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Lawyers, other representatives, expert(s), tribunal’s secretary

Final Award

I. INTRODUCTION

1.
This is the final award following the final hearing that took place in London between 31 January and 2 February 2011. It deals with all outstanding matters regarding liability and quantum, interest and costs. References in this Award in square brackets are to bundle, tab and page numbers of the bundles prepared for the final hearing.

II. THE PARTIES

The Claimant

2.
The Claimant ("Injazat" or "ITF") is a Bahraini closed joint stock company which at material times had its principal place of business in Dubai. It is a fixed term venture capital fund. Its address is: Injazat Technology Fund B.S.C.(c), 402, level 4, Precinct Building 3 The Gate District, DIFC, Dubai, United Arab Emirates.
3.
The Claimant was represented at the final hearing by: Mr David Murray, Barrister, Fountain Court Chambers, Fountain Court, Temple, London EC4Y 9DH; Tel: + 44 20 7583 3335, and Mr Peter Gray, Dewey & LeBoeuf, No 1 Minster Court, Mincing Lane, London EC3R 7YL; Tel: +44 20 7459 5049, Fax: +44 20 7444 7349, Email: peter.gray@dl.com.

The Respondents

4.
The First Respondent ("Dr Najafi") is an entrepreneur with many years experience developing wireless products including mobile telephones. He received a PhD in Electrical Engineering from Stanford University in 1983. His address is PO Box 262036, Dubai, United Arab Emirates, also having an address at Cassells Resort, Ghantoot, PO Box 126969, Abu Dhabi, United Arab Emirates.
5.
The Second Respondent ("Mr Cummiskey") is an entrepreneur also with many years experience in the sale and marketing of wireless products. He holds a B.S. in Computer Science from Nova University. His address is 4120 Reedland Circle, San Ramon, CA 94582, United States of America.
6.
Dr Najafi and Mr Cummiskey are both represented by Dr. Volker Schmits and Ms Tuire Väisänen of Amereller Legal Consultants, Sheikh Zayed Road, PO Box 97706, Dubai, United Arab Emirates; Tel: +971 (0) 4 3329686, Fax: +971 (0) 4 3329687, Email: schmits@amereller.com.

The Arbitrator

7.
The sole arbitrator is James Evans, Barrister of 3 Verulam Buildings, Gray’s Inn, London WCIR 5NT; Tel: +44 20 7831 8441, Fax: +44 20 7831 8479, Email: je vans@3vb.com. The parties’ joint nomination of the Tribunal was confirmed by the Secretary General on 24 February 2009, pursuant to Article 9(2) of the ICC Rules.

III. THE ARBITRATION AND CHOICE OF LAW AGREEMENTS

8.
This dispute arises out of ITF’s investment in Broadlink Research FZ LLC (referred to variously as "Broadlink", "BLR Dubai" or "the Company") which was incorporated in the Dubai Silicon Oasis on or about 21 June 2006.
9.
ITF’s investment was governed by a Share Subscription Agreement dated 22 September 2006 ("the SSA") [Dl/2] between (1) ITF, (2) Broadlink, and (3) the Respondents. Under the SSA, ITF agreed to subscribe for, and Broadlink agreed to allot to ITF, a number of ordinary shares in Broadlink sufficient to give ITF 35% of Broadlink, for an agreed price of US$3,000,000 (clause 3.1).
10.
Clause 23 of the SSA provides as follows:

"23. GOVERNING LAW AND JURISDICTION

23.1This Agreement shall be governed and construed in accordance with the English law without regard to the conflict of law provisions thereof.

23.2 In the event of any dispute between the Parties arising out of or in connection with this Agreement, or matters related thereto, they shall use all reasonable efforts to resolve the matters on an amicable basis. If the matter cannot be resolved amicably, any Party (the Aggrieved Party) may serve a notice on the other Parties setting out the nature of the dispute (the Dispute Notice).

23.3 In the event that any dispute, controversy or claim arising from this Agreement or matter related thereto is not resolved pursuant to Clause 23.2 above within a period of 60 days, the same shall be finally settled under the Rules in force at such time by one arbitrator to be appointed by agreement between the Parties. In the event that the Parties fail to agree on an arbitrator, appointment shall be made in accordance with the said Rules. The arbitrator must be an English qualified solicitor or barrister experienced in resolving corporate disputes. All arbitration proceedings are to take place in London, United Kingdom. All arbitration proceedings are to take place in the English language. The arbitral award shall be final and binding upon the parties hereto without appeal to any court or other party."

11.
ITF, Broadlink and the Respondents also entered into a Shareholders’ Agreement dated 22 September 2006 ("the SHA") [D1/3]. The SHA set out the parties’ respective rights and obligations in relation to the management and operation of Broadlink and the Business (as defined in clause 2.1).
12.
Clause 31 of the SHA provides as follows:

"31. GOVERNING LAW AND JURISDICTION

31.1This Agreement shall be governed and construe in accordance with the English taw, without respect to the conflict of law provisions thereof.

31.2 In the event of any dispute between the Parties arising out of or in connection with this Agreement, or matters related thereto, such Parties shall use all reasonable efforts to resolve the matters on an amicable basis. If the matter cannot be resolved amicably, any Party (the Aggrieved Party) may serve a notice on the other Parties setting out the nature of the dispute (the Dispute Notice).

31.3 All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules by one or more arbitrators appointed in accordance with the said Rules.

31.4 In the event that any dispute, controversy or claim arising from this Agreement or matter related thereto is not resolved pursuant to Clause 31.2 above within a period of 60 days, the same shall be finally settled under the Rules in force at such time by one arbitrator to be appointed by agreement between the Parties. In the event that the Parties fail to agree on an arbitrator, appointment shall be made in accordance with the said Rules. The arbitrator must be an English qualified solicitor or barrister experienced in resolving corporate disputes. All arbitration proceedings are to take place in London, United Kingdom. All arbitration proceedings are to take place in the English language. The arbitral award shall be final and binding upon the Parties hereto without appeal to any court or other Party."

13.
By clause 21 of the SHA, "Rules" means "the Rules of the Arbitration of the International Chambers of Commerce". The applicable ICC Rules are those in force as of 1 January 1998.

IV. THE PROCEDURE

14.
By a Partial Award dated 17 January 2010 [A/12] it was held that (1) the Tribunal has jurisdiction to resolve the claims against both Respondents, and (2) the parties to the SSA and the SHA include each of the Respondents individually.
15.
By a Partial Award on Costs dated 20 June 2010 [A/14] it was held that (1) the Claimant’s application for a partial or interim award at that stage of the arbitration of US$47,500 plus any applicable interest against the Respondents due to their failure to pay this amount as requested by the ICC was rejected, and (2) the Claimant’s application for an order at that stage of the arbitration for its costs of the preliminary issues was rejected.
16.
The procedural chronology as set out in the Partial Awards dated 17 January 2010 and 20 June 2010 is incorporated into this Final Award and not repeated.
17.
The Claimant served its Statement of Claim dated 10th June 2010 [A/6]. In July 2010 the Tribunal approved the timetable for the reminder of the procedure [A/15, 16].
18.
By application dated 24th June 2010 the Claimant applied for certain disclosure by the First Respondent. By order and directions dated 10th September 2010 the First Respondent was ordered and directed to provide specified further disclosure to the Claimant [A/17].
19.
The Claimant served a Schedule of Loss dated 23rd September 2010 [A/7]. The Respondents served Reply Submissions dated 22nd October 2010 [A/8] ("the Defence"). The Claimant served its Reply dated 26th November 2010 [A/9] ("the Reply"). The Respondents served their Rejoinder dated 21st December 2010 [A/10] ("the Rejoinder").
20.
The Claimant invited the Tribunal to make directions relating to evidence and this was resolved by the Procedural Order dated 4 November 2010 [A/19].

The Final Hearing

21.
The final hearing took place in London between 31 January and 2 February 2010.
22.
The Claimant served factual witness statements from the following individuals:

22.1 Mr Rami Bazzi [B/1,2,6]: he attended the final hearing and was cross-examined (Transcript, 31 January 2011, pp.9-75).

22.2 Mr David Haigh [B/11]: he attended the final hearing but was not required to be cross-examined.

23.
The Respondents served factual witness statements from the following individuals:

23.1 Dr Najafi [B/5,10]: he attended the final hearing and was cross-examined (Transcript, 31 January 2011, pp.76-166).

23.2 Mr Cummiskey [B/8]: the Claimant required his attendance but he did not attend the final hearing. The Claimant applied for exclusion of his statement. At the final hearing the Tribunal decided to admit his statement [Transcript, 1 February 2011, p.80]. The reasons for doing so are as follows: (i) Mr Cummiskey is based in the United States; (ii) He apparently has limited means. Dr Schmits submitted that Mr Cummiskey had insufficient means to arrange attendance or to arrange and pay for a video-link. While there is no evidence to that effect the Tribunal accepts that this is a relevant factor to consider; (iii) Mr Cummiskey’s statement does not go much if at all beyond confirming the contents of Dr Najafi’s statement; and (iv) the weight to be attached to the statement remained a matter for submission. In my view there is a valid reason for Mr Cummiskey’s non-attendance for the purposes of Article 4.7 of the TBA Rules (which the parties agreed applied in this context). Even if that were not so, the matters identified at (i) - (iv) above constitute extraordinary circumstances to justify a refusal to disregard the statement completely.

23.3 Mr Shahin Tabrizi [B/4]: he attended the final hearing and was cross-examined (Transcript, 1 February 2011, pp.10-57).

23.4 Mr Nick Davey [B/7]: he was not required to attend and no objection was made to the statement being admitted.

23.5 Mr Michael Midgen [B/9J: the Claimant required his attendance at the final hearing but he did not do so. The Claimant applied to exclude his statement. I decided to disregard this statement (Transcript, 1 February 2011, p.80). The reasons for doing so are that there was no valid reason for his non-attendance, for the purposes of Article 4.7 of the IBA Rules. Further there were no exceptional circumstances justifying the Tribunal nonetheless having regard to Mr Midgen’s statement. Mr Midgen was in the United Kingdom and could apparently have attended the hearing if he had so wished.

23.6 Mr Hong Eu [B/I2]: this witness was not required to attend the final hearing and there was no objection to the statement being admitted.

23.7 Ms Faniya Mustafina [B/l3]: she was not required to attend the final hearing and there was no objection to her statement being admitted.

24.
The parties served the following expert evidence:

24.1 Claimant: Mr Doug Hall’s Report dated 13 September 2010 [C/2,3]; Supplemental Report dated 22nd October 2010 [C/4] which took account of further disclosure by then provided by the Respondents.

24.2 Respondents: Review Report of IEC United Auditing dated 31st October 2010 [C/5]. Mr Ajith Kumar CH presented this evidence at the final hearing. Mr Ajith did not comment on Mr Hall’s Supplemental Report.

25.
The experts helpfully prepared a joint statement signed on 11 and 12 January 2011 respectively [C/7].
26.
The proceedings were declared closed for the purposes of Article 22(1) at the close of the final hearing on 2 February 2011.
27.
At its session of 10 February 2010, and pursuant to Article 24(2) of the Rules, the ICC International Court of Arbitration extended the time limit for rendering the Final Award until 30 April 2011. At its session of 14 April 2011 the ICC Court extended the time limit until 30 June 2011.

V. SUMMARY OF THE FACTS

The proposal

28.
In about 2004 Dr Najafi started to develop a mobile phone designed for children. It had a simplified user interface and restricted use and was known as the "D100" or "Sprite" phone. This was one of several products intended to take advantage of perceived gaps in cellular phone markets by making, branding (in association with major brands such as the Disney Corporation) and marketing devices for specific markets that the Respondents believed were not adequately addressed by the large phone manufacturers. While they had invested a certain amount themselves, they came to the stage of seeking third party investment.
29.
On 29 June 2005 Mr Derek Phillip, the then General Manager of Axera Wireless Technologies Ltd ("Axera"), a Dubai company owned by the Respondents, sent an email to ITF introducing Axera and stating that they intended to raise US$3 million as venture capital to fund their initial activities in product definition, design and marketing of telecommunication equipment [D2.1/1]. He said this would carry the company through the first 18 months after which it was expected to be profitable. He said Axera’s President and CEO (i.e. Dr Najafi) would be in the UAE between July and would like to present the company in more detail, and that a business plan could be sent in the meantime. Mr Phillip sent a further email on 7th July 2005 attaching the executive summary of their business plan [D2.1/2]. Dr Najafi met with Mr Bazzi and Mr Fakim of ITF in Dubai in July [D2.1/3]. Negotiations followed during which a business plan was provided to ITF [D2.1/5].

The Business Plan for Axera

30.
An undated business plan for Axera is at [Dl/178-195] which appears to have been produced in this form in mid-2005 ("the Business Plan"). It described the company (i.e. Axera), the products and technology, and contained summaries of a market analysis, a web plan and the company’s management and a financial plan (section 7). An executive summary included a financial summary (section 1.8) stating as follows:

"1.8 Financial Summary

• Five-Year Projected Sales: $581 million

• Five-Year Projected Net Profits: $131 million

• Initial Investment required: $3 million

[Axera] intends on raising $3 million to fund its initial activities in product definition, design, and marketing. This investment will carry the company through the first 18 months after which the company is expected to be profitable. Subsequent investment will only be sought for more rapid expansion and only when terms are very attractive due to initial success of the operations"

31.
The Financial Plan at section 7 stated further that the initial equity investment of US$3 million "is our first round beyond the founders’ investment up to this point" [DI/191] and included a break-even analysis and a projected profit and loss, cash flow and balance sheet for 2005 to 2009. These all assumed the raising of the initial US$3 million investment.

ITF’s due diligence

32.
ITF proved receptive to the proposal and proceeded to a ‘soft’ due diligence stage with a view to investing in Axera (email dated 10 October 2005 [D2.1/6]). This was to be followed by due diligence carried out by third party advisers (Mr Bazzi email dated 13th October 2005 [D2.1/7]). There was pressure to complete the financing because of the terms imposed by Disney on its agreement to licensing arrangements (Dr Najafi email dated 11 October 2005 [D2.1/6]).

The agreement with Telian

33.
Towards the end of October 2005 Dr Najafi updated Mr Bazzi saying amongst other things that he had finalised an agreement with Disney and an agreement with a Korean company called Telian Corporation ("Telian") which he would be travelling to Seoul on 4 November to sign (email dated 26 October 2005 [D2.1/12]). In due course a Handset Development Agreement dated 4 November 2005 was signed by Telian and by Dr Najafi for Broadlink Research Inc (a Californian company) setting out the terms on which Telian was to develop and supply the Sprite phone to Broadlink California [D2.1/83].

The Term Sheet between ITF and Axera

34.
On 27 February 2006 Mr Hussein Rifat (for ITF) and Dr Najafi (for Axera) signed a Term Sheet containing details of a non-binding offer to acquire 35% of Axera’s share capital for a total subscription of US$3 million comprising two subscriptions. The first was a Sharia compliant convertible loan of US$500,000 which was to be used as follows:

"Usage:

1 Manufacturers - Telian US$250,000

2 FTA approval costs US$ 150,000

3 Davey Communications US$100,000"

35.
The general conditions for this first subscription included:

"4 AXERA fully acquiring Broadlink [California] (this latter having no liabilities) and ensuring that AXERA can legally distribute the Sprite phone"

36.
The second subscription set out in the Term Sheet was an equity investment of US$2.5 million to be made in tranches of US$1,500,000 and US$1,000,000. Of this, US$1,250,000 was to be used to fund a letter of credit issued in favour of Disney and the remainder (i.e. US$1,250,000) for operating expenses [Dl/1/1-8].

Broadlink Research FZ LLC

37.
The Term Sheet envisaged the subsequent conclusion of subscription and shareholders agreements and accordingly negotiations ensued, during which, by email dated 26 April 2006, Dr Najafi suggested forming a new company in Dubai - i.e. Broadlink Research FZ LLC - instead of using Axera, for the reasons identified by Dr Najafi in his email. These included a wish to insulate Broadlink and its main business of selling the Disney phone, as well as ITF’s investment, from potential disputes involving Axera arising out of sales to India [D2.1/36]. Mr Bazzi responded that the suggested structure should "work fine", asked Dr Najafi to proceed with the proposed structure and said, "In that case we will hold on to the financial due diligence" [D2.1/36].
38.
The new company, BLR Dubai, was incorporated in Dubai Silicon Oasis on or about 21 June 2006 [D2.1/55,56]. In the same month two other new companies were incorporated: Broadlink Research LLC in California [Dl/2/31] and Broadlink Mobile Inc in Delaware [D1/2/32].

