

52. On 25 January 2008 HMRC issued assessments for underdeclared VAT against various Nobles companies (totalling some £1.8m); and on 5 February HMRC notified assessments for underdeclared AMLD (totalling some £2.4m). These together constituted the AMLD claim of about £4.2m (although in fact one of the companies assessed was William Noble (Automatics) Ltd which was not part of Nobles, so the amount assessed on Nobles was strictly speaking about £4.1m).
53. On 4 February 2008 there was a further tax meeting at Nobles, which was a follow-up to the meeting of 3 December 2007. It was again attended by Messrs Coward and Ward from PwC, and by Messrs Jefferson, Wooldridge and Blain. The agenda listed under VAT the same agenda items, namely "Linewebber", "S16/S21" and "Bingo claim". There are no notes of the meeting but Mr Blain's evidence was that he recalled PwC mentioning that claims could be made back to the 1970s, and since the Fleming case had just come out this is not surprising and I accept this evidence.
54. On 20 February 2008 HMRC issued a Revenue & Customs Brief (07/08) concerning the Fleming and Condé Nast decisions. As predicted by PwC, HMRC accepted that the terms of the judgment were such that they could not rely on the 3 year cap for output tax claims either, and hence that claims could now be made for output tax overpaid in accounting periods ending before 4 December 1996.
55. Mr Biesterfield was well aware of the effect of the Fleming case. On 4 March he received the agenda for a meeting of the Bingo Association Executive Council which included advice from a solicitor suggesting that the Association tell its members that they should check the possibility of making further VAT claims with their VAT advisers and that there might only be a short transitional period. He attended the meeting on the 11 March and reported back to Mr Imrie (copied to Philip) on 13 March that:

"it has now been decided by two cases in the House of Lords that we can backdate our claim for repayment to 1973. I have instructed Tom Stokoe to liaise with Phil Blain on this count."

56. That was the start of a lengthy process whereby Mr Blain sought to pull together the information necessary to make the Fleming claims. It is not necessary to detail it all but some points to note are:

(1) Mr Stokoe e-mailed Mr Blain (copied to Mr Biesterfield) on 12 March with a suggested procedure for quantifying claims for overpaid VAT for both gaming machines and cash bingo par fees. The claim would be made on an estimated basis due to the absence of historic records containing details of the precise amount of the VAT declared.

(2) On 25 April Mr Blain, having spoken to Mr Biesterfield, asked Mr Stokoe to proceed with preparing the claims.

(3) On 2 May Ms Karen Forster (a Manager at PwC) asked Mr Blain to extract turnover figures for the relevant companies going back to 1973 when VAT was implemented in order to progress the claim.

(4) On 7 May Mr Blain therefore asked a Ms Marie Bowes in Nobles' resorts division if she knew where to find management accounts and how far back they would be able to go saying:

"For a large (potentially huge) VAT claim we are making, we need to pull out Bingo turnover figures by company…"

(5) On 27 May Mr Blain asked Mr Stokoe when the claim had to be submitted by, and for a fee quote. Mr Stokoe replied the next day to the effect that the deadline was 31 March 2009, and the costs would be around £10 - £11,000.

(6) Mr Blain passed this on to Mr Biesterfield who on 30 May 2008 e-mailed Philip as follows:

"Ian [Imrie] fairly raised the point as to whether we needed to yet spend the cash on having PwC extend our various VAT recovery claims back to the mid '70's, as far as poss, as a result of Conde-Naste.

The answer is that the backdated claims must be in by March next year; the costs will be £10-£11k; the exercise relates to the Linneweber, rather than the S16/21 part of the claim, so has almost no chance of "going away" before March next year, so, in my view, better to crack on & get the further claims settled & lodged. It will be quite a lengthy process, but obviously worth it if the industry wins.

Unless you think otherwise, I'll proceed."

(7) Mr Biesterfield's day book records that he, Philip and Mr Imrie met and PwC's quote was agreed ("Linneweber - £10k-11k on extending claims – OK"). This is not dated but must have been shortly after Mr Biesterfield's e-mail.

57. Meanwhile on 22 May 2008 Rank had announced that the Tribunal had allowed its appeal in the Bingo appeal. This was widely publicised: PwC included reference to it in its Indirect Tax Weekly Highlights on 23 May, as did BACTA in its Weekly Newsletter of the same day. Mr Biesterfield had become aware of it by 28 May 2008 when he e-mailed Mr Blain passing on the news; he also said that although the BACTA newsletter reported the decision as enabling claims to be made on s. 14 interval bingo (MCB), he himself thought it entitled a claim to be made for all non-s. 21 bingo (including MSB), and noted that Nobles had so far lodged a claim for £2.7m but this only extended back 3 years. A Mr Mathieson at Ernst & Young also sent Mr Blain a copy of the Tribunal decision on 29 May 2008; and on 30 May PwC circulated a full case note after the corrected Tribunal decision had been released. On 2 June Mr Stokoe sent Mr Biesterfield a copy of the decision saying "I assume you have this already".
58. On 8 July 2008 Mr Biesterfield attended an Executive Council Meeting of the Bingo Association at which Deloittes gave an update on the decision; they referred to the possibility of the case going to the High Court, Court of Appeal or House of Lords, with a reference to the ECJ at any stage and said that at the earliest the next stage would be the winter of 08/09 with a year added for each stage after that. Mr Biesterfield reported on this to Philip and Mr Imrie on 17 July. His detailed memo made a number of points, among which was that under the Tribunal decision, interval MCB should have been exempt and:

"a decision will need to be made as to whether we claim back the VAT now (and stop paying), the risk being that if we do, but later have to pay it back again, we will have to do so with compound interest."

He also said that the ruling on Rank's Slots claim was expected in July but was likely to be in two parts. He added:

"Pointless to speculate, we will see what it says when received."

59. On 11 July 2008 Rank announced that HMRC had appealed the Bingo decision, and that they expected the appeal to take place during 2009.
60. On 26 August 2008 PwC produced an Audit Clearance Agenda for the auditing of Noble' accounts for the year ended 31 October 2007. One of the agenda items was "Contingent liabilities" against which Mr Blain wrote:

"Linnewebbe too remote – Rank hearing on bingo to be appealed ... £2m claim HMRC claim against us £4.2m but all linked to our claims against HMRC for some £28m."

61. On 26 August 2008 Rank announced that the Tribunal had issued an interim decision ruling in its favour in its Slots appeal, but that there would be a second stage listed for hearing later in the year and the Tribunal had indicated that there was a strong likelihood that the case would be referred to the ECJ. As with the Bingo decision, this was widely picked up: it was reported on the Financial Times website that evening and in the print version the next day; it was the subject of a PwC newsflash on 27 August which Mr Mark Hetherington of PwC sent to Mr Blain; and was further reported in a PwC casenote and the BACTA Weekly Newsletter both of 29 August. The latter said:

"Members will note that, whilst the initial findings are in Rank's favour, the issues remain a long way from being concluded."

As before Mr Mathieson of Ernst & Young sent a copy of the Tribunal decision (on 1 September) to Mr Blain. On 4 September PwC sent a letter to Mr Alderman, presumably with Mr Biesterfield's approval, arguing that the Tribunal decision made the AMLD claim against Nobles unsustainable.

62. On 16 September 2008 Mr Biesterfield attended an Executive Council Meeting of the Bingo Association. The Chief Executive updated the meeting on the Rank case (on interval games and machines) and was reported as saying:

"This case was likely to drag on for some time and may end up in the European Court. Deloitte, who were leading the case, were optimistic about the prospects of winning."

Mr Biesterfield reported on this meeting to Philip and Mr Imrie on 24 September. He said that on the back of the Tribunal decision in relation to Rank's Bingo appeal Gala had told HMRC that they would not be paying VAT on interval MCB, and added:

"Again, we are on to this particular issue and I am following it up with Phill Blain/Dave Horrocks."

63. Mr Horrocks was the new Finance Director, who had been appointed on 1 September 2008. He needed to be brought up to speed on a number of matters, and on 18 September Mr Blain sent him a spreadsheet (prepared by PwC) with details of the Linneweber claims that Nobles had made (both for machines and bingo) and of the AMLD claim.
64. In its Weekly Newsletter of 19 September 2008, BACTA advised its members to consider submitting claims if they had not already done so, dividing the claims into three separate periods: (i) prior to December 1996, where a retrospective claim was possible provided that the claim was made before 31 March 2009; (ii) between December 1996 and September 2005, which were outside the 3 year time limit; and (iii) periods after September 2005 which were within the time limit. Claims in periods (i) and (iii) would be payable if Rank succeeded; the claim in period (ii) depended on litigation being pursued by Scottish Equitable. In this litigation it was being argued that the 3 year cap was wholly void (rather than simply falling to be disapplied in relation to periods before its introduction). Claims in this period were known as Scottish Equitable claims.
65. On 25 September 2008, Mr Horrocks attended a meeting with Mr Hetherington of PwC to discuss VAT. He made detailed notes which show that he was briefed on the background to Linneweber claims; the current position with bingo claims (namely that Rank had won at the Tribunal, that HMRC had appealed to the High Court and this would take 6 to 9 months, that Nobles were continuing to account for VAT as normal but had put in a protective claim up to July 2007 worth £2.5m); the "to do" list for bingo claims (namely that the claim needed topping up for August 2007 to July 2008, that claims for 1973 to 1996 had to be submitted by 31 March 2009, and that there was a Scottish Equitable claim for 1997 to 2004 but this was challenged); and the position with machines (namely that there was a potential £4.2m AMLD claim, but that if Nobles won there was a £28m protective claim that had been made for November 2002 to July 2005, but that they could go further back and top up to Dec 2005).
66. On 30 October 2008 Nobles submitted a claim for repayment of VAT paid on gaming machines for the VAT period ending October 2005. This was merely a top-up claim as the original claim lodged by Mr Whitelaw had been up to the period ending July 2005, and the 3 year time limit for the period to October 2005 was about to expire. The total claimed was some £2.35m (although as before a small part related to companies that were not part of Nobles).
67. On 31 October 2008 there was a meeting between Messrs Bailey, Ward and Hetherington of PwC and Messrs Horrocks, Blain and Biesterfield of Nobles. This discussed the Linneweber claims. Both Mr Horrocks and Mr Biesterfield made notes from which it is clear that there was a discussion of the Fleming claims and the Scottish Equitable claims, and that the latter were described as having a slim chance or only 10% chance or an outside chance. There was also a discussion of whether compound interest could be claimed as opposed to simple interest, PwC's advice being that a claim for compound interest should be lodged at the High Court which Mr Bailey would do. PwC also advised that although Nobles could stop paying VAT on bingo, the Tribunal decision was only effective as between the parties and since if Rank lost interest and penalties would be payable it was better to continue paying.
68. On 10 November 2008 Rank announced that HMRC had paid it £59.1m in respect of overpaid VAT on bingo. Rank did however point out that HMRC had appealed and if the appeal were successful it would have to return the payment with interest, and that it was not proposing to recognise the benefit of the repayment in its accounts for 2008. Mr Horrocks received a copy of the press release from a news alert service provided by HSBC, and forwarded it to Mr Biesterfield. Mr Biesterfield sent it to Mr Bailey (copying in Mr Blain and Mr Horrocks) saying:

"You will, have seen this &, back in June/July, we discussed whether we should stop paying on MCB & insist on repayment now. I think we decided that while there was a risk (small, it seems to me) of Rank ultimately losing on this point, we should continue to pay. Is that so, or not ?"

Mr Bailey replied to the effect that that was the conclusion reached due to the potential exposure to HMRC's punitive interest rate charges, and also the fact that HMRC might raise protective assessments.

69. On 17 November 2008 Mr Hetherington e-mailed Mr Horrocks a copy of Investec's comments on the impact on Rank of its £59.1m VAT repayment. Among other things this said that if Rank lost HMRC's appeal it would have to repay the £59.1m with interest but if it won the appeal "as we expect" it would keep the cash and recognise the benefit in its accounts; and:

"We also note that Rank has outstanding claims relating to VAT on slot machines (c.£25m) and is considering, along with other operators, claims relating to main stage bingo and VAT paid pre-1997 which could be more significant than this interval bingo claim, in our view."

70. On 27 November 2008 Mr Bailey e-mailed Mr Biesterfield to say that he was trying to get hold of HMRC to find out if they intended to repay bingo claims, but he had discovered that HMRC's appeal on both the Bingo and Slots 1 decisions was listed for hearing in March 2009. By 1 December he had spoken to HMRC and e-mailed Mr Biesterfield saying that as they had appealed they would resist payment of other claims. He added that if HMRC lost the appeal, then it was difficult to see that they could resist paying claims that were on all fours with Rank. The BACTA Weekly Newsletter for 5 December confirmed that the appeal would be heard in March 2009, and said that there would be a further Tribunal hearing in the Slots case in October 2009.
71. On 18 December 2008 Mr Horrocks received a news alert for Rank Group which he forwarded to Mr Imrie, Philip, and Mr Biesterfield. The news alert concerned Rank's announcement of its trading results for 50 weeks to 14 December 2008. Among other things it revealed that Rank now intended, following consultation with PwC who were its auditors, to recognise the effect of the VAT repayment (and the ongoing non-payment of VAT on interval bingo) in its accounts.
72. On 7 January 2009 HMRC issued a Revenue & Customs Brief (63/08) confirming that their view of the law remained unchanged (namely that VAT was due on MCB and gaming machines) and that since Tribunal decisions are only binding on the specific case heard, in line with their normal policy, no claims for alleged overpayments of VAT by other operators could be considered until the conclusion of the litigation. Mr Mathieson of Ernst & Young sent a copy to Mr Blain and Mr Horrocks; and it was also highlighted in BACTA's Weekly Newsletter for 16 January 2009.
73. On 27 January 2009 Mr Biesterfield attended a meeting of the Bingo Association on which he reported to Philip and Mr Imrie on 2 February. Under tax he said:

"as we already know Rank's victory in its VAT Tribunal case in relation to VAT on interval games in being presented by HMRC (correctly) as a decision turning on its own facts and we are being advised to continue paying VAT on interval games…This was nothing new…"

74. On 28 January 2009 PwC provided Mr Blain with draft letters for making top-up claims for repayment of VAT paid on machines from 1 November 2005 to 4 December 2005, and from 5 December 2005 to 29 January 2006. He lodged them the same day. The claim for the period up to 4 December 2005 was a simple top-up claim extending the claims period, as the last top up claim lodged on 30 October had only taken the claim down to the end of October 2005. The sum claimed was just under £775,000. The other claim related to the period after VAT was imposed on the s. 16 / s. 21 machines and FOBTs with a view to stopping Linneweber claims (paragraph 30 above). Here the argument was that other forms of gaming (bingo, lotteries etc) were exempt so there was still a breach of fiscal neutrality. On 2 February 2009 Mr Tom Campion (an associate at PwC) followed this up with an e-mail to Mr Blain (copied to Pat Henderson, who looked after the accounts department) saying he was keen to keep up the momentum and start preparing the claim for the period 1 February 2006 to 31 January 2009 which he considered was the next logical phase.
75. On 11 February 2009 Mr Biesterfield had a telephone conference with Mr Bailey of PwC together with Mr Simon Thomas and his father Mr Jimmy Thomas. Mr Simon Thomas (who gave evidence before me) was another arcade operator, who had sold his business but retained the Linneweber claims from the sale, and PwC were also acting for him. The conference was to discuss Linneweber and there was a wide-ranging discussion. Mr Biesterfield reported in detail on it to Mr Horrocks the next day, copying in Philip and Mr Imrie. Among other points made were that: (i) Rank had succeeded on interval bingo; they had not yet claimed in respect of MSB but Mr Bailey's view was that the Tribunal's decision entailed that all MSB should also have been exempt; (ii) the appeal in Rank's case was listed for March and judgment was likely in late May; (iii) HMRC had rejected the Fleming claims (described as "VAT overpaid on machine and bingo income pre 1997"), the agreed strategy being to make the claim, lodge an appeal and sit tight; (iv) so far as Scottish Equitable claims were concerned (described as the period between 1997 and 2002), the consensus at PwC was that Scottish Equitable would fail, although Mr Biesterfield himself would not be surprised if they succeeded, adding:

"From our perspective, we should certainly review our calculations and make our claim for the period 1997 to 2002 to protect our position [query, is this in hand ?]."

76. On 23 February 2009 Mr Campion sent an e-mail to Ms Henderson (copied to Mr Blain) in which he summarised the current position with the retrospective VAT claims for gaming machines. For the period 1 February 2006 to 31 January 2009 he required output tax figures for various entities; for the period 1973 to 1996 he proposed to use the level of overpaid VAT as a proportion of turnover for more recent years and then extrapolate back using turnover figures for the earlier years. He had obtained certain figures from Companies House but had identified a number of gaps and asked her to see if she could fill any of them in. He followed this up with a further e-mail to her (also copied to Mr Blain) on 6 March with further details of the historic information he was looking for.
77. There were no other relevant developments before the demerger completion meeting on 9 and 10 March 2009.
78. It is not necessary to refer to the further progress of Nobles' claims in any great detail. On 20 March 2009 Nobles submitted a repayment claim for the period 1 February 2006 to 31 January 2009 (gaming machines only) in the sum of some £31.5m; on 30 March Nobles submitted Fleming claims for the period 1 April 1973 to 31 October 1996 (gaming machines and bingo) in the sum of some £70m of which over £60m was for gaming machines and about £10m for bingo. There was also a much smaller (c £1.5m) claim submitted on 30 July 2009 for bingo for the period 4 November 2002 to 1 August 2004: this is a so-called "open period" claim, which is based on the argument that the claim, which would otherwise be time-barred, is nevertheless in time because it is not a new claim but an adjustment to the existing Linneweber claims for that period. Finally a further top-up claim for gaming machines for the period from 1 February 2009 to 31 January 2013 was submitted in April 2013, of which a small part (about £½m) relates to the period before the demerger.
79. The claims can be summarised as follows:

Date	Machines or bingo	Period	Type of claim	Quantum (attributable to Nobles)
19.10.05	Machines	1.11.02 to 31.7.05	Original Linneweber claim relying on s.16/s.21 machines and FOBTs	£27.3m
24.10.07	Bingo	1.8.04 to 31.7.07		£2.6m
28.10.08	Machines	1.8.05 to 31.10.05	Top-up	£2.3m
28.1.09	Machines	1.11.05 to 4.12.05	Top-up	£0.75m
28.1.09	Machines	5.12.05 to 29.1.06	Post-5.12.05 claim relying on other forms of gaming	£1.6m
20.3.09	Machines	1.2.06 to 31.1.09	"	£31.6m
30.3.09	Machines	1.4.73 to 31.10.96	Fleming claims	£60m
£60m	Bingo	Bingo	Bingo	£10m
30.7.09	Bingo	4.11.02 to 1.8.04	"open period" claim	£1.5m
30.4.13	Machines	1.2.09 to 31.1.13	Top-up to post-5.12.05 claim relying on other forms of gaming	£0.5m (for pre-demerger period)

80. As this illustrates there have been a multiplicity of claims, relating to different forms of gaming (gaming machines or bingo) and different periods, with different arguments in various cases. The current position in relation to these claims can be summarised as follows:

(1) Bingo

Following HMRC's announcements in July and December 2009 that they would accept repayment claims for MCB and MSB respectively (see paragraph 16(6) above), HMRC in March 2010 repaid Nobles sums in respect of MCB for both the original claim (1 October 2004 to 31 July 2007) and the Fleming claim (1 April 1973 to 31 October 1996); and later in 2010 in respect of MSB for both claims. The total sum (MCB and MSB) repaid for the original claim was just under £2m with about £200,000 statutory interest; for the Fleming claims it was some £7.2m with over £10.9m statutory interest.

In total therefore some £20.3m has been repaid for bingo claims; and following HMRC's acceptance in December 2011 that they would not seek repayment of amounts paid out in relation to bingo claims, this is now settled.

HMRC has not accepted the open period bingo claim, which remains disputed.

(2) Gaming machines

In August 2011 HMRC made a repayment of VAT for the original gaming machine claim (1 October 2002 to 31 July 2005), together with a further payment in February 2013 for the first top-up claim (1 August 2005 to 31 October 2005); the repayments with interest totalled some £16.6m. But these repayments were subject to its outstanding appeals, and following the Court of Appeal judgment in October 2013, HMRC in January 2014 issued Revenue & Customs Brief 01/14 announcing that all operators of gaming machines that received a repayment of VAT would be asked to repay the amount they received.

HMRC has not paid out anything in respect of the Fleming claim, nor in respect of any periods after 4 December 2005.

It can be seen that all the gaming machine claims currently remain disputed.

Negotiations about the Linneweber claims

81. It is now possible to go back and pick up the history of the relevant negotiations between the parties in relation to the Linneweber claims. This formed only a small part of what was a long and complex process, and the following account is necessarily a partial account which does not attempt to cover the overall negotiations save in a very abbreviated way.
82. Michael died on 19 April 2006. By his will dated 5 June 1997 ("the Will") he appointed Mr Barnsley, Gill, Philip and Mr Michael Rose as executors and trustees; and by his third codicil dated 14 December 2004 he appointed Mr Leslie Norman to act as executor and trustee in Mr Rose's place if he were unwilling to prove. Mr Rose was a solicitor at S J Berwin who drew up Michael's will and later gave legal advice to the Estate; Mr Norman was a director, and the representative, of the Capita Trustee companies who were trustees of the family settlements. In the event both Mr Rose and Mr Norman renounced probate and disclaimed the trusteeship of the will trusts, and probate was granted to Mr Barnsley, Gill and Philip, although not until 12 April 2007.
83. By the Will Michael left his house and personal chattels (other than certain valuable cars) to Gill absolutely; he divided his remaining assets into business property and his residuary estate. Both were held on similar trusts under which, subject to an overriding power of appointment (in favour of Gill, his children and remoter issue), the assets would (after a 2 year discretionary period) be held on trust for Gill for life, with the children taking equal settled shares in remainder. But although the trusts were similar, there were particular provisions applicable to the business property (i) restricting the trustees for a period of 5 years from his death from selling or disposing of business property, or exercising voting rights to appoint or remove directors, without Philip's consent; and (ii) giving the trustees certain powers to appoint or advance business assets to the children without requiring Gill's consent as life tenant.
84. In a memorandum of wishes addressed to his trustees and signed on the same day as the Will, Michael explained that his intention was that his trustees should carry on business together with Philip, the 5 year restrictions being designed to ensure that Philip's capacity to retain managerial control was not prejudiced or undermined; and that he wanted his trustees, subject to Inheritance Tax ("IHT") and other tax considerations, to appoint or advance the business assets to his children and issue without regard to Gill's interests (she being provided for out of the non-business assets and the pension scheme). He said that his purpose, shared with Philip, was to ensure that their business interests should come under the eventual control of their children, or such of them as showed willingness and aptitude to continue the businesses.
85. After his death, there were a number of issues that needed to be resolved. These were discussed at meetings of professionals, including Mr Rose and others from S J Berwin, and representatives of PwC and of the pension fund trustees. Mr Barnsley attended on behalf of the Executors. One concern was how to minimise IHT, and this led to the will trustees executing on 19 December 2006 (even before probate was granted) a deed of appointment under which assets other than those qualifying for 100% business property relief were appointed either to Gill absolutely, or on trusts under which she took an interest in possession, the deed providing that the trustees did not intend it to operate as an assent by them as Executors.
86. Another concern, raised by Mr Barnsley, was as to the possibility of deadlock between Michael's Executors and Philip in relation to the trading companies, and what was to happen after the 5 year period. At this stage it was still contemplated that both sides would continue to hold interests together in the trading group, although a note in September 2006 recording a "possible agreement" between Gill and Philip referred to Gill being sympathetic to Philip having overall control of the trading companies and being prepared to contemplate selling a controlling holding to him in return for minority shareholder protections; it was also agreed that if either side wished to be in business separately from the other, best endeavours would be used to split the business by demerger or otherwise.
87. By December 2007 Philip and Gill had decided that as their families had different agendas for the future, it would indeed be sensible to split the business assets. The split they were considering at that stage involved demerging the non-gaming interests, with Philip's side taking one of the property partnerships (Derandd) and the restaurant businesses, and Gill's side taking the other two property partnerships (Candama and Wellbark). The gaming interests would be left in the trading group and continue to be owned by the family in the current percentages, with the aim of ultimately seeking a listing, but with no final exit being made until it was clear whether any of Philip's or Michael's children would want to go into the business.
88. Also in December 2007, Mr Barnsley raised with S J Berwin whether Philip could resign as a trustee of the Estate as Gill wanted to make some unusual investments and Philip was nervous about his responsibilities and liabilities. Ms Bernadette O'Reilly of S J Berwin advised that Philip could not resign his position as Executor but could resign as trustee and in due course (although not in fact until 6 November 2008) this is what he did.
89. By June 2008 the Executors had concluded that the business should be split broadly along the lines of Philip taking the trading businesses and some properties and Gill's side taking the remaining property businesses; and on 26 June Mr Barnsley wrote to Mr Richard Grainger of Close Brothers Corporate Finance Ltd ("Close Brothers") asking him if Close Brothers would be prepared to carry out a fair value exercise on the trading groups and report to both sides.
90. Close Brothers were willing to do this and started embarking on the process of collecting financial information about the trading businesses. On 16 July 2008 there was a meeting at PwC's offices in Newcastle between Mr Barnsley, Mr Jefferson and Mr Wooldridge and various professionals from PwC and Dickinson Dees (who acted as solicitors in relation to the demerger). This was the first of what became known as "suits" meetings, which were used to discuss the technical aspects of the proposed demerger (rather than as negotiating meetings). They continued throughout the period until the demerger was completed in March 2009. They were chaired by Mr Barnsley. The associates at Dickinson Dees made attendance notes, but these were not formal minutes.
91. Mr Barnsley reported to the meeting of 16 July that the proposal was that all the assets be valued and then split into two with Philip taking the restaurants, pier (that is Brighton Pier), gaming and nightclub businesses and perhaps £20m worth of properties and Gill taking most of the property. He said that Gill was happy to proceed as she did not want to manage the gaming business. He also reported that Mr Norman, as representative of the trustees of the family settlements, was happy as long as each family got half.
92. There was also some discussion about the role of advisors. The general idea was to have only one set of advisors to reduce costs. So Dickinson Dees and PwC would act for the companies (Falcombe and Addbudget), and it was hoped to avoid using S J Berwin, although it was understood that Mr Norman might need separate advice in his role as trustee, as might the Braemar pension fund trustees. Dickinson Dees' note adds "Flag elephant traps but not advising individuals" which echoes Mr Barnsley's recollection that when he told Philip he would be acting for Gill (see below), he told him that he would be digging no elephant traps for him.
93. The note also records under "Valuations" that Close Brothers had been commissioned to value the trading businesses, with each family being able to discuss any issues with them and continues "JCB advising GN alone. PN look after himself". This reflects the fact that it was understood that Mr Barnsley would not be acting as adviser to Philip but would be acting solely in the interests of Gill and her family: in effect he became lead negotiator for the Estate. Mr Barnsley told Philip this during a taxi ride to a meeting with Close Brothers in London in June or July 2008. The note also records that properties would be valued by API (that is the in-house property group); and that various tax liabilities would be for PwC to assess, and adds "Also potential VAT liability/recovery". This is a reference to the Linneweber and AMLD claims, and shows that at the outset of the process of valuing the assets with a view to splitting them it was appreciated that this was potentially a matter to be taken into account.
94. Representatives of Close Brothers had a meeting with Nobles on 21 July 2008. The agenda included reference to the impact on the gaming and bingo business of various matters including "Rank gaming machine VAT ruling". Mr Henry Wells, a director of Close Brothers, gave evidence that they were aware of the Linneweber issue in general terms, and thought this was a reference to the Tribunal decision in Rank's bingo appeal which had come out in May, although it is more likely to be a reference to the Tribunal decision in Rank's slots appeal which was then awaited (and came out in August).
95. On 1 September 2008 Mr Barnsley had a meeting with Close Brothers (Mr Wells and Mr Gillett among others). Mr Barnsley recalls going through various issues relevant to the valuation with Close Brothers at a preliminary meeting, and had a recollection that Close Brothers mentioned Linneweber and that they knew quite a bit about it. This was the first he had heard about Nobles' Linneweber claim since 2005. Close Brothers indicated that because of its uncertain and contingent nature they would probably be advising the parties to share it. It is probable that this was at the meeting on 1 September 2008 and I so find.
96. On 17 September 2008 Close Brothers had a meeting with Nobles, which Mr Gillett reported on to Mr Barnsley in an e-mail dated 26 September, in which he referred to "last week's meeting with Bob, Paul and David", that is Mr Jefferson, Mr Grootendorst and Mr Horrocks. Mr Grootendorst was the management accountant and Divisional Finance Director for the Trading Group, and responsible for providing information to Close Brothers for their valuation; Mr Jefferson had agreed with Mr Barnsley to look at the information being provided by Mr Grootendorst; it was his job to see that it had gone through some due diligence. Among other points Mr Gillett said:

