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	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Jefferson & Ors v Bailey & Ors [2011] EWHC 92 (QB) (15 February 2011) URL: http://www.bailii.org/ew/cases/EWHC/QB/2011/92.html Cite as: [2011] EWHC 92 (QB)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/02/2011

His Honour Judge Richard Seymour Q.C. :

Introduction

1. The first defendant, Mr. Richard Bailey, has acted as an estate agent in Lanzarote, in the Canary Islands, for a good number of years. So far as is presently material, Mr. Bailey operated initially as manager of a business trading as Park Offices conducted by a Mr. and Mrs. Chris Want, apparently through a Spanish limited company called Independent British Sales and Management Advisory Service SL ("IBSMAS"). That company appears to have marketed, and sought purchasers for, both completed, habitable, residences and plots of land for development. It also managed on behalf of clients properties available for letting.
2. The second defendant, Mrs. Heather Bailey, is the wife of Mr. Richard Bailey.
3. The third defendant, the proper name of which is White Wind Ltd. ("White Wind"), was, according to a company search the results of which were put in evidence, incorporated in Gibraltar on 5 May 1989. The share capital of White Wind comprises 1000 £1 shares. Each of Mr. and Mrs. Bailey holds 500 of those shares. Each was appointed a director of White Wind on 16 November 1991. There is a third director, A & H Nominees Ltd., the address of which is the same as the address of the registered office of White Wind, 2/3B, Horse Barrack Lane, Gibraltar. A & H Nominees Ltd. was appointed a director of White Wind on 14 February 1995. The secretary of White Wind is A & H Management Secretaries Ltd., also of 2/3B, Horse Barrack Lane, Gibraltar.
4. At paragraph 5 of his fifth witness statement in this action Mr. Bailey explained that White Wind, "was a company set up on my instructions in Gibraltar in 1989 by me to conduct business in the form of arranging for the letting of property in Lanzarote and to assist in the purchase of the house that my wife and I were buying."
5. By an agreement ("the Jefferson Purchase Contract") in writing expressed in the English language dated 1 December 1999 the first claimant, Mr. Clive Jefferson, and his wife, Mrs. Rosemarie Jefferson, agreed to purchase from Mrs. Theresia Bickelmann-Chelius the title to

"House number 28 on the resort Las Margaritas, Playa Branca, Lanzarote, with a constructed surface area of 91,8m2, built upon a plot of land of 1.035 m2.

…

Register: 1.016, folio: 104, plot: 9.498 ("the Jefferson House")"

6. In order to understand these figures it is necessary to remind oneself that, in Continental European usage in relation to numbers, the comma is used where, in English practice, a full stop is used, and vice versa. Thus the built surface area of the Jefferson House was, in English usage, 91.8 square metres in extent, standing upon a plot of 1,035 square metres.
7. By clause 2 of the Jefferson Purchase Contract it was provided that:-

"The selling price of the property is 37.000.000 Pts. (THIRTY SEVEN MILLION PESETAS) which the purchaser will make payable to the vendors in the following manner:

a) The amount of 3.700.000 pts. (THREE MILLION SEVEN HUNDRED THOUSAND PESETAS) will be transferred by the purchaser to the solicitors Fernando Scornik Gerstein, before the 18^th DECEMBER 1.999 who will keep the sum in trust untill [sic] the final completion of the sale.

b) The remaining balance, which is to say, the sum of 33.300.000 pts. (THIRTY THREE MILLION THREE HUNDRED THOUSAND PESETAS) will be made payable by the purchaser to the vendors against the signing of the Public Title Deed of Purchase in favour of the purchaser or the person or persons who she may appoint, before a Notary of Arrecife of the vendors [sic] election, which will take place on or before the 13^th JANUARY 2.000."

8. What was described in the Jefferson Purchase Contract as "the Public Title Deed of Purchase" seems to be known, in Spanish practice, as an "escritura". The same term appears to be used to describe the formal documents of incorporation of a limited liability company, in Spanish a "sociedad limitada" or "SL".
9. A copy of an extract of the escritura by which the sale of the Jefferson House to Mr. and Mrs. Jefferson was completed was put before me. It included:-

"SEGUNDA El precio global de esta compravente es de VEINTICINCO MILLONES DE Ptas. o CIENTO CINCUENTA MIL DOSCIENTOS CINCUENTA Y TRES COMA CERO TRES Euros … (25.000.000 ptas. o 150.253'03 euros)"

10. On the face of the escritura the purchase price of the Jefferson House payable by Mr. and Mrs. Jefferson was 25,000,000 pesetas, the equivalent, as stated on the escritura, of €150,253.03, at a rate of exchange of €1 = 166.38599 pesetas.
11. It was not, I think, in dispute before me that it was, in the period 1999 to about 2002, at least, and perhaps still is, the practice in Lanzarote for buyers and sellers of land, with the complicity of at least some notarios, to seek to defraud the Spanish Revenue by underdeclaring in escrituras the real purchase price of property. It seems that liability to the Spanish equivalents of stamp duty and capital gains tax depended, and possibly still depend, upon the purchase price declared in the escritura.
12. In his fourth witness statement prepared for the purposes of this action, dated 22 November 2010, at paragraph 10, Mr. Jefferson said:-

"I only became aware of the practice in Lanzarote of buying and selling land with part of the price being undeclared in late 2002/2003, and only realised much later that it was a widespread practice."

13. However, in his first witness statement, dated 22 August 2009, Mr. Jefferson had said, at paragraph 56:-

"In paragraph 3.18 of his affidavit, Mr. Bailey says that everyone in Lanzarote knows about the two tier system for the purchase of land. I repeat that we were English investors. We were totally unaware of any suggestion that there should be any payment of black money. I have never paid anything other than the agreed recorded price for my purchases here and in Lanzarote."

14. In 1999 the Jefferson House was being marketed by Park Offices. It was because of their interest in purchasing the Jefferson House that Mr. and Mrs. Jefferson came to have dealings with Mr. Bailey, although Mr. Jefferson accepted in cross-examination that he had, in fact, first met Mr. Bailey in about 1998. Subsequently, towards the end of 2000, Park Offices marketed a plot ripe for development called Plot A3 at Playa Blanca, Lanzarote. The vendor was a company called Red Volcano SA ("Red Volcano"). Mr. and Mrs. Jefferson decided to purchase that plot also.
15. In a letter dated 18 October 2000 to their Spanish lawyer Mr. and Mrs. Jefferson wrote:-

"Please proceed with the purchase of the plot A3 at the purchase price of 14,750,000 to be completed at the notary's office on Friday 20^th.

The balance of monies that you require are come from the Bank of March, Playa Blanca and I faxed them att. Pedro to release you the balance funds required on Friday 9,077,000 pesetas."

16. An extract of a copy of the escritura by which the acquisition of plot A3 was completed was put in evidence. In it the price payable for the plot was stated as, "SEIS MILLONES NOVECIENTAS VEINTE MIL Ptas. o CUARENTA Y UN MIL QUINIENTOS NOVENTA COMA CERO CUATRO Eu." The stated price was thus 6,920,000 pesetas, or €41,590.04.
17. It appears that towards the end of 2000 Mr. and Mrs. Want decided that they wished to retire. They offered to sell the goodwill of Park Offices and the freehold of its office premises to Mr. Bailey.
18. For present purposes it is immaterial whether, as Mr. Jefferson asserted in his evidence, Mr. Bailey approached him to ask whether he would join Mr. Bailey in purchasing the business of Park Offices, or whether, as Mr. Bailey said, Mr. and Mrs. Jefferson decided, once Mr. Bailey had told them that Mr. and Mrs. Want wished to sell Park Offices, to ask to invest in that business. The upshot, whoever made the first approach, was that it was agreed that Mr. and Mrs. Bailey and Mr. and Mrs. Jefferson would together form a company, Park Offices (Lanzarote) SL ("Park Offices SL") to acquire the goodwill of Park Offices and its office premises.
19. Subsequently, by an agreement in writing dated 23 April 2001, which was made between Mr. and Mrs. Bailey, on the one hand, and Mr. and Mrs. Jefferson on the other, provision was made as to the basis upon which they should operate Park Offices SL. Clause 1 of the agreement recited that Park Offices had purchased from IBSMAS:-

"- Commercial premises number 15, comprising of ground floor and basement used as storage, in a tourist complex in Montana Roja, enclave 21 of the urbanization Montana Roja in the municipality of Yaiza, with a built area of 79.42m2, holding a participation share in the complex of 0.332% and known as number 21 on the deeds of horizontal property. It is registered at the Land Registry of Tias under volume: 999, book 103, folio 110, registration 2, registered property 9252.0

- The said commercial premises includes a real estate agency whose company name and trademark is PARK OFFICES, which has all the inherent and accessory elements related to said activity."

20. By clause 2 of that agreement it was recorded:-

"That the total price of this purchase and sale has been SEVENTY FIVE MILLION PESETAS (75 000 000.00) which breaks down in the following manner:

The amount of TWENTY MILLION PESETAS (20 000 000.00) for the commercial premises

The amount of FIFTY FIVE MILLION (55 000 000.00) for the goodwill of the business and industry carried out in the said commercial premises, that is the real estate agency known as Park Offices."