Memorandum of Understanding between Vodafone and Davey Communications

39.
On 4 July 2006 a non-binding Memorandum of Understanding was signed between Vodafone Oronitel N.V. and a company called Davey Communications Ltd relating to the supply of the Sprite phones [D2.1/61]. This envisaged the execution of a further agreement containing inter alia an obligation on the part of BLR Dubai "to ensure and warrant the timely and proper performance of the Agreement by Davey Communications" (MOU, clause 2.2(d)). Hence the MOU was signed for Vodafone, Davey Communications and also by Dr Najafi for BLR Dubai [D2.1/66]. This MOU was concluded with Davey Communications because Vodafone only directly placed orders with an EU company (see e.g. email at [D2.1/100]).

Placement Agency Agreement between Injazat Capital Ltd and BLR Dubai

40.
On 23 July 2006 a Placement Agency Agreement was signed for BLR Dubai and Injazat Capital Ltd by which Injazat Capital undertook on a reasonable best efforts basis to assist BLR Dubai in raising not more than US$3 million from third party investors as subscription to 14% of the company’s total share capital and based on a valuation (after the investment) of US$21.5 million ("the PAA") [D2.1/68-76]. By clause 5 of the PAA it was automatically to expire on the earlier of the raising of the US$3 million or the lapse of three months from the Effective Date.

Dr Najafi's letter dated 31 July 2006

41.
By letter dated 31 July 2006 headed "Broadlink Research" Dr Najafi stated as follows [D1/2/51]:

"31 July 2006

To: Injazat Technology Fund

This letter is to confirm that the documents supplied to you related to the business plans of Axera Wireless Technology are the same as those used by Broadlink Research FZLLC. It is understood that all business plans are forward looking information and no guarantees are made to the accuracy and actual implementation of the Plan.

Sincerely,

Hamid Najafi

CEO and President

[signature]"

42.
The precise background to this letter is not clear from the evidence I have seen. However it presumably reflects a desire on the part of ITF to confirm that the Business Plan for Axera was equally applicable where BLR Dubai was the company being used rather than Axera.

Conclusion of the SSA and the SHA

43.
It is apparent from the available correspondence that Dr Najafi needed to raise funds urgently: see e.g. his email to Mr Bazzi dated 11th August 2006 [D2.1/101-102]. Copies of purchase orders obtained so far and correspondence with Telian were forwarded to ITF (see ibid. and email from Dr Najafi dated 31st July 2006 [D2.1/100]). Funds had by this stage not been forthcoming under the PAA. By email dated 22 September Dr Najafi told Mr Bazzi of certain timelines that had to be met, including (1) a letter of credit in favour of Telian for about US$620,000 by no later than 27 September if a proposed launch was to go ahead in Italy on 5 October, and (2) a deadline of 30 September for issuing a letter of credit in favour of Disney [D2.1/155].
44.
In the event the SSA and the SHA and an Addendum were signed and dated 22 September 2006 [Dl/2, 3-4, 8].
45.
Under the SSA, ITF’s investment of US$3,000,000 was payable in three tranches and ITF’s obligation to make each payment was subject to a number of conditions (see clauses 3, 6 and 9). As anticipated in the Term Sheet, US$1,250,000 was to be used to fund a letter of credit in favour of Disney. This was the first tranche. The remaining US$1,750,000 was all to be an equity investment and made in a second and third tranche of US$750,000 and US$1,000,000 respectively. In the event, only the first two tranches (in the total sum of US$2,000,000) were made, on or around 1 and 4 October 2006 respectively. No shares in BLR Dubai were allotted to Injazat.
46.
Both of the Respondents were parties to the SSA. Dr Najafi was the chief executive officer of BLR Dubai and Mr Cummiskey was a director until he resigned on 9 November 2006. They were aiso the sole shareholders in BLR Dubai. By clause 9 of the SSA the Respondents made a number of express representations to ITF, as set out in Schedule 3 to the SSA. By clause 9.2, each of those representations was made as at the date of the SSA and deemed to be repeated "immediately before each payment in accordance with clause 3.1 by reference to the circumstances subsisting at that time". The representations, which are considered in detail below, included a number of detailed statements as to the business and finances of BLR Dubai and the other companies listed in Schedule 2 to the SSA (referred to as "the Existing Companies").
47.
The preamble to the SSA included at paragraph B the statement that the Company "has an established business as described in the Business Plan attached hereto as Schedule 6" [DI/2/12]. Dr Najafi’s letter of 31 July 2006 and a copy of the Business Plan for Axera (both as referred to above) were attached to the SSA as Schedule 6 [DI/2/51]. Dr Najafi’s letter now had printed at the bottom of the page:

"THE BUSINESS PLAN APPROVED BY INJAZAT FOR THIS TRANSACTION IS ATTACHED"

48.
The SHA set out the parties’ respective rights and obligations relating to the management and operation of BLR Dubai and the Business, defined in clause 2.1 to mean, "the business described in Schedule 2 hereto conducted by the Company and/or its affiliates" [D1/3/150]. Schedule 2 to the SHA also attached Dr Najafi’s letter of 31 July 2006 and a copy of the Business Plan for Axera. Clause 7.2 of the SHA set out a number of actions that were not to be undertaken by Broadlink without the express prior written approval of the Board, including at least one director appointed by ITF. ITF had the right to appoint two directors to the Board under clause 7.1. The appointees were Mr Rami Bazzi and Mr Fawzi Zeine.
49.
Further Addenda to the SSA and the SHA were signed and dated 4 December 2006 [D2.1/5] and 4 June 2007 [D2.1/6] (the latter apparently signed only by Dr Najafi [D2.1/6/233]).

The failure of BLR Dubai

50.
In addition to the investment which was made by ITF, as above, BLR Dubai received US$1 million on 6 December 2006 pursuant to the PAA: Therefore by the end of 2006 BLR Dubai received a total of US$3 million, including the amount used to fund the letter of credit in favour of Disney.
51.
There was a board meeting of BLR Dubai on 6 September 2006 and further meetings were held on 9 November 2006 (signed minutes at [D2.1/187]) and 28/29 January 2007 (minute at [D2.1/257]) and on 14/15 February 2007 [D2.1/275-277]. A significant amount of time was spent by those involved trying to identify and agree the liabilities of the company as at 30 September 2006, the company’s financial statements to the end of 2006 and a budget for 2007. Mr Cummiskey had ceased to be a director of the company on 9 November 2006.
52.
In the event the business did not succeed, further funding was not forthcoming and BLR Dubai ceased to trade in about July or August 2007. There appears to be agreement between the parties that (1) a, or the, key cause of the Company’s failure was its inability to meet an order or orders placed by Vodafone in 2006 in time to take advantage of sales towards the end of 2006 and early 2007, and (2) this was because (a) the Company did not receive sufficient funds from Injazat under the SSA to satisfy Telian’s payment requirements if they were to proceed with the manufacture of products (D100 phones) in time, and (b) the Company was unable to raise sufficient funds from alternative sources, whether under the PAA or otherwise. In short, the Company received funding of US$3 million between October and December 2006 but this was not enough to fund the business.
53.
The Company remains in existence, albeit dormant, as it has not to date been formally placed into liquidation or otherwise wound up.

VI. SUMMARY OF ITF’s CLAIM

54.
ITF’s case has been set out in the Statement of Claim [A/6], the Schedule of Loss [A/7], the Reply [A/9], the written opening submissions dated 25 January 2011 and in oral opening and closing submissions at the final hearing (Transcript, 31 January 2011, pp.3-8; 2 February 2011, pp.50-163). The detail of the claims developed somewhat during these proceedings and I therefore rely primarily on ITF’s case as set out in the written opening submissions and orally at the final hearing.
55.
ITF says that following the conclusion of the SSA and the SHA, i.e. from September 2006, it became increasingly apparent to I FF that a very large number of the representations made by the Respondents in Schedule 3 to the SSA, as well as pre-contractual statements made by Dr Najafi as to the non-existence of any liabilities on the part of BLR Dubai, had not been true either when the SSA was signed on 22 September 2006 or when the first two tranches were advanced on 1 and 4 October 2006. In particular, ITF says that, contrary to the express representations made in Schedule 3 to the SSA, BLR Dubai was insolvent at all material times and had been burdened by the Respondents with substantial liabilities that had not been disclosed to ITF.
56.
ITF’s primary case in the Statement of Case [A/6] was for relief under clause 7 of the SSA which entitled ITF to require the Respondents to purchase from ITF its shares in BLR Dubai for the amount the latter had invested plus a premium. However ITF did not pursue this claim at the final hearing and it was withdrawn. Not least it appears that no shares in BLR Dubai were ever allotted to ITF.
57.
ITF’s alternative case, which was pursued at the final hearing, is that its entry into the SSA and its making of the first two payments thereunder, and its entry into the SHA, were induced by the Respondents’ (or at least Dr Najafi’s) misrepresentations and/or breaches of contract, and that damages should be awarded in a sum equivalent to the amounts paid pursuant to the SSA plus consequential losses and expenses. ITF seeks relief under clause 9.9 of the SSA and under section 2(1) of the Misrepresentation Act 1967.
58.
ITF also claims that the Respondents breached the terms of the SHA after the SSA and SHA were concluded, that these breaches caused the eventual failure of BLR Dubai and the consequent loss of ITF’s investment, and therefore ITF is entitled to damages for breach of contract assessed by reference to the value of the lost investment plus wasted management time and expenses.
59.
The quantum of ITF’s claim is set out in the Schedule of Loss dated 23 September 2010 [A/7]. The total comprises (1) the investment of US$2 million, (2) a "management charge amount" of US$127,701 and (3) interest, either at a commercial borrowing rate or a Judgments Act rate of 8%. The totals claimed are US$3,198,666.99 and US$3,098,792.99 depending on the interest rate used.
60.
At the final hearing the Respondents asked the Tribunal to disregard two points made by the Claimant: first a reference to clauses 9.4 and 9.5 of the SSA and second a reference to section 2(1) of the Misrepresentation Act 1967 (Respondents’ Opening Submissions, dated 30th January 2011). The Respondents submitted that these were new points that were not specifically raised in the Claimant’s pleadings, that they severely prejudiced the Respondents and that they gave rise to a real risk of an unfair hearing.
61.
The Claimant made oral submissions on these points (Transcript, 31 January 2011, pp.3-8). I have decided not to disregard the two points, and therefore reject the Respondents’ application. The Respondents did not submit that the points constituted "new claims" within the meaning of Article 19 of the ICC Rules. In any event, even if the points had constituted "new claims", 1 would have authorised the Claimant to pursue the points as permitted by Article 19. The reasons are essentially those identified by the Claimant, namely:

61.1The points are points of law that do not involve a new factual case and which the Claimant can fairly be permitted to pursue. The Respondents did not identify any factual evidence that they would wish to serve in response to the points. I note that at paragraph 7 of the Respondents’ Opening Submissions dated 30 January 2011 it was submitted that the Respondents have already put forward evidence why clauses 9.4 and 9.5 of the SSA were irrelevant at the time of entering into the SSA. This suggests that any evidence the Respondents wished to adduce on those clauses was already served.

61.2 Insofar as the points were new, and not specifically made in the Claimant's written pleadings, they were clearly identified in the Claimant’s written opening submissions which were served before the final hearing. In my view the Respondents had sufficient opportunity to consider and respond to the points.

61.3 The claim under section 2(1) of the Misrepresentation Act 1967 was not relied upon as going wider than the claim made under clause 9.9 of the SSA.

VII. OVERVIEW OF THE DEFENCE

62.
The Respondents’ defences have been set out in the Defence [A/8], the Rejoinder [A/10], written opening submissions dated 25 January 2011 and 30 January 2011, and orally at the hearing (Transcript, 31 January 2011, p.2; 2 February 2011, pp.1-50).
63.
The Respondents deny all of the claims and seek their costs. They say there were no misrepresentations and no breach of either the SSA or the SHA. In particular they say as follows (the detail of the claims is dealt with below):

63.1 The Respondents did not misrepresent to the Claimant the financial position of Broadlink (Opening Submissions, paragraph 1).

63.2 The Respondents did not make any contractual binding representation that the Claimant’s investment "is sufficient for any duration of 18 months starting whenever - neither before nor on or after Effective Date" (Opening Submissions, paragraph 2).

63.3 The Respondents did not misrepresent that the Company was free of liabilities (Opening Submissions, paragraphs 3 and 4-5).

63.4 In any event the Claimant has failed to fulfil its burden of proof and to particularise its claim in relation to undisclosed liabilities (Opening Submissions, paragraph 6).

63.5 The Claimant is estopped from claiming that the Respondents misrepresented the financial position of the Company in breach of clause 7.1, 7.2 and 7.3.1 (of Schedule 3 to the SSA) (Opening Submissions, paragraph 7).

63.6 The Respondents did not act in breach of any of clauses 7.1, 7.2 or 7.14 of the SHA (Opening Submissions, paragraph 8).

63.7 In relation to the agreements with Telian and Vodafone, these were executed before the Claimant’s investment in the Company and therefore they did not require board approval, and further the agreements were provided to the Claimant before its investment (Opening Submissions, paragraph 9).

63.8 In relation to allegedly unauthorised payments, the Claimant has failed to provide any evidence which would prove that any non-routine payments were actually made without the Claimant’s knowledge or the relevant approval by the Company’s Board (Opening Submissions, paragraph 10).

63.9 Generally, the Claimant fails to distinguish between the two individual Respondents and the capacity in which they were acting (Opening Submissions, paragraphs 11-12).

63.10 The Claimant is not entitled to recover damages because the Claimant is estopped (on the basis of promissory estoppel and/or estoppel by convention) from claiming an indemnity or any damages by reason of its actual knowledge of facts and its participation in the management of the Company (Opening Submissions, paragraph 15).

63.11 The Claimant is estopped from obtaining any relief against the Respondents "where the Claimant was lacking any diligence and violated its own supervision obligations in several ways" (Opening Submissions, paragraph 16).

63.12 Further the damages claimed are "unrelated to actions by the Respondents" and were not caused "by Broadlink’s fate" (Opening Submissions, paragraph 18).

63.13 The Schedule of loss includes management time at "a totally unreasonable level" for time spent since 2007 (Opening Submissions, paragraph 18). Any damages for breach of warranty must be limited to the cost of the transaction.

63.14 The alleged damages sustained by the Claimant were caused by its own negligence (Opening Submissions, paragraph 19) and by the Claimant’s failure to provide sufficient and timely funding (Opening Submissions, paragraph 20).

64.
The Respondents’ written opening submissions summarised their case as follows:

"21. In summary, it is clear from all the contracts and evidences submitted to this tribunal that the Claimant’s investment released under SSA and SHA could not under any circumstances be sufficient to make the company running. Apart from the fact that Claimant released only $750,000 direct working capital under SSA and SHA (second tranche was issued directly to Disney) and assuming there were no running expenses such a[s] salaries prior [to] 22 September 2006, already in the light of the agreements submitted to Claimant as part of the SSA (see table in Schedule 5 of the SSA) and the contractually required back order of 100,000 units (see clause 3(1)(b)(vi) of the SSA) it should have been self-evident to the Claimant that without immediate cash injection, Company could not bridge the financing and cash flow problem.

22. Having all the material facts available prior to its investment, Claimant decided to take the risk and invest on a start-up company. However, where the Claimant intentionally disregarded the needs of the Company and refused to grant any additionally working capital during this critical time, it is absurd to claim that the Company failed because of Respondents’ alleged breaches of contract. To emphasize Respondents did not represent the Company was free of liabilities and everything paid by the Company from the Claimant’s investment was also approved by the Claimant."

VIII. THE DETAILED ISSUES

65.
The parties helpfully agreed that the claims and the defences, summarised above, gave rise to the following detailed issues:

Pre-contractual misrepresentation

1. Was the Claimant induced to enter into the SSA and/or SHA, and/or to make the Initial Payment and/or the Second Payment under clauses 3.1(a) and (b) of the SSA, by any written or oral misrepresentation made by either Respondent?

2. If so, was such written or oral misrepresentation causative of the Claimant’s alleged loss?

3. If so, to what remedy is the Claimant entitled:

(a) at common law; and/or

(b) under section 2(1) of the Misrepresentation Act 1967?

