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 QUEEN'S BENCH DIVISION
(His Honour Judge Crawford QC)

		Royal Courts of Justice Strand London WC2 Wednesday, 7th March 2001

Wednesday, 7th March 2001

1. LORD JUSTICE PILL: This is a renewed application for permission to appeal against a judgment of His Honour Judge Crawford QC given on 20th July 2000. The judge ordered that there be judgment against the third and fourth defendants, jointly and severally, in the sum of £1.5 million together with interest of £170,302.86. The third and fourth defendants sought permission to appeal on the papers from Sedley LJ. He refused that application in December 2000 in these terms:

"Permission to appeal refused save as to the validity of the deed, which is adjourned to the full court to be heard on notice to the claimant."

2. The stay was continued. Under the heading: "Reasons", Sedley LJ stated:

"The only potentially arguable point seems to me to be the validity of the deed, low though it may be in merit. I am not persuaded that it has a realistic prospect of success but the full court may be."

3. The renewed application has been made on three grounds. The question of the validity of the deed, to which Sedley LJ referred, incorporates two points: first, whether in fact what can, in the circumstances, be described as an estoppel existed; and, second, if it did, whether the validity of the deed, which does not comply with the appropriate statutory provision in Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989, is saved by reason of the estoppel. The second ground is that in signing the deed which is the subject of the litigation the third and fourth defendants submit that there was no intention to create legal relations. The third ground is that the document was signed under duress or undue influence, which it is submitted for present purposes have the same meaning.
4. I indicate immediately what course the court proposes to take and will quite briefly give reasons for that.
5. The application has been made orally over two full days. It was ordered that, if permission was given, the hearing of the appeal would follow; and counsel accepted at the outset that the submissions which they made upon the permission application should be treated as the submissions in the appeal if permission is granted.
6. What we propose to do is to grant leave on the deed issue (both aspects of it to which I have referred) and to refuse permission on the other two issues. We propose to reserve judgment on the deed issue and take time for consideration of it. The reasons which I now give are therefore those for refusing permission upon the other two grounds.
7. The third and fourth defendants accept that in February 1999, in Kenya, they each signed a document described as a deed, the first operative paragraph of which states:

"Messrs Shah" [which by definition within the deed are the third and fourth defendants] "hereby jointly and severally agree to pay to NZ" [by definition the claimant] "the said sum of £1.5 million."

8. Evidence was called at the trial, which proceeded over several days, as to the circumstances in which the document was signed by the third and fourth defendants. Evidence was given by them and also by Mr Anup Shah, who is the claimant's solicitor and who went to Nairobi, Kenya, to negotiate with the third and fourth defendants. The circumstances will be more fully considered in the written reserved judgment; but it is necessary to say at this stage that both the third and fourth defendants are directors of Reliance, a Kenyan bank, the third defendant being the Chairman and the fourth defendant, his son, being a director.
9. The claimant sought to invest the sum of £1.5 million in the Reliance Bank, and he paid the money into a sub-account in his name within Reliance's account at the Habib Bank in Morgate on 20th August. A sum of interest had been agreed, repayment of the sum, plus interest, to be given on 19th April 1999. When enquiries were made of the bank in Kenya, that money had not been paid in. That has not been in dispute. On 7th September 1998 Reliance was placed under statutory management by the Kenyan authorities and it was, in any event, unable to repay to the claimant any part of his investment.
10. It was against that background that Mr Anup Shah spoke to the defendants in Nairobi. As I have said, they accept that they signed the document to which I have referred and which is dated the 18th February 1999. They submit that in doing so they did not intend to create legal relations. The document, it is submitted, was intended only as a palliative to improve the claimant's recovery from the depression into which he had fallen following the loss of his money. Reliance is placed upon the fact that in his fax to the defendants of 16th February 1999, which accompanied a draft deed which Mr Anup Shah sent to them, a request was made for an early signature so that Mr Anup Shah could take the document back to London. He added in the fax that

"it would help for Mukesh's" [the claimant's] "peace of mind if you could also fax the guarantee to me at Norfolk Hotel. I will then send it by fax to Mukesh."

