England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		01/07/2011

Mr Justice Sweeney :

Introduction.

1. This is an application for permission to appeal against decisions of Master Eyre who, following hearings on 8 December 2010 and 4 February 2011, gave judgment on 18 February 2011 granting the Claimant's application for summary judgment in the sum of £129,250, with interest in the sum of £28,435 and costs; refusing the Defendant's application to amend his Defence; and dismissing his Counterclaim.
2. Whilst the Defendant is the Applicant and the Claimant is the Respondent, I propose, for the sake of simplicity, to continue to refer to them as the Defendant and the Claimant respectively.
3. Master Eyre's judgment was in the following terms:-

"1. The Claimant is a limited company that carries on business franchising commercial cleaning services.

2. The Defendant is an experienced businessman formerly carrying on business in the field of commercial cleaning, with a turnover of more than £2 million a year.

3. On the 24^th March 2010, the Claimant and Defendant entered into a written franchise agreement ("the agreement").

4. The agreement contained stipulations as follows:

(1) The Defendant must pay the Initial Franchise Fee of £111,000.00 plus V.A.T. by no later than 25/03/10: § 6.1.1 and Schedule 1;

(2) The Claimant would provide business to the value of £22,000 a month: § 8.2;

(3) The Defendant acknowledged that:

(A) He had sought independent legal advice: § 36.1 and

(B) He had decided to enter the agreement on the basis of his own judgment and experience, and that no oral representation or warranty had been made or relied upon by him: §36.2.

5. The Defendant initialled every single page of the agreement, notably § 6.2 and Schedule 8 (Finder's Fees) and indeed on some pages initialled every single provision, notable examples being Schedules 1 (the definition of the Initial Franchise Fee) and 5 (his business-experience as at Paragraph 2 above).

6. The Defendant did not pay the Initial Franchise Fee.

7. Instead:

(1) On the 30^th March 2010, he objected that he had not understood that he must pay extra fees if he wanted the Claimant to provide more than £22,000-worth of business monthly (i.e Finder's Fees); and

(2) On the 7^th April 2010 his accountant sent the Claimant an email-message, stating that "the Finder's Fees provisions were a bombshell" to the Defendant.

8. On the 10^th May 2010, the Claimant brought this action, claiming payment of the £110,000 plus V.A.T.

9. On the 2^nd July 2010, the Defendant served a Defence, in which he objected that:

(1) He had signed the agreement on the footing, communicated at the time orally to the Claimant, that his agreement was conditional upon his receiving advice about the agreement from his accountant.

(2) Both his acknowledgment at § 36 and his statement at Schedule 5 were untrue.

(3) The Claimant's Mr Haworth had orally stated to the Defendant that the agreement was for £40,000-worth of business each month.

(4) Mr Haworth's statement was made fraudulently.

10. On the 2^nd August 2010, the Claimant applied for summary judgment.

11. In his 1^st witness-statement dated the 19^th November 2010, the Defendant for the first time voiced the further objection that:

(1) Mr Haworth had told him orally that the work that would be coming to the Defendant was at the time being done by a franchisee called Shayona R & D Limited ("Shayona").

(2) Shayona had in fact been dissolved some months previously.

(3) Since that company had been dissolved, it followed that there was no such business.

(4) Mr Haworth's statement was "deceitful, misleading and fraudulent".

(5) At the hearing on 4/02/11, the Defendant sought leave to amend to plead this further objection.

12. In his 2^nd witness-statement dated the 2^nd February 2011, the Defendant explained that Shayona's existence was crucial to him.

13. Counsel for the Claimant and for the Defendant have provided detailed written arguments, to which reference must be made.

14. The points made on behalf of the Claimant in its Counsel's written argument are a complete answer to the Defendant's objections apart from the further objection regarding the existence of Shayona.

15. As regards that further objection:

(1) The evidence is that the business of Shayona was at the relevant time being carried on, if not by Shayona itself, by the individuals that controlled Shayona; and the suggestion that the existence in law of Shayona was material to the Defendant is fanciful.

(2) Any such representation by Mr Haworth as is alleged is caught by § 32.12 of the agreement.

(3) The assertion that what Mr Haworth said was said fraudulently is devoid of substance, and the draft pleading anyway offends the principle expressed in Three Rivers, &c. v Governor, &c., at §184.

16. There accordingly is no defence having any real prospect of success, and the Claimant's application must be granted, and the Defendant's refused."

4. As originally drafted the judgment did not include para. 11.5, the last 10 words of para. 14, and paragraph 15 (all dealing with the dismissal of the application to amend), all of which were added on 18 February 2011, following an application on behalf of the Defendant under CPR 52.11.5. Master Eyre declined to make any further addition, refused leave to appeal, ordered the Defendant to pay £13,000 on account of costs by 1pm on 11 March 2011, and refused an application for a stay.
5. The Defendant filed an Appellant's Notice on 7 March 2011. On 8 March 2011 Hickinbottom J refused the Defendant's application for a stay. On 16 March 2011 Davis J granted the Defendant's application for a stay and ordered, inter alia, that there should be an oral hearing of the application for permission to appeal on 31 March 2011, with the Claimant permitted to attend, and with the appeal to follow immediately if permission was granted.
6. At the conclusion of the long hearing before me on 31 March, during which both parties argued their case in full, I reserved my decision as to whether to grant permission to appeal. Both parties agreed that if I decided to grant permission on any ground or grounds, I should then go on to decide the outcome of the appeal without the need for any further argument.

The Grounds of Appeal

7. The Defendant's proposed Grounds of Appeal are as follows:

"1. The decision of Master Eyre involved serious procedural irregularity in that the Master failed to give any, or any adequate, reasons for his determination of the issues raised on the application.

2. The Master gave no proper judgment and made no findings of fact or law and in particular in that regard the Master gave no or no proper reasons for preferring the Claimant's case over the Defendant's case.

3. The Master failed to examine consider and weigh the available evidence and then to make appropriate findings and to apply such findings to the correct principles of law.

4. The Master failed to appreciate or understand the weight and nature of the evidence before the Court and/or failed to identify and explain his reasons for departing from such evidence.

5. The Master failed to deal with the evidence of two witnesses that the agreement the subject of this action was signed by the Defendant in escrow.

6. The Master failed to deal with the Defendant's submissions as to the effect of the agreement being signed in escrow other than to say that "the points made on behalf of the Claimant in its Counsel's written argument are a complete answer to the Defendant's objections". The Claimant's written argument did not address the effect of the Defendant's signature being in escrow, namely that that there was no agreement at all. Accordingly the Master did not address the Defendant's case that there was never any effective agreement.

7. The Master failed to deal with the Defendant's submissions that the contractual clauses relied upon by the Claimant were of no effect if the agreement had not been entered into. The Claimant's written argument did not address this issue.

8. The Master failed to deal with the evidence of three witnesses that the representations made by the Claimant as to the level of business being purchased were untrue.

9. The Master failed to deal with the Defendant's submissions that the representations must have been known to be untrue at the time they were made and so were fraudulent, other than to say that "the points made on behalf of the Claimant in its Counsel's written argument are a complete answer to the Defendant's objections". The Claimant's written argument did not address this issue.

10. The Claimant's written argument relied inter alia upon the terms of the contract, and the Master failed to address the Defendant's submissions that a party is not permitted to contract out of his own fraud. The Claimant's written argument, and so accordingly the Master, failed to address the binding authority cited by the Defendant in support of this proposition (HIH Casualty and General Insurance v Chase Manhattan Bank [2003] 2 LL Rep 61).

11. The Claimant's written argument, and so the Master, failed to address the issue of fraudulent misrepresentation at all.

12. Further, the Claimant's written argument asserted that the representations pleaded were not a statement of fact and so were not actionable. The Master failed to address the Defendant's submissions, supported by authority (Edgington v Fitmaurice [1885] 24 Ch 459), that the representations were a statement of fact and so were actionable.

13. Further, the Master failed to address the Defendant's submissions that the contractual exclusion clauses relied upon by the Claimant were not effective to exclude liability for fraud. This issue was not addressed by the Claimant's written argument.

14. Further, the Master failed to address the Defendant's submissions that in any event the authorities relied upon by the Claimant (Springwell v JP Morgan [2010] EWCA Civ 1221, Peekay Intermark Ltd v Australia and New Zealand Banking Group [2006] EWCA Civ 386) were not material because they were not concerned with cases of fraudulent misrepresentation. This issue was not addressed by the Claimant's written argument.

15. Further, if and insofar as the Claimant was entitled to rely upon such exclusion clauses, the Master failed to address the Defendant's submissions that by reason of s.3 of the Misrepresentation Act 1967 it was for the Claimant to show that the terms relied upon by the Claimant were reasonable. This issue was not addressed by the Claimant's written argument.

16. The Master's reasons for refusing permission to the Defendant to amend the Defence are defective and wrong in that:

(i) The proposed amended pleading was not limited to an allegation that the existence in law of Shayona R&D Ltd (Shayona') was material to the Defendant.

(ii) In any event there was positive and detailed evidence before the Court that the existence of Shayona was of importance to the Defendant in entering into the contract and the Master has given no reason for disbelieving such evidence or for finding it to be 'fanciful'.

(iii) The fraudulent representation alleged is not caught by cl. 32.12 of the agreement because the agreement itself provides that cl 32.12 does not apply to fraudulent misrepresentations.

(iv) The proposed amended pleading is not devoid of substance and does not offend the principle expressed at paragraph 34 of Three Rivers DC v Governor of the Bank of England (No.3) [2003] 2 AC 1, in that the fraudulent misrepresentation is distinctly pleaded and particularised and the reasons why the misrepresentation was fraudulent are clearly and distinctly set out so that the Claimant knows the case it has to meet."

8. Grounds 1-4 are thus concerned with alleged general shortcomings, whilst the remaining Grounds are concerned with three issues, in short:-

i) The escrow issue (Grounds 5-7).

ii) The fraudulent misrepresentation issue (Grounds 8-15).

iii) The amendment issue (Ground 16).

9. Before setting out the arguments, and my conclusions, in relation to each of these issues, and then dealing with Grounds 1-4, I propose first to deal with some aspects of the broad background. I will summarise the evidence in relation to Ground 16 when dealing with that ground.

The Broad Background

10. The evidence before the Master included:-

i) Three statements by Mr Haworth - two of which were dated 30 July 2010 and 2 December 2010 respectively. The third was undated.

ii) Two statements by the Defendant – dated 19 November 2010 and 2 February 2011.

iii) A statement from each of Lee Briggs, David Manchett and Michael Love – all dated 19 November 2010.

iv) A number of documents produced in the various statements.

11. As Master Eyre recorded in his judgment, the Claimant is a limited company that carries on business franchising commercial cleaning franchises, and the Defendant is an experienced businessman formerly carrying on business in the field of commercial cleaning, with a turnover of more than £2 million a year.
12. At all material times Paul Haworth (who is the Third Party in these proceedings) was responsible for franchise recruitment in connection with the Claimant's business. He dealt with the Defendant and those who accompanied him at each of the meetings referred to below (all of which took place at the Claimant's premises in Kingston – upon – Thames), and produced copies of the materials said to have been shown to, or given to, the Defendant at each - including a number of spreadsheets.
13. The first meeting was on Tuesday 2 March 2010. The Defendant was accompanied by his son-in-law Lee Briggs, who worked for him as an Area Manager. At this meeting the Defendant supplied Mr Haworth (it is said in innocent error) with a copy of his company's brochure. In fact, the Defendant's company Manchett Facilities Limited had gone into liquidation in March 2009, he himself had been subject to a five year IVA since April 2007, but he was continuing in business as a sole tradership.
14. On 5 March 2010, in order to demonstrate his own financial viability, the Defendant faxed to the Claimant a copy of a bank statement showing a credit balance in excess of £400,000. The relevant account was actually in the name of the Defendant's wife.
15. The second meeting was on Tuesday 9 March 2010. On that occasion the Defendant was accompanied by his brother David Manchett, who was the General Manager of the Defendant's business.
16. The third meeting was on Tuesday 16 March 2010. The Defendant was accompanied by both David Manchett and Lee Briggs. Mr Haworth supplied a copy of one of the Claimant's standard form Franchise Agreements, which was given to Lee Briggs, who says that he did not read it as he thought that it was a training manual – albeit that (according to Mr Haworth) the front page had the words "Jani-King Franchise Agreement" printed on it in Arial 22 script.
17. The fourth meeting was due to take place on Tuesday 23 March 2010, but was postponed until the following day. On 23 March Mike Love (the Defendant's accountant and business & financial adviser) emailed Mr Haworth about the terms of a draft Addendum Agreement that had been sent out a few days earlier and which was to be signed by the Defendant – both in his own capacity and on behalf of his company.
18. At the fourth meeting on Wednesday 24 March 2010 the Defendant was accompanied by David Manchett, and signed a number of documents – albeit erroneously dating them as being signed on 23 March.
19. One of the documents that the Defendant signed was entitled "Meeting 3 Conclusion" in which it was stated that at the conclusion of the third meeting (on 16 March 2010) the Defendant had taken away a copy of a Franchise Agreement. The Defendant also signed an "Acknowledgement Statement" in which, in paragraphs 5 and 7.4, it was stated that he confirmed that he had received a copy of a Franchise Agreement; that he would read it carefully; that he had been strongly advised to discuss it with his solicitor; that he understood that he must not rely on any oral or written information unless it was in schedule 5 of the Agreement; that he would not sign a Franchise Agreement unless totally satisfied that he wanted to enter into a binding contractual agreement; that once he had signed the agreement he would be irrebuttably bound by all the commitments undertaken by him in it; and that he would not be entitled to any refund of monies paid, or to change his mind.
20. The principal document that the Defendant signed on 24 March was a Franchise Agreement (which, together with its schedules, ran to some 128 pages - each of which the Defendant signed or initialled at least once) in which:-

i) In recitals (H) and (I) and in clauses 36.1 and 36.2, it was stated that the Defendant variously stated and acknowledged that he had not relied on any representations or warranties made by or on behalf of the Claimant other than those contained in schedule 5; that he had represented as much to the Claimant; that he had been strongly advised by the Claimant to take independent legal and financial advice, and to speak with other Franchisees before entering into the agreement; that he had done so; and that he had represented as much to the Claimant.

ii) In clause 1.1 it was stated that the Defendant warranted that he had not relied on any information in entering into the Agreement other than that contained in schedule 5.

iii) In clause 4.1 it was stated that the Franchise would commence on the commencement date (defined in the Agreement as the commencement date set out in schedule 1) of 1 April 2010.

iv) In schedule 1, each part of which the Defendant initialled, it was stated that the term of the Agreement was 20 years, and that a non-refundable Initial Franchise Fee of £129,500 (£110,000 plus VAT) was payable no later than 25 March 2010 (which date was handwritten, and was initialled by the Defendant).

v) In clauses 6.1.1 and 6.2 it was stated that the Initial Franchise Fee was non-refundable and was to be deemed to be fully earned upon execution of the Agreement, and was to be paid in addition to other fees due under the Agreement, and that in the event that the Claimant agreed to the Defendant taking on work other than that secured by the Claimant the Finders Fee Agreement would come into effect as detailed in clause 8.6 and schedule 8 (see (ix) & (x) below).

vi) In clauses 8.1 and 8.2 it was stated that the Claimant undertook, after the successful completion by the Defendant of a training period, to use its reasonable endeavours to provide Initial Business to the Defendant over the period and in the amounts specified in the Plan in Schedule 2 to the Agreement, whilst reserving the right to provide customer accounts ahead of the Plan.

vii) Schedule 2 and the accompanying Plan in schedule 2.1(A) stated that the Initial Business that the Claimant undertook to use its best endeavours to provide was to be to a maximum of £22,000 per month - in the increments set out in the Plan from May 2010 until July 2011.

viii) In clauses 8.3 and 8.4 it was stated that the Claimant undertook that if by the end of any given month it had failed to receive and offer to the Defendant cumulative revenue to the level set out in the Plan (in schedule 2.1(A)) then it would be liable to pay a Plan Fee (as set out in schedule 2.1(B)); and that if by the end of July 2011 it had been unable to secure and offer the full £22,000 per month, the Claimant would have the option to continue paying the Plan Fee each month, or to pay a refund equal to three times the shortfall.

ix) In clause 8.6. it was stated that the Claimant and the Defendant had entered into a Finder's Fee Agreement in escrow which would automatically come into effect if the Claimant provided the Defendant with business over and above £22,000 per month during the period until the end of July 2011, and that in such circumstances the Defendant would have to pay further sums to the Claimant.

x) The Finder's Fee Agreement was set out in schedule 8 and provided that the Defendant agreed to a Finder's Fee in respect of business over £22,000 per month; and that, depending on how it was paid, the fee would be between 3 times and 3.4 times the gross monthly invoice amount of the additional business.

xi) In schedule 5 (where the Defendant initialled or signed every entry) it was stated that the schedule was a summary of the main issues raised by the Defendant with Mr Haworth, and his responses, prior to the signing of the Agreement; that the Claimant had stated that it had a substantial volume of contracts in the Defendant's territory, and that there might be opportunities for the Defendant to expand his business within his territory at faster than the anticipated Plan rate, and beyond the Plan, as well as beyond the territory, but that the Defendant recognised that the Claimant had offered no guarantees, and that the Claimant's obligation to provide new business and the Defendant's remedy via Plan Fees were set out elsewhere in the Agreement; that there was a discussion about the circumstances in which Plan Fees became payable to franchisees, that the Defendant acknowledged that he understood when such fees became due and payable, and that he had made his decision to purchase the franchise fundamentally based on his entitlement to such fees; and that the Defendant warranted that the statements set out in the schedule were an accurate reflection of the main issues raised by him prior to entering into the Franchise Agreement.

xii) In clauses 32.6 and 32.8 it was stated that that the Agreement, schedules and Finder's Fee Agreement etc constituted the entire agreement between the parties, and that they superseded any negotiations or prior agreements on the subject matter, and that there were no other covenants or agreements, written or oral.

xiii) In clause 32.7 it was stated that the Claimant had made no representations of minimum or guaranteed profits, and that the Defendant had not relied on any such representations.

xiv) In clause 32.9 it was stated that the Claimant and the Defendant acknowledged that the whole of their negotiations and intentions had been included within the context of the Agreement, and that there were no other warranties representations or other matters relied upon by the Defendant, causing him to sign the Agreement, that had not been satisfied within the Agreement itself.

xv) In clause 32.10 it was stated that the Claimant and Defendant acknowledged and agreed that the Agreement and the Finder's Fee Agreement could not be modified in any way except by an instrument signed by them both.

xvi) In clause 32.12 it was stated that no agent of the Claimant had authority to make oral representations prior to or after the date of the Agreement, and that the Defendant had not relied on any oral representations in entering into the Agreement.

xvii) In Clause 32.13 it was stated that only the Claimant's Managing Director could make any agreement on its behalf to modify or to vary the Franchise Agreement, and that no agent of the Claimant had any authority to make any agreement to modify or vary the terms and conditions.

xviii) In clause 35.1 it was stated that, for the avoidance of doubt, clauses 1 – 34 were not intended to exclude claims for fraudulent misrepresentation.

21. A fourth document that the Defendant signed on 24 March 2010 was the Addendum Agreement between the Claimant, the Defendant and Manchett Facilities Limited (of which the Defendant, who signed the agreement on behalf of the company, was recorded as being a majority shareholder and director). This agreement stated that it was agreed that the terms of the Franchise Agreement (which would otherwise have had the effect of making the operation by the Defendant of Manchett Facilities Limited a material breach, and of requiring the Defendant to pay royalties to the Claimant based on the turnover generated in those accounts operated by the company) should, on the terms set out, be of no effect. As already touched on above, Manchett Facilities Limited had, in fact, gone into liquidation in March 2009.
22. On 26 March 2010 the Claimant sent an email to the Defendant congratulating him on joining the Jani-King team, and confirming that his next meeting with the Claimant was to be on 30 March 2010, when a full training schedule was to be discussed.
23. The fifth and final meeting was on Tuesday 30 March 2010. The Defendant was accompanied by Lee Briggs and Mike Love. The Defendant was provided with a copy of the Franchise Agreement that he had signed six days earlier. Later that day Mr Haworth and the Defendant spoke on the telephone. The Defendant raised concerns about Finders Fees, objecting that he had not understood that he must pay extra fees if he wanted the Claimant to provide more than £22,000 worth of business monthly.
24. On 7 April 2010 Mr Love sent an email to Mr Haworth in which he indicated that the Finders Fee provisions had been "a bombshell" to the Defendant, and that a review of the full agreement was necessary before it could go forward.
25. Attempts thereafter to reach a commercial settlement failed.
26. The Claimant commenced proceedings on 10 May 2010. The procedural history before the Master is set out in his judgment (above). Prior to the hearing on 8 December 2010 there was a simultaneous exchange of Skeleton Arguments. Thus aspects of each were not addressed in the other. However the legal arguments during the hearings before the Master were essentially to the same effect as the Skeletons prepared for, and arguments during, the hearing before me.

The Escrow Issue (Grounds 5-7)

(i) Background

27. In paragraphs 5-8 of the Defence and Counterclaim it is asserted that:-

"5. The Defendant signed the agreement at a meeting on 23^rd March 2010 at the Claimant's offices. He did so on the footing, communicated on the said date orally to one Paul Haworth who acted for the Claimant throughout, that any agreement was conditional upon his receipt of advice upon the agreement from one Michael Love, his accountant and business and financial advisor and, if so advised, payment of the franchise fee demanded by the Claimant. He did not intend there and then to be bound by the agreement and made it clear to Haworth that he would not be bound unless and until he had received satisfactory advice from the said Love.

6. As appears below the Defendant had not, despite requests therefore, received a copy of the agreement as proposed or as signed, whether before or on 23^rd March aforesaid. The recitals at (H) and (I) of the agreement, and the acknowledgements at paragraph 33 of the agreement are false and untrue, as is the warranty at paragraph 1 of the agreement and, subject to paragraph 22 below, schedule 5 of the agreement as referred to in the said paragraph1, together with any other provision which asserts that no representations other than those incorporated into the agreement were made by the Claimant or relied upon by the Defendant, or which asserts that the Defendant had received, or had stated that he had received, advice about the agreement or that he had had an opportunity to do so.

7. At a meeting between Haworth and the Defendant attended by the said Love on 30^th March 2010 a copy of the agreement was given to Love. Thereafter and on the same day Love advised the Defendant inter alia as to the misrepresentations set out below. The Defendant was advised not to proceed with the transaction.

8. By reason of the matters aforesaid the agreement is an escrow and the Defendant is not bound by it to pay the sums demanded or any sums to the Claimant."

28. In his witness statements the Defendant asserts that his interest in Jani-King was to acquire a franchise for Lee Briggs (his son-in-law), who would operate it with one of the Defendant's business managers Steve Sutton. As to the fourth meeting on 24 March 2011, the Defendant asserts that he had not been warned in advance that the Franchise Agreement would be produced for signature, and that if he had been so warned he would have taken Mr Love with him. He asserts that when the Franchise Agreement was produced nothing was dated, and the date for the payment of the Franchise Fee was left blank. The Defendant says that he repeatedly stated that he would not sign up to any agreement, or pay any fee, until Mr Love and his lawyers had had a chance to read the agreement and to advise him, but that Mr Haworth had insisted that the agreement should be signed there and then, and that if it was not signed there was another customer for the contract cleaning on offer who could sign up the following day.
29. The Defendant further asserts that therefore he said that, as a gesture of good faith, he would sign the Franchise Agreement pending getting advice from Mr Love and his lawyers, and that there was no concluded deal unless and until he had been advised by them, and until then he was not going to be bound by the terms of the agreement. Mr Haworth had then signed and initialled the Franchise Agreement, asked the Defendant to sign and initial likewise, which the Defendant then did, without having the chance to read it, and only on the footing that he had just indicated. Thereafter, Mr Haworth had provided him with an invoice for the Franchise Fee, and had insisted that the money be in the Claimant's bank account the following day. The Defendant asserted that he had replied that he would pay the money when satisfied with the advice that Mr Love had given him.
30. That account is broadly supported by:-

i) David Manchett who, in his witness statement, says, in particular, that Mr Haworth agreed that it would be alright for the Defendant's accountant to go through the Franchise Agreement.

ii) Mr Love who, in his witness statement, says that after receiving a copy of the signed Franchise Agreement at the meeting on 30 March 2010 he examined the first part of it, concluded that there were "myriad and complicated" problems, and advised the Defendant to seek legal advice immediately.

31. In his witness statement of 30 July 2010, Mr Haworth denies that there was mention of any such "footing" as alleged by the Defendant. He says that he would not have agreed and did not agree to any such position, and suggests that if the Defendant wanted some time he could simply have postponed signing the Franchise Agreement and sought advice from Mr Love about it.

(ii) The Defendant's arguments

32. On the Defendant's behalf Mr Joseph argues, in summary, that:-

i) If, as the Defence evidence shows, the Defendant expressly told Mr Haworth that he did not intend there and then to be bound by the terms of the Franchise Agreement, then his signatures did not indicate the existence of a binding and enforceable agreement until he had received positive advice from Mr Love and his lawyers – it being self-evident that if the Defendant did not agree to be bound by the contract then he was not so bound. Thus the terms of the Franchise Agreement never became effective, and were never binding upon the Defendant.

ii) The case of Pym v Campbell (1856) 6 E&B 370, at p. 373-375, provides support for that proposition – albeit that in that case all parties understood and agreed that they were not bound until another individual agreed.

iii) It is impossible to know why the Master rejected the above-mentioned argument, or failed to follow Pym v Campbell. His judgment refers to the Claimant's Skeleton Argument, but that did not deal with these matters.

iv) Equally, the evidence before the Master was all one way, and (at the least of it) what the Defendant and David Manchett say is not impossible. This is therefore a case in which the evidence from the witnesses will be decisive, and thus a trial is called for.

v) In any event, the Defendant's case is strongly arguable, or at least plausible, and thus has real (i.e. not fanciful or imaginary) prospects of success.

vi) It simply cannot be characterised as involving the absence of reality that is required to justify a striking out – see the speech of Lord Hobhouse in Three Rivers v Governor of the Bank of England No.3 [2003] 2 AC 1 at p.282G.

(iii) The Claimant's arguments

33. On the Claimant's behalf Mr Evans-Tovey submits that the Defendant does not plead that the Claimant ever "agreed" to the Franchise Agreement being conditional, and that thus, at its highest, the Defendant's case is that his signature was conditional on getting advice.
34. Mr Evans-Tovey submits that any such condition and/or the escrow alleged is excluded by:-

i) The fact that the Franchise Agreement was not conditional or in escrow on its face, and therefore could only be conditional if the parties had entered into a collateral agreement to that effect.

ii) The entire agreement provisions within clauses 32.6 & 32.8 (see para. 20(xii) above) preclude the Defendant from trying to establish a collateral agreement – see The Intreprenneur Pub Company v East Crown Limited [2000] 2 Lloyds Rep. 611 in which, at para. 7 Lightman J said:

"The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence…….; it is to denude what would otherwise constitute a collateral warranty of legal effect."

iii) The fact that, in addition, the existence of any modifications or variations to the Franchise Agreement by collateral agreement or otherwise was precluded by clauses 32.10, 32.12 & 32.13 (see para. 20 (xv)-(xvii) above).

35. Further, Mr Evans-Tovey argues that the issue of contractual intent falls to be judged objectively; that the acknowledgement and the form and terms of the Franchise Agreement objectively and very clearly demonstrate that it was intended, when signed, to have contractual intent; that thus the signing of the Franchise Agreement evidenced contractual intent and under English law gave rise to a binding agreement.
36. As to the Defendant's reliance on Pym v Campbell (above), Mr Evans-Tovey points out that on its particular facts that case involved a signed memorandum of terms that did not become an agreement until a particular individual approved. He submits that the case is simply authority for the proposition that for a written and signed contract to be subject to a condition precedent the parole evidence must be of an agreement between the parties to the condition precedent (as to which he also drew my attention to Gudgen v Besset (1856) 6 E & B 986). Pym v Campbell is not authority, he submits, for the proposition that an escrow can be created unilaterally without agreement. He further points out that Pym v Campbell was decided before the law relating to entire agreement clauses had been developed, and that the factual matrix and other terms of the agreement in this case negate the admission of parole evidence.
37. Further or alternatively, Mr Evans-Tovey submits that there are no real prospects of the Defendant establishing on the facts that the Franchise Agreement was conditional/in escrow.
38. In that regard Mr Evans-Tovey submits that it is common ground that the Defendant is a business man with a lot of experience. He points out that the Defendant does not contend that he did not appreciate the well-known legal effect of signing an agreement, namely to be legally bound by its terms. He further contends that if the Defendant had signed the Franchise Agreement on the footing that he alleges, he could and would have reduced and/or recorded the same in writing as an additional term of the Franchise Agreement, or as an additional term of the Addendum Agreement, or as a collateral contract, or marked the Franchise Agreement somewhere to that effect.
39. Finally, Mr Evans-Tovey submits that the alleged footing is wholly inconsistent with the terms of part of recital I (para. 20(i) above); Clause 6.1.1 (para. 20(v) above); the Defendant's express agreement in schedule 1 to pay the "Initial Franchise Fee" by no later than the next day (para. 20(iv) above); clauses 32.9.1 & 32.9.2 (para. 20(xiv) above); clauses 32.6 & 32.8 (para. 20(xii) above); clause 32.10 (para. 20(xv) above); and paragraph 7.4 of the "Acknowledgment Statement" (para. 19 above).

(4) My Conclusions

40. Obviously, it is a vitally important principle that the parties to litigation should know the reasons why they won or lost – see English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409. In that regard it is clearly unfortunate that, when giving judgment, the Master fell into error in recalling that the Claimant had set out all its arguments on the escrow issue in Mr Evans-Tovey's Skeleton Argument. It was no doubt for that reason that, in paragraph 14 of his judgment, he said that the Claimant's written argument was a complete answer to the Defendant's objections, when (in itself) it was not – because, as already explained in paragraph 26 above, it did not contain all the Claimant's arguments.
41. However (as also touched on in para. 26 above) it is clear that the oral legal argument before the Master was essentially to the same effect as the Skeletons prepared for, and the argument during, the hearing before me.
42. Thus the Master's reference to the Claimant's written argument should have been a reference to the Claimant's overall argument. I have no doubt that that was, or should have been, obvious to the Defendant.
43. The adequacy of the reasons given must be tested in the context of the knowledge and understanding of those who were present at the hearing; the test is not whether the judgment is comprehensible for the first time reader – see Harris v CDMR Purfleet Ltd [2009] EWCA Civ 1645. Whether a judgment is sufficiently reasoned must depend on all the circumstances of the case – see Cook v Consolidated Finance Ltd [2010] EWCA Civ 369.
44. In my view the Claimant's overall argument on the escrow issue (including the alternatives within it, as set out in paras. 33-38 above) is, and was indeed, a complete answer to the Defendant's case both factually and legally. It might also have relied on para. 32.9 of the Franchise Agreement (see para. 20(xiv) above).
45. Thus, whilst undoubtedly a robust decision, it seems to me that the Master was entitled to conclude that the Defendant's case on the escrow issue had no real prospect of success.
46. Equally, despite the Master's error of recollection, it seems to me that (applying the Harris/Cook test) there is no merit in the suggestion that his reasons were inadequate and/or revealed any failure to take appropriate matters into account.
47. Thus it seems to me that there is no arguable merit in Grounds 5-7 and nor do they give rise to any other reason for granting permission to appeal. Accordingly the application for permission to appeal in relation to them fails.

The Fraudulent Misrepresentation Issue (Grounds 8-15)

(i) Background

48. In paragraphs 10-12, 18 & 19 of the Defence and Counterclaim it is asserted that:

"10. The Claimant, acting by Haworth (the Third Party herein) orally represented that in return for the payment of a franchise fee of £110,000 plus VAT the Claimant would introduce new work to the Defendant with a value by turnover of at least £40,000 per month.

11. Induced by and in reliance upon the Claimant's said representation made repeatedly on the occasions set forth below the Defendant signed the agreement.

12. The said representation was made and repeated by Haworth on several occasions

(i) at a meeting with the Defendant on 16^th March 2010 at the offices of the Claimant. One David Manchett and one Lee Briggs were also present at the said meeting and heard the said representations.

(ii) at a meeting with the Defendant on 23^rd (sic) March 2010 at the offices of the Claimant. The said David Manchett was also present at the said meeting and heard the said representations.

….

18. The representation set out at paragraph 10 above and repeatedly made by Haworth was untrue as it appears from the terms of the agreement itself as put forward by Haworth and signed by him, and as set out at paragraphs 13 and 14 above.

19. In the said premises the said representations were made fraudulently in that Haworth knew that what he said was untrue, or he was reckless as to whether or not what he said was true."

49. The Defendant's evidence is to the effect that, via Mr Haworth, the Claimant represented as a fact, repeatedly and on more than one occasion, that the contractual price required for the purchase of business with a gross value of £40,000 per month was £110,000 plus VAT, whereas under schedule 8 of the standard form Franchise Agreement that the Defendant signed there was a requirement to pay an additional £54,000 by way of Finders Fees to achieve that level of business.
50. The Defendant is supported as to what Mr Haworth said by the statements of Lee Briggs and David Manchett.
51. Mr Haworth says that he made no such representation and that the allegation is untrue and lacks merit. He points out that no such representation is recorded in schedule 5 of the Franchise Agreement, which the Defendant signed a large number of times – in particular as being a summary of the main issues that he had raised, and of the responses made by Mr Haworth, prior to the signing of the agreement. Mr Haworth suggests that it beggars belief that, if he had made such a fundamental statement, it was not recorded and that the Defendant failed to recognise that when signing the agreement.
52. The Defendant asserts that, despite his many signatures on schedule 5, its content is all a lie.

(ii) The Defendant's arguments

53. On the Defendant's behalf Mr Joseph argues, in summary, that:

i) Three witnesses say that Mr Haworth made the representations alleged, and Mr Haworth must have known or been reckless about the untruth of their content.

ii) The Master's reasoning depended entirely upon the Claimant's written submissions. However, these did not address significant aspects of the Defendant's case, but concentrated upon the assertions that the misrepresentation alleged was merely a future promise and not actionable, and that the terms of the contract had corrected any such misrepresentation.

iii) As to the Claimant's first assertion, the misrepresentation was clearly one of present fact, not a future promise – see Edgington v Fitzmaurice [1885] 24 Ch 459. The deceit lay in the untruthful misrepresentation as to the price of the business; it was irrelevant that the actual payment of the price would be in the future.

iv) As to the Claimant's second assertion, none of the contractual provisions relied upon by the Claimant could preclude the Defendant's reliance on fraudulent misrepresentation to avoid the contract – not least as clause 35.1 (see para. 19(xviii) above) provides in terms that a franchisee is not precluded from relying on fraudulent representations.

v) Section 3 of the Misrepresentation Act 1967 ("the 1967 Act") makes clear that a party seeking to rely on a contractual term excluding liability for misrepresentation cannot do so unless the term satisfies the requirement of reasonableness set out in s.11(1) of the Unfair Contract Terms Act 1977, and that it is for the party relying on the term to show that it does satisfy that requirement. However, the Claimant did not plead that the terms relied on satisfied the statutory test, and nor was any of the Claimant's evidence addressed to that issue. Thus it was wholly inappropriate for the Master to rely on any of the terms relied upon.

vi) In any event, the Defendant relied upon the principle that, on public policy grounds, a contracting party cannot exclude his own liability for fraud in inducing the making of a contract, and that any exclusion of liability for an agent's misrepresentation can only be achieved (if at all) by clear and unmistakable terms on the face of the contract – see HIH Casualty and General Insurance v Chase Manhattan Bank [2003] 2 LLRep 61 at paras 15-16 (Lord Bingham), 68-69, 76-81 (Lord Hoffman) & 97-98 (Lord Hobhouse).

vii) To the extent that the Claimant relied upon Peekay Intermark Limited v Australia and New Zealand Banking Group [2006] 2 LLRep 511 and Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221 (which are authority for the proposition that a party who has signed a contract without reading it is nevertheless normally bound by its terms), the Master failed to recognise that neither case was concerned with fraudulent misrepresentation; that neither case decided that a party who was induced to enter into a contract by fraudulent misrepresentation was bound by its terms; and that Peekay specifically recognised the principle of entitlement to rescission for a person induced to enter into a contract by fraud or misrepresentation. Indeed, that Peekay was decided on its own facts, particularly that the Claimant was induced to sign the contract not by the rough and ready description of the relevant product given by the Defendant's agent, but rather as a result of his own assumption that the product corresponded to that description, whereas the terms of the contract (which the Claimant signed but did not read) made clear that the product was different – see e.g. paras. 43, 47, 60 & 66 of the judgment.

viii) In reality the Defendant has a strongly arguable case in relation to fraudulent misrepresentation, with a real prospect of success.

(iii) The Claimant's arguments

54. The Claimant's case is that there was no untrue representation about the price of the business, which was £110,000 plus VAT for up to £22,000 worth of business monthly. The Claimant asserts that the real complaint, if true at all, is that the Defendant misunderstood the future business that he was buying. Further, that any statement made about a price for future obligations is not an actionable present fact prior to actual agreement, because it is generally understood between commercial men that prices are merely quotes as to the future, changeable with time until actual agreement is reached, or because a final price agreed effectively corrects any earlier statements about price. The more so as any suggestions to the contrary would have serious implications for commercial certainty in contracts.
55. Mr Evans-Tovey underlines that according to the Defence and Counterclaim the statement alleged to have been untrue was that the claimant would, for £110,000 plus VAT, introduce new work to the Defendant with a value of at least £40,000 per month (para. 10), and that it was said to be untrue because the Franchise Agreement that the Defendant signed related to the provision of turnover of only £22,000 per month for that same fee (para. 13).
56. Against that background Mr Evans-Tovey's overall submission was to the effect that the Defendant could not rely on the alleged misrepresentation because (even if made as alleged) it was not actionable and, further or alternatively, because it could not be relied upon by way of a misrepresentation defence.
57. As to the first part of his overall submission Mr Evans-Tovey asserted that the alleged misrepresentation, if made, would not have been a statement of fact but instead a promise as to future performance, actionable only as a contractual promise and not as a misrepresentation. In this regard he relied upon Beattie v Lord Ebury [1872] LR Ch App 777, 804 and Tudor Grange Holdings v Citibank NA [1992] Ch 35, 67. In the latter case Browne-Wilkinson V-C decided, inter alia, that an arguable representation as to present intention in 1988, though a representation of existing fact at that particular time, was irrelevant in relation to events in 1989.
58. Mr Evans-Tovey argued that the Defendant's reliance upon Edgington v Fitzmaurice (above), which decided that the state of a man's mind was an existing fact, was misplaced in that the representation relied upon in the instant case was not as to the present intention of Mr Haworth or the Claimant, intention is not mentioned, nor (even if it did relate to present intention) is there any allegation in the Defence and Counterclaim that Mr Haworth did not have the relevant intention at the material time.
59. Further, Mr Evans-Tovey pointed out that the Defendant has changed his argument since the hearings before the Master, such that he now argues that the fraudulent statement was not one of present intention but one of present fact that the price of the business that was on offer was £110,000 plus VAT, yet that is not the pleaded representation.
60. Finally in this regard, Mr Evans-Tovey submits that the Defendant's position has the hallmarks of an individual who, if he was actually right as to the facts (in that the terms of the Franchise Agreement did not reflect the agreement that he thought that he had made), should be making a claim of rectification, but has recognised the very significant hurdles that the law requires him to surmount in order to succeed (see Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71 at para. 33, Chartbrook v Persimmon Homes [2009] 1 AC 1101 at para.48, and Joscelyne v Nissen [1970] 2 QB 86 at 98D), and has thus made an unmeritorious claim of fraudulent misrepresentation to avoid them.
61. As to the second part of his overall submission, Mr Evans-Tovey argues that:

i) The Defendant was undoubtedly given a copy of a pro forma Franchise Agreement at the conclusion of the third meeting on 16 March 2010, which was more than a week before the contract was signed. His initial denial of that fact (Defence and Counterclaim para. 6), and the subsequent attempts to downplay its receipt in the Defence evidence are telling.

ii) The Defendant signed the Franchise Agreement on every page and in places beside individual provisions, in consequence of which the Defendant is to be taken in law as having read and understood every provision – see Springwell v JP Morgan (above) at para. 170, and also clause 36.1.2 (para. 20(i) above).

iii) The alleged misrepresentation is contrary to the express, clear unambiguous and agreed terms of the Franchise Agreement – in particular schedule 2, clauses 6.2 & 8 and schedules 5 & 8 (see para. 20 (v)-(xi) above).

iv) Even if the Claimant had made the pleaded representation alleged, in law it is to be treated as having been nullified by the correction made by the clear and unambiguous terms of the contract itself, which the Defendant signed (whether he read the terms or not) – see Peekay (above) at para. 43.

v) This is not a case of a party contracting out of the consequences of an alleged fraudulent misrepresentation; rather, if there ever was a misrepresentation, this is a case of the putative contractual terms correcting it before the consequences arose.

vi) The Defendant's position appears to be that while a non fraudulent statement can be subsequently corrected by the contract terms, a fraudulent statement cannot – which is not supported by authority, is counter intuitive, and is contrary to commercial and common sense.

62. Finally, in regard to fraudulent misrepresentation, Mr Evans-Tovey submits that, if necessary, the Claimant relies on clause 32.12 (see para. 20 (xvi) above) to the effect that no agent of the Claimant had authority to make oral representations prior to the date of the agreement, and that the Defendant had not relied on any such representations. Mr Evans-Tovey argues that, a fortiori, the agent has no authority to make fraudulent representations, and that nor does the clause fall foul of the 1967 Act – see Overbrooke Estates v Glencombe [1974] 1 WLR 1335 (which decided that s.3 of the 1967 Act did not in any way qualify the right of a principal to limit the authority of his agent).

(iv) My conclusions

63. The observations that I have made in paragraphs 40-43 above when dealing with the Master's conclusion in relation to the escrow issue apply equally in relation to the fraudulent misrepresentation issue. He again fell into error in recalling that the Claimant had set out all its arguments in Mr Evans-Tovey's Skeleton Argument. As before, the Master's reference in paragraph 14 of his judgment to the Claimant's written argument should have been a reference to the Claimant's overall argument (as to which see again para. 26 above). Again, I have no doubt that that was, or should have been, obvious to the Defendant.
64. On this issue as well it seems to me that the Claimant's overall argument on the fraudulent misrepresentation issue (including the alternatives within it, as set out in paras. 54-62 above) is, and was indeed, a complete answer to the Defendant's case both factually and legally.
65. The Defendant's factual case on this issue effectively depends upon the premise, inter alia, that Mr Haworth made the fraudulent misrepresentation as alleged; that he nevertheless provided the Defendant's side with a copy of the Claimant's standard form contract which showed the same different monthly figure as the contract later signed; that the Defendant failed to appreciate that as neither he nor anyone else on his side ever looked at the copy contract; that that was because despite the copy stating on its face in large type that it was a contract, it was thought to be a training manual; that when the Defendant signed the contract he failed to notice that the monthly turnover figure in it was different; and that when, in particular, he signed schedule 5 he failed to notice that it omitted the discussions about that figure and instead contained lies each of which he signed without realising that to be the case at the time.
66. Given the nature of the Franchise Agreement, and the content of the various other documents that the Defendant signed, and notwithstanding the evidence of Lee Briggs and David Manchett, that premise strains credulity beyond any sensible breaking point even on the face of the papers.
67. Also, for the reasons advanced by Mr Evans-Tovey, it seems to me that a number of the legal issues raised on the Defendant's behalf are nothing to the point.
68. Thus, whilst again undoubtedly a robust decision, it seems to me that the Master was entitled to conclude that the Defendant's case on the fraudulent misrepresentation issue had no real prospect of success.
69. Equally, despite the Master's error of recollection, it seems to me that, applying the Harris/Cook test (above), there is no merit in the suggestion that his reasons were inadequate and/or revealed any failure to take appropriate matters into account.
70. Thus it seems to me that there is no arguable merit in Grounds 8-15 either, and that nor do they give rise to any other reason for granting permission to appeal. Accordingly the application for permission to appeal in relation to them also fails.

The Amendment Issue (Ground 16)

(i) Background

71. The proposed amendment to the Defence and Counterclaim is in the following terms:

"22A During the said meeting on 9^th March 2010 Haworth stated that the work which was being offered to the Defendant was then being carried on by a franchisee in Southampton called Shayona R&D Ltd ('Shayona') and that such work would be removed from Shayona by the Claimant because the said work was not being properly controlled by Shayona and so that it could be carried on by the Defendant.

22B Further, during the said meeting on 9^th March 2010 Haworth gave to the Defendant two spreadsheets which purported to show and which he said showed the work which was being done by Shayona and which would be transferred to the Defendant.

22C Accordingly and by reason of the facts and matters set out at paragraphs 22A and 22B and the Claimant expressly and or alternatively impliedly represented to the Defendant that (i) Shayona existed and (ii) it was carrying on the business which the Claimant intended to transfer to the Defendant and (iii) there was a ready-made business being carried on by Shayona which could be taken on by the Defendant.

22D Induced by and in reliance upon the Claimant's said representation (which were repeated as set forth below) the Defendant signed the agreement.

22E The said representations were repeated at the said meeting on 24^th March 2010 when Haworth offered further work to the Defendant to a value of £44,000 per month, also to be removed from Shayona. At the said meeting Haworth produced a further spreadsheet purporting to show all the work which was being offered to the Defendant to a total value of £84,606.09, and purporting to show that it was all being carried out by Shayona.

22F In truth and in fact Shayona had been dissolved on 13^th October 2009 and thereafter and in particular during the negotiations described above it did not exist and it was not carrying on the said or any business and there was no ready-made business being carried on by Shayona which could be taken on by the Defendant.

22G Accordingly the representations set out at paragraph 22C above were untrue.

22H The said representations were made fraudulently in that Haworth knew that they were untrue, or he was reckless as to whether or not they were true.

PARTICULARS

The Claimant as a franchisor has a close relationship with its franchisees including but not limited to detailed monthly accounting as between franchisee and franchisor. Such accounting requires, inter alia, the preparation and service of a month end report by the Claimant and the completion of Monthly Accounting Proformas by the franchisee; the deduction of Management Services fees, System Support fees, Administration fees, Software fees, Advertising fees and payment for Products and Equipment, and the payment of sums due from the franchisor to the franchisee or vice versa; the completion and provision of monthly management accounts, monthly management reports and quarterly management accounts by the franchisee to the Claimant; and the provision by the franchisee to the Claimant of bank statements, VAT returns, payroll records and labour costs per customer account. The Claimant could not have been unaware that Shayona was unable to perform such monthly accounting or to provide such accounts, records and information at least after 13^th October 2009. The Claimant could not honestly have believed that Shayona was then carrying on the business which was purportedly to be transferred to the Defendant. Further, the Claimant could not honestly have believed that there was a ready-made business being carried on by Shayona which could be transferred to the Defendant.

22I Alternatively the said representations were made negligently in that Haworth took no or no proper care to ascertain that Shayona existed or that it was carrying on business or that there was a ready-made business being carried on by Shayona which could be transferred to the Defendant."

72. The Defendant variously asserts in his statements dated 19 November 2010 and 2 February 2011 that:

i) After pleading his Defence, and consequent upon investigations resulting from the Claimant's strike out application, he discovered that Shayona R&D Limited, whose business he had been led to believe by Mr Haworth he was getting, had been struck off the previous year and did not exist.

ii) The fact that he would have been getting the business of an existing and functioning entity was important to him in making his decision to sign the contract, as he was reassured to know that an existing franchisee was carrying on the business – which had implications for him as regards, inter alia, customers' goodwill, payment terms, credit facilities and profitability.

iii) He had specifically asked to meet the directors of Shayona but had been fobbed off on the basis that it was not necessary.

iv) Had he realised that there was no ready made business being run by a franchisee to be transferred to him, and had he been told that Shayona had been dissolved, he would have made further enquiries and would not have signed the agreement when he did.

v) The Claimant's suggestion, in the proceedings, that customers often did not even know the name of the franchisee was untrue.

vi) He believed that the representations that Mr Haworth had made to him in relation to Shayona were fraudulent.

73. The Defendant's evidence is supported by that of his brother David.
74. Mr Haworth's evidence, in his third (undated) statement, is to the broad effect that:

i) The Defendant had no interest in the existing franchisee.

ii) The name Shayona was not even mentioned during the discussions.

iii) In any event, he (Mr Haworth) had believed at the time that Shayona R&D Limited still existed.

75. In Three Rivers DC v Governor and Company of the Bank of England No.3 [2003] 2 AC 1 at p. 291/2 (paras. 183-190) Lord Millett dealt with the strict rules for pleading and proving a case of fraud. In particular, at paragraphs 184-186 he said that:

"Having read and re-read the pleadings, I remain of the opinion that they are demurrable and could be struck out on this ground. The rules which govern both pleading and proving a case of fraud are very strict. In Jonesco v Beard [1930] AC 298 Lord Buckmaster, with whom the other members of the House concurred, said, at p 300:

"It has long been the settled practice of the court that the proper method of impeaching a completed judgment on the ground of fraud is by action in which, as in any other action based on fraud, the particulars of the fraud must be exactly given and the allegation established by the strict proof such a charge requires" (my emphasis).

It is well established that fraud or dishonesty (and the same must go for the present tort) must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake, 7^th ed (1952), p 644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney General for Victoria [1901] AC 196; Armitage v Nurse [1998] Ch 241, 256. This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.

It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means "dishonestly" or "fraudulently", it may not be enough to say "wilfully" or "recklessly". Such language is equivocal. A similar requirement applies, in my opinion, in a case like the present, but the requirement is satisfied by the present pleadings. It is perfectly clear that the depositors are alleging an intentional tort.

The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved. "

(ii) The Defendants arguments

76. Mr Joseph submits that there are some obvious errors in the Master's judgment in relation to this issue, in particular:

i) Originally, there was no reference to this issue in the judgment at all, it was all added following the Defendant's application on 18 February - as already touched on in paragraph 4 above.

ii) The application to amend the Defence and Counterclaim was first made at the hearing on 8 December 2010, not at the adjourned hearing on 4 February.

iii) The judgment wrongly records the Defendant's case as being that since Shayona had been dissolved there was no business to transfer to him, which had never been the Defendant's case.

