England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Rolls Building, 7 Rolls Buildings Fetter lane, London EC4A 1NL
		22/06/2017

CHRISTOPHER BUTCHER QC :

1. There is before me an application by the Defendant, Sheikh Abedlelah M. Kaki, for summary judgment and/or an order that the claim, insofar as not admitted, should be struck out.
2. The dispute arises out of two agreements entered into by the parties on 28 March 2008: a Purchase Agreement, and a Management Agreement.
3. By the Purchase Agreement, the Claimant agreed to sell and the Defendant agreed to buy a 12.5% interest in an aircraft on the Delivery Date. The Purchase Agreement provided for this aircraft to be identified in Schedule 1 to the Purchase Agreement, but in fact it was not.
4. The Purchase Agreement contained, amongst others, the following specific provisions:

i) By clause 2.1 it was provided that

"[The Claimant] agrees to sell the interest to [the Defendant], and [the Defendant] agrees to purchase the interest from the [Claimant] on the Delivery Date"

ii) By clause 4.1 it was provided that

"[The Claimant] predicts that delivery of the Interest shall occur on or about the predicted delivery date specified in schedule 1 although the seller is unable at the date hereof to ascertain the actual delivery date with any certainty."

iii) Clause 4.2 provided that

"[The Claimant] shall, by not less than sixty (60) days' prior written notice to [the Defendant], notify [the Defendant] of the Expected Delivery Date."

iv) By clause 9.2 it was provided that, prior to delivery, the Claimant was obliged to make arrangements satisfactory to the Defendant with respect to the registration of the interest with the relevant aviation authority.

5. On the same day as they entered into the Purchase Agreement the parties entered into a Management Agreement, which provided, in essence, for the Claimant to manage the Defendant's interest in the aircraft identified in Schedule 1 of the Management Agreement (Aircraft N450NS). Further, the Claimant agreed to make that Aircraft, or an aircraft of the same type, available to the Defendant for a minimum of 100 hours per annum. The Defendant agreed to pay to the Claimant a monthly charge, identified in the Management Agreement, and to pay charges for flights taken and hours flown.
6. Also on 28 March 2008, the Defendant signed an "Aircraft Interest Acceptance Certificate". This did not identify any aircraft, but provided, in part, that "[the Defendant] has accepted delivery of the Interest…]"
7. Between 2008 and 2011, the Defendant used Aircraft N450NS and other aircraft provided by the Claimant, ostensibly in accordance with the Management Agreement, and the Claimant issued invoices for its fees and charges as permitted by the Management Agreement.
8. In mid-2011 the Defendant became dissatisfied with these arrangements and purported to exercise his right under the Purchase Agreement to require the Claimant to repurchase his interest in the Aircraft at its fair market value. No agreement was reached, and on 14 February 2012 the Defendant brought proceedings in the Commercial Court against the Claimant in which he claimed that he had never received an interest in any aircraft and sought the return of the full purchase price (US$4,398,750) or alternatively damages for breach of the Purchase Agreement.
9. More specifically, in those proceedings, the Defendant alleged that the Claimant had breached the terms of the Purchase Agreement by (1) failing to give him notice of an Expected Delivery Date; (2) failing to deliver an interest in an aircraft to him; and (3) failing to make arrangements with respect to the registration of any interest in an aircraft.
10. Summary judgment was awarded in favour of the present Defendant on 14 March 2014, at a hearing which the present Claimant did not attend. The Claimant subsequently applied to have the summary judgment set aside. In advance of the hearing of that application it served a draft defence to the claim. In summary, it defended the claim on the grounds that it had delivered 'the interest' to the Defendant. The application was heard and dismissed by Cooke J on 13 November 2015: see [2015] EWHC 3655 (Comm). In coming to that decision, Cooke J found that there was no valid defence to the claim then made, because, in outline: (1) the Claimant had failed to identify, either in the contemporaneous documentation or during the course of the claim, the aircraft in which the Claimant claimed to have delivered an interest; (2) the reason why the Purchase Agreement and other documents of sale were incomplete (in that they did not identify an aircraft) was that a future date of delivery of the interest in an aircraft was envisaged by the Purchase Agreement, which was never notified by the Claimant and which never took place; (3) there was nothing to show that title to an interest in an aircraft had passed from the Claimant to the Defendant.
11. The Claimant applied for permission to appeal from that decision of Cooke J, but the application was refused both on paper and at an oral hearing.
12. The present proceedings were commenced by the Claimant on 18 December 2015. The claim made has two limbs. The primary claim is for an amount of US$2,364,965, and is based on the contention that as a result of the decision of Cooke J the Management Agreement is void or voidable, or has been breached by the Defendant. The Claimant asserts that it is accordingly entitled to charge the Defendant for use of aircraft at its standard commercial rate rather than pursuant to the terms of the Management Agreement. The secondary claim is for US$549,809, which is for the fees outstanding under the terms of the Management Agreement. This secondary claim, at that point quantified in the amount of US$519,693 was, on 6 December 2016, admitted by the Defendant. It is thus only the primary claim which remains in dispute, and it is this claim which is the subject of the application for summary judgment and/or striking out which is before me.
13. Mr Milner, for the Claimant, describes the rationale of this primary claim as follows:

