Case No: HQ04X03609
Neutral Citation Number: [2006] EWHC 30 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 3rd February 2006 

Before :

THE HONOURABLE MRS JUSTICE SWIFT  DBE.
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Between :

	LEONARDO PRIVATE EQUITY FUND LIMITED	Claimant	
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	DONATO LOSCALZO	Defendant	

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Ms S Prevezer QC and Mr T Weisselberg (instructed by Byrne and Partners,  77 St. John Street, London, EC1M 4NN) for the Claimant
Mr Dominic Chambers and Mr A Winter (instructed by Withers LLP of Old Bailey, London EC4M 7EG) for the Defendant

Hearing dates: 21st November to 6th December and 16th December 2005
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Judgment

Mrs Justice Swift : 

THE CLAIM  

1.	The Claimant alleges that the Defendant, whom it retained as a consultant, fraudulently misrepresented to it the terms of a proposed investment in Italian sports goods companies, Giacomelli Sport S.p.A and Giacomellisport.com S.r.L, together with the associated companies, Longoni Sport S.p.A and Natura e Sport S.r.L, (‘Giacomelli’) and, without authority, committed the Claimant to that investment. It is alleged that, as a result of the Defendant’s misrepresentations, the Claimant has incurred a liability of at least €2.5m and potentially more than €15m. In these proceedings, the Claimant seeks to recover the sum that it has already paid out in respect of the investment, together with an indemnity in respect of any further claims that it becomes obliged to meet as a result of the investment.

2.	In answer to the claim, the Defendant denies fraudulent misrepresentation. The Defendant further contends that the Claimant had knowledge of the true terms of the proposed investment, both actual and imputed (through the Defendant who was acting with its authority and/or through lawyers who were acting on its behalf), such that it did not enter into the investment in reliance on the Defendant’s representations. In the alternative, the Defendant alleges that, after the Defendant had committed the Claimant to the Giacomelli investment, the Claimant subsequently ratified that investment with full knowledge of its obligations and risks. As to quantum, the Defendant contends that the Claimant has not suffered loss as the Claimant is seeking in administrative proceedings in Italy to have the relevant transaction declared void. If the Claimant succeeds in those proceedings, it will, the Defendant argues, have suffered no loss. 

3.	In response to the Defendant’s contentions, the Claimant submits that it had no knowledge of the true terms of the bid for Giacomelli, either actual or imputed, and that it did not ratify the Defendant’s actions in committing the Claimant to the purchase of Giacomelli in the material bid. So far as quantum is concerned, the Claimant contends that it has suffered loss regardless of the outcome of the Italian proceedings. 

THE BACKGROUND 
 
4.	The relevant events took place between May and October 2004.
 
The Leonardo Group 

5.	The Claimant, Leonardo Private Equity Fund, was a private investment fund incorporated in the British Virgin Islands. It was linked with three other entities. These were:
i)	another, much larger, investment fund called Leo Capital Fund (‘LCF’) also registered in the British Virgin Islands
ii)	a management company called Leonardo Capital Management (‘LCM’) incorporated in Bermuda, with a representative office in Lugano, Switzerland, and 
iii)	a UK registered company called Leo Fund Managers Limited (‘LFM’)  which operated from an office in London.   

Collectively, the Claimant and the three other entities were sometimes known as ‘the Leonardo Group’.

6.	The structure and organisation of the Leonardo Group were complex and were, as I understand it, designed to ensure that the Group derived maximum fiscal benefit from the offshore status of the Claimant, LCF and LCM. It is not necessary for me to consider the Group’s arrangements in any detail save insofar as they affected the operation of the Claimant.  

The Claimant   

7.	The Claimant was incorporated in 1999 and began to trade in 2000. Its primary purpose was to invest monies belonging to two Italian brothers, Mr Antonio and Mr Stefano Roma, and to close associates of theirs. It was a private fund structured as a single company with several classes of shares. Each class of shares tracked the return of a specific capital investment. In 2004, the fund was worth about €22-25 million, of which the Roma brothers owned about €4-5 million. 

8.	In 2004, the Claimant had two directors, Mr Alberto Signorini and Mr Pierangelo Bottinelli, both of whom were based at LCM’s office in Lugano. Until about June 2002, the Claimant’s investment activities had been directed primarily by Mr Bottinelli. Mr Stefano Roma would usually assess the likely returns and risks relating to any investment proposed by Mr Bottinelli before the investment was made. In about June 2002, LFM was appointed as investment adviser to the Claimant. The appointment of LFM as investment adviser meant that, from mid-2002, investment decisions in connection with the Claimant were in practice taken by Mr Stefano Roma, LFM’s Investment Manager, who was based in LFM’s London office. He would consult with his brother, who was responsible for managing LFM and who also worked from LFM’s London office. However, it was Mr Stefano Roma who made the investment decisions. Very few transactions - probably no more than one or two – had been made under the new arrangements.  
  
Leo Capital Fund 

9.	LCF was on a completely different scale from the Claimant. It was a commercially marketed hedge fund with – as at the time of the trial – assets of about €700 million. It was regulated by the UK Financial Services Authority (FSA). LCF accounted for about 99% of the Leonardo Group’s revenue and was the main source of income for the Roma brothers.  

Leonardo Capital Management Limited

10.	The Leonardo Group’s internal arrangements provided that LCM was responsible for managing the Claimant and for deciding how, where and in what amounts the Claimant should invest. The evidence available in this case suggests that, in reality, LCM took little or no part in the making of investment decisions on behalf of the Claimant. However, LCM was involved in some of the formalities associated with the investments; for example, it was responsible for providing certain documents in connection with the Giacomelli transaction. The directors of LCM involved in the management of the Claimant were Ms Helen Forrest and Mrs Nadine Francis, who were based at the office of a Bermudan law firm, Christopher Francis Forrest (CFF). When official documents had to be signed on behalf of the Claimant, this would be done by Mr Signorini or Mr Bottinelli, as directors of the Claimant.  

Leo Fund Managers Limited 

11.	LFM was incorporated in about 2000. At first, it was a shell company. It did not become fully operational until some time in 2001. In 2004, the directors of LFM were Mr Antonio Roma and Professor Stephen Schaefer. Mr Stefano Roma had been a director of the shell company until October 2000, when he resigned in circumstances which I shall refer to below. 

12.	The primary role of LFM was to direct and manage investments on behalf of LCF. I was told that, during 2004, LCF did €7 billion worth of equity and bonds trading and €25 billion worth of derivatives trading. Transactions worth several hundred million euros were conducted daily in LFM’s office. Mr Antonio Roma was Chief Executive Officer of LFM and was also responsible for research and risk management in relation to LCF. As LFM’s Investment Manager, Mr Stefano Roma took most of the investment decisions for LCF. He had two assistants and a number of analysts working with him. Mr Keith O'Callaghan was Chief Financial Officer and Company Secretary and was LFM’s compliance officer. Other members of staff included Ms Laura Mazzei, Personal Assistant to the Roma brothers and Office Receptionist. In all, LFM’s staff numbered about 13. Until September 2004, LFM’s offices were situated on one floor of a building in Jermyn Street, London. In September 2004, LFM moved to premises in Sloane Street.  

The Defendant

13.	The Defendant is an Italian citizen. Before his engagement as a consultant to the Claimant, he had occupied responsible positions in the field of corporate finance. He had worked in London and New York, as well as in Italy. He had been known to Mr Stefano Roma as a casual business acquaintance for some time and the two had met on occasion to discuss possible investments. In addition, the Defendant had in the past made a substantial investment in LCF which he had later redeemed.  

14.	In early 2004, the Defendant visited LFM’s offices in connection with a query from an investor in LCF and spoke to Mr Antonio Roma. The Defendant’s visit occurred at a time when Mr Roma was aware that Mr O’Callaghan was over-worked and would benefit from shedding responsibility for dealing with the Claimant’s affairs. It occurred to him that there might be advantages in employing the Defendant to assist with the Claimant. After discussion with his brother, he decided to pursue the matter and he broached the possibility with the Defendant.

15.	Mr Antonio Roma said that, initially, he had intended that the Defendant should be employed in LFM’s London offices and should deal with the administration of the Claimant fund, thus relieving Mr O'Callaghan of some of his duties in this respect. However, he said that it was clear that the Defendant was not too keen on assuming that role. In any event, it soon emerged that the Defendant had in the past been the subject of disciplinary action by the Securities and Futures Authority (SFA). As a consequence, it was not considered appropriate for the Defendant to be employed by LFM, which was subject to regulation by the FSA. Nevertheless, the Romas were still prepared to employ him and it was decided that he should instead be retained by LCM to offer consultancy services in relation to the Claimant. 

16.	There was some dispute as to whether the Defendant’s disciplinary record came to light in the first instance as a result of him volunteering information about it or as a result of Mr O'Callaghan carrying out a computer search. I am satisfied that the Defendant mentioned it to Mr Antonio Roma and also to Mr Stefano Roma,  but that he significantly underplayed the nature and extent of the misconduct for which he had been disciplined. I accept that, as Mr Antonio Roma said, it was only when Mr O'Callaghan, as compliance officer, carried out his computer search (which may or may not have been undertaken as a result of what Mr Antonio Roma had been told) that the seriousness of the Defendant’s conduct became clear.   

17.	The records of the SFA revealed that, in 2001, the Defendant had been the subject of disciplinary proceedings and had been expelled from the registers of compliance officers, finance officers and executive directors. He had, however, been permitted to remain on the register of corporate finance representatives. The relevant record read as follows:

“Mr Loscalzo was an Executive Director of Gallo & Co Limited and was registered as the firm’s Compliance and Finance Officer.

As a result of a bank buying control of Gallo & Co Limited, Mr Loscalzo and a second Executive Director of the firm were due to receive payment for their personal shareholdings in the firm.

In December 1999, Mr Loscalzo provided incorrect account information to the purchasing bank and as a result of doing so £48,000, due to be paid to the other Director, was placed in an account belonging to Gallo & Co Limited.

During the course of January 2000, Mr Loscalzo repeatedly misled two other individuals who had been involved in the arrangements for the transfer of the funds, by informing them that the money had not arrived, when in fact it had.  In the meantime, Mr Loscalzo used the money, together with his own private funds, to reduce the severe cash flow problems that Gallo & Co Limited was suffering from at that time. 

When the matter came to light at the end of January 2000, Mr Loscalzo immediately arranged for the funds to be paid to their correct owner.

SFA acknowledges that Mr Loscalzo did not use the misappropriated funds for his own benefit, that he admitted his actions immediately and has co-operated fully with SFA’s investigation.”

The Defendant conceded in evidence that the effect of his actions had been to enable a takeover of Gallo & Co to go ahead and that he (as well as other shareholders) had benefited financially from that takeover.  

18.	Following the termination of his employment with Gallo & Co Limited, the Defendant was a partner at Upside I Capital Partners SA which went into liquidation and suffered financial problems. I am satisfied that those problems, coupled with his previous disciplinary record, had impaired the Defendant’s professional standing and had – although he denied the fact — made it difficult for him to obtain suitable employment. That would have made him particularly anxious to secure a position with the Leonardo Group. No doubt he hoped that a successful career with the Group would have the effect of restoring his reputation in the investment world, as well as proving financially lucrative. 

The Consultancy Agreement 

19.	On 1 April 2004, the Defendant entered into a consultancy agreement with LCM whereby he was retained as a consultant for the three-month period to 30 June 2004. Pursuant to that agreement, the Defendant agreed to provide the following services: 
i)	maintaining current investments in the Claimant; 
ii)	analysing and recommending potential investments for the Claimant; and 
iii)	helping to raise capital to invest within the Claimant.
He further agreed:
iv)	Faithfully and diligently to perform his services and exercise such    powers consistent with them which were from time to time necessary or desirable in connection with their provision;
v)	To obey all lawful and reasonable directions of LCM ; and
vi)	To use his best endeavours to promote the interests of LCM and the Leonardo Group. 

20.	The agreement could be terminated forthwith on notice in writing if the other party committed a material breach of the agreement. By way of remuneration, the agreement provided that the Defendant should be paid a fee of 30,000 US dollars payable in three monthly instalments. Although not mentioned in the agreement, the Defendant was also reimbursed for his expenses in connection with the consultancy. Even so, his remuneration was comparatively modest. Mr Antonio Roma said that, although the agreement did not provide for the payment of fees or commission to the Defendant in connection with individual transactions, appropriate payments would have been made in respect of any deal successfully negotiated by him.  

21.	Although the Defendant was technically retained by LCM during the course of his consultancy, in practice he took his instructions from, and reported to, the Roma brothers and Mr O'Callaghan at LFM. For most of his period of retainer, he worked in Italy, visiting LFM’s office only occasionally. He had very little face-to-face  contact with those at LFM. He communicated with them mainly by telephone and, occasionally, by email and fax. His main point of contact was Mr O'Callaghan who, unlike the Romas, spent most of his time in LFM’s office and was readily accessible by telephone and email. The Romas’ contact with the Defendant was more or less exclusively by telephone. It does not appear that they ever set out in writing their views about the Giacomelli deal, or gave or confirmed instructions to the Defendant in connection with the deal by fax, email or letter. 

ASSESSMENT OF THE WITNESSES 

22.	Before embarking on a narrative of the relevant events and my findings in respect thereof, it is necessary for me to say something about my assessment of the various witnesses. I should say that I bear in mind the fact that most of the witnesses gave evidence in English, which was not their first language. Their understanding and command of English was extraordinarily good but, when assessing their evidence, I take into account the fact that they may have faced some difficulty in understanding and expressing subtle nuances.

23.	I shall deal first with the evidence of the Defendant. 

The Defendant’s Evidence

24.	I found the Defendant a most unsatisfactory witness. The record of the disciplinary action against him, to which I have already referred, revealed that, in the past, he had been prepared to tell lies in order to conceal his own misconduct. Another example of his cavalier attitude to the truth occurred early in his cross-examination. He was asked about a curriculum vitae (CV) which clearly related to him although it was located on (and formed a very small part of) the website of another man – apparently the Defendant’s cousin – who shared the same name. The CV contained details of the Defendant’s career and I am bound to conclude that it must have been compiled by him (or, at the very least, on the basis of information provided by him) and must have found its way onto his namesake’s website by mistake. His suggestion that someone else (perhaps his cousin) had produced the document without his knowledge was just not credible. The Defendant was asked about the information contained in the CV. He accepted (as he had to) that the information was in many respects inaccurate. The entry in respect of his retainer with LCM, for example, exaggerated the period of his retainer, referred to him as Head of Private Equity (a title he had tried to assume when working for LCM, but had not been permitted to use), stated that he had headed private equities for a ‘London based hedge fund’ (which the Claimant was not) and made extravagant and wholly untruthful claims about the deals in which he had been involved, including – bizarrely — the Giacomelli transaction. The misrepresentations contained in the document would have had the effect – as was no doubt intended – of giving the reader the impression that the Defendant’s work with LCM and other employers had been far more prestigious and successful than had in fact been the case.   

25.	Other examples of the Defendant’s disregard for the truth emerged in the course of his evidence. On occasion, he appeared to ‘go off at a tangent’, giving a wholly new account of events which had not been foreshadowed in his witness statements or by cross-examination of the Claimant’s witnesses on his behalf. (The most obvious example of this was his evidence about the creation of the Loscalzo letter.)  I did not get the impression that all these new departures were motivated by an intention to deceive although some undoubtedly were.  In some cases, they seemed to me to be new ideas and theories which had recently occurred to the Defendant and which he was anxious to voice.  Mr Stefano Roma said that the Defendant was always full of ideas, schemes and possibilities (few of which ever came to fruition). He talked a great deal – always with great confidence and optimism – and it was clear from his evidence that he was prone to exaggeration and over-statement. He was emotional at times and there is mention in the evidence of emotional outbursts which were at times, I suspect, used to manipulate a situation to his advantage. He appeared supremely confident in his own abilities and, although he said at times that he blamed himself for any mistakes that had occurred, the overwhelming impression created by his evidence was that he blamed everyone but himself for what had happened.    

26.	The result of all these factors was that I found it necessary to approach the Defendant’s evidence with the greatest circumspection.   

The Claimant’s Evidence

27.	The Claimant’s evidence came primarily from the Roma brothers. Mr Stefano Roma was evidently very financially astute with a shrewd eye for a sound investment. He was accustomed to working under pressure, assessing risk and potential returns and making swift decisions on the basis of his assessment. He had a forceful and decisive personality and came across as a person who did not suffer fools gladly. He was clearly not a man of detail; his working style was to make the strategic investment decisions and leave the detail to others. He was a ‘hands on’ individual who liked to keep the final decisions about investments in his own hands. When giving evidence, Mr Roma did not always answer questions directly and tended at times to give lengthy answers that were not entirely on the point. On occasion, he appeared to use this as an avoidance technique. It may have been to some extent a language problem and I make due allowance for that. My impression is, however, that in day-to-day business, Mr Roma was a plain speaker who wanted to be told facts and figures and had little time for those who wasted his time (as he saw it) telling him about schemes that might never materialise. 

28.	In cross-examination, Mr Stefano Roma was asked by Counsel for the Defendant whether he had ever been a director of LFM. Mr Roma replied that he could not remember but did not think so. In fact, he had been a director between January and October 2000. (I have already mentioned that LFM was incorporated in about 2000 but did not become fully operational until 2001.) When asked why he had ceased to be a director, Mr Roma first replied that he could not remember but then went on to suggest that it might have been because he was at that time under investigation by the SFA. LFM was undergoing the FSA’s authorisation process and he did not want that process to be affected by the fact that he was being investigated. He was then asked about the decision of a US Court in an application in a case involving allegations of insider dealing in an Italian company, Elsag Bailey Process Automation, N.V (‘Elsag’). In that application, it was suggested by the New York Securities and Exchange Commission (SEC) - and accepted by the Judge - that Mr Roma had been responsible for passing on inside information about a future sale of Elsag to a friend who had then purchased shares in Elsag and derived considerable benefit as a result. A company in which Mr Roma was a major shareholder had also bought shares in Elsag shortly before the purchase. The US Court’s decision was filed in September 2000 and it was suggested to Mr Roma that it was as a direct result of that decision that he had resigned his directorship. Mr Roma said that he had not been aware of the reference to him in the Court’s decision prior to giving his evidence and had not resigned as a result of it. 

29.	On behalf of the Defendant, it is contended that Mr Roma’s credibility was damaged by his claim in oral evidence that he did not remember that he had been a director of LFM and that he did not remember why he had resigned. Furthermore, it is said that the account he gave of the matter in his second witness statement was misleading in the light of the findings of the Judge in the US case. Mr Roma was not a defendant in the US case, nor did the Court have before it any evidence from him. He told me – and I accept – that the investigation by the SFA was closed within a few months. He went voluntarily to the US and gave information to the SEC. He was never the subject of any proceedings in relation to Elsag in the US or anywhere else. That being the case, it would not be right for me to place any reliance upon the US Court’s decision and I do not do so. Having said that, however, I am satisfied that Mr Roma was not being candid when he said that he did not remember being a director of LFM. Nor do I accept that he knew nothing about the reference to him in the US decision until it was put to him in cross-examination. It may not have been the factor which precipitated his resignation but I am satisfied that he would have known about it at the time. The defendant in the US application was a friend of his and Mr Bottinelli, a director of the Claimant, was a defendant in the same proceedings. I find it inconceivable that Mr Roma would not have been made aware of the Judge’s decision.     

30.	Mr Antonio Roma appeared less forceful and abrasive than his brother. As well as his managerial and advisory roles at LFM, he had a part-time academic post as Professor of Finance at the University of Siena. He was regarded by his brother as a careful and cautious man, particularly where investments were concerned. He plainly had an extremely high regard for Mr Stefano Roma’s business acumen and great faith in his financial judgement. When responding to questions, Mr Roma tended to speak at great length and, at times, I had the distinct impression that he was telling me what he would have liked to happen rather than relating what had actually occurred. In addition, there were aspects of his evidence (one example was his evidence about the status of the Italian lawyers who submitted the bids on the Claimant’s behalf) that had the effect of damaging his credibility as a witness. 

31.	The Claimant’s evidence involved major shifts of position, the most significant of which I shall refer to in the course of my narrative. Everyone responsible for the Claimant was anxious to deflect blame for what had been a disaster, both in financial terms and in terms of its reputation. There was a reluctance to believe that mistakes had been made and that misunderstandings had occurred. The impression I gained was that there had been a great deal of ex post facto justification and an attempt – whether conscious or unconscious – to reconstruct certain events and facts in order to fit in with what the Claimant’s witnesses – in particular, the Romas – believed must have happened or with what they wished had happened. The result of all this is that, like that of the Defendant, the Claimant’s evidence must be treated with great circumspection. 

32.	The approach I have adopted throughout my examination of the evidence has been to look at the surrounding circumstances and the documentary evidence (where available) and to attempt to piece together what happened by reference to those factors, before looking at the relevant witness evidence and assessing it.  In the absence of other evidence, I have had to decide the relevant facts on the oral evidence alone.  This has not always been an easy exercise.      

THE FIRST AUCTION 

33.	I shall now embark upon my narrative of the relevant events, starting with the first Giacomelli auction. Although the claim relates to the third auction, the circumstances surrounding the two previous auctions are highly relevant to what followed and it is necessary for me to deal with those circumstances at some length. In doing so, I shall not rehearse every detail and point of dispute between the parties. Nor shall I attempt to make findings in relation to every matter in dispute; it is not feasible or necessary for me to do so.  

The Background 

34.	During the first few weeks of his consultancy, the Defendant did not succeed in securing any new investors for the Claimant; nor did he succeed in identifying any suitable investment vehicles for the fund. However, in late May 2004, the Defendant was contacted by a private equity adviser, Mr Guido Carissimo, who suggested Giacomelli as a potential investment for the Claimant. (At a later stage, there were separate transactions in respect of the different companies comprising Giacomelli, but I shall refer to them collectively as ‘Giacomelli’ throughout). Giacomelli consisted of a chain of approximately 59 Giacomelli and 16 Longoni shops, all in Italy. Its business had collapsed and it was at the time subject to an Italian insolvency procedure called amministrazione straordinaria, a procedure which was applicable only to businesses considered to be of ‘national interest’. Giacomelli was considered to be of national interest because of its size and the number of its employees. The procedure entailed the public auction by sealed bid of the assets of Giacomelli by Commissari (‘the Trustees’) appointed by the Italian Trade Minister. The purpose of the procedure was to save as much of the business as possible and, pending the auction, Giacomelli was still trading. The auction was initially organised by the Trustees with a deadline for the submission of bids at close of business on 7 June 2004.

The Proposed Joint Bid 

35.	Mr Carissimo introduced the Defendant to Mr Bob Mellors, Financial Director of  Sports World International Ltd (SWL), an English company and owner of the well known Lillywhites chain of sports goods stores. Mr Carissimo put forward some broad proposals for a joint bid for Giacomelli by the Claimant and SWL. 

36.	The Defendant mentioned the potential Giacomelli investment to Mr Stefano Roma. Mr Roma’s evidence was that he understood the proposal to be for SWL and the Claimant to bid jointly through a new company or ‘Newco’ (also known as a ‘special purpose vehicle’). It was initially proposed that the Claimant would provide 50% of the bid price and take a 50% shareholding in the Newco. SWL, which had a great deal of expertise in the field, would hold the remaining 50% share and would be responsible for managing the business. The Defendant told Mr Roma that the Claimant’s position would be protected by ‘put’ and ‘call’ options.  This meant that the Claimant would be entitled to sell all its shares in the Newco after the expiration of a certain period (the ‘put’ option) and that SWL would have the right to buy all the Claimant’s shares after the expiration of a slightly longer period (the ‘call’ option). Initially, it was proposed that the relevant periods would be one year for the ‘put’ option and two years for the ‘call’ option. This was an attractive proposition since it would have meant that the Claimant’s investment would not be locked into the Newco indefinitely but could be withdrawn within a relatively short time if this seemed advantageous. However, there was a limitation in that the ‘put’ and ‘call’ options could be exercised only if a financial parameter known as the ‘minimum EBITDA (earnings before interest, taxes, depreciation and amortisation) level’ did not fall below a certain percentage.       

37.	The purchase of a company in amministrazione straordinaria had certain financial advantages. In addition, Giacomelli was a well known name and to participate in the successful rehabilitation of the business would generate favourable publicity and enhance the Claimant’s reputation and that of the Leonardo Group generally. SWL’s reputation and expertise made a joint bid with them an attractive option and Mr Roma therefore agreed that the Defendant should continue to pursue the matter.   

38.	The Claimant’s evidence relating to the first auction comes mainly from Mr Stefano Roma. Mr Antonio Roma said that he had very little involvement in it. His brother spoke to him about it in general terms only.  

The Meeting of 1 June

39.	The Defendant and Mr Mellors spoke on a number of occasions and, on 1 June 2004, a meeting was held to discuss a possible bid. Present at the meeting were the Defendant, Mr Carissimo, Mr Mellors, the owner of SWL (Mr Mike Ashley), and Mr Raimondo Premonte, a lawyer from the Italian law firm, Gianni Origoni Grippo and Partners (‘GOP’), whom the Defendant had instructed to act in connection with the potential bid. At the meeting, it was decided that a further meeting should be held between the parties’ Italian lawyers. That meeting was to take place on Friday, 4 June at GOP’s office in Milan.

The Instruction of Gianni, Origoni, Grippo and Partners . 