Misrepresentation and/or breach of warranties in the SSA

4. Were any of the representations made (or warranties given) by cither Respondent to the Claimant in clause 9 of, and Schedule 3 to, the SSA false when the SSA was concluded and/or when the Claimant made the Initial Payment and/or the Second Payment? In particular, were the representations made by either Respondent in the following paragraphs of Schedule 3 false at any of those times: (a) paragraph 3; (b) paragraph 5; (c) paragraph 7.1; (d) paragraph 7.2; (e) paragraph 7.3.1; (f) paragraph 7.4; (g) paragraph 7.6; (h) paragraph 8.2.2; (i) paragraph 11(d); (j) paragraph 12.1; (k) paragraph 12.2; (1) paragraph 14.1; (m) paragraph 14.2.

5. If any of the representations made in the above paragraphs of Schedule 3 was false, was the Claimant induced to enter into the SSA and/or to make the Initial Payment and/or the Second Payment thereunder by such misrepresentation(s) and/or breach(es) of warranty? Further, is either Respondent precluded by the provisions of the SSA, in particular clauses 9.4 and/or 9.5, from asserting that the Claimant was not so induced?

6. Was such misrepresentation and/or breach of warranty causative of the Claimant’s alleged loss?

7. If the Claimant was induced to enter into the SSA and/or to make the Initial Payment and/or the Second Payment thereunder by misrepresentation(s) and/or breach(es) of warranty by either Respondent, to what remedy is the Claimant entitled:

(a) at common law;

(b) under clause 9.9 of the SSA; and/or

(c) under section 2(1) of the Misrepresentation Act 1967?

8. Is the Claimant entitled to relief under clause 7 of the SSA?

Misrepresentation and/or breach of warranties in the SHA

9. Was the representation made (or warranty given) by either Respondent in clause 6.1 of the SHA, that "the Business is an active self-financing business", false as at the date of the SHA?

10. If so, was the Claimant induced to enter into the SHA and/or the SSA by such misrepresentation and/or breach of warranty?

11. If so, was such misrepresentation and/or breach of warranty causative of the Claimant’s alleged loss?

12. If so, to what remedy is the Claimant entitled:

(a) at common law; and/or

(b) under section 2(1) of the Misrepresentation Act 1967?

Other breaches of the SHA

13. Did either Respondent breach clause 7.2 of the SHA by causing or permitting the undertaking by Broadlink of reserved matters without the express prior written approval of the Board of Directors including at least one Director appointed by the Claimant? In particular, did either Respondent so cause or permit the undertaking of any of the reserved matters set out in: (a) clause 7.2(f); (b) clause 7.2(j); (c) clause 7.2(k); or (d) clause 7.2(q)?

14. If so, were any such breach(es) causative of the Claimant’s alleged loss?

15. If so, to what remedy is the Claimant entitled?

Waiver and Estoppel

16. Has the Claimant waived its right to claim for misrepresentation and/or breach of warranty under the SSA and/or SHA?

17. Is the Claimant estopped from claiming misrepresentation and/or breach of warranty under the SSA and/or SHA?

Costs

18. Is any party entitled to an award of legal and/or other expenses, and if so for how much?

66.
I refer to each of these issues in the same order agreed by the parties.

Pre-contractual misrepresentation

Issue 1 : Was the Claimant induced to enter into the SSA and/or SHA, and/or to make the Initial Payment and/or the Second Payment under clauses 3.1(a) and (b) of the SSA, by any written or oral misrepresentation made by either Respondent?

The Claimant

67.
I understand the Claimant’s case, as presented in oral closing submissions, to be that it was induced to enter into the SSA and the SHA, and to make both of the payments under the SSA, by pre-contractual (i.e. pre-22 September 2006) oral representations made by Dr Najafi to Mr Bazzi in or about April 2006 that Broadlink would have no liabilities and be a "clean company" (Mr Bazzi’s Second Witness Statement, paragraphs 23, 24 [B/2/16]; Transcript, Day 3, p.53), and that such representations were false because Broadlink did in fact have substantial liabilities as at the end of September 2006 (Transcript, Day 3, p.54).
68.
At paragraphs 41 and 42 of the Statement of Case (A/6/69-70] it was pleaded that ITF was induced to purchase the Company’s shares by oral and written misrepresentation made by the Respondents in the course of negotiations from about June 2005 to September 2006, in particular (i) a representation relating to the Company being "self-financing", and (ii) representations contained in the Business Plan from when first presented to ITF. These claims were not however clearly pursued either in the Claimant’s written opening submissions or in oral closing submissions. I therefore understand that those pleaded claims are not pursued and that the Claimant advances its case of oral pre-contractual misrepresentation against Dr Najafi alone and therefore not against Mr Cummiskey.

Dr Najafi’s response

69.
Dr Najafi denies liability for the alleged pre-contractual misrepresentation (e.g. Defence, paragraph 75). He accepted in oral evidence that he told Mr Bazzi that because Broadlink would be a new company, it would be "clean company with no liabilities", but that "all the contracts, existing contracts with Broadlink Research Inc, later on were requested by Inajzat to be transferred and contributed to Dubai companies --"(Transcript, Day 1, pp.90-91). He said that "we" (i.e. he and Mr Cummiskey) "spent a lot of money and time getting to getting the product where it was and we never asked Injazat to pay for them" (ibid.). In oral closing submissions, it was submitted on behalf of Dr Najafi that ITF knew that Broadlink had contractually assumed liabilities, in particular liabilities arising from contracts to which the Company was or would become a party (Transcript, Day 3, p.2).
70.
In substance, Dr Najafi’s response to the alleged pre-contractual misrepresentation claim appears to be that (i) he did not represent to Mr Bazzi that Broadlink had or would have no liabilities at all as at the end of September, because he and ITF knew that existing contracts were to be transferred the Claimant and/or Broadlink would be liable and that the Company had (directly and/or indirectly) continued before the conclusion of the SSA and the SHA to pursue the project, and (ii) ITF was not therefore induced by the alleged oral representation to enter into the SSA and SHA.

Decision

71.
It is apparent from the background to, and the terms of, the SSA and the SHA (including clause 23.2 of the SHA) that the parties intended those agreements to contain the terms governing ITF’s investment in the Company and the matters relied upon by ITF in deciding whether to invest. T his is consistent with the Mr Bazzi’s evidence that "the principal transaction document" for closing and Rinding the investment in BLR Dubai was the SSA and that the SHA was the "crucial document" in terms of the protection of ITF’s ongoing investment in that company: second witness statement, paragraphs 31, 32 [B/2/17,18]. The SSA contained detailed warranties covering various issues including the financial position of the Company. Those warranties are the subject of ITF’s separate claims considered below. The Claimant effectively accepted during the final hearing that its case on pre-contractual misrepresentation added little if anything to its claims for breach of warranty arising from the terms of the agreements (Transcript, Day 3, p. 52).
72.
Against that background, I am not persuaded that Dr Najafi made a clear oral pre-contractual representation to Mr Bazzi that the Company would have no liabilities whatsoever as at the end of September. The thrust of Dr Najafi’s evidence was that he and the Claimant proceeded on the basis that the Company would be subject to liabilities arising from contracts which had been or would be transferred to the Company and that all he would have said was that as BLR Dubai was a new company it would necessarily not have any liabilities from previous activities, in contrast to e.g. Axera.
73.
I therefore reject the claim on Issue 1 on the basis that the Claimant has not proved that Dr Najafi made a clear and unambiguous representation in the terms alleged by the Claimant.
74.
Even if Dr Najafi had made the alleged misrepresentation, I would find that the Claimant’s case on this issue fails on the question of inducement. The parties’ decision to set out in detail in the SSA the various warranties, and the detailed terms of both the SSA and the SHA, is in my view sufficient to rebut any presumption that may arise (as referred to Gosling v Anderson [1972] EGD 709, per Lord Denning at pp.714-715) that ITF relied on oral and pre-contractual oral representations by Dr Najafi as to the financial position of the Company as at the date of the SSA and SHA or any date thereafter.
75.
Insofar as the Claimant did wish to pursue the pleaded claims at paragraphs 41 and 42 of the Statement of Case, I would dismiss those claims. The alleged representations are not sufficiently clearly pleaded or established in the evidence. Nor am I persuaded that any such representations induced ITF to enter into the SSA or the SHA for the same reasons as set out above.

Issue 2 : If so, was such written or oral misrepresentation causative of the Claimant’s alleged loss?

Issue 3 : If so, to what remedy is the Claimant entitled: (a) at common law; and/or (b) under section 2(1) of the Misrepresentation Act 1967?

76.
In view of my decision on Issue I above, Issues 2 and 3 do not arise.

Misrepresentation and/or breach of warranties in the SSA

Issue 4 : Were any of the representations made (or warranties given) by either Respondent to the Claimant in clause 9 of, and Schedule 3 to, the SSA false when the SSA was concluded and/or when the Claimant made the Initial Payment and/or the Second Payment?

Introduction

77.
Schedule 3 to the SSA begins, "In relation to the Company and each Existing Company, as applicable, the Company and each of the Guarantors jointly and severally represent and warrant" as set out in the following paragraphs.
78.
Clause 2.1 of the SSA defines the Existing Companies as (1) Broadlink Research Inc, incorporated in California, (2) Broadlink Research LLC, also incorporated in California, and (3) Broadlink Mobile Inc, incorporated in Delaware. Confusingly, Schedule 2 to the SSA refers to Broadlink Research LLC, Broadlink Mobile Inc and Domela Investments Ltd, incorporated in Cyprus, as the Existing Companies [Dl/2/31-32]. This apparent inconsistency does not appear to be relevant to the issues I have to resolve.
79.
I refer to each of the paragraphs relied upon by the Claimant in turn.
In particular, were the representations made by either Respondent in the following paragraphs of Schedule 3 false at any of those times:

Issue 4(a) : paragraph 3 of Schedule 3

80.
Paragraph 3 of Schedule 3 states:

"3. INFORMATION

The information in respect of the Company and the Existing Companies set out in Schedule 2, as well as the Business as described in the Business Plan and the accounts upon which Injazat’s Investment was based are true, accurate, complete and not misleading."

The Claimant

81.
ITF says that in this paragraph the Respondents represented that the Business Plan and certain other information was "true, accurate, complete and not misleading" as at the date of the SSA and SHA and the payments made by ITF.
82.
ITF accepts that the Business Plan consists largely of forward-looking statements and predictions about the future. It is not ITF’s case that any of these statements amounted to warranties as to the future performance of Broadlink or its business. ITF does however say that a statement of expectation or belief carries with it an implied assertion that the person making the statement had reasonable grounds for making it, relying on The Mihalis Angelos [1971] 1 QB 164, at 194, 197, 204-5, although, ITF says, it is not necessary in this case to rely on an implied assertion because the express wording of paragraph 3 ("true, accurate, complete and not misleading") and other paragraphs of Schedule 3 clearly import a representation that the predictions set out in the Business Plan were made on reasonable grounds.
83.
Although put slightly differently in its written opening submissions, in its oral closing submissions ITF submitted there were three particular statements in the Business Plan which the Respondents did not have reasonable grounds for making as at 22 September 2006 (Transcript, 2 February 2011, pp.70 et seq.), namely:

83.1 The statement in paragraph 1.8 of the Business Plan [Dl/4/182] that US$3,000,000 in initial funding "will carry the company through the first 18 months after which the company is expected to be profitable". ITF says the Respondents had no reasonable grounds for believing this statement when the SSA was signed or at any time thereafter, given in particular that (i) neither Respondent knew how many liabilities the company had, (ii) the company in fact had significant liabilities, and (iii) both Respondents believed that US$3 million was not enough to make the company viable, relying on paragraph 9 of Mr Cummiskey’s witness statement and Dr Najafi’s oral evidence at Transcript, 31 January 2011, p.82.

83.2 The statement in paragraph 1.8 of the Business Plan [Dl/p. 182] that Broadlink expected to make sales of US$581,000,000 in its first five years of operations. ITF says the Respondents had no reasonable grounds for believing this statement when the SSA was signed or at any time thereafter, given that (a) the Business Plan contained little detail of how this figure was calculated, and (b) as at the date of the SSA Broadlink still did not have any sales plan at all, let alone a coherent plan for achieving sales of US$581,000,000 within five years.

83.3 The statement in paragraph 1.8 of the Business Plan that the five-year projected net profits were going to be or expected to be US$131 million. ITF says that figure was essentially "guesswork" and no information was given in the Business Plan about how these figures had been compiled (Transcript, Day 3, p.74).

The Respondents

84.
The Respondents dispute the claim under paragraph 3 for the reasons set out at paragraph 103 of the Defence [A/8/111-112] and in oral closing submissions (Transcript, 2 February' 2011, pp.14-18), namely:

84.1The information contained in the Business Plan cannot be reasonably considered as false, inaccurate, incomplete and/or misleading within the meaning of paragraph 3 and was prepared with reasonable skill and care.

84.2 The Respondents did not warrant in their personal capacity or on behalf of Broadlink the accuracy or implementation of the Business Plan.

84.3 The declaration in Dr Najafi’s letter of 31 July 2006, which was subsequently attached to the SHA in Schedule 2, clearly provides that "all information in the business plan are forward looking information and are in no way guaranteed".

84.4 The Business Plan of Axera was executed in 2005 and "it only provided sound arguments for the probable viability of the business, which was "expected to be profitable" after 18 months of operation" (Defence, paragraph 103.4).

84.5 The financial projections were prepared with due care on a reasonable basis and at the material time, Respondents had reasonable grounds to believe that the business will be profitable.

84.6 Where the Claimant decided to take a risk by investing in a start-up company with knowledge that the Business Plan of Axera was executed in 2005 and where Broadlink did not have any trading records, the claim in breach of warranty under paragraph 3 of Schedule 3 to the SSA is meritless.

Decision

85.
I do not understand the Respondents to dispute the Claimant’s submission that a statement of expectation or belief carries with it an implied assertion that the person making the statement had reasonable grounds for making it, or that the Business Plan contained the statements relied on by the Claimant. The issue therefore is whether the Respondents had reasonable grounds for making the three statements in paragraph i.8 of the Business Plan which are relied on by ITF.
86.
As to the first, I prefer the Claimant’s submissions. The evidence suggests that as at 22 September 2006 there was no reasonable basis on which the Respondents could represent that an initial investment of US$3 million (even if all paid immediately on 22 September 2006) "will carry the company through the first 18 months" and that after that period it was expected to be profitable. As the Claimant points out, Dr Najafi agreed in his oral evidence that he knew when the SSA and SHA were signed that the company was going to need more than the Injazat investment (i.e. US$3 million under the SSA) in order to survive (Transcript, 31 January 2011, p.82) and Mr Cummiskey said in his witness statement at paragraph 9 that, "The funding requirements were well beyond the initial USS3 million" [B/8/92]. The Respondents therefore appear to accept that the statement in paragraph 1.8 of the Business Plan was at least incomplete and/or misleading as at 22 September 2006. The position was the same as at the date at which ITF made the first and second tranches under the SSA, i.e. October 2006.
87.
I also agree with the Claimant that there were not reasonable grounds for the second and third representations at the relevant times, insofar as these representations were founded on and/or followed from the first. I do not agree that they were misrepresentations simply because the way in which they were calculated was not set out in any detail in the Business Plan.
88.
As to the points made by the Respondents on this issue;

88.1 The statements in the Business Plan relied on by ITF can reasonably be regarded as at least incomplete and/or misleading in circumstances where both Respondents accept that the company required more than an initial investment of US$3 million in order to survive. This was not what the Business Plan said at paragraph 1.8.

88.2 The Respondents did individually provide the warranties in Schedule 3. Further they did, impliedly even if not expressly, represent to ITF that they had reasonable grounds for making the representations in paragraph 3 of Schedule 3.

88.3 Dr Najafi’s letter does not alter my finding above. The letter is naturally read as making the point, which is accepted by ITF, that the Respondents were not warranting or guaranteeing that the forecasts and other forward looking information in the Business Plan would be achieved. However Dr Najafi’s letter was not purporting to tell ITF that the Respondents did not believe and/or did not have reasonable grounds for making statements contained in the Business Plan. As the typing added to the bottom of Dr Najafi’s letter dated 31 July 2006 makes clear, the Business Plan was a document that ITF had sought specific comfort about from Dr Najafi, and had specifically approved for this transaction. Further it was sufficiently important, as must have been well-understood by Dr Najafi and Mr Cummiskey, to be attached to both the SSA and the SHA.

88.4 While the Business Plan was in the name of Axera, it was stated by Dr Najafi in his covering letter to be applicable to the company. That obviously followed from the company taking the place of Axera in the proposal. Further, while the Business Plan plainly was prepared in or as at mid-2005, it was attached to the SSA and the SHA and it is not disputed by the Respondents that warranties they gave, including at paragraph 3 of Schedule 3, related to the Business Plan as at the date of the SSA and the subsequent payments by ITF under the SSA.

88.5 For the reasons given above I do not agree that the Respondents had reasonable grounds for making the statements relied on by ITF or that ITF’s decision to invest on the terms that it did alter my conclusion on this issue.

89.
I therefore find that the representation by the Respondents in paragraph 3 of Schedule 3 was false as at 22 September 2006 and at the time ITF made the subsequent payments under the SSA.

Issue 4(b) : paragraph 5 of Schedule 3

90.
Paragraph 5 of Schedule 3 states:

"5. NO BANKRUPTCY

Neither the Company nor any of the Existing Companies is, and the transactions contemplated by this Agreement will not cause the Company or any of the Existing Companies to become, bankrupt, insolvent or otherwise in danger of not being able to pay its debts as they fall due."

The Claimant

91.
ITF says this was one of the most important of the representations set out in Schedule 3 to the SSA, because it contained a representation that Broadlink was solvent as at the date of the SSA. It says it is now clear that Broadlink (a) was balance-sheet insolvent at all times from July 2006 onwards, and (b) made an operating loss in each month from July 2006 onwards, with the exception of December 2006 and June 2007 (see the supplemental report of Mr Hall at [C/4/101]).
92.
ITF says that the Respondents admit in their Defence that Broadlink was insolvent when the SSA was signed: see paragraph 104.1 [A/8/l12] and that Dr Najafi also says in his witness statement that Broadlink was "a company with no money" (paragraph 28 [B/5/64]). ITF also relies on Dr Najafi’s oral evidence at Transcript, Day 1, pp.95-96.
93.
ITF says that the Respondents’ expert’s report, i.e. of Mr Kumar [C/5/109], accepts that Broadlink was balance-sheet insolvent when the SSA was signed, albeit by a smaller amount than the US$2,065,000 given by Mr Hall. Mr Ajith’s evidence as to related-party transactions is misconceived for the reasons identified by Mr Hall at paragraph 2.4.4 of the joint statement [C/7/131].
94.
ITF says that the fact that Broadlink was insolvent when the SSA was signed is also borne out by the other evidence:

94.1 On the Respondents’ own case, they "repeatedly informed [ITF] that Broadlink was unlikely to survive without the remaining investment of 1 million USD, which [ITF] had agreed to provide under the SSA" (Defence, paragraph 104.2 [A/8/l12]).

94.2 Further, it is the Respondents’ case that ITF "was informed that the first tranche did not and could not cover [Broadlink's] debts as they fell due" (Defence, paragraph 104.3 [A/8/112]).

94.3 Broadlink was unable to make payments due to Telian, the Korean manufacturer of the D100 phone, since before the SSA was signed (sec e-mails at [D2.1/170, 173, 181, 191]).

94.4 Broadlink began October 2006 with a negative cash balance and spent US$720,000 during that month alone: see the e-mail from Mr Tabrizi, the chief financial officer, to Dr Najafi at [D2.1/195].

94.5 On 21 November 2006 Dr Najafi wrote to Mr Bazzi to say that "we have about $53,000 in the bank and we will not be able to take care of our bills at the end of November" [D2.1/195].

The Respondents

95.
The Respondents dispute the claim under paragraph 5 for the reasons set out at paragraph 104 of the Defence [A/8/112], namely:

95.1At the date of entering into the SSA, the Claimant had actual knowledge that Broadlink was not able to pay its debts as they fell due and that the first tranche would not be sufficient to balance the financial situation and the cash flow of Broadlink. Based on the all the liabilities disclosed to the Claimant, it was obvious that the remaining funding was critical for the future operations.

95.2 The Respondents repeatedly informed the Claimant that Broadlink was unlikely to survive without the remaining investment of US$1 million, which the Claimant agreed to provide under the SSA.

95.3 The Claimant was informed that the first tranche did not and could not cover the debts as they fell due. However, with full knowledge of all the circumstances the Claimant decided not to advance the remaining capital which would have eased the financial situation of Broadlink.

96.
In oral submissions at the final hearing the Respondents submitted that the issue did not arise because the Claimant had failed to serve evidence that the correct law (i.e. Dubai law) was being applied: see e.g. Transcript, 2 February 2011, p.20.

Decision

97.
Firstly, I do not accept the Respondents’ submission regarding foreign law. The interpretation of paragraph 5 of Schedule 3 is to be resolved according to English law. Further the representation in paragraph 5 is not limited to bankruptcy, but includes the words "in danger of not being able to pay its debts as they fall due". Deciding whether the company was in that situation at the relevant times is a question of fact not affected by Dubai law.
98.
Secondly, as the Claimant submits, the Respondents’ defence at paragraph 104 states that the company was not able to pay its debts as they fell due, as at the date of the SSA, and that the company desperately required the further funding if it was to survive. This point was reiterated during oral closing submissions: Transcript, 2 February 2011, p.20. The Respondents therefore appear to accept that the representation at paragraph 5 of Schedule 3 was not true as at the date of the SSA and at the date of the subsequent payments by ITF under the SSA. The further evidence relied on by the Claimant (as above) is consistent with and reflects this.
99.
For these reasons I find on this issue that the representation made by the Respondents at paragraph 5 of Schedule 3 was false as at the date of the SSA and at the time of the subsequent payments by ITF under the SSA.

Issues 4f(c)-(e) : paragraphs 7.1, 7.2 and 7.3.1;

100.
I deal with these sub-paragraphs together. They state:

"7. ACCOUNTS AND MANAGEMENT ACCOUNTS OF THE COMPANY AND THE EXISTING COMPANIES

7.1 The Accounts and Management Accounts of the Company and each of the Existing Companies (true copies of which have been supplied to Injazat) have been prepared in accordance with and comply with all relevant International Accounting Standards and show a true and fair view of the state of affairs and the financial position of the Company and each of the Existing Companies and of the profit and losses of the Company and each of the Existing Companies.

7.2 Without prejudice to the generality of the foregoing, in the Accounts and the Management Accounts of the Company and each of the Existing Companies full provision or reserve has been made for all bad and doubtful debts, all actual liabilities and obligations and all capital and burdensome commitments. In relation to contingent un-quantified or disputed liabilities full provision or reserve has been made or a note thereto has been included stating the maximum amount which has been and/or could be claimed and containing the directors’ best estimate (on the basis of appropriate advice) of the likelihood of such liabilities materializing. In relation to contingent liabilities, each of such known liabilities has been described in a note thereto."

7.3 Off balance sheet activities

7.3.1 All assets in which the Company and/or any of the Existing Companies has an interest are either accounted for in its or their accounting records or are disclosed in the Accounts; and all liabilities (actual or contingent) for which the Company and/or Existing Companies may have a responsibility present or future are accounted for in its or their accounting records or disclosed in the Accounts."

101.
Clause 2.1 of the SSA defines "Accounts" and "Management Accounts" as follows:

""Accounts": means the audited balance sheet and profit and loss account and cash flow statement for the financial period or as of the date, as applicable, specified in the Accounts, including the reports, notes and documents annexed thereto."

""Management Accounts": means the balance sheet, profit and loss account and cash flow statement for the Company and each of the Existing Companies for the period beginning from the end of the financial period specified in their respective last available Accounts and ending on December 31st."

The Claimant

102.
ITF submitted in written opening submissions that the representation in these paragraphs concerned the accuracy of Broadlink’s accounts and it was also false on the Respondents’ own case, because their position at paragraph 105 of the Defence is that Broadlink did not have any accounts when the SSA was concluded: Opening Submissions, paragraph 30.
103.
ITF says while it was aware that it had not seen detailed historic financial information before it made its investment, because Broadlink was a relatively new company, it did not, however, occur to ITF that Broadlink would have no accounts whatever: Opening Submissions, paragraph 31.
104.
During oral closing submissions the Claimant accepted that because the terms Accounts and Management Accounts were defined, and there never were any such Accounts or Management Accounts, this meant that there was nothing to which the warranties at paragraphs 7.1 and 7.2 could apply: Transcript, 2 February 2011, pp.84-85. Further, as at September 2006 there could not have been any Accounts with a year end of 31 December or Management Accounts for a subsequent period because the company was only incorporated in June 2006. That leaves the warranty at paragraph 7.3.1 insofar as it referred to the undefined term "accounting records".

The Respondents

105.
The Respondents dispute the claim under paragraphs 7.1, 7.2 and 7.3.1 for the reasons set out at paragraph 105 of the Defence [A/8/112-113], namely:

105.1 "Claimant accepted prior to its investment that Broadlink did not have the accounts or management accounts which could have provided full provision for all of the actual liabilities and obligations or for all capital and burdensome commitments of Broadlink."

105.2 "During the subsequent negotiations of the SSA, acknowledging the time pressure of the entire project Claimant accepted prior to its investment that it was feasible to solve the complete accounting, acceptance and reporting system on post-investment. Only in September 2006, after Broadlink and Claimant agreed to hire a CFO, Broadlink started to prepare its accounting records with all liabilities as of 30 September 2006...".

105.3 "Before the accounting records were established, Claimant and Respondents only discussed about Broadlink’s liabilities like payments to Telian, Davey Communication and other related parties. All the liabilities assumed prior to the execution of the SSA and SHA, including those owed to Dr Najafi’s company Axera, were partially accepted or became Broadlink’s liabilities only after approved by the Claimant during the Board Meeting held on 28 and 29 January 2007..."

105.4 "Consequently in the context of the claims made under paragraphs 7.1, 7.2, 7.3.1... of Schedule 3 to the SSA, Claimant is prevented from claiming for breach of warranty, because the Claimant accepted the relevant facts and circumstances underlying these warranty claims."

Decision

106.
As noted above, the Claimant accepted during oral closing submissions that there were no Accounts or Management Accounts, and therefore nothing on which the warranties at paragraphs 7.1 and 7.2 could 'bite'. Insofar as those claims are pursued by ITF, they are rejected. Neither paragraph 7.1 nor 7.2 contained false statements by the Respondents. Further, neither constituted a representation that there were Management Accounts or Accounts as at September 2006. The inclusion of such redundant warranties no doubt reflects the facts that the SSA was both (1) based on ITF’s standard form of investment agreement, and (2) concluded under the time pressure of the Company’s urgent need for funding.
107.
As to paragraph 7.3.1, the relevant words are "all liabilities (actual or contingent) for which the Company and/or Existing Companies may have a responsibility present or future are accounted for in its or their accounting records".
108.
In my view this did constitute a false statement as at the date of the SSA and subsequently when ITF made payments under the SSA. I read paragraph 7.3.1 as stating at least that there was a record of all the actual or contingent liabilities for which the company may have a responsibility. The Respondents do not appear to dispute that there was no such record at the date of the SSA or at the time ITF made payments under the SSA. Subsequent events, in particular the difficulty in establishing the amount and incidence of liabilities relating to the Sprite phone, reflect this. In my view it follows that the representation in paragraph 7.3.1 was false.
109.
As to the points made by the Respondents, these all appear to relate to the Claimant’s knowledge of what accounting records, if any, the Company in fact kept. This is an issue dealt with below regarding estoppel and clauses 9.4 and 9.5 of the SSA.

Issue 4(f) : paragraph 7.4;

110.
Paragraph 7.4 of Schedule 3 states (insofar as appears to be relevant, see Statement of Claim, paragraph 46.7 [A/6/72]):

"7.4 Position since June 2006

Since June 2006

(a) there as been no material adverse change in the... financial position... or prospects of the Company or any of the Existing Companies...;

(c)... the Company... has [not] made or agreed to make any payment (including without limitation any donation for charitable or political purposes or any ex gratia payment) other than routine payments in the ordinary and usual course of trading arising from real and valid payables related to the Business;

(d) there has been no material change in the level of borrowing, [or] in the working capital... of the Company...;

(g) neither the Company nor any of the Existing Companies is aware of any matter which might suggest that any material... liabilities (actual or contingent) have been omitted from or mis-stated in the Accounts."

The Claimant

111.
ITF says that in this paragraph, which it says is particularly important (Transcript, Day 3, p.87) the Respondents represented, in summary, that there had been no material adverse change in Broadlink’s position since June 2006.
112.
I TF says that the Respondents appear to accept that there had been a material adverse change since June 2006 and, in any event, this can be easily demonstrated by reference to Mr Hall’s report [C/4/101] from which it appears that Broadlink had a balance sheet surplus of US$97,000 in June 2006 but a balance sheet deficit of US$2,065,000 three months later in September 2006.

The Respondents

113.
The Respondents dispute the claim under paragraph 7.4 for the reasons set out at paragraph 106 of the Defence [A/8/113-114], namely:

113.1 "The claim in material changes in the financial positions of Broadlink or the Existing Companies is inaccurate as Claimant had actual knowledge of Broadlink’s financial position. In relation to the Existing Companies, Claimant has not provided any arguments or supporting evidences."

113.2 "The claim that Broadlink had made or agreed to make non-routine payments is vague, as Claimant has failed to prove that Broadlink would have made or agreed to make any non-routine payments without Claimant’s knowledge or the relevant approval from the Board."

113.3 "In relation to the material changes in the level of borrowing and the level of working capital of Broadlink... at the material time Claimant was aware that the level of debts exceeded the level of working capital received. However, this was not a material change which would lead to a breach of warranty under paragraph 7.3.1(d) [sic] of Schedule 3."

113.4 "Notwithstanding that Broadlink did not have established accounts prior to the Claimant’s investment, in relation to the accused breach of warranty under paragraph 7.3.1(g) [sic], Claimant has failed to prove that Broadlink or the Existing Companies would have omitted material liabilities or misstated such liabilities in the accounts."

113.5 "In general terms, the warranty claims represented in paragraph 46.7 of the Statement of Claim are vague and embarrassing and the Respondents cannot respond further unless the Claimant particularises the transactions relied on."

Decision

114.
For the reasons given above relating to the Defined term "the Accounts", [reject the Claimant’s case that the warranty at sub-paragraph 7.4(g) was false.
115.
The Company was incorporated in June 2006 and by September 2006 it was, as admitted by the Respondents, unable to pay its debts as they fell due (see above), Even if the exact figures remain uncertain, the Company’s becoming unable to pay its debts (or at least what the Respondents believed should be its debts) as they fell due constituted a material adverse change for the purposes of sub-paragraph 7.4(a). Further, the Respondents’ defence at paragraph 106 appears to accept that the Company’s debts, by September 2006, exceeded the working capital received. That constitutes a "material change" for the purposes of sub-paragraph 7.4(d). In contrast, I am not persuaded that such payments as were made by the Company between June and September 2006 were non-routine for the purposes of sub-paragraph 7.4(c).
116.
As to the points made by the Respondents relating to sub-paragraphs 7.4(a) and 7.4(d), these appear to be founded on the Claimant’s knowledge. This is an issue dealt with below.
117.
For these reasons I find that the representations in sub-paragraphs 7.4(a) and 7.4(d) of Schedule 3 were false as at 22 September 2006 and at the dates of the subsequent payments by ITF.

Issue 4(g) : paragraph 7.6;

118.
Paragraph 7.6 of Schedule 3 states (insofar as appears to be relevant, see Statement of Claim, paragraph 46.8 [A/6/72-73]):

"7.6 Budget/projections

The budget projections for the Business for the period to 2010 disclosed to Injazat are still valid as of the date hereof and were prepared with due care using reasonable and prudent assumptions made after due and careful consideration having regard to all facts known or which on reasonable enquiry ought to be known to the Company and the Existing Companies at the relevant time..."

The Claimant

119.
ITF says that this representation was obviously false, for the same reasons as given in relation to paragraph 3 of Schedule 3 and that further, the Respondents expressly concede that as at the date of the SSA the Business Plan was "no longer valid due to the accumulated expenses which occurred after 2005" (Defence, paragraph 107.2 [A/8/l14]).

The Respondents

120.
The Respondents dispute the claim under paragraph 7.6 for the reasons set out at paragraph 107 of the Defence [A/8/114], namely:

120.1 "Claimant had actual knowledge that the budget projections disclosed to the Claimant as of 22 September 2006 were based on Axera’s Business Plan executed on 2005.... at the material time these were prepared with due care on a reasonable basis."

120.2 "... as of the 22 September 2006 Claimant was also aware that these budget projections were no longer valid due to the accumulated expenses which occurred after 2005."

120.3 "Notwithstanding... the above, the Claimant has not provided any arguments or supporting evidences that any of the budget projections made by Broadlink after the execution of the SSA and SHA would have not [been] prepared with due care or using reasonable or prudent assumptions made after due or careful consideration having regard to all facts known or which on reasonable enquiry ought to be know[n] to... Broadlink."

120.4 "The warranty claims by the Claimant... are vague and embarrassing and the Respondents cannot respond further unless the Claimant particularises the budget projections relied on."

