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England and Wales High Court (Chancery Division) Decisions


You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ultraframe (UK) Ltd v Fielding & Ors [2005] EWHC 1638(2) (Ch) (27 July 2005)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2005/1638(2).html
Cite as: [2005] EWHC 1638(2) (Ch)

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    DEARWARD AND DEARWARD PROFILES

    Introductory
    Dearward
  1. Dearward was the successor to Kilohurst Plastic Processors Ltd, having changed its name in August 1995. As I have said its principal business was the manufacture of cardboard cores. However, on 30 June 1997 it acquired an extrusion machine, although the machine was actually used by Kesterwood. Mr Fielding routed some of his earnings from quantity surveying through Dearward in an attempt to make the company look more profitable than it really was.
  2. Dearward Profiles
  3. Dearward Profiles Ltd was incorporated on 21 May 1998, but did not begin trading until July. The intention was for Dearward Profiles to be the "customer-facing entity" although Kesterwood Extrusions would continue to manufacture the product. One of the issues that arose in the course of the trial was how the two Dearward companies came to be involved in arrangements for the supply of uPVC extrusions. The main significance of this issue seemed to me to relate to the truthfulness of answers that Mr Fielding subsequently gave to questions raised by the trustees. Mr Fielding's evidence was that Dearward was a highly successful company; and he was not prepared to allow it to become involved with a high risk enterprise such as the exploitation of the roof system. Ultraframe say that Dearward Profiles was incorporated in order to take over the business of Kesterwood Extrusions and, ultimately, the business of Seaquest as well.
  4. Later in the year Dearward Profiles also began to carry out laminating extrusions, which was not a business that Northstar ever engaged in. That was a decision made by Mr Fielding. I deal with the acquisition of these machines later in this judgment.
  5. The meeting of 16 January 1998
  6. Mr Fielding said that the question of Dearward becoming the supplier of uPVC extrusions was not discussed during that part of the meeting on 16 January that he attended. However, the agenda for the meeting included at item 2 a proposal that dealers should sign up and buy direct from Kesterwood. On one version of the agenda, the name "Kesterwood" has been struck out and replaced with "Dearward".
  7. Mr Fielding (who was not present throughout the meeting) said that there was no question of Dearward becoming involved in the supply of extrusions to Seaquest's dealers. However, in March 1998 Mr Hacking, apparently on Mr Birkett's instructions, drafted a supply agreement to be entered into between Northstar and Dearward, under which Dearward was to supply extrusions to Northstar. Mr Fielding could not explain how this agreement came to be drafted. It is, however, fair to say that it was never executed. Mr Fielding also pointed out, correctly, that by March 1998 the operating company was Seaquest rather than Northstar.
  8. MR FIELDING TAKES DEBENTURES OVER NORTHSTAR AND SEAQUEST

    The laminating machines
    The Northstar order
  9. At the Glassex exhibition in March 1998 Mr Davies, purporting to act on behalf of Northstar, had agreed to buy two Spanish laminating machines, and a German bulk melter. The aggregate cost of these machines was £97,500 plus VAT. He confirmed the order on 29 April 1998. Although the overall price is not broken down, I infer from other documents that the cost of the two laminating machines was £50,000. A deposit of 30 per cent was due immediately; with the remaining balance being due in two stages, 60 per cent on delivery and the remaining 10 per cent 30 days thereafter. On the following day it appears that Northstar entered into an agreement with a manufacturer of adhesive under which it agreed to buy 25 tonnes of adhesive a year, in return for which the manufacturer agreed to make the two laminating machines available to Northstar at no cost. The agreement stated that the cost of those two machines was £50,000. Thus Northstar had to find the balance needed for the German bulk melter. By July, however, the supplier of the machines had been unable to establish a delivery address; and Mr Davies had apparently left the company. Mr Birkett appears to have lain low, even to the extent of arranging a meeting and not turning up. He also claimed that the two machines had been cancelled. It does not appear that they had been. Since the meeting that Mr Birkett arranged was due to take place at Burnden Works on 27 July, Mr Fielding became involved. He offered to attend a meeting and gave a number of dates in August and September when he would be available.
  10. Mr Fielding says that despite the fact that he was the owner of 98 per cent of the shares in Northstar as a result of his agreement with Mr Naden in January 1998, he was unaware of the order of the two machines until he became involved in July.
  11. Mr Fielding's negotiations and the eventual deal
  12. Mr Fielding was unwilling to advance any money to Northstar to enable it to buy the machines. Instead, at the end of July 1998 he reached an agreement with the seller of the machines, that Dearward Profiles would take on what had been Northstar's liability. So Dearward Profiles entered into the contract with the adhesive manufacturer in place of Northstar; and raised the finance necessary to pay the balance. Thereafter, Dearward Profiles charged Northstar for laminating aluminium extrusions, but it is not suggested that Dearward Profiles's charges were excessive in any way.
  13. Tooling
  14. On 12 June 1998 Mr Cooper says that he wrote to Mr Read at Northstar. The letter reads:
  15. "Further to our meeting last Friday with Gary, we discussed new tooling for your best running products.
    After speaking to Sam Harris we propose to use a 18" Long Dry Vac Calibrator for each of the sections below. This will enable us to achieve better output, extra cooling and more of a consistent product.
    The prices for tools only are as follows:
    KOGBC – ogee bottom cap
    New 18" Dry Vac Calibrator £3400
    KVC- Victorian Cap
    New 18" Dry Vac Calibrator £3750
    KTC- Transom Cap
    New 18" Dry Vac Calibrator £3750
    KOGEB – Eaves Beam Cover
    New 18" Dry Vac Calibrator £4100
    The cost of the new Calibrators will be funded by Kesterwood Extrusions and upon completion of the commissioning of new tools we will agree a development cost to be amortised."
  16. On 11 September 1998 Mr Cooper sent a memo to Mr Fielding and Mr Sheffield. It referred to a meeting with Mr Read at Northstar and continued:
  17. "During our meeting with Martin we discussed the various problems we have with numerous tools.
    We have highlighted 5 tools and are awaiting prices and lead times back from Sam Harris.
    They are the following sections.
    KTC – 2nd biggest moving item.
    New Die & Stainless Steel Dry vac former required
    (18" approx in length required)
    KWC- New Stainless Steel Dry Vac former required
    (18" approx in length required)
    KVC - New Die & Stainless Steel Dry vac former required
    (18" approx in [length] required)
    KOGBC - New Die & Stainless Steel Dry vac former required
    (18" approx in length required)
    KLOGBC – Martin is working on a new design for this section. On present tooling we require a new front plate to remove Pips. Sam Harris to action this urgently. Tooling to be sent to Sam's as soon as possible.
    Once Sam has quoted prices back a letter will be forwarded to Martin confirming prices."
  18. Ultraframe say that the letter dated 12 June 1998 is a fabrication. They say that there is a considerable overlap between the components referred to in the letter and those referred to in the memo of 11 September. If, in September 1998, Kesterwood were still awaiting prices for these tools from Sam Harris, how could Mr Cooper have quoted prices for the self-same tools back in June? Moreover, Mr Read said that he never discussed tooling with Mr Fielding (contrary to the reference in the letter of 12 June to "our meeting with Gary"); and that specific tools were not discussed until September. He had no recollection of any meeting about tooling in June. Thus Ultraframe say that the letter dated 12 June is a later fabrication put before Mr Cooper for signature. These allegations were put to Mr Cooper; but he maintained that he was the author of the letter of 12 June; and that he wrote it on the date that it bore.
  19. Mr Roche and the new investors
  20. An examination of Mr Roche's computer revealed a number of documents kept in the so-called "Maximiser" file. This is a program that is part diary, part personal organiser and part word processor.
  21. During the summer of 1998 Mr Roche said that it became clear that Northstar needed new investment. He thought that there might be three potential sources of backing: banks, individual investors, and suppliers.
  22. Mr Roche's business plan
  23. In August 1998 Mr Roche produced a draft business plan for Northstar entitled the "Orpheos Project" (because Orpheos returned from the underworld). In describing the background, Mr Roche stated in the draft:
  24. "The company had a capital investment by way of a £70,000 loan in January of 1998, and the seed capital was [originally] placed by the designer of the SYS-1 system which the company manufactures."
  25. The report also stated that although Northstar had assigned its intellectual property rights to Seaquest it had "itself funded the R & D and tooling costs"; and that Northstar had "few borrowings". The final version, produced a couple of weeks later, said:
  26. "The company had a capital investment by way of a £70,000 loan in January of 1998, and the seed capital was [originally] placed by the designer of the "The Quickfit System 1" system which the company manufactures. This loan is now reduced to some £58,000."
  27. The comment relating to the funding of tooling costs remained in the final version; as did the comment about few borrowings. The designer of the system was Mr Davies. Ultraframe say that this shows that the cash introduced to Northstar in early 1998 came from Mr Davies; and that Mr Roche's business plan is quite inconsistent with a loan from Mr Clayton or, for that matter, a loan from Mr Fielding. Mr Roche did not of course begin working for Northstar until April 1998. He said that he produced the business plan with information given to him by Mr Birkett. The business plan does not mention Mr Fielding. Mr Roche said that at the time he prepared it he did not know that Mr Fielding owned the shares in Northstar and Seaquest. He knew that there had been a loan to Northstar, because "that is reflected in the books". But he did not know the identity of the lender. No one suggested to Mr Roche in the summer of 1998 that Mr Fielding had already lent money to Northstar.
  28. Mr Roche and Mr Ivison contacted banks, but without success. Mr Roche himself approached Mr Alan Fieldsend. Mr Fieldsend was an acquaintance and drinking companion of Mr Roche who had backed one of Mr Roche's previous business ventures. According to Mr Roche there were two possibilities so far as Mr Fieldsend was concerned. One was to invest in Northstar itself. But Mr Fieldsend dismissed this out of hand once he was told about the litigation with Ultraframe. The other was to get Mr Fieldsend to buy the premises at Groby Road. This was of more interest to Mr Fieldsend, but it came to nothing. Mr Roche said that he asked Mr Naden and Mr Birkett if they had money to invest; but neither did. No one thought to ask Mr Clayton if he was prepared to invest. Nor did anyone approach Mr Fielding personally. Mr Roche said that he was under the impression that Kesterwood was giving financial support to Northstar. What he meant by that was that Kesterwood was extending longer than usual credit to Northstar. He did not suggest that he thought that Kesterwood had actually lent Northstar money.
  29. The state of the account between Northstar and Kesterwood
  30. As I have said, Mr Sheffield wrote to Mr Birkett in early August 1998 complaining about indebtedness; and saying that no more deliveries would be made until the financial situation had been resolved. The letter said that at the end of July "the overall position between Northstar dealers and Northstar stock is £250,000, a fact which seemed to take Jeff by surprise." Mr Birkett said that he recalled discussions about stock levels at about this time. However, he said that the figure of £250,000 could not be correct, because as a result of the "mill direct" scheme, the stock was Kesterwood's rather than Northstar's. This misstatement of the position, and the fact that the letter ended up in his plastic wallet, led him to conclude that it was a forgery. He did, however, think that he might have received a letter in similar terms at about this time. Mr Birkett also agreed that in the summer of 1998 Northstar was building up a substantial debt to Kesterwood and that Kesterwood were concerned that the level of debt was not being reduced. I find that the letter was genuine.
  31. A meeting took place on 3 September 1998 at Burnden Works. This meeting was attended by Messrs Birkett, Roche and Read on behalf of Northstar and Mr Fielding and Mr Sheffield on behalf of Kesterwood. The first item on the agenda was the "current situation regarding the financial liability" between Northstar and Kesterwood. Unusually, there are no minutes of this meeting. Mr Fielding's account of the meeting was as follows:
  32. i) The level of debt owed by Northstar to Kesterwood Extrusions had grown to an unacceptable level (£70,000) and he and Mr Sheffield asked for a repayment plan. Messrs Birkett and Roche agreed to provide one.
    ii) Mr Ivison was chasing dealers, but was struggling. Mr Fielding expressed concern that Kesterwood Extrusions' stock level was at about £180,000-worth, which would take three to four months to move.
    iii) Mr Fielding agreed to fund the tooling and commissioning costs for Mr Read's proposed design changes;
    iv) Mr Fielding told Mr Birkett that he would be prepared to buy the two laminating machines that Northstar had ordered; and told them that he had offered a job to Mr Williams with Dearward Profiles;
    v) Mr Birkett reported that the trustees were trying to prove that Mr Davies owned the shares in Northstar and Seaquest; but it was agreed that they were just carrying out a "fishing expedition" and that it was not serious.
  33. With the exception of the point about tooling, Mr Birkett agreed that this account was a fair reflection of the meeting. Neither Mr Birkett nor Mr Fielding could recall whether the question of a debenture was raised at this meeting. Mr Birkett, however, accepted that by this time commissions due from Dearward Profiles to Seaquest were being set off against debts owed by Northstar to Kesterwood Extrusions; and that this was discussed at the meeting. This was Mr Roche's first contact with Mr Fielding. Mr Fielding struck him as a man who asked sensible questions. Mr Roche did not recall any indication at the meeting that Mr Fielding had already lent money to Northstar; or that he was the owner of the shares. There was no mention of any supply agreement with Northstar or Seaquest. He did, however, recall that it was said that Kesterwood had supported Northstar by giving it extended credit. Mr Roche did not form the impression that Mr Fielding was an existing investor in Northstar.
  34. On 7 September 1998 Mr Sheffield wrote to Mr Birkett at Seaquest. The letter reads:
  35. "Re:- Tooling and trialling of U.P.V.C. Extrusions
    I refer to the tooling and trialling that Kesterwood Extrusions Limited have undertaken on your behalf during the last twelve months and I would confirm that Dearward [Profiles] Limited have now purchased the asset from Kesterwood Extrusions Limited."
  36. The period of twelve months referred to in the letter would tie in with the Northstar supply agreement of June 1997 which envisaged that the machines would be up and running by April 1998. However, this letter assumes (as the Northstar supply agreement does not) that Northstar would be liable to pay for the cost of tooling and trialling. In addition, the Northstar supply agreement was made with Mr Fielding personally, rather than with Kesterwood (or Kesterwood Extrusions). In his oral evidence Mr Birkett accepted, after some hesitation, that he received this letter on or about the date that it was written; and that he did not query its contents at the time. It is not a document which made its way into Mr Birkett's plastic wallet; and Mr Birkett agreed that it was not one of the documents that were fabricated in November 1998. However, nothing seems to have come of the suggestion that Dearward Profiles had bought a debt due from Seaquest to Kesterwood Extrusions. Ultraframe say that this was the beginning of the plan to provide a false justification for the grant of debentures, and shows that the conspirators were looking around for possible pegs on which to hang the grant.
  37. On 11 September 1998 Mr Cooper wrote an internal memorandum in which he said that prices for various tools were still awaited from Sam Harris. The tools in question were the same tools for which prices had been quoted to Northstar back in June.
  38. A further meeting took place on 16 September at Burnden Works. Messrs Birkett, Naden, Roche and Read attended on behalf of Northstar; and Messrs Fielding, Sheffield and Williams on behalf of Kesterwood. Once again, the first item on the agenda was the "current situation regarding the financial liability" between Northstar and Kesterwood. Notes of the meeting made by Mr Williams (who had just joined Kesterwood) recorded that a debenture was being "raised in lieu of monies owed to Kesterwood by Northstar" and that Mr Fielding was "revising financing". This particular note was a record of something that Mr Roche said. Mr Roche also proposed a payment plan for reducing the current liability of £112,000. This involved setting off commission owed by Kesterwood to Seaquest against the debt owed by Northstar to Kesterwood. This was much the same arrangement as Mr Birkett had proposed to Alumax a couple of months earlier. In addition Mr Roche proposed that Northstar would discharge its indebtedness at the rate of £2,000 per week. When aggregated with the commission being set off, this would clear the debt within 6 to 7 months. The set off was an integral part of the repayment plan. Mr Birkett thought that it was a sensible thing to reduce the debt, not least because it would avoid friction with Kesterwood Extrusions over the supply of product. Mr Birkett agreed that the question of a debenture was raised at this meeting. In his written evidence he said that it was he who raised the question. However, in cross-examination he agreed that it was in fact Mr Roche who did so; that he did not know what a debenture was; and that Mr Roche had to explain to him (either at the meeting itself or shortly afterwards) that it was "like a mortgage on the company". When I asked him to clarify his evidence, he said that although he did not know what a debenture was, it was indeed he, rather than Mr Roche, who proposed the debenture. He did so because Mr Davies had told him to. One of the pressing problems that was facing Northstar at the time was the need to pay Ultraframe's costs of the application for summary judgment in the patent action. Mr Birkett was inclined to agree that it was at this meeting that Mr Fielding was told about Northstar's liability for costs in the sum of some £70,000. Mr Birkett thought that it was at this point that they asked Mr Fielding to lend Northstar £70,000. Mr Fielding did not agree to the debenture straight away, but said that he would think about it. Mr Read recalled being at a meeting at which the question of a debenture was raised. He was unsure of the date, but thought that it was in September. He thought that it was Mr Roche who raised the subject; and discussed it with Mr Birkett and Mr Naden "as a way of raising much needed monies". Mr Read had no knowledge of Mr Davies' having proposed a debenture. Mr Roche emphatically denied that the idea of a debenture emanated from Mr Davies; or that it was proposed with Mr Davies' knowledge and approval. It was his own idea. He said that at this stage he was unaware of any charge that Mr Fielding might have had over any of the assets of Northstar or Seaquest; and thought that they were free to be included in a debenture. Mr Read, who attended some of these meetings, said that from his perspective the idea of a debenture was that of Mr Roche; and was not an instruction from Mr Davies. I do not accept Mr Birkett's evidence that it was he who proposed the debenture. It is implausible that he did so without knowing what a debenture was. I find that the debenture was proposed by Mr Roche and was, at that stage, simply a bright idea of his. It seems that at the meeting, although the question of a debenture was raised, it was not at all clear to whom it would be granted. It was recognised that Northstar was, once again, in need of money.
  39. During the course of the meeting Mr Davies telephoned and asked to speak to Mr Birkett. Mr Davies was still in the USA. The fact that Mr Davies telephoned Mr Birkett at Burnden Works rather than at Groby Road was something that Ultraframe relied on as showing that some sort of conspiracy was already in place. But Mr Birkett said that he assumed that Mr Davies had telephoned Groby Road first, and was told where Mr Birkett was. Mr Davies also asked to speak to Mr Fielding. Mr Fielding said that, unusually, he rather than Mr Davies did most of the talking. He suspected that Mr Davies would be wanting more money from him "i.e. the rest of his £100,000". This was a reference back to the sum that Mr Davies had claimed in May that Northstar owed him. So Mr Fielding complained about the poor state of the company. But he said that he did ask Mr Davies what the position was about the shares; and that Mr Davies replied that he did not own them, but that they were either owned by Mr Naden or Mr Clayton. The conversation ended with Mr Davies wishing Mr Fielding good luck.
  40. On the way back from the meeting Mr Roche explained to Mr Naden and Mr Birkett what a debenture was; and he told them that if they went to a bank to raise money, the bank would not only want a debenture over the company, but charges on their homes as well. The debenture was, therefore, a better way of raising money. Mr Birkett and Mr Naden agreed with the idea of a debenture.
  41. At the end of the meeting on 16 September Mr Birkett and Mr Roche had asked Mr Fielding for a private meeting; and this took place two days later on 18 September at Burnden Works. At this meeting Mr Fielding offered to finance the outstanding Northstar balance owing to Kesterwood to assist with cash-flow problems. Mr Birkett thought that it was possible that, if he had not asked already at the meeting on 16 September, it was at this meeting that he asked Mr Fielding to lend Northstar £70,000.
  42. However, in the meantime, on 17 September, Mr Roche had contacted his own solicitor, who opened a file in the name of Seaquest. The file indicated that the task in hand was the preparation of debentures.
  43. On 2 October Mr Williams wrote to Mr Birkett at Seaquest. He said that he had just joined Dearward Profiles Ltd and, having familiarised himself with its accounts, had noted that the company's assets included a value in excess of £70,000 "against modifying and improving tooling on the Seaquest Conservatory Roof System". He concluded that:
  44. "… in order to protect our investment I would insist on us having a debenture against the assets of Seaquest Limited which I understand includes the intellectual property rights of the system for a figure to be agreed upon completion of the trialling."
  45. Mr Birkett replied on 7 October to the effect that a debenture had already been agreed with Mr Sheffield. He said that he wrote this letter himself, without instructions from anyone, although Mr Roche said that he and Mr Birkett had discussed Mr Williams' letter. Mr Birkett accepted that the dates on Mr Williams' letter and his own reply were accurate; but said that both these letters were "part of the plan". He suggested that Mr Sheffield's letter of 7 September was also part of the plan. The plan in question, according to Mr Birkett's witness statement, was a plan to "set up a debenture" in Mr Fielding's favour. He said that this is something for which Mr Davies had given instructions in early September and to which he had agreed, on Mr Davies' instructions in September. At this stage, according to Mr Birkett, Mr Davies' instructions were to "give Mr Fielding debentures to give him extra protection". However, Mr Birkett's evidence in cross-examination about why he did not query this letter (and Mr Sheffield's letter of 7 September) at the time was, to my mind, confused and unconvincing. Moreover, if these letters had been part of "the plan", the plan must have ante-dated the pub meetings, at which Mr Birkett said that the plan was announced. Mr Sheffield said that he did not agree any debenture with Mr Birkett. He said that although he had been present when a debenture was discussed, he played no part in its agreement.
  46. On 9 October 1998 Mr Roche and Mr Fielding had a private meeting at which Mr Roche explained to Mr Fielding how the businesses of Northstar and Seaquest operated, and who did what. By the time of this meeting Mr Roche said that he knew that someone had been lending money to Northstar; but as far as he was aware at the time the lender was Mr Clayton rather than Mr Fielding; because that is what he had been told by Mr Birkett. Mr Roche said that it was at this meeting that Mr Fielding told him that he was the owner of the two companies. Mr Roche was surprised, and did not know whether to believe Mr Fielding, because he knew that the registered shareholder was Mr Clayton. Mr Roche told Mr Fielding about the assignment of the intellectual property rights from Northstar to Seaquest, and agreed to supply Mr Fielding with a copy of the assignment. Mr Fielding says that this is when he discovered that there had been any assignment of the intellectual property rights. During the course of this meeting Mr Fielding said that he thought that since he owned both Northstar and Seaquest, it would be appropriate that they should move to Burnden Works. This struck Mr Roche as a constructive and helpful suggestion. Mr Fielding's note of the meeting gives a rather different impression. It says:
  47. "EB is looking for a 40k sq ft building and thinks we might move over- no chance. We are looking for new building and want N/S to move in with us near Burnden."
  48. This is rather more forceful than a suggestion. Mr Fielding's note of the meeting records that he explained the reason for sending Mr Hindley to look at Northstar's accounts; and that "C.H" had said that they were a shambles. However, it is clear that Mr Hindley did not begin work until 21 October; and that he was not introduced to the project until 14 October, at the earliest. Mr Fielding said that the reference in his note to Mr Hindley ("C.H") was a mistaken reference to Mr Hutchison ("B.H."). But this is by no means obvious from the context of the note. Moreover, Mr Roche said in his witness statement of 24 January 2000 that he was told at the meeting that it was Mr Hindley who had said that the accounts were a shambles. In his oral evidence he said that he was sure that an accountant had been in to look at Northstar's accounts, because he had seen him at Groby Road; and that he had relied on the note to identify that accountant as Mr Hindley.
  49. On 14 October 1998 Mr Fielding wrote to Mr Birkett complaining about the poor state of Northstar's accounts. He said that he had given instructions to Mr Hindley to spend his available free time in tidying up the accounts to "bring them in line with those expected of a well respected company." Mr Birkett accepted that this was a genuine document; and that Mr Hindley was looking at the Northstar accounts at about this time. However, somehow it made its way into Mr Birkett's plastic wallet. Mr Hindley did not in fact start work until 21 October. On the same day Mr Fielding wrote another letter to Mr Birkett. He set out a series of detailed complaints about the way in which Northstar's business was conducted, on the basis of a customer survey which Mr Sheffield had organised; and complained about a lack of leadership at Northstar. I have quoted the material parts of this letter when describing Northstar's financial position during 1998.
  50. For the remainder of September, and into the first half of October, Northstar kept to the repayment plan that Mr Roche had proposed. Mr Sheffield wrote to agree the plan on 29 September 1998.
  51. The "circular" transactions
  52. A further meeting took place at Burnden Works on 16 October 1998. For reasons that Mr Fielding could not explain, the agenda for the meeting went out under the name of Dearward Profiles. The meeting was attended by Messrs Birkett, Naden and Roche on behalf of Northstar; and Messrs Fielding, Sheffield and Williams from Burnden Works. According to Mr Fielding's note of the meeting:
  53. i) It was agreed that Mr Hindley (who was looking at Northstar's accounts on Mr Fielding's behalf) would act as Northstar's management accountant;
    ii) The directors of Northstar agreed that its debt to Kesterwood for supplies would be transferred to Mr Fielding; and Mr Fielding would transfer the debt to Seaquest (secured by a debenture) which would pay Northstar "thus helping cashflow everyone happy";
    iii) Mr Fielding explained that there were problems with tooling (which was becoming worn out) and that the real cost of design and tool development was about £300,000 with further investment necessary. Mr Naden and Mr Birkett agreed that these costs could be covered by the debenture;
    iv) Mr Naden was proposing drastic cuts in labour (i.e. redundancies) to improve the operation;
    v) A survey of dealers had shown that the system was not working well; and that Northstar were the problem. Mr Fielding therefore suggested moving the operation and servicing of dealers from Groby Road to Burnden Works, together with key staff;
    vi) It was agreed that Seaquest's registered office should be relocated to Burnden Works.
  54. Mr Fielding said that he was in a position to send in Mr Hindley to look at the accounting records because he was the funder of the company and a shareholder. He wanted to get the company on to the right track, having been disturbed by revelations about the extent of its debt. Mr Hindley said that the agreed transactions were his idea; and represented a "netting off" of the various inter-company debts. Mr Fielding's note does not record Mr Hindley as having been present at the meeting; although Mr Hindley's fee note records a charge for an hour of his time on that day. Mr Hindley said that he was at the meeting, mainly for the purpose of being introduced to the Northstar personnel. His time charge of one hour was his minimum charge; and does not necessarily mean that he was present at the meeting for an hour. He thought that he was probably there for only a short time. He had not, by then, started any work on reviewing Northstar's accounts; but he may well have suggested the "netting off" as a general principle, either then, or at some time between 21 and 28 October, to tidy up the accounts. He did not recall any discussion of a debenture at that meeting; and his suggestion about "netting off" was not made in the context of a debenture. From his perspective it was simply his normal practice to try to keep accounts simple and tidy. Mr Fielding said that Mr Hindley was not in a position to deal with detailed figures on 16 October: it was the principle of "netting off" that was his idea.
  55. Mr Birkett agreed that the note was an accurate reflection of the meeting. Mr Birkett also agreed that it was his suggestion to change the registered office, because of the problems at Groby Road; and also because of the fact that Seaquest's business was being moved to Burnden Works.
  56. The intended effect of the agreed transactions agreed at this meeting can be summarised diagrammatically as follows:
  57. No money would actually change hands. In effect, Mr Fielding bought Kesterwood Extrusions' chose in action, consisting of the debt owed to it by Northstar. Mr Fielding transferred that chose in action to Seaquest, in the form of loan capital, secured by a debenture. Seaquest then used the credit on its account to pay of part of its debt to Northstar (for the price of the assignment of the intellectual property rights) and Northstar used that credit to discharge its debt to Kesterwood Extrusions.
  58. However, there was a technical mistake that was made. Kesterwood Extrusions in fact owed money to Seaquest for commission on the supply of extrusions to dealers. If this money had been followed round the circle, it would have reduced the debt owing by Seaquest to Northstar. Thus the contemplated set-off did not in fact work. Mr Hindley thought that he would have made sure that the money correctly flowed round the circle. This is some evidence that Mr Hindley was not involved in working out the details of the transactions. The technical flaws in the set-off arrangement were not appreciated by any of those involved.
  59. On the same day, 16 October, Mr Roche wrote to Mr Hacking. He said:
  60. "Given our parlous financial position, when the certificate of taxation arrives we have an investor who is willing to support the company by purchasing the shares in Seaquest from Mr Clayton and make a substantial investment."
  61. Mr Roche explained in his oral evidence that what he had in mind was that Dearward Profiles could buy the shares from Mr Clayton at their nominal value. He accepted, however, that this suggestion did not sit with Mr Fielding's claim to ownership of the shares, about which he said that he had learned from Mr Fielding himself on 9 October. Mr Roche did not discuss the matter with Mr Fielding before putting forward this suggestion to Mr Hacking. However, Mr Roche was still pursuing the drafting of the debentures with his own solicitors, Southern Cooper. On 16 October he wrote to them to ask them to draft a debenture encapsulating the principle that Dearward Profiles would take a full charge over the intellectual property rights and tooling "in consideration of the development and trialling costs of the said system at a price to be determined at the conclusion of the development and trials". He added:
  62. "If you could draw up a draft by Wednesday Morning I would be very much obliged, as we have to make a presentation to the new investor in the company."
  63. Mr Roche explained that the "new investor" was Dearward Profiles.
  64. On 18 October 1998 Mr and Mrs Fielding entered into a loan agreement with the Royal Bank of Scotland. The stated purpose of the loan was "to assist with repayment of a £20,000 guarantee liability and to acquire a majority shareholding of a competitor of Dearward Limited". The amount of the loan was £90,000. After payment of the guarantee, that would leave £70,000.
  65. On 21 October 1998 Mr Roche wrote to Southern Cooper stressing the urgency of putting the debentures in place. Ultraframe's costs of the summary judgment hearing had just been taxed; and money was needed to pay them. Mr Roche thought that Northstar might "have to sell some of its shares" to meet the liability. He said in his oral evidence that what was in his mind was the allotment of new shares to Mr Fielding "at substantial value", which would greatly improve the company's balance sheet "below the line" by the injection of shareholders' funds. This was an over-optimistic aspiration. On the following day he wrote again to Southern Cooper saying that following a meeting on the previous day "the matter of the debentures has taken on a new urgency". He asked for the work to be completed by the following Friday "and dated at the point of the original instruction". However, instructions were later withdrawn from Southern Cooper and the suggestion of backdating the document did not proceed.
  66. Following the meeting on 16 October a number of letters were written each dated 23 October 1998. The first, from Mr Fielding to Mr Naden at Northstar (addressed as Mr "G" Naden) summarised the background to and the effect of the agreed transactions as follows:
  67. "Following the agreement in December 1997 to buy all your stock of uPVC extrusion product, the agreed terms of payment were to be cash on delivery. This had clearly not happened over the last ten months, and therefore after discussing your current cash flow problem, I would list the following proposal:
    1. G.J. Fielding to buy Northstar Systems Limited Debt to Kesterwood Extrusions Limited.
    2. G.J. Fielding to transfer the Debt into Seaquest Limited as Loan Capital.
    3. Seaquest Limited will use this Loan Capital to pay your invoice of £60,000.00 plus V.A.T. that you are raising against the Deed of Assignment dated 13th January 1998. This leaves a balance owed by Seaquest of £876.70.
    4. All future transactions between Kesterwood Extrusions Limited will return to cash on delivery as agreed in December 1997."
  68. Mr Fielding accepted that there had been no agreement in December 1997 for purchases to be cash on delivery; or, at least, if there had it was very quickly abandoned, because Northstar could not adhere to cash on delivery terms. Throughout 1998 Northstar had been trading on 60 days' credit. He said both that his reference in the letter of 23 October to the apparent agreement in December 1997 was an attempt to put pressure on Northstar; and also that it was included in error. It does not seem to me that these explanations can both be true. Mr Roche was unaware, when he arrived at Northstar, of any agreement requiring cash on delivery. Indeed his evidence was that Northstar enjoyed extended credit facilities from Kesterwood.
  69. The series of letters also included letters of agreement signed on behalf of Kesterwood Extrusions and Northstar consenting to the transfer of the debt. These letters were signed at a meeting held at Burnden Works on the same day at which it was agreed that the transfer of the debt and the debenture were to be finalised; and that Mr Fielding was to "action" that. Mr Birkett accepted that these letters were all genuine; and that the discussions to which they refer did take place. What appears to have happened is that Mr Fielding asked Mr Birkett and Mr Naden to come to the meeting equipped with blank writing paper on Northstar's letterhead. When they arrived, the letters to be signed on Northstar's behalf were typed up, printed out and signed. In fact, by mistake the letter from Kesterwood Extrusions had been printed out on the wrong letterhead and, although it had already been signed, it had to be printed out and signed again. Although Mr Fielding's proposal included the proposal that debt should be transferred into Seaquest as loan capital and that Seaquest should use the money for particular purposes, the series of letters did not include one signed on Seaquest's behalf. Nor did any of the letters mention a debenture. Ultraframe placed some reliance on the fact that in the letter from Mr Fielding to Mr Naden, Mr Naden was addressed as Mr "G" Naden, rather than Mr "J" Naden. However, it was common ground that all the letters in this particular sequence were written on the same day, and all were typed at Burnden Works. The letter from Northstar to Mr Fielding forming part of the same sequence, signed by Mr Naden, correctly describes him as "Jeff" Naden. In my judgment the reference in the letter from Mr Fielding to Mr "G" Naden is no more than a typing error. The text of the letters is written as if they were exchanged by ordinary post or fax. I do not consider that this is significant. All the letters in the series bear the same date, which is unlikely if they had in fact been exchanged by post. I do not consider that these letters were a deliberate attempt to mislead.
  70. On 26 October 1998 Mr Sheffield arranged for a bank account to be opened for Seaquest. He did so at Mr Fielding's request.
  71. On 29 October 1998 Mr Sheffield notified Mr Birkett that in future all orders from Northstar would be processed through Dearward Profiles Ltd, in order to save administration costs.
  72. Execution of the Seaquest debenture
  73. Following the meeting on 23 October, Mr Fielding instructed his own solicitors to draft the Seaquest debenture. It was an all monies due charge with interest at 4 per cent above base rate, compounded quarterly from demand. On 6 November 1998 Mr Fielding went to Burnden Works to execute the Seaquest debenture. He was expecting to meet Mr Naden and Mr Birkett, but neither of them turned up. Mr Fielding had to catch a flight to Amsterdam. He therefore executed the debenture (witnessed by Mr Hindley) and left. He said that he asked Mr Sheffield to arrange for Mr Birkett and Mr Naden to execute the debenture and then deliver the executed document to his solicitors. The debenture was signed by Mr Naden and Mr Birkett and dated 6 November 1998. Mr Sheffield delivered a copy of it to Mr Fielding's solicitors on the same day. However, Mr Sheffield's recollection was that he did not arrange for the signatures, but that he delivered an already sealed envelope. It appears, however, that the documents delivered to the solicitors included, within the envelope, a covering letter signed by Mr Sheffield. So Mr Sheffield's recollection must be wrong on this point.
  74. On the same day Mr Birkett, as Seaquest's company secretary, signed the bank mandate for the newly opened account, naming Mr Fielding as sole signatory.
  75. Trouble with Alumax
  76. In early November 1998 there was further trouble with Alumax. Alumax were still setting off commission due to Seaquest against the price of goods sold to Northstar. Even so, Northstar was frequently behind with payments. On 4 November 1998 Alumax refused to release a supply of aluminium to Northstar's driver, who was in the area with his van. One of the reasons for the refusal was a concern about orders that had been made in Mr Davies' bankruptcy. Mr Fielding, at Mr Birkett's suggestion, had a meeting with Alumax on 11 November. Mr Colin Tucker and Mr David Luke represented Alumax. Mr Vince Botham, the managing director of Alumax, had been due to attend; but he was called away to another meeting at short notice. Mr Botham said, on the basis of what he remembered having been told by Messrs Luke and Tucker and on the basis of selected documents, that Northstar's account was still open after that meeting; and that Alumax had not agreed to supply Dearward. However, Mr Botham's recollection was imperfect; and he had not been shown all the relevant documents before he made his witness statement. The contemporaneous documents appear to show that Mr Tucker gave verbal instructions authorising trading with Dearward on 11 November; and that an order of "Quickfit" parts was shipped on that date. Not only is this shown by a delivery note dated 11 November 1998 signed by Mr Langford (Northstar's driver) and an Alumax sales invoice; it is corroborated by the subsequent form of guarantee signed by Mr Fielding which describes the consideration for the guarantee as Alumax continuing to trade with Dearward on normal terms. Mr Botham agreed in cross-examination that this is what the documents appeared to show; and I did not find his attempts to reconstruct an alternative explanation convincing. The delivery note was relied on by the Burnden defendants as hearsay evidence, and there is no reason for me to disbelieve it. In addition Alumax chased for payment on 10 December. Since the normal practice was to supply aluminium on 30 days' credit, this also supports the conclusion that the delivery of aluminium was made on 11 November. It may well be that a supply to Dearward on 11 November was in breach of Alumax' credit control procedures, but the evidence points to that having happened. But in any event it is clear that Alumax decided to suspend Northstar's account on or immediately after 11 November; and that even if orders had been received after that date, Alumax would have refused to process them. Moreover, the continuation of direct supplies to Northstar was dependent on the set-off arrangement with Alumax, and despite legal advice to the effect that the set-off could be reinstated, Alumax never did so. As Mr Birkett subsequently told Mr Hacking (at a meeting on 20 November), Alumax refused to supply Northstar direct. Mr Birkett's evidence in cross-examination on the point was as follows:
  77. "Q. This letter of 11th November and this fax of 12th … that was not part of the grand conspiracy we have been talking about?
    A. It was to put the debenture in place for Northstar.
    Q. Right. And you knew that without Mr Fielding's intervention Northstar was going to be unable to get a continued supply of aluminium from Alumax, was it not?
    A. Northstar would not be getting aluminium from Alumax at this point, sir. It came via Mr Fielding's companies from this point onwards.
    Q. But the reason that Northstar could not get a continued supply of aluminium from Alumax is the fax we have just been looking at, Alumax insisting that they were not going to allow the contra arrangement that had previously existed to continue?
    A. Yes. So Northstar would have to pay for supplies.
    Q. And it could not do it, could it? It was already over its credit limit.
    A. Yes, it was already over the credit limit, yes.
    Q. So without any assistance, without the intervention of somebody to whom Alumax would supply aluminium, Northstar would not be able to get any aluminium?
    A. No, sir, not unless they had paid the bill that was outstanding to Alumax.
    Q. And it could not do that, because it just did not have the money?
    A. No.
    Q. So the only way you knew that Northstar could continue to get aluminium for its roofs was if Mr Fielding took on responsibility for obtaining supplies of aluminium from Alumax, who would be prepared to supply him. Is that right?
    A. Yes. He would be buying the aluminium and reselling it to us.
    Q. So he was taking on the risk of supply of aluminium to Northstar.
    A. Yes.
    Q. And he made it clear that a debenture would be required?
    A. Well, the debenture was asked for as a security against the supplies of aluminium."
  78. Mr Birkett also agreed that this was the only realistic way that Northstar was going to continue to obtain supplies of aluminium. He was also clear in re-examination that, even before Mr Fielding signed the guarantee, Northstar was unable to source supplies of aluminium from Alumax except via Dearward. I find, therefore, that what was agreed on 11 November was that Alumax would supply Dearward with aluminium profiles instead of Northstar; and that Dearward would, in turn, supply Northstar. From the perspective of Alumax, Dearward was a better credit risk than Northstar, particularly since Mr Fielding had agreed to give his personal guarantee. I find also that a supply of aluminium was released by Alumax on 11 November 1998 as a result of this agreement.
  79. Mr Luke's note of the meeting (made about a week later) reads (so far as material):
  80. "G Fielding is involved with several companies inc. Dearward and Kesterwood.
    G Fielding would appear to have deliberately exposed himself to Northstar in order to gain control over the directors – he alleges that without the financial support of himself Northstar would fail.
    This lever has been used to obtain a debenture over Seaquest and it would therefore appear that G. Fielding has "control" over both companies since he is effectively bankrolling both.
    G. Fielding intends to takeover control of the dealers early 1999 and supply both plastics and those parts currently supplied by Northstar from his site at Bolton. I believe that his ultimate intention is to own the "system"."
  81. Mr Fielding did not accept that this was an accurate record of what he told Mr Luke. On 11 November 1998 Mr Fielding wrote to Mr Birkett. The letter reads:
  82. "I refer to the continuing cash-flow problems of Northstar Systems Limited and I would confirm that following a meeting with Alumax Limited I have agreed to open an account with them to enable the Company to undertake the current and projected level of orders.
    As security against me taking on these further liabilities I would require a debenture to be taken on Northstar Systems Limited in my favour."
  83. This letter was signed by Mr Fielding himself. A letter dated 16 November 1998, signed by Mrs Fielding, the text of which is identical to the letter from Mr Fielding of 11 November, also came into existence. There is also a fax bearing the date 12 November 1998 (but not transmitted until 17 November) from Mr Fielding to Mr Birkett which contains a draft letter for Mr Birkett to write (intended to be written on Northstar headed paper) confirming agreement to Mr Fielding's letter of 11 November. Mr Birkett never sent the letter that had been drafted for him. Mr Birkett says that these documents were deliberately backdated, because the debenture was signed on 17 November. However, Mr Birkett agreed that these letters were not part of the big conspiracy and that they were written "just to put the debenture in place". Mr Roche recalled having seen the letter of 16 November, but not that of 11 November. Mr Fielding says that both the letter of 11 November and the letter of 16 November were sent. The second letter of 16 November, he says, was sent as a result of an oversight. He was away at the time, and had forgotten that he had already sent the letter of 11 November when he asked his wife to send the letter of 16 November on his behalf. I find that both letters were sent.
  84. On 16 November 1998 Alumax refused to continue to allow a set-off of commission owed to Seaquest against the price of goods sold to Northstar. This decision was taken in the light of orders obtained by the trustees. The effect of the withdrawal of the set-off was to increase Northstar's liability to Alumax from about £25,000 to about £40,000. Mr Birkett sent a copy of Alumax's letter of that date to Hill Dickinson with the comment that it "effectively puts Seaquest out of business as they have no supplies of aluminium".
  85. On 17 November Mr Fielding wrote to Mr Birkett to tell him that the supply line with Alumax was now in place. The letter refers to Mr Fielding's previous letter of 11 November. Mr Birkett says that this reference was bogus, as the letter of 11 November had not been sent. I do not accept this. Mr Fielding had also been given a copy of Alumax's letter of 16 November; and he suggested an urgent meeting to agree Northstar's short term supply requirements.
  86. On the same day Northstar was served with the order made by HH Judge Behrens on 12 November 1998 requiring it to produce documents and information.
  87. The administration charge
  88. Since Dearward was to process orders for aluminium on Northstar's behalf, it raised an administration charge for doing so. That charge was supposed to be 2.5 per cent of the value of the order; but in fact a greater charge than that was levied. I shall return to the administration charge later.
  89. Execution of the Northstar debenture
  90. The Northstar debenture was executed on 17 November 1998.
  91. Subsequent orders of aluminium
  92. Following the agreement about aluminium supplies, Northstar's requirements for aluminium were transmitted to Dearward (for the attention of Adrian Cooper) and were thence sent on to Alumax. One that was examined in the evidence was an order of 19 November which Northstar did not send to Alumax; but to Mr Cooper. This was done at Northstar's request, because Northstar was unable to trade directly with Alumax within its credit limit of £25,000. This same order may have been faxed through by Northstar to Alumax; but it was cancelled by Dearward Profiles on 26 November 1998 and replaced by an order direct from Dearward Profiles.
  93. THE CONSPIRACY

    The October/November pub meetings
    Introductory
  94. As I have said, Ultraframe's case is that the conspiracy was hatched in the course of meetings in October and November 1998. The pleaded case refers to two meetings that took place in October and November 1998 in pubs in Altrincham and Marsden respectively.
  95. According to Mr Birkett, the genesis of the conspiracy was a telephone call that he received from Mr Davies in early September. Mr Davies told him to give Mr Fielding any protection he needed to make things more difficult for the Trustees, including giving him a debenture. In his oral evidence he described Mr Davies' instruction as one to "give Mr Fielding debentures as extra protection". Since Mr Birkett did not know at that time what a debenture was, this instruction (if it was given) cannot have made much sense. However, this was the context, according to Mr Birkett, in which the correspondence relating to the Seaquest debenture was prepared. Mr Birkett went on to say that in October 1998 he was party to conversations in which there were discussions of how the Seaquest debenture was to be justified. He says that he did not understand what was going on but that since it was what Mr Davies wanted, he went along with it.
  96. The Nag's Head, Altrincham
  97. In his affidavit of August 1999 Mr Birkett said that Mr Davies told him to transfer the shares in Northstar and Seaquest from Mr Clayton to Mr Fielding in "a management meeting at a pub on the A556 at Junction 7 of the M56". This pub has been identified as the Nag's Head, Altrincham. He said that this was the last "management meeting" that Mr Davies attended.
  98. Mr Ivison says that the first meeting, at the Nag's Head in Altrincham, was called because Mr Davies had an announcement to make; but he cannot now recall what it was. His only real memory of the meeting was Mr Naden "squaring up" to Mr Davies, although he did not know the reason. Mr Ivison did not mention this meeting at all in his witness statement of May 2002. Presumably he did not do so because it was not memorable. His evidence about this meeting is therefore of little value.
  99. Mr Birkett said that the meeting took place towards the end of October 1998. Those present were himself, Mr Davies, Sharon Owen, Maureen Patey, Mr Naden, Mr Ivison, Mr Roche and Mr Read. It was a convivial meeting, in which Mr Davies was interested in finding out what had happened to Northstar during his absence in the USA. Mr Birkett said that during the meeting, Mr Davies told them that Mr Fielding was going to take over Northstar and Seaquest lock, stock and barrel; and that they were to take instructions from him. He told them that the shares in Northstar and Seaquest were to be transferred to Mr Fielding; and that they had to find a way to get everything in the business over to him at Burnden Works so that Mr Davies could further distance himself from the companies. The statement was made across the table so that those present could hear it. However, the detail of how this was to be done was not discussed. Mr Birkett also said that he remembered Mr Naden standing with a beer bottle deciding on whether he was going to hit Mr Davies, and then storming off. Mr Birkett said that he and Mr Ivison followed Mr Naden back to Groby Road after he had stormed off, so that they were not there for the end of the meeting.
  100. Mr Naden said that Mr Birkett had organised a night out in the pub; and that when he got there Mr Davies was already in the pub and joined them for a drink. He says that by that stage Mr Davies had nothing to do with Northstar or Seaquest and that, as far as he was concerned "they were Gary's companies". He recalls having a row with Mr Davies but denies that Mr Davies announced that Mr Fielding would be taking over the businesses.
  101. Mr Read recalls the pub meeting at Altrincham. It was more of a three line whip than "pop in for a pint if you want one". He says that Mr Davies wanted an update on the business; and that Mr Davies said that "the only way to keep things going was to go with Gary Fielding". In his oral evidence the following exchange took place:
  102. "Q. Again, can I make clear to you what I suggest happened: Mr Davies at that meeting made clear that Mr Fielding was going to take over the business. Do you agree?
    A. No, I do not. To my recollection he did not state that Gary was henceforth going to be in control of them. He said, to the best of my recollection, that the only way to keep the companies going when we had updated him and talked about the debentures etc was that, yes, to go with Gary Fielding. That was the route the company had to follow. "
  103. Mr Read explained that he understood that the companies were to accept the monies and the help offered by Mr Fielding which would obviously involve relinquishing some or all control to him. As he understood it, Mr Fielding would have greater control over Northstar because he would be providing funding, not on a day to day basis, but that he would be injecting a considerable amount of cash. The help that he understood was being offered was some £60,000 or £70,000 in return for the debentures. He was not aware that any funds had already been provided by Mr Fielding; and no one at the meeting suggested that he had. Mr Read's perception was that Mr Davies dreamed of being able to resume control of the companies in the future, but knew that outside investment was needed.
  104. Ms Owen also recalls the pub meeting in Altrincham. She says that Mr Davies said that he had washed his hands of the business and that "obviously we needed to look to Gary Fielding for financial support". The tone of the discussion was: "I can't help you; you will have to speak to Gary Fielding". She said that Mr Davies said that "we had got to look to Gary Fielding for direction, and obviously Gary was going to invest more money in the company and without Gary it would have just been sunk completely and we would have had to … lock the gates and throw the keys away." Mr Roche had a private conversation with Mr Davies in another part of the pub. His account was more earthy. He said that he told Mr Davies that Mr Fielding was going to re-float the business and Mr Davies replied: "that's good; that will fuck Ultraframe up".
  105. This was the last time that either Mr Ivison or Mr Birkett saw Mr Davies. Mr Birkett said that he had not expected to see Mr Davies again, now that the decision had been taken to move the companies to Mr Fielding. He said that Mr Fielding was to be a front for the companies, and any discussions concerning Mr Davies would be between him and Mr Davies.
  106. The Riverhead Brewery Tap, Marsden
  107. The second meeting is said to have taken place at The Riverhead Brewery Tap in Marsden. No one suggests that any meeting of the conspirators took place before that (apart from the first pub meeting in Altrincham). This is the first meeting at which Ultraframe suggest that Mr Fielding or Mr Clayton were present. Both of them deny that the meeting took place (or, if it did, that they were present). Ultraframe do not suggest that Mr Davies was present at this meeting.
  108. Mr Ivison says that the second meeting was attended by a number of people including Mr Clayton and Mr Fielding. He says that he was sitting next to Mr Fielding, about two feet away. He overheard a conversation between Mr Fielding and Mr Clayton in which they discussed how it could appear that Mr Fielding had been investing monies in Northstar and Seaquest for a long period of time, as this would enable him to take security over those companies without breaching the orders obtained by Mr Davies' trustees in bankruptcy. Neither of them made any effort to conceal their conversation from him. He recalled Mr Fielding proposing a story in relation to the transfer of shares in Northstar from Mr Clayton to Mr Fielding which had, as one of its elements, the fact that Mr Clayton was a business acquaintance of Mr Fielding and that the shares were transferred, in part, for that reason. He recalled Mr Fielding saying that they had to get the story right. In his oral evidence he said that the others present at the meeting were simply having a social chat about "everything except the business". In his earlier witness statement Mr Ivison recounted a rather different occasion. Rather than an apparently private (but overheard) conversation between Mr Fielding and Mr Clayton, his statement said that "the meeting" discussed the transfer of shares etc. His earlier statement also placed Mr Whitby at the meeting; but Mr Whitby had, of course, left in April 1998. These are significant changes, which lead me to approach Mr Ivison's recollection with caution. He left the meeting wondering why he had been invited. He said he was disturbed and unsettled, but did not recall having mentioned his concerns to anyone. But when Mr Ivison left a couple of months later, he wrote a very friendly letter of resignation to Mr Fielding. Although Mr Ivison said that his letter was simply courtesy, in my judgment it went beyond mere courtesy.
  109. Mr Birkett said that the second meeting took place about a week after the first one. Those present were himself, Mr Fielding, Mr Roche, Mr Clayton, Mr Ivison, Mr Naden, Mr Sheffield and Mr Read. Mr Roche had called the meeting. The purpose of the meeting was to discuss possible stories they could put together to try and give a legitimate explanation of how Mr Fielding acquired the shares in Northstar and Seaquest to substantiate his claim. They knew that what was required was to try and find a justification for being able to say that Mr Fielding had had a longstanding financial involvement in both Northstar and Seaquest, in order to justify his being able to take security over the companies without breaching in any way the orders which the trustee had obtained. Mr Birkett confirmed in cross-examination that the order he had in mind was the order that the trustee had obtained on 12 November 1998 prohibiting Messrs Naden, Clayton and Birkett from transferring or dealing in the shares of Northstar and Seaquest. That order had been served on him on 13 November. Although Mr Birkett had been present in court on 12 November; the order in question was made on an application without notice after he had left court for the day. Mr Ivison also said that avoidance of the order obtained by Mr Davies' trustee was part of the rationale for the meeting. Thus this evidence puts the Marsden pub meeting on or after 13 November 1998. In other parts of his evidence Mr Birkett said that the Marsden meting took place before the grant of the injunction. At the Marsden pub meeting, Mr Birkett says that they agreed to show that Mr Fielding had acquired control of Northstar and Seaquest before June 1998 when the trustee first obtained orders and that any share transfers would have to be backdated to this time. Mr Fielding suggested that one explanation that could be put forward would be to say that he had known Mr Clayton for a long time. Mr Clayton agreed to go along with this idea. Mr Fielding was to give some thought to what he felt he could get away with and come back to them. Mr Birkett described this as a general discussion; and disagreed with Mr Ivison's evidence that it was a conversation between Mr Fielding and Mr Clayton alone. Mr Birkett said that there was no specific discussion of falsification of documents, but that it was implicit that some would have to be created. However, he said that it was not his understanding that documents could have to be created purporting to be from as far back as 1997. He explained that "by now we had already done the debentures. So the only thing left to move was the shares." He also said that taking security over the shares and taking a transfer of the shares amounted to the same thing.
  110. Mr Read says that he did not attend this meeting. So also does Ms Owen. Mr Read was not challenged on his evidence in this respect; and Ultraframe accept that it is true. But he did say that he was aware that meetings were going on; and that he did not attend them. However, Mr Read denied any knowledge of a conspiracy to "predate Gary's role in Northstar and Seaquest".
  111. Mr Fielding also says that he did not attend this meeting. So does Mr Clayton. Indeed he says that he has never been to Marsden in his life. He also said that he did not meet Mr Fielding until some years later. Mr Naden does not mention this meeting in any of his witness statements.
  112. None of the witnesses places Mr Cooper at the meeting.
  113. Mr Birkett's previous accounts. The Marsden pub meeting did not find a place in Mr Birkett's previous affidavits. In his affidavit of 16 August 1999 Mr Birkett referred to the first pub meeting at Altrincham. He then continued by saying that he was present at a number of meetings with Mr Roche between October and December 1998. These meetings, he said, took place either at Mr Fielding's offices or at Groby Road. Mr Fielding was present at some of these meetings, but not all of them. At one meeting in Mr Fielding's offices, attended by himself, Mr Fielding, Mr Roche, Mr Naden and Mr Clayton, they discussed the tactics for "moving the shares" to Mr Fielding. At that time, he said, they had not been injuncted from dealing with the shares. This meeting must, therefore, have been before 13 November 1998. He said that they agreed that a paper trail would have to be put in place to show that Mr Fielding had bought the shares in both Northstar and Seaquest. He said that the details of the paper trail were not discussed at that meeting; or subsequently with him. It was only after the injunction was served that Mr Roche told him that the date of the share transfer had to predate both the injunction and the bankruptcy; and that 5 May 1998 had been selected. Since the bankruptcy took effect on 22 December 1997 this explanation cannot be correct. In Mr Birkett's affidavit of 19 November 1999 he did not mention the Marsden pub meeting either. Instead he referred to "the meeting at the Burnden Works Site in November 1998 at which we made up the story about Mr Fielding's ownership of the shares." His account of that meeting broadly followed his account in the August affidavit. Mr Ivison also said that other meetings were taking place at around this time; and he recalled walking in on at least one meeting that was taking place between Mr Fielding, Mr Birkett, Mr Roche and Mr Naden. The Marsden pub meeting first surfaced in Mr Birkett's witness statement of May 2002. He placed the meeting in October or November 1998. Apart from the date, his account of that meeting was broadly similar to that in the witness statement that he prepared for the trial.
  114. Mr Roche's report
  115. On 24 November 1998 Mr Roche prepared an "Initial Report". It said that it had been prepared as a result of the order obtained by the trustees on 12 November 1998. The ostensible purpose of the report was to set out the history of Mr Davies and the various companies. Mr Roche said that the starting point for this report was a request from Mr Naden to summarise "boxes" of documents that had been delivered to Northstar. These documents originated with Mr Whitby. In compiling the report Mr Roche gathered information from documents within Northstar's own filing system and from a number of individuals, including Mr Fielding. It runs to 22 closely typed pages, and exists in at least three different versions. Mr Roche described it as an "evolving document" which reflected information as it came to hand. None of the versions of the report specifically mentions the Northstar supply agreement or the Seaquest supply agreement. However, under the heading "20/06/97" the first version of the report reads:
  116. "Concern at the PVCu extruders has by their account been mounting as the ongoing cost of developing and trialling the tools is becoming a serious drain on the company. Fielding in discussions seeks a "comfort factor" as the company could be sold, and indeed discussions were taking place to see if Northstar could find a capital injection as it was still struggling to fund other development costs. Naden agrees to give Fielding the "comfort factor" to ensure he is not left with redundant tooling. Naden gives Fielding first refusal on any share sales. This change in events is not communicated to Davies, lest to provoke an unwarranted outburst according to Naden "let sleeping dogs lie"."
  117. Under the heading "09/01/98" the first version of the report reads:
  118. "Naden agrees to sale of 98% Share holding in Northstar to Fielding in lieu of a capital injection of £80,000 into the company and offering Naden a 5 year contract of employment. (see Fielding dox)"
  119. Under the heading "13/01/98" the first version of the report reads:
  120. "Seaquest is transferred to Naden & Birkett, paid for by Northstar. Whitby and Ivison cease working for Davies and start with Seaquest both with director status. However, Northstar is desperately short of liquidity .. .for the project to proceed. Clayton was by now a valued customer of Northstar. Clayton subsequent to the advice of his deceased brother in law and in response to overtures by Naden considers assisting Northstar. By this stage the heavy investment in tooling and equipment had made an equally heavy impact on Northstar's cash flow. Naden & Birkett are now desperate to save the company and know any loans from Davies would be short lived. Naden approaches Clayton who agrees to make a loan to Naden on the basis that he can have the shares as security. Naden agrees. Consideration of a directorship is given and Vibrans of Davenport is notified by phone over the next few days. He issues the forms 288 the forms were never completed, though Davenport change their records. Contrast Davenport records … of Companies House which are conveniently not included in the evidence. Clayton asserts he did not want a directorship, only security for the loan.
    Clayton uses the proceeds from the sale of a Bentley. Later Naden approaches Fielding who owns Kesterwood who supply the PVCu to Northstar. Naden realising £20,000 will not be sufficient to save the company. Confirmed by meeting with Whitby .. . Subsequently Fielding invests £80,000 in the company, as previously agreed, some of which will be used to repay the money Naden has borrowed from Clayton. It takes around twelve weeks for Fielding to place his investment in full. The consequence of this move was Fielding now purchased the shares of both Seaquest and Northstar."
  121. Under the heading "19/01/98" the first version of the report reads:
  122. "Fielding puts forward his deal in order that he invest in the company he purchases the shares. The deal involving Seaquest was done in private at Burnden Works, as Naden on the recommendation of Birkett as they felt it inappropriate that two sales directors know of the change in ownership due the effect on morale with regard to Whitby and Ivison. Besides which Naden felt it was none of their business who owned the shares. Naden fails to disclose Clayton's security."
  123. Under the heading "05/02/98" the first version of the report records that "Alan Clayton's first tranche of £10,000 loaned to Naden is banked". Under the heading "12/02/98" it reads: "Alan Clayton loan of £10,000 cash to Northstar". Under the heading "11/03/98" it reads: "loan dates £29,980". There are no entries attributing any payments to Mr Fielding's loan, or the date of repayment of Mr Clayton's loan.
  124. The second and third versions of the report (which still bear the date 24 November 1998 but which were altered some time after that date) contain the same entries under the headings "20/06/97", "09/01/98", "13/01/98" and "19/01/98". However, under the heading "05/02/98 they now read: "Fielding's second tranche of £10,000 loaned to Northstar is banked". There is no reference to the date of the first tranche. Under the heading "12/02/98" it reads: "Fielding's third tranche of £10,000 in cash is given to Naden". The references to Mr Clayton associated with these dates have been removed. Under the heading "11/03/98" it reads: "Fielding on his return from holiday, gives the final tranche of £50,000 in cash to Naden. £29,980 is banked evidenced by the Bank Statement and the Balance returned to Clayton." Mr Roche's "best guesstimate" was that he had been given information by Mr Fielding that caused him to change the first version of the report. However, Mr Fielding was one of those listed as having given Mr Roche information on the basis of which he prepared the first version of the report.
  125. Mr Roche added his own comments to the entry for 13 January 1998:
  126. "The question would be what was in the deal for these participants? For Clayton he gained "Dealer prices" whilst not needing to buy "Dealer quantities". He had full security for the period of the loan by dint of the shares. The firm got an interest free loan. In the subsequent Fielding deal, Fielding secured his firms sales to Northstar and Kesterwood. Naden and Birkett save the company and maintain their director status. Documents exist, however, that despite numerous attempts by Fielding, Clayton has yet to pass over the shares, as he states they are lost, but he fully accepts that he has no lien or ownership over them."
  127. The second version of this report was given to Mr Fielding, who incorporated it into a chronology that he supplied to his solicitors.
  128. What Northstar told Mr Hacking
    Introductory
  129. Mr Hacking was retained by Northstar to act for it in connection with:
  130. i) Ultraframe's patent action;
    ii) The trustees' various applications;
    iii) The DTI investigation.
  131. A number of his attendance notes of meetings with Mr Naden, Mr Birkett and others have been disclosed. It is instructive to consider what he was told about Northstar and its financing.
  132. 21 January 1998
  133. Mr Hacking sent Mr Naden a draft letter for approval on 21 January 1998. The letter was intended to be sent to Mr Deane at the DTI. Mr Hacking explained in the draft that he understood that from time to time Mr Davies advanced money to the company; but that equally he was paid money by the company. Mr Hacking said that it was quite likely that the monies paid to Mr Davies "may well" have exceeded the monies that he paid the company; but that the company's accountants were looking into it. The draft was sent to Mr Deane on 29 January without amendment.
  134. 30 June 1998
  135. On 30 June 1998 Messrs Birkett, Ivison and Roche attended a meeting with Mr Hacking. According to Mr Hacking's note Mr Roche was introduced to him as a "person who had been brought into the company to assist in the management restructuring." Mr Hacking's file note records that the shares in Northstar had originally been held to Mr Davies' order. There had then been a transfer to Mr Naden, but Mr Hacking did not know on what basis he held the shares. The note continued:
  136. "However, the subsequent transfer to Alan Clayton was, I believed, one for value (I understand about £70,000 was paid). I understood from Eddie [Birkett] that this had been paid into the company's bank account to provide further working capital."
  137. Mr Ivison did not specifically recall the meeting, but had no reason to disagree with Mr Hacking's note. Mr Roche's evidence was to the same effect. Mr Birkett's instructions were clearly untrue.
  138. 2 October 1998
  139. Hammond Suddards wrote to Mr Hacking on 5 August 1998 asking about the beneficial ownership of the shares. Mr Hacking replied on 2 October. He said:
  140. "Mr Birkett from whom we have taken instructions says that he is unable to help you in this respect. If there were declarations of trust these would most likely have been held by or on behalf of Davenport Credit Limited. Mr Birkett's understanding is that Mr Alan Clayton is the principal proprietor of the shares at the present time. (He holds we believe some 98% of the issued share capital of Northstar and Seaquest)."
  141. It was true that these shares were registered in Mr Clayton's name at the time. But if the word "proprietor" was intended to suggest that Mr Clayton was the beneficial owner of the shares, then it was untrue. There is no mention of Mr Fielding having had any interest in the shares; although by now Mr Fielding says that Mr Birkett had sent him blank share transfer forms.
  142. 12 November 1998
  143. Northstar was in court on 12 November 1998. Mr Birkett and Mr Roche were there. Before the hearing Mr Birkett explained the situation to Mr Lucas (Mr Hacking's assistant) and Mr Potts of counsel. As recorded by Mr Lucas he said:
  144. "Mr Naden is a director of Seaquest, Northstar and Amberbale. He holds 100% of the share capital in Amberbale and was the owner of 100% of the shares in Northstar until he transferred 98% to Mr Clayton as security for his £70,000 loan.
    Mr Clayton owned 98% of the shares in both Seaquest and Northstar. However, these have now been transferred to a Mr Fitzgerald, of Dearward Limited as he has repaid Mr Clayton's loan." [It is common ground that the reference to "Mr Fitzgerald" is a reference to Mr Fielding.]
    "There was a draft agreement for continuity of supply and termination of the agreements supplied to Dearward and Alumax, however, he was not aware that they had been signed."
  145. As I have said, after Northstar left court on 12 November, the trustees obtained an order, on an application without notice, prohibiting dealing in the shares. Thus this account given to Mr Hacking must have pre-dated any pub meeting in Marsden.
  146. 20 November 1998
  147. Mr Hacking met Messrs Birkett, Roche and Naden on 20 November 1998. According to his note he was told:
  148. "For the shares in Northstar Systems, these were transferred to Mr Clayton as security for a loan in January 1998 as the company was short of money. However, he only lent £20,000 and this was not enough for the company and therefore he returned the shares when Mr Gary Fielding, who owns Dearward and Kesterwood paid money into the company. He has offered £70,000. Also Kesterwood repossessed stock held for Northstar and normally delivers what is invoiced. Mr Fielding is not a shareholder. However, he is keen to support Northstar as he has invested money in Kesterwood to buy tooling and wants some comfort that the money has not been wasted. Therefore there is Northstar tooling on Kesterwood machines and he would only support the company if he got the shares.
    Mr Fielding has paid in £80,000, including the repayment to Mr Clayton of £20,000 and he got the shares in September 1997. He also took a [debenture] over the company in September 1997 and this has been filed at Companies House."
  149. This was the first meeting with Mr Hacking at which Mr Naden was present; and Mr Fielding suggested that it might have been Mr Naden who set the record straight. Plainly, however, Mr Fielding had not obtained a debenture in September 1997. What is of more significance, however, is that Mr Hacking records that Mr Fielding "is not a shareholder". In context, this can only mean "not a shareholder in Northstar", since Mr Fielding is said to be the "owner" of Dearward and Kesterwood. In addition, Mr Fielding's offer of support for the company is conditional: "if" he got the shares. On the other hand, Mr Hacking was told both that Mr Clayton had lent £20,000 and that Mr Fielding had lent £80,000. Mr Fielding's suggestion seems to me to undermine his claim to have been the purchaser of the shares.
  150. 10 December 1998
  151. Mr Birkett told Mr Lucas that the shares had been registered to Mr Fielding on 5 May 1998. Mr Birkett confirmed this in a subsequent call on 22 December 1998. This was plainly untrue, as the stock transfer forms had only recently been executed and backdated.
  152. Was Mr Hacking told the truth?
  153. Mr Hacking was dealing with the DTI investigation in January 1998. Speaking of that time, Mr Birkett said in his witness statement:
  154. "Although we never gave Mr Hacking the full picture but just what we thought he needed to deal with the Trustees, what we told him was true."
  155. He confirmed this twice in cross-examination. However, in response to a question from me, Mr Birkett said that although what he told Mr Hacking in the "early dealings" was true, the position changed at the "latter end of 1998". In re-examination he modified these answers to say that Mr Hacking was fed untrue information from early in January 1998.
  156. A similar course of questioning took place during the hearing of the preliminary issues. I quote an extract from Mr Birkett's evidence at that time:
  157. "MR JUSTICE LADDIE: Can you just tell me this. Was there anything you told Mr Hacking that was not true?
    A. That was untruthful?
    Q. Yes.
    A. No.
    Q. So everything you told Mr Hacking was true?
    A. It was truthful, but it was selective in what we told him."
  158. In my judgment it is clear that part of what Mr Hacking was told was not true. It is equally clear that Mr Birkett's quoted evidence to Laddie J was also untrue.
  159. What Mr Fielding told Alumax
  160. As I have said, Mr Fielding had a meeting with Alumax on 11 November 1998. On 17 November Alumax's financial controller, Mr Luke, prepared a summary of their dealings with Northstar for their solicitors. Referring to the meeting on 11 November Mr Luke said:
  161. "G Fielding would appear to have deliberately exposed himself to Northstar in order to gain control over the directors – he alleges that without the financial support of himself Northstar would fail.
    This lever has been used to obtain a debenture over Seaquest and it would therefore appear that G. Fielding has "control" over both companies since he is effectively bankrolling both.
    G. Fielding intends to take over control of the dealers early 1999 and supply both plastics and those parts currently supplied from Northstar from his site at Bolton. I believe his ultimate intention is to own the "system"."
  162. On 18 November Mr Tucker of Alumax spoke to Mr Fielding. Mr Luke made a note of the conversation:
  163. "GF says he owns 98% of the shares in both companies, but does not have the share certificates, and has first option on the balance.
    GF has been putting money in since Jan 98 and has a debenture in place.
    GF will put his managing director in Monday to run the businesses.
    N'star will take all documents to CG/HS next week and this should lead to an adjournment of the case"
  164. Mr Tucker's manuscript note appears to quantify the money that Mr Fielding had put in at £80,000. Mr Fielding said that he had not said anything about putting in a managing director, but otherwise agreed that the note was broadly accurate.
  165. Events after the debentures were executed
    The allotment of additional shares
  166. On 24 November 1998, Mr Fielding attended a meeting at Burnden Works with Mr Birkett, Mr Naden and Mr Roche. Mr Birkett explained that cheques for some £50,000 had been written on Northstar's bank account, and that the account did not have the funds to meet them. He explained that the company (probably meaning Northstar) needed £250,000 to trade its way out of its difficulties. Mr Fielding offered to lend further sums of £90,000 to each of Northstar and Seaquest over a three month period. However, he said that there was a problem because, by now, the trustee was claiming ownership of the shares. Mr Birkett said that that was not a problem because there were another 900 shares in each company that Mr Fielding could have. In his oral evidence Mr Birkett said that he thought that it was a good idea to issue the shares so that money could be invested into the companies. Mr Birkett telephoned Mr Vibrans and told him to process the paperwork. On the following day, Mr Fielding received a letter from Mr Vibrans, enclosing the necessary documents, including the share certificates. On the same day Mr Fielding paid £70,000 into Seaquest's bank account and then, as sole signatory on that account, wrote a cheque for £50,000 which was transferred to Northstar in order to enable it to meet the cheques it had issued. Mr Fielding said that he paid the money to Seaquest rather than direct to Northstar because Seaquest was "the best horse in the race"; that is, a more secure prospect for repaying him.
  167. The formal documentation includes a record of an EGM of Northstar held at Burnden Works on 24 November 1998. It records the following resolution:
  168. "G. Fielding agreed to provide £90,000 of loan capital for which the Company agreed to grant an additional 900 shares in his favour."
  169. There is also a formal resolution of the board of Northstar of the same date, resolving to allot the 900 shares to Mr Fielding. There is a similar resolution in relation to Seaquest.
  170. Mr Fielding said that he could see nothing wrong in the allotment of the shares. Mr Birkett said that he thought "it was a good idea to issue the share capital so we could have money invested into the companies".
  171. On the same day Alumax had sent Mr Read a number of drawings of aluminium sections for approval. Mr Read approved them; but instructed Alumax that the customer's name should be changed from "Quickfit" to "Seaquest". The drawings were revisions of drawings that had come into existence before Seaquest had been incorporated. Mr Read said that he had begun to ask for the customer's name to be changed earlier than November, at Mr Birkett's request. He could not remember whether Mr Birkett renewed his request in November.
  172. The visit to Mr Clayton
  173. On the morning of 19 December 1998 Mr Birkett, Mr Naden and Mr Worsdall went to see Mr Clayton at his premises. Mr Worsdall said that the purpose of the visit was some business between them, but he did not know what it was. They were given a tour of Mr Clayton's factory, after which they returned to Groby Road. At about lunchtime that day Mr Birkett dictated to Mr Worsdall the draft letter to be sent by Mr Clayton that I will refer to when dealing with Mr Clayton's loan.
  174. RESPONSES TO THE LITIGATION

