England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		01/05/2013

Sir Terence Etherton, Chancellor:

1. On 16 April 2013 I heard the following four applications in these proceedings: (1) an application by the first Defendant for summary judgment against the Claimant; (2) an application by the second to fourth Defendants for summary judgment against the Claimant; (3) an application by the second to fourth Defendants for permission to amend their Defence; and (4) an application by the Claimant to strike out the majority of a witness statement made Michael Robert Goldberger on behalf of the second to fourth Defendants.
2. At the conclusion of submissions by counsel on each application, I gave my decision. I dismissed the applications for summary judgment and granted the application to amend. I granted the application by the Claimant in relation to Mr Golberger's witness statement subject to allowing the second to fourth Defendants an opportunity to agree with the Claimant or to persuade the Court that parts of that witness statement, in addition to the parts conceded by the Claimant as legitimate, could be retained in the light of the principles underlying my decision. I gave a reasoned judgment in relation to the application to amend. In relation to the applications for summary judgment and in respect of Mr Goldberger's witness statement I said that I would give my reasons in writing. That is the purpose of this judgment.

The claims

3. In very broad terms the Claimant alleges that, in relation to two property transactions which took place in 1995 and 1996, the first Defendant dishonestly assisted Van De Berg Co Limited ("VdB"), a property finder and consultant to the Claimant, in breaches of VdB's fiduciary duties to the Claimant. It is also alleged that the first Defendant paid a bribe to VdB in connection with those two transactions. The consequence of those transactions was that one or other of the second to fourth Defendants acquired the freehold of a property, in which the Claimant acquired at the same time a leasehold interest, although, so the Claimant alleges, it would or might have acquired the freehold had VdB, consistently with its fiduciary duties, advised the Claimant that the freehold was available for purchase by the Claimant. At the time of those transactions the second to fourth Defendants were in the same group of companies (together "First London"), and the first Defendant was a director of each of them. The Claimant alleges that the first Defendant's knowledge, acts and omissions are to be attributed to First London. The Claimant claims damages, equitable compensation, an account of profits and interest.
4. It is not necessary or, in view of my decision on the summary judgment applications, appropriate to examine the factual background and the claims and defences in exhaustive detail. The action will now proceed in the ordinary way, and it is important that nothing I say should unfairly impact on the conduct and outcome of the trial. The following summary is sufficient for the purpose of this judgment.
5. The Claimant is the well known operator of public houses. In some cases it is the freehold owner of its properties, and in some cases it merely has a leasehold interest. In the majority of its properties, both now and in the past, it has only ever had a leasehold interest. At the relevant time VdB were retained by the Claimant as property agents to find, and advise on, suitable properties from which the Claimant could carry on its business. They were paid fees for their services to the Claimant.
6. The first transaction in which the first Defendant became involved in acquiring the freehold of a property, in which a leasehold interest was simultaneously granted to the Claimant, concerned a property in Grantham ("the Grantham property"). VdB introduced the Grantham property to the Claimant and then First London. The Claimant had, well before the introduction to First London, considered whether to purchase the freehold, but decided against it. It was, however, interested in acquiring a leasehold interest if a developer purchased the property. It appears that VdB contacted a developer, Dencora plc ("Dencora"), to see if it was interested in acquiring the freehold. VdB subsequently contacted First London for the same reason. It seems that, at some point, Dencora ceased to be interested and First London purchased the Grantham property. No claim has been made by the Claimant against First London in respect of the Grantham property, but, as I shall explain, First London relies on it heavily as explaining and supporting the first Defendant's innocent state of mind as regards the two property transactions which are the subject of these proceedings.
7. The next transaction, in which a property was introduced to the first Defendant by VdB, and First London simultaneously purchased the freehold and granted a lease to the Claimant, concerned the property at 33-37 Bridgegate, Rotherham ("the Rotherham property") in 1995. This is one of the two transactions which are the subject of these proceedings. VdB introduced the Claimant and then First London to the Rotherham property. VdB initially introduced Dencora as a potential purchaser of the freehold, but Dencora subsequently decided not to proceed. First London then acquired the freehold. The Claimant alleges that VdB never advised the Claimant that it could acquire the freehold. In a letter dated 13 June 1995 to Mr Gold of First London, which set out the terms for the acquisition of the freehold of the Rotherham property by First London and the simultaneous grant of a lease to the Claimant, Mr George Aldridge of VdB said:

"Van de Berg & Co will be looking for a fee for the introduction of this freehold investment equating to 1% of the purchase price including VAT. We will, obviously, not be looking for a letting fee and I trust you will find this to be in order".

