HP-2020-000016 - [2025] EWHC 1451 (Ch)

Beyond the initial capital contributions totalling £100,000 to establish Cabo (§82 above), the Cabo founders agreed that they would work free of charge “until the project was off the ground”, in return for Singleton covering the costs of the Worldeez business by way of loans. There was no formal agreement as to when those loans were going to be repaid. Instead, Singleton controlled Cabo’s bank account and was able to (and did) withdraw funds from that, generated by sales revenues, to repay its loans.

The loan schedule attached to the July 2019 settlement agreement between Cabo and Singleton showed that Singleton started to withdraw significant funds from Cabo from August 2017 onwards. That deprived Cabo of working capital. This point was raised by Cabo’s licensing agent, Mr Dever, in January 2018, in the discussion referred to at §179 above. After a comment that “you must start to pick up revenue into Cabo or you may as well close it down”, he said that the loan agreement:

“… needs to be renegotiated. Repayment of loan in first position denies Cabo of working capital. Not all of that money needs to go back to Singletons right now. Cabo needs some revenue to survive until such time as the loan can be paid back in full given that you end up with a board and shareholders in a locked position. … If I could fund you out of this I would but it’s a Faustian deal whereby you have signed away your souls for a working capital loan.”

Cabo’s ability to develop the business was, moreover, dependent upon the willingness of Mr Sivner and Mr Lazarus to provide further loan funds. That willingness was, however, likewise limited. While Cabo contended that Singleton could afford to support Worldeez in substantial sums, the evidence does not show that Mr Sivner and Mr Lazarus were willing to do so. On 10 August 2017 in a discussion about US distribution of Worldeez, Mr Sivner noted that “if we have to fund are selfs in us it will [mean] over 1 mill $. Can not afford”. Notably, that comment came at a time when sales of the globe were at their peak, following the Tiana helicopter video, and Mr Siver could therefore have been expected to be relatively optimistic about the product.

The issue came to a head by September 2017, when it is clear that there was considerable frustration by the Cabo founders that Singleton was not willing to invest more in the continuation of the brand and was expecting to recoup its initial outlay more quickly than was feasible. The document prepared by the Cabo founders for a meeting with Mr Sivner (referred to at §178 above) reflected the tensions between the Cabo founders and Singleton, with comments that “£150–£300k is really not a lot to spend for IP like this” and “To expect break even in 2 months is ludicrous”.

Cabo suggested that the attitude of Mr Sivner and Mr Lazarus, and their willingness to support Worldeez, had been tainted by MGA’s conduct. While there is no doubt that Mr Sivner and Mr Lazarus were concerned by MGA’s threats (see, for example, Mr Lazarus’ comments cited at §115 above), the September 2017 document indicated that there had been problems in the relationship between the Cabo founders and Singleton from the start of the project, before MGA intervened. The document noted, for example, that Singleton’s attitude had “Been a disrespect from the start – underestimated our abilities at not being able to achieve what we said we were going to – i.e. getting product ready for May”. The same document commented that the Cabo founders had “felt throughout” that Mr Lazarus was “not enthusiastic about the brand and only comes to life when there’s a problem”, and queried whether Mr Lazarus wanted to exit the business.

Mr Lazarus in his evidence agreed that while he had agreed to be involved with Worldeez, he did not have the same enthusiasm for the project as the Cabo founders. He said that if he had genuinely had “money-is-no-object” faith in the Worldeez project, he would have been willing to support a multimillion pound spend on marketing from the outset, but he did not do so because he was not going to risk taking more than a “punt” on the business, and was “acutely aware of the potential for failure”. For those reasons, while he said that he would probably have funded production if there had been a guaranteed return on the investment, for example with a large purchase order placed by a retailer, he would not have been willing to invest large sums of money purely in the hope that sales would materialise. He explained the point further in his oral evidence:

“We are running a business at the same time. So our money is used in our business. … We took a punt with a certain amount of money in our heads and then we let it roll until we felt comfortable. I don’t have millions at my disposal, otherwise I’ll strangle my core business.”

Those comments were consistent with the contemporaneous evidence set out above. There is no contrary evidence suggesting that either Mr Sivner or Mr Lazarus were willing to use Singleton’s funds to support a very large speculative investment in Worldeez, for example to finance international expansion. Mr Chacksfield suggested that there would in fact have been little risk to Singleton, because there would have been larger orders underpinning the cashflow requirement, with the effect that Singleton’s capital investment would have resulted in “free money”. That was, however, a matter of assertion: the evidence did not suggest that any working capital requirement would have been risk-free. I am therefore not persuaded that Singleton would, in the counterfactual case, have been prepared to commit cashflow support in significantly larger sums than it did in fact (the peak balance of Singleton’s loan to Cabo being less than £600,000).

Nor, importantly, does the evidence indicate that Singleton was willing to commit funds to Cabo for anything beyond a relatively short initial start-up period. It is apparent from the loan schedule that Singleton was requiring repayment of substantial sums less than two months after Worldeez launched at B&M. The expectationor at least hope of Mr Sivner and Mr Lazarus therefore seems to have been that the business would quickly be profitable and therefore self-funding, such that they could rapidly recover their loans to the company, hence the comment in the September 2017 document, cited above, that Singleton expected “break even in 2 months”. As Mr Dever said, it was unfeasible for Cabo’s business to progress on that basis.