Taylor v Rhino Overseas Inc.

Mr Taylor contends that, upon the true construction of the Agency Agreement, it authorised VDML to enter into a loan agreement of the kind contained in the Heads of Terms on behalf of Rhino. Since there are no findings as to any relevant factual matrix, this is a pure question of interpretation of the words of the Agreement. Although at one stage in his submissions counsel for Mr Taylor attempted to rely upon the Judge’s findings as to what happened subsequently, and in particular the agreements between VDML and Marquis, as he accepted, these cannot affect the construction of the Agency Agreement.

A preliminary point is that, as the Judge noted, the Agency Agreement does not clearly define the term “Duties”. The Judge held that, having regard to recitals (A) and (B), VDML’s Duties were to carry on the Business on behalf of Rhino, that is to say, to buy pleasure yachts from the Netherlands and sell them worldwide. Counsel for Mr Taylor did not take issue with this conclusion, and in any event it seems to me clearly to be correct.

Counsel for Mr Taylor focussed his argument upon the breadth of the words in clause 3(d) “enter into commitments, obligations and liabilities of any description with and to third parties for or in the course of the carrying out of the Duties”. He submitted that this language meant exactly what it said. Accordingly, he argued, it extended to a short-term bridging loan at a high rate of interest. Furthermore, it was irrelevant that the Heads of Terms included security that VDML was not in a position to promise either on its own behalf or on behalf of Rhino, since that merely meant that Mr Taylor had a claim for misrepresentation.

Counsel for Rhino submitted that the Judge was right to conclude that clause 3(d) only conferred authority on VDML to borrow in the ordinary course of business for the purpose of buying and selling yachts and that such authority enabled VDML to enter into loans on reasonable commercial terms, but not to assume onerous obligations, still less to make promises that it knew that neither it nor Rhino could possibly perform (not least because they required performance by a parent company that did not even exist at the time of the Agency Agreement). That would not be to act “to the best account”, i.e. in the best interests of Rhino, as required by the general words in clause 3.

This is a short point, which is incapable of much elaboration. In my judgment the Judge’s construction of the Agency Agreement was correct. The words “of any description” merely mean that VDML has authority to enter into commitments of any type for the purpose of carrying on the Business. They cannot sensibly have been intended to give VDML carte blanche to enter into any loan agreement whatever, no matter how onerous its terms and regardless of whether VDML or Rhino were able to perform its terms. The Judge drew the line at borrowing “in the ordinary course of” the Business. I accept that those words are not to be found in clause 3(b), but in my view the Judge was right to hold that they were implicit.

My only reservation is that the Judge drew support for this conclusion from the limited scope of an agent’s implied authority to do what is incidental to the ordinary conduct of the principal’s business (see Bowstead & Reynolds, Article 29). Since this is a case of express authority, I am not sure that that is directly relevant, although I can see that the underlying considerations are similar.

It follows that it is not necessary for me to express any view on the submission made by counsel for Rhino that the Agency Agreement only authorised loans for the purpose of buying and selling yachts, and not for manufacturing them; or on the answering submissions made by counsel for Mr Taylor that (i) although there was no such finding by the Judge, the relationship between VDML and Marquis at the time of the Heads of Terms must have been that of buyer and seller of yachts (as opposed to manufacturer and contractor) alternatively (ii) a loan for the purpose of constructing a yacht was incidental to the business of selling that yacht.

Given the conclusion I have reached concerning the interpretation of the Agency

Again, there is a preliminary point, which is that the Nominee Agreement does not define or identify the term “Assets”. The Judge held that it meant the IP rights, moulds and tools owned by Rhino. Neither party challenges that conclusion.

Counsel for Rhino submitted that it was clear from the Nominee Agreement that it was not an agency agreement, indeed its provisions were inconsistent with VDML being an agent for Rhino, particularly as undisclosed principal. The Judge accepted the first part of this proposition, and for my part I accept the whole of it. As the Judge rightly held, however, it does not necessarily follow that the Nominee Agreement superseded the Agency Agreement. As she pointed out, that is not what it says. Nor is it a necessary implication because the two agreements are not entirely co-extensive. The Judge construed the Nominee Agreement as being directed specifically at the assets owned by Rhino, and as such it displaced the Agency Agreement to that extent but no further. That left the Agency Agreement applying generally to the distribution and sale of boats by VDML. In my opinion the Judge’s analysis is correct, and none of the submissions made by counsel for Rhino persuade me to the contrary.