8. First London denies that it ever paid any commission to VdB in respect of the Rotherham property. The Claimant alleges that commission was paid and that it was disguised as a payment for services to First London in respect of a quite separate property transaction in Blackpool.
9. The other property transaction which is the subject of these proceedings concerns a property at 153-155 High Street, Burton upon Trent ("the Burton property"), which was introduced to both the Claimant and the first Defendant by VdB in 1995. Once again, First London acquired the freehold and at the same time granted a lease to the Claimant. The Claimant alleges that it was never advised by VdB that it could purchase the freehold. In his letter informing the first Defendant of the Burton property Mr Aldridge said that he would "be grateful if [the First Defendant] could keep any fee arrangements with [VdB] confidential." The Claimant alleges that a secret profit or bribe of £5,000 was paid by First London to VdB.

The summary judgment applications

10. The Defendants cannot succeed in their applications for summary judgment pursuant to CPR Part 24 unless they are able to satisfy the court that the Claimant has no real prospect of succeeding in its claims and there is no other compelling reason why the case should be disposed of at a trial. Mr John Wardell QC, for the first Defendant, in his admirably concise and eloquent submissions, relied on the principles and approach of the Court of Appeal in Attrill v Dresdner Kleinwort [2011] EWCA Civ 229. It is sufficient, for the purpose of this judgment, to say that Mr Wardell accepted that the Defendants have to show that the Claimant has no more than a fanciful, as distinct from a realistic, prospect of success: see also Swain v Hillman [2001] 1 All ER 91 at [7] (Lord Woolf MR).
11. It is well established that, in a case which turns on disputes of fact, the summary judgment procedure is inappropriate if it would involve the court conducting a mini trial on the documents, including witness statements, or undertaking a minute and protracted examination of the documents: Swain v Hillman at [20], Three Rivers DC v Bank of England (No. 3) [2003] 1 AC 1 at [96] and [97].
12. The application notice of the first Defendant states that the basis of his application for summary judgment is that, even if VdB owed fiduciary duties to the Claimant and was in breach of them, there is no real prospect of the Claimant establishing (1) that the first Defendant knew of any such breach of duty, or (2) dishonesty on the part of the first Defendant, or (3) the payment of any bribe by the first Defendant. The application notice of the second to fourth Defendants does not contain any similar elaboration but, as is made clear in their skeleton argument, and was confirmed by their counsel, Mr David Wolfson QC, at the hearing, they have nothing to add to the submissions on behalf of the first Defendant on the issue of summary judgment against the Claimant.
13. The applications for summary judgment were made after the exchange of witness statements. The trial is due to take place at the beginning of June this year with a time estimate of 10 days. Excluding the witness statement of Mr Goldberger, there are approximately 82 pages of witness statements. The first witness statement of the first Defendant extends to 198 paragraphs and the first witness statement of Timothy Randall Martin, the sole witness for the Claimant, extends to 203 paragraphs. Four chronologically arranged bundles of documents, extending to just under 1600 pages, were prepared for the hearing of the summary judgment applications. The first Defendant's witness statement is 33 pages. The estimate for the hearing was 2 days. The first Defendant's skeleton argument gave a time estimate for judicial pre-reading of 5-6 hours. Finally, it is relevant to note that it has already been held, in proceedings by the Claimant against VdB, to which none of the Defendants were parties, that VdB were fraudulent in relation to the Rotherham and the Burton transactions which are the subject of the present proceedings.
14. I do not consider that the summary judgment applications are, in principle, appropriate. They are based on a particular interpretation of facts which are in dispute and, not unusually in the case of allegations of fraud and dishonesty, on the inferences to be drawn from established facts. Mr Wardell accepted, and indeed asserted, that the alleged inferences which the Claimant seeks to draw must be assessed in the light of all the documents. In the light of the substantial factual and documentary evidence in the present case and the matters which are in dispute, this is to my mind, precisely the type of mini-trial of disputed facts on the documents for which the summary judgment procedure is inappropriate.
15. That view is not undermined by the first Defendant's argument, and Mr Wardell's submissions, that (1) it is now apparent, following exchange of witness statements, there is a fatal lack of evidence on the part of the Claimant as to the payment of any bribe or secret commission by First London to VdB, and as to any knowledge of the first Defendant of VdB's dishonesty, and as to any dishonesty on the part of the first Defendant; (2) many important assertions of the witnesses for the first Defendant have not been and cannot be contradicted by Mr Martin; (3) the lack of evidence on the part of the Claimant is particularly significant in the present case in view of the well known principle that the more serious the allegation the more cogent must be the evidence in order to discharge the burden of proving it: Three Rivers DC v Bank of England (No. 3) [2003] 2 AC 1 at [181] (Lord Millett). It is the very need to test the first Defendant's argument on the evidence, resting as it does on the inferences that can fairly be drawn from the documents, that requires the inappropriate mini-trial.
16. Nor is the inappropriateness of the summary judgment applications contradicted by the skill of Mr Wardell in completing his oral submissions within about 3 hours. I did not call on Ms Catherine Newman QC, for the Claimant, since I had formed a clear view by the end of the submissions for the Defendants. Had I called on her, it is quite clear that her submissions and a reply from the Defendants would have extended the hearing well into a second day. Even that length of hearing would only have been achievable by virtue of the extensive and time-consuming judicial pre-reading stipulated by all parties.
17. Although, for those reasons, one course that I could have taken would have been to dismiss the summary judgment applications without allowing any detailed submissions on the evidence, I decided to permit Mr Wardell to make his oral submissions within a specified time limit. Mr Wolfson adopted Mr Wardell's submissions on behalf of the second to fourth Defendants and did not wish to add to them. Having heard Mr Wardell and Mr Wolfson I was not satisfied that the Claimant does not have a real prospect of succeeding on its claims. I, therefore, did not call on Ms Newman to respond.
18. For the purpose of the hearing of the summary judgment applications both Mr Wardell and Ms Newman were content to adopt the following passage in Snell's Equity (32^nd ed) on proof of a defendant's dishonesty to establish liability for dishonest assistance in a breach of trust:

"30-078 The finding of dishonesty depends on how precisely he knew the facts which amounted to the breach of trust, and the extent to which his assistance in the transaction involved a commercially unacceptable risk of knowingly implicating himself in the trustee's breach. For this purpose, knowledge and a deliberate choice by the defendant not to confirm his suspicions are treated alike. A negligent or incompetent failure to realise that the transaction was unlawful is not enough.

The defendant need not appreciate the precise legal significance of the transaction as amounting to a breach of trust. It is enough that he realises that the person whom he assists is misappropriating money over which he does not have a right of free disposal. But he must have some suspicion about the particular transactions to which he gives his assistance. A general suspicion, for example, that the transaction is of a kind consistent with possible money laundering is not direct enough to support a finding of dishonesty."

19. Mr Wardell's over-arching submission was that the contemporaneous documents are incapable of supporting any obvious or necessary inference of dishonesty on the part of the first Defendant. He said that the Claimant's case is purely speculative and informed by the prejudices of Mr Martin, the Claimant's founder and chairman and, as I have said, the Claimant's sole witness. In support of that contention, he said that Mr Martin has given no direct evidence against the first Defendant's factual account and that he did not even meet the first Defendant until 2006.
20. Mr Wardell advanced several skilful and powerful arguments in support of the first Defendant's application for summary judgment. I do not propose to set them out and address each one separately, including his answers or ripostes to the points I enumerate below. That is both unnecessary and runs the risk of unfairly influencing the assessment of the parties and of the trial judge as to the relative strength or weakness of each argument and of each side's case generally. In that context, it must be borne in mind that, on the one hand, a claim may be more than fanciful but have less than a 50 per cent prospect of success, and, on the other hand, Ms Newman, had she been called upon to make oral submissions, would doubtless have wished to advance a number of other points in addition to those mentioned below which have led me to conclude that the claims have a real prospect of success.
21. I propose, therefore, to state quite briefly the reasons why I am satisfied that the claims are more than fanciful. The starting point is that the Defendants concede, for the purpose of the summary judgment applications, that the Claimant has a real prospect of establishing at trial that VdB acted dishonestly and in breach of fiduciary duty to the Claimant in relation to both the Rotherham property and the Burton property.
22. Secondly, I am satisfied, in the light of Mr Martin's evidence, that the Claimant has a real prospect of establishing at trial that, in addition to acquiring tenancies of properties from which to conduct its business, the Claimant was also interested in purchasing freeholds where that made more financial sense, and it had the financial means to do so at the relevant time, and those matters were generally known in the market at the relevant time. Specifically in relation to the Rotherham property and the Burton property, the Claimant has a real prospect of establishing at trial that, even if it was aware that the freeholds were being acquired by a third party at the same time as the Claimant was negotiating for a lease, it did not appreciate that there was a realistic opportunity for it to acquire the freehold and that, had it appreciated there was such an opportunity, it could and would have entered into negotiations to acquire the freehold.
23. Thirdly, it seems glaringly obvious that an agent who is retained to advise a principal on the acquisition of an interest in property, whether a leasehold or a freehold interest, and who has identified a suitable property for the principal, potentially places himself or herself in a position of conflict between interest and duty if he or she then seeks to introduce the property to another potential purchaser of the property. Where the principal is seeking a leasehold interest and the agent introduces the property to a potential purchaser of the freehold one obvious facet of the conflict is the financial relationship between the rent payable and the other terms of the intended lease, on the one hand, and the capital value on the other hand. On the one hand, the intended tenant wishes to have the lowest rent and best leasehold terms practicable. On the other hand, the intended purchaser of the freehold wishes to have as valuable an asset as possible and one which reflects an attractive yield. The expectation or hope of an agent that a commission would be paid as a percentage of the purchase price, that is to say the higher the purchase price the higher the commission, adds a further twist to the potential for conflict. In the ordinary course of events, an honest property trader introduced by the agent to the property as a potential purchaser of the freehold might be expected to satisfy himself or herself that the agent was acting with the full knowledge and consent of his principal, the prospective tenant. This is particularly so where the agent plays a role in the negotiations over the terms of the purchase of the freehold.
