England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand London, WC2A 2LL
		19 December 2013

1. LADY JUSTICE GLOSTER: This is an appeal by the Claimant Mr Thomas Elek against a decision of David Donaldson QC sitting as a Deputy Judge of the Chancery Division dated 11 February 2013 following a hearing on 30 November 2012.
2. By his order made on that date, the judge on the application of the Defendant pursuant to CPR Part 11 set aside the previous order of Master Price dated 4 April 2012 permitting the Claimant to serve the claim form out of the jurisdiction on the Defendants in the United States. The judge also declared that the Court had no jurisdiction to hear and determine the Claimant's claim and dismissed the action. He ordered the Claimant pay the Defendants' costs of the application to be subject to a detailed assessment, if not agreed. The judge refused permission to appeal. Permission to appeal was subsequently granted by Aikens LJ on the papers.
3. At the end of the hearing below, the only issue before the Deputy Judge was whether the Claimant's actions satisfied the first three requirements which have to be demonstrated on an application for permission to serve a foreign defendant out of the jurisdiction as articulated in cases such as Seaconsar Far East Limited v Bank Markazi Jomhouri Islam [1994] 1 AC 438, 457 and Altimo Holdings and Investment Limited v Kyrgyz Mobil Tel Limited [2012] WLR 1804 at 71.
4. That first requirement is that the Claimant must satisfy the Court that there is a serious issue to be tried on the merits; that is to say a substantial question of fact or law or both. The current practice in England is that this is the same test as that for summary judgment; namely, whether the Claimant's claim has a real as opposed to a fanciful prospect of success.
5. It was also common ground on this appeal that, likewise, the only issue that this court had to determine was whether the Claimant's claim against both Defendants has a real prospect of success. There was thus no dispute between the parties so far as the first Defendant, Amnon Bar Tur, in the United States was concerned.
6. The relevant gateways in paragraph 3.1 of Practice Direction 6B were available to permit service out of the jurisdiction in respect of the claim before the judge. Mr Johnson, counsel for the first and second Defendants, accepted that he was not seeking to rely on any suggestion that the second Defendant was in France and/or that the claim was subject to the jurisdictional requirements of EU Regulation 44/2001. I refer to page 6 of the transcript of the hearing before the judge.
7. Before this court, Mr Johnson likewise did not seek to argue that the Regulation applied to the second Defendant or that even if it did, requirements of the relevant Articles were not satisfied so as to prevent the Claimant from suing the Defendants in England. On that basis, this court approached the matter on the basis that the only issue before it was whether on his currently pleaded points of claim or on his proposed amended points of claim the Claimant had a real prospect of success.

Background Facts

8. The judge summarised the facts as they appeared to him at paragraphs 2 to 7 and 14 to 15 of his judgment. For the purposes of appeal, they can be briefly stated as follows. The Claimant qualified as a solicitor. He apparently practised as such for ten years, but thereafter became a businessman. In 2008, the Claimant and the first Defendant met. Shortly thereafter, they became aware of the opportunity to invest in the development of student accommodation in the United Kingdom. They agreed that it was an opportunity where they could work together.
9. On 9 June 2009, the Claimant and the first Defendant met the directors and shareholders of Alumno Developments Limited, ADL, a company already operating in this area with a view to forming a joint venture. The first Defendant suggested that he wanted his son, the second Defendant, to become involved in the business and it was agreed that all three of them would collaborate. On 22 June 2009, representatives of ADL on the one hand and the Claimant and the Defendants on the other acting through Safeharbor Capital Partners LLP as their nominee signed a letter of intent. On 29 June 2009, the Claimant and the first Defendant on behalf of himself and the second Defendant signed a letter agreement to clarify the arrangements as between themselves which has been referred to as the collaboration agreement.
10. The judge summarised the collaboration agreement in paragraph 3 of his judgment. He set out the fact that on that date, the Claimant had written to the first Defendant to confirm:

"Our agreement to collaborate in establishing a joint venture with a UK development company to invest in and to develop a portfolio of properties to provide student accommodation in the UK."

