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
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE HAMBLEN

		Royal Courts of Justice Strand, London, WC2A 2LL
		23rd October 2014

Lord Justice Longmore:

Introduction

1. Mr Foster is a British citizen who lives in Swaziland. With his wife he owns and runs a white goods manufacturing business with the brand name "The Fridge Factory". It is well-known throughout Southern Africa. Their business requires them to make frequent international flights. In 2008 they bought a Cessna Mustang jet certified for single pilot operation and they employed a suitably qualified pilot. By the end of 2009 Mr Foster decided he needed a plane with better performance than the Cessna which, for example, could not fly from Swaziland to Cape Town without stopping to refuel.
2. At an air show in 2008 Mr Foster had seen and been impressed by an SJ30 light twin-engined jet aircraft manufactured by an American company called Emivest; it had a range of 2500 miles and an operating ceiling of 49,000 feet. In December 2009 he contacted Mr Mark Butler the regional sales director of Action Aviation, described on Mr Butler's business card as the distributor of the SJ30 aircraft. The SJ30 was very much in its early stages and, at the time of this contract, only two SJ30s had made it off Emivest's production line – 006 and 007, the latter of which became a demonstrator aircraft. Mr Foster was first offered 006 which had flown about 900 hours. He was later offered 013 which was due to be completed in less than a year. Finally in May 2010 he was offered 007 which was said by Mr Butler to have flown a total of 220 hours. During the later stage of the negotiations it was described as an "as new" aircraft. By that time Mr and Mrs Foster had seen 007 at Dubai where they had been invited for the purpose of having the aircraft demonstrated to them.
3. The demonstration was scheduled for 11^th April but had to be postponed because there were remains of a bird's nest in the fuselage which affected the aircraft's pitch trim actuator unit. The judge found that Mr and Mrs Foster were nevertheless taken to the aircraft and that, while there, Mr Foster asked Mr Hamish Harding, the chairman of Action Aviation, whether the aircraft had ever been in an accident. Mr Harding replied "No, I bought the aircraft new; it's never been in an accident".
4. This statement may have had limited significance at the time since negotiations were centering round either 006 or 013 but it became of considerable significance after Mr Foster had been offered 007 itself.
5. The true position was that, on 15^th May 2009, 007 had suffered a hard landing at Cascais in Portugal which required the aircraft to be grounded and repaired at a cost of US$119,000. The incident was recorded in the log and reported to Emivest and the insurers but (legitimately) not to the Federation Aviation Authority in the United States; the judge held, however, that the statement that the aircraft had not been in an accident constituted a negligent representation; he went on to hold that the representation was not fraudulently made because Mr Harding did not consider that an unreportable incident amounted to an accident and had no intention to deceive Mr and Mrs Foster.
6. The demonstration flight took place on 13^th April. Mr Foster was very impressed and when, on 11^th May 2010, he was offered the 007 aircraft, negotiations about its purchase began in earnest. Many matters had to be agreed, in particular whether there was to be a buy-back provision or not (which Cessna offered to their customers). The price was to be US$5,000,000. There does not appear to have been much (if any) discussion about the identity of the parties to the contract no doubt because both Mr Foster and Mr Harding expected the companies which they owned and controlled to be the contracting parties rather than they themselves. Indeed, when Mr Butler referred to Mr Harding in the course of negotiating the sale to Mr Foster, he called him "my chairman".
7. The owner of the 007 aircraft was the holding company of Mr Harding's group of companies Action Aviation Holdings LLC. The contract for the sale of the aircraft, which was made on 31^st August 2010, provided:-

"This Aircraft Purchase agreement … by and between Action Aviation Ltd of Victoria House, 26 Main Street, Gibraltar ("Seller") and Coltish Aircraft Pty Ltd Po Bo 367 Machadodorp, Mpumalanga 1170 RSA ("Buyer") governs the purchase of the specific SJ30 aircraft identified below …

Buyer agrees to purchase the Aircraft from Action Aviation Holdings LLC…which is the legal owner of the Emivest Aerospace SJ30 specified below."

