England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MERCANTILE COURT AT LEEDS
(His Honour Judge McGonigal)

		Royal Courts of Justice Strand London WC2 Wednesday 21st November, 2001

1. LORD JUSTICE ALDOUS: I invite Lady Justice Arden to give the first judgment.
2. LADY JUSTICE ARDEN: This is an appeal by the defendant in this action ("Time") with permission of Mance LJ against the order of His Honour Judge McGonigal on the application of the claimant in the action ("Dyson") for summary judgment. The judge gave summary judgment on the application in the sum of £283,615.87 inclusive of interest, and he dismissed the application as respects a further sum of £31,412, which was the balance of the amount claimed by Dyson.
3. I will say a little about the background. Time are retailers of personal computers and it decided to expand into the mobile phones market. Accordingly, it needed to fit out a large chain of retail shops for this purpose. The total value of the works was some £18 million. Time employed Dyson to do some of the shopfitting work for it. No price was agreed and the claim therefore was for a reasonable sum for services supplied. Time had already made payments to Dyson of some £2.5 million. This action was to recover the balance outstanding of some £302,000 odd.
4. There was no real dispute about the sums due, except for sums invoiced by Dyson on account of fees payable to the project manager of the project used by Time. This project manager was called Craftwork Retail Building Consultants ("Craft"). The total sums involved were about £146,860.18 on the basis of a revision of those figures put before us, and of this amount Dyson has paid £115,428.93.
5. Time sought unsuccessfully before the judge to contend that it had a real prospect of success in showing that it had a cross-claim for the sums which it had paid on account of these fees and that the cross-claim ought to be allowed by way of set-off. Time's case is that the payments to Craft were bribes or secret commissions. Dyson's case is that it dealt with Time through its project manager, Andrew Craft of Craft, and Time's employee, Mr Colbert, knew about the payments to Craft. It appears that Colbert had authority to carry out the supervision of the shopfitting programme on behalf of Time.
6. Time's evidence was that Craft had levied payments against both Time and Dyson, and the other contractors whom Craft had engaged on behalf of Time. Time contended that it was inconsistent with Craft's duties to Time to charge a fee to the contractor as well. Time said that it made the payments under a mistake as to their nature. It did not appreciate that it was paying sums on account of management fees to Craft.
7. Time also alleged a conspiracy between Dyson, Colbert and Craft. Time also alleged that the invoices which Dyson served on it did not specifically state that these payments had been made and that there was no written record of the arrangements.
8. It appears that Time was fitting out some 200 shops, and that because of the short timetable it allowed Time did not seek competitive tenders but agreed to give the work to a limited number of firms such as Dyson. Time's case is that it was not aware of the payments by Dyson to Craft. Dyson have produced letters which they received from Craft referring to their project management fees and which are endorsed "c.c. J Colbert Time Computers".
9. The judge was asked to confer a conspiracy from the following matters. The absence of a tender process and the use of only four contractors and the failure of Craft to tell Time about the payments when Time was investigating the matter.
10. The judge held that the facts did not support such an inference. He rejected the claim in mistake and held that the only mistake could have been in making the contract in the first place and there was no claim to rescind the contract. The judge also held that this would not have been a case for set-off, since it was not a case of two unpaid cross-claims. However, the judge was satisfied that Time had a reasonable prospect of success in showing that the charges made by Dyson were unreasonable to the extent that they were increased by the amount of the fees yet to be paid to Craft, and he gave judgment accordingly. That was the sum of £31,412, to which I have already referred, in respect of which he dismissed the application for summary judgment.
11. Mr Bernard Weatherill QC appears for Dyson. The way that the case has been argued for Dyson is that the payments in question were remuneration by Time of Craft for services supplied, being paid effectively for convenience through a charge by Dyson to Time and a payment by Dyson to Craft. On this basis the money moves from Time to Dyson and Dyson to Craft, and it is obvious that this is not the most direct route for the payment of remuneration by Time to Craft.
12. Mr Michael Booth QC, for the appellant, made a number of submissions to this court. First, it is contrary to the duties of the agent and Colbert to enter into any arrangement for the payment of fees by Dyson for services to be supplied to Time. He submits that there is no basis on which the judge could find that Colbert was authorised to enter into such an arrangement.
13. Mr Booth submits that there are a number of badges of fraud in this case. He relies on the absence of contractual documentation and the failure of Craft to reveal this agreement to Time in the course of its investigations following completion of the project into the overspend on the project. He also relies on Mr Colbert's failure to disclose the arrangement. Mr Booth submits that the arrangement was inconsistent with custom and convention in the construction industry. Mr Mohsan, managing director of Time, says that it is not the practice of Time to enter into arrangements such as this.
14. Mr Booth also relies on Mr Nelson's witness statements. Mr Nelson is Dyson's contract manager. He put in two witness statements, but he does not in these statements explain why the payments sought to be made, or which have been made, to Craft by Dyson were thought to be justified. Nor does he suggest that any step was taken to check that Time approved the payments.