21. After the establishment of Park Offices SL the question arose as between Mr. Bailey and Mr. Jefferson of possibly becoming involved in development of vacant plots of land in Lanzarote.
22. In his first witness statement Mr. Jefferson explained his view of how this came about:-

"19. During one of our discussions, Mr. Bailey said that it was disappointing that property developers who bought building plots through Park Offices often failed to ask Park Offices to sell the completed development despite indicating during negotiations that they would use the agency to market the development. I suggested one way of safeguarding the commission on any development that would be paid to Park Offices would be for us to undertake the development 'in house'. I said I would approach some of my friends and clients with a view to purchasing a development plot on which the investors could each build a villa.

20. In 2001, Mr. Bailey told me that he had identified a suitable plot. This was the only land ever discussed. It had been on the books of Park Offices for a long time. The land was not identified by me as suggested by Mr. Bailey in his affidavit. The land was in Playa Blanca (Plot 129) and covered approximately 13,000 square metres. He said the land had outline planning permission for 22 two/three bedroom semi detached villas. He said that cost of the land was €880,000."

23. In his fifth witness statement, dated 5 November 2010, Mr. Bailey gave a rather different account:-

"12. After acquiring the business of Park Offices, Mr. Jefferson and I considered potential investments in property in Lanzarote. Mr Jefferson had told me that he had many meetings with groups of potential investors, but I was never advised who attended the meetings or what their intentions were. I was not invited to attend such meetings. Eventually Mr. Jefferson told me that he had a group of investors interested in investing in the acquisition and development of land in Lanzarote ("the Investors"), although, at that stage, he did not give me details of who the individuals were.

13. From my knowledge of the clients that I had dealt with at Park Offices, I was able to identify a number plots of land which I believed might be up for sale and which might be suitable for development and within their budget. I should make it clear however that as an estate agent my primary duty was to the various vendors of land not the potential purchasers."

24. It was common ground that Mr. Bailey wrote a letter dated 14 May 2001 to Mr. Jefferson which was in the following terms:-

"Re: Property Development, Southern Lanzarote

As discussed, we submit a brief outline on some possible property development projects that may appeal to your clients.

They range in size and complexity in a way hopefully to appeal to those who have some serious capital to invest and are looking for a sound and attractive return over a short to medium term.

Aside from these there are other intriguing options such as 16 – 20,000 m² of rustic land on the outskirts of Playa Quemada. At present without licence but possibly later. On such options obviously timing is the key as the return is potentially huge but this is reflected in the level of risk or exposure.

Please do not hesitate to contact us with any observations that you may have."

25. The paper enclosed with that letter began:-

"As discussed there is an opportunity to possibly acquire a sizeable plot in the village suitable for partial or full development & subdivision similar to the Red Volcano project. This offers an intriguing option that you or your clients may wish to consider."

26. The particular possibilities identified in the paper were four areas described as "Sectors", but of different extent. One was Sector 129, to which I shall refer in this judgment by that description. The price of Sector 129 was said to be between 130,000,000 and 140,000,000 pesetas. Sector 129 was the same as the land described by Mr. Jefferson in his first witness statement as Plot 129. At this stage the price of Sector 129 was not expressed in Euros. The Euro did not become the currency of Spain until 1 January 2002. There was no reference in the paper to planning permission having been issued in respect of Sector 129.
27. An observation included in the paper was:-

"In addition, by the sensible use of the declared value mechanism on the deeds, you can artificially lower your profit margin, which makes the concept even more interesting."

28. In the event Mr. Jefferson assembled a consortium with a view to purchasing Sector 129 and developing it.
29. In order to facilitate the purchase and development of Sector 129 a Spanish limited company, Vista Properties SL ("Vista"), was incorporated by Mr. Bailey. The escritura by which Vista was brought into existence was dated 4 March 2002. Those named in the escritura as the shareholders in Vista were, in the order in which they were listed in the escritura:-

(i) the third claimant in this action, Mr. John Melton;

(ii) the fourth claimant, Ms Sian Morris;

(iii) the fifth claimant, Mr. Christopher Masters;

(iv) the sixth claimant, Mr. John Cantle;

(v) the gentleman originally named as the seventh claimant, Mr. Steve Malham;

(vi) the eighth claimant, Mr. Bruno Longo;

(vii) the ninth claimant, Mr. Toby Buckley;

(viii) the tenth claimant, Mr. John Campbell;

(ix) Mr. Jefferson;

(x) the eleventh claimant, Ms Joanna Talbot.

30. The second claimant, Mr. Robert Brown, was not in fact named as a shareholder in Vista in the escritura, but I think that it was common ground that he should have been so named.
31. The escritura by which Vista was created provided for Mr. Bailey to be the Administrator of Vista. That meant, as I understand it, that the conduct of the business of Vista was in his sole charge.
32. Each of the shareholders in Vista listed in the escritura, save Mr. Jefferson, paid, by cheque or cheques drawn on his or her own bank account, an amount of money for his or her shares. Mr. Brown also contributed by means of cheques. It is convenient to refer, in this judgment, to the claimants, other than Mr. Jefferson, as "the Investors". The sums each of the Investors paid were paid at different times. Much of the money paid was paid in the first instance to White Wind, by transferring cheques drawn in its favour to White Wind's account ("the White Wind Account") numbered 097691 201 maintained at The Royal Bank of Scotland (Gibraltar) Ltd. The reasons for transferring money to White Wind in the first instance certainly included the fact that, at the dates of transfer of the original sums, Vista was not in existence. Mr. Bailey contended that another, important, reason was so that payment could be made of part of the purchase price of Sector 129 by funds which never entered Spain. I shall have to return to the question of what money was paid by whom, to whom, and in what way, but it is convenient first to record that by an escritura dated 15 March 2002, an English translation of extracts of which was put in evidence, Red Mountain SA ("Red Mountain") transferred to Vista what was described as "URBAN – Plot number 129 of the Urbanization Montana Roja, in the municipality of Yaiza.". The escritura, as translated, specified the extent of Sector 129 as 11,909 square metres. The price was recorded as €288,485.81. At the fixed rate of exchange between the peseta and the Euro of €1 = 166.38599 pesetas adopted at the time of the introduction of the Euro as the currency of Spain, the price was the equivalent of 48,000,000 pesetas.
33. I should make it plain that, while each of the Investors contributed some money by means of a cheque or cheques deposited in the White Wind Account, it was contended in this action that Mr. Brown contributed £60,000 by way of a direct deposit into the bank account of Vista, and a further £5,000 by way of deduction from sums due to him on the sale of another property, and that Mr. Cantle contributed an amount of £10,000 in cash.
34. In this action it was alleged on behalf of the claimants at the commencement of the trial that Mr. Bailey, his wife and/or White Wind had misappropriated six amounts of money intended to be transferred to, or applied for the benefit of, Vista. It will be easiest to understand each of the elements of claim, and the issue or issues which arose in relation to it, if each is treated separately in this judgment. The largest element of claim, which, in the end, was abandoned, related to alleged misapplication of a sum representing the difference between an amount totalling £710,000 paid by various of the Investors by cheques deposited in the White Winds Account, and an aggregate amount of €288,485.81 (that is, the price of Sector 129 specified in the escritura by which title was transferred from Red Mountain to Vista), and €641,071.44. For reasons which will become clear, it is unnecessary at this stage to seek to convert the amounts expressed in Euros into sterling. The amount of the difference between £710,000 and the aggregate of the amounts expressed in Euros, totalling €929,557.25 was variously expressed in the substituted Particulars of Claim for which I gave permission in the course of the trial as US $285,000 or €204,397. It is convenient to refer to this element of claim in this judgment as "the Undeclared Money Claim". Although, in the end, the Undeclared Money Claim was abandoned, the matters investigated in relation to that claim prior to its abandonment, in the closing submissions of Mr. Philip Noble, who appeared on behalf of the claimants, shed light, as it seemed to me, on the issues which remained live at the end of the trial. It is therefore convenient to consider the evidence in relation to the Undeclared Money Claim before coming to the other claims.

The Undeclared Money Claim

35. By the commencement of the trial I think that there was no dispute that, between about 2 January 2002 and about 29 January 2002 amounts totalling £710,000 were paid in the form of cheques into the White Wind Account on behalf of the Investors. There were five deposits. The first was of £50,000 on 2 January 2002. The second was of £15,400 on 9 January 2002, but it was common ground that only the £15,000, and not also the £400, was referable to cheques deposited by one of the Investors. The remaining deposits were of £5,000 on 15 January 2002, £605,000 on 26 January 2002, and £35,000 on 29 January 2002. The receipt of these sums could be seen on copies of statements of the White Wind Account which were put in evidence.
36. There was a certain amount of documentary material to link particular payments by individuals of the Investors to the amounts deposited in the White Wind Account. A copy of the reverse of the paying-in slip concerning the large deposit of £605,000 indicated that the contributors to that deposit were, in the order listed on the paying-in slip:-

