Contex Drouzhba Ltd v Wiseman & Anor

Section 6 of Lord Tenterden’s Act (the Statute of Frauds (Amendment) Act 1828) states:-

By a judgment handed down on 3rd November 2006, Irwin J found that Mr Wiseman as a director of Scott Daniel Limited (SD) signed a document dated 9^th January 1998 containing a promise by the company to pay for goods to be ordered in the future. He found that Mr Wiseman in so doing impliedly represented that the company had the capacity to meet its obligations to pay for goods to be ordered thereafter. He found that that representation was made fraudulently by Mr Wiseman who he held knew the company did not have that capacity and had no chance of gaining it. On that basis he found that Mr Wiseman was liable in damages for deceit. He found critically so far as this appeal is concerned that the representation was “made in writing, signed by the party to be charged [Mr Wiseman]” and that thus the above section of Lord Tenterden’s Act provided no defence.

It was on this last point, whether he was right in his conclusion relating to Lord Tenterden’s Act, on which the judge granted permission to appeal. Attempts to obtain permission to appeal any other aspects of his judgment have failed.

I have referred above to what was the primary way in which the respondents put their case by reference to a document dated 9^th January 1998, known in the court below as claim number one. There were other claims made in addition or in the alternative by reference to other documents but it was common ground before us that if the appeal was dismissed in relation to claim number one, it was unnecessary to go on and consider those other claims.

I have come to the view that the appeal should be dismissed in relation to claim number one and can thus concentrate on that claim alone.

The point is a very short one but not without some significance. Mr Bartlett, who appeared on the appeal for the appellant Mr Wiseman, suggested that, if the Judge was right, it is a matter of some surprise that there have not been many cases holding liable directors, who have signed contracts or letters on behalf of companies, when the companies were insolvent to the knowledge of those directors. To that point he added the fact that there is legislation dealing with fraudulent trading (sections 213 and 214 of the Insolvency Act 1986) by virtue of which, on the application usually of the liquidator, fraudulent directors can be made liable for the deception perpetrated on creditors but under which legislation the creditors do not get preference one over the other. That legislation requires reimbursement by the directors to the company so that creditors share equally in what is recovered.

Certainly, if the judge is right, it appears that there may be situations in which, by the signing of contracts by directors where those directors are guilty of fraudulent trading, creditors may have a direct remedy against the director in deceit, and a remedy that avoids the consequences of sections 213 and 214. Those consequences flow from the finding of an implied representation of the type found in this case (against which there is now no appeal), together with a finding that the contract satisfies the above section of Lord Tenterden’s Act.

Mr Knox QC, for the respondent, rightly submitted that the existence of sections 213 and 214 cannot affect the question whether a creditor may not have a cause of action in deceit against a director.

If one were to assume a letter written by a director (assume for present purposes in a personal capacity) dishonestly assuring a creditor as to the solvency of the company of which he was a director, I cannot see that sections 213 or 214 would have any relevance. Such a letter would clearly comply with the provisions of Lord Tenterden’s Act and the creditor would succeed in his claim against the director personally.

I then pose the question as to whether if such a letter by its terms made only an implied representation to the same effect, would that make any difference? Once again, without regard to Lord Tenterden’s Act, the position would be the same, and it would be strange indeed if Lord Tenterden’s Act was construed so as to make such a fraudulent implied representation unenforceable. One can just about understand an argument that, on a strict construction of the section, the section applies to express representations but not implied ones. This seems to have been the argument in the authority much relied on by Mr Bartlett on this appeal John Hudson& Company Limited v Oaten Transcript 19^th June 1980. But the object of such an argument was to persuade the court that the Act did not apply to implied representations i.e. there was no need for a written document signed by the maker to enforce an implied representation. That would hardly meet the mischief at which the Act was aimed, i.e. to require writing as proof of representations as to credit or solvency. The argument was unsurprisingly rejected; see Sir David Cairns 10H and following.

Thus the fact that a representation can only be implied from the terms of a written document rather than being an express term could not assist an argument that in some way the section provided a defence.

But, that said, I would also stress that from the requirement for a representation, whether express or implied, to be in writing must flow the conclusion that a representation by conduct alone would be defeated by the section. This is a point which will need further examination in this case and is, in my view, what gives rise to the real point in the appeal. It is in this context that it will be important to analyse what the scope of the appeal in this case is and whether the implied representation in this case was in writing, or whether it was by conduct.

It is convenient while dealing with the construction of the section to consider and dispose of the point argued by Mr Bartlett relating to the position of a director of a company who signs a document on behalf of the company. His submission is that such a director is signing the document as the company and thus there is no signature by Mr Wiseman in his personal capacity as “the person to be charged”.

There may be different factual situations but where the director is effectively the mind of the company, and where the document he signs makes a fraudulent representation to his knowledge, without for a moment any regard to Lord Tenterden’s Act, then it seems to me the position is now clear, following the decision of the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corp [2003] AC 959. Even if the company would be liable for the deceit carried out by its director, the director has a personal liability for his own fraud.

Turning then to Lord Tenterden’s Act, the question is whether the signature of the director put there on behalf of the company is also the personal signature of the director so as to be the signature by the party to be charged. The mischief at which Lord Tenterden’s Act was aimed is explained by Gurney B. in Lyde v Barnard 1 M & W 101 at 103.

It was an Act concerned with proving by evidence the existence of a representation. It was not concerned with excusing fraudulent behaviour or with differentiating between capacities in which persons put their names to documents. Having regard to the mischief at which the Act was aimed, I can see no reason why, if a document contains a fraudulent representation being made by a director for which that director would otherwise be held personally liable, his signature on the document will not suffice to comply with Lord Tenterden’s Act.

The only question, which seems to me to arise on this appeal, is whether the implied representation which the judge found to be made was in writing rather than by conduct, and I now turn to the facts of the case as found by the judge with that issue at the forefront.

The judge found that Mr Wiseman was at all material times “the active director responsible for Scott Daniel Limited (SD)’s operations”. He found that after a considerable period of trading in men’s garments, much of which was with the claimants, by 9^th January 1998 SD was insolvent and that Mr Wiseman knew that that was so. He further knew there was no chance of any injection of capital from elsewhere. Two points confirmed that view – first that during 1997 Mr Wiseman had obtained another company to which he was intent on diverting business, and second because Mr Wiseman was aware of a negative report on SD obtained by a director who joined during 1997 but immediately left after the obtaining of the report. The judge was unimpressed by the fact that the report was either never reduced to writing or had disappeared without trace.

Despite SD’s insolvent state on 9^th January 1998, Mr Wiseman, on behalf of the company, signed what the judge describes as a framework agreement with the claimants. The claimants were agreeing a capacity to produce 3000 men’s garments per month over two years, and the agreement contained the following term as to payment:-

The judge described the claimants’ case as being “that this agreement necessarily involved a representation to the claimants that SD could perform the agreement by paying for the goods ordered thereunder as agreed.” In making that case the claimants would suggest, I assume, that they gain some support from the passage now in the 17^th Edition of Clerk & Lindsell paragraph 18-09 and quoted with approval by Sir David Cairns from the 4th Edition in the Oaten Case at page 6H stating:-

Mr Bartlett’s argument before us was that what the judge actually found, or at least should have found, was a representation by conduct. He did not find, so Mr Bartlett argued, a representation to be implied into the written document itself. He found a representation by conduct in the presentation of the document with Mr Wiseman’s signature on it or (if not) that is what he should have found.

I reject those submissions. I deal first with the judge’s own findings. Although much of his reasoning in paragraphs 52 through to 63 is concerned with whether Mr Wiseman was fraudulent, and I accept as emphasised by Mr Bartlett that he does not say in so many words in those paragraphs that the document contained an implied representation, it seems to me clear that is what he meant. That that is so, flows from the following factors. He accepted the claimants’ case as quoted above. What he quoted and emphasised was the payment provision in the written agreement. He found “as to the framework agreement on 9^th January 1998 . . . there was a deceit on the part of Mr Weisman in signing the agreement . . .”. This was a framework agreement and the promise as to the terms of payment was the key feature on which the claimants would rely. It is unreal to suggest they relied simply on the fact that a signed document was being presented to them. Its terms, and particularly its term as to payment, was the important thing.

In any event it seems to me that so far as his own finding is concerned he finally puts the matter beyond doubt in paragraph 109 where he says:-

In so far as Mr Bartlett would seek to challenge the judge’s finding that the implied representation was contained in the document, I am doubtful whether that was open to him on the appeal. But I would in any event reject the challenge. I should not be taken as saying that every contract signed by a director contains implied representations by the director. Each case will depend on its own facts. But that a director signing for a company may be making an implied representation about the ability of the company to pay is, in fact, supported by the case on which Mr Bartlett placed so much emphasis, the Oaten Case. This was a framework agreement and it contained a promise of payment on certain terms on which the claimants would naturally rely before accepting further orders. By promising terms of payment there was, by implication, a representation that the company had the capacity to meet the payment terms, something Mr Wiseman knew to be untrue.

In my view thus the judge was entitled to hold that Mr Wiseman made a fraudulent representation in writing as to the credit or ability of SD and was entitled to hold that the document was signed by Mr Wiseman as the person to be charged. I would accordingly dismiss the appeal.

I agree.

I also agree.