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
QUEEN'S BENCH DIVISION
(SIR OLIVER POPPLEWELL)

		Royal Courts of Justice Strand London, WC2 Tuesday, 29th October 2002

1. LORD JUSTICE ALDOUS: There are before us two applications for permission to appeal. The first relates to the judgment of 2nd May 2002 of Sir Oliver Popplewell sitting as a judge of the Queen's Bench Division. He gave summary judgment in favour of Mr Swycher for £1,522,676.19, with interest accruing at £337.74 per day, against Mr Karim Vakil. He also dismissed Mr Vakil's counterclaim, save for three allegations. The order was stayed pending a further hearing that took place on 15th July 2002. The second application for permission to appeal relates to Sir Oliver Popplewell's judgment of that date. He concluded that the remaining parts of Mr Vakil's counterclaim would not get within striking distance of the £1.5 million due to Mr Swycher. He therefore stayed payment of £600,000. The result was that £900,000 became payable within 28 days. Failure to pay resulted in the counterclaim being struck out.
2. I will come to the grounds upon which it is said permission to appeal should be given, but first I will set out as shortly as I can the background facts.
3. Mr Swycher is a solicitor who was, until April 1999, a partner in the firm of Swycher & Co. Mr Karim Vakil is a Portuguese lawyer. He and Mr Swycher became friends in the 1980s and subsequently their law firms shared an informal association. Their relationship increased, so that they entered into a number of business ventures. Unfortunately, that relationship became strained. To resolve the issues between them, Mr Swycher arranged a meeting in October 1994. The result of that meeting was a deed, which was signed on 14th October 1994 by Mr Swycher and Mr Vakil. It was witnessed by Mr Vakil's brother, who was a banker. The relevant parts of the deed are as follows, and I start with the recitals:

"W H E R E A S:

(A) Commencing in approximately 1987 SSS [Mr Swycher] and MKV [Mr Vakil] entered into a business relationship on an equal basis. Pursuant to that relationship SSS and MKV entered into several ventures together and jointly formed a number of companies.

(B) No formal documentation was ever entered into between SSS and MKV to record the terms of the relationship.

(c) Disputes have arisen between SSS and MKV and SSS and MKV wish to sever their business relationship and to settle their disputes on the terms set out below which are in full and final settlement of all disputes between SSS and MKV of whatever nature and howsoever arising on the following terms

IN WITNESS WHEREOF THE PARTIES AGREE as follows:

1. SSS will transfer to MKV:

(i) his 50% interest in Ritamar SA by handing over the bearer share certificates of the Company and all documentation in relation thereto

(ii) his interest in Aeroinvest Gestao de Investimentos em Participacoes Sociais LDA which is the majority shareholder of Air Columbus Transporte Aereo Nao Regular SA ('Air Columbus')

2.1 MKV hereby acknowledges that he does not have any rights interest or claim of whatsoever nature in or against Beltico Empreendimentos Turisticos SA ('Beltico') or its shareholders either directly or indirectly of whatever nature or howsoever arising

2.2 MKV hereby forthwith resigns as director/administrator and employee of Beltico and acknowledges that he has no financial or other claims against Beltico of any nature whatsoever or howsoever arising

2.3 SSS as President of Beltico confirms that Beltico has no claims whatsoever against MKV

4.1 MKV will pay to SSS the sum of £740,800 ... as follows:-

(i) £70,000 ... within fifteen working days from the date hereof

(ii) £30,000 ... within thirty days from the date hereof

(iii) £17,800 ... per month on the last day of each month for 36 consecutive monthly instalments commencing 31st December

4.2 The time in which MKV is to make all the payments referred to in clause 4.1 above is of the essence

...

5.1 SSS hereby indemnifies MKV for repayment of all monies due to KB Lau LL Swycher and Bonny Wong together with interest and releases MKV from any further obligations he may have in this respect and SSS will endeavour to procure the release of MKV's guarantees to Beltico.

5.2 MKV hereby indemnifies SSS for repayment of all monies due to Yogesh Patel and family, Jose Conserva and Majid of Mozambique together with interest and hereby releases SSS from any further obligations he may have in this respect.

6. MKV will procure that the land purchased in Peniche in the name of his wife CECILIA will be forthwith transferred to SSS or as he directs

7. MKV in his capacity as President of Air Columbus hereby confirms on behalf of himself and Air Columbus that neither he nor Air Columbus have any claims of whatsoever nature or howsoever arising against SSS or Swycher & Co

8. In consideration of the terms contained in this agreement SSS and MKV confirm that they have no further claims financial or otherwise against each other arising out of their business relationship and SSS and MKV hereby confirm that this agreement is in full and final settlement of all disputes of whatsoever nature or howsoever arising between them Save that in the event that MKV fails to pay SSS any of the payments referred to in clause 4 above then SSS will immediately be released from his obligations to MKV pursuant to the terms of this agreement or otherwise.