Although the conclusion reached in paragraph 35 above is sufficient to dispose of this appeal, I shall also consider the correctness of the Judge’s contractual analysis if (contrary to that conclusion) VDML had authority to enter into the loan agreement contained in the Heads of Terms on behalf of Rhino.

The first question is whether it is open to Mr Taylor to challenge the Judge’s analysis. Rhino contends that it is not, because the ground of appeal for which Mr Taylor sought, and was given, permission was that “the learned Judge misconstrued the scope and nature of the principal-agent relationship”. I agree that this does not appear to challenge the correctness of the Judge’s contractual analysis, particularly given that the Judge dealt with that quite separately from her analysis of the extent of VDML’s agency; but paragraphs 59-65 of Mr Taylor’s skeleton argument on the application for permission to appeal made it clear that Mr Taylor was also challenging the contractual analysis. Accordingly, I consider that Rose LJ must be taken to have granted permission to appeal on the latter aspect as well.

Turning to the substance of the matter, the Judge set out her analysis at [277] as follows:

“i)

VDMH was the sole counterparty to the Heads of Terms. Not only did Mr Taylor expressly state in evidence that he regarded himself as lending to the ‘topco’, but the Heads of Terms themselves provided in clause 1.3, which was expressly stated to be legally binding, that they were for the benefit of the parties alone and were not intended to be enforceable by or against anyone else.

ii)

Accordingly, VDML was not a party to the Heads of Terms and since only VDML is alleged to have had any agency relationship with Rhino, there is no conceivable basis on which it can be said that Rhino was party.

iii)

Even if VDML had been a party to the Heads of Terms, both parties agreed that an intention to contract on behalf of Rhino was an essential pre-requisite of the undisclosed principal doctrine. However, any such intention was clearly negatived by clause 1.3 which would have been sufficient to exclude the intervention of Rhino, whether to sue or to be sued: see Bowstead (op.cit.) Art. 76(4) and paragraph 8-081.⁹

iv)

It must in any event be doubtful whether VDML intended to contract on behalf of Rhino in July 2015 when Rhino had by then been sold to Mr Khodabakhsh as part of the joint venture. There was certainly no evidence to that effect.”

Footnote 9 cited Kaefer Aislamientos SA de CV v AMS Drilling Mexico Sade CV [2019] EWCA Civ 10, [2019] 1 WLR 3398.

Mr Taylor contends, in outline, that the Judge ought to have concluded (a) that VDML was also a party to the Heads of Terms and (b) that neither of the reasons relied upon by the Judge supports the conclusion that there was no intention on the part of VDML to contract on behalf of Rhino.

Having regard to the arguments on the appeal, it seems to me that the starting point is to consider the contractual status of the Heads of Terms. Although counsel for Mr Taylor submitted that the contract was partly written and partly oral, as counsel for Rhino pointed out, no such case was pleaded by Mr Taylor. On the contrary, Mr Taylor’s pleaded case is that the contract was a written one contained in the Heads of Terms. It does not appear that this was in issue at trial, and that is how the Judge approached the matter.

That being so, the next question is whether the identification of the parties to the contract is purely a question of interpretation of the words used in the written document or whether it is a question of fact on which extrinsic evidence is admissible. Somewhat surprisingly, counsel for Rhino submitted that it was a question of fact, and this was also implicit in the submissions of counsel for Mr Taylor.

Having reviewed a number of authorities, Jackson LJ summarised the relevant principles in Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470, [2013] BLR 447 at [57] as follows:

“i)

Where an issue arises as to the identity of a party referred to in a deed or contract, extrinsic evidence is admissible to assist the resolution of that issue.

ii)

In determining the identity of the contracting party, the court’s approach is objective, not subjective. The question is what a reasonable person, furnished with the relevant information, would conclude. The private thoughts of the protagonists concerning who was contracting with whom are irrelevant and inadmissible.

iii)

If the extrinsic evidence establishes that a party has been misdescribed in the document, the court may correct that error as a matter of construction without any need for formal rectification.

…”

In Barbudev v Eurocom Cable Management Bulgaria Eood [2011] EWHC 1560 (Comm), [2011] 2 ALL ER (Comm) 951 (which is not one of the authorities discussed by Jackson LJ) Blair J stated at [114]:

“… having held that the agreement was contained in the Side Letter (and was not partly oral), I also accept their submission that since ECMB was specifically identified as the party in the document, oral or extrinsic evidence is not admissible to show that others were the parties (Shogun Finance Ltd v Hudson [2004] 1 AC 919 at [49], Lord Hobhouse, and at [178] Lord Phillips). If FNCH (or Warburg Pincus International) is to be treated as a party to the Side Letter, that can only be, in my view, on the basis of a shared mutual assumption sufficient to give rise to an estoppel by convention (as the requirements for which see Republic of India v India Steamship Co [1998] AC

878, 913–4, Lord Steyn).”

