England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(MR DAVID DONALDSON QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		5th October 2007

Lord Justice Tuckey:

1. After a four-day trial in the Chancery Division Mr David Donaldson QC, sitting as a deputy High Court judge, gave judgment for the claimant, Blue Station Limited, for £103,000 against the defendant, Mr Kamyab. The defendant appeals against this decision with the permission of Sir Martin Nourse. He effectively challenges the central finding of fact upon which the judgment turns.
2. Blue Station was one of two companies through which the defendant and two fellow Iranians, Mr Darvish and Mr Mesforoush, carried out property developments in London from late 2002 until November 2004. Mr Darvish held 40 percent and the other two men 30 percent each of the shares in Blue Station. All three were directors of the company which embarked upon a project to convert a property in Ealing into a number of flats.
3. On 12 July 2004 £103,000 was paid by Blue Station to the defendant by cheque signed by all three directors. It was the defendant's case that he was entitled to this money to reimburse him for sums totalling £100,000 which he had paid on behalf of the company for work carried out by the builder on the Ealing project between 21 March and 4 July 2003 and for certain other minor expenses which he had paid on its behalf.
4. At trial Blue Station did not dispute that the defendant had made such payments to the builder but claimed restitution of the amount of the cheque on the basis that these payments had not and could not have been made to discharge any indebtedness of Blue Station to the builder. It was common ground at trial that if Blue Station established this, it was entitled to recover the amount of the cheque. The judge found that it had done so for reasons which I will explain.
5. This was the judge's central finding of fact, but there were a number of other issues. It was the defendant's case that he had made the payments pursuant to an agreement made with his fellow directors at a meeting on or about 14 April 2003 at which he had been authorised to pay the builder whatever was due for which he would be reimbursed by the company. Mr Darvish denied that there had been any such agreement. The judge said that it was strictly unnecessary to decide this issue, but concluded that it was improbable that any such agreement had been made, observing that the evidence about itfrom both Mr Darvish and the defendant, had been far from impressive.
6. There was also an issue about how and when the defendant came into possession of the cheque. The defendant's case, supported by the other director, was that he filled out the cheque and all three men signed it at a meeting in a café. Mr Darvish denied that there had been any such meeting. He said the cheque was one of a number which he had signed in blank and left in the office to enable the company's day-to-day business to be carried on. The judge said that how and when the cheque came to be signed was irrelevant to the determination of the case; but even if Mr Darvish had signed it, as the defendant contended, it would have been on the defendant's representation that he was entitled to the money, which would have been incorrect.
7. As I have said, the central issue was whether the defendant did pay £100,000 for work on the Ealing project. The contract to carry out this work was made between Blue Station and Simpson Contractors (London) Limited on 8 October 2002. The contract price was shown as £519,000 plus VAT, but the agreed price was in fact £400,000 less 10 percent for prompt payment plus VAT. A bank had agreed to finance the project on the basis that Blue Station was to pay the first 30 percent of its costs. The inflated price in the contract meant that the bank was deceived into agreeing to finance the whole of the true contract price.
8. Work started at the beginning of March 2003. Its progress was to be measured and valued periodically by quantity surveyors on behalf of Blue Station and the bank to determine what the builder should be paid and the bank should advance. Blue Station's records show what sums it paid to the builder and the contributions made to those sums by its three shareholders. A comparison between the amounts due to the builder shown in the valuations with the amounts paid by Blue Station itself led the judge to conclude that there was "no room" for the £100,000 paid by the defendant to have been paid in discharge of Blue Station's obligations to the builder.
9. To substantiate this conclusion the judge attached to his judgment a table prepared by counsel, which considered the financial position on this project at various dates. It is not necessary to descend into detail but I can illustrate what it shows by reference to the position in the days following 4 July 2003, by which time the defendant's own payments had just reached the total of £100,000. And yet on 4 July the quantity surveyor's valuation of the total amount owing for the work, including VAT, was about £80,000, of which Blue Station had itself paid £75,000. Therefore, if the defendant was right, the builder had been paid £175,000 -- that is to say nearly £100,000 more than he was due - by or on behalf of Blue Station. Nevertheless the records show that the builder asked for more money at this time and on 7 July Blue Station paid a further £50,000 which had been raised from the shareholders, including the defendant. The table shows similar massive disparities between the amounts owing for the work and the amounts paid on the defendant's case for dates both before and after July 2003, whereas if the defendant's payments are excluded, those amounts are broadly the same. The judge also derived support or his conclusion from the fact that Blue Station's contemporaneous internal documents, and the invoices and claims emanating from the builder made no mention of the payments made by the defendant.
10. Mr Simpson, the builder's principal, made a number of conflicting statements to the parties as to whether he had or had not received money from the defendant for the Ealing project. He gave evidence at trial that he had, but neither he nor the defendant were able to give any satisfactory explanation as to why such large over-payments had been made, if indeed they had. At the end of his judgment, the judge said, from paragraph 32:

"It was suggested by BSL [Blue Station] (and denied by Mr Kamyab and Mr Simpson) that the monies may have been paid to SCL [the builder] for works on other projects in which Mr Kamyab had an interest. The evidence was inadequate to enable me to make such a finding, and any other explanation for the payments would involve impermissible speculation. Though that is a matter to which I have regard, I am nonetheless satisfied in the light of the facts and considerations discussed above that the £100,000 payments cannot have been made in discharge of any indebtedness of BSL to SCL as envisaged by the alleged agreement of 14 April 2003."

11. Now, on this appeal Mr Douglas-Jones for the appellant attacks the judge's central finding of fact on a variety of grounds which I will come to shortly. But ground 2 of the notice of appeal contends that the judge made an error of law by failing to apply the correct burden and standard of proof. It was, he submits, for the claimant to establish its case which he contends amounted to an allegation of fraud; so the claim had to be established to the heightened civil standard. Mr Douglas-Jones submitted that, if the judge had applied this heightened standard, he would have had to reject Blue Station's claim; the judge's judgment does not say or show that he did apply this standard.
12. I do not accept these submissions. It is clear from the passage in his judgment which I have quoted, that the judge did proceed upon the basis that it was for Blue Station to establish its case for restitution. The judge says that he is "satisfied" that the £100,000 cannot have been paid in discharge of any indebtedness of Blue Station to the builder. But as Lord Justice Chadwick pointed out to Mr Douglas-Jones in the course of argument this morning, all Blue Station had to establish was that the defendant had received a cheque to which he was not entitled. As a director and signatory of the cheque in question, it was then for the defendant to show that he was entitled to keep its proceeds. If he was not due the money, why should he be entitled to keep it? I do not accept that it was necessary for the judge to be satisfied of Blue Station's case to the heightened civil standard. The case against the defendant was not put in fraud; it was a simple claim in restitution. The circumstances in which the defendant came into possession of the cheque might have involved fraud or breach of fiduciary duty, but did not necessarily do so. The judge made no findings of dishonesty and was not, in my judgment, required to do so. Mr Douglas-Jones sought to get round this analysis by saying this morning that the only way in which Blue Station had put its case against the defendant was that he had taken possession of a cheque signed in blank and then added the amount and his signature to it without the knowledge of at least one of his co-directors. But at the heart of this case was the very simple question: was he entitled to the proceeds of this cheque or not? And if he was not, it seems to me that Blue Station were entitled to recover its proceeds. No question of fraud arose. The judge was not, as he said, required to make findings about the circumstances in which the defendant came into possession of the cheque and did not do so. He did not need to do so.
13. The attack on the judge's central findings of fact is made in a number of ways. No less than nine different points are taken in the skeleton argument prepared for this appeal, although in his oral submissions this morning Mr Douglas Jones concentrated on just three of them. Looking at the submission as a whole, however, Mr Douglas-Jones submits that the judge should have accepted the defendant's evidence about the agreement made on 14 April 2003 and the circumstances in which he received the cheque. In making that submission, he contends that the judge attached insufficient weight to the fact that Mr Darvish's evidence -- that there had been no meeting on 14 April, that the works had stopped during the time the defendant was making his payments, and that he signed blank cheques in batches of twenty -- had been discredited by Mr Douglas Jones's cross-examination. Mr Darvish had, in fact, produced a document purporting to record what had been agreed at a meeting of the shareholders on 14 April as to the future management of the project, and when this was produced he simply said he did not recall a meeting. In cross-examination Mr Darvish had been forced to admit that the work had not stopped for very long during the time when the defendant was making his payments and that he did not sign as many as twenty blank cheques at a time. These matters -- plus the fact that Mr Darvish was aware that the defendant was shown as a creditor of Blue Station for £100,000 in its accounts for the year ending 31 August 2003 - which he signed off on 9 November 2004 shortly after he had purchased his co-director's shares and yet said or did nothing about this until later -- more than outweighed the valuation evidence relied on by the judge. As to that evidence (which lies at the heart of this appeal) Mr Douglas-Jones accepts that it was of significance, but submits that the judge attached too much weight to it. The valuations had not been done on a quantum meruit basis, but by reference to a project timeline, extras and variations had increased the price of the work and prolonged it and there was evidence that the total cost of the work was or would have been substantially in excess of £400,000.
14. I hope this summary does justice to all Mr Douglas Jones's submissions, both orally and on paper. But one only needs to set out those submissions in the way I have to realise the height of the hurdle which the defendant has to surmount in order to succeed on this appeal. It is difficult enough in any case where a party seeks to challenge findings of fact on appeal, but it is particularly difficult in this case where the defendant has to accept that there was a solid basis for the finding which the judge made, based as it was on contemporaneous documents. The submissions for the defendant comes down to the bald assertion that the judge should have accepted the evidence of the defendant in its entirety because the evidence of Mr Darvish was, in some respects unsatisfactory. But on analysis, it was not Mr Darvish's evidence which was crucial to the outcome of this case. The simple factual issue which the judge had to decide was whether he could accept the defendant's evidence that he had made these payments to the builder in order to discharge Blue Station's liability.
15. The judge's decision was soundly based. This was quintessentially a case in which the judge should base his decision, if he could, upon the documents. That is what he did. Most of the matters relied on by Mr Douglas Jones were peripheral to the central issue. Were the payments made by the defendant were for work which Blue Station was liable to pay for? If they were, it seems to me in the circumstances that the defendant would have been entitled to be reimbursed, whether or not the company had expressly authorised him to make them. Anyway the agreement he relied on did not entitle him to be reimbursed for sums paid to the builder which were not due from the company. The extent to which the work did or did not stop during the time the defendant was making his payments would not have shed much light upon what was owing to the builder and why the defendant was paying him. The number of blank cheques signed by Mr Darvish could not have been a central issue in the case, although it was obviously ventilated at great length. At the end of the day, Mr Darvish's evidence -- that he signed some blank cheques -- was not gainsayed. Mr Darvish admitted that by November 2004 he was aware that the defendant was saying that he had been owed £100,000 by the company in 2003, but I do not think that this was a point of great significance. The company's contemporary documents and documents emanating from the builder did not show the defendant's payments. Soon after he purchased the defendant's shares, Mr Darvish was told by Mr Simpson that a statement which he had made, saying he had received £175,000 from the defendant for the Ealing project was "not a statement of fact" but had been made "for banking purposes only". These proceedings followed. There is no evidence that in signing off the accounts for the year ending September 2003, as he did in early November 2004, Mr Darvish was aware that it included an item which showed that the defendant was or had been owed £100,000 by the company for payments made by him. Finally, although there may be room for argument that the quantity surveyors' valuations were not entirely accurate, this does not begin to explain why -- if the defendant had paid an additional £100,000 for the Ealing project -- the builder had been so massively overpaid and yet was demanding, and was paid, the £50,000 to which I have referred, and other amounts to which the defendant himself contributed.
16. For these reasons I would dismiss this appeal.

