Lloyd v Kruger, Court of Appeal - Commercial Court, July 27, 2018, [2018] EWHC 2011 (Comm)

Resolution Date:July 27, 2018
Issuing Organization:Commercial Court
Actores:Lloyd v Kruger

Neutral Citation Number: [2018] EWHC 2011 (Comm)

Claim No: LM-2016-000075




Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 27/07/2018


Lionel Persey QC sitting as a Judge of the High Court

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Sarah Bayliss and Ben Waistell (instructed by Keystone Law) for the Claimant

Bruce Drummond & Maria Mulla (instructed by Richard Slade & Co.) for the Defendant

Hearing dates: 16-19, 23-24 April, 3 May 2018

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Lionel Persey QC:

A. Introduction


  1. On 1 June 2009 a series of agreements (to which I will collectively refer as ``the deal'') were concluded, the effect of which was to transfer the assets of a number of media organisations into a new company, Pegasus Entertainment Holdings Ltd (``PEHL''). PEHL was later renamed Elm Street Media Group (``ESMG''). The Claimant, Dennis Lloyd (``Mr Lloyd''), was the managing director of Pegasus Entertainment (``Pegasus''), a division of Eagle Rock Entertainment plc (``Eagle Rock''). Pegasus was sold by Eagle Rock to PEHL. Mr Lloyd invested £250,000 in PEHL and continued in post. The Defendant, Howard Kruger (``Mr Kruger'') was the principal of Elm Street Media Ltd (``Elm Street'') and represented both Elm Street and a number of companies in the TKO group that were under the ultimate control of his father, Jeffrey Kruger MBE (``Mr Kruger Sr''). The assets of some, but not all, of these companies, were sold to PEHL. I will refer to these collectively as ``the Kruger Companies''. ESMG was not a success and in May 2011 Mr Lloyd was made redundant. In this action he claims that he was induced into working for, and investing in, PEHL by reason of fraudulent misrepresentations made by Mr Kruger, in particular as to the quantity and quality of the audio and audio-visual assets that were supplied under the deal. For reasons that I will give below, I find that this claim fails on the evidence and that it is also time barred.

    The trial

  2. Ms Sarah Bayliss and Mr Ben Waistell appeared for Mr Lloyd. Mr Bruce Drummond and Ms Maria Mulla appeared for Mr Kruger. The trial lasted six days. Following the conclusion of the hearing the Claimant applied to challenge the authenticity of two documents and the matter came back for a further hearing. I rejected the application and said that I would give reasons for doing so in this judgment. Those reasons appear in the Addendum to this judgment.

    Approach to the evidence

  3. The claim against Mr Kruger is in deceit only. The allegations are serious and relate to alleged representations that were made at least nine years, and in some cases nearly ten years, ago. The relevant standard of proof is the civil standard. It has been said that a claimant who alleges deceit bears a ``heightened burden of proof'' because of the need to prove dishonesty: see AIC Ltd. v ITS Testing Services (UK) Ltd. (The Kriti Palm) [2007] 1 Lloyd's Rep. 555 per Rix LJ at [259]; Raiffeisen Zentralbank Österreich AG v Royal Bank of Scotland Plc [2011] 1 Lloyd's Rep. 123, per Christopher Clarke J. at [341]. As Lewison J put it in FoodCo UK LLP & Ors v Henry Boot Developments Ltd [2010] EWHC 258 (Ch) at [3]

    ``... Although the standard of proof is the same in every civil case, where fraud is alleged cogent evidence is needed to prove it, because the evidence must overcome the inherent improbability that people act dishonestly rather than carelessly. On the other hand inherent probabilities must be assessed in the light of the actual circumstances of the case: In re B [2009] AC 11 ...''