(i) the eleventh claimant: £80,000

(ii) the tenth claimant: £210,000

(iii) the third claimant: £75,000

(iv) Mr. Malham: £70,000

(v) the sixth claimant: £70,000

(vi) the fourth claimant: £40,000

(vii) the fifth claimant: £40,000

(viii) the eighth claimant; £20,000

37. Mr. Brown, the second claimant, produced a copy of a bank statement in relation to an account of his which showed a cheque in the sum of £15,000 passing through that account on 9 January 2002. I think that it was common ground that that £15,000 was the £15,000 deposited in the White Wind Account on 9 January 2002.
38. A copy of the reverse of the paying-in slip in respect of the fifth deposit, of £35,000, indicated that the whole of that sum had been provided by the ninth claimant.
39. Although I was told by Mr. Noble in which particular amounts it was contended that various of the Investors had contributed to the first and third of the deposits to which I have referred, there was in fact no contemporaneous documentary evidence to support what Mr. Noble told me. That was not significant in relation to the Undeclared Money Claim.
40. From the copies of statements of the White Wind Account which were put in evidence one could see what had happened to the total of £710,000 paid into that account.
41. £48,700.04 ("the First Payment") was paid out on 14 January 2002. The particulars of the First Payment noted in the relevant statement of the White Wind Account were, "TRF [transfer] & CHGS [charges] F/O TTT MONEY".
42. The next amount to be paid out ("the Second Payment") was of £318,165.18 on 29 January 2002. The particulars of the Second Payment noted in the relevant statement were, "TRF & CHGS F/O TTT MONEY CORP LTD".
43. The final relevant payment out of the White Wind Account ("the Third Payment") was of £344,175 on 4 February 2002. The particulars of that payment were similar to the previous ones, "TRF & CHGS TTT MONEY CORP LIMITED".
44. The aggregate of the First Payment, the Second Payment and the Third Payment was in fact slightly in excess of £710,000, namely £711,040.22.
45. There were put in evidence copies of documents which showed that each of the First, Second and Third Payments were in fact made to TTT Moneycorp Ltd. ("TTT") for the purchase of foreign currency.
46. The First Payment was £30, no doubt the amount of a telegraphic transfer fee, in excess of a sum of £48,670.04 said to be due to TTT for the spot purchase on 11 January 2002 of an amount of US$70,000.
47. The Second Payment was £30 in excess of a sum of £318,135.18 said to be due to TTT for the spot purchase on 28 January 2002 of an amount of US$445,750.
48. The Third Payment was £30 in excess of a sum of £344,145.00 said to be due to TTT for the spot purchase on 1 February 2002 of an amount of €560,435.67.
49. Before coming to the copies of documents which show what happened to the United States dollar and Euro amounts which were purchased from TTT it is convenient to revert to the documentary evidence as to the course of the negotiation between Mr. Bailey and Red Mountain in relation to the acquisition of Sector 129.
50. The case for Mr. Bailey and White Wind was that it was always made clear by him to Mr. Jefferson, who, in turn, should have made it clear to the Investors, that the deal with Red Mountain in relation to Sector 129, if done, would involve the payment of part ("the Undeclared Part") of the agreed price outside Spain, and that the Undeclared Part would not be included in the calculation of the amount to be shown in any escritura as the price for Sector 129. Mr. Bailey contended that that aspect of the transaction had, to an extent, been foreshadowed by the reference in the paper enclosed with his letter dated 14 May 2001 to Mr. Jefferson, to "the sensible use of the declared value mechanism".
51. Mr. Jefferson was cross-examined about that reference. His evidence about it, I am afraid, did not seem to me to be at all satisfactory. When first asked about it he told me that he could not understand the reference. Then he said that it seemed ambiguous to him. Next he said that he was not particularly interested in a sentence like that which contained this reference. At length he accepted that it happened in Lanzarote that there was a division of the amount of a payment for land in two, but that the "salesmen" made it sound perfectly normal, and you were told something which you did not really understand, but with which you went along. Eventually, when the question was revisited on the second day of his cross-examination, Mr. Jefferson, having initially made reference to translations being provided of escrituras on the occasion of signature which made it difficult to follow, accepted that in fact he understood, before his involvement in the purchase of Sector 129, that it was the practice in Lanzarote in 2001 and 2002 for a purchaser of land to pay a sum to the vendor in addition to the price recorded in the relevant escritura, and that the purchaser was required in terms to confirm in front of the notary before whom the escritura was signed that the price stated in the escritura was the correct price being paid for the land in question. The prolonged lack of frankness of Mr. Jefferson, both in his witness statements and in cross-examination, on this point, in fact peripheral to the issues in this action, but important in relation to credibility, I found very troubling.
52. Another very puzzling piece of evidence of Mr. Jefferson concerned what, on their respective faces, seemed to be four documents sent by or on behalf of Mr. Bailey to him, dated, respectively 13 September 2001, 12 November 2001, 28 November 2001 and 15 January 2002. I shall set out later in this judgment material passages from those documents. However, in his fourth witness statement Mr. Jefferson commented upon them as follows:-

"21. Mr. Bailey relies on a number of documents – faxes showing that he informed me of the black money [that is, the necessity to pay money outside Spain, from funds never entering Spain, in respect of the acquisition of Sector 129] … I believe that they may have been produced at the time but deny that they were ever faxed to me.

…

24. On 14 January 2002, Mr. Bailey purported to write to all shareholders … Again, I deny having seen that letter. I believe that this was have [sic] been produced at the time but purely as an insurance for a later date."

53. Mr. Jefferson was asked about those passages in cross-examination. I found his explanation for his expressed opinion very difficult to understand. It seemed to amount simply to Mr. Jefferson considering that Mr. Bailey was the sort of man to produce documents, in anticipation of a difficulty, which he would be able to rely upon to extricate himself from the difficulty. However, how that really helped in relation to the issues in the present case was far from clear, once Mr. Jefferson had eventually accepted that he knew, prior to the purchase of Sector 129 from Red Mountain, of the practice of paying, in addition to the price declared on the relevant escritura, an additional payment in respect of land purchased in Lanzarote in 2001 and 2002.
54. The matter was the more puzzling as the telephone records of Park Offices SL showed that facsimile transmissions were made to what Mr. Jefferson accepted was his facsimile telephone number, at 16:07:54 hours on 13 September 2001, lasting 34 seconds; at 13:29:45 hours on 12 November 2001, lasting 1 minute 19 seconds; and at 10:01:11 hours on 15 January 2002, lasting 57 seconds. Records in respect of 28 November 2001 were not put before me. Mr. Jefferson was not able to identify any document sent by facsimile transmission at any of those times, if not the documents which it was contended on behalf of Mr. Bailey had been sent.
55. A further wrinkle in the contention of Mr. Jefferson that he had not received any of the four ostensible documents sent by facsimile transmission was that three of them, those other than that of 28 November 2001, were, on their face, signed by Mrs. Pamela Kemp on behalf of Mr. Bailey, and commenced with a facsimile transmission form in familiar layout. Mrs. Kemp lives in Lanzarote. She did not give live evidence at the trial, but she did make a witness statement in which she said that she had been employed by Park Offices SL from March 2001 to October 2003 as an administrative assistant. She said that, while she did not specifically recall signing the documents apparently sent by facsimile transmission dated 13 September 2001, 12 November 2001 or 15 January 2002, but signing documents per pro Mr. Bailey had been one of the duties of her employment by Park Offices SL, and the signatures on the relevant facsimile transmissions looked like hers.
56. The document dated 13 September 2001 bore the heading "SECTOR 129 – PLAYA BLANCA" and included this passage:-

"Further to our recent discussions and communications we can advise that we have further investigated the situation with regards tax liabilities here for your clients. Please bear in mind that this only covers the situation here, as a non-resident, and separate advice needs to be sought with regards UK liability.

Non-residents are able to invest and have full right of repatriation of those funds; subject to capital gains, which can be 35%. However, this figure diminishes by an annual % allowance. The tax is levied against the declared gain not actual and you will need to explain the difference in this country between 'declared' and actual."

57. Before coming to the document dated 12 November 2001 it is appropriate to put it into context by mentioning something of the progress of negotiations between Mr. Bailey and Mr. Kjell Nyborg, a Norwegian lawyer acting on behalf of Red Mountain in the negotiation.
58. In a document dated 25 October 2001 sent to Mr. Nyborg by facsimile transmission and signed by Mrs. Kemp per pro Mr. Bailey, Mr. Bailey said, so far as is presently material:-

"As discussed I am pleased to confirm an initial offer from my clients although it is disappointingly low.

Their offer is 100,000,000 ptas – approximately 8,400 ptas / m². This is in response to our very original figures of 10,000 ptas / m² that were based on my letter to you earlier this year. It was my impression that as we were already 'in play' with this particular client we would not try to change mid way through but that on the other Sectors / or my new client for Sector 129 we considered upping the rate to 12,000 ptas / m².

Obviously this offer is a negotiating point and I have no doubt that I can get them to increase. I do not believe that they will go beyond 120 million."

59. Mr. Nyborg replied by a letter dated 29 October 2001. That reply drew forth a response dated 6 November 2001 from Mr. Bailey:-

"I can advise that I have received a further improved offer of US$675,000.

This is now their third offer and I believe it to be the final one. In their own minds they feel they are paying over the original price (as they understood it).

If all can be agreed quickly they confirm in principle that they will comply by the mid December completion. However final approval (Aprobacion Definita) is a condition of their offer.

Please could you convey this to your partners as quickly as possible for consideration. I will be back in the offices by midday tomorrow."

60. In a letter dated 9 November 2001 to Mr. Bailey Mr. Nyborg wrote:-

"Sector 129 Estate 7465 On Folio 36 of Volume 857, Book 90 In Property Registry

There is now final agreement on sale of above property subject to Aprobacion Definita and documentation.

Escritura price is Pts 48 mill. You will arrange to have the Escritura drawn up by notario Carmen. The 5% withholding tax will be Pts 2.400.000 which Seller Red Mountain SA will transfer to your account in advance because the entire purchase amount is paid abroad since the buyers are English.

The Seller has been asked to courier send to you the Power of Attorney for you to act on their behalf on above. The Power of Attorney will be notarised and affixed with Apostille.

