Case No: HT-12-270 Neutral Citation Number: [2013] EWHC 3275 (TCC) IN THE HIGH COURT OF JUSTICE QUEEN'S

BENCH DIVISION TECHNOLOGY AND CONSTRUCTION COURT Royal Courts of Justice Strand, London, WC2A 2LL Date: 01/11/2013 Before: THE HONOURABLE MR JUSTICE STUART-SMITH --------------------Between: Squibb Group Limited - and (1) London Pleasure Gardens Limited (2) London Borough of Newham ----------------------------------------Mr James Pickering (instructed by Pannone LLP) for the Claimant Simon Hughes Q.C. (instructed by Trowers and Hamlins LLP) for the Defendants Hearing dates: 14, 15, 16 and 22 October 2013 --------------------Judgment Claimant Defendants

Mr Justice Stuart-Smith: Introduction 1. The 2012 Olympics provided opportunities for the regeneration of tracts of land in East London. In November 2010 various bodies, including the London Mayor and the Mayor of Newham launched the Meanwhile London Project, the aim of which was to provide temporary uses for sites around the Royal Docks and Canning Town pending longer-term regeneration and development. One such site was the Pontoon Dock Site in Silvertown, a 20 acre area of contaminated land situated between the Excel Centre and Pontoon Dock DLR station [the Site]. A competition to develop the site was won by individuals who incorporated the first Defendant [LPG] to be the SPV for carrying out their plans. The Site was owned by the London Development Agency1, which granted a short term lease to LPG on 2 December 2011, expiring 1 November 2014. Initially it was hoped that commercial investors would be attracted to invest in LPG, the idea being that the site would be open for revenue-generating events before, during and after the Olympics, which might generate a profitable return and fund the repayment of the costs of development. However, the timescale became progressively squeezed and commercial investors were not interested. This created a problem for the London Borough of Newham [LBN] which had a broad strategic interest in the success of the Olympics as a powerful stimulus for regeneration and improvement in the Borough. It therefore decided to take on the role of funder and agreed to loan LPG 3,000,000. The purpose of the loan was to enable LPG to engage contractors to carry out the necessary works on site. It remained the hope that revenue generating activities would fund the repayment of the loan. The Claimant [Squibb] is a family owned building contractor which has carried out works for LBN in the past. On this occasion it contracted with LPG to carry out extensive ground works including capping the site. It is common ground that the works were done properly and on time, such that the site was open by late June in advance of the Olympics and substantial payment became due to Squibb from LPG under the terms of the contract. Squibb was also persuaded to do some additional works, which did not fall within the terms of the original contract, and for which it was paid in advance. Unfortunately for all concerned, LPGs revenue generating activities were not as fruitful as had been hoped, and LPG went into administration shortly after the Olympics commenced leaving LBNs loan and Squibbs contractual payments outstanding. By this action, Squibb contends that LBN is liable to discharge the sums of money that fell due for the work it did pursuant to its contract with LPG. On 26 April 2013, as subsequently varied on 29 August 2013, the Court directed that: There shall be a trial of all liability issues. For the purposes of the trial on liability issues only, there are to be assumptions that: (1) there is a substantial net sum due to the Claimant under the trade contract referred to in paragraph 7 of the
1

2.

3.

4.

The LDA ceased to exist in March 2012. Its interest in the land was transferred to the Greater London Authority.

Amended Particulars of Claim; and (2) the value of the Second Defendants security as referred to in paragraphs 3J and 19A(6) of the Amended Particulars of Claim has increased substantially as a result of the Claimants works. 5. As originally formulated, Squibbs claim relied upon a number of assertions that are no longer maintained, including that LBN had been a party to the contract between Squibb and LPG. Squibb has progressively refined its case, including the addition of a new allegation of breach of contract formulated by amendment on the first day of trial and the abandonment of claims founded on tortious misrepresentation and unjust enrichment. By the end of the trial Squibb advanced its claim on the basis of: i) ii) 6. A collateral contract arising at the time of the conclusion of the contract between LPG and Squibb on 17 May 2012 [Issue 1]; A contract or collateral contract on the basis of meetings that occurred on 5 and 11 July 2012 [Issues 2(a) and 2(b)].

For the reasons set out in greater detail below, this judgment concludes that: i) ii) No collateral contract arose between LBN and Squibb on 17 May 2012; No contract or collateral contract arose between LBN and Squibb on 5 July 2012. On 11 July 2012 LBN contracted with Squibb on terms which required the payment of 250,000 against the sum of 424,000 that was then due to Squibb. The 250,000 was paid and LBN is under no obligation to make any further payment to Squibb.

The Background The Importance of the Site 7. The Site was recognised as a key site in its own right and as providing a means of access between the Excel Arena and the Pontoon Docks DLR station for the many people who were anticipated to visit during the Olympics. A report to LBNs Cabinet dated 15 February 2012 recommended the making of the loan (then in the sum of 2.6 million) and stated as reasons for the recommendation that the project promises to deliver something unique in terms of its scale, variety of entertainment and functions and its year-round facility, on a scale not previously seen before in London becoming an arts and entertainment destination world-famous for its experiences, innovation and authenticity delivering an estimated 1.6 million visitors in 2012 alone. In answer to the question Why now and why so fast? the report stated that it is critical that this project takes place and is established ahead of the Olympic Games. Being a meanwhile use, the site is only available for a maximum of three years so the clock is ticking this project will play a major role in the period immediately leading up to, during and beyond the Olympic Games. The same page of the report referred to the imperative to be operational by June this year both for financial and Olympic reasons. A report for LBN by Navigant, who were instructed to carry out Financial Due Diligence, dated 13 March 2012 reported that:

8.

In considering the risk/return of the loan, it is important to restate that the principal reason for making available these resources to LPG is to help secure Olympic regeneration and legacy benefits for Newham. As such, the priority is to assist LPG in delivering its business plan success will be deemed as delivering the legacy and regeneration benefits and the capital facility will be repaid in full in 2012. 9. LPGs business plan, in a version dated 23 March 2012 , identified that the critical milestone was to achieve site operational status in time for the commencement of the Olympics. LBN agreed to enter into a funding agreement with LPG at the Cabinet meeting on 15 March 2012. In a briefing document for the purposes of a delegated decision dated 27 March 2012, LBNs Major Sites Manager recorded that the Council was not making the loan as an investment but instead to pro vide a key entertainments venue during the 2012 games and beyond, regenerate the site pending its long terms [sic] regeneration and creation of jobs. LBN recognised a compelling need to get the site over the line (i.e. to have it open and operational in time for the start of the Olympics on 27 July 2012) both for financial and strategic reasons. Mr Pope, an executive director of LBN, said in his witness statement that in early July 2012 LBN really wanted LPG to continue trading to at least the Olympics, when it was thought that significant revenue could be generated for LPG and because the site was part of the Olympic exit route from Excel. Furthermore, the Council did not want to risk the BT Rivers of Music event 2, which was a London-wide festival not going ahead for prestige reasons, but also because it was thought that further income would be generated from the event. I accept that evidence.

10.

11.

The Loan Agreement and LBNs Role as Funder 12. LPG and LBN entered into the Loan Agreement on 30 March 2012. The loan was only to be used to finance the general working capital requirements of LPG required in connection with the works to the Site. The Loan Agreement identified various Key Contracts (of which the contract between LPG and Squibb was one) which were to be designated as such by LPG and LBN and which were to be in a form as agreed by [LBN]. It provided a mechanism for the drawing down of the loan which had the effect that LBN had control of any payments that LPG wished to make over 10,000 (later reduced to 2,000). In addition to the payment of interest, LPG agreed to pay 20% of its anticipated profits as a Royalty to LBN. From the outset, loan finance was intended to be the primary but not the sole source of finance for the construction of the site. A briefing note compiled as at 16 June 2012 projected that the loan of 3 million would have been drawn down by the end of June with other funding providing 454,000 in June generated largely from sponsorship, car parking and bar sales. Projected income in July was 1.828 million, the projected increase being due to the holding of events and the impact of spending generated by the Olympics.

13.

Due to take place on 20/21 July 2012.

14.

In the event LBN increased its funding to LPG, providing a total of 3.3 million before deciding in early August 2012 that no further support would be provided. By then the project was over the line and the Olympics were under way.