8. Mr Foster paid the deposit of US$500,000 and in due course the sale was completed on 15^th December; delivery took place at Cranfield and was flown by Mr Harding and the pilot Mr Barclay to Swaziland with Mr Foster on board.
9. Thereafter Mr and Mrs Foster became dissatisfied with the purchase for various reasons including the fact that Emivest petitioned for Chapter 11 bankruptcy protection, no factory trained pilot rated for single flying was provided and the aircraft could not land at Virginia Airport in Natal, where the intended aircraft maintenance company was based, because the brakes were not sufficiently balanced for the short runway at that airport. In April 2011 Mr and Mrs Foster heard of the hard landing at Cascais. They attempted (but failed) to operate the buy back guarantee. In due course they sold the aircraft to Syberjet, who had acquired Emivest's business. They only received US$2,669,556.
10. In due course Mr Foster and his company brought proceedings against the UK Action Aviation Company, the Gibraltar Company (the seller under the Aircraft Purchase Agreement ("the APA")) and Mr Harding personally for the difference between the purchase price and the amount for which they sold the aircraft to Syberjet.
11. As I have said the judge found that Mr Harding had been negligent in making the representation that the aircraft had had no accidents and he entered judgment against the Gibraltar company accordingly. That company has no assets and the claimants also claimed against Mr Harding personally in fraud and on the basis that he was the undisclosed principal of the Gibraltar company and thus liable for any non-fraudulent misrepresentation made by the company as his agent.
12. The judge rejected the allegations of fraud and held, further, that Action Aviation Holdings Inc (rather than Mr Harding personally) was the principal behind the Gibraltar company since it was the legal owner of the aircraft. He also held that, if it was relevant to ascertain the beneficial owner of the aircraft for the purpose of deciding who was a party to the APA, the beneficial owner was the American Action Aviation company not Mr Harding.
13. The claimants now appeal (with the permission of Lewison LJ) against the judge's findings that the representation was not fraudulently made and against his conclusion that Mr Harding was not personally liable for his representation. Mr Harding seeks to uphold the judgment and also to argue, by respondent's notice, that no representation about the absence of any accident was ever made. It will be at once apparent that the appeal is essentially an appeal against the judge's finding of fact. The finding that a representation was made is a finding of primary fact and Mr Harding has to surmount the well-known difficulties in respect of such appeals summarised by Lord Neuberger in Re B [2013] 1 WLR 1911 at para 53 in the following words:-

"… where a trial judge has reached a conclusion on the primary facts, it is only in a rare case, such as where that conclusion was one (i) which there was no evidence to support, (ii) which was based on a misunderstanding of the evidence, or (iii) which no reasonable judge could have reached, that an appellate tribunal will interfere with it."

See also Beacon Insurance v Maharaj Bookstore [2014] 2 All E.R. Comm 558 at para 13 per Lord Hodge.

14. It is fair to say that the question whether Mr Harding was fraudulent rather than merely negligent in making the representation found by the judge is a question of inferential (rather than primary) fact but, in a case where the judge has seen and heard the relevant witnesses, this court will hesitate long before concluding that the judge's decision was wrong. We would have to be convinced that the trial judge either erred in the ways enumerated by Lord Neuberger in Re B or failed properly to use the inestimable advantage enjoyed by him of hearing the witnesses give their evidence and assessing that evidence as it is being given.
15. It will be convenient to consider first the judge's finding that the representation was made.