Decision

121.
Insofar as the Claimant relics on the warranty at paragraph 7.6 as an alternative way of putting the same points as it makes in relation to paragraph 3, I find, for the reasons given under Issue 1 above, that the representation in paragraph 7.6 was false as at 22 September 2006 and the dates of the subsequent payments by ITF.
122.
Insofar as the remaining projections in the Business Plan which are identified at paragraph 46.2 of the Statement of Claim [A/6/71] were founded on the same key representation - i.e. that an initial investment of US$3 million was expected to be sufficient to fund the Company for 18 months by which time it was expected to be profitable - then it follows that these remaining projections were not based on reasonable grounds. The Respondents now accept that the budget projections in the Business Plan were no longer valid as at 22 September 2006. Unfortunately, that was not reflected in the terms of the SSA, and in particular the warranties at Schedule 3.
123.
As to the points made by the Respondents, they arise from the Claimant's knowledge, which I deal with below, or are points I reject on the basis that the Respondents did not have reasonable grounds for making the particular statements that are clearly identified by the Claimant under Issue I above and/or at paragraph 46.2 of the Statement of Claim and which are relied on by the Claimant.

Issue 4(h) : paragraph 8.2.2;

124.
Paragraph 8.2.2 of Schedule 3 states:

"8.2 Security and Guarantees

8.2.2 Neither the Company nor any of the Existing Companies has given any guarantee, indemnity, comfort or other support (whether legally binding or not) in relation to obligations of another person (not being the Company or an Existing Company)."

The Claimant

125.
ITF said in its written opening submissions that this paragraph was plainly breached because, as the Respondents do not dispute, Broadlink assumed significant liabilities on behalf of Axera of US$1,387,000, according to the draft accounts prepared by Mr Tabrizi: [D2.1/259, 263]. Axera was not an "Existing Company" [D1/13]. The Claimant made the same point in oral closing submissions: Transcript, 2 February 2011, pp.92-93.

The Respondents

126.
The Respondents did not specifically respond in relation to paragraph 8.2.2 in the Defence. This is explained by the fact that the Claimant did not specifically refer to paragraph 8.2.2 at paragraph 46 of the Statement of Claim [A/6/71-74] where it summarised the alleged breaches of warranty. The Respondents did however refer to paragraph 8.2.2 in their oral closing submissions (Transcript, 2 February 2011, p.32) and submitted as follows:

126.1 The Claimant has not proved that Axera "had to pay the development fees for Sprite phones". Rather Axera was funding development "as a somehow available third party in the absence of secured funding for Broadlink by the claimant".

126.2 Axera had no contractual obligation towards Telian or Davey Communications or other third parties, employees were hired by companies other than Axera, and it was these contractual obligations that were passed to Broadlink when the existing companies’ businesses and obligations were transferred.

126.3 AH payments which were advanced by Axera were accepted or became Broadlink’s liabilities only after being approved by ITF and the board of the Company during the board meeting in January 2007.

Decision

127.
Resolution of this issue is complicated by the inability, even now, to identify with confidence the precise arrangements that were in place as between the Company and Axera regarding payments made by Axera relating to the Sprite phone. These are matters which the Respondents, and in particular Dr Najafi, could have explained clearly in the evidence. Unfortunately the evidence does not set out a clear explanation of these arrangements, or at least not one that I have found easy to understand.
128.
After the SSA and SHA were signed, the Respondents, in particular Dr Najafi, sought to persuade ITF to permit the Company to reimburse significant costs to various companies including Axera: see e.g. the records of the board meeting on 28/29 January 2007 [D2.1/257-267]. Dr Najafi no doubt hoped that the Company would reimburse costs met by others such as Axera, and it appears at least some payment was made by Dr Najafi to Axera out of the Company’s funds: see email dated 21 November 2006 [D2.1/195] and attached table of disbursements [D2.l/196].
129.
This and other evidence certainly reflects Dr Najafi’s various attempts to fund the payment of costs for the project from whatever source he could muster if the Company could not pay. It also demonstrates that Dr Najafi regarded costs paid by Axera as being costs that the Company ought to reimburse. Further, in my view it is a fair inference that Dr Najafi regarded costs as having been met by Axera on behalf of the Company, or an Existing Company, and that this at least included costs met by Axera before 22 September 2006 and the subsequent payments by ITF under the SSA.
130.
In my view this demonstrates that as at the date of the SSA and SHA and thereafter, the Respondents (who were the owners of Axera) believed the arrangement, even if not legally binding, to be that the Company or an Existing Company would support Axera by reimbursing costs relating to the Sprite phone. This is consistent with the inclusion of costs incurred by Axera as liabilities of the Company as at 30 September 2006 [D2.1/259].
131.
I therefore find that the representation in paragraph 8.2.2 was false as at 22 September 2006 and at the dates of the subsequent payments by ITF.

Issue 4(i) : paragraph 11(d)

132.
Paragraph 11(d) of Schedule 3 states:

"11. INSOLVENCY

No petition has been presented, meeting convened, resolution passed, procedure commenced or other step threatened or taken or order made for or leading to:

(d) neither the Company nor any of the Existing Companies is insolvent or unable to pay its debts or has stopped paying its debts as they fall due."

The Claimant

133.
ITF says this paragraph represented that Broadlink was solvent when the SSA was concluded, and it was false for the reasons relied upon in relation to paragraph 5 of Schedule 3.

The Respondents

134.
The Respondents rely on the same reasons as for paragraph 5 (Defence, paragraph 104).

Decision

135.
The drafting of paragraph 11 is not entirely clear. The introductory words suggest it is directed at steps taken to place the Company or an Existing Company into liquidation or other formal insolvency process. Sub-paragraph 11(d) appears to have been added and does not read naturally with the introductory words.
136.
Nonetheless, the purpose of paragraph 11(d) appears to be the same as paragraph 5. Consistent with this the Claimant relies on this paragraph as an alternative to its reliance on paragraph 5: Statement of Claim, paragraph 46.3 [A/6/72]. The Respondents dispute the alternative claims on the same basis.
137.
For the reasons given above I have found that the representation in paragraph 5 was false. It follows that the representation in paragraph 11(d) was also false as at 22 September 2006 and the dates of ITF’s subsequent payments under the SSA.

Issues 4(j)-(k) : paragraphs 12.1 and 12.2;

138.
Paragraph 12.1 of Schedule 3 states:

"12. INFORMATION

12.1 Information given to Injazat

All Information given to Injazat or any of its advisers in connection with the Business was when given and remains true, complete and accurate in all respects and there is no fact or matter that is or may reasonably be expected to be relevant to the Company or any of the Existing Companies or to an investment therein, which has not been disclosed to Injazat in writing, disclosure of which might render any of the information referred to above untrue, misleading or inaccurate or might affect the willingness of Injazat to purchase Shares in the Company on the terms set out herein set out."

139.
Clause 2.1 of the SSA defined "Information" (insofar as appears relevant) as follows:

""Information": means all information, know-how and techniques (whether or not confidential and in whatever form held) and includes without limitation:

(a)...

(b)...

(c) operational, management, employee, administrative and financial information (Including business plans and forecast);

owned or used by the Group Companies in connection with the Business."

140.
By clause 2.1 of the SHA and Schedule 5, Group Companies included the Company, Broadlink Mobile Inc and Broadlink Research LLC [D 1/4/220].
141.
Paragraph 12.2 of Schedule 3 states:

"12.2 The Records

The Records are up to date and fully, properly, accurately and consistently made-up, kept and completed, contain a true, complete and accurate record of all acts and transactions of the Business and comprise all of the information and documentation necessary for the Company and the Existing Companies to carry on the Business on and from Completion in the manner carried on by the Company and/or the Existing Companies, or contemplated to be so carried on, and without interruption."

142.
The Records were defined in clause 2.1 [DI/14] to include "all books and records containing or relating to Information".

The Claimant

143.
ITF says the representation in paragraphs 12.1 and 12.2 were false for the same reasons relied on in relation to paragraph 3 of Schedule 3. It says further that the financial information given to ITF was neither "complete" nor "accurate" because it did not disclose the significant additional liabilities that Broadlink had at the time the SSA was executed, as it says is conceded by the Respondents in paragraph 108.3 of the Defence: [A/8/115].

The Respondents

144.
The Respondents dispute the claim under paragraph 12.1 for the reasons set out at paragraph 108 of the Defence [A/8/114-115], namely:

144.1 The Claimant is prevented from suing for breach of warranty under paragraph 12.1 because the Respondents did not warrant in their personal capacity or on behalf of Broadlink the accuracy or implementation of the Business Plan.

144.2 Schedule 2 to the SHA clearly provides that "all information in the business plan are forward looking information and are in no way guaranteed". The sales forecasts and the sales plan represented "only provided sound arguments for the probably viability of the business".

144.3 It cannot be held that the information was not "complete" within the meaning of paragraph 12.1 where the Claimant had actual knowledge that Broadlink did not have yet the accounts or management accounts which could have provided full provisions for all of the actual liabilities and obligations of Broadlink.

144.4 The Claimant was informed and updated about the contracts in place.

145.
The Respondents dispute the claim under paragraph 12.2 for the reasons set out at paragraph 109 of the Defence [A/8/115], namely that the Claimant accepted "that only after September 2006, Broadlink started to prepare its accounting records of all acts and transactions of the Company" and that "Broadlink’s CFO consulted Claimant throughout this process", relying on the emails at [D2.1/167]..

Decision

146.
Paragraphs 12.1 and 12.2 are relatively general provisions which, on the facts of this case, add little of significance to the more specific provisions relied on by ITF and referred to above. This reflects the fact that the financial information concerning the Company and the business proposal provided to ITF prior to its decision was limited, and comprised primarily the Business Plan.
147.
In my view the representations in paragraphs 12.1 and 12.2 were false to the same extent as those in paragraphs 3, 7.3.1 and 7.6. As to the points made by the Respondents;

147.1 The Respondents did make the representations in Schedule 3 in their personal capacity and these representations included, at least implicitly, that there were reasonable grounds for the matters explicitly stated in the Business Plan.

147.2 The reference to the Claimant's knowledge is dealt with below.

147.3 The fact that the Claimant was provided with a copy of at least some contracts, including that with Telian of November 2005 (see SSA, Schedule 5, Item 6 [DI/2/48]), does not in itself demonstrate that the representations in paragraphs 12.1 and 12.2 were true. For the reasons given above, Information in the form of the Business Plan contained statements which the Respondents had no reasonable grounds to make.

148.
I therefore find that the representations in paragraphs 12.1 and 12.2 of Schedule 3 were false as at 22 September 2006 and at the dates of ITF’s subsequent payments under the SSA.

Issue 4(l) : paragraph 14.1;

149.
Paragraph 14.1 of Schedule 3 states (insofar as appears to be relevant, see Statement of Claim, paragraph 46.11 [A/6/73]):

"14, CONTRACTUAL

14.1 Contracts generally

In relation to the agreements, arrangements and understandings to which the Company and/or any of the Existing Companies (in relation to the Business) are a party or by which they are bound:

(a) the same are reduced to writing, [i]n the name of or validly legally assigned to the Company or Existing Companies, are not ultra-vires, un-authorised, invalid or unenforceable and have been appropriately registered;

(b) a true, complete and accurate copy or (in respect of those not reduced to writing) a memorandum of all material terms thereof has been supplied to Injazat prior to the execution of this Agreement and no amendment to those terms will be made or permitted by the Company;..."

The Claimant

150.
ITF pleaded that this representation was false because the agreements, arrangements and understanding to which the Company and/or the Existing Companies had become bound were not disclosed to ITF prior to the execution of the SSA: Statement of Claim, paragraph 46.11 [A/6/73], ITF’s written opening submissions submitted that paragraph 14.1(b) contained a representation "that ITF had been supplied with copies of all contracts to which Broadlink was a party" (paragraph 43), that this was untrue because ITF was not provided with copies of material agreements "such as those with Vodafone" until after the SSA was concluded and, further, "Broadlink had made a number of agreements with other parties, such as Davey Communications Ltd and Axera, that had not been disclosed to ITF when the SSA was signed", ITF’s oral closing submissions referred to sub-paragraphs (a) and (b) and submitted that neither was true (Transcript, 2 February 2011, pp.9'1-95).

The Respondents

151.
The Respondents dispute the claim under paragraph 14.1 for the reasons set out at paragraph 110 of the Defence [A/8/115], namely:

151.1 The Claimant fails to prove or identify which agreements, arrangements or understandings were not disclosed to the Claimant.

151.2 The Claimant was informed of every detail of the business.

151.3 They had regular meetings (including board meetings) and conversations and the Respondents made the Claimant aware of all the relevant details as appropriate,

151.4 The Claimant was very much kept up to date and involved in the ongoing matters - in particular as the Vodafone deal required the cooperation of all parties.

Decision

152.
The Claimant referred in its written and oral submissions for the final hearing to arrangements with Vodafone, Davey Communications and Axera and I therefore refer to each of these in turn:

152.1 Vodafone: the MOU between Vodafone and Davey Communications dated 4 July 2006 has been referred to above. It was not included in the list of Contracts and Documents at Schedule 5 to the SSA [D1/2/48]. There is no dispute that the MOU was concluded with Davey Communications to suit Vodafone’s requirement to contract with a European company: see e.g. Dr Najafi’s email at [D2.1/100]. The Company was a party to this MOU, albeit a non-binding document for the most part, yet it does not appear to have been provided to ITF before the date of the SSA and SHA. Further, and even if the MOU was provided to ITF, the evidence does not include a document recording the agreement, or at least understanding, that there must have been between the Company and Davey Communications regarding the supply of the Sprite phone to Vodafone. No document recording this arrangement was provided to ITF, either before or after 22 September 2006. The Respondents have not clearly identified both (1) the written arrangements between the Company and Davey Communications to which they say the Company was a party and/or bound, and (2) when and how those written arrangements were provided to the Claimant. In relation to the supply of phones by the Company to Vodafone via Davey Communications I therefore find that the representations in sub-paragraphs 14.1 were false as at 22 September 2006 and the dates of ITF’s subsequent payments under the SSA.

152.2 Davey Communications: for the same reasons as set out above regarding Vodafone, I also find that the representations were false in relation to Davey Communications.

152.3 Axera: for the reasons given above on Issue 8.2.2, in my view there was at least an understanding between the Company and Axera regarding the reimbursement of costs relating to the Sprite phone. I therefore also find that the representation in paragraph 14.1 was false in respect of that arrangement, as it was neither reduced to writing nor disclosed to ITF before or after 22 September 2006.

Issue 4(m) : paragraph 14.2.

153.
Paragraph 14.2 of Schedule 3 states:

"14.2 Contingent Liabilities

Save as disclosed to Injazat in writing attached hereto, neither the Company nor any of the Existing Companies, in relation to the Business, has any liability (actual or contingent) and there are no events or circumstances which would give rise to any such liability on its or their part."

The Claimant

154.
ITF’s pleaded case is that this representation was false because the following liabilities were not disclosed to ITF: (1) an alleged agreement with Axera, (2) agreements with M2X Ltd, Broadlink Mobile Inc and Davey Communications, (3) legal fees incurred to Squire Sanders & Dempsey LLP, and (4) an agreement to assume a liability on behalf of Davey Communications: Statement of Claim, paragraph 46.12 [A/6/74].
155.
In written opening and oral closing submissions the Claimant submitted there were no liabilities disclosed in or attached to the SSA and accordingly paragraph 14.2 amounted to a representation that the Company had no liabilities at all when the SSA was signed. Further, this was false because (1) the Company did have net liabilities as at 30 September 2006, (2) on the Respondents’ own evidence (i.e. the accounts prepared by Mr Tabrizi [D2.1/259]) the Company had liabilities as at 30 September 2006, and (3) the Respondents had no idea how much money the Company owed when the SSA was signed.
156.
Further, ITF says:

156.1 The fact that some liabilities may have been approved after the SSA and SHA were signed does not alter the fact that they had not been disclosed before then and in any event more than USS 1 million was not approved.

156.2 The reference to liabilities in the Term Sheet does not assist the Respondents for the various reasons set out at paragraph 48 and 49 of the Opening Submissions.

The Respondents

157.
The Respondents rely on the same reasons in response to paragraphs 14.2 as for paragraph 7.4: Defence, paragraph 106 [A/8/l13-114].