11. The allegation of duress is based on the suggestion that Mr Anup Shah threatened to report the defendants to the police (the Kenyan police or Scotland Yard) if they did not sign. On both issues Mr Anup Shah gave evidence; and the judge made clear in his judgment that he accepted the evidence of Mr Anup Shah. On his account of the circumstances in which the deed was made, a legally binding obligation was plainly contemplated. Moreover, he denied that he had made any threat in relation to the police, such as that alleged.
12. Mr Bonney QC submits that the judge's adverse finding upon the credibility of the third and fourth defendants is not sustainable and that there should be a new trial. Fundamental to the findings of fact, it is submitted, was the finding, which, in effect, the judge made but was not entitled to make, that the sum of £1.5 million had been diverted by the defendants to their advantage. Mr Bonney submits that not only was that allegation not pleaded on the claimant's behalf or pursued on his behalf in the course of the trial, but it was not justified on the basis of the evidence which was before the judge.
13. Counsel has referred us in some detail to the banking documents which were before the court. Adverse findings of credibility upon intent to create legal relations and upon duress cannot be upheld, it is submitted, when the judge's approach to the defendants' evidence on these subjects was tainted by his untenable approach to what had happened to the money. Irrelevant consideration must have influenced the judge, Mr Bonney submits, upon his findings as to why the deed was signed by the third and fourth defendants and his rejection of their evidence that the threat was not made to them. The court cannot be satisfied, submits Mr Bonney, that had the judge not made the general findings of fraudulent conduct by the defendants he would have come to the same conclusion on discrete points of credibility. His finding, it is submitted, was coloured and dictated by the finding of fraud which he made. An injustice has resulted, and this can only be remedied if the matter is remitted for a fresh trial.
14. Mr Bonney relies upon the statement of Lord Simon in Watt or Thomas v Thomas [1947] AC 484 at 486, cited by Bingham LJ in Eckersley & others v Binnie & others CA 18th February 1988. Lord Simon stated:

"It not infrequently happens that a preference for A's evidence over the contrasted evidence of B is due to inferences from other conclusions reached in the judge's mind rather than from an unfavourable view of B's veracity as such. In such cases it is legitimate for an appellate tribunal to examine the grounds of these other conclusions and the inferences drawn from them, if the materials admit of this; and if the appellate tribunal is convinced that these inferences are erroneous and that the rejection of B's evidence was due to error, it will be justified in taking a different view of the value of B's evidence.

I would only add that the decision of an appellate court whether or not to reverse a conclusion of fact reached by the judge at the trial must naturally be affected by the nature of the circumstances of the case under consideration."

15. What Mr Bonney relies upon in support of his submission is that from comments in his judgment, and in particular from a statement made in a subsequent judgment in which he had been asked to elaborate his reasons for finding against the first and second defendants, the judge made the finding of fraud. In the second judgment, which was delivered on 26th September 2000, he said this at page 5 G of the transcript:

"The fact that the £1.5 million was abstracted after it had reached the bank by, as I have found, the activities of the third and fourth defendants, seems to me to be irrelevant. Even if it had not been so abstracted, the claimant would still have been unsatisfied."

16. As to the judge's finding in relation to what happened to the money, reliance is placed upon his statement, beginning at page 28 H, where he considered what had actually happened to the money, though stating that it was not necessary for him to make any findings upon it. However, he did set out a course of reasoning which included this sentence at 29 B:

"It is also incontrovertible from the documents that that money reached the Reliance Bank in Nairobi from whence it was immediately transferred to the Kisumu branch and from there it was paid into the account of Mr Amil Chudasama."