It can be seen that there is some tension between these authorities. They are not in direct conflict, because Jackson LJ is addressing the question of whether, given that the contracting party is described in the document as A, it is possible to conclude that the true contracting party was B; whereas Blair J is addressing the question of whether, given that the contracting party is described as A, it is possible to conclude that B was also a contracting party in addition to A (with the counterparty C). It may be questioned, however, why a different answer should be given to these two questions. In the present case the issue is of the second kind. Nevertheless, given that (i) counsel for Rhino did not argue that extrinsic evidence was inadmissible, (ii) no doubt for that reason, neither authority was cited in argument and (iii) Hamid is a decision of this Court, I will assume for present purposes that Jackson LJ’s more relaxed approach is correct and applicable.

Counsel for Rhino relied on the Judge’s finding that Mr Taylor intended to contract with the “topco”, i.e. VDMH, but with respect to the Judge that evidence was plainly inadmissible on this issue.

Counsel for Mr Taylor advanced two main arguments in support of the proposition that VDML was a contracting party in addition to VDMH. First, he relied upon the intrinsic evidence, namely the terms of the agreement, read against the background matrix of fact. He pointed out that the Heads of Terms granted Mr Taylor an option to purchase two boats and a charge over three stock boats “owned by the Company”. He submitted that, since VDMH was merely a holding company and VDML was the trading company, the boats must have been owned by VDML, and this showed that “the Company” must be VDML. This does not necessarily follow, however. As Underhill LJ pointed out during the course of argument, a parent company may agree to procure that its wholly-owned subsidiary grants an option to purchase and/or a charge over property owned by the latter.

Secondly, counsel for Mr Taylor relied upon two items of extrinsic evidence. The first item was that the loan monies were paid to Marquis and that this was for the benefit of VDML given that the Marquis invoices were addressed to VDML. As counsel for Rhino submitted, however, this does not demonstrate that VDML was a contracting party. Again, there was nothing to prevent VDMH from directing that the monies be paid for the benefit of its subsidiary.

The second item consisted of post-contractual conduct. Counsel for Rhino disputed that post-contractual conduct was admissible on this issue. Counsel for Mr Taylor cited Great North Eastern Railway Ltd v Avon Insurance plc [2001] EWCA Civ 780, [2001] 2 All ER (Comm) 526 at [29] (Longmore LJ) as showing that post-contractual conduct was admissible for this purpose, but as counsel for Rhino pointed out the issue in that case was whether a term had been incorporated into a contract. Nevertheless, I shall assume for the reasons given above that counsel for Mr Taylor was correct as to the admissibility of such evidence.

Counsel for Rhino also objected that this point was not advanced by Mr Taylor before the Judge. Given that the evidence is purely documentary, and that the question is an objective one for the court, I do not consider that this is a fatal objection to the point being taken now.

The post-contractual conduct relied upon consists of the Loan Agreement, which the Judge found had been drafted (to the extent that it was) by Mr Taylor’s lawyers. As noted above, this names VDML as a party, has provisions concerning VDML and was executed by VDML. The short answer to this point, however, is that the Loan Agreement was never concluded. At best, therefore, it represents an offer by the Van Dutch parties which was not accepted by Mr Taylor. The fact that it evidently shows that, at that point in time, Mr Taylor was minded to contract with VDML (and Messrs Erenstein and Koekkoek) as well as VDMH does not show that, at the date of the Heads of Terms, the parties intended that VDML was to be a party to that agreement even though it was not named as such.

I did not understand counsel for Mr Taylor to dispute that, if VDML was not a party to the Heads of Terms, then it necessarily followed that VDML could not have contracted as agent for Rhino. I can see some force in the submissions made by counsel for Mr Taylor that, if on the other hand VDML was a party to the Heads of Terms, neither of the reasons relied upon by the Judge for concluding that there was no intention that VDML should contract as agent for Rhino justified that finding, but it is not necessary for me to come to any conclusion on that aspect of the matter.

Given the conclusions that I have reached on Mr Taylor’s first ground of appeal, the second ground of appeal does not arise for decision. It is therefore not necessary for me to express any view on the interesting question of the true basis for the rule in Kendall v Hamilton. Nor is it desirable that I should do so given that anything I said would be obiter. This is all the more so for two reasons.

