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
COMMERCIAL COURT
(MR JUSTICE MORISON)

		Royal Courts of Justice Strand London, WC2
		14th February 2005

1. LORD JUSTICE PETER GIBSON: I will ask Lord Justice Longmore to give the first judgment.
2. LORD JUSTICE LONGMORE: This is an appeal brought by the claimant from an order of Morison J which gave judgment for the defendant pursuant to CPR Part 24 on the basis that the claim had no prospect of success. The reason for the judge so holding was that the claimant had orally promised that whatever claim it might have had arising from the termination of the agreement in issue was a claim that it had promised not to bring.
3. The short facts are that the claimant, Merchantbridge & Co Ltd (previously known as Safron Advisors (UK) Ltd) was authorised to carry on the business of an investment adviser. The claim arises from an agreement made with the defendant, Safron General Partner I Ltd, of 16th January 2001, whereby, under clause 4 of that agreement the defendant, SGP1, was to pay the claimant (hereafter "SAUK") $1,110,000 over the course of the year 2001, in consideration for investment advice rendered by SAUK during that period.
4. The moving spirit of the claimant was a Mr Basil Al-Rahim. He was also a director of and a shareholder in Safron Corporation, the ultimate holding company of SGP1, the defendant, which itself was a general partner of a partnership called Safron Partners I LP.
5. On 15th June 2001 there was a meeting of the board of Safron Corporation, in the course of which it was resolved that the board of the defendant company (wholly owned, as I say, by Safron Corporation) be reconstituted. It was further resolved that the affairs of the Safron Group should be wound down and that the shareholders of Safron Corporation be asked to provide additional monies, so that SAUK would have sufficient money to afford to pay off its creditors as at 15th June 2001 and to wind down its own business. It was also resolved that the defendant should write to the claimant terminating the investment advisory agreement of 16th January on that basis.
6. There is no suggestion at that stage that Mr Al-Rahim or SAUK agreed to these measures. Indeed, shortly after the date of that meeting Mr Al-Rahim sent an undated memorandum to a Mr Moawalla, who was representing the interests of the defendant, voicing disagreement and dissent with the substance and the procedure of the decisions and resolutions taken at the meeting of 15th June 2001. Mr Al-Rahim did, however, say that he would like to reach an amicable resolution of the various matters arising.
7. On 18th June 2001 SGP1 gave notice terminating the investment advisory agreement. That notice asserted that funds to be made available, so that the claimant was able to pay its creditors as at 15th June 2001, would be in full and final settlement of all amounts payable under the investment advisory agreement. Such funds would be provided by some or all of the shareholders of Safron Corporation. It is not suggested that the assertion in that letter reflected any agreement made to that effect.
8. On 22nd June, however, there was a meeting between Mr Jackson (who was both managing director of Safron Corporation and a director of SAUK), Mr Al-Rahim (on behalf of SAUK) and Mr Moawalla (then acting on behalf of SGP1 and the Safron Corporation and its shareholders). The judge found that it was in the course of this meeting that there was an oral agreement that no action would be brought for wrongful termination, inasmuch as the parties made an agreement to that effect on the terms of the minutes of that meeting.
9. Mr Al-Rahim refused to sign the minutes of the meeting, but relevantly they provided as follows. I will read paragraphs 5, 6 and 7 of the first section of the document:

"5. A letter has been received from Safron GPI terminating the investment advisory contract. The termination of the contract is agreed subject to payment of all creditors as of 15 June plus selected wind down costs - see next paragraph.

6. Advisors will pay, with funds received from GPI, all liabilities as of 15 June plus certain wind down expenses incurred after 15 June such as Mcfarlanes (SFA and personnel matters), Nathan, Draper, moving expenses, etc. Thereafter, Mr Rahim will be responsible for Safron Advisors.

7. The FSA will be notified of the situation today. Messrs Rahim and Jackson will visit them next week."

10. Those were the terms that the judge found to be the terms of an oral compromise made on that day, whereby, in exchange for payment of those funds or agreement to pay those funds, no proceedings would be brought for wrongful termination of the investment advisory agreement.
11. On 27th June Mr Al-Rahim wrote a memorandum to Mr Jackson, with a copy to Mr Moawalla, stating that liabilities should not be incurred on behalf of SAUK without Mr Al-Rahim's written approval. The memorandum continued:

"The notice of termination of the Services Agreement received from Safron G.P.I. states that they are willing to meet all the liabilities incurred up to Friday 15 June 2001. While this notice creates a breach of the contract I am nevertheless willing to discuss a settlement provided all the liabilities incurred on behalf of Safron G.P.I. and the Group are properly resolved."

