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 HIGH COURT OF JUSTICE
CHANCERY DIVISION
(His Honour Judge Rich QC)

		The Royal Courts of Justice Strand London WC2 Tuesday 30th July, 2002

1. LORD JUSTICE ALDOUS: The defendants Parshotam Singh Sohi, Bhagwant Singh Sohi and Sumittar Singh Sohi seek permission to appeal out of time against parts of the judgment and order of 15th March 2002 of His Honour Judge Rich QC, sitting as a deputy judge of the Chancery Division.
2. The claimant is Santokh Singh Sahota. He brought these proceedings against the three Sohi brothers seeking an account in respect of a partnership (called by the judge "the Hayes Partnership"), and for payment of £300,000 said to be due under a deed dated 1st April 1994 signed on his retirement by him as partner from the partnership which ran a public house called the Crouch Oak at Addlestone.
3. Before coming to the grounds upon which permission to appeal is sought, I must first set out in outline the conclusions of the judge.
4. The parties are all members of the Sikh community and their families were good friends of long-standing. The claimant primarily made his living by identifying property and retail businesses which were for sale at an undervalue, improving the property or business and reselling it. He saw a business opportunity when the premises at Hayes was offered for sale by agents. The premises consisted of two shops, one of which was a post office with two maisonettes above it. It was accepted before the judge that the claimant found the property and according to the judge he paid the deposit of £10,000. The sale was completed with the assistance of a bank loan from Barclays Bank. That took the form of a bridging loan and an overdraft facility granted, I think, to the eldest of the brothers. The purchase price of the Hayes property was £320,000. To that had to be added legal costs. There was a dispute as to who paid the money. The judge concluded that the claimant contributed about £46,000 and the defendants contributed about £32,000 and the rest was supplied by the bank.
5. There was a dispute as to whether there was a partnership. The resolution of that dispute depended to a substantial extent on the veracity of the witnesses. The judge rejected the evidence of the defendants to the contrary. He said this:

"The evidence of the second and third defendants was not independent of that of the first who was the main actor on behalf of the three brothers. For the most part, the other brothers merely said what they claimed the first defendant had told them. In fact I think that they knew that the first defendant's evidence was not truthful, but it may be that they simply did not understand the nature of the relationship into which the first defendant had as I find with their agreement, either express or implied by their existing partnership in respect of the Englefield Green shops, entered on their behalf.

My observation of the first defendant led me to conclude that he was intelligent, well able to understand documents and accounts, indeed quick to pick up at any rate on one point on the documents that had been overlooked by all the lawyers in court including myself. His claim to be illiterate I judge to be false.

I have no doubt that he knew the basis of the dealings with regard to the Hayes property was as alleged by the claimant, and his denial of it was merely an attempt to take advantage of an apparent absence of documentation. Happily the absence was not complete and his dishonesty has not, therefore, helped the defendants. ...

In my judgment the only excuse for the dishonest evidence which I have identified was that the first defendant must have felt, and I accept felt reasonably, that the claimant had at any rate got the better of the deal which was made in regard to the dissolution of the Addlestone Partnership, and it is to that that I will now turn."

6. The judge appears to have accepted that the claimant was a truthful witness, although he did say that he had on one matter embroidered his account of what happened.
7. The judge went on to conclude that there was a partnership between the claimant and the defendants relating to the purchase and running of the Hayes premises. That conclusion is no longer challenged. Further, it is not disputed that the judge was right to order an account. There is a dispute as to the terms of the order of account which I must come to later.
8. It was accepted before the judge that there was a partnership between the parties in respect of the purchase and running of the public house called the Crouch Oak Public House. That partnership was referred to by the judge as "the Addlestone Partnership". That public house was purchased on 26th March 1990 for about £467,000 including VAT. The purchase was financed by the bank together with some funds that were introduced from the Hayes account.
9. The dispute between the parties stemming from the Addlestone Partnership turned upon an agreement that was signed by the parties upon the retirement of the claimant from the partnership. The first draft, produced around 17th March 1994, was between the claimant and the three Sohi brothers. It recited that they had carried on a partnership and that the partnership was indebted to the bank for a sum which was not set out and that the continuing partners -- that is namely the Sohi brothers -- had agreed that the claimant should retire from the partnership on the following terms. The draft agreement provided for the date of retirement and for the claimant to be released from his liability to the bank. The apportionment of consideration clause was in these terms:

"The consideration being paid by the Continuing Parties to SSS [the claimant] (being half of the Debt) shall if required by SSS be apportioned as to:

3.1. The Property: £

3.2. The chattels fixtures and fittings of the Partnership:

3.3. Goodwill: £1.00."

10. The deed that was signed was dated 1st April 1994. It was between the claimant and the defendants. The relevant parts were in this form:

"RECITALS

1.1 SSS and the Continuing Partners have carried on in partnership ("the Partnership") from the premises known as Crouch Oak Public House 138 Station Road Addlestone in the County of Surrey ("the Property").

1.2 SSS and the Continuing Partners have agreed that SSS shall retire from the Partnership on the following terms.

2. AGREEMENT

2.1 SSS shall retire from The Partnership with effect from the 31st day of March 1994 ("the Date") upon payment of the sum of Three hundred thousand pounds (£300000) ("the Consideration") to SSS by the Continuing Partners."

11. The agreement goes on to provide that from the date of the payment of the consideration Mr Sahota shall transfer all his rights and interests in the property to the continuing partners in the partnership property.
12. The defendants refused to pay the £300,000 that the deed required them to pay. The sole ground of defence relied on at the hearing was that the deed was signed pursuant to a misrepresentation by the claimant and that accordingly the defendants were entitled to rescind, which they purported to do by service of the defence in the proceedings on 14th August 1998. The allegation of misrepresentation was pleaded in this way:

"19. Further and alternatively, the Defendants are entitled to rescind the deed on the grounds of misrepresentation. The Defendants rely on the following matters:

19.1 At no time prior to the signing of the Deed did the Plaintiff make any mention to the Defendants of the possibility of they having to pay the Plaintiff the sum of £300,000 to retire from the partnership.

19.2 On the occasion of the execution of the Deed, the Plaintiff presented the Deed to the Defendants for them to sign with the explanation that he needed a document to be signed relating to his retirement so that he could show it to the Bank and his accountants.

19.3 The Plaintiff thereby implicitly represented to the Defendants that in signing the Deed they were not undertaking any obligations of substance vis-á-vis the Plaintiff, and that the document merely recorded the Plaintiff's retirement.

19.4 In reliance on such representation, the Defendants executed the deed.

19.5 If (contrary to the Defendants' contention they have an obligation under the Deed to pay the Plaintiff £300,000) then the said representation was false.

19.6 In the premises, the Defendants are entitled to rescind the Deed and do so by service of this Defence."

13. Before I leave the pleading, it is to be noted that the only representation alleged was that Mr Sahota needed a document to be signed relating to his retirement so that he could show it to his bank and his accountants. Of course the deed has that effect because it releases him from his obligations as a partner. But it is said that thereby he represented that the defendants were not undertaking any obligations of substance.
14. In my view, it must have been apparent at the outset of the trial that the defence would be difficult to establish because the defendants, in particular the first defendant who was a literate businessman had signed a deed containing an obligation to pay £300,000. Their case was that they did that without reading it. That they said did because they relied upon an implied representation.
15. The judge had to decide, after hearing the witnesses whether, the defendants had established that on signing the deed, which was witnessed by a solicitor, a misrepresentation had been made. The judge said this:

"I cannot give credence to the defendants' account that they believed that they were signing in such circumstances, in blind faith derived from their trust in the claimant, any document as a mere formality which was to be of no effect. The document was signed on the very day of the first defendant's return from a trip to India. He must have hurried to meet the others at the public house and then to attend before the solicitor who had offices on the opposite side of the road. He is, as I have observed, an intelligent and astute man and not as he pretends falsely, one unable to read English. I reject his account and I reject the corroborative evidence, unconvincingly given by the other defendants. If their account had been of making a different agreement which they now sought to have rectified, it might not have been absolutely incredible, although it still involves assumptions about the conduct of the solicitor which stretch credulity. The sole defence, however, is of misrepresentation. I do not believe that any such misrepresentation as alleged was made. I would be fortified in this conclusion, if fortification had been necessary, by the defendants' initial reaction to the claim for £300,000 was not that such money was never agreed to be paid, but that the accounts showed that it had in fact been paid."

16. The judge went on to consider the submission of Mr Higgs, who appeared on behalf of the defendants, that the claimant's account of events leading up to the execution of the deed could not be believed. The judge said that he was satisfied that there was a process of negotiation about the price that should be paid, but the claimant had embroidered his account of it. The judge concluded:

"I reject the suggestion, insofar as it was made, that these changes in the consideration were merely inventions on the part of the claimant in order to give credibility to a deed which he was proposing to get the defendants to enter into by not telling them what it contained. I am satisfied that there was a process of negotiation, although the claimant has embroidered his account of it.

And I am quite satisfied, therefore, that the first defendant did know that it was intended that a payment should be made for the claimant's share. The basis of the allegation in paragraph 20.1 of the defence, therefore, is wrong. So even if no mention was made of consideration at the meeting on the 1st April, which I think unlikely, there would still not be any misrepresentation as to the purpose and effect of the deed. The first defendant knew the essence of the transaction into which the defendants were entering."

17. As I have said, the appellants do not seek permission to appeal against the conclusion that there was a Hayes Partnership. The main ground upon which permission to appeal is sought concerns the £300,000 that the judge ordered should be paid to honour the obligation in the deed. It is accepted that the appeal is against a finding of fact, namely that there was not a misrepresentation that the £300,000 need not be paid. It was submitted in the skeleton argument that the judge had gone wrong upon the evidence. We were taken to the evidence of Mr Samuels of the firm of solicitors who had been instructed to draw up the deed. He had no active memory and was not the person involved. He gave evidence as to his understanding of what the file notes said, but could not throw much light upon the position. His evidence was consistent with that of the claimant.
18. We were also taken to Mr Sahota's statement of 19th July 2001, and we were referred in the skeleton argument to parts of his oral evidence and his cross-examination. We were taken to the evidence of the Sohi brothers, in particular that of the second defendant who was not cross-examined. No doubt that was because he never gave any evidence that there was a misrepresentation. The relevant parts of his evidence-in-chief, contained in his witness statement, are set out in paragraphs 27 to 33 of that witness statement. In those paragraphs he makes it clear that there had been significant borrowing from the bank and that the suggestion that Mr Sahota's share of 50% was worth £300,000 was not true. He says that with the borrowing the business would have had to be worth in excess of £1 million for his share to have been worth £300,000. He then says that the claimant had told the elder brother that he would deal with the paperwork. They had no involvement in this, except on 1st April 1994 he was asked to go to a solicitors' office opposite the Crouch Oak together with his brothers to sign a document. He said:

"I signed that document as Mr Sahota requested. I did not read the document. I saw no reason to do so. Mr Sahota was then a trusted family friend and told us that the document was in order and was designed to assist him in sorting matters out with the bank and his accountant. I duly signed the agreement and thought nothing of it."

19. That evidence is short of a crucial. The crux of the case was that there was an implied misrepresentation by silence. The second defendant never said that he believed from something that the claimant had said that the deed did not contain any obligation to pay.
20. Before us it was submitted that the judge had gone wrong when he concluded that:

"I am satisfied that there was a process of negotiation, although the claimant has embroidered his account of it."