...

12. This agreement constitutes the entire agreement between the parties hereto and any amendments or variations thereto must be agreed in writing and signed by all the parties hereto."

The deed goes on to state that English law is to govern it.

4. Pursuant to the obligation in clause 4.1 of the deed, Mr Vakil paid £70,000 on 28th October 1994 and £30,000 on 11th November 1994. No further payments were made.
5. On 25th June 1996 a company called North Wall Financial Inc and three brothers called Patel issued proceedings against Mr Swycher claiming repayment of sums paid by them. The action was compromised upon terms that Mr Swycher paid £494,618.82. However, Mr Swycher had in that action issued a third party notice (now called a Part 20 claim) against Mr Vakil. He claimed under the deed of 14th October 1994 £640,000, being the amount outstanding under clause 4.1, £494,618.82, being the sum paid in the action which Mr Swycher said should be repaid by Mr Vakil pursuant to clause 5.2 of the deed, and interest.
6. Mr Vakil contested the Part 20 claim. He alleged that the terms of the deed were unenforceable as he was forced to sign the deed under duress. There was undue influence and misrepresentation, and also that on the true construction of the deed the money claimed was not due. Mr Vakil also counterclaimed upon a number of grounds to which I shall have to come.
7. The judge realised that if the deed was signed as a result of duress, a court would have had no difficulty in setting it aside. However, he rejected that allegation. He also rejected the allegation of undue influence upon the ground that Mr Swycher was not at the time acting as Mr Vakil's solicitor.
8. As to the allegation of misrepresentation, he concluded that that could give rise to a cross-claim, but did not vitiate the whole deed. He also concluded that Mr Vakil had failed to disclose his true knowledge about the Patels. He concluded (in paragraph 41 of his judgment):

"In the instant case, I am quite satisfied that the defendant has no real prospect of successfully defending the claim once as I find the deed is valid."

9. We have had the advantage of 76 pages of written submissions from Mr Walsh which he has amplified orally. He contends that there is a real prospect of success on I think every point argued before the judge. I will therefore consider those points in turn.
10. Mr Vakil alleges that the deed is unenforceable as it was signed under duress. Mr Walsh submitted that Mr Swycher had threatened Mr Vakil before the meeting of 14th October and at that meeting that he would bring criminal proceedings against Mr Vakil upon the ground that he had been cheated in respect of assets in the company referred to as Ritamar. That threat, if carried out, would have destroyed Mr Vakil's creditworthiness at a critical time, and also have devastated his legal practice. Mr Walsh emphasised that the threat had been made and the effect it would have had on Mr Vakil. He referred to us passages in the documents which he said contained an acceptance that the threat had in fact been made.
11. The judge dealt with this part of the case at length. First, he pointed out that the deed was signed on 14th October 1994 and that the first time the validity of the deed was questioned on any ground was on 4th January 2000, some five years after signing and when two payments had already been made. Mr Walsh sought to explain away that delay. He reminded us that Mr Vakil had been ill and did not return to practice until 1997. He submitted that there was no reason why Mr Vakil should allege duress until he was brought into these proceedings in 2000. It was therefore unreasonable to expect him to take any action before that time.
12. However, that explanation does not fit very well with two letters, the relevant extracts of which were set out by the judge in paragraphs 14 and 15 of his judgment.
13. On 30th September 1994 Miss Coelho, a partner of Mr Vakil's wrote:

"We are afraid we are not in a position to satisfy your request concerning the agreement."

On 14th February Mr Vakil's brother wrote:

"... in my opinion [referring to the agreement] was done too hastily and without giving him any time to reflect and also without the proper procedures that I am used to in businesslike transactions. That was therefore a situation which I feel was a bit forced."

It is to be noted that in neither of those letters is there any allegation of duress.