40.	The Defendant’s evidence was that he had told Mr Stefano Roma that, if the Claimant were to pursue the possibility of a bid, it would need to instruct lawyers. The Defendant had suggested instructing GOP, a highly reputable firm of lawyers with offices in Rome and Milan, since he had known the senior partner, Mr Francesco Gianni, for some time. He said that it was normal procedure, when a deal was being negotiated, to instruct lawyers and get them working on the necessary documentation. He said that Mr Stefano Roma had agreed to this. Mr Stefano Roma denied that this conversation had taken place. He said that he would not have dealt with matters such as the instruction of lawyers. If the matter had been raised, he would have referred the Defendant to his brother or Mr O'Callaghan. I accept Mr Stefano Roma’s evidence on this point and am satisfied that, in the first instance, the Defendant instructed GOP on his own initiative and without consultation with anyone at LFM. It is clear, however, that Mr Stefano Roma and Mr O'Callaghan were informed by the Defendant of GOP’s involvement only a few days after the Defendant had first instructed them and they raised no objection.  

41.	Mr Antonio Roma said that he only became aware of GOP’s involvement on about 2 June. He was concerned at the fact that the Defendant had hired lawyers on his own initiative and at the possible expense of instructing a firm such as GOP. He raised the matter with the Defendant who assured him that the Claimant would not receive a bill.  Mr Antonio Roma understood that Mr Gianni was personally interested in investing in the Giacomelli deal and that it was for this reason that he was willing to provide his firm’s services. He acquiesced in the arrangement.

42.	The Claimant’s case in relation to GOP has shifted markedly in the course of these proceedings. In his Affidavit, sworn in November 2004 in support of an application for a freezing order against the Defendant, Mr Antonio Roma referred to GOP as having acted on the Claimant’s behalf in connection with all three bids for Giacomelli. In its Particulars of Claim, the Claimant pleaded that GOP were the Leonardo Group’s legal representatives for the second bid. That assertion remained unchanged when the Particulars of Claim were amended in October 2005. In his witness statement of August 2005, Mr Antonio Roma omitted the previous references to GOP’s having acted on the Claimant’s behalf and instead suggested that (save possibly in connection with the first bid) GOP had had no authority to act for the Claimant. At the start of the trial, the Claimant produced a memorandum, setting out its final position in relation to GOP.  In the memorandum, the Claimant accepted that GOP were retained by it, but only for very limited purposes.  I should make clear that I have considered the Claimant’s relationship with GOP in the context of English, not Italian, law, as I was invited to do by the parties.  

43.	I am entirely satisfied on the evidence that the position as stated in Mr Antonio Roma’s original affidavit was the correct one and that, from the beginning of June 2004, it was understood by the Romas and Mr O'Callaghan that GOP were representing the Claimant in connection with the proposed Giacomelli deal. I do not accept that their representation was limited in the manner suggested in the Claimant’s memorandum. I note, for example, that Mr O'Callaghan’s evidence was that, during the preparations for the second bid, he telephoned a lawyer at GOP to ask about the legal status of documents submitted to the Claimant by a potential investor: see paragraph 194. This would be entirely inconsistent with the suggestion that GOP were not acting for the Claimant at that time. I accept the contention made on behalf of the Defendant that the reason for the change in Mr Antonio Roma’s evidence was the realisation, after service of the Defendant’s Defence, that the legal consequences of its lawyer/client relationship with GOP might prove detrimental to the Claimant in these proceedings. This is one example of the significant shifts in the Claimant’s position that has led me to the conclusion that some of its witnesses at times consciously tailored their evidence in an attempt to improve the Claimant’s case and could not be relied upon to give a true and accurate account of events. 
 
The Email of 2 June

44.	On 2 June, the Defendant sent an email to Mr O'Callaghan, copied to Mr Stefano Roma. In that email (which had clearly been preceded by a conversation with Mr O'Callaghan), the Defendant stated that the Claimant would be a 60% investor in a Newco which would bid for the Giacomelli assets. SWL would be the 40% co-investor. The purchase price could be anywhere between €200,000 and €3 million. The email went on to say that the bidding rules required bidders to support their offers with a 3-month bank guarantee for 20% of the cash purchase price (this being in the nature of a deposit which would be forfeited if the offer was accepted but the bidder failed to complete the purchase). The Defendant said in the email that, because of the tight timeframe, it would be necessary for the Claimant to take the lead in organising the guarantee. He told Mr O'Callaghan that Mr Premonte would send him a copy of the bid bond (the documentation relating to the guarantee) provided by the Trustees. Although the language used in the email suggested that there was a firm deal in place (‘We will be making a bid on June 7…’), in fact the terms of an agreement between the Claimant and SWL had not been agreed and were still the subject of negotiation. It is clear that, following receipt of the email, Mr Stefano Roma was happy for the Defendant to continue pursuing the deal.

45.	Following receipt of the email, Mr O'Callaghan put arrangements in hand for the provision of the bank guarantee. This was not a straightforward matter since the Claimant did not regularly conduct business with Italian banks and, over the next few days, it was necessary for Mr O'Callaghan to liaise with the Defendant, with Mr Premonte and with banks in Italy and the UK for this purpose. He succeeded in making the necessary arrangements and the guarantee was in place in time for the bid deadline on 7 June.

The Meeting of 4 June   

46.	On 4 June, the lawyers’ meeting was held at GOP’s Milan office. Those present were the Defendant, Mr Premonte, Mr Carissimo and Mr Marco Frazzica, SWL’s Italian lawyer. One of the principal purposes of the meeting was to discuss the draft Business Plan for the Newco.

47.	On 4 June, Mr Stefano Roma was in Milan on other business. The Defendant telephoned him and, on learning that Mr Roma was in Milan, he asked him to come to GOP’s office.  Mr Roma agreed to do so.  He called in between one meeting and another and stayed for no more than about 15 minutes. He was ushered in while the meeting was in progress and, while he was there, people were going in and coming out of the room. 

48.	There is a considerable dispute about what was said at this meeting. Mr Roma was plainly in a hurry and I gained the impression that he did not have a very clear recollection of what had been said. For reasons which I have already referred to, I view the Defendant’s account of events with some circumspection. Mr Carissimo, who gave evidence, was present, however, and I regard him as a reliable witness. 

49.	Mr Stefano Roma thought that he recalled meeting Mr Premonte, but said that he was not aware at the time that there was anyone representing SWL present. Mr Carissimo said, and I accept, that he was introduced to Mr Roma as the adviser to SWL. Mr Carissimo said that Mr Roma chatted with some of those present about the bid. There was no detailed discussion about the terms of the bid. He said that Mr Roma appeared to be on friendly terms with the Defendant and to be enthusiastic about the proposed bid.  

50.	The Defendant claimed that Mr Roma made a number of significant statements at this meeting.  First, he said that Mr Roma specifically instructed GOP to act for the Claimant and that Mr Premonte confirmed on behalf of GOP that the firm would do so.  Mr Roma denied this. He said that Mr Premonte was introduced to him by the Defendant as ‘the guy assigned by Mr Gianni to do the deal’ and that there was no further discussion about the role of GOP. Mr Carissimo’s recollection is that the Defendant introduced Mr Premonte and his colleagues as ‘the lawyers who are following the deal’. I find that there was no formal instruction of GOP on this occasion. However, I am satisfied that Mr Roma gave every appearance of accepting (and did in fact accept) the fact that GOP were acting on the Claimant’s behalf in connection with the bid.      

51.	Second, the Defendant claimed that Mr Roma informed Mr Premonte that the Defendant was authorised to act on the Claimant’s behalf in connection with the Giacomelli bid. Mr Roma denied giving the Defendant any such authorisation. He said that the Defendant had commented that he was the ‘guy in charge for the deal’, whereupon Mr Roma had responded by saying words to the effect ‘Donato is the guy looking into the deal for us’. Mr Roma said that the Defendant was plainly anxious to establish his credentials. I have no doubt that this is right. In his witness statement, Mr Carissimo said that he recalled Mr Roma saying that the deal was in the Defendant’s hands, that he was in charge and that any issues arising from the deal should be referred directly to him. In oral evidence, he agreed that Mr Roma had not said that the Defendant could make all the decisions and sign them off on the Claimant’s behalf. I find that, at the meeting, Mr Roma made it clear that the Defendant was fully authorised to negotiate on the Claimant’s behalf. However, I am satisfied that Mr Roma said nothing to suggest that the Defendant was authorised to commit the Claimant by making an offer to the Trustees or entering into an agreement with SWL, without the prior agreement of himself or his brother. The Defendant himself acknowledged in evidence that he had agreed with Mr Roma that, before a bid could be submitted, Mr Stefano Roma must approve it by telephone or fax.  

The Bid Documentation 

52.	The third claim made by the Defendant related to the bid documentation. It is necessary, therefore, to identify the main documents which were required for the bid. These were:
i)	An irrevocable offer to the Trustees (‘the Offer Letter’) by the Claimant and SWL (the offer was to be made jointly by the Claimant and SWL (rather than by the Newco) since there was insufficient time to set up the Newco before the deadline for depositing the offer with the Notary appointed by the Trustees to receive offers on their behalf);
ii)	A mandato speciale (‘mandato’), giving ‘the most extensive possible powers’ to individuals acting on behalf of the Claimant and of SWL (or one individual on behalf of both companies jointly) to decide on the terms of the offer (including the price), to submit the offer, and, in the event that the offer was accepted, to carry out any negotiations with the Trustees, to conclude the transaction and to sign any documents necessary for that conclusion. 
 
Both the documents referred to above (together with a number of other documents, such as the Business Plan) were required by the Trustees for the purpose of the bid. In addition, there had to be:
iii)	An internal agreement between the Claimant and SWL, governing their relationship within and in relation to the Newco and the financial arrangements between them (‘the Master Terms’).

53.	At the time of the 4 June meeting, the Master Terms had not been agreed and were still the subject of negotiation between the parties. It appears that the terms of the Offer Letter were nearer agreement but had not been finalised. It is not known whether there had been any discussion between the Claimant and SWL by that stage about which individual(s) were to have powers conferred on him/them under the mandato. For reasons which I shall explain in due course, it seems to me unlikely that any consideration had yet been given to that matter. 

54.	One problem which had to be addressed if the bid was to be lodged on the following Monday was who was to sign the necessary documents on behalf of the Claimant. The Defendant gave evidence that, while at the meeting on 4 June, Mr Roma said that Mr Signorini, as a director of the Claimant, would travel to Rome, if he was available to do so, to sign the Offer Letter. The Defendant claimed that Mr Roma made clear that, if Mr Signorini was not available, the Defendant should sign on behalf of the Claimant. According to the Defendant, Mr Roma went on to say that the Defendant would sign the Master Terms in any event. The reason for the latter arrangement was, the Defendant said, that Mr Signorini had not been party to the negotiation of the terms governing the future relationship between the Claimant and SWL.     

55.	Mr Roma agreed that he had spoken about the possibility of Mr Signorini attending to sign documents on behalf of the Claimant. However, he denied that he had authorised the Defendant to sign the Offer Letter in the event of Mr Signorini being unable to come. He further denied that he had given authority for him to sign the Master Terms on behalf of the Claimant. He pointed out that he himself had no power to give such authority (he was not a director of the Claimant) and, in any event, it would have made no sense to do so since he had intended that Mr Signorini would attend for the purpose of signing all necessary documents. Mr Carissimo did not remember any mention of Mr Signorini coming to sign documents. It is possible that this part of the conversation took place when the Defendant and Mr Roma had left the room where the meeting was being held and were talking in a corridor. Altermatively, Mr Carissimo may not have heard this part of the conversation. In any event, I am satisfied that Mr Roma gave no authority for the Defendant to sign any documents on behalf of the Claimant. It seems to me highly unlikely that there was at this stage any consideration of the different documents which had to be signed – merely a recognition that it would be necessary for someone with the appropriate authority to be available to sign some documents.  It was envisaged that that person would be Mr Signorini. The Defendant’s suggestion that it would not have been appropriate for Mr Signorini to sign the Master Terms because he had not been involved in the negotiations makes no sense. Mr Signorini had not been involved in the negotiations about the terms of the Offer Letter either. It was for others to check and approve the documents before signature. Mr Signorini’s role was merely as a director and authorised signatory of the Claimant.
The Email of 4 June 
56.	In the early evening of 4 June, Mr Premonte sent an email to a number of recipients, including Mr Stefano Roma and the Defendant, attaching drafts of three documents relating to the Giacomelli bid which had been produced as a result of the day’s meeting. These documents were (a) a draft of the proposed Offer Letter (b) a draft of a suitable mandato and (c) a draft of the proposed Master Terms. All the documents were said to be subject to revision by the parties.    
57.	This email and its attachments arrived in the email inbox of Mr Stefano Roma’s computer in London at 18.48 hours UK time. They were not disclosed by the Claimant in these proceedings but formed part of the Defendant’s disclosure. Until the start of his oral evidence, Mr Stefano Roma had maintained that he had never received the email and attachments. He had attributed this to the fact that he was having problems with his email system at that time. He said that consultants were looking into the reasons why the email had not arrived. When he gave oral evidence, however, Mr Roma conceded that, when searching his email inbox the previous week, he had found the email. He said that he had become confused between this email and another dated the following day where there had been a delay in receipt. 
58.	The failure by the Claimant to disclose this email and attachments — coupled with the claim, when the email was disclosed, that Mr Roma had not received them — raised the possibility that he might have been seeking to conceal his knowledge of these important documents. Counsel for the Defendant contended that Mr Roma had always been aware of the email and had purported to ‘find’ it only after the Defendant had made an application at the start of the trial for his computer expert to be given access to search for this email on LFM’s server.   

59.	There is some evidence to suggest that Mr Stefano Roma read at least one of the attachments to the email of 4 June at or around the time it was sent. In his first witness statement, he mentioned a written account of the SWL proposal which had been provided by the Defendant in late May/early June. He said that the account had confirmed that the proposed deal was in the terms previously described to him by the Defendant. That observation indicated that Mr Roma had read the Defendant’s written account at or about the time it was provided. Mr Roma went on to say that the Claimant had, at the time he made his witness statement, been unable to locate a copy of the Defendant’s written account. However, he said that a copy of a later version of the account had been found; he identified that document as being the final draft version of the proposed Master Terms. If the evidence in his witness statement was correct, he must have seen an earlier version of the proposed Master Terms. The first version of that document was, as far as I am aware, the one which was attached to the email of 4 June.  

60.	Mr Stefano Roma said that he could not have seen the email on the day it arrived. He was in Milan at the time and he said that he had no means of picking up his emails when he was away from the office. He did not return to the office in London until mid to late morning on 7 June. He said that he did not think he opened the email then or, if he did, he did not think that he had read any of the attachments. His email traffic was such (he received 200-300 emails a day) that, if he missed a message on the day it arrived, it was very unlikely that he would go back and read it at a later date.  He said that, in any event, it was not his practice to read all the details of a deal. He had analysts who would do that and who would make recommendations to him. His role was merely to try and understand the concept being proposed and the underlying assumptions. He did not suggest that he had passed the documents attached to this email to an analyst for advice.

61.	The Defendant suggested that it would have been possible for Mr Stefano Roma to access the email from Italy. He said that both Mr Stefano Roma and his brother had ‘Blackberries’, by which they could access emails when out of the office. Mr Roma’s evidence was that he may have possessed a ‘Blackberry’ at the time but he did not use it to read emails.  I must say that I would have expected that Mr Stefano Roma, who was involved in many fast-moving financial transactions and who was frequently out of the office, would have ensured that he had the necessary technology to enable him to keep abreast of developments even when he was travelling. However, although I have some uncertainty about the matter, I am prepared on balance to accept that he did not.   

62.	That being the case, I can understand that, when Mr Roma had been out of the office for a time, it would have been difficult for him to catch up with those emails that had arrived in his absence. However, this situation was rather unusual.  On Monday, 7 June, the final negotiations in relation to the Giacomelli deal were underway. Mr Signorini had been to Rome. He telephoned Mr Roma on his way back. The Defendant telephoned him twice around lunchtime. One call was very brief; the other lasted for over 11 minutes. There were further calls from the Defendant in the middle of the afternoon. Those calls must have concerned the proposed Giacomelli deal. The attachments to the email of 4 June were highly relevant to that deal. These facts, coupled with the evidence in Mr Roma’s own witness statement, lead me to conclude that he read the proposed Master Terms – if not over the weekend – at least on 7 June, some time after his arrival in the London office. I recognise that he is not a man of detail and would not have been prepared to read a lengthy document. However, the Master Terms consisted of less than three pages and I have no doubt that a practised eye such as Mr Roma’s could have scanned the important points in a few moments. It may well be that he did not read the other two documents. 

63.	On balance, I regard it as unlikely that Mr Stefano Roma sought deliberately to conceal the fact that he had received the email of 4 June and its attachments. I consider that, if he had been trying to do that, he would not have referred in his witness statement to the earlier version of the proposed Master Terms which he had seen but which could not be found. It seems to me likely that some confusion arose, as a result of which this document was overlooked. However, as I have said, I am confident that he saw and read the proposed Master Terms. 
  
64.	It is now necessary to say something about the Master Terms and the other two attachments to the email of 4 June.

The Draft Master Terms 

65.	These provided that the Claimant would subscribe €600,000, representing 60% of the capital in Newco at the date of its incorporation, and would make a further capital contribution of €5.4 million. Its total investment would therefore be €6 million. SWL would contribute only half as much as the Claimant, but would be responsible for managing the business after its acquisition. The Claimant was to act merely as a financier. The Claimant would have a majority of the directors on the Board.  There were ‘put’ and ‘call’ options but these could be exercised only from March 2007 (the ‘put’ option) and March 2008 (the ‘call’ option). Thus, the Claimant would have been effectively locked into the deal for 3–4 years.  The draft Master Terms did not indicate who it was intended would sign the document on behalf of the Claimant and SWL.  

The Draft Offer Letter 

66.	This set out the proposed terms of the offer to be made to the Trustees. The purchase price to be offered was left blank. The draft named the Defendant and Mr Carissimo as signatories. It seems likely that their names were included because they had been taking the leading roles in the negotiations. It had certainly never been intended (least of all by Mr Carissimo himself) that Mr Carissimo would sign the final Offer Letter on behalf of SWL. It should not, therefore, be taken that the inclusion of the Defendant’s name as a signatory was of particular significance.   

The Draft Mandato 

67.	The draft mandato did not indicate on which individuals it was intended that the powers should be conferred. 

The Position on the Evening of 4 June

68.	Mr Stefano Roma said that, as at the evening of Friday, 4 June, he believed, from what he had been told, that the proposed deal was a good one for the Claimant. It appeared from Mr Roma’s evidence that he realised that it would involve an investment by the Claimant of at least €3–4 million. He felt that the ‘put’ and ‘call’ options provided satisfactory safeguards. No terms had yet been agreed with SWL, however, and he had doubts about whether SWL would sign up to the deal, as the terms seemed very favourable to the Claimant. Despite those doubts, it was decided to put the necessary arrangements in place so that the bid could go ahead if agreement was reached. 

69.	To that end, Mr Stefano Roma telephoned Mr Signorini on the afternoon of Friday, 4 June, to find out whether he was available to go to GOP’s office in Rome the following Monday to sign documents on behalf of the Claimant in connection with the Giacomelli bid. This was a matter of urgency since the expiration of the time for submitting a bid was close of business on the Monday. Because of his existing commitments, Mr Signorini was somewhat reluctant to go but he agreed to make the necessary arrangements.    

The Events of the Weekend of 5 and 6 June

The Email of 5 June

70.	Mr Stefano Roma said that he spoke to the Defendant on the morning of Saturday, 5 June. They talked briefly about the possible financial returns from the Giacomelli deal and the ‘put’ and ‘call’ options. Mr Roma asked the Defendant to set out in writing the potential returns from the proposed investment.

71.	Accordingly, in the evening of the same day, the Defendant sent an email to Mr Roma, attaching a ‘rough matrix’ of the likely returns.  Mr Roma said that this email did not reach him on the day it was sent. Instead, it appeared in his email inbox some months afterwards, in February 2005. I have seen the printout of the contents of Mr Roma’s email inbox for 25 February 2005, which shows receipt of the Defendant’s email. The Claimant has sought the advice of its IT consultants as to how a delay in delivering the email could have occurred. I have seen a letter written by Mr Manuel Wenger, Chief Technology Officer of an Italian company called Ticinocom SA. He said that an email sent from one server to another can sometimes take an abnormal time to be delivered. The usual reason for this is that the email queue of one server fills up and emails become ‘stuck’ on the server. Those emails then remain on the server until a server restart or maintenance work eventually triggers delivery. Although he could not say with certainty why the email in question had been delayed, his opinion was that it was likely to have been as a result of this problem. I accept that Mr Roma did not receive the email or the matrix attached to it for several months after it was sent.  

The Matrix

72.	Despite the fact that it was not received by Mr Roma at the time, I infer that the matrix contained information similar to that discussed between the Claimant and Mr Roma earlier that day.  The Defendant could hardly have sent a document based on wholly different assumptions from those previously discussed with Mr Roma. The matrix was based on assumptions of ‘cash in’ to the Newco of €6 million, €8 million and €10 million. The Defendant says that ‘cash in’ represented the contribution that would be made by the Claimant (rather than by the Claimant and SWL jointly) and the layout of the matrix suggests that was the case. This would be consistent with the Master Terms, which provided for an investment of €6 million by the Claimant.    

73.	The Defendant said that, on 6 June, he and Mr Stefano Roma discussed the contents of the matrix and that Mr Roma agreed that the potential returns appeared promising. Mr Roma denied that there was a conversation on the Sunday. Mr Roma was not in the office that weekend and could not (on the assumption that he could not access emails while away) have seen the matrix even if it had arrived then, nor could he have realised that the matrix had not arrived. However, I am satisfied that his discussions with the Defendant, whether on the Saturday or the Sunday, would have reflected – to a large extent at least — the information contained in the matrix. The Defendant could not have risked misleading Mr Roma as to the amount of the Claimant’s proposed investment when, for all he knew, Mr Roma would read the matrix and the proposed Master Terms on the Monday morning. Mr Roma must have been happy for negotiations to proceed on the basis discussed. If he had not been, he would have cancelled Mr Signorini’s attendance and instructed the Defendant that the bid could not go ahead. 

The Email of 6 June 

74.	On 6 June, Mr Mellors sent two emails to Mr Premonte, copied to Mr Stefano Roma, containing the text of the 4 June email and referring to the fact that SWL had a number of comments on the Master Terms which would have to be discussed. 
     
Instructions to Mr Signorini 

75.	Mr Signorini said that Mr Roma had told him on the Friday evening that there would be an offer document to sign, together with a separate agreement (the Master Terms) which was still to be negotiated. Mr Signorini said that Mr Roma also told him that it was important that the offer document should not be signed before the Master Terms had been signed.  Mr Signorini said that, when he spoke to Mr Roma on Saturday, 5 June, he told Mr Roma that he had rearranged his schedule so as to be available in Rome on the Monday morning, although he had to be in Milan for an important meeting in the afternoon.  Mr Signorini said that, on the Saturday, Mr Roma was confident that both documents would be ready for signing early on the Monday morning. At that time, it seems to have been envisaged that further negotiations would take place over the weekend but, in the event, this did not happen and negotiations were not resumed until late on the Monday morning. 

76.	Mr Signorini said that he and Mr Roma spoke again on Sunday, 6 June. At that time,  Mr Roma told him that the Master Terms and the offer document would not be ready for signing first thing on Monday. He said that Mr Roma then instructed him that he would have to sign a mandato before a Notary, giving power to GOP to submit the bid on the Claimant’s behalf. Mr Signorini denied the suggestion by the Defendant’s counsel that Mr Roma had told him that he should sign a mandato, giving power to the Defendant to submit the bid on the Claimant’s behalf.   

77.	Mr Roma’s account of the conversations between himself and Mr Signorini over the weekend was rather different.  He said that he told Mr Signorini that he should sign the Offer Letter and that, since the Master Terms would not be in a final state, he would also have to sign a delega, giving powers to GOP to submit the bid.  Mr Roma said that there was no discussion at that time about who was to sign the Master Terms. What he would have expected to happen, however, was that, once the Master Terms had been agreed, Mr Signorini would have signed them by fax from Milan. However, he had given Mr Signorini no instructions about this.

78.	The Defendant’s case is that Mr Roma told Mr Signorini that he could sign the Offer Letter since its terms were agreed, but that he would not be able to sign the Master Terms since the relevant terms were still the subject of negotiation. It is contended that Mr Roma instructed Mr Signorini that, if terms were agreed with SWL, the Defendant would sign the Master Terms on behalf of the Claimant and that Mr Signorini should sign a power of attorney to enable the Defendant to do this.  

79.	I do not accept that there was any discussion between Mr Roma and Mr Signorini during the course of this weekend about the specific documents to be signed. It is unlikely, in my view, that Mr Roma, who had not seen the relevant documents, would have known precisely what had to be signed. He said as much in his first witness statement. Nor do I believe that he was in a position to know which document might be ready for signing and which not. I am satisfied that the discussions between Mr Roma and Mr Signorini were confined to the fact that there were some documents to be signed. I accept that, once it became clear that the documents would not be ready for signing early on the Monday, Mr Roma may well have mentioned that the solution could be for Mr Signorini to sign a delega, giving powers to GOP to sign any necessary documents and to submit the bid on the Claimant’s behalf. However, I am satisfied that they would both have expected GOP, as the lawyers instructed, to give appropriate guidance about what should be done. I reject the suggestion made on behalf of the Defendant that Mr Roma told Mr Signorini that the Defendant would sign the Master Terms.   

The Events of Monday, 7 June

Mr Signorini Goes to Rome

80.	Mr Signorini travelled to Rome on the morning of Monday, 7 June. He arrived at GOP’s office at about 10 am and met Mr Premonte. He was there for only about an hour. The Defendant had not yet arrived. 