Decision

158.
The only specific financial information (as opposed to e.g. the contracts listed at Schedule 5, including that with Telian) attached to the SSA was that contained in the Business Plan attached as Schedule 6. The financial projections contained in the Business Plan included a Projected Balance Sheet (paragraph 7.5 at [Dl/4/194]) which in turn included in a Beginning Balance the following figures:

Cash on Hand Accounts Receivable Inventory Prepaid Expense CURRENT ASSETS Beginning Balance 3,000,000 0 500,000 50,000 3,550,000
Land 0
Plant & Equipment 200,000
Accumulated Depreciation 0
Intangibles 50,000
Accumulated Amortization 0
FIXED ASSETS 250,000
ASSETS 3,800,000
Accounts Payable Line-of-Credit Current Portion - Term Loans CURRENT LIABILITIES 0 0 94,745 94,745
Note Payable LONG-TERM LIABILITIES 605,255 605,255
Paid-in-Capital / Stock Retained Earnings Year-To-Date Earnings EQUITY 3,100,000 0 0 3,100,000
LIABILITIES & EQUITY 3,800,000

159.
The evidence in this arbitration does not contain a clear explanation of how these figures were calculated. The beginning balance is clearly based on the initial investment of US$3 million having been made in cash. The figures also include liabilities although it is not clear exactly what these were, or when they were to have been incurred, if not already incurred as at the time the Business Plan was prepared in this form. As mentioned above, the Respondents accept that the situation had changed since the preparation of the Business Plan.
160.
Unfortunately the full extent of the liabilities incurred by or on behalf of the Company was not clearly and fully set out either in, or in any of the documents attached to, the SSA.
161.
What does however seem clear is that the contingent and other liabilities the Respondents believed were those for which the Company ought to be liable exceeded such liabilities as were identified in the Business Plan.
162.
The Respondents’ points set out in paragraph 106 of the Defence have been referred to above.
163.
In my view therefore the representation in paragraph 14.2 was false as at 22 September 2006 and at the time of ITF’s subsequent payments under the SSA.

Summary - Schedule 3

164.
As set out above, in my view the following representations in Schedule 3 were false at the relevant times: paragraphs 3, 5, 7.3.1, 7.4(a), 7.4(d), 7.6, 8.2.2, 11(d), 12.1, 12.2, 14.1 and 14.2.

Issue 5 : If any of the representations made in the above paragraphs of Schedule 3 was false, was the Claimant induced to enter into the SSA and/or to make the Initial Payment and/or the Second Payment thereunder by such misrepresentation(s) and/or breach(es) of warranty? Further, is either Respondent precluded by the provisions of the SSA, in particular clauses 9.4 and/or 9.5, from asserting that the Claimant was not so induced?

The Claimant

165.
ITF says that the evidence plainly shows that it relied on and was induced to enter into the SSA and/or to make the first two payments made thereunder by the Respondents’ misrepresentation(s) and/or breach(es) of warranty, as set out in Schedule 3 to the SSA.
166.
ITF in any event relies on clauses 9.4 and 9.5 of the SSA which state as follows:

"REPRESENTATIONS AND WARRANTIES

9.4 Injazat’s reliance

Each of the Parties acknowledges and accepts that Injazat is entering into this Agreement in reliance upon the Warranties.

9.5 Injazat’s Knowledge

Neither the Company nor the [Respondents] shall be entitled to claim that they have no liability for any of the Warranties that is or was untrue, inaccurate or misleading because Injazat knew or could have discovered on or before Completion or any Subsequent Payment that the Warranty in question was untrue, inaccurate or misleading."

167.
"Completion" was defined by clause 2.1 of the SSA as meaning "completion of the obligations of the Parties required by Clause 6 to be completed within 12 months of the Effective Date".
168.
ITF says that the effect of these provisions is that ITF is conclusively deemed to have relied on the representations in Schedule 3 and the Respondents are prohibited from asserting that ITF did not. ITF relies on the validity and effectiveness of such clauses having been upheld in a number of cases, most recently by the Court of Appeal in Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221, where the relevant authorities were reviewed by Aikens LI (with whom Rix and Rimer LJJ agreed). As to Springwell, ITF submits as follows:

168.1 The issue in Springwell was very similar to the issue in the present case, save that the relevant contractual clause provided that one party (Springwell) was to be deemed not to have relied on any representations made by the other party (JP Morgan), whereas the clauses in this case provide that one party (ITF) was to be deemed to have relied on the representations of the other party (the Respondents).

168.2 Aikens LJ approached the issue as a matter of principle:

143. I will try and analyse the matter from principle. If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. Unless Lowe v Loinbank is authority to the contrary, there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties. It is, after all, common in marine insurance contracts for an assured to "warrant" that a certain state of affairs has existed in the past and is still existing at the time the insurance contract is concluded or will continue, e.g. that the nationality of a ship was and is British; or that a ship was and is "in Class" with her Classification Society. The shipowner may know that those things are not the case; the insurer may have his suspicions that they are not the case. The parties agree that for the purposes of the insurance contract, the facts as "warranted" by the assured are as he has stated them to be. A "conclusive evidence" clause in a sale contract, viz. that a report on e.g. the amount or condition of a commodity sold under a contract between A and B shall be "conclusive evidence" of the matters stated in the report is to the same effect. The parties are agreeing that the statements in the report shall be the case for the purposes of the contract of sale and the parties cannot go behind that agreement.

144. So, in principle and always depending on the precise construction of the contractual wording, I would say that A and B can agree that A has made no pre-contract representations to B about the quality or nature of a financial instrument that A is selling to B. Should it make any difference that both A and B know at and before making the contract, that A did, in fact, make representations, so that the statement that A had not is contrary to what each side knows is the case? Apart from the remarks of Diplock J in Lowe v Lombank, Mr Brindle [counsel for Springwell] did not show us any case that might support the proposition that parties cannot agree that X is the case even if both know that is not so. I am unaware of any legal principle to that effect. The only possible exception might be if the particular agreement between A and B on the certain state of affairs concerned contradicts some other specific or more general rule of English public policy. Like Moore-Bick LJ in Peekay Inlermark Ltd v Australia and New Zealand Banking Group Ltd [2006] 2 Lloyd’s Rep 511 I see commercial utility in such clauses being enforceable, so that parties know precisely the basis on which they are entering into their contractual relationship.

168.3 Aikens LJ went on to consider Lowe v Lomhank [1960] 1 WLR 196, on which Springwell had relied as authority for the proposition that the parties to a contract cannot bind themselves to an agreed statement of facts that both know to be untrue, and held that it was not authority for any such proposition: at [155]. Aikens LJ went on to consider a number of other cases that are consistent with the statements of principle set out above: at [156]-[169], and concluded that those statements of principle represented the law.

168.4 Aikens LJ also dealt with a further submission made by Springwell, to the effect that a party seeking to rely on a contractual estoppel such as clauses 9.4 and 9.5 of the SSA (here ITF) must establish that it would be "unconscionable" for the other party (here the Respondents) to resile from the contractual estoppel. Aikens LJ had little hesitation in rejecting that submission: at [177].

168.5 It follows from the decision of the Court of Appeal in Springwell that the Respondents are precluded from asserting that ITF did not rely on any of the representations set out in Schedule 3 to the SSA. This means that if any of those representations was false, ITF is entitled to succeed on its claim that the SSA and the payments made under it were induced by the Respondents’ misrepresentations.

169.
ITF also submits that insofar as it is relevant to consider whether ITF relied on the representations set out in Schedule 3 as a matter of fact, the burden of proof falls on the Respondents to prove that ITF did not rely on any of the false representations: relying on the decision in Gosling v Anderson [1972] EGD 709. ITF says it plainly relied on the representations when deciding to enter into the SSA and the SHA, which representations were especially significant in the absence of proper accounts and other financial information about Broadlink and given the imbalance between the knowledge of ITF and the knowledge of Broadlink.
170.
The Claimant’s further oral closing submissions on clauses 9.4 and 9.5 are at Transcript, 2 February 2011, pp. 107-128. The Claimant submits that Mr Bazzi’s evidence demonstrates that ITF did in fact rely on the representations in the SSA and in any event clauses 9.4 and 9.5 are valid and effective according to their terms.

The Respondents

171.
I understand the Respondents to submit that ITF did not in fact rely on the representations relied on by ITF, in particular because ITF knew the true position in relation to each as at 22 September 2006 and thereafter. The Respondents’ submissions regarding clauses 9.4 and 9.5 were set out in the written supplemental Opening Submissions dated 30 January 2011 at paragraphs 7 - 14, which contended, in summary, as follows:

171.1 The Respondents disputed the Claimant’s analysis of the decision in Springwell, but accepted that, as a matter of principle, "parties could agreed that a certain state of affairs should form the basis of their transaction, whether it was the case or not, and that agreement would give rise to an estoppel" (paragraph 10 and quote from a Lawtel summary).

171.2 The earlier decision of the Court of Appeal in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 was a more appropriate case to consider, upon which the Respondents relied.

171.3 The Claimant signed the ITF with "full knowledge that the reality of the contracts... was different". As examples the Respondents refer to Dr Najafi’s covering letter of 31 July 2006 and the fact that the businesses of the Existing Companies were to be transferred to the Company under the SSA.

171.4 In conclusion the Respondents say that clauses 9.4 and 9.5 are not binding.

Decision

172.
The contractual wording of clauses 9.4 and 9.5 is very clear. The decision of the Court of Appeal in Springwell upholds the validity and effectiveness of contractual clauses by which parties agree that a certain state of affairs is to be the case for the purposes of their agreement. While the effect of such clauses can appear harsh to those in the position of the Respondents, such clauses do enable parties to know precisely the basis on which they are contracting and thus such clauses assist certainty.
173.
In my view the principle of law derived from Springwell is applicable to clauses 9.4 and 9.5 of the SSA notwithstanding that neither that decision nor the earlier authority of Peekay considered clauses in exactly the same terms. In the present case clause 9.4 records an agreed fact as to ITF’s reliance. Clause 9.5 in effect constitutes an agreement that ITF is to be treated as not having known anti not having had the means to discover that the warranties were untrue, inaccurate or misleading.
174.
Therefore unless there is some established principle of public policy which precludes their application I am bound to apply clauses 9.4 and 9.5 according to their terms. The Respondents have not identified any such principle of public policy. As to the points they have raised, I do not agree that the clauses are not binding. Further:

174.1 Peekay is not authority for any different proposition to that identified in the subsequent decision in Springwell.

174.2 By clause 9.5 the Respondents agreed they could not avoid liability for breach of warranty on the grounds of ITF’s knowledge as to the subject matter of those warranties. In my view the Respondents have not identified a legal principle which disentitles ITF from relying on clauses 9.4 and 9.5 according to their terms.

175.
I therefore find that the Respondents are precluded by clauses 9.4 and 9.5 from asserting that the Claimant was no induced to enter into the SSA and/or make the payments under the SSA by the false representations I have identified above.
176.
The factual question of whether ITF was induced to enter into the SSA by the false representations does not therefore arise. On that issue I would however accept the evidence of Mr Bazzi that had ITF known the true Financial position and the truth regarding the viability of the warranted Business Plan, it would "never have invested in Broadlink": e.g. witness statement dated 10 June 2010, paragraph 147 [B/2/43]. While there may be questions as to precisely what details Mr Bazzi and others acting on behalf ITF knew about the Company’s finances and other financial details regarding the development and production of the Sprite phone at material times both before and after, 22 September 2006, it is in my view very clear both that (i) the Business Plan and the documents attached to the SSA and the SHA did not provided a full and complete description of such details, and (ii) no-one at ITF knew such full and complete details either before or after 22 September 2006.

Issue 6 : Was such misrepresentation and/or breach of warranty causative of the Claimant’s alleged loss?

The Claimant

177.
The Claimant did not in its written opening or oral submissions deal separately and clearly with the issue of causation. Nonetheless its case is it suffered the losses claimed as a result of the misrepresentations relied on and that such losses flowed from the relevant contract: see e.g. Opening Submissions, paragraph 52; Transcript, 2 February 2011, p.51.

The Respondents

178.
The Respondents did not address the issue of causation in detail but submitted generally that the losses claimed "are not caused by Broadlink’s fate": Opening Submissions, paragraph 18. The Respondents also submitted that the alleged damages "were clearly caused by [the Claimant’s] own negligence": ibid., paragraph 19. As I understand this latter submission, it was in essence that the Claimant knew before signing the SSA that the timing and amount of funding was critical for the Company, and yet failed to provide the full amount of US$3 million to the Company under the SSA (in addition to the US$1 million that the Company received under the PAA).

Decision

179.
In my view the false representations I have identified above were causative of the Claimant’s alleged loss insofar as that comprises its lost investment of US$2 million. As I have found above, the false representations in Schedule 3 induced the Claimant’s agreement to the SSA. The investment was made pursuant to the SSA. I refer to the claims for management time and interest below.
180.
I reject the Respondents’ allegation of contributory negligence. The allegation was not clearly articulated and the Respondents did not rely on any specific authority to justify precisely how the Claimant’s conduct constituted a defence to the claims made. In any event, there is in my view on the facts no merit in the suggestion (that I understood to be made by the Respondents) that the Claimant acted in breach of the SSA by not advancing the third tranche of US$1 million. While the parties plainly discussed and took steps to implement a "proper financial and reporting system" for the Company in order to satisfy the condition at clause 3(c)(ii) of the SSA, and assuming the other conditions in clause 3(c) were satisfied, no such system as was put in place was "in a form and manner approved by Injazat". Further:

180.1 In my view there are no grounds for finding that Injazat unreasonably withheld its approval of such financial and reporting system as may have been implemented at the Company as from 22 September 2006.

180.2 My finding that Schedule 3 contained false representations in Schedule 3 of the SSA means that the Claimant was entitled by the terms of clause 3.1 not to advance the third tranche.

Issue 7 : If the Claimant was induced to enter into the SSA and/or to make the Initial Payment and/or the Second Payment thereunder by misrepresentation(s) and/or breach(es) of warranty by either Respondent, to what remedy is the Claimant entitled: (a) at common law; (b) under clause 9.9 of the SSA; and/or (c) under section 2(1) of the Misrepresentation Act 1967?

The Claimant

181.
ITF says the most straightforward basis for the Respondents’ liability is under clause 9.9 of the SSA [DI/20] which provides as follows:

"Subject to clause 10, each of the [Respondents] hereby jointly and severally agrees to indemnity Injazat in respect of all liabilities, losses, charges, costs, claims or demands incurred or made, directly or indirectly, by Injazat, as a consequence of or which would not have occurred or arisen directly or indirectly but for any Warranty being breached."

182.
ITF says the losses inclined by ITF as a result of the misrepresentations set out above are, in summary:

182.1 ITF’s investment of US$2,000,000;

182.2 wasted management time, quantified in the sum of US$ 127,701 (as set out in the Schedule of Loss [A/7/89]);

182.3 further costs and expenses incurred in relation to the transaction (specifically recoverable under clause 10.2); and

182.4 interest as set out in the Schedule of Loss.

183.
IFT says that exactly the same result may be arrived at under section 2(1) of the Misrepresentation Act 1967. This provides as follows:

"Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true."

184.
ITF says each of the preconditions to the availability of relief under section 2(1) is satisfied, and the Respondents did not have reasonable grounds for believing that any of their misrepresentations were true. It also submits that it is well-established that damages under section 2(1) are assessed in the same way as in the tort of deceit, with (e.g.) its more generous rules on remoteness of damage: see Royscot Trust Ltd v Rogerson [1991]2 QB 297.

The Respondents

185.
The Respondents deny that the Claimant is entitled to damages for the reasons identified in its Opening Submissions, in particular paragraphs 14-17. These paragraphs however rely on issues of estoppel which I deal with separately below (Issue 17).
186.
The Respondents did not refer specifically to clause 9.9 in their written Opening Submissions. At paragraphs 15-18 of the supplemental Opening Submissions the Respondents submitted that the claim under the Misrepresentation Act was made late and should not be admitted. For the reasons given above I have rejected this application.

Decision

187.
I deal separately with the claims for legal and other expenses below (Issue 13) and also interest.
188.
In relation to ITF’s investment, in my view this is recoverable under clause 9.9 of the SSA and in any event as damages under section 2(1) of the Misrepresentation Act. The investment constitutes a loss incurred by Injazat as a consequence of or which would not have been incurred but for the warranties identified above having been breached. The Respondents did not seek to explain in any detail how the claim for the lost investment might not have fallen within the wording of clause 9.9. In relation to section 2(1) of the Misrepresentation Act, I accept the Claimant’s submission that each of the preconditions to relief is satisfied.
189.
In relation to the claim for management time, I am not persuaded this is recoverable either under clause 9.9 of the SSA or under statute. My reasons are as follows:

189.1 The Claimant did not refer me to any specific authority justifying the recovery of such a charge as damages. The evidence of Mr Haigh does describe what he says he has been advised as to when such a claim may be made under English law (witness statement, paragraph 7 [B/11/107-108]) but this was not supported by any legal authority in the Claimant’s written submissions or at the final hearing.