12. There was no response from either Mr Jackson or Mr Moawalla to the effect that the proposal to discuss a settlement was a misguided proposal, because it had already been agreed that no action should be brought.
13. The next important document is a memorandum of 10th July 2001, sent by Mr Al-Rahim to Mr Moawalla with a copy to Mr Jackson. That took various technical points on the purported termination of the agreement, and then continued:

"... as discussed, Safron Advisors would be prepared to release Safron General Partner I, Ltd from its obligations under the Services Agreement provided that it is not left with any obligations resulting from the carrying out and subsequent termination of the services. This includes but is not limited to the following: ..."

Then five separate matters are set out, such as payment of employee obligations; payment of all creditors of the company down to 15th June; payment of other legal bills; satisfactory assignment of the lease; and payment of all taxes. The memorandum then concluded:

"We will also require a complete accounting of all the payments that have been made by you and Richard Jackson on behalf of Advisors. The final objective being to receive a clean balance sheet of Safron Advisors going forward. Once the above is accomplished, Safron Advisors will be ready to enter into a mutual release with Safron General Partner I, Ltd."

14. Again no immediate response was received to that document to the effect that, as the judge concluded had happened, a mutual release had already been agreed. But what did happen was that Mr Moawalla sent a memorandum of 17th July to Mr Al-Rahim, with a copy to Mr Jackson, referring to the memorandum of 27th June, but not the memorandum of 10th July, and also to various conversations that had taken place. That memorandum said inter alia:

"... we have agreed to pay all and have paid most of the creditors as of 15 June, including termination payments for all staff. We have also agreed to pay certain costs related to the orderly wind-down of the business including accounting, IT related costs and some legal fees. We have not agreed to pay costs related to your buy-out of Advisors and the move to your new offices."

15. There is nothing there which expressly asserts a mutual release or compromise of any action for wrongful termination, and indeed the reference to the refusal to pay the removal expenses appears to be inconsistent with any suggestion that an agreement to the opposite effect was reached on 22nd June.
16. Thereafter, Messrs Mcfarlanes came on the scene for SGP1 and wrote to Mr Al-Rahim on 28th August in relation to the five numbered points in the memorandum of 10th July, saying that in due course all conditions of that memorandum would have been dealt with.
17. The judge decided that since there was a continuing effort, and in his view a continuingly successful effort, to perform the five conditions set out in the memorandum of the 10th July, there must have been an oral agreement on the terms of the unsigned minutes of 22nd June 2001, whereby Mr Al-Rahim agreed that SAUK would forgo any claim for wrongful termination of the investment advisory agreement in return for the payment of money for the matters referred to in the minutes.
18. Possibly that could have been the case, but it is unusual, to say the least, for a judge to give summary judgment on the basis of an alleged oral agreement, the existence of which is disputed by one of the parties. Mr Al-Rahim refused to sign the minutes of the meeting of 22nd June and has always maintained that he made no such oral agreement as alleged. Moreover, as Mrs Giret QC emphasised in the course of her submissions, the memorandum of 27th June made it clear that Mr Al-Rahim, at any rate, thought that any possible agreement on the subject of forgoing any action for wrongful termination was in the future and not in the past.
19. The judge does not, in my respectful view, squarely address the difficulty of giving summary judgment to the effect that, despite the dispute in relation to the oral agreement, the oral agreement must nevertheless have been made. The critical paragraph of his judgment is paragraph 58 and reads as follows:

"In my view, the defendants have shown that the claimants do not have a real prospect of succeeding on their case. The simple question is whether the parties entered into a binding compromise arrangement, not whether there are sums owing under such an arrangement. The background leading to the agreement shows, I think, that the defendants would satisfy the claimant's debts down to 15th June and also the reasonable costs incurred in the winding down of the company, specifically the costs of demanning and an assignment of their lease and the costs of doing so. The arrangement which was understood by both parties was that the claimants would be left with a clean balance sheet for the benefit of Mr Al-Rahim, who acquired by gift the only other issued share. He was to take the company but without outstanding creditors."