81.	In his first witness statement, Mr Signorini said that, while at GOP’s office, he signed the Offer Letter, together with a mandato in favour of GOP. The plain inference to be drawn from that statement was that he had signed the complete text of both documents. 
 
82.	Subsequently, Mr Signorini made a second witness statement, in which he again said that he had signed the complete text of a mandato in favour of GOP. His had been the only signature on that document. However, he changed his evidence about the Offer Letter. He now said that he did not sign the final text of the Offer Letter. Mr Premonte had told him that the final text of the Offer Letter was not yet available and would depend on the outcome of further negotiations that day. At Mr Premonte’s suggestion, therefore, Mr Signorini signed a number (he thought about six sheets of paper) which were blank save for the names of the proposed signatories.  On about three of those sheets of paper, the signatories were named as ‘Leonardo Private Equity Fund Ltd’ and ‘Sports World International Ltd’. On the other three sheets, the signatories were named as himself and Mr Mellors. He said that the names of the signatories were at different levels on the sheets, so as to allow room for varying amounts of text above the signatures. He said that he believed that these would be used as the signature pages for the Offer Letter. He said that, in addition to the signature pages, he had also initialled a number of blank pieces of paper which he had been told would be used for the pages of text of the offer. He did not see the text of the Offer Letter. 

83.	Mr Signorini’s explanation for the change in his evidence between his first and second witness statements was that, in his first statement, he had been focussing only on the mandato. The bid had not gone ahead and therefore he had not thought that the signed and initialled pages he had left to be used for the Offer Letter were particularly important. 

84.	It is to be noted that, in his second witness statement, Mr Signorini referred only to his belief that his signatures and initials were to be used for the text of the offer. He did not say that he had been told that they were to be used for the Master Terms of the agreement between the Claimant and SWL. In his oral evidence, Mr Signorini said that he had understood that one of the signed pages was to be used for the Master Terms, if and when an agreement was reached. He also mentioned a further document, not previously referred to by him, for which he had expected his signature to be used. This was a mandato (as required by the Trustees) in favour of SWL, giving SWL full powers, not only to  make the offer, but also (in the event that the bid was successful) to negotiate with the Trustees on the Claimant’s behalf, to conclude the transaction and to sign any documents necessary for that conclusion. Mr Signorini did not say on whom at SWL it had been intended to confer these powers, despite the fact that the regulations governing the bid required that an individual should be named for this purpose.    

85.	The Claimant’s case, as set out in its final submissions, is that Mr Signorini signed the complete text of a mandato in favour of GOP. This was in order to enable GOP to present the bid to the Trustees on the Claimant’s behalf. In addition, it is said that he left signatures and initials, believing that they would be used for the Offer Letter and Master Terms if and when agreement was reached. No mention is made in those submissions of the mandato in favour of SWL for which Mr Signorini claimed in evidence he also believed the signed and/or initialled pages would be used.  

86.	The Defendant’s case is that Mr Signorini signed the complete texts of three versions of the mandato: the first authorising the Defendant and Mr Mellors to act on behalf of the Claimant and SWL in the bid, the second authorising himself and Mr Mellors to act on behalf of the Claimant and SWL in the bid and the third authorising the Defendant to act alone on behalf of the Claimant and SWL in the bid. The Defendant also contends that Mr Signorini signed a complete text of the Offer Letter. 

87.	Before setting out my findings in relation to the documents signed by Mr Signorini, it is necessary to continue the narrative a little further. 

Mr Premonte’s Letter of 7 June

88.	Mr Signorini said in evidence that, before leaving GOP’s office on 7 June, he had asked Mr Premonte to send him copies of the documents to which his signatures were finally affixed and to return the unused signed pages. He said that he never received any such documents. However, later on 7 June - apparently in response to  Mr Signorini’s request - Mr Premonte or one of his colleagues handed to the Defendant an envelope addressed to Mr O'Callaghan, to be delivered by the Defendant when he next visited LFM’s London office. According to the Defendant, he delivered that envelope on 9 June. The Claimant contends that it was never delivered and that the first time the Claimant was aware of its existence was when copies of the documents contained in the envelope were disclosed by GOP in these proceedings.  

89.	The envelope contained a letter from Mr Premonte, addressed to Mr O'Callaghan, describing the documents contained within. These were as follows:

o	a single page, described in the letter as ‘original copy of the last page of the offer’. It contained no text of the offer, merely the names of Mr Signorini and Mr Mellors as signatories and Mr Signorini’s signature. The signature was positioned right at the top of the page 

o	two documents described in the letter as ‘original copies of the mandate signed by Mr Signorini’. The first of these was a mandato giving to Mr Signorini and Mr Mellors the wide powers referred to at paragraph 52(ii) above. The second was a mandato in identical terms to the first save that it gave the relevant powers to the Defendant and Mr Mellors. The final page of each mandato bore no text, just the names of the signatories (the Claimant and SWL) and Mr Signorini’s signature at the very top of the page. 

90.	Mr Premonte’s letter stated that a third copy of the mandato was being kept by Mr Premonte ‘in the event it is necessary to make the deposit with the Notary Public’. This third mandato was in favour of the Defendant alone. Also enclosed in the same envelope was a copy of a letter which had been faxed by LCM in Bermuda to GOP’s Rome office on the afternoon of 7 June and which confirmed that Mr Signorini had authority to execute legal agreements on behalf of the Claimant. I shall refer to this letter of authority (or procura), which has become known as ‘the Signorini letter’, further in due course.    

Findings

91.	I shall deal first with Mr Signorini’s contention that he signed the complete text of a mandato in favour of GOP. No such document has come to light on disclosure and it is not mentioned in Mr Premonte’s letter of 7 June. If such a document had existed, I should have expected it to have been produced by GOP as part of its disclosure. As I have already said, I consider that Mr Roma might well have mentioned to Mr Signorini that, since it would not be possible for him to sign the completed Offer Letter, it might be necessary for him to sign a delega in favour of GOP to enable a lawyer to sign in his stead. However, I am satisfied that, instead, it was agreed between Mr Premonte and Mr Signorini that Mr Signorini would leave signed and initialled pages. That would have avoided the need for signature of documents relating to the bid by GOP. There is no evidence that it was necessary for GOP to have specific powers conferred upon it in order to enable it to submit the bid. No such powers were conferred prior to the submission of the second or third bids. That being the case, there would have been no need for any mandato in favour of GOP. I am unable to accept Mr Signorini’s evidence on this issue and I find that no such mandato was signed.    

92.	It is evident from the preceding paragraph that I accept Mr Signorini’s evidence that he left signed and initialled pages with Mr Premonte. That evidence is entirely consistent with the letter from Mr Premonte and its enclosures. I can see no reason why those enclosures should have been sent to Mr Signorini if he had seen the completed versions of the various documents at the time he signed them. If he had wanted copies of the completed signed documents, those could have been provided to him then and there. Moreover, if the reason for sending the documents to him was merely so that he could have copies of all the documents for his records, why was the last page only (with no text) of the Offer Letter enclosed and why was no copy of the third mandato sent? Mr Premonte’s letter and enclosures are entirely consistent with Mr Signorini’s desire to have back in his own possession any documents to which his signature had been affixed and any unused signatures.  

93.	There are other reasons for accepting Mr Signorini’s evidence in relation to this matter. First, an examination of the documents enclosed with Mr Premonte’s letter shows that in none of them does any text appear on the same page as the signature. This would be consistent with the text having been ‘arranged’ to fit the position of the signature. Second, it is evident that GOP were prepared to arrange for documents to be signed in this way since there are other examples – notably in relation to the submission of the third bid – when they undertook a similar exercise. Third, Mr Antonio Roma said in evidence that Mr Gianni had mentioned to him at a meeting in October 2004 that Mr Signorini had signed blank pages; at that time, Mr Roma  dismissed the idea and thought that Mr Gianni was trying to frighten him. 

94.	Finally, I regard it as most unlikely that Mr Signorini would claim to have done such a thing if he had not. Although he maintained in evidence that it was not unusual to leave signatures with lawyers as he had done and that there was ‘no risk’ in doing so if one was dealing with reputable lawyers, I think that, in reality, he was very uncomfortable about what he had done. On 7 June, he had been anxious to dispatch his business at GOP as quickly as possible and to travel to Milan. I am satisfied that he knew that what he was doing was unwise and carried risks – hence his desire for the documents to be returned. He did not tell the Romas what he had done and it was not mentioned in his first witness statement. As I have explained, he said that, when making that statement, he had not been focussing on the Offer Letter. I am afraid that I am unable to accept that explanation. Once he was asked about the events of 7 June, I regard it as inconceivable that he did not recall what he had done.  I find that he was reluctant to admit it and deliberately sought to suggest in his first witness statement that he had signed the completed Offer Letter and the GOP mandato when he knew that he had not.

95.	There is a further reason why I am satisfied that Mr Signorini did not – as the Defendant contends he did – sign the complete text of the Offer Letter. I have already mentioned that one of the enclosures to Mr Premonte’s letter was a single page (described in the letter as ‘original copy of the last page of the offer’), containing no text of the offer, merely the names of Mr Signorini and Mr Mellors as signatories and Mr Signorini’s signature. A further version of the Offer Letter with Mr Signorini’s signature affixed has come to light. This is the version that was submitted to the Trustees on 8 June, in connection with the unexecuted bid: see below. That version has two lines of text at the top of the page above Mr Signorini’s signature. The fact that two different versions of the final page are in existence is wholly inconsistent with Mr Signorini having signed the completed text of the Offer Letter on the morning of 7 June.

96.	As I have already said, Mr Signorini maintained in evidence that he had expected that one of the signatures he left with Mr Premonte would have been affixed to the Master Terms if agreement on them had been reached. I do not accept that he had any such expectation. He did not refer to this in either of his witness statements. Furthermore, there is no reference to the Master Terms in Mr Premonte’s letter of 7 June. If Mr Signorini’s signature had at any stage been attached to the Master Terms, one would have expected a copy of the final page of that document to have been enclosed with the letter. If it had originally been intended that a signature should be affixed to the Master Terms but, in the event, that had never happened (because terms were never agreed), there would have been at least one unused signature which should have been returned to Mr Signorini in accordance with his request.  

97.	Who then was to sign the Master Terms? I do not accept that anyone ever contemplated that Mr Signorini would do so by fax. There was no one else available on the Claimant’s side except the Defendant. It must have been envisaged by those at GOP that he would do so. Mr Premonte had the day-to-day conduct of the deal for GOP and he must have been satisfied that the Defendant had the requisite authority. Why he should have been satisfied is not clear. He did not give evidence in these proceedings. It cannot have been because he believed that the Defendant was a director of the Claimant. He knew that it had been necessary to bring a director of the Claimant, Mr Signorini, to Rome to provide signatures. If the Defendant had been a director, this would have been unnecessary. It may be that Mr Premonte believed (erroneously) that the mandato in favour of the Defendant (which had been prepared using Mr Signorini’s signature) would give him the necessary authority to sign the Master Terms. It may be that, because the Claimant had entrusted the Defendant with the negotiations with SWL, Mr Premonte assumed that the Defendant had authority to sign the agreement with SWL. He may have been encouraged in this assumption by the attitude of Mr Stefano Roma at the meeting on 4 June and/or by the Defendant himself. He may have been influenced by Mr Gianni’s longstanding friendship with the Defendant. The Defendant himself said that Mr Premonte and a junior colleague of his, Mr Enrico Pellegrini, told him that he had the necessary powers. In the event, however, the Master Terms were never agreed or signed. Subsequently, however, Mr Premonte did acquiesce in the Defendant signing documents on behalf of the Claimant. I shall deal with those instances in due course.   

98.	It is now necessary to consider how Mr Signorini’s signature came to be affixed to the three versions of the mandato. First of all, I am satisfied that Mr Premonte must have told Mr Signorini of the requirement for a mandato. The bid could not have been validly submitted without one. A draft mandato had already been prepared and circulated with Mr Premonte’s email of 4 June. I find that, when Mr Signorini was at GOP’s office, there had been no concluded agreement (possibly no discussion at all) between the Defendant, SWL and their lawyers about who should be given powers under the mandato. I am satisfied that Mr Signorini agreed to provide the necessary signatures so as to enable a suitable mandato to be prepared later in the day. It may be that it was intended at that stage that only one mandato would be drawn up when agreement had been reached as to who should exercise the relevant powers. Alternatively, it may have been decided then that it would be a good idea to draw up several different versions of the mandato, one of which would be agreed eventually. In the event, as I shall explain, several versions were prepared.  

99.	I reject Mr Signorini’s assertion (which did not appear in either of his witness statements) that he understood that the mandato was to confer powers on SWL. I assume (although he did not say so) that he meant that powers were to be conferred on Mr Mellors of SWL. I consider it inconceivable that Mr Signorini would have agreed, without consultation with the Romas, to give Mr Mellors (with whom there had been no direct contact by anyone at LFM) full powers to negotiate with the Trustees on behalf of the Claimant and to conclude, sign and execute the bid transaction on the Claimant’s behalf. It is possible that Mr Premonte suggested to Mr Signorini, and Mr Signorini agreed, that, since the Defendant had conducted the negotiations up to that point, it would be appropriate for him to be given powers to continue those negotiations on behalf of the Claimant if the bid was accepted. (In practice, it is difficult to see who else from LFM or the Claimant would have been equipped or available to conduct those negotiations). On balance, I consider this the most likely explanation. It would not be surprising, having regard to the events that followed, if Mr Signorini were unwilling now to admit that he had agreed to this course.  It is also possible, however, that there was no discussion of this kind with Mr Signorini at that time but that, later in the day, Mr Premonte – perhaps encouraged by the Defendant – drew up two versions of the mandato on the assumption that he was the appropriate person to be given the necessary powers. I am satisfied, however, that, having been told that a mandato was required, Mr Signorini agreed to provide the necessary signatures and initials, without giving much thought to the question of who should be given the relevant powers under the mandato.  

Discussions with Mr Signorini

100.	The Defendant said that, as he was on the way to GOP’s office, he spoke to Mr Signorini who had left the office and was travelling back to the airport. During the conversation, Mr Signorini reported that he had ‘signed what he had to’ or ‘left his signature’. According to the Defendant, he also told the Defendant to be sure that he signed the agreement with SWL (i.e. the Master Terms). Mr Signorini denied that he had instructed the Defendant to sign. He says that he told him to ‘make sure that the deal with SWL was done’. I accept Mr Signorini’s evidence on this point. In his first witness statement, Mr Signorini said that, during this conversation, the Defendant described the proposed deal to him. Mr Signorini considered it ‘a very lucrative investment’ for the Claimant. Afterwards, he spoke to Mr Stefano Roma and told him that he approved of the ‘great deal’. Mr Stefano Roma pointed out to him that SWL had not yet agreed to the deal. Mr Roma said that Mr Signorini was very enthusiastic about the deal whereas he himself remained sceptical. In oral evidence, however, Mr Signorini suggested that it was Mr Stefano Roma who explained the deal to him and who caused him to think that the deal was an attractive one.     

The Meeting on 7 June

101.	The Defendant, together with Mr Mellors and Mr Justin Barnes of SWL, arrived at GOP’s office in Rome in the late morning. They met Mr Premonte, Mr Carissimo, Mr Giuliano Rocchi (a colleague of Mr Carissimo) and Mr Frazzica. Mr Carissimo’s evidence was that, when the Defendant arrived, Mr Carissimo asked him what the Claimant’s intentions were in relation to the deal. The Defendant replied that the plan was to syndicate the Claimant’s holding in Giacomelli as quickly as possible. Mr Carissimo said that he had the impression that the Defendant was already trying to syndicate. I shall return to the topic of syndication in due course. 

102.	Little was said in evidence about what happened at the meeting. Mr Carissimo said that there were long discussions about the Business Plan and about how soon Giacomelli could be made profitable. It seems that the ‘put’ and ‘call’ options must have been discussed at some point since the final version of the Master Terms  (which was never agreed or signed) extended the time for exercising both options by a further year. Eventually, Mr Mellors made it clear that he would not sign the Master Terms. Mr Carissimo said that Mr Mellors was ‘not keen on the deal’. He described how, before Mr Mellors left GOP’s office, he said ‘the deal is over’ and left. That was at about 6.30-6.45pm. Shortly afterwards, Mr Rocchi and Mr Carissimo also left. The Defendant was still there. Mr Carissimo believed that the reason why SWL decided not to proceed was that it had insufficient information about the Claimant fund.

103.	The Defendant’s account of the end of the meeting was rather different. He said that Mr Mellors was in principle anxious to go ahead with the deal, but needed to clear it with his boss, Mr Ashley. He claimed that Mr Mellors had suggested that the Claimant should submit the bid and that he would send SWL’s confirmation the following day. I do not accept the Defendant’s account. I am satisfied that Mr Carissimo was correct in saying that, by the end of the meeting, all realistic hopes of concluding the deal were at an end. Nor do I accept that, as the Defendant said, Mr Mellors telephoned him later and expressed continued interest in the deal.  This view is supported by the fact that SWL appear to have shown no further interest in pursuing the deal after 7 June. It seems likely, however, that the Defendant, displaying his usual optimism, believed that a deal was still possible if he could maintain pressure on SWL.   

Syndication  

104.	I have already referred to Mr Carissimo’s evidence that, when the Defendant arrived at the meeting on 7 June, he told Mr Carissimo that it was the Claimant’s intention to syndicate its holding in Giacomelli. The Defendant’s evidence was that, on the morning of 7 June, he received a voicemail message from Mr Antonio Roma, giving him a message from Mr Stefano Roma. Mr Stefano Roma had instructed his brother to tell  the Defendant that he must not agree the deal with SWL without firm commitments from other investors. The Defendant said that he was irritated by the fact that the instruction had come at that late stage but, nevertheless, he began to seek expressions of interest from potential investors. 

105.	The Defendant’s mobile telephone records for 7 June show a telephone call to Mr Antonio Roma on the morning of 7 June, closely followed by two calls to Medinvest International SCA (Medinvest). There are three further calls to Medinvest and two to Industria & Finanza SGR. Later in the day, both companies faxed letters, indicating an interest in assessing the suitability of an investment (my emphasis) in the Newco. These were not letters of commitment or even of interest in investing; they indicated merely a preliminary interest in the concept of the bid for Giacomelli. Nevertheless, the Defendant described them in evidence (with his customary over-optimism) as confirmations of ‘interest in investing in the Giacomelli deal’. One company faxed a copy of its letter to LCM’s Lugano office and the other to LFM’s London office. The Defendant’s mobile telephone records also show two calls to Mr Stefano Roma around lunchtime, two in the mid-afternoon and one at 18.41 hours. He rang Mr Antonio Roma at 18.58 hours. 

106.	The Claimant’s case is that no instruction was given to the Defendant that he should attempt to syndicate its proposed interest in Giacomelli. Mr Stefano Roma was adamant that the Defendant was not acting in response to a demand from him or his brother that other investors should be found. In any event, there was no time to seek other investors. His view was that, during negotiations on the Monday, it must have become obvious to the Defendant that the Claimant was going to have to invest more money than previously anticipated.  He suggested that the Defendant, knowing that the Romas would not commit the Claimant to the level of investment required, began to look for other investment sources. Mr Antonio Roma said that he had not given any instruction to the Defendant about syndication. His information about the first auction came from his brother and, so far as he was aware, Mr Stefano Roma did not intend to syndicate the deal. He said that, if he left a voicemail message on the Defendant’s telephone that morning, it was probably to tell him that Mr Signorini was on his way.

107.	I do not accept the Claimant’s evidence on this point. The mobile telephone record supports the Defendant’s account of events. The fact that the expressions of interest from Medinvest and Industria & Finanza were faxed to Lugano and London, as well as to Rome, suggests that the Defendant was not obtaining the information merely for his own purposes. Then there is Mr Carissimo’s evidence. He says that he became annoyed during the meeting of 7 June because the Defendant kept leaving the room. When Mr Carissimo remonstrated with him, the Defendant said that he urgently needed to deal with the syndication and to speak to the Romas. Mr Carissimo got the impression that the Defendant was under pressure from them. Furthermore, there is no evidence (e.g. in the final version of the Master Terms and the Offer Letter prepared on 7 June) that there was to be an increase in the Claimant’s financial commitments under the deal as a result of that day’s meeting. The Claimant’s capital contribution was identified as €6 million in the Master Terms circulated after the meeting of 4 June and it remained at the same level in the final version circulated on the evening of 7 June. The only difference apparently resulting from Monday’s negotiations was that the minimum period within which the Claimant would be able to exercise its ‘put’ option was to be extended from 3 years to 4 years and that the minimum EBITDA level under which the ‘put’ and ‘call’ options could not be exercised was increased from 2% to 4%. These may have been significant changes in terms of financial risk (because the Claimant would be locked into the deal for longer) but they did not affect the amount of the investment required. 

108.	I am satisfied that the pressure to syndicate the deal came from the Romas. Mr Stefano Roma’s discussions with the Defendant over the weekend had been based on a contribution by the Claimant of at least €6 million. It may be that the Romas had become concerned that a commitment of €6 million was too much for the Claimant’s existing investors to underwrite on more than a short-term basis. It may be that they were considering the possibility of an investment larger than €6 million. It may be, as Mr Carissimo suggested, that there was a difference of opinion between the brothers and that Mr Antonio Roma was unwilling to agree to the investment of such a large sum without syndication. Whatever the truth about that, it must have been clear to the Romas that no syndication would be possible before close of business that day so that, if the deal was to be done, the Claimant would have to underwrite the investment until it could be syndicated. I am aware of course that it is the Claimant’s case that it was the Romas’ usual practice to secure a firm commitment from other investors before committing the Claimant to an investment. However, the evidence shows that they were prepared to depart from that practice on this occasion, if an acceptable deal could be agreed. 

109.	The Defendant said that, following receipt of the faxes from the two potential investors, he spoke to both the Romas. His mobile telephone records show that he had two conversations with Mr Stefano Roma during the afternoon. The Defendant said that the Romas told him to go ahead with the deal despite the fact that he had no firm commitments from Medinvest and Industria & Finanza. I accept this evidence since it accords with other evidence about the surrounding circumstances. I accept that Mr Roma was kept informed (certainly, the number of telephone calls by the Defendant to Mr Roma would suggest this) and that he remained agreeable to the deal going ahead. In the event, no agreement with SWL was in fact reached.  I am satisfied that Mr Stefano Roma was prepared to proceed with the bid, notwithstanding that it would have involved a financial contribution by the Claimant of €6 million and that no firm commitment had been received from other investors.

The Signorini Letter 

110.	Mr O’Callaghan said that, in the afternoon of 7 June, he received an urgent telephone call from GOP’s Rome office (probably from Mr Premonte), asking him to provide a letter confirming Mr Signorini’s authority to sign documents on behalf of the Claimant. (This was necessary because the Trustees would require such a letter of authority or procura as evidence that Mr Signorini was duly authorised to sign the Offer Letter.)  Mr O’Callaghan agreed to arrange for the necessary letter to be provided by LCM. He typed the text of the letter himself and emailed it to Ms Francine Leaning  in Bermuda, requesting her to get either Mrs Francis or Ms Forrest to sign it. He asked Ms Leaning to fax the signed letter direct to Mr Premonte in Rome and to confirm to him that this had been done. Within half an hour, Mr O’Callaghan had received a faxed copy of the signed letter (‘the Signorini letter’), which he took as confirmation that the letter had been faxed to Rome.  

111.	The Rome version of the faxed Signorini letter (‘the Rome Signorini letter’) bore a fax header strip, giving a number ‘089’ and indicating that it had been sent at 12.02 hours Bermudan time. The fax header strip on the version faxed to London (‘the London Signorini letter’) bore the number ‘091’ and was timed at 12.07 hours. 

112.	The text of the Signorini letter read as follows:

“We hereby confirm that Mr. Alberto Signorini is authorized to execute legal agreements on behalf of the Leonardo Private Equity Fund Ltd (the “Fund”). This authorization is duly derived from Mr. Signorini’s directorship of the Leonardo Private Equity Fund Ltd (as evidenced by the certificate of incumbency issued by the Funds corporate secretary, Bisys Hedge Fund Services (Ireland) Ltd) and his directorship of Leonardo Capital Management Ltd, the fund manager of the Leonardo Private Equity Fund Ltd.”

The letter bore the signature of Mrs Francis.

113.	Mr O’Callaghan said that neither of the Romas was involved in the decision to obtain the Signorini letter, nor were they aware of its existence until after it had been sent.  The Defendant said that he was aware on the afternoon of 7 June that Mr Premonte was awaiting a document from the Claimant but he was concentrating on finalising the deal and took little notice.  He said that he did not see the letter when it arrived; indeed, he said that he did not see it until October 2004.  

114.	I have already mentioned that the Signorini letter was one of the enclosures in Mr Premonte’s letter of 7 June. On that day, Mr Premonte or one of his colleagues gave the envelope containing his letter and the enclosures to the Defendant to deliver to Mr O'Callaghan. The Claimant says that the letter and enclosures were never delivered to Mr O'Callaghan. They came to light only when GOP disclosed its documents in October 2005. The Defendant’s case is that he delivered the letter on 9 June, but did not mention doing so in his witness statement because he had forgotten about it. He said that he did not open the envelope before delivering it. The significance of this will become evident in due course.

Request for the Loscalzo Letter 

115.	The Defendant said that, during the afternoon of 7 June – at a time when it appeared that an agreement with SWL might yet be reached — Mr Premonte told him that, in order to be able to sign the Master Terms, he would require a letter of authority or procura. The Defendant said that, when speaking to Mr Stefano Roma on the afternoon of 7 June, he told him of this requirement. According to him, Mr Roma agreed to arrange this. Mr Roma denied that the request was made.