    Introductory
  175. On 12 November 1998, HHJ Behrens made an order restraining Mr Clayton and Mr Birkett (who remained the registered holders of the shares in Northstar and Seaquest) from transferring or otherwise dealing with their shares in those companies. As I have said the order was made on an application without notice, and the order was served on the following day, 13 November.
  176. On 13 November 1998 Mr Fielding arranged for Burnden Conservatory Products Ltd to be incorporated.
  177. Efforts to obtain documents and information
    Introductory
  178. It is an important part of Ultraframe's case that the documents on which the defendants now rely as evidencing Mr Fielding's ever increasing involvement in the affairs of Northstar and Seaquest were not produced in response to various requests and orders for the production of documents and information. This, they say, leads to the inference that the documents did not exist at the date of those requests and orders. Consequently, the course of these events needs to be examined.
  179. The DTI
  180. Mr Deane of the DTI was first on the scene. On 22 December 1997 he wrote to Mr Naden asking for four categories of document. These categories did not include documents of the kind now said to have been forged. On 7 January 1998, Mr Naden, accompanied by Mr Hacking, met Mr Deane. It became apparent at that meeting that Mr Deane was investigating the extent of the involvement of Mr Davies in Northstar, and was particularly interested in payments made by Northstar to Mr Davies, and what they represented. However, it was also apparent that Mr Naden did not know much about the business; and the DTI preferred to deal with Mr Birkett who was, or at least appeared to be, much more knowledgeable.
  181. On 16 January 1998 Mr Birkett delivered a number of financial documents to Mr Deane. Some time later in January some of the papers produced to Mr Deane were collected by Northstar for the purpose of preparing interim accounts.
  182. On 28 May 1998 Mr Deane wrote to Mr Birkett asking for production of financial documents, including the cash books, covering the period from April 1997 "to date". Mr Hacking replied on 8 June inviting Mr Deane to contact Northstar's auditors to inspect the relevant documents. This does not seem to have happened, because Mr Deane renewed his request on 24 June 1998. On 28 June Mr Birkett replied, saying that the company had the documents in question and inviting Mr Deane to contact Ms Patey to make an appointment to inspect them.
  183. On 29 June Mr Deane was authorised to investigate the affairs of Seaquest as well. On 14 August he wrote to Mr Hacking repeating his request for documents. However, the DTI inquiry appears to have petered out.
  184. I do not place reliance on the interchanges with the DTI. Both Mr Naden and Mr Birkett appear to have been co-operative; and in any event the DTI's investigations were directed at a different target.
  185. Mr Davies' trustee in bankruptcy
  186. On 26 May 1998 Mr Davies' trustees wrote to Mr Naden asking him to confirm whether he was legally and beneficially entitled to the shares in Northstar; or whether he held them on trust for a third party, such as Mr Davies. Mr Naden did not reply. In June the trustees began asking for information about Mr Davies and his involvement in Northstar.
  187. Mr Birkett and his colleagues at Northstar were deeply suspicious of the trustees. They rightly suspected that Ultraframe were behind the trustees; and that any information that they gave to the trustees would end up in the hands of Ultraframe, which was one of Northstar's main commercial rivals. The policy they adopted was to give the trustees as little as possible. This worked in two ways. First, they did not reveal to the trustees anything that they did not specifically ask for. Second they only revealed that which Mr Hacking advised them they had to reveal. When an order for the production of documents was made by HH Judge Behrens on 15 June 1998, Northstar extracted an undertaking from the trustees not to pass on information to Ultraframe.
  188. On 8 June 1998 HH Judge Behrens made an order requiring the production by 11 June 1998 of documents relating to (among other things): ownership of the intellectual property rights in the Quickfit system; ownership of the tooling in the Quickfit system and the beneficial ownership of shares in Northstar and Seaquest. This order was made, so far as relevant, against both Northstar and Seaquest. Within a few days documents were handed over. These included the share certificates for the shares in both Northstar and Seaquest, registered in the names of Mr Clayton (98 shares in each company) and Mr Birkett (2 shares in each company). Accordingly, by mid June 1998 the trustees knew that Mr Clayton was the registered shareholder of the majority of the shares in both companies; and had been the registered shareholder since 1 April 1998 in the case of Northstar, and 13 January 1998 in the case of Seaquest. The trustees' solicitors responded promptly on 17 June, asking for details of any allotments or share transfers.
  189. On 3 July 1998 Hammonds Suddards repeated their request to Mr Naden for information about the shares in Northstar and Seaquest. On the same day they wrote to Dearward. They said that they were investigating ownership of the intellectual property rights in the Quickfit system, and also the beneficial ownership of shares in both Northstar and Seaquest. They asked for (among other things) copies of any and all agreements entered into with Northstar and Seaquest with regard to the Quickfit system.
  190. On 6 July Mr Roche drafted a letter to Hammond Suddards for Mr Birkett to sign. It said that:
  191. "To the best of our knowledge the beneficial ownership is as per the share certificates already lodged with yourselves."
  192. Dearward replied on 10 July. The letter was signed by Mrs Fielding over Mr Fielding's name. It said that "we have no contractual dealings with the above named person [i.e. Mr Davies] and no knowledge of the people that you represent." This statement was untrue. The letter also asked for proof of entitlement to the confidential information that had been requested. Hammond Suddards followed up on 14 July explaining their entitlement to the information. Dearward replied on the following day refusing to supply any information. This letter was signed by Mr Fielding himself. Hammond Suddards repeated their request for information on 3 August. On 3 September, Dearward refused again. On the same day, Mr Fielding attended a meeting with Northstar to discuss, among other things: "the current situation regarding Hammonds and H.D." On 12 November HH Judge Behrens made an order containing undertakings by Dearward not to make payments to Mr Davies; and the order was served on 18 November. Mr Fielding had not thus far revealed his claim to ownership of the shares in Northstar and Seaquest.
  193. In the meantime Hammonds Suddards had written to Mr Clayton asking for information about the shares. He replied on 9 July saying that "the share certificates produced by Northstar Systems Limited is the only documentation that I know of." In a letter to Hammond Suddards dated 18 November 1998 Mr Clayton said:
  194. "It is a fact that I held the shares. The basis of this was a loan of £20,000 to Jeff Naden in January 1998 when he was struggling financially and seeking to develop his business. In return for this loan I took shares by way of security until the loan was repaid. This loan was repaid in a matter of weeks and the shares relinquished."
  195. Mr Clayton added that the loan had been repaid in a matter of weeks. This letter was drafted by Mr Roche.
  196. On 19 November 1998 Mr Fielding consulted Addleshaw Booth & Co. His evidence was that he had kept documents relating to Northstar in a "Twinlock" file in a filing drawer at Burnden Works. Before going to see Addleshaw Booth & Co he had taken two photocopies of the file; which he put into two lever arch files. He said that each lever arch file contained copies of all the documents in his file, with the exception of some documents of which he had more than one copy. As regards those documents he copied one copy only. He left one complete lever arch file with Addleshaw Booth & Co, and kept the other one himself. The documents within the files included both the Northstar supply agreement and the Seaquest supply agreement; and also the letter from Mr Fielding to Mr Clayton. He told Addleshaw Booth & Co that he was the owner of 98 shares in Northstar and 98 shares in Seaquest. Addleshaw Booth & Co asked him to provide the share transfer forms. Ultraframe say that it was after this request that Mr Fielding asked Mr Clayton to sign the share transfer forms that were back-dated to 5 May 1998. Mr Fielding agrees that he did not arrange for Mr Clayton to sign the share transfer forms until after he had consulted Addleshaw Booth & Co; and that he did not tell them that the share transfer forms had not, by then, been completed. Mr Fielding says, however, that the file of documents he left with Addleshaw Booth contained all the other documents that were subsequently sent to the trustee's solicitors. Because it is privileged, this file has not been produced for inspection.
  197. Mr Fielding instructed Addleshaw Booth & Co to write to the trustees on his behalf. They did so on 23 November. They said that Mr Fielding agreed to invest £80,000 in Northstar in January 1998 and that Mr Naden agreed to transfer his 98 per cent shareholding. Mr Fielding was subsequently informed that Seaquest had been set up; and Mr Naden also agreed to transfer his 98 per cent shareholding in that company. The capital injection was made; but in March Mr Fielding was told that the shares had been transferred to Mr Clayton as a temporary measure. Mr Fielding spoke to Mr Clayton and was told that Mr Clayton was holding the shares as security for a loan of £20,000 that he had made to Northstar in January 1998. Mr Clayton executed stock transfer forms, but the share certificates themselves had been lost. Addleshaw Booth & Co enclosed with their letter a number of documents. These were: a letter from Mr Fielding to Mr Naden of 9 January 1998; letters from Mr Fielding to Mr Clayton dated 14 April 1998, 8 May 1998, 20 May 1998 and 1 June 1998; and unstamped stock transfer forms executed by Mr Clayton "dated 5th May 1998". The letter from Mr Fielding to Mr Clayton dated 14 April 1998 (which contained the share sale agreement) produced on this occasion was not signed by Mr Clayton. They added:
  198. "For the avoidance of doubt, Mr Fielding has confirmed that he has not at any time had any dealings with Mr Davies in connection with the shares in Northstar and Seaquest."
  199. Hammond Suddards wrote to Addleshaw Booth & Co on 24 November 1998, raising a number of questions. They pointed out that Mr Naden never did hold any shares in Seaquest, They said that they had not seen correspondence from Mr Clayton agreeing to the proposals in Mr Fielding's letter of 14 April 1998; and they asked for the date on which the stock transfer forms had been stamped. On 25 November 1998 Addleshaw Booth replied, enclosing another copy of the letter dated 14 April 1998 from Mr Fielding to Mr Clayton; this time signed by Mr Clayton. They said that the delay in producing the share transfer forms was attributable to Mr Fielding's having had to retrieve them from the bank where they had been lodged for safekeeping. This was untrue. On 26 November Hammond Suddards pointed out that in June 1998 Northstar and Seaquest had been ordered to deliver up all documents relating to ownership of shares; and asked why, if the share transfer had taken place before that date, the share transfer forms had not already been produced. Addleshaw Booth & Co replied on 2 December 1998, saying that the inference that the share transfers did not take place until after the order of June 1998 was "both incorrect and objectionable". This was also untrue.
  200. On 4 December 1998 Addleshaw Booth & Co informed Hammond Suddards that the Northstar debenture and the Seaquest debenture had been granted. They also produced further documents consisting of a letter from Mr Fielding to Mr Naden dated 12 June 1997 (the covering letter to the Northstar supply agreement); the Northstar supply agreement itself; a letter from Mr Fielding to Mr Naden and Mr Birkett dated 16 January 1998; a letter from Mr Fielding to Mr Naden dated 19 January 1998 and the Seaquest supply agreement. They said in the letter:
  201. "Mr Fielding has made investments (and incurred contingent liabilities) in connection with the Northstar conservatory roof system which total in excess of £1 million. This includes sums which have been invested in Northstar and Seaquest since August 1998."
  202. The figure of £1 million was plainly untrue; and Mr Fielding knew that. Mr Fielding's explanation of this figure is that it could well have been put into the letter in order to induce the trustees to meet him.
  203. On 8 January 1999 Mr Fielding swore an affidavit in the Consolidated Leeds Action. He exhibited a large number of documents. These included letters from him to Mr Naden dated 7 October 1997; 17 March 1998; 4 April 1998 and 25 April 1998. Ultraframe say that each of these letters had been back-dated. Ultraframe also say that letters that had been sent by Kesterwood Extrusions, on its own letterhead, had been replaced in the exhibit by the same letters reprinted on Mr Fielding's personal letterhead.
  204. Falsification of documents
    Mr Fielding's paper management
  205. Because allegations of falsification of documents loomed large in the litigation, Mr Fielding described in his witness statement his office practice as regards the creation of documents. He said that he would prepare letters in manuscript and arrange for them to be typed. He would place the manuscript drafts in an out-tray on his desk. Most of his typing until February 1999 was done by Helen Atherton, who was the receptionist. She moved into Dearward's sales office in February 1999. She typed on a computer. The computer was apparently destroyed in late 1999. Mr Fielding continued in his witness statement:
  206. "When Helen typed a letter for me she would normally put the typed letter back in the in-tray on my desk with a top copy and a file copy behind it…. I usually threw the file copy in the bin because it was not obvious from the file copy on which letter heading the letter was written. I would then sign the original letter and take a photocopy which I would then retain on file."
  207. Some of Mr Fielding's typing was done by Sue Peacock. He said:
  208. "When Sue Peacock typed my correspondence she just produced an original which I would sign and then photocopy."
  209. Ms Atherton said that when Mr Fielding wanted her to type for him, he gave her a handwritten draft. Mr Fielding would write on the draft the letterhead on which he wanted the letter printed. He did not date the drafts; and Ms Atherton would insert the date on which she typed it. When she had typed the letter she would return it to Mr Fielding with the original draft. Ms Atherton did not mention a file copy; and Mr Fielding agreed that Ms Atherton's evidence on that topic was likely to be more accurate than his own.
  210. It became clear in cross-examination (as Mr Fielding readily acknowledged) that he had also been inaccurate about his practice as regards the photocopying of correspondence. If his account had been accurate, the files ought to have contained precise copies of signed versions of his correspondence. They did not where many of the disputed documents were concerned. Even a cursory look showed clearly that, although the text was identical, Mr Fielding's signatures were not. On many occasions they were differently placed on the letter; and differently formed or differently sized. The only possible inference is that Mr Fielding signed two (or more) copies of an identical letter. Mr Fielding agreed.
  211. Mr Fielding's filing system
  212. Mr Fielding has always done his own filing. To start with he kept papers in a "Twinlock" file in a filing drawer in his desk. At some stage he transferred the documents in that file into a lever-arch file or files. Mr Fielding's evidence about when he transferred the documents varied during the course of his cross-examination. At one stage he said that he transferred the documents after his first meeting with his solicitors on 19 November 1998. Later he said that he had made the transfer shortly after a meeting which he had had with Mr Roche on 9 October 1998.
  213. The stock transfers
  214. The stock transfers of shares in Northstar and Seaquest from Mr Clayton to Mr Fielding were both dated 5 May 1998. However, they were not in fact signed until some time after 19 November 1998. They were stamped on 30 November 1998. Mr Fielding says that it was he who inserted the date "5 May 1998". His explanation for that is that 5 May 1998 was the date on which Mr Clayton had agreed to transfer the shares to him. Ultraframe of course say that this explanation is false; and that the documents purporting to record the agreement did not come into existence until November 1998. But on any view, the share transfers were back-dated and, to that extent, falsified.
  215. In addition each stock transfer form records the consideration for the transfer as being £10,000. Each transfer was a transfer from Mr Clayton to Mr Fielding; and of course there is no question of Mr Fielding having paid any money to Mr Clayton. Mr Fielding's explanation for this is that in November 1998 he had become aware that Mr Clayton had lent £20,000 to Northstar; and that in trying to put a reasonable value on the shares he took the sum of £20,000 and divided it by two. On any view the consideration for the transfers was falsely stated; and, moreover, Mr Fielding's evidence was that he thought the shares were worthless. Mr Fielding was unable to say whether the amount of the consideration had been filled in on the forms when Mr Clayton signed them. In his witness statement of 21 January 2000 Mr Clayton said that he had had a meeting with Mr Fielding in November 1998 when he was asked to sign "the blank transfer forms".
  216. According to Mr Fielding, the stock transfer forms were kept at home in his safe. He says that that is what he told his solicitors when he met them on 19 November 1998. However, since Mr Fielding did not fill in any details on the forms until after he had seen his solicitors that day it must follow (as Mr Fielding accepted) that the stock transfer forms were simply blank printed forms. Mr Fielding agreed that they were, indeed, blank. Mr Fielding said that they had been sent to him in an envelope in July 1998 by Mr Birkett together with documents relating to the laminating machines. He extracted the latter documents from the envelope and put the envelope, with the blank stock transfer forms, in the safe. Why Mr Fielding would have kept the blank stock transfer forms in his safe from July to November is a mystery. Why Mr Fielding should have kept a blank stock transfer form in his safe at all is another mystery. Moreover in a letter of 25 November 1998 Mr Fielding's solicitors said that Mr Fielding had "recovered the stock transfer forms which we understand had been lodged with his bank for safekeeping." Mr Fielding said that his solicitors had misunderstood what he had told them. But it is impossible to avoid the conclusion that Mr Fielding gave false instructions on this point.
  217. What emerges from this is that the trustees were supplied with two stock transfer forms which purported to show that Mr Fielding had bought the shares in Northstar and Seaquest for a total of £20,000 and that the stock transfer forms had been executed on 5 May 1998. All the elements of this were false. It is also the case that on the day before the stock transfers were signed Mr Clayton wrote to the trustees a letter that had been drafted for him by Mr Roche in which he said that he was "in no position to influence or occasion the transfer of any Northstar or Seaquest shares as may be requested by any order the Court may bring." This, too, was false.
  218. Falsification of documents by Mr Sheffield
  219. Mr Birkett says that the main falsification of documents took place in two stages. The first stage was in August 1998. According to Mr Birkett Mr Davies told him to release all paperwork between Northstar and Kesterwood to Mr Sheffield. A few days later Mr Sheffield removed a quantity of documents from Groby Road. The purpose of the exercise was to remove Mr Davies' name from the paper trail, in order to distance him from Northstar. Mr Davies says that Mr Sheffield returned the documents within a couple of weeks, with all references to Mr Davies removed. Mr Birkett explained that the reason why it was only the Kesterwood companies' documents and not other documents that needed to be changed was that the Kesterwood correspondence was in relation to financial matters such as pricing and business decisions, which Mr Davies was not supposed to be involved in. Other correspondence related to design issues. That did not need changing because, as a result of the employment contract Mr Birkett had typed up, it was in order for Mr Davies to be seen to be dealing with that. These concerns appear primarily to be concerns to attempt to show that Mr Davies was not in breach of the disqualification order.
  220. Mr Birkett said that when Mr Sheffield returned the documents, he came into the office at Groby Road, handed him the documents; and Mr Birkett himself put them into the filing cabinet. He did not look at them, but simply put them into the Kesterwood file in the filing cabinet, which was organised on the basis of one file per supplier. It must, therefore, follow that the documents were not put in date order within the file.
  221. Mr Sheffield denies having falsified any documents.
  222. There was no real evidence of the process that Mr Sheffield is alleged to have adopted in removing documents. Presumably it would have required a close examination of the whole of Northstar's files. Mr Birkett did not suggest that he handed over the whole of Northstar's files to Mr Sheffield. It would not have been enough to have handed over the Kesterwood files alone; since if the object of the exercise was to air-brush Mr Davies out of history, the air-brushing would have had to have been comprehensive. Kesterwood was not Northstar's only supplier. Nor did Mr Birkett suggest that he himself trawled through Northstar's files to select documents for Mr Sheffield to alter. Then there are the mechanics of altering documents. Letters would have had to have been retyped and reprinted on the Northstar letterhead. Mr Birkett did not suggest that he (or anyone else) supplied Mr Sheffield with Northstar writing paper. Finally, there is the date. If this instruction was given in August 1998 it pre-dated not only the two pub meetings in October and November 1998, but also the instruction that Mr Birkett said that Mr Davies gave him in September. Thus this stage of the falsification cannot have been part of the conspiracy to transfer the companies to Mr Fielding. If it was not, what motive would Mr Sheffield have to participate in the falsification of documents? In my judgment, none. I reject this part of Mr Birkett's evidence.
  223. The Northstar supply agreement
  224. Mr Birkett's evidence was that Mr Naden gave him a copy of the Northstar supply agreement towards the end of November 1998, shortly after it had been signed. Although Mr Naden said that the document was "for the files", Mr Birkett did not file it. The reason that Mr Birkett gave for not having filed it was that he did not have a file for Mr Fielding; and so did not know where to put it. However, he did not ask.
  225. The plastic wallet: Mr Birkett's evidence
  226. As I have already said, Mr Birkett's evidence was that in November 1998 Mr Roche gave him a plastic wallet containing a number of forged documents. Mr Birkett says that on giving him the documents, Mr Roche said that they were "for the files". Since Mr Birkett was part of the conspiracy he knew, without looking at the documents, that they were forgeries. Although he had been asked by Mr Roche to put the documents in the files, and although he knew that they were potentially important, he did not file them. He simply forgot to do so. Instead he left them in the plastic wallet which he put in a box behind his desk in his office at Groby Road. He did not even look at them. There they stayed until Mr Birkett removed them.
  227. Mr Birkett said that in addition to the documents that Mr Roche handed to him in November 1998, there were other falsified documents that came into existence later. As he put it:
  228. "The story was not finished in 1997 or 1998. It was still going on in 1999."
  229. Mr Birkett removed the plastic wallet and its contents from Groby Road in March 1999. He said that he took them to protect his own interests. If he took them in March 1999 that would have been at about the time of his suspension; and well before his final break with Northstar. He took them home, and put them in a wardrobe in a bedroom. He had still not looked at the contents of the plastic wallet. He forgot that they were there. Mr Birkett gave differing accounts of when he first looked through the documents. In his witness statement he said that about "a month or two later" (i.e. no later than the end of May 1999) he "first looked at these documents in the context of the pressure which was being brought on me to verify my List of Documents and began to appreciate their significance". In his oral evidence he first said that he had "flicked through" them before handing them to Eversheds. Eversheds are Ultraframe's current solicitors. But when it was pointed out to him that the documents were exhibited to an affidavit that he swore on 16 August 1999, at a time when Eversheds' predecessors, Hammond Suddards, were acting for the trustee, he appreciated that his first answer could not be correct. He then said that he first looked at the documents in June or July 1999. Later in his evidence, and in the light of his witness statement, he conceded that he looked at the documents in May or June 1999.
  230. The significance of the timing is that Mr Birkett had contacted Ultraframe in about June 1999. The reason he went to see Ultraframe was to see if they would pay him to reveal what he knew about Northstar. Mr Birkett stoutly maintained that he did not reveal to Ultraframe the existence of the forged documents when he met them. It is also an important part of Mr Birkett's insistence that he has repented of his involvement in a dishonest conspiracy that his change of heart was triggered by his unease at having to verify a list of documents on affidavit. However, on 11 June 1999 there was also a meeting between Mr Birkett and Mr Fielding (and others) at the World Trade Centre in Salford. Mr Birkett was accompanied by his own solicitor. Since an order had been made a few days earlier requiring Mr Birkett to verify a list of documents, and since he was accompanied by his own solicitor, it seems probable that he had had advice about the consequences of making a false affidavit. He revealed to the meeting that he had documents which might be relevant. Both Mr Fielding and Mr Roche are recorded as having advised him to disclose them and also to have warned him against perjuring himself. There is no record (and no allegation) that anyone at the meeting referred to forged documents. The advice and warnings given by Mr Fielding and Mr Roche are not those that one would expect from conspirators in a conspiracy that involved wholesale forgery of documents.
  231. The contents of the plastic wallet
  232. Mr Birkett's evidence was that the plastic wallet contained the forged or altered documents that had been given to him by Mr Roche. However, on examination, the contents of the plastic wallet included:
  233. i) A copy of Mr Fielding's letter of 20 March 1997 to Mr Naden, in which he quoted prices for extrusions and dies. The copy in Mr Birkett's plastic wallet did not, however, include the annotation which Mr Fielding says he made as a result of his telephone conversation with Mr Clarke on 26 March 1997. This means that there must have been two forgeries: one copy of the letter without the annotations, and another copy with them;
    ii) A copy of the Northstar supply agreement, which Mr Birkett said that Mr Naden (rather than Mr Roche) had given him in November 1998. Mr Birkett could not explain how it ended up in the plastic wallet;
    iii) The original of a letter from Mr Cooper to Mr Birkett dated 22 December 1997, which Mr Birkett accepts is a genuine document. However, Mr Birkett says that another letter bearing the same date and also from Mr Cooper was forged as a substitute for the genuine letter. Yet the forgery is not in the plastic wallet;
    iv) The longer version of the minutes of the meeting at Burnden Works of 16 January 1998. Mr Birkett said that the shorter version of the minutes was genuine. He was unsure whether the longer version was or was not a forgery, other than on the basis of whatever inference could be drawn from its having been in the plastic wallet;
    v) The letter from Mr Fielding to Mr Birkett of 14 October 1998 which Mr Birkett accepts is a genuine document. When this was pointed out to him, Mr Birkett asked to see the original, and having seen it confirmed that it had been posted to him;
    vi) A letter from Mr Fielding to Mr Birkett of 17 November 1998 which Mr Birkett accepts is a genuine document, although he questions a reference in it to an earlier letter of 11 November, which Mr Birkett says he did not receive;
  234. On the other hand, the plastic wallet did not include:
  235. i) A copy of the letter dated 12 June 1997, which was the covering letter to the Northstar supply agreement which, according to Mr Birkett, was forged at the same time as the supply agreement itself; and which one would naturally have expected would have been given to him at the same time as the forged agreement to which it refers. The copy that found its way into the trial bundles was disclosed by Mr Fielding after he had come across it in a box of old Northstar papers;
    ii) A copy of the letter dated 5 January 1998 from Mr Fielding to Mr Naden in which Mr Fielding proposed a capital injection into Northstar in return for Mr Naden's shareholding;
    iii) The letter dated 7 September 1998 from Mr Sheffield to Mr Birkett in which Mr Sheffield referred to the tooling and trialling that Kesterwood had undertaken "during the last 12 months".
  236. It also did not include copies of correspondence apparently passing between Mr Fielding and Mr Clayton relating to the shares; but, whether or not there was a conspiracy to fabricate documents, there would have been no need for these documents to have been in Northstar's files.
  237. Mr Birkett's green folder
  238. In addition to the plastic wallet, Mr Birkett also said that he had a green folder. He took that too when he left Groby Road in March 1999. He put it into his wardrobe together with the plastic wallet. However, when he came to retrieve the plastic wallet, he overlooked the green folder; and he did not come across it until later when he was rummaging in the wardrobe looking for something else. The most important document that was contained in the green folder was the longer version of the minutes of the meeting on 16 January 1998.
  239. Mr Fielding's evidence
  240. Mr Fielding denied having been part of any conspiracy to falsify or backdate documents.
  241. Mr Read's evidence
  242. Mr Read denied any knowledge of a plan to back-date documents in the autumn of 1998. He said that Mr Birkett had suggested to him that documents should be back-dated; but that these were concerned with Mr Davies' bankruptcy and the rental agreement. Mr Read's reaction to Mr Birkett's suggestion was that "you are better off not to have a document at all than to start putting forgeries in place". Mr Read said that Mr Roche was also of the same view. He also told Mr Birkett that any attempt to backdate a document produced on a computer would show up on the computer itself. He denied being aware of any suggestion to back-date documents relating to shares.
  243. Mr Cooper's evidence
  244. It was put to Mr Cooper that he signed a number of documents well after the date that they bore. The suggestion was that the documents in question had been fabricated in order to bolster Mr Fielding's case and then put before Mr Cooper for signature. Mr Cooper denied these allegations.
  245. Mr Roche's evidence
  246. Mr Roche accepts that he did remove documents from Groby Road in November 1998. He says that he did so in order to work on Northstar's accounts at home because there was an imminent VAT inspection due. He says that he removed documents with the agreement of Mr Birkett and Mr Naden; and that he returned the documents when he had finished with them. Most were returned shortly before Christmas 1998 and the remainder early in 1999. He says that it was not unusual for him to take documents home to work on them; and he gives instances from earlier in 1998 when he did so. He denies having forged or back-dated any document. He denies that he gave any documents to Mr Birkett for insertion in Northstar's files. Mr Hochhauser put the disputed documents to Mr Roche, one by one, and Mr Roche maintained his denials.
  247. Expert evidence
  248. Ultraframe commissioned a report from Dr Audrey Giles on the authenticity of Mr Cooper's signature on the letter of 22 December 1997. She concluded that the signature was not authentic, but was an attempt to simulate Mr Cooper's signature. The Burnden Defendants did not require Dr Giles to be called; and her report was, therefore, unchallenged. Mr Cooper did not assert that the signature on the disputed document was his. I find, therefore, that his signature was forged. But this finding only leads to another puzzle. If Mr Cooper was a willing participant in the conspiracy, why forge his signature? Why not simply ask him to sign another fabricated document? On the other hand, if all the key documents are genuine, why forge Mr Cooper's signature? Moreover, the document bearing Mr Cooper's forged signature only came to light after battle lines had been drawn. If his signature had been forged as part of the conspiracy, one would have expected it to have been produced earlier. Accordingly, although Mr Cooper's signature has been forged, the fact of the forgery does not take me very far.
  249. Conclusions on the plastic wallet
  250. Mr Snowden submits that the way Mr Birkett behaved following his departure from Northstar "is not indicative of a man who has a folder stuffed full of forged documents. It is indicative of a man who hurriedly took a random selection of documents from his former company in the hope that they might contain sensitive commercial information that could give him some leverage in negotiations either with his old company or with a competitor". He further submits that the way Mr Fielding behaved towards Mr Birkett in June 1999 "is not indicative of a man who had forged a pile of documents and knew that one of his co-conspirators was talking to the enemy."
  251. Mr Birkett's evidence about the plastic wallet and the green folder was inconsistent and at times incoherent. Mr Hochhauser himself accepted that on this topic Mr Birkett's evidence was "all over the place". I find it impossible to accept Mr Birkett's evidence about the provenance of the documents in the plastic wallet. In my judgment Mr Birkett seized what documents he could when he left Groby Road. However, that conclusion does not itself dispose of the allegations of forgery and fabrication of documents. It may well be that Mr Birkett seized documents some of which he believed to have been forged. I will still have to examine the circumstances in which those documents that are alleged to have been forged came into existence. But in doing so, I cannot place any reliance on the contents of Mr Birkett's plastic wallet.
  252. Mr Fielding's game plan
  253. Mr Fielding explained that his objective was to have a meeting with the trustees. He specifically told his solicitors on 19 November that he wanted "to sit round the table with the trustees and sort everything out". He reiterated this several times in the course of his oral evidence on Day 42. The correspondence emanating from Addleshaw Booth & Co was sent "with the hope of generating a meeting with the trustees at the earliest possible date to suit them to resolve matters". He also wanted "to be in a position of strength". As Mr Fielding accepted, this strategy included falsely stating to the trustees that he had invested £1 million in Northstar and Seaquest. But although he "dearly wanted" a meeting with the trustees, they refused to meet him.
  254. The incorporation of BCP
  255. BCP was incorporated on 13 November 1998, the day after HH Judge Behrens made an order restraining dealings in shares in Northstar and Seaquest together with a number of other orders in the Leeds Actions. Mr Fielding agreed that this was not a coincidence. He said that he was not happy that he had made investments in Northstar; that he knew that he would have to spend more money and he wanted to put any new investment through a new company. So he incorporated BCP. However, he said that at the time there was no obvious need for new cash to be put in; and although it was possible that BCP would buy aluminium, there was no immediate occasion for it to do so. BCP did not in fact begin trading until March 1999. Mr Fielding did not accept that BCP was incorporated as the potential repository of the businesses of Northstar and Seaquest; and did not accept that the delay in the commencement of its trading was due to a desire to siphon off those businesses. BCP in fact had customers other than Northstar and Seaquest: notably Scholes Windows. Mr and Mrs Fielding each held 50 per cent of the shares in BCP; and Mr Fielding was appointed as its first director. Some six months after it began trading (on 1 September 1999), BCP granted a debenture over its assets in favour of National Westminster Bank.
  256. I have already described how HH Judge Behrens declared that Ultraframe was the beneficial owner of the shares in Northstar and Seaquest; and that the allotment of 900 shares in each company to Mr Fielding was invalid. HH Judge Behrens delivered his judgment on 25 February 2000. On 1 March 2000 Mr Fielding appointed an administrative receiver of Seaquest's property under the powers contained in the Seaquest debenture.
  257. Timing of meetings
  258. Mr Fielding met Mr Birkett and Mr Naden on 17 November (when the Northstar debenture was signed), 18 November, 24 November and 25 November 1998.
  259. The meeting of 18 November was two days before Mr Birkett, Mr Naden and Mr Roche met Mr Hacking and told him about the loan from Mr Fielding. Ultraframe say that this is no coincidence; and that it must have been at the meeting on 18 November that the story of Mr Fielding's loan was concocted. Mr Fielding says that he had no input into what Mr Hacking was told. But he pointed out that the meeting on 20 November 1998 was the first time that Mr Naden had been present at a meeting with Mr Hacking; and that it was possible that Mr Naden put the record straight. I have already dealt with this point.
  260. However, Mr Fielding said that the meetings he had with Mr Birkett and Mr Naden did not concern any legal proceedings. They were all about money: how much money could Northstar and Seaquest have and when could they have it. The meeting on 18 November had been principally concerned with supplies of aluminium. At the meeting on 24 November, Mr Birkett brought a box of papers relating to Mr Davies' bankruptcy, but Mr Fielding says that he did not look at them, but passed them to his solicitors. The meeting itself was again concerned with money; and it was at this meeting that Mr Birkett revealed that he had issued cheques on Northstar's bank account that would not be met; and that Mr Fielding agreed to lend money to Northstar in return for the allotment of the additional shares and a debenture over Northstar. Mr Birkett did not give any evidence in his most recent witness statement or his oral evidence about these meetings suggesting that they were the meetings at which the plot was hatched, which he might have been expected to, if they really were. On the contrary, his evidence was that once the pub meetings had taken place, it was others who put the conspiracy into operation. On the other hand he did make this suggestion in an earlier witness statement.
  261. THE ACCOUNTING RECORDS