The CMTC Contract 15. LPG put the Earthworks and Concrete Works out to tender. There was pre-contract meeting on 2 April 2012, to which I refer later in the context of Issue 1. Squibbs tender in the sum of 658,863.58 was formally accepted by LPG on 4 April 2012. Squibb was instructed to start mobilising on 10 April 2012, which was before the contract documents were executed, on terms that LPG undertook to pay reasonable costs up to 50,000 if the contract did not proceed. On 18 April 2012 LBN sent a list of amendments that it required to be included in the contract. These included Step In Provisions, which gave LBN the right (but not the obligation) to assume LPGs obligations under the Agreement: if it did so, it would become liable to pay Squibb outstanding and future sums under the contract. LBNs ability to propose amendments derived from the provision of the Loan Agreement that Key Contracts were to be in a form agreed between LBN and LPG and not from to any term (or proposed term) of the contract between LPG and Squibb. The contract between LPG and Squibb [the CMTC Contract] was executed on or about 15 May 2012, by which time works were well under way. The CMTC Contract incorporated the JCT Construction Management Trade Contract, 2011 edition, with amendments. LBN was not a party to the CMTC Contract but was the Funder. Squibb undertook to carry out the works and LPG, as Employer, undertook to pay for them. Payment provisions were agreed by an exchange of emails on 18 April 2012 that were incorporated into the contract: the arrangement was that Squibb would submit an interim application at each month end (the first being on 30 April 2012); the Construction Manager, Mr Chris Harnan, would issue an interim certificate by the 14th of the following month (the first being on 14 May 2012); and Squibb would receive payment by the end of that month (the first payment being by 31 May 2012). The contract documents did not mention LBN in relation to the payment mechanism.

16.

Progress and Applications for Payment 17. Squibb submitted its first application for payment by an Interim Valuation Application to the Construction Manager in the sum of 171,000 on 22 April 2012 [IVA1]. The Construction Manager issued a Certificate for Payment in respect of IVA1 in the sum claimed on 9 May 2012. This was before the execution of the CMTC Contract but nothing turns on that. On or shortly before 30 May 2012 LBN released the necessary funds to LPG; and LPG paid Squibb on 30 May 2012. On 30 May 2012 Squibb submitted its second application for payment by an Interim Valuation Application to the Construction Manager in the sum of 424,000 [IVA2]. The Construction Manager issued a Certificate for Payment in respect of IVA2 in the sum claimed on 1 June 2012. In accordance with the terms of the CMTC Contract, the sum of 424,000 became payable by LPG on 30 June 2012 (which happened to be a Saturday). Squibb completed its works on 22 June 2012. No issue has been raised on the quality of its works; to the contrary, it appears that getting the site ready in time was a major

18.

19.

achievement. On 28 June 2012 Squibb submitted its third application for payment by an Interim Valuation Application to the Construction Manager in the sum of 239,000 [IVA3]. The Construction Manager issued a Certificate for Payment in respect of IVA3 in the sum claimed on 5 July 2012. In accordance with the terms of the CMTC Contract, the sum of 239,000 became payable by LPG on 31 July 2012. 20. The payment of 424,000 was not made on 30 June 2012 and Squibb promptly started chasing for payment. This resulted in the meetings on 5 and 11 July 2012 to which I refer in detail in relation to Issue 2. Meanwhile, the site opened on 30 June 2012 and hosted the Weekend Paradise Gardens Festival on that date. Future revenuegenerating attractions were to be the Bloc Festival on 6/7 July 2012 and the Rivers of Music Festival on 20/21 July 2012, just before the opening of the Olympics on 27 July. These events did not generate as much revenue as had been hoped, for a number of reasons. It is clear that, by the end of June, LPG was suffering from a cash-flow crisis that put its future in jeopardy, with Squibb being LPGs largest trade creditor. In the wake of the meetings on 5 and 11 July 2012, Squibb carried out further works (outside the scope of the CMCT Contract) on terms that it was paid in advance. The details of how this came about are discussed under Issue 2 below. The agreed price for the additional works was 60,000 plus VAT, which was paid by LPG on 13 July 2012 against Squibbs invoices dated 11 July 2012. LPG was enabled to pay these invoices by LBN releasing the funds to LPG for that purpose. Also on 13 July 2012 LPG paid 100,000 against IVA2, again being enabled to do so by the provision of funds from LBN. On 18 July 2012 Squibb provided its Final Account Valuation Application to the CMTC Construction Manager in the sum of 367,674.49. It was not certified by the Construction Manager, for reasons that are contentious. Squibb says that it was because LBN refused to give the necessary approval to enable the Contracts Administrator to issue a certificate of payment. This issue has not been investigated in the present hearing. LPG made a further payment of 150,000 to Squibb against IVA2 on 30 July 2012, funded by LBN in the same way as before. No further payments have been made to Squibb by LPG (or anyone else) since 30 July 2012 so that there remains certified by the Construction Manager but unpaid (a) 174,650 under IVA2; and (b) 239,286 under IVA3. In addition, Squibb claims to be entitled to 376,674.49 under the Final Account Valuation. LPG went into administration in early August 2012 after LBN declined further financial support beyond the 3.3 million it had already provided.

21.

22.

23.

24.

Issue 1: Was there a collateral contract arising at the time of the conclusion of the contract between LPG and Squibb on 17 May 2012? The Issue 25. Squibb alleges that, at the same time as Squibb and LPG entered into the CMTC contract, it entered into a collateral contract with LBN (or LBN gave an enforceable contractual warranty) under which, in consideration for Squibb entering into the CMTC contract, LBN agreed (or warranted) that:

i) ii)

It would cooperate and/or participate in, and not frustrate, hinder or prevent the performance of the Payment Mechanism established by the CMTC contract; In the event that Squibb provided an interim valuation application or a Final Account Valuation, LBN would cooperate and participate in the process by giving any necessary approvals and releasing any necessary funds to LPG to enable payment to Squibb and would not frustrate, hinder or prevent the process by refusing to cooperate or to release the relevant funds to LPG to enable it to pay Squibb.

Discussion 26. Squibb accepts that LBN did not at any time up to 17 May 2012 give any specific or express promise or assurance to Squibb that it would act in the way that is alleged to have become its contractual obligation. It submits, however, that a promise or assurance can be inferred from the circumstances of the case. First, Squibb alleges that LBN was more than a funder whose interest was merely and wholly financial. It makes this submission on the grounds that LBN wanted the site to be developed for wider reasons, such as legacy, regeneration, local employment, reputation and supporting the Olympic project generally. Second, it relies upon the fact that Mr Les Squibb was told at the pre-contract meeting that LBN would not allow the project to fail. Third, it relies upon the understanding of Mr Squibb that when interim valuations were certified by the Construction Manager, they would be passed to LBN who would then be enabled to decide whether to release funds in order to pay Squibb: reliance is placed upon the fact that LBN not only funded the project but could exercise control over who was paid. Fourth, it relies upon the involvement of LBN in the course of the negotiations leading to the execution of the CMTC. These arguments do not justify a finding that LBN gave an implied assurance in the terms alleged, whether they are viewed singly or cumulatively: i) First, although LBN had wider strategic interests in the success of LPGs project, the structure that was put in place was entirely conventional and involved LPG entering into direct contractual relations with Squibb, with LBN entering into contractual relations with LPG to provide finance to LPG on the terms set out in the Loan Agreement. Although LBN was identified as the Funder under the CMTC, the contract did not refer to any obligations of the Funder that could be relied upon by Squibb. In particular, the contractual payment mechanism did not specify any role for the Funder: that was determined as a matter of contract between LPG and LBN by the Loan Agreement. There is no evidence that Squibb was privy to the terms of the Loan Agreement. Even if it had been, there is nothing in the Loan Agreement that could be said to support an inference in Squibbs favour that LBN would undertake an open-ended obligation akin to warranting or guaranteeing payment by LPG of sums falling payable under its contract with Squibb. It is in my view unarguable that any commitment by LBN in May 2012 could have extended beyond its commitment to LPG to fund it to the tune of 3,000,000. That sum was disbursed and there is no criticism advanced in these proceedings of the manner in which it was disbursed by LBN to LPG. Any suggestion that LBN contracted on 17 May 2012 in the terms alleged in respect of sums in excess of 3,000,000 must therefore be unsustainable; yet

27.