17. Mr Bonney submits, and Mr Rainer-James QC is unable to dispute this, that the second part of that finding was not on the evidence incontrovertible. There had been a good deal of debate about it in the course of the trial, both as to its relevance and as to the weight of the evidence on that subject. I accept that the judge was wrong to say that the allegations in the second part of that sentence were "incontrovertible".
18. Mr Bonney has also referred to parts of the transcript in the course of the closing submissions, and, both in his skeleton argument and this afternoon orally, he has referred us to statements of the judge. Going beyond what had been argued by Mr Rainer-James for the claimant, the judge purported to introduce questions in relation to the motive and conduct of the defendants which, it is submitted, led to his erroneous approach to the evidence as a whole. It is accepted that the claimant had pleaded in his reply that the defendants at the material time had a motive to prevent investigation of what had happened. But Mr Bonney submits that it changes the nature of the case when the judge is not considering the way it is put by the claimant but is approaching questions of credibility, or intent to create legal relations, or duress in the belief he had formed that, to use Mr Bonney's expression, "there had been a diversion of the funds to the advantage of the second, the third and fourth defendants".
19. It must, however, be repeated -- and I bear in mind the last sentence of the passage in Lord Simon's speech to which I have referred -- that throughout the trial it was known that the trial was conducted on the basis that £1.5 million which the claimant had invested in the bank was not traced in the records of the bank of which the third and fourth defendants were directors and, on the judge's findings, played an active part. He also found, and in my judgment this finding of fact is not capable of being controverted, that they were experienced business men.
20. The judge's findings on the relevant issues depended, of course in part, on his view of the credibility of the third and fourth defendants. That had to be considered along with the credibility of Mr Anup Shah, whom the judge found to be a credible and reliable witness. However, questions of credibility must be considered in the context of the circumstances as a whole, as Lord Simon indicated.
21. The court has been referred in some detail to the judgment. The judge has in several places considered the circumstances in which the issue of credibility came to be considered. In relation to the intention to create illegal relations, he bore in mind that the document had the heading "Deed". He was entitled to bear in mind its format. It was, in my view, a document plainly capable of having legal consequences. He was entitled to bear in mind that the defendants were experienced business men. The judge put it in this way, having expressed the case put forward on behalf of the defendants:

"I do not accept the evidence of the third defendant that he signed the document in the belief only that it was to assist the claimant's peace of mind. The fact that the deed was intended as a serious document is underlined by the fact that it was amended on the instructions of the fourth defendant while he was in his office prior to execution."

22. It is not necessary to set out the amendments, which the judge held made no substantial difference to the document's legal effect. The judge concluded:

"I am quite satisfied that it was intended to create legal relations. As for motive, motive was no doubt to prevent any claim being made by the claimant against the bank. The £1.5 million had been paid to the bank and had apparently disappeared. The claimant had not at that stage lodged any proof of debt with the bank. If he did, as I have already hinted, enquiries would have been made into the fate of the money. With the protection of a deed such as this, the claimant would make no claim against the bank and no such enquiries would be made."

23. The judge went on to consider motive; but in my judgment the circumstances were such that, having regard to them and to the evidence of Mr Anup Shah, there was an overwhelming case that the document was signed with a view to creating illegal relations.
24. I agree with the approach of the judge to that question. As to duress (and the points do overlap to a degree in that the question of motive was raised in relation to both of them), the judge in several places in his judgment made statements as to the possibilities of investigation of the conduct of the bank and of the third and fourth defendants. At page 16 D, he said:

"Having regard to some of the background circumstances, it strikes me as not in the least surprising that the second and fourth defendants" [the second defendant is not a party to this appeal] "were unwilling that the claimant should make a formal claim in the liquidation, as it were, of the Bank for £1.5 million. That would inevitably involve investigation into what had happened to the £1.5 million and why there appeared to be no sign of it in the bank's books."

25. I have already read the passage at page 19 D-F under the heading "Motive".
26. At page 28:

"I accept Mr Anup Shah's denial that any such threat was made. Of course all parties, including the defendants, would have been alive to the uncomfortable situation which would occur if there was no agreement between the claimant ... represented by his solicitor and the defendants at that meeting. The fact was, as I have observed more than once already in the judgment, that the claimant parted with £1.5 million which seems to have disappeared. It must have been obvious to all concerned that there was a question mark hanging in the air about what had happened to it and what steps should be taken to find it. It is obvious that in certain events this might be a matter that might be referred to the police. The defendants did not need Mr Anup Shah to make this point to them. Whether the police or any fraud department were mentioned or not seems to me to be irrelevant. As I have indicated, I accept Mr Shah's evidence that no such threat was made. Even if it had been mentioned expressly, it does not seem to me that it would have added anything to what the defendants would have realised fully in any event."