11. As the judge mentioned in paragraph 3, the Claimant was not entitled to payment for his work under the collaboration agreement. As the judge said:

"The agreement did not provide for any payment to the Claimant for his role in the negotiating the deal with ADL and in his particulars of claim, the Claimant expressly stated that he had agreed to work "at his own risk" to establish the business in return for the one third share and his priority payment if and when the joint venture was established."

12. Whilst Safeharbor Capital Partners signed the agreement on 26 June 2009, it appears that ultimately the Claimant and the Defendants may have used a different vehicle, Safeharbor Capital Partners LLC, to govern the arrangements for their side of the joint venture, although Safeharbor Capital Partners LLP appears to have been the vehicle that obtained a percentage of the issued share capital in ADL, but nothing turns on this.
13. As the judge said in paragraph 4 of his judgment:

"The Claimant worked to achieve this result. The formal structure of the joint venture has, however, altered in that the three men would through Safeharbor acquire a direct 50 per cent equity interest in ADL at a nominal cost as recorded in a letter agreement dated 5 October 2009. As the Claimant confirmed to me at the hearing, this was implemented shortly thereafter properly on 18 October 2009 when there was an opportunity on the board of ADL. In this slightly altered form, the joint venture in the letter of 29 June came into being."

14. That was, as the judge makes clear there, the ADL joint venture agreement as between Safeharbor and ADL dated some time about 15 October 2009. That agreement sets out the terms of the joint venture between Safeharbor on the one hand and ADL on the other.
15. Having embarked upon the joint venture's first project at Telford, Bristol, at the end of October 2009, the Claimant raised certain concerns with the Defendants about the honesty and integrity of the principals of ADL. These apparently related inter alia to the possible diversion of fees by the principals of ADL and as to the university qualifications of one of the directors.
16. Some of these were set out in an e-mail sent by the Claimant to the first Defendant on 31 October 2009. The first Defendant, however, told the Claimant that he was not willing to rock the boat by seeking clarification in relation to these matters from the ADL principals. On 4 November 2009, the Claimant e-mailed the first Defendant. He referred to the fact that a meeting with ADL was arranged for the very next day and complained about the deterioration of his lines of communication with ADL's directors. He stated:

"Amnon,

Are you aware that there is a meeting with Alumno tomorrow morning? I have no idea what deal is being proposed between Alumno and Millers re Telford - do you?

My lines of communication with David and Mevan seem to have deteriorated significantly rather than improved. For example, I did not receive a reply from Mevan to my e-mail of this morning re VAT and when I tried to call him a few minutes ago Catherine told me that he had left for the day!

Whilst you may have a good feeling following your conversations with David and Mevan, I continue to have a very bad feeling. I need to have confidence in Alumno's management team to be able to work with them and right now I absolutely do not.

Let us talk as I am having serious doubts about whether I want to continue.

Tom."

17. According to the Claimant -- and I refer to paragraph 15 of the points of claim -- there followed a telephone conversation later that evening as between the Claimant and the first Defendant. The first Defendant, according to what is said in the points of claim, made it clear to the Claimant that he was not prepared to address the Claimant's concerns at this time even though the Claimant made it clear to the first Defendant that he considered this matter to be of such fundamental importance to their relationship in the business that unless his concerns were addressed, their relationship could be in jeopardy.
18. At 11.07 am on 5 November 2009 following this conversation, the Claimant sent the first Defendant an e-mail in the following terms:

"Dear Amnon,

Further to our telephone conversation last night, I have given the matter considerable further thought overnight, and I have reached the conclusion that I wish to terminate my involvement with Safeharbor and Alumno with immediate effect.

I will write to you in the next few days setting out my reason for reaching this decision. In the meantime, I would appreciate it if you would inform Armon, David and Mevan of my decision, and arrange to have all references to me removed from the documentation.

Kind regards,

Tom."