15. The next point on which Mr Booth relies is that Mr Nelson and Mr Colbert were personally acquainted. There is evidence that Mr Nelson sent Mr Colbert a Christmas present and that he went on a golfing holiday with Mr Andrew Craft and Mr Colbert, though his evidence is that he did not pay Mr Colbert's expenses nor those of Craft. He described these golfing holidays as good team building exercises. Mr Booth relies on the fact that there are only two invoices served by Dyson on Time for this work which had been found to refer to the fee levied by Craft. There is no explanation as to why the Craft project management fees are not referred to on any other invoices. He submits that this too excites suspicion.
16. Mr Booth submits that the judge failed to approach the matter with sufficient common sense and to realise that conspirators rarely put their agreement into writing. As to the legal basis of Time's claim, Mr Booth submits that Time has three kinds of cross-claim. It has a cross-claim for damages for conspiracy. It has an unliquidated claim for money had and received on the grounds that the payments to Craft were secret commissions to its agent: see on this point Chitty on Contracts (28 ed) Vol 2 para 32-073 and Bowstead and Reynolds on Agency (16 ed, 1996, 545-546) and a case there cited, Maheson v Malaysian Government Officers Co-operative Housing Society [1979] AC 374. Alternatively, Time has a cross-claim in mistake because Time paid payments in the mistaken belief that it was obtaining the best value and that the payments represented the actual value of the works and that the payments to Craft were properly due.
17. As respects set-off, Mr Booth points out that the judge relied on Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938, where it was held that future losses could not be the subject of set-off.
18. On Mr Booth's submission the judge was influenced by dicta of Simon Brown LJ at 949H to 950D that there had to be a sufficient connection between the cross-claim and the claim in the action, and here it would be manifestly unjust, on Mr Booth's submission, to permit judgment. In any event, Civil Procedure Rule 16.6 now gives a far greater right of cross-claim and Mr Booth relies on that.
19. Mr Booth also seeks to rely on a new point not raised below, to the effect that there is a real prospect of success in arguing that the whole of the claimant's claim to payment on a quantum meruit can be impugned. For this purpose he relies on cases such as Mohammed v Alaga [2000] 1 WLR 1815.
20. Mr Weatherill QC for the respondent makes a number of submissions in answer to this. He submits that Time must have been aware that it was cutting corners because of the time pressure it placed on completion of the programme. That pressure was unprecedented, and this helped to explain the unusual payment procedure. Moreover, Dyson was entitled to proceed on the basis that Time knew of and agreed to the arrangement. He points to the letters such as that appearing at page 90 of the bundle where Craft asked for Dyson's quotation to include a project management fee of £2,500, and the letter is endorsed "c.c. John Colbert, Time Computers". Mr Weatherill submits that Craft was entitled to enter into an agreement with Dyson to pay for its fees for matters for which it was not remunerated by Time. There is no evidence of the payments which Time made to Craft by way of remuneration, and the payment of fees in this way may simply have been a means whereby Craft's fees agreed with Time were to be paid. There is no evidence to show that Dyson knew that Craft was also invoicing Time.
21. Mr Weatherill also relies on the fact that Mr Colbert evidently had very wide authority and he submits that his authority would have extended to agreeing this arrangement. He submits that there is no evidence of custom in the construction industry and that so far as Dyson knew there was nothing underhand about the arrangement. The four contractors who were used were tried and trusted contractors of Time. There was no onus on Dyson to enquire. The onus on this application, on the other hand, is on Time.
22. Mr Weatherill submits that the judge did indeed use his common sense, and the judge rejected the conspiracy claim because of the lack of direct evidence. He held that the evidence did not warrant the inference and there is no evidence, on Mr Weatherill's submission, that matters were being kept secret from Time. Time had knowledge through Colbert. There is no evidence of dishonesty and therefore knowing assistance is not made out. So far as mistake is concerned, Mr Colbert had ostensible authority. Unless Dyson knew that Colbert was acting in breach of fiduciary duty to Time, they were entitled to proceed on the basis that Time knew about the payments. There was no mistake. Mr Colbert signed off the invoices. In any event, Dyson has now changed its position by doing the work. The judge's decision on set-off was correct because he took the view that there was no real prospect of success of the defence. In any event, the judge could have awarded an interim payment in the same amount anyway.
23. Mr Weatherill also places reliance on the fact that Dyson cooperated with Time's enquiries after the project was completed. The fact that Craft's management fee is shown on two invoices showed that Dyson had nothing to hide.
24. I now turn to my conclusions. The crucial question is whether the judge was right to say on the evidence that there was no real prospect of success that Time would establish that Dyson was a party to the arrangement for the payment of secret commissions to Craft. When I say "real prospect", it is established and common ground that this means that the defence put forward is not one which it is fanciful to conclude would succeed at trial.
25. The judge was concerned that the conspiracy claim put to him invited him to draw inferences as to the knowledge of Dyson from facts which in his judgment did not support those inferences. The picture which is being presented to this court is, however, a far fuller one. Having looked at the totality of the picture, in my judgment, contrary to the judge's conclusion, there is sufficient evidence to amount to a real prospect of success of showing at trial that secret commissions were paid and that they were so paid to the knowledge of Dyson. First, this was a very unusual arrangement. It amounted to Dyson making payments to Time's contractors. As I have already noted, it was an indirect route of payment. These matters were known to Dyson. There was no contract between Dyson and Time. There was no tendering for the work and there were a limited number of contractors who carried out this substantial work. All those facts were known to Dyson. Taken individually they do not excite suspicion, but they may add to the overall picture.
26. Next, the arrangement was not generally disclosed on Dyson's invoices. Moreover, there was no explanation from Mr Nelson of Dyson as to why the project management fees were being paid to Craft; whether the arrangement was confirmed with anyone at Time; why invoices were in general silent and failed to disclose the arrangement; and whether Mr Nelson in fact, or any other officer of Dyson, checked with Mr Colbert whether he really did receive the letters which were marked "c.c. John Colbert Time Computers".
27. Then there is the personal link which clearly existed between Mr Nelson of Dyson, Mr Craft of Craft and Mr Colbert of Time. That means that there was a possibility for private discussions which are not recorded in the documentation.
28. It appears that no one at Time knew about these matters, except Mr Colbert. At this stage, of course, we do not have the full picture. The facts proves at trial may well answer all those points. But as I see it that matter cannot be resolved properly without a trial. Accordingly, I am satisfied that there is sufficient material to necessitate the refusal of the application for summary judgment and to allow the appeal accordingly.
29. As to the amount yet to be paid to Dyson on account of Craft's management fees and in respect of the amounts already paid under a mistake as to their nature, I am satisfied that set-off would be available under CPR 16.6.
30. The question then is whether Time can resist payment of the whole of the outstanding balance to Craft, even if that outstanding balance does not relate to Craft's management fees. There are two ways of putting this point so far as Time is concerned. First, there was an arrangement for the payment of secret commissions and this made the whole of the quantum meruit claim on which Dyson relies unenforceable. As I see it that argument is not correct. If Mr Colbert was involved, then his knowledge of secret commissions would not be imputed to Time and Dyson's claim therefore is not affected by that arrangement for secret commissions. The position is a fortiori if, which is yet to be determined, Mr Colbert was not involved
31. The second way of putting the point is that Time fears that there are other items in the Dyson invoices which are inflated. However, it has no evidence to support this at present. It has had plenty of time to formulate that argument and to produce evidence. In the circumstances, that argument must in my judgment also fail.
32. In those circumstances, Time cannot resist summary judgment for the balance. I make that balance to be £156,080.26. Accordingly, I would allow the appeal with respect to the £146,860.18, being the amount of the outstanding management fees to Craft which Dyson seeks to recover from Time, plus the amount that it has already paid on account of those fees. I would substitute for the figure in the judgment, £283,615.87, being the total of the sum for which judgment was given and interest, the sum of £156,080.26 plus interest.
33. LORD JUSTICE SEDLEY: While I agree that a set-off is available in relation to Time's intended cross-action if it is viable, I have considerably greater doubts than my Lady, Lady Justice Arden, about its viability. The proposed pleading of fraud - for that is what it is - based on inference and by its nature incapable of being particularised. I have asked myself therefore whether if the case advanced by Mr Booth QC were being tried by a judge and jury the judge would be obliged to withdraw it from the jury. I cannot say with complete confidence that the judge would have to do so, even though one can see that a judge might unappealably decide at trial to take such a course. In the absence of any direct evidence of corruption on Dyson's part, much may turn on the present silences or reticences, as they seem for the moment to be, in Mr Nelson's evidence; and upon what inferences, if any, may legitimately be drawn from them.
34. I am therefore not prepared to dissent from Lady Justice Arden's view and, as I understand it to be, that of Lord Justice Aldous that the appeal should be allowed. But for my part I do not conceal my serious reservations about the eventual likelihood of Time's bringing its consequent cross-claim home.
35. I agree that the outstanding balance in the sum mentioned by my Lady should be paid by Time meanwhile.
36. LORD JUSTICE ALDOUS: I agree with the order proposed by Lady Justice Arden, for the reasons that she has given. I, like Lord Justice Sedley, have had doubts as to whether Time Group Ltd have established a basis for their claim against Edwin Dyson & Sons Ltd. However, I am convinced for the reasons given by my Lady that such a basis has been established to the relevant standard. In those circumstances, I do not wish to add to the reasons already given.
37. However, I wish to record my gratitude to Mr Weatherill QC for bringing to our attention at the opening of this appeal that the figures given in the order made by the judge were based on misinformation that was given to him. The parties therefore agreed that whatever the outcome of the appeal, the sums mentioned in paragraphs 2 and 3 should be altered to coincide with the correct information. In view of the outcome of this appeal, there is no need to go into them afresh.
38. We will therefore hear counsel as to the correct order to be made.
ORDER: Appeal allowed; application to rely on fresh evidence granted; judgment for £156,080.26, plus interest of £6,959.61, plus interest of £5,610.25; order for payment out of the total sum, coming to £168,650.22; leave to defend in respect of the counterclaim; the action to be remitted back for a case management hearing at the Mercantile Court; the order for costs made before the judge not to be varied; the respondent to pay 75 per cent of the appellant's costs of the appeal; detailed assessment of costs. (Order not part of approved judgment)