i) That it "takes as its starting point" Cooke J's finding that the Defendant never acquired an interest in any aircraft; and that the extensive services which the Claimant provided to the Defendant were provided on a false basis, namely a belief that he was an owner of the Aircraft;

ii) That had the Claimant known that the Defendant was not an owner of the Aircraft it would not have allowed him to take advantage of the services which it offered to aircraft owners under the Management Agreement;

iii) It would be "self-evidently unjust" if the Defendant were able to take advantage of the benefits available under the Management Agreement over a period of 3-4 years without paying the price of accessing those benefits, namely purchasing the interest in the Aircraft.

14. The Claimant's case is that the fact, as has now been determined, that the Defendant was not an owner of the Aircraft has three potential consequences in law, namely:

i) That the Defendant was in breach of Recital A of the Management Agreement, whereby, so it is said, "he expressly agreed that he owned an interest in the Aircraft".

ii) That the Claimant entered into the Management Agreement as a result of a misrepresentation by the Defendant that he owned an interest in Aircraft N450NS. The Claimant, it is accordingly said, is therefore entitled to rescind the Management Agreement or to claim damages.

iii) That the Management Agreement is void for common mistake, on the basis that both parties entered into it on the express understanding, which it is said was fundamental to the bargain, that the Defendant owned an interest in the Aircraft.

These matters, so it is said, entitle the Claimant to rescission of the Management Agreement, if necessary, and restitution of the market value of the services which it provided to the Defendant, or to damages in an equivalent amount.

15. I will consider each of the three alleged legal bases of the Claimant's primary claim, and the Defendant's objections to them, in turn.

Breach of Contract

16. This claim is based on the terms of Recital A of the Management Agreement. It provides:

"Owner [ie the Defendant] owns the percentage interest(s) (the "Interest") in the Aircraft set forth in the Schedule such interest(s) having been acquired by Owner pursuant to a purchase agreement(s) between NAS [ie the Claimant], as seller, and Owner, as buyer (the "Purchase Agreement(s)")."

17. Reliance is also placed on clause 1.1 of the Management Agreement, which provides:

"The above Recitals and Schedules attached hereto shall be deemed integral and interpretative parts of this Agreement."

18. I doubt that Recital A had the effect of creating a binding obligation on either party capable of breach. I do not consider that clause 1.1 alters this. It provides that the Recitals are to be "integral and interpretative". That indicates, in my view, that the Recitals were to assist interpretation, but not that they were to be operative provisions capable of breach.
19. In any event, it appears to me that this claim based on alleged breach of contract is clearly time-barred. If there was a binding obligation contained in Recital A, it seems to me as a matter of the language of the Recital and of the "Now, Therefore" provision which follows the Recitals, it would have been an obligation that the Defendant should have owned an interest in the Aircraft at the time of the making of the Management Agreement. Any such obligation would have been breached at the time of the making of the Management Agreement, and so the limitation period will have expired in March 2014, well before the commencement of the present action. I do not consider that the Management Agreement can be read as imposing a "continuing obligation" which was breached each time the Defendant made use of an aircraft.

