England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		31/07/2007

Peter Smith J :

INTRODUCTION

1. This is an appeal with permission against the order of Master Moncaster on 23rd April 2007 when he acceded to an application by the Claimant for summary judgment and an order for specific performance of an Agreement dated 9th December 2005 ("the Agreement") whereby the First and Second Defendants allegedly agreed to sell the property ("the Property") known as 13 Sheldon Avenue London N6 4LS to the Claimant for a price of £1,600,000. Master Moncaster delivered an extempore judgment which has been transcribed and provided for the purpose of the appeal. He granted the First and Second Defendants a stay of execution of the implementation of the order for specific performance pending the determination of this appeal. He also granted them permission to appeal.

BACKGROUND

2. The Claimant is a person with experience in dealing in property particularly in North London. The First and Second Defendants are sisters in their twenties and are members of the ruling family of Kuwait resident in Kuwait. At the date of the sale they had very recently inherited the Property from their mother who died in November 2005. She had owned the house for many years but it had been unoccupied except by a caretaker for over 10 years. It appears to be in a dilapidated state.
3. The Agreement came about through an agent (the Third Defendant) a Mr Mohammad. He is or was some sort of protégée of the sisters' family. He arranged the sale. The Defence of the claim is that Mr Mohammad was in breach of his authority in entering into the Agreement and the Claimant must have known or deliberately turned a blind eye to the fact that he was acting in breach of duty and in excess of his authority. As Master Moncaster rightly noted there is no allegation that the Claimant was a party to the fraud or breach of contract or that he was colluding with Mr Mohammad. The allegation is that he was on notice and turning a blind eye to Mr Mohammad's failure to perform his duty to the clients.
4. The First Defendant in paragraph 8 of her witness statement dated 18th March 2007 said "Mr Mohammad knew perfectly well from my conversations with him that I and my sister relied on him to get us a proper price for the Property, based on the open market value at that time. My instruction to him was to sell the Property through an agent for the best possible price and that he should get a valuation. I was very clear about the need to get the best possible price. The point was not just implicit; it was explicitly stated. Furthermore, I did not suggest that there was any particular urgency about the sale. My sister and I were more interested in getting the best possible price than achieving a quick sale". Thus Mr Mohammad was to sell the property through an agent for the best price and that he should get a valuation. There was not apparently any particular urgency (given the effective abandonment of the property for a decade this seems likely).
5. He had been given a power of attorney to act in the sale on 3rd December 2005.
6. In early December 2005 Mr Mohammad contacted the First Defendant in Kuwait. She says about this contact (paragraph 9) as follows:-

"I had not been back in Kuwait very long when Mr Mohammad telephoned me to say that he had found a buyer at a price of £1.6m. I told him that the figure of £1.6m was not enough because, although I had no detailed information, I felt sure that properties in that area were worth a good deal more. He replied that the house was in very poor condition and difficult to sell. He led me to believe that a valuation of the Property had taken place and that a better price would not be obtained due to the condition of the Property. This was the only offer that Mr Mohammad relayed to us."

7. He sent a fax on 5th December which was a letter signed by the Claimant offering to pay £1,600,000 for the property subject to contract. The First Defendant said in paragraph 13 of her witness statement "I was in Kuwait throughout this period. In the course of my communications with Mr Mohammad, as I have already stated, he persuaded me that £1.6m was a fair reflection of the true value of the Property. I trusted him and my sister and I agreed that he should proceed with the sale".
8. As a result of that Mr Mohammad signed the Agreement on 9th December 2005 which was effected by way of telephone exchange.
9. The Contract provided for a longish completion date of 10th March 2006. It also provided for a deposit of 5% of the purchase price to be provided (£80,000). The contract was signed by Mr Mohammad as Attorney for and on behalf of the First and Second Defendants. His signature was also witnessed by a Mr Hall a solicitor in MTC Law who was retained by Mr Mohammad in effect on behalf of the Defendants to act for them in the sale to the Claimant. For some reason Mr Hall purported also to sign the Agreement on behalf of the First and Second Defendants although he had no express or implied authority so to do. The only person who was authorised was Mr Mohammad.