The Representation

16. Mr Harding's case was that there was never any visit by Mr and Mrs Foster to the aircraft on 11^th April 2010 because the demonstration had to be cancelled. Mr and Mrs Foster were very disappointed but remained in the lounge at Dubai and were not shown the aircraft on that day. He maintained that both he and Mr Butler explained why there was to be no demonstration and that no representation was made at any time about the aircraft not having been in an accident.
17. Mr and Mrs Foster claimed not to have seen Mr Butler on that day and that they had viewed the aircraft with Mr Harding and the pilot Mr William Barclay, who had been looking at a distant part of the aircraft when Mr Harding made his representation. Mr Harding said that this could not possibly be true as Mr Butler would realistically have had to go through the airport lounge where Mr and Mrs Foster were waiting and would, anyway, have wanted to introduce Mr Harding (whom Mr and Mrs Foster had not met before) and would have been the person to explain why the demonstration flight could not take place that day, since it was he who had had all the contact during the negotiations. Mr Butler and Mr Barclay gave evidence to the same effect. Mr Harding said that Mr and Mrs Foster were lying about Mr Butler's absence in order to engineer a situation in which Mr Harding was alone when he made the alleged representation. Mr Harding also relied on the lapse of time between the discovery in April 2011 by Mr Foster of the hard landing incident and the first assertion of the representation in Mr Foster's solicitors' letter of 26^th October 2011.
18. These were all matters understood and dealt with by the judge. He commented on various unsatisfactory aspects of the evidence given by the defendants' witnesses, particularly Mr Harding, who the judge thought (para 64) had directed or been party to an agreement about how common evidence of himself, Mr Butler and Mr Barclay was to be given. He said (para 66) that the impression given by Mr and Mrs Foster in their evidence was that there was not that "calculating degree of dishonest ingenuity" required by the claimants to explain their motive in lying about Mr Butler's not having met them on 11^th April. He accepted (para 67(4)) Mr Foster's explanation for not relying at once on the misrepresentation when he found out about the Cascais incident namely that he wanted first to find out more about the incident.
19. The judge also relied on two documents emanating from Execujet the company providing handling services for the airport at Dubai. The first document was produced by Mr Harding after the claimants' witnesses had been called and been cross-examined in relation to the alleged visit to view the aircraft on 11^th April on the basis that they would never have been allowed to go through security without permission and precautions being taken (such as the surrender of passports etc.) which had not happened. The document included an entry, purportedly for a service provided by Execujet.

"Pax [passengers] transport for A/C viewing…."

When Mr Butler came to give evidence he said that he now remembered that he had requested transport to the aircraft when he arrived in Dubai but cancelled it when it became apparent that the planned demonstration could not take place. There was no reference to this in his statement and, as the judge pointed out, if the entry did show that Mr Butler ordered transport on arrival it undermined the basis of the case being put to Mr and Mrs Foster in cross-examination of the impracticalities as to security.

20. The second document was an Execujet email produced by the claimants after the hearing but admitted by the judge. This was dated 11^th April 2010 saying in the past tense:-

"Services:

Pax transport (FBO [Fixed Base Operation]-

Passengers came to view the a/c."

In the judge's view this did support the claimants' contention that there was a viewing of the aircraft on that day and supported the claimants' assertion that the earlier document also referred to a viewing on that day. There was, as the judge said (para 78) no good reason to record the "service" if the service was never provided.

21. I have set all this out in a little detail because it shows that the judge took great care in analysing the evidence, both documentary and oral. He felt he had good reason to be sceptical about the evidence given by Mr Harding and Mr Butler and, on balance, the documentation supported the case advanced by Mr and Mrs Foster whose evidence he preferred.
22. There is therefore no basis for this court to say that there was no evidence to support the judge's conclusion or that the judge misunderstood the evidence or that he reached a conclusion that no reasonable judge could have reached. I would uphold his determination that the representation was made.

Negligent or Fraudulent?

23. There is no longer any dispute that, if Mr Harding made the representation at all, it was made negligently because, however much the incident did not have to be reported to the FAA it was still an accident in the sense used by Mr Foster in his question and Mr Harding should have appreciated that was the way in which his negative answer should be understood.
24. The judge, having heard Mr Harding give evidence acquitted him of any fraudulent intent in the following words:-

"Although I have rejected parts of Mr Harding's evidence, I nevertheless accept that he believed and believes that an "accident" in the aviation context means a reportable accident, that he did not believe that the Cascais incident was reportable and that it was in that sense that he thought he was stating that there had been no "accident". I also accept that there would have been no reason for him to lie about this as the Cascais "hard landing" was recorded in the pilot log and the maintenance logs, with details of the repairs set out in the latter, and his expectation was and would reasonably have been that those documents would be inspected by or on behalf of Mr Foster when carrying out normal pre-purchasing due diligence. I accordingly reject the claimants' case that the "no accident" misrepresentation was made fraudulently, but accept that it was made negligently. Mr Harding should have appreciated that he was being asked a general non-technical question and should not have answered on the basis of FAA reportability without making that clear."