19. On 6 November 2009, the Claimant sent a further letter to the Defendant explaining "the reasons for his decision" in a context that can have only been his decision as stated in his e-mail dated 5 November 2009 "to terminate my involvement with Safeharbor and Alumno with immediate effect." The letter dated 6 November articulated what the Claimant regarded as the lack of experience, the weakness of management and the unprofessional nature of the team at ADL; in other words, the ADL principals; and complained of the failure of the Defendants to date to raise the necessary funds for the payment.
20. The Claimant concluded by saying:

"I have put a lot of time and effort into this over the past few months and my decision to withdraw was taken after a lot of soul searching. However, perhaps my withdrawal will enable you to get back to basics and look dispassionately at the opportunity in order to ensure that you have the appropriate structures in place to give you the very best chance of making this work. I am sorry things have not worked out. I have enjoyed working with you and I hope you will see my comments as constructive as they are certainly intended to be. I would be happy to discuss them with you when you are in London."

21. According to the Claimant -- and I refer in particular to paragraph 16 and 18 of the points of claim -- there followed various telephone discussions and meetings between the Claimant and the first Defendant in which the first Defendant is alleged to have said that the first Defendant and the second Defendant "were keen that the Claimant should continue to be involved in the business." He suggested that the Claimant should become an adviser and be paid for his work to date on a consultancy basis whilst the first Defendant addressed the Claimant's concerns about the ADL principals. That was said to be a telephone conversation which took place on 19 November 2009.
22. On 20 November following one of these telephone conversations, the Claimant e-mailed a letter to the first Defendant. This included the following paragraphs:

"I have never had any doubt about the exciting business opportunity that Alumno presents and I have been somewhat upset not only to have lost that opportunity, but also to be left with nothing to show for the contribution I have made over the past months. As I have said to you, I have always believed that this is an opportunity where I could make a real contribution on a number of levels and I have been frustrated by the problems that we have faced after several months of hard work.

For the first time in our conversation this morning, I genuinely felt that it may be possible to establish a very clear understanding between us as to how to address my various concerns and to move forward.

Your suggestion that I become some sort of adviser is encouraging to the extent that you feel that we can still work together. On a personal level, I have always enjoyed working with you. However, I do not feel that a payment for the work I have done would be the right way to deal with the situation. The work I have done is very much reflected in the deal with Alumno. I walked away from that because I felt compromised. I acted instinctively and out of genuine concern that things could go very wrong for all of us. Based on what you are now saying, you have every intention of addressing the issues which I have raised and I am very encouraged by that.

I know that you were not being opportunistic in accepting back the shareholding which I was to get in return for my efforts to date. I did not give you much choice! However, if together we could find a way of resolving the issues which I have raised, then I would ask you to consider restoring the status quo once this has been done. In the meantime, I would work with all of you to ensure that all the arrangements are formalised and to deal with any other legal and commercial issues as necessary. Once we have been able to "clear the air" and restore the status quo, I would be happy to continue my fund-raising efforts and to give the Alumno management whatever support and assistance that I can."

23. Thus, although there were discussions in which the Defendants had raised the possibility that the Claimant might continue as an adviser or consultant, the Claimant rejected the Defendants' proposals, although he stated he was prepared to return to the joint venture if his concerns were addressed. In December 2009, he carried out over 15 hours work by drafting a shareholders' agreement as between Safeharbor and ADL at the first Defendant's request. However, the discussions between the Claimant and the first Defendant came to nothing as the Defendants were not prepared to restore any equity participation to the Claimant.
24. On 19 January 2010 in response to an earlier e-mail of 5 January, the first Defendant said:

"It would be helpful if you could let me know the grounds you want to cover when we meet with a view to "finalising the ongoing arrangements between us". Obviously, as you have put it when sending your letter of 6 November 2009, you "quit" on that date and events have inevitably moved on without you. Please let me have some thoughts as to how you see the situation in the light of these events."

25. Subsequently, as the judge sets out in paragraph 7 of his judgment, the Claimant sent a further letter to the first Defendant once again referring to the fact that by refusing to "address issues which were very important to me" the Defendants had left him with no option other than to terminate his involvement.
26. I should refer to end of paragraph 7 of the judge's judgment where he refers to the fact that in a letter dated 25 February 2010 the Claimant said there was a partnership between him and the two Defendants and required them to buy out his partnership interest in default of which, as he said in the letter, he would serve formal notice to dissolve the partnership and if necessary, ask the Court to appoint a receiver under the Partnership Act 1890 to wind it up and release its assets. As the judge commented, in the event, no such steps were taken by the Claimant and no such proceedings have been commenced.