SUBSEQUENT EVENTS

10. Mr Hall provided a witness statement on behalf of the First and Second Defendants dated 14th March 2007. Somewhat unusually he was instructed by Mr Mohammad on 5th December 2005 as a result of an introduction by the Claimant. Mr Hall apparently had previous relationships with a Mr Rahman Thukral. He is the brother of Mr Amman Thukral. The Claimant is his brother in law. Mr Amman Thukral had connections in the motor trade and the Claimant's name came up from time to time in conversation when Mr Hall acted for Mr Thukral. He had never acted for the Claimant however. The Claimant introduced Mr Mohammad and left. Mr Mohammad told Mr Hall that he represented the First and Second Defendants and he wished to appoint Mr Hall to undertake the conveyancing. That is confirmed in his letter to Mr Mohammad dated 6th December 2005. The title to the Property was still registered in their mother's name. His letter requested various items of information. He never spoke to the Defendants at this time. Mr Hall said that Mr Mohammad demanded great urgency and he did not want to lose the sale. No reason was given. The Claimant's solicitor did not raise any preliminary enquiries but asked that the contract be made subject to satisfactory searches and Mr Mohammad informed Mr Hall that he had agreed to accept a 5% deposit rather than the usual 10%. The instructions having been accepted on 6th December the contract was exchanged on 9th December. Mr Hall subsequently met the First Defendant when she came to London and he explained the transaction to her, requested identification and confirmed the instructions that he had received. She apparently indicated her agreement.
11. The matter did not proceed to completion on 10th March 2006. Mr Hall served a completion notice on 13th April 2006. He received a letter from Mishcon de Reya who were apparently acting for the Claimant's proposed mortgagees. They pointed out that the powers of attorney given by Mr Mohammad would not satisfy the Land Registry because of non compliance with various statutory provisions. During discussions at this time with Mr Mohammad he says that he was given to understand that the Claimant was having difficulties raising finance and Mr Mohammad asked Mr Hall whether it would be possible to reduce the purchase price saying this had been requested by the Claimant who was having difficulty raising the necessary finance. This made Mr Hall suspicious as he could think of no good reason having been given instructions to exchange as a matter of urgency that Mr Mohammad should now be seeking a reduction in the sale price. He was given various scraps of paper and told on completion the money was to be split in accordance with instructions on those pieces of paper. That provided for a payment of £1,072,000 to the First Defendant, £84,000 to a company called Z Limited, £40,000 to R Mizon and £50,000 to Hiydar Alumudeirs. The balance was to be held to the order of Mr Mohammad (approximately £350,000). Mr Hall thought those instructions were odd and he made some enquiries about the value of the Property. He discovered that nearby properties had been sold recently for substantially more than the sale price in the Agreement. He informed the First Defendant of his concerns. She refused to execute the new powers of attorney and on 9th May 2006 Mr Hall returned the deposit. The Claimant's solicitors Haldanes did not accept that the First and Second Defendants were entitled to discharge the contract and served their own completion notice on 12th May 2006. The First and Second Defendants refused to comply and the Claimant issued the present proceedings on 8th June 2006.

FIRST AND SECOND DEFENDANTS' DEFENCE

12. A Defence was served on 21st November 2006. The first part deals with complaints made against Mr Mohammad who was by then the Third Defendant. They dealt with the claim for specific performance in paragraphs 21-23. Of those paragraphs 22 and 23 in particular say as follows:-

"22. Further, the Claimant must at the time have known, or deliberately turned a blind eye to the fact, that:

(1) As the agent or attorney of the First and Second Defendants, the Third Defendant owed them duties as set out in paragraph 9 above or of the kinds therein set out;

(2) By proceeding to accept the Claimant's offer of £1.6 million and purporting to bind the First and Second Defendants to a sale at that price pursuant to the terms of the Contract, the Third Defendant was thereby:

(a) acting in a manner which was inconsistent with and in breach of the said duties to the First and Second Defendants (including the duties set out in paragraph 9 above); and consequently

(b) acting in excess of his authority as the agent (or attorney) of the First and Second Defendants.

23. The Claimant's knowledge, as alleged in paragraph 22 above, is evidenced by or to be inferred from the following facts and matters:

(1) The Contract specifically referred to the Third Defendant having been appointed "as attorney for and on behalf of [the First and Second Defendants] under a power of attorney dated 3^rd December 2005;

(2) The Claimant must therefore have realised that the sale of the Property had been entrusted by the First and Second Defendants to the Third Defendant with a view to the Third Defendant seeking the best possible price for the Property;

(3) The Claimant knew, as set out in paragraph 21 above, that his offer of £1.6 million significantly undervalued the Property;

(4) The Claimant also knew that the Third Defendant:

(a) had not sought or obtained any independent valuation of the Property;

(b) had not marketed it in the ordinary way via estate agents or in any other way such as would maximise the prospects of obtaining the best possible offers;

(c) was proposing to sell it within a matter of days of his having been appointed under the POA;

(d) was prepared to agree to the offer of £1.6 million without any or any serious attempt to persuade the Claimant to increase his offer through negotiation;

(5) The Claimant must therefore have realised - or, at the very least, suspected - that the Third Defendant did not seriously entertain any bona fide belief either that the price offered by the Claimant was the best possible price obtainable for the Property, or that a sale of the Property at the Contract price of £1.6 million was in the best interests of the First and Second Defendants;

(6) Furthermore, the Claimant was aware of the connection between him and the Third Defendant, through his brother-in-law, Mr Thukral, since it was through that connection that he was introduced to the opportunity of purchasing the Property;

(7) The Claimant must consequently have appreciated that the Third Defendant's loyalties might be torn between (on the one hand) conveniently agreeing a price with the Claimant (a relative of the Third Defendant's business associate) without any or much negotiation and without any independent valuation and (on the other hand, as he was duty bound to do) conducting serious negotiations with the Claimant only after obtaining an independent valuation and so as to achieve the best possible price and being prepared (if necessary) to walk away from those negotiations if the Claimant's offer did not reflect the best price achievable for the Property; and/or

(8) In the light of the speed at which contracts were exchanged and the absence of any substantial negotiations between the Claimant and the Third Defendant in relation to the Claimant's offer of £1.6 million, the Claimant cannot have entertained any serious belief that the Third Defendant had disclosed to the First and Second Defendants the nature and extent of his connection with the Claimant and/or the possibility of conflicting loyalties as described in (7) above".