24. Fourthly, there is evidence in the case of the Rotherham property that VdB was more than a mere introducer of the property to First London and that it played a role in the negotiations over the terms of the purchase of the freehold.
25. Fifthly, the Claimant contends that the Rotherham and Burton transactions resulted in a particularly large financial gain for the Defendants. That allegation cannot be discounted at this interlocutory stage.
26. Sixthly, in the case of Rotherham VdB requested a fee of 1 per cent of the purchase price. There is contemporaneous evidence the First London factored that fee into its internal calculations of the costs of the transaction.
27. Seventhly, notwithstanding Mr Wardell's powerful submissions to the contrary and the evidence to which reference is made in paragraphs 49 to 58 of the first Defendant's witness statement, I consider that there is evidence sufficiently cogent to go forward for deployment by the Claimant at trial that, in response to that request, a fee of £8,000 plus VAT was paid by First London to VdB and was intentionally misleadingly treated by VdB and First London as payment for work carried out by VdB in respect of a property at Blackpool. I consider that the points in the Claimant's skeleton argument as to timing, the nature and extent of the work carried out by VdB concerning the Blackpool property and the paucity of the contemporaneous documents as to that work raise a sufficient doubt to merit examination of this issue at trial.
28. Eighthly, Mr Aldridge of VdB made clear to the first Defendant that it wished to receive a fee in respect of the introduction of the Burton property to First London and that he wished the fee arrangements to be kept confidential. The request for confidentiality might have been expected to alert the first Defendant to question what underlay that request. There is no evidence of any enquiry by the first Defendant as to the reason for the request for confidentiality or of any rejection by the first Defendant of the request for payment and confidentiality. The first Defendant's evidence that he does not recall paying any attention to the statement at the time, and, even if he had, it would not have been of any interest to him, is manifestly a legitimate target for cross-examination and cannot properly be accepted as truthful without giving the Claimant the opportunity for such cross-examination.
29. Ninthly, if, as I consider, the Claimant's case on the Rotherham property is sufficiently strong to go forward to trial, then, taken together with all the other points mentioned above, that supports the case for dishonesty in relation to the Burton property also being sufficiently credible to go to trial.
30. As I have said earlier in this judgment, Mr Wardell made a forceful submission that the allegations of dishonesty on the part of the first Defendant are fatally undermined by the fact that both the Rotherham and the Burton transactions are very similar to the Grantham transaction, but no complaint has been made by the Claimant about that transaction. He submitted that there was no reason for the first Defendant to regard the propriety of VdB's conduct or of the involvement of First London as any different in the subsequent transactions, and there is nothing to contradict the first Defendant's evidence to that effect. I acknowledge the force of that submission but I do not fully accept it on these summary judgment applications. In the case of the Grantham property the Claimant considered but rejected the possibility of acquiring the freehold. It only wanted a leasehold interest. It therefore suffered no loss and so could not make and has not made any claim in relation to the Grantham property. Further, Mr Martin has made clear in his second witness statement that the mere fact that the Claimant has not issued proceedings in relation to a particular property transaction should not be taken as an acceptance of the propriety of those participating in it. He said:

"5.2 JDW is not (and I am not) making any allegation of dishonesty against Mr Harris or First London companies in respect of any transactions with JDW other than those at Burton and Rotherham. It does not follow from this, however, that I am satisfied in my own mind that the circumstances of those other transactions were proper. …