"The other area of value we discussed was the potential Linneweber VAT claim following Rank's victory. Our current view is that, due to its one-off nature and the uncertainty of its award / quantum / timing, this would not form part of our valuation work and I suspect the two sides would need to reach separate agreement on how this value would be shared if and when it crystalises."

97. For the purposes of their valuation Close Brothers developed a financial model (called the Project Tyne Operating model) which went through a number of different versions. Consistently with Mr Gillett's e-mail to Mr Barnsley the next version of the model, which was circulated on 1 October 2008 (to Mr Jefferson, Mr Grootendorst and Mr Horrocks), included a note to the page which forecast cashflows as follows:

"Potential one-off cash impacts (not factored in above)

- Potential £4.2m VAT / AMLD liability in relation to Lillewebber case

- Potential VAT asset (multiple £ millions) in relation to Rank victory relating to differing treatment of gaming machines"

98. Close Brothers produced a draft of their report on the valuation of the trading businesses on 9 October 2008, which was discussed at a meeting the next day attended by, among others, Mr Jefferson and Philip, and the final version of their report on 21 October. They used a number of different valuation techniques to arrive at a valuation in the final report of £60-£70m. The Executive summary, after referring to a number of sensitivities that should be taken into account when considering this valuation range, continued:

"In addition, there may be a number of one-off items. We are aware of the potential payment as a result of the Lillewebber VAT case, which may result in a one off payment to Noble. This potential payment has not been valued and we suggest that if such payment is received, it is split pro rata between the Shareholders."

In the body of the report under Adjustments and Sensitivities there is a note to similar effect as follows:

"We have not quantified the potential impact of any VAT settlements (e.g. Lillewebber) but these are likely to be one-off payments which we recommend are shared on a pro-rata basis between Shareholders."

Both notes had also appeared in the draft report.

99. On 27 October Mr Wooldridge circulated a summary of a valuation of the properties; this started with a valuation by API of the portfolio (net of bank debt) at £91m and then made various adjustments downwards, the details of which do not matter, but which resulted in a range of £45-55m being mentioned at the next suits meeting on 5 November. (This did not include certain properties held by the Trading Group which had been valued by external valuers in 2007; the valuers (Colliers CRE) were asked to update this valuation which they did on 13 November 2008).
100. With valuations of both the Trading Group and the properties, the next stage was for the shareholders to see if they could negotiate a deal. Mr Barnsley is recorded as saying in the suits meeting of 5 November that a deal looked do-able: Mr Norman would have to be happy a deal was equal for both Philip and Gill; Philip could decide for himself, and Mr Barnsley and Mr Jefferson would assist Gill.
101. To aid the negotiations Mr Wooldridge prepared a set of powerpoint slides showing a comparison between the valuations of the trading and property business. These went through a number of different versions. The first version was circulated on 14 November 2008 and was headed "Proposed corporate re-structure – Discussion document" ("the 14 November slides"). This showed the valuations of the trading business and property business, after various adjustments, to be roughly similar (at £62m and £58m respectively).
102. There was then a period where there was some doubt whether the demerger would go ahead as proposed. On 26 November Philip was suggesting an alternative under which he bought the trading businesses from Gill and the properties were split equally; and on 4 December Philip and Mr Barnsley had a telephone conversation in which Philip became frustrated at what he saw as Gill's demands and suggested that they might just call it a day. But on 8 December 2008 Mr Barnsley, together with Mr Jefferson, had a meeting at Philip's London flat with Philip and Mr Horrocks at which considerable progress was made towards agreeing the basis of the demerger. At the end of the meeting Mr Barnsley raised the question of the Linneweber claims. Philip had had no advance notice of this. There was a brief discussion (Mr Barnsley agreed in cross-examination that it lasted less than 5 minutes) about splitting the benefit. It is what Philip said in this conversation which the Claimants rely on for their claims in deceit or misrepresentation. I come back to what was said below.
103. The next morning, 9 December 2008, Mr Barnsley and Mr Jefferson had a follow-up meeting with Mr Horrocks at a London hotel at which there were further discussions. Mr Horrocks made a note of the meeting but it does not contain any reference to Linneweber.
104. It is clear that at one or other of these meetings the parties discussed splitting any Linneweber recoveries 60% / 40% in favour of Philip's side (instead of 50/50 which had been Mr Barnsley's initial position). The participants, unsurprisingly, were not clear in their recollections as to when it was: Mr Barnsley thought it was at the meeting on 8 December but could not be sure; Philip thought the 60/40 split was something he only discussed with Mr Horrocks after that meeting; and Mr Jefferson's evidence in his witness statement was that he thought it was at the 9 December meeting. Mr Horrocks did not recollect any discussion at the 9 December meeting and thought the 60/40 split had been proposed by Philip at the 8 December meeting.
105. Mr Jefferson however gave oral evidence that he remembered Mr Barnsley coming to the meeting of 9 December with some manuscript notes which he had made up overnight, and that he (Mr Jefferson), who had arrived first, had had them copied at the business centre of the hotel for distribution to the meeting. One of the parts of the notes which he identified as having had copied is a 2-page list containing 11 numbered points, of which the 10^th was:

"Anything on LWebber split but Gill to get 40% net of costs, company to have control over the decision."

Since the copy in evidence has some manuscript notes made by Mr Horrocks and (as he confirmed) was disclosed from his file, I accept that this was a document produced by Mr Barnsley overnight and given to Mr Horrocks at the 9 December meeting. I find therefore that the 60/40 split was indeed suggested by Philip, and accepted by Mr Barnsley, at the 8 December meeting.

106. After the 9 December meeting Mr Barnsley circulated an e-mail, timed at 17.36 and headed "possible settlement", to Mr Horrocks and Mr Jefferson. He set out what he thought had been discussed and asking for comments. Among other points he referred (at point 11 out of 12) to the Linneweber claims as follows:

"anything paid to the trading side under the VAT case 'webber' split as to 40% to Gills side netbut after deducting all costs .Falcombe to have complete freedom to decide how to persue the case but also pay all costs ."

This follows very closely Mr Barnsley's manuscript note, and I think must have been taken from a copy of it. I find that this reflected what had been discussed and agreed with Philip on 8 December and that, if there was any further discussion about Linneweber at all on 9 December (which is unclear), the parties did not agree anything different.

107. Mr Wooldridge re-did his slides in the light of the matters agreed at these meetings. The new version, again called "Proposed corporate re-structure – Discussion document" but dated 12 December 2008 ("the 12 December slides"), contained, under the heading "Other trading business issues":

"Any VAT reimbursement of Linnewebber VAT case to be split 60% PN / 40% GN following deduction of external professional fees."

He circulated this to Mr Horrocks, Mr Jefferson and Mr Barnsley, describing it as a "memorandum for shareholder discussion purposes."

108. Mr Horrocks' copy of the 12 December slides, which is in evidence, has a number of manuscript notes made by him. One shows that he sent a copy to Philip on 12 December. 3 others, two on the front page and one next to the reference to Linneweber, refer to the Linneweber split as being 75/25 rather than 60/40; he also underlined the word "external" in "external professional fees" and wrote "All costs."
109. Although unrecorded, the parties continued discussions, as is shown by the fact that Mr Barnsley met Gill on the evening of 15 December to explain the deal to her and obtain her agreement and by that stage the deal included a particular provision (in relation to an option over trading sites) which was a change from the 12 December slides, and which she was cross about. But as Mr Barnsley confirmed to Mr Horrocks in an e-mail next morning, she was "prepared to move forward to detailed contract on this basis". He also said that he would talk to Mr Norman and felt sure he could persuade him; and added:

"I suggest generally we call victory for the moment ,as is, and inch forward .There are bound to be changes as we go through contract anyway."

In a further e-mail that afternoon he confirmed that Mr Norman was happy to agree to the deal; Mr Norman accepted (and I find) that Mr Barnsley must have spoken to him that day and obtained his agreement.

110. Mr Horrocks then amended the slides and circulated a revised version that evening, now headed "Proposed corporate re-structure – [Final] agreement" and dated 16 December ("the 16 December slides"). The line dealing with Linneweber now read as follows:

"Any VAT reimbursement of Linnewebber VAT case to be split 75% PN / 25% GN following deduction of costs."

Mr Horrocks sent this to Mr Wooldridge, Mr Jefferson and Mr Barnsley saying:

"Final draft for comment. I think we are agreed on the value type issues but there are a number of areas we need to flesh out to arrive at a final position…"

He also said that Philip was keen to get Heads of Terms agreed.

111. As the 16 December slides indicate, the parties must have spoken and agreed to change the Linneweber split from 60/40 to 75/25. Phillip said that he had discussed the split with Mr Horrocks again and suggested the 75/25 split: Mr Barnsley could not remember a specific conversation but thought it was probably discussed on the telephone on the afternoon of 15 December. I find that Mr Horrocks went back to Mr Barnsley at some stage between 12 December and 15 December after speaking to Philip and proposed that the Linneweber split should be 75/25 rather than 60/40, which Mr Barnsley agreed to. He said in cross-examination that this was a "horse trade" and agreed that he believed it was made in return for a concession from Philip although he could not remember what.
112. Mr Barnsley replied to Mr Horrocks' e-mail on the morning of 17 December at 7.46 saying he would read this (the 16 December slides) carefully and respond, but immediately rejecting the idea of Heads of Terms. He said he was strongly opposed to them, having always taken the view that if binding they are dangerous and if not binding a waste of time, adding:

"I am quite happy to refine the slides to represent the terms as we currently understand them. That will get as close to HOT as is sensible."

He also said that Gill, who was now overseas, was prepared to go ahead and sign detailed contracts "when she has seen them and understood them"; and that he was in no doubt Mr Norman would not sign them (ie heads of terms).

113. Mr Barnsley then (at 7.48) forwarded Mr Horrocks' e-mail and attachment to Mr Norman, and shortly after (at 7.52) a copy of his response to Mr Horrocks, saying that he had somewhat presumed on Mr Norman's response. Mr Norman replied at 9.00 that he did not have a problem with what Mr Barnsley had said, but that he was still a bit confused by the numbers and the deal still looked a bit one sided to him, referring to a number of points including:

"Why is the VAT repayment split 75/25 ?"

He ended:

"No doubt this will now have to wait until your return when we will need to get together."

This was a reference to the fact that Mr Barnsley was about to go off on holiday on 18 December. Mr Barnsley's evidence was that he must have gone though Mr Norman's queries with him and satisfied him, but Mr Norman had no recollection of this and I am not satisfied that he did.

114. In the meantime Mr Barnsley sent another e-mail to Mr Horrocks at 8.18 on 17 December saying that they had better to go through his slides line by line as there had been numerous changes which had not been agreed or even discussed. He ended:

"We wont agree to your point one .Gill , I and leslie have never interfered in the business , except last January to prevent cash running out .But we are entitled to know about all major issues until we sell the shares and in leslie's case until the trusts cease .We all have personal liability on this issue so it is not negotiable . Until the estate is administered so does PN have personal liability if he does anything to damage the estates interest ."

115. The reference to Mr Horrocks' point one was to the fact that whereas in the 12 December slides Mr Wooldridge had listed as the first point under the heading "Summary of potential corporate re-structure":

"PN to control nearly all of the trading currently within NOL"

in the 16 December slides Mr Horrocks had changed this to:

"PN to control all of the trading currently within NOL in the immediate future."

This was a material change from a statement of what would happen as a result of the restructuring to a statement of what was going to happen immediately. Mr Barnsley, as his e-mail shows, was alive to the fact that until the demerger happened, the Executors, who had a substantial shareholding in the business, had a responsibility for it.

116. Later that morning there was a conference call (in lieu of a suits meeting). There are two attendance notes of the call. Reading them together, it is clear that the participants were told that both Gill and Mr Norman had had a verbal briefing from Mr Barnsley, and that Philip, Gill and Mr Norman (none of whom were on the call) had reached a preliminary agreement. It was agreed that the slides would be revised to reflect the deal and then circulated to PwC and Dickinson Dees, hopefully that afternoon, and that PwC would then use the slides to prepare the Step Plan, and then to draft a clearance letter, that is a letter to HMRC seeking clearance under various statutory provisions. Mr Wooldridge explained in evidence that Mr Coward of PwC wanted certainty on what was going to happen so they could start preparing the clearance letter. Mr Barnsley also repeated his objections to the Heads of Terms Philip wanted, namely that it was not clear what they achieved if they were non-binding, and there was a risk of wasting time drafting them; one of the notes adds "could use slides if they have more detail".
117. Mr Horrocks then amended the slides again and circulated them to Mr Barnsley, Mr Wooldridge and Mr Jefferson just after midday on 17 December. They were now headed "Proposed corporate re-structure – Final agreement" ("the 17 December slides"). The reference to the Linneweber split was unchanged from what it had been in the 16 December slides. On 18 December he circulated the 17 December slides to PwC and Dickinson Dees. There is no record of the 17 December slides having been sent to Mr Norman.
118. In fact Mr Coward, as the partner responsible for the structure of the demerger, had already given some thought to some aspects of it as on 18 December he e-mailed Mr Horrocks (copying in Mr Jefferson and Mr Barnsley) to confirm comments he had made on two aspects, saying that neither was he believed fundamental to the proposals, but he hoped they would assist in creating the final structure. One was in relation to the so-called "anti-embarrassment clause" under which it was intended that additional payments would be made if one side or the other sold assets within a year of the demerger at a higher value than attributed to them in the negotiations: Mr Coward was concerned that the proposed liquidators should not be involved in this. The other was the Linneweber claims which he introduced as follows:

"Due to the significant uncertainty as to the quantum and potential payment date for the potential Linewebber VAT repayment (if indeed any repayment is ever received) it is hard to structure a payment between the parties to reflect this item as at the date of the demerger."

He suggested that the best way of dealing with such an "uncertain and unquantifiable" item was to create a class of shares which would carry rights solely to the agreed proportion of any VAT repayment and would be distributed to Gill. A company receiving a VAT repayment would then distribute the appropriate amount by way of dividend. Mr Coward pointed out that the recipient company would be taxed on receipt of the repayment, and Gill would be taxed on the dividend, which would give an overall effective tax rate of just over 50%; this might not be the most tax efficient structure but would give contractual certainty. This proposal became known as the "golden share" proposal.

119. He followed this up on 23 December with a draft clearance letter to be sent to HMRC. This included a reference to his golden share proposal. He circulated this to the professionals, including Mr Barnsley.
120. Mr Barnsley replied on 3 January from holiday. On the Linneweber payments he said:

"I can't really see why we cant deal with these by an additional payment on the balancing loan from falcombe to gills uk company ? the loan would be such some as amounts to x plus and subsequent payments under webber ? this avoids double taxation ??"

Mr Coward replied on 5 January to the effect that this proposal would not in his view avoid the double taxation issue, as any Linneweber payment would be taxable as a receipt by Gill's company, and relief would probably not be available to Falcombe for the payment. A dividend would get the money to Gill direct and actually give a slightly lower tax rate.

121. On 7 January Mr Coward sent the clearance letter to HMRC. Despite the fact that no agreement had been reached between himself and Mr Barnsley about his golden share proposal he presented it to HMRC as if it had been agreed, as follows:

"34. One material commercial issue which also needs to be resolved are the contingent VAT repayments in the trading group (which would otherwise accrue solely to PN/PN family interests post de-merger) in respect of the Linewebber VAT case ("Linewebber repayments").

35. Due to the uncertainty regarding the timing and quantum of any Linewebber VAT repayments (and associated claims), the two parties have agreed that the most appropriate way of dealing with this issue is for Jersey Holdco1 to issue a separate class of share to all the MN family interests to deal with any repayments received under the Linwebber claims.

36. It is envisaged that the only rights attached to this share class will be a right to any repayments resulting from Linewebber based claims (after deducting costs and tax) with any such repayments being paid out to the respective shareholders as dividend. Once all dividends have been paid, the shares will be bought back at nominal value."

122. It may seem surprising that an accountant seeking formal clearance from HMRC for a transaction should feel able to tell them that something had been agreed when it had quite plainly not been. Mr Coward explained in evidence that there was no point in telling HMRC that the parties were merely considering the golden share as HMRC would not give clearance for a hypothetical situation, and in any event he assumed that since he had advised the golden share route his advice would be followed and it would be agreed. This rather overlooks the fact that Mr Barnsley had already questioned it. In the event the golden share structure was never agreed. I have not been addressed on the question whether this has any effect on the clearance that in due course HMRC gave, although Mr Coward's evidence was that you did not need to contact HMRC to tell them a step was not taking place.
123. The first meeting in the New Year was on 16 January 2009 at PwC's offices in Newcastle in their boardroom. No note was made of the meeting by Dickinson Dees (neither of the usual note-takers attended), but a manuscript note was made by Mr Ward of PwC, which was disclosed shortly before trial. Mr Ward was not called to give oral evidence, but he answered certain questions put to him in writing by the Claimants' solicitors and these answers were adduced in evidence. His note indicates that the target date for the demerger was then 27 February; and includes a reference to the Linneweber payments as follows:

"Not putting in step (could be as much as £20m)

?use Philip's taxed income to pay any Lineweber claim"

There was also a calculation, which Mr Ward accepted showed that if one started with £20m and took off £6m for corporation tax (using a slightly inaccurate 30% for the rate) leaving a net £14m, and then took 25% of this, the resulting sum would be £3.5m. I return below to the conclusions that can be drawn about this meeting.

124. Subject to one point, this is the last reference to Linneweber in the record up until after the demerger took place on 9 and 10 March.
125. The one possible exception to this is that there is in evidence a copy of the 17 December slides with various manuscript annotations on them made by Mr Barnsley. One of these is a tick against the bullet point dealing with Linneweber. Next to this are written "27^th" and "£4m". Although Mr Smouha QC, who appeared for Philip, had purposely avoided cross-examining Mr Barnsley on it, Mr Tager did ask him various questions in re-examination which led to substantial further questioning from both Mr Smouha and Mr Tager. I can summarise the upshot of that evidence as being that I can form no safe inference as to when Mr Barnsley is likely to have ticked the Linneweber bullet point beyond saying that it is likely to have been on or shortly after 16 January. The basis for that is as follows:

(1) Two pages further on in the same document there is another manuscript note "Picc 5" as part of a calculation, which Mr Barnsley explained as being a reference to the Piccadilly building being transferred to Gill's side with a value of £5m. This was agreed at a much later stage in the negotiations, at the meeting on 18 February 2009 referred to below, and Mr Barnsley's evidence was that the idea of doing this only occurred to him a couple of days beforehand. He therefore believed that this note at any rate was made either just before, or at the time of, or just after the 18 February meeting.

(2) I accept this evidence but it does not follow that the tick against the bullet point was made at the same time; and Mr Smouha convincingly demonstrated that at least one other bullet point that was ticked (referring to a cash payment of £5m to be settled on completion and used to support a loan to value covenant in the Derandd portfolio) could not be dated to 18 February as by that stage the relevant bank, Royal Bank of Scotland, was insisting on a breach of the loan to value covenant being cured more promptly and it was envisaged that the £5m cash would be paid "this week" before completion.

(3) In addition Mr Barnsley thought the reference to "27^th" must be a reference to the proposed completion date of 27 February. This had been mentioned at the meeting of 16 January and, so far as the evidence before me shows, this was the first time the date of 27 February was mentioned. Mr Barnsley accepted however that by the 18 February meeting it was already clear that that date was not going to be met. I therefore think it unlikely that the "27^th" was written on or around the time of the 18 February meeting.

(4) Another bullet point, which has a faint mark against it which looks a bit like a tick and at any rate is not obviously a cross, refers to GN owning, among other property interests, 71.4% of Candama. This is a reference to the fact that as at 17 December it was proposed that Philip would retain a 28.6% (or 8/28) interest in Candama. But by 23 January it was being reported to a suits meeting that Philip didn't want the Candama interest.

(5) Mr Barnsley was not asked any questions about the "£4m" annotation and it is not clear if it refers to Linneweber or the previous bullet point (dealing with difference on directors' loan accounts). In the absence of any evidence about it, I do not find it of any assistance.

In these circumstances I think it probable that the tick against the Linneweber bullet point and the "27^th" were made at the same time; I accept that this is unlikely to have been before 16 January (Mr Barnsley not being party to any discussions between 17 December and 16 January), but I think it most probable that they were made at or very shortly after the 16 January meeting. It is improbable that they were made at or around the time of the 18 February meeting. As such I find the tick against Linneweber does not suggest any further consideration (whether by Mr Barnsley or anyone else) after the 16 January meeting, and I find there was none.

126. PwC produced a first draft of the Step Plan on 23 January 2009: it did not contain any reference to Linneweber.
127. Mr Norman had handed in his notice to Capita in September 2008 and although he did not leave Capita until the end of February 2009, he had increasingly little to do with the demerger after the end of December 2008, handing over to Mr Grant Brown. On 2 February 2009 Mr Brown e-mailed Mr Barnsley explaining that the trustees needed to be satisfied that the split was fair between the family but in reality were relying on the professional advisors with whom they had no contractual relationship. He suggested that the trustees ask Philip and Gill to release them from claims relating to the demerger; and that he would want to meet and discuss this with Philip and Gill. This led to Mr Brown having a series of meetings: with Philip on 4 February in Gateshead, with two of his (adult) children in London on 9 February, and with Gill in London. Mr Brown made detailed notes of the meetings: there is no mention in the notes of Linneweber. The notes of the meetings with Philip and Gill refer to:

"See attached note from December 2008 outlining the split of assets between the families."

This is no doubt the 17 December slides (or possibly the 16 December slides forwarded to Mr Norman, there being no clear evidence that the 17 December slides were sent to him). It is not clear if Mr Brown's note means that he had the document with him (Mr Barnsley could not remember whether he had it at the meeting with Gill, which he was at), or that it was simply attached to the note when filed, but in any event the context is the asset split between the parties and I would not be prepared to infer that Mr Brown made any reference to, or even paid any particular attention to, the bullet point about Linneweber.