189.2 The basis for this head of claim is complicated by the fact that ITF has no employees and pays a management fee to Injazat Capital Ltd ("ICL") (by which Mr Haigh is employed) whose employees carry out all of ITF’s work. I was not taken to the contractual terms between ITF and ICL according to which that fee is calculated. Mr Haigh says it is calculated "as a product of ITF’s net asset value" and is "open to renegotiation from time to time, with the approval of ITF’s board" (witness statement, paragraph 8).

189.3 It is not clear to me from Mr Haigh’s evidence, or ITF’s submissions, that the amount claimed would not have been payable by ITF to ICL in any event. It is therefore not clear to me on what basis I can properly find that the management fee paid to ICL, or any part of it, has resulted from time being spent by ICL employees on these proceedings.

190.
I therefore find that the Claimant is entitled to recover from the Respondents the amount of the Claimant’s investment, i.e. US$2 million. I reject the claim to recover a charge for management time. As indicated above, legal and other costs and interest are referred to below.

Issue 8. Is the Claimant entitled to relief under clause 7 of the SSA?

191.
The Respondents dispute that the required notification was given in the contractual deadline (e.g. Transcript, Day 3, p.42). The Claimant accepted it has no evidence that the option was exercised within the 15-month time limit (Transcript, Day 3, p.43) and effectively abandoned the claim (which had been pleaded as its primary claim) but said it sought a ruling on the issue nonetheless.
192.
In the absence of evidence to the contrary I find that there was no contractual notification within the contractual time period. Accordingly the Claimant is not entitled to relief under clause 7 of the SSA.

Misrepresentation and/or breach of warranties in the SHA

Issue 9 : Was the representation made (or warranty given) by either Respondent in clause 6.1 of the SHA, that "the Business is an active self-financing business", false as at the date of the SHA?

Clause 6.1 of the SHA

193.
Clause 6.1 of the SHA states as follows:

"6. PROVISION OF FINANCE

6.1 Financing the Company

The Business is an active self-financing business. The Parties intend and expect that the Company will require a second round of financing (further injections of capital) from the Partners to support its activities."

194.
The Business is defined in clause 2.1 of the SHA as meaning "the business described in Schedule 2 hereto conducted by the Company and/or its affiliates" [D1/3/150]. Schedule 2 to the SHA included Dr Najafi’s letter of 31 July 2006 and the Business Plan [D1/4/33].
195.
The phrase "the Partners" is defined in clause 2.1 of the SHA as meaning "an owner of Shares in the Company". As at the date of the SHA the only owners of shares in the Company were (directly or indirectly via Domela) the Respondents. As above, and while ITF was plainly intended to become an owner of shares in the Company and therefore a Partner for the purposes of the SHA (see also clause 5.1(c) of the SHA), ITF was never allotted any shares in the Company and therefore at no material time was it a Partner.

The Claimant

196.
Part IV of the Statement of Claim identifies the misrepresentations and warranties for which the Claimant claimed the Respondents were responsible. Part IV does not identify clause 6.1 of the SHA as the basis for a claim. It is limited to representations in Schedule 3 of the SSA (Statement of Claim, paragraphs 40, 46) and the pre-contractual misrepresentations identified in paragraphs 41 and 42. Part V of the Statement of Claim deals with the breaches of the SHA and the post-contractual misrepresentations relied on by the Claimant but this is limited to allegations of mismanagement by the Respondents (paragraphs 47 - 49, referred to further below). There is a passing reference to clause 6.1 of the SHA at paragraph 7 of the Reply [A/9/125].
197.
In its Opening Submissions (paragraph 56) the Claimant nonetheless said its case under (the SHA included an allegation that it contained a specific factual representation upon which the Claimant relied when entering into the SHA and the SSA, "that "the Business [i.e. Broadlink's business] is an active self-financing business". No specific cross-reference was made to clause 6.1 of the SHA or to the Statement of Claim. The Claimant said this representation was false, because Broadlink was insolvent and not "self-financing" as at 22 September 2006, and its reliance on the representation gives rise to a claim for damages in the same way as claimed under the SSA.
198.
The Claimant dealt very shortly with this part of its case during oral closing submissions, commenting that while it relied on it, it did not add anything to the breaches of Schedule 3 to the SSA (Transcript, 2 February 2011, p. 129).

The Respondents

199.
Not surprisingly, given that the Claimant had not pleaded a claim based on clause 6.1 of the SHA, the Respondents did not respond specifically on that clause in their Defence. The Respondents did refer to clause 6.1 at paragraph 6 of the Rejoinder [A/I0/136] and at paragraph 2.2 of their written Opening Submissions but this appears to have been in the context of their defence that "Respondents did not make contractual binding representation that the Claimant’s investment is sufficient for any duration of 18 months starting whenever - neither before nor on or after the Effective Date". The Respondents did also refer to clause 6.1 of the SHA in oral closing submissions (Transcript, 2 February 2011, pp.7-9), albeit in the context of pre-contractual misrepresentations (i.e. Issue 1).

Decision

200.
Clause 6.1 of the SHA is not a straightforward clause to interpret. The first sentence did not in terms refer to the Company. It referred to the Business which, as described in the Business Plan, was an "active self-financing business". The second sentence referred to the Company but in terms suggesting an intention of the Parties that further working capital would be provided by the Partners. The clause is not identified in the SHA as being a specific contractual warranty.
201.
The proper analysis of the clause was not assisted by an unfortunate and curious error in paragraph 31(a) of Mr Bazzi’s witness statement where he wrongly transcribed the second sentence of clause 6.1 as reading, "The Parties do not currently intend or expect that the Company will require a second round of financing... etc" [B/2/19] (italics added).
202.
In the absence of any clear pleading by the Claimant as to this clause, and further the absence of any detailed argument concerning its proper interpretation in written opening and oral closing submissions, I am not persuaded that clause 6.1 of the SHA contained a representation that was false as at 22 September 2006. I therefore reject the Claimant’s claim, as articulated only in its written Opening Submissions, on this Issue.

Issue 10 : If so, was the Claimant induced to enter into the SHA and/or the SSA by such misrepresentation and/or breach of warranty?

Issue 11 : If so, was such misrepresentation and/or breach of warranty causative of the Claimant’s alleged loss?

Issue 12 : If so, to what remedy is the Claimant entitled:

(a) at common law; and/or

(b) under section 2(1) of the Misrepresentation Act 1967?

203.
In view of my decision on Issue 9 above, Issues 10, 11 and 12 do not arise.

Other breaches of the SHA

Issue 13. Did either Respondent breach clause 7.2 of the SHA by causing or permitting the undertaking by Broadlink of reserved matters without the express prior written approval of the Board of Directors including at least one Director appointed by the Claimant? In particular, did either Respondent so cause or permit the undertaking of any of the reserved matters set out in: (a) clause 7.2(f); (b) clause 7.20(j); (c) clause 7.2(k); or (d) clause 7.2(q)?

Clause 7.2 of the SHA

204.
Clauses 7.2(f), (j),(k) and (q) of the SHA state as follows:

"7. BOARD OF DIRECTORS

7.2 Action by the Board of Directors

The Board of Directors shall act by majority vote. The Board of Directors may delegate any of its powers, to the extent permitted by applicable Law, the Memorandum and Articles and this Agreement to the Senior Management Team or other individuals or sub-committees. Notwithstanding the foregoing the Parties shall procure that the following matters shall not be undertaken without the express prior written approval of the Board of Directors including at least one Director appointed by Injazat:

(f) any material change in the nature or scope of the Business including expansion into new commercial areas or in a manner in which the same is conducted or which comprises or may comprise a significant change to the Company’s or any Group Company’s prices or commercial policies.

(j) (except for contracts which satisfy such authorization criteria as the Board of Directors may from time to time approve) the entry into by the Company or any Group Company of any contract, liability or commitment which:

(ii) could involve an obligation of a material magnitude or nature in relation to the business of the Company or the Group Companies, or the annual aggregate of related matters, is in respect of an amount in excess of US$100,000 (One hundred thousand United States Dollars);

(iii) directly or indirectly relates to the distribution of any of the Company’s or any Group Company’s products;

(k) any transaction by the Company or any Group Company with any of the Parties or any Person affiliated to or connected to any of the Parties;

(q) incurrence of the Company and/or any of the Group Companies of any material expenditure or commitment not in the Annual Budget or over the amount provided for such expenditure or commitment in the Annual Budget by ten percent (10%) or more;..."

The Claimant

205.
The Claimant's pleaded case at Part V of the Statement of Claim (paragraphs 47-69) is that in breach of the SHA the Respondents mismanaged the Company.
206.
Firstly, ITF says the Respondents committed the Company to contracts and made payments without the necessary approvals under the SHA, in particular regarding:

206.1 The Vodafone Contract: ITF says that in breach of the SHA Dr Najafi both (0 created a financing gap between sums paid to Telian and sums received from Vodafone, and (ii) in breach of clause 7.2(j)(ii) and (iii) entered into a contract to supply phones to Vodafone for the Christmas 2006 period that the Company could never have complied with and which severely damaged the Company’s relationship with Vodafone and resulted in a substantial penalty payment.

206.2 Unauthorised payments: ITF says that in breach of clauses 7.2(k) and (q) of the SHA, between the date of ITF’s investment in the Company and July 2007 the Respondents authorised a number of payments to companies affiliated with the Respondents without first seeking the approval of the Board of Directors. At paragraph 63 of the Statement of Claim the Claimant said that details of those payments would be set out on completion of ITF’s accountant’s analysis. At paragraph 27 of the Reply the Claimant included a table to compare authorised and unauthorised payments for 2006 and 2007 [A/9/131].

207.
Secondly, ITF says the Respondents sought to market a replacement phone without first obtaining the necessary approvals under the SHA. ITF says it invested on the basis that the Company would be selling the D100 Sprite phone but it found out in May 2007 that the Respondents and the Company’s senior management had been meeting with Vodafone to discuss a new and more advanced product, the D200. ITF says the Respondents were in breach of clause 7.2(f) of the SHA by marketing the D200 phone without the approval of the Board or ITF and that this was damaging to the Company’s business.
208.
At paragraph 49 of the Statement of Claim ITF identified as a separate allegation that the Respondents "failed to keep or provide accurate sales information or maintain proper financial records" [A/6/74]. The Claimant did not however give any particulars of this allegation in Part V of the Statement of Claim.
209.
The Claimant’s Opening Submissions set out the case of breach of contract regarding the SHA at paragraphs 58-76, identifying the alleged breaches of clauses 7.2(f), 7.2(j)(ii) and (iii) and 7.2(q) and (k), referring to the matters identified above and saying that the Respondents "or at least Dr Najafi" breached clause 7.2 with the result that the Company’s business was "eventually destroyed" leading to the loss of ITF’s investment.
210.
The Claimant’s oral closing submissions on these issues are at Transcript, 2 February 2011, pp.130-150.

The Respondents

211.
The Respondents’ pleaded response to the alleged breaches of the SHA is at Part IV of the Defence [A/8/115]. The Respondents begin by noting a lack of clarity as to whether allegations under this heading are made against Mr Cummiskey (paragraph 113).
212.
As to the funding gap and the contract with Telian, the Respondents say:

212.1 The agreement with Telian was negotiated before the date of the SHA and therefore did not require Board approval under the SHA.

212.2 The Claimant was fully aware of the conditions and content of the Telian contract and received a copy of it.

212.3 The Claimant is therefore estopped from claiming it did not approve the contract with Telian including its payment terms.

212.4 Further the Claimant "had full knowledge that due to the unanticipated payment requirements imposed by... Telian, at the start-up phase of Broadlink’s operations there was a funding gap between the payments received and expenses due" (Defence, paragraph 120).

213.
As to the funding gap and purchase orders made between Vodafone and Davey Communications, the Respondents say:

213.1 The Vodafone contracts were signed by Davey Communications and Dr Najaf: cannot be personally sued.

213.2 The contract between Vodafone and Davey Communications was entered into before the date of the SHA and did not require Board approval.

213.3 As with the Telian contract, the Claimant "was fully aware and updated about Vodafone’s purchase conditions" and the purchase orders were the main reason for the Claimant’s investment (Defence, paragraph 123).

213.4 The Claimant had required the Company to have about 100,000 units in "back order" before its investment and received the purchase orders by Vodafone (Defence, paragraph 124).

213.5 Prior to accepting the order by Vodafone for Christmas 2006, Dr Najafi "secured commitment from Telian to ship the Christmas orders in four shipments through November and early December 2006 to meet Vodafone requirements" (Defence, paragraph 125). However the inability to meet the order was due to the nonpayment of US$1 million under the SSA (Defence, paragraph 128).

214.
As to the alleged unauthorised payments, the Respondents say there were inadequate particulars of the payments relied on by the Claimant, and further that the Claimant in any event approved the payments that were made (Defence, paragraphs 131-132). In the Rejoinder the Respondents pleaded that the Claimant had still failed to identify which payments were not in the budget, i.e. the figures in the Business Plan, pursuant to clause 11.2 of the SHA (Rejoinder, paragraphs 19-23).
215.
As to the alleged unauthorised product development (i.e. the D200 phone), the Respondents say:

215.1 This was the result of a mutual, collective and inevitable decision involving the Claimant (Defence, paragraphs 134, 139).

215.2 The "confidential negotiation" with Vodafone was the only way to try to salvage the business relationships with the Company’s most important customer (Defence, paragraph 136).

215.3 Only a limited amount, US$50,000 of development fees were spent (Defence, paragraph 137). Thereafter it was the Claimant that proceeded to spend more on the D200 (Defence, paragraph 138).

216.
The Respondents’ points on these issues were briefly summarised in written opening submissions at paragraphs 8-11. At paragraph 12 of these submissions the Respondents challenged the Claimant’s entitlement to sue the Respondents personally "for alleged wrongdoings of them in their capacity of Directors under the SHA".
217.
The Respondents’ oral closing submissions are at Transcript, 2 February 2011, pp.44-47.

Decision

• Personal obligations under clause 7.2 and the claims against Mr Cummiskey

218.
The wording of clause 7.2 of the SHA required the Parties, which included Dr Najafi and Mr Cummiskey personally, to "procure that the following matters shall not be undertaken without the express prior written approval of the Board of Directors including at least one Director appointed by Injazat". In my view that clause gave rise to personal obligations on the part of the Respondents for which the Respondents, rather than only the Company, can be sued. I therefore reject the Respondents’ argument that they cannot be sued personally for the alleged breaches of clause 7.2 of the SHA.
219.
There is an unfortunate lack of clarity and detail regarding the Claimant’s allegations of mismanagement as against Mr Cummiskey. The allegation appears to be little more than that he remained involved in the business in at least some degree notwithstanding having resigned as a director in November 2006 and that as a shareholder in the Company "he still had considerable ability to influence what was going on in the company" (Transcript, 2 February 2011, p. 131). The Claimant has not however set out in detail precisely how it says Mr Cummiskey was involved in (or permissive of) committing the Company to the contracts and payments complained of and the decisions regarding the D200 phone.
220.
In my view the Claimant has not sufficiently pleaded and proved a case of wrongdoing on the part of Mr Cummiskey that constitutes a breach of clause 7.2 of the SHA. I therefore reject the Claimant’s claims under the SHA insofar as they are pursued against Mr Cummiskey.

• Clause 7.2(f) - the D200 phone

221.
There is no dispute that at least some steps were undertaken by the Company to develop the D200 phone, including discussions with Vodafone and the incurring of at least some cost, Further the evidence does not contain any prior written approval of the Board of the Company, including an ITF appointed Director, for the Company undertaking those steps.
222.
In my view the development of the D200 phone constituted a material change in the nature and/or scope of the Company’s business for the purposes of clause 7.2(f) of the SHA. The D200 phone was plainly to be a significantly more advanced product. It was not described or anticipated in the Business Plan attached to the SHA and which formed the foundation for the intended scope of the Company’s business. The Business Plan did identify other potential actual or potential products, but not the expansion of the Company's business to incorporate a development of the successor product to the D100 phone, which was described in detail.
223.
Further, I am not persuaded that the steps taken by the Company regarding the D200 phone were the result of discussion and agreement with ITF, as appears to be suggested by Dr Najafi. He does not dispute that he was personally involved in the steps that were taken and, from the wording of the Defence, appears to accept that the negotiations with Vodafone were "confidential" (see Defence, paragraph 137). The fact that a relatively limited amount may have been spent on the authority of Dr Najafi does not preclude there having been a breach of clause 7.2(f). I note in particular that Dr Najafi did not in his evidence provide any clear and detailed explanation of the precise steps taken regarding the D200 phone and why he did not ensure that these steps were subject to the prior written approval of the Board, including Mr Bazzi or another director appointed by ITF.
224.
For these reasons I find that Dr Najafi did act in breach of clause 7.2(f) of the SHA in failing to procure the prior written approval of the Board of the Company to the steps taken to develop the D200 phone.