27. That analysis appears to me, with respect, to be entirely appropriate to the circumstances of this case. It is echoed at page 30A:

"It is not surprising that the third and fourth defendants might have felt vulnerable, and they might have been impelled by a motive to execute the deed so as to forestall investigation."

28. That appears to me to be a wholly unsurprising finding in the circumstances of this case. Indeed, having heard the submissions and having been referred to the evidence in the case, I would have found it surprising if the judge had not come to that conclusion. Plainly, the third and fourth defendants were vulnerable. That they themselves acknowledge in the passage to which Mr Rainer-James referred us in the statement of the fourth defendant at bundle A, page 176:

"11.Although I have personally done nothing wrong, there were at the time, as I explained below, already a series of charges pending against me and my father in relation to the affairs of Reliance and we did not need the enormous inconvenience of having to deal with further unfounded allegations."

29. It is right to say that we have been told that there have in the event been no proceedings against the defendants in Kenya. But I find it quite impossible to hold that they were other than vulnerable in the way the judge described; and his approach to the evidence was based, as he was entitled to base it, upon that vulnerability.
30. Mr Bonney, in the course of submissions and in the course of the cross-examination of the 19th May, was asked by the judge where he stood on a certain point. He stated at page 87 B of the transcript for that day:

"My Lord, because it would inevitably have led to further investigations which would obviously have discomfited them whether they were innocent or guilty no-one in his right mind wants to have further investigations to charges which had already been brought and which I respectfully remind your Lordship were dismissed."

31. I certainly do not refer to that by way of criticism of Mr Bonney. I refer to it as a further indication of the vulnerability of the third and fourth defendants and upon the fact that the missing £1.5 million inevitably loomed over this entire trial. In approaching the question of credibility and considering whether there was an intention to create legal relations and whether there was duress, the judge was entitled to bear that vulnerability in mind. In my judgment, he did bear it in mind and was entitled to make the findings he did. I am unable to accept that his finding upon credibility on these two issues can arguably be said to be unreliable because of his approach to the defendants' overall conduct, which I would accept went too far both in the statement in the second judgment to which I have referred and in his statement in the current judgment in which he stated a belief that certain facts were incontrovertible.
32. This is not a case where points were raised in closing submissions which changed the whole nature of the case. The case was put, it is common ground, moderately and on the correct basis on behalf of the claimant. It is, on the face of it, a somewhat startling suggestion that experienced businessmen would sign a document like this and claim that in doing so, against the background of this case, they did not intend to create legal relations. Also, to suggest that they were under duress in the way that term is defined in law is plainly a most difficult allegation to make out.
33. The judge did go too far in his criticism of the third and fourth defendants. However, he had every opportunity to consider their credibility along with that of Mr Anup Shah. He did so in the circumstances and against the background which I have briefly described. The fact that he took a view of the evidence as to what actually happened to the money which was not justified does not, in my judgment and upon analysis, bear significantly upon his finding upon the two issues now under consideration.
34. In my judgment, it is not arguable that this court would interfere with the judge's findings of fact on these issues; and I would refuse the application for permission to appeal against them.
35. LORD JUSTICE TUCKEY: I agree that permission to appeal the judge's findings on the issues of intention to create legal relations and duress and undue influence should be refused for the reasons given by my Lord.
36. Receipt of the £1.5 million by the Reliance Bank was not shown in its records, which is what one would have expected. As the Chairman and Chief Executive, respectively, of the bank, inquiries by the authorities about this would inevitably have involved them. Avoiding such inquiries would of itself have provided sufficient motive for entering voluntarily into the deed with the intention of being bound by its terms. If one adds to this Mr Anup Shah's evidence and the inherent improbability of the defendant's evidence about how they came to sign the deed, I think the judge's conclusions were fully justified and are not arguably undermined by his further findings as to the destination of the money and the defendant's involvement in its abstraction.
37. SIR CHRISTOPHER SLADE: I agree with both judgments and with the direction proposed.
Order: Application allowed in part.