Misrepresentation

20. The Claimant's case here is that, in entering into the Management Agreement, the Claimant represented that he was an owner of the Aircraft, and that express representations to that effect were made in Recital A to the Management Agreement and in the Acceptance Certificate. This, it is said, founds either a right to rescind, or an action for damages for misrepresentation.
21. For the Defendant, Ms Hitchens contends, first, that the claim based on misrepresentation is clearly time-barred. She contends that, in relation to a claim to rescind for misrepresentation in a case which does not involve allegations of fraud, an application of statutory limitation periods by analogy means that the cause of action will become time-barred 6 years after damage is sustained. In the present case, that would mean 6 years after the Management Agreement was entered into. Alternatively she submits that, even if an application of the statutory limitation periods by analogy means that it is necessary to consider when the claimant was or could with reasonable diligence have been aware of the facts giving rise to the claim – as Mr Milner submitted was the position – it was clear that this was also at the time of the entry into of the Management Agreement.
22. Further, in relation to the claim for damages for misrepresentation, the statutory limitation periods apply directly, and the claim will become time barred 6 years after damage is sustained, and even if there is the potential for the application of s. 32 Limitation Act, it leads to no different result, as it was possible for the Claimant with reasonable diligence to have known of the facts founding this claim in 2008.
23. In my judgment, Ms Hitchens is correct on this issue. I do not see that there is any argument open to the Claimant which has a realistic prospect of success to the effect that these claims based on misrepresentation are not time barred. This is because:

i) The Claimant entered into the Management Agreement with the Defendant on 28 March 2008. The present proceedings were only commenced, as I have said, on 18 December 2015.

ii) If it is right that the time period for claiming rescission, in a case not involving fraud, expires 6 years after damage is suffered by the agreement being entered into, then the claim to rescind is manifestly time barred.

iii) If on the other hand time only started to run when the Claimant was or could with reasonable diligence have been aware of the facts giving rise to the claim, that time appears to me clearly to have been also at the time of the entry into of the Management Agreement. At that point, the Claimant was, or with reasonable diligence could have been, aware of the terms of the Purchase Agreement, which provided for delivery of an interest to take place subsequently, and not less than 60 days after the date of the agreement; and also provided that the responsibility for notifying a time for delivery, delivering the interest and making arrangements for registration of that interest rested on the Claimant. Equally, the Claimant must have known, or clearly could with reasonable diligence have known, that it had not in fact taken steps which notified a time for delivery, or amounted to a delivery of the interest for the purposes of the Purchase Agreement. These were matters within the Claimant's own knowledge and control.

iv) The same reasoning applies to the claim for damages for misrepresentation, although here the Limitation Act applies directly rather than by analogy.

24. Further, I consider that, quite apart from the issue of time bar, the claim based on misrepresentation stands no realistic prospect of success, because there is no plausible case that the Claimant relied upon misrepresentation by the Defendant. The Claimant knew the terms of the Purchase Agreement, which it had drafted, and knew of its own actions and inactions in not delivering and registering an interest. In the circumstances I do not consider that there is any case which has a realistic prospect of success that the Claimant relied upon Recital A of the Management Agreement or the Acceptance Certificate in entering into the Management Agreement or that they caused it to believe that the Defendant at that point had an interest in an aircraft.

Mistake

25. In relation to the claim based on mutual mistake Ms Hitchens submits that this is hopeless for a number of reasons. In particular:

i) A contract will not be considered void for mistake "where the mistake consists of a belief which is entertained by him without any reasonable grounds for such belief" (Associated Japanese Bank v Credit du Nord [1989] 1 WLR 225 at 268H per Steyn J). Here, the Claimant cannot have believed that the Defendant had an interest in an aircraft at the time of contracting or, if it did, it had no reasonable grounds for such belief.

ii) A contract will not be considered void for mistake if the non-existence of the relevant state of affairs is attributable to the fault of either party (The Great Peace [2002] EWCA Civ 1407 at [76]). Here the fact that the Defendant did not have an interest was due to the fault of the Claimant in failing to notify a delivery date, deliver an interest or register an interest, which were its obligations under the Purchase Agreement and which it had not performed.

iii) A contract will not be considered void for mistake if the non-existence of the relevant state of affairs does not render performance of the contract impossible (The Great Peace at [76]). Here the fact that the Defendant did not own an interest in Aircraft N450NS did not render performance of the contract impossible.

26. I consider that Ms Hitchens is correct in relation to each of these three points, and that the Claimant has no answer to them which has any realistic prospect of success. As to the first, the absence of reasonable grounds for the alleged belief seems to me to be clear from the terms of the Purchase Agreement and the facts that the Claimant had not notified a delivery date, had not delivered an interest or registered an interest at that date. The same features support the second reason. As to the third, the parties performed pursuant to the Management Agreement, in that the Claimant provided the Defendant with various aircraft for his use and invoiced him monthly management charges related to his usage. I consider that this illustrates that performance of the Management Agreement was not rendered impossible by the non-existence of an interest.
27. In those circumstances I will give summary judgment against the Claimant in relation to its primary claim. In the circumstances, as I understand it, there is no need to make any case management directions. I will invite written submissions in relation to the terms of the order which should be made and as to costs.