• Clause 7.2(j)(ii) and (iii) - the Vodafone Christinas contract

225.
This issue is complicated by the fact that there is no copy of the agreement between the Company and Davey Communications and between Davey Communications and Vodafone for the supply of 20,000 D100 phones for the Christmas 2006 period. The Respondents have not disclosed a copy of this contract, ITF says it has never seen it, and there is apparently no dispute that such a contract was concluded in about November 2006.
226.
The wording of clause 7.2(j)(ii) is not easy to follow, but there is not in my view any real doubt that the agreement with Vodafone described above fell within clause 7.2(j)(ii) and/or (iii). It certainly constituted a contract or commitment which involved an obligation of a material magnitude or nature in relation to the Company’s business, it seems inevitably to have involved an amount of more than US$100,000 and it related directly and/or indirectly to the distribution of the Company’s products.
227.
The evidence does not contain any prior written approval of the Board of the Company, including an ITF appointed Director, for the Company to enter into such a contract with Vodafone, either directly or via Davey Communications.
228.
As to the points made by Dr Najafi on this issue:

228.1 Dr Najafi does not explain the detail of the agreement that was reached regarding the Christmas order by Vodafone which must have been accepted by Dr Najafi on behalf of the Company. This agreement appears to have been made after the date of the SHA, therefore the date of the non-binding MOU with Vodafone is not determinative of this issue, or whether ITF knew of that MOU before the date of the SHA.

228.2 Dr Najafi has not persuaded me that ITF knew the full details of the contract and/or purchase orders between the Company and Vodafone (directly or indirectly) relating to the Christmas 2006 order.

228.3 As indicated above in the context of claims made under the SSA, I reject the allegation by the Respondents that ITF was in breach of the SSA in not advancing the tranche of US$1 million under the SSA. Dr Najafi has not explained in any detail why he committed the Company to the Vodafone Christmas 2006 order before being sure that finance was available, or at least before he obtained prior written approval from the Company’s Board.

229.
For these reason I find that Dr Najafi acted in brench of clause 7.2(i)(ii) and (iii) in failing to procure thath the order by Vodafone for the Christmas 2006 period was subject to prior written by the Board.

• Clause 7.2(q) and (k) - unauthorised payments

230.
ITF complains about the payments listed in the table at paragraph 27 of the Reply [A/9/131]. The table lists allegedly unauthorised payments to Telian, Davey Communications and a company called Logistar (Calcomp) of US$1,973,644, US$131,651 and US$1,031,395 respectively. The total is US$3,136,691 and ITF says it does not include the amounts subsequently approved by ITF at the board meeting of the Company in January 2007 (Opening Submissions, paragraph 75).
231.
Although Dr Najafi does not appear to dispute that these payments were made and that they were not subject to prior approval by the Board, I am not satisfied that any of these payments fell foul of clause 7.2(k) of the SHA, which concerned transactions by the Company with the Parties or any person affiliated or connected with them. In my view the determinative question is that raised by Dr Najafi regarding clause 7.2(q), namely whether the payments constituted material payments that were not in the Annual Budget or exceeded expenditure or commitments in the Annual Budget by 10% or more.
232.
It is not in dispute that the relevant Annual Budget for this purpose is that reflected in the Business Plan, pursuant to clause 11.2 of the SHA [Dl/3/162]. In the Rejoinder the Respondents pointed to the projected profit and loss figures at paragraph 7.4 of the Business Plan, which include expenses for 2006 of US$4,808,300. That however is the second year of the projections which started in 2005. Given the delay in concluding the SSA and the SHA, the relevant figures are, in my view, the figures in the Business Plan for 2005. These include total expenses of US$1,588,600 [D1/4/193].
233.
The payments of more than US$3 million relied on by the Claimant are in addition to those approved by ITF after the date of the SSA and the SHA. In my view it is an inevitable conclusion that the total expenses incurred by the Company relating to the D100 phone exceeded by more than 10% the total expenses included in the projected profit and loss at paragraph 7.4 of the Business Plan. Further, it is in my view equally plain that the payments relied on by the Claimant fell within paragraph 7.2(q) of the SHA, either because they were costs which were not included in the Business Plan at all or because they were costs included but at a level significantly less than actually incurred and paid.
234.
For these reasons I find that Dr Najafi was in breach of clause 7.2(q) of the SHA by causing or permitting the Company to incur the expenditure and commitments identified by the Claimant.

Issue 14 : If so, were any such hreach(es) causative of the Claimant’s alleged loss? The Claimant

235.
As indicated above, the Claimant’s case is that the combined effect of the breaches of the SHA was to destroy the business of the Company and to cause the Claimant to lose its entire investment.

The Respondents

236.
I understand the Respondents’ case on this issue of causation to be that the damages sought by ITF are unrelated to the Respondents’ actions and the expenses identified in the Schedule of Loss were not caused by the Company’s fate: Opening Submissions, paragraph 18. Further, the Respondents rely on the Claimant’s own conduct as the cause of the alleged damages: ibid., paragraph 19.

Decision

237.
The parties appear to agree that the Company failed because it could not obtain sufficient funding to meet the acute need to meet costs in the period between September and the end of 2006. These costs comprised both ‘historical’ costs predating the SSA and the SHA and also the Telian manufacturing costs associated with in particular the Vodafone order for Christmas 2006. As the Respondents state at paragraph 20 of their Opening Submissions, "it is evident that the Company failed because of lack of sufficient and timely funding".
238.
The extent to which the Claimant’s loss, primarily its investment in the Company, was caused by Dr Najafi’s breaches of the SHA is not similarly evident. It is necessary to consider what would have occurred had there been no breach. It is not obvious to me that the Claimant would not have lost its investment in any event. Had Dr Najafi acted in accordance with clause 7.2 in relation in particular to the Vodafone Christmas order and the unauthorised payments, then the consequence would, or seems most likely to have been, that the Company would not have entered into the Vodafone order for Christmas 2006 and it would have retained the money otherwise dissipated to the extent of some US$3 million.
239.
While there was of course no guarantee of the Company’s success, I am satisfied that Dr Najafi’s breaches of the SHA were at least the dominant cause both of the Company’s acute cash crisis towards the end of 2006 and the Claimant’s loss of its investment. Had there been no breach then it seems most likely that the Claimant would have been able to salvage its investment in some way, whether through the Company’s continuing to development a successful business, or in some other way recouping its investment from funds retained by the Company.
240.
I therefore find that the breaches of the SHA I have found above were causative of the Claimant’s loss of its investment. I am not however persuaded that the Claimant’s alleged loss arising from management time spent was caused by such breaches, for the reasons given above regarding that claim in the context of the SSA.

Issue 15 : If so, to what remedy is the Claimant entitled?

The Claimant

241.
The Claimant says it is entitled to damages for breach of contract and that these should be assessed by reference to the value of the lost investment plus wasted management time and expenses, as set out for the claim under the SSA.

The Respondents

242.
The Respondents deny the claim for damages. Apart from issues of estoppel and causation, which I deal with elsewhere in this Award, the Respondents challenged the claim relating to management time.

Decision

243.
In my view the Claimant is entitled to damages for breach of the SHA, assessed by reference to the value of the lost investment of US$2 million. I reject the claim for management time and expenses.

Waiver and Estoppel

Issue 16 : Has the Claimant waived its right to claim for misrepresentation and/or breach of warranty under the SSA and/or SHA?

Issue 17 : Is the Claimant estopped from claiming misrepresentation and/or breach of warranty under the SSA and/or SHA?

The Respondents

244.
A recurrent point made by the Respondents is that the Claimant had sufficient knowledge of the finances and contracts relating to the D100 phone project, and in particular the finances and contractual commitments of the Company and other companies, to give rise to an estoppel and/or waiver precluding the Claimant from now contending that the representations in the SSA at Schedule 3 were false or that the Respondents had acted in breach of the SHA.
245.
I have not found it easy to understand precisely how the alleged estoppel and waiver is said to have arisen under English law, In the written Opening Submissions the Respondents relied on the concepts of promissory estoppel and estoppel by convention and waiver as follows:

"17. Therefore both concepts of estoppel under English law are applicable in favour of the Respondents. Promissory estoppel can be used to argue that the Claimant’s express or implied representation to the Respondents that it would proceed with the investment in the full knowledge of Broadlink’s financial circumstances (and thus waive any breach of the SSA and/or SH) prevents it from now alleging breach of the SSA and/or SH. This is relevant to the actions of the parties after a prima facie breach of contract has arisen. Estoppel by convention allows the Respondents to argue that the Claimant is estopped from disputing that the parties agreed to proceed with the investment as per SSA and SH in full knowledge of Broadlink’s financial circumstances. This is relevant to the common understanding of the parties in carrying out their contractual obligations."

The Claimant

246.
The Claimant submits as follows:

246.1 There is no basis in the evidence for any assertion that ITF is estopped from asserting its rights or that it has waived them.

246.2 The Respondents have not identified the representation(s) said to give rise to the estoppel. ITF’s case is that no such representation was made.

246.3 Under clause 6.5 of the SSA [DI/18] any waiver by ITF is of no effect unless communicated "by notice in writing".

246.4 The Respondents’ argument that ITF is estopped from asserting its rights is inconsistent with clauses 9.4 and 9.5 of the SSA. In fact, the Respondents are estopped from disputing that ITF relied on the representations and warranties in Schedule 3 to the SSA.

Decision

247.
In my view this issue (which was not the subject of detailed written or oral argument and as to which no authority was cited to me) can be dealt with shortly. I can see no basis for the alleged estoppel or waiver as a matter of English law. The alleged estoppel does not arise and the Claimant did not waive its rights to make the claims it now makes under the SSA and SHA.
248.
I agree with, and do not repeat, the Claimant’s submissions on this issue as above. In particular the evidence does not contain any clear representation by the Claimant that it would not rely on its rights under the terms of the SSA and the SHA as they were agreed.

Costs

Issue 18 : Is any party entitled to an award of legal and/or other expenses, and if so for how much?

The Claimant

249.
The Claimant requests an award of its costs of the arbitration (Opening Submissions, paragraph 80). It submitted a schedule of costs totalling USUS$1,249,118. This comprised the following:

249.1 Denton Wilde Sapte fees: total US$128,026.

249.2 Dewey & Leboeuf fees: total US$765,091. This total figure included costs of the preliminary issue on jurisdiction of US$104,032 and a 20% success uplift of US$127,515.

249.3 Disbursements including (i) Dewey & Leboeuf disbursements, hearing costs and related costs and disbursements of US$109,585; (ii) Smith & Williamson fees of US$83,521, (iii) Counsel fees of US$40,393, and (iv)advance to cover the costs of arbitration of US$122,500.

The Respondents

250.
The Respondents also sought their reasonable legal costs and a contribution to travel costs (in addition to a claim included in oral closing submissions for management time: Transcript, 2 February 2011, p.49). The Respondents submitted a schedule of costs totalling US$658,987. This schedule was not broken down as between the two respondents, and comprised the following:

250.1 Clyde & Co fees: US$25,016

250.2 Amereller Rechtsanwälte Legal Consultants: total US$589,114

250.3 No 5 Chambers: US$7,087

250.4 Emirates Chartered Accountants LLC: US$5,988

250.5 Disbursements: total US$31,782.

Decision

251.
Article 31 of the ICC Rules requires that the final Award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties. By Article 31(1) the costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the ICC Court, as well as inter alia the reasonable legal and other costs incurred by the parties for the arbitration.
252.
In my view the following factors are relevant when considering the allocation of the costs of this arbitration:

252.1 The Claimant has succeeded in most but not all of its claims under the SSA and the SHA against Dr Najafi, and against Mr Cummiskey in the most part in its claims under the SSA.

252.2 The Claimant has not however succeeded on all its claims. It has failed completely in its claims against Mr Cummiskey under the SHA. The Respondents have raised various legitimate complaints and it cannot reasonably be said that they should not have contested the claims against them at all.

252.3 The Claimant has clearly spared no expense in pursuing the Respondents as individuals. There appears to have been an imbalance as to the resources available to the Claimant to pursue the claims and those available to the Respondents to defend the claims.

252.4 The Respondents’ challenge to the jurisdiction of the Tribunal contributed significantly to the time and expense of the procedure.

252.5 In the event both the Respondents failed in their challenge to the jurisdiction.

252.6 The stage of the disclosure in the procedure required the Claimant to make an application to the Tribunal.

252.7 Both the Claimant and the Respondents sought their costs and did not dispute the principle that the reasonable costs should follow the event.

253.
In my view in this case it is appropriate and fair, taking each of the above factors into account, that the Respondents are ordered to pay the majority of the costs of the arbitration, and that the proportion be fixed at 75%. I therefore decide that the Respondents pay 75% of the costs of the arbitration comprising the ICC administrative expenses and the Tribunal’s fees and expenses, and also the Claimant’s reasonable legal and other costs of the arbitration.
254.
At its session of 23 June 2011 the Court fixed the administrative expenses and the fees of the Tribunal as follows: administrative expenses: US$34,313; fees of the sole arbitrator: US$60,147. Together with arbitration expenses of US$540, the total amount of the costs of arbitration is US$95,000. The Respondents are therefore ordered to pay 75% of US$95,000, i.e. US$71,250, to the Claimant in relation to the costs of arbitration as fixed by the ICC Court.
255.
As to the Claimant’s legal and other costs of the arbitration, the total claimed is US$1,126,618, excluding the advance to cover the costs of the arbitration of US$122,500 (see paragraph 249 above). In my view it is appropriate to regard the Respondents’ legal and other costs of approximately US$660,000 as at least a benchmark for what are the reasonable legal and other costs. That figure represents the costs actually incurred by both Respondents in defending all the claims made by the Claimant.
256.
US$660,000 is approximately 60% of the total amount claimed by the Claimant as its legal and other costs. Rather than simply taking that figure, I accept that the Claimant may have had to incur, or may have reasonably incurred, certain costs in addition to those incurred by the Respondents. I therefore do not regard it is as appropriate to fix the Claimant’s reasonable legal and other costs at the same level as those of the Respondents.
257.
Considering the issue overall I consider that it is appropriate to fix the Claimant’s reasonable legal and other costs at US$750,000, i.e. almost 70% of the amount claimed. The Respondents are to pay to the Claimant 75% of US$750,000, i.e. US$562,500

IX. INTEREST

258.
In the Schedule of Loss the Claimant sought interest at alternative rates, (i) "borrowing rates", which were BNP Paribas rates of 10.5% and 10%, or (ii) a rate of 8%.
259.
The Respondents did not address these alternative rates in its pleadings or written or oral submissions.
260.
However in my view it is appropriate to award interest at the rate of 8% rather than the higher borrowing rate claimed (see above). This is the Judgments Act rate as set out in section 17 of the Judgments Act 1838 and ordinarily provides adequate compensation to a claimant. The borrowing rates claimed are said to be "commercial borrowing rates" (Statement of Loss, paragraph 6). I am not however persuaded that the Claimant actually incurred rates of this level in respect of its losses claimed in this arbitration.
261.
The amounts included at the 8% rate in the Statement of Loss, in relation to the lost investment only, are US$495,921.92 and US$296,881.53 in respect of the first and second tranches of the Claimant’s investment respectively from the date on which each was advanced to 4 February 2011. This interest claimed does not apply to the costs of arbitration and reasonable legal and other costs which the Respondents must pay to the Claimant.

X. DISPOSITIVE

262.
In relation to the claims against the First and Second Respondents I have decided as follows:

262.1 The Respondents are jointly ordered to pay to the Claimant the value of the Claimant’s investment, namely US$2 million.

262.2 The Respondents are ordered to pay to the Claimant interest on its investment in the total amount of US$792,803.45, calculated at 8% as set out in the Claimant’s Schedule of Loss dated 23 September 2010.

262.3 The Respondents are ordered to pay to the Claimant the sum of US$71,250 in respect of the costs of arbitration, which were fixed by the ICC Court at US$95,000.

262.4 The Respondents are ordered to pay to the Claimant the sum of US$562,500 in respect of the Claimant’s reasonable legal and other costs incurred for the arbitration.

262.5 All other requests and claims are rejected.

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