77. As to the three grounds upon which the Master ruled against the amendment in paragraph 15 of his judgment, Mr Joseph submits that:

i) The existence of Shayona as a matter of law was not a material matter to the Defendant. It was nothing to the point.

ii) Clause 32.12 (see para. 20(xvi) above) was not relevant to an allegation of fraudulent misrepresentation, the right to rely upon which was, in any event, preserved by clause 35.1 (see para. 20(xviii) above).

iii) There was plain substance to the allegation – on the face of it the Claimant misrepresented to the Defendant that Shayona existed, that it was carrying on the business that was the subject of the negotiations, and that there was indeed a ready made business being carried on by it which could be taken on by the Defendant. His case was supported by detailed witness statements and by detailed and clear proposed pleading which did not offend against the principle set out in paragraph 184 of the judgments in the Three Rivers case (above). The proposed pleading made clear that it was to be inferred that, against the background of the necessarily close relationship between the Claimant and its franchisees, the Claimant knew that Shayona no longer existed, or that the Claimant was reckless whether it existed, when the relevant representations were made.

78. Mr Joseph further submitted that the effect of the Claimant's evidence was that it had been hoodwinked into believing that Shayona still existed, whereas (for the reasons set out in his statements) the Defendant did not accept that. In that regard Mr Joseph points out the close relationship between the Claimant and its franchisees required by clause 7 of the Franchise Agreement, and in particular clause 7.6A under which a franchisee was required to produce monthly management accounts, and clause 7.13 which required a franchisee to provide the Claimant each quarter with, inter alia, VAT returns and bank statements. He also pointed out that clause 26.24 states that the Franchise Agreement will automatically terminate if the franchisee ceases to be registered for VAT. Therefore he submits that there is a clear inference that the Claimant must have known that Shayona had gone into liquidation in October 2009. Thus he submits that a summary judgment application was not the forum for deciding which version of events was right or wrong. It was wholly inappropriate for the Master to assume that the Claimant's case was bound to succeed, and that the Defendant's case was bound to fail. It was, in fact, plausible that the Claimant knew or was reckless as to Shayona's demise.
79. Accordingly, Mr Joseph submits, it was quite wrong to categorise the Defendant's prospects of success as imaginary or fanciful. Rather, depending eventually on what emerged during the discovery process and in cross-examination, the proposed amended pleading had a real prospect of success. Accordingly, it was arguable that the Master (whose eventual judgment in relation to this issue was particularly perfunctory and inadequate) should have granted permission to amend.

(iii) The Claimant's arguments

80. Mr Evans-Tovey accepted that an application to amend was first mooted orally on 8 December 2010, albeit that no draft amendment was relied on. However he points out that particulars were ordered to be provided within 14 days; that draft particulars were served under cover of a letter dated 22 December 2010; that no further draft was ever served; and thus that the draft before the court at the resumed hearing on 4 February 2011 took no account of the material served by the Claimant in Mr Haworth's third statement.
81. Mr Evans-Tovey submits that it is important to appreciate that, on the material before the Master in relation to the proposed amendment, and given in particular the content of Mr Haworth's third witness statement:

i) At all times an entity using the name Shayona R&D carried on and operated the franchise and operated the accounts.

ii) For understandable, if not common, reasons the Claimant did not know that the entity was no longer the company because it had been dissolved.

iii) Following the dissolution of the company, a de facto franchisee carried on the franchise using the name R&D Shayona.

iv) The de facto franchisee was Mr Manish Patel, who was the former owner of the company and had controlled it.

v) There was in fact no material that could properly support any allegation of fraudulent misrepresentation by Mr Haworth in relation to Shayona - not least as it was clear from the evidence that the Claimant was still invoicing by reference to Shayona R&D Limited, and continuing to make payments to the account of Shayona R&D Ltd from March 2010 until September 2010, when a managed exit agreement was signed with Shayona R&D Limited and its customers were taken in house by the Claimant, and that it was not until October 2010 that the Claimant learned that Shayona R&D Limited had been dissolved a year before.

vi) Any misrepresentation claim was going to have to be to the effect that the fact that the contracts being discussed were being serviced by a company rather than a person was a fact material to the Defendant, that he relied upon it, and that he would not have entered into the contract had he known that the contracts being discussed were being serviced by a person, not a company.

vii) The Defendant's suggestion that it was material to him that R&D Shayona was a company was fanciful.

82. Mr Evans-Tovey further submits that:

i) The proposed amendment did not disclose a reasonably arguable case of fraudulent misrepresentation because the particulars of fraud were not sufficiently particularised, being consistent with innocence – see the judgment in the Three Rivers case (above) at paragraphs 183-190.

ii) In particular, the specific averments in paragraph 22C of the proposed pleading make no allegation that it was suggested that Shayona was successful, just that it existed and was carrying on the work that could be taken on by the defendant, and no necessary primary facts are pleaded in paragraphs 22H & 22I.

iii) The proposed amendment had been overtaken by the material served on behalf of the Claimant, such that by the time of the renewed application there was in fact no material that could properly support any allegation of fraudulent representation in relation to Shayona, and the proposed draft took no account of that material, such that the Master was entitled to refuse the amendment sought.

iv) In any event, clause 32(12) of the Franchise Agreement (see para. 19(xvi) above) provided that no agent of the Claimant had authority to make oral representations prior to or after the date of the agreement, and that the Defendant had not relied on any oral representations in entering into the agreement. The clause was valid – relying again on Overbrooke Estates v Glencombe (see para.62 above).

(iv) My conclusions

83. The fact that the original version of the Master's judgment did not address this issue at all is obviously troubling, as is the fact that he erred in describing when the application was first made, and in stating that the Defendant's case was that since Shayona had been dissolved there was no business to transfer to him.
84. However, all that said, and despite Mr Joseph's submissions, it seems to me that Mr Evans-Tovey is right that the pleading clearly offended against the principles set out in the Three Rivers case (above) at paragraphs 183-190, and also that on all the evidence before the Master he was clearly entitled to come to the robust view that this allegation of fraud was devoid of substance, that it thus had no real prospect of success, and that accordingly the application to amend should be refused.
85. In my view, Mr Evans-Tovey's argument in relation to clause 32.12, and thus the Master's acceptance of it, is also valid.
86. Equally it seems to me that, although brief, the Master's reasons in connection with the aspects of his judgment that I have effectively upheld in relation to this Ground meet, in the particular circumstances of this case, the Harris/Cook test (above) and thus were not inadequate, and that nor did they reveal any failure to take appropriate matters into account.
87. Therefore it seems to me that there is no overall arguable merit in Ground 16 and that nor does it give rise to any other reason for granting permission to appeal. Accordingly, the application for permission to appeal in relation to this Ground also fails.

Grounds 1-4

88. I can deal with these Grounds shortly.
89. Having examined all the other Grounds, these Grounds add nothing further to the matters that I have dealt with at length above, and accordingly provide no separate basis for granting permission to appeal.
90. Therefore the application for permission to appeal in relation to each fails.

Conclusion

91. For the reasons set out above, I refuse permission to appeal on all of the Grounds advanced.
92. The stay granted by Davis J thus falls away.
93. As to costs, I am in possession of the relevant schedules, and invite the Defendant to make any submission as to quantum in writing within 7 days of my handing down judgment.
94. I am also minded to deal with any other matters that may arise by way of written submissions.