that is a necessary constituent of the contract which Squibb must prove if it is to profit from this alleged contract; ii) I accept that Mr Squibb was told at the pre-contract meeting on 2 April 2012 that LBN was providing finance and would not let the project fail. I also accept that Squibb would not have entered into the CMTC with a SPV such as LPG if it had not believed that there was a substantial source of finance available to LPG. However, LBN was not present or represented at that meeting and, whatever the precise terms of what was said, it cannot be taken as an assurance by LBN that could provide support for the existence of a contract arising as between LBN and Squibb; Squibb identified as the high point of its case on this issue the evidence of Mr Hamilton, its commercial director, that LBN not merely funded the project but controlled who got paid. Two points may be made. First, there is nothing unusual about a funder retaining contractual rights under its Loan Agreement to control the drawdown of funds against proper criteria, such as being satisfied that the funds are to be used for designated purposes. That is what the loan agreement in this case provided. Second, the suggestion that because LBN had powers to decide whether to agree to drawdown therefore it was obliged to fund all payments in favour of Squibb that might be duly certified ignores the prospect that LBN may be entitled to withhold drawdown under the terms of the Loan Agreement not least when the loan facility has been exhausted; Squibb has not identified any particular steps taken by LBN in the course of negotiations other than LBNs proposing of amendments to the CMTC contract, which Squibb duly accepted. Mr Squibbs evidence was that he had no contact with LBN during the period of continuing negotiations between 2 April 2012 and 17 May 2012. During that time, Squibb agreed to enter into the CMTC contract on the terms there set out, including the terms relating to LPGs obligation to pay for the works. As I have said, LBNs ability to propose amendments arose from its right under the Loan Agreement to agree with LPG the terms of key contracts. Had those terms been unacceptable to Squibb, it could have rejected or attempted to renegotiate them; but the fact that they were presented to Squibb as having come from LBN does not support the existence of a collateral contract or warranty such as that for which Squibb now contends.

iii)

iv)

28.

The terms of the contract for which Squibb contend are similar to those that are commonly (but not always) implied into a construction contract, adopting the approach and principles outlined at Keating on Construction Contracts 9th Edn. 3-045 to 3-049. Squibb is not able to draw any comfort from the fact that such terms are often implied in those circumstances because the circumstances here are quite different. Where such terms are implied in a normal construction contract it is because they are necessary for the efficacy of the main contract and the proper performance of the primary (express) contractual obligations. In such circumstances, no assurance or other statement is required. Here, however, Squibb wishes to make the terms the primary and sole object of the contract. That requires an assurance to have been given by LBN, as was the case in Shanklin Pier v Detel [1951] 2 KB 854. While it is conceptually possible that the assurance could be implied rather than

expressed, it would require clear and cogent evidence to establish an implied assurance with suitable and sufficient clarity. On the facts of this case, no such assurance (either express or implied) was given by or on behalf of LBN. 29. Squibb therefore fails on Issue 1.

Issues 2(a) and 2(b): Was there a contract or collateral contract on the basis of meetings that occurred on 5 and 11 July 2012? The Issue 30. Squibb alleges that at a meeting held on 5 July 2012, which was attended by Mr Squibb and Mr Hamilton for Squibb, Mr Pope and Mr Dodd for LBN and Mr Harnan, the Construction Manager, as a neutral observer, Squibb and LBN entered into a contract, the terms of which were that Squibb would not bring legal proceedings and would assist with any further works on the Site in consideration for payment to Squibb in respect of the balance of monies still outstanding in respect of the Works, such payment to be made in tranches, the first of which was to be on 10 July 2012; alternatively payment by LBN to LPG of such monies to enable it to forward such monies to Squibb, such payment to be made in tranches. As an alternative analysis Squibb alleges that it entered into a collateral contract or warranty with LBN under which, in consideration for Squibb entering into a contract with LPG to carry out further works, LBN contracted that it would pay Squibb for the outstanding balance in respect of the CMTC Contract; alternatively that it would pay such monies to LPG to enable it to forward such monies to Squibb. This is issue 2(a). Squibb also alleges that on 11 July 2012 it entered into a further additional contract with LBN pursuant to which Squibb agreed to forebear from bringing legal proceedings (the promised payment on 10 July 2012 not having been made) and to carry out additional works in consideration for payment in advance for the additional works and payment by LBN to Squibb in respect of the balance of monies still outstanding in respect of the CMTC works, such payment to be made in tranches shortly after the completion of the additional works; alternatively payment by LBN to LPG of such monies to enable it to forward them to Squibb. As an alternative analysis Squibb alleges that it entered into a collateral contract with LBN under which, in consideration for Squibb agreeing with LPG to carry out the additional works, LBN agreed that it would pay Squibb for the additional works (immediately) and for the outstanding balance under the CMTC contract; alternatively that it would pay such monies to LPG to enable LPG to pay Squibb. This is issue 2(b). It is convenient to consider issues 2(a) and 2(b) together since the factual background to each is relevant to the other. Much of the background is not in dispute, but there are significant disagreements between the witnesses about what happened at the meetings on 5 and 11 July 2012.

31.

32.

The Factual Background to July 2012 33. Five witnesses gave evidence that is directly relevant to these issues. For Squibb, Mr Les Squibb is the Managing Director of the Squibb Group. He left most of the original contract negotiations to his commercial director, Mr Paul Hamilton. The Squibb Group is a long-established and substantial family business with turnover

measured in tens of millions and profit measured in millions of pounds per annum. Mr Squibb and Mr Hamilton are evidently competent to manage the business, and they do so (no doubt with assistance from others). Mr Squibb had attended the precontract meeting on 2 April 2012 but had not been closely involved after that until problems with payment emerged, when he took a closer interest in what was going on. 34. Mr Chris Pope OBE is Executive Director Resources and Commercial Development at LBN. As such he is responsible for running the backroom functions of the Council, including human resources, finance, legal, procurement and property. He came to local government by a slightly circuitous route after a career in the army, during which he achieved the rank of Colonel and was awarded his OBE for services during the Second Gulf War. He has a bachelors degree in Civil Engineering and a masters degree in Defence Technology. Towards the end of June 2012 he became aware of problems with cash flow on the LPG project and became directly involved on 4 July 2012 when he was asked to take a direct interest because it was thought that LPGs board had become dysfunctional and out of control. As will appear later, there was a suggestion that he might join the board of LPG as Managing Director and for a brief period he described himself as such, for which no satisfactory explanation has been given: he accepted in evidence and the evidence as a whole establishes that he did not become a director, shadow director or employee of LPG. It also establishes that at all material times he was acting on behalf of LBN and with a view to protecting LBNs interests, even when giving advice to the LPG board or when purporting to write or act on behalf of LPG. Mr Michael Dodd is an associate director of Navigant Consulting. He is a chartered accountant, has other professional qualifications in the field of commerce, and has 25 years of project management experience. He started to work as a consultant to LBN in April 2012. His role was to act as project manager for LBN, reporting to the Council on LPGs progress and any issues and risks affecting repayment by LPG or the achievement of the LPG business plan. He had no authority to make decisions on behalf of the board of LPG or to commit LPG to any contracts. At all material times he was acting for and on behalf of LBN. Although I have no doubt that Mr Squibb and Mr Hamilton are suitably experienced in business matters, there was a clear sense when giving their evidence of something approaching deference to LBN. This showed itself in two ways. First, Mr Hamilton consistently referred to Mr Pope in his oral evidence as Mr Pope OBE. When asked if this had any significance he explained that it meant that he was an e xtremely important man. If Im going to sit in front of an Executive Director of Newham, who also happens to be an OBE for wonderful service to this country, Im going to believe what he tells me, I have no reason not to. Second, some of Squibbs emails were surprisingly compliant given the nature of the case that it now advances. Mr Hamilton explained his attitude to LBN when subsequent emails from Mr Pope did not reflect what he now says had been discussed in the meetings. As he put it Why would I the following day start panicking? Mr Pope OBE has told us what is happening. He has written it down and sent us an email. Why am I going to doubt that ?3 As I have said, Squibb had worked for LBN previously. As a local contractor I am sure that it would hope to work for LBN in the future. There is a definite sense in the evidence and correspondence of Mr Squibb and Mr Hamilton not

35.