128. Mr Tager placed some reliance on one point referred to in the note of the meeting with Philip, where after referring to the various steps taken to value the trading and property sides the note reads:

"A general in principle agreement was reached in early January 09 with any balancing amount being via the respective Director loans in the N. Organisation."

When it came to the meeting with Gill, Mr Brown referred to an extract of his notes of the meeting with Philip, including this sentence, and obtained confirmation that they were accurate. The reference to "the respective Director loans" is explained below.

129. On 13 February 2009 HMRC wrote to PwC with the clearance that had been requested. At a suits meeting that day Mr Coward summarised the effect as being that the Revenue accepted that there was no tax avoidance but was not blessing the deal, to which Mr Barnsley said "just have to decide whether we want to do deal." There were still however a large number of details to be settled, including satisfying Mr Bhargaw Buddhev of Barnett Waddingham on behalf of the pension fund, as some of the steps involved transferring properties out of the pension fund.
130. But it was not just mechanics that remained to be discussed. On 18 February 2009 there was a meeting between Mr Barnsley, Philip and Mr Horrocks to discuss quite significant changes to the commercial deal, including a new agreement that the freehold of the Piccadilly building be transferred to Gill's side. Mr Barnsley summarised the changes in an e-mail circulated on 20 February saying:

"we have now finalised the commercial agreement between each 'side' .This note sets out these final changes …"

Linneweber was not discussed at the meeting and is not mentioned in the e-mail.

131. Although on 16 January the target date for completing the demerger had been 27 February, by the time of a suits meeting on that day completion had been rescheduled for Friday 6 March. Philip was going on holiday on Tuesday 3 March, so the plan was to get him to sign as many documents as possible before he went with any outstanding ones being dealt with by fax.
132. The various Capita Trustees of the settlements met on 5 March and agreed to support the demerger. They resolved to sign any documentation required to give effect to it. The documents put before the trustees included the latest version of the Step Plan, and the "Corporate re-structure plan produced by Dave Horrocks", which is no doubt again the 17 December (or possibly 16 December) slides. I have no evidence as to what was discussed at the meeting or if any reference was made to Linneweber.
133. In the event completion did not take place on 6 March. PwC produced the final version of the Step Plan on 7 March, and the completion meeting started on Monday 9 March at Dickinson Dees' offices in Newcastle. On Gill's side, Mr Barnsley, who arrived in the afternoon, had made arrangements to call both Gill and Mr Brown, neither of whom was present; he spoke to them and they confirmed he had authority to proceed. On Philip's side Mr Horrocks and Mr Biesterfield were there; Philip was by then at his villa in Marbella in Spain, but Mr Biesterfield was in contact with him, and at some stage he indicated his approval (either as Mr Barnsley thought before the documents were signed, or, as Mr Biesterfield remembered it, after they had been). Mr Watts took everyone into a meeting room where there was a large table with all the documents needed to implement the Step Plan stacked up around it in order, most of them already signed. Mr Barnsley and Mr Horrocks systematically went round the table with Mr Watts until all the steps had been completed in order. This took until the early hours of the next day Tuesday 10 March. Mr Biesterfield's recollection is that he then obtained the green light from Philip and everything was agreed to be effective. Mr Barnsley and Mr Horrocks shook hands. Nothing was said at the meeting about Linneweber and it did not feature in any of the documents signed.
134. It is not necessary to give a full account of the transactions detailed in the Step Plan, but in summary they were as follows:

(1) As already indicated there were before the demerger two groups of companies, headed by Falcombe and Addbudget, and three limited partnerships which held properties, Candama, Derandd and Wellbark.

(2) In broad terms the Falcombe Group held the gaming companies; certain other businesses (restaurants, Brighton Pier etc) were in the Addbudget Group. Philip and the Estate each held 33.96% of the shares in Addbudget and 34.34% of the shares in Falcombe, with the balance in each case being held by the trustees of the family settlements (half for the settlements for Michael's family and half for those for Philip's family).

(3) The Falcombe Group also held (through a subsidiary, Crossco) a 10/28 share in each of Candama and Derandd; and (through another subsidiary, Golftee) 99.5% of Wellbark, which itself held two other entities (Welbeck CP and Wellbark Property Unlimited). Welbeck CP primarily owned trading sites used by the trading companies, Wellbark Property other properties.

(4) The other interests in Candama and Derandd were held outside the Falcombe and Addbudget Groups. In each case the Braemar pension fund (which as explained was by this stage held solely for Philip and his family) had an 8/28 share; the remaining 10/28 was held directly or indirectly by various of the settlements (again equally divided between Michael's and Philip's family settlements).

(5) The objective was to end up with Philip's side holding the trading interests and the trading properties, and Gill's side the other properties. This entailed transferring Welbeck out of Wellbark and into the main trading group (to be retained by Philip), leaving Gill with the remainder of Wellbark as well as Candama and Derandd.

(6) The mechanics for achieving this, very much simplified, consisted of the following:

(i) The Addbudget Group was brought into the Falcombe Group so that Addbudget and its subsidiaries became subsidiaries of Falcombe.

(ii) Welbeck was transferred out of Wellbark into the Falcombe Group.

(iii) Braemar sold its 8/28 interests in Candama and Derandd to Crossco; and one of Philip's settlements sold its 1/28 interest in Candama to Crossco.

(iv) A new holding company, IDL, was inserted above Falcombe, and Golftee and Crossco transferred to it so that IDL held (i) Falcombe and its subsidiaries (including Welbeck) (ii) Golftee, and hence Wellbark (now without Welbeck) and (iii) Crossco, and hence 19/28 of Candama and 18/28 of Derandd (the 10/28 which Crossco already held plus the 8/28 from Braemar and, in the case of Candama, the 1/28 from Philip's settlement).

(v) IDL was put into liquidation and its assets distributed by the liquidators pursuant to the s. 110 Agreement. Under s. 110, a liquidator of a company being wound up voluntarily has power to transfer assets to a transferee company in return for shares issued by the transferee company for distribution among the members of the company in liquidation. Under this power, the liquidators of IDL transferred Falcombe to a new company (Red Poppy Ltd) in return for shares issued by Red Poppy Ltd to the "PN shareholders" that is Philip and certain of Philip's settlements; and Crossco and Golftee to two new companies (Jolan Ltd and Sugar Beach Ltd) in return for shares issued by them to the "GN shareholders", that is (a), in the case of Jolan Ltd, the Estate and a UK settlement for the benefit of Michael's family known as the Muriel Noble 1997 No 1 Settlement ("the 1997 No 1 Settlement") and (b), in the case of Sugar Beach Ltd, two offshore settlements for Michael's family. In this way Philip's side ended up owning Falcombe, including Welbeck; and Gill's side ended up owning Wellbark, 19/28 of Candama and 18/28 of Derandd.

(vi) The other interests in Candama and Derandd did not go through IDL but were dealt with by the relevant settlements on Philip's side (each of which included Michael's family as discretionary beneficiaries) being varied to exclude Philip and his family and leave Michael's family as the beneficiaries.

135. There was one other aspect of the demerger which ought to be mentioned and that is the question of the loan accounts. Michael (when he was alive) and Philip had a practice of not drawing all the cash that they were entitled to from the companies, with the result that they built up balances on loan accounts. The loans were formally owed by MPM which among other things fulfilled a treasury function for Nobles. These accounts contained balances on which income tax had already been borne, so they were in effect taxed income and could be drawn on without payment of further income tax. They could also be used by Michael and Philip as in effect bank accounts, by getting MPM to pay for some personal expenditure and reducing the balance on the loan accordingly; and to transfer money between them by adjusting their respective balances.
136. In addition to undrawn income, not long before the demerger a partnership in which Michael and Philip had been partners (and in which Gill had a small interest) had sold certain properties to the Falcombe Group, and the consideration for the sale had been left outstanding. That increased the amounts owing on the loan accounts and by the time of the demerger there were very substantial balances outstanding, some £39.8m to Philip and some £46.7m to Gill's side (largely the Estate, but a small amount to Gill personally in respect of her partnership interest).
137. The liabilities on the loan accounts had not been taken into account by Close Brothers in valuing the trading businesses. Under the demerger, MPM was going to end up on Philip's side, but it was inappropriate that Philip's companies should bear the entire liability for the balances. It was therefore necessary to transfer liability for the loans owing to Gill and the Estate from MPM to companies that would end up on Gill's side. The mechanics by which this was done are not important, but at the end of the demerger MPM was left owing Philip the balance on his loan account, £5m to Braemar (which had provided £5m cash to MPM to be paid on to Royal Bank of Scotland to cure the breach of banking covenants, the £5m being treated as a reduction in the amount owing by MPM to the Estate), and £2.5m to the Estate; and the companies on Gill's side (Crossco and Golftee) owed the balance of amounts outstanding to Gill and the Estate (some £39.1m).

After the demerger

138. Norris J handed down his decision in the Rank bingo and slots appeals on 9 June 2009. Rank's success in both its appeals attracted widespread publicity in the industry, and this prompted Mr Barnsley to turn his attention to the question of Linneweber. There were a series of e-mails between the parties in which they attempted to negotiate an agreement, but in the end these came to nothing. These e-mails shed some light on the parties' understanding of where they had got to in the negotiations for the demerger, and being much nearer in time than their evidence in this action, are quite revealing.
139. The relevant e-mails are as follows:

(1) On 9 June Mr Wooldridge e-mailed Mr Barnsley about something else but added a postscript:

"Assume you saw that Rank won their case on VAT at the High Court. Now they've won at the VAT tribunal and High Court, it is unclear whether HMRC will take this to the European Courts for further appeal. How does this affect Linewebber case? It is rumoured that there are c1,000 cases in the pipeline waiting for this precedent."

(2) Mr Barnsley then e-mailed Mr Jefferson:

"bob, rank won their case in the court of appeal yesterday , can you find out what happens next from Horrocks ? we retained an interest in the outcome ."

(3) On 10 June Mr Barnsley e-mailed Mr Jefferson again:

"can you dig out the document on the VAT , i cant remember how much we kept , was it 20% ?"

(4) Mr Jefferson replied on 11 June quoting the relevant bullet point from the 17 December slides. Mr Barnsley forwarded this on 12 June to Mr Wooldridge saying "the answer", to which Mr Wooldridge replied the same day:

"It may be in the final PowerPoint document but speaking to Simon Watts & David Ward yesterday, their recollection was that this was clause was not included in the final legal documents. They believe it was discussed at one of the de-merger agreements but that it was eventually decided to not include.

There were difficulties in the legal structure as the proceeds would be across the legal companies (i.e. each gaming licence) and the proceeds couldn't be consolidated into an SPV with Gill golden share. Plus there was tax leakage in getting the proceeds out of Falcombe and to Gill."

(5) On 23 June Ms Bullock e-mailed Mr Barnsley saying that Peter's recollection was that Dave's recollection and confirmed understanding was that the parties had agreed to settle the matter personally if the need arose. Mr Barnsley forwarded this to Mr Woodridge, Mr Watts and Mr Jefferson saying:

"I have to say I don't remember this but it may well be true ? do you all think we should confirm in writing now ?"

(6) Mr Wooldridge's reply (on 25 June), sent to Mr Barnsley alone, was

"I would run with the 25% / 75% argument in the PowerPoint doc and that it was impossible to draft legally in the short space of time – hence a personal undertaking.

If PN doesn't play ball, then more weight when they get their notice to leave Piccadilly at the end of 2009."

The reference to the notice to leave Piccadilly was to the service of a notice by the landlord under the break clause in the lease, which as this e-mail shows was already being contemplated by those advising Gill, but was not then known to Philip.

(7) Mr Watts' reply (on 27 June), was:

"I have looked back over my own notes of the demerger meetings aswell as Jane's, and Chris has reviewed his. Neither of us can find any reference to the Linewebber issue other than in the original pre-Christmas slides, although as previously indicated, I do broadly remember a fairly technical discussion between you and Peter on the subject early on, which I recall was inconclusive.

The fact that the case has been settled obviously makes the issue swim into focus more and so if there is willingness on both sides to formalise something, I think now would be the time to do it."

(8) Mr Barnsley replied on 28 June, this time copying in Mr Coward and Ms Bullock at PwC, and Mr Horrocks:

"I think we had better write down what we agreed .I think it is an oversight on all our parts as I think we intended to refer to it in the antiembarrassment clause .as I remember it we agreed that 25% of the Vat recoveries would come to gill .the tricky issue was tax .the amount will I assume be taxed on nobles ? I think the fairest thing is to deduct tax at nobles rate and pay the net to gill under the anti embarrassment clauses ie through the loan accounts ."

(9) Mr Horrocks forwarded this (on 28 June) to Philip, saying:

"Hi Philip, received this from John. Johns recollection is the same as mine – we had agreed 25% after tax and costs in the final agreement document. We are still some way from agreeing a claim with the revenue however and they have two claims against us which need to be taken into consideration. I will go back to him later this week."

Mr Horrocks did go back to Mr Barnsley on 30 June as follows:

"My recollection is that Philip agreed the basic principle as set out in your note below with Gill. If you want to document this then we are happy for you to do so. There are also a couple of potential tax liabilities that need to be addressed:

AMLD assessment raised on the group c£4.2m

S419 assessment

These costs, if any, should be offset against any successful VAT repayment claim.

I'm not clear how we can make any payment to Gill through the loan accounts."

(10) Mr Barnsley replied on 7 July, copying in Mr Jefferson where, after saying that he did not think the potential s 419 or AMLD liabilities were relevant, he said:

"On Line webber I am still surprised that we did not put anything in one of the side letters ; what I remember is you would pay all costs of fighting, we would be entitled to our percentage of the net proceeds after these costs and tax, the tax being paid by you at falcombe group level. I had thought on loan accounts that it was to be treated similarly to any embarrassment clause payments ie we would pay from gills private account and you would pay from philips loan accounts as a personal and private matter .again bob can you help here ?"

(11) Mr Horrocks' reply (on 7 July) said:

"I agree we need to give some thought as to how we treat these items in the best way for both parties. My view is clear that we must take into account any s419 liability and AMLD liability into account when looking at any potential VAT reclaim reimbursement to Gill…From memory one of the reasons that the tax adjustments weren't documented was because of the tax treatment on Gill when an amount is received by her. We did not agree that Philip would pay Gill if the company received a VAT refund. The VAT refund is for the company, not Philip, and consequently Philip stands to be considerably out of pocket if any refund comes from his tax paid loan account."

(12) Mr Jefferson replied to Mr Barnsley on 8 July:

"John the only reference that was put on paper was on the outline document discussed with Dave and prepared by him.The reason for the reduced % was to cover Nobles costs etc.It was discussed at length but deemed too difficult to commit to paper and we were therefore left with the understanding."

In a second e-mail he said:

"You are correct on the loan a/c this was to make the issue simple!!"

(13) Mr Barnsley then asked:

"Hi, but can you remember where we got to on the understanding ?"

to which Mr Jefferson replied:

"We talked of drafting but deemed difficult because it would be for each entity, I don't think it got much further than if there was recovery then a mechanism would be found to get Gill 25% of the net proceeds relating to all vat claims,no more concrete than that."

(14) On 18 July Mr Barnsley went back to Mr Horrocks with a number of issues arising out of the demerger, the first of which was Linneweber where he said:

"On the VAT issue I think we should document this in a contractual form as your not[e] confirming it of 16 december is not exactly fulsome. May I suggest that we get Simon Watts to draft an agreement and get this cleared .We will then find out where we are not in agreement as to what was discussed ?"

He added that there had been no agreement to deduct the £4.2m.

(15) Mr Horrocks replied:

"the documentation of the vat issue was stopped on the advice of our joint tax and legal teams. If you have now changed your view then so be it but I won't sanction any more fees until we sort out those already paid."

He reiterated that the £4.2m liability had to be taken into account.

(16) Mr Barnsley's reply on 20 July included the following:

"the very fact that we are discussing the VAT arrangements shows that there is no final agreement and we are not ad idem. You never did say that the £4.2m VAT issue was to be deducted …

The advice from peter not to document was not good advice and was in my view occasioned by the pressure we were all under .It is not difficult to now document what was being considered .The amouts are very material , and even if it is a side letter which is non binding it is best for us to set down even if you do not want to use lawyers , although we will and will pay for them. I will send you a draft agreement."

(17) Mr Barnsley then exchanged e-mails with Mr Coward. Mr Barnsley suggested (on 22 July) that what should be done was a deed of gift between Philip and Gill, with Philip paying out of his loan account; Mr Coward (also on 22 July) said he had a preference not to prepare formal legal documentation as

"the moment that Dave et al become involved he is going to make the point that Philips loan account represents taxed income and that to replace any amount paid to Gill he will need further taxed income"

to which Mr Barnsley replied:

"If we don't get the VAT documented they wont pay us it, period. All the side agreements are non binding and we have no idea whether they will comply with any of them, with DHB involved we can all guess. In any event it is unclear, according to dave what was agreed on the VAT so unless we document they will be in a position to argue more as they are on everything. … I need to get this contractual asap and the tax is secondary."

(18) Mr Barnsley must have given instructions to Mr Watts to start the drafting process as on 7 August he sent Mr Barnsley a draft deed of gift between Philip and Gill, in fact drafted by his partner Mr Jeremy Smith. This was marked "discussion draft" and raised a number of issues, in particular as to what deductions would be allowed to arrive at a net figure for division. Mr Barnsley's reaction (on 11 August) was:

"I guess this underlines why we were all wrong not to put something in writing at the time."

He then raised in particular various tax issues.

(19) Mr Smith replied explaining his approach when drafting the deed, and copying in Mr Horrocks. Mr Horrocks' reaction (also on 11 August) was:

"Philip is not prepared to sanction any cost on this issue. We still have not agreed a split of cost already incurred...My only comment on info to date is alarm at john's suggestion that Philip's loan account could be the payment vehicle. This is a non starter"

He repeated this on 19 August saying:

"can I repeat that Philip will not be using his loan account to reimburse any potential VAT payment. We still need to agree the basis of any calculation."

(20) On 21 August Mr Barnsley made a lengthy proposal to deal with the tax issues, ending with:

"dave it is now over to you to make a proposal , but this needs to be settled quickly or the professional cost will rise and the fact that we are arguing about it shows that we can not leave it uncontractual."

(21) Mr Horrocks replied on 25 August repeating that he would not get involved in incurring any professional fees until the costs to date had been agreed, adding:

"My comments to date on the Linneweber matter are confined to which tax assets/liabilities should be considered, and the fact that Philip's loan account will not be used as a vehicle to transfer value. We are in no way denying the agreement to split any potential proceeds from Linneweber; but until we agree how and when there is little point in getting documents drafted."

(22) Although further e-mails were exchanged (in the course of which Mr Horrocks said on 30 September that he had talked through the Linneweber issue again with Philip, who was happy to confirm "the outline agreement" made pre demerger and to document the position in a side letter) no agreement had been reached by 26 October 2009 when notice was served exercising the break clause on Piccadilly. This led to a marked deterioration in the relations between the parties and in due course to the Piccadilly proceedings; and nothing further was ever agreed about Linneweber.

The contract claim – (i) intention to create legal relations

140. The Claimants' first claim is that Philip is contractually bound to make a payment to Gill (or alternatively the Claimants) in respect of the Linneweber recoveries. This is said to have been agreed in the course of negotiations for the demerger and to have become binding when the demerger took place on 9/10 March. The claim is pleaded in a number of ways, but each variant relies on the contract having been made at the completion meeting.
141. Mr Smouha has a number of answers to the contractual claim, but at the forefront is his submission that nothing happened on 9 and 10 March which can be relied on as constituting a binding agreement in relation to Linneweber, not least because nothing was said about VAT or Linneweber at that meeting at all.
142. It is convenient to take this point first. There is no dispute about the legal principles: in considering whether parties have entered into a contract, it is of course not enough to show that the parties were in fact agreed on some matter. It must be shown that the parties intended their agreement to have the status of a legally binding and enforceable contract. In the present case, as the brief summary above indicates, Mr Tager accepts that the parties did not enter into any relevant binding contract at any stage before the completion meeting on 9 and 10 March. The significance of this is obvious. It means that whatever the extent of the parties' agreement at any earlier stage, it is accepted that it remained, even if fully agreed, uncontractual; and the ultimate question is whether the Claimants have established that what took place at the completion meeting involved an agreement that what had until then not been binding should become legally binding or, to use an ugly but useful word, whether they "contractualised" their agreement. It also means that where in what follows I use the word "agree" or "agreement" in relation to any date before 9 March, this is to be understood as referring to a non-binding agreement, without this having to be said on every occasion.
143. The steps on which the Claimants rely in support of this contractual claim can be summarised as follows:

(1) The discussions on 8 and 9 December 2008 in which it was agreed that any VAT repayment would be split 60% / 40%.

(2) The variation on or about 15 December 2008 which substituted a split of 75% / 25% for that of 60% / 40%.

(3) The incorporation of this in the 17 December slides as representing the parties' agreed position.

(4) The meeting of 16 January 2009 which the Claimants rely on as confirming the agreement.

(5) The completion meeting of 9 and 10 March 2009.

144. The first of these steps is the pair of meetings on 8 and 9 December. It is clear from Mr Barnsley's e-mail of 17.36 on 9 December that by the end of the two meetings there had been discussion about splitting any Linneweber recovery 60% / 40% net of costs, with Falcombe (that is Philip's side) being responsible for the costs. It does not make any difference to the analysis precisely when this was, although as set out above (paragraph 105) I find that this was in fact suggested by Philip and accepted by Mr Barnsley at the end of the 8 December meeting.
145. What is clear however is that nothing at this stage was regarded by either side as being "agreed" by the parties even in a non-contractual sense. Mr Barnsley's own description in evidence of the meeting of 8 December was that it was an "exploratory meeting" and the subject matter he chose for his e-mail of 9 December, "possible settlement", is an apt description of the stage the negotiations had then reached. At that stage indeed neither Gill nor Mr Norman had been consulted about the proposed deal.
146. The next event was the revision of the split from 60/40 to 75/25 which I have found was agreed between Mr Horrocks and Mr Barnsley between 12 and 15 December. This was followed by Mr Barnsley separately obtaining the agreement of both Gill (on the evening of 15 December) and Mr Norman (in the course of 16 December) to the deal as it then stood, Mr Horrocks' revision of the slides to produce the 16 December slides, the conference call on 17 December and Mr Horrocks' further revision of the slides to produce the 17 December slides.
147. Mr Tager is clearly right that no binding agreement had been reached by 17 December. In fact Morgan J in the Piccadilly proceedings held (at [226]) that it was "the clear intention of the parties, objectively considered, not to enter into a contract relating to the demerger until the whole demerger was carried into effect", it being Philip who was then contending that the parties had become bound at an earlier stage (at the meeting on 18 February 2009). But this is not a just a technical point that there is an issue estoppel between the parties. It is plain as a matter of fact that no-one at the time intended or believed that anything was contractually agreed as at 17 December 2008 at all, not least because when it was suggested that Heads of Terms be signed, Mr Barnsley's reaction, both in his e-mail of 17 December and in the conference call later that morning, was that he was against the signature even of non-binding Heads of Terms, let alone binding ones.
148. I also consider it clear that although the 17 December slides were headed "Final Agreement" they were not understood by anyone to be final in the sense of a fully agreed commercial deal that only fell short of a binding contract because of the lack of an intention to create legal relations. All the evidence indicates this, and although the witnesses naturally differed in their characterisation of the 17 December slides, there was a consistency about them. One of the notes made by Dickinson Dees of the conference call referred to a "preliminary agreement" between Philip, Gill and Mr Norman; Mr Barnsley in his e-mail of 17 December rejecting the proposal of Heads of Terms had said that he was happy to refine the slides "to represent the terms as we currently understand them" and in cross-examination said that the slides (as so refined) would "represent the agreement as we had currently got to" and accepted the description of them as a "snapshot" of the negotiations as to where they had got to, describing them also in re-examination as an "aide-memoire"; Mr Norman also agreed that the slides were a snapshot of where the parties had got to, and that he understood that negotiations were ongoing; Mr Horrocks in cross-examination said that the 17 December slides were a record of where the parties stood regarding the broad terms of the demerger, but the terms would then need to be negotiated; Philip described them in evidence as recording work in progress, adding that they might have been used as a framework on which to start to put the demerger together. Mr Horrocks also explained that he called the 17 December slides "Final agreement" because after several drafts had been circulated, he wanted to be clear on the version that would be used to brief PwC and Dickinson Dees.
149. Moreover there were a large number of things still to be done before the demerger could proceed. In particular, as Mr Norman accepted in evidence, his "agreement" to the position on 17 December was no more than saying that he had no objection to what was in the slides so the parties could move forward on it; he did not and could not have given any approval as such to the terms, as this would have to be done with Mr Brown, and with legal advice, which he didn't have at that stage, and with the matter going before the trustee committee as well, which could not be done until the final shape and detail of the demerger was clear. Indeed as the notes of the conference call record, there was a doubt whether Capita would sign even non-binding Heads of Terms without legal advice. In addition, the demerger required the co-operation of the Braemar trustees, but both notes of the conference call record that one of the things yet to be done was "open correspondence with Bhargaw Buddhev" or "start dialogue with Bhargaw re Braemar". And PwC needed both to obtain clearance from HMRC, which would take some time; and draft up the Step Plan specifying the steps which would need to be taken to implement any demerger in a tax-efficient way.
150. I find that the 17 December slides represented where the parties had got to in their negotiations in the sense that there was sufficient agreement as to the broad terms of a prospective demerger to be worth recording and taking forward as a basis for detailed negotiations. If the parties had not got to that stage, there would have been no point in asking PwC to start drafting the Step Plan or seeking to obtain clearance. So it was a significant step in the negotiations to have got sufficient of an outline agreement to take forward to the more detailed work.
151. But I find not only that this was not binding, but (as was understood at the time) (i) that it represented no more than the outline of an agreement, the details of which would have to be filled in with the assistance of PwC (in devising an appropriate structure) and Dickinson Dees (in drafting appropriate documents); (ii) that approval from the Capita Trustees and the agreement of the Braemar Trustees would be required, had not yet been obtained, and would require the detail to be filled in; and (iii) that not only were the parties at liberty to withdraw at any stage, but they could continue to negotiate on any particular aspect of it down to the time at which the demerger was finally agreed. Of course in principle parties can always withdraw or renegotiate anything until they are contractually bound; but there is in practice a difference between parties who have metaphorically shaken hands on a fully negotiated commercial deal and do not expect it to change until turned into a contract, and parties who are negotiating and record where they have got to, but are expecting to continue negotiating before the deal is finalised. In fact there was considerable further negotiation between the parties here, not least at the meeting of 18 February which introduced some quite significant changes; and I find that the 17 December slides did not represent, and were not understood as representing, a complete commercial deal, but a statement of where the parties had got to by that stage.
152. The next stage was the meeting on 16 January 2009. It is clear that there was some discussion of the split of Linneweber recoveries at that meeting because it is recorded in Mr Ward's notes, but beyond that it is difficult to reconstruct with confidence what was said. The evidence is as follows:

(1) Mr Barnsley in his second witness statement said that he made it clear to the meeting that Mr Coward's golden share proposal would not work. He also remembered speaking to Mr Horrocks, which he thought was in a side-discussion at or near the end of the meeting, and agreeing with him that they would come back to how any VAT payment might be structured after the demerger but until then the 75/25 split, as recorded in the 17 December slides, would stand with any VAT repayment being made by Philip personally via a cash payment from his loan account with MPM.