    Audited accounts
    Northstar
  262. Audited accounts for Northstar were produced for the period 24 May 1996 to 31 May 1997.
  263. Seaquest
  264. Audited accounts for Seaquest were produced for the period to 30 June 1999. I deal with the process of the audit of Seaquest's accounts later in this judgment.
  265. Both experts agree that accounting records that have been audited are the most reliable such records, as a professionally qualified third party has examined and given an opinion on them. However, Mr Wilkinson warned that audited accounts are reliable for the period they cover, taken as a whole; and that they cannot (or should not) be used to dissect that period into shorter ones.
  266. The computer systems
  267. It is common ground that:
  268. i) Until May 1997 Northstar maintained a nominal ledger, sales ledger and purchase ledger using a computer program called Sage DOS;
    ii) Between June 1997 and May 1998 Northstar maintained a nominal ledger, sales ledger and purchase ledger using a computer program called Opera;
    iii) From June 1998 Northstar maintained a nominal ledger, sales ledger and purchase ledger using a computer program called Sage Line 50.
  269. It is also common ground that Seaquest's accounts from the date when it began trading to June 1999 were maintained on Sage Line 50.
  270. Opera
  271. There are two copies of the Opera database. One of them was last modified on 8 January 1998; and records transactions up to that date. The other covers the entire year to May 1998. The first of these databases is a backup copy that was made in January 1998.
  272. Sage Line 50
  273. One of the versions of Sage Line 50 is entitled "1997/8 restoration". This was created by Mr Roche. It was last modified on 8 December 1998.
  274. Sequential transactions in Sage Line 50
  275. When an operator posts a transaction in Sage Line 50, the software automatically allocates that posting a unique, sequential transaction reference number. For any ordinary user of the program, and therefore for practical purposes, that number cannot be changed. The operator posting a transaction will almost always assign a date to the transaction. That date (which may be current, past or future) is the operator's choice. The selected date may not be the date on which the posting was made or the transaction recorded by the posting took place: it is merely the date "associated with" the transaction. However, since the operator cannot alter the transaction reference number, it is possible for a computer analyst to see the order in which postings were made to Sage Line 50; and to determine whether the order of postings corresponds with the chronology allocated to the transactions by the operator. In order to access the database, it is necessary for an operator to input a valid user name and password. The program automatically attaches that user name to any posting made during a session initiated by the use of that user name and password. However, the fact that a particular user name and password has been entered does not necessarily mean that the user whose name and password have been entered was the person who entered the transaction, if someone else knew his user name and password.
  276. Cashbook
  277. Ms Patey maintained a cashbook manually. The cashbook was maintained for Northstar only.
  278. Bank statements
  279. Northstar disclosed a series of bank statements. Both experts agreed that these were reliable, as far as they went. They may not, however, present a complete picture, because of unrecorded cash receipts.
  280. Mr Roche
  281. In the middle of May 1998 Mr Birkett bought new computers for Northstar and a new accounting package. This was Sage Line 50. He told Mr Roche to get it up and running by the end of Northstar's financial year on 30 May 1998. Mr Roche was unable to input all the data in the time available.
  282. Mr Roche says that financial information was given to him by Mr Birkett and that he took that information on trust. He says that he was told by Mr Birkett that the data on the old Opera system was corrupted and could not be used. Mr Roche thought that the Sage system started off on the wrong foot, because there were no stock figures, or opening balances. In June 1998 Mr Birkett told him that Seaquest owed Northstar £350,000; and Mr Roche entered this figure in the accounts. At about the same time Mr Roche says that he became aware that Northstar was in financial trouble. He says that he produced a profit and loss account that showed that Northstar had a cash shortage of about £15,000. The cause of the deficit was the failure to include costs incurred for the purchase of aluminium for which Northstar had not yet been invoiced.
  283. Mr Roche says that he was responsible for setting up the Alan Clayton Loan Account on the Sage software. He says that he did not have access to the Opera software because Mr Birkett had told him that the data was corrupted. He was told by Mr Birkett that there was a loan account in Alan Clayton's name and was also told what its balance was. He was not told about any "story" associated with it. Mr Roche says that as far as he was aware Mr Clayton had made a loan to Northstar.
  284. On 28 November 1998 he told Mr Hacking that he had just recovered the accounts paperwork from the accountants, who had not started work on them. Mr Roche said that he was "in the process of re-building the entire set of accounts on my Accounts package." It was not an easy task. On 6 December 1998 he reported to Messrs Birkett and Naden that the accounts were "abysmal" and that he was unable to progress beyond October because vital evidence was missing, in the shape of cheque book stubs showing who was paid what and when. He reported that it had been "torture" trying to sort out the accounts; and exhorted them to "make sure staff do not lose important papers. It has very nearly bankrupted you." Two days later he reported to them that, pursuant to their request to identify payments to Mr Davies, his preliminary findings were that the paperwork relating to cash was unclear.
  285. The primary purpose of Mr Roche's reconstruction of Northstar's accounts was an impending VAT inspection. Mr Roche worked from two piles of invoices, for both sales and purchases. He transferred the data from those invoices into Sage. At intervals he saved the inputs into the system. From time to time he made errors; and in order to avoid losing work, he simply reversed erroneous entries.
  286. Mr Hindley
  287. Mr Fielding asked Mr Hindley to review Northstar's accounts in mid-October 1998. He began his work on 21 October. At that time he had been told by Mr Fielding that he was "looking to become involved" in Northstar and Seaquest. He was not told that Mr Fielding had already lent money to Northstar. Mr Hindley was given access to Northstar's accounts on "Sage Line 50". Mr Birkett was reluctant to give him access, but eventually gave him a password. He did not see any copies of the data held on Opera. Either Mr Birkett or Mr Roche told him that no earlier accounting data were available. It was difficult to get information from anybody. Thus the records that Mr Hindley examined did not go back beyond April or June 1998. Mr Hindley's preliminary view was that the accounts were in disarray. He found that many of the nominal accounts had been set up incorrectly; with entries having been inputted the wrong way round (i.e. debits having been entered as credits). The PAYE and VAT accounts were wholly unreliable. He also found, on looking at the aged debtors, that many recorded debts had in fact been paid, often in cash; but the cash payments had not been recorded in the accounts. Mr Birkett was unhelpful and obstructive when asked to explain. Mr Roche, by contrast, was willing to help. Mr Hindley found that transactions were appearing or being altered in the accounts during the course of the review itself. Mr Hindley began to suspect Mr Birkett of having siphoned cash out of the business; and of changing the accounting records. After a few days he reported to Mr Fielding that the accounts were "a shambles".
  288. Mr Hindley and Mr Fielding met on 28 October 1998. This was the first time that he discussed Northstar and Seaquest with Mr Fielding. He advised Mr Fielding not to "touch the companies with a bargepole". But Mr Fielding replied that it was too late: he had already made an investment in the companies. Mr Fielding did not give Mr Hindley any information about the nature of this investment at that time; and did not tell Mr Hindley that he had lent Northstar £80,000. Mr Hindley asked no questions. Mr Hindley gave Mr Fielding a handwritten note which summarised the result of his preliminary investigations. He had discovered a directors' loan account recording Northstar's indebtedness to a (nameless) director of £23,957. This account was numbered "2301". During his initial review of the accounts Mr Hindley himself made no entries into the system.
  289. In November 1998 Mr Fielding asked Mr Hindley to spend as much time as he could on sorting out Northstar's accounts (and in particular its VAT and PAYE); and to deal with Seaquest's VAT registration. One of the problems in regard to the latter was that VAT invoices had been sent out in Seaquest's name, despite the fact that it was not registered for VAT; and, moreover, the VAT had been wrongly calculated. Mr Hindley contacted the Inland Revenue and Customs and Excise to clarify the position about PAYE and VAT. Mr Hindley looked at the accounting records that were available, but concluded that unless all the entries were re-entered, it would be impossible to assemble reliable accounts for Northstar. However, that would have been an extremely time-consuming task; and since the paper records were not available, it was never done. Mr Hindley said that he had never seen Northstar's bank records. Mr Hindley also set up Seaquest's accounts on Sage DOS.
  290. Mr Hindley made no accounting entries while the accounting records were based at Groby Road. However, from January 1999 Mr Hindley, now working at Burnden Works on Northstar's "live data", made a number of "correcting entries" into Northstar's accounts.
  291. Mr Read's impression was that Mr Hindley's presence was "possibly a relief" that somebody might help and tidy things up.
  292. What the accounting records show
    The loans
  293. As I have said, Mr Clayton's case is that he made a loan of £20,000 in cash to Northstar in a single instalment in January 1998. Mr Fielding's case is that he made a loan of £80,000 in cash to Northstar in the following instalments:
  294. Date Amount
    27 January 1998 £10,000
    4 February 1998 £10,000
    11 February 1998 £10,000
    11 March 1998 £50,000
    Total £80,000