14. The second point referred to by the judge was that the complaint of duress that was made in January 2000 was not one of a threat of criminal proceedings. It was that Mr Swycher threatened to make public the fact that Air Columbus was in financial difficulties. That threat, as the judge pointed out, would not have founded a defence of duress, as both Mr Vakil and Mr Swycher knew prior to October 1994 that the financial difficulties of Air Columbus were public knowledge.
15. Further, Miss Coelho, a partner of Mr Vakil, made a witness statement dated 29th September 1994. She said that she had discussed the signing of the deed with Mr Vakil. It seems from her evidence that Mr Vakil did not complain of duress at that time.
16. Further, as the judge pointed out, there was no explanation before him as to why the initial allegation of duress based upon the financial difficulties of Air Columbus was in that form.
17. In response to questioning from the court, to my surprise Mr Walsh, who appeared for Mr Vakil, gave an explanation firstly that he said he had not fully understood his client's complaint of duress. When he discovered that the true matter was not the financial difficulties of Air Columbus, he then put what he then understood was the correct position into his client's witness statement.
18. To my mind that explanation emphasises the point that was made by the judge. The threat of criminal proceedings could not have been the causation if it had not have been in the forefront of Mr Vakil's mind in 1994. Quite clearly the matter relating to Air Columbus was the matter that was raised in his mind at that time.
19. In my view, there was an overwhelming body of evidence upon which the judge could and should have rejected the allegation of duress, as presently put forward, as providing a bona fide defence. There is in my view no real prospect of an appeal succeeding on this issue.
20. Undue influence was relied on, despite the fact that Mr Vakil was an experienced Portuguese lawyer and his brother who attended the meeting was an experienced banker. Mr Walsh emphasised in his submission the fact that Mr Swycher was a solicitor and that he had been in the habit of preparing the legal documents used for the joint ventures between them. The proper law of the deed was English. Mr Walsh submitted that once Mr Swycher was acting against Mr Vakil, he should have suggested that he should be separately advised.
21. This defence was hopeless, as the judge pointed out in paragraphs 30 and 31 of his judgment. The meeting of 14th October arose in the situation where the parties to a joint venture had fallen out, and Mr Vakil knew that Mr Swycher wanted to resolve the disputes between them. It is his case that he only attended the meeting as a result of threats. He could not have believed that Mr Swycher would be acting for him in a legal capacity.
22. Reliance was placed before the judge on the case of Longstaff v Birtles [2002] 1 WLR 470. It was suggested that he had improperly distinguished that case. That was a case in which Mr and Mrs Longstaff started to look for a public house in which to carry on business. They found a moorland pub called the Moorcock Inn, in Co Durham. They needed a firm of solicitors to act for them and engaged a company called Hewitson & Harker, of which Mr Peter and Mr Michael Birtles were partners. The Longstaffs did not know that the Birtles were also partners, together with a local builder, in a hotel business at Castle Hotel at Brough. The Moorcock negotiations were not fruitful, as the business accounts were unsatisfactory, and at a meeting on 24th February 1988 Mr Longstaff told Mr Michael Birtles that he had decided not to proceed with the purchase of the Moorcock. At the same meeting Mr Michael Birtles told Mr Longstaff about the Castle Hotel. He suggested that he might buy into it as a partner. That he did. The business went wrong and the claim ensued.
23. This court held that the defendants' solicitors were at the time in breach of their duty of trust and confidence imposed by equity, even though the retainer had by that time been concluded. The judge found as a fact that Mr Longstaff believed that Mr Michael Birtles continued to act as his solicitor and that Mr Michael Birtles did nothing to disabuse him of that belief. He had drafted the partnership agreement. He acted as his solicitor in later transactions. In all the circumstances, there was an assumption of responsibility by Mr Michael Birtles to render a professional service such as advice to Mr Longstaff in respect of the decision to enter into the Castle Hotel partnership; in particular, to obtain independent advice.
24. That case was very different to this one. Mr Vakil and Mr Swycher had been in business together for a number of years. I accept that Mr Swycher did act as the solicitor for the joint venture on many occasions. But his relationship with Mr Vakil was also one of a businessman. As the judge said, Mr Vakil knew that the meeting would be between two hostile businessmen who were seeking to sort out their differences. In my view equity would not imply a duty of trust and confidence, as in the Longstaff case. There is in my view no real prospect of an appeal succeeding on this issue either.
25. Mr Walsh also submitted the deed was not enforceable to recover the money paid in the main action by Mr Swycher. The judge dealt with that in paragraphs 34 to 47 of his judgment. The judge concluded that there was an obligation by Mr Swycher to pay the Patels. He rejected the allegation that Mr Vakil did not know of the obligations. He said (at paragraph 35):

"Mr Swycher says that Mr Vakil had told him that he had agreed with the Patels to repay them their investment of EDL although Mr Swycher took the view that in the main action he was under no obligation to the claimants. It is clear that Mr Justice Buckley did not take quite the same view. In any event, there having been the settlement which was a compromise, I am quite satisfied there was some obligation by Mr Swycher to the Patels irrespective of the involvement or otherwise of other companies.

36. The suggestion in the defence is:

'Stuart Swycher explained that there might be some money in the order of 10,000 or 20,000 in relation to the balance of a payment of a villa in Lisbon and at no stage did Mr Stuart Swycher explain to Mr Vakil that the Patel indemnity would extend to North Wall Finance. This is something about which Mr Vakil had little knowledge.'

37. There are a number of bank statements showing payments clearly made to Mr Vakil and questions asked by SJ Berwin again produced no satisfactory answers. Again, the suggestion that Mr Vakil was ignorant of the position of the Patels does not sit happily with the various dates. I am wholly unpersuaded that there was any failure to disclose the true position as regards the Patels."

26. It seems clear from the fact that clause 5.2 was incorporated into the deed that both Mr Vakil and Mr Swycher believed that Mr Swycher might have to pay something to the Patels. Further, it seems that money was paid by Northwall Finance which needed repaying. However, there is difficulty in seeing how Mr Swycher was liable, even accepting that he had agreed orally to repay the amounts claimed, as there may not have been any consideration, particularly as the evidence of Mr Swycher was that he believed that he was not personally liable. Statements, such as that made by Buckley J, appear to have thrown doubt into the mind of Mr Swycher. According to Mr Swycher, Buckley J said:

"From what I have seen and heard I am bound to say that the claimants will go into the trial with plenty of ammunition with which to cross-examine Mr Swycher on his assertions that he was not involved in this venture in any way as a stakeholder or equity holder or principal, that his role was simply acting on behalf of Mr Vakil or as some attorney lawyer. But there we are."