25. Mr Akhil Shah QC on behalf of the claimants now contends that the judge should have found that Mr Harding did have a fraudulent intent since Mr Harding did in fact appreciate that an accident (in the ordinary sense of the word) had occurred and deliberately decided to misrepresent the position to Mr Foster. In support of this contention Mr Shah relies on

i) the fact that Mr Harding deliberately lied in his evidence about the making of the representation;

ii) other factors relied on by the judge in assessing Mr Harding's credibility, in particular (a) his failure to comply with interlocutory orders for delivery up of documents and disclosure of assets (b) failure to give proper disclosure including in particular the letter of resignation of Action Aviation employee and pilot Mr Giles as a result of the hard landing incident, which showed Mr Harding's determination to play down the incident, (c) inaccuracies in his first affidavit and (d) the co-ordination of the defendant's evidence "by direction or committee" already referred to; and

iii) the inherent likelihood of Mr Harding appreciating the ordinary meaning of the word "accident" and deliberately deciding not to reveal the "hard landing".

26. Mr Shah submitted that the judge addressed none of these considerations in the comparatively short paragraph in which he decided that, although the representation was negligent it was not fraudulent. He also pointed out that there was no evidence from Mr Harding himself as to his state of mind when he made the representation since he denied making the representation at all. The importance of this submission is that, if Mr Harding was fraudulent, the claimants can then sue Mr Harding personally for their loss; it is no defence for Mr Harding to say that he was making the representation only on behalf of the party named as the seller in the contract of sale. If Mr Harding was negligent, different considerations arise.
27. It is, of course, a tall order to ask this court to hold that a man has been fraudulent when he has been acquitted of fraud by the judge who heard him give his evidence. Of course the judge had to proceed by inference since Mr Harding had always denied making any representation but he concluded that Mr Harding genuinely thought that the hard landing was not an accident. This court can only reverse a judge at first instance in a matter of this kind if, as Lord Jenkins said in Akerhielm v De Mare [1959] AC 789, 805, the meaning ascribed by the defendant to his representation is:-

"…so far removed from the sense in which it would be understood by any reasonable person as to make it impossible to hold that the defendant honestly understood the representation to bear the meaning claimed by him and honestly believed it in that sense to be true."

28. The fact that Mr Harding did not tell the truth about making the representation was self-evidently taken into account by the judge. So, of course, were the more general issues of credibility (relied on by Mr Shah) in paras 59-64 of the judgment. The fact that the judge did not mention these considerations specifically in para 86 in what was inevitably a long (151 paragraph) judgment is not a matter of criticism or something which might lead one to think that the judge did not take them into account.
29. Mr Shah submitted that there was considerably more evidence showing Mr Harding's eagerness to cover up the fact that a hard landing had taken place than the judge appreciated. He referred us to the full terms of Mr Giles' resignation email of 30^th May 2009:-

"Following our conversation on 24^th, I have taken some time to reflect on my position and have come to the conclusion that I must tend my resignation from Action Aviation as per our contract.

It was obvious from our conversation that whilst you were trying to limit the commercial damage to the SJ30 and the company, you were doing so at the expense of honesty and professionalism.

I take issue with a number of your decisions both in regard to the a/c and Action Aviation and would like to cover those points.

With regard to the a/c, your desire not to give competitors an edge is understandable, however the aviation industry is a small world and at some stage in the future this incident will become public knowledge and that, in my opinion, is better sooner than later. You seem to miss the point that the incident was not caused by any defect of the a/c and therefore does not reflect on its construction in any way. How you are going to conceal the facts of this incident and put it down to a yaw damper problem is beyond me. Surely, all works completed to repair the a/c MUST be entered in the Maintenance/Tech log and signed off by the Engineering department and therefore any future buyer of the a/c will know immediately the extent of the damage to the a/c.

You mentioned that the promulgation of wind shear on that runway on the Jepps was missed by both of us, however you only printed one set of charts which were in front of you. If you are going to fly with a co pilot, you should make sure that he/she is fully checked out on the a/c. I must tell you now that I was in two minds in the latter stages of the approach to call you to go around and in retrospect, I wish I had, however I really was no more than a passenger as far as the handling of the a/c was concerned. Perhaps if you had fulfilled your commitment to check me out, I at least would have had a feel for the a/c.