First, it became clear during the course of argument that the question is tied up with the nature of the liability of an agent and an undisclosed principal to the counterparty who contracted with the agent: is it alternative (as counsel for Rhino argued) or is it joint and several (as counsel for Mr Taylor argued)? This is an aspect of the matter on which I would have preferred to have heard more detailed submissions than time permitted.

Secondly, the doctrinal basis for the rule would only matter if Mr Taylor were able successfully to challenge the Judge’s conclusion that he elected to rely on the default judgment by his actions in Monaco. A similar issue arose to that considered above as to whether it was open to Mr Taylor to challenge that conclusion. Mr Taylor’s ground of appeal was that the Judge “wrongly misapplied, and erroneously misidentified the rationale and justification for the principle in Kendall v Hamilton”. Again, however, I consider that paragraphs 44-51 of Mr Taylor’s skeleton argument made it clear that he was challenging the judge’s conclusion on election, and Rose LJ must be taken to have given him permission to do so.

There is a further aspect to the issue this time, however. As counsel for Rhino pointed out, election is a question of fact: Evans v Bartlam [1937] AC 473 at 485 (Lord Wright). Mr Taylor’s grounds of appeal did not mention any challenge to a finding of fact by the Judge. Nor did his skeleton argument in support of the application for permission to appeal make it very clear that he was challenging a finding of fact by the Judge, although this is apparent with the benefit of hindsight. It is therefore not at all certain that Rose LJ appreciated that that was the case.

Practice Direction 52C paragraph 5 provides:

“(1)

The grounds of appeal must identify as concisely as possible the respects in which the judgment of the court below is –

(a)

wrong; or

(b)

unjust because of a serious procedural or other

irregularity,

as required by rule 52.21(3).

(2)

The reasons why the decision under appeal is wrong or unjust must not be included in the grounds of appeal and must be confined to the skeleton argument.”

It is common experience in this Court that grounds of appeal are not concise, as required by paragraph 5(1), but prolix. In the present case, Mr Taylor’s grounds of appeal were commendably succinct. Nevertheless, they should have made it clear that Mr Taylor was challenging a finding of fact by the Judge. It would have sufficed to say “the Judge was wrong to find as a fact that Mr Taylor elected to maintain the liability of the Original Defendants to the exclusion of the Additional Defendants because that finding was not open to the judge on the evidence”, leaving the supporting submissions to be developed in the skeleton argument.

In future, parties filing appellants’ notices should clearly identify any challenges to the lower court’s findings of fact in their grounds of appeal and squarely address those challenges in their skeleton arguments, so as to ensure that (i) the judge considering the application for permission to appeal appreciates that such a challenge is being mounted and can decide whether or not to grant permission for it and (ii) if permission is granted, the members of the Court hearing the appeal can prepare accordingly.

Given that it was a finding of fact, Mr Taylor faced obvious difficulties in challenging the Judge’s conclusion that he had elected to rely on the default judgment. No doubt recognising that he faced an upward struggle, on 18 February 2020 (the day before the hearing of the appeal) Mr Taylor applied, purportedly pursuant to CPR rules 52.20(1) and 3.1(2)(m) but properly rule 52.21(2)(b), to adduce further evidence consisting of a witness statement of Olivier Marquet, a Monegasque lawyer who has been acting for Mr Taylor in the Monaco proceedings. Rhino opposed the application on the grounds that (i) it was egregiously late, (ii) the evidence did not satisfy either of the first two criteria in Ladd v Marshall, (iii) a substantial part of the evidence was expert evidence which Mr Taylor had neither sought nor obtained the permission of the court to adduce and which did not satisfy the requirements of Part 35 (e.g. because it did not

These factors explain why I do not consider that it would be desirable to prolong this judgment by considering the second ground of appeal. It is sufficient to say that the application to adduce further evidence must in any event be dismissed having regard to the failure of Mr Taylor’s first ground of appeal.

For the reasons given above, I would dismiss the appeal.

I agree.

I agree that this appeal should be dismissed for the reasons given by Arnold LJ. I wish to echo what he says at paras. 61-63. It is rather surprising for this Court to be complaining that grounds of appeal are too succinct: usually, as Arnold LJ says, the problem is that they are far too discursive. But grounds do need to identify (though they should not develop) the specific errors which the Judge is said to have made, and that includes any errors of fact on which the appellant seeks to rely. The careful analysis which this may require should be as useful to the pleader as it will be to the