116.	I do not accept that Mr Premonte told the Defendant on 7 June that he required a procura or that the Defendant requested such a document from Mr Roma.  The purpose of the procura was to satisfy the Trustees that the person signing the Offer Letter was authorised to do so. The Master Terms were the terms of an internal agreement and were never intended to be seen by the Trustees. Hence, no requirement for a procura would have arisen.  
  
The Email of 7 June

117.	At 18.14 hours Italian time, Mr Pellegrini of GOP, emailed to both the Romas and to Mr O'Callaghan a copy of the last revised version of the proposed Master Terms. Mr Stefano Roma believed that he opened the email on 8 June. He said that he did not read the document since, by that time, the deal was dead so far as he was concerned. Mr Antonio Roma said that he did not read the email or its attachments. He departed for Siena on the evening of 7 June and remained there for five days.
 
The Decision to Submit an Unexecuted Bid

118.	Mr Stefano Roma described a telephone call from the Defendant in the early evening of 7 June. He said that the Defendant was very disappointed because no agreement had been reached. He said that the Defendant told him that, if the Claimant went ahead and submitted the bid then, in his opinion, SWL would continue with negotiations the following day. Mr Roma said he told the Defendant that the bid could not be submitted unless SWL’s commitment to the deal had first been secured. He told the Defendant that the deal was over. The Defendant disputed this account of the conversation. He said that, at the time he spoke to Mr Roma, there was no question of submitting the bid unilaterally. I do not accept the Defendant’s evidence on this point. I have already described how, in Mr Premonte’s letter of 7 June, he explained that he was retaining one mandato to which Mr Signorini’s signature had been affixed ‘in the event it is necessary to make the deposit with the Notary Public’. The mandato in question conferred powers on the Defendant alone. I infer that, very shortly after the departure of SWL’s negotiating team, the Defendant was contemplating making a unilateral bid, in the hope of exerting pressure on SWL to agree terms.     

119.	The Defendant said that, later that evening (his mobile telephone records show a call just after 7.30pm), he telephoned Ms Dal Negro, the lawyer acting for the Trustees. He explained to her that it had not been possible to submit the bid in time, but assured her that SWL and the Claimant were still interested in acquiring Giacomelli. The Defendant said that Ms Dal Negro responded by saying that the bids were not being opened that day. Somewhat to his surprise, she invited the Claimant to submit its bid provided that this could be done before the other bids were opened and the offer prices were known to the Trustees. The Defendant said that he immediately spoke to Mr Premonte; his mobile telephone records confirm this. Mr Premonte advised him that the Claimant should send the Trustees an unexecuted Offer Letter, together with a covering letter explaining that, if the Claimant and SWL were unable to execute the Offer Letter within a specified period, it should be disregarded.  

120.	According to the Defendant, Mr Premonte then advised him that he needed a procura as evidence for the Trustees that he had authority to sign the letter submitting the unexecuted bid. I accept that, at this stage, Mr Premonte informed the Defendant of the need for a procura. I have not heard evidence from Mr Premonte and can only speculate about the grounds on which he can have considered that the Defendant had the Claimant’s authority to submit the bid. The most likely explanation must be that he considered that the terms of the mandato in the Defendant’s favour gave him such authority.  He did not have a procura in his possession at the time that the offer was submitted.  The Defendant might have told Mr Premonte (untruthfully) that those at LFM had sanctioned the making of the unexecuted bid. Alternatively, Mr Premonte might have assumed that the Defendant had authority to submit the offer because the Claimant had entrusted the Defendant with the negotiations with SWL. He might have been encouraged in this assumption by the attitude of Mr Stefano Roma at the meeting on 4 June and/or by the Defendant himself.  

121.	The Defendant’s mobile telephone records do not show any calls to Mr Stefano Roma during the evening of 7 June.  

The Events of 8 June

The Submission of the Unexecuted Bid

122.	The mobile telephone records show that, on the morning of 8 June, the Defendant made calls to Mr Mellors and Mr Carissimo. The first call to Mr Stefano Roma was in the early afternoon.  

123.	During the morning, Mr Premonte, who was working in Rome, drafted a letter to be submitted to the Trustees and cut and pasted a LCM letterhead onto the draft letter. He faxed it to GOP’s office in Milan where the Defendant was working. The Defendant signed the letter and sent it back to Mr Premonte. The unexecuted bid was submitted to the Trustees’ lawyers in Rome. The letter signed by the Defendant was accompanied by a number of other documents, including the Offer Letter bearing the signature of Mr Signorini for the Claimant, but not that of Mr Mellors for SWL. A meeting with the Trustees was arranged for the afternoon of 10 June; it was intended that the meeting should be attended by the Defendant, representatives of SWL and their respective advisers. The Defendant said that he told Mr Stefano Roma (and probably also Mr O’Callaghan) that an unexecuted bid was to be made and about the proposed meeting and that Mr Roma agreed.

124.	It seems that the Trustees did not dismiss the unexecuted bid out of hand. They were prepared to hold a meeting with the Claimant and SWL and later sent a letter, seeking further information about the bid. They may have wanted to find out how much the Claimant was prepared to offer (the Defendant suggested in oral evidence that Ms Dal Negro had invited him to ‘make a price known’). However, I am satisfied that there was no real possibility of the Trustees accepting the bid, even if SWL had signed up to it, because of its late submission and the fact that it did not meet the auction regulations at the time of submission. In the event, the meeting with the Trustees, planned for 10 June, was cancelled at the eleventh hour because SWL had not showed any interest in discussing the deal further. 

125.	The Claimant’s case is that the unexecuted bid was submitted entirely on the Defendant’s own initiative, without the knowledge of anyone at LFM. Nor did they know that the Defendant had arranged the meeting with the Trustees. Mr Stefano Roma said that he knew nothing about the unexecuted bid until 9 June, when the Defendant telephoned to tell him that it had been made. Mr Roma said that he was very annoyed that the bid had been submitted without his consent.  According to him, the Defendant had told him that it was not important as the bid was ‘not binding’. Nevertheless, Mr Roma instructed Mr O’Callaghan to cancel the bank guarantee. Mr Roma said that it would have made no sense to make an unexecuted bid.  This was a public auction run on behalf of the Italian government and the time limits could not be waived as the Defendant appeared to believe.

126.	I accept the Claimant’s evidence that those at LFM were unaware that the unexecuted bid was to be submitted. The bid was clearly doomed to failure in view of its late submission and the fact that SWL had not signed up. I do not believe that Mr Stefano Roma would have wanted to compromise the reputation of the Claimant by submitting a bid that was bound to fail. There is no evidence of any telephone calls from the Defendant’s mobile telephone to LFM on the evening of 7 June or the following morning. While this is not determinative (the Defendant might have used another telephone), it is consistent with the fact that there was no prior contact. I am satisfied that the bid was submitted by the Defendant acting unilaterally, in the hope that it would have the effect of bringing SWL back to the negotiating table.       

The Loscalzo Letter
 
127.	The Defendant said that, on 8 June, he spoke to Mr Stefano Roma and reminded him of the need for a procura. He said that Mr Roma agreed to arrange this. Mr Roma denied that the request was made to him and said that, if it had been, he would not have agreed to it since, so far as he was concerned, ‘the deal was dead’.  

128.	At some point, there came into the possession of Mr Premonte – apparently in response to his request that one should be provided — a letter of authority or procura in favour of the Defendant. I was told that Mr Premonte has said (and the Defendant accepts) that the Defendant handed him the letter on 10 June. The letter was in the following terms:

“We hereby confirm that Mr. Donato Lo Scalzo is authorized to execute legal agreements on behalf of the Leonardo Private Equity Fund Ltd (the “Fund”) in connection with the Giacomelli bid. This authorization is duly derived from Mr. Lo Scalzo’s consultancy relationship with Leonardo Capital Management Ltd, the fund manager of the Leonardo Private Equity Fund Ltd.”

129.	This letter (‘the Loscalzo letter’) carried the signature of Mrs Francis. It bore a fax header strip across the top, indicating that it had been dispatched from the office of CFF in Bermuda at 12.02 hours Bermudan time on 7 June. The strip carried the number ‘089’. Thus, the fax header strip was identical in every respect to that which appeared on the Rome Signorini letter.  It will be observed that the terms of the letter were very similar to those of the Signorini letter. 

The Claimant’s Case 

130.	The Claimant’s case has always been that the Loscalzo letter was a forgery. When it came to light in October 2004, Mrs Francis immediately said that she had not signed it and the Romas and Mr O'Callaghan were adamant that they had never provided the Defendant with such a letter of authority.

The Defendant’s Initial Case  

131.	Initially, the Defendant contended that the letter was genuine. In his Defence, he pleaded that the Loscalzo letter was written by Mrs Francis on the instructions of Mr Stefano Roma or Mr Antonio Roma. He contended that those instructions were given on or about 4 June, at the same time as the instructions for the Signorini letter. (In fact the Signorini letter was requested on 7 June). It was said that the two letters were required because it was uncertain at that stage whether the Defendant or Mr Signorini would be signing the offer document. It was alleged that the Loscalzo letter was faxed by CFF to GOP’s office in Rome on 7 June at 12.02 hours Bermudan time and the Signorini letter was faxed by CFF to LFM’s London offices at 12.07 hours. The Defence also asserted that, on 9 June, the Defendant had collected a number of documents from LFM’s London office, among which he believed had been a copy of the Loscalzo letter. It was pleaded that he took those documents to GOP’s Milan office on 10 June.  

The Defendant’s Case at Trial 

132.	Before the trial, expert evidence had established that Mrs Francis’ signature had been introduced into the Loscalzo letter by scanning or photocopying her (genuine) signature which appeared in the Signorini letter. In other words, the Loscalzo letter was a forgery.    

133.	Shortly before trial, the Defendant served an Amended Defence in which he admitted that the Loscalzo letter was a forgery, although he contended that, at the time of the relevant events, he had believed it to be genuine. He confirmed that he had collected a copy of the letter from LFM’s office on 9 June. 

134.	His case at trial was that the Loscalzo letter had been created (by scanning and adapting the Signorini letter) in LFM’s London offices by an LFM employee. The problem with this contention, as Leading Counsel for the Claimant pointed out in opening the case, was that the Loscalzo letter bore a fax header strip identical to that on the Rome (not the London) Signorini letter. That being the case, it seemed clear that the Rome Signorini letter must have been used to create the Loscalzo letter. It was difficult to see how the forgery could have been performed by those at LFM in London. 

135.	In the early stages of the trial, it seemed that the Defendant intended to meet that difficulty by alleging that whoever created the Loscalzo letter had used the London Signorini letter but had altered the fax header strip on that letter so as to make it identical to the fax header strip on the Rome Signorini letter. It was suggested that the Defendant might adduce evidence about the ease with which such alterations could be made. The Defendant’s Counsel asked questions of the Claimant’s witnesses about their computer skills and, in particular, whether they would have been capable of rearranging the numbers and letters on a fax header strip; their (entirely convincing) responses were that they lacked the technical expertise to do so. When the Defendant gave evidence, however, he suggested an entirely different explanation, which had not been put to the relevant witnesses in cross-examination. 

136.	The Defendant postulated that, on 8 June, when he told Mr Stefano Roma that he required a procura, Mr Roma decided not to follow (or to ask someone else in the office to follow) the usual procedure of typing out an appropriate letter of authority and sending it to Bermuda for signature, a procedure which, in the case of the Signorini letter the previous day, had taken only 20-30 minutes to effect. Instead, he decided that the letter should be produced using the Signorini letter. The text of the Signorini letter was no doubt saved on Mr O'Callaghan’s computer but for some reason this was not used. Instead, someone in the LFM office (probably Ms Laura Mazzei) contacted CFF in Bermuda and asked them to send a copy of the signed Signorini letter. CFF faxed to LFM the copy of the fax confirmation for the Rome Signorini letter. That document would be identical in every respect to the Rome Signorini letter (save that it would have borne an additional fax header strip showing that it had been faxed by CFF to London on 8 June). The Defendant suggested that Ms Mazzei then typed the Loscalzo letter as a Word document, using the text of the Signorini letter for reference purposes. She then scanned onto the Loscalzo letter the original fax header strip of 7 June and Mrs Francis’ signature. She printed the Loscalzo letter onto yellow fax paper (all faxes received at LFM’s London office were printed on yellow paper) and attached it to a fax cover sheet on CFF paper addressed to Mr O'Callaghan. As I understand it, the Defendant was suggesting that the fax cover sheet accompanying the fax from CFF on 8 June must have been altered by Ms Mazzei in some way so as to suggest that it had been dispatched the previous day. Alternatively, she might have found and used the fax cover sheet which had accompanied the Signorini letter. 

137.	The Defendant was unable to explain why Mr Roma should have thought it necessary to adopt this elaborate procedure in order to provide a simple letter of authority, nor why he should have considered it so important that the letter should appear to have been written, signed and faxed the previous day.  
  
138.	It will be recalled that the Defendant has always said that he collected the Loscalzo letter, together with other documents, from LFM’s London office on 9 June and delivered it to GOP’s office in Milan on 10 June.  The Defendant gave evidence about the events of 9 June. He said that, in the morning, he flew to London. He went directly to LFM’s office. The purpose of his visit was, he said, to collect copies of the Claimant’s financial statements which he had been informed by GOP were needed for the meeting with the Trustees on 10 June. The Defendant arrived at between 12.30pm and 1 pm. The Romas and Mr O'Callaghan were out. The Defendant  spoke to Ms Mazzei.

139.	In his first witness statement, the Defendant described how he asked Ms Mazzei whether Mr O’Callaghan had collated the Claimant’s financial statements. Ms Mazzei replied that she had them and she handed him an unsealed white envelope with documents inside. The Defendant said that he glanced through the documents briefly and saw that they included the Claimant’s financial statements for 2001 and 2002 together with incorporation documents. He said that Ms Mazzei also handed him a fax on yellow paper which she had on her desk. The fax was from CFF and was dated 7 June. It consisted of two pages, the first being a fax cover sheet on CFF’s paper. The Defendant said the fax was probably addressed to Mr O’Callaghan. The second sheet was the procura which the Defendant had requested. The Defendant said that he photocopied the second sheet only and put it into the envelope with the other documents for GOP. He put the original fax in his briefcase at that time and took it away with him. The following week, he brought the original fax back to the office and left it with other documents in his desk. He said that he had not seen any of those documents since LFM moved premises. On Thursday, 10 June, he flew to Milan, went to GOP’s office there and handed Mr Premonte the envelope of documents, including the Loscalzo letter.

140.	In oral evidence, the Defendant gave a slightly different account of the circumstances in which he collected the documents. He said that he told Ms Mazzei he needed financial documents which had been requested by Mr Premonte. Ms Mazzei went with him to Mr O’Callaghan’s desk, found the papers and put them in a envelope.  The two-page fax was on her desk. She asked the Defendant whether he still needed it.  He asked what it was and she replied that it was a document with his name on it.  (His name was on the second sheet within the text of the letter. The fax was addressed to Mr O'Callaghan.) The Defendant said that he took the fax and dealt with it as previously described.
  
141.	Ms Mazzei said that she did not really remember the Defendant’s visit to the office on 9 June. She was sure she had not handed him an envelope. Nor had she given him a fax. She would not have handed over a fax addressed to Mr O'Callaghan. As I have said, she did not have an opportunity of dealing with the allegation that she had been responsible for creating the Loscalzo letter.   
 
Findings in Relation to the Loscalzo Letter 

142.	The Claimant has reported to the Italian authorities its allegation that the Defendant forged the Loscalzo letter. The Italian prosecuting authorities are currently conducting a preliminary investigation into the circumstances in which the letter came into existence. Once that investigation is concluded, they will decide whether or not to bring criminal charges against the Defendant. Before the trial started, it was submitted on behalf of the Defendant that I should not make a finding in respect of the Loscalzo letter. In essence, it was said that there was evidence about the provenance of the letter that was or might in the future be available to the Italian authorities but would not be available to this Court when it made its decision. As a result, the Court might proceed on incomplete evidence and the Defendant might be prejudiced. It was further submitted that the Loscalzo letter was not of direct relevance to the issues in the case which would fall to be decided. I declined to accept those submissions since I considered that the Court hearing this case must be free to make any finding that it regarded as appropriate for the disposal of the case. I indicated, however, that it would be open to the Defendant to make submissions about relevance at the conclusion of the evidence when the whole picture should be a great deal clearer.

143.	In his final submissions, Counsel for the Defendant asks the Court to consider whether a finding on the Loscalzo letter is necessary or appropriate. He suggests that it would not be desirable to make findings which do not affect the result of the case one way or another. 

144.	I take the view that I must make findings in relation to the Loscalzo letter. It is an important part of the narrative and had an effect upon the events that followed. Above all, it is highly relevant to any consideration of the Defendant’s conduct in relation to the events in question and to the issue of the Defendant’s general credibility and honesty. As to the fact that the evidence may be incomplete, I can only make my findings on the basis of the evidence available to me and this I have done.   In making those findings, I bear in mind the fact that although, as a matter of law, the civil standard of proof applies, that standard must take account of the fact that the more serious the allegation is, the stronger the evidence necessary to persuade a court that it can be satisfied that the allegation is established. An allegation of forgery is clearly a very serious matter and its seriousness is a factor to be taken into account and carefully weighed in the scale when deciding as to the balance of probabilities.  

145.	Applying those principles, I have concluded without hesitation that the Loscalzo letter was created by the Defendant or by someone acting on his behalf. The explanation given by the Defendant in evidence (which was, in any event, pure speculation on his part) made no sense at all. There was no reason whatever why a legitimate request by the Defendant for a letter of authority could not have been dealt with speedily and easily by using the proper procedures, as it had been in Mr Signorini’s case the previous day. I find it inconceivable that Mr Stefano Roma and/or Ms Mazzei would have embarked upon the elaborate steps I have described to manufacture a letter and fax cover sheet that had the appearance of being faxed from Bermuda the previous day. I can only conclude that the Defendant concocted the explanation (and the previous explanation about the alteration of the fax header strip which I am bound to conclude he abandoned once it became obvious that none of the Claimant’s witnesses had the expertise necessary to effect the alleged alterations) once it became evident to him that the fax header strip on the Loscalzo letter meant that the version of the Signorini letter used to forge it must have emanated from Rome rather than London. If the Rome Signorini letter had been used, the obvious candidate likely to have initiated the forgery was the Defendant. He had access to the Rome Signorini letter, which was among the documents he had been given by GOP to deliver to Mr O'Callaghan. 

146.	Moreover, the Defendant was the only person with an interest in forging the letter. I have already found that Mr Premonte told him on the evening of 7 June that he would need a procura in connection with the unexecuted bid. It was not needed immediately since it was not to be sent with the unexecuted bid on 8 June. However, it might have to be delivered to the Trustees at some stage. I am satisfied that the Defendant knew that Mr Stefano Roma would not agree to his being given a procura since he had already told the Defendant that the Giacomelli deal was at an end. In any event, the practice was for a director of the Claimant to sign on its behalf. I find that the Defendant did not request Mr Roma to arrange for him to be provided with a letter of authority on 8 June. He knew what the answer would be. The documents with which the Defendant had been entrusted provided the ideal opportunity for the creation of an apparently genuine letter of authority. He created the Loscalzo letter - or got someone else to do so - probably on 8 June, and handed it to Mr Premonte when they next met, on 10 June. In his closing submissions, Counsel for the Defendant suggested that it was possible that someone at GOP might have been responsible for the forgery. However, in evidence, the Defendant himself discounted this possibility, as I do.   

147.	I am satisfied that, on 8 and 9 June, the Defendant still believed that there was a chance of getting SWL back ‘on board’ and of making a successful bid. He was anxious to do this, not just because of the financial reward it would bring him, but also because it would restore and enhance his reputation in financial circles generally and with the Romas in particular. He needed a procura and knew that he could not get one from LFM. I am satisfied that he opened the letter addressed to Mr O'Callaghan and found a copy of the Signorini letter. He may already have known that it was in the envelope. He realised that it could be used to create the procura he required. The chances of the forgery coming to light must have seemed small. Indeed, it is only because of the extraordinary events that followed that it received any attention at all. In the ordinary way, he would have expected the Loscalzo letter to be submitted to the Trustees. If the unexecuted bid had failed subsequently, it would have been forgotten. If the bid had succeeded, the last issue that anyone would have been concentrating on would have been the provenance of a procura.  So far as these proceedings are concerned, however, the creation of the Loscalzo letter provides further evidence of the Defendant’s propensity for dishonesty and reinforces my conviction that his evidence must be treated with the greatest circumspection.  

148.	It will be recalled that the Defendant claimed, on 9 June, that he delivered to LFM’s London office the letter and enclosures which had been handed to him at GOP on 7 June. He said that he had not mentioned this at an earlier stage in these proceedings because he had forgotten about it. It was only when the documents came to light that he remembered the incident. I do not accept his evidence on these points. I am satisfied that he concealed the letter (and, subsequently, the fact that he had been given it) because he did not want to admit that he had had the Rome Signorini letter in his possession at the material time. It has been suggested by the Claimant that a further reason for concealment might have been the fact that a copy of a mandato in the Defendant’s favour was enclosed with the letter. That may have been a consideration also. As to the other documents which the Defendant claimed to have collected from LFM’s office on 9 June, I regard it as likely on the evidence that he did not collect any documents at all  but it does not seem to me necessary to decide the point. Whether he did or not, my findings in relation to the Loscalzo letter would remain the same.

Overview of the First Auction

149.	According to his brother, Mr Stefano Roma was the most sceptical of investors who rejected the vast majority of the many potential deals that were offered to him. For that reason, the fact that Mr Stefano Roma was interested in investing in Giacomelli led his brother to believe that it was a promising investment. 

150.	In his witness statements, Mr Stefano Roma suggested that he had considered the proposed deal to be a good one for the Claimant. His only reservation had been that the proposals were so favourable to the Claimant that they were unlikely to find favour with SWL. In his oral evidence, Mr Roma painted a rather different picture. He said that he was never clear in his mind about the final version of the deal proposed by the Defendant. He was faced with a moving target. He said that it was now evident to him that the deal had grown between Friday 4 June and Monday 7 June.  In the meantime, it had become ‘a monster deal’. This lack of clarity about the deal alleged by Mr Roma contrasted with the statement in the Claimant’s opening submissions to the effect that the Claimant had had full knowledge of the true terms of the first bid. It was another instance of a significant change of stance on the part of the Claimant’s witnesses.  

151.	In her final submissions, Leading Counsel for the Claimant submitted that the evidence showed that the Romas were not willing to invest more than about €2.5 million of the Claimant fund’s money in the first Giacomelli bid. I reject that submission. For the reasons I have set out above, I find that Mr Stefano Roma was prepared to invest at least €6 million and possibly more and that he was prepared to do so even without prior commitments from other investors. It may be, as I have said, that there was a difference of opinion between the brothers, with Mr Antonio Roma taking a more cautious line. I am satisfied, however, that Mr Stefano Roma believed that a deal on the lines of the Master Terms of 4 June would have been a very attractive and lucrative one and that he made that plain to the Defendant and to Mr Signorini when they spoke on 7 June. This is relevant to what follows because it shows that, if the conditions were right, Mr Roma was prepared to sanction an investment of substantially more than €2.5 million and that the Defendant was aware of that fact.   

152.	I can see no grounds for a suggestion that the Defendant made any attempt to conceal the proposed terms of the first bid from the Romas. He described them in an email. He invited Mr Stefano Roma to a meeting at which the deal was being discussed. There were copies of a Business Plan available at that meeting and Mr Stefano Roma could have requested one had he wished. The Defendant had no control over what Mr Roma was told at that meeting. He was not even present when Mr Roma arrived. Mr Roma was sent a copy of the draft proposed Master Terms and Offer Letter on 4 June. The Defendant discussed possible returns with him over the weekend and sent Mr Roma a matrix, setting out his projections. He spoke to Mr Roma several times during the negotiations of 7 June. Mr Roma was sent a copy of the final revised bid documents that evening. It seems to me that he was kept fully informed right up to that point. 

153.	After that, the position changed. I have found that the Defendant proceeded with the unexecuted bid without authority and in the face of Mr Stefano Roma’s statement to him that the deal was over. He behaved without any regard for Mr Roma’s instructions, no doubt because he believed that ‘he knew better’ and that the deal could be saved. In using the forged Loscalzo letter in connection with the unexecuted bid, he demonstrated that he was willing to act dishonestly if it seemed to him expedient to do so.      
 
THE SECOND AUCTION

News of a Second Auction

154.	The Giacomelli assets were not sold at the first auction because the Trustees declined to accept any of the bids. Mr Stefano Roma said that, in late June 2004, the Defendant contacted him and told him that the Trustees were to hold a second auction; the closing date was announced later and was 2 August. The Defendant told Mr Roma that he did not think that SWL were still interested in acquiring Giacomelli. Mr Roma told the Defendant to speak to him again if and when he had secured SWL’s agreement to a deal or had found other investors willing to finance the bid.  He said that he told the Defendant that the Claimant would not commit itself without the necessary financing in place first. He said in evidence that he had been frustrated by the uncertainties surrounding the first bid and by the wasted effort which had been expended on it; this time, he wanted certainty before considering a bid. As I have indicated, I do not accept that there was a high level of uncertainty surrounding the first bid but I do accept that Mr Roma did not want to waste effort on another bid which would ultimately prove unsuccessful. 