13. In essence their contention is that the Claimant knew the Property was worth considerably more than £1,600,000 because he lived in the neighbourhood and he knew that the Property had not been marketed through an estate agent and must have known it had not been the subject of an independent valuation by the Third Defendant and that was why he acted as speedily as he did without any professional survey and local authority searches.
14. Accordingly it is contended that the Claimant must at the time have known or deliberately turned a blind eye to the fact that (1) the Third Defendant owed the First and Second Defendants the duties set out in the pleadings and (2) by proceeding to accept the Claimant's offer and purporting to bind the First and Second Defendants to sell at that price the Third Defendant was thereby (a) acting in a manner inconsistent with the breach of said duties to the First and Second Defendant and (b) acting in excess of his authority as the agent (or attorney) of the First and Second Defendants.
15. The allegations are therefore twofold. First it is alleged that Mr Mohammad was acting in breach of his fiduciary duties owed to the First and Second Defendants and the Claimant knew it. Second it is alleged that because Mr Mohammad had failed to market the Property through an agent and obtain a valuation and the best price he exceeded his authority and therefore had no authority to sign the Agreement on behalf of the First and Second Defendants.
16. The Claimant served a reply on 25th January 2007. In that reply (amongst other things) he stated that he had initially offered £1,400,000 which was rejected (paragraph 7(6)) but raised his offer to £1,600,000 which was accepted and required by Mr Mohammad to be put in writing.
17. Further he contended that there was nothing uncommon for a property transaction to proceed within days in the way in which it was and that the Claimant believed that £1,600,000 represented a fair price. However he appreciated that he was getting a good deal in the sense that upon refurbishment or demolition and rebuilding he would be able to sell at a profit. He arranged for a surveyor, a Mr Dwimoh, to view the Property primarily to check it was structurally sound and he confirmed on 8th December that the Property was sound and stated that £1,600,000 would be a good price to pay for the Property. Mr Dwimoh provided a witness statement on 16th April 2007 on behalf of the Claimant. In that he confirmed a letter that he wrote on 2nd February 2007 to the Claimant confirming his inspection on 7th December 2005 for an informal survey and that his view was that at the time of inspection it was worth £1,600,000.
18. He also put in issue the alleged extent of his knowledge of any alleged breaches of duty by Mr Mohammad.
19. Mr Becker the Claimant's solicitor gave evidence in a witness statement on 10th April 2007. In that he acknowledged he had acted for the Claimant for the past 7 years as a solicitor in respect of property transactions, that prior to exchange the Claimant told him verbally that he had had a surveyor attend the premises and that he would not normally advise an experienced property investor client to obtain a survey.
20. The First and Second Defendants have obtained evidence from 2 selling agents as to the value of the property in July 2006. Knight Frank LLP expressed the view that they would recommend a sale price in its present state of £3,500,000. Glentree Ltd in their letter of 10th July 2006 suggested that the range of value could be anything between £4,000,000 and £4,250,000 with an asking price of up to a maximum of £4,500,000. They provided a considerable list of comparables to justify that figure. Although Mr Nugee QC who appears for the Claimant criticised the worth of these valuations, they are the only evidence of valuation before the court save Mr Dwimoh's view. There is a huge variation and it is impossible at summary judgment stage to reject the First and Second Defendants' evidence which if established at trial shows that the terms negotiated by Mr Mohammad are a serious under valuation of the Property.

THE JUDGMENT

21. After setting out the background and the evidence in paragraphs 1-5 the Learned Master considered the valuation evidence and in paragraph 9 concluded "again, it seems to me that for summary judgment purposes I have to proceed on the footing that the sale was one of very considerable under value".
22. In paragraph 10 he then went on to observe that that considerable under value combined with the rather unusual circumstance of the transaction generally which in his view "apart from the subsequent express authority given by the sisters to enter into the contract gives some substance to the Defence raised". He identified 2 issues namely whether the Claimant was arguably on notice of Mr Mohammad's breach of duty and second whether the sisters having expressly authorised him to sell to the Claimant at that price as a result of his representation that he had a valuation and that a better price could not be obtained that constituted actual authority binding them and making the transactions valid.
23. He then considered paragraph 8-027 of the 18th Edition (2006) of Bowstead & Reynolds on Agency and went on to analyse the Claimant's evidence on the transactions. He observed (paragraph 16) there was no evidence as to how the Claimant arrived at the figures of either £1,400,000 or £1,600,000. The Master then went on to express dissatisfaction with the evidence of Mr Dwimoh but observed in paragraph 20 that these were small points and at trial they might turn out to be nothing in them. However he did say "but they are points which do seem to me raise questions about [the Claimant's] evidence about the valuation and his belief as to the value at the time. It seems a little odd that Mr Dwimoh should have reached a valuation of the house exactly equivalent to the offer which [the Claimant] had in fact made, again given the fact that there was no asking price and it seems to me more likely if one were just looking at general probabilities that the original version of the events in the reply is more plausible namely that Mr Dwimoh said that it was a good price."
24. The key part of the Learned Master's judgment seems to me to be paragraphs 23-27 which I set out below:-

