COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(HHJ DEAN QC SITTING AS A JUDGE OF THE HIGH COURT)
London, WC2A 2LL
B e f o r e :
LORD JUSTICE POTTER
| ED&F MAN LIQUID PRODUCTS LTD ||Appellant|
|- and -|
|PATEL & ANR||Respondent|
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Simon Bryan (instructed by Mills & Co) for the respondent
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Potter:
"… Evans v Bartram … clearly contemplated that a defendant who is asking the court to exercise its discretion in his favour should show that he has a defence which has a real prospect of success. …
Indeed it would be surprising if the standard required for obtaining leave to defend (which has only to displace the plaintiff's assertion that there is no defence) were the same as that required to displace a regular judgment of the court and with it the rights acquired by the plaintiff. In our opinion, therefore, to arrive at a reasoned assessment of the justice of the case the court must form a provisional view of the probable outcome if the judgment were to be set aside and the defence developed. The "arguable" defence must carry some degree of conviction."
"In the circumstances we do not think that the defendants have shown that they have a defence which has any reasonable prospect of success."
"The application is made under 13.3.1 of Civil Procedure Rules which gives the court the power to set aside the default judgment if the defendant has a real prospect of successfully defending the claim. Mr Howard drew my attention to the commentary in paragraph 13.3.1 of Civil Procedure and the decision of the Court of Appeal in the Saudi Eagle in which the court held that in order to set aside a default judgment under Order 13 of the Rules of the Supreme Court the defendant had to show that he had a realistic prospect of defeating the claim. It was said in that case that merely arguing a defence was not sufficient. It had to be a defence which had a real prospect of success which carried some degree of conviction. Mr Popplewell, on the other hand, submitted that unless the defence was one which could be said to have no realistic prospect of success, it must follow that the tests in 13.3.1(a) are satisfied. However logical the proposition may be on its face, it is not one I am able to accept. The fact is that in ordinary language to say that a case has no realistic prospect of success is generally much the same as saying it is hopeless, whereas to say that the case has a realistic prospect of success suggests something better than that it is merely arguable. That is clearly the sense in which the expression was used in the Saudi Eagle and, in my view, it is also the sense in which it is used in Rule 13.3.1(a). There are good reasons for that. A person who holds a regular judgment, even a default judgment, has something of value, and in order to avoid injustice he should not be deprived of it without good reason. Something more than a merely arguable case is needed to tip the balance of justice to set the judgment aside. In my view, therefore, Mr Howard is right in saying the expression "realistic prospect of success" in this context means a case which carries a real conviction."
"The words "no real prospect of succeeding" do not need any amplification, they speak for themselves. The word "real" distinguishes fanciful prospects of success … they direct the court to the need to see whether there is a "realistic" as opposed to a "fanciful" prospect of success."
"Both parties shall declare all related costs of the Joint Venture. Upon sale of the Product and receipt of payment by [the first defendant], a profit shall be calculated. [The first defendant] shall pay [the claimants] for all of [the claimants'] expenses plus 50% of the profit.
Payment to be made by telegraphic transfer to bank account of Man"
"Mr Mahesh Patel explained that the goods had not been sold so no money was due to the Claimants. The representative acknowledged this point but advised that he needed something from Quickstop Group to acknowledge that money may be forthcoming in the future. It was certainly not Mahesh Patel's intention that monies were in fact due at the time."
"From the very first supply the Agreement was never properly implemented. The Claimants were never given any information regarding Quickstop's sales or profits. Instead, a price was agreed to replace the Claimants' share of the joint venture profits. Then after a few shipments Quickstop began to ask the Claimants to quote a fixed price. The price which the Claimants thereafter charged Quickstop [i.e. the $1.30 appearing on the invoices] was not their cost of acquiring the alcohol plus delivering it but was an entirely separate figure including the Claimants' profit margin. As part of this further agreement it was agreed that no payment by Quickstop was conditional upon their receipt of funds from their purchasers."
"Our auditors require confirmation of the net balance with you as at 31st March 1998. Please could you state the balance as at 31st March 1998 in the space below and return it directly to the auditors, Price Waterhouse."
The balance was specified at that date as US$458,804. The defendants duly acknowledged receipt and sent such clarification.
"With regard to the above noted debt, we are still awaiting debt of US$100,000 as per repayment schedule agreed in your letter of 17 March 1998. We have yet to receive the response to our letter of 6 March. We therefore request that you regularise your account by 22 April 1998 and ensure that the agreed repayment schedule is adhered to."
The letter added that if the schedule was not adhered to in the future the debt would be passed to the legal department for recovery.
"Further to our telephone conversation today about the outstanding payment, we have been informed by our office in Tashkent that due to a small problem at the central bank they are unable to transfer any funds. They hope to resolve this problem in a few days. As soon as these funds are transferred to our UK bank, we will be able to transfer US$100,000 to your account."
" … to make a payment by Friday 16 February of US$50,000 on account of the balance owed to Man Alcohols of US$283,860."