Renewal of the Consultancy Agreement

155.	The Defendant’s consultancy agreement had expired on 30 June and had not been renewed. On 7 July, he received an email from Ms Leaning on behalf of LCM, reminding him that the agreement had expired and stating that no business disbursements incurred by him after that date would be paid. He was travelling and did not read the email immediately. In mid-July, the Defendant spoke to Mr Antonio Roma, expressing concern at the fact that his contract had been terminated without the month’s notice to which he believed (erroneously) he was entitled. Mr Roma replied that he had not been given notice; his agreement had merely come to an end.   The Defendant said that he was working on various deals in Milan and asked to be paid for July. Mr Antonia Roma said that he told the Defendant that the agreement was at an end, although it might be possible in September, when the Defendant returned from holiday, to discuss collaboration on a deal-by-deal basis. The Defendant was not happy with that. According to Mr Roma, he spoke to his brother and the two of them decided to extend the Defendant’s agreement until the end of July to allow him to finalise whatever matters he was working on.   

Initial Discussions with Mr Berman

156.	It is clear from the documents that, by mid-July, the Defendant was in discussion with Mr Todd Berman, a New York investment banker, about the possibility of his company, Tuscan Star Sports s.r.l. (‘Tuscan’) making a bid for Giacomelli with financial assistance from the Claimant. Tuscan was a Newco, a shelf company which had been set up for the purpose of bidding in the first Giacomelli auction.  Mr Berman was the sole shareholder in Tuscan. It now transpires that Mr Berman was a dishonest individual. In December 2004, he pleaded guilty in the USA to involvement during 2001 and 2002 in a scheme to obtain by fraud more than 3.6 million US dollars from the private equity firm that he ran and from his partner and an investor in the firm. In May 2005, he was sentenced to 60 months’ imprisonment. There is no suggestion that, at the time of these events, the Defendant was aware of Mr Berman’s past history or the criminal proceedings that were contemplated or pending.   
 
157.	Mr Berman’s preliminary ideas were set out in an email to the Defendant dated 21 July. He proposed that Tuscan should be restructured for the purpose of acquiring and running the Giacomelli business, with Mr Frits van Paasschen (formerly President of Nike-Europe) as Chairman. (Mr van Paasschen’s  involvement was thought to be something of a coup since he would provide valuable experience and prestige.) The directors would include Mr Berman himself, the Defendant, a representative of the current management team of Giacomelli and ‘representatives of the investors’. Mr Berman said that Mr van Paasschen would make an equity investment in Tuscan, although he himself did not intend to do so. He said that the current Giacomelli management team was expected to make an equity investment of €500,000. Mr Berman proposed that the Claimant should be responsible for providing the bank guarantee (i.e. the deposit for the bid) of €2 million, for which it would receive a fee of €50,000 when the deal was closed. He also proposed that the Claimant should ‘front’ ‘15 million (euros) of equity’ for which it would receive a percentage of 1.5% per month, i.e. equivalent to a ‘very high bridge loan fee’. Mr Berman expressed his willingness to structure matters so that the Defendant was able to ‘maximise’ his ‘personal compensation’. Mr Berman suggested that the Claimant should receive an ‘M&A’ (management and administration) fee of at least €100,000, together with a syndication fee from all the other investors in the deal, save for certain investors whose fee would be split 50/50 with Mr Berman.  

158.	The Defendant replied by a fax dated 22 July, in which he set out the roles to be played by the various parties to the proposed deal. He described the role of the Claimant thus: 

“Leonardo Capital will provide the required financial guarantee and underwrite 100% of the equity commitment. Leonardo will not be “fronting” the deal but will actively seek, before, during or after the closing, to syndicate, sell on or assign all or part of its equity investment.”

Later in the document, he stated:   

“Leonardo Compensation:  the guarantee is the only real money at risk in the entire proposition. If anything goes wrong … Leonardo is the only one of the entire division of people involved who will actually have lost €2 million. In addition, I will lose my job. A customary underwriting for a deal of this size and risk profile in the US is at least 8.0% (i.e.:  €160,000). I agree with the concept of an M&A fee but I see a 1.5% on the entire €15 mln …”

159.	It seems clear from this passage that the Defendant was envisaging that, as well as providing the bank guarantee, the Claimant would be taking responsibility for underwriting an equity requirement of €15 million, but would, before or after the transaction with the Trustees was concluded, find other investors to share or take over that responsibility.   

160.	On 26 July, Mr Berman again emailed the Defendant. By this time, they had had a meeting to discuss their respective positions and Mr Berman observed that the purpose of his email was to ‘finalize our agreement’. He confirmed that:

“Leonardo Capital will provide the required financial guarantee this coming Friday and underwrite 100% of the equity commitment which it will seek to syndicate both before and after the closing.”

161.	He stated that ‘Leonardo Capital will also be well compensated’ and would receive an 8% fee on the guarantee at closing, a €225,000 M&A fee, an annual fee to be negotiated with the ‘new investors’ and ‘an interest in the profits of the additional equity investors if you can negotiate such an arrangement’. Mr Berman proposed that the bid letter should be finalised early the same week. He said that he ‘was inclined to bid a total of 10.15 million Euros’ at that stage.

162.	The Claimant complains that the Defendant did not inform anyone at LFM of his negotiations with Mr Berman, nor report on their progress. The Claimant contends that this failure is indicative of his desire to conceal from those at LFM the nature of the proposed deal. I do not accept that the Claimant’s criticisms are justified. Mr Stefano Roma’s evidence was that he had told the Defendant to communicate only when he had a deal that had been agreed. The Defendant’s actions in attempting to reach agreement with Mr Berman before reporting back accorded with that instruction.    

Information Received by Leo Fund Managers Limited

Discussions with the Romas and Mr O'Callaghan

163.	Mr Stefano Roma went on holiday on 20 July and, thereafter, was in LFM’s London office for only brief periods until the beginning of September. Part of his absence was caused by personal difficulties which preoccupied him for most of the summer. He had minimal contact with the office during this time and was not able to access his emails.   

164.	Mr Antonio Roma continued to manage the LFM office as usual during July. Mr O’Callaghan was hard-pressed, carrying out his usual duties in relation to LCF and covering for members of staff who were on holiday. He was aware that there was to be a second Giacomelli auction and that the Defendant was exploring the possibility of making a bid. His evidence was that, before going on holiday, Mr Stefano Roma had impressed upon him that no bid for Giacomelli could be made unless the necessary financing was in place. His words had been to the effect ‘no money, no deal’. Mr O’Callaghan said that he had understood that Mr Roma had said the same to the Defendant.

165.	Mr Antonio Roma said that, some time in late July, he became aware that the Defendant was working on a second bid for Giacomelli. He knew that his brother had previously looked into the possibility of investing in Giacomelli and had thought it worthy of consideration. The Defendant told him about the involvement of Mr Berman and Mr van Paasschen.  He said that the two of them had the necessary expertise to run the Giacomelli business if it was acquired. The Defendant had told Mr Roma that Mr Berman was acting as the co-ordinator of the deal.    

The Fax of 26 July

166.	On 26 July, the Defendant sent a fax to Mr O’Callaghan from GOP’s office in Milan.  It consisted of a CV for Mr van Paasschen (the Defendant said that he had promised to provide this to Mr Antonio Roma) and a Business Plan which had been produced by Mr Berman, Mr van Paasschen and others to show the projected performance of the Giacomelli business after its acquisition by Tuscan. Mr O’Callaghan said that he did not read the Business Plan. He was not involved in investment decisions so that there was no purpose in him doing so. He said that he put the documents on file for reference. However, it appears that he must have shown the documents to Mr Antonio Roma and, indeed, it would be surprising if he did not. Mr Antonio Roma did not remember whether Mr van Paasschen’s CV had been sent in response to a request from him or on the Defendant’s own initiative. In any event, he had seen the CV and the Business Plan although he had not read them in any great deal. He pointed out that Business Plans are not necessarily a reliable indicator of future performance. He said that he thought he had some ‘fairly basic grasp’ of what was proposed and of the ‘rough figures’; the investment appeared to him to make ‘some sense’. I infer that the contents of the Business Plan must have reinforced Mr Antonio Roma’s opinion (based on his brother’s attitude to the first bid) that an investment in Giacomelli was likely to be advantageous to the Claimant.   

The Fax of 28 July

167.	The Defendant has always maintained that he faxed a copy (in English) of the terms of the proposed agreement (the ‘Term Sheet’) between the Claimant, Tuscan, Mr Berman and Mr van Paasschen to LFM’s London offices in July. The Claimant denies that such a fax was ever received. However, a copy fax cover sheet has been disclosed by GOP. Apparently, it was among a number of documents belonging to the Defendant which he had left in GOP’s office. The fax cover sheet shows that a fax comprising 14 pages (including the cover sheet) was dispatched from GOP’s Milan office on 28 July. The fax was addressed to Mr O’Callaghan and was sent in the name of the Defendant, probably by a receptionist at GOP. The fax cover sheet gave no indication of the subject matter of the document(s) sent. LFM’s fax log sheet confirms that a 14-page fax was received from GOP on 28 July. No evidence has been adduced of any other document(s) faxed to LFM by the Defendant on this date. Consequently, I find that it must have been the Term Sheet which was faxed.    

168.	There were several versions of the Term Sheet. The Defendant’s case is that the document sent to Mr O’Callaghan was the second version of the Term Sheet. The Claimant’s contention is that, if the Term Sheet was sent, then it was the first version of that document.

169.	The first version of the Term Sheet, as it appears in the trial bundle, consists of 12 pages, including the title page.  The document itself refers to two additional Exhibits:  Exhibit D (Tuscan’s bylaws), which consisted, in the final version of the Term Sheet, of one page, blank except for the heading, and Exhibit E (Tuscan’s financial statements) which did not appear in the final version. It is quite plausible, therefore, that the first version of the Term Sheet (including Exhibit D) could have accounted for 13 pages of the fax. The second version of the Term Sheet, as it appears in the trial bundle, consists of 15 pages, including the title page. The same Exhibits (re-titled Exhibits F and G) were missing. The Defendant suggested that he had faxed all 15 pages of the second version of the Term Sheet, except the two-page Exhibit B, which dealt with stock options and which, he claimed, he had thought it unnecessary to send.   

170.	Among the documents is an email, sent at 16.21 hours Italian time on 28 July, by Mr Premonte to Mr Francesco Barbieri, a lawyer at the firm of McDermott, Will & Emery (MWE) (also known as ‘Carnelutti’), who were representing Tuscan and Mr Berman. Attached to the email was the first version of the Term Sheet and Mr Premonte invited comments on the document, observing that it had not yet been reviewed in its entirety by the Defendant and was, therefore, subject to his comments and/or changes. Since the fax to Mr O’Callaghan appears to have been dispatched at 16.02 hours Italian time on 28 July, it seems highly likely that it was the first version of the Term Sheet that was faxed. In addition, all the documents relating to the second version of the Term Sheet suggest that it was not circulated until 29 July and could not, therefore, have been faxed to Mr O’Callaghan the previous day. When these matters were put to him in cross-examination, the Defendant eventually appeared to concede that it might well have been the first version of the Term Sheet that he sent to Mr O’Callaghan.    

171.	Having considered the evidence on this matter, I find that the inescapable inference from the documents is that the Defendant sent the first – not the second version — of the Term Sheet. There seems no reason to doubt that the main text of the document was sent, together with some of the Exhibits, probably Exhibits A-C in their draft state. It is impossible to say whether the thirteenth page was the blank page of Exhibit D or some other one-page document.

The First Version of the Term Sheet

172.	I shall now summarise the main points of the first version of the Term Sheet insofar as they affected the Claimant.

173.	The Claimant and Tuscan jointly were to submit the offer to the Trustees.  Tuscan was to be the legal entity used by the parties for purchasing the Giacomelli businesses and for managing them thereafter. The Claimant was to provide the bank guarantee to be attached to the offer as a deposit. The guarantee was to be 20% of the purchase price offered for the acquisition of the business. It should be noted that the amount of the purchase price did not appear in the document.

174.	The Term Sheet provided that the Claimant (referred to in the document as ‘Leonardo’) and Tuscan should give powers of attorney to Mr Berman and the Defendant to represent them in the bid, to negotiate with the Trustees, to amend the terms and conditions of the offer, to enter into the purchase agreement and to sign any other necessary documents in the name of and on behalf of Tuscan. In other words, a ‘mandato’ in favour of the Defendant and Mr Berman was to be provided, as required by the Trustees.   

175.	The Term Sheet contained the following important provisions:

“In order to grant Tuscan with the necessary funds in order to purchase the Businesses, on or before entering into the purchase agreement of the Businesses, Tuscan shall resolve a capital increase amounting to Euro [*] (including capital surplus) reserved to Leonardo and/or to other entities selected (the “Other Investors”), at its sole discretion, by Leonardo (the “Capital Increase”).   
… 

(b) Leonardo undertakes to subscribe, entirely or partially, directly or through Other Investors, the Capital Increase.
…

The Parties acknowledge and agree that Leonardo will have the right, but not the obligation, to seek the Other Investors which intend to invest in Tuscan.  In this respect, Leonardo shall have the right but not the obligation to (i) negotiate with Other Investors their rights to subscribe and pay in part of the Capital Increase, including but not limited to, the right to determine terms and conditions of the Capital Increase, select and designate the Other Investors,  (ii) cause Tuscan to further increase the capital in order to allow Other Investors to become quotaholders in Tuscan, if any, to Other Investors, all of them at terms and conditions determined, at its sole discretion, by Leonardo …

Provided that the Bid is successful, Tuscan will be majority-owned by Leonardo and/or by the Other Investors …”

176.	Leonardo’s compensation for the giving of the guarantee was to be 8% of the amount of the guarantee, to be paid by Tuscan at the time of the subscription of the capital increase (or part of it). If the bid was successful, Mr Berman was to resign as sole director of Tuscan and new directors were to be appointed. These were to be four directors appointed by Leonardo, together with Mr van Paasschen (who was also to be Chairman), Mr Berman and a Mr Paolo Bonini, a business associate of Mr Berman. Leonardo was to receive various arrangement fees, including:

“… an arrangement fee equal to 1.5% of the amount of the Capital Increase to be paid by Tuscan at the time of the subscription of the Capital Increase (or part of it), in consideration of the arrangement services provided under this transaction …”

177.	The Term Sheet provided that it should be a binding and enforceable agreement between the parties. Those parties included the Claimant and the Defendant was named as the signatory on its behalf.

The Effect of the Term Sheet

178.	The Defendant contends that the Term Sheet showed, among other things, that, if the bid was successful, Tuscan would be the legal entity used to purchase the Giacomelli business and the Claimant would provide Tuscan with sufficient equity funds to purchase the business at the price offered. The Claimant’s case is that neither Mr O’Callaghan nor Mr Antonio Roma read the Term Sheet but that, even if they had, they would not have properly understood the Claimant’s proposed liabilities under the deal.  In her final submissions, Leading Counsel for the Claimant pointed to the fact that the first version of the Term Sheet contained no figure for the amount of the proposed capital increase. A figure of €15 million was inserted into a later version of the Term Sheet on 30 July. Also, she emphasised that the first version of the Term Sheet placed the Claimant under an obligation ‘to subscribe, entirely or partially’ the capital increase. At a later stage, however, the words ‘entirely or partially’ were removed. The Claimant contends that, even if Mr Roma had read the first version of the Term Sheet, he would not have understood that the Claimant was agreeing to ‘underwrite’ the capital increase necessary to purchase Giacomelli. 

179.	I do not accept this assertion. The Term Sheet proposed an undertaking by the Claimant to subscribe the capital necessary to enable Tuscan to purchase the Giacomelli businesses directly or through other investors. It is true that it was said that the undertaking was to subscribe ‘entirely or partially’ but, when that phrase was read in context, it was in my judgement at least capable of meaning that, if other investors were not forthcoming, the Claimant would be committed to subscribing the whole of the capital increase needed to meet the purchase price. At the very least, therefore, I should have expected that, if it had been read with care, the document would have provoked questions about the nature and extent of the Claimant’s commitments under the proposed agreement. I shall consider the construction of the first paragraph quoted above (in particular, the meaning of the phrase ‘reserved to’) when considering the summary of the document provided by the Defendant on 30 July.          

What Happened to the Term Sheet? 

180.	LFM’s London office was relatively small and a number of members of staff were away on holiday.  The fax machine was situated in the general office area and was used mainly by the person within the office responsible for settlements. Mr Antonio Roma said that this person was a very conscientious individual who would usually pass on any incoming faxes addressed to other people within the office. In an organisation of this size, one would have expected faxes to reach their intended destinations without too much difficulty. Mr O’Callaghan was in work at the end of July and there seems no reason, therefore, why the fax should not have reached him some time on the afternoon of 28 July. He accepted that this is what is likely to have occurred. He had no recollection of the fax. He said that, if it had been sent to him, he would probably have assumed that it was for filing and would have put it in the Giacomelli file. However, it had not been found in his file. He said that, when it became known that the Defendant was alleging that he had sent the fax, a thorough search of the office (by this time LFM had moved premises to Sloane Street) was undertaken but it was not found. Mr O’Callaghan was asked whether he might have looked at the fax, realised that it contained details about the Giacomelli deal and passed it on to Mr Antonio Roma.  He said that he did not remember doing so.

181.	The Defendant’s evidence was that the faxing of the Term Sheet was preceded by a telephone conversation between himself and Mr O’Callaghan. Later the same day, Mr Antonio Roma telephoned him; he said that he was too busy to read the whole of the fax and he asked the Defendant to summarise it in a one-page note. Mr Roma did not remember making this request. However, he said in evidence that the Defendant talked ‘quite a lot’ and that he wanted some precise information. He said that he might have asked the Defendant for a memorandum summarising the proposed terms.  

182.	I have concluded that the probability is that Mr O’Callaghan did hand the faxed Term Sheet to Mr Antonio Roma. When Mr O’Callaghan saw the document, it would have been apparent to him that it contained details of the proposed deal. Indeed, it seems likely, as the Defendant claimed, that the faxing of the document was preceded by a conversation heralding its arrival, in which case Mr O’Callaghan would have been aware of the nature of the document. It seems to me inconceivable that he would not have thought it appropriate to give the fax (or a copy thereof) to Mr Roma, who was liaising with the Defendant in connection with the deal. If he gave the document to Mr Roma, it would explain why it was not found when Mr O’Callaghan’s files were searched later. I have also concluded that it is likely that the Defendant is correct in saying that Mr Roma asked for a summary of the Term Sheet. Mr Roma was due to go on holiday shortly, an office move was imminent, his brother and other members of staff were absent and there was the work of LCF to conduct as usual. He might well have been short of time. Furthermore, the Defendant did provide two short documents to Mr Roma and Mr O’Callaghan within the next 36 hours. The first was an email sent on 29 July and the second was a document entitled ‘Inter-Office Memo’ faxed on the morning of 30 July. That seems to me to confirm that he had been specifically requested to provide a brief summary.

183.	I do not regard the fact that Mr O'Callaghan and Mr Roma claimed to have no recollection of this document as necessarily sinister. It is quite possible that Mr O'Callaghan might genuinely have forgotten that he had received this document and handed it over to Mr Roma. Similarly, since Mr Roma did not read it, he might not recall having been given it. However, the fact that the Defendant sent the Term Sheet to LFM is important. Had he wished to conceal the proposed terms of the deal, he would not have sent it. He was not to know that Mr Roma would not read the document or that, if he did not read it himself, he would not give it to an analyst or another member of staff to read. Even if the nature and extent of the Claimant’s proposed obligations under the Term Sheet were not immediately obvious (as the Claimant contends), they could readily have been ascertained by further investigation. 

The Escape Route

184.	There is another issue relating to the Term Sheet that I must mention briefly. In oral evidence, the Defendant claimed that the agreement set out in the Term Sheet afforded the Claimant a foolproof escape route from the deal and, in particular, from its obligation to fund (directly or through other investors identified by it) the capital increase necessary to purchase the Giacomelli assets. I need not rehearse his thesis in detail. Essentially, it was that the Claimant could, within the terms of the agreement, have gained control of Tuscan and regulated the amount of the capital increase had it chosen to do so. 

185.	The Defendant developed this theme at length and with great confidence. He claimed that he had been advised of this ‘fallback position’ by GOP at the time the negotiations were taking place and, indeed, that it had been devised deliberately by the lawyers to protect the Claimant’s position. The escape route was not referred to in the Defendant’s witness statements, nor did he tell anyone at LFM about it at the time. It was not referred to in the Inter-Office Memo. 

186.	I do not accept the Defendant’s evidence about this matter. Nor, having considered the relevant provisions of the Term Sheet, do I regard it as likely (although, since I have heard no evidence about Italian law on the point, it is impossible to be sure) that the relevant provisions would have had the effect claimed. In my judgement, this was a notion which had come to the Defendant only recently. He may well have persuaded himself that his analysis was correct and that – had it not been for the action of the Italian Trade Ministry which I shall refer to in due course — the Claimant would have been able to ‘walk away’ from the deal he had negotiated on its behalf.  I am satisfied, however, that this was never suggested to those at LFM at the time the deal was being negotiated; indeed, as I understood his evidence, the Defendant  did not contend that he had told them then. If he had been aware of this foolproof ‘escape route’, it is likely that he would have mentioned it when attempting to persuade the Romas to enter into the deal. As it is, I regard this as yet another example of the general unreliability of the Defendant’s evidence. 

The Involvement of Mr O’Callaghan

187.	Mr O’Callaghan said that, towards the end of July, the Defendant began asking him to organise the bank guarantee so as to be ready for the second bid. Mr O’Callaghan said that he reminded the Defendant that he needed the authority of Mr Stefano Roma or Mr Antonio Roma in order to proceed and that Mr Stefano Roma had said ‘no money, no deal’. He told the Defendant that, since there was no financing in place, Mr Stefano Roma would not approve the deal or advise his brother to do so. Mr O’Callaghan was not prepared to begin to organise the guarantee until the deal was approved. However, it occurred to him that, if the previous guarantee had not yet been cancelled, the Claimant might save the fees for issuing a fresh guarantee in the event that it decided to bid. In the early evening of 28 July, therefore, he emailed the bank to find out whether cancellation had taken place. He was told that it had. It is possible that the event that precipitated Mr O’Callaghan’s enquiry was the arrival of the Term Sheet and the recognition that the Romas now had some hard evidence on which to base a decision whether to go ahead with the bid.

The Email of 29 July

188.	On the morning of Thursday, 29 July, the Defendant sent an email (in English) to Mr Antonio Roma, copied to Mr O’Callaghan, in which he summarised the proposed deal thus:

“LPEF is proposing to establish a partnership with Giacomelli’s current management and an incoming CEO, Frits vaan Paaschen (sic) … to bid for the Giacomelli store chain …

total equity funding required is appx. Euro 10 mln, with additional Euro 5mln in debt (B Intesa and CR of Ravenna) to finance inventory; …

LPEF will earn fees for the arrangement and structuring of the investment (see term sheet prepared by the lawyers) …”

The email made clear that there would be a period of several weeks between the submission of the bid on 2 August and the conclusion of the transaction.

189.	Mr Antonio Roma said that he did not remember the email although he might have seen it at the time it was sent. He said that he had understood that €10 million was the price of the Giacomelli assets; this was external finance to be paid in direct by the investors. He had not understood that what was being proposed was syndication (i.e. that the Claimant would underwrite the entire investment and then syndicate some or all of it out to other investors). He said that the Claimant was not in the syndication business and he had never intended that it should be. He said that he had the impression – he does not now know why – that any bid to the Trustees would be revocable and that, during the time between the submission of the bid and the conclusion of the transaction, it would be open to the Claimant to ‘look at the company more closely’ and to decide whether or not to proceed. He did not allege that he had been misled by the Defendant into believing that this was the case.    

190.	When asked about the reference in the email to the ‘term sheet’, Mr Antonio Roma said that he did not understand that the ‘term sheet’ referred to in the email set out the terms of the agreement between the Claimant and the other parties to the deal.  He believed that it was a schedule of the ‘basic terms’ governing proposed payments to the Claimant by way of commission, which he had already discussed with the Defendant. He attributed his misunderstanding to his ‘poor English’. In fact, Mr Roma’s English is excellent but it is nevertheless possible, I suppose, that he misunderstood the word ‘term’, which can be used to refer to financial arrangements as well as in the wider contractual sense. Mr O’Callaghan said that he too had understood from the context of the email that the ‘term sheet’ in question was a document setting out the Claimant’s fees, not one that set out the structure of the entire investment.   

191.	The Claimant contends that this email is one of the two key documents which demonstrate the nature of the misrepresentation made by the Defendant. The Claimant points to the fact that the Defendant did not mention in the email the proposal that the Claimant should underwrite an investment of €15 million. The Defendant responds by pointing out that the email referred to the proposed ‘partnership’ between the Claimant and those who would have been responsible for managing the business once acquired. He contends that the clear inference was that the Claimant was to be the investor, possibly in company with others. He further contends that the fact that the Claimant was to receive fees for ‘the arrangement and structuring of the investment’ was a clear indication that the Claimant would be underwriting the investment. 

192.	This was a brief email which was not intended to – and did not – set out the whole terms of the proposed agreement. It must be read in conjunction with the document sent by the Defendant the following day. One point is particularly significant, however. In the email of 29 July, the Defendant referred back to the Term Sheet he had faxed the previous day. Had he wished to divert attention from the contents of the Term Sheet, he would hardly have made a reference which invited a reading of the email in conjunction with that document.    