27. In my view there is a real prospect of this court deciding that the deed only required Mr Vakil to indemnify Mr Swycher as to sums that he was legally bound to pay, and that the sums payable to the Patels were not covered by such a clause. For that reason, I would give permission to appeal as to the £494,680.82 that was claimed.
28. Misrepresentation was also pleaded as a defence, but this is not a case where rescission is apt. When most of the obligations have been carried out, in so far as there has been any misrepresentation, the remedy is damages. It follows that permission to appeal is refused as to the sum of £640,800, but permission to appeal is given in respect of the other sum, namely £494,680.82.
29. I come next to consider the counterclaim. In his judgment of 15th July 2002 the judge criticised the way that Mr Vakil had complied with paragraph 6 of his order of 2nd May, which required him to serve an affidavit "giving full and frank disclosure as to his income and outgoings, assets and liabilities." In particular he criticised Mr Vakil's failure to disclose that there were bankruptcy proceedings against him in Portugal, and that he was defending those proceedings on the basis that he had sufficient funds to meet the creditor's claim of about £600,000. That the judge found surprising in the light of his affidavit of means which showed assets of under £50,000 and income of about £35,000 per annum.
30. Mr Walsh submitted that the judge was wrong to conclude that Mr Vakil's affidavit did not fully meet what was required under the order. The bankruptcy proceedings were started on 11th March 1996. Mr Vakil's defence was filed on 18th October 2000. Whereas the money had been thought to be available in 2000, there was no evidence to suggest it was still available in 2002. To the contrary, examination of relevant documents that were filed shows that the claimed ability to pay was based upon the value of Mr Vakil's shares in Air Columbus, his half-share in a house and the goodwill of his practice as a lawyer. By the time of the hearing before the judge the value of the shareholding and the house were difficult to realise, and the goodwill of his legal practice had evaporated. Mr Walsh may well be right that Mr Vakil's financial position had deteriorated since his opposition to the bankruptcy proceedings was started in October 2000. However, the judge could not be blamed for relying on a letter dated 5th July 2002 from Mr Vakil's solicitors in Portugal, which disclosed that the opposition to the bankruptcy proceedings included a claim that he had assets to pay the £600,000 claimed. Despite referring to a hearing in 2001 and another on 23rd May 2002, that letter never suggested that the defence to the bankruptcy proceedings had changed because the £600,000 was not available any longer. However for the purposes of this application, I believe it right to accept that Mr Vakil's affidavit of means is complete.
31. I come to the basis of the counterclaim. A company referred to as CFO was, according to Mr Vakil, owned by two companies referred to as ATC and ISA. He alleges they were joint venture companies. Mr Swycher does not agree. However, I will for the purposes of this application accept Mr Vakil's pleaded case to be correct on this point.
32. The counterclaim alleges that Mr Swycher either mismanaged CFO or caused the company to be mismanaged. It is said that the bearer shares in ATC and ISA were transferred by Mr Swycher to Mr Walters, who lived in Hong Kong. Mr Walters was provided with a power of attorney to act for CFO. The result was that land called the Barrerio land, owned by CFO, was sold to a company called Imobeltico, a subsidiary of Beltico, which was a company owned by Mr Swycher and referred to in the deed. There is a dispute in the evidence as to the value of that land, and in particular whether it was sold at an undervalue. Mr Vakil says it was worth between £3.3 million and £3.8 million, and Mr Swycher values it at around £40,000. I am prepared to accept for the purposes of this application that the higher value could be correct.
33. Mr Vakil also alleges that land called Plot J607 was sold at an undervalue of about £20,000. He also alleges that CFO were entitled to compensation from Mr Swycher. The result is that after taking into account the sums payable to Beltico and certain banks, there would be a surplus of about £3.37 million. It is that money that Mr Vakil says would be available once the counterclaim was tried to pay the claim. In those circumstances, he submits that he should be given unconditional leave to defend and also there should be an order that the money to be paid to Mr Swycher should not be paid until after the trial of the counterclaim.
34. The judge decided that it was impossible on the evidence to resolve the dispute as to the value of the land. In those circumstances, Mr Walsh submitted that the judge was wrong to conclude that £900,000 should be paid within 28 days, when there is nothing to suggest that Mr Vakil could raise such a sum within that time. Either the judge should have granted a stay on enforcing the judgment on the claim, or alternatively he should have given Mr Vakil further time.
35. It would not be right for this court to seek to resolve the issues of fact that the judge could not resolve on an application for permission to appeal. It is for that reason that I believe it right to assume that asset-stripping of about £3.37 million did in fact take place.
36. There remains to be considered what cause of action Mr Vakil has against Mr Swycher. Mr Walsh submitted that Mr Vakil has a cause of action in contract for disposing of the bearer shares which had resulted in the asset-stripping, and ultimately in CFO being put into liquidation. That he submitted was the cause of the £3.37 million loss, half of which would have been available to him to pay the claim.
37. The difficulty with that submission concerns the position of CFO. We know that it went into liquidation in 1995. We know that Mr Swycher contends that CFO owed money to Beltico which resulted in proceedings to seek recovery, which was said by him to prove unlikely to provide any recovery. There are no accounts in the documents, and Mr Walsh submitted that it was unlikely any accounts would be available as the company is now in liquidation.
38. Mr Vakil has not provided any evidence which would form any basis, in my view, for the £3.37 million to become available to him to satisfy the claim. It is for that reason that I have concluded that these allegations in the counterclaim have little weight.
39. I come next to what is called the Peniche land. This was referred to in paragraph 6 of the deed which required Mr Vakil to procure that the land purchased in Peniche in the name of his wife Cecilia would be forthwith transferred to Mr Swycher or as he directed. According to Mr Vakil his wife (who is now his ex-wife) refused to sign the relevant papers to transfer the Peniche land to Mr Swycher. However, the land was transferred pursuant to forged powers of attorney by Mr Swycher. For my part, I cannot see what relevance this is to the claim by Mr Swycher for the monies paid under the deed. Even if it be the case that Mr Swycher did obtain the land by forgery, I cannot see how this could benefit Mr Vakil who had no legal interest in the land and was under a duty to see that it was transferred, in as far as he could. Any damages for forgery would accrue to his ex-wife and not him.
40. Next there is the claim to part of the value of premises at Dorset Street. There is no evidence of any weight that Mr Vakil was ever beneficially interested in these premises other than the basement flat. That was sold at a loss. In any case, I believe the judge was right to consider that it was covered by clause 8 of the agreement.
41. Finally, I come to a claim amounting to about £7,600 in respect of an endowment policy. The evidence in this case is equally slim as to that, and I see no reason to differ from the conclusion reached by the judge on that matter.
42. My conclusion is this. The appeal on interest has already been allowed. The interest in the order amounted to £387,257.37. I would give permission to appeal as to the £494,618.82, but refuse permission as to the £640,800. The strength of the counterclaim is not such as to make provision for any deduction from that sum. However, I would also give permission to appeal on the order as to costs. It follows that the order of 26th July would in my view need to be set aside and there be substituted for the sum of £900,000 the sum of £640,800. No doubt the relevant date will be 28 days from today.
43. LORD JUSTICE DYSON: I agree.

ORDER: Permission to appeal granted as to the £494,618.82, but refused as to the £640,800; permission to appeal on the order as to costs granted; costs to be costs in the appeal; Mr Vakil's expert evidence to be served on or before 26th November; appeal stayed until further order.

(Order not part of approved judgment)