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T2/54-55

wanting to rock the boat too much, while still hoping to obtain payment of the substantial sums they were owed for their work. Having seen the four men giving evidence, I am not surprised at the slight imbalance between Mr Squibb and Mr Hamilton on the one side and Mr Pope and Mr Dodd on the other. Compared to Mr Squibb and Mr Hamilton, the LBN witnesses appeared to me to be firm and forthright in their manner in a way that did not easily acknowledge opposition; and they certainly appeared to be more sophisticated than the Squibb representatives, reflecting their professional qualifications and experience. While the importance of this imbalance can easily be overstated, it is a feature that I bear in mind when trying to decide exactly what happened. 37. The final participant was Mr Harnan. LBN challenged his impartiality as a Construction Manager and as a witness but, in my judgment, the challenge failed. The true position was that, by July 2012, Mr Harnan had considerable sympathy with Squibb, who he thought had done a very good job in carrying out the CMTC works to an insane programme. When Mr Hamilton started to threaten legal proceedings for non-payment, Mr Harnan took the view that the best way to calm Mr Hamilton and the situation generally was to work with Squibb and to encourage them not to do anything provocative. By 22 June 2012 LPGs cash-flow had necessitated the pushing back of payments, which (as LBN realised) gave rise to the risk that creditors would demand payment and panic might set in4; or that suppliers might refuse to carry out necessary works without advance payment 5 or even litigate and drive LPG into insolvency6. When Squibb was not paid its 424,000 by LPG on 30 June, it enlisted the support of Mr Harnan who told Squibb on 2 July that he had had a go at LPG but that LPG was blaming LBN. On 4 July 2012 Mr Hamilton emailed Mr Dodd (at his LPG email address) pointing out that Squibbs invoice should have been paid the previous Friday and requesting confirmation that the money would be in Squibbs bank account the following day, 5 July. Mr Dodd reacted by forwarding the email to Mr Pope stating: (I use an LPG email account when dealing with suppliers.) This is the biggest invoice due. We 7 had planned on paying this post Bloc when we should have been liquid. It was due last Friday so we were stretching it. There is not enough money around to pay this. Ive called Squibb to set up a meeting to discuss repayment plan. 39. It is clear from this email that Squibbs invoice was one of those that had deliberately been pushed back. Mr Pope replied, telling Mr Dodd that he was in the process of renegotiating the Bloc arrangements to make them more advantageous to LPGs finances under threat of cancelling the event altogether.

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4 5

B1/825 B1/831 6 B1/831 7 The use of the term we is ambiguous: although Mr Dodd was using an LPG email address, he explained that this was what he did when emailing suppliers. His reports in late June referring to the need to push back payments had been made to Mr Pope and Ms Hindson at Newham.

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Early on 5 July, Mr Harnan sent an email to Mr Dodd asking for a meeting about Squibbs unpaid money. The purpose of the meeting was stated by Mr Harnan to be in order to avoid Squibb entering dispute resolution proceedings (and possibly issuing a winding up order on LPG). Mr Dodd spoke to Mr Hamilton and arranged a meeting that afternoon. He then emailed Mr Pope, attaching Mr Harnans earlier email to him, and saying that he wanted Mr Pope to be at the meeting. He suggested meeting at LBNs offices to more fully segregate the LBN from LPG entities in discussions, the implication being that meeting at LBNs offices would emphasise Mr Pope and Mr Dodds presence as being for LBN. Mr Dodd also wrote: [Mr Hamilton] told me they were considering taking legal action. I told him there was now a Newham MD and the company was unable to pay his bill for at least a week. I suggested we all meet.

The 5 July Meeting 41. It is not in dispute that the meeting occurred in the afternoon of 5 July 2012. By then LBN appreciated that further groundworks were required. Mr Harnan attended the meeting with Mr Squibb and Mr Hamilton. They were met in the lobby by Mr Dodd and had a preliminary meeting before going on to meet Mr Pope. When they arrived, the Squibb representatives were thinking in terms of issuing proceedings and pushing LPG into insolvency. LBN knew this (having been told by Mr Harnan in his email and by Mr Hamilton) and was keen to avoid it for two main reasons. First it would stop the project in its tracks which would be embarrassing in the run up to the Olympics8, not least because of the critical nature of the site in securing legacy and regeneration benefits9; and, second, taking the company into insolvency would be likely to have the effect that Squibb would not get paid and LBN would not recoup its loan. During the main meeting, Mr Pope gave Squibb his LBN business card, and did most of the talking. By the end of the meeting, Squibbs position had changed so that Mr Pope wrote the next day to Mr Dodd and others that they had managed to hold them off for a short while. Beyond this, little or nothing is agreed. Mr Squibb, Mr Hamilton and Mr Harnan made notes of the meeting which I find were made during or immediately after the meeting. Neither Mr Pope nor Mr Dodd took notes. Mr Popes evidence was that the purpose of the meeting was to provide an opportunity for him and Squibb to get to know each other better at a time when he had only recently become involved and was not clear what were LPGs financial position or commitments. He maintained that the meeting was about him understanding where Squibb were coming from and to really hear their side of the story. Although I can accept that one of the effects of the meeting was that Mr Pope heard Squibbs side of the story, that was not the context for or purpose of the meeting. Mr Popes evidence on this point is contradicted by the chain of correspondence that preceded the meeting, in which Mr Harnan first called for the meeting expressly to head off the threat of proceedings or a winding up order and Mr Dodd had alerted Mr Pope to the fact that there was no money to pay Squibbs bill for at least a week and that Squib b

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43.

8 9

See Mr Popes evidence including reference to prestige events at [11] above. Accepted by Mr Pope at T2/142.22-143.2

was considering taking legal action. It is also contrary to the evidence of Mr Dodd who accepted that the context for the meeting was the fact that Squibb was threatening legal proceedings which would scupper the whole project and that, when they entered the lobby, Mr Squibb and Mr Hamilton were very much in bill collector mode and they were there to get a payment. It is also contradicted by Mr Squibb, Mr Hamilton and Mr Harnan, all of whom gave evidence that the purpose of the meeting was to discuss Squibbs outstanding payments. Finally, it is contradicted by Mr Popes own email on 6 July 2012, quoted above, where he (accurately) said that he and Mr Dodd had managed to hold [Squibb] off for a while. 44. On the evidence I find that Squibbs purpo se as it approached the meeting was to try to obtain payment of its outstanding account, using the threat or reality of proceedings if necessary, while LBNs primary purpose was to ensure that Squibb took no action that would jeopardise the prospects of keeping LPG as a going concern at least until after the start of the Olympics. According to Mr Dodd, when he first met Mr Squibb and Mr Hamilton in reception, Mr Hamilton told him that they considered that LBN was obliged to pay Squibb because of the existence of the Step In provisions in the CMTC contract and he explained that the right to Step In imposed no such obligations on LBN. I accept this evidence, not least because Mr Dodds approach (on his evidence) was consistent with the suggestion he had made that the meeting should be held at LBNs offices so that the distinction between LBN and LPG should be segregated. I also accept Mr Dodds evidence that, throughout the discussions, he tried to explain what he saw as some of the financial facts of life to Squibb, namely that it was in no ones interests for Squibb to litigate because, if it did, LPG would go under and there would be no recovery for Squibb or for LBN; so, to that extent, Squibb and LBN were in the same boat. Although it is common ground that Mr Pope did most of the talking, his evidence was essentially negative in the sense of denying that he gave any assurance to Squibb about future payment, which became something of a mantra for him when giving his oral evidence. He did, however, accept that he said at some stage that he was taking over as LPGs managing director (which was, at best, premature and misleading) and that he proposed to meet LBNs finance team within the next 72 hours in order to obtain the balance of the original loan facility. He accepted that he had explained that the Bloc event over the coming weekend was critical as it would demonstrate the potential revenue stream and afford LBN comfort when installing any future bridging loan facilities. He also knew before the meeting that there were further groundworks that required to be done and that Squibb was the natural candidate to carry out those additional works. When asked why he thought that Squibb did not proceed with the threatened winding up proceedings, Mr Popes answer was that Mr Dodd had given his estimate of LPGs likely ability to pay Squibb he judged that LPG might or should be able to make a payment that following week after Bloc and on that basis Mr Squibb and Mr Hamilton were content. He rejected the suggestion that there had been an agreement not to issue legal proceedings at the meeting, saying that his assessment at the end of the meeting was that all parties were confident that they should be working together to try to ensure that LPG remained a going concern and that all parties got out of it what they needed which, in Squibbs case, was payment and, in LBNs case, was getting its

45.

46.

47.

money back. He accepted that, at that time, it was implicit in all that was said that LBN was the paymaster in that it had to authorise payments and, without funding from LBN, the cashflow simply wasnt there to enable LPG to make payment. The important difference between his evidence and that of the Squibb witnesses is that, although he accepts that it was said that LPG should be able to make payment, with some monies being paid the following week, he does not accept that any assurance was given. 48. Mr Dodds evidence was to similar effect. His starting point was that Squibb were in a very bad moment when they realised that LPG didnt have any assets or cash coming in immediately. There was discussion about a possible further bridging loan from LBN being considered and a discussion about what LPG should be able to pay in the foreseeable future, which was based on Mr Dodds knowledge of LPGs cashflow and projections; but he regarded this as a sharing of information without any promises being made or assurances given. Mr Hamiltons evidence, which was endorsed by Mr Squibb, was that after introducing himself as an Executive Director of LBN Mr Pope said that he would be installed as Managing Director of LPG to safeguard the delivery of the project and to guarantee that all required funding would be drawn down from LBN to ensure that all current creditors would be paid. According to Mr Hamilton, Mr Pope said that LBN would be making the final payment of their loan facility to LPG with the proviso that Squibb be paid the full balance of outstanding sums to them (which at that stage amounted to 424,000); and he was going to meet LBNs finance team within 72 hours in order to obtain the remainder of the original loan. He said that the Bloc event was critical and that the success of the bar takings would determine the level of the further loan that was needed. The central passage of his evidence in chief (which he maintained in cross-examination) was that Mr Pope said that all outstanding payments would be made by the time the next payment of circa 250,000 became due (as of the end of July 2012) provided we were committed to helping LBN get the Project over the line without any legal wrangles, as further works would be necessary. He also said that such payment would be made in a maximum [of] two tranches, with the first being made on 10 July 2010. [Mr Squibb] confirmed during the meeting that we were happy with this arrangement. [Mr] Squibb and I were therefore left in no doubt that Chris Pope guaranteed to us that we would receive all outstanding sums in a maximum of two tranches during the next 2 to 3 weeks, with the first payment being made on Tuesday 10 July 2012. This was provided we took no legal action in respect of our outstanding fees and were committed to undertaking any further works for LBN. It is fair to say that had Chris Pope and Mike Dodd not [given] us these assurances, we would have taken immediate action to recover sums due to us and we would not have undertaken any future works. It is immediately to be noticed that, in this passage, Mr Hamilton refers to Squibbs outstanding sums in ter ms which clearly refer to the 424,000 that was then overdue for payment by LPG. Mr Hamilton made a note of the meeting. Near the top it refers to LBNs loan to LPG being 3 million and that the outstanding commitment would be early next week. It refers to the Bloc event demonstrating a revenue stream and links that to mention of a bridging facility from LBN, with an indication that the size of the bridging loan would be dependant upon the size of the bar receipts. It records Tuesday 424k would b e paid, which in context is a reference to payment on Tuesday 10 July 2012. There is

49.

50.

a reference at the bottom of the note to a proposal including scalpings and 6 stone and black top pontoon, which may be a reference to the required further works. There is no record of an agreement being reached or the terms of any such agreement; nor is there any mention of the 424,000 payment being paid in more than one tranche. 51. Mr Squibb also made a note of the meeting. At the end of the note he recorded: 4. LBN to pay 424k wk commencing 9th July, S[quibb]G[roup] to be paid direct from LBN to quicken process. 5. Good news. 52. It was not suggested to either Mr Hamilton or Mr Squibb in cross-examination that the reason why they decided not to sue was that it had been explained to them that if they did Squibb would recover nothing. Mr Harnan made a note of the meeting which formed the basis for his evidence. His note included the following: 3. Contract has step-in but no guarantee. 4. LBN lent 3m in April 12. 5. LPG has asked for management leadership. To put on a sound footing. Chris [Pope] now MD. 6. Does not have cash to pay today! 7. Can meet most 10 early next week, or LBN considering further funding. 8. Most next week, next payment 11 should be on time. 9. LBN will make bridging available. 54. Mr Harnan expanded on points 6-9 as follows: Chris Pope assured Leslie Squibb and Paul Hamilton that Squibb would be paid all outstanding sums if Squibb helped LBN get the Project over the line by taking no legal action and by helping LBN get the site ready for events, including the 2012 Olympics. He said that Squibb could not be paid all in one go, but that they would be paid most of the outstanding sum early next week. He also said that the next payment to Squibb should be paid on time. My notes of the meeting [at points 6, 7, and 8] confirm this.

53.

10 11

Mr Harnan confirmed that this was a reference to most of the 424,000 then outstanding. This was a reference to the sums due at the end of July 2012 under IVA3.

There is no doubt in my mind that Chris Pope assured Squibb that they would be paid all of their outstanding debt if they cooperated with LBN and that most of the debt could be paid the following week. The reason why I have written this down twice at points 7 and 8 of my meeting notes . is because it was discussed on two occasions. I therefore strongly disagree with Chris Pope when he ways that he did not make such assurances, as I remember his assurances well. As well as [possible] venture capital funding, I also recall being encouraged by Chris Popes assurances that LBN wo uld be providing bridging finance in the sum of 500,000 so that creditors could be paid. My notes of the meeting confirm this at point 9. 55. In cross-examination Mr Harnan confirmed that his note was accurate and covered all the big points of the meeting but was not challenged on the detail of his evidence as set out above.

6-10 July 2012 56. The day after the meeting, Mr Squibb emailed Mr Pope, thanking him for taking the time yesterday to go through the current situation and giving us an insight in to the shenanigans of what has been going on there with regards to their financial mismanagement. He continued: I appreciate how busy you must be with having this dropped on your lap but would it be possible to have an update with regard to our payment on Tuesday as I am receiving more pressure daily from our suppliers with regards to their outstanding payments with some of our key suppliers currently putting our account on stop. 57. Mr Pope replied promptly from his LBN email address but signing himself as Managing Director of LPG, which he was not. He wrote the email in terms that adopted the perspective of LPG although it is plain that he was acting on behalf of LBN at all material times. His inexplicable adoption of an LPG persona only serves to confuse interpretation of what was going on. In his email Mr Pope wrote: It was, similarly, good to meet you yesterday and I am grateful for your forbearance as I try to understand the current financial position of the company. The good news is that we have managed to unscramble changes to the contract with Bloc. We are also expecting final payment of our loan facility from Newham Council. This means that we should be able to pay at least 200k of your outstanding invoice. This is unlikely to be before Tuesday as we have to allow the cash from this weekends event to flow into the bank account.

I appreciate that this is less than half of the full amount 12. I have called a board meeting on Tuesday morning to agree a revised budget and business plan the outcome of which will be an agreed sustainable position on our cash flow. It is also highly likely that we will ask Newham Council for a bridging facility in the short term. Providing that they have t he right information, the Councils Finance Director has assured me that the approvals process for the facility can be swift but in any event it is likely that I will ask part of the sum to be paid direct to you to avoid any delays in transfers between banks. I would hope, therefore, that we are able to settle your invoice in full (albeit in two tranches) next week. We just hope that Bloc will be a roaring success as that will provide LPG with much needed revenue and give Newham confidence to advance a bridging facility. Im sorry I cant be more definitive at this stage but I am very keen to ensure that we treat all our suppliers properly, not least because we will rely on them and potentially as we discussed yesterday, Squibb to continue to contribute to this project. As and when I am able to confirm payment amounts and times, I will of course let you know. 58. Mr Squibb said that receiving an email from Mr Pope saying he would be paid 200,000 the following Tuesday meant that he was more relaxed than before the meeting. When he replied he did not take issue with what Mr Pope had written, but said: Thank you for your encouraging response and we obviously look forward to the payments next week as advised. We fully appreciate the manner in which Newham Council, Mike Dodd and yourself have worked to resolve this unfortunate position and we certainly do not envy the situation you have inherited, please rest assured we are remain fully committed to working you on the project in the future. 59. In the early evening of 9 July 2012 Mr Squib emailed Mr Pope again about the first payment which was anticipated for the next day: Good evening trust you are well, rather than bothering you by phone I thought I would best be served to send a quick email, could you advise us of a contact name and number for the individual tasked with transferring our first payment tomorrow, as I dont want our accounts/office manager chasing you or Mike unnecessarily when you have other matters to attend to.

12

A clear reference to the 424,000 then outstanding.

Moving forward would it also be possible to advise us who will be making the second transfer and future payment i.e. LPG or Newham direct 60. Mr Pope replied early the next morning, 10 July: As you know Bloc was halted early due to crowd safety concerns. LPG will not, therefore, have generated the level of revenue expected. That said, the bar takings were high for the period that it was open (which is important in terms of demonstrating revenue potential). We are just working through the cash position at the moment and once we have a clear picture well let you know payment details. As I said in my previous email the Board is having an emergency budget meeting this morning and we have a session with the council this afternoon. Ill let you know how we get on. 61. Mr Hamiltons evidence was that this email concerned Squibb but that Mr Popes previous assurances and Mr Dodds involvement gave Squibb comfort. Mr Squibb replied that morning: Thanks for coming back to me, it is rather disappointing that we are still in limbo with regard to our payment and that we are relying on bar takings when someone in LPG has clearly received the money from the LB Newham, we are becoming under increasing pressure from our suppliers who had accepted part payment like us today and we have in turn made these payments this morning or would suffer the loss of credibility and confidence from our long term supply chain partners. I have to make a report this afternoon to my board of Directors on the status of the project at 15.30pm so if in the meantime you have any further news could you give me a call 62. No payment was forthcoming during the day, and in the evening Mr Hamilton emailed Mr Pope and Mr Dodd: Good evening, we fully appreciate [you] are continuing to employ your best efforts in resolving the sorry situation however despite best intentions we are still without payment for the works carried out and completed. As we have always advised we are happy to work with you, including carrying out further works on site to ensure the future of the project, however we have a board of directors, suppliers and sub contractors who have certain expectations and requirements from us. Are you available to have a meeting tomorrow to discuss and agree a sensible and achievable way forward.

11 July and beyond 63. A further meeting was arranged for 11 July. It took place on site and was attended by Mr Squibb and Mr Hamilton for Squibb and Mr Dodd for LBN. According to Mr Hamilton, Mr Dodd explained that the only way that LBN would be able to release monies to Squibb in the short term would be by employing Squibb to carry out additional works on site and to pay for them up front and before they were carried out. He asked Squibb to quote and said that once the price was agreed he would get money directly from LBN in order to pay them for the additional works and would be able to obtain funding from LBN to part pay outstanding invoices in two 100,000 tranches over a two week period and would ensure that the money was released to LPG on the proviso that it was paid to Squibb. Mr Hamiltons note of the meeting includes Will certify and pay 150k + VAT minimum. 60k difference and 2 weeks difference. The note also includes *Payment dates definitive* *Guarantee from LBN if LPG default on agreed [payment] schedule* Mr Squibbs evidence in chief was to the same effect as Mr Hamiltons. However, in cross examination he said that Squibb had said it had to receive payment up front for the additional works and part payment of some of our old money, that they would not do any more work unless they got those two assurances, and that they had in fact received monies in accordance with those assurances when the 187,000 had been paid. His note of the meeting recorded: 1. Apologies on behalf of LBN for non payment. 2. Help now required from SG to enable BT event to go ahead. 3. Pay upfront for all works. 4. New stage payments agreed/ PH has schedule. M Dodd guaranteed that all payments will now be on time. M Dodd states that LBN will guarantee all future payments on site and this has become standard practice on site to maintain the [] works and security of the site. 66. It was common ground that Mr Dodd confirmed that the Rivers of Music Festival could not go ahead without the additional works being carried out. But he did not accept that he had given any assurance or promise that Squibb would be paid by LBN if LPG failed to pay. Although he agreed he had said that LBN funding could be given to LPG with conditions attached to it, he resolutely denied having undertaken to fund any works. At the same time, he agreed that Squibb had refused to do any further works unless it was paid up front for those works. After the meeting, Mr Hamilton sent Mr Dodd a quote for the additional works. At Mr Dodds direction, Mr Hamilton then sent the quote to the LPG directors who accepted it after Mr Dodd had expressed LBNs satisfaction that it was reasonable.

64.

65.

67.

Mr Hamilton also followed up the meeting by a further email to Mr Dodd in which he said: Good to meet up with you earlier and as we said we appreciate your, Chris Pope and London Borough of Newhams assistance in resolving the outstanding issues. Moving forward we would appreciate a letter of comfort along the following lines which I would assume come from a director of LPG or LB Newham to allow us to show our suppliers and subcontractors. 1. Confirm payment of 150,000.00 - 200,000.00 + VAT for agreed and certified interim valuation number 2 into our account by close of business Thursday 12 July 2012. 2. Payment of the remaining sum due under the agreed and certified interim valuation number 2 (either 203,875 or 153,875 + VAT) into our account by Thursday 26 July 2012. 3. Payment of agreed and certified interim valuation number 3 ( 199,405.00 + VAT) into our account by Thursday 9 August 2012. 4. Payment of agreed and certified final account (some to be determined) into our account by Thursday 30 August 2012. 5. We would also request a guarantee from LB Newham that if LPG defaulted on any payment as per the above schedule (unless agreed with Squibb) that LB Newham would honour the outstanding payment within a further 7 days. Something along those lines would be acceptable. 68. Mr Dodd replied within an hour: As discussed LPG should be able to pay to S quibb this week 100k total plus the works invoiced for zone 6 works as discussed under 60k + VAT. Next week LPG would pay 100k total cash on Wednesday. This money will be sent to LPG by Newham with the condition that it be paid into Squibb. LPG would thereafter be able we believe to manage 100k cash to Squibb each week average until Squibb account is paid out. Kerry or Robin in their capacity as LPG Directors will confirm the acceptability of this cash flow by email reply to Paul Hamilton copying me.

Newham is unable to guarantee payments by LPG but can tie any funding to LPG to specific conditions such that funds be paid onto Squibb. Thank you once again for the constructive attitude shown by Squibb on this project. 69. 12 July 2012 came and went with no payment to Squibb. In the late afternoon Mr Squibb emailed Mr Pope expressing bitter disappointment that Squibbs payment was not forthcoming and complaining that this was the fourth time that agreements had been made and not adhered to. He asked that someone come back that day to let them know where they stood so that they could take the appropriate action. Mr Dodd replied that LPG had put the invoice in for payment the following day. On 13 July 2012 LPG paid Squibb 187,000. On Tuesday 17 July 2012 Mr Hamilton emailed LPG, with a copy to Mr Dodd, saying that Squibb was due another tranche of 100,000 and requesting confirmation that this was in hand and funds would be released. LPG forwarded the email to Mr Dodd saying that as discussed last week LPG would not be able to cover another 100k this week and asking how to proceed. Mr Dodd replied: Let them know by [Wednesday close of play] what you can pay them. Its an average 100k per week they are looking for and there may be some slack. Id like them to finish work on z6 for which they have been paid before this conversation happens. 71. No payment was made on 18 July 2012 and it does not appear that LPG contacted Squibb as suggested by Mr Dodd, as Mr Hamilton sent an email to LPG, copied to Mr Pope and Mr Dodd, at 8.35pm expressing bitter disappointment and no little frustration that, despite a number of attempts to contact LPG, Squibb had had no response at all. The email carried a clear threat of the possibility of proceedings, while stating that this was not Squibbs preferred option. Mr Dodd replied that evening: I hope we can discuss in site tomorrow with LPG at 9.30. Im confident that LPG can pay something even if they cant meet 100,000.00 by Friday. I can advise you of the current position at LPG and of imminent Newham lending to LPG and impact on repayment, as conditions can be imposed on any loans that involve averaging 100k per month to Squibb 72. On 18 July 2012 Miss Hindson, LBNs Director of Corporate Finance, was c opied into Mr Hamiltons last email. She responded to Mr Pope informing him that LPG only had 50,000 in the bank and so could not pay Squibb any more until after the bar takings from the weekend (when the BT Rivers of Music festival was happening) or we have provided cash. She requested At the very least try and postpone till Monday. Mr Pope forwarded her email to Mr Dodd marked as low priority. On the morning of 19 July 2012 Mr Hamilton met Mr Dodd on site. He followed up the meeting with an email to Mr Pope and Mr Dodd:

70.

73.

Further to my email direct to LPG last night I have had a meeting with Mike Dodd this morning and whilst he was open and honest in explaining the situation to me, LPG have defaulted on the revised payment schedule agreed last week ( 100,000.00 to be paid to us this week) and are simply not in a position to pass us any of our owed sums until Tuesday next week at the earliest. In fact all that LPG could pay would be a sum of 50,000.00 Whilst we understand an open venue generates funds, in essence we consider that LPG are insolvent and are trading illegally as they are continuing to hold events which cost money to produce, organise and start as well as paying other contractors and staff who are working on site out of money that is un-deniably owed to us. We simply cannot allow the situation to continue and therefore give formal notice that we are instructing our solicitors to commence legal proceedings against LPG and any other beneficiary of the site (LBN) in the form of a High Court injunction to stop the site being used for its function or any other use. 74. LBNs immediate response to this email was to distance the Borough from LPG and the problem. Mr Dodd replied to Mr Hamilton: Further to the below and recognizing the sentiments outlined it is worth clarifying that neither Chris nor I are employed by LPG and our role in respect of LPG matters is wholly on LBNs behalf. Note that LBN is owed 3M by LPG and is a preferred creditor. LPG needs to agree any payment profile. The conversation that needs to occur which I suggest we arrange for tomorrow PM is with Robyn or anther LPG Director with LBN as an observer. 75. A meeting duly took place between Mr Hamilton, accompanied by Mr Squibb s father, and one of the directors of LPG and Mr Dodd on the morning of 20 July 2012. It was held at LBNs offices. Mr Pope passed the door but did not join the meeting, giving Mr Hamilton the impression that he was distancing himself from the problem. According to Mr Hamilton, a new schedule for payments was agreed, with 50,000 to be paid by 23 July, 150,000 by 27 July and 150,000 by 6 August 2012, which would have cleared the outstanding balance from the 424,000. His note of the meeting refers to 50,000 being paid on Monday (23 July) and 100,000 on Friday (27 July) with a total of 300,000 being paid by 6 August 2012. The note also records that Mr Dodd was producing a business case to ensure money into company and we will get paid by LBN/LPG. Mr Dodds evidence is that any agreement was