The closing date is agreed to take place as soon as possible and latest on 11 December 2001."

61. The final agreement referred to was itself set out in another letter dated 9 November 2001 written by Mr. Nyborg to Mr. Bailey:-

"I refer to yesterday phone and noted agreement on basic terms for sale of sector 129 for USD 700.000.

I have asked the vendor to fax Brian the attached power and provided Brian with the information appearing in attached fax to him. Basic terms should then be:

Seller: Red Mountain SA

Sales object: Sector 129 in Montana Roja Urbanisation in the municipal borough of Yaiza registered in property registry as estate 7465 on folio 36 of volume 857, book 90.

Sales object

condition: Aprobacion Definita granted based on proyecto basico as presented by architect Blanca Lleo and which has initial approval and been through the publication period without objections

Closing: Latest within 11 December 2001 subject to Aprobasion [sic] Definita

Purchaser: ?

Payment: Price amount deposited with Royal Bank of Canada and released in favour of Seller in exchange for Escritura. "

62. The latter letter set out, in a form probably sufficient under English law, but for the failure to identify the purchaser, a binding conditional contract for the sale of Sector 129. The total price of US $700,000 was fixed at that stage.
63. Mr. Bailey told me in cross-examination that in fact it was he who had himself negotiated the purchase of Sector 129: that is to say, although appearing simply to pass on to Mr. Nyborg offers made by unidentified prospective purchasers, it had been he who had determined from time to time during the negotiations what offers to make. He said that Mr. Jefferson had given him carte blanche for this purpose. At paragraph 25 of his fifth witness statement Mr. Bailey dealt with the agreement of the purchase price of Sector 129. So far as is presently material he said:-

"I negotiated with RMSA [Red Mountain] in relation to the price and managed to reduce it slightly form [sic] the original asking price [which he said at paragraph 15 of the same witness statement was 145 million pesetas]. … The eventual price agreed with RMSA, after the deduction of POSL's [Park Offices SL's] agency fees was US$241,500 disclosed and US$445,750 undisclosed. In other words the total price payable to RMSA for the Property was Ptas. 145,000,000 (about $780,000) with about 30% of the total price was [sic] to be a "white money" payment and 70% a "black money" payment."

64. There are various problems with this account. There was no documentary evidence that the asking price of Sector 129 had ever been as high as 145,000,000 pesetas. In the paper attached to the letter dated 14 May 2001 from which I have quoted the price was put at 130,000,000 – 140,000,000 pesetas. I have already noted that the actual extent of Sector 129 was 11,909 square metres. In the document dated 25 October 2001 to Mr. Nyborg Mr. Bailey wrote of "very original figures of 10,000 ptas / m²", which would have produced an asking price of 119,090,000 pesetas. Even at the rate of 12,000 pesetas per square metre, of which the document also spoke, the asking price would only have been 143,908,000 pesetas. Moreover, as I shall explain a little later in this judgment, it appears unlikely that the equivalent in United States dollars of 145,000,000 pesetas immediately before the introduction of the Euro was 780,000, and more likely that it was about 756,000. Mr. Bailey's explanation, at paragraph 16 of his sixth witness statement, dated 8 December 2010, for the actual purchase price of Sector 129 being in total US$700,000 was that Red Mountain agreed to a late reduction in the asking price, but the documents to which I have referred which seem to evidence the course of the negotiations do not appear to bear this out.
65. In the document dated 12 November 2001 Mr. Bailey wrote, so far as is presently material, as follows:-

"Further to our recent discussions I can confirm that progress has been made with regards negotiations with the vendors, the planning authorities and various other associated matters.

1. As previously expected the Norwegians have stuck to the official asking price of 145,000,000.

2. The price to be paid in the equivalent of US$ via an escrew [sic] account in Guernsey; released by pre-arranged authorisation of our lawyers on the passing of title at the Notary office. It is quite a usual procedure and has worked well in the past

3. The declared price is only 48 million pesetas. It will be necessary to have all of the purchase monies collected off-shore.

Although the capitalisation of the Company will be 11 x £80,000 235 million ptas. 97 million is being paid in 'black'. Therefore the capitalisation will be approximately 138 million. It is complicated but it would be better for the tax authorities to see this amount come into the Company account; then 108 [which seems to have been a typographical error for 48] being transferred and out to your account. From here the full 145 can be transferred to Escrew [sic] ..."

66. While the document explained that the price was to be paid in United States dollars, and that the equivalent of 97,000,000 pesetas was to be paid without being declared in the escritura, the reference to Red Mountain having insisted on the asking price of 145,000,000 pesetas is surprising, given that the agreed price was actually US$700,000. The evidence as to the equivalence, or not, of 145,000,000 pesetas and US$700,000 was a little oblique, but, such as it was, suggested that US$700,000 was rather less than the equivalent of 145,000,000 pesetas. I have already noted that, at the time of the introduction of the Euro in place of pesetas in Spain there was a fixed exchange rate, which can be deduced from the stated equivalents of pesetas and Euros in various escrituras to which I have referred, of €1 = 166.38599 pesetas. Applying that rate of conversion, 145,000,000 pesetas was the equivalent of €871,467.60. I think that Mr. Bailey accepted that equivalence, because in a draft letter to the Investors dated 14 January 2002 he wrote:-

"The original price of the plot was 145 million ptas, but from this point on all relevant figures must be in Euros. The exchange rate is fixed Pta/Euro and so the purchase price is 871,467 Euros."

67. In circumstances to which I shall come Mr. Bailey instructed TTT on 1 February 2002 to convert US$70,000 into Euros. According to the contract note, of which a copy was put in evidence, the rate of exchange adopted for that spot transaction was €1 = US$0.8681, producing a Euro equivalent of US$70,000 of €80,635.87. By simple multiplication, the Euro equivalent of US$700,000 on 1 February 2002 on a spot basis was €806,358.70. It is always possible that, between the coming into use of the Euro on 1 January 2002 and 1 February 2002, there had been a movement of the rate of exchange between the United States dollar and the Euro which meant that at some point in time earlier than 1 February 2002 US$700,000 had been the equivalent of €871,467.60, but to produce that equivalence there would have needed to have been a prevailing rate of exchange of €1 = US$0.8032. Thus what one seems to be contemplating, if US$700,000 had ever, prior to 1 February 2002, been the equivalent of €871,467.60 is a depreciation of the value of the Euro as against the United States dollar of the order of 8% between whatever that earlier date was and 1 February 2002.
68. As I have already mentioned, at paragraph 25 of his fifth witness statement Mr. Bailey said that, "In other words the total price payable to RMSA [Red Mountain] for the Property was Ptas. 145,000,000 (about $780,000)". At the exchange rate upon which the spot purchase on 1 February 2002 was based €871,467.60 was the equivalent of US$756,521.02.
69. Understandably, in the circumstances, Mr. Bailey was cross-examined about the reference to 145,000,000 pesetas in the document dated 12 November 2001. He said that Mr. Jefferson had told him to give that price as the price required for Sector 129 because he, Mr. Jefferson, intended to show the document to those he was seeking to interest in the purchase of Sector 129. Why he wanted to do that Mr. Bailey explained at paragraph 16 of his sixth witness statement:-

"… Mr. Jefferson told me not to mention [the alleged last minute reduction in the purchase price] as it would mean that we could get our shares for free. I said this was not possible as in practice the saving was not enough to cover two full 5% shares. He then said that at least he should get his for free and his friends would expect him to get something for his efforts. I reluctantly agreed to go along with this, on the basis that he knew the other claimants much better than I did, but made up the difference to cover my shares (40,000 Euros) and at this time paid for the missing money from Cantle (16,000 Euros) – this was the payment from POSL into VPSL for 56,000 Euros."

70. I shall have to return to this issue later in this judgment.
71. For present purposes the only material reference in the document dated 28 November 2001 which it was contended had been sent by, or on behalf of, Mr. Bailey to Mr. Jefferson was:-

"The black money can still be centralised for transfer. Any idea when some of this will be available because I expect Nyborg will want a deposit in return for the delay in completion and I will need to give him a date."

72. Mr. Bailey sent a document dated 6 December 2001 to Mr. Nyborg. The copy put in evidence appeared in fact to have been signed on behalf of Mr. Bailey by Mrs. Kemp. The document read:-

"I accept the seller wants prior to Christmas – I would remind him that there is no licence [that is to say, Aprobacion Definita, or planning permission] yet.

I accept that it will arrive but my clients will not move 700,000$US around until I can show this is done. I am doing this as quickly as possible. I attach copy instructions to the lawyers for the powers of attorney. All but one name is withheld on my clients' instructions. These are personal details available from Companies House Registry when the Company is incorporated in the public domain.

As said I will revert on each progress as soon as it happens."

73. The draft letter dated 14 January 2002 to the Investors which I have mentioned was sent, on the face of it, attached to a facsimile transmission form dated 15 January 2002 addressed to Mr. Jefferson in which Mr. Bailey said:-

"Please find draft letter attached for your comments."

74. The draft letter was plainly written in anticipation of the incorporation of Vista. It included:-

"Re: Sector #129, Playa Blanca

As you know through your discussions with Mr. Clive Jefferson, Messrs. Park Offices have brokered on your behalf for the purchase of the above plot with the view to development.

This short letter is an introduction and also to inform you of progress to date.

We can confirm that Vista Properties SL has been duly incorporated as a limited company in Spain [this did not actually happen until 4 March 2002], entitled to operate as a property developer, builder, letting agency and all other associated fields in their widest definition.