The Proceedings and the Judgment

27. The Claimant issued his claim as set out in the original points of claim on 20 March 2012. He alleged that he undertook over 400 hours of work to establish the Safeharbor side of the joint venture, that his resignation was tactical only in order to attempt to force the Defendants to take his concerns seriously and that they took advantage of that situation in breach of the duty of good faith. See the original points of claim, paragraph 26.
28. The only course of action advanced by the Claimant, and on the basis of which permission to serve out of the jurisdiction was obtained before the judge, was a quantum meruit restitutionary claim calculated on various alternative bases. First, he claimed an order transferring one third of the shares in the Safeharbor entity to himself and an order that one third of the profits be paid to him in accordance with the collaboration. Secondly and in the alternative, he sought a cash value assessment of the work which he had carried out.
29. The basis of the claim and the argument before the judge was that it was said that when an agreement was prematurely terminated for repudiatory breach by one party, the other party, the innocent party, could, instead of suing for damages, elect to recover by way of quantum meruit the value of its performance to date. For the purposes of this application, without deciding the matter, I am prepared to accept that this is a correct statement of the law and would have entitled the Claimant to demonstrate and argue case to restitution.
30. The judge, however, rejected the Claimant's claim and decided that the evidence and the pleaded case showed no real prospect of success. He held that the Claimant had withdrawn from the venture on 5 November 2009 had renounced any benefits to which he was entitled and could not recover by means of quantum meruit. The judge held that this was because the Defendants had not prevented the Claimant from completing his contractual performance. Alternatively, the Claimant had fully performed or received substantial counter performance under the collaboration agreement.
31. Although it appears that that more than seven Lever Arch bundles of authorities were provided after the hearing to the judge. The judge did not find it necessary to address in any detail the principles relating to the law of restitution in the context of which repudiatory breach.

