Advanced Industrial Technology Corporation Ltd v Bond Street Jewellers Ltd & Anor

This case is about an Art Deco emerald and diamond necklace. The necklace belonged to Mr Geoffrey Hamilton who lives in Jersey. His son bought it in 1992 for £130,000 and gave it to him in 1995. In March 2004 Mr Hamilton left it with the second respondent, Mr Condrup for sale or return. It was insured under the insurance of Mr Condrup’s company, Bond Street Jewellers Limited, who are the first respondents, for £150,000.

The necklace was initially left by Mr Hamilton for the period of one month but this was extended on a number of occasions. The necklace did not sell and on 21 March 2005 he asked for it back because he felt there were better prospects of sale elsewhere. It is what happened to the necklace in the meantime that led to this litigation.

The first respondent, of which Mr Condrup was the sole director and 50% shareholder (his wife owned the other 50%) was in financial difficulties. He approached Mr Slack, whose company, the appellant, and an associate company, were in the business of money lenders. Mr Slack offered him a loan of £80,000 at an appropriately high rate of interest for 6 months with the necklace as security for the loan. Mr Condrup accepts he had no authority to pawn the necklace (which amounted in my view to its conversion).

There is an issue of fact about what Mr Condrup told Mr Slack. Mr Condrup says he told Mr Slack it belonged to a customer and he had no authority to pawn it. Mr Slack says he told him nothing of the kind. He believed it belonged to Mr Condrup and the pawn agreement was in the name of the first respondent simply to ensure that the necklace was covered by the first respondent’s insurance. An agreement was entered into dated 8 April 2004 for a period of 6 months with the necklace as security for repayment of the loan plus interest. The period of the loan was in due course extended by a further 6 months by an agreement dated 8 October 2004.

In the meantime, on 25 June 2004, Mr Condrup asked if the necklace could be placed with specialist jewellers and Mr Slack allowed it to go to Licht and Morrison on sale or return but the price was £185,000 and it was not sold.

Mr Condrup paid the accrued interest up until October 2004 but only one instalment of the interest due under the second agreement. Mr Condrup said he was arranging to pay the outstanding interest due to April 2005 but in the event did not do so.

On 18 May 2005 Mr Condrup asked Mr Slack if he could retrieve the necklace from Licht and Morrison to show to a client. Mr Slack agreed against provision of a bill of exchange. Two days later, on 20 May 2005, the necklace was released again to show the same client subject to the continuing protection of the bill of exchange. The necklace was returned to Licht and Morrison but on 24 May 2005 Mr Condrup again called Mr Slack saying that he had a meeting with the potential purchaser on 27 May and the necklace was released once more. That evening Licht and Morrison phoned Mr Slack to tell him that the necklace had not been returned. It was never returned because Mr Condrup had handed it to other jewellers on behalf of its rightful owner Mr Hamilton. The bill of exchange was dishonoured.

Mr Slack’s proceedings on the bill of exchange were unsuccessful for reasons that are irrelevant to the present issue. So too is most of the subsequent history that is referred to in the evidence.

The first respondent ceased trading on 15 June 2005 owing a good deal of money and was wound up on 20 October 2005. In the meantime, on 17 August 2005, the appellant brought the present proceedings against the first respondent and Mr Condrup.

The particulars of claim were later amended and the focus of the claim is now for obvious reasons against Mr Condrup rather than his company. The claim is for £80,000 and the unpaid interest and £4,750 being the costs of Mr Hamilton’s claim to have the necklace released from an injunction that the appellant had obtained. The appellant had originally sought the return of the necklace.

The present appeal is against the refusal of Judge Seymour Q.C. to give the appellant summary judgment against Mr Condrup. Under CPR part 24 the test to be applied is this. Summary judgment is to be given if the defence has no real prospect of success and there is no other compelling reason why the case should be tried.

The judge concluded that the appellant’s application was flawed as a matter of law and bound to fail.

The basis of the judge’s decision appears to have been this. The case was being put on the lines that there was an implied warranty of title. Either the necklace was the property of the pawnor (Mr Condrup) or he had the authority of the owner to pledge it. (See Hawkins J in The Singer Manufacturing Company v Clark (1880) 61 LTR 591, 596). The response, which the judge appears to have accepted, was that a warranty is only to be implied if nothing else was said. If Mr Condrup was correct in saying to Mr Slack that neither he nor the company owned the necklace no term could be implied. Further, only the pawnor is bound by the warranty and not anyone else; the written agreements were with the first respondent and not Mr Condrup.

The following facts are undisputed:

The appellant made a loan of £80,000.

It is agreed that there are certain disputed facts which cannot be resolved on a summary judgment application. These are:

Whether the pawnor of the necklace was Mr Condrup or his company.

Whether Mr Condrup expressly told Mr Slack that neither he nor his company either owned the necklace or had authority to pawn it.

An important exchange of e-mails took place in October 2004. On 12 October Mr Slack said no funds had arrived and asked to be advised of the current situation. On 15 October Mr Condrup replied in the following terms:

Mr Condrup points out that this e-mail makes clear that neither he nor his company owned the necklace. He says the reference to being “in his interests to pay” in the final paragraph is a reference to his father. Mr Slack says he has no recollection of receiving the e-mail and that if he did receive it the reference in it to “the owner” did not at the time register as being significant. It is to be observed that the date of Mr Condrup’s e-mail is one week after the date of the second agreement.

There is what seems to me be an important shift in the position of Mr Condrup between what he was saying in his original defence and what he now says in his amended defence dated 19 January 2006 and which was, accordingly, not before the judge. The original defence averred that Mr Slack was aware from immediately before the execution of the first agreement that the necklace was the property of a customer of the first respondent and that neither Mr Condrup nor the first respondent had any right to ownership of the necklace or unfettered control over it. In the amended defence Mr Condrup goes further and says he expressly told Mr Slack he had no authority to pawn the necklace.

When Gage LJ gave permission to appeal he gave the following reasons:

The judge rejected the appellant’s claim for summary judgment on a narrow basis. He said it could not succeed in law on the way it was put. In short his reasoning was this. Since Singer v Clark it has been clear that in the case of an ordinary pledge there is an implied undertaking on the part of the pledgor that the property pledged is his own or that he has the authority of the owner to pledge it, and that it may safely be delivered back to him. It is the pawnor and only the pawnor who is subject to the implied warranty. The judge drew a distinction between a warranty implied by law and a representation. A warranty implied by law is implied by law, whereas a representation involves the making of a positive assertion by somebody of a state of affairs. He described it as a quantum leap between a claim on the implied warranty, which is how he appears to have treated the claim in the present case, and a claim based on fraudulent misrepresentation by Mr Condrup. He treated the two as separate. The claim could not succeed against Mr Condrup on the Singer v Clark principle.

The main thrust of the appellant’s argument on this appeal is that if the judge had considered the whole picture he would have been driven unerringly to the conclusion that there was no real prospect that Mr Condrup’s case would succeed. Since permission to appeal was granted Mr Condrup has filed a respondent’s notice contending that the judge should have concluded that Mr Condrup did have a real prospect of defending the claim.

Mr Cousins Q.C., who has appeared for the appellant, submits that there are essentially two questions. First a factual question whether Mr Condrup has raised a case that stands a real prospect of success, and second one of law whether an implied undertaking can found a claim for fraud or deceit.

As to the first, it is common ground that the burden is on Mr Condrup to show that he did tell Mr Slack the necklace was not his and that he had no authority to pawn it.

As to the second, it has been plain for many years that active non verbal conduct can amount to deceit just as much as words can. (See R v Barnard (1837) 7C + P 784) where a buyer dressed as a member of the University to persuade the seller to give him credit.

In my view the real question in the present case is whether the appellant has an unanswerable case on the evidence before the judge that he lent the £80,000 because Mr Condrup represented either the necklace was his or he had authority to pawn it.

A person who pawns an item is taken to have undertaken that he has title to the item or authority to pawn it. See Hawkins J in Singer v Clark at p.596. If the pledgor does not have the requisite ownership or authority it is incumbent on him to disclose the fact; otherwise he will be taken to have represented that he has.

It is to be noted that the transaction involved the execution of the pawn agreement of 8 April 2004 and its subsequent replacement with the second agreement of 8 October 2004 in similar terms. It seems to me that the court must have in mind the inherent unlikelihood of someone in the shoes of Mr Slack agreeing to lend £80,000 to an ailing company without any security and yet going through the formalities of executing documents indicating there was security. The two agreements are, on their face, normal documents that do not suggest a lack of authority to pawn; one is bound to ask, what was their point?

In his second witness statement Mr Condrup says at para 9:

What Mr Condrup said in his second witness statement is to be contrasted with what he said in his director’s statement of company history:

Mr Cousins makes the point that because his company was in a desperate financial situation it was inherently unlikely that Mr Condrup told Mr Slack the truth about the necklace, for if he had the strong probability is that he would not have received the loan of £80,000. The risk of lending money to a company in such circumstances would be so high that any business man in the shoes of Mr Slack would almost inevitably not take it.

Our attention was drawn to para 15 of the amended defence in which not only is the paragraph amended to include an averment that Mr Condrup told Mr Slack he did not have the authority of the true owner to pawn the necklace, but also it is alleged, as it had been in the original defence, that the lenders under both agreements took the risk of taking the necklace as collateral. But the question arises, what collateral? For in truth if the necklace was handed to Mr Slack without Mr Hamilton’s authority it was no collateral at all.

In his first witness statement made on 29 August 2005 seeking to discharge or vary the freezing order that had been made on his assets, Mr Condrup says Mr Slack knew the necklace belonged to a client and that it was not his to use as security for a loan. Mr Slack knew Mr Condrup would find himself in a ghastly predicament if he refused to return the necklace to Mr Condrup’s client when it was required and therefore felt comfortable taking the risk of the loan. In other words, the consequences of Mr Condrup defaulting on the loan were so bad that it would not happen. This seems to me to be a statement that flies in face of reality. It is also, in my judgement entirely inconsistent with the placement of the necklace with Licht and Morrison on sale or return. What if the necklace was sold for the asking price? The proceeds would go to Mr Hamilton and Mr Slack would be left without security for his loan.

In para 16 of his statement Mr Condrup says that because Mr Slack’s tone and demeanour had radically changed for the worse and he would never have another chance to show the necklace to another potential buyer he decided, as he puts it: “to officially return the necklace to its owner, Mr Hamilton.” This statement does not seem to me to add up with the fact that up until 27 May 2005 Mr Slack had allowed the necklace into Mr Condrup’s possession for short periods against the delivery of a promissory note. It seems to me the obvious reason for returning the necklace had nothing to do with Mr Slack’s tone or demeanour. Mr Hamilton had asked for it back on 21 March 2005. At Mr Condrup’s request he was given an extension of 8 weeks but, as Mr Hamilton says, at the end of 8 weeks he contacted Mr Condrup to make arrangements for collection. This explains the flurry of activity from 18 May 2005. Mr Condrup would have known on 27 May that he had reached the end of the road with Mr Hamilton. It seems to me entirely unsurprising that on 28 May Mr Slack left a note with Mr Condrup that unless the necklace was returned to Licht and Morrison immediately there would be a formal complaint to the police. Anyone in the shoes of Mr Slack would have been concerned that the necklace had gone.

Mr Condrup alleges in that statement that he was intimidated by Mr Slack and another man called Green on his behalf, and that he complained to the police he was expecting either blackmail or threats of violence from Mr Slack. He now alleges this is all of a piece with Mr Slack having known right from the start that the necklace belonged to a client and Mr Condrup had no authority to pawn it. In short the two of them had acted together in converting Mr Hamilton’s necklace; Mr Slack was a party to Mr Condrup’s alleged dishonesty. Or, putting it slightly differently, Mr Slack was not deceived by anything Mr Condrup said because he knew the true situation.

The high watermark relied upon by Mr Rowntree, for Mr Condrup is the e-mail of 15 October 2004 which suggests the owner of the necklace is someone who lives in the Channel Islands. But the natural reading of the e-mail is that it is he, the owner, who is paying the interest of £3,200 per month. But Mr Condrup’s case is that the person in whose interest it is to pay as soon as possible is not Mr Hamilton but Mr Condrup’s father, who was about to make a payment.

Mr Slack has no recollection of receiving this e-mail, and one possible explanation is that it was never sent. But it is necessary to look and see what it says and see whether it throws any light on Mr Condrup’s case. There are two problems about it. First, it is written in such a way that Mr Hamilton, not his wife should be taken as knowing about the pledge; but he did not. Second, the word “his” naturally refers back to Mr Hamilton, whereas Mr Condrup says it is his father who he told Mr Slack would be making an interest payment imminently. It is difficult to see how it is in the father’s interest to pay as soon as possible even if he is the financier. As to Mr Hamilton, if he has not authorised the pledge, it cannot be in his interests to pay interest.