"23. But those inconsistencies in the story do again seem to me to show that there is a matter for investigation, that one is not in a position at this stage to know at all what the true story is. The transaction is an odd one in that Mr Parti was introduced to the property by his brother-in-law who happens to be a friend or someone who has business dealings with Mr Mohammad, there was no asking price for the house and the price of £1.6m was offered and accepted with no intervention of agents or valuers on either side, apart from what Mr Dwimoh may have done subsequently to the subject to contract agreement, and it is a sale on the evidence in front of me at a very substantial undervalue.

24. Of course it cannot be the case that a purchaser dealing with an agent cannot enforce the contract against the principal just because he is getting a bargain. Far more than that has to be shown. But in the present case the bargain was on the material in front of me arguably a remarkable bargain to purchase at half price, which Mr Parti as someone with knowledge of property values may well have appreciated. You cannot tell without disclosure as it seems to me of any documents that Mr Dwimoh may have and the documents passing between Mr Parti and his lenders who were going to finance the deal had it gone through and of course without cross-examination of Mr Parti himself what his state of knowledge at the time was.

25. That very great undervalue coupled with the fact that this was a sale without any agent acting, without there even being any advertisement of the house being for sale and the deal being done through the brother-in-law who happened to be in touch with both sides, makes it, it seems to me, a distinctly unstandard transaction. In those circumstances it seems to me that it is a case that apart from the express ratification of the deal by the sellers requires investigation to establish whether in fact Mr Parti was turning a blind eye and did appreciate that Mr Mohammad was not carrying out his duty to his principal.

26. It is right that there appears to be is no reason as to why Mr Mohammad should have been failing in his duties in this respect and the defence is not at all a strong defence, however it is the case seemingly that Mr Mohammad was intending to divert part of the proceeds of sale to himself personally. It was that discovery by the solicitor acting for the vendors which led to the sacking of Mr Mohammad and the repudiation of the contract by the vendors, so on the material in front of me there is real reason to suppose that Mr Mohammad was dishonest though there is nothing to link that dishonesty to Mr Parti. But given that murky background without the ratification of the deal expressly by the two sisters I would have thought that the matter would have to go to trial. One simply is not in a position at this stage to be able to rule out a real prospect of success of Mr Parti appreciating that things were being done wrongly and that Mr Mohammad was not acting for the benefit of his principals. One also I think needs the evidence of Mr Thukral.

27. Therefore, if that were the only issue I would dismiss the application. However the matter does not end with the agreement between Mr Mohammad and Mr Parti. Indeed there never was an agreement just between those two. Mr Mohammad never took it upon himself to agree with Mr Parti. What he required was the written letter of offer which he got, and which he then sent off to his principals in Kuwait, who when they received it and had spoken to him about it instructed him to accept. They subsequently instructed their solicitors also and the contract was signed by Mr Mohammad and the solicitor. Therefore, this is a case where the principals have expressly directed the agents to enter into the very contract which the agents have entered into, at the price authorised by the principals".

25. I draw a number of conclusions in respect of those paragraphs:-

1 The inconsistencies in the story show that there is a matter for investigation and that one is not in a position at this stage to know at all what the true story is but the transaction appears to be an odd one and the manner of the sale is odd and on the evidence it is a substantial under value (paragraph 23).

2 In paragraph 24 he observed rightly that it cannot be the case that a purchaser dealing with an agent can not enforce a contract against the principal just because he is getting a bargain. With respect to the Master I do not believe he meant to say that. I think he meant to say that the principal cannot resist enforcement of the contract merely because the purchaser was getting a bargain. What he does say in paragraph 24 is that the bargain was so remarkable being at half price which the Claimant with his knowledge would appreciate. It is impossible without disclosure he observed of documents that Mr Dwimoh might have and documents passing between the Claimant and his lenders and without cross examination of the Claimant as to his state of mind.

3 In paragraph 25, the circumstances of the sale, namely, the great under value without an agent without an advertisement and a sale and the deal being done through the brother in law who happened to be in touch with both sides, made it a distinctly un-standard transaction. Apart from the question of "express ratification" the circumstances required an investigation to establish whether in fact the Claimant was turning a blind eye and did appreciate that Mr Mohammad was not carrying out his duties to the principal. The parties agree that the Learned Master did not mean to use the word ratification because there was no argument addressed before him as to ratification and that the correct word ought to be "authorisation". Mr Nugee QC conceded that before me and accepted that the arguments put forward on ratification by Mr Marshall QC who with Mr Choo Choy appears for the First and Second Defendants would be correct if that was what the Master intended.