The company is wholly owned by the members with the exception of the writer, who in the capacity of administrator holds a token one share.

All shareholders have committed capital in blocks of Sterling @ £40,000 per block and their overall shared [sic] are related to the amount of blocks opted for. After due consideration and so as to render the administrator's one share worthless, the company has been capitalised with 11,001 shares. (This figure is obviously linked to the number of plots on Sector 129 for convenience.)

A shareholder holding one block of Sterling will be issued with 500 shares. Those investing two or more blocks will be issued with 1,000 or 1,500 shares dependent on the level of investment.

The original price of the plot was 145 million ptas, but from this point on all relevant figures must be in Euros. The exchange rate is fixed Pta/Euro and so the purchase price is 871,467 Euros. The local declared price for tax purposes is 288,485 Euros and it is on the lower figure that stamp duty (6%) will be levied by the authorities. The balance of funds for the purchase will go direct to the vendors, leaving a balance from the original gross capital invested.

After the purchase is complete there will be funds available from the original capital to commence this project, pay architect's fee, builders etc. This opening balance will be dependant on the exchange rate at the time and please bear in mind that your original funds will convert from Sterling to $US and also Sterling to Euros to $US (for funds paid from Lanzarote). Therefore, at this stage I can advise that capital here will be approximately 530,000€ (£333,000).

In view of this it is impossible to assume that each member pays exactly the agreed amount per share as one another but in the interest of fairness I have opted for the above as the most equitable solution to all parties concerned. …"

75. While maintaining that he never saw the documents ostensibly sent by Mr. Bailey to him by facsimile transmission on 13 September 2001, 12 November 2001, 28 November 2001 and 15 January 2002, Mr. Jefferson did tell me in cross-examination that the information contained in those documents was probably given to him orally by Mr. Bailey, and passed on by him to the Investors.
76. Mr. Bailey's account of the question of the price of Sector 129 was, in effect, that he, on the instructions of Mr. Jefferson, misrepresented the price in the documents to which I have referred, so as to enable Mr. Jefferson, who knew the real price, to misrepresent the price to the Investors. The purpose of this deception, Mr. Bailey told me, was so that Mr. Jefferson could acquire a 5% share in Vista and in the development of Sector 129 without having to pay for it the £40,000 which any of the Investors had to contribute for a share of that size. It was a simple scheme, as explained by Mr. Bailey. The Investors would be led to believe that the purchase price of Sector 129 was something considerably in excess of what it actually was. Mr. Jefferson could then pretend that he had contributed his share of £40,000, which had been applied, it could be presented, in reduction of the purchase price from what it was said to be to what it actually was. Given that an element of the purchase price was to be paid outside of Spain out of funds which were never to enter Spain, none of the Investors would be any the wiser.
77. In fact, according to Mr. Bailey, the scheme was implemented, but there was an excess of the difference between the price of Sector 129 represented to the Investors and the apparent excess of £40,000 which Mr. Jefferson wished to generate for his own benefit. Mr. Bailey's evidence was that Mr. Jefferson said that Mr. Bailey could use that amount towards a share of 5% of the equity in Vista for himself.
78. In due course Vista opened an account ("the Vista Account") with Banca March SA ("March"). In a document dated 7 February 2002 produced by March, but, as he accepted, based on information provided by Mr. Bailey, the shareholdings in Vista were recorded as follows, adopting the order of listing in the document:-

(i) the third claimant: 10%

(ii) the fourth claimant: 5%

(iii) the fifth claimant: 5%

(iv) the sixth claimant: 10%

(v) Mr. Malham: 10%

(vi) the eighth claimant: 5%

(vii) the ninth claimant: 5%

(viii) the tenth claimant; 30%

(ix) Mr. Jefferson: 5%

(x) the eleventh claimant: 10%

(xi) Mr. Bailey: 5%

79. It will be necessary to revisit the alleged deception of the Investors described by Mr. Bailey in the context of other claims in this action. However, for the present it is appropriate to concentrate upon the application of the aggregate total of £710,000 in fact received in the White Wind Account between 2 January 2002 and 29 January 2002. Thus far it has, in substance, been followed into the spot purchases of foreign exchange through TTT.
80. The initial purchase of US$70,000 through TTT seems to have been sent into an escrow account ("the Red Mountain Account") in the name of RBC Trustees (Guernsey) Ltd. and numbered 88012 maintained by Royal Bank of Canada (CI) Ltd. in Guernsey. The details of the Red Mountain Account were set out in release instructions to which I shall come. Receipt of the US$70,000 was acknowledged by Mr. Nyborg on behalf of Red Mountain in a letter dated 14 January 2002:-

"I have noted the transfer of USD 70.000. We close soonest the balance is into the ESCROW ACCOUNT."

81. After instructions were given to TTT to purchase spot US$445,750 Mr. Bailey sent to TTT by facsimile transmission on 29 January 2002 this message:-

"Further to our conversation with regards the above I can confirm that I wish to alter the onward transfer details.

Please be advised that Royal Bank of Scotland will forward to you today the full amount as agreed.

However we require the amount of US$ 375,500 to be transferred as per the distribution details of our transfer instruction form (amended copy attached). The balance of $70,000 to be held on account.

We will transfer additional fund in 48 hours for forwarding to Lanzarote and this will include the $70,000 balance.

If you have any queries please do not hesitate to call."

82. On 1 February 2002 not only was the sum of €560,435.67 purchased on a spot basis from TTT, but, as I have already noted, TTT was instructed to convert US$70,000 into Euros, producing €80,635.87. These Euro figures aggregate to €641,071.54.
83. The opening credit to the Vista Account was an amount of €56,431. That represented a cheque drawn on March by Park Offices SL dated 4 February 2002 ("the Park Offices Cheque"). It will be necessary to return to the Park Offices Cheque, but it was not material to the Undeclared Money Claim.
84. On 6 February 2002 there was a transfer into the Vista Account of €640,259.85. The following day a cheque in the sum of €811.59 was deposited. These two amounts aggregate to €641,071.44. I am entirely satisfied that these amounts represent the amount of the Third Payment plus US$70,000 of what was acquired from TTT by the Second Payment, less 10 Euro cents, arriving in the Vista Account. The contrary was not suggested on behalf of the claimants.
85. A copy put in evidence of an instruction given on behalf of Vista to March dated 8 March 2002 showed March being asked to transmit an amount of US$241,500 to Royal Bank of Canada (CI) Ltd. That instruction was complied with, and an amount of €278,691.72 was debited to the Vista Account on 12 March 2002, as shown on a copy of the relevant statement of the Vista Account put in evidence. The payment of that sum was described in English as "Purchase of Foreign".
86. Pausing at this point, it can be seen clearly that all bar sums converted into United States dollars totalling US$ 445,750, and 10 Euro cents, out of the total of £710,000 on the face of the documents to which I have referred, has been accounted for. That the remaining amount in United States dollars went into the Red Mountain Account was shown by the copies of the release instructions which I have mentioned. A document entitled "Release Instruction" dated March 2002, addressed to Royal Bank of Canada and giving details of the Red Mountain Account was signed on behalf of Red Mountain and by Mr. Bailey on behalf of Vista. The substantive text of the document was:-

"You have received USD 241,500 into above Escrow 88012. You are hereby irrevocably and unconditionally instructed to release to Red Mountain SA said amount together with interest – if any."

87. The United States dollar equivalent of the price specified in the escritura concerning Sector 129, €288,485.81, being US$241,500, thus reached Red Mountain.
88. A document also dated March 2002, called "Release Instruction 2", gave similar details of the Red Mountain Account. It was also signed on behalf of Red Mountain and by Mr. Bailey, but there was no reference to Vista. The substantive text of the document read:-

"You have received further USD 445.750 into above Escrow 88012. You are hereby irrevocably and unconditionally instructed to release to Red Mountain SA said amount together with interest – if any."

89. On the face of the documents, all of the £710,000, bar 10 Euro cents, was accounted for, being applied either in the purchase of Sector 129 at the actual agreed price, or by payment into the Vista Account.
90. It was accepted that the difference between the price actually paid for Sector 129 on the face of the documents, US$ 687,250, and the sum of US$ 700,000 on the face of it agreed between Mr. Bailey and Mr. Nyborg, was referable to a Spanish withholding tax of 5% of the declared amount of the price payable in respect of the sale of land where the vendor was not resident in Spain. US$12,075 is 5% of US$ 241,500, so a minor error of calculation seems to have been made. However, the miscalculation was to the disadvantage of Red Mountain, which should have received US$675 more, not relevant to the Undeclared Money Claim.
91. It was not suggested that any of the documents to which I have referred which enabled one to follow the destination of the aggregate of £710,000 paid by some of the Investors in the period 2 January 2002 to 29 January 2002 was not what it purported to be. Why, following disclosure of the material documents, the Undeclared Money Claim was pursued was unclear. At paragraph 35 of his fourth witness statement Mr. Jefferson accepted that:-

"The total sums accounted for are therefore €806,385 plus €361,568.51 or €1,167,953.51 approximately £710,000."

92. The Undeclared Money Claim was pursued following the opening of the claimants' case by Mr. Noble only, as I understood it, in the hope that something might turn up on the cross-examination of Mr. Bailey to justify continuing with the claim. Nothing did turn up.

The "missing" £10,000 paid to White Wind

93. The next element of claim in this action which it is convenient to consider is a payment of £10,000 shown on the relevant statement of the White Wind Account as having been paid in on 25 February 2002 in the form of a cheque. In the substituted Particulars of Claim this element of claim was formulated as a claim for £8,959.80, reflecting an apparent overpayment out of the White Wind Account of a total of £711,040.22 in respect of the aggregate of £710,000 paid in.
94. It was not in dispute that the £10,000 deposited on 25 February 2002 into the White Wind Account had been received.
95. A copy of the reverse of the paying-in slip identified that payment as being £10,000 from "Barclays Bank PLC (BRUNO)", that is to say, Mr. Longo.
96. However, it was common ground that, as at 25 February 2002 Mr. Cantle had only contributed £70,000 out of an anticipated £80,000 for a total of 10% of the shares in Vista.
97. It could not be seen from the copies of the statements of the White Wind Account which were put in evidence by what individual, or individuals, amounts credited to the account in the form of cheques had been paid, or any amount contributed as part of a larger deposit.
98. Mr. Bailey told me in cross-examination that he was aware, when he came to cause Vista to be formed, that Mr. Cantle had only contributed £70,000 out of the anticipated £80,000. He said that on the formation of the company it was necessary, amongst other things, to record the funds paid into the new company by those subscribing for shares. That was not challenged. Mr. Bailey also told me that he formed the view that it was at least desirable for Mr. Cantle's intended contribution of £80,000 to be recorded as having been received, and for the account of Vista to be credited accordingly. To achieve that, he said, Park Offices SL had, in effect, lent Mr. Cantle £10,000 by including the Euro equivalent of that amount in the Park Offices Cheque. When the £10,000 cheque deposited on 25 February 2002 arrived in the White Wind Account he thought, he said, that that was Mr. Cantle's missing money, and simply treated himself as entitled to reimburse Park Offices SL in respect of the advance of the Euro equivalent of that amount.
99. The simple issue is whether Mr. Bailey or White Wind misappropriated the £10,000, wherever it came from, or whether it was accounted for properly. If, as Mr. Bailey contended, the £10,000 had in effect been credited to Vista in advance of being received, then it was properly accounted for.
100. In the course of his cross-examination Mr. Bailey was shown a note ("the Calculation Note") the first part of which, at any rate, had been made by him at, it seemed, about the beginning of February 2002. The Calculation Note included, at the top left, the £/€ and US$/€ rates of exchange appearing on the contract notes issued by TTT and dated 1 February 2002. Consequently the Calculation Note could not have been made any earlier than that date. However, it included a calculation ("the Cheque Calculation") of the amount of €56,432 which was, save for €1, the amount of the Park Offices Cheque, from which it would seem to follow that the date of the Calculation Note was not later than the date of the Park Offices Cheque, 4 February 2002.
101. The Cheque Calculation included two main elements, one of which, to which I shall return, was itself divided into two. The undivided element in the Cheque Calculation was, "+ J. Cantle £10,000 =16287€". The latter figure was plainly derived from the £/€ rate of exchange noted on the Calculation Note, 1.6287.
102. In the result, on the face of the Calculation Note, Park Offices SL had paid over to Vista, in the Park Offices Cheque, an amount of £10,000 in advance of that sum being received in the White Wind Account.
103. It was not suggested that the Calculation Note was not what it purported to be. Indeed Mr. Noble cross-examined Mr. Bailey on the footing that it was exactly what it purported to be, albeit that he drew attention to a different part of the Calculation Note, which appeared to record the receipt of two amounts of £5,000. I shall return to the possible significance of that part of the Calculation Note.
104. It was common ground that Park Offices SL had actually paid the amount of the Park Offices Cheque into the Vista Account as the opening credit.
105. In the result there was clearly no substance in the suggestion that the amount of the cheque for £10,000 paid into the White Wind Account on 25 February 2002 had not been properly accounted for. I reject this element of the claimants' claims.

Mr. Jefferson's share

106. The Calculation Note was also relevant to the next element of the claims of the claimants which it is convenient to consider.
107. I have already noted that during the trial of this action the claimants, with my permission, substituted fresh Particulars of Claim for the previous latest version of the Particulars of Claim, which were in fact Re-Amended Particulars of Claim. At paragraph 9 of the substituted Particulars of Claim appeared, so far as is presently material, this:-

"By overstating the purchase price of the land by $80,000, the 1^st and 2^nd Defendant were able to misappropriate further funds from the project as follows:

(a) €60,000 due from Park Offices SL to the 1^st Claimant (Mr. Jefferson) as a share of the profits and retained by the 1^st and 2^nd Defendants."

108. The sole evidence relied upon in support of that allegation was an entry in a document prepared by Mr. Bailey entitled "DIVIDEND SPLIT 2001/2002/2003" relating to Park Offices SL. The entry was:-

"60,000.00 60,000.00 1 SHARE PLAYA VISTA @ £40,000 EACH"

109. Each amount of 60,000 was intended to be a Euro amount. The various amounts in the document were listed in one or other of two columns. The first column bore the initials of Mr. Bailey. The second column bore the initials of Mr. Jefferson.
110. The case for the claimants was that what appeared in the entry which I have quoted indicated that there was an amount due to Mr. Jefferson from Park Offices SL which Mr. Bailey had pretended had been paid, but which had not in fact been paid.
111. Mr. Bailey's evidence was that the purpose of the whole document was to show what benefits each of himself and Mr. Jefferson had derived from Park Offices SL in the period 2001 to 2003 inclusive, and one of those benefits was a 5% share in Vista. He was not intending to indicate that any amount of €60,000 had actually been paid, merely that Mr. Jefferson and himself had each obtained a 5% share in Vista.
112. The case of the claimants as to this amount of €60,000 was very difficult to understand. At its most fundamental it was that Mr. Bailey had taken €60,000 which properly belonged to Mr. Jefferson. However, that contention obviously gave rise to the questions, when and how was it taken, and where did it go? It did not seem to me that there was any real attempt on behalf of the claimants to grapple with these questions.
113. It was accepted by Mr. Jefferson, in answer to a question from me, that no amount of €60,000, or of double that amount, €120,000, ever arrived in the Vista Account. It was also accepted that there was no evidence that any identifiable amount of €60,000 or €120,000 was ever transferred out of an account of Park Offices SL. Moreover, reliance was placed on behalf of the claimants on the list of shareholders in Vista which I have mentioned, including Mr. Jefferson as holder of a 5% share. It was not suggested that Mr. Jefferson personally had ever transferred either to the White Wind Account or to Vista the amount which the Investors were supposed to pay for a 5% share of Vista, £40,000.
114. Although Mr. Bailey in his evidence contended that what had in fact happened was that Mr. Jefferson had paid nothing at all for his 5% share in Vista, and that he, Mr. Bailey, had been subsidised in relation to paying for his 5% share, by the mechanism of deluding the Investors into thinking that the cost of Sector 129 had been greater than it actually was, so that the difference between that greater amount and the sum in fact paid had been furnished by contributions from Mr. Jefferson and Mr. Bailey, the Cheque Calculation indicated that matters were arranged somewhat differently.
115. As I have indicated, the Cheque Calculation comprised two main elements, one of which was €16,287. The other element was €40,145. Mr. Bailey interpreted his handwriting on the relevant part of the Cheque Calculation for me. What the handwriting recorded, curiously in reverse order, which I have put in a more conventional order to assist comprehension, was, "2 shares = £80,000 - € = 130296" from which was subtracted, "P[ark] O[ffices] 15 million pts [pesetas] @ € = 90151.81". The balance of that subtraction was €40,145. Thus what the note appeared to show was that in principle Mr. Jefferson and Mr. Bailey was each to pay for a 5% share in Vista, but that, in calculating how much should actually change hands, Mr. Jefferson and Mr. Bailey were crediting themselves with the supposed reduction of the price of Sector 129 of 15,000,000 pesetas, equivalent to €90,151.81. At a rate of exchange of €1 = US$0.8681, the United States dollar equivalent of the sum of €90,151.81 is US$78,260.79.
116. A note made by Mr. Bailey on a copy of the Park Offices Cheque for the benefit of his bookkeeper was "Balance to pay for shares R. Bailey C. Jefferson". Mr. Noble submitted that that note was inconsistent with what could be derived from the Cheque Calculation and cast doubt on the accuracy of what the Cheque Calculation appeared to show. However, it seemed to me that the note on the copy of the Park Offices Cheque was in fact consistent with what appeared in the Cheque Calculation. The only difference between them was that the note on the copy of the Park Offices Cheque did not mention the £10,000 element shown in the Cheque Calculation.
117. Mr. Bailey and Mr. Jefferson in due course fell out. In an e-mail dated 19 June 2006 Mr. Bailey made, amongst other points, this:-

"One more thing … becarefull [sic] how close a look at the books you are promoting because you are alone in being the only one who has never put a penny of your own money into this venture [that is, Vista]. (I have as has Park Offices but you never have … true fact)."

118. That assertion seemed to be consistent with what could be deduced from the Cheque Calculation. In his undated response, of which a copy was put in evidence, Mr. Jefferson did not dispute the facts asserted by Mr. Bailey in his e-mail. Mr. Jefferson wrote, so far as is presently material:-

"Your "One more thing" We [sic] find unjust and deeply offensive, are we not the couple that lent you the money to buy your share of Park Offices when you were unable to raise the funds, and Chris Want was threatening to pull the plug, and sell to another party.

The money that you have informed all the investors that you have had to inject into the project/Vista, was I think, one of the reasons it was asked whether I had seen the books. It worried them, as I pointed out before, because they were left wondering why you had had to do that, and why if Vista is such a valuable site, are the Banks being so difficult. Your financial input of funds is appreciated by the majority of shareholders, and it is also great that you are able to be able [sic] to do so, and I am sure nobody would object if Vista paid you interest.

As far as Park Offices putting money into Vista is concerned, is this not half of that money Rose and mine as we own half of Park Offices?

The idea of Vista was mine, and the investors were all clients, and or friends of Rose and myself. The task of bringing them together and convincing them of the merits of the project was not easy, and took up a considerable amount of our time in the Uk [sic], Time that could have been used in promoting, or selling other products that we had available. Indeed if I had channelled the amount of money put into Vista, into Uk [sic] investments that were available to me at that time, I would have expected to obtain £50,000 in fees."

119. Mr. Jefferson's response appeared to be to claim, in effect, that what had been paid by Park Offices SL to Vista, had been contributed, as to half, by himself and his wife. He certainly did not dispute that that had been done, or contend that doing it amounted to something Mr. Bailey should not have done, or, in some way, taking money which properly belonged to Mr. Jefferson. The reference to the idea of Vista being his, and that to how much he might have made in fees had the money the Investors put into Vista been put into another sort of investment, in the context suggested that Mr. Jefferson considered that he was entitled to gain the benefit of a share in Vista without putting his hand in his pocket.
120. It is difficult to resist the conclusion that Mr. Jefferson knows perfectly well, and has always known, that the claim in respect of the allegedly misapplied €60,000 is totally without foundation. Certainly that is what I find. This element of the claims fails.

Mr. Brown' s £5,000

121. Mr. Brown, the second claimant, contributed ultimately a total of £80,000 to Vista. I have already noted his first contribution of £15,000. I have also recorded the contention, which was not in dispute, that his second contribution was of £60,000 and was paid directly into the Vista Account on 20 March 2002. It was converted into Euros, producing €96,463.02. That left a balance of £5,000 due from Mr. Brown.
122. It appears that the remaining £5,000 was outstanding for a long time.
123. Mr. Brown owned other land in Lanzarote. At about the beginning of March 2004 Mr. Brown asked Park Offices SL to act as his estate agents in seeking a purchaser for one of his pieces of land. A purchaser was found, and a sale was completed. In an e-mail dated 31 March 2004 to Mr. Brown Mr. Bailey dealt, amongst other matters, with accounting to him for the net proceeds of sale. He said:-

"4. I do not have the full statement for you yet but can advise that from the gross funds from the sale the following deductions were made.

…

8000' transfer to Vista properties to make up shortfall in share purchase."

124. It was contended in this action that Mr. Bailey had never in fact transferred to Vista the amount deducted, €8,000, the equivalent of £5,000.
125. Mr. Bailey's evidence was that he had been confident that that money had been paid into the Vista Account and that that would be demonstrated on production of the statements of that account. That did not prove to be the case. Mr. Bailey then concluded that he must have paid the sum in cash for some purpose of Vista. He referred to a document dated 26 January 2006 sent to a company called Frontline Builders SL by facsimile transmission in which he recorded that an amount of €12,000 had been paid by him to that company in cash. He suggested that that amount included the €8,000 deducted from the gross proceeds of sale of Mr. Brown's property. That did not in fact appear to be so, for in an undated document entitled, "DANGROUP CONSULTANTS. Notes for Katya", Mr. Bailey recorded in a section entitled, "Payments out", an element of "Payment to builder cash 12,000.00 (awaiting invoice)", and then, in a section entitled, "Payments in" an element of "Directors loans 45,000.00 (plus payment to builder as above)". I think Mr. Bailey considered, notwithstanding the apparent indication that all of the €12,000 had been paid by him personally, that €8,000 of that sum indeed represented Mr. Brown's money. I am not satisfied that he was correct about that.
126. Mr. Noble relied upon an apparent acknowledgment in a part of the Calculation Note of receipt of two amounts of €8038 as acceptance on the part of Mr. Bailey that he had taken Mr. Brown's £5,000. However, it was clear that the passage upon which Mr. Noble relied amounted to no such thing. It was a calculation which commenced with the addition of five figures, respectively 640259, 56431, 96463, 8038 and 8038. The first of those figures I have already identified as a credit made in Euros to the Vista Account. The second was the amount, in Euros, of the opening credit to the Vista Account. The third and fourth could be seen, on the copy of the relevant statement of the Vista Account put in evidence, as credits made to it on 20 March 2002 on the sale of foreign currency. The last figure could not be seen being credited to the Vista Account. However, the calculation was obviously of amounts credited to the Vista Account, because, from the total of 809229, were shown two deductions, one of 278691, the amount in Euros debited to the Vista Account for the purchase of US$241,500 on 12 March 2002, and the other, 14431, another debit which can be seen on the copy of the relevant statement of the Vista Account as having been made on 14 March 2002. Thus the calculation was concerned with amounts deposited in the Vista Account and debits from that account. The figures included in the calculation suggested that it had been made on about 20 March 2002, for later debits to the account starting from 21 March 2002 were not included. The calculation was consequently far too early in point of time to have anything to do with Mr. Brown anyway.
127. I think that it was common ground at the end of the trial that the liability or not of Mr. Bailey in respect of Mr. Brown's €8,000 depended upon the view which I formed of his honesty. The remaining two elements of claim also depended upon that, so I will explain what the issues were in relation to those other elements and then record my conclusion.

Mr. Longo's £5,000

128. Mr. Longo was one of those who originally made contributions for a share in Vista, but having obtained a share, he then withdrew and was repaid all he had contributed. Subsequently, in 2004, Mr. Longo decided to seek to be allowed back into Vista. The case for the claimants was that it was agreed between Mr. Jefferson and Mr. Longo that he be permitted to rejoin Vista with his original share, but that he pay an additional £5,000 for that share to reflect the facts that the share was more valuable than it would have been in 2002 because of work undertaken on Sector 129 and the depreciation of the value of sterling against the Euro. Both Mr. Longo himself, and Mr. Jefferson, gave evidence before me to the effect that what was agreed was that the extra £5,000 was to be paid to Vista for its benefit.
129. In the event Mr. Longo took about a year to produce a total of £45,000. The first payment was of £20,000, made up of a personal cheque of Mr. Longo's wife in the sum of £6,000 and a banker's draft in the sum of £14,000 issued by Halifax Plc. These sums were deposited in the White Wind Account, according to the copy of the relevant statement put before me, on 17 July 2004. The amount of £20,000 was transferred to Vista on 23 August 2004.
130. No further payment by or on behalf of Mr. Longo was attempted until 2005.
131. The documentary evidence as to the payment of money by Mr. Longo in 2005 took the form, again, of copies of statements of the White Wind Account. It seems clear that Mr. Longo eventually paid successfully a further amount of £25,000. By saying "paid successfully" I mean that Mr. Longo first attempted to make payment by offering two cheques, one in the sum of £15,000, and one in the sum of £10,000, which were dishonoured. However, on 15 July 2005 he deposited a cheque in the sum of £25,000 which was honoured. Of that £25,000, according to the White Wind Account, £20,000 was transferred on 27 July 2005 to Vista and £5,000 was transferred on 2 August 2005 to Mr. Brian Chambers. The evidence was that Mr. Chambers was an architect who worked in Lanzarote. Mr. Jefferson accepted in cross-examination that he had employed Mr. Chambers.
132. Mr. Bailey's evidence was that Mr. Jefferson had told him that, of the money coming from Mr. Longo, £5,000 was in the nature of a fee for Park Offices SL by way of recompense for all the trouble of arranging to return to Mr. Longo, when he decided to withdraw from Vista, the funds which he had sent. According to Mr. Bailey, Mr. Jefferson instructed that that £5,000 due to Park Offices SL be utilised to pay a sum due to Mr. Chambers from Mr. Jefferson.
133. The document relied upon by the claimants in relation to the claim for €60,000 showed, on its face, that Mr. Jefferson was in the habit of using Park Offices SL as a source from which to meet his own personal expenditure in Lanzarote.
134. When it was put to Mr. Bailey that all the money paid successfully by Mr. Longo in 2005 was intended to be credited to Vista, Mr. Bailey pointed out that the only purpose of paying Mr. Longo's money into the White Wind Account was to enable it there to be divided. There was no reason, he said, why it should not have been paid directly into the Vista Account, if Vista was the intended beneficiary of the whole of it. That seems to me to be a powerful point, not least because, as I have noted, Mr. Brown's contribution of £60,000 in March 2002 was paid directly into the Vista Account.
135. Ultimately the question whether Mr. Longo's £5,000 was misapplied depended, it seemed to me, upon whether I accepted the account of Mr. Jefferson or that of Mr. Bailey. I was impressed by Mr. Longo. I accept his evidence that he understood that the additional £5,000 which he was to pay in 2005 would be credited to Vista. However, Mr. Longo was not privy to whatever discussion there was between Mr. Jefferson and Mr. Bailey about Mr. Longo's 2005 money.