21. It was submitted that there was no evidence to support any finding that there was any such process of negotiation and the evidence of the claimant to that effect was clearly untrue. The judge was wrong merely to conclude that he had embroidered his evidence. Also it was submitted that the judge had failed to apply the proper test of the burden of proof. Had he done so he was bound to have rejected the claimant's evidence that there was a negotiated agreement for payment to him of £300,000.
22. In my view that submission is misplaced for three reasons. First, the onus was not upon the claimant. The deed established that the defendants owed Mr Sahota £300,000. It was the defendants who needed to establish that there had been a misrepresentation entitling them to rescind. It was they who had to discharge that onus of proof. Upon the judge's findings as to credibility they could not have done so. The judge disbelieved the evidence of the first defendant. He held that he was a dishonest witness and therefore his evidence could not have supported the allegation of a misrepresentation. The second defendant's evidence which I have already referred to was similar to that of the third defendant's. In those circumstances, the evidence before the judge did not discharge the onus of proof.
23. Secondly, the submission that the judge was wrong to hold that there had been a negotiation disregards the conclusions of the judge that the evidence of the defendants was dishonest and could not be relied upon. The judge saw two of the defendants give their evidence. He came to the conclusion that their evidence could not be believed. He preferred the evidence of the claimant, although he concluded that it was flawed. It was for the judge to decide who should be believed and how much of the evidence should be believed. The fact that there was no documentary evidence to support the facts as found by the judge does not mean that this court should interfere.
24. Third, the defendant's case in my view could not succeed without acceptance of the evidence of the defendants that there had been a misrepresentation. The judge refused to find that there was such a misrepresentation. The evidence of the negotiation was an essential part to the background to the case, but his conclusion was in effect complete in the passage which I have read from page 14E to 15B of the judgment. In any case it would be very extraordinary if a person like the first defendant, who is both literate and astute, would sign a deed drawn up by solicitors without reading it upon a representation that the claimant needed something to show his bank.
25. In my view the conclusion of the judge was one of fact. The crucial element in coming to that conclusion was his view of the veracity of the defendants. He held that the evidence of the first defendant was dishonest. That was a finding that this court would have to accept. That being so, there is no real prospect of this court reversing his conclusion that the defendants knew about the obligation to pay.
26. I come next to the point taken on the order. The order made by the judge set out three declarations and then an order for the account which is in these terms:

"(1) that an account be taken in accordance with the declarations hereinbefore set out and in accordance with the judgment delivered herein on 15th March 2002 of the dealings and transactions of the Claimant and the Defendants in relation to the Uxbridge Road partnership."

27. It is accepted by the defendants that upon the judge's findings he should have ordered the account to be taken in accordance with the declarations. But it submitted that he should not have ordered it to be "and in accordance with judgment delivered herein on 15th March 2002". That, it was submitted, rendered the order ambiguous.
28. We were told that there had already been a hearing of the account before Master Bowman and he had indicated that he had in the past found such words in an account to be unsatisfactory. In this case he had refused to give directions until after this hearing. It was submitted that the only issue before the judge was whether there was a partnership. The issues as to the parties' capital contribution and distribution generally were not before the court. It followed that the findings of fact at page 18 of the judgment could not have been directed at what should happen on the account.
29. For the purpose of this application, I accept that the words used in the order "and in accordance with the judgment ..." may well lead to difficulties when taking the account. However, that does not raise a ground of appeal. Such difficulties may need a reference to the judge to resolve any ambiguity. But even if the words complained about in the order were removed, the Master would be bound by the conclusions of the judge. The ambiguities would remain. The Master with the aid of the parties is likely to be able to carry out the task set by the order. If there is doubt then an application can be made to the judge. There is no real prospect of this court altering that part of the order.
30. In those circumstances, permission to appeal is refused.
31. LORD JUSTICE JONATHAN PARKER: I agree.
ORDER: Application for permission to appeal refused. (Order not part of approved judgment)