26. This paragraph (which is not challenged by the Claimant) is in my view crucial to the appeal. Apart from the question of express authorisation the Learned Master formed the view that there were issues raised that ought to go to trial.
27. He pointed out in paragraph 26 that there appeared to be no reason why Mr Mohammad should be failing in his duties and notes that the Defence is "not at all a strong Defence". He observed that Mr Mohammad was attempting to divert part of the proceeds of sale to himself personally but concluded given the murky background without the "ratification" (sic) of the deal expressly by the two sisters he would have thought the matter would have to go to trial observing "one simply is not in the position to be able to rule out a real prospect of success of [the Claimant] appreciating that things were being done wrongly and that Mr Mohammad was not acting for the benefit of his principals". There is no cross appeal against that finding either by the Claimant.
28. This paragraph is also important because once again it shows that the First and Second Defendants have established a Defence which has a real prospect of success namely that the Claimant appreciated that things were being done wrongly and that Mr Mohammad was not acting for the benefit for his principals.
29. He accordingly concluded in paragraph 27 that if those were the only issues he would have dismissed the application. There is no cross appeal by the Claimant against that decision
30. In paragraphs 27-30 he addressed the fact that the sisters expressly authorised Mr Mohammad to sell the Property for £1,600,000. This express authority led him to conclude that the fact that the authority was improperly procured by Mr Mohammad did not affect the transaction as regards third parties i.e. the Claimant.
31. In paragraph 31 he said it would be otherwise if there was evidence to show the Claimant was a party to Mr Mohammad's fraud but no such case is pleaded. Instead the case "is only put on the turning [of] a blind eye to excess of authority. In my judgment that Defence simply does not run in a case like this where the principal has expressly directed the agent to enter into this particular contract. "

PRINCIPLES ON APPEAL AND SUMMARY JUDGMENT APPLICATIONS

32. I remind myself of the nature of the hearing before me.
33. The principles to be applied to a decision on a summary judgment application were reviewed in the decisions of the Court of Appeal in Esprit Telecoms UK Ltd v Fashion Gossip Ltd [2000] LTL 27/07/00 and Doncaster Pharmacuticals Group Ltd v The Bolton Pharmacutical Company 100 Ltd [2006] EWCA Civ 61.
34. In the Doncaster case Mummery LJ gave guidance in respect of summary judgment applications. Once again I do not see that guidance as being anything other than the common sense application of judicial caution at the summary judgment stage. Thus at paragraph 10 Mummery LJ observes pithily "Everyone would agree that the summary disposal of rubbishy Defences is in the interests of justice. The Court has to be alert to the Defendant, who seeks to avoid summary judgment by making a case look more complicated or difficult than it really is".
35. Conversely he observed (paragraph 11) "the Court also has to guard against the cocky Claimant, who, having deciding to go for summary judgment, confidently presents the factual and legal issues as simpler and easier than they really are and urges the Court to be "efficient" i.e. produce a rapid result in the Claimant's favour".
36. The appeal is limited to a review of the decision of the Lower Court unless (inter alia) in the circumstances of an individual appeal it would be in the interest of justice to hold a rehearing (which I do not believe to be the case here). The appeal will be allowed when the decision of the Lower Court was (a) wrong; or (b) unjust because of a serious procedural or other irregularity in the proceedings in the Lower Court. It is not suggested that the latter is the case.
37. The Appeal Court can draw an inference of fact which it is considered justified on the evidence (CPR 52.11).
38. The concept of "review" was considered by the Court of Appeal in EI Du Pont Nemours & Co v ST Du Pont [2006] 1 WLR 2793 (summarised at SCP 52.11.1 page 1549). The important point for the purpose of this appeal is that appropriate respect is to be accorded to the decision of the Lower Court, the nature of the Lower Court and its decision making process.
39. The concept of the word "wrong" in CPR 52.11 (3) (a) is meant to infer that the Lower Court either erred in law, erred in fact or erred (to the appropriate extent) in the exercise of its discretion. That latter point is designed to show that where a discretion is exercised it should be challenged only on the basis that no reasonable tribunal with the material before it could have come to the decision being challenged on appeal.

NATURE OF APPLICATION

40. The Claimant's application was for summary judgment.

DEFENDANTS' GROUNDS OF APPEAL

41. It is to be noted that the parties accept that paragraph 25 of the judgment finds that the Claimant cannot rely upon any apparent authority on the part of Mr Mohammad for summary judgment and that issue must go to trial. The Claimant was successful only on the basis of an express authority.
42. The First and Second Defendants' appeal is on two bases:-

1 On the basis of an assessment of the evidence before him and his findings at that stage the Learned Master ought to have concluded that Mr Mohammad had exceeded his authority as it was limited to putting forward a sale at the best price reasonably obtainable with the benefit of a marketing exercise through agents and with a valuation. As he exceeded his authority the Agreement is void as it was negotiated in excess of his authority. The Agreement further was contrary to the interests of the principals and therefore Mr Mohammad was not acting within the scope of his express authority which was the limited authority to sell subject to the compliance of the terms set out above.

That Defence if successful arises irrespective of whether or not the Claimant knew Mr Mohammad was exceeding his authority.

2 The second ground of Defence put forward by the First and Second Defendants is that the evidence and findings of the Master showed that there was a real prospect of success of establishing that Mr Mohammad was acting in breach of his duties and the Claimant knew it. It is true they concede that they do not allege that he expressly participated in a fraudulent design but he had constructive notice or turned a blind eye to the obvious. The Master as set out in the paragraphs of his judgment recited above found there was a real prospect of success on the part of the First and Second Defendants on this basis.

43. The First and Second Defendants submit that their case as to the Claimant's knowledge of the breach would also prevent him from relying on the fact that the First and Second Defendants authorised the sale at the price because they did so in ignorance of the breach of duty committed by Mr Mohammad. Their consent to the sale was only given on their understanding that it was put forward by Mr Mohammad in compliance with his duty.

LACK OF AUTHORITY

44. It is clearly trite law that an agent owes a fiduciary duty of loyalty including a duty to act bona fide for the principal's benefit: see Article 43 of Bowstead. It is therefore submitted that an agent who acts in breach of such duty acts disloyally and hence without actual authority. The First and Second Defendants rely on a number of authorities in support of that proposition. First is the decision of Lysaght Bros & Co Ltd v Falk [1905] 2 CLR 421 where O'Connor J stated (at 439):-

"Every authority conferred upon an agent, whether express or implied, must be taken to be subject to a condition that the authority is to be exercised honestly and on behalf of the principal. That is a condition precedent to the right of exercising it, and, if that condition is not fulfilled, then there is no authority, and any act purporting to have been done under it unless in dealing with innocent parties, is void. Further it is quite clear that if a person dealing with an agent has knowledge that there has been a fraudulent exercise of the authority then as far as he is concerned, he is not allowed to say that the authority exists".

45. That has been confirmed and applied by Lightman J in Hopkins v TL Dallas Group Ltd [2005] 1 BCLC 543 ...at paragraphs 87- 91):-

"[87] The principal issue in this case is the actual and ostensible authority of Mr Towey as deputy managing director of the Defendants to sign the 1995 Letters on behalf of the Defendants, and to commit DC and DG to the liabilities assumed thereunder. Before I look at the facts I should say a word on the relevant law. The authority of an agent is "actual (express or implied) where it results from a manifestation of consent that he should represent or act for the principal expressly or impliedly made by the principal to the agent himself": Bowstead & Reynolds on Agency 17th ed ("Bowstead") art 22(1). This authority extends to doing "whatever is necessary for, or ordinarily incidental to, the effective execution of his actual authority': Bowstead art 27. The authority may in appropriate circumstances extend to raising funds and giving security for borrowings for the purpose of fulfilling the functions and duties assigned to him. Where a board of directors appoint one of the members to an executive position "they impliedly authorise him to do all such things as fall within the usual scope of that office" ...Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, [1967] 3 All ER 98 at 583)."

[88] The grant of actual authority to an agent will not normally include authority to act for the agent's benefit rather than that of his principal and therefore, without agreement, the scope of actual authority will not include this. The grant of actual authority should be implied as being subject to a condition that it is to be exercised honestly and on behalf of the principal: Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421. It follows that, if an act is carried out by an agent which is not in the interests of his principal, for example signing onerous unconditional undertakings, then the act will not be within the scope of the express or implied grant of actual authority. As a result there cannot be actual authority:

"The agent is simply not authorised to act contrary to his principal's interests: and hence that an act contrary to those interests is outside his actual authority. The transaction is therefore void unless the third party can rely on the doctrine of apparent authority." ...Bowstead para 8-218.)

[89] In the case of Macmillan Inc v Bishopgate Trust (No 3) [1995] 3 All ER 747, [1995] 1 WLR 978, Millett J (as he then was) stated that "English law . . . recognises the distinction between want of authority and abuse of authority" (at 984). He then went on to approve the statement that "an act of an agent within the scope of his actual or apparent authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests". Bowstead suggests that this statement of the law should be limited to apparent authority, ie that acting fraudulently or in furtherance of own interests will by its very nature nullify actual authority, but not apparent authority. I respectfully agree.

[90] In my judgment Mr Towey did not have actual authority to sign the 1995 Letters for two independent reasons. The first is that the giving of the undertakings therein contained did not fall within the "usual scope" of his office of deputy managing director with full responsibility for the Marine Department and to resolve the outstanding matters relating to the Baroon and the Amra Insurance Claim. It is necessary to bear in mind (as Mr Colin Dallas stated unchallenged in his evidence) that Mr Ian Dallas was Executive Chairman, Mr Colin Dallas was managing director and Mr Towey, though deputy managing director, was subordinate to both and answerable to the Board. It is also necessary to bear in mind that, whilst Mr Towey was given a high degree of autonomy in the Marine Department and full responsibility to resolve outstanding matters relating to the Amra Insurance Claim and the Baroon, this did not give him authority to raise funds by financing trading by Mr Malik and his companies. DC had bank facilities at all times available and had no need or reason to have recourse to resort to unorthodox means. There was a requirement under the mandate for two signatories on any cheque. Mr Towey never had any authority at any time to raise money or earn profits as he thought fit, let alone enter into the onerous obligations under the 1995 Letters. Mr Towey's conduct in concealing the 1995 Letters is indicative that he knew that this was so.