The £10,000 in cash

136. The last element of claim pursued on behalf of the claimants depended entirely upon whether I accepted the evidence of Mr. Jefferson on the point, or that of Mr. Bailey.
137. As I have noted, Mr. Cantle had not contributed £10,000 of the money which he intended to contribute to Vista by the time of the incorporation of Vista. Mr. Cantle was called to give evidence. His evidence, which I accept, was that he made good the deficiency by making a payment of £10,000 in cash to Mr. Jefferson at about the end of February 2002, as Mr. Jefferson was to travel out to Lanzarote in March 2002.
138. Mr. Jefferson's evidence was that he had given that £10,000 in cash to Mr. Bailey, who had failed to account for it.
139. Mr. Bailey's evidence was that Mr. Jefferson never gave him £10,000 in cash.
140. Mr. Noble relied, as an acknowledgment, he contended, of receipt of the £10,000 in cash by Mr. Bailey, upon a manuscript note of Mr. Bailey which included these figures and explanations:-

"07/02/02 Bonus to RB 2,025,000 Diff in above figures

Plus £10,000 CASH FROM J. CANTLE"

141. Mr. Bailey, when asked about that reference to cash from Mr. Cantle, said that it referred to the cheque received in the White Wind Account on 25 February 2002.

Credibility

142. I have already noted some of my concerns about the evidence of Mr. Jefferson. He was quite extraordinarily reluctant to accept that he was aware of the practice in Lanzarote, at least in 2001 and 2002, of purchasers and sellers of land executing escrituras which understated the actual consideration for the transaction. The issue of his knowledge of that practice, or anybody else's, was not actually material to any claim advanced at trial, for I was concerned only with whether monies paid to White Wind or Mr. Bailey had been properly accounted for in terms of showing that they were used for transactions for the benefit of Vista, not with whether any payment in fact for the benefit of Vista was in fraud of the Spanish Revenue.
143. It was also a matter of concern that, for a significant period after Mr. Jefferson was in possession of the documents put before me which satisfied me, and should, I think, have satisfied any dispassionate observer, that the aggregate of £710,000 paid into the White Wind Account between 2 January 2002 and 29 January 2002 had been used in the ways which I have described, and not been misapplied, he did not accept that.
144. How the claim that Mr. Bailey had misapplied an amount of €60,000 which should have been paid to Mr. Jefferson ever came to be advanced by Mr. Jefferson I fail to understand, unless there was some ulterior motive.
145. Mr. Jefferson's protestations that he did not receive the documents dated 13 September 2001, 12 November 2001, 28 November 2001 and 15 January 2002 I found wholly implausible, not the least because he accepted that the contents of most of them were communicated to him orally by Mr. Bailey.
146. I am afraid that, in the end, I was wholly unimpressed by Mr. Jefferson. I formed the view that he was prepared to say, at any given time, whatever he thought served his best interests at that time. I did not feel that I could rely upon anything which he said which was not supported by a contemporaneous document, when properly understood. As I have pointed out, there were no such documents in support of any of the claimants' claims.
147. It was clear from his evidence that Mr. Bailey's standards of honesty and ethics differ from those of most people. However, he was disarmingly frank in exposing this unattractive side of his personality. He made no bones about having a role in duping the Investors as to the true price of Sector 129, although, as it seemed to me, he sought to massage that role to reduce his profile in relation to it. He accepted that he personally had benefited from that deception in terms of obtaining a 5% share in Vista at a discounted price. It seemed that, in his capacity as Administrator of Vista and Administrator of Park Offices SL, he decided upon his own remuneration. Other serious criticisms of the conduct of Mr. Bailey in those roles as Administrator were put to him by Mr. Noble. However, it is both inappropriate and unnecessary for me to consider those criticisms, for they are the subject of claims pending in litigation in Spain, and depend, to an extent, upon matters of Spanish law. Moreover, the facts in relation to some of these criticisms were hotly in dispute.
148. It is material, however, that virtually all of the criticisms of Mr. Bailey appeared to depend upon production by him of some sort of paperwork. His alleged modus operandi was thus to generate paper apparently to justify what he did which was alleged to be dishonest. It was not suggested that he usually operated at the level of sophistication of a bag snatcher.
149. An aspect of the evidence put before me which seemed to be significant was that the application of the aggregate sum of £710,000 was actually extremely well documented. It was also possible, without difficulty, to trace the advance payment to Vista from Park Offices SL of the £10,000 which Mr. Bailey reimbursed it out of the cheque paid into the White Wind Account on 25 February 2002. How the benefit of misleading the Investors as to the correct purchase price of Sector 129 worked out again could be seen quite clearly from contemporaneous documents. What were the largest elements in the claims pursued by the claimants at the trial all failed because Mr. Bailey had the contemporaneous documents to show what had really happened. In reality what one was sensibly left with as arguably sustainable claims at the end of the trial were two claims for £5,000 each and one claim for £10,000. They amounted in aggregate to a fraction, in value, of the claims set out in the substituted Particulars of Claim. Mr. Bailey made what I have noted was a telling point about Mr. Longo's £5,000, which pointed in the direction of his account about it being right. No answer to it was suggested on behalf of the claimants. I certainly accept the point. I am not satisfied that Mr. Longo's £5,000 was misapplied, rather than applied in accordance with instructions given by Mr. Jefferson. It would seem that Mr. Longo constituted Mr. Jefferson his agent to convey instructions to White Wind and Mr. Bailey as to how the money Mr. Longo sent to the White Wind Account should be applied. Thus, if Mr. Longo has any claim in respect of that £5,000, it lies against Mr. Jefferson and not against the defendants in this action.
150. So I am left with Mr. Brown's £5,000 for which Mr. Bailey cannot specifically account, and the £10,000 in cash which Mr. Jefferson said he gave Mr. Bailey.
151. In the light of my view of the unreliability of the evidence of Mr. Jefferson, the claim in respect of the £10,000 fails for want of proof that the money was ever given to Mr. Bailey. I am not persuaded that the reference upon which Mr. Noble relied as an admission of receipt of the £10,000 in cash in fact, on proper interpretation, meant what he contended. It seems to me to be much more likely that the explanation offered by Mr. Bailey was correct.
152. I am not persuaded that it was Mr. Bailey's way simply to help himself to other people's money, without producing documents to explain or apparently justify what was being done. While I have concerns about Mr. Bailey's conduct in relation to some aspects of his dealings with the Investors, as I have noted, I do not think that he would simply steal money. Although his standards appear to be lower than those of many people, having seen and heard him give evidence, I am satisfied that he does have some standards, and that simply stealing money without any attempt to justify entitlement to what was taken is below those standards. Thus I find that the claim in relation to Mr. Brown's £5,000 also fails.

Conclusion

153. For the reasons which I have given the claims of the claimants all fail and are dismissed.

Mrs. Bailey

154. It has not been necessary, in order to reach the conclusions which I have expressed, to make any reference to Mrs. Bailey, beyond identifying who she is. This is because, on the evidence led before me, there was never the slightest justification for her being joined as a party to this action. It was not suggested that she personally had misapplied any money originating with any of the claimants. The case against her was put in this way at paragraph 14 of the substituted Particulars of Claim:-

"The Claimants will rely on the following facts on the issue of the 2^nd Defendant's knowledge and participation: (a) The 2^nd Defendant was a shareholder, director and bookkeeper for Park Offices SL as well as White Winds [sic] Limited and was aware and participated in withholding €60,000 due to be paid to the 1^st Defendant [sic – presumably claimant was meant] from that business but hidden by reason adding [sic] at least $80,000 to the purchase price. The 2^nd Defendant by reason of her job as bookkeeper must have been aware of the deduction and the fact that that money was not in fact paid to Vista Properties SL. (b) The 2^nd Defendant must also have been aware that Park Offices had been remortgaged and that substantial sums in cash were withdrawn from the business. (c) She participated in the transfer of one of the Villas to her name by the 1^st Defendant as administrator even though he had been dismissed from that position."

155. The evidence was that Mrs. Bailey was, indeed, a shareholder in both White Wind and Park Offices. However, in that capacity, in the absence of any personal wrongdoing on her part vis a vis the claimants, she owed no liabilities whatsoever to the claimants, as a matter of English law.
156. Mrs. Bailey was also a director of White Wind. Again, in that capacity, in the absence of any personal wrongdoing on her part vis a vis the claimants, she owed no liabilities whatsoever to the claimants, as a matter of English law.
157. In her evidence Mrs. Bailey denied that she had ever been a director of Park Offices SL. There was no evidence to the contrary. Even if there had been, in the absence of any personal wrongdoing on her part vis a vis the claimants, she owed no liabilities whatsoever to the claimants, as a matter of English law.
158. Mrs. Bailey denied that she had ever been the bookkeeper of either White Wind or Park Offices SL. There was no evidence to contradict her. If there had been, merely being the bookkeeper, either an independent contractor or an employee, and knowing of what misapplications of funds (supposing there to have been some) were intended by the directing mind of either White Wind or Park Offices SL would not have exposed her personally to liability to the claimants, as a matter of English law.
159. There was no evidence of any personal wrongdoing on the part of Mrs. Bailey in relation to any of the claimants.
160. The matters pleaded at sub-paragraphs (b) and (c) of paragraph 14 of the substituted Particulars of Claim are simply immaterial to any issue in this action.
161. It was suggested by Mr. Andrew Marsden, who appeared on behalf of the defendants, in his closing submissions, as well as during cross-examination of Mr. Jefferson, that the purpose of making Mrs. Bailey a defendant in this action was not because it was genuinely believed that any of the claimants had any arguable claim against her, but simply to apply additional pressure to Mr. Bailey. It is not necessary for me to reach any conclusion in relation to that submission, but it is difficult to discern a proper reason for joining Mrs. Bailey as a party to this action.