Lord Justice Maurice Kay:

17. I agree. It is wholly unsurprising -- indeed, natural -- that faced with witnesses on both sides whom he found to be unimpressive, the judge chose to concentrate on the contemporaneous documents. They led inexorably to the analysis referred to by my Lord. It is perhaps worth adding that the contemporaneous documents of Mr Simpson the builder were plainly at odds with Mr Kamyab's case which Mr Simpson sought to support in evidence. In this context, it is worth referring to a letter written by Mr Simpson on 7 August 2003 to the quantity surveyor, in which Mr Simpson claimed further payment and set out the details of money already received. It is wholly inconsistent with his having received the £100,000 in dispute in this case. Next, on 23 January 2004, solicitors instructed by Mr Simpson's company wrote to Blue Station, claiming money said to be due and owing under the Ealing contract. Again, it set out the figures as perceived by Mr Simpson at that time. They were wholly inconsistent with his having received this sum of £100,000 in connection with the Ealing project. The judge said he found "no convincing explanation" as to why Mr Simpson should have been approaching the matter in that way at that time if the reality had been as asserted by Mr Kamyab and Mr Simpson in evidence. For the reasons given by my Lord and to which I have added that brief supplement, I too would dismiss this appeal.

Lord Justice Chadwick:

18. The claim in these proceedings was for the return of money paid by the claimant company to one of its directors. The payment was made by cheque, to which the payee and his fellow directors were signatories. In those circumstances, it seems to me that the claimant company needed to prove only that the payment was one which the payee was not entitled. The judge was satisfied that that had been established on the balance of probabilities.
19. In his argument in this court, counsel for the appellant has not sought - and has not been able, to challenge - that finding. Rather he has sought to persuade this court that the judge approached the evidence on the wrong basis. It is said that the judge should have appreciated that this was a claim in fraud; and should have appreciated that the claimant company had not made out that case to the standard - albeit the civil standard - which would be appropriate to a claim in fraud. That submission seems to me incapable of being sustained.
20. It was enough for the judge to find (as he did) that on the balance of probabilities the appellant was not entitled to the payment which he had received. The judge was plainly entitled to reach that conclusion for the reasons which he gave and to which my Lords have referred. If not entitled to that payment, the appellant was bound to make restitution. I too would dismiss this appeal.

Order: Application dismissed