  4. As Leggatt J. observed in his valuable judgment in Gestmin SGPS S.A. v Credit Suisse (UK) Ltd & Anor [2013] EWHC 3560 at [19]-[20] the process of civil litigation itself subjects the memories of witnesses to powerful biases and considerable interference with memory is introduced in civil litigation by the procedure of preparing for trial. In evaluating the evidence I have also kept well in mind the words of Lord Pearce in his dissenting speech in Onassis v Vergottis [1968] 2 Lloyd's Rep. 403, 431:

    ``... Credibility involves wider problems than mere ``demeanour'' which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person, telling something less than the truth on this issue, or, though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so, has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by overmuch discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. And lastly, although the honest witness believes he heard or saw this or that, is it so improbable that it is on balance more likely that he was mistaken? On this point it is essential that the balance of probability is put correctly into the scales in weighing the credibility of a witness, and motive is one aspect of probability. All these problems compendiously are entailed when a Judge assesses the credibility of a witness; they are all part of one judicial process and in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part ...''

  5. Some of the alleged representations upon which Mr Lloyd relies were made in writing. Others were made orally. There is no contemporaneous record of any of the oral conversations. Nor was any contemporaneous complaint raised by Mr Lloyd when he became aware of the matters upon which he now relies as evidence that he was defrauded. In evaluating the evidence I have placed more weight upon such contemporaneous documents as there are, together with the inherent probabilities.

    The companies and their business

  6. The Kruger Companies comprised Elm Street, controlled by Mr Kruger, and the TKO Companies that were controlled by his father.

  7. TKO had been founded some 50 years previously by Mr Kruger Sr. It was a supplier of music rights and publishing and was said to have a well respected music, film and DVD catalogue.

  8. Elm Street described its core business as being rights ownership/access and exploitation in the related area of proprietary/non-proprietary music catalogue and music publishing.

  9. By 2008 the day-to-day business of both TKO and Elm Street was managed by Mr Kruger, although the evidence shows that he would revert to his father when any matters of importance arose. Much of the non-publishing income of the Kruger Companies was generated by the licensing of titles in its catalogues to suppliers of finished audio and DVD product.

  10. Pegasus specialised in the supply of budget-priced CDs and DVDs that it supplied to outlets worldwide. It also had a significant full and mid-priced business through major High Street retailers such as Woolworths and HMV. Pegasus described itself as the largest supplier of special interest DVDs in the UK, as well as having one of the largest budget audio labels. 45 percent of its 1000 DVD titles were of military or other history related titles, 15 percent were steam and transport titles and the remainder covered a variety of other special interest subjects. Pegasus owned very little content itself. It instead licensed-in material from a variety of sources, including TKO and Elm Street.

  11. At the time that discussions started between the parties, Pegasus had an annual turnover of approximately £2,500,000 and generated annual profits of about £500,000. It was entirely separate from the remainder of Eagle Rock's business. Eagle Rock had for some time been looking to sell Pegasus. There is no doubt that Pegasus' success was almost entirely down to the knowledge, industry and acumen of Mr Lloyd, who had been with Pegasus for some ten years. Eagle Rock recognised that Mr Lloyd was crucial to Pegasus and that any sale of the company would have to have his blessing and that he would have to be a part of it.

    The witnesses

  12. Mr Lloyd. Mr Lloyd is now 63. He is an intelligent man and diligent man. He built up Pegasus by dint of painstaking work and preparation and a detailed knowledge of the markets in which Pegasus traded. He was described in the papers as ``the business'' and was regarded by Coutts & Co (``Coutts''), the bank that partly financed the PEHL venture, as critical to its success. Mr Kruger acknowledged this in cross-examination.

  13. Mr Lloyd's first witness statement is nothing if not assertive and contains a considerable amount of argument. It was written with a close eye to the pleadings. He was in full command of both parties' disclosure and commented extensively on documents in Mr Kruger's disclosure. Mr Lloyd did not deviate from his story in his oral evidence and I am satisfied that he genuinely believed what he was telling me. He plainly has no respect at all for Mr Kruger and found working with him a bruising experience. Mr Lloyd was not afraid to stand up to Mr Kruger when he disagreed with him. He struck me as a proud man and must...

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