I must also say, that to have had a complete brake failure a year ago and not have had the braking system corrected when mods are already in place since that time is also beyond my comprehension.

As far as Action Aviation is concerned, it is your company and you have the right to run it as you see fit, however your decision not to inform those who work for and with you of the true nature of the incident and the damage caused and to ask those in the know to play down the incident is, again in my professional opinion, reprehensible. It is all the more so when there are ongoing negotiations to sell the a/c therefore leaving Neil and yourself open to extreme scrutiny professionally if the full extent of this incident becomes public and as I said before, at some stage it will.

My life, both private and work wise has been based upon integrity and professionalism and I am not prepared to degrade either. I cannot condone the attitudes you have displayed in our brief time together and would like to think that you are professional enough to put integrity above personal gain.

My 14 day notice of termination of my contract is to commence with immediate effect.

Best regards for the future.

Mike"

30. Naturally enough this letter provided considerable cross-examination material especially since Mr Harding did not disclose the letter when he should have done. Mr Giles himself gave evidence and was not subject to any criticism from the judge. There were nevertheless indications that any cover-up was not as extensive as Mr Giles (and Mr Shah) would have it. It was common ground that the incident was in fact recorded in the aircraft logs and also that it was reported both to aircraft's insurers and to the manufacturers. It is not insignificant that Mr Giles does not use the word "accident" but the word "incident". Moreover the judge correctly accepted that any reasonable expectation would be that a purchaser would inspect both the pilot log and the maintenance log when carrying out normal pre-purchase due diligence. In these circumstances I do not consider that the allegations of cover-up can be justified and, if they were made to the judge, he was, in my opinion right to discount them.
31. That leaves the final point that, realistically, Mr Harding could not have understood the word "accident" in his representation to mean "accident reportable to the FAA", must have appreciated that Mr Foster was using "accident" in its normal sense of unintended and unexpected occurrence producing loss or damage and deliberately gave a false answer to that question. As to this I can only say that the impression made by Mr Harding on the judge has to decide the matter. For all the judge's scepticism about the evidence given by Mr Harding, on this vital matter the judge decided that Mr Harding was not being dishonest. Nothing said by Mr Shah persuaded me that it would be right for this court to take a different view. In Akerhielm at page 806 Lord Jenkins said that:-

"… where a defendant has been acquitted of fraud in a court of first instance the decision in his favour should not be displaced on appeal except on the clearest grounds."

No such clear grounds have been shown.

32. Mr Shah relied on the dictum of Lord Halsbury LC in Arnison v Smith (1889) 41 Ch. D. 348, 368 (one of the fraudulent prospectus cases):-

"A deliberate statement was made and the defendants cannot be heard to say that they did not know the popular meaning of the words they used."

But that cannot stand with the speech of Lord Herschell in Derry v Peek (1889) 14 App Cas 337, 376 that a court would be convinced that a defendant did not entertain a genuine belief in the meaning attached to his representation, if the belief was "destitute of all reasonable foundation". Lord Halsbury LC (page 343) agreed with Lord Herschell's speech to which "he could desire to add nothing". The inconsistency with Arnison v Smith was pointed out by Lord Jenkins at page 806 of Akerhielm who said that Derry v Peek and other authorities should be preferred to Arnison v Smith so far as that case was inconsistent with them. The case of Ansbacher v Binks [1998] PNLR 221 in which a solicitor had said he was acting in the transaction which had in fact been completed is in a different category altogether, despite Mr Shah's attempt to persuade the court to the contrary.

33. For these reasons I would dismiss that part of the appeal which sought to show that Mr Harding was fraudulent. That leaves the question whether Mr Harding can be held personally liable for his negligent misrepresentation.

Personal liability for negligent misrepresentation?