5.3 I am particularly concerned that in a number of the transactions involving First London companies, those companies dealt with VdB in circumstances which it seems obvious to me gave rise to an acute conflict of interest on the part of VdB, which was at all times JDW's agent and ought to have been acting in JDW's interests, something which I believe must have been apparent to [the first Defendant]. …"

31. For those reasons, I dismiss the Defendant's applications for summary judgment.

Mr Goldberger's witness statement

32. Mr Goldberger, a director of the second to fourth Defendants, has made a witness statement dated 7 February 2013 on behalf of those Defendants. He did not become a director of the second to fourth Defendants until 2003 and had no prior involvement with the matters which are the subject of these proceedings. His witness statement is 52 pages and contains 231 paragraphs. The Claimant has issued an application notice for an order that the contents of the witness statement be struck out apart from paragraphs 1 and 2 and 7 to 11.
33. The vast majority of Mr Goldberger's witness statement contains a recitation of facts based on the documents, commentary on those documents, argument, submissions and expressions of opinion, particularly on aspects of the commercial property market. In all those respects Mr Goldberger's witness statement is an abuse. The abusive parts should be struck out.
34. Mr Wolfson submitted that this is a wrong approach to the witness statement and its legitimacy. He submitted that the matter should be approached on the basis that, the second to fourth Defendants having been accused of dishonesty, they should be permitted to present their case as best they can as to why they have done nothing wrong and are not liable to the Claimant. He contended that, in the absence of anyone currently employed by the second to fourth Defendants who has direct knowledge of the events which are the subject of these proceedings, it is entirely appropriate that Mr Goldberger, a director, should give the explanation he has. Mr Wolfson submitted that, in setting out the course of events and making reference to the documents, Mr Goldberger was doing no more than that which would be done on behalf of the second to fourth Defendants in opening their case at trial.
35. Mr Wolfson also submitted that, in interweaving into Mr Goldberger's recitation of the facts his opinion on matters relating to the property market, Mr Goldberger was doing no more than was envisaged by Master Bowles when, at a hearing on 22 February 2013, the Master refused permission to adduce expert evidence on valuation but acknowledged that such opinion evidence could be adduced in the course of factual evidence.
36. Mr Wolfson rejected any suggestion that the Claimant would be placed in difficulty by Mr Goldberger's witness statement because it would be difficult for the Claimant's counsel to decide how much of, and precisely which parts of, the witness statement should be the subject of cross-examination of Mr Goldberg.
37. I do not accept those submissions of Mr Wolfson.
38. CPR r.32.4 describes a witness statement as :

"a written statement signed by a person which contains the evidence which that person would be allowed to give orally".

39. Mr Goldberger would not be allowed at trial to give oral evidence which merely recites the relevant events, of which he does not have direct knowledge, by reference to documents he has read. Nor would he be permitted at trial to advance arguments and make submissions which might be expected of an advocate rather than a witness of fact. These points are made clear in paragraph 7 of Appendix 9 to the Chancery Guide (7^th ed), which is as follows:

"A witness statement should simply cover those issues, but only those issues, on which the party serving the statement wishes that witness to give evidence in chief.  Thus it is not, for example, the function of a witness statement to provide a commentary on the documents in the trial bundle, nor to set out quotations from such documents, nor to engage in matters of argument.  Witness statements should not deal with other matters merely because they may arise in the course of the trial."

40. Nor would Mr Goldberger be permitted to give expert opinion evidence at the trial. A witness of fact may sometimes be able to give opinion evidence as part of his or her account of admissible factual evidence in order to provide a full and coherent explanation and account. That is what, it would appear, Master Bowles recognised when he refused the first Defendant's application to adduce expert evidence on market practice. It is what the first Defendant has done in his witness statements. Mr Goldberger, however, has expressed his opinions on market practice by way of commentary on facts of which he has no direct knowledge and of which he cannot give direct evidence. In that respect he is purporting to act exactly like an expert witness giving opinion evidence. Permission for such expert evidence has, however, been expressly refused.
41. I recognise, of course, that these rules as to witness statements and their contents are not rigid statutes. It is conceivable that in particular circumstances they may properly be relaxed in order to achieve the Overriding Objective in CPR r.1 of dealing with cases justly. I can see no good reason, however, why they should not apply to Mr Goldberger's witness statement in the present proceedings.
42. I indicated at the hearing that, in the circumstances, I would give a limited time to those acting for the second to fourth Defendants to consider whether, in addition to the paragraphs in Mr Goldberger's witness statement conceded by the Claimant to be admissible, there are any other parts of his witness statement which can and should be retained consistently with the principles I have mentioned. If the parties cannot agree, any dispute over such further paragraphs shall be determined by me.