    What do the accounting records show?
    The cashbook and bank statements
  295. It is common ground that:
  296. i) Northstar's cashbook records a receipt of £9,685.35 on 22 January 1998. The accompanying narrative is "Loan (CASH)". £9,685.35 was paid into Northstar's bank account on about the same date. Mr Fielding does not claim that he made a loan to Northstar as early as 22 January. Mr Clayton claims to have made a loan in early to mid-January, but in a single instalment of £20,000;
    ii) The cashbook records a receipt of £20,000 on 27 January 1998. The accompanying narrative is "LOAN (CASH)". £20,000 was paid into Northstar's bank account on about the same date. The date corresponds with the date on which Mr Fielding says he lent Northstar the first instalment of £10,000 in cash. However, the source of the loan of £20,000 is not identified in the cashbook; and it does not record a separate payment of £10,000. Mr Clayton claims to have made a loan of £20,000 to Northstar in early to mid-January 1998.
    iii) The cashbook records a receipt of £10,000 on 5 February 1988. The accompanying narrative is "Loan". £10,000 was paid into Northstar's bank account on about the same date. The date more or less corresponds with the date on which Mr Fielding says he lent Northstar the second instalment of £10,000 in cash. However, the source of the loan of £10,000 is not identified in the cashbook;
    iv) The cashbook records a receipt of £10,000 on 12 February 1988. The accompanying narrative is "Loan". £10,000 was paid into Northstar's bank account on about the same date. The date more or less corresponds with the date on which Mr Fielding says he lent Northstar the second instalment of £10,000 in cash. However, the source of the loan of £10,000 is not identified in the cashbook;
    v) The cashbook records a receipt of £29,980 on 11 March 1998. The accompanying narrative is "Loan". £29,980 was paid into Northstar's bank account on about the same date. The date corresponds with the date on which Mr Fielding says he lent Northstar £50,000 in cash. However:
    a) The cashbook does not record a receipt of £50,000 either on 11 March 1998 or any other date;
    b) The bank statements do not record a credit entry of £50,000 either on 11 March 1998 or any other date;
    c) The cashbook does not identify the source of the loan of £29,980.
    Opera
  297. Opera was the program in use when both Mr Clayton and Mr Fielding say they made their loans to Northstar. The backup version of Opera (which was last modified on 8 January 1998) contains an account entitled "H Davies loan account". At some later date the title of this account was changed to "Alan Clayton Loan Account". Opera contains no account recording any loan by Mr Fielding. Nor does Opera record any payments of £10,000 by way of loan (from any source) between January and March 1998.
  298. The Alan Clayton Loan account does not record a receipt of £20,000. It records only two receipts: one of £4,000 and the other of £500.35. Nor does it record a repayment of £20,000. Since the only receipts recorded in the Alan Clayton loan account are those just mentioned, it also follows that there is no account in Opera which records a receipt of £80,000 or, for that matter, £70,000. What the Opera loan account does show is a series of debits, many of which are accompanied by the narrative "repayment of loan", which amount in aggregate to some £43,000.
  299. However, the Alan Clayton loan account is numbered 1998 (it is a coincidence that the number of the account is the same as the year in which the account ends). As I have said, before Northstar's accounts were kept on Opera, they were kept on Sage DOS. Sage DOS for the year to 31 May 1997 also includes an account numbered 1998. That account appears to record a number of large credits, representing receipts by Northstar, with the associated narrative "HD", and a large number of much smaller debits. The year end balance on that account is approximately £43,000-odd owed by Northstar. Mr Hall agreed that it was a reasonable inference from the form of this account that it represented Northstar's account with Mr Davies. On this basis it would appear that by 31 May 1997 Northstar owed Mr Davies some £43,000-odd. The Alan Clayton loan account (previously titled the H Davies loan account) maintained on Opera records a number of debits (representing payments by Northstar) amounting in aggregate to some £43,000-odd. If these accounting entries are considered together with what is shown in the 1998 account maintained on Sage DOS for the previous year, it would seem that Northstar repaid the opening balance of £43,000-odd to Mr Davies over the course of the year to 31 May 1998.
  300. Mr Hall accepted that this is what these accounting entries appeared to show; but his agreement was subject to the caveat that no matching liability of Northstar to Mr Davies, as represented by the closing balance of the Sage DOS account, appeared in Northstar's audited accounts for the period covered by that account. The force of this caveat was blunted by a letter dated 3 September 1997 from a firm of accountants called A Barry & Co, who were preparing accounts for the purposes of Northstar's audit. That firm shared the same address as Northstar's auditors (Islam & Co) and partners in the one firm were also partners in the other. The precise relation between the two firms is to some extent obscure, but the relevant personnel appear to have been the same. Be that as it may, the letter of 3 September 1997 says that according to Northstar's books and records, the company owed Mr Davies the sum of £43,868. This is the balance shown in the 1998 account for the year to 31 May 1998. I provisionally conclude that Northstar owed Mr Davies £43,000-odd as at 31 May 1997 and that this sum was repaid to him, in a series of relatively small payments, by 31 May 1998.
  301. Mr Clayton said that he was unaware that there was a loan account in Northstar's accounting records bearing his name.
  302. All this evidence points to the 1998 account in Northstar Sage DOS as having recorded the state of the account as between Northstar and Mr Davies for the year to 31 May 1997; and to the 1998 account in Opera as being a continuation of that account for the subsequent financial year. Once I reach that conclusion, it seems to me to follow that the subsequent retitling of the account as the Alan Clayton Loan Account was a fiction. The account was set up by Mr Roche on Mr Birkett's instructions, and with information about the opening balance also provided by Mr Birkett. It will be recalled that when he met Mr Fielding in May 1998 Mr Davies claimed to be owed £100,000. The Official Receiver's report to creditors in Mr Davies' bankruptcy recorded that QCL owed Mr Davies £55,000-odd when it went into insolvent liquidation. That, added to £43,000-odd owed by Northstar to Mr Davies as at September 1997 produces a sum which is not far short of £100,000. Mr Davies is not a man who respects individual corporate personalities, and is given to exaggeration. In my judgment, the addition of these two sums is the probable explanation of Mr Davies' claim to be owed £100,000.
  303. The Sage Line 50 "1997/8 restoration"
  304. This database of Northstar's accounting records includes a nominal ledger account numbered 2300. It is entitled "Loans". This account records the following credit entries:
  305. i) £10,000 on 5 February 1998;
    ii) £10,000 on 12 February 1998;
    iii) £30,000 on 11 March 1998.
  306. It also records two postings on 31 January 1998: a simultaneous credit and matching debit of £9,686.35. The amount of £9,686.35 is also recorded in Northstar's cash book on 22 January 1998, as I have described.
  307. The 1997/8 restoration does not include any entries reflecting a transfer of debt from Northstar to Seaquest; although accounting entries in Sage Line 50 do reflect such a transfer.
  308. Mr Roche says that he created the 1997/8 restoration for the purposes of a VAT inspection. He says that he was careful to include in this set of accounts information that was reflected in documents he had seen and information given to him by Mr Birkett.
  309. In my judgment this account does not take matters any further.
  310. The 2301 account
  311. This is another Northstar account maintained on Sage Line 50. Its opening balance of £57,980 was posted in June 1998. The account was originally entitled "Directors & Shareholder Loans" but was later retitled "GJ Fielding Debenture". The renaming of the account took place some time after 19 March 1999. This means that the name of the account was changed after Mr Birkett's suspension. Mr Hindley says that it was he who changed the name of the 2301 account. He says that when he looked at Northstar's accounts he found an account (2301) called "Directors and Shareholders Loans". He had asked Mr Birkett and Mr Naden what this was; but they said that they did not know, and that it was nothing to do with them. Mr Hindley assumed, in view of the shambolic state of the accounts generally, that the loan account was an error; and that the balance on the account should have been nil. When Mr Fielding subsequently told him that he had lent money to Northstar, he changed the title of the 2301 account, rather than create a new one. He says that no one specifically asked him to do this. Mr Fielding thought that he had told Mr Hindley about his loan in January 1999. Mr Hindley thought that it was some time between November 1998 and March 1999. What Mr Hindley recalled having been told was that Mr Fielding had put £80,000 into the two companies: £40,000 into each. He therefore altered the 2301 account to show a balance of £40,000. He gave the date of the entry as 31 March 1998, because he was given to understand that that was the date by which Mr Fielding had made his investment. Surprisingly, at the time that Mr Hindley altered this account he did not know who the shareholders were; and, apart from asking Mr Birkett and Mr Naden what the balance represented, had carried out no further investigations into what the balance might represent. Nor did he ask Mr Fielding (or anyone else) for any documentary evidence of Mr Fielding's investment. He simply took Mr Fielding at his word. Mr Hindley was not told that (as Mr Fielding now claims) the loan had originally been £80,000 to Northstar alone; and that £40,000 of it had subsequently been assumed by Seaquest. It is undoubtedly not good practice for alterations to be made to existing accounting records without verification of the changes. However, Mr Hindley said that he expected any discrepancies to be ironed out when audited accounts came to be prepared. In fact they never were. But even if they had been, reliance on the auditors to spot and correct alterations to the accounting records is not a satisfactory explanation. Mr Hindley was seriously at fault in changing the accounting records in this way. It did not redound to Mr Wilkinson's credit that he was reluctant to condemn this practice.
  312. Although the period covered by the 2301 account is later in time than that covered by the 2300 account, the computer records show that the postings to the latter account in fact preceded the postings to the 2300 account by some months. The postings to the 2301 account began in the summer of 1998; whereas the 2300 account was part of the restoration carried out in November 1998.
  313. The 2301 account includes two postings which are relevant to the trading relationship between Bespoke Windows and Conservatories Ltd (Mr Clayton's company) and Northstar. They are:
  314. i) A debit entry of £10,000, whose associated date is 31 July 1998, and whose accompanying narrative is "loan a/c";
    ii) A debit entry of £16,170.82, whose associated date is 21 October 1998, and whose associated narrative is "AL LOAN".
  315. The first of these entries was posted by Mr Roche, and the second by Mr Birkett. Since the 2301 account is a loan account, the effect of a debit entry is to reduce the amount of the debt owed by Northstar. Exactly equivalent amounts were posted as credit entries to Bespoke's trading account with Northstar. The effect of these entries was to reduce Bespoke's trading debt to Northstar by these amounts.
  316. The 2301 account also contains an entry with the associated date of 31 March 1998, which reduces the balance on the account by £40,000 to a debit balance of £8,190.27. This entry appears to give effect to an accounting transfer of £40,000-worth of debt from Northstar to Seaquest. On the basis of the sequence numbers of these entries, they appear to have been made in February or March 1999, rather than in March 1998. The entry relating to the transfer of debt was originally posted with an associated date of 31 March; but this was subsequently altered to 21 November 1998. Mr Hindley said that the alteration was not his doing.
  317. Bespoke Windows' trading account
  318. An examination of the records of Bespoke Windows' trading account did not support the claim that Mr Clayton was being given the profit element of sales purportedly made by Northstar. Mr Birkett accepted that a comparison of the records against invoices did not show a consistent pattern. In particular many invoices appeared to have been paid in full. Nor was there a monthly reconciliation with adjustments made to the Alan Clayton loan account which, according to Mr Birkett, ought to have happened.
  319. Seaquest Sage DOS: the 2250 account
  320. Seaquest Sage DOS contains an account numbered 2250 and called "GJ Fielding debenture". It was originally called "GJ Fielding loan a/c"; although the date of the change in name cannot be identified.
  321. Seaquest Sage Line 50
  322. Records for Seaquest were also maintained on Sage Line 50. However, Sage Line 50 was principally used as a sales order book; and is not a complete accounting record.
  323. Kesterwood Extrusions' accounts
  324. An examination of the sales ledger for Northstar in the accounts of Kesterwood Extrusions' accounts showed that between 21 September 1998 and 23 October 1998 a substantial number of regular payments were made by Northstar to Kesterwood Extrusions. The size and pattern of these payments are consistent with Northstar abiding by the payment plan of £2,000 a week that Mr Roche put forward at the meeting on 16 September 1998.
  325. How reliable are the computer records?
    Audited accounts and prime books of entry
  326. Both experts agreed that, with one or two qualifications, the audited accounts were generally reliable. Mr Wilkinson also said that prime books of entry (i.e. contemporaneous accounting records maintained for the purpose of preparing statutory accounts) were likely to be reliable as far as they went. Mr Hall did not dissent from this; although he also relied on other accounting records, which Mr Wilkinson said were unreliable.
  327. Unrecorded cash sales
  328. It is clear on the evidence that there were unrecorded cash sales for Northstar. This clearly means that the computer records, and hence the audited accounts, are less reliable than they might otherwise have been. However, determining the extent of the effect of unrecorded cash sales is all but impossible. Mr Hall was unable to offer an opinion. In addition, the consequences of failing to record a cash sale are not inevitable. If the cash sale was not recorded and not invoiced, then it might show up in the accounts as an unfulfilled order. If the sale was invoiced, but the receipt was not recorded, then it would show up as a bad debt. Either way, the cost of producing the order might or might not be recorded, although the likelihood is that it would have been. Mr Hall was unable to offer an opinion about which of these was the case.
  329. Opera
  330. The Opera program was the software in actual use for the year to 31 May 1998. Mr Wilkinson prepared a profit and loss account and a balance sheet for Northstar taken from the primary records of Opera. This process resulted in a number of anomalies, particularly in relation to the balance sheet. The two most striking anomalies were:
  331. i) A balance sheet constructed by this method showed a bank overdraft of £64,271, whereas there was in fact no actual bank overdraft;
    ii) A balance sheet constructed by this method showed a negative amount for cash in hand of £144,644. Both experts agreed that a negative amount of cash in hand is a theoretical impossibility.
  332. In his first Supplemental Report Mr Hall suggested three factors which might explain these anomalies. They were:
  333. i) That opening balances had not been entered in the Opera program for the start of the period they covered. This would distort the closing figures shown for the end of the period;
    ii) That the Opera program did not record the receipt of cash loans from, for example, Mr Clayton and Mr Fielding;
    iii) That much of Northstar's business was conducted in cash, which did not find its way into the accounts.
  334. A more detailed examination of the postings to Opera showed that opening balances (corresponding with the closing balances shown in Northstar's audited accounts for the preceding period) had indeed been posted to the correct accounts in Opera. Mr Hall accepted that he had not realised this to be the case. So the first explanation cannot be correct. Having eliminated the first of the possible explanations, Mr Hall's view was that the negative balance for cash in hand showed that payments by Northstar were being recorded, but receipts were not. The second and third explanations are both consistent with this conclusion.
  335. The second explanation is consistent with the cases of both Mr Clayton and Mr Fielding. This could account for a total of £100,000 (£20,000 from Mr Clayton and £80,000 from Mr Fielding). There are loans recorded in the cash book. Whether these include the loans that Mr Clayton and Mr Fielding claim to have made is, of course, in dispute. But as Mr Hall pointed out, whatever the outcome of that dispute, these do not account for the whole of the cash in hand. The balance could be explained by unrecorded cash sales.
  336. The third explanation may also be consistent with the cases of both Mr Clayton and Mr Fielding, depending on the level of business that was carried out in cash and not recorded in the books. Precisely because the level of business carried out in cash is not recorded, it is impossible to determine, from the accounting records, what it was.
  337. There are other anomalies in the accounting entries revealed by Opera. Two that Mr Wilkinson identified are:
  338. i) The Wages Control Account showed a credit balance of £161,000-odd. By the year end, if postings had been carried out correctly, this account should have had a nil balance;
    ii) The Contra Account also showed a credit balance, this time of £115,000-odd. Again, if postings had been carried out correctly, by the year end this account should also have had a nil balance.
  339. Mr Wilkinson's overall conclusion was that the unaudited accounting records are unreliable and cannot form the basis of any sound conclusions. His message was a variant on the theme of "garbage in: garbage out".
  340. What can, I think, be said is that the Opera accounting information does not demonstrate that Mr Clayton's case and Mr Fielding's case cannot be correct. It would, in my judgment, be unsafe to go further than that.
  341. The 1997/98 restoration
  342. This was a retrospective exercise carried out by Mr Roche, principally for the purposes of a VAT inspection. He prepared it without reference to the information recorded on Opera; and on the basis of information given to him by Mr Birkett. He supplemented that information with such paper records as were available. As I have said, this account does not take matters further.
  343. Seaquest's accounts
  344. As I have said Seaquest's accounts were maintained on Sage Line 50 and Sage DOS. Both experts agreed that there was a good correlation between the accounts as posted on Sage Line 50 and the audited accounts for the period from 9 March 1998 to 30 June 1999. Mr Wilkinson was prepared to accept Seaquest's audited accounts as reliable, provided that they were viewed as a whole; and one did not attempt to dissect them into anything less than the full accounting period they covered. He was also prepared to accept that "some reliance" could be placed on Seaquest DOS.
  345. Amberbale
  346. On 21 January 1998 Mr Naden and Mr Davies signed a cheque for £114,686.35 payable to "cash" and drawn on the bank account of Amberbale Ltd. Not much seems to be known about Amberbale Ltd. But it seems to have been a repository of cash for Mr Davies, perhaps derived from property ventures. Northstar's cashbook records a receipt of £9,686.35 on 22 January 1998. The accompanying narrative is "Loan (CASH)". The same amount was paid into Northstar's bank account on the same day. This amount is precisely £105,000 less than the amount paid out of Amberbale's account on the previous day.
  347. What inferences can be drawn from the accounting records?
    Loans to Northstar
  348. In my judgment the bedrock is the records of receipts in the bank statements. These show counter credits to Northstar amounting to £79,685 during the relevant period. The cash book records these payments as loans. It is not suggested that there is any combination of payments from Northstar's customers (or any other source) which could account for these counter payments. Accordingly, based on the accounting records, I think that I can safely conclude that Northstar borrowed money paid to it in cash in at least the following amounts:
  349. Date Amount £
    22.1.1998 9,685
    27.1.1998 20,000
    5.2.1998 10,000
    12.2.1998 10,000
    11.3.1998 30,000
    Total 79,685

  350. The combination of the bank statements and the cash book also provide some slight evidence that no more than that amount was lent. The real question is: who lent the money?
  351. Did Mr Clayton make a loan?
  352. In an attempt to explain the two postings of £10,000 and £16,170.82 in the 2301 account Mr Hall examined Northstar's sales ledger and Bespoke's purchase ledger. As Mr Hall explained, what Northstar recorded as a sale to Bespoke, Bespoke should have recorded as a purchase from Northstar. Between February 1998 and May 1999 Northstar's sales ledger and Bespoke's purchase ledger showed good correlation. But that was subject to a significant exception. Between July 1998 and October 1998 Mr Hall discovered what appeared to be 13 invoices which had been recorded in Northstar's sales ledger, but which had not been recorded in Bespoke's purchase ledger. The aggregate amount of these invoices was £27,935.09. That figure is close to, but not the same as, the two postings of £10,000 and £16,170.82. Mr Hall concluded that these transactions appeared to represent sales of goods by Northstar to Bespoke that were paid for by way of set-off against the balance owed by Northstar on the 2301 account. He went on to say in his report that these accounting entries supported Mr Birkett's evidence that there were sales set off to Bespoke in order to reduce the loans made by Mr Davies to Northstar, but which had been recorded as having been made by Mr Clayton. Mr Hall accepted the following proposition put to him by Mr Snowden as a fair summary of his evidence on this topic:
  353. "Mr Clayton or Bespoke received goods to the value of about £26,000 or £27,000 without being required to make any actual payment at all for these goods; the payment being effected simply by a reduction on the loan account in Northstar's books."
  354. Mr Hall also accepted that the correlation between the reductions in Northstar's debt recorded in the 2301 account and the 13 invoices was a correlation between the reduction of debt and the full face value of the invoices. I have already set out Mr Birkett's description in his oral evidence of how the scheme worked in so far as Bespoke was concerned; but for ease of reference I summarise it again. Northstar would send out an invoice to Bespoke Windows for the full price of the goods supplied. Bespoke Windows would make a real payment to Northstar. The real payment was the equivalent of the cost price of the goods to Northstar. Bespoke Windows would also make a notional payment equivalent to Northstar's profit element. That notional payment would be applied in reduction of the loan account. Mr Clayton would then pass on that notional payment, in real cash, to Mr Davies.
  355. However, as Mr Hall accepted in his oral evidence, the accounting entries do not support Mr Birkett's account. If Mr Birkett's account were correct then, as Mr Hall accepted, one would expect to see a far larger number of invoices. Moreover, if Mr Birkett's account were correct, there would be no apparent reason for Bespoke not having recorded the purchases in its books.
  356. Mr Hall also accepted that:
  357. i) There were no delivery notes associated with the invoices;
    ii) Many of the invoices (though not all) did not give Bespoke's correct corporate name;
    iii) Many of the invoices had no order number attached to them;
    iv) Many of the invoices had no delivery address;
    v) One of the invoices (dated 29 October 1998) gives Northstar's address as Burnden Works, whereas no one from Northstar moved to Burnden Works before January 1999;
    vi) None of the invoices were recorded as corresponding purchases in Bespoke's records;
    vii) There were insufficient records to determine whether goods had actually been physically transported.
  358. The record of a loan in cash of £9,685 made on 22 January 1998 is consistent with Mr Clayton's account of the timing of his loan; but not with the amount that he claims to have lent. The entry for 27 January is consistent with the amount that he claims to have lent but not the timing; and Mr Fielding also claims to have lent part of this amount. Mr Fielding's claim is that he lent Northstar £10,000; whereas the entry for 27 January records a loan (singular) of £20,000. This entry is consistent with Mr Clayton's case if (but only if) either:
  359. i) he lent £20,000 in one tranche and Mr Fielding made no loan; or
    ii) he made his loan at the end of January and not in early or mid-January as he claims.
  360. The accounting records do not establish Mr Clayton's case; and, on balance, they are inconsistent with it.
  361. Did Mr Davies make a loan?
  362. Based on the accounting records, I think that I can also provisionally infer that by 31 May 1998 Mr Davies had been repaid everything that he had lent Northstar up to the end of May 1997. The accounting records are not inconsistent with Mr Davies' having lent more money to Northstar in early 1998. Ultraframe suggest that the exact difference between the cash drawn out of the Amberbale account and the money paid into the Northstar account on 22 January 1998 is no coincidence; and that the sum of £9,686.35 came from Mr Davies. This seems to me to be a plausible inference. Neither Mr Clayton nor Mr Fielding claim to have lent Northstar £9,685; and I can provisionally infer that this sum at least originated with Mr Davies.
  363. Did Mr Fielding make a loan?
  364. Mr Fielding does not, of course, claim to have made a loan of £9,685 on 22 January 1998. Nor does he claim to have lent the whole of the sum of £20,000 recorded in Northstar's books on 27 January 1998: he only claims to have lent £10,000 of that sum. But he does claim to have made the other loans recorded in Northstar's books, and more. The entries in Northstar's books recording loans in February are consistent with his account of the timing of the loans; and the amounts he claims to have lent Northstar. The entry for 27 January is also consistent with the amount that Mr Fielding claims to have lent, albeit he only claims to have lent half the recorded sum; but Mr Clayton also claims to have lent the whole of this amount. The entry for 11 March 1998 is not consistent with Mr Fielding's claim to have lent £50,000 to Northstar on that date. It records a receipt of just under £30,000. It is, however, consistent with the date on which he claims to have made that payment.
  365. Provisional conclusion
  366. Based on the accounting records, I am disinclined to accept that Mr Clayton made the loan to Northstar that he said he did. I am inclined to accept that Mr Davies lent Northstar at least £9,685. I am inclined to accept that Mr Fielding could have lent money to Northstar; but that the accounting records do not fully support his case. However, I bear in mind Mr Wilkinson's repeated warnings about the unreliability of the accounting records. I must therefore test any inferences I am inclined to draw against other evidence.
  367. WHO CONTROLLED NORTHSTAR IN 1997?

    The formal position
  368. The formal position was that Mr Naden was the sole director of Northstar during 1997. Mr Birkett was the company secretary.
  369. Mr Naden's real role
  370. Mr Naden was in charge of the roof fabrication part of the business. He was based in Unit 2, where the fabrication mainly took place. He had an office in that area, but the main administrative offices were in Unit 5 at the far end of the site. However, despite his title of managing director, he did not run the entire company. Mr Birkett said that he was a director "only in name". Mr Ivison said that so far as fabrication of roofs was concerned, Mr Naden had the final word, and that on other things he was often consulted. He ran the fabrication side of the business and people working under him. Ms Almond saw Mr Naden as having been in charge of roof design. Mr Ivison confirmed that Mr Naden played no part in his and Mr Whitby's recruitment; nor did he participate in discussions with them about the prospective contractual arrangements with them. He was not present at the open day in September 1997. Nor did he participate in the recruitment of Mr Read.
  371. Mr Howard said that Mr Naden received orders from Mr Birkett in his presence.
  372. Mr Fielding accepted that when he attended meetings with Northstar in 1997 Mr Naden did not appear to be in charge. Mr Davies was the one who did all the talking. By 14 December 1997 he was aware that "Jeff's title did not fit the role he was performing".
  373. Mr Naden's evidence included the following:
  374. "In relation to non- fabrication issues I generally went along with whatever Howard [Davies] said because he was more commercially minded than me."
    "In short, Eddie [Birkett] was responsible for all admin general management matters and most of the necessary paperwork apart from Northstar's quotations which I did, initially on my own and later with Howard Roche. I remained responsible for roof fabrication. Although I accept that I was involved in some of the transactions which are the subject matter of these actions, as will become evident, for the most part I was happy to be advised and led by Eddie."
  375. It is, to my mind, clear that Mr Naden did not deal with anything other than fabrication. He did from time to time sign documents, but he did so because he was asked to. As he himself said:
  376. "… Howard, and then Eddie after he joined, were responsible for all the day to day admin tasks for both Northstar and on its incorporation Seaquest and I was often presented with various documents, including some blank cheques, to sign which I did without question."
  377. Mr Roche thought that Mr Naden was intimidated by Mr Davies; and that, to my mind, rings true.
  378. It follows, in my judgment, that Mr Naden is very unlikely to have been involved in any real commercial negotiation or agreement.
  379. Mr Birkett's real role
  380. Since Mr Birkett only joined Northstar on 20 June 1997, he can have played no part in the negotiation of the Northstar supply agreement. But from the moment he joined, his rise was rapid. From about September 1997 Mr Birkett's office was in Unit 5, next to Mr Davies. From then on he became involved with more and more aspects of the company's business. Ms Almond's perception was that Mr Birkett dealt with most management matters and day to day affairs. She thought that he was very busy and that he dealt with stock control and with the paperwork. Mr Birkett himself said that he dealt with ordering goods, putting together the marketing plan for HD Systems and generally seeing what was going on in the office. There is no doubt that Mr Birkett's role within Northstar grew as time went on. He was also personally close to Mr Davies. They used to drink together; and Mr Davies would tell him about his business and social life. By the end of 1997 Mr Birkett accepted that he was Mr Davies' chosen front man.
  381. Ms Owen
  382. Ms Owen's formal role was Operations Manager. She was in charge of transport and also of customer care. Mr Ivison said that:
  383. "She knew the inside, complete running of the business. There was nothing that got past her."
    Mr Davies
  384. I have no doubt that Mr Davies controlled Northstar in 1997. The evidence to that effect is overwhelming. For example:
  385. i) It was Mr Davies who was the contact point for Mr Cooper when he wanted to win the business of supplying Northstar with extrusions;
    ii) It was Mr Davies who was in contact with tool makers, and had the ultimate responsibility for tooling;
    iii) It was Mr Davies to whom Mr Hacking sent a draft supply agreement with Alumax in July 1997;
    iv) It was Mr Davies who, according to the disclosed documents, was the only point of contact with Northstar's bank manager;
    v) It was Mr Davies who dominated the meetings with Kesterwood in March and September 1997;
    vi) It was Mr Davies who negotiated with Mr Whitby and Mr Ivison in the late summer and autumn of 1997 about the basis on which they would join Northstar; and it was he to whom they looked to sign a contract with them;
    vii) Mr Ivison complained on 31 January 1998 that it was Mr Davies who would not "allow" Mr Naden and Mr Birkett, as officers of Northstar, to sign contracts with him and Mr Whitby;
    viii) It was Mr Davies who broached the question of a loan to Northstar with Mr Fielding in December 1997 and it was he who, according to Mr Fielding offered him a debenture.
  386. In addition a number of witnesses gave more generalised evidence about Mr Davies' grip on Northstar. Mr Ivison said that when he started work at Northstar Mr Davies was the only person everyone reported to; and that with Mr Davies "everybody becomes a yes man". I quote some more examples.
  387. "I took the view that it did not matter who the director of Northstar nominally was as it was just Mr Davies in a different pair of trousers." (Mr Ivison)
    "He was the guy in charge and everybody answered to him and he made all the decisions" (Mr Howard)
    "I thought he was the top man" (Mr Shaw)
  388. When Mr Read joined Northstar in the autumn of 1997 it was Mr Davies who interviewed him, and offered him the job. Although Mr Davies introduced Mr Naden and Mr Birkett as directors, Mr Read was clear that Mr Davies "came across as the man in charge". However, on a professional level, where designs were concerned, Mr Read was not afraid to speak his mind; and he thought that Mr Davies respected him for it.
  389. It is true that Mr Davies was disqualified from being a director in the late summer of 1997 and had been advised (both by his solicitor and his bank manager) that he could no longer run Northstar for fear of being a shadow director. But I do not consider that Mr Davies followed this advice.
  390. The only discordant note was Mr Clayton's evidence. He said that in the autumn of 1997, when he and Mr Davies rekindled their friendship, Mr Davies told him that Northstar was Mr Naden's business; and that if he wanted to do business with Northstar he should do it with Mr Naden. However, later in his evidence he agreed that Mr Davies was "a very dominating character"; and that it was likely that Mr Naden told him that Mr Davies owned the company. He also said that Mr Naden complained to him that Mr Davies was interfering and telling him what to do or how to do things. In so far as Mr Clayton suggested that Mr Davies was not in control of Northstar in 1997, or that he did not appreciate that Mr Davies was in control, I do not accept his evidence.
  391. Mr Fielding's perception
  392. Mr Fielding accepted that by December 1997 he had been "fortified" in his impression that Mr Davies was in charge of Northstar. However, in my judgment this was clear to him from the moment he met Mr Davies in March 1997.
  393. WHO CONTROLLED NORTHSTAR AND SEAQUEST IN 1998?