(2) He made a third witness statement after he had seen Mr Ward's note. Here he identified the attendees as himself, Mr Horrocks, Mr Coward, Mr Ward, Ms Bullock (of PwC), Mr Watts (of Dickinson Dees), Mr Jefferson and Mr Wooldridge. With the aid of Mr Ward's note he confirmed that at this meeting Mr Coward's golden share proposal was rejected (with Mr Watts pointing out that it would in fact require not one but numerous golden shares, one for each of the trading companies concerned); he said that he had been responsible for the calculation shown on the note; he said that Mr Horrocks continued to be concerned about using Philip's taxed income and that he (Mr Barnsley) had suggested that "we could return to the question of how payment could be made after the demerger", but that until something else was agreed, the payment would be made from the funds in Philip's loan account.

(3) In oral evidence Mr Barnsley explained that by a side discussion, he did not mean a discussion in a side room, but a discussion in the main room during a break in the full meeting. He also accepted that he was not in a position to say that Mr Ward was wrong in saying that the calculation in his notes was in fact his, not Mr Barnsley's.

(4) Mr Jefferson was sure that the golden share was discussed at the first meeting after the Christmas break, and recollected Mr Watts saying the proposal would be extremely complicated from a drafting point of view. He remembered that neither Philip nor Mr Barnsley were keen on it, and that as a result it was not progressed. He said he understood that the demerger would still proceed on the basis that VAT recoveries would be split between Philip and Gill 75:25 but accepted in oral evidence that he was not suggesting anyone actually said that: it was an assumption based on what had been discussed in December, not on anything said at the 16 January meeting.

(5) Mr Wooldridge also recalled the golden share proposal being discussed and dismissed at the first suits meeting after Christmas, but had no recollection of a side discussion between Mr Barnsley and Mr Horrocks.

(6) Mr Coward's evidence was that he recalled a discussion between himself, Mr Barnsley and Mr Horrocks at a suits meeting in January 2009 in which Mr Barnsley objected to the golden share. He thought this was not during the main meeting. In his witness statements he initially said he thought it was during an intermission in the meeting, but subsequently that he had a clear recollection that it took place at the very end of the main meeting in a separate meeting room. He did not recall any comment by Mr Watts about the golden share at any meeting. He believed that Mr Barnsley suggested that any payment could be made out of Philip's loan account but that Mr Horrocks did not agree with the proposal; his understanding following the meeting was that both sides agreed to park the issue to be considered again later.

(7) In oral evidence Mr Coward said he remembered very clearly the meeting as a side meeting, in a different room, at the end of the main meeting, the upshot of the side meeting being that "we agreed to abandon the golden share proposal and that the issue of Linneweber would be left to be dealt with at a later date"; what he understood at the end of the discussion was that the golden share was dismissed and there was no agreement as to the mechanism that would be used. He accepted however that he was never told that the "entire split" of Linneweber recoveries was to be parked until some point after the demerger, or that the parties were going to demerge on the basis that Philip would retain the benefit of 100 per cent of any Linneweber recoveries. He agreed that from the beginning to the end there was a very friendly and co-operative attitude between the parties – it was not an arms' length negotiation between two business men who went into a joint venture together and wished to demerge but a family which had decided to go their own separate ways.

(8) Mr Horrocks in his first witness statement said he did not believe there were any discussions about Linneweber in this period; and in his second witness statement said he had no recollection of any discussion relating to Linneweber before, during or after any meeting relating to the demerger in January. In oral evidence he said that he could not recall a specific time but did remember being told at some time, either by Mr Barnsley or by Mr Coward that "we weren't going down the golden share route; there was no other proposal so it was parked." He explained that by "parked" he meant that it was to be left until later, not that it was "unagreed".

(9) Mr Ward did not give evidence, but his written answers to questions put to him about his notes were admitted. He was responsible for drafting the Step Plan. He said (having reviewed the notes) that he made the calculation shown in them; that there was a discussion about the Linneweber claim; that he recalled a split of 75/25 being discussed (which was reflected in his calculation); that he thought this discussion was more likely to have been in the main meeting; that "not putting in step" meant that a formal step was not considered necessary in the Step Plan; that "use Philips taxed income to pay any Lineweber claim" meant using Philip's loan account to pay Gill's side, which was one potential option that was raised; but that he did not know if any agreement was reached and did not recall that it was formally agreed that Philip's loan account balance would be used. He remembered the golden share as an alternative option being discussed at this or another meeting, and discussion about how to deal with any receipt in a tax efficient manner which also worked commercially.

(10) Mr Watts did not give evidence, but in his e-mail to Mr Barnsley of 27 June 2009 (paragraph 139(7) above) he said that he remembered "a fairly technical discussion between you and Peter on the subject early on, which I recall was inconclusive."

153. It is impossible to reconcile all the evidence, but the broad themes are clear. My findings are as follows:

(1) This was the first meeting after Christmas and the first opportunity for the parties to express their views at a meeting on Mr Coward's golden share proposal. It is clear that it was rejected: almost all the participants agree on this, and the proposal does not feature again.

(2) Mr Barnsley had a technical discussion with Mr Coward in which he explained why he was not happy with the idea. This may have started off as a side discussion, or even a side meeting, but the discussion either continued at, or was reported to, the main meeting, which explains why Mr Watts was able to recall it; he expressed the view that it would be complicated to draft. The upshot was that it was agreed to abandon the golden share proposal.

(3) This is why Mr Ward noted that it was not going to be put into the Step Plan. (This incidentally means that Mr Coward must be wrong in thinking it was only raised at a side meeting after the end of the main meeting – Mr Ward's notes show that this decision had been made fairly early on.)

(4) It was also agreed that the parties would come back to how any VAT payment might be structured after the demerger. This was Mr Barnsley's evidence; and explains what both Mr Coward and Mr Horrocks meant by referring to the issue as "parked": the mechanics of how a payment could be structured would be considered later.

(5) Nothing was said that suggested any intention by Philip (or anyone else) to renegotiate the principle of a 75/25 split of any Linneweber recoveries net of costs, or that sought to abandon or move away from the agreement to that effect recorded in the 17 December slides.

(6) It is clear that there was some discussion, reflected in Mr Ward's notes, about using Philip's taxed income (that is his loan account) to make a payment to Gill or Gill's side. This was what Mr Barnsley envisaged: as he explained in oral evidence he viewed the overall transaction as one where Philip and his family trusts were acquiring Gill's family's interests in the Trading Group, that the prospect of Linneweber recoveries was an asset included in that group, and that any payment was therefore naturally due from Philip as extra consideration, and as he said in oral evidence his view was that a personal payment from Philip to Gill would have come from the loan accounts "as day follows night. That was the way it was always done."

(7) However I do not accept that there was any agreement to that effect between Mr Barnsley and Mr Horrocks, as Mr Barnsley suggested. Mr Horrocks had only joined Nobles at the beginning of September 2008, and had not been involved in the demerger negotiations until the meeting of 8 December 2008, and right throughout the demerger process was "trying to play catch-up" (as he put it in oral evidence). He had no authority from Philip formally to agree anything on his behalf, and I do not consider that he would have agreed to Philip having a personal liability in this way without discussing it with him first. It is notable that when Mr Barnsley subsequently (in the negotiations after the demerger) suggested using the loan accounts Mr Horrocks repeatedly rejected the idea (paragraph 139(9), (11) and (19) above). In any event, I do not think he would have agreed anything along these lines without understanding the tax consequences: indeed in oral evidence Mr Barnsley said in terms that:

"There was an acknowledgment that Mr Horrocks was concerned about the tax position of using the loan accounts, and I acknowledged that we would come back and look at that again after the demerger."

This seems to me to make it unlikely that Mr Horrocks would nevertheless have agreed that the default position, failing agreement on any alternative mechanism, would be that payments would be made though the loan accounts. The very fact that it was agreed that the parties would come back to the question of how payment could be made suggests that there was no agreement on this; and when Mr Barnsley later suggested it in his e-mail of 28 June 2009 (paragraph 139(8) above) he referred to "the fairest thing" being to pay through the loan accounts, which suggests that it was not something that he thought had already been agreed.

(8) Moreover there was on this point a slight but significant shift in Mr Barnsley's evidence: in his first witness statement, sworn in opposition to an application by the then Defendants for summary judgment, he had said:

"David Horrocks and I agreed that we would come back to the question of how any VAT payment might be structured when we had time to do so, after the Demerger. Without further agreement, however, the original agreement (as recorded in the Final Agreement) was to stand."

He used this witness statement as a template for his second witness statement for trial, but the relevant passage now read:

"David Horrocks and I agreed that we would come back to the question of how any VAT payment might presently be structured when we had time to do so, after the demerger. But this was on the basis that, as we both agreed, that until there was such a post-demerger further agreement, the original 75:25 agreement (as recorded in the Final Agreement) was to stand, with any VAT repayment being made by Philip via a cash payment from his loan account with MPM." (added text in bold).

He was closely cross-examined about this aspect of his evidence, in the course of which he accepted that he had no recollection of reference actually being made on 16 January to the Final Agreement (that is, the 17 December slides). At the end of his evidence I was left unpersuaded that there was any actual agreement between Mr Barnsley and Mr Horrocks as to how, in default of further agreement, any Linneweber payment would be made.

154. The final step relied on by the Claimants is the completion meeting on 9 and 10 March. As already stated, this consisted of Mr Barnsley, Mr Horrocks and Mr Biesterfield, systematically working their way round the table and putting in place each of the steps referred to in the Step Plan in order. It is not disputed that at any rate by the end of the process, Mr Barnsley had the authority of Gill and the Capita Trustees and Mr Biesterfield Philip's authority and all the steps were formally completed. In other words the parties accepted that all the documents which had been executed were legally effective.
155. Since nothing was said about Linneweber at the meeting, the Claimants obviously need to explain how they contend that what had until then not been a binding agreement in relation to it became contractualised at that meeting. This is pleaded in three alternative ways (i) that the "VAT repayment agreement became a term of the Demerger upon the Demerger contract being finally agreed and implemented in full"; (ii) that "the VAT repayment agreement represented a binding agreement finally agreed on or about 9 March 2009 when the Demerger contract was concluded"; and (iii) that it represented a binding agreement "when the Demerger process was fully implemented on 10 March 2009". This pleading refers to three terms elsewhere defined: the "VAT repayment agreement", which is said to have been made on or about 15 December 2008; the "Demerger contract", which is said to have been made on 9 March 2009 when the parties agreed to proceed with the demerger; and "the Demerger" which is a reference to that contract and the implementation of the steps and processes involved in the completion meeting.
156. It can be seen that these three alternatives are really slightly different ways of putting the same point, namely that it was implicit or inherent in the parties proceeding to the completion of the steps at the completion meeting that they were agreeing to split the Linneweber receipts as well. I will say at once that I do not accept that this has been established. However it is put, it depends in the end on accepting that what the parties agreed to be bound by on 9 and 10 March was not only the obligations contained in the very many documents that were signed, but another obligation which until then had not been binding, and which was not mentioned or referred to at all at the meeting. As a matter of orthodox analysis, this can it seems to me only be on the basis of an implication, there being nothing expressly agreed to that effect. In my judgment it is not possible to spell out of what was agreed or done the necessary implication.
157. I will start first with variant (ii). This depends on there having been a "Demerger contract" agreed on 9 March when the parties agreed to proceed with the demerger. Quite apart from the point that if Mr Biesterfield's recollection is right, they did not agree to do this beforehand (but only agreed that the documents should take effect at the end of the process), I am very doubtful whether there was such a separate contract at all. Even if one assumes that Philip gave prior authority to Mr Biesterfield and so that it can be said that the parties in the shape of their representatives had indicated that they were ready to go ahead, it seems unrealistic to regard them as contracting to do so. That would mean that by embarking on the process they had committed themselves to seeing it through. Since it is not suggested that anything was said which amounted to an express agreement to do this, this would itself have to be an implication from conduct. The test for such an implication is necessity (Modahl v British Athletic Association [2001] EWCA Civ 1447 at [102] per Mance LJ); and I do not see that there is any need to regard the parties as impliedly agreeing to complete the process just because they had started it. I think the more natural interpretation of their actions was that the whole process of going round the table was one complex and protracted act of completion, and that they were no more bound to carry it through by starting it than a person executing a document is obliged to finish his signature on a document by starting to sign it.
158. But it is not necessary finally to decide this. It might have been significant if the process had been unexpectedly interrupted half-way through, something which did not of course happen. Even if it were right that by starting on their journey round the table, they had committed themselves to carry on to the end of it, all that this would imply is that they had agreed to complete each of the steps represented by the documents on the table. Something more is needed to commit them to another obligation, not represented or referred to in any of the documents before them.
159. So in the end I do not think it matters whether Philip authorised the demerger to proceed in advance, or only after the documents were signed; or whether there was a "Demerger contract" or not. If there was, the question is whether by agreeing to proceed with the demerger the parties were impliedly agreeing to be bound by the so-called VAT repayment agreement (variant (ii)). If there was not, the question is whether the parties were impliedly agreeing to be bound by such an agreement by the act of completing the steps set out in the Step Plan (variant (iii)). Nor do I think it matters whether this is said to be a separate agreement (variants (ii) and (iii)) or an implied term (variant (i)). In each variant one comes back to the question: what is the basis for asserting that the parties agreed to contractualise their agreement about Linneweber on 9 or 10 March ?
160. Mr Tager's case on this can be summarised as follows:

(1) The parties' agreement to demerge was not wholly in writing. Certain matters were agreed orally in the course of negotiations. The Step Plan therefore did not contain all of the terms that would be given effect to on completion.

(2) Where a term was orally agreed as one of the terms on which the demerger would proceed, it became "banked".

(3) Absent any decision to "unagree" a term, or agreement to take it out of the "bank", it remained one of the orally agreed terms and would become a term of the demerger in the event that the demerger proceeded.

(4) When the parties agreed to implement the demerger they therefore became contractually bound by all "banked" orally agreed terms.

(5) The agreement on Linneweber was orally agreed by 17 December and was thereafter never unagreed, so it remained one of the banked terms and became binding on the parties.

161. So far as the parties' contractual arrangements being partly oral was concerned, Mr Tager was able to point to passages in the evidence of Philip's witnesses where they were willing in very general terms to accept this (not least by reference to what they had said in the Piccadilly proceedings, where it was Philip's case that there were oral binding agreements). He also relied on two other matters:

(1) A footnote in a supplementary skeleton argument by Philip's side in the Court of Appeal in the Piccadilly proceedings to the effect that:

"It was common ground between the parties from the commencement of the trial that not all of the deals between the parties were recorded in the documents."

Read in context (which was that in the Court of Appeal Philip's side accepted that there was no legally binding contract in relation to a leaseback of the ground floor of the Piccadilly property, but only a non-contractual understanding which could be given effect to by way of constructive trust or estoppel), this gives no support to the suggestion that there were oral binding agreements; the very word "deals" points to the informal nature of the arrangements here being referred to.

(2) A passage in the judgment of Etherton LJ in the Court of Appeal in the Piccadilly proceedings where he said (at [108]):

"I agree with the respondents' submission that the evidence shows that both Philip's side and Gill's Side always intended that (save in respect of a handful of specific matters not relevant to the main proceedings) all aspects of the demerger agreement between them should be embodied in formal written contractual documentation."

I was told however that the words in brackets had been added to the text of the draft judgment as a result of a suggestion from those then acting for Gill's side, no doubt with an eye to these proceedings, and although, as Mr Tager pointed out, the Court of Appeal must have been content to accept the suggestion, it is not apparent to me what, if anything, the Court of Appeal knew about these "specific matters". I do not think this particular point therefore takes the matter any further.

162. Mr Tager gave some examples of matters which were said to be binding oral agreements. I did not find any of them particularly helpful, or indeed persuasive. One was an agreement that the two sides should bear the professional costs of the demerger equally. There was some evidence that this had been agreed, but whether such an agreement was intended to be contractually binding or not was not something explored at any length in the evidence, and I do not intend to embark on a review of such evidence as there was to resolve this point. At that stage the parties were proceeding entirely amicably, and it is certainly not obvious whether they thought that they were binding themselves legally. Even however if I were fully satisfied that there was a contract to this effect, it would, as Mr Smouha pointed out, operate in a quite different way to the suggested "banking" arrangements. It would not be an oral term agreed in a non-binding way that became contractual on the demerger proceeding; the agreement to share costs was made long before the demerger and would have been needed whether the demerger proceeded or not. Either this agreement was contractual at the outset or it was not: it makes no sense to suggest that it started as non-contractual but became contractual on the demerger proceeding.
163. A second example was an agreement that £300,000 of Gill's loan account should be held back to provide security for her share of the costs. The difficulty here however is that there is no firm evidence that this was ever agreed before the demerger, and some that it was not: in an e-mail of 20 July 2009 Mr Barnsley referred to Mr Blain having made a provision out of Gill's loan account of £300,000 "incidentally without discussion with us". Mr Blain said he believed he it was Mr Horrocks who told him to deduct it; but Mr Horrocks said he didn't handle the adjustments – Mr Jefferson and Mr Blain were responsible for that.
164. Mr Tager's third example was that in calculating Gill's share of the costs, £170,000 was allowed to her as a quid pro quo for the fact that £170,000 had been taken out of Philip's settlements for the benefit of Philip's side before the settlements were transferred to Gill's side. Mr Tager said this must have been agreed in advance; but it again is not clear to me that there is any reliable evidence to that effect, and it may have been something that was simply accepted after the demerger (at a stage when the parties had not fallen out) as obviously a fair and appropriate thing to do.
165. Mr Tager's remaining examples were the transfer to Philip of shares in two comparatively unimportant companies, one called Chillport and the other The Noble Organisation Ltd; and the lease of a building known as the Palatine Building in Blackpool. But formal documents in relation to each of these were among the documents executed at the completion meeting: the transfer of Chillport had indeed been included in the Step Plan (at step 27), and although the other two matters do not appear to have been, a lease and counterpart lease of the Palatine Building were executed and dated 10 March 2009, and a transfer of shares in The Noble Organisation Ltd was also executed and dated 10 March 2009, all these documents being included in Dickinson Dees' bible of demerger documents. That no doubt confirms that there were matters discussed and agreed between the parties which were over and above the matters dealt with in the Step Plan. But it does not support the submission that there were matters left as oral agreements that were nevertheless intended to be contractually binding – the very fact that formal legal documents were executed tends to suggest the contrary.
166. But in any event the question is not whether there were other matters orally agreed and intended to be contractually binding. Mr Tager's central submission is that any term which was orally agreed (but not legally binding) in the course of negotiations became "banked" and would form one of the (legally binding) terms on which the demerger took place once the parties proceeded to implement it. This seems to me on analysis to rest on no more than assertion. Logically, as Mr Smouha pointed out, one can only get to that conclusion if either (i) the parties were already contractually bound before the completion meeting to treat banked terms as binding (what he calls a prospective banking agreement) – but this runs into the difficulty that it is accepted that there was no binding agreement in relation to the demerger at all before 9 March; or (ii) the parties agreed at the completion meeting to treat previously banked terms as binding (what he calls a retrospective sweeping up agreement) – but this runs into the difficulty that nothing was said or done at the meeting which could amount to such an agreement, whether in relation specifically to Linneweber or generally in relation to oral terms. There is nothing that I can find in the evidence which would support either factual finding and enable me to conclude that the parties at any stage, whether before the completion meeting, or at the completion meeting, agreed that terms which were not documented would nevertheless become contractually binding on the demerger being implemented. This was simply not something that, so far as the evidence goes, was ever discussed at all.
167. Thus although I accept that the 75/25 split of Linneweber payments was agreed (orally but not contractually) by 17 December, and confirmed on 16 January, and was never "unagreed", I do not accept that this by itself suffices to turn the agreement into a contract on 9 or 10 March. Absent express agreement to that effect (and there was none), the only legal mechanism that could so operate is, as I have said, implication; but Mr Tager did not argue that it fell within the well-known and narrow circumstances in which a term may be implied into a contract, and in any event I do not regard it as necessarily implicit, or as going without saying, or as what a reasonable person would understand the parties to mean, that by proceeding to complete the documents and steps around the table, they were also agreeing to contractualise any other terms agreed by them in the course of negotiations.
168. In my judgment therefore the contractual claim fails for the simple reason that there was never a stage at which the parties agreed that the split of Linneweber payments would be contractually binding.
169. Although I have reached this conclusion simply on the evidence of what happened before and at the completion meeting, it is noticeable that many of the post-demerger discussions proceed on the basis that although the basic principle of a 75/25 split of any Linneweber recoveries had been agreed and was not in dispute, nothing had been documented and nothing was contractual. See in particular Mr Barnsley's e-mails of 18 July (referring to documenting this "in a contractual form"), 20 July (referring to there being "no final agreement" and "we are not ad idem" and to documenting "even if it is in a side letter which is non-binding"), 22 July (referring to all the side agreements being non-binding and needing "to get this contractual asap") and 21 August (referring to not being able to "leave this uncontractual") (paragraph 139(14), (16), (17) and (20) above). The question of whether parties intended an agreement to be contractual or not is no doubt an objective one and not a matter for the subjective perception of one or other party, but the fact that Mr Barnsley himself saw the agreement as uncontractual in July and August 2009 tends to support the conclusion that I have drawn from the evidence.

The contract claim – (ii) uncertainty

170. This makes it strictly unnecessary to consider the other objections to the contractual claim put forward by Mr Smouha, but I will consider the second main objection which is that the agreement to split any Linneweber payments was too uncertain to be enforced.
171. There was no dispute as to the legal principles. I was referred to RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG (UK Production) [2010] UKSC 14 as being the most recent pronouncement of the Supreme Court. Lord Clarke said (at [45]):

"The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement."

At [46] he stated the test as being:

"Were the parties agreed upon all the terms which they objectively regarded or the law required as essential for the formation of legally binding relations ?"

172. The principles have also been summarised at rather greater length in two Court of Appeal decisions, once by Rix LJ in Mamidoil-Jetoil Greek Petroleum Company SA v Okta Crude Oil Refinery AD [2001] 2 Ll Rep 76 at [69], and again by Chadwick LJ in BJ Aviation Ltd v Pool Aviation Ltd [2002] P&CR 25 at [19]-[24]: for these, I was referred to MRI Trading AG v Erdenet Corporation LLC [2013] EWCA Civ 156 at [16] where Tomlinson LJ (himself quoting from the judgment of Eder J under appeal) conveniently sets out both passages. It is not necessary for me to set them out. What I take from both summaries is that there are two rather different types of case. One is where, as Chadwick LJ put it at [23], "the court is satisfied that the parties intended that their bargain should be enforceable", or, as Rix LJ put it at [69(iv)], "particularly where the parties have acted in the belief that they had a binding contract". In such a case the Court is willing to imply terms to enable the contract to carried out, such as that a price should be a fair or market or reasonable price, and that other terms should be judged by some objective criteria of fairness or reasonableness. One can readily see that if the Court is satisfied that the parties intended their bargain to be binding and enforceable, it will go to considerable lengths to try to uphold that bargain rather than allow it to be destroyed through failure to agree every detail. That was the case both in the classic case of Foley v Classique Coaches [1934] 2 KB 1, and in the MRI case itself where Tomlinson LJ (at [22]) expressed his entire agreement with the conclusion of Eder J that "this was clearly a situation in which a binding agreement had been intended to be entered into."
173. But it is rather different when the whole question is whether the parties have got to the stage of agreeing sufficient terms to constitute anything intended to be enforceable at all. In such a case, as Rix LJ put it (at [69(iii)]):

"where no contract exists, the absence of agreement on essential terms of the agreement may prevent any contract coming into existence, again on the ground of uncertainty"

or, as Chadwick LJ put it (at [21]):

"if…the parties must be taken to have intended to leave some essential matter, such as price or rent, to be agreed between them in the future – on the basis that either will remain free to agree or disagree about that matter – there is no bargain which the courts can enforce."