The Previm Letter

193.	At 12.12 hours Italian time on 29 July, the Defendant faxed to Mr O’Callaghan a letter (in Italian) from an Italian company, Previm s.r.l. (Previm). Previm was a company with whom the Defendant had been in contact with a view to persuading them to invest in the acquisition of Giacomelli. The letter enclosed a subscription form for €7.5 million Class J shares in the Claimant fund for the fund to invest on Previm’s behalf.   The letter stipulated two conditions for subscription, namely that the Claimant succeeded in the bid and that, as direct investors in the Claimant fund, Previm should share any fees from the deal pro rata to the amount invested.   The letter was signed by the Sole Administrator of Previm. The subscription form enclosed was completed but not signed. Curiously, another version of the Previm letter, also dated 29 July, has come to light on disclosure in these proceedings. This is written in English and is identical in many respects to a translation of the original Italian version but there are differences. In particular, the second of the two conditions is different. That in the English version requires the Claimant to provide quarterly audited financial reports. Mr Antonio Roma said that he only saw the original Italian version of the Previm letter but he did recall a discussion at LFM about a proposed requirement by Previm that the Claimant should provide audited accounts before Previm invested in it. This was a problem as the Claimant had never had audited accounts and it would have been expensive and time consuming to prepare accounts extending back to its incorporation. The English version of the letter records that a ‘duly signed’ subscription form is attached although no such form has come to light. It is impossible, on the evidence available, to say whether the documents sent by Previm constituted a binding commitment to invest.

194.	Mr O’Callaghan said that he had been concerned to ensure that Previm’s letter and enclosure constituted under Italian law a binding commitment to invest in the Claimant fund. He telephoned Mr Premonte and asked him; he said that Mr Premonte did not respond. Mr O’Callaghan did not say whether he told either of the Roma brothers that he had sought advice about whether the commitment was binding or that he had received no assurance about this matter. It seems unlikely that he would have kept that information to himself. However, Mr Antonio Roma seems to have assumed without question that the commitment was binding.   

195.	It should be noted that, if the investment by Previm had been arranged as envisaged in its communication, it would have invested in the Claimant fund and the Claimant would then have invested an equivalent sum in the Giacomelli deal.  
Other Investors 

196.	On 28 July, the Defendant faxed to Mr O’Callaghan a copy of a letter (in Italian) from an Italian company called Mediolanum State Street SGR S.p.A (Mediolanum). The letter contained an expression of preliminary interest in participating in the acquisition of Giacomelli; it referred to a ‘possible investment’ of between €1 million and €2.5 million. The letter fell well short of a commitment to invest; it identified the detailed enquiries that would have to be undertaken before the proposed investment could be put before Mediolanum’s Investment Committee and the Board of Directors for a decision.

The Inter-Office Memo

197.	On the morning of Friday, 30 July, three days before the second auction was due to take place, a fax was sent from the Defendant at GOP’s office in Milan to Mr O’Callaghan and Mr Antonio Roma at LFM’s London office. The communication consisted of the fax cover sheet and one page, bearing the heading ‘Inter-Office Memo’, in which the Defendant set out (in English) details of the proposed Giacomelli transaction.

198.	The Memo stated that the proposed offer would be made by Tuscan, which was described as a ‘shelf co.’ provided by ‘the lawyers and KPMG’.  The offer was to be backed by a bank guarantee for 20% of the EV (enterprise value) of the business assets to be purchased.  

199.	The third paragraph of the Memo read as follows:

“Provided that the bid is successful, the Newco will carry out, before the closing, an increase in capital to provide it with the necessary funds in order to purchase the business assets.  It is estimated that the initial funding required, through a combination of equity and debt, will be approx. €15 million reserved to LPEF and/or other institutional investors, selected by LPEF.”

200.	The Claimant was to be compensated by Tuscan with (1) a fee amounting to 8% of the guarantee (2) a fixed arrangement fee of €250,000 ‘to be paid at the time of the increase in capital’ and (3) an annual fee of €150,000 for management and monitoring services.  Tuscan was to bear the legal and accounting fees and expenses incurred in preparing the bid.  

201.	The memorandum continued:
“LPEF and the other Institutional Investors
LPEF has:
(1)  	invited some Institutional Investors to invest in the deal, receiving so far commitments for €7.5 million…
(2)  	received, so far, commitments for €7.5 million to be invested in the deal through the subscription of Class J shares.  As all investments into LPEF, such investment (as per prospectus) will attract the customary annual management of 1% and performance fee of 20%.

If the bid is successful, LPEF will actively seek to syndicate, assign, or sell on equity, mezzanine or other financial instruments of … (Tuscan) … to Institutional Investors.”

The two references to the sum of €7.5 million at (1) and (2) both refer to the single €7.5 million commitment by Previm discussed above.  

202.	Mr Antonio Roma said that the Memo was ‘ambiguous at times’. His understanding of the Memo, coupled with what the Defendant had told him, was that there was €10 million to be paid immediately to purchase the company, of which the Defendant already had a commitment for €7.5 million from Previm. Insofar as additional funding might be required for working capital, Mr Roma said that he understood that Tuscan would have to raise that itself by means of bank loans. He did not explain what he believed would happen if the loans were not forthcoming; having regard to the fact that Giacomelli had recently been the subject of a well-publicised collapse, this must have been a real possibility. Mr Roma also said that he understood that there would be a two-stage process whereby, if and when the purchase price of €10 million was paid, the Claimant would then have an option to underwrite part of the additional capital increase in Tuscan. At that stage, the Claimant would be able to decide how much of the capital increase to underwrite, depending on the circumstances then prevailing. He pointed out that, under Italian company law, when a capital increase is ‘reserved to’ a party, that party has an option of first refusal - but no obligation - to finance the increase. Mr Roma said that, at the time of the receipt of the Memo, he did not believe that the deal would go ahead. His brother had stipulated ‘no money, no deal’ and, even with the commitment from Previm, there was a shortfall of €2.5 million out of the proposed purchase price of €10 million.  

203.	Mr O’Callaghan said that he glanced at the Memo very quickly. He was looking for information about the fees that the Claimant would receive from the deal. He said that the Defendant had told him that there was no financial risk for the Claimant on the deal so he ‘just wanted to know the upside’. (Perhaps surprisingly, he did not appear to consider looking at the ‘term sheet’ mentioned in the previous day’s email which he said he understood contained details about the commission payable to the Claimant). He considered that the fees proposed in the Memo were ‘unrealistic’ (by which I understood him to mean unrealistically high) and doubted whether the finalised deal would prove lucrative for the Claimant. Mr O'Callaghan claimed that, like Mr Antonio Roma, he had understood the reference to the initial funding being ‘reserved to’ the Claimant and/or other institutional investors to be selected by the Claimant as meaning that the Claimant would have first refusal on shares in Tuscan. Mr O’Callaghan did not remember discussing the Memo with Mr Stefano Roma.

204.	The Claimant contends that the Defendant knew that the Claimant would rely on the Inter-Office Memo when deciding whether or not to proceed with the Giacomelli bid. It submits that it is of note that nowhere in the Memo did the Defendant state that the Claimant would be committing itself to underwriting the entire equity for the deal.  Mr Antonio Roma’s belief was that, if it wished to proceed with the deal, the Claimant would have to invest €2.5million (i.e. €10 million less Previm’s contribution) towards the purchase price. It would then have an option whether to invest further at a later stage.    

205.	I have received expert evidence, which I accept, that, in Italian company law, a ‘reserved’ capital increase confers on a shareholder a right of first refusal for a certain period, during which no other person may underwrite the capital increase, except a person who has purchased the right from the relevant shareholder. The shareholder has no obligation to underwrite the increase. It is necessary, however, to look at the phrase in context. The Memo stated that the increase in capital was to be carried out ‘before the closing’, i.e. before the conclusion of the purchase from the Trustees. The purpose of the capital increase was identified as the provision of the funds necessary to enable Tuscan to buy the Giacomelli business assets. The two-stage process envisaged by Mr Antonio Roma (whereby there was a payment of the purchase price and then the (optional) capital increase) would not have accorded with the terms of the Memo which plainly linked the capital increase to payment of the purchase price.  

206.	Tuscan was a “shelf company”; it had no assets and the Memo referred only to a commitment of €7.5million by other investors, which Mr Antonio Roma would have known was a reference to Previm. There was no reference to any other potential investors. If the bid was accepted by the Trustees, the purchase price would have to be paid. If it was not paid, the bank guarantee provided by the Claimant would be forfeited. In those circumstances, I find it difficult to understand how Mr Roma could have understood from the Memo that the Claimant would have an ‘option’ to provide the funds necessary for the purchase price. The estimate of ‘initial funding’ required was - not €10 million - but €15 million. It is true that both the Memo and the preceding email suggested that part (as much as €5 million) of that sum could be raised by ‘debt’ (i.e. bank loans) but there was no guarantee that loans would be available. If no loans – or loans of less than the sums sought – were forthcoming, it is difficult to see who – other than the Claimant or some other investor found by the Claimant – would have met the shortfall. Later in the Memo, it was said that the Claimant would actively seek to ‘syndicate, assign or sell on equity’ in Tuscan to institutional investors. As the Defendant pointed out, it is difficult to see how the Claimant could ‘assign’ or ‘sell on’ equity that it did not itself own. This passage strongly suggested   in my view that the Claimant would be making an initial investment which ultimately it would be trying to place with other investors.  

207.	The Claimant contends that, in the Inter-Office Memo, the Defendant deliberately misrepresented the proposed terms of the deal and, in particular, that he sought to conceal the fact that the Claimant would be required to underwrite the initial funding price of €15 million. It is said that one means by which he did this was by using the phrase ‘reserved to’ which suggested that the Claimant was to be given an option to invest. I do not accept that he used that term with any intent to deceive. The phrase was used in the draft Term Sheet. As I have said, a careful reading of the relevant paragraph would have revealed that it could not possibly be conferring a mere option on the Claimant. If Mr Antonio Roma genuinely believed that the bid did not constitute a binding commitment on the Claimant to make an investment, this belief must, in my judgement, have stemmed from his conviction (see paragraph 189) that any bid would be revocable and non-binding, not from anything said in the Memo. It is true, as the Claimant points out, that the Defendant did not use the word ‘underwrite’ in the Memo. However, the word ‘underwrite’ was not used in the Term Sheet which the Defendant was seeking to summarise. In those circumstances, it is difficult to contend that the Defendant deliberately chose not to use the word in order to deceive.

208.	I do not accept that the Inter-Office Memo was deliberately misleading as to the terms of the proposed deal. It was intended only as a summary and was thus abbreviated. It may have contained ambiguities but these could have been clarified by reading it in conjunction with the Term Sheet (which the Defendant might reasonably have expected Mr Roma to do) or by asking questions of the Defendant. In reality, it seems to me that Mr Roma gave the Memo only cursory attention. The Memo arrived shortly before he was due to depart on holiday and he had many other responsibilities at the time. He was in the throes of negotiating a lease on new office premises. He had little time to spend on the Giacomelli deal. Had he read the Memo with any care, he would in my view have appreciated that the Claimant was not merely acquiring an option to invest. He would also have appreciated that the Claimant would be assuming responsibility for an investment of as much as €15 million. At the very least, he would have appreciated that this might be the case and would have made enquiries to clarify the matter. The fact that he put no questions to the Defendant after receiving the Memo and that he did not read it in conjunction with the Term Sheet he had been sent earlier strongly suggests to me that he gave little attention to it. He may, as he claimed, have believed that his brother would not sanction the bid because of the shortfall in funding and for that reason he may have thought it unnecessary to read it in detail. He may have believed – entirely erroneously and for reasons unconnected with anything the Defendant had said to him — that there was little to be lost in making a bid since it would be revocable and the Claimant would be able to withdraw at a later stage if it so wished. I find that, as a consequence of the scant attention he gave to the Memo, Mr Roma made a number of unwarranted assumptions about its contents which had a significant impact upon his understanding of the proposed Giacomelli deal and that of others at LFM.   

The Events of the Afternoon of 30 July

The Bank Guarantee

209.	Despite the fact that no decision had yet been taken to participate in the bid, the Defendant was pressing Mr O’Callaghan to organise the bank guarantee. At lunchtime on 30 July, he faxed to Mr O’Callaghan the wording for the guarantee, which was amended slightly from the previous guarantee issued in June. The guarantee was to be for €2.1 million, representing a purchase price of €10.5 million. By mid-afternoon, Mr O’Callaghan was becoming concerned that there would not be enough time to arrange the guarantee if a decision was taken to proceed. He therefore decided that he should attempt to put the necessary arrangements in place just in case. He spoke to LCM and to Bisys Hedge Fund Services (Ireland) Limited (Bisys), the company responsible for its administration. He arranged for Bisys formally to instruct the bank to prepare and hold the guarantee and to issue it only when instructions were given to do so. The new wording of the guarantee provided: 

“We (the bank) … hereby irrevocably undertake to pay immediately to you (i.e. the Trustees), upon your first demand, any amount … up to the maximum EURO 2,100,000 … upon receipt of your request for payment and your confirmation in writing stating that Leonardo Private Equity Fund (through its Italian special purpose bidding vehicle, Tuscan Star Sports S.R.L.) have failed to honour the agreements in accordance with the terms stipulated in the contract with yourselves.”

I note that the guarantee refers to Tuscan as the Claimant’s ‘special purpose       bidding vehicle’. This seems to me to highlight the central role which the Claimant was intended to play in the acquisition of Giacomelli.  

210.	Even after he had put these arrangements in place, Mr O’Callaghan doubted whether the guarantee could be issued in time to meet the Monday deadline.  The bank was about to close for the weekend and none of the directors of the Claimant or of LCM were available to sign the necessary documents.  

The Conversation between the Romas

211.	Mr Antonio Roma spent the afternoon of 30 July negotiating a lease for new office premises for LFM, whose current lease was to expire in September 2004. In the late afternoon, Mr O’Callaghan spoke to him. He reminded him that the financing for the deal was not all in place and that Mr Stefano Roma had not yet approved the investment. He told him that the Defendant was pressing for the guarantee to be issued, although it was increasingly unlikely that this could be done in time to meet the deadline.  

212.	Shortly afterwards, Mr Antonio Roma spoke to the Defendant, who was in Italy.  Mr Roma pointed out that the commitment from Previm did not cover the whole purchase price. He also pointed out that it was unlikely that the guarantee could be issued in time. Mr Roma said that the Defendant was very annoyed and told him that he was working very hard on a deal for the Claimant, while no one in London was taking him seriously. There was a second conversation in which the Defendant expressed his disappointment that the deal should not proceed, particularly in view of the commitment from Previm. Mr Roma told the Defendant that he would discuss the matter with his brother. It was the Defendant’s persistence that eventually persuaded Mr Roma to put the deal to his brother. 

213.	At 4.47pm, Mr Antonio Roma telephoned Mr Stefano Roma, who was on holiday.  His evidence was that he told Mr Stefano Roma that the price to be offered was just over €10 million and that the Claimant only had a commitment for €7.5 million. Mr Stefano Roma said that he asked how binding that commitment was, whereupon his brother replied ‘binding’. They discussed the fact that other private investors involved with the deal might put in money themselves. Mr Stefano Roma said that, even if those investors did not materialise, the Claimant could underwrite a €2.5 million shortfall, in the reasonable hope of being able to dispose of its interest to other investors. If that proved impossible, the Claimant could retain the investment itself. Mr Stefano Roma felt that it was worth being involved in the deal and that there appeared to be little risk to the Claimant. It was decided in principle, therefore, that the bid should proceed although it seemed highly unlikely that the necessary bank guarantee would be in place in time.  

214.	Mr Antonio Roma said that he and his brother had little discussion about the precise terms of the deal.  Mr Stefano Roma’s attitude was that, if the Defendant was happy and if Previm was prepared to invest money, then this was a sign that the deal was a good one. Mr Antonio Roma said that he had been reassured by two matters. First, he had believed that the purchase would be concluded only if the financing was available. He had thought that, if the commitment from Previm did not materialise after the bid was made, the purchase would not go ahead. Second, he believed that Tuscan had been set up by GOP for the purpose of the bid and that, since the bid was being ‘organised’ by them, ‘nothing dramatic would have happened’. 

215.	The conversation between the Romas took place on the basis that the purchase price for Giacomelli was to be about €10 million, whereas the Inter-Office Memo had made clear that ‘initial funding’ of €15 million was required. There was no discussion about how the addition €5 million was to be financed. The assumption was that the only concern was how the €10 million was to be funded. Mr Antonio Roma was asked why he had not told his brother that the Memo had quoted a figure for initial funding of €15 million, not €10 million. He replied that he did not think that the additional €5 million was anything that the Claimant needed to be concerned with. It would have been up to Tuscan’s management to find that money. That was, Mr Roma said, ‘their own problem’.  This seems a somewhat unrealistic attitude. There was little point in the Claimant investing money in the purchase of Giacomelli if the funds necessary to run the business were not available thereafter.     

Telephone Conversation with the Defendant

216.	Following this conversation, Mr Antonio Roma said that he telephoned the Defendant and told him that Mr Stefano Roma had agreed that the bid should go ahead.  He said that he told the Defendant that the Claimant would underwrite an investment of up to €2.5 million and no more. It would only retain this investment if no other investors could be found.  Mr Roma also spoke to Mr O’Callaghan and told him that the guarantee could be issued. He said that he did not seek LCM’s approval that day, since he was aware that it was a national holiday in Bermuda. Even though the bid was to go ahead, he did not read the draft Term Sheet in his possession or request a copy of the Offer Letter that was to be submitted to the Trustees.   

217.	The Claimant’s case is that, during his conversation with the Defendant, Mr Antonio Roma made it clear that the Claimant would underwrite a maximum of €2.5 million and no more. In fact, this cannot be right since it must already have been clear that, unless other investors could be found, the Claimant’s contribution would inevitably be more than €2.5 million. The Romas had been aware when they spoke that the price to be offered was to be ‘just over €10 million’ and the amount of the bank guarantee suggested that it would be €10.5 million. Thus, the shortfall would be at least €3 million – possibly more. In the event, the purchase price offered was €11 million, leaving a shortfall of €3.5 million.  The Defendant said that no limit of €2.5 million was set on the initial acquisition of Giacomelli although the general aim was for the Claimant fund to end up with an investment of about €2.5-€3 million after syndication.       
  
218.	Mr Antonio Roma conceded that the Defendant would have been entitled to believe after their conversation that Mr Stefano Roma had approved an investment in the terms set out in the Inter-Office Memo. He was not to know that Mr Antonio Roma had not communicated its entire contents to his brother. If, as I find he did (save for the matter of his directorship of Tuscan to which I shall refer in due course), the Defendant had tried accurately to summarise the terms of the proposed deal in the Memo and believed that he had done so, he would have had no reason to suppose that the Romas were not fully informed of those terms. For all he knew, Mr Antonio Roma might have gone back and read the Term Sheet which he had sent previously. He would have believed that the Romas understood and accepted that the Claimant would be underwriting (at least in the short term) any shortfall in the ‘initial funding’ which could not be syndicated to other investors or raised by means of bank loans. I have no doubt that, at that time, the Defendant genuinely believed that other investors would be found and that bank loans would be raised. But he made clear in the Inter-Office Memo that only €7.5 million had been committed to date. It is important to bear these factors in mind when considering the events that followed. If the Defendant believed at this stage that the Romas understood the Claimant’s liabilities under the proposed deal, that belief would inevitably affect the way in which he communicated with them thereafter. He would not consider it necessary to repeat the same information on each occasion that the deal was discussed.    

Later Versions of the Term Sheet

219.	After the circulation of the first version of the Term Sheet, negotiations had continued between the Defendant, Mr Berman, GOP and MWE. On 29 July, Mr Barbieri of MWE emailed a revised version (‘the second version’) of the Term Sheet, containing amendments proposed by Mr Berman, to the Defendant and GOP. That second version was never seen by anyone at LFM. Nor was the third version (emailed to Mr Barbieri, the Defendant and GOP on 30 July) or the fourth version (circulated at lunchtime on Saturday, 31 July, in preparation for a meeting between Mr Berman, the Defendant and the legal advisers that evening).

220.	The Claimant contended that there were significant differences between the first version of the Term Sheet and later versions (in particular, the second version) of that document.  It argued that, even if the Defendant had, contrary to its contention, sent a copy of the first version of the Term Sheet to Mr O’Callaghan, he had deliberately withheld later versions.

221.	In my judgement, the Defendant cannot be criticised for not sending LFM each successive version of the Term Sheet.  I have found that he sent a copy of the first version and that Mr Antonio Roma had told him that he did not have time to read it.  That was on the Thursday and it is unlikely that he would have found time to read later versions on the Friday or the Saturday. However, the Defendant should plainly have informed Mr Roma of any material changes to the first version of the Term Sheet affecting the Claimant which had been proposed and agreed. It is, therefore, necessary to see whether there were any changes of significance between the first version and the final version which was signed on 2 August.

222.	The final version provided that Tuscan alone was to submit the offer to the Trustees.  Powers of attorney were to be given to the Defendant alone to represent Tuscan in the bid, to negotiate with the Trustees, to amend the terms and conditions of the Offer, to enter into the purchase agreement and to sign any other necessary documents in the name of and on behalf of Tuscan. It is not clear why Mr Berman should have wished to confer these powers on the Defendant. It seems likely that Mr Berman was not going to be available on the day the bid had to be submitted. The powers conferred on the Defendant were similar to those which had been contained in the earlier mandato in his favour.

223.	The provisions for the granting of the capital increase remained precisely the same, save that the amount of the capital increase was stated to be up to €15 million. The Claimant’s undertaking to subscribe ‘entirely, or partially, directly or through other investors, the Capital Increase’ had been amended to read ‘Leonardo undertakes to subscribe directly and/or procure Other Investors to Subscribe the Capital Increase…’.

224.	The Claimant’s case is that these terms were very different from the summary contained in the Inter-Office Memo and from the first version of the Term Sheet. I am not persuaded that the changes were very significant. The Defendant had mentioned the figure of €15 million in the Inter-Office Memo. The re-wording of the provision for subscription does not appear to me to be of great moment. It served to clarify what might previously have been an ambiguity. There is no suggestion that the nature and substance of the deal as understood by Mr Berman and the Defendant changed significantly between the first and final versions of the Term Sheet. It does not appear to me that these were material changes in the Claimant’s liabilities under the agreement about which the Defendant (believing as he did that the Romas correctly understood those liabilities) would necessarily have felt that he must inform the Romas. 

225.	One criticism made by the Claimant is that the Defendant did not inform anyone at LFM that it was intended that he should be a director of Tuscan if the deal went ahead. In particular, it is pointed out that this fact did not appear in the Inter-Office Memo. In fact, the first and second versions of the Term Sheet did not identify the Defendant as a prospective director; they provided only that the Claimant should have the right to appoint four directors. The possibility of the Defendant being a director had been mooted earlier by Mr Berman but the Defendant was not one of the persons proposed by Mr Berman as directors in an email sent on 26 July. It may be that the question of a directorship for the Defendant was still under discussion during this period. The Defendant said that he told Mr Antonio Roma about the proposed directorship at some point and proposed himself as a director representing the Claimant. He said that Mr Roma approved. That is denied although Mr Stefano Roma said that there had been some discussion at the time of the first bid about the Claimant having the right to nominate directors for the proposed Newco.   

226.	The final version of the Term Sheet (circulated on the same day that the Inter-Office Memo was sent) provided that one of the directors to be appointed by the Claimant should be the Defendant. It further provided that he should serve for three years and be entitled to an annual fee of €150,000. It appeared from this version of the Term Sheet that the Defendant was to be a director of Tuscan at the time the bid was submitted (the Defendant said that he became a director on the day of the bid, probably for technical reasons because Mr Berman was not in Italy at the time). After the subscription of the capital increase, both Mr Berman and the Defendant were to resign and a new Board of Directors was to be appointed by the shareholders. The Defendant said that the fees payable to him would have gone to the Claimant and that they represented the €150,000 M&A fee that had been referred to in the Inter-Office Memo. The Claimant disputes this and points out that, had the Defendant sought to keep the fees for himself, there would have been nothing in law that the Claimant could have done about this. The Defendant’s response to that was that, if he had been seeking to keep from the Claimant the fact that he was to receive a fee, he would not have mentioned the figure of €150,000 in the Inter-Office Memo.

227.	I consider that it is highly likely that, by 30 July, the Defendant was attempting to protect his future position by securing a paid directorship of Tuscan. His consultancy agreement would expire the following day and he must have been aware that it might not be renewed. It seems likely that he was ‘hedging his bets’. If his relationship with the Claimant had continued, he would have paid over his fees to the Claimant. In that event, he would no doubt have been able to negotiate appropriate financial remuneration from the Claimant and would have received fees and commission for his part in negotiating the deal. If his relationship with the Claimant had foundered, he    might well have contended that he was entitled to keep his director’s fees for himself. 

228.	Clearly, the Defendant should have informed the Romas of (and obtained their consent to) the proposed terms of the agreement about his directorship, particularly since it was proposed that he should be one of the Claimant’s appointees on the Tuscan Board. I am satisfied that he did not do so. However, I am not persuaded that the fact that he did not disclose that matter necessarily means that he also concealed the true nature of the proposed Giacomelli deal from those at LFM.

The Events of 2 August

The Signing of the Term Sheet 

229.	On the morning of 2 August, the Defendant signed the Term Sheet on behalf of the Claimant. He did not consult anyone at LFM before doing so. He also signed (jointly with Mr Berman) the Offer Letter in connection with the bid. Mr Antonio Roma was asked who he had expected to sign the documents in connection with the bid. He said that the offer was being submitted by Tuscan and he had understood that GOP were empowered to submit the bid. He believed that the only document to be signed on behalf of the Claimant at this stage was the bank guarantee. So far as the agreement between the Claimant and its partners was concerned, he had believed that there was no immediate need to set anything down in writing; he thought that the paperwork would arrive in due course.  He had not given the matter a great deal of consideration since he did not think that the bid would be able to go ahead. He said that the Defendant would not have been the appropriate person to sign documents on behalf of the Claimant.