The letter asked for confirmation by return fax and an arrangement to make payment by bank transfer to the claimants' New York bank. It proposed a discussion the following week to arrange "to settle the remaining indebtedness". No payment was received and the meeting did not take place.
"I agreed to basically offer them an upfront split on the profit. It was simply more convenient for us to use this average price of US$1.30 for the joint venture and it meant that I didn't have to trace the alcohol sales through a variety of other transactions to try and calculate the complete profit after the event. This way the Claimants passed a lot of their market risks to me and I would bear the loss if I could only sell the alcohol for say US$1.50 per litre."
"I am currently reviewing all my files and documents from this period to try and establish exactly what happened to the quantities of alcohol that were confiscated/destroyed in 1997/98. So far I have only had about two months to collect this information and it will take some time. These events happened some 4 years ago and many of my employees in Tashkent have left since then. I had assumed that the Claimants would accept their responsibility under the Agreement, but that is obviously not the case now."
"We were happy to co-operate with the Claimants because we still had on-going contracts for the supply of sugar in early 1998 and we did not want to jeopardise that business."
"I believe that Jitendra Patel simply wanted to make a goodwill gesture to the Claimants and finish the matter."
"It is one thing to say that the parties are going to share profits and losses upon the basis of credit and on-sales; it is quite a different thing to say that there is going to be a straight sale at a price and, in effect, the seller will simply have to await payment upon the disposal in an uncertain market. It seems to me that once you have abandoned the profit sharing and the accounting provisions which go with it, the basis of the agreement has gone."
"Throughout the whole of that correspondence in 1998 and 1999, going through to December 2000, there is not the least suggestion that (a) the money was not due, (b) it was subject to the Joint Venture, (c) there was any suggestion of a denial of liability …
… in my judgment this defence is fanciful, almost certainly dishonest and has no chance of success whatsoever.
I do not believe that any businessman who had written those letters, made those admissions and made those payments would genuinely believe that the debt was not due.
It was said that the defendants wished to keep a good relationship with Man and therefore made admissions of liability and part payment pursuant to those admissions of liability, simply in the course of good relations. I regard that suggestion as risible. Mr Patel is a man in his 40s, he has been in business for some 20 years and I cannot believe that any businessman would have made those admissions and those payments if he did not genuinely accept liability. No suggestion of any defence was made until this application in witness statements to support an application and to set aside the judgment in default.
So far as the first defendant is concerned, in the exercise of my discretion, I think it would be a gross injustice to the claimants to set aside this judgment and I refuse to do so."
i) The fact that the claimants' case that there had been a change from what was accepted originally to have been a joint venture arrangement to a position where, by agreement, the parties dealt on a straight sale basis was stated in general terms, and in an unparticularised form, unsupported by first-hand evidence from an employee of the claimants, in which respect the claimants had been criticised by the judge. This was said by Mr Thomas for the first defendant to be of particular significance because
ii) in relation to the first invoice between the parties which showed the price of US$1.30 per litre, i.e. the invoice dated 20 February 1996, it appeared that there was earlier correspondence demonstrating that the price agreed was agreed in the context of a live joint venture arrangement;
iii) the judge appeared to have made an error when dealing with the defence case in relation to the acknowledgment of indebtedness contained in the letter of 17 March 1998.
iv) that the judge may have assumed that because the invoices passing between the parties named a specific price, that in itself indicated that they had reached a straight sale arrangement at the same time abandoning the scheme for profit sharing under the joint venture agreement; and
v) that despite the grave difficulties in the way of the defendants' case, the judge may have erred in treating the application as a mini-trial in the course of which he had been prepared to find dishonesty, without the defendants having had the opportunity of presenting their evidence at trial.
"As per our telecon of yesterday please be advised that we have arranged for a further 10 containers to be shipped to Tashkent for the JV, to depart Hamburg with Bruhn Transport next Friday 19 Jan 96.
"Our costs on these I'm afraid has gone up to $1.08 per litre so please see if you can get a better price."
"Our business in central Asia is handled in Tashkent by our partner the Quickstop Group."
" … at some point the fundamental accounting procedures contemplated by the Joint Venture Agreement had been abandoned and superseded by a straight identified sale price which had no relevance to the success or otherwise of the ability of the defendants to sell the goods."
"He received me with goodwill and told me about his operations there. He has many business interests of which importing ethanol is only a small part and owns two bonded facilities. He talked of the difficulties of conducting business in Uzbekistan but mentioned that he has regularly challenged government decrees – and won! As far as our business is concerned, he said that the money he owes us will be paid by Christmas. He is planning a partial transfer at the end of this month. As for the future, Mr Patel claimed that he wants no more contact with ED&F Man as we are 'not serious'."
Furthermore, after the acknowledgement in March, there were, as I have already made clear, a number of separate admissions and payments made quite independently of any question of assistance with the auditors.
Lord Justice Peter Gibson: