England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIMINGHAM DISTRICT REGISTRY
On appeal from the Birmingham County Court, 1140 of 2007

		Birmingham Civil Justice Centre The Priory Courts 33 Bull Street Birmingham B4 6DS
		Date: 30th January 2009

1. This is an appeal by Waheed Ahmed ("Wad") from the refusal of the District Judge on 19^th November 2007 to set aside a statutory demand.
2. The statutory demand is based on a bounced cheque in the sum of £150,000. As cheques are commonly said to be the equivalent of cash, Wad's starting point is unpromising.
3. The cheque was given by Wad as a deposit in respect of a property knocked down at auction for £1,450,000 to Waheed's brother, Wazeem ("Sean"). Sean was said to be acting on the purchase at the instigation of another brother Hafeez ("Jak") who was himself associated in some way with and acting for a third party (apparently a corporate entity) called Pinnacle Real Estate ("Pinnacle") or some variant of that name. The deposit cheque came, however, from Wad, who was not the purchaser. The cheque was given by Wad to Sean before the auction and, in handing it over, Sean acted in amongst other capacities as Wad's agent. Sean also signed the Contract of Sale, ostensibly for Pinnacle.
4. The cheque was dishonoured on Wad's instructions. Wad and his brothers allege that both the sale contract and the cheque were procured by misrepresentation. They claim that the contract has been rescinded and that the cheque is not enforceable. Alternatively, as the cheque was itself procured by misrepresentation, Wad has a counterclaim for misrepresentation which equals the amount of the cheque. If all else fails, it is said that Wad would have, directly or indirectly (via Pinnacle or Sean) a claim for return of the deposit. In these circumstances, it would be wrong to allow a statutory demand to stand where the amount claimed, if paid, would ultimately have to be repaid.
5. I am satisfied that, if the cheque was procured by misrepresentation, there would at the very least be a cross-demand for the amount of the cheque as, in the events which happened, the property was resold (at the same price) for the account of the Respondent. Wad in those circumstances got nothing of economic value for his cheque. Thus, the damages would on the face of it be the amount of the cheque.
6. Rule 6.5(4)(a) of the Insolvency Rules 1986 ("the Rules") allows the court to set aside a statutory demand if the debtor appears to have a "counterclaim, set-off or cross-demand" equalling the amount of the debt. I have no doubt that, if the cross-demand in this case is genuine, the appropriate course would be to set aside the statutory demand: compare Hofer v Strawson [1999] 2 BCLC 336. In those circumstances, it is not necessary for me to consider whether Wad would also have a defence of set-off, or failure of consideration following rescission.
7. Some debate took place before me concerning whose counterclaim it was, as Wad was not a party to the Contract of Sale. I do not think that matters, as he was a party to the cheque. Moreover, in providing the money, he was acting as agent for whoever the contracting party was (Pinnacle or Sean, it is not entirely clear which) and would be entitled to an indemnity from his principal, who would on this hypothesis have a direct claim against the Respondent for misrepresentation. Thus, the Respondent could sue the Appellant on the cheque, who could sue his principal for an indemnity, and his principal could in turn sue the Respondent. Liability would therefore go round in a circle, and end up back with the Respondent. Those circumstances would, in my judgment, amount at least to "other grounds" for setting the statutory demand aside within Rule 6.5(4)(d) of the Rules, and may even give rise to a defence of circuity of action: compare Lomax Leisure Ltd (in liquidation) v Miller and another [2008] 1 BCLC 262 at para 54.
8. Circuity of action is relatively unheard of these days given the wide availability of counterclaims and set-offs. The defence is based on the once impressively-regarded Latin maxim frustra petis quod mox es restiturus: per Lord Norman in Workington Harbour and Dock Board v. Tower-field (Owners) [1951] AC 112 at 148. Fortunately for modern correctness, the maxim has been authoritatively translated (albeit loosely and perhaps less impressively) as "it is no good trying to get something which immediately afterwards you are going to have to hand back": Post Office v Hampshire County Council [1980] QB 124 at 134. I see no reason why the principle of circuity should not come into play where the circle involves more than 2 parties, and should certainly be a relevant consideration when considering whether there are grounds for setting aside a statutory demand in a case such as the present one.
9. The essential issue, therefore, is whether there is reality in the claim for misrepresentation. The District Judge thought there was not. I now consider whether the Appellant succeeds in his challenge to the District Judge's conclusion.
10. The auction catalogue described the site as being 2.25 acres in extent and as having the benefit of planning permission.
11. The contract which Sean signed at the auction following the successful bid relates to land ("the auction land") having an acreage closer to 0.8 acres.
12. The auction land was part of a larger site ("the site") which was approximately 2.25 acres in extent.
13. The auction catalogue included a plan of the auction land, edged in red. This was much less than the whole site, being that part of the site which had planning permission. On the same page was another smaller plan showing the position of the site. The copy originally in the bundle was somewhat indistinct, but a much better coloured copy was produced to me, from which it can clearly be seen that the position of the larger site is pointed out by an arrow.
14. Jak inspected the site on at least 3 occasions. Wad also visited the site with him. They both saw the auction catalogue. The site was bulldozed, according to Jak, and there were no clearly-marked internal boundaries. There were however 2 "For Sale" signs on the site. One was left over from a previous sale, and was (unbeknown, it is said, to Wad and Jak) part of the site not intended to be included in the auction land. The other was on the auction land itself, having been put there by the auctioneers for the later sale. Each sign said the land sold was 2.25 acres. It appeared from that, therefore, that what was being sold on the second occasion was the same land as had previously been sold, which was the whole site.
15. The auction was attended by Sean and Nawaz Peerbux ("Nawaz") a property dealer friend. That was on Monday 5^th March 2007. Jak says he spoke to Mr Daly of the auctioneers the previous week and was assured by him that the land was approximately 2.25 acres in extent.
16. On the Friday before the auction, Jak claims that Mr Daly confirmed to him again that the size of the plot was approximately 2.25 acres as shown in the auction catalogue. He had not however received a legal pack and someone from his office was going to go out and measure the property.
17. Jak spoke again to Mr Daly by telephone on the Monday from the auction room, but before the auction. Mr Daly is alleged to have said:

"If you haven't seen the land, don't bid for it, if you have seen it then what you see is what you get."

18. Sean and Nawaz also claim that they were told by Mr Daly on the day of (but before) the auction that he presently had someone on site carrying out measurements, and that the measurement of 2.25 acres might be corrected marginally. He allegedly told Sean that if he had been on site that was exactly what he was bidding for. Sean also claims to have heard Mr Daly tell Jak over the telephone that the site was probably 2.25 acres, that there was someone presently on site carrying out the measurements and that there was nothing to worry about. Nawaz's evidence is to similar effect, though he also claims to remember Mr Daly telling Jak: "what you see is what you get".

18. These conversations are hotly disputed, but I cannot resolve that dispute on this appeal. If the dispute is material, it can only be resolved at a trial.
19. Before bidding for the auction land commenced, Mr Daly read out an addendum to the following effect:

"We do not have a definitive site area for this lot and any reference in the auction catalogue to a site area of 2.25 acres should be ignored. Furthermore, if you are not sure as to the actual extent of the site that this lot comprises then we recommend that you do not bid for this lot."

20. The addendum is also said to have been handed to Sean and Nawaz on or shortly after their arrival, but that is disputed, and that dispute cannot be resolved in advance of a trial either. It is unlikely to matter very much, as it is accepted that the addendum was read out before bidding commenced.
21. Pausing there, the combination of the auction catalogue, the site lay-out, the "For Sale" signs and what Mr Daly is alleged to have said until he read out the addendum makes it clearly arguable, in my judgment, that the Respondent was representing down to that point:-

(i) that (i) that what was being sold was the whole site;

(ii) that (ii) that the site was about 2.25 acres in extent.

22. If that is correct, these were both misrepresentations.
23. What then was the effect of the addendum? It seems to me that whilst it may well have negated the statement of acreage, it arguably did nothing to qualify or correct the representation that what was being sold was the whole site.
24. The District Judge thought that it was fanciful that anyone confronted by the catalogue plan edged red could have thought they were buying the whole site. Jak's evidence was that he took this to be the part of the site which had planning permission, but that what was on offer was the whole site. Given the existence of the other plan in the catalogue, which identified the larger site, the stated acreage, the site layout and the "For Sale" signs, I do not consider it appropriate to reject Jak's evidence as wholly fanciful, though the District Judge may turn out to be right at the end of the day. I should, in fairness to him, say that I do not think he had the advantage I have had of a clear coloured copy of the site plan in the auction catalogue.
25. It is said on behalf of the Respondent that an auctioneer usually has no implied or ostensible authority to make representations. I very much doubt whether that principle can apply where the auctioneer is merely identifying the property he is offering for sale. That after all is the very job he is employed to do. Moreover, the General Conditions of Sale to which the auction was subject advised purchasers to make all necessary enquiries concerning measurements and areas with the auctioneer's firm. That makes it at least strongly arguable that Mr Daly and his firm were expressly authorised to make such representations (if any) as may ultimately be proved.
26. The Respondent also relies upon a document headed "Special Conditions of Sale". Condition 9 is in the following terms:

"The Buyer admits that she or it has inspected the Property and that it has entered into this Agreement solely on the basis of such inspection and the terms hereof and not in reliance upon any representations whether written or oral implied or made on behalf of the Seller or its agent."

27. This condition gave rise to a stimulating debate before me as to its effect in the circumstances of this case. The Respondent contended initially that it gave rise to an evidential estoppel, thus avoiding the statutory restrictions on excluding liability for misrepresentation. There is obiter support for this approach in the Court of Appeal's decision in Watford Electronics Ltd v Sanderson CFL Ltd [2001] 1 All ER (Comm) 696, and the earlier unreported observations of Chadwick LJ in EA Grimstead & Sons Ltd v McGarrigan (27^th October 1999). However, an evidential estoppel, as Chadwick LJ recognised, is dependent on evidence which the Appellant would be entitled to challenge at trial. The outcome of that evidential inquiry cannot be assumed at this stage.
28. The Respondent argued in the alternative in favour of a contractual estoppel, citing the reasoning of Moore-Bick LJ in Peekay Intermark Ltd v ANZ Banking [2006] 2 Lloyds Rep 511 at para 57 in particular. The Appellant contended that these remarks were obiter. However, Gloster J in J P Morgan Chase Bank & Others v Springwell Navigation Corp [2008] EWHC 1186 (Comm) at paras 556 and 561 concluded that the remarks in Peekay were part of the ratio and confirmed by later authorities.
29. The Appellant also noted, as had Judge Seymour QC in Peart Stevenson Associates Ltd v Holland [2008] EWHC 1868, that there is an unresolved tension between this line of cases and the earlier Court of Appeal decision in Cremdean Properties Ltd v Nash (1977) EGLR 60, which was regarded by Toulson J in IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (QB) (Comm) at para 68 as authority for the proposition that a party cannot by a carefully chosen form of wording circumvent the statutory controls on exclusion of liability for a representation which has on proper analysis been made.
30. I agree that there is a tension on the authorities which needs to be resolved. I do not however need to resolve it on this application, and do not consider that it would be desirable to do so on an application to set aside a statutory demand. As it happens, the Respondent faces, on the evidence as it presently stands, a more fundamental difficulty on the Special Conditions. There is no satisfactory evidence before the Court that these conditions ever were incorporated into the sale contract.
31. The Special Conditions were introduced into evidence as exhibit "PF6" to the Witness Statement of Patrick Foster, who describes himself as "the LPA Receiver". Special Condition 4.1 reveals that he was appointed by Deed on 22^nd December 2006, and was selling under the powers contained in a charge dated 9^th October 2006.
32. The only reference to "PF6" in the witness statement is in paragraph 16, which is in the following terms:

"The [Appellant's] brother (on the [Appellant's] evidence) entered into a contract for the purchase of the Property at auction, with the deposit in the sum of £150,000.00 becoming payable immediately. (A copy of the Contract of Sale can be found at Exhibit "PF6" to this Witness Statement). As a result of the stopped cheque the Respondent has received no consideration to date."

33. It will be seen that the Special Conditions do not merit separate mention, and Condition 9 is not highlighted. This is somewhat surprising, as Mr Foster quotes extensively from the General Conditions elsewhere in his witness statement. The General Conditions were set out in the auction catalogue itself. Moreover, the Special Conditions identify the Title Number, the filed plan of which delineates the auction land, not the whole site.
34. An examination of "PF6" reveals a 1 page contract followed by the Special Conditions. The Special Conditions are not however part of or attached to the contract, though the contract does refer to "the General Conditions and Special Conditions of Sale". Both parties confirmed to me at the hearing of the appeal that the Special Conditions were not produced to Sean when the Contract of Sale was signed.
35. No-one says in evidence when these Special Conditions were produced and whether they were (as they should have been under the General Conditions) available for inspection, either before or at the auction. I am not prepared to assume, in the absence of evidence, that they were so available, and remind myself in this connection that Mr Daly is said to have told Jak on the Friday before the auction that he had not received a legal pack, and that measurements would therefore be taken by his firm, which in fact happened on the day of the auction.
36. The omission to explain the origin of the Special Conditions is all the more surprising as Mr Foster is at pains to refer to a Geological Report which correctly stated the acreage and was, he claims, part of the auction pack available for inspection at the auction. The auction pack is not referred to in the General Conditions, however, or elsewhere, and there is no evidence that Sean (who had not attended an auction before) was aware of its availability, or of the Geological Report.
37. It was argued on behalf of the Respondent that none of this matters, as no-one on the Appellant's side ever asked to see the Special Conditions. The auction catalogue (which applied to all the lots) stated under the heading "General Conditions of Sale" that the "Special and General Conditions of Sale" could be inspected at the Vendor's solicitors during the 5 days preceding the sale (excluding weekends) and at the Sale Room at the time of the Sale. I agree that, if the Special Conditions were available for inspection either at or before the auction, the Appellant and his brothers could take no comfort from the fact that no-one bothered to read them. It is well established that a contracting party is taken to have read all the conditions, and cannot get out of them simply by asserting that he did not in fact read them. However, this assumes that they are available to be read. The evidence in this case does not establish that. The evidence is surprisingly silent on the point. In those circumstances, I am not prepared to assume that the Special Conditions were incorporated. The District Judge took the opposite view (both in relation to the Special Conditions and the auction pack) and, on that view, understandably thought that the Appellant and his brothers only had themselves to blame for the problems that ensued. However, the point as to the unavailability and consequent inapplicability of the Special Conditions may not have been argued as strenuously before him as it was before me. There is no indication in his judgment that he was conscious of any issue as to their unavailability. Whilst, therefore, the District Judge may well turn out to be right at the end of the day, I do consider that there is a real issue, which requires a trial, as to the applicability of the Special Conditions.
38. It follows that there is in my judgment a seriously arguable case that the sale contract and accompanying cheque were induced by misrepresentation. That means (for the reasons I have set out in paragraphs 5-8 above) that the statutory demand ought in my judgment to be set aside.
39. In the light of this conclusion, it is strictly unnecessary for me to consider whether or not there is a sufficiently arguable case for return of the deposit under section 49(2) of the Law of Property Act 1925. I shall nevertheless address the point briefly in recognition of the arguments that have been advanced.
40. Section 49(2) provides as follows:

"(2)     Where the court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit."

41. As, of course, the cheque has not been cashed, no deposit has, in the event, been paid. However, I would not regard it as satisfactory if Wad could be bankrupted on the cheque if his trustee could immediately turn round and recover the same sum.
42. It is said that any claim to recover the deposit would be the purchaser's, not Wad's. That seems to me to raise a similar point to the one I considered in paragraphs 7 and 8. Wad could claim indemnity from the purchaser, who could claim the return of the deposit from the Respondent. Ultimately, therefore, the respondent would recover nothing. The money would go round in a circle. That state of affairs amounts in my judgment either to "other grounds" for setting aside the statutory demand, or to circuity of action, or both.
43. The Appellant relied upon the judgment of Buckley LJ in Universal Corporation v Five Ways Properties Ltd [1979] 1 All ER 555 at 555 to demonstrate the width of the discretion under section 49(2). However that case has not been followed subsequently, and it is now clear that some unusual or special feature is required to relieve a defaulting purchaser from the consequences of his bargain: see the recent review of the authorities by the Court of Appeal in Midill (97PL) Ltd v Park Lane Estates Ltd and another [2008] EWCA Civ 1227; [2008] All ER (D) 99 (Nov).
44. Whether or not there would be special circumstances seems to me to be something that can, so far as this case is concerned, only be answered when all the facts are known. This is another reason for a trial.
45. In the circumstances, the appeal is allowed and the statutory demand set aside.