230.	It was known to those at LFM that, if the bid went ahead, Tuscan would be submitting a formal offer to the Trustees and that, unless other investors were found, the Claimant was to contribute at least €2.5 million towards the purchase price. The Claimant was also to provide a guarantee by way of deposit for the purchase. It is surprising therefore that it did not occur to Mr Antonio Roma or Mr O’Callaghan that there would be documents to be signed on behalf of the Claimant or, indeed, that it was necessary for the Claimant’s position to be protected by a signed agreement. It does not appear that it occurred to them at all. If it had occurred to them, I am confident that they would have tried to make arrangements for a director of the Claimant to sign on its behalf. I do not accept the Defendant’s contention that Mr Antonio Roma knew that he was going to sign the Term Sheet and was happy about that.

231.	The Defendant desperately wanted the Giacomelli deal to be concluded, particularly since his consultancy agreement with the Claimant had ended. He may have seen a successful outcome as the only hope of continuing his relationship with the Claimant.   He did not – as he plainly should have done – consult LFM about who was to sign the necessary documents.  I am satisfied that he did not do so because he was afraid that no director of the Claimant would be available to sign and that the deal might founder as a result. In evidence, he said that he was advised by Mr Premonte that he had authority to sign and that he accepted and acted on that advice. I am sure that, even if that advice was given, the Defendant was well aware that, if he had proposed to those at LFM that he should sign documents on behalf of the Claimant, he would not have been permitted to do so. Quite apart from any other consideration, on 2 August, his consultancy agreement had expired and he was no longer retained by the Leonardo Group.

232.	Even if Mr Premonte did not give the positive advice claimed by the Defendant, it is clear that he acquiesced in the Defendant’s signature of the documents. As with the first bid, it is not possible to say with any certainty what caused him to believe that the Defendant had the appropriate authority to do so. It is possible (although perhaps unlikely) that, as the Defendant claimed, Mr Premonte relied on the Loscalzo letter. However, there is some evidence that, when asked about the matter, Mr Premonte claimed that he did not. If he did not rely on the letter as giving authority, the knowledge that (as he believed) LCM had provided the Defendant with such a letter may still have coloured his views. He may have relied on the mandato drawn up on 7 June, at least insofar as it expressed the will of the Claimant at the time. He may have believed that, since the Claimant had entrusted the Defendant with the negotiations in relation to the first and second bids, it had given him the requisite authority to sign the documents. He may have been encouraged in this assumption by the attitude of Mr Stefano Roma at the meeting on 4 June and/or by the Defendant himself. The Defendant may have pointed out to Mr Premonte that Mr O’Callaghan and Mr Antonio Roma had had a copy of the first version of the Term Sheet (which had shown that it was intended that the Defendant should sign on the Claimant’s behalf) and had raised no objection. I am sure that he did not tell Mr Premonte that his consultancy agreement had expired on 31 July and, that if he had done, Mr Premonte would have queried with LFM the Defendant’s authority to sign on the Claimant’s behalf.     

The Failure of the Bid

233.	The bid documents (without the bank guarantee) were submitted to the Trustees before the 11am deadline on 2 August. Meanwhile, Mr O’Callaghan had been liaising with the bank, with Mr Premonte and with Ms Forrest of LCM about the guarantee. Arrangements were made for the documentation in connection with the guarantee to be signed by Mr Bottinelli, as director of the Claimant, and faxed direct to the Trustees. In the event, the guarantee reached the Trustees too late to meet the deadline. On 3 August, the Defendant went on holiday to the USA.  Mr Antonio Roma also went on holiday that week.  

234.	On 4 August, the Trustees informed GOP that, although Tuscan’s bid had been the highest, it had failed because of the late delivery of the bank guarantee. The Defendant was bitterly disappointed at the failure. He telephoned Mr Antonio Roma; he was angry with him and with Mr O’Callaghan. He suggested that there had been unnecessary delay in taking a decision to proceed and in arranging the guarantee.  In an email to Mr O’Callaghan, Mr Roma described the failure of the bid as ‘quite annoying’.  A short time later, Mr O’Callaghan discovered that all the other bids in the auction had been declared null and void so that there was likely to be a further auction.  He passed the news on to Mr Antonio Roma by email.

Overview of the Second Auction

235.	The proposed bid in the second Giacomelli auction was of a very different type to that in the first. The first bid involved a partnership with a company of high reputation and considerable expertise in the field. That company was making a sizeable financial investment of its own. The Claimant’s position would have been protected – to some extent at least – by the ‘put’ and ‘call’ options previously referred to.
236.	 I have found that Mr Stefano Roma was well–informed about the terms of the first bid whereas his brother was not.  By the time the proposed deal with Mr Berman was mooted, Mr Stefano Roma was out of the office. It seems that he knew nothing about the proposed deal until his conversation with his brother on 30 July. Mr Antonio Roma said that, during that conversation, the two men did not discuss the terms of the deal in any detail. I am confident that Mr Antonio Roma did not give his brother a full account of the terms referred to in the Inter-Office Memo (Mr Stefano Roma did not have a copy) and that there was no discussion about how the deal was to be structured. As a consequence, their exchange was very superficial. It centred on the question of how the purchase price of €10 million or thereabouts was to be raised. It seems to me highly probable that both men believed that the terms of the deal were (save for the fact that SWL had dropped out) very similar to those of the first bid. In fact, the whole structure of the deal was completely different. I am satisfied that each was under a further misapprehension. Mr Antonio Roma was under the impression that his brother, whom he knew to be an extremely astute investor, had been enthusiastic about a deal that was essentially the same as the current one. In his evidence, he said that he had been ‘under the very strong impression’ that his brother had been ‘a little more on top’ of the Giacomelli deal than had in fact been the case. Although he said that this had been his impression in August, I am satisfied that the comment was equally applicable to his state of mind on 30 July. I have no doubt also that Mr Stefano Roma believed that his brother, who was cautious and methodical by nature, would have informed himself fully about the structure of the deal and that he would have made some assessment of the risks. Mr Stefano Roma relied heavily on his brother’s assurance that Previm’s commitment was binding and, indeed, on the involvement of Previm in the deal. 

237.	In my judgement, these misunderstandings led to a decision to proceed with the bid being taken on information which was defective. I do not accept that this occurred as a result of any misconduct on the part of the Defendant. He had sent the first version of the Term Sheet, followed by an email and the Inter-Office Memo in which I have found that he had attempted to summarise the important terms governing the deal.  He had made it clear that he had a commitment from other potential investors of only €7.5 million at that time. I have no doubt that, when speaking to Mr Antonio Roma about the deal, the Defendant had done all that he could to stress its potential advantages and to minimise any ‘downside’ (e.g. the risk that bank loans might not be forthcoming) that there might be. However, I am not persuaded that he misrepresented (whether by active representation or concealment) the Claimant’s liabilities under the proposed deal.             

238.	As with the first bid, the Defendant’s conduct can be criticised in a number of respects. He should plainly have told the Claimant about his proposed directorship and its terms. Also, he should not have signed documents relating to the offer when he must have realised that he did not have the Claimant’s authority to do so. I am satisfied that it did not occur to those at LFM that there would be documents to sign and that the Defendant took full advantage of that inadvertence. Similarly, he took advantage of the fact that Mr Premonte was prepared to acquiesce in him signing on behalf of the Claimant. I have no doubt that the Defendant’s conduct was motivated to some extent at least by self-interest. He wanted the financial rewards which the successful conclusion of the Giacomelli deal would bring. These incidents provide further examples of the Defendant’s unscrupulous behaviour and complete disregard for the limitations of his retainer (indeed, he was not even retained by the Claimant at the time he signed the documents relating to the second bid). However, they do not affect the issue of whether he misrepresented to those at LFM the Claimant’s liabilities under the deal.     

THE THIRD AUCTION

News of the Third Auction 

239.	In the evening of 4 August, Mr Premonte emailed the Defendant and Mr O’Callaghan, confirming that there was to be a new auction. He pointed out that, if the Claimant was to participate in the auction, a fresh bank guarantee would be required.

240.	On 5 August, Mr Berman emailed the Defendant to tell him that the new bidding deadline was to be 18 August.  Mr O’Callaghan spoke to the Defendant and, later that day, he emailed Mr Antonio Roma, asking whether the Claimant had authority to rebid. He told Mr Roma that the bid price might rise from €10.2 million to €10.75 million but that otherwise the underlying circumstances had not changed. He had been given that information by the Defendant. He said that he would speak to Mr Stefano Roma and confirm that he was still ‘on board’. Later, he spoke to Mr Stefano Roma, who asked him to organise a conference call between himself and the Defendant to discuss the matter. For reasons that are not clear, that conference call never took place. 

Discussions with the Romas 

241.	However, there was a conversation between the Defendant and Mr Stefano Roma at this time. Mr Roma said in evidence that he had been unimpressed by what the Defendant was saying during that conversation.  The Defendant was talking about potential investors whom he hoped to persuade to join in the deal. Mr Roma said that it was clear to him that ‘despite his usual lengthy explanation of the high level of interest in Giacomelli and the many other investors he was speaking to, he had not made any real progress and the deal was going nowhere’.  He said that he gave the Defendant no encouragement. By contrast, the Defendant claimed that, during the conversation, Mr Roma confirmed that he should pursue the deal.  I cannot accept Mr Roma’s account of this conversation. It is entirely inconsistent with his having sanctioned a bid a week earlier.  The Claimant’s case is that, so far as the Romas were concerned, nothing (save perhaps the purchase price) had changed since then.    Provided that Previm were still committed to invest, there was no apparent reason why the third bid should not go ahead. When he made his first witness statement, Mr Roma had no recollection of a conversation with the Defendant at this time. I conclude that any recollection which he may subsequently have had was poor and that he was reluctant to admit that he had or might have given the Defendant permission to proceed with the bid. However, I consider it probable that this is what he did. Even if he did not go as far as that (perhaps intending to speak to his brother before doing so), I am confident that he gave the Defendant to understand that he would be happy for the bid to proceed.  
.
242.	Mr Antonio Roma said that he talked to the Defendant at around this time and emphasised to him that the Claimant ‘was only willing to invest up to €2.5 million and had no further spare funds’. The Claimant’s case is that this had been made clear to the Defendant throughout. The Defendant said that the limit of €2.5 million was never mentioned. I do not accept the Claimant’s evidence relating to this matter. It is plain from the evidence that the Romas had been prepared to invest substantially more than €2.5 million in the first bid. In the case of the second bid, they had on their own evidence been prepared to meet a shortfall in excess of €2.5 million. I can see no reason why Mr Roma should have insisted on a maximum investment of €2.5 million at this stage. I find that his discussion with the Defendant took place on the basis that the underlying circumstances of the third bid were (save for a possible increase in the purchase price) the same as for the second bid, i.e. that the investment of €7.5 million from Previm would be forthcoming.
243.	The Defendant’s evidence was that he had contacted Previm after the failure of the second bid and they had indicated that they were still ‘on board’ and prepared to invest. Mr Antonio Roma said that the Defendant had told him that this was the case. No written confirmation of Previm’s position was obtained, however, and everyone involved appears to have overlooked the fact that the previous written communication from Previm referred specifically to the second auction and could not possibly constitute a binding commitment to participate in the third auction. It is probable that the Defendant also mentioned to the Romas that there were other potential investors who might be willing to participate in the deal but it is not suggested that he represented to them that he had received any binding commitments to invest. Mr Antonio Roma would have known that the Defendant was on holiday at the time and must have realised that it was unlikely that he would be able to make much progress with securing the commitment of other investors until his return.  

The Email of 6 August

244.	On 6 August, Mr Barbieri sent to the Defendant and GOP an email (which was copied to Mr Berman, Mr van Paasschen and their advisers) setting out various points which had been agreed between the Defendant and Mr Berman. The email presupposed that a new offer was to be submitted. The price to be offered was to be set by Mr Berman and the Defendant. It had been agreed that MWE (rather than GOP) would prepare and file the offer and that the new guarantee was to be ready by 13 August. The Trustees had stipulated new rules for the guarantee, including a condition that it should be issued and/or confirmed by an Italian bank. Mr Berman was to sign the Offer Letter and a new side letter was to be executed by the Defendant and Mr Berman, authorising Mr Berman to conduct any necessary negotiations with the Trustees. The Defendant said that this latter arrangement was agreed because he was on holiday in the USA at the time.

The Email of 9 August 

245.	On 9 August, Mr Premonte emailed the Defendant and Mr O’Callaghan. He gave further details of the requirements for the bank guarantee and communicated a request from the Trustees for information and documentation about the Claimant’s financial position. It is contended on behalf of the Defendant that the only reason for that request (and a later one) could have been that the Claimant had assumed   liability under the bid for underwriting the equity required and that those at LFM must have known that. The Claimant denies this. In reality, I consider it unlikely that Mr O'Callaghan (who dealt with the requests) and Mr Antonio Roma (who was aware that financial details were being provided) gave any thought to the reasons behind the requests.     

246.	In the email, Mr Premonte also requested that the bank guarantee to be provided by the Claimant should be in the sum of €2.5 million. Mr O’Callaghan had had an earlier conversation with the Defendant in which the Defendant had said that he wanted to keep the bid price secret until the last moment, to avoid being outbid. He had suggested to Mr O'Callaghan that the price offered might be as much as €12.5 million. He had asked that the guarantee should be for €2.5 million (i.e. 20% of €12.5 million) to allow for last minute changes in the price. It should be noted that, at a purchase price of €12.5 million, there would have been a €5 million shortfall, even had Previm’s €7.5 million contribution been forthcoming.    

The Draft Offer Letter

Mr O'Callaghan and Mr Antonio Roma Receive the Draft Offer Letter

247.	On 10 August, Ms Alessandra Fiorelli of GOP emailed to Mr O’Callaghan a copy of the draft Offer Letter, which had been revised since the submission of the second bid. The Offer Letter was in Italian, and Mr O’Callaghan said that he would have been unable to understand it. He did not look at it. At the time he received it, he was uncertain whether a further bid was to be made. Mr Stefano Roma was in and out of the office at that time but was preoccupied and unwilling to discuss the Giacomelli deal. The Defendant had told Mr O’Callaghan that he had spoken to Mr Stefano Roma but Mr O’Callaghan did not know what, if anything, had been decided. Mr O’Callaghan forwarded Ms Fiorelli’s email and the attached Offer Letter to Mr Antonio Roma who was still on holiday. In a covering email, he said:

“I need your input in the Giacomelli deal. There is a level of uncertainty on whether we will push the deal forward or not. Donato has spoken to Stefano, I get the impression that nothing has been decided.  Can you call me tomorrow to discuss?”

248.	Mr Antonio Roma said that he was not accessing his emails during his absence from the office and did not open this email until he returned to the office for a short time on 20 August, after the third bid had been submitted. He did not think that he read the Offer Letter even then, since he understood that the situation was ‘up in the air’ pending the adjudication of the bidding in mid-September. 

249.	The evidence that no one at LFM had read the Offer Letter before the third bid was submitted was somewhat surprising since, in its Particulars of Claim (in both its original and its amended forms), the Claimant had specifically pleaded that it had entered into the third bid ‘by reference and in reliance on’ this Offer Letter. According to the oral evidence of the relevant witnesses, this could not have been the case. This is a further example of the Claimant’s case undergoing a significant shift in the course of the evidence.   

The Contents of the Draft Offer Letter 

250.	The Court has had the benefit of an English translation of the draft Offer Letter. The title made clear that the offer was irrevocable. The amount of the price being offered was left blank. Section 1 of the Offer Letter provided:

“Offeror (i.e.Tuscan) intends to bring the Businesses, object of this Offer, to the highest level of profitability as possible.  In order to do so,  Offeror intends to pursue investments for at least €15,000,000 (fifteen million) through equity granted by quotaholders as well as obtain bank loans for an amount approximately equal to €25,000,000 (twenty-five million) necessary for the re-launch of the Business.”

Section 4 provided:

“In case the Offer is successful, moreover, the Offeror underlines that Leonardo Private Equity Fund Limited … shall become the reference (key/priority) shareholder of Tuscan…”

At Section 10, the Offer Letter stated:

“Offeror attaches to his Offer as a deposit, an irrevocable first written demand ... guarantee … as a warranty for the performance of the commitments made with the Offer… .”

251.	When he was asked to consider the draft Offer Letter in evidence, Mr Antonio Roma said that, had he read the document in the Italian, he would have not have understood Section 1 to mean that Tuscan would be seeking €15 million in cash, in addition to bank loans of €25 million.  He said that the literal translation was that the €15 million from quotaholders was an alternative to the €25 million bank loans.  I heard no other evidence about the accuracy of the translation but it seems to me that the meaning attributed by Mr Roma would give a rather odd result.  In any event, Mr Roma said that he would have assumed that part of the €15 million would have been raised by means of bank loans. It is not clear why he would have made this assumption.  As to Section 4, Mr Roma said that this would have been compatible with many different scenarios: the Claimant could have been one of a number of shareholders, holding only a small percentage of the equity; alternatively, it could have held 100% of the shares.  As I understood Mr Roma’s evidence, he was saying that, even had he read the draft Offer Letter at the time, it would not necessarily have sounded any ‘warning bells’ about the Claimant’s commitments under the deal. He commented that he did not think that the Offer Letter represented a legal commitment by the Claimant. He was asked whether he was aware at the time that the bank guarantee would be forfeited if Tuscan did not complete on the purchase.  He said that ‘we’ (by which I understood him to mean those at LFM) were always under the impression that there was a ‘way out’. He said that he had been aware that there was a ‘theoretical possibility’ that the guarantee might be lost but he regarded it as unthinkable that a transaction organised by lawyers such as GOP would have resulted in such a disaster.

252.	The Claimant’s case is that, even had Mr Roma read the draft Offer Letter, he would not have understood from it that the Claimant would be ultimately responsible for providing €15 million in equity pursuant to the irrevocable offer. The Defendant suggests that the first two paragraphs quoted above made that clear. In my judgement, a careful analysis of the Offer Letter would probably have led to the conclusion that, if no other investors were forthcoming. Tuscan would look to the Claimant to provide the necessary equity funding.  At the very least, I would expect the reader to have sought clarification of the Claimant’s precise commitments under the offer. This is important since the Claimant contends that the Defendant orchestrated matters so that LFM were sent the Offer Letter (which did not, it is said, disclose the Claimant’s commitments under the deal) but were not sent the revised version of the Term Sheet (which, it is contended, would have made the Claimant’s commitments clear).  

The Draft Term Sheet

253.	A further version of the draft Term Sheet was circulated on 9 August by Mr Pellegrini of GOP. This was not sent to LFM. The Claimant contends that this omission is significant and that the Defendant intended to conceal the revised Term Sheet from the Claimant. In fact, this version of the Term Sheet was not significantly different from the previous versions prepared in connection with the second bid. The Defendant denied that he had made any attempt to conceal the Term Sheet. He said that, as he was going on holiday, he had asked Ms Fiorelli of GOP to send all documents relating to the Giacomelli deal to LFM. Ms Fiorelli’s email of 9 August, enclosing the draft Offer Letter, lends support to the Defendant’s evidence. It may be that the Defendant’s instruction was not communicated to Mr Pellegrini. It seems to me that it would have been impossible for the Defendant to control from the USA which documents were and which were not sent to the Claimant. I do not accept that he did so. If he had been anxious to conceal the facts relating to the deal from those at LFM and to maintain control of what documents they received and what was said to them, he would not in my view have risked going on holiday at that critical time.  

Discussions with Mr Stefano Roma

254.	Mr Antonio Roma said that he had spoken to his brother about the Giacomelli deal in the early part of August.  Mr Stefano Roma had been ‘fairly positive’ about making a third bid (thus confirming my findings about his stance at the time of his conversation with the Defendant) but had never given his final approval. Mr O’Callaghan had also tried to speak to Mr Stefano Roma and had failed. The Defendant was pressing Mr Antonio Roma for a decision. Mr Roma said that he was under the ‘very strong impression’ that the Defendant had spoken to his brother and secured his approval. He thought that would have been ‘fairly routine’ given that the deal had been approved in late July. He said that he was ‘under the very strong impression that Stefano was probably a little more on top of this deal than he actually was during the month of August’. It was not until later that he learned that his brother had not been as ‘on top’ of the deal as he had previously thought. Mr Antonio Roma took the decision to tell Mr O’Callaghan to go ahead and arrange the bank guarantee.

The Bank Guarantee

255.	Mr O’Callaghan said that he spoke to Mr Antonio Roma on or about 10 August and Mr Roma told him that the Defendant had spoken to Mr Stefano Roma and had obtained his approval for a renewed bid. Mr Antonio Roma confirmed that the guarantee could be issued for €2.5 million. Since the guarantee was to represent 20% of the purchase price, this suggested that the offer price might be as high as €12.5 million, as the Defendant had told Mr O’Callaghan. However, Mr Antonio Roma said in evidence that he had never been told that the price offered might be as high as that. He said that, in his discussions with Mr O’Callaghan, he was concerned solely with the amount of the guarantee. I do not accept Mr Roma’s evidence on this point. It seems to me inconceivable that he would not have spoken to the Defendant and/or Mr O'Callaghan about the price to be offered. I regard it as highly probable that Mr O'Callaghan explained to Mr Roma that the amount of the proposed bank guarantee was linked to a maximum offer price of €12.5 million. The Defendant had told Mr O'Callaghan that the offer price might be as much as €12.5 million; there is no reason to suppose that he would not have given Mr Roma the same information had he been asked.  

256.	Mr O’Callaghan then set about liaising with the bank, with LCM and with Bisys in order to cancel the previous guarantee and arrange a new one. It proved difficult to meet the requirements laid down by the Trustees and, eventually, it was decided that the best solution was a ‘back to back’ arrangement whereby the Claimant  provided a bank guarantee to Tuscan and Tuscan provided a corresponding guarantee (arranged through an Italian bank) to the Trustees.

257.	On 12 August, Mr O’Callaghan received the guarantee documentation which he forwarded to LCM for signature. LCM authorised the guarantee which was issued on 13 August.

Final Negotiations

258.	On Friday, 13 August, Mr Berman emailed the Defendant (who was still in the USA), referring to some outstanding points to be resolved, the most important of which was the price to be offered. He suggested €11 million. Also on 13 August, Mr Barbieri, of MWE sent an email to lawyers at GOP (copied to the Defendant, Mr Berman and Mr van Paasschen), enclosing an amended version of the Offer Letter.

259.	The final version of the Offer Letter was slightly different from the version previously sent to the Claimant. The passage from Section 4 that I quoted above had been removed and a revised version of the passage appeared at Section 3. The English translation read as follows:

“In case the Offer is successful, the majority of the Tuscan Star Sport’s corporate capital will be subscribed, by means of a capital increase made by Leonardo Private Equity Fund Ltd … or Leonardo will be able to let other investors subscribe said capital increase.  Leonardo and/or the other eventual investors will become therefore reference (key/notable?) shareholders of Tuscan… .”

260.	There is no suggestion that the nature or substance of the deal – or the extent of the Claimant’s liabilities – had changed in any way since previous versions of the Offer Letter. Later on 13 August, Mr Barbieri circulated a copy of a revised version of the Term Sheet. There was little change from previous versions of the Term Sheet.  

261.	On 14 August, Mr Berman emailed Mr Barbieri, telling him that he and the Defendant had agreed that the final offer should be €10.8 million. The Defendant said that he had sought Mr O’Callaghan’s agreement to this change the previous day. His mobile telephone records confirm that a call was made to Mr O’Callaghan on 13 August.  The final offer price was subsequently rounded up to €11 million by Mr Berman without reference to the Defendant.   

262.	In the early afternoon of Monday, 16 August, Mr Barbieri circulated an agreed version of the Term Sheet, incorporating some ‘legal clean-up revisions’. The revisions did not change the Claimant’s commitments under the agreement. Mr van Paasschen was reviewing the document, subject to which it was ready for signature. The Defendant said that he did not see the final version of the Term Sheet until he returned from holiday.   

The Signing of the Term Sheet 

263.	On 16 August, Mr Berman signed the Offer Letter. Meanwhile, the Defendant faxed to GOP three blank pages on which he had written his signature. GOP then used one of those pages to produce a signed Term Sheet.    

264.	Mr Antonio Roma said that he did not know that ‘the paperwork had been done on this particular deal’ until some considerable time later. He had thought that the bid documents would be signed by Tuscan. He had not realised that the Claimant would have to sign any documents. Mr O’Callaghan said that it had never entered his mind that there would be documents to be signed in connection with the bid.  He had focussed only on those parts of the transaction which concerned him, such as the bank guarantee. All the observations that I have previously made in connection with the Defendant’s signing of documents on 2 August apply equally to the signing of the Term Sheet on 16 August. At the time that he signed this Term Sheet, the Defendant must have realised that he had no authority to do so.  
  
The Submission of the Bid  

265.	The bid was delivered in time to meet the Trustee’s deadline on 18 August. The Term Sheet contained the terms of the internal agreement between the parties and was not submitted to the Trustees.    

The Outcome of the Bidding Process 

The Highest Bid

266.	On 19 August, the Trustees announced that they would seek the authorisation of the appropriate Ministry to sell the Giacomelli businesses to Tuscan. The next stage was for the Trustees to carry out an assessment of the merits of the offer, a procedure referred to as the ‘adjudication process’.