What is "essential" for this purpose must of course be understood in the sense explained by Lord Clarke in the RTS case as being what either the parties regarded, or the law requires, as essential.

174. Mr Smouha submitted that the agreement as to sharing any Linneweber payments 75% / 25% (as recorded in the 17 December slides) was on this test too uncertain to be enforceable. He relied on a number of matters that were not agreed. The first of these was the identity of the parties, that is both the paying party and the receiving party.
175. So far as the paying party is concerned, the Claimants' case is that this was a personal obligation resting on Philip alone. Mr Tager submitted that it was perfectly natural for Philip to take on a personal liability. Any Linneweber payments would be made to the trading companies, of which the ultimate owners after the demerger would be either (as to some 68%) Philip personally, or (as to some 32%) his family settlements, of which he was life tenant and his children the other main beneficiaries.
176. He pointed out that this was exactly what was done with the anti-embarrassment provisions. The basic idea behind these was that if Philip's side disposed of a business, or Gill's side disposed of a property, within the year after the demerger and at a price higher than had been assumed in the negotiations, half the excess (less a notional allowance for tax) would be payable to the other side. Despite the fact that the immediate benefit of any such disposal would accrue to the company which sold the business or property concerned, the anti-embarrassment deeds took the form of mutual deeds of gift entered into by Philip and Gill personally in favour of each other.
177. But the question is not whether it would or would not have made sense for Philip to agree to a personal liability. The question is whether he did. On this point the Claimants can get no assistance from the way in which it was expressed in the 17 December slides, where the relevant bullet point reads as follows:

"Any VAT reimbursement of Linnewebber VAT case to be split 75% PN / 25% GN following deduction of costs".

"PN" and "GN" cannot safely be read here as referring to Philip and Gill personally: the evidence was consistent that "PN" and "GN" were used by the parties in the negotiations to refer sometimes to Philip and Gill personally, but sometimes to Philip's side and Gill's side in a more general sense: indeed Mr Barnsley said in evidence that "Gill" and Gill's side" were used indiscriminately. But even if one could read PN and GN as referring to Philip and Gill personally, the bullet point does not refer to Philip making any payment at all. What it provides is that any reimbursement is to be split between PN and GN. But any VAT repayment would not be received by Philip; it would be received by one of the relevant trading companies. A natural reading of this bullet point would therefore be that the recipient company would then deal with the money it received in such a way as to pass the benefit of it 75% to Philip and 25% to Gill. In other words taken by itself this suggests that payment would come from the relevant company: Philip would not be paying 25% but receiving 75%.

178. So in order to establish that the deal was that Philip would himself make a payment to Gill, there must be evidence of some discussion and agreement to that effect. Mr Barnsley however did not suggest that there was any agreement with Philip as such that Philip would pay cash to Gill, and accepted in terms there was not:

"Q It follows from that that you did not discuss with Philip any agreement that he would make a cash payment to Gill ?

A Discussed no: it was taken as read.

Q Taken as read ?

A We go back, my Lord, to the norm that if there was an imbalance in the loan accounts, there would be a cash settlement."

179. Mr Barnsley's evidence as a whole was that he regarded "payment through the loan accounts" as in effect implying that one account holder (Philip) would pay another (Gill) personally. And in his witness statement he had said that this was mentioned at the 8 December meeting: he there said there was a brief reference to the way in which the share of any VAT repayments received would be accounted to Gill and her family; he thought it was "probably me who suggested that this could be done through loan accounts, with Philip agreeing, although it is possible that it was Philip who first suggested it." But in cross-examination, he was much less certain: he said that he thought that using the loan accounts was "implicit in the split", then that he thought that it was mentioned as a way in which it could be done, and finally:

"Q Do you say that it was ever expressly agreed – expressly agreed – that the VAT repayments would be done through the loan accounts ?

A No I don't think I do."

180. Mr Jefferson's evidence was the same:

"Q Do you accept that no express agreement was made with Philip that payment of a split would be made through the loan accounts, at the meeting on the 8th ?

A Yes, I think I do."

181. By the time he came to give oral evidence, Mr Barnsley, who had obviously given a great deal of thought to the whole question, was very clear in his view that any payment in respect of Linneweber was in truth additional consideration for the shares. Referring to the bullet point in the 17 December slides, he said:

"A That was a commercial agreement and it was entirely accurate. That's what we had agreed to do. But if you analyse the nature of the payment, the nature of the payment was additional consideration for the shares. I don't know how many times I have got to say that. What else could it be ?"

As such he saw it as only natural that payment should come from the shareholders, which he regarded as meaning effectively Philip (who according to Mr Barnsley "ignored the settlements and always talked … for himself and as himself").

182. But much nearer the time, on 3 January 2009, his reaction to Mr Coward's golden share proposal was not that it had already been agreed that Philip should pay personally, but that he could not see why Linneweber payments could not be dealt with by "an additional payment on the balancing loan from falcombe to gills uk company": see his e-mail of 3 January 2009 (paragraph 120 above). In cross-examination Mr Barnsley accepted that this was "completely different" from the idea of having the payments made through Philip's and Gill's loan accounts. He explained that this e-mail was sent from the beach and was not as precise as it might have been; but I find that it supports the conclusion that there had been no agreement by that stage on how any payment might be made, or who by (or indeed who to).
183. Mr Tager referred to the reference in Mr Brown's note of his meeting with Philip on 4 February 2009 to "any balancing amount being via the respective Director loans" (paragraph 128 above). He suggested to Philip that this indicated that he was willing to pay millions of £ to cover the imbalance in an asset split. But this brief and rather unspecific note does not say that any imbalance will be immediately settled in cash or its equivalent. What the 17 December slides envisaged was that any imbalance would be paid by an interest free loan over 7 years, and I do not see that this is inconsistent with Mr Brown's note. Mr Barnsley accepted in cross-examination, as is plainly right, that this was not the same as effecting an immediate payment through adjusting the loan accounts.
184. I find that there was no agreement at the 8 December meeting that payment would be made through the loan accounts, and no agreement at that meeting that Philip would pay personally. Rather the agreement was simply, as Mr Barnsley put it in his e-mail of 28 June 2009, that "25% of the Vat recoveries would come to gill"; or as Mr Jefferson put it in his e-mail of 8 July 2009 "if there was recovery, then a mechanism would be found to get Gill 25% of the net proceeds" (paragraph 139(8), (13) above).
185. If, as I have found, there was no agreement at the 8 December meeting, or in the 17 December slides, that Philip would make a personal payment to Gill, there was none thereafter. The only other occasion on which Linneweber was discussed before the demerger was at the 16 January meeting, and I have already found that although there was some discussion (as recorded in Mr Ward's note) of using Philip's taxed income, there was no agreement between Mr Barnsley and Mr Horrocks to that effect: in any event, it is accepted that Mr Horrocks did not have authority to bind Philip, and Philip was not at the meeting and it is not suggested that he thereafter agreed to what was then discussed.
186. Mr Barnsley himself said more than once in cross-examination that the agreement was between the two sides:

"Q …Do you still say that what you discussed was an agreement only between Philip and Gill ?

A Well it's Gill's side and Philip's side, isn't it."

There are other examples which it is not necessary to set out. I find that all that has been established is an agreement that Philip's side would make a payment to Gill or Gill's side, without any agreement that the payer would be Philip personally as opposed to one of the companies on his side.

187. This by itself is fatal to the agreement being sufficiently certain to be enforced as a contract. In any normal case of an agreement to pay money, and certainly in this case, the identity of the payer is an essential term, as Mr Tager accepted in closing ("what was essential was that Philip would pay"); and failure to agree on it means that the agreement is too uncertain to be a binding contract.
188. Similar considerations apply secondly to the identity of the payee. This is pleaded in the alternative as either Gill personally or Philip, Mr Barnsley and Gill (as Executors of the Estate) and the Capita Trustees. Mr Tager submitted that this was not an essential term – whether it was Gill or the Executors and trustees did not matter as Gill accepted that anything she received would be in a fiduciary capacity. I do not think this cures the difficulty. There is a difference between a contractual obligation to pay A, and a contractual obligation to pay B, even if A subsequently accepts that any payment will be held by her for the benefit of B. In any event I find that the parties had not even got to the stage of identifying the potential recipient as either Gill or the Executors and trustees: Mr Barnsley's suggestion in his e-mail of 3 January was a payment to Gill's UK company. I find that the identity of the potential payee was never agreed, and in my judgment it was an essential term.
189. Thirdly, there is the question of structure. I have found that the agreement was effectively no more than that 25% of the VAT recoveries would come to Gill (or her side), or that a mechanism would be found to get 25% of the net proceeds to her (or her side), or that any VAT recoveries would be split 25% / 75%. The parties never did agree on what the mechanism was. After the rejection of the golden share, there was no further attempt to agree the mechanism before the demerger; and when they came back to it after the demerger, Mr Barnsley's suggestion of a personal payment by Philip using the loan accounts was rejected by Mr Horrocks on behalf of Philip as a non-starter, as Mr Coward had predicted in his e-mail of 22 July it would be (paragraph 139(17), (19) above).
190. In the circumstances of this case, the failure to agree upon the mechanism by which 25% would be got to Gill or her side is in my judgment another matter that renders the agreement too uncertain to be enforceable as a contract. In some cases, no doubt, where the parties have agreed on the fundamentals of a contract but have failed to agree on what can be described as "mere machinery", the Court may supply its own machinery to avoid the contract failing. But this is not so here. In the Piccadilly proceedings, Morgan J found (at [226]) that:

"the demerger was immensely complex. Although the parties had agreed commercial terms on most matters, the steps needed to give effect to those commercial terms were not mere machinery. The documents to give effect to the demerger were critically important because of the different tax consequences of the different ways in which the demerger might be arranged. There were important differences between transferring title to an asset, transferring the shares in a company which owned an asset and extinguishing and creating beneficial interests under trusts which owned shares in a company which owned an asset. Just as all these steps could have different tax consequences, it was important to avoid entering into contractual commitments in relation to the demerger as a whole, or as to parts of it, until all of the tax consequences were understood and the most tax efficient way forward identified."

Mr Tager said in closing that even though he did not think this technically gave rise to an issue estoppel, there was nothing in this passage which he did not invite me to adopt.

191. The evidence that I heard amply justifies the conclusion reached by Morgan J. Indeed right at the beginning of the Step Plan, it identified the "key objectives" of the group restructuring and demerger as being:

"To separate out the trading and property operations between Philip Noble ("PN")/Gillian Noble ("GN") family interests in a tax efficient manner"

and every step is accompanied with an explanation of the tax consequences. Mr Tager drew attention to the fact that some steps nevertheless attracted not insignificant amounts of tax, such as stamp duty; but this does not really answer the point, which is that the parties were undoubtedly concerned to minimise tax wherever they could. The fact that some tax could not in the end be avoided does not affect this.

192. In the case of the Linneweber payments it is clear that different mechanisms could in principle be found for getting a payment to Gill or Gill's side, and that they would have different tax consequences. In re-examination Mr Coward gave an explanation of the various structures that he thought could have been used, and the various disadvantages of each. As well as the golden share which he suggested at the time, he said that one could have (i) a direct payment from the receiving company to Gill; (ii) a payment from the receiving company to one of Gill's companies; or (iii) a payment out to Philip who would then make a payment to Gill. His view was that the golden share, although not ideal, was the most tax efficient method, whereas he considered that a payment by Philip personally would in effect involve treble tax. I do not need to set out, or consider, the detail of why he took that view: what is significant is that the tax consequences would undoubtedly differ depending on how it was done. I find that agreement on the structure or mechanism used to split any Linneweber receipts was something that the parties regarded as essential, and failure to agree on it is in my judgment another reason why such agreement as there was was too uncertain to amount to a contract.
193. Mr Smouha pointed to various other matters as making any agreement too uncertain; but in the light of my conclusions so far, I do not regard it as necessary to go through them all. Mr Smouha also relied on a number of other matters in support of his submission that there was no contract, in particular on entire agreement clauses in various share exchange agreements and in the s. 110 Agreement executed on completion of the demerger. Again I do not think it necessary to consider these. For the reasons I have given the contract claim in my judgment fails.

Deceit / misrepresentation

194. The Claimants' second claim is a claim in the tort of deceit, or for non-fraudulent misrepresentation under s. 2(1) of the Misrepresentation Act 1967, based on what Philip said to Mr Barnsley at the 8 December meeting about the prospects of recovery of VAT by the trading companies.
195. The legal principles applicable to a claim in deceit are relatively well settled. I was referred to various recent cases where they are discussed, namely Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm) (Christopher Clarke J), Cassa di Risparmio della Reppublica di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm) (Hamblen J), Bonham-Carter v SITU Ventures Ltd [2012] EWHC 3589 (Ch) (Asplin J), and Excalibur Ventures v Texas Keystone [2013] EWHC 2767 (Comm) (Christopher Clarke J).
196. Mr Smouha derived no less than 20 principles from these authorities, with which Mr Tager did not in the main take issue. I do not intend to set them all out. For present purposes, the significant points are as follows:

(1) At the heart of the tort of deceit is a false statement of fact deliberately made by A to B which induced B to act in such a way as to cause B loss. The starting point is therefore for B to establish (i) what was actually said; (ii) what express statements of fact were thereby made; and (iii) what implied statements of fact were thereby made.

(2) B also has to show that he in fact understood the statement in a particular way. This is obvious: since B has to show that he was induced to act by the statement, he has to show what he subjectively understood the statement to mean.

(3) The statement has to be one on which B was intended and entitled to rely.

(4) B has to show that he was induced by the statement to act in a particular way. This imports a causation test.

(5) B has to show the statement was false.

(6) A is only liable for deceit if he knew the statement was false, or made it without a genuine belief in its truth. In the case of the statutory claim for non-fraudulent misrepresentation, the onus is on A to prove that he had reasonable ground to believe and did believe that the facts represented were true.

(7) In the case of fraudulent misrepresentation, it must also be shown that A understood that he was making a statement in the sense alleged by B. Again this is obvious: A cannot be liable for making a deliberately false statement if he does not appreciate that he is making that statement. In the case of the statutory claim for non-fraudulent misrepresentation, the position is different.

What did Philip say ?

197. I start then with the question of what was actually said. The Claimants rely on the brief conversation about Linneweber at the end of the 8 December meeting. The gist of this is pleaded as being that Philip said to Mr Barnsley that the prospect of recovering any VAT was "very low and/or remote and/or highly speculative." Philip is said to have dramatised this by saying that if he were offered £200,000 for the contingency he would take it; and the evidence for the Claimants (from Mr Barnsley and Mr Jefferson, with some support from Mr Norman) was that Philip had used an unusual phrase, saying that if offered £200,000 he would "snap my arm off at the elbow".
198. Philip denied using this phrase, or saying anything about taking £200,000, but in cross examination he accepted that he told Mr Barnsley that he didn't think it (a successful Linneweber claim) was going to happen:

"Q Did you say anything to him about it being remote and very, very speculative?

A. Yes, I believe I gave him my opinion.

Q. And what was that opinion, Mr Noble?

A. That it was remote and speculative.

Q. Did you say speculative, or did you put it in terms, as you put it to my Lord, that it was very, very speculative?

A. I can't remember.

Q. But you certainly recall telling him it was remote and speculative?

A. I told him that in my opinion, I didn't think it was going to happen.

Q. And you used words like "remote" and "speculative" didn't you?

A. I can't remember if I used those or not.

Q. But this was the impression you intended to give?

A. I told him that in my opinion, I didn't think it was going to happen."

Elsewhere in oral evidence he said that he remembered saying something along the lines that he didn't fancy the Linneweber claims, and if the Claimants wanted to buy them for £2m they could.

199. Save for the £2m figure, I accept this evidence and find that it is as close as it is now possible to get to a reconstruction of what Philip said. I do not find that he used any particular words such as remote or speculative, but he did give Mr Barnsley the impression that he did not think it was going to happen and he did not fancy the claims, and suggested Mr Barnsley might like to buy them at a low price. It is not necessary, nor is it really possible in the light of the evidence as a whole, to be more precise about what was said.
200. In particular I do not find it necessary to resolve, nor do I feel able to conclude, whether Philip did or did not make the "snap off at the elbow" remark or refer to £200,000 or £2m. This is only pleaded as dramatising or lending colour to the gist of what Philip said which is that the prospect of recovery was remote, which is effectively not in dispute. In any event one needs to be very cautious about elevating statements by a negotiating party as to what he will pay or accept for something into representations as to what he actually values the asset at, as otherwise negotiation would be impossible. A vendor who says he will take £x for an asset is not saying anything about the actual value of what he is selling, or even what he thinks its value is, but only what his negotiating position is, and that is how any purchaser would understand him. This case is no doubt unusual in that it is Philip who was suggesting that he would readily accept a low price; but the principle is the same that this is just a statement of his negotiating position, and is not to be understood as indicating his actual views of value. Mr Barnsley indeed accepted that it was quite possible that he did not take Philip's offer seriously; he was in any event not interested in buying the Linneweber claims but splitting them.

What representation of fact did Philip make ?

201. The next question is what representation of fact, if any, was involved in what Philip said. A number of possibilities have been canvassed. In the (re-amended) Particulars of Claim themselves, the pleaded representation (that the prospect of recovery was very low and/or remote and/or highly speculative) is said to have been false because there was at least a reasonable, alternatively a real, prospect of the gaming companies receiving VAT repayments. This way of putting the case treats Philip as having made a representation as to what the prospects actually were, as if this were an objective fact.
202. On my findings of fact, this suggestion fails. Whether Philip said that he did not think it was going to happen, or did not fancy the Linneweber claims, or was willing to sell them cheaply, he was saying what he thought of the claims. This is a statement of his opinion of the claims: it is not a statement of how strong the claims, objectively speaking, actually were. Mr Smouha submitted that even without any reference to what the speaker thinks, a statement of the likely outcome of ongoing litigation is inherently a statement of opinion, not fact. This may well be right: unlike a statement as to the past ("this claim has succeeded") or as to the present ("we have a claim which is ongoing"), a statement as to the prospects of success ("we have a claim which is likely to succeed") is necessarily a statement as to a future event; and just as you cannot prove a future event, I rather doubt whether a statement as to the future outcome of an inherently uncertain event can ever be regarded as a statement of fact in the requisite sense as opposed to the speaker's opinion as to what the outcome is likely to be. But is not necessary to explore this further, as it is clear that the statements which I have found Philip to have made were statements as to what he himself thought of the claims.
203. The Claimants expanded on their case in answer to a request for further information which specifically asked what express or implied representation of fact (as opposed to opinion) Philip was alleged to have made. Here, the Claimants said a number of things. The first was that the gist of what Philip was saying was that the Linneweber claims had little or no value because it was very unlikely that any of the claims that the industry were putting forward would ultimately succeed. This seems to me to take the matter no further forward: anything Philip was saying about the value of the claims was a statement of his opinion not a statement of fact.
204. Second it is said that Mr Barnsley assumed that this reflected the advice that Philip and the Trading Group had received from BACTA and (in all probability) from PwC. But this is not pleaded as something Philip implicitly said; and if it had been, I would have rejected it in any event. It is not suggested that Philip said anything expressly about the advice that he had received, and I do not consider that the factual findings I have made (which are that Philip was saying what he thought of the claims) naturally carry with them any particular implication as to what that was based on. I return below to the question of how Mr Barnsley in fact understood what Philip was saying.
205. Third it is said that if what Philip was saying was an expression of opinion, it was not an opinion that he genuinely held and/or was not an opinion that he could have honestly or reasonably asserted. This, although not very precisely pleaded, seems to me to amount to (i) an allegation that Philip made an implied representation that he genuinely and honestly held the opinion he expressed; and (ii) an allegation that he made an implied representation that he had reasonable grounds for doing so. There is no difficulty in principle with the first of these: it was long ago said that the state of a man's mind is as much a fact as the state of his digestion; and see Brown v Raphael [1958] 1 Ch 636 at 641 per Lord Evershed MR ("a statement of opinion is always to this extent a statement of fact, that it is an assertion that the vendor does actually hold the opinion which he states.").
206. The suggestion that he was also saying he had reasonable grounds for that opinion is not so straightforward. I was referred to certain authorities. The earliest is Smith v Land and House Property Corporation (1884) 28 Ch D 7, a well-known case where the express representation in a sale by auction was that a hotel was held by "a very desirable tenant". In fact the tenant was in arrears with the rent, having paid the Lady Day rent by dribs and drabs, the last part shortly before the auction (in August), and not having paid the Midsummer rent at all. The Court of Appeal upheld the finding of the trial judge that there had been a material misrepresentation. Baggallay LJ said that the vendors must have known perfectly well that the tenant did not pay his rent properly, and they therefore were not justified in describing him as a very desirable tenant. Bowen LJ, whose judgment is most often cited, said that where the facts are equally well known to both sides, what one says to the other is frequently nothing but an expression of opinion, but where the facts are not equally known a statement by one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion; and that if a landlord, who knows the relation with his tenant better than anyone else, says that such relations are satisfactory, he is really saying that "the facts peculiarly within his knowledge are such as to render that opinion reasonable." The statement that the property was let to a most desirable tenant amounted at least to an assertion that "nothing has occurred in the relations between the landlords and the tenant which can be considered to make the tenant an unsatisfactory one." Fry LJ said that the vendors stated in substance that "they knew no fact which shewed him not to be a desirable tenant."
207. This is undoubtedly an example where what could be characterised as an expression of opinion is held to involve an implied assertion of fact, albeit, as expressed by Bowen and Fry LJJ, a negative one that nothing had occurred, or the vendors knew no fact, which made the tenant undesirable. But the context, as always, is important. A purchaser buying tenanted property at auction is interested in knowing how good a tenant the tenant is, and in this context a good tenant is among other things one who pays his rent on time. His track record of paying rent is therefore highly material. It seemed self-evident to the Court that a tenant who paid his rent so irregularly ("by driblets under pressure" as Bowen LJ put it) could not properly be described as a desirable tenant, so the statement in question comes very close to being a statement of objective fact, almost as if it had said "the tenant has no history of default". Thus although "desirable" is in most contexts no doubt a subjective value judgment or matter of opinion, in this particular context it is much more like an objective assessment of the tenant's history of paying. The actual result therefore is not surprising.
208. Mr Tager also referred me to Bisset v Wilkinson [1927] AC 177 as an illustration of a case where a statement was held to be a statement of opinion pure and simple with no implication other than that it was honestly held. The contract there was for the purchase of two blocks of land in New Zealand, and the statement relied on was a statement by the vendor was that "if the place was worked, as I was working it, with a good six-horse team, my idea was that it would carry two thousand sheep". The trial judge held that this was a representation only of the vendor's opinion of the capacity, and not a representation of fact as to what the capacity was. The Privy Council agreed. The relevant inquiry was what meaning was conveyed to the minds of the purchasers, and this depended on the material facts of the transaction, the knowledge of the parties and their relative positions, the words used and the actual condition of the subject-matter spoken of. The most material fact was that, as the purchasers knew, neither the vendor nor, so far as appeared, any other person had ever carried on sheep-farming on the land. In ordinary circumstances a statement by a vendor who had been occupying his own farm as to its carrying capacity would be regarded as a statement of fact; but in circumstances where it had not been used for sheep-farming, the purchasers were not justified in treating the statement as any more than an expression of opinion. The Privy Council then examined whether the statement did genuinely represent the vendor's opinion and concurred in the trial judge's view that it did.
209. This illustrates two things. First that the meaning which a statement conveys to the mind of the person to whom it is addressed depends, as one would expect, on all the circumstances including what each party knows, and exactly the same words may in different circumstances convey different meanings. Second, the distinction drawn between the case where the land had been worked and where it had not is an illustration of the practical difference between the case where what is really being said is based on experience or past events (a desirable tenant means one who has not defaulted in paying his rent, a farm of a certain capacity is one that has been successfully operated with that number of sheep) and one that is necessarily only a prediction as to future events.
210. In Brown v Raphael [1958] 1 Ch 636, the contract was for the sale of a reversion in a trust fund on the death of an annuitant, and the statement relied on was the statement that the vendor was "believed to have no aggregable estate". The Court of Appeal, upholding the trial judge, held that this was not just a statement of opinion but contained a further representation that the vendor had reasonable grounds for his belief. Lord Evershed MR referred to the facts (i) that the question of aggregable estate was one that obviously and vitally affected the subject-matter being offered; (ii) that the particulars containing the statement had the name of a well-known firm of solicitors at the end; and (iii) that the purchaser had no means of knowing anything about the annuitant, whereas the vendor was in a far superior position. Romer LJ relied on the same circumstances. Lord Evershed MR however pointed out that Bowen LJ in Smith v Land and House Property Corporation was not laying down a universal rule; that each case must depend on its own facts; that the real question depended on the facts and context of the case; and that he too was not laying down any general proposition.
211. What I take from that case therefore is that there is no universal principle that a statement of opinion always carries an implication that there are reasonable grounds for that opinion; and that the facts of that case (where the matter was of vital importance, where it was something where the vendors' means of knowledge were much greater than the purchaser's who really had none, and where the statement appeared to carry the imprimatur of the vendor's solicitors) are an illustration of circumstances where the implication can be made. It is also to be noted that the question whether the annuitant had any aggregable estate was one of existing fact (either she did or she did not), so this is another example where the belief is as to some objectively verifiable fact rather than a prediction as to the future.
212. I now consider whether the circumstances of the present case are such as to make Philip's statements (that he did not think the Linneweber repayments would happen and did not care for the claims) carry an implied representation that he had reasonable grounds for his belief. There is a danger of over-analysing what was a very brief conversation at the end of a meeting that was almost entirely concerned with other matters (negotiating the values to be used for the basic division of assets in the demerger). Mr Barnsley accepted in cross-examination that he raised the subject, with Philip having no advance notice that he was going to; that he knew that the applicability of VAT in the context of gaming machines was highly complex and very much depended on the types of gaming machines that were being used; that the question of prospects of success was a highly technical issue which would require specialist advice; that Close Brothers had said that they did not feel able to give that advice or value the Linneweber claims at all; that PwC could easily be asked to do it if he wanted to know; and that he was not looking to Philip (who was not a VAT specialist, tax professional or accountant) for advice on the prospects of success.
213. In fact Mr Barnsley was somewhat dismissive of Philip's understanding of complex issues: he thought that Philip's interest in Nobles was waning, that he was not devoting himself sufficiently to the operations of the trading group, that he did not always read business papers, and that when he was discussing valuation questions with Philip, Philip either did not understand them properly or didn't know what he was talking about. One example is that on 6 December 2008, the Saturday before the meeting on Monday 8 December, Mr Barnsley sent an e-mail to Mr Norman about a working capital adjustment. He made the point that Close Brothers had not valued the shares in Falcombe and Addbudget but the value of the businesses owned by them, and adjustments needed to be made to this value to get a value for the companies, one of which was capital that was in excess of working capital. He commented:

"I would not expect Philip to understand it or necessarily want to hear it but I will be explaining it on monday with Bob."