34. The natural way to bring home to a company director personally a charge of negligent misrepresentation would be to assert that the director made it clear that he was himself assuming responsibility for his representation in addition to his company. Such a claim has always had its problems since in a company context representations by directors are almost always considered to be made on behalf of their companies. It failed for example in William v Natural Life Health Foods Ltd [1998] 1 WLR 830 because the claimant could not show that any responsibility assumed by the director had created a special relationship between the claimant and that director. If a company is already actively present behind a director who negotiates a deal that will be very difficult to prove; the same must usually be true if the intention is that a contract will be made with the company of which the director is a director.
35. Although it is possible to read the Points of Claim in the present case as encompassing a claim for negligent misrepresentation against Mr Harding personally, it is clear that no such claim was made in the claimants' opening or in their closing submissions, no doubt that was because of the well-known difficult in mounting such a claim.
36. Instead the claimants sought to show that Mr Harding was the undisclosed principal of the Gibraltar Action Aviation company which was the named seller in the contract of sale and the second defendant in the action. There would thus be a contractual claim against him for his negligent misrepresentation pursuant to the Misrepresentation Act 1967.
37. It was common ground that in selling the aircraft the second defendant was acting as agent but Mr Harding contended that it was acting for the owner of the aircraft, Action Aviation Holdings Inc ("Holdings"), which is what one would expect in an agency context. The claimants contended that the second defendant was acting for the beneficial owner of the company which owned the aircraft and that Mr Harding was that beneficial owner. The judge held that the contract itself identified the principal to the contract and that where the principal was identified in the contract, there was no room for the doctrine of undisclosed principal. In any event, Mr Harding was not the beneficial owner of Holdings. The personal claim against Mr Harding therefore failed.
38. I agree with the judge in seeing no reason to depart from the usual presumption that, if a seller is acting for an agent at all, he is likely to be acting for the owner of the subject–matter of sale. It is not, of course, necessary to go to the length of holding that the owner of the thing sold is always a party to a contract of sale, since sellers often contract to sell goods which they do not own at the time of the contract. But on the basis that it is common ground that the seller was an agent, that seller must be acting for the owner and thus be able to transfer title. It is quite unnecessary to look further than the owner of the goods in order to ascertain the principal to the contract. It was, in my view, strictly unnecessary for the judge to invoke the rule, as set out in para 8-081 of the 19^th edition of Bowstead on Agency (now 20^th edition para 8-079), that where an agent contracts for a named principal, no other principal may intervene. Once one reaches the conclusion that the principal to the sale was Holdings, as the owner of the aircraft, and Holdings is not a party to the action, that should be the end of the matter.
39. The claimants contended that it was necessary for the beneficial (rather than the legal) owner of the aircraft to be a party to the contract of sale but it was never explained why it was so necessary nor was any authority produced in support of such a surprising proposition. Parties to a contract of sale do not usually expect to be required (or entitled) to hunt for the beneficial owner behind the contracting party in an exercise which may be quite complicated (as it was in this case) and which virtually amounts to attempting to pierce the corporate veil.
40. In closing submissions it was said, on the claimants' behalf, that Mr Harding would not be personally liable for his representation unless either (a) he was fraudulent or (b) the representation was negligent and it could be shown that he was a party to the contract of sale. In this court that was said to be wrong as a matter of legal analysis and that, since it was a matter of law, this court should give permission for the concession to be withdrawn.
41. After hearing argument we declined to allow the concession to be withdrawn. While we accept that there are circumstances in which a concession of law can be withdrawn, the purpose of withdrawing the concession in this case was to allow the claimants to argue a case based on the principle unsuccessfully relied on in Williams v Natural Life which had not been made in opening this case. If such a case had been opened, it seemed to us inevitable that there would have been investigation in the evidence of both Mr Foster and Mr Harding of the extent to which (if at all) Mr Foster had relied on the representation as a personal assurance from Mr Harding rather than the assurance of a director of a company which would in due course be the seller. There would also had to have been more investigation (than there was) of the witnesses' expectations that the contracting parties were intended to be companies rather than individuals. None of this investigation took place and the judge was not asked to make any decision on the issue, in respect of which such investigation was relevant. In these circumstances we did not think it fair to Mr Harding to allow the concession to be withdrawn so that a difficult and problematic case could be advanced for the first time on this appeal.
42. I conclude therefore that Mr Harding cannot be held personally liable for the negligent representation made on behalf of the seller of the aircraft. I would for the reasons earlier given decline to accede to the respondent's notice. I would dismiss this appeal.

Lady Justice Gloster:

43. I agree.

Lord Justice Underhill:

44. I also agree.