[91] The second is that (as I have already held) he entered into the 1995 Letters, not for the benefit of DC and DG, but for his own benefit and/or the benefit of Mr Malik. He knew that it was highly disadvantageous to DC and DG to enter into the commitments which he did and it was for this reason that he never disclosed the commitments to the Defendants and was anxious that TTB should never disclose the commitments to the Defendants. In a word, he knew that he was acting in breach of fiduciary duty and indeed dishonestly in signing the 1995 Letters".

46. I make two observations on that extract. There is no argument based on ostensible authority deriving from the appointment of Mr Mohammad as an agent for the purpose of this appeal.
47. Second Lightman J gave two reasons as to why the agent did not have actual authority. The first of those was that the giving of the undertakings was not within the usual scope of the office of deputy managing director. That type of authority is not relevant for the purpose of the appeal. The second reason (paragraph 91) was that he had no authority because the arrangement was highly disadvantageous and that he was acting in breach of fiduciary duty and dishonestly signing the letters. That is relevant to this appeal
48. In my view the findings of the Master at this stage show that the First and Second Defendants have raised a Defence which has a real prospect of success on that basis. Mr Nugee QC accepted that the hearing before the Master and before me should proceed on the basis that what the Defendants asserted in evidence was to be accepted as true for the purposes of the summary judgment application. It seems to me that with respect the Master fell in error in concluding that the express agreement to the sale somehow over rode the fact that the consent and authority for him to effect the sale was procured by Mr Mohammad in breach of his duty.
49. I should also deal with paragraph 89 of Lightman J's judgment. There he referred to the decision of Millett J in Macmillan Inc v Bishopsgate Investment Trust PLC (No3) [1995] 1 WLR 978. At page 984 Millett J (as he then was) expressed the view that an act of an agent within the scope of his actual or apparent authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests. The text of Bowstead suggests that that statement of law should be limited to apparent authority i.e. that acting fraudulently or in furtherance of his own interests would by its very nature nullify actual authority but not apparent authority. Lightman J expressed concurrence with that view in Bowstead and his concurrence is noted in the current edition: see Article 23 paragraph 3-009. This is based upon the correct understanding of the decision of Hambro v Burnand [1904] 2 KB 10 relied upon by Millett J in his judgment. That decision, properly understood, was in my view correctly identified as being a case on apparent authority. The logic of this is clear. If an agent is clothed with apparent authority he is authorised to do the acts within that apparent authority whatever his motive. His motive becomes irrelevant for the purposes of seeing what he was apparently authorised. Where however one is dealing with an actual authority then the parameters of that actual authority are subject to the duties summarised above. In those circumstances his motivation and actions are relevant. The Hambro case was properly explained by the Court of Appeal in AL Underwood Ltd v Bank of Liverpool and Martins [1924] 1KB 775 where Scrutton LJ said this at pages 791-792:-

"Their first line of defence was that, as Underwood was acting within his apparent authority, the fact that he was using that authority for his own benefit was immaterial; "the apparent authority was the real authority", see per LORD MACNAGHTEN in Bryant, Powis and Bryant, Ltd v Quebec Bank (15) ([1893] AC at p 180) and for this purpose they relied on such cases as Hambro v Burnand (16) and Lloyd v Grace, Smith & Co (17). In my view, the distinction between these cases and the present is that, in the cases cited, the apparent agent was purporting to create privity between the plaintiff and his principal by doing an act which it was within his apparent authority to do, and the fact that he did it for his own benefit, which he had no actual authority to do, was immaterial as against the plaintiff who purported to contract with the alleged principal on the faith of the agent's apparent authority. If an agent, with a general authority in writing to sell houses, sells, as agent, his principal's house to third party after production of his authority, it would be useless for the principal to assert that his agent was really selling on his own behalf intending to put the money in his own pocket. "The apparent authority is the real authority." So in the present case, if the bank were purchasing the cheque for value, apart from any question of the Bills of Exchange Act, 1882, on finding from the company's documents that the sole director had authority to endorse cheques on their behalf, it would be immaterial whether he was using that power for his own benefit, and privity would be created between the alleged principal and the bank, so that the property would pass. But in the present case AL Underwood, in asking the bank to collect and pay the proceeds into his private account, was not purporting, in this transaction, to act as agent for his company, or to create privity between them and the bank, he was acting and purporting to act for himself as principal. Just as you cannot ratify the act of an agent who did not profess to act for you, so, in my view, you cannot rely on the apparent authority of an agent who did not profess, in dealing with you, to act as agent. This line of defence, in my opinion, fails".