Arguments Before This Court

32. Before this court, the Claimant, now represented by Mr Paul Watkins of counsel as opposed to appearing in person, put the Claimant's case somewhat differently. Whilst maintaining the restitutionary claim based on quantum meruit, the Claimant, by means of a proposed amended points of claim, also sought to raise a claim for damages for repudiatory breach of the contract as between the Claimant and the Defendants as contained in the collaboration agreement as subsequently modified between the parties. It appears that this alternative way of putting the case may have been encouraged by certain comments made in paragraph 15 of the judgment.
33. In brief summary Mr Watkins articulated the Claimant's case on the appeal as follows. One; first, he contended that the contractual arrangements between the Claimant and the Defendants as set out in the collaboration agreement and subsequently modified continued in existence until 25 February 2010, despite the Claimant's statement in the e-mail dated 5 November 2009 of his wish to terminate his involvement with Safeharbor and ADL with immediate effect.
34. Mr Watkins submitted that there had been no agreement by the Defendants for the termination of the Claimant's accrued rights under the collaboration agreement, including the Claimant's accrued rights to a one third interest in Safeharbor and thereby indirectly to his share of an interest in ADL. Mr Watkins submitted that in context, the Claimant's statements in the relevant e-mail correspondence should be construed as a conditional offer to withdraw which would not be accepted without further negotiations.
35. Mr Watkins submitted that the context of the discussions between the parties made it clear that the Defendants knew that the Claimant did not mean to walk away. The e-mail of 5 November should be construed, therefore, as an offer to withdraw from future participation in the joint venture unless the Defendants addressed his concerns.
36. Mr Watkins submitted that the offer was incomplete. It said nothing about his accrued rights. Accordingly, on that basis, Mr Watkins submitted that the contract between the Claimant and the Defendants remained in being throughout the period from November 2009 to February 2010.
37. He asserted it was terminated by the Defendants' repudiatory breach on 15 February 2010 at the final meeting between the first Defendant and the Claimant in London when, according to the Claimant, the first Defendant wrongly asserted that the Claimant had quit and made it clear that he, the first Defendant, was not willing to restore the status quo to the Claimant under any circumstances, nor that he would agree to the Claimant "having an equity in ADL", although he once more offered to pay the Claimant on a consultancy basis for the work done to date.
38. Mr Watkins submitted that that repudiatory breach was accepted by the Claimant in his letter of 25 February 2010 whereby the Claimant informed the first Defendant by letter that their "partnership" was clearly at an end. This, submitted Mr Watkins, gave rise to a claim for damages for repudiatory breach of contract.
39. Secondly, Mr Watkins submitted in the alternative that the Defendants have been in repudiatory breach of contract from 4 November 2009 to 15 February 2010 in failing to address the Claimant's concerns about the integrity issues relating to the ADL principals. By 25 February 2010, the Claimant had accepted this repudiatory breach of contract. That, likewise, gave rise to a claim for damages for repudiatory breach.
40. Thirdly, in the alternative, Mr Watkins submitted that if his primary contention was wrong; namely, that the contract remained in being after the Claimant's e-mail dated 5 November 2009; then nonetheless the Defendants were in repudiatory breach as at that date in failing to address the Claimant's concerns about the ADL principals. That repudiatory breach was accepted by the Claimant in sending the e-mail dated 5 November 2009. Therefore, Mr Watkins submitted, the Claimant was entitled, even if the contract had come to an end on that date, either to recover damages for repudiatory breach or to recover, as originally articulated in the original points of claim, on a quantum meruit basis.
41. Fourth, Mr Watkins submitted that, in any event, the judge was wrong in a number of respects. In particular, the judge was wrong not to have concluded that a full factual inquiry might have supported the Claimant's case that the e-mail of 5 November was, to the Defendants' knowledge, no more than a conditional offer to withdraw. Second, that the judge was wrong to impose restrictions on the rule that an innocent party can claim a quantum meruit for services provided under a contract that is subsequently terminated by repudiatory breach.
42. Mr Watkins submitted that the judge was wrong to conclude that the rule was subject to a restriction that it does not apply where the Claimant has performed and has, in consequence, an entitlement under the contract to payment or remedy in damages; and two, that the judge was wrong to hold that there was a restriction that the rule did not apply where the Claimant has performed and actually received counter performance.
43. Fifthly, Mr Watkins submitted that the judge purported to make factual findings that were wholly inappropriate to the sort of high level inquiry that is relevant for the purposes of an application under CPR Part 11. Mr Watkins also put forward various other detailed arguments in his written submissions challenging the conclusions reached by the judge both as a matter of law and fact.