Mrs Nerys Condrup provided witness statements in support of her husband. On 9 December 2005 she said that on 8 April 2004 she overheard her husband say to Mr Slack that the necklace belonged to a client from the Channel Islands who had left it with his company on a sale or return commission basis. She heard Mr Condrup say he wanted to raise finance on it but hoped it was a short term financial arrangement as he was working on several big deals. But, as is pointed out in the evidence, this appears to conflict with her affidavit seeking to set aside a statutory demand to recover the debt. In that she said she did not know about the agreement until several months after it had been entered into. Whilst admittedly, she was referring there to the second agreement, the two statements do not lie easily together.

The judge identified the underlying factual issue as to what was said about the ownership of the necklace, but failed to address it. He did not say whether he found Mr Condrup’s account believable or fanciful and whether his defence had a real prospect of success. The basic question was whether Mr Slack was induced to enter the loan agreement by a fraudulent representation on the part of Mr Condrup.

The critical issue, it seems to me is whether before the first agreement Mr Condrup told Mr Slack the necklace was the property of a client and that he had no authority to pawn it. Had the judge addressed that question he would in my judgment have concluded Mr Condrup’s case on the facts was fanciful and had no real prospect of success.

Mr Cousins submits that if Mr Slack’s evidence is accepted the situation is analogous to a situation in which the director of a company offers a car for sale without disclosing that it is on hire purchase; or the director signs a company cheque knowing, but without disclosing, that the company has no funds. In the first case he implies that there is title to the car and in the second that there are funds to meet the cheque.

The judge was referred to Standard Chartered Bank v Pakistan National Shipping Corporation [2002] 3 WLR 1547 but accepted Mr Rowntree’s argument that it was not relevant to the circumstances of the present case. In that case called Lord Hoffmann said at p.1554, para 20:

In my view these observations are pertinent to the present case. Mr Cousins also relied on Richardson v Silvester (1873) L.R. IX QB 34. In that case an advertisement placed in the press offering a farm house to let when the advertiser had no authority to let it was held to give rise to an action in deceit founded on the implied representation that he did have authority. Blackburn, J said at p36:

More recently, in HIH Casualty and General Insurance Limited and Others v Chase Manhatton Bank and Others [2003] 2 Lloyd’s Law Reports 61 the House of Lords considered the relationship between non-disclosure and fraud. Lord Bingham of Cornhill at p.69 para 20 quoted the following observations from the judgment of Rix L.J in the Court of Appeal:

Lord Hoffmann at para 72 cited Lord Blackburn in Brownlie v Campbell (1880) 5 App Cas. 925, 950:

It is clear, it seems to me, that a false representation created by non-disclosure can be sued upon quite independently of the warranty envisaged by Hawkins J in Singer v Clark. The judge should have found that Mr Condrup, through his conduct, falsely represented to Mr Slack that either he or his company had the relevant title to the necklace.

In my view, therefore, the judge was in error in failing to analyse the factual dispute between the parties. Had he done so he would have concluded that Mr Condrup’s defence was fanciful; the evidence points conclusively to Mr Condrup having fraudulently misrepresented he was in a position to pawn the necklace when he was not. The security Mr Slack thought he was getting was no security at all.

I would therefore allow the appeal and enter summary judgment for the appellant. Counsel was asked at the conclusion of the argument whether there was any dispute about quantum and it appeared that there might be some dispute about the rate of interest. The parties were given a week in which to make written submissions if they did not accept the provisional view expressed by the court. In the event Mr Condrup’s solicitors have written saying (1) quantum should be remitted to the trial judge in order that “proper” submissions may be made and that (2) there is no liability for Mr Hamilton’s costs because the appellant did not respond to Mr Hamilton’s solicitors

In my view no realistic response has been given to the court’s provisional view. The appellant in the circumstances acted perfectly reasonably in relation to Mr Hamilton. I would therefore allow the appeal and enter judgment for the appellant against the second respondent for:

£80,000.

£4,750 being the costs payable to Mr Hamilton.

Interest at the rate specified in the agreements for the duration of the agreements and that apart, interest at the short term investment rate.

Hallett L.J: I agree.