50. I do not know whether the Underwood case was cited to Millett J; he does not refer to it in his judgment. In my view the Underwood case and the Dallas case show that the disregard of the motivation and breach of duty by the agent is only relevant in the case of apparent authority. I agree therefore with the conclusion of Lightman J that where one is dealing with express authority if the agent acts in breach of his duty he is not acting in the principal's interest and is therefore acting without authority.
51. It is not suggested that the First and Second Defendants knew that Mr Mohammad was acting in breach of his duties when the consent to the Agreement was forthcoming. It seems to me that it is only possible for their consent to the Agreement to be effective if it is shown that they gave a full and informed consent i.e. with full knowledge that such sale would be at a gross under value and at a price that was in effect recommended by Mr Mohammad in breach of his duties. It should be borne in mind that the First Defendants' initial reaction to the price of £1,600,000 was that it was not enough but that Mr Mohammad persuaded her in effect by saying that the house was in poor condition and difficult to sell and that he led her to believe that a valuation had taken place and a better price could not be obtained (paragraph 9 of her witness statement).
52. It is artificial in my view, with respect to the Learned Master to look at the bare fact that the First and Second Defendants agreed to the sale without also looking at the circumstances in which their agreement was procured. If they do not know that Mr Mohammad is seeking to obtain confirmation for a sale in breach of his duties then that vitiates any consent in my view.
53. I would therefore allow the First and Second Defendants' Appeal. If the First and Second Defendants establish at trial that Mr Mohammad was in breach of his duties, that they did not know that and that their agreement to the sale was given in the belief that he was not acting in such a way Mr Mohammad in my view had no authority no express authority to enter into the Agreement. That leaves alive of course the issue of apparent authority which the Claimant may be able to rely upon at trial.

AGREEMENT VOIDABLE

54. Based on the Master's decision it seems to me that the Claimant cannot without challenging his conclusion maintain a judgment on this basis. The Master clearly thought there was an issue which had a real prospect of success namely that the Claimant knew or shut his eyes to the breaches of duty committed by Mr Mohammad. As to the concept of wilful shutting of eyes the matters set out in the Master's judgment plainly show that the First and Second Defendants have a real prospect of establishing that the Claimant either had constructive notice of Mr Mohammad's breaches of duty or turned a blind eye to them. I refer to the observations of Mance J in Gruppo Torras SA v Al-Sabah (No 5) [1999] CLC 1469 at 1618:-

"In my judgment, no honest lawyer would have implemented the instructions which Mr Folchi recounts in this transaction unquestioningly and uncomprehendingly in the manner which Mr Folchi did. There can be no question about Mr Folchi's competence. An honest lawyer in his position would, to safeguard himself and his clients, have insisted on obtaining a proper understanding and assurances regarding the situation (quite possibly in writing despite the supposed confidentiality of what was occurring). If his clients would not give him this, he would have refused to become involved. I do not on the material before me conclude that Mr Folchi became knowingly party to the scheme to injure GT or THL. But I do conclude that Mr Folchi received and complied with instructions which conflicted, on their face and in the most obvious way, with the most fundamental of fiduciary duties, to keep private and corporate affairs and monies separate. Despite any confidence Mr Folchi may have had in his clients and the distinction of the officers whose accounts were in question and despite the prevalence of complementary payments, I cannot view it as honest conduct for any lawyer to facilitate indirect payments from one's client company's accounts to unknown accounts in the names of the client company's directors, without any clear understanding why this should be necessary or appropriate. Any other conclusion would be an invitation to fraud. Directors of previously impeccable reputation can succumb to the temptations of their stewardship. Any lawyer in Mr Folchi's position must be taken to be aware of this risk, and I have no doubt that Mr Folchi was as aware of it."

I applied that in AG of Zambia v Meer Care & Desai [2007] EWHC 952 at paragraph 328. The Claimant clearly does not have to know the precise breach or how extensive it was: see Barlow Clowes International Ltd (In liquidation) v Euro Trust International Ltd [2006] 1 All ER 333 PC and the Gruppo Torras decision. I appreciate that it is a difficult decision to draw between a line between the desire of a purchaser to secure a bargain for himself as against a realisation that the bargain is so good that there must be something wrong about the conduct of the agent selling the property on the other side of the transaction. This is a matter for trial and given the Master's findings at this stage (which are not appealed) the First and Second Defendants have a Defence which has a real prospect of success.

55. I would therefore conclude that they have also established a Defence which has a real prospect of success at trial based on the Agreement being voidable for the reasons set out in the Master's judgment and confirmed by me.

CONCLUSION

56. In the event I respectfully conclude that the Learned Master fell into error in concluding that the First and Second Defendants had no Defence based on the fact that they agreed expressly to the actual sale. The reasons are those that I have set out above and I will accordingly allow their appeal against his decision.

OTHER ORDERS

57. It seems to me (and I so indicated at the conclusion of the submissions) that if the appeal was allowed this was a suitable case for a speedy trial and I urged the parties to agree directions. I also observed that whilst the Claimant has security as regards the outstanding purchase price if he wins the case it may be appropriate for the Property to be sold and the proceeds of sale held in an account to abide the result of the action. This too I raised with the parties at the conclusion of the hearing.
58. Finally I am as always grateful to the cogent and careful written arguments and the subsequent deployment of those arguments in equally helpful and clear exchanges in the oral submissions.