20. The second sentence of that paragraph asks exactly the correct question, but the third sentence, as Mrs Giret submitted, assumes that an agreement was reached, without saying why the evidence of Mr Al-Rahim fell to be rejected. Moreover, he does so without any express reference (although he referred to it in the body of his judgment when reciting the facts) to Mr Al-Rahim's memorandum of 27th June.
21. It seems to me that, with all respect to the judge, he came to too robust hasty decision on the documentation that an oral agreement forgoing any right to sue for wrongful termination had been made on 22nd June 2001, and that this is a matter which should therefore go for trial.
22. When Mrs Giret had concluded her address, Mr Taylor, for the respondents, SGP1, began his submissions by accepting that it was indeed reasonably arguable for the purposes of Part 24 that no agreement had been concluded on 22nd June. He thus abandoned the reasoning of the judge, although he sought to uphold his conclusion.
23. Mr Taylor relied on his respondent's notice to put forward a different agreement not espoused by the judge. This was an agreement formed by what was said to be an offer by Mr Al-Rahim, as contained in the memorandum of 10th July 2001, to the effect that he would enter into a mutual release if the five conditions there set out were performed to his reasonable satisfaction. It was then said by Mr Taylor that that offer was accepted by Mr Jackson, communicating agreement on behalf of SGP1 that those five conditions would be performed.
24. This is not an agreement which the judge held to have existed, and in my view it is a new case. It may very well be that the evidence to support such an agreement can be pieced together from the evidence filed by Mr Jackson on the application. But not only was it not held to be the relevant agreement by the judge, it is in my judgment not a pleaded agreement. The points of defence do indeed set out the terms of the memorandum of 10th July. But when the pleader comes to assert an agreement that no proceedings for wrongful termination could be brought, the pleading in paragraph 10 says this:

"Further, and in the alternative, the memorandum of 10 July 2001 invited no response (formal or otherwise) from the Defendant. It was simply a statement of the terms already discussed and agreed by the parties. The arrangements post termination had already been discussed and agreed by the directors of the Group of Companies and the Claimant before the memorandum of 10 July 2001 was sent by the Claimant."

Particulars are then given. The terms of the minutes of 22nd June 2001 are set out in the same terms as I have set them out in this judgment, and then a reference is made to the documents of 27th June 2001 and the memorandum of 10th July 2001. Nowhere, however, is it said that an agreement in the terms now orally submitted to us is going to be relied on, and it does not seem to me that it is right that summary judgment can be given on a respondent's notice on an unpleaded agreement when the judge himself has not found that such an agreement was made.

25. That is not to say that the argument advanced on the basis of such an agreement may not be very forceful. I have little doubt that it is. There are, however, possible difficulties about it which have not been canvassed, and would not be appropriate to canvass for the first time in the Court of Appeal on a summary judgment application, namely, first, that the conditions in the memorandum of 10th July were not stated to be exhaustive but only to include the five points mentioned and, secondly, that the promise to enter into a release might on a possible view be construed as an agreement to agree. I say nothing further about those difficulties, save to note that arguments could be put forward about them. I rest my judgment, allowing this appeal, on the basis that Mr Taylor has found it necessary in order to support the conclusions of the judge to rely on an agreement which has so far not been pleaded.
26. There will therefore be a trial. The only other matter it is necessary to refer to is that there is a pending application by the claimants to join a purported assignee of the fruits of the litigation. When Mrs Giret appreciated that there was to be a trial, she saw the force of the court's suggestion that, if that was an application which she wished to pursue in the light of Mr Taylor's arguments that no such application was necessary in fact, she can make that application to the commercial judge and I say no more about it.
27. I would allow this appeal.
28. LORD JUSTICE SCOTT BAKER: I agree.
29. LORD JUSTICE PETER GIBSON: Although we are differing from the judgment of the judge, there is nothing which I would wish to add to the judgment of Lord Justice Longmore, with which I am in full agreement. This appeal will therefore be allowed.
(Further argument as to costs)
30. LORD JUSTICE PETER GIBSON: We think that the successful claimant should obtain the costs both here and below from the unsuccessful defendant, but we will not direct that the costs should be assessed on the indemnity basis. We will say that the costs are on the standard basis. We do not think that this is a case where indemnity costs would be appropriate.
31. We will include in the costs the costs of the joinder application, even though that has not been determined by this court. We do so on the basis that the application was made in view of the respondent's notice, in which the defendant had taken the point that the claimant was not the appropriate party because of the assignment which, it appeared, had recently taken place. Before this court it was accepted that the claimant was the appropriate party. In those circumstances, we think that the costs of the application should be added to the costs here and below.
32. We will also order, and it is not opposed, that the interim payment which was made by the claimant pursuant to the costs order which the judge below ordered should be repaid within 28 days.

ORDER: Appeal allowed with costs on the standard basis, such costs to include the costs of the joinder application in this court; the interim payment made by the claimant to the defendant as part of the costs order below to be repaid within 28 days plus interest at the rate of 1% above base rate.

(Order not part of approved judgment) ______________________________