between Squibb and LPG and that he did not either agree dates for payment or say that LBN would pay the debts if LPG did not. He was copied into the email sent by Mr Hamilton after the meeting which, according to him, [confirmed] the instalment plan of payments that [LPG] had agreed [it] would make to Squibb. 76. On 27 July 2012 LBN released a further 300,000 to LPG. LPG paid 150,000 to Squibb on 30 July 2012. No further payment has been made to Squibb. On 6 August 2012 Mr Hamilton emailed Mr Pope asking if the next tranche of 150,000 would be paid that day. Mr Pope replied that LPG was now in administration and that he had forwarded Mr Hamiltons email to the administrators. In reply, Mr Hamilton as serted that at the meeting on 20 July 2012 there was an express agreement that the 150,000 would be paid to them by LPG and if not directly by LBN, and as such we fully expected to receive the 150,000.00 today. This was the first time that Squibb had looked to LBN to pay directly. Mr Pope replied that he was not aware of any agreement relating to LBN making payments to Squibb and that Mr Hamiltons email did not mention it.

Discussion 77. Squibb submits that the evidence of Mr Hamilton and Mr Squibb about the meeting on 5 July should be accepted and relies upon the independent support of Mr Harnan and the content of the three contemporaneous notes. A number of points arise on the three notes. First, none makes reference to the carrying out of further works; and, until the first morning of trial, it was Squibbs case that the parties entered into negotiations for the carrying out of further works on or about 11 July 2012. As against that, Mr Pope knew by 5 July 2012 that further works were required and that Squibb was the natural candidate to carry them out. Second, the notes prepared by Mr Squibb and Mr Hamilton refer expressly to 424,000 and appear to support the suggestion that the whole of that sum was to be paid in the week commencing 9 July 2012. But Mr Harnons note is explicit in saying that only most could be met the next week; and his reference to the next payment being on time is consistent with an understanding that the 424,000 would be discharged by the end of July when IVA3 fell due for payment. Third, only Mr Squibbs note refers to LBN paying Squibb direct, and that is said to be to quicken the process by removing the need for the money to pass through LPGs bank account rather than by reference to any independent obligation t o pay Squibb directly. Fourth, Mr Harnans points 6 and 7 naturally carry the meaning that LPG did not have enough cash to pay on 5 July but could meet most of the 424,000 early next week or LBN would consider further funding. This is not consistent with an assurance that LBN undertook either to provide the necessary funds or to ensure that the necessary funds were forthcoming. Taking the issue in stages, I find as a fact that the conversations on 5 July 2012 centred on the 424,000 that was then due and outstanding and that nothing was said that could reasonably have been understood by Squibb as an assurance by LBN that all sums falling due under the CMTC contract would be paid. I make this finding because of the content of all three notes, with two referring expressly to the 424,000 and nothing else and Mr Harnans being properly understood to refer to the discharge of the 424,000 by the end of July. It is also the only possible interpretation of Mr Hamiltons evidence that what Mr Pope guaranteed was that Squibb would receive all outstanding sums in a maximum of two tranches in the next 2 to 3 weeks, since no sums other than the 424,000 were due for payment within that timescale and Mr

78.

Pope would certainly not have said that Squibb could look forward to accelerated payment of the rest of the sums earned under the CMTC contract. 79. The real issue, therefore, is whether Mr Pope or Mr Dodd said anything in relation to the 424,000 which gave rise to an obligation on LBN to fund payment of that sum to Squibb or to pay it directly if LPG did not do so. In answer to Squibbs reliance upon the evidence of Mr Squibb, Mr Hamilton and Mr Harnan, LBN relies upon the evidence of Mr Dodd and Mr Pope and upon a number of features of the case which, it submits, tell against a finding in Squibbs favour. First, it submits that Mr Pope was feeling his way and was therefore intrinsically unlikely to have made a binding commitment to Squibb. Second, it points to the fact that LBN had shown itself to be wedded to formal processes when contracting and that its corporate governance would simply not permit Mr Pope to enter into contractual relations in the course of such a meeting without any formalities being observed, then or later. Third, it submits that the post-meeting emails are inconsistent with any binding agreement having been reached at the meeting. Fourth, it submits that if LBN was going to undertake direct obligations in relation to the CMTC contract, the logical approach was for it to implement the Step In provisions of the contract, which would at least give it a measure of control. Fifth, it points to the procedural history which shows that the importance that now attached to the meeting is of very recent origin, starting with the provision of further information in June 2013 and only being alleged to give rise to a binding contract by amendment on the first day of trial. While I accept that Mr Pope had only recently had any direct involvement, I find that he was fully aware of the compelling need (as LBN saw it) to persuade Squibb not to issue proceedings that could jeopardise the project in the run up to the Olympics. I also find that LBN employed two strands in the conversation, each of which was intended to influence Squibb. The first was Mr Dodds facts of financial life, so that Squibb should be persuaded that it was not in their (or anyones interests) to issue proceedings; the second was to provide information about projected cashflow which might influence Squibb to hold off because of the prospect that payment would be forthcoming. The LBN witnesses referred to an open and honest exchange of information, which included a review of LPGs prospective ability to pay based on Mr Dodds knowledge of its cashflow and projections. As at 5 July, it was hoped that the Bloc Festival would provide substantial revenues. I accept that it was regarded as critical by LBN both for the immediate inflow of projected revenue and, in the longer term, as demonstrating the potential revenue stream for the future; and I find that it would have formed a significant part of the information provided by Mr Dodd. I also have no doubt that Mr Dodd and Mr Pope would have gone as far as they properly felt they could in portraying LPGs prospects in a favourable light d espite the current difficulties. On the basis of the notes of the meeting and the evidence of the witnesses called by Squibb I find that Squibb were told that LPG was expected to be able to pay the 424,000 by the end of July and that there should be a substantial payment, though not of the whole sum, in the week commencing 9 July, with 10 July being earmarked as the expected date for payment. To my mind, it is right to balance the lack of formality and the terms of the subsequent emails against the apparent clarity of recollection of the witnesses on both sides. In particular, Mr Squibbs first email on 6 July is barely consistent with the existence of a firm agreement that payment would be made on 10 July, since it

80.

81.

requests an update with regard to our payment on Tuesday, which would not obviously have been required if there was a firm agreement in place. Mr Popes reply was curious in purporting to come from LPG, but it was inconsistent with a concluded agreement such as Squibb now alleges. The unscrambling of the Bloc contracts and the expediting of the final payment of the loan facility meant only that LPG should be able to pay 200,000 of the invoice; and the rest of the email is couched in uncertain terms. Instead of protesting that LBN was moving the goalposts (which would have been the natural response had there been a firm agreement on 5 July) Mr Squibb replied thanking Mr Pope for his encouraging response and thanked Mr Dodd, Mr Pope and LBN for their efforts. To similar effect, while the email exchanges on 9 and 10 July indicate that Squibb had been hoping for a substantial payment on 10 July, they do not provide support for Squibbs present case that there was a binding agreement placing primary obligations upon LBN. 82. The non-implementation of the Step In provisions does not take matters further. It is clear from Mr Dodds report with recommendations dated 22 June 2012 that taking de facto control was seen as being at least as advantageous as implementing the Step In provisions for cogent reasons that are there set out. The procedural history is of some interest and shows a developing appreciation and assertion of the significance of the 5 July meeting. It raises the question whether the procedural development is based upon an improving understanding of the true position or a progressive distortion of the true position but it does not answer the question. I have come to the conclusion that in the course of the meeting on 5 July 2012 LBN told Squibb that LPG should be able to discharge at least a significant proportion of the 424,000 in the week after the Bloc Festival and that 10 July 2012 was earmarked as the date when LPG should be able to make payment. The prospect of payment in tranches was clearly stated, and Squibb was told that LPG should be able to discharge the 424,000 by the end of July 2012. These things were said in the context of a review of LPGs projected cashflow which included as a critical element of the projection the projected revenues from the Bloc Festival. I am, however, not satisfied that either Mr Dodd or Mr Pope said that payment would definitely be forthcoming or that either of them said anything which could reasonably be interpreted as guaranteeing that payment would be forthcoming from LPG or, failing that, LBN. Bearing in mind the purpose and dynamics of the meeting, I am confident that Mr Dodds emphasis upon the facts of financial life will have influenced Squibb and that, having had those facts spelt out to them, the prospect of a substantial payment the next week (though by no means assured) was comforting. I strongly suspect that there was an element of Squibb hearing what they hoped to hear rather than exactly what was said. LBN would not have discouraged that, since it suited LBNs intended purpose of holding Squibb off; but I find that Mr Dodd and Mr Pope were too experienced and savvy to give solid assurances or to guarantee that Squibb would be paid, either by LPG or by LBN, at a time when the results of the Bloc Festival were unknown and the scope of any further funding by LBN was undecided. Furthermore, although LBN may well have mentioned the need for further works to get LPG and the site over the line, and also that they would have encouraged Squibb to understand that the best prospect of recovering full payment was for LPG to continue as a going concern, I reject the suggestion that LBN offered an assurance of

83.