    The formal position
    Northstar
  394. The directors of Northstar at the beginning of 1998 were Mr Naden and Mr Birkett (who had been appointed a director on 2 January 1998). Mr Birkett was also the company secretary. However, by a process which remains mysterious, at some stage during 1998 Mr Naden and Mr Birkett assumed the title of joint managing directors. It was in that capacity that they signed the contract for the laminating machines in April 1998; and it was in that capacity that they signed redundancy notices in October 1998.
  395. Seaquest
  396. The first directors of Seaquest (apart from the company formation agents) were Messrs Naden, Birkett, Whitby and Ivison, all appointed on 13 January 1998. Mr Whitby resigned on 20 April 1998; and Mr Ivison on 8 January 1999.
  397. Mr Naden
  398. It is clear from the extracts of Mr Naden's evidence that I have quoted that his role did not change in 1998. Even after Mr Roche joined in the spring of 1998 Mr Naden's role remained confined to roof fabrication. He continued to sign documents that he was asked to sign. Mr Roche suggested that Mr Naden became more involved with administration and began to ask questions. However, I do not accept this. Mr Naden himself said that until Mr Birkett's suspension in March 1999 Mr Birkett was principally concerned with administrative matters; and that it was not until after Mr Birkett's suspension that he himself became involved. He says that he himself did not appreciate what was involved in being a company director and that he should have taken more of an interest in what was happening.
  399. When the DTI began to investigate Northstar, they initially corresponded with Mr Naden, but soon realised that Mr Birkett was the man with the answers.
  400. Mr Birkett
  401. Almost all the correspondence of any consequence produced during 1998 (other than correspondence relating to purely technical matters) was addressed to or emanated from Mr Birkett. Mr Birkett's evidence was that Mr Davies was still controlling the companies up to the time of the decision to move to Burnden Works (which was right at the end of 1998). He said that it was Mr Davies who, in October 1998, instructed him to transfer everything to Mr Fielding; and that he understood that Mr Fielding was to be a "front" for Mr Davies. However, Mr Birkett accepted Mr Snowden's characterisation of the meeting on 14 December 1998 as a management meeting of Northstar and Seaquest at a time when Mr Birkett was responsible for large aspects of what was going on; and he also accepted that the reason that Mr Fielding was being kept informed through Mr Sheffield was because of the impending move to Burnden Works.
  402. Mr Ivison said that Mr Birkett ran the business on a day to day basis with the assistance of Ms Owen. Mr Birkett agreed that from early 1998 he was responsible for the day to day administration of Northstar's affairs. Mr Read said that from the spring of 1998 (after Glassex) Mr Birkett was "the main driving force in the overall running of the company". From June 1998 he became involved in Northstar's accounts as well.
  403. In his oral evidence, Mr Sheffield complained that Mr Birkett was "a loose cannon". Things would be decided at meetings, but Mr Birkett would disappear and not do what he was supposed to be doing. He would do whatever he wanted to do. Ms Owen described Mr Birkett as "a law unto himself". According to her, Mr Birkett was in control of spending; and also of exchange of information, IT and cash. She also said that there were private meetings between Mr Birkett and Mr Ivison at which cash and cheques changed hands.
  404. Mr Roche's perception was that Mr Birkett ran Northstar from the time that he began working for Northstar just after Easter 1998. He said that although he himself reported to Mr Naden, everyone reported to Mr Birkett. He said that although Mr Davies was a dominating personality, and people seemed to be frightened of him, he was not the boss. Mr Davies' presence at Groby Road petered out some time in June 1998. By the end of June, however, Mr Birkett was on the verge of a breakdown, and Mr Roche offered to help more. From then on Mr Roche took a more active part in Northstar's business. It was he who was the "interface" between the company and its professional advisers.
  405. During 1998 he described Northstar as "freewheeling". Mr Birkett, in particular was out of control. He would agree something and then do something completely different. He would not listen to common sense.
  406. To a large extent I accept this picture. I also consider that, as between Mr Birkett and Mr Naden, Mr Birkett was clearly the more dominant, and the more capable force.
  407. Mr Ivison
  408. Mr Ivison was one of the directors of Seaquest. However, he was often out on the road. On the other hand, he was instrumental in arranging the assignment of the intellectual property rights from Northstar to Seaquest in the early part of the year. Mr Ivison was not involved in the discussions that led to the grant of the debenture by Seaquest. He was not, therefore, part of the decision-making process so far as the debenture was concerned. But he did not raise any objection; and he was enthusiastic about Mr Fielding's financial support. Similarly, when the decision was taken towards the end of 1998 to move the business of Seaquest to Burnden Works, Mr Ivison was not consulted; although he would have supported the move if he had been asked. He was not, therefore, part of the decision-making process so far as the move was concerned. However, it is also clear that Mr Ivison knew and approved of the move before it took place. In his marketing overview of December 1998 (the month before the move) he wrote:
  409. "With the backing of Kesterwood in terms of both physical appearance (the building, meeting rooms, factory etc) and their place in our industry (foiling to other extruders) the perception of Seaquest will be enhanced enormously."
  410. Mr Ivison said that he was not a "yes" man as far as Mr Fielding was concerned; not least because he did not know him that well and so the opportunity did not arise. On the basis of that evidence, it is impossible to conclude that Mr Ivison, at least, was accustomed to act at Mr Fielding's direction. And he also said that if he were asked to do something by Mr Fielding, he would discuss it with Mr Birkett first; and that he would not simply have done what Mr Fielding told him to.
  411. Wages
  412. The wages of the employees were increased from time to time. In the case of the fabricators, this happened as they became more qualified. Decisions about wage increases for the fabricators were taken by Mr Naden; and decisions about wages increases for administrative staff were taken by Mr Birkett. Mr Birkett said that this continued until he left in March 1999. Mr Fielding was not involved in these decisions; and it is not suggested that he was.
  413. Instructions to solicitors
  414. Mr Hacking advised Northstar throughout 1998. By early 1998 his direct contacts with Mr Davies were infrequent; and he received instructions from Mr Whitby (until April 1998), Mr Birkett, Mr Ivison and (from spring 1998) from Mr Roche. Mr Fielding had no direct contact with Mr Hacking.
  415. Mr Roberts described Mr Roche and Mr Read as the "legal and technical department" of Northstar; and Mr Read agreed that, at least from April 1998, that was a fair description. Mr Read had been given a sheaf of papers by Mr Davies in late December 1997, mostly relating to the patent action; and having read them, he thereafter helped Mr Roche in dealing with technical aspects of the patent litigation. He was not involved in wider issues. Mr Roche was inclined to accept that he and Mr Read were, in effect, the legal and technical department of Northstar.
  416. Tooling
  417. From April 1998, when Mr Davies began to lose interest in Northstar, Mr Read assumed responsibility for tooling. He dealt principally with Mr Cooper at Kesterwood Extrusions; but if there was a serious problem Mr Sheffield would become involved as well. He did not deal with Mr Fielding.
  418. Northstar's bank account
  419. Mr Fielding was not a signatory on Northstar's bank account; and it was not suggested that he was. The signatories were Ms Patey and Mr Naden..
  420. Mr Hindley and Northstar's accounts
  421. As I have said Mr Hindley examined Northstar's accounts in October 1998. He made his first visit to Groby Road, accompanied by Mr Sheffield, on 21 October.
  422. Mr Sheffield said that he had been asked to accompany Mr Hindley who had not been to Groby Road before. When they arrived, they asked Mr Birkett for access to the computer records. Mr Birkett was reluctant to give Mr Hindley the password to access the computers, but eventually he did. It is not suggested that Mr Hindley demanded access; merely that he persuaded Mr Birkett to provide it. Mr Sheffield said that he and Mr Hindley found Mr Birkett obstructive, and evasive in answer to questions. Mr Sheffield and Mr Hindley printed out copies of Northstar's accounting records. Mr Hindley's fee note indicates that he spent some 26 working hours on Northstar and Seaquest between 16 and 30 October.
  423. Mr Read did not accept that Mr Hindley had been "imposed" on Northstar by Mr Fielding; rather it was a relief that somebody might help to tidy up Northstar's accounts. Although the personnel at Groby Road worked closely with Mr Sheffield in connection with the move to Burnden Works, this was done because it had been agreed in meetings with the knowledge and consent of Messrs Naden and Birkett, as directors of the company.
  424. Seaquest's registered office
  425. On 1 November 1998 Seaquest's registered office was transferred to Burnden Works. The suggestion was Mr Birkett's. Mr Naden signed the necessary forms; but Mr Fielding was given as the contact point for any queries. Mr Fielding said that this was because there was no one else at Burnden Works at the time who could have dealt with any queries. But there was no need for the contact point to have been anyone located at Burnden Works; and no reason why Mr Naden or Mr Birkett could not have been given as the contact points. Mr Fielding accepted this.
  426. Seaquest's bank account
  427. Mr Sheffield filled out the forms necessary for Seaquest to open a bank account. Although Northstar had banked with the NatWest, Seaquest's account was opened at the Royal Bank of Scotland, with whom Mr Fielding had a long-standing banking relationship. Mr Birkett completed the bank mandate forms, naming Mr Fielding as the sole signatory. Mr Fielding said that it was necessary for Seaquest to have a bank account because it needed a VAT number in order to issue valid invoices; and a VAT number would not be allocated to a company without a bank account. He said that the decision to open a bank account was a collective decision. However, it seems to have been Mr Fielding's decision that he should be the sole signatory on the account. In his 2000 witness statement he explained that this was because he did not trust Mr Birkett or Mr Naden; and in his oral evidence he confirmed that that statement was correct. He amplified this by saying that he thought it was inevitable that he would have to put more money into Seaquest; and there was no way he was going to put more money into Seaquest and then hand it over to Mr Birkett and Mr Naden.
  428. Mr Davies' whereabouts
  429. At the meeting between Northstar and Kesterwood on 16 January 1998 Mr Fielding asked why Mr Davies was absent; and Mr Whitby explained that Mr Davies was not involved in the business in any capacity, and that those responsible for the business were present at the meeting. Neither Mr Ivison, nor Mr Birkett, both of whom were present, challenges the accuracy of the minutes in this respect.
  430. Both Ms Owen and Mr Read said that after Mr Davies' return from the USA in January 1998, Mr Davies was less frequently on site at Groby Road. Mr Roberts agreed. Mr Read thought that, on average he was there for about one or two days a week. This lasted until about the time of Glassex 1998.
  431. The annual Glassex exhibition took place in March 1998. Northstar had a stand. Mr Ivison was in charge of it. But Mr Davies also attended Glassex, dressed in a gorilla suit and carrying a banana. Although he was a volatile character, his behaviour at Glassex was relatively calm. He did, however, sound off about Ultraframe; and boasted of an anonymous source of finance. It was at Glassex that Mr Davies ordered the laminating machines on Northstar's behalf. But after Glassex, according to Mr Ivison, Mr Davies began to take less of an interest in Northstar and Seaquest. Ms Owen and Mr Read agreed with this. Mr Read recalled that Mr Davies' presence at Groby Road diminished after his return from the USA in January 1998; from three or four days a week to one or two days a week. Following Glassex in March 1998, Mr Davies' presence became "sporadic". He might be there for a day or two and then he would disappear for another week or two.
  432. When Mr Roche started working for Northstar in the spring of 1998, he said that Mr Birkett seemed to be running the operation. Mr Davies would come into the office from time to time, and stay for a couple of hours. Sometimes he would do rough design work. However, Mr Roche said that gradually he faded away, coming into the office less and less often. Mr Roche thought that he was depressed and disheartened.
  433. On 20 April 1998, according to the documents, Mr Davies was dismissed; and the staff informed of his dismissal. From then on, the story given to suppliers and potential customers was that Mr Davies was no longer connected with the business. Mr Farnworth, a customer of Northstar's whose evidence was not challenged, said that at about the time that Northstar's business "exploded", Mr Davies "did not appear on the front line any more". This would have been shortly after Glassex 1998. In June 1998 Mr Ivison told Mr Phillips of PBM (a potential customer) that "Howard Davies has nothing whatsoever to do with the company any more." However on at least one occasion, on 23 April 1998, Mr Davies came into a meeting at Groby Road with a prospective customer, introduced himself as the "joiner/designer", and pitched for business. According to the prospective customer in question, he ran the meeting. Although, on paper, Mr Davies had been dismissed, in reality it made little difference. Mr Roche, for example, dealt with Mr Davies after 20 April 1998 just as he had done before. But dismissal or no, Mr Davies did begin to fade away.
  434. In June 1998 Mr Davies left for the USA, with a view to starting a new business there. In a draft witness statement made in 1998 (whose accuracy she confirmed in her oral evidence) Ms Bardsley said that she saw Mr Davies and Ms Owen together in Ms Owen's car in Manchester on 19 June 1998; and on 25 June a warrant for Mr Davies' arrest was issued, but never executed; so Mr Davies' departure for the USA must have taken place in the latter part of June. The papers include an order from Mr Davies, under the style of Windsor Conservatories, at an address in Texas, in September 1998. Mr Ivison did not see him again at Groby Road; and did not see him at all until October, at the meeting at the Nag's Head in Altrincham. That was the last time that Mr Ivison and Mr Birkett saw Mr Davies. Mr Roberts said that before he left for the USA Mr Davies took "a lot of cash out of the company". He explained that what he meant was that Mr Birkett and Ms Owen handed cash over to him. While he was in the USA Mr Roberts said that money was wired over to him by Ms Owen and Mr Birkett; although Ms Owen denies that this happened. After Mr Davies left for the USA Mr Roberts did not see him at Groby Road again.
  435. Mr Read said that before he left Mr Davies told a group of senior employees that they would have to carry on the business. A management committee was formed, probably on the initiative of Mr Roche.
  436. Mr Gary Howard, who was a fabricator at Groby Road, last saw Mr Davies in the summer of 1998, before he left for the USA.
  437. Mr Worsdall joined Northstar in August 1998. He never met Mr Davies. He said that Mr Davies' name did crop up; and he was told by Mr Roche that Mr Davies was a former owner who had left.
  438. Mr Frith, who had been retained to help with advertising, had meetings with Mr Ivison at Groby Road during the summer of 1998. He thought, from a description that he had been given, that Mr Davies wandered in to some of those meetings. However, he had never been introduced to Mr Davies and was not, therefore, in a position to identify him. His evidence is at variance with all the other witnesses; and I conclude that he must have been mistaken.
  439. In December 1998 Mr Ivison prepared a marketing overview. His account to date included the following:
  440. "The historic "problem" of the name Howard Davies has had a larger than expected influence over many of our existing and potential new customers. The constant threat of Litigation and H.D's amazing ability to virtually telephone everyone including strangers and paint a very "bleak" picture of his personal crusade against Ultraframe – has not helped us and still casts a shadow over many people.
    Fortunately, as time goes on, his "separation" from the actual business has been a great benefit to all."
    The management committee
  441. As I have said, following Mr Davies' departure to the USA a management committee of senior employees was formed. It was chaired in informal rotation by various of the employees, including Mr Birkett, Mr Roche and Mr Read. The committee consisted of Messrs Naden, Birkett, Ivison, Roche and Read; and Ms Owen and Ms Patey. Neither Mr Fielding nor Mr Sheffield attended these meetings; and it is not suggested that they did.
  442. Records of its meetings show that it met on 31 July 1998; 3 August 1998; 7 August 1998; 4 September 1998 at Groby Road. Mr Read said that the management committee stopped meeting in about October 1998, so its period of existence was only a few months. Mr Birkett thought that the meetings petered out some time before the move to Burnden Works in January 1999. Ms Owen also said that the management meetings continued until the beginning of 1999. She said that she was Mr Davies' "eyes and ears" and that she conveyed "edited highlights" of these meetings to Mr Davies, who telephoned her from time to time. She said that Mr Davies' main concern was to find out "how the company was doing money-wise and if he could get anything back on the money he had invested". In fact management meetings of Northstar and Seaquest did continue into 1999. The last documented meeting of the management committee is dated 8 January 1999. Ms Owen's evidence is therefore accurate on this point. Management meetings of Northstar and Seaquest were also held in 1999, after the move to Burnden Works. Mr Birkett agreed that the typical course of such a meeting (and in particular the meetings of 8 and 19 January 1999) was that everyone would have their say and then a decision would be made. That, he agreed, was how both Northstar and Seaquest were run. One of the problems that had to be dealt with was the attempt to recover a company car that had been allocated to Mr Whitby, but which he was refusing to return. Mr Birkett said that he was responsible for getting it back; and that he simply reported progress to Mr Fielding. However, Mr Birkett also said that after the meeting of 19 January 1999 he began to lose interest in Seaquest and had little more to do with it.
  443. Mr Read said that he was aware that although Mr Davies was in the USA, he made "fairly regular" calls to Mr Birkett and that he was still keeping an eye on things. However, Mr Read's perception was that Mr Davies was no longer in control of the companies. Rather the companies were being run by the management committee, which did "its very best to maintain the company with lack of proper direction from the directors at the time". Mr Read said that as far as he was aware no one gave the management committee instructions about what they should do.
  444. The only record of a formal meeting of the directors of Northstar in 1998 is of a meeting on 24 November 1998 at which the allotment of shares to Mr Fielding was approved. This followed an EGM on the same day at which Mr Fielding agreed to provide loan capital in return for the allotment of shares. According to the minute of the meeting, Mr Fielding is recorded as having attended in his capacity of "Major Shareholder".
  445. Apart from the formal meetings held in the first few days of Seaquest's existence, the only record of a board meeting in 1998 is that of 24 November 1998, which followed the same course as the board meeting of Northstar held on the same day.
  446. Cash and Carry Roofs
  447. At some stage in 1998 Mr Davies established a business in Warrington, trading under the name "Cash and Carry Roofs". Mr Birkett said that although a unit in Warrington had been rented since May 1998, the business was not set up until November. The papers include a lease of a unit in Warrington, signed by Mr Naden and Mr Birkett as officers of Northstar, and dated 18 May 1998. The term of the lease was three years, at a rent of £5,000 per annum. The accounting records record the first payment of rent for Warrington on 12 June 1998. There is also a telephone bill, in Northstar's name, relating to the premises at Warrington for the month of June 1998. The financial burden of Warrington surfaced as an issue at a management meeting of Northstar in the summer of 1998. Mr Birkett said that although he did not meet Mr Davies at Warrington, he did speak to him on the telephone during November 1998 about what he wanted. But he and Mr Davies did not speak about the plan to transfer the companies to Mr Fielding; and Mr Davies took no interest in the outcome of the pub meeting at Altrincham. Mr Brown remembers Mr Birkett asking him to set up a computer with software; which was subsequently collected for what he thought was "Northstar Warrington", but which was also known as "Cash & Carry". Ms Almond, who was the manager at Wilton Street from about the summer of 1998, remembers Cash and Carry Roofs as being an important customer of Northstar. She could place this as having been a month or two before September 1998; because in that month she had a leg injury which kept her away from work. She says that Northstar received a lot of orders from Cash and Carry Roofs. The orders were always placed by telephone; never in writing. She was told by Mr Birkett and Ms Owen to fulfil the orders; and to do so quickly. She did not see any paperwork connected with Cash and Carry, but she did enter the letters "C&C" in her stock control book when an order from Cash and Carry was fulfilled. She added, in relation to what Ms Owen told her, that she was told "not to ask questions". Mr Tony Roberts, who worked for Northstar between the end of 1997 and 1999, also remembers Cash and Carry Roofs. On Mr Davies' instructions he took one of the saws from Northstar's premises to the unit in Warrington towards the end of 1998. He says that Mr Davies would obtain all his components and extrusions from "orders put through Groby Road"; but as far as he was aware, Mr Davies never paid for them.
  448. This chronology suggests that Mr Davies disengaged from Northstar in the middle of 1998.
  449. Mr Fielding's perception of Mr Davies' role
  450. Until the late spring of 1998 Mr Fielding regarded Mr Davies as still being in active control of Northstar. In December 1997 it had been Mr Davies who had broached the question of a loan with Mr Fielding and had offered the security of a debenture. Mr Fielding accepted that, at that stage, he realised that Mr Davies "called the shots" at Northstar. It was Mr Davies who was invited to the football match in May 1998; and it was he who was invited to Royal Ascot (even though he did not attend). Mr Naden was not invited to any corporate hospitality event. All these events took place before Mr Fielding became aware that Mr Davies was a bankrupt.
  451. Mr Sheffield's involvement
  452. Mr Read's perception was that Mr Fielding and Mr Sheffield were "securing their interests" during September and October 1998. He also said that in late November and December Mr Sheffield came to Groby Road to organise or assist in the organisation of the move. He said, however, that when Northstar and Seaquest moved to Burnden Works (which he placed in December 1998 to January 1999) Mr Sheffield and Mr Fielding took control of both companies.
  453. Mr Howard's perspective, as a fabricator on the shop floor, was that Mr Sheffield took over the running of the business once it moved to Burnden Works. He said that Mr Naden took orders from Mr Sheffield. However, he was clear that this had not happened while he was working at Groby Road. The fabrication side of the business did not move until June 1999 (and Mr Howard's evidence to the contrary was wrong). I do not therefore consider that Mr Howard's evidence on this point is reliable for any period before June 1999. Mr Howard also said that although Mr Sheffield gave orders to Mr Naden once Northstar had moved to Burnden Works, he had never done so at Groby Road. Even after the move to Burnden Works Mr Howard agreed that the fabrication business continued to be supervised by Mr Naden.
  454. Mr Wordsall said that in the autumn of 1998 Mr Sheffield was "lording it around" at Groby Road; but Mr Sheffield refuted this allegation, and I accept his evidence. Mr Sheffield said that he worked in teams; and did not tell people what to do. He thought that teamwork was a more effective way of getting things done. As he explained:
  455. "We try to keep everything as it is in a team, rather than one person taking overall control so we can move the business forward and make decisions together, and that was the idea, trying to bring them into the team."
  456. He agreed, however, that in September and October 1998 he spent a great deal of time at Groby Road, beginning with his visit with Mr Hindley to inspect Northstar's accounts. He would go down and ask questions, if things were not happening, or he had not got a report, or people were missing meetings. Before that, he was a conduit between Northstar and Burnden Works.
  457. Mr Sheffield also carried out a customer survey of Seaquest's dealers, to find out what the problems were. He said that he did this off his own bat.
  458. Mr Fielding's involvement
  459. Mr Fielding was involved during 1998 with a quantity surveying project in the Shetland Isles. Up to April of that year he made one visit of about three days, for a site inspection. Work on site started in April. Mr Fielding thought that he had spent three weeks in July in the Shetlands. Mr Hochhauser put to him that, according to his diaries, he spent 44 days in the Shetland Isles between October 1997 and October 1999; but Mr Fielding thought that was an underestimate. He thought that 55 to 60 days was nearer the mark. Mr Fielding also spent most Mondays in Telford working at the offices of ABB, for whom he performed quantity surveying services.
  460. Mr Howard never spoke to Mr Fielding, either before or after the move to Burnden Works.
  461. Mr Naden said that from September 1998 Mr Fielding took "a more active role in the businesses of both Northstar and Seaquest", although not on a day to day basis.
  462. Mr Read's view was that during September and October 1998 Mr Fielding was not taking control of the companies, but was merely securing his own interests as a substantial creditor of and potential lender to Northstar. Mr Read said that, as from the pub meeting in Altrincham in October 1998 he understood that Mr Fielding was to have greater control over Northstar "not on a day to day basis, obviously, but because he would be injecting a considerable amount of cash." He assumed that the same went for Seaquest. But he did agree with Mr Hochhauser that once Mr Davies had dropped out, Mr Fielding would take over his role. This was because Mr Fielding was investing a lot of money in the company However, by December 1998 or January 1999, when the business moved to Burnden Works, Mr Fielding and Mr Sheffield were taking control.
  463. Mr Sheffield prepared minutes of meetings with representatives of Northstar and Seaquest. Sometimes these minutes were prepared on Mr Fielding's personal letterhead; even for meetings that he did not attend. Mr Sheffield explained that this was done to give the minutes "added impetus" and to show how important a meeting was.
  464. Mr Roche said that by the autumn of 1998 it was Northstar's financial position that was "doing the dictating". Mr Fielding was offering solutions to Northstar's problems that seemed sensible. Northstar was under considerable pressure and could not pay its bills on a day to day basis. Mr Naden and Mr Birkett had a lot of discussions together and accepted Mr Fielding's proposals. He did not accept that Mr Fielding "demanded that people sign particular documents". Seaquest was rather different. Mr Roche thought that the future lay with Seaquest. It was better organised and had more reliable accounts. People at Seaquest did not "have their fingers in the till" and Seaquest was not burdened with Wilton Street. Mr Fielding controlled the purse strings; and therefore had more control over Seaquest. He had no control at all over Northstar.
  465. It was Mr Fielding who instructed Mr Hindley to examine Northstar's accounts. As I have said, Mr Fielding was sole signatory on Seaquest's bank account; and his name and telephone number were given as the contact point on the change of Seaquest's registered office. From January 1999 Mr Hindley took charge of Seaquest's accounts. He took his instructions entirely from Mr Fielding and appears to have dealt with no one else. He dated this from the time that the accounts began to be dealt with at Burnden Works. This would have been towards the end of January 1999. It was at this time that Mr Hindley began to make corrections and new entries into Northstar's "live data". He made no alterations to the accounting records while they remained at Groby Road.
  466. So far as Northstar was concerned, Mr Fielding said:
  467. "It was impossible to control Northstar. Northstar was out of control more than any other company I have been associated with."

    THE CREATION OF THE BURNDEN GROUP

    New companies
  468. Burnden Conservatory Products Ltd was incorporated on 13 November 1998. From 28 March 2000 the director of BCP was Mr Howarth; but in reality he was a nominee for Mr Fielding. As Mr Gray put it: he played no active part in BCP on a day to day basis.
  469. The Burnden Group Ltd was incorporated on 21 January 1999.
  470. Mr Whitelock's review
  471. Mr Whitelock had a long-standing business connection with Mr Fielding, who was in some sense his mentor. He says that in December 1998 he came to the conclusion that his working arrangements were not satisfactory. Either he would have to work full time for Mr Fielding, or he would have to sever their business connection. Mr Fielding told him that he had problems with the "manufacturing businesses" at Burnden Works. By "manufacturing businesses" Mr Whitelock meant Dearward Ltd, Dearward Profiles Ltd, Kesterwood Extrusions Ltd and Kesterwood Plastic Processors Ltd. Mr Fielding's view was that there were problems with the management of those companies. Mr Fielding also had in mind the consolidation of his business interests (including the quantity surveying partnership) into a single holding company. Mr Whitelock was to be a director of that company. Although the name of the company had not been settled, it was likely to be called "the Burnden Group". Mr Fielding introduced Mr Whitelock to the management at a meeting in December 1998.
  472. In January 1999 Mr Fielding asked Mr Whitelock to review the various businesses to see whether they were worthy of inclusion in the new group. Mr Whitelock says that he reviewed the current performance of each business and its future potential. However, he says that he did not investigate the historic assets and liabilities of the companies, and did not investigate their creditors. Nor did he examine their accounts. A couple of months later Mr Fielding asked Mr Whitelock to look into the business of another company called Site Safety Manufacturing Ltd, in which Mr Fielding had a 50 per cent interest. It is fair to say that Mr Whitelock was not impressed by the management of any of the businesses. For a start, they each maintained separate management of accounts, payroll, stock control, health and safety, personnel and IT. I think that I can summarise Mr Whitelock's conclusions as follows:
  473. i) Kesterwood Extrusions Ltd. The equipment and tooling were of very poor quality. This resulted in extensive repairs (of which there was no proper record), intensive human supervision of production lines and a great deal of scrap waste. There were no proper systems in place for procurement or quality control; and no proper accounts. The managing director was out of his depth. All in all, Mr Whitelock concluded that the problems were "very grave" and that, since an increase in business was expected, there could be "potentially disastrous consequences". A change in both management and culture was needed, together with investment in high quality equipment.
    ii) Kesterwood Plastic Processors Ltd. Although this was a small company, it was well run, and made a valuable financial contribution.
    iii) Dearward Ltd. Dearward made cardboard cores. It was operating in a depressed market in which it was difficult for it to compete. However, it was tightly run and had a hardworking workforce and good quality control. As and when market conditions improved, it had the potential to make a valuable contribution.
    iv) Dearward Profiles Ltd. This company produced laminations. It had two lamination machines which was in itself unusual. The business was operating at a small fraction of its capacity; and only one machine was needed. It was continually loss-making. The managing director was also, in Mr Whitelock's opinion, unsatisfactory. However, Mr Fielding decided that the business should be retained and hived up into the new group, although the managing director was sacked.
    v) Site Safety Manufacturing Ltd. Mr Whitelock concluded that this business was not worth saving, and that Mr Fielding should recover his investment if he could.
  474. When he began his review, Mr Whitelock was not aware that Mr Fielding claimed to be the owner of Northstar or Seaquest. He found that out later, in January 1999. Mr Whitelock said that he was unaware of the litigation about Northstar and Seaquest until later in 1999; and did not know that an injunction had been granted which prohibited Mr Fielding from dealing in the shares. Mr Whitelock also said that the businesses of Northstar and Seaquest did not form part of his review; and he denied the suggestion that from early 1999 he was considering the viability of those businesses with a view to incorporating them into the Burnden Group.
  475. MR FIELDING'S TAKE OVER OF THE BUSINESSES