Determination

44. In my judgment, the critical issue for the purposes of this appeal is whether the Claimant can show that he has an arguable case with a real prospect of success on the facts of establishing one or more of the following scenarios.
45. First, that the collaboration agreement was not consequentially terminated on or about 5 November 2009 on terms that the Claimant gave up his interests thereafter and with no rights to any remuneration to his services to date; two, that if it was terminated on or about that date, it was terminated by his acceptance of repudiatory breaches of the collaboration agreement by the Defendants; or three, that if the collaboration agreement was not terminated on or about that date, it was terminated on or about 25 February 2010 as a result of the Claimant's acceptance of repudiatory breaches of the collaboration agreement by the Defendants in the period following on from November to February 2010.
46. In my judgment, it is not necessary to address any issues of law for the purposes of disposing of this appeal. In my judgment, the Claimant has no realistic prospect of establishing any of these scenarios on the facts. If the Claimant had been in a position to do so, speaking for myself, I would have given him permission to amend the points of claim, but, in my judgment, there is no prospect of him doing so. At times, I am afraid to say, that Mr Watkins attempts to establish one or other of the above scenarios had a air of unreality about them.
47. Based on the correspondence, the evidence before the Court and the assertions made in the Claimant's own points of claim, whether they are in their original or proposed amended form, there can be no doubt that the Claimant voluntarily withdraw from the collaboration agreement and his contractual arrangements with the Defendants with immediate effect on 5 November 2009. In so doing, he renounced the only benefits he had received or was entitled to receive in return for his services in promoting and establishing the joint venture with ADL; namely, a one third equity share or other participation in Safeharbor and thereby an indirect interest in the share capital of ADL.
48. The subsequent e-mails from the Claimant to the Defendants, in particular those dated 6 November and 22 November 2009, confirm that the Claimant's withdrawal from the collaboration agreement and contractual arrangements with the Defendants were accepted and acted upon by the Defendants with no opposition from the Claimant and that his shares or other rights for participation interests in Safeharbor were returned to the Defendants.
49. These communications and the surrounding events have to be construed objectively. What would the reasonable man in the position of the Defendants have reasonably thought was being communicated to them by the Claimant? Whatever may have been the Claimant's private intentions as to improving his negotiating position under the collaboration agreement or in order to obtain leverage to maximise his active role in the joint venture itself, there is nothing in the material before the Court, in my judgment, to support the Claimant's assertion that his wish to terminate his connection with the Defendants was only to take effect in the future conditionally upon the Defendants' failure subsequently to address his concerns about the ADL principals or that the Defendants understood the Claimant merely to be posturing. On the contrary, the Claimant's own e-mails were all to contrary effect.
50. Nor is there anything in the correspondence or in the assertions made in the points of claim or the other material before the Court which realistically supports the Claimant's assertion that his decision to terminate his involvement as at 5 November 2009 was based on any repudiatory breach by the Defendants of their own obligations to him under the collaboration agreement in the light of their refusal to address the concerns first expressed by the Claimant at the end of October 2009.
51. Whatever may have been the Claimant's criticisms of the Defendants' failure to obtain investors, which were in relatively mild form, there is not a whisper of a suggestion in any of the correspondence leading up to 5 November or thereafter to suggest that the Claimant's decision to pull out of the collateral agreement in November 2009 was motivated or caused by a repudiatory breach of contract on the part of the Defendants as opposed to his concerns about the conduct of the ADL principals.
52. In my view, any hindsight attempt to characterise the reason for the Claimant's withdrawal as based on alleged repudiatory contract by the Defendants prior to or on 5 November is doomed to failure. In those circumstances, in my judgment, there is no reasonable prospect of establishing anything other than the contract between the parties came to an end in November 2009. There is no realistic prospect of establishing that the contract continued and that the Defendants repudiated it in January and February 2010.
53. The reality, in my judgment, is that the Claimant made the decision in November 2009 for his own reasons to terminate his involvement with the Defendants and the joint venture and to renounce his only entitlement under the collaboration agreement. He may have thought that he could have negotiated his way back into the arrangements on improved terms, but in circumstances where he has been unable to do so, he has to face up to the consequences of that decision.
54. There was no ongoing contractual relationship between the parties after the November date and he has, in my judgment, no realistic prospect of establishing that one persisted. The fact that subsequently the first Defendant may have voluntarily offered the Claimant payment for his past services is neither here nor there in the contractual analysis. Indeed, such offers were repeatedly rejected by the Claimant.
55. The claim based on quantum meruit would not appear as pleaded to include the 15 hours work done in December 2009. See, for example, paragraph 9 of the points of claim. Even if on analysis the claim did relate to such hours, the judge dealt with this in paragraph 17 of his judgment.
56. For the above reasons, I would dismiss this appeal subject to the one point that is apparently agreed been the parties; namely, that the judge should not have dismissed the action, but merely, as indeed he did, set aside the orders for service out of the jurisdiction.
57. LORD JUSTICE RYDER: I agree. An objective interpretation of the communications from the Claimant in November 2009 is, in my judgment, inconvertible. He voluntarily withdrew from the contractual arrangements.
58. LORD JUSTICE TOMLINSON: I too agree. As the Claimant said in his own message of 20 November 2009, he did not give the Defendants much choice as to whether they were to accept his termination of the agreement. For the reasons given by my Lady, it is plain that, in any event, by their conduct and as is spelled out unequivocally in the messages exchanged between the parties, the Defendants did accept that the agreement was terminated by the withdrawal of the Claimant. I too agree that the appeal must be dismissed.