214. Against this background Mr Barnsley raised the VAT issue not with a view to putting a value on it, but with a view to splitting the benefit of it as recommended by Close Brothers. He did not think it was necessary to get advice from PwC. He said it was far better just to actually share the claims, and again:

"A We didn't need to [get advice from PwC] if we were going to share the claims. It would have been very expensive to do so."

215. Mr Barnsley was also very clear that when he went into the meeting he thought the prospects of success were remote. He agreed that the representation that he complained of was along exactly the same lines as the understanding he had from Mr Whitelaw, which continued exactly the same; and that if Philip had said to him that the claims were unlikely to succeed or speculative, that would have been no different from what he already thought. This is relevant to the question of inducement; but it is also relevant to what Mr Barnsley understood Philip to be saying.
216. In these circumstances I do not think Philip's statement that he did not fancy the Linneweber claims or did not think it would happen are to be understood as conveying anything more than that this was his view. It is not to be understood as saying anything about what that view was based on, or that there were reasonable grounds for that belief, or that he knew or did not know any particular facts. Nor did Mr Barnsley understand Philip as saying anything about the grounds for his view: Mr Barnsley regarded this as confirming his own understanding of the position and as not telling him anything he did not already know. If Mr Barnsley had had any interest in what Philip's view was based on, he could have asked him (which he did not – there is no evidence he asked Philip anything about Linneweber); but if Mr Barnsley had had any real interest in knowing what the prospects of success were, he could and no doubt would have asked PwC directly rather than rely on Philip, who was both in the middle of a serious negotiation with him and in Mr Barnsley's view did not understand complex issues anyway. The reason he did not seek such advice is not because he relied on Philip's view as being based on some reasonable grounds but because it was not necessary to do so if the claims were being shared and would just be an unnecessary expense. I find therefore that Philip did not make an implied representation that he had reasonable grounds for his view; nor did Mr Barnsley understand him to be doing so.
217. In closing argument Mr Tager put forward a slightly different suggestion, namely that Philip was implicitly saying that not only was it his opinion but that it was based on the information he had as boss of the company, and that he had taken account of the advice of those advising the company internally and externally rather than irrationally rejecting it. Allied to this was a further submission that if Philip held an eccentric view (that is that he was personally unduly pessimistic despite receiving advice to the contrary) he had to say "Well that's my view, but that's not the view of PwC and Mr Biesterfield." Mr Tager referred me to Nottingham Patent Brick & Tile Co v Butler (1886) 16 QBD 778 as an example of the well-established principle that a statement that is literally true can nevertheless amount to a misrepresentation if what it does not say makes it misleading: in that case a vendor's solicitor who, when his client said that he had seen some restrictive covenants in the title deeds, said that he was not aware of any, without adding that he had not himself read the title deeds, was held to have misrepresented the position as he would be understood to be saying that his client was mistaken.
218. I do not doubt the principle but I do not accept either of Mr Tager's submissions, for two reasons. First, neither is pleaded, and in a case of fraud it is particularly important that the allegations to be relied on are fully and precisely pleaded before the evidence is called. Second, and in any event, Mr Barnsley did not say (either in his witness statement or orally) that he had understood Philip's statement to have taken account of the advice he had received as boss of the company, or that he was relaying PwC's view or Mr Biesterfield's view, or that they agreed with him; nor did Mr Barnsley interpret it that way. For reasons already given, I find that Mr Barnsley was not really interested in why Philip took the view he did, regarding it as simply confirming his own view of the position.
219. In my judgment therefore the only representation of fact shown to have been made by Philip, and understood by Mr Barnsley, is that Philip held the opinion that he did not think the Linneweber claims would happen and that he did not fancy the claims.

Was Philip's statement one that Mr Barnsley was intended and entitled to rely on ?

220. The next question is whether Philip's statement that he did not fancy the claims and did not think they would happen is one that Mr Barnsley was intended and entitled to rely on. In my judgment it was not.
221. It is established that for misrepresentation the representation in question must have the character of a statement upon which the representee was intended, and entitled, to rely: Raiffeisen at [86], Cassa di Risparmio at [222]. The examples given in those judgments are where the statement may have been qualified by other statements which would indicate to a reasonable person that the putative representor was not assuming a responsibility for the statement; but the same principle must apply if the circumstances and context are such as to show that it would be unreasonable for the representee to place any reliance on the statement. This is no doubt why what are somewhat quaintly called "mere puffs" are not actionable: if a vendor praises what he is selling (as opposed to making specific factual claims about it), it is not expected, and not reasonable, for a purchaser to place any reliance on this. They are not intended to be serious statements taken seriously and acted upon.
222. In the same way the context and circumstances at the 8 December meeting were such that in my judgment it was not reasonable for Mr Barnsley to treat Philip's statements about Linneweber as serious statements to be taken seriously and relied upon (nor indeed, as appears below, did he do so). Mr Barnsley and Philip were in the middle of a "pretty tough, hard-fought" negotiation (as Mr Barnsley accepted) in which each was trying to reduce the values of the assets they were keeping, Mr Barnsley by pointing to the continuing fall in property values and Philip by pointing to the difficulties faced by the trading businesses. For Philip to say that he did not fancy the Linneweber claims and did not think they would happen was part and parcel of the overall negotiation; in any event it was Philip's own broad and high-level characterisation of Linneweber, and could not be regarded as a statement intended to be taken as a serious, considered or detailed assessment of the prospects of success. I conclude that it would not have been reasonable in the circumstances for a person in Mr Barnsley to place any reliance on it. The point is not capable of much elaboration, but it is interesting to note what Bowen LJ said in Smith v Land and House Property Corporation at 15, namely that a statement of opinion by itself:

"is in a sense a statement of fact, about the condition of the man's own mind but only of an irrelevant fact, for it is of no consequence what the opinion is."

Here it was a matter of no consequence to Mr Barnsley what Philip's opinion actually was. If it had been of any significance to him to know more about Linneweber than he already knew, he had full access (as both he and Philip knew) to both Nobles and PwC and could have asked them.

223. For this reason Philip did not in my judgment make any actionable representation. In case I am wrong however, I go on to consider whether what he said was untrue.

Was Philip's statement untrue ?

224. I heard Philip being cross-examined over a lengthy period and I am wholly unpersuaded that he was lying to Mr Barnsley, or that what he said to him was anything other than his genuine and honest view.
225. Before coming to the detail, there are some general points which can be made. First, the trial of this action has necessarily put the Linneweber claims under a forensic spotlight, which has entailed a painstaking analysis of the various different claims such as, for example, the gaming machine claims and the bingo claims (both MCB and MSB claims), or the original 3-year claim, top-up claims, Fleming claims and Scottish Equitable claims. It is possible by tracing through the record to establish which claims were made when and for how much, and who can be shown to have known what about each step. But Philip did not make any such distinction: he was talking about the VAT repayment claims generally, and his perception of them as something that was not going to happen and that he did not fancy. He was not asked by Mr Barnsley to distinguish between the various possible claims – indeed as already said Mr Barnsley did not ask Philip to expand on his views at all – and if Mr Barnsley had asked him, it is unlikely that Philip would have been able to do so. The evidence was consistent that he was not a details man: if he needed to make a decision, he took advice from people and made a high-level or strategic decision, leaving it to his professional managers to deal with the detail; if there was no particular need to do so, he would not take on board details of an issue that required no immediate action.
226. This was how he saw Linneweber. He gave evidence that it was not at the time an issue which he paid much attention to. He regarded it as "pie in the sky" and he spent virtually no time whatever considering it. He described it as "very much peripheral" and "very, very much a side issue". He explained that at the time of the demerger there were real and pressing issues to deal with: the combination of a smoking ban (introduced in July 2007) and the new Gambling Act 2005 (brought into force in September 2007) had caused a significant drop in turnover (which he put at 28%) and turned what had been a profitable business into a loss-making business. He summarised his position as this:

"the reason I was anxious, once we had decided to go along the road of demerger, with getting it finished, was we had bigger fish to fry. We had the survival to contend with, not just -- the Linneweber issue was really a thing in the distance. I had first heard about it, as I say, in late 2004 or 2005. Three years later it was still up in the air, and here we are now, eight or nine years later. It's still up in the air. It was no -- it was not an issue; it was just one of those things that was going on. The main thing at that time was focusing on the business."

I accept this evidence and I accept that Philip was not focussing on the detail of the Linneweber claims and had no reason to do so. In practical terms, as long as protective claims were put in, there was nothing for Nobles to do except wait and see what happened to Rank.

227. Second, for Nobles the Linneweber claims were primarily machine claims. They did also have bingo claims but these were a small part of the overall claim: as the Table at paragraph 79 above shows, by the time of the 8 December meeting the total claims that Nobles had put in were some £32.2m of which some £29.6m was in respect of machines and only £2.6m (some 8%) in respect of bingo. Even if one takes account of the claims which were in preparation at the time of the demerger and were put in before the end of March 2009, and which include the large Fleming claims, the bingo claims amount to some £12.6m out of some £136m or well under 10%. So when Philip referred to VAT claims or Linneweber claims, he was primarily referring to the machine claims. Here his view that the claims were not going to happen and that he did not fancy them has so far been vindicated: despite initial success in the Tribunal and before Norris J, the current position as a result of the Court of Appeal decision is that Rank's claim to repayment on machines has failed and is dependent on either a successful appeal to the Supreme Court or being able to rely on other comparators. Nobles are in no better a position. Of course logically the mere fact that by 2014 the machine claims have not yet succeeded and may well never do so does not mean that Philip genuinely held the view in 2008 that the prospects of success were remote, but it does tend to suggest that it was not an irrational view to hold, and makes it all the more necessary to establish with cogent evidence that he did not in fact hold that view.
228. With that background, I can consider in more detail what Philip did know about the claims. He first heard of Linneweber at a trade fair in Germany in 2004 or 2005 where people were talking about a case which might allow businesses to claim back VAT. He also knew that Deloittes or KPMG were touting for business. He understood that for Nobles the important point was that revenue from some of their machines were subject to VAT but other revenues were not, but he did not know the details of the decision and did not understand the legal arguments. Someone, probably Mr Whitelaw, explained to him (and Michael who was then still alive) that if Nobles wished to have any chance of recovering VAT, they had to file claims; these would not be very expensive, and Michael and he decided there was no reason not to: their attitude was very much "if you don't buy a ticket, you can't win the lottery".
229. Philip was not aware of the precise amounts claimed. He was aware that further claims were submitted after the initial ones, but not for what periods the claims were made, or how they were broken down. He said that he was generally aware that claims in the region of £20 to £30m had been filed by the time of the demerger.
230. He was aware that Rank was leading the fight against HMRC for VAT repayments on the back of Linneweber. He recalled that there had been a discussion in around 2005 as to whether Nobles wanted to take a lead; and said that if they had thought it important they would have wanted to be more involved as it was not their style to let someone else take the lead if they thought something was going to have an impact on them. But they were happy to sit on Rank's coat tails. He also appreciated that even if Rank won, it did not necessarily mean that Nobles would do so, as there were differences between their two cases which HMRC could use against them, although he did not know what those differences were.
231. In December 2005 there was a change in the law when HMRC tried to put an end to Linneweber arguments by having the s. 16 / s. 21 machines and FOBTs brought into charge to VAT (paragraph 30 above). Philip accepted that he was aware of the change in the law. Unlike Mr Simon Thomas however who thought that this increased confidence in the merits of the Linneweber claims as otherwise HMRC would not have made the change, Philip said he thought HMRC wanted to stop operators avoiding VAT and AMLD by turning machines that would otherwise be taxable into s. 16 / s. 21 machines. As already explained, Philip himself had had the idea of taking the RNG out of their machines in an attempt to avoid VAT and AMLD, so it was natural for Philip to have regarded the changes in December 2005 as designed to stop this, rather than being aimed at stopping Linneweber arguments, and I accept his evidence on this.
232. In February 2007 Mr Biesterfield sent two memos to Philip, one on 13 February recommending that he meet the responsible PwC partner, and one on 27 February reporting back on the meeting (with Mr Bailey) (paragraphs 36 and 37 above). If Philip had read them with great care he would have discovered quite a lot of detail about the legal arguments and Mr Biesterfield's and Mr Bailey's current thinking on them. But Philip's general evidence in relation to such memos was that he did not read everything sent to him, he did not recall reading any specific notes from Mr Biesterfield and that if anything needed to be discussed with him he expected it would be raised with him at a meeting or over the telephone. The conclusion of the first memo was that that it would be a good idea for Mr Biesterfield to meet Mr Bailey, which Philip presumably agreed to; that in the second was that Mr Bailey would keep them abreast of developments. I find it entirely plausible that beyond this Philip did not study or take in the detail of the memos: even if he had done, he would have discovered nothing that suggested that either Mr Biesterfield or Mr Bailey was confident of success. On the contrary the message was that "we are looking at a very prolonged process" which was "not going to be resolved for some years to come" and "this is one that is sure to run and run"; and also that the potential Fleming claims were very complex, would lead to vastly higher back duty claims and would give the Government a very serious headache.
233. There is evidence that Linneweber was an agenda item for Board meetings in March and May 2007 which Philip attended (paragraph 39 above), but not of the detail of what was discussed. His evidence in general in relation to this was that there were occasional updates about Linneweber at internal management meetings, but his recollection was that these tended to be brief updates, without detailed discussion: Michael and he had agreed that claims should be submitted as necessary and left it to the directors and management teams to arrange to submit whatever claims needed to be made. There was rarely anything that needed to be discussed. I accept this evidence.
234. In June 2007 Mr Blain recorded Mr Gill saying in preparation for, or at, an audit clearance meeting that "we think we have a good probability (say 60%) of winning this" (paragraph 41 above). Mr Gill said that this was likely to be a reference to a phrase he often used for matters that were uncertain, namely "50:50, 60:40, 40:60", and also that he was probably referring to the likelihood of Rank winning their case, and it did not necessarily follow that even if they did Nobles would succeed in its own claim. I did not find either explanation particularly convincing: Mr Blain's note fairly plainly records Mr Gill saying that "we" had a good probability and putting a figure of 60% on that. But the context of this is that PwC wanted to know, as part of their audit clearance procedure, whether either Nobles' claim to repayment or HMRC's AMLD claim should be referred to in the accounts. This was a matter for management and in practice, as Mr Gill explained, that meant him as the Finance Director. For this purpose it didn't matter whether the assessment was 60%, 50% or 40%: all of these reflect significant uncertainty and in Mr Gill's view (with which PwC must have agreed) meant that the claim did not require to be disclosed in the accounts: as he put it, "any of those numbers would obviate the need to incorporate it in the accounts." I accept that this was his own assessment; I also accept his evidence that this was not something that was discussed at board meetings, that he did not have a view from Philip, Mr Imrie or Mr Biesterfield as to the likelihood or unlikelihood of success, and that he could not remember them saying that Linneweber was remote, likely, unlikely, highly probable or anything. There is no evidence that Mr Gill's 60% assessment was brought to Philip's attention, and Mr Blain's note of the meeting which contained it was not put to Philip in cross-examination. I am not able to find that he was aware of it.
235. The revised audit clearance agenda for 2007 recorded that "management" considered the likelihood of having to meet the AMLD claim as "remote" (paragraph 42 above). I accept again that "management" here in practice meant Mr Gill. It was suggested to him that the Linneweber claim and the AMLD claim were two sides of the same coin, but although he accepted that they were linked ("there was clearly a fiscal neutrality point that put it in the same bucket as Linneweber"), he explained that his understanding was that Nobles' substantial defence to the AMLD claim was the Alderman letter. I accept this, and I accept that Mr Gill's assessment of the prospects of having to pay the AMLD claim as remote does not cast doubt on his view of the Linneweber claims; far less does it assist in ascertaining Philip's views of them.
236. In September 2007 Mr Biesterfield copied Philip into a memo sent to Mr Imrie reporting on a Bingo Association meeting (paragraph 44 above). This would have told Philip, if he read it carefully, that claims could be made, and were being made by Nobles, in respect of bingo, but said nothing new about the prospects. Philip was asked in cross-examination what he would have said if he had been asked at the time of the demerger whether Nobles' claims covered bingo or slots or both, to which he answered "Both, I think" and I find that he did know that Nobles' claims covered bingo.
237. The next significant development was the Fleming decision in January 2008 (paragraph 51 above). In March 2008 Mr Biesterfield told Philip in a memo that Nobles' claim could be backdated to 1973 (paragraph 55 above); by May 2008 Nobles had obtained a quote of £10-£11,000 for PwC to do the work and Philip was asked to agree, and did agree, to this (paragraph 56(5)-(7) above). Philip accepted that he remembered hearing about Fleming and that he knew that significantly greater claims could be made. I find that he knew, because he had authorised PwC's fees for making the claims, that such claims were being prepared. On the other hand he said that he did not know what the amount of the claims would be, and as he was not involved (nor did he need to be) with the mechanics of filing the claims, I do not find this surprising and I accept it.
238. Apart from the preparation of the Fleming claims, there was little if anything for Nobles to do in relation to Linneweber during 2008 and into 2009. Rank won its bingo appeal in the Tribunal in May 2008, and in July a question was raised as to whether Nobles should stop paying VAT on interval bingo and make a claim for repayment: the conclusion was that this was not worth doing as if the VAT later had to be repaid there would be punitive interest rate charges (paragraphs 58 and 68 above). Philip accepted that he was aware of Rank's success because he remembered the discussion about whether to withhold VAT or not, and that it was decided not to.
239. In August 2008 Rank announced it had won its slots appeal in the Tribunal but noted that the Tribunal had indicated that a reference to the ECJ was likely: BACTA's advice to its members was that the issues remained a long way from being concluded (paragraph 61 above). Philip said that by October 2008 he believed he had become aware of Rank's success in the slots claim as well as the bingo claim at the tribunal level.
240. On 31 October 2008 there was a meeting which was arranged for Mr Bailey to meet Mr Horrocks (paragraph 67 above). Mr Hetherington who was at the meeting gave evidence that Mr Bailey described the bingo claims as "almost home and dry". However both Mr Biesterfield and Mr Horrocks made notes of the meeting, each of which records a specific assessment of the prospects of the Scottish Equitable claims (Mr Horrocks noting it as "o/s [outside] chance (10% prospect of winning)" and Mr Biesterfield as "slim chance. Only 10% chance") and neither records any advice in relation to bingo being almost home and dry or as to the prospects for bingo at all: indeed Mr Biesterfield, whose note appears to be a detailed one, recorded that the Rank tribunal decision on bingo was binding on the parties only (and hence that it was better to pay VAT and claim it later rather than run the risk of interest and penalties). I accept that PwC at around this time expected that Rank would win its bingo appeal (see the reference in Mr Hetherington's e-mail of 17 November 2008 to "as we expect" (paragraph 69 above)), but I consider that the notes are likely to be a safer guide to what was said at the meeting than Mr Hetherington's recollection; and in these circumstances I am not persuaded that Mr Bailey gave a particularly favourable view as to the prospects of success in the bingo claim at the meeting. In any event it is not shown that any such view was passed on to Philip.
241. In November 2008 HMRC repaid Rank £59.1m in respect of VAT on interval bingo, but HMRC's position was that they were appealing and would resist payment of other claims. This did not change Nobles' decision not to withhold VAT, although Mr Biesterfield's view was that he thought Rank's risk of losing the appeal was small. (paragraphs 68-70 above). Philip said he thought he did know about Rank's repayment, and that he probably would have read the announcement that Rank intended to recognise it in their accounts (paragraph 71 above). He did not remember Mr Biesterfield saying that there was a very good chance of the bingo claims coming good – all he remembered was the decision that they would continue paying VAT – but he accepted that Mr Biesterfield probably did pass his view on to him.
242. In summary, Philip knew of the possibility of putting in Fleming claims and that he had given instructions for such claims to be prepared; he knew of Rank's success in the Tribunal in both the bingo and slots appeals, and of HMRC's repayment to Rank and I find he probably knew that Mr Biesterfield was quite optimistic about Rank's ultimate success in bingo. But save for the question of whether to stop paying VAT on bingo, none of this required a decision from him, and none of this told him that the Linneweber claims in general would ultimately succeed. He did not ask for, or obtain, any formal advice on the prospects, and from his point of view it was not something that he needed to focus on. I accept his evidence that he remained personally sceptical about the Linneweber claims in general, and see nothing in this history to establish that when he told Mr Barnsley in December 2008 that he did not fancy the claims and did not think they would happen this misrepresented his position, or that he was told anything between then and 10 March which caused him to change his view. The fact that Fleming claims could be and were being prepared changed the potential quantum of the claim, but it did not make the claims any less speculative. If he had been asked to focus on the distinction between bingo and slots claims and give separate views on each, he might have recognised that the position looked more promising in relation to bingo, but I think it more likely that he would have said that he did not really distinguish between them and that if anyone wanted a detailed view of the prospects they should not ask him.
243. In these circumstances I find that Philip was not misrepresenting his view of Linneweber at the meeting on 8 December 2008, and that his views did not change at any time before completion of the demerger on 10 March 2009. He took the view that the claims were speculative and uncertain, and he did not think they were going to succeed. As to the claims being uncertain, he can scarcely be said to be wrong. It is notable that at about the same time both Mr Gillett of Close Brothers and Mr Coward referred to Linneweber payments as uncertain not only as to how much might be recovered and when, but also as to whether any repayment would be received at all: see Mr Gillett's e-mail of 26 September 2008 ("the uncertainty of its award / quantum / timing") and Mr Coward's of 18 December 2008 ("significant uncertainty as to the quantum and potential payment date for the potential Linewebber repayment (if indeed any repayment is ever received)") (paragraphs 96 and 118 above). As to the claims being unlikely to succeed, Philip was expressing his own view and I find that it has not been shown that his real view was any different.
244. That means that I have not found Philip to have made any false statement and the claim in deceit fails for this reason also. The same applies to the claim under s. 2(1) Misrepresentation Act 1967 which applies "where a person has entered into a contract after a misrepresentation has been made to him". I find that there was no misrepresentation and the Act therefore does not apply.

Was Mr Barnsley induced by what Philip said ?

245. I will deal briefly with one further point relied on by Mr Smouha, which is whether what Philip said induced Mr Barnsley to enter into the demerger. I find that Mr Barnsley in any event did not place any reliance on what Philip said, and was not induced by it to enter into the demerger on the terms that he did. In some cases a distinction has been drawn between reliance and inducement and, as both counsel agreed, the test is in fact inducement rather than reliance: see eg Bonham Carter at [123] per Asplin J. But in the present case it is not necessary to draw the distinction: I find that Mr Barnsley neither relied on, nor was induced by, what Philip said.
246. There are two aspects to this. First, as stated above, Mr Barnsley did not look to Philip for advice on the prospects of success, which he knew to be a complex and technical matter. If he had wanted to know the prospects of success, he would not have relied on Philip in any event but would have asked PwC, but since the Linneweber claims were being split, he did not need such advice which he thought would have been expensive to obtain. In these circumstances I find that Mr Barnsley did not in fact place any reliance on what Philip told him about the prospects of success: he was not very interested in Philip's views which he regarded as telling him nothing new.
247. Second, what Philip told Mr Barnsley did not change Mr Barnsley's views. He accepted in terms that if Philip said to him that the claims were unlikely to succeed or speculative that would have been no different from what he already thought. What Philip said therefore made no difference to Mr Barnsley's understanding. Mr Smouha submitted that it is not enough for a claimant to show that he would have acted differently if he had known the truth, the relevant inquiry being what the claimant would have done had the representation not been made; and that in the circumstances what Philip said to Mr Barnsley did not induce him to do anything.
248. I accept this submission on the facts of this case. I do not need to decide whether a party to a contract who has his understanding of some material point confirmed by the other party can ever make a claim if that confirmation was given deceitfully. In some cases a purchaser might have his own view but nevertheless place considerable reliance on the fact that the vendor expressed the same view, and it may be that a claim would lie in such circumstances. This touches on what is potentially quite a difficult point which is whether it is always a complete answer to a claim in misrepresentation that the representee would have gone ahead if nothing had been said at all: see Dadourian v Simms [2006] EWHC 2973 (Ch) at [548] (Warren J), Raiffeisen at [191] (Christopher Clarke J). But on the facts of this case, I find that what Philip said to Mr Barnsley made no difference to Mr Barnsley's attitude to the Linneweber claims: he regarded this as a relatively minor aspect of the demerger which should be dealt with, as recommended by Close Brothers, by an agreement as to how to split the claims, and what Philip said did not cause him to take any different view or act any differently to how he would have done anyway. Indeed, as Mr Smouha pointed out, what is pleaded is not that the Claimants would have acted differently if Philip had not expressed the views he did, but that the Claimants would have acted differently "had the true position been known" which is a different matter.
249. Mr Tager submitted that in the case of a fraudulent statement which is of such a nature as to be likely to induce a person to enter into a contract, there is a presumption of inducement, and that this had not been rebutted: see Smith v Chadwick (1884) 9 App Cas 187 at 196 per Lord Blackburn, Dadourian at [543] per Warren J. I do not doubt the principle, but I do doubt for reasons given above whether what Philip said was of such a nature as to bring the presumption into play; and in any event I find that if the presumption applies it has been rebutted by the evidence I have actually heard.
250. In these circumstances I find that the claims for misrepresentation, whether in deceit or under the Misrepresentation Act, fail also for this reason.
251. It is unnecessary to consider the other points raised in relation to these claims. Mr Smouha submitted that in any event there was no evidence that Mr Barnsley passed on what Philip said to Gill or Mr Norman. I am not sure this is an answer to the claim: if Mr Barnsley had been deceived and thereby induced to sign up to the demerger, it may well be that the Claimants could have obtained relief even if the representation was not made to Gill or Mr Norman themselves on the basis that the latter would not have gone ahead unless Mr Barnsley had recommended it. But I do not propose to consider this. Nor is it necessary to consider a defence raised by Mr Smouha to the claim under the Misrepresentation Act 1967 that it is barred by exclusion clauses in certain of the contracts included in the demerger documents.

Negligence

252. It is convenient to take next the only other common law claim which the Claimants rely on. This is that Philip owed a duty of care in tort to the Claimants and was in breach of that duty. The duty is said to be to provide the Claimants with all relevant information relevant to the valuation of the gaming companies, including that relating to the prospect of the VAT repayment contingency occurring.
253. This claim received little detailed attention in closing arguments. Mr Tager relied on Caparo Industries plc v Dickman [1990] 2 AC 605 and Spring v Guardian Assurance plc [1995] 2 AC 296 for the general principle that a duty of care will arise if three criteria are satisfied, namely (i) "foreseeability" (that it is reasonably foreseeable by the defendant that carelessness will cause damage to the claimant); (ii) "proximity" (the existence between the defendant and the claimant of a relationship of proximity or neighbourhood); and (iii) "fair, just and reasonable" (the court considering that it is fair, just and reasonable that the law should impose a duty of a given scope on the defendant for the benefit of the claimant): see eg Caparo at 617H-618A per Lord Bridge. This is not disputed. But as Lord Bridge goes on to say, although the underlying general principles are important:

"the concepts of proximity and fairness … are not susceptible of any such precise definition as would be necessary to give them utility as practical tests."

He continued:

"I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes"

and endorsed the approach of Brennan J in the High Court of Australia in Sutherland Shire Council v Heyman (1985) 60 ALR 1 at 43 which referred to developing the law incrementally and by analogy with established categories.

254. It seems to me therefore that it is not a very helpful approach to start by asking whether the relationship between Philip and the Claimants was "proximate", or whether I consider it "fair, just and reasonable" for the law to impose liability on Philip: these are imprecise concepts that are of little practical use for the purpose of determining liability and run the risk of substituting my own view of what is fair and just for what should be an objective standard. Rather the approach should be to look at the relationship between the parties on the particular facts of this case and ask whether that is a relationship, or similar to one, where such a duty has been held to have arisen.
255. The relationship between Philip and the Claimants was in essence that of negotiating parties, who were seeking to agree a division of jointly owned assets. Philip was negotiating for himself and Mr Barnsley for Gill and her family (as recorded in Dickinson Dees' notes of the first suits meeting on 16 July 2008 (paragraph 93 above). I accept the submission of Mr Smouha that the starting point of the analysis must be that in general parties negotiating with each other do not owe positive duties of disclosure to the other party.
256. Mr Tager relied on a number of matters to show that a duty of care nevertheless arose in the present case. First he said that Philip was aware that Mr Barnsley, Gill and the Capita Trustees were relying on him. I reject this as a matter of fact. I find that Mr Barnsley was not relying on Philip for information as to the value of the trading companies. He was relying on Close Brothers' valuation, together with his own knowledge of the businesses. Nor was he relying on Philip to give him information about Linneweber: as I have already found, Mr Barnsley was not interested in trying to put a value on the potential Linneweber payments, as this was unnecessary if they were going to be split.
257. Mr Tager next relied on Mr Barnsley's e-mail to Mr Horrocks of 8.18 on 17 December 2008, with its reference to the Executors being entitled to know about all major issues until they sold the shares (paragraph 114 above). I do not think this particular point adds to the duties of Philip in negotiating the demerger. Read in context, the e-mail is referring to the rights of the Executors as substantial shareholders to information about the business. But this is not the same as Philip assuming a responsibility to disclose matters relating to valuation to Mr Barnsley, or being aware that Mr Barnsley was relying on him to do so. A director of a company is not normally obliged to volunteer details of the company's business to shareholders, let alone matters relating to the value of his shares. No doubt if a shareholder asks for information, the directors may be under some duties to answer questions; but it was not suggested that Mr Barnsley could not have asked for any information he wanted. What is suggested is that this e-mail is support for a duty on Philip to disclose matters to him unasked, and in my judgment it is not. In any event it is not addressed to Philip and it is not established that he saw it: Philip said in evidence that he had only seen it recently and I find that it has not been proved that this is wrong.
258. Mr Tager then relied on what Philip said at the 8 December meeting as amounting to an assumption of responsibility. The suggestion was that having chosen to volunteer an opinion about the prospects of Linneweber, he became obliged to give a full explanation about the prospects, including the views of his managers and of PwC, and about the quantum of the claims. This seems to me to place far too much weight on what I have found Philip to have said. It is one thing for a person who makes a statement to another to be held to have assumed responsibility for the accuracy of that statement, so that if it has been made carelessly he may be liable. Cases such as Caparo, Spring v Guardian Life Assurance and indeed Hedley Byrne v Heller itself are all concerned with questions of this type. But it seems to me to be quite a different thing to say that when A makes a statement to B, he owes a duty not only in relation to that statement but to give further information to B. In general tortious liability is based on harmful acts (including in appropriate cases statements) not on omissions; and the mere fact that Philip chose to express his view about Linneweber does not it seems to me have the effect of imposing on him an obligation to say anything else. This would not be assuming responsibility for his statement, but assuming responsibility to give Mr Barnsley further information on the trading companies' Linneweber claims. But one cannot spell out of his brief and rather vague remarks about Linneweber (that he didn't think it was going to happen and didn't fancy the claims) any commitment or undertaking to give Mr Barnsley further information, let alone to give a full account of the status of the Linneweber claims. And I find that Mr Barnsley did not understand him to be committing himself to do that: Mr Barnsley as I have said did not in fact ask him any questions at all about Linneweber, or why he took the views he did, and if he had wanted to know would have asked PwC rather than Philip anyway.
259. Mr Tager also relied on an admission that he secured from Philip as follows:

"Q …once John Barnsley and you agree that he would negotiate for the estate and you would negotiate for you and your family, you still understood that you had to play fair and disclose to him any relevant information that you had ?

A Correct."

Philip also said that he was entirely open with Mr Barnsley and Gill and went into the demerger trying to do a fair deal. Mr Tager also secured agreement from Mr Horrocks that there had to be trust on both sides, with each side being full and frank with each other; and from Mr Coward that there was a very friendly attitude between the parties, that it was not an arms' length negotiation between two businessmen and that even after the demerger the expectation was that there would be a lot of trust between the parties.

260. I accept the general thrust of this evidence: the very fact that the parties were using the same advisers shows that it was not a conventional arms' length negotiation and both sides did trust each other and expect the other to act fairly. But it is one thing to recognise this at a general level and another thing to deduce from this a specific duty of care in tort to disclose a particular class of information. In the Piccadilly proceedings Morgan J said (at [351]):

"I accept that the demerger transaction was not a totally arms-length commercial transaction. However, there were clearly two sides with different and competing interests. Each side was entitled to protect its own interests and expect the other to look after itself. I do not think that the family connections and the use of one set of advisers ultimately changed the nature of the duties owed by one side to the other side."

I agree. I find that the general nature of the relationship between the parties was not such as to impose on Philip a specific duty of care in tort to disclose information in relation to Linneweber to the Claimants and that the negligence claim is therefore not made out.

Self-dealing

261. The next claim made by the Claimants is that Philip was in breach of trust in that he acted in breach of the self-dealing rule. In summary it is said that (i) Philip was an Executor of the Estate; (ii) the substance of the demerger was a transaction between the Executors of the Estate and Philip personally; (iii) it therefore attracted the self-dealing rule which applies to transactions between a fiduciary in his fiduciary capacity and himself in his personal capacity; (iv) such a transaction is in breach of the rule unless the fiduciary has obtained his principal's fully informed consent; and (v) since Philip did not obtain such fully informed consent he is in breach of the rule and liable for breach of trust. There is some debate in the authorities as to whether breach of the self-dealing rule is properly classified as a breach of trust (compare Tito v Waddell (No 2) [1977] Ch 106 at 246E-250B and Gwembe Valley Development Co Ltd v Koshy [2003] EWCA Civ 1478 at [103]-[109]) but I do not think it is necessary for me to consider that point.
262. The classic statement of the self-dealing rule is that given by Megarry V-C in Tito v Waddell (No 2) at 241A:

"The self-dealing rule is … that if a trustee sells the trust property to himself, the sale is voidable by any beneficiary ex debito justitiae, however fair the transaction."

Mr Tager accepts however that it is far too late to rescind the demerger, and the Claimants make no claim to rescission. Instead they seek monetary relief against Philip for breach of duty. This is pleaded as a claim for "equitable compensation", and there is no doubt that in principle such a claim lies for breach of the self-dealing rule: see eg Tito v Waddell at 249G:

"it is common ground that in the case before me there is no question of setting aside any transaction. It is also common ground that Nocton v Lord Ashburton [1914] AC 932, a case as between solicitor and client, shows that in an appropriate case a claim for compensation in equity (as distinct from damages at common law) lies in lieu of setting a transaction aside."

In closing however Mr Tager sought an account of profits, something which Mr Smouha objected to as an attempt to change the nature of the claim without amendment. That is a point to which I will return below.

263. Mr Smouha's primary defence to the claim is that Philip can take advantage of a provision in Michael's Will which expressly permits self-dealing in certain circumstances. This is found in paragraph 18 of schedule 1 to the Will which reads as follows:

"My Trustees shall have power to enter into and complete contracts or other transactions with themselves or any of them (acting in their own interests as individuals or in some other fiduciary capacity) for the sale purchase exchange or otherwise of any part or parts of my Residuary Estate Provided that:-

(i) every trustee personally interested therein shall have acted in good faith and either:

(ii) at least one of my Trustees shall have no interest in the contract or transaction (as the case may be) save as one of my Trustees or

(iii) (in the case of a sale purchase exchange or like transaction) an independent and duly qualified valuer instructed by and acting exclusively for my Trustees in their capacity as such shall have certified that in his opinion my Trustees will receive full value in money or money's worth pursuant to such transaction."

Although paragraph 18 referred to Michael's Residuary Estate, and his business interests did not form part of his Residuary Estate but a separate fund called his Business Fund, clause 6(4) of the will provided that schedule 1 also applied to his Business Fund. By clause 2 of the Will "my Trustees" meant Michael's Executors and trustees appointed under the will.

264. Despite a pleading which rather ambitiously attempted to rely on the Close Brothers report as satisfying proviso (iii), Mr Smouha accepted in closing that it had no application. Given that Close Brothers neither acted exclusively for the Executors nor gave any form of certificate that the Executors were receiving full value, he was no doubt right to do so. He did however submit that provisos (i) and (ii) were satisfied.
265. As to proviso (i) that depends on whether Philip acted in good faith. (Mr Smouha submitted that Philip was the only trustee personally interested, but Mr Tager correctly pointed out that Gill was among other things life tenant under the trusts of the Estate so she was personally interested as well, although her good faith is not in issue). The first question argued was the meaning of "good faith". Mr Tager submitted that "good faith" in this context meant "the duty that a trustee owes towards his beneficiaries to act in good faith", so that the requirement that the trustee "shall have acted in good faith" meant "shall have complied with the duties of a trustee including full and frank disclosure". His submission was that the self-dealing rule normally meant that a trustee could only proceed with such a transaction with the fully informed consent of his beneficiaries, or, where the beneficiaries were under age, with the sanction of the Court and in both cases that required full disclosure of all material facts. Since paragraph 18 allowed a trustee to self-deal without having to obtain either consent from the beneficiaries or the sanction of the Court, it was appropriate to construe proviso (i) as requiring the same full disclosure from the trustee as if he had had to proceed in the normal way.
266. Mr Smouha referred me in this context to two decisions of the Court of Appeal, Medforth v Blake [2000] Ch 86, and Bristol & West BS v Mothew [1998] Ch 1. Medforth v Blake concerned the duties of a receiver appointed by a mortgagee. Sir Richard Scott V-C, having held that such duties included a duty of good faith, said (at 103B-D):

"I do not think that the concept of good faith should be diluted by treating it as capable of being breached by conduct that is not dishonest or otherwise tainted by bad faith…the breach of a duty of good faith should, in this area as in all others, require some dishonesty or improper motive, some element of bad faith, to be established."

Bristol & West v Mothew concerned the duties of a solicitor acting for both purchaser and mortgagee. Millett LJ, having said that the distinguishing obligation of a fiduciary was loyalty, said (at 19D-E):

"Even if a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other...I shall call this the duty of good faith…

Conduct which is in breach of this duty need not be dishonest but it must be intentional."

267. I accept that neither of these authorities was concerned with the meaning of "good faith" in a clause in a will or other document, and that the concept of good faith varies according to the context. Nevertheless they do seem to me to be helpful guides in casting light on what it is in general to act in good faith. They also accord with my own view of the natural meaning of the words in proviso (i). As Sir Richard Scott V-C's judgment suggests, to say that someone has not acted in good faith is to accuse them of acting in bad faith, which imports either dishonesty or some other improper motive. In my judgment there is no reason not to give the words the same meaning in proviso (i): to construe it in the way suggested by Mr Tager would mean that a trustee who had not acted with any conscious impropriety, but who had inadvertently failed to disclose some fact which the Court later held to be material would lose the protection of the provision. Yet I would not regard such a trustee as acting in bad faith, or as acting otherwise than in good faith. In my judgment therefore a trustee will only fall outside proviso (i) if he has acted dishonestly or otherwise with improper motive or conscious impropriety. This requires proof of a subjective state of mind, not an assessment by reference to what objectively the law requires of a trustee.
268. The next question is whether Philip has so acted. The pleaded case that he did not act in good faith refers to three matters. The first is that in order to avoid a breach of the obligation of good faith he had to arrange for the Executors to obtain an independent valuation pursuant to proviso (iii). This seems to me to confuse two quite separate questions: what valuation was needed to satisfy proviso (iii) ? and was Philip acting in good faith for the purposes of proviso (i) ? I see no reason to think that Philip acted improperly in not suggesting any further valuations other than those obtained.
269. The second is that Philip needed to ensure that the beneficiaries of the Estate would be fairly compensated for the transfer of the potential benefit of the Linneweber payments to him and his family. This seems to me to put the matter too high. Both sides (Mr Barnsley and Philip) were well aware that one of the potential assets of the trading companies was the possible Linneweber recoveries. Both sides knew that Close Brothers had declined to include it in their valuation of the trading businesses, and recommended that it be split; both sides had approached the question on the basis that there should be a negotiation over the split; both sides proceeded to negotiate it, as recommended, a process which resulted in agreement, after a degree of horse-trading, on a 75/25 split. In those negotiations, as in the other negotiations over the demerger, Philip was acknowledged to be acting for himself and Mr Barnsley for the Estate; and in negotiating the Estate's share down from 50% to 40% to 25%, he was, and was understood to be, acting in his own interests. I find that in acting in this way Philip was fulfilling exactly the role which everyone expected him to fulfil. His evidence was:

"A I believe I had been released from my duties [to Gill and her family] when John Barnsley told me that he had spoken to Gill and Leslie Norman, and that he was going to act for their side of the family and I was free to act for my side of the family."

When it was put to him that Gill's children, who were not adults, hadn't released him, he said he believed that Gill was acting for her children. Mr Smouha accepted that the agreement that he act for himself and Mr Barnsley for the Estate did not as a matter of law release him from the duties he owed as Executor, but I accept his evidence that he thought he was free to negotiate for himself. I find that in doing so he was not acting with any deliberate improper motive or conscious impropriety.

270. Nor was Philip responsible for the fact that in the event the agreement on the 75/25 split was not formalised in a binding agreement: he left that to the professionals, and, as he said in oral evidence, he did not know when the demerger completed whether one of the many documents he signed related to the 75/25 split, and would not have been surprised if it turned out that it had.
271. The third matter pleaded in support of the allegation that Philip acted other than in good faith refers back to what Philip said about Linneweber at the 8 December meeting. I have already found that he did not deceive Mr Barnsley at that meeting, and I find that he did not act dishonestly or with improper motive or conscious impropriety either in what he said at that meeting, or in failing to say anything more about Linneweber.
272. In my judgment therefore Philip acted in good faith and proviso (i) is satisfied.
273. Proviso (ii) requires that there be at least one of Michael's Trustees with no interest in the transaction save as such Trustee. Mr Smouha relied on Mr Barnsley as satisfying that condition. He had no personal interest in the transaction.
274. Mr Tager however relied on the fact that Mr Barnsley, together with Gill, was trustee of one of the family settlements on Gill's side. This was the 1997 No 1 Settlement which had been established by Mrs Muriel Noble (the mother of Michael and Philip) by deed dated 29 April 1997. The original trustees were Michael and Philip, and the primary trusts, subject to overriding powers of appointment, were for Michael and Gill's three children (Michael (Junior), Matthew and Olivia, who had been born in 1990, 1992 and 1995 respectively) in equal shares. Mrs Muriel Noble made a corresponding settlement the same day for the benefit of Philip's children.
275. By deed dated 30 June 2008 Philip, who was then the sole trustee, retired and Mr Barnsley and Gill were appointed as trustees of the 1997 No 1 settlement. It is common ground on the pleadings that at the time of the demerger, the settlement had a small shareholding in each of Falcombe and Addbudget, namely 4,960 out of 1,517,020 shares (about 0.33%) in Falcombe, and 19,840 out of 4,541,192 shares (about 0.44%) in Addbudget.
276. It is also undeniable that the demerger (taken as a whole) was a transaction in which the trustees of the 1997 No 1 Settlement were interested: the 1997 No 1 Settlement started by holding shares in Falcombe and Addbudget and ended by holding shares instead in one of Gill's companies (Jolan Ltd). The precise steps by which it did so do not really matter but briefly they were (i) Step 9 under which the Addbudget shareholders subscribed for shares in a new Jersey company (Ajouter Ltd); (ii) Step 10 under which the Addbudget shareholders exchanged their shares in Addbudget for new shares in Ajouter Ltd; (iii) Step 11 under which Falcombe acquired the shares in Ajouter and issued new Falcombe shares to the Ajouter shareholders; (iv) Step 12 under which IDL acquired the shares in Falcombe and issued new IDL shares to the Falcombe shareholders; (v) Step 28b under which the Estate and the 1997 No 1 Settlement subscribed for shares in Jolan Ltd; and (vi) Step 39 under which the liquidators of IDL demerged its assets under the s. 110 Agreement, among other things transferring part of their interests in Crossco and Golftee (which held the property interests which were going to Gill's side) to Jolan in return for Jolan issuing new shares to the Estate and the 1997 No 1 Settlement. In this way the Trustees of the 1997 No 1 Settlement exchanged their interests in Falcombe and Addbudget (and hence in the trading companies) for interests in Jolan (and hence in properties).
277. It seems to me an inescapable conclusion that Mr Barnsley had an interest in the transaction in his capacity as trustee of the 1997 No 1 Settlement, and that this was self-evidently a different capacity from that of one of the Trustees of Michael's Will. (The same indeed applies to Gill, although she had another interest as life tenant under the Will trusts in any event). Hence Mr Barnsley could not be said to have "no interest … in the transaction … save as one of my Trustees."
278. Mr Smouha sought to escape from this by pointing out that the purpose of the proviso was to ensure that there was a trustee who concurred in the transaction without the risk of having formed a "clouded" judgment: see Re Thompson's Settlement [1986] Ch 99 at 115G-H per Vinelott J:

"The principle [sc of self-dealing] is applied stringently in cases where a trustee concurs in a transaction which cannot be carried into effect without his concurrence and who also has an interest in or owes a fiduciary duty to another in relation to the same transaction. The transaction cannot stand if challenged by a beneficiary because in the absence of an express provision in the trust instrument the beneficiaries are entitled to require that the trustees act unanimously and that each brings to bear a mind unclouded by any contrary interest or duty in deciding whether it is in the interest of the beneficiaries that the trustees concur in it."

He submitted that so long as Mr Barnsley's interests were aligned with those of the Estate there was no possibility of his forming a clouded judgment, and that Mr Barnsley in fact devoted his whole loyalty to Gill's side.

279. I accept that the origin of the self-dealing rule is to be found in the principle that a beneficiary is entitled to the single-minded loyalty of his trustee; that as a matter of fact Mr Barnsley's interests as trustee of the 1997 No 1 Settlement did not diverge from the interests of the Estate; and that there is nothing to suggest that the fact that he was also party to the transaction in this capacity either might have affected, or in fact did affect, his loyalty to the interests of the Estate. But none of this seems to me to alter what proviso (ii) actually says. It might no doubt have been possible to draft it so as to extend to a case where one of the Will Trustees had no interest other than as one of such Trustees or one that was wholly aligned with the interests of the Estate. But it does not say this and what it does say is unambiguous. Mr Barnsley did have an interest in the transaction other than as one of the Will Trustees, and to my mind that is sufficient to mean that proviso (ii) is not satisfied.
280. Mr Smouha also pointed to the fact that Mr Barnsley was not formally party to the s. 110 Agreement (save as one of the Executors), nor indeed registered as shareholder of IDL, as the shareholdings owned by the 1997 No 1 Settlement in IDL were in fact held in the names of nominees, namely Golftee Nom X Ltd and Capita Nominees Ltd. This is true but to my mind irrelevant: the question is not whether he was formally a party to the transaction but whether he had any interest in it, and the trustees of the 1997 No 1 Settlement plainly did. In point of fact Mr Barnsley and Gill in their capacity as trustees of the 1997 No 1 Settlement were themselves parties to, and duly executed, at least one of the transactions involved in the earlier steps (a Share Exchange Agreement entered into as part of Step 10). But even if everything had been done by nominees for them it would not have made any difference: they would still have been interested in their capacity as trustees of the settlement.
281. Mr Smouha also relied on the fact that Mr Barnsley had no personal interest in the transaction, and effectively invited me to hold that the proviso was directed against a Trustee having a personal interest. This is not I think a tenable view. First, the language of the proviso itself (which refers to "no interest … save as one of my Trustees") shows that the draftsman intended to include interests held on behalf of others; one can also compare the language of proviso (i) which shows that the draftsman knew perfectly well how to refer to a person being "personally interested" when he wanted to. Second, in any event, the self-dealing rule is designed just as much to protect against an executor or trustee having a competing interest in some other fiduciary capacity as it is against him having a personal interest: see the citation from Vinelott J above which makes this very point.
282. Mr Smouha also made passing reference to the fact that the interest of the 1997 No 1 Settlement was very small, a sort of de minimis point. I have considerable sympathy with this submission, as it does seem striking that a transaction which would on my findings have been authorised under paragraph 18 had Mr Barnsley not held that interest, fails to qualify for the protection of the paragraph due to an interest which amounted to less than 0.5% of the relevant shareholdings, and cannot be supposed to have had any practical effect on the terms of the demerger at all. Nevertheless, the question must be approached as a matter of principle: the principle is that a self-dealing transaction is vulnerable unless duly authorised, either by the beneficiaries, or by the Court, or by a suitable provision in the instrument concerned; here the only authorisation relied on is paragraph 18 which requires at least one of the Trustees to have had "no interest"; and I do not think "no interest" can be read as meaning in effect "no interest except a very small one."
283. In my judgment therefore proviso (ii) to paragraph 18 is not satisfied, and the transaction was not authorised under that paragraph. This may be regarded, not unfairly, as a technical analysis rather than one which responds to the broad policy that underlies the self-dealing rule, but there is nothing to suggest that anyone gave any thought at all to the terms of paragraph 18, and it is not perhaps surprising if the parties have not managed to come within its precise terms. But that is what required if it is to be relied on as exempting the transaction from the general law.
284. Mr Smouha's second main defence is an exoneration clause in clause 14 of Michael's Will. This reads as follows:

"In the professed execution of the trusts and powers hereof no trustee shall be liable for any loss to the trust premises arising by reason of any improper investment made in good faith or for the negligence or fraud of any agent employed by him or by any other trustee hereof although the employment of such agent was not strictly necessary or expedient or by reason of any other matter or thing except wilful and individual fraud or wrongdoing on the part of the trustee who is sought to be made liable…"

Although "trustee" is not here capitalised, Mr Tager accepted, in my view rightly, that clause 14 was in principle capable of exonerating Philip in his capacity as Executor.

285. Two points were argued on the construction of this clause. The first is that Mr Tager said that the reference to "professed execution of the trusts and powers" meant that Philip could not rely on it unless he was consciously seeking to exercise a particular power. If therefore he had turned his mind to paragraph 18 and tried to comply with it, he might have been able to be exonerated; but as he never gave any thought to paragraph 18 at all, he was unable to do so.
286. Mr Tager referred me to Walker v Stones [2001] QB 902 where the Court of Appeal was concerned with an exoneration clause in a trust deed in very similar terms to that in clause 14 and Sir Christopher Slade (at 935E-F) equated the "professed execution of trusts and powers" with the "purported execution of trusts and powers". Mr Tager then referred me to the Oxford English Dictionary definition of "purport":

"b. Esp. of a document, picture or object … to seem…to profess or claim by its tenor, be intended to seem, appear ostensibly to be or do something. (Now the usual sense.)"

He submitted that one cannot purportedly exercise a power of which one is unaware.

287. Mr Smouha submitted that this was not what the clause required. The effect of the words "in the professed execution of the trusts and powers hereof" was simply to confine the operation of the clause to acts of the Executors carried out qua executors. It would lead to absurd results if it had to be shown that the Executors knew they were acting under a particular power in the will.
288. I accept Mr Smouha's submission. In my judgment an executor is acting in the professed (or purported) execution of the trusts and powers of a will if he is dealing, (or purporting to deal) with the estate in his capacity as executor. He need not have the terms of any particular power in mind. In the present case there is no doubt that Philip was acting as Executor on behalf of the Estate (as well as in his personal capacity): thus for example the Share Exchange Agreement entered into in relation to Addbudget as part of Step 10 was executed by Philip twice, once in his personal capacity and once by him (as well as by Mr Barnsley and Gill) expressly "as Executor of the Estate of Michael Noble (Deceased)." This was in my view plainly a transaction entered into by Philip in the professed execution of the trusts and powers of the Will. In fact those who drafted it may have had specifically in mind paragraph 9 of schedule 1 to the Will which empowered the Trustees to deal with property by way of, among other things, exchange; but it does not in my judgment matter whether they did or not. The execution of the document, and of all the other parts of the transaction to which Philip was a party in his capacity as Executor, was sufficient to attract the protection of the clause.
289. The second point of construction that was argued was whether "wilful and individual" governed both "fraud" and "wrongdoing". Mr Tager referred me to the comments of Sir Christopher Slade in Walker v Stones at 941E, where, after referring to the analysis of the permitted scope of trustee-exemption clauses by Millett LJ in Armitage v Nurse [1998] Ch 241 at 251-6, he said:

"His analysis in my judgment clearly illustrates the need, as a matter of policy, for the courts to construe clauses of this nature no more widely than their language on a fair reading requires."

Mr Tager submitted that with this guidance, one should not construe clause 14 too liberally, and that there were two exceptions to the protection it gave, one being wilful and individual fraud, and the other wrongdoing.

290. Mr Smouha however referred to me to Bonham v Fishwick [2007] EWHC 1859 (Ch) where Evans-Lombe J, hearing an appeal from Deputy Master Lloyd, considered this very point on a trustee exemption clause that was in material parts identical to clause 14, as it provided that the trustees should not be liable:

"by reason of …any other matter or thing whatsoever except wilful and individual fraud or wrongdoing on the part of the trustee who is sought to be made so liable."

The Deputy Master held that it was clear that "wilful and individual" governed both fraud and wrongdoing, and on appeal Evans-Lombe J agreed with him: see at [23], [28]. It is no doubt theoretically the case that similar or even identical words may sometimes fall to be construed differently in different instruments as the context may be different, but where what is in issue is a standard form of clause, it is highly desirable for reasons of legal certainty that Courts are consistent in their interpretation wherever possible. I should therefore follow Bonham v Fishwick unless there is very good reason not to. But far from there being good reason not to, I am entirely satisfied that it is right. Sir Christopher Slade refers to what a "fair reading" requires. It seems to me that a fair reading requires that the words "wilful and individual" must govern both fraud and wrongdoing. First, unless this is so it is difficult to see what "wilful" is doing at all, as it is not easy to conceive of fraud that is anything other than wilful. Second, the words "on the part of the trustee who is sought to be made liable" come after "wrongdoing" and must apply to it; but they also must I think be understood as being read with "individual", the overall meaning being that the trustee must be personally at fault. But this means "individual" also applies to wrongdoing. I therefore reject Mr Tager's submission.

291. I also agree with what was said in Bonham v Fishwick about "wilful … wrongdoing" namely that it means "conscious and wilful misconduct", what Millett LJ referred to in Armitage v Nurse [1998] Ch 241 at 252E as requiring "knowing and deliberate breach of duty or reckless indifference" to the possibility of such breach: see at [28]. In the light of my findings on Philip's good faith, I find that it has not been established that Philip is guilty of such wilful wrongdoing.
292. It follows that the claim against Philip that he is liable to compensate the Estate for breach of trust or breach of duty in entering into a self-dealing transaction fails as he is entitled to the protection of the clause. That makes it unnecessary to deal with the other points relied on by Mr Smouha. I will however briefly record my view of them.
293. First, Mr Smouha relied on what he termed the Farrar/Hillsdown defence, namely that the transaction in question was not a purchase or akin to one, and that the self-dealing rule only applied in a modified and less stringent form: see Farrar v Farrars Ltd (1888) 40 Ch D 395, Hillsdown Holdings plc v Pensions Ombudsman [1996] PLR 427 at [107], Public Trustee v Cooper [2001] 1 WTLR 901 at 933-4.
294. I am not satisfied that this is right. It is true that the demerger did not take the form of a sale. But its effect was that the Estate started off owning interests in the trading businesses, and ended up with none, those interests having been acquired by Philip and his family in return for his interest in properties. I do not think that the complicated nature of the various steps involved in getting to this position affects the substance of the position, which is that the two sides exchanged their interests, and I do not see any distinction in principle between an exchange and a sale (which is just an exchange for money). Nor do I think it determinative that the transaction was carried out through corporate bodies: Knox J in Hillsdown at [111] drew attention to the difference between Farrar v Farrars Ltd, where the individual concerned had a small shareholding in the purchasing company, and re Thompson's Settlement where the individual was, with his wife, a majority shareholder and director. It is not obvious to me that this is in fact the basis of the decision in Farrar v Farrars Ltd: it was not a case of a sale by a trustee at all, but of a sale by a mortgagee where the considerations are rather different, and as I read the judgment of Lindley LJ, the principle in play was simply that a sale by a mortgagee to himself is no sale at all, but a corporation is not the same as its members: see at 409-10. Assuming however that Knox J is right in his analysis, there seems little doubt that wherever the line is to be drawn, Philip, who was in his own right a majority owner and de facto controller of the vehicle which ultimately acquired the Estate's interests, would be the wrong side of it.
295. Second, Mr Smouha relied on what he termed the Holder/Sargeant defence, namely that Philip's fiduciary obligations as Executor did not extend to the application of the self-dealing rule, relying on Holder v Holder [1968] Ch 353 and Sargeant v National Westminster Bank plc (1990) 61 P&CR 518.
296. Again I am not satisfied that this defence is made out. The circumstances in Holder v Holder were, as Harman LJ said, "very special" in that an executor renounced probate for the very purpose of being a purchaser as all concerned knew, and it was only the fact that he had concurred in the most minimal acts of administration prior to probate that meant that technically his renunciation was ineffective and he could have been obliged by a creditor or beneficiary to re-assume the duties of executor. But he never in fact acted in such a way as to amount to acceptance of a duty to act in the interests of the beneficiaries under the will; and the beneficiaries, who as far as appears were all adult, never looked to him to protect their interests. See per Harman LJ at 391-2, and re Thompson's Settlement at 116C per Vinelott J. This seems to me a case where the Court of Appeal considered that the individual was not an executor at all in any meaningful sense. I do not think it follows that Philip, who did take probate and become an Executor in the full sense of the term, and thereby assumed duties to the beneficiaries, including minor children and unborn remoter issue, was not subject to the self-dealing rule.
297. Sargeant v National Westminster Bank plc is an example, perhaps the best known, of the proposition that a trustee cannot be criticised for being in a position of potential conflict if he has not put himself in that position but has been put there by the person appointing him. I accept that it was Michael who chose to appoint Philip as Executor despite the fact that he was not only his brother but also his business partner, and had his own personal interests as shareholder (and potential duties as de facto chairman of the business), and the beneficiaries of Michael's Estate could not complain of any potential conflict arising from this. But Michael did not put Philip in the position of acquirer of the Estate's interests in the trading businesses, and I do not think Sargeant's case exempts him from the application of the self-dealing rule in the usual way. Indeed the very fact that Michael (or more realistically those responsible for drawing up his Will) made express provision for relaxation of the rule by paragraph 18 of schedule 1 tends to show that it was understood that he was otherwise subject to it.
298. Third, Mr Smouha relied on what he called the Holder discretion defence, namely that the true ratio of Holder v Holder is to be found in the statements by Danckwerts LJ (at 398B-D) and Sachs LJ (at 402E-403A) that the granting of relief in a case of self-dealing is one of discretion, a rule of practice rather than law. I am not sure this forms part of the ratio: Sachs LJ had already agreed with Harman LJ that the rule did not apply at all (see at 393A, 402C-D) in which case any discussion of relief by him may have been obiter. But whether that is right or not, what was said by both Sachs LJ and Danckwerts LJ was in a case where the only claim was for rescission, where one can see that a number of factors might affect the exercise of a discretion. It is not obvious that the same applies to the present case where there is no claim to rescind the transaction and all that is sought is monetary relief. If a case for compensation is otherwise made out, I am not persuaded that the Court can refuse to award it as a matter of discretion.
299. That brings me to the next point which is the nature of the relief claimed. The pleaded case is that the Claimants have suffered loss and damage for which Philip is liable to pay them equitable compensation. In his closing submissions however Mr Tager sought instead an account of profits, relying on the principle exemplified by such cases as Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 (see at 144G per Lord Russell referring to "those, who by use of a fiduciary position make a profit, being liable to account for that profit") and Don King Productions Inc v Warren [2000] 1 BCLC 607 (see at 629 where Morritt LJ cited Chan v Zacharia (1984) 154 CLR 179 where Deane J referred to the principle of equity being "that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain…").
300. Mr Smouha said this was a departure from the pleaded case. I agree. A claim for equitable compensation for losses sustained by a claimant is in principle a quite different remedy from a claim for an account of profits made by a defaulting fiduciary. If authority is needed for such a basic proposition, it can be found among other places in the judgment of Morritt LJ in United Pan-Europe Communications NV v Deutsche Bank AG [2000] 2 BCLC 461 at [47]:

"it is not in doubt that the object of the equitable remedies of an account or the imposition of a constructive trust is to ensure that the defaulting fiduciary does not retain the profit; it is not to compensate the beneficiary for any loss."

Mr Smouha said that the claim for an account of profits as opposed to equitable compensation for loss did not emerge until Mr Tager's written closing, and objected that it was far too late for the Claimants to change their case in this way. Again I agree. In principle a late amendment by a claimant to seek different relief may be permissible in certain circumstances, for example if the Court can be confident that all that is involved is a point of law and that it has all the evidence that it would have had had the point been pleaded earlier. However in the present case there has not in fact been any formal application to amend and in any event I cannot safely conclude that Mr Smouha would not have explored other points in evidence had the point been taken earlier. For example, Mr Tager relied on some evidence that a dividend had been made to Philip's holding company, which he suggested was attributable to the receipt of a VAT repayment, but the evidence on that was left in a rather incomplete and unsatisfactory state. Had it been a live issue therefore I would not have allowed Mr Tager to claim an account of profits, but only equitable compensation.

301. There are two other points I should briefly notice. First, Mr Tager suggested that in assessing profits (or indeed compensation) it was not necessary to look at anything other than the value of the Linneweber payments received by Philip's companies: his profits (and the Claimants' loss) was the benefit of the 50% of those which the Claimants previously enjoyed and which passed to Philip under the demerger. Mr Tager put this forward on the basis that the parties had been content to treat the trading interests acquired by Philip's side as equal in value to the property interests passing to Gill's side and there was no need to reopen that as it was only Linneweber which the Claimants complained of as not having been taken into account. The difficulty with this is that the Claimants may have been content to treat the demerger transaction as otherwise not involving any passing of value but Mr Smouha was not. He said that one could not cherrypick just one aspect of the transaction and place a value on that without taking account of other aspects of the transaction: in particular part of the value placed on the trading businesses was attributable to Piccadilly but due to Gill's side exercising the break clause Philip had missed out on that.
302. In principle I agree with Mr Smouha. Equitable compensation is compensation for the wrong done by the defaulting fiduciary. But the wrong complained of is the self-dealing and the self-dealing transaction is not confined to Linneweber but extends to the demerger as a whole. And although if the self-dealing point had been taken the day after the documents were signed, it might have been possible for the Claimants to obtain rescission, it would only have been possible to rescind the demerger transaction as a whole. The Claimants could not somehow have sought to keep the benefit of the rest of the demerger but just set aside the retention of the benefit of Linneweber by Philip's companies: indeed it is not at all clear how one would set about doing this. To my mind it follows that in assessing what loss they have suffered as a result of the self-dealing, it is necessary to look at the extent, if any, by which the Claimants were worse off as a result of entering into the demerger as a whole. This as Mr Tager said would no doubt be a horrendously difficult exercise but as a matter of principle it seems to me that this is what would be required to assess the loss suffered by the Claimants as a result of the self-dealing – or for that matter the profits made by Philip.
303. That brings me to the other point which is that Mr Tager sought to recover under this head all the profits made by Philip despite the fact that the duty not to self-deal only arises out of his position as Executor of the Estate and is only owed to the beneficiaries of the Estate. Philip owed no fiduciary duties to the settlements on Gill's side which held about 1/3 of the shares on her side. If he had made say £9m profit at the expense of the Claimants, only some £6m would therefore have been made at the expense of the Estate, and some £3m at the expense of the settlements. Despite Mr Tager's attempts to explain it in closing, I failed to understand how Philip could have been made liable in such a case to account for more than the £6m. (The same would apply to equitable compensation where one looks at the loss to the Estate rather than the gain to Philip). Mr Tager referred me in this connection to CMS Dolphin Ltd v Simonet [2002] BCC 600, but I am not sure this helps him. That was a case where a director of an advertising company resigned and set up a competing business which obtained some, but not all, of its business, from the claimant. Lawrence Collins J held the director liable to account for the profits made on those contracts but said (at [97]) that the fiduciary should be liable for "the profits properly attributable to the breach of fiduciary duty" and:

"There must, however, be some reasonable connection between the breach of duty and the profits for which that fiduciary is accountable."

This seems to me rather to support the Claimants' losses being limited to the 2/3 attributable to their interest than being able to claim for the loss attributable to the settlements' 1/3 interest as well.

304. Other points were argued under this head – in particular Mr Smouha had a point that Gill acquiesced in the self-dealing and could not claim, the claim being limited to the interest of the other beneficiaries, but I do not propose to consider them: for the reasons I have given the claim fails.

Non-disclosure

305. That leaves one final head of claim which is pleaded as a breach of a fiduciary duty said to be owed by Philip to disclose to Mr Barnsley and Gill all relevant information concerning the VAT repayment contingency. This did not receive much attention as a separate head of claim in counsel's closing submissions and I can deal with it relatively briefly.
306. Mr Smouha addressed this (by reference to a passage in Snell's Equity (32^nd edn) at §7-039) as if it were based on the "no inhibition principle" described by Millett LJ in Bristol & West v Mothew at 19D-G. This is the principle that a fiduciary who is properly acting for two principals with potentially conflicting interests must serve each as faithfully and loyally as if he were his only principal; and in this context, Millet LJ said (at 19E):

"Conduct which is in breach of this duty need not be dishonest but it must be intentional."

Mr Smouha therefore submitted that unless Philip deliberately failed to disclose something because he was consciously preferring his own interests, he was not in breach of a duty to disclose.

307. I am not sure this is right. Before embarking on his survey of the duties owed by fiduciaries when acting for two principals Millett LJ said (at 18C-E):

"In this survey I have left out of account the situation where the fiduciary deals with his principal. In such a case he must prove affirmatively that the transaction is fair and that in the course of the negotiations he made full disclosure of all facts material to the transaction. Even inadvertent failure to disclose will entitle the principal to rescind the transaction."

He then went on to explain why the rule did not apply in that case where the solicitor played no part in the negotiations for the mortgage advance which was negotiated directly between his two clients, the building society and the purchasers.

308. The rule that Millett LJ was referring to is conventionally known as the fair-dealing rule. Unlike the self-dealing rule which applies to a purchase by a trustee from himself, the fair-dealing rule applies to a purchase by a trustee from a beneficiary. The classic statement of the rule is again given by Megarry V-C in Tito v Waddell (No 2) at 241A as follows:

"The fair-dealing rule is … that if a trustee purchases the beneficial interest of any of his beneficiaries, the transaction is not voidable ex debito justitiae, but can be set aside by any beneficiary unless the trustee can shows that he has taken no advantage of his position and has made full disclosure to the beneficiary, and that the transaction is fair and honest."

309. The fair-dealing rule as such does not apply to the present case: Philip did not acquire the beneficial interests of anyone interested under Michael's Will, and in any event because the transaction was subject to the self-dealing rule it does not make sense to regard it as also subject to the fair-dealing rule, which is a less stringent rule. But both rules derive from the same principle (that a fiduciary who has a conflict between his duty to his principal and his own interest is not permitted to put his own interest first) and it would seem distinctly odd if the duty of full and frank disclosure which applies under the fair-dealing rule to a purchase by a trustee from a beneficiary did not equally apply to a purchase by a trustee from his co-trustees. I therefore consider that there is much to be said for the proposition that Philip had a duty of full and frank disclosure to Mr Barnsley and Gill that went beyond that arising from the no inhibition principle (where according to Millett LJ the duty is only broken by intentional conduct) and was analogous to that arising under the fair-dealing rule (where according to Millett LJ even inadvertent failure to disclose attracts the consequences of a breach of the rule).
310. But in the present case I do not see that this make any difference. It might have been significant if it were still possible to rescind the transaction, as the trustee exoneration clause does not I think apply to bar a claim for rescission. But as I have said it is accepted that it is far too late to rescind. That means that the only remedy claimed is financial relief (equitable compensation or an account of profits) against Philip personally, and any such claim is subject to the exoneration clause. Under that clause, as already explained, Philip cannot be made liable except for fraud or wilful wrongdoing, and wilful wrongdoing requires conscious and wilful misconduct, that is doing something that you know to be wrong.
311. I deal below with the matters relied on as being a breach of Philip's duty under this head, but I will say straightaway that I find that it has not been established that Philip is guilty of wilful misconduct in this sense; hence I find that he has a defence to this claim. He did not deliberately keep things back from Mr Barnsley knowing that he ought to disclose them.
312. The pleaded case is that as a matter of fiduciary obligation Philip ought to have disclosed "all relevant information relating to the valuation of the gaming companies, including that in relation to the prospect of the VAT contingency occurring". Put like that, I do not accept the supposed duty. The starting point in the negotiations was the valuation by Close Brothers of the gaming businesses. There is nothing to suggest Close Brothers were not given full access to the information they required for that purpose. They did not require to know the details of the Linneweber claims as they had already decided that they were not going to try and put a value on claims that were so uncertain. No-one suggested that they should try and do so, and the parties proceeded to negotiate a split of Linneweber as they had recommended. From that point on, the question of the Linneweber payments was not relevant to the valuation of the gaming companies, as it was not taken into account in assessing their value. It was being dealt with in a different way.
313. Indeed Mr Barnsley accepted in cross-examination that both the amount of the Linneweber claims and the prospects of success were irrelevant if they were going to split them:

"Q On the basis that whatever you agreed in relation to split, it wouldn't matter what the amount was; what the prospects of success were ?

A Yes"

And again:

"Q The size of the claims is irrelevant to the split, isn't it ?

A The size of the claims did not influence the split, no."

314. On this basis it might be said that information as to the amount of Nobles' Linneweber claims and the prospects of success was irrelevant and immaterial and for that reason did not need to be disclosed. But I can see that despite Mr Barnsley's acceptance of the position these matters might have been material to the question of what split was appropriate.
315. Turning then to the particular matters which it is said should have been disclosed, the first is the fact that more claims had been filed since the initial claim filed by Mr Whitelaw, and that very substantial Fleming claims were in preparation. I have found above that Philip knew that Fleming claims could be put in that would go back earlier than the existing claims, and that such claims were under preparation, but that he did not know the amount of such claims. Philip also said that he assumed Mr Barnsley knew as much about this as he did. I find that Philip did not say anything to Mr Barnsley about the Fleming claims being prepared, and that this was potentially material information, but that in failing to say anything about it, Philip was not deliberately or consciously acting in a way he knew to be wrong. No-one had told him he needed to keep Mr Barnsley informed about the Fleming claims; Mr Barnsley obviously knew about the Linneweber claims, which had been referred to in the Close Brothers report, and Philip assumed that Mr Barnsley knew what he needed to know to negotiate the split. In fact, as appears above, Mr Barnsley did not think he needed to know the size of the claims in order to negotiate a split. It is not surprising therefore that he never sought to check on the size of the claims: if he had wanted to do so he would not have asked Philip in any event.
316. The second particular matter relied on which it is said Philip failed to disclose is the series of BACTA newsletters which reported on the progress of Rank's claims. Mr Biesterfield had these but it is not shown to what extent Philip did; in any event Mr Barnsley accepted in cross-examination that they did not tell the reader anything about the prospects of success. They did tell the reader about Rank's successes before the Tribunal but although Mr Barnsley was reluctant to accept this, I find on the balance of probabilities that he already knew about Rank's successes before the Tribunal: he accepted that he had a discussion with Close Brothers at a preliminary meeting at which they brought up the question of Linneweber and knew quite a bit about it. This was probably on 1 September 2008 (paragraph 95 above). That was very soon after the slots decision which was handed down on 19 August 2008; and I accept Mr Smouha's submission that it is probable that Close Brothers mentioned the Rank decisions (both bingo and slots) to Mr Barnsley when he met them. This would explain why in Mr Gillett's e-mail of 26 September 2008 to Mr Barnsley he referred to having discussed the potential Linneweber VAT claim "following Rank's victory" (paragraph 96 above): he obviously assumed that Mr Barnsley would know what he was referring to. I find that Mr Barnsley did indeed know about Rank's victories by September 2008. Disclosure of the BACTA newsletters would not therefore have told him anything he did not know in this respect. But even if Philip did have the BACTA newsletters, and they were material and should have been disclosed, I find that Philip did not deliberately or consciously omit to do so in the knowledge that what he was doing was wrong.
317. The third matter relied on is the information that Mr Gill considered the prospects of success to be 60%. I have already considered this above and concluded that I cannot find that Philip was aware of this assessment (paragraph 234 above).
318. I find therefore that it has not been shown that Philip was guilty of conscious or wilful misconduct in not disclosing the various matters complained of and that clause 14 of the Will provides him with a defence to this claim, as it does to the other equitable claim relied on, that of self-dealing. I may add that I do not regard this as an unmeritorious result. The reason for the stringent rules of equity attaching to a fiduciary is to ensure that he does not abuse his position as fiduciary by taking advantage of it to advance his own interests. But it would be quite unrealistic to regard Philip as doing this: the fact that he formally remained an Executor, although he had resigned as a trustee of the Will, had no practical impact on the negotiations for the demerger at all. They would have followed exactly the same course if he had never been an executor. Gill and her family were not in any real sense relying on him to protect their interests, and he did not take advantage of his position as Executor to feather his own nest.

Counterclaim

319. There is a counterclaim pleaded under which Philip claims a contribution or indemnity from Mr Barnsley and Gill if he is found liable on the self-dealing claim. In the light of my judgment it does not arise.

Conclusion

320. For the reasons given above, in my judgment:

(1) The claim for breach of contract fails because there was no contract concluded between the parties.

(2) The claims for deceit and under the Misrepresentation Act 1967 fail because Philip did not make any misrepresentation, because what he said was not a statement that Mr Barnsley was entitled to rely on, and because in any event Mr Barnsley was not in fact induced by what he said.

(3) The claim for negligence fails because Philip did not owe the Claimants a duty of care.

(4) The equitable claims brought against Philip as Executor based on self-dealing and non-disclosure fail because he is entitled to rely on the exoneration clause in the Will.

(5) Philip's counterclaim does not arise.

321. I will therefore dismiss the action.