    Ultraframe's case
  476. Ultraframe's case is that:
  477. i) From November 1998 Mr Fielding, Mr Naden and Mr Birkett began transferring the businesses of Northstar and Seaquest from Groby Road to Burnden Works;
    ii) BCP took over Northstar's component business in January 1999 for inadequate consideration;
    iii) From March 1999 BCP began to manufacture and market the Quickfit system;
    iv) From 21 January 1999 BCP and TBG carried on most of the business that had been carried on by Northstar and Seaquest; and by June 1999 had taken them over entirely; again, for no consideration;
    v) Dearward and Dearward Profiles manufactured parts for the Quickfit system without paying commission to Seaquest;
    vi) TBG took over Northstar's employees;
    vii) Mr Fielding caused Northstar to sell assets required for the ongoing business on 20 May 1999 for £10,696;
    viii) After Mr Fielding had appointed a receiver of Northstar on 21 June 1999 the receiver sold to Mr Fielding Northstar's remaining plant, machinery, office equipment and stock at knock-down prices.
    The move to Burnden Works
    The decision to move
  478. I have already said that Mr Sheffield's customer survey revealed a high level of dissatisfaction with Northstar's component supply. A meeting between Dearward Profiles and Northstar took place at Burnden Works on 16 October 1998. Messrs Naden Birkett and Roche attended on behalf of Northstar, and Messrs Fielding, Sheffield and Williams on behalf of Dearward Profiles. It was at this meeting that Mr Fielding put forward a proposal to move the operation and servicing of dealers to Burnden Works and for certain key members of Northstar's staff to be relocated there; although he had previously floated this idea at his private meeting with Mr Roche on 9 October 1998. Mr Birkett said that the move to Burnden Works was "dictated" by Mr Davies, who was still in control of the companies at this point; and that he and Mr Naden were under pressure to move because Mr Davies wanted it. However, as I have said, Mr Birkett agreed in cross-examination that Mr Fielding's note of the meeting was accurate; and that merely recorded that the move was Mr Fielding's "suggestion". Mr Naden said in his witness statement that "it was agreed" to move the components side of Northstar's business; but he does not say when. On the other hand, in his witness statement of 22 January 2000 Mr Naden said:
  479. "Mr Fielding had told Mr Birkett and myself, I think in October 1998, that he proposed to move Seaquest to Bolton and split up Northstar roof fabrication from components and start distributing the components from Bolton. Mr Birkett was very worried about losing control of the component business and persuaded Mr Fielding that he should continue managing it from Burnden Works."
  480. The only candidate for the occasion to which Mr Naden refers is the meeting of 16 October.
  481. On 21 October 1998 Mr Sheffield wrote to a number of dealers:
  482. "I refer to my recent visit to yourselves and I can now confirm that I have completed my survey of the dealers' opinions on how the dealership arrangement is working.
    It has identified significant problems with the component parts being distributed from Northstar. After several meetings with Northstar to discuss these problems we have jointly concluded that the fastest and most efficient way forward is to move the distribution of both component parts and upvc extrusions to a separate site dedicated solely to the prompt and efficient servicing of the dealerships."
  483. It appears from this letter (and I find) that the decision to move Seaquest's business and the components side of Northstar's business from Wilton Street to Groby Road was made before 21 October 1998. It must have been decided at the meeting on 16 October. On 1 November 1998 Seaquest's registered office was relocated to Burnden Works.
  484. On 24 November 1998 there was an EGM of Northstar held at Burnden Works. Mr Naden and Mr Birkett, the two directors were present. Mr Fielding and Mr Roche also attended. It was resolved that the accounting records of the company should be collected from the accountants and brought to Burnden Works to enable the company accounts to be completed; and that distribution of component parts, and all staff associated with it, should be relocated to Burnden Works. On the same day there was an EGM of Seaquest, attended by the same persons. That meeting resolved that the operation of servicing the dealers with component parts be transferred to Burnden Works from 1 February 1999; or sooner if possible. It does not seem to me that these resolutions record a decision to change the identity of the supplier of components (as opposed to a change in the location from which the supply would be made).
  485. On 2 December 1998 Mr Birkett notified HM Customs and Excise that Seaquest's address for VAT would be Burnden Works as from mid December 1998.
  486. On 14 December 1998 there was a meeting at Groby Road, attended by Messrs Sheffield, Birkett, Naden and Roche. Mr Birkett accepted the characterisation of this meeting as a management meeting of Northstar and Seaquest. Minutes of the meeting were made on Mr Fielding's personal letterhead. It was agreed that the move of Seaquest and the Northstar component business to Burnden Works would not be able to take place until after 11 January 1999. It was recorded that Mr Fielding "wanted any cash amounts received from customers to be paid into the bank immediately." This was required so as to comply with an order that HH Judge Behrens had made. Mr Birkett was prepared to accept that he was taking the decisions, liaising with Mr Sheffield, about how things should be done in connection with the move. The minutes of the meeting recorded that Mr Birkett and Mr Naden wanted a meeting with Mr Fielding "to clarify their positions." Another meeting was held at Burnden Works on 15 December. Again, Mr Fielding did not attend, but Mr Sheffield, Mr Naden, Mr Birkett and Mr Roche did. The upshot of the meeting was to arrange two further meetings: one on 17 December to discuss Northstar and Seaquest's accounts; and one on 22 December to discuss policy and strategy for Northstar and Seaquest for the coming year.
  487. On 17 December a further meeting took place at Burnden Works in order to discuss the implementation of the accounting structure after the move. Again, Mr Fielding did not attend, but Mr Sheffield, Mr Naden, Mr Birkett, Mr Roche and Mr Hutchinson did, together with Mr Hindley. The business was to be split into two. Roof fabrication and the supply of bar length were to be retained at Groby Road. However, orders (both sales and purchases) were to be processed at Burnden Works, with the information being downloaded by modem. The supply of raw materials to dealers was to take place at Burnden Works. The minutes of the meeting (again on Mr Fielding's personal letterhead) recorded:
  488. "All future discussions regarding the growth of the business is to be decided by a formal meeting of officers of the companies."
  489. The strategy meeting took place on 22 December. A discussion document was prepared. The agenda included discussion of Mr Roche's report. Mr Roche placed Mr Read, Ms Owen, Mr Naden and Mr Birkett at that meeting. It is not, I think, suggested that Mr Fielding attended this meeting.
  490. On 31 December 1998 Northstar raised an interim invoice to Seaquest for the stock held at Wilton Street "prior to final stock valuation". The amount of the invoice was £50,000 plus VAT. This figure was Mr Birkett's. The stock in question was the stock of components which Northstar had been supplying to dealers as Seaquest's distributor. The fact that Northstar was selling its stock of components to Seaquest is an indication that Northstar had relinquished or was preparing to relinquish its position as distributor of the components.
  491. Mr Read said that from November or December 1998 Mr Sheffield began to play an increasingly important role, because he was organising the move of personnel and goods from Wilton Street to Burnden Works. Mr Read said as far as he was concerned the move had been agreed at a meeting at which he was not present; and that it was being done with the consent of Mr Naden and Mr Birkett, the directors of the company. Mr Read was not himself a party to the decision. His perception was that Mr Naden was worried by what was going on at Wilton Street, which was under Mr Birkett's control.
  492. Mr Sheffield said that until Christmas 1998 he and Mr Birkett had a good working relationship. They worked closely together on the planned move and discussed such matters as where Mr Birkett's office was to be at Burnden Works; how many computer terminals would be needed and so on. Mr Sheffield's perception was that he let Mr Birkett have his wishes.
  493. The move takes place
  494. On 11 January 1999 Northstar sent a circular to its suppliers, saying that the accounts department would be moving to Burnden Works "during the course of this week". The stock of components held at Wilton Street was moved to Burnden Works at the end of January 1999. It was transported by lorry in three loads on 27, 29 and 30 January. Ms Almond was in charge of the loading of the stock onto pallets, which were then loaded onto the lorries. She had not been told about the move until a couple of weeks before it took place. The stock was packed component by component, although the last few pallets may have been mixed. Once the stock arrived at Burnden Works, it had to be unpacked, inspected, reboxed and shelved. This process took a week or two. Ms Almond said that she did this pallet by pallet. The pallets, on their arrival at Burnden Works, were not in the same condition as that in which they had been packed and loaded at Wilton Street. Some of the stock had gone missing; and Ms Almond says that she reported this to Mr Sheffield. Part of the stock (a blue and white range) was obsolete, because it had been replaced by newer products. In fact a decision appears to have been taken at a management meeting on 9 January 1999 to sell existing stock at Wilton Street to Mr Clayton; and to delete all "Warmwhite" stock. The question of a sale of stock to Mr Clayton was not pursued in the evidence. In addition a large part of the stock consisted of sealant. Because of shortcomings in the way that the sealant had been taken from stock back at Wilton Street, most of it turned out to be past its sell-by date. All the relevant witnesses agreed that this was so. Ms Almond says that she recorded the stock in a file, and then inputted the information into the computer. She says that she gave the file to Mr Naden. Ms Almond said that there were a number of tools at Wilton Street that were not moved to Burnden Works: they had new tools when they got there.
  495. Mr Gray said that about 2400 square feet were allocated to the storage of components. The space was racked, four pallets high, making space for some 300 pallets. Ms Almond said that the space allocated was not enough; but Mr Gray disagreed. Both Mr Gray and Mr Whitelock regarded the space at Burnden Works as being a significant improvement over Wilton Street. Although Mr Gray agreed that he was not involved in the physical unloading of the components, he maintained that he was involved in the operation. He did not recall Ms Almond inputting information into a computer: indeed he did not recall her having access to a computer, and said that at the time there was no computerised stock recording at Burnden Works. Mr Sheffield also said that Ms Almond did not have access to a computer where the stock was stored; although she may have "played" on a computer upstairs in the office. Both Mr Gray and Mr Sheffield said that at the time they did not have stock accounting software. Mr Gray said that he simply prepared an Excel spreadsheet. He explained that his involvement in the moving of the stock included: arranging for the transport; arranging for staff to unload the lorries; and the subsequent valuation of the stock. He also said that he made a cursory inspection of the stock, at least in the first instance.
  496. Some of the personnel moved to Burnden Works at about the same time. Those who moved included Ms Patey and Ms Owen. However, Mr Ivison did not move; because he resigned on 11 January 1999, having been approached by a competitor with a better offer.
  497. At the same time Seaquest's business was also transferred to Burnden Works. Although Ultraframe allege that the stock was transferred directly from Northstar to BCP, it is clear (and, I think, common ground) that BCP did not in fact start trading until March 1999. It is unlikely, therefore, that it acquired any stock in January, when the stock was actually moved. The paperwork relating to the stock (which I shall consider shortly) proceeds on the basis that the stock was transferred first from Northstar to Seaquest; and then from Seaquest to BCP. In my judgment that reflects the reality.
  498. Although Northstar's roof fabrication business was retained at Groby Road for the time being, the roof fabrication business transferred to Burnden Works a few months later, in June 1999, immediately after Northstar went into receivership. Mr Roberts moved over some time earlier in order to set up equipment, shelves and racking; and to move materials so that the transfer could take place smoothly. Mr Roberts said that he created six manufacturing bays on the warehouse allocated to the business, so that six roofs could be manufactured simultaneously. This was done with racking, materials and equipment provided by the Burnden Group. These included a new saw. At this stage nothing was moved over from Northstar's premises at Groby Road, which remained untouched. He said that the result was "a replication of exactly what had existed at Groby Road". Mr Worsdall confirmed that all the fabrication equipment at Burnden Works was new. According to Mr Brown, Mr Roberts supported the move to Burnden Works, and carried the production staff with him.
  499. The server
  500. Mr Brown said that when Seaquest's business moved to Burnden Works the computer server which had been at Groby Road was taken to Burnden Works. At this stage none of the data on it was deleted or removed. A new server was installed at Groby Road on 17 January 1999, configured to connect to the Northstar network. Data was loaded onto the new server from a backup tape taken from the old server that had just been moved to Burnden Works. Thus, according to Mr Brown, the server at Groby Road was an exact copy of the old server at the point in time when the backup was made. Mr Brown also organised the wiring at Burnden Works to accommodate a computer network. However, it seems that the computer terminals themselves were new.
  501. Accounting for the stock
  502. On 31 December 1998, before the stock was moved to Burnden Works, Mr Birkett had issued an interim invoice, in the sum of £50,000. The invoice was addressed to Seaquest; and described the transaction as "sale of component stock". He did not carry out a formal stock-take, and his figure was a rough guess. But he thought that the stock, at least at Wilton Street, was in good condition. Once the stock had been counted on its arrival at Burnden Works, Mr Gray worked out what the cost prices of that stock amounted to. Although Ms Almond was still working at Burnden Works at the time, she did not participate in that exercise. Mr Gray denied the suggestion that she was deliberately excluded. He also denied the suggestion that his brief was to keep the stock valuation as low as possible. He said that he was simply asked by Mr Sheffield to get an accurate count and to value the stock; and that is what he did. Mr Gray's initial assessment of the cost price of the stock came to £41,737.20. This was less than had been expected; and less than the interim invoice of £50,000 that Northstar had issued before the move. So on 21 April 1999 Mr Hindley, on Mr Gray's instructions, prepared a credit note in the sum of £8,262.80 plus VAT. This credit note reflected the quantity of stock that had actually arrived at Burnden Works, rather than its quality. The delay in issuing this credit note was not really explained; but Mr Gray said that he agreed the amount with Mr Naden. However, Mr Naden was not in a position to disagree either with the count or the cost prices attributed to the stock; so his agreement was more apparent than real. At the same time Seaquest issued an invoice to BCP for the stock at the reduced price of £41,737.20. Mr Gray said that at the time he carried out his initial assessment he did not know that BCP would be the ultimate buyer of the stock. By the time the revised invoice was issued, Ms Almond had left. Mr Hochhauser suggested to Mr Gray that the issue of the invoice and credit note was deliberately delayed until Ms Almond, who had an intimate knowledge of the components, was safely out of the way. Mr Gray denied that this was so.
  503. Mr Gray then said that he embarked on a subsequent exercise, to determine the quality (as opposed to the quantity) of the stock. The purpose of this exercise was to see what was usable stock. He said that there were a lot of damaged products, and some obsolete ranges, although the ranges had not been obsolete when the stock was initially moved over to the Burnden Works. (His attention was not drawn to the decision by the management committee on 9 January 1999 to delete the "Warmwhite" range.) It was then, he said, that it was discovered that the sealant had gone past its use-by date. Mr Gray said that this exercise had not been done by Ms Almond when the stock first arrived at Burnden Works. Mr Gray produced another spreadsheet, which detailed what he said was unusable stock. The total amounted to £34,735.80. Mr Gray discussed this with both Mr Sheffield and Mr Naden. Mr Naden came to Burnden Works and looked at the stock. Again, Mr Naden agreed the figures. Mr Gray denied the suggestion that he had deliberately waited until Ms Almond had left before writing down the stock value still further; and also denied having deliberately kept the write down from Mr Birkett. On 18 May Seaquest issued a credit note against BCP in the sum of £34,735.80 plus VAT. This credit was expressed to be on account of damaged stock. On the same day Northstar issued a credit note in favour of Seaquest for the same amount. The overall effect of the various credit notes was that Northstar bore the loss.
  504. A breakdown of the figure of £34,735.80 appears in two documents, both prepared by Mr Gray. The first is a spreadsheet; and the second is an undated and unsigned letter from Mr Gray to Mr Hindley. Although the totals in the two documents are the same, the breakdown is completely different. In particular, the value attributed to the out of date sealant (which, at over £13,000 was by far the largest single item) does not explicitly appear in the letter at all.
  505. There is no documentary evidence of what happened to the written-off stock. Mr Gray thought that some of it might have been reground, and the rest thrown away. The written-off stock represented about 80 per cent of the original interim valuation that Mr Birkett had prepared. The remainder of the stock of components has, no doubt, been sold by BCP to dealers for incorporation in conservatory roofs. It is not suggested that any of it remains in the possession of BCP. Nor is there any evidence that ownership or possession of the stock was transferred to any other company within the Burnden Group.
  506. Ultraframe say that the discrepancies between the two documents show that the stock valuation was a bogus exercise. They say that it is inconceivable that the stock, which had been provisionally valued at £50,000, and which had taken two weeks to unload and stack in the newly prepared racking, could have turned out to have lost some 80 per cent of its value. They say that the real object of the exercise was to enable BCP to acquire Northstar's stock at a knock-down price. However, this is not a pleaded allegation; and no evidence was called as to the real value of the stock. Ultraframe's case on the stock, as they would now like to advance it, is that the purported valuation of the stock was dishonest and fraudulent. But in my judgment that case is not open to them on the pleadings.
  507. It is also, I think, a point worth making that according to Mr Hall, Northstar continued to record sales of components throughout February 1999. Seaquest also continued to process orders for roofs (which would have included orders for components), even after BCP took over their supply. The stock which is the subject matter of the credit notes is therefore unlikely to have been the same stock as had arrived at Burnden Works in late January. The component stock, by its very nature, was circulating stock. This is another factor which may go some way to explain the different figures.
  508. Other assets of Northstar
  509. When the business moved to Burnden Works, many of Northstar's other assets were transferred to Seaquest. These were mainly chattels that passed on delivery. On 20 May 1999 Northstar raised an invoice against Seaquest for those goods. They were:
  510. Press £1350
    Computer £900
    Printer Colour draft £337
    Vac Form Tool £3300
    6 Office cabinets £216
    5 Miscellaneous computers £3000
    Subtotal £9103
    VAT £1593.03
    Total £10,696.03

  511. The computer valued at £900 was Mr Read's. It had on it the roof file associated with the computer software. Mr Read thought that the real value of his computer lay in the data stored on it; but he had not himself put a value on it, and there was no one else who had.
  512. Preparation for Glassex
  513. Mr Ivison's resignation had come just a few months before Glassex. A meeting was held at Burnden Works on 13 January 1999. Both Mr and Mrs Fielding attended, together with Messrs Sheffield, Birkett, Naden, Roche and Read. The stand at Glassex was to be co-ordinated by Mrs Fielding and Mr Roche. The name "Quickfit" was to be removed from all paperwork. It was also decided to explore the possibility of changing the aluminium suppler. Arrangements were made to prepare a cashflow; and all capital expenditure was to be presented to Mr Sheffield, for approval by the finance department. At a meeting on 19 January 1999 it was recorded that Mr Hutchinson and Mr Hindley were to be responsible for the implementation and running of Sage software for Seaquest and Northstar; and were to give necessary training to the personnel involved. The idea was to produce management accounts so that the directors could make management decisions.
  514. The question of Glassex was discussed again on 21 January. Mr Fielding did not attend this meeting; but Mrs Fielding did. However, costs were to be approved by Mr Fielding. Various tasks were allocated to the attendees. None were allocated to Mrs Fielding. Among the action points were:
  515. "GJF to overview how company is going forward and with whom in what position."
  516. On the same day Mr Roche and Mr Fielding discussed budgets. In consequence Mr Roche contacted Mr Hacking on the following day, 22 January 1999. He explained that Mr Fielding was concerned that he was becoming "more embroiled in Northstar" as a result of the litigation. Mr Roche's specific question was whether Mr Fielding could lend more money to Seaquest, covered by the debenture, without being in breach of any court order. The consensus of legal opinion was that he could.
  517. By March 1999 Mrs Fielding was dealing with fabricators and was signing her letters as Sales Director of Seaquest.
  518. The leases
  519. On 1 March 1999 Mr and Mrs Fielding granted a lease of part of Burnden Works to Seaquest. The parts comprised in the lease consisted of units G3 and LG3. Unit G3 was a furnished suite of centrally heated offices; and Unit LG3 was an area used for warehousing and storage. These parts of Burnden Works were let on the terms of a Law Society standard form of lease, with amendments. The term of the lease was one year. The rent of Unit G3 was expressed in the lease as £12,750 together with a service charge of £6,000 plus VAT; that of Unit LG3 was expressed as £9,000 together with a service charge of £12,750 plus VAT. Under the terms of the lease the landlord (rather than the tenant) is obliged to pay the rates. In addition to being responsible for the repair and maintenance of the structure and common parts and for insurance, the landlord is also obliged to provide other services. These include heating the demise as well as the common parts; telephones in the demise, and the provision of a fork lift truck.
  520. Although the rent of Unit G3 is expressed as £12,750 a year, Mr Fielding explained that that sum included the rates. Shorn of rates, the rent alone was £8,615 a year. On the other hand, in relation to Unit LG3 the rates were part of the service charge. In both cases, however, the service charge was fixed, and was not variable with the landlord's costs. The rent of Unit G3 devalues to £8.16 per square foot; and the rent of Unit LG3 to £3.89 per square foot. At the same time Mr and Mrs Fielding let Unit G1 to Seaquest on the same terms. Unit G1 was a self-contained fabrication unit with a shared loading bay. The rent of Unit G1 devalues to £4.82 per square foot. Although no written lease was ever executed, a draft lease was produced.
  521. Mr Fielding said that Unit G1 was set up as a training shop in which new dealers could be trained in fabricating the conservatory roofs. He listed a number of companies to whom, he said, training had been given. Mr Roberts agreed that Unit G1 was used for training. He recognised a number of the names on Mr Fielding's list; and, as for the rest, was not prepared to disagree with Mr Fielding. However, Mr Roberts said that Seaquest did not do training in there. He said that Seaquest used to send a couple of fitters out to customers to work with them. The training that was given in Unit G1 was for customers' fitters who wanted to brush up on their skills.
  522. BCP distributes the system
  523. I have already mentioned that the combination of the supply of components by Northstar to the dealers together with the fabrication of roofs by Northstar in competition with those same dealers was a cause of complaint by the dealers. This posed a dilemma for Northstar and Seaquest. In order to placate the dealers, either Northstar would have to give up fabrication; or the supplier of components would have to be changed. Mr Birkett appears to have favoured the first course. On 17 February 1999 Mr Hacking wrote to him that:
  524. "I have noted from your recent telephone call that Northstar will, in response to the pressure from dealers, be ceasing its role as fabricator shortly. It will also cease to supply bar lengths. Its business as a supplier of component parts for the Seaquest System to dealers will continue, at least until such time as its debts have been paid off. Thereafter, it may well be that its licence to produce components for the system will be withdrawn by Seaquest"
  525. Northstar did not cease its role as fabricator until June 1999. However, the last sentence of this extract was prescient. On 24 February 1999 Mr Sheffield, writing on the "Seaquest" letterhead, sent a circular letter to dealers in which he said that there were to be changes in the "Mill Direct" supply of the roof system as from 1 March 1999. In particular, the uPVC profiles and accessories were to be processed by BCP from Burnden Works. According to the letter, the reason for this was to cut down the number of complaints of poor service and missing items from orders. Another benefit would be a simplified order form and only two suppliers (Alumax and BCP) in place of the previous three (Northstar, Dearward Profiles and Alumax).
  526. By about March 1999 BCP began to distribute the Seaquest system. Later, it also carried out some fabrication of roofs; but that was after Northstar went into receivership in June 1999. In distributing the system it was at first regarded as the sales agent for Seaquest. It sold components and uPVC extrusions to dealers on Seaquest's behalf. The sale of components had previously been carried out by Northstar, and the supply of uPVC extrusions by Dearward Profiles. The aluminium, however, came direct from the aluminium suppliers at this stage. The dealer network to which it sold was the dealer network built up by Seaquest. This arrangement is consistent with the sale by Northstar to Seaquest of its stock of components. It pre-dated any formal licence by Seaquest, although Mr Whitelock thought that this had been informally permitted by Seaquest.
  527. The decision to route the supply of components through BCP has left no real paper trail. Mr Fielding said that the change of distributor was agreed between himself, Mr Naden and Mr Roche. However, Mr Roche said that the decision was taken by Mr Fielding alone. Mr Naden gave no evidence about it. Mr Fielding did not suggest that Mr Birkett was involved in the decision. But Mr Birkett had resigned as a director and company secretary of Seaquest on 4 February 1999; and Mr Fielding had himself become company secretary at the same time. So it is not altogether surprising that Mr Birkett was not involved in the decision, which appears to have been taken at short notice. On the other hand, it was Mr Birkett who had issued the invoice (to Seaquest) for Northstar's entire stock of components, which betokens Northstar's withdrawal from the distribution side of the business.
  528. On 8 January 1999 Mr Fielding swore an affidavit in which he said:
  529. "I have been advised that, in consequence of my increasingly close involvement in the affairs of Northstar and Seaquest, I might be regarded as a de facto or shadow director."
  530. On 5 February 1999 he wrote a letter to his solicitors under the heading "Seaquest Systems Ltd" in which he said:
  531. "As I explained on the telephone, I am now running the company."
  532. In view of these statements, I have no difficulty in concluding that the driving force behind Seaquest's decision to change distributors was Mr Fielding. Mr Naden may have been involved or consulted; but, if he was, he would not have stood in Mr Fielding's way. Mr Birkett was already losing interest (and was on the point of being suspended by the time that BCP began to distribute the system). But although he was reluctant to lose control of the components side of the business, he too acquiesced in the decision. The decision to change supplier must have been made in February 1999; and I so find.
  533. In April 1999 BCP acquired Northstar's stock of components, through the series of debits and credits I have already described. From then on BCP carried on the business of selling components on its own account, rather than as agent for Seaquest. It was, however, liable to pay commission to Seaquest on components, as Seaquest was the legal owner of the intellectual property rights.
  534. However, within days, BCP suspended payment of commission to Seaquest, because of alleged deficiencies in the gutter system.
  535. By May 1999 BCP was placing orders with First Degree Software for the supply of software used in connection with the system. The software was supplied to dealers so that they could place orders for components of the system. As had been agreed in January, the system was no longer marketed as the Quickfit system; it was marketed as the Seaquest roofing system instead.
  536. Mr Fielding withdraws support for Northstar
  537. I have already mentioned that on 24 November 1998 Mr Fielding agreed to lend Northstar £90,000 in consideration of the allotment of 900 shares. On 10 March 1999 he wrote to Mr Naden and Mr Birkett, withdrawing his offer of a loan, and saying that he would relinquish the 900 recently allotted shares. He also indicated that he would cease to buy aluminium on Northstar's behalf; and asked for repayment of the £28,000-odd he was owed on account of aluminium purchases.
  538. Mr Fielding lends more money to Seaquest
  539. Between April 1999 and the end of June 1999 Mr Fielding lent more money to Seaquest. The total amount was of the order of £220,000. All this lending was secured by the Seaquest debenture. Subsequently, at the request of Seaquest's auditors, part of this loan was deferred.
  540. Mr Fielding now claims to be entitled to be repaid £330,380 by Seaquest, made up as follows:
  541. Date Details Amount
    £
    21 November 1998 Transfer of debt from Northstar to Seaquest 40,000
    25 November 1998 Transfer from Mr Fielding's bank account 70,000
    8 April 1999 Cheque from Mr Fielding 20,000
    23 April 1999 Cash paid to Northstar employee 360
    2 June 1999 Cheque from Mr Fielding 150,000
    16 June 1999 Cheque from Mr Fielding 50,000
      Total 330,360