267.	Mr Antonio Roma’s evidence was that, on 18 or 19 August, the Defendant telephoned him and told him that Tuscan’s bid had been the highest but that no final decision would be taken until the adjudication process which was to take place in mid-September. Mr Roma understood that there was nothing to be done until then.   He was in the office briefly on 20 August and was then away until 1 September.

Overview of the Third Bid 

268.	As Mr Antonio Roma observed, the decision to submit a third bid was ‘fairly routine’ after the decision to proceed with the second bid. That was, of course, provided that the underlying circumstances remained the same. The really crucial factor was the continued commitment of Previm. The Defendant’s evidence was that he had been assured by Previm that they were still ‘on board’ and had no reason to doubt it.  Mr Antonio Roma confimed that the Defendant had told him at the time that such was the case.  The Claimant contends that the Defendant was in fact aware that Previm were no longer prepared to give a commitment to invest and that he deliberately concealed that fact from those at LFM. I cannot accept that contention. No evidence was adduced to that effect and the available evidence (namely that Previm subsequently tried and failed to raise the necessary funds to invest) would suggest that they were still anxious to participate in the deal. Moreover, these events took place only a short time after the date (29 July) when Previm had given its original commitment. There seems no reason why they should have changed their minds since then. The Defendant should of course have sought and obtained written evidence of Previm’s commitment to the third bid before the bid went ahead. However, the fact that he did not does not, in my judgement, amount to evidence of deliberate misconduct on his part. It is quite plausible that, as he claims, he overlooked the fact that the previous communication from Previm would not cover a third bid. Mr Antonio Roma and Mr O'Callaghan (and possibly the lawyers at GOP) also seem to have overlooked the fact that the communication from Previm in their possession related only to the second bid.   

269.	I do not accept that Mr Roma set any limit of €2.5 million on the Claimant’s involvement in the bid. He knew that the offer price might rise and that, as at the time of the second bid, there was only the commitment (as he thought) from Previm. The Defendant had mentioned other potential investors but had not claimed to have commitment from them. I have no doubt that, at that time, he genuinely believed – and encouraged the Romas to believe – that other investors would be forthcoming. Mr Roma must have known therefore that there was at least a risk that there might be a shortfall in excess of €2.5 million, if only in the short term. If he was aware (as I find he was) that the price to be offered might be as much as €12.5 million, he would have known that the shortfall could be as much as €5 million. This is, of course, on the basis that he had not understood that the Claimant (or other investors identified by it) would be committed to funding (in one way or another) initial equity amounting to €15 million.         

270.	Many of the same comments that I made in connection with the second bid – relating to the misunderstandings by the Romas, the defective information on which they were proceeding and the criticisms that can be made of the Defendant’s behaviour – apply equally to the third bid and I shall not repeat them here.  

Formal Acceptance of the Bid 

271.	On 8 September, the Ministry formally accepted Tuscan’s bid for Giacomelli, subject to the condition that the Claimant (or investors designated by the Claimant) pay the entire €15 million capital increase into Tuscan to finance the acquisition. It is the Defendant’s case that it was the Ministerial Decree (which the Defendant contends was invalid) that led to the Claimant being called upon to pay the capital increase of €15 million. He argues that, but for the Decree, the initial funding for Tuscan would have been raised at least in part by bank loans, leaving the Claimant (together with any other investors) to pay a smaller capital sum. The Claimant’s response is that, as a result of the Defendant’s actions, it had entered into a liability up to €15 million and could have been required to pay that sum by the Trustees and/or Tuscan. It was suggested by the Defendant’s Counsel during closing submissions that the Ministerial Decree had required the Claimant to pay both the purchase price of €11 million and a €15 million increase. This was not the basis on which the case had proceeded and it seems to me likely that, as the Claimant submits, the sum of €15 million demanded was inclusive of the purchase price.  

THE EVENTS AFTER THE THIRD AUCTION

272.	I heard a great deal of evidence about the events which took place during September and October 2004. The Claimant contended that the evidence relating to meetings, telephone conversations and written communications during that period showed that those at LFM had been unaware of the terms of the deal to which the Defendant had committed it and that they only gradually became aware of the full extent of the financial risk to which the Claimant was exposed. Any steps which they took during this period to keep the deal ‘on course’ were, the Claimant contends, taken either in ignorance of the true nature of the deal, in an attempt to find out more about the deal or (once they became aware of its terms) by way of damage limitation. By contrast, the Defendant contends that the evidence during this period clearly shows that the Romas were well aware of the nature of the deal into which they had entered. Even if they were not aware at the beginning of September, the Defendant contends that they were told the position shortly afterwards and that thereafter they ratified the entry into the Giacomelli deal.
 
273.	In the light of my findings on the issue of fraudulent misrepresentation, it is not necessary for me to review the evidence relating to this period in any detail. I shall, however, deal with certain aspects relevant to my findings. First, there is the issue of whether the evidence relating to this period sheds any light on the state of knowledge of the Romas at the time the third bid was submitted. I have found the evidence surprisingly difficult to interpret. Looking at it as a whole, however, I find it consistent with my finding that, at the time of the third bid, there was a fundamental misunderstanding on the part of the Romas as to the nature and terms of the Giacomelli deal and a mistaken belief (certainly on the part of Mr Antonio Roma) that the bid was revocable. I do not accept, as the Defendant contends, that the evidence relating to this period shows that the Romas were and had always been aware of the true terms of the deal. The picture is of an emerging awareness of the extent of the financial liabilities which the Claimant had assumed.   

274.	Second, I have considered whether the evidence relating to this period assists me in deciding whether the Defendant acted fraudulently in representing to those at LFM the terms of the bid. It is suggested by the Claimant that, even at this late stage, the Defendant sought to conceal from those at LFM the Claimant’s liabilities under the deal. The Defendant’s dealings with the Romas during early September were complicated by his concerns about his future working relationship with them. His consultancy agreement had lapsed at the end of July and he had received no remuneration since. He was angry at his treatment by the Romas and anxious to be reinstated. This issue dominated much of his discussions with the Romas until he secured a renewal of his agreement in mid-September. Even then, there was (somewhat ironically) a continuing dispute about his entitlement to a share in the expected profits which would accrue from the Giacomelli deal. 

275.	In addition, however, there is no doubt that the Defendant must have become increasingly worried about the future of the Giacomelli deal. After 8 September, he was aware of the terms of the Ministerial Decree and would have known that – unless there was a successful challenge to the Decree  – the Claimant would have to pay €15 million to Tuscan within a short period. It must have been increasingly clear to him that the potential investors whom he had identified – in particular, Previm — were not going to materialise. He would have known that the consequences of a failure to find co-investors could be potentially disastrous for the Claimant and for himself. He may have believed, as he claimed, that there were still ways in which the Claimant could ‘walk away’ from the deal – because of the inaccurate information provided by the Trustees, for example – but he would have known that such a withdrawal would harm his standing and that of the Claimant. If, as the Claimant contends, the Defendant failed at this time to set out in clear terms to those at LFM the full extent of the risk which the Claimant faced and the consequences to the Claimant of failing to find other investors, that was in my judgement because he was reluctant to dwell on the ‘worst case scenario’ and because he was still hopeful of being able to find a solution. If, as I have found was the case, the Defendant believed that those at LFM were aware of the true nature of the deal, he would also have believed that they were aware – without him telling them — of the possible consequences of a failure to find other investors. In short, I do not consider that any apparent lack of openness on the Defendant’s part during this period should necessarily be construed as a sign that he was attempting to conceal past fraud on his part.  

276.	There was one incident that occurred during this period that has caused me some concern and which I must relate in some detail.   
 
The Meeting of 15 September

277.	On 15 September, Mr Antonio Roma met the Defendant at GOP’s office in Milan. Mr  Roma said that, at the meeting, the Defendant had a large stack of documents on his desk. Mr Roma had asked to copy some of them. The Defendant would not allow this but gave Mr Roma a plastic wallet containing a small bundle of papers. On top was a copy of a Business Plan which Mr Roma said he had already seen. (I am not sure how he could have known that without examining it). He said that he assumed that that was the only document in the wallet and did not examine it further. Some weeks later, he looked for the wallet but could not find it. It came to light only in January 2005, when his wife found it at their London flat. He then examined the papers and found that, as well as the Business Plan, there was a copy of the final Offer Letter with two paragraphs redacted. In order to make the removal of the two paragraphs less obvious, the succeeding text had been rearranged.   
 
278.	The paragraphs that had been redacted were, first, the paragraph quoted at paragraph 259 above and, second, a paragraph containing details about Leonardo’s financial activities. The question arose as to who had altered the document and for what purpose. The Claimant’s contention was that the document had been altered by the Defendant so as to conceal from Mr Roma the fact the Claimant was committed to subscribing the capital increase. 

279.	The Defendant’s counsel cross-examined Mr Antonio Roma on the basis that the Defendant (or possibly GOP on his behalf) had altered the document so as to make it suitable to be shown to potential investors. The suggestion was that the Defendant had a supply of wallets of documents which he was distributing and that he gave Mr Roma one of them. Mr Roma did not see why any such alterations should have been necessary for this purpose. He said that there was nothing commercially sensitive about the redacted information and he did not see how information about the Claimant’s involvement in the deal could have been kept from potential investors. 

280.	The Defendant did not give evidence in accordance with his counsel’s cross-examination. He agreed that he gave Mr Roma a copy of the Offer Letter but said that it was not the version disclosed by the Claimant. He denied that he had redacted and re-arranged the Offer Letter or that GOP had done so. When asked who might have done this, he referred to the delay in disclosing the document and suggested that someone on the Claimant’s side might have fabricated it. The Claimant contends that the reason for the Defendant’s change of stance was that, the day before he gave oral evidence, the Claimant had disclosed a document which had come into its hands only recently. This document showed that an unredacted copy of the Offer Letter had been sent by GOP to the Defendant on 14 September 2004, the day before the meeting. The Claimant contends that the inference to be drawn from that document was that the Defendant had himself altered the Offer Letter and that, realising that, the Defendant had changed his evidence. The Claimant points out that the process of altering the Offer Letter was strikingly similar to that employed in producing the Loscalzo letter. 

281.	I have found this a puzzling incident. Any attempt by the Defendant to conceal from Mr Roma the nature of the Claimant’s liabilities under the offer could not possibly have been expected to succeed for more than a very short period. It would have been extremely risky for the Defendant to give Mr Roma a copy of a document which could easily be compared with the original; such a fraud would readily be exposed. Moreover, even if the Defendant had wished to conceal the first of the two redacted paragraphs from Mr Roma, I cannot see why he should have wanted to conceal the second paragraph. Mr Roma himself said in evidence that he would have taken no objection to the information contained in it. Although I have found that the Defendant was prepared to use a forged document (the Loscalzo letter) when he considered it advantageous to do so, I find it difficult to accept that this document was deliberately altered in an attempt to deceive Mr Roma. Nor do I regard it as likely that someone on the Claimant’s side manufactured the document in order to bolster the Claimant’s case against the Defendant. 

282.	I found the original suggestion put forward – namely that the Defendant had prepared a number of altered Offer Letters (together with a Business Plan) for distribution to potential investors – quite compelling. It seemed to me plausible that the Defendant might have thought it appropriate to omit the redacted information from an introductory information pack. The inclusion of the Business Plan also seemed appropriate for potential investors – less so for Mr Roma, who was plainly not interested in seeing it. The fact that a complete copy of the Offer Letter had been emailed to the Defendant by GOP the day before he handed Mr Roma the redacted document would not exclude the possibility that he had himself redacted and altered it for the purpose of providing it to potential investors. Indeed, he may have required the document for this very purpose. It seems to me possible that the Defendant  changed his evidence – not because he believed that the recently disclosed letter undermined his assertion that the copy Offer Letter was destined for a potential investor – but because he realised that an admission that he had himself undertaken the redaction and alteration would have revealed that he had at his disposal the means of undertaking this operation and would therefore have strengthened the evidence against him in relation to the Loscalzo letter. If that were so, then the original suggestion that the Offer Letter was destined for potential investors might be correct, despite his oral evidence to the contrary.

283.	I find that it is likely that the Defendant was responsible for the redactions and alterations. However, the evidence in relation to his reasons for making them is such that I am unable to reach any firm conclusions about that matter. I am not persuaded that he did so with the intention of concealing from Mr Roma the true nature of the Claimant’s liabilities in connection with the bid.  
 
The Letter from the Trustees

284.	On 13 October, Ms Dal Negro wrote to Tuscan and the Claimant on behalf of the Trustees, summoning them to appear before a Notary to sign the contract for Giacomelli and reminding them that Tuscan must be recapitalised by at least €15 million. The letter indicated that, if the transfer was not effected, the guarantee would be forfeited. It soon became clear that no other investors could be found and the Claimant alone would be liable to provide the capital increase.  

The Forgery Is Discovered 

285.	The Claimant’s case is that, during this period, it became clear that the Defendant must have signed the Term Sheet in connection with the third bid and that he must have done so without authority.  Mr Premonte emailed to Mr Antonio Roma a copy of the Loscalzo letter.  On 19 October, Mr Antonio Roma, accompanied by a criminal lawyer, Mr Paulo Siniscalchi, attended a meeting with Mr Premonte and Mr Gianni. Mr Premonte referred to the Loscalzo letter, but said that GOP had not relied on the letter to establish the Defendant’s authority to sign; its purpose had been formally to demonstrate his authority to third parties, namely the Trustees. Enquiries were made of Mrs Francis to ascertain whether she had signed the letter and she denied it. Mr Premonte said that GOP had never ‘doubted his (i.e. the Defendant’s) legitimacy’. Mr Gianni said that the Defendant had told him he was a director of the Claimant and that GOP had therefore accepted his authority without question. The Defendant denied that he had told Mr Gianni this and said that, if Mr Gianni thought that he was a director, this must be because he made a wrong assumption. Certainly, Mr Premonte cannot have believed that the Defendant was a director of the Claimant for the reasons I have previously set out. It must be recognised that GOP were no doubt on the defensive at this meeting and would be anxious to place the blame for the irregularity which had occurred fairly and squarely on the Defendant.

286.	It was clear that the Loscalzo letter was a forgery. That same day, LCM faxed a letter to the Defendant, terminating his consultancy agreement on the ground of gross misconduct and material breach.

287.	Subsequently, the Trustees called upon the bank guarantee. I understand that they have since commenced civil proceedings against the Claimant, LCM and LFM. The affair generated a great deal of adverse publicity in the Italian press. This has had a deleterious effect on the Claimant fund. Its external investors have given notice to withdraw their investments and it has now virtually ceased to operate.

CONCLUSIONS

288.	The Claimant’s case is that the Defendant misrepresented the true terms of the third bid. Specifically, it is alleged that he represented, first, that the Claimant could invest in Giacomelli with other third-party co-investors on similar terms to the second bid subject to (for example) an augmented bid price and, second, that the Claimant’s maximum commitment would be €2.5 million. It is alleged that those representations were false and were made by the Defendant fraudulently. In support of its contention that the Defendant acted fraudulently, the Claimant points to various matters which it contends were concealed by the Defendant, namely the fact that the Claimant would be committed to making an investment of up to €15 million in Giacomelli, that there were no other investors willing to participate in the bid, that Previm was not interested in committing itself to an investment in the third bid, that the Defendant was a director of Tuscan and that he expected personally to receive fees for his directorship.

289.	Fraudulent misrepresentation occurs when a claimant acts in reliance on a false representation made by a defendant who has made the representation, knowing it to be untrue, or being reckless as to whether it is true, and intending that the claimant should rely on it. In order to establish fraud, the claimant must prove the absence on the part of the defendant of an honest belief in the truth of what has been stated. In deciding whether a defendant has been guilty of fraudulent representation, it is necessary to take into account, not only active misrepresentations but also (where there is a duty to disclose) non-disclosure of facts as well as conduct intended to conceal facts. It is no defence for a defendant to contend that the claimant might have discovered the truth by the exercise of reasonable care. I have already referred to the standard of proof applicable to serious allegations such as fraud and I have applied the relevant principles when considering the issue of whether the Defendant has been guilty of fraudulent misrepresentation. 

290.	I have dealt in considerable detail with the complex history leading up to the submission of the third bid. It will be clear from what I have said that I do not accept that the Defendant sought to conceal from the Claimant the main features of its proposed liabilities under the first bid. He sent to LFM the first version of the Term Sheet prepared in connection with the second bid and, later, a summary of that document in the Inter-Office Memo. I have already indicated that I do not accept the contention that he misrepresented the material terms in that Memo. An early version of the draft Offer Letter prepared for the third bid was sent to LFM, apparently on the Defendant’s instructions. The Defendant was not to know that these documents would not be subjected to careful analysis by someone at LFM. If they had been, then the potential nature and extent of the Claimant’s liabilities under the Giacomelli bids would have been evident or – at the very least — would have been the subject of further enquiry. His action in providing these documents – or causing them to be provided – was not, in my judgement, that of a man intent upon concealment. Nor, for the reasons I have explained, do I find the failure to provide copies of other documents to have resulted from a deliberate intention on the Defendant’s part to conceal the references in them to the Claimant’s liabilities.

291.	I also bear in mind the fact that the Defendant must have been aware that it was open to those at LFM to speak to the lawyers at GOP at any time. Mr O'Callaghan was in fairly regular contact with GOP over the relevant period. He liaised with them about the provision of the bank guarantees and financial information about the Claimant. At one stage, he sought Mr Premonte’s opinion as to whether the commitment to invest in the second bid made by Previm was binding in Italian law. The Defendant must have been aware that, if he misrepresented the terms of the bid to those at LFM, there was a real risk that this might come to light in the course of a conversation between Mr O'Callaghan and someone at GOP.
 
292.	I turn now to consider the specific misrepresentations alleged by the Claimant. Dealing with the second of those alleged misrepresentations, I have already indicated that I do not accept the contention that the Romas stipulated that €2.5 million was the maximum sum to which the Claimant should be committed. Such a stipulation would have been inconsistent with their attitude to the first bid and to the second bid. It follows therefore that I do not accept that the Defendant made any representation that the Claimant’s maximum commitment would be €2.5 million. Indeed, I think he had been encouraged by what had happened in connection with the first bid to believe that the Romas would be prepared in the first instance to underwrite an investment of significantly more than €2.5 million (although not as high as €15 million) with a view to syndicating it at a later stage. If he had understood, in connection with the second bid, that they had been prepared to provide initial funding of €15 million (albeit partly by bank loan) with a commitment from other investors of only €7.5 million (i.e. the terms set out in the Inter-Office Memo), this would have confirmed his previous belief.   

293.	So far as the other alleged misrepresentation is concerned, it is said that the Defendant represented that the Claimant could invest in Giacomelli with other third-party co-investors on similar terms to the second bid subject to (for example) an augmented bid price. The essential contention made by the Claimant is that the Defendant represented that there would be other investor(s) when in fact he knew that there were none. I have already said that I do not accept the contention that he was aware that Previm were no longer committed to the deal. At the time of the second bid, there were no other committed investors. I have no doubt that, during his discussions with the Romas and Mr O'Callaghan, the Defendant spoke optimistically about the prospects of interesting other potential investors in the Giacomelli deal and that he named many possible names. I am confident that he genuinely believed at that time that other investors would be forthcoming. It is possible that he encouraged those at LFM to believe that there was a greater level of interest than was in fact the case. There is no evidence, however, that he claimed that any named investors (save Previm) had actually committed themselves to investing in the deal. It is likely, in my view, that he confined himself to referring to a number of potential investors who had expressed interest. Those at LFM were well aware of the difference between a binding commitment to invest and a mere expression of interest (Mr Stefano Roma had asked for his brother’s assurance that Previm’s commitment to the second bid was binding before he sanctioned it and Mr O'Callaghan had sought legal advice about the matter). I do not accept that, in sanctioning the third bid, Mr Antonio Roma was relying on the fact that any investor other than Previm had committed itself to the bid. He was still under the impression that his brother knew more about the bid than was the case and that he was enthusiastic about it. Mr Stefano Roma still believed that his brother had satisfied himself about the structure of the deal and made some assessment of the risks. Both were still labouring under the misunderstandings which had underlain the second bid.

294.	In reaching my findings, I have been very much aware of the Defendant’s propensity for dishonesty, his casual attitude to the scope of his authority (of which there were examples other than those that appear in my narrative), his tendency to exaggerate and over-state (there were many examples in his evidence) and his unquestionable desire to benefit personally from the Giacomelli deal. I have scrutinised his actions with great care. Nevertheless. for the reasons which I have set out, I have concluded that the Defendant was not guilty of the fraudulent misrepresentations alleged by the Claimant. That being the case, it is unnecessary for me to consider the issues of knowledge, ratification and quantum raised by the Defendant. 

295.	There is no doubt that the third bid and its aftermath constituted a disaster for the Claimant fund. If that disaster was not caused by fraud on the part of the Defendant, then how did it come about? The answer, in my view, lies in a combination of circumstances.

296.	 The Giacomelli deal was without precedent for the Claimant and – although it may appear large to the layman – was insignificant when compared with the transactions undertaken daily by LCF. Accordingly, it received little attention. The energies of those at LFM were directed primarily at LCF’s activities. There were set procedures for dealing with transactions involving LCF. Although Mr Stefano Roma would usually take the final decisions relating to LCF’s investments, the paperwork relating to those investments was scrutinised by analysts, research was carried out and risk assessments were performed. No such procedures had been developed for dealing with investments by the Claimant and, as a consequence, the investment in Giacomelli was dealt with on an entirely ‘ad hoc’ basis. 

297.	In addition, the Giacomelli auctions occurred at a difficult time for LFM. Members of staff were on holiday during the latter part of July and August. Mr Stefano Roma was away for most of that period and, even when in the office, was preoccupied with personal problems and disinclined to give his attention to the Giacomelli deal. LFM was seeking new office premises and Mr Antonio Roma was dealing with that problem, as well as with the everyday business of LCF, before departing on holiday in early August. Mr O'Callaghan was fully occupied in dealing with LCF’s business and he focussed on the Giacomelli deal only when specifically requested to do so. I have no doubt that Mr Stefano Roma’s prolonged absence was causing considerable problems for Mr O'Callaghan and Mr Antonio Roma. Communication was poor. Mr Stefano Roma was rarely in contact and apparently could not pick up emails when absent from the office. Mr Antonio Roma did not access his emails when on holiday. Neither man seems to have made arrangements for anyone else to monitor his emails in his absence. In any event, Mr Stefano Roma was not in the habit of reading detailed paperwork and, even when in the office, Mr Antonio Roma did not have time to read the documents (e.g. the Term Sheet and Offer Letter) he was sent. Even when he requested and was provided by the Defendant with a summary of the proposed deal (the Inter-Office Memo), I have found that he read it only cursorily and failed to understand its import. As a consequence of all this, the information available to each of those concerned — the Romas and Mr O'Callaghan – was fragmented and this led to decisions being taken on the basis of defective information and misunderstandings. The decision to participate in the second bid in particular was taken by those at LFM in a rush and without proper consideration and analysis. 

298.	Another factor was the relationship between those at LFM and the Defendant, coupled with the Defendant’s personality. Although the Defendant had been known to Mr Stefano Roma previously, those at LFM can have had little knowledge of his working style and practices. The Defendant’s big talking and incurable optimism was at variance with the personalities of those at LFM. He was not a man who would ever dwell on the possible pitfalls of a deal he was advocating. Those at LFM (particularly Mr Antonio Roma and Mr O'Callaghan) may have been carried along by his enthusiasm and have failed to see his optimism (e.g. about prospective investors) for what it was. They certainly had difficulty in coping with his emotional outbursts. The impression I have is that Mr Antonio Roma allowed himself to be pressurised into seeking Mr Stefano Roma’s sanction for the second bid as a result of one of these outbursts. It may be also that the Defendant possessed less financial acumen and experience than those at LFM believed. He conceded in evidence that the Giacomelli deal was the first occasion on which he had dealt with a public auction. Some of his previous ventures appear to have ended in disaster. He may not have possessed the necessary experience or judgement to handle such a complex deal on the Claimant’s behalf.

299.	It was clear from the evidence that the Defendant was not welcome in LFM’s London office. Mr O'Callaghan was unhappy about his presence there because of his disciplinary record. Mr Stefano Roma found the Defendant annoying and distracting. He too wanted him out of the office. The effect was that the Defendant spent most of his time in Italy, well out of reach of any effective control over his activities. It is perhaps surprising in retrospect that those at LFM were willing for someone so little known to them to negotiate single-handed on the Claimant’s behalf, especially with a leading company like SWL. The effect was to give the Defendant the opportunity to inflate his status and authority in the eyes of others and probably in his own eyes also. If ever there was an agent who needed close control and supervision, it was the Defendant.

300.	I have already explained that the Defendant alleges that those at LFM clearly understood the terms of the Giacomelli deal and were prepared to take the risks of syndication. He contends that it was only when no investors could be found and the Ministry unexpectedly demanded a capital increase of €15 million that the deal went sour and they chose to use him as a scapegoat. I have rejected that interpretation. I have found that the Romas genuinely misunderstood the Claimant’s liabilities under the deal. When they realised the full extent of those liabilities and the fact that no other investors had been recruited, they were very shocked. They could not understand how they had come to be in such a predicament.  Once they realised that the Defendant had produced the forged Loscalzo letter and signed the documents relating to the third bid without authority, they jumped – with some relief — to the conclusion that he had misled them all along. Such an explanation would have let everyone at LFM ‘off the hook’ and would have enabled them better to account to the outside world for the disaster that had befallen them. However, as I have found, the real explanation was rather different.  

301.	There will be judgement for the Defendant.