84.

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payment in return for Squibb forbearing and agreeing to carry out further works. Accordingly, although forbearance and continued cooperation were held out as likely to increase the chance of payment over what would happen if Squibb sued or withdrew cooperation, LBN did not at any stage give an assurance of payment as a quid pro quo for that forbearance or continued cooperation. 86. I have reached these conclusions primarily on my assessment of the witnesses (and, where appropriate, their notes of the meeting) including my assessment of the imbalance to which I have referred previously; but I am also influenced by the terms of the emails which followed the 5 July meeting which, even allowing for that imbalance, provide support for LBNs case rather than for Squibbs. It follows that I reject Squibbs case based upon the meeting of 5 July 2012. By 11 July 2012 the landscape had changed, not least because the Bloc Festival had been a financial failure and Squibb had not been paid anything in the wake of the 5 July meeting. LBN saw the need to get the site over the line to be as compelling as ever and was by now exercising substantial de facto control over LPG in its efforts to protect its own financial interests and the reputational issues that rested on the project. For its part, Squibb was coming under increasing pressure from its suppliers and had made payments in anticipation of receiving payment on 10 July. Both sides were therefore under even greater pressure than had been the case on 5 July 2012. In support of its case that there was a contractually binding agreement concluded at the meeting on 11 July 2012, Squibb relies upon the evidence of Mr Squibb and Mr Hamilton and their respective notes. It also relies on the emails that were sent after the meeting, which it says evidence the fact of an agreement having been made. LBN resists the claim on t he basis of Mr Dodds evidence and, at least in part, in reliance upon Mr Squibbs evidence that the agreement was limited to payment of part only of Squibbs old money. It takes points on the content of the notes prepared by Mr Squibb and Mr Hamilton; and it submits that the subsequent emails support its case that there was no concluded agreement rather than Squibbs case that there was. On all of the evidence I have concluded that Mr Dodd did give an assurance that Squibb would be paid 150,000 by close of business on 12 July and another 100,000 of its old money (i.e. the 424,000) the following week. That assurance was given by Mr Dodd when trying to influence Squibb to do the additional works (for which it would be paid in advance) and not to take proceedings; and it worked. The context for the assurance was that Mr Squibb told Mr Dodd that Squibb would not do any more work unless they got the two assurances (payment up front for the additional work and part payment of some of their old monies). Mr Squibb meant what he said; and after the failure of the Bloc Festival, it was implicit that the monies to fund the two payments would have to come from LBN since the next big revenue-generating event was not until 20 July 2012. I accept the evidence of the Squibb witnesses that Mr Dodd said, either expressly or by necessary implication, that LBN guaranteed the payment of the two payments. I am not satisfied that Mr Dodd gave any guarantee beyond the two payments of 150,000 and 100,000 that were to be made on 12 July and the following week, although I find that Mr Dodd did say that he hoped and anticipated that LPG would be able to discharge the balance of the 424,000 by the time that IVA3 fell due (or words

87. 88.

89.

90.

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to that effect). There was discussion of IVA3 being made on time and of payments being made at the rate of 100,000 per week, but Mr Dodd did not give any binding assurance on either of these points. 92. In reaching these conclusions I have had regard primarily to the evidence of the witnesses and the notes prepared by Mr Squibb and Mr Hamilton, both of which refer to LBN guaranteeing payment. I do not think that Mr Squibb and Mr Hamilton would each have noted this point if Mr Dodd had not given them a clear understanding to support it. It may be questioned why Mr Dodd went further during this meeting than he and Mr Pope had gone on 5 July in putting LBNs weight into the balance. He may not have set out with the intention to do so, but I am satisfied that the pressure upon him to keep Squibb in line at a time when further works were required and the last prediction of payment had not been fulfilled, pushed him further than he would have wished to go or than he now accepts that he went. If he had not done so, Squibb would not have undertaken the additional works. Although it is true that other contractors could have been contacted, and that Squibb still had to quote for the works, time was short, other contractors did not have Squibbs familiarity with the site and might not be available in time, and Squibbs pricing and work had been satisfactory to date. There was therefore every reason for Mr Dodd to want to keep Squibb involved. I have paid close attention to the exchange of emails immediately after the meeting. The reference to 150,000 in point 1 of Mr Hamiltons email together with the reference to 150,000 in his note of the meeting, supports my finding that 150,000 was the sum discussed and in respect of which the assurance was given by Mr Dodd at the meeting. My interpretation of the balance of the email is that in numbered points 1-4 Mr Hamilton was setting out matters which had been discussed at the meeting, although LBN had only given an assurance or undertaking to the limited extent that I have identified. That was the schedule of projected payments to which Mr Squibb had referred in his note, although the schedule had not been recorded in writing during the meeting. Mr Hamiltons statement that Squibb would appreciate a letter of comfort reflected the fact that Squibb had left the meeting with nothing in writing and wanted to strengthen its hand for its dealings with its suppliers. The request for a guarantee from LBN was, save to the limited extent outlined above, a request for something that had not been achieved at the meeting and was an additional negotiating step; and it was a request for confirmation in writing, which Squibb did not yet have. Mr Dodds reply backed away from the figure of 150,000 which he had agreed during the meeting. His statement that LPG should be able to pay Squibb is equivocal, but is not inconsistent with his having agreed that LPG would make the payment and his assurance that LBN would be funding it if necessary (which would mean that it should be able to pay). His statement that next week LPG would pay 100k total cash on Wednesday is unequivocal and supports the finding that he had given such an assurance during the meeting. The rest of the email is consistent with my finding that he gave no assurance beyond the initial 150,000. His reference to the directors of LPG confirming the acceptability of the cashflow reflected his appreciation that, although LBN was now in de facto control of LPG, he was not formally a director.

93.

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95.

Some further support for Squibbs case is to be found in LPGs email to Mr Dodd on 17 July 2012: it shows that 100,000 per week had been the sum discussed earlier between Mr Dodd and LPG as being payable. Squibbs case is also supported by Mr Dodds email to Mr Hamilton on the evening of 18 July 2012 w hich clearly recognises that 100,000 was the anticipated payment. I therefore conclude that the evidence supports Squibbs case that there was an agreement on 11 July 2012 by which LBN committed itself to ensure payment by LPG of 150,000 on 12 July a nd 100,000 the following week against Squibbs outstanding balance of 424,000 under IVA2. LBNs assurance was the price it paid (together with the agreement to pay up front) for the carrying out of the additional works and for Squibb not taking action t hat would jeopardise LBNs efforts to get LPG and the site over the line and into what was hoped would be more profitable waters. LBN intended Squibb to act on the assurances and it did so. The agreement was reached with the giving of good consideration on both sides and was of sufficient seriousness to give rise to binding contractual relations. The subsequent email exchanges and the meeting on 20 July 2012 are not relied upon as giving rise to separate enforceable contracts. It is not necessary to refer to them in detail save to say that they do not support Squibbs case that there was a binding contract with LBN over and above the agreement that I have identified above. In the event, Squibb was paid 100,000 and then 150,000 against IVA2, rather than the other way round. That does not affect the conclusion that Squibb was paid what had been agreed on 11 July 2012. Any further claim available to Squibb was against LPG and not against LBN. It follows that I reject Squibbs case based upon the meeting of 11 July 2012 because the sums that were agreed to be paid were paid on 13 and 30 July 2012.

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