    Transfer of debt
  542. Mr Fielding claims to have lent £80,000 in cash to Northstar. However, he claims that half of that amount is now secured by the Seaquest debenture. The "transfer" of half the indebtedness from Northstar to Seaquest was not effected by way of an actual transfer of funds, but by way of accounting entries. Mr Fielding said that, in the course of a conversation in January 1999, it was decided between him and Mr Hindley that the sum of £80,000 ought to be split equally between the two companies. So Mr Hindley made the necessary accounting entries including, on 19 March 1999, changing the title of an account from "directors' and shareholders' loans" to the "GJ Fielding debenture". However, Mr Hindley's recollection was that he had made the entries, not because there was any decision to "transfer" the debt, but because Mr Fielding had told him that he had put £40,000 into each company.
  543. The pleaded allegation about this "transfer" was that it was dishonestly made by Mr Roche at the behest of Mr Fielding. Although the reasoning behind the allegation of dishonesty is not clearly set out in the pleading, it seems to me that its rationale is that the "transfer" of the debt was part of a plan to corroborate the false allegation that Mr Fielding lent £80,000 to Northstar. It is clear, however, that it was Mr Hindley (and not Mr Roche) who made the entries. If Mr Fielding did lend £80,000 to Northstar, it is not alleged that the "transfer" of the debt has any separate legal consequences.
  544. Indeed since the claim is brought jointly by Northstar and Seaquest, it is difficult to see how Seaquest could allege that Northstar (rather than Seaquest) owes the whole debt without there being a serious conflict of interest between them.
  545. The November 1998 payment
  546. This payment came about in connection with Mr Fielding's promise to lend £90,000 in exchange for the allotment of shares. Although the allotment was set aside, a payment of £70,000 was in fact made. The money came from Mr and Mrs Fielding's partnership, funded by a bank loan.
  547. Although Mr Fielding was put to proof that he lent this sum, it is not in dispute that this payment was made. The only other pleaded allegation is that of this sum £50,000 was paid out of Seaquest's account by Mr Fielding two days later. Mr Fielding said that he had been told by Mr Birkett that he had issued cheques on Northstar's bank account to the value of £50,000 and the cheques were likely to bounce. It is common ground that Northstar needed the money. Mr Fielding was unwilling to lend money to Northstar; but was willing to lend money to Seaquest which he regarded as "the best horse in the race". He therefore lent the money to Seaquest so that Seaquest could, in turn, lend the money to Northstar.
  548. The April 1999 payment
  549. Mr Fielding is put to proof that this payment was made, but it is common ground that he did. There is no separate pleaded allegation about it.
  550. The payment to the employee
  551. Mr Fielding is not even put to proof that he made this small payment; and it is common ground that he did.
  552. The June 1999 loans
    The offer of a loan
  553. The genesis of the June 1999 loans (amounting to £200,000) was a letter that Mr Fielding wrote to Mr Naden on 27 May 1999. In that letter he said:
  554. "I refer to our meeting today to discuss the financial status of Seaquest Systems Limited and having considered the matter in some detail, I would offer the following additional financial support to Seaquest Systems Limited against my debenture of November 1998:
    1. Immediate Capital Injection of £150,000 to pay creditors who are demanding money.
    2. Further Capital Injection of £50,000 in approximately 4 weeks to cover creditors becoming due at the end of June 1999.
    3. Last Capital Injection of £50,000 making £250,000 in total in July 1999, to provide working capital necessary to improve system."
    The first instalment: deleted stock and rent
  555. Mr Hall traced the origin of the first instalment of £150,000 to Mr and Mrs Fielding's partnership bank account. It was mainly used to satisfy two particular debts of Seaquest. The first was a debt of £133,718 owed by Seaquest to Kesterwood Extrusions. The second was a debt owed to Mr and Mrs Fielding for rent.
  556. The question of deleted stock had arisen in this way. The system had originally been offered in six different colours. Two colours were not successful and were deleted from the range. However, by this time Kesterwood Extrusions had built up stock in the two deleted colours for which it considered it was entitled to be paid. It therefore invoiced Northstar for the stock on 1 March 1999. On 30 April 1999 Mr Naden, acting for Northstar, complained that the stock levels had been requested by Mr Birkett on behalf of Seaquest; and that the liability was Seaquest's rather than Northstar's. On 4 May Mr Hutchinson of Kesterwood Extrusions said that he agreed with Mr Naden's point; and said that he would issue a credit against the invoice and re-invoice Seaquest. On 6 May Kesterwood Extrusions invoiced Seaquest for £113,803 plus VAT for:
  557. "Supply of UPVC Extrusions ordered between December 1997 to May 1998 exclusive to be held in stock that has not moved for 8 months."
  558. In fact Seaquest had not begun trading until March 1998; so on any view it could not have ordered stock in December 1997. However, Seaquest raised no objection. There is no pleaded allegation that the underlying agreement relating to the deleted stock was improper; or that Kesterwood Extrusions was not entitled to charge for it. Again, if the real issue is whether the liability falls on Northstar or on Seaquest, it is difficult to see how a joint action by both of them as co-claimants can resolve that.
  559. The balance of £12,618 was used to pay Seaquest's rent due to Mr and Mrs Fielding in the sum of £11,829.31 and expenses incurred by Mr Fielding in connection with Glassex. No challenge was made to Mr Fielding's claim to have incurred these expenses. Nor was it in dispute that the rent was due; although I will have to deal with other allegations relating to the rent later.
  560. The second instalment: management charges
  561. Mr Fielding was put to proof that he had lent this sum; but it was common ground that it could be traced to the partnership account. The second instalment of £50,000 was used to pay management charges of £50,231 invoiced by The Burnden Group to Seaquest on 21 June 1999. The management charges are in dispute; and I will deal with them later.
  562. The third instalment
  563. The third instalment was not paid. In July 1999 Mr Fielding notified Mr Naden that he would not be making this payment, as a result of advice he had received from counsel.
  564. Circular transactions?
  565. Mr Hall traced the flow of funds through various bank accounts. Starting with the first instalment of £150,000 lent by Mr Fielding to Seaquest, he demonstrated that £12,618 was repaid immediately to Mr and Mrs Fielding as rent. Of the money paid to Kesterwood Extrusions, £85,000 was paid by Kesterwood Extrusions within a few days to Mr Fielding in reduction of his loan account. Of that sum, £50,000 was lent by Mr Fielding to Seaquest as the second instalment, and was paid to The Burnden Group within another few days. Effectively, therefore, the whole of the £250,000 which Mr Fielding lent Seaquest was paid by Seaquest for the benefit of Mr Fielding or companies under his control. This is factually true; but if the underlying debts that were discharged by the payments were proper debts, it is legally irrelevant.
  566. Mr Birkett's Suspension
  567. Mr Birkett was suspended from his duties on 10 March 1999. The immediate cause of his suspension was an allegation (which Mr Birkett admits) that he was fraudulently taking wages for three ex-employees. There was also an allegation that he had been taking cash from Northstar; which he denies. These allegations had arisen as a result of Mr Sheffield's investigation of Northstar's accounts. Mr Sheffield was convinced that Mr Birkett had been stealing money from Northstar; and that since Northstar was being funded by Mr Fielding, Mr Birkett had, in effect, been stealing from Mr Fielding. Mr Roche, at Mr Fielding's request, had investigated the allegations. The meeting at which these allegations were put to Mr Birkett was attended by Mr Fielding, Mr Sheffield and Mr Roche, as well as Mr Birkett himself. On the day he was suspended Mr Birkett took a computer and some documents from Groby Road.
  568. That evening he met Ms Owen at a pub in Moss Vale. He had been drinking and he was angry. Ms Owen said that Mr Birkett said that he would stop Northstar from trading; and Mr Birkett accepted that he might well have said something to that effect. He also accepted that it was possible that, as Ms Owen said, he had said that he wanted to see Mr Fielding's businesses fail. In her oral evidence Ms Owen said that Mr Birkett was angry about his suspension and was also angry about the set up at the Burnden Group. He hated Mr Fielding and was out for retribution. He said he would stop at nothing to cease the company's trading; and went into "a rolling list" of what he would do. These threats included "torching the premises" at Burnden Works. Ms Owen told Mr Sheffield about her meeting with Mr Birkett; and Mr Sheffield made a note of what he was told. The note records the following attributed to Mr Birkett:
  569. "Eddie Birkett. I have had it with these people. If they want war I will do anything to stop this company trading. Anything I have got to do I will do it. E.g. falsifying information or documents. They do not realise I can stop everything tomorrow if I want to, they are in my hands. I would torch the premises first."
  570. Mr Birkett denies that he said he would torch the premises, or that he would falsify documents; but he concedes that it is possible that he said that he could stop Northstar from trading.
  571. In the early hours of 11 March 1999, there was an arson attack on Burndon Works. The accounts office was damaged. Mr Birkett says that he was not responsible for it. Although the police have interviewed him in connection with the attack, no charges were ever brought.
  572. Mr Brown was in what he called "irregular contact" with Mr Birkett during his suspension. Mr Brown was aware that Mr Birkett had been accused of taking money from the company. He was also aware that Mr Birkett was suspected of involvement in the arson attack. He had been asked by Mr Birkett, shortly before his suspension, to make copies for him of the accounting information kept on the server at Burnden Works, which he did; although he did not hand over the floppy disks containing the information until after Mr Birkett's suspension.
  573. Mr Birkett's resignation and approach to Ultraframe
  574. In May 1999 Mr Birkett received a copy of the List of Documents in the Leeds Consolidated Action together with a draft Affidavit which he was asked to swear in order to verify the list. However, he did not swear the Affidavit at this stage. On 25 May 1999 he received a letter from Mr Hacking pressing him to swear the affidavit verifying the list. A meeting had been arranged for that purpose on 20 May. Mr Birkett says that he had not gone to this meeting because he was apprehensive about providing an Affidavit as he knew that many of the documents contained in the list were not genuine.
  575. Although Mr Birkett's evidence about when he first made contact with Ultraframe was variable, it seems probable that he first made contact by telephone at the end of May or the beginning of June 1999. He said that he began to talk to Ultraframe because he was unhappy about his suspension. Mr Birkett had the following exchange with Mr Snowden:
  576. "Q. You wanted to see whether they would pay you money to spill the beans about what had been going on at Northstar. Correct?
    A. In a nutshell, yes."
  577. Not surprisingly, Mr Birkett told no one at Northstar about his contact with Ultraframe. But surprisingly, Mr Birkett did not tell Ultraframe that he had a set of forged documents, or that forgery had been going on.
  578. On 8 June 1999 an Order was made requiring Mr Birkett to verify his own List of Documents and that of Northstar (of which he was still a director and company secretary). He says that he was uneasy about doing so and took legal advice on his own behalf. He was advised not to commit perjury; and consequently refused to swear the affidavit.
  579. On 11 June 1999 there was a board meeting of Northstar at the World Trade Centre in Salford. Mr Birkett and Mr Naden were there as directors. Mr Fielding and Mr Roche were also there. It was agreed that Mr Birkett could be reinstated. He had remained a director of Northstar throughout his suspension. Mr Birkett was given the opportunity to come up with a business plan for Northstar. Mr Birkett was accompanied at the meeting by his solicitor. The minutes of the meeting record that:
  580. "Mr Birkett disclosed he had various papers that may be relevant to the GHD case… Mr Fielding and Mr Roche cautioned Mr Birkett that he should not place himself in a position that may leave him open to a charge of perjury. Mr Davies (a solicitor) agreed. Mr Birkett said he would go through some papers in his possession and double-check if they were relevant and would report back as soon as practicable and in any case before 25th of June".
  581. Mr Fielding said that the only document that was specifically mentioned was a declaration of trust by Mr Naden over his Northstar shares. This evidence was not challenged.
  582. A further meeting of the board was held on 16 June. Mr Birkett had not, by then, drawn up a business plan. Mr Naden suggested that in view of Northstar's financial position, Mr Fielding should appoint a receiver. (He had in fact written a letter to that effect). Mr Birkett objected; and said that he would draw up a business plan within the next two days. Two days later, on Friday 18 June, the board met again. Mr Birkett had still not drawn up a business plan. The meeting was a heated one. Mr Naden suggested that Mr Fielding should appoint a receiver over the assets of Northstar; but this was fiercely opposed by Mr Birkett. So Mr Naden resigned. Mr Birkett alleged that the situation had been engineered. He meant by this that Northstar's business had been deliberately run down in order to get rid of him, because he knew too much about what had gone on, and was a thorn in the side of Mr Fielding and Mr Naden. Mr Fielding denied this and said that the situation had been improving in the last few months. But by the end of the meeting it was clear that Mr Fielding would indeed appoint a receiver. Mr Birkett reluctantly agreed. Mr Naden's last act as director was to acknowledge receipt of Mr Fielding's demand calling in his debt.
  583. On leaving the meeting, Mr Birkett cleared his desk at Groby Road. After everyone had gone home, he also took a computer server and some back up tapes. The reason he took these was that they "had the information on everything that had been going on at Northstar". At some point, probably in about August 1999, Mr Birkett passed the computer server and the back up tapes to Hammond Suddards, then acting for the trustees in bankruptcy and Ultraframe. Mr Birkett says that he may have told Ultraframe that he had the computer and the tapes (although he also denied having done so; but that Hammond Suddards might have done). He also says that, having taken the computer and the back up tapes, he put them in his loft, without looking at them. Amongst the reasons he gave for having done that were that he did not have a computer screen or keyboard to access the contents of the server. Seaquest became aware that the back up tapes had gone missing. They suspected Mr Brown of having taken them and began proceedings against him for their return. Although Mr Birkett and Mr Brown were in contact, and Mr Birkett knew of the proceedings against Mr Brown, he did not reveal that it was in fact he who had the computer and the tapes. He simply let Mr Brown fight off the proceedings as best he could. Mr Birkett said that once he knew that proceedings had been begun against Mr Brown he realised that the computer and the tapes were valuable; but he did not tell either Hammond Suddards or Ultraframe that he had them.
  584. On 11 August 1999 Mr Birkett entered into the so-called consultancy agreement with Ultraframe. He signed his first affidavit a few days later on 16 August. It does not appear that Mr Birkett has in fact been consulted by Ultraframe.
  585. The receivership of Northstar and its aftermath
    The statement of affairs
  586. Mr Roche provided Mr Hindley with information about the fixed assets of Northstar and Seaquest. He did this by walking round the premises at Groby Road and identifying plant and machinery. He then compiled a schedule which set out the cost of the various items of machinery and equipment and their present value. The total was £39,000-odd, of which equipment amounting to £9,000-odd was shown as "Bolton/Seaquest". This appears to represent equipment which Northstar had sold to Seaquest back in April 1999 and which was located at Burnden Works. Mr Hindley, however, erroneously included all that equipment in a Statement of Affairs that he produced to assess Northstar's solvency. However, to take account of the realisable value of the equipment on a bulk sale, rather than break-up value, he took an overall value of £20,000. Mr Hindley formed the view that Northstar was insolvent; and reported his opinion to Mr Fielding.
  587. The receiver is appointed
  588. On 21 June 1999 Mr Fielding appointed Mr Long, a partner in Pannell Kerr Foster, as administrative receiver of Northstar. Mr Long immediately made all the employees of Northstar redundant. He also arranged for auctioneers to prepare a valuation of Northstar's saleable assets and arranged for Northstar to vacate Groby Road; which it did on 23 June 1999.
  589. I have already mentioned that the roof fabrication business carried on by Northstar moved to Burnden Works in June 1999. However, on the basis of Mr Roberts' evidence, who transferred to Burnden Works in advance of the move, the move must have been planned before the receivership.
  590. At about the time of the receivership the remaining staff at Groby Road were addressed by Mr Sheffield. According to Mr Brown he told them that they would transfer to Burnden Works; that they would be treated as having continuous employment; and that a minibus would be laid on to take staff from Groby Road to Burnden Works. According to Mr Roberts, Mr Sheffield told the staff at Groby Road that everybody would have the same job at Burnden Works that they had had at Groby Road; that anybody who had a company car would be able to keep it; and that they would carry on what they had been doing at Groby Road, but for the Burnden Group. Mr Sheffield agreed that on the appointment of the receivers he told the staff at Northstar that they should not worry; that they would be found jobs at BCP; and that they would be ferried over to Burnden Works. He said that they were offered "TUPE"; that is continuous employment and the honouring of their holiday commitments.
  591. Mr Fielding did not discuss with the receivers the possibility of buying Northstar's business as a going concern. The receivers' report stated:
  592. "A brief review of the company's business quickly established that a sale of the business undertaking was not a practical possibility given that the company did not own the rights to the roofing system."
  593. On 29 June the receiver sold Northstar's plant and stock for £10,500, apparently to a company called "Burnden Contracts Ltd". The identity of this company is obscure. The plant included four machines. This was the same plant that Mr Hindley had valued at £20,000, even allowing the substantial discount for a bulk sale. The remaining items were some office furniture and stocks of aluminium extrusions; plastic mouldings and glazing bars. Although the receiver did not put the goods up for auction, there is no pleaded complaint that the sale was improper; apart from reliance on section 320 of the Companies Act 1985, and a general allegation that Mr Fielding had a conflict of interest. I will deal with these allegations later.
  594. The fabrication business moves to Burnden Works
  595. The roof fabrication business moved from Groby Road to Burnden Works over the course of a weekend. Thanks to Mr Roberts' preparatory work, fabrication of roofs was able to begin on the Monday morning without a hitch. All the staff engaged in fabrication at Groby Road were offered jobs with BCP at Burnden Works. The promised minibus was provided to take the staff from Groby Road to Burnden Works.
  596. At the date of the receivership there were some unfinished orders for fabricated roofs on Northstar's books. These orders were carried out by BCP. The orders appear to have been carried out with the consent of the receiver. Since the receiver had dismissed Northstar's remaining workforce, it is difficult to see what else he could have done. BCP invoiced these roofs to Northstar. However, after an examination of the invoices, and contrary to his first impression, Mr Hall concluded that these orders were carried out without profit to BCP. BCP collected some money from customers, but paid that over to the receiver.
  597. In addition there were orders on Northstar's books which had not been started. They were worth about £21,000, giving about £3,500 in profit. Mr Fielding discussed these with the receiver. In return for carrying out the unfinished orders at cost, the receiver agreed to BCP or TBG taking over these orders as well. Mr Fielding said that they took on about six customers who had been Northstar's customers, and that they did so partly because of Mr Fielding's agreement with Mr Naden that he would give him continuity of employment; and partly because Mr Fielding did not want to see Northstar's staff jobless. He said that the volume of roof fabrication was about two roofs per day for a five month period; and that overall that aspect of the business made a loss.
  598. Treatment of the staff at Burnden Works
  599. Many of the Northstar staff complained about the way they had been treated at Burnden Works. The general thrust of the complaints was that once they had been "milked" of their know-how and experience, they were unceremoniously dumped.
  600. Ms Almond said that for the first few weeks at Burnden Works everyone, including Mr Fielding and Mr Sheffield, was very friendly; but after a few weeks she became suspicious that things were being done behind her back. Mr Gray and Mr Sheffield in particular questioned everything she did and were critical of her. She says that they were trying to run her down so that she would leave. Once she had taught the Burnden staff how to do everything, she was then pushed out. In April 1999 she was sacked. Mr Sheffield said that he had nothing to do with Ms Almond's dismissal. She worked for Northstar, and it was Mr Naden who was responsible. He thought that Ms Almond's main problem was the difficulty in travelling to and from the Burnden Works; and that if she had lived closer, she would still be working there. When she left, Ms Almond was owed some money; and she wrote to Mr Fielding to secure payment. In the course of her letter she said:
  601. "Although my time with your company was short, I enjoyed the job and people within it."
  602. Mr Howard, who was one of the fabricators employed on the shop floor at Groby Road, transferred to Burnden Works. He described Mr Sheffield as rude and aggressive; and a difficult person to work with. He said that what was really happening was that Mr Fielding and Mr Sheffield were getting the Northstar personnel to train up their own men; and once that had been done looked for an excuse to get rid of the Northstar employees. However, he explained in his oral evidence that he trained a "couple of lads" for a day or less; and that, after their training, these lads did not work with him on the shop floor. Mr Howard also resented being told to do menial jobs, like sweeping the shop floor when, in his view, it did not need sweeping. He felt ignored by Mr Sheffield. Mr Howard left in July or August 1999. He was not happy working at Burnden Works, and he also found the journey from home difficult; even though, at that time, the minibus from Groby Road was still being provided.
  603. Mr Roberts said that, to start with, he had to familiarise the Burnden staff with the components that were used in assembling roofs. Later on three or four fabricators were recruited. Because every roof system is different the fabricators had to be trained to assemble the Quickfit system. Two of them were replacements for Northstar staff who had left because they did not like travelling to Burnden Works. The training took a week or two. However, Mr Roberts said that it was his belief that once he had passed on his knowledge to the Burnden staff, Mr Fielding wanted to get rid of him. Mr Roberts was offered another job within the Burnden Group, dealing with quality control at premises in Emlyn Street. He said that he felt he had no choice but to accept. In the early part of 2000, shortly after he had moved to Emlyn Street, his company car was withdrawn. He eventually took redundancy in September 2000.
  604. Mr Read did not accept that Mr Sheffield was rude or aggressive. He was neither rude nor aggressive to Mr Read himself; and Mr Read did not see him being rude to other people. He was, however, prepared to accept that Mr Sheffield was not a man to suffer fools gladly. Mr Read himself was offered a job as Design and Development manager with the Burnden Group; and he took up that offer with effect from 1 April 1999.
  605. Some of Northstar's staff were dismissed. Mr Langford, for example who was the driver was dismissed; but the reason for his dismissal was persistent bad timekeeping. Even so, he was not dismissed until eight or nine months after he had moved over to Burnden Works.
  606. At some stage the minibus was withdrawn. Some of the former Northstar employees then left because of the difficulties of getting to Burnden Works. Mr Roberts thought that the minibus had been withdrawn deliberately in order to encourage them to leave. But Mr MacMahon said that the reason for the withdrawal of the minibus was that there were problems in finding a driver who was old enough to be insured to drive it; and that when it was withdrawn the staff were offered free travel passes instead. Mr Sheffield said that the minibus ceased to be viable because there were too few people who wanted to take it.
  607. Conclusions on treatment of staff
  608. My conclusions on the treatment of the Northstar staff at Burnden Works are that:
  609. i) For many staff there were difficulties of travelling to and from Bolton (as opposed to Audenshaw where Northstar had been located);
    ii) The provision of the minibus was a genuine attempt to alleviate these difficulties but it did not work;
    iii) There was a different and more disciplined culture at Burnden Works which some Northstar staff found difficult to accept;
    iv) There were also clashes of personality.
    v) There was no systematic campaign to milk the Northstar staff of their know-how and then dismiss them; but such know-how as they had was not difficult to acquire.
    Was the move in the interests of Northstar and Seaquest?
  610. Mr Birkett explained that the components part of Northstar's business involved the storage of stock at Wilton Street and the administration being housed at Groby Road. This did not make for easy communication, which was carried out, for the most part, by fax. This was one of the problems that led to the short deliveries that gave rise to the customer complaints that I have already mentioned. Wilton Street was an old and run down multi-storey mill, which was not ideal for storage of the components. The premises at Burnden Works were superior to the Wilton Street premises; and also to those at Groby Road. Northstar was struggling to pay the rent at Wilton Street; and on at least one occasion the landlord distrained for rent. In addition, there were problems about Northstar's security of tenure at Groby Road, since the trustees had their eyes on the property, as being one of Mr Davies' few traceable assets. A move to Burnden Works, which would consolidate the business under one roof, was therefore sensible. Mr Ivison said that from a marketing perspective Burnden Works in effect provided smarter premises, and the move was therefore desirable. Mr Read said that the move of the storage facility at Wilton Road was a good thing for the company. He also thought that Mr Naden would have agreed to it, because he was worried by "what was going on down at Wilton Street, which was under Eddie's control". Mr Read also felt better supported at Burnden Works by accounts and support staff.
  611. Mr Birkett himself was unhappy with the move to Burnden Works. But these, he acknowledged, were personal feelings; and he recognised that from the business point of view, the move made sense.
  612. Ms Almond also thought at the time that the move of the components from Wilton Street was a good idea; but she was subsequently disappointed with the amount of space that had been allocated to them.
  613. I conclude that the move was in the interests of both Northstar and Seaquest.
  614. THE AUDIT OF SEAQUEST'S ACCOUNTS

    The course of the audit
  615. In the summer of 1999 Mr Hindley contacted Mr David Morlidge, a partner in the accountancy firm of Wragge & Lee, to undertake an audit of Seaquest's accounts. The accounts were to be prepared for the period ending 30 June 1999. Mr Hindley supplied a large amount of documentation. On examining the documents, Mr Morlidge saw that they recorded that Mr Fielding was owed some £330,000-odd secured by the Seaquest debenture. This included the £220,000-odd which Mr Fielding had lent Seaquest between January and June 1999. Mr Morlidge formed the view that if the whole of that loan was repayable immediately (as it was), Seaquest would be insolvent; and that he could not, therefore, audit its accounts on a going concern basis.
  616. On 1 November 1999, in response to Mr Morlidge's suggestion, Mr Fielding wrote a letter to Wragge & Lee agreeing to waive interest on his loan to Seaquest up to and including 30 June 1999. That left the capital. Mr Morlidge was still concerned that unless a substantial part of the loan was deferred, Seaquest would be insolvent. Mr Fielding decided to consult his solicitors on this question; and discussions took place between Mr Morlidge and Ms Boldero of Addleshaw Booth & Co. On 18 November 1999 Mr Fielding wrote to Mr Morlidge "subject to contract" saying that he agreed in principle to defer £250,000 of the indebtedness for a year. The letter enclosed a draft loan agreement. With that deferral Mr Morlidge felt able to audit Seaquest's accounts on a going concern basis. His note to the accounts read:
  617. "These accounts have been prepared on a going concern basis, notwithstanding a deficiency of net assets, assuming the continued support of the debenture holder."
  618. The accounts also recorded that Mr Fielding had waived interest on the loan. Four other queries arose in the course of the audit. The first related to intellectual property rights and tooling. The documents apparently recorded a payment by Seaquest of £350,000 for intellectual property rights and tooling. However, Mr Morlidge was not satisfied that there was documentary evidence (in the shape of an invoice from Northstar and the seller) to substantiate the payment. The minutes of a board meeting of Seaquest held on 22 October 1999 record the following:
  619. "Mr Fielding stated that he was concerned that the valuation of the assets was based on £100,000 of tooling and the notional figure of £250,000 which was shown as the value of the IPR.
    Mr Naden agreed that this was uncertain, but was based on the assignment of January 1998 from Northstar.
    Mr Roche was tasked with providing such copies as he could locate of tooling invoices."
  620. Despite Mr Morlidge's queries, no invoices were produced. All that Mr Roche said was that "records indicate that a sum of £350,000 was eventually paid". However, Mr Morlidge was supplied with a copy of a document signed by Mr Naden which said that the value of the assignment had been agreed between Northstar and Seaquest; and that it was made up of £250,000 for the intellectual property rights and £100,000 for the cost of tooling. But Mr Morlidge remained unsatisfied; and accordingly the accounts were qualified as follows:
  621. "However, the evidence available to us was limited as we were unable to verify the purchase of intellectual property at a cost of £250,000 or tooling at a cost of £100,000. These assets are recorded in the balance sheet at net book values of £150,000 and £40,000 respectively."
  622. The two last-mentioned values were written down values, after taking depreciation into account. This gave rise to the second query. Mr Morlidge raised the question of depreciation rates with Mr Fielding who, in turn, passed it on to Mr Roche. Mr Roche suggested certain rates, but Mr Fielding suggested others. Mr Morlidge satisfied himself that the rates proposed by Mr Fielding were reasonable rates; and adopted them in the accounts. The third query related to payment for legal expenses, which related to the proceedings brought by Ultraframe. Mr Morlidge satisfied himself that they were all properly deductible, on the basis that they were necessarily and reasonably incurred for the business of the company. The last query related to the question whether 900 shares allotted to Mr Fielding had been paid for. Mr Morlidge thought that the shares should have been paid for at the time when they were allotted; but could find no evidence that they had been. He discussed this with Mr Fielding's solicitor. They agreed that it would not be right to show the shares as having been paid for when they had not been; and that it would not be right to make a retrospective adjustment in the accounts (e.g. by transferring £900 from Mr Fielding's loan account). The solution that they arrived at was to put a note in the accounts as follows:
  623. "During the period 1000 shares were issued at par. The total consideration of £1000 was unpaid at the period end, and, of this total, £900 has subsequently been paid to the company. There is a legal dispute over ownership of 98 shares held in the company's records in the name of A. Clayton."
  624. In the course of the audit Mr Morlidge expressed concern, at a meeting on 29 September 1999, that Mr Fielding might be regarded as a shadow director of Seaquest. Mr Fielding does not recall that Mr Morlidge actually used the phrase "shadow director". But he does recall having told Mr Morlidge that he expected that he would soon "officially" become a director of Seaquest. Mr Fielding was in fact "officially" appointed as a director of Seaquest on 29 October 1999. Since Mr Fielding's solicitors wrote a letter on 30 September (the day after the meeting) saying that in view of Mr Fielding's "closer interest" in Seaquest he considered that it was appropriate that he should become a director of it, it seems very likely that Mr Morlidge did express his concern at the meeting.
  625. Apart from the qualification relating to the cost of the intellectual property rights and tooling, Mr Morlidge said that the accounts represented a true and fair view of Seaquest's financial state. The accounts were signed off by Mr Naden on 17 November 1999. Mr Naden does not appear to have played any other part in the audit of Seaquest's accounts. All the queries were dealt with by Mr Fielding or Mr Roche.
  626. The audit of Seaquest's accounts also produced two highly significant questions and answers relating to the ownership of the share capital. According to Mr Morlidge's note the answers to the questions were given either by Mr Hindley or by Mr Fielding himself. The questions and answers were:
  627. "What is the precise nature of the dispute over share ownership Davis "owned" Seaquest. No such thing!! Clayton in Trust for Davis
    Shareholdings – dispute over 98 shares held by A Clayton – Gary J Fielding thinks they are his! A. Clayton was Trustee but GJF has acquired the rights"

  628. These questions and answers date from November 1999, some three months before the decision of HH Judge Behrens on the question of share ownership. Mr Fielding could not recall having given this information to Mr Morlidge. However, Mr Hindley was sure that he did not; and he said that he was unaware of the information contained in those answers before seeing the document in the course of giving his evidence. I find that the information was given to Mr Morlidge by Mr Fielding.
  629. The loan agreement
  630. Seaquest's directors met on 18 November 1999 to consider (among other things) the draft loan agreement. The minutes record that an on demand loan of £330,000-odd was to be split into a term loan of £250,000 and an on demand loan of £80,360. The directors resolved that entry into the loan agreement was in the best interests of the company. Seaquest took separate legal advice from Hill Dickinson about entry into the loan agreement.
  631. The loan agreement was completed on 19 December 1999. Mr Naden signed it on behalf of Seaquest; and Mr Fielding signed on his own behalf. The agreement divided the loan into two parts: the A facility (£250,000) and the B facility (£80,360). By clause 2.1 of the agreement Seaquest acknowledged that it was indebted to Mr Fielding in the sum of £330,360 (the aggregate of the A facility and the B facility). Clause 4 said that the A facility was repayable on 1 July 2000; and clause 5 said that the B facility was payable on demand. Interest on both accrued in the meantime; but was not actually payable until 1 July 2000.

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URL: http://www.bailii.org/ew/cases/EWHC/Ch/2005/1638(2).html