Sierra Leone v Davenport & Ors

This action was commenced on 22 March 2001 and the trial was fixed to start on 20 October 2003. In late September 2003 the Government of Sierra Leone ("the Claimant") informed the Defendants that it was abandoning the principal part of its claim based on fraud and wished to make extensive amendments to its Particulars of Claim.

An application to make the amendments was issued on 30 September 2003 and came on for hearing on the afternoon of 9 October. The hearing resumed on 16 and 17 October. There were also applications by the First Defendant to strike out part of the existing Particulars of Claim and to discharge a worldwide freezing order which had been made against him. In addition the Claimant sought a separate injunction against the Second Defendant to restrain it from disposing of its interest in a property which is at the heart of this Action. Whatever the outcome of these applications it was clear that the trial fixed for 20 October 2003 could not proceed.

Until 1999 the Claimant occupied a Grade II listed building, 33 Portland Place, London W1 ("Portland Place") as its High Commission. Its principal claim in the case was that it had been induced to dispose of its leasehold interest in Portland Place at a gross undervalue as a result of an alleged fraudulent conspiracy. The conspiracy was said to involve amongst others the First Defendant Edward Davenport ("Mr Davenport") and the High Commissioner for Sierra Leone at the relevant time and his legal adviser who were joined as the Fourth and Fifth Defendants. The agreement for the assignment dated 13 April 1999 ("the Agreement") also contained provisions for the refurbishment of parts of the building and the grant of an Underlease of those parts to the Claimant or, if the consent of the Head Landlord was not obtained, for the provision of alternative permanent accommodation to the Claimant for use as embassy premises. As an alternative to setting aside the transaction on the grounds of fraud, the Claimant claimed damages for breach of the refurbishment and sub-letting obligations and other terms of the agreement.

On the day before issue of these proceedings, the Claimant applied for and obtained an order freezing Mr Davenport’s assets both within and outside the United Kingdom up to a value of £5 million and requiring him to make disclosure of assets and to provide written answers to certain questions. There were extensive further proceedings relating to the freezing order, including an unsuccessful attempt to discharge it, cross-examination of Mr Davenport, and an application to commit Mr Davenport for contempt of court in failing to comply with parts of the order. He was found to have been in contempt but the failure had been cured and no penalty beyond costs was imposed on him.

The progress to trial was slow, with two trial dates in November 2002 and in June 2003 being vacated, neither party being ready. It was re-fixed to start in the week commencing 20 October 2003. Much of the delay from late 2002 was due to difficulties in agreeing and instructing joint experts on the valuation of the Claimant’s leasehold interest in the High Commission building. At a late stage Mr Davenport refused to participate further in instructing joint experts and the Claimant obtained an order for inspection of the interior of the building by its experts and an associated costs order against Mr Davenport.

The experts inspected the interior of the building on 28 and 29 August 2003. This was the first time since the transaction in 1999 that the Claimant or anyone instructed by it had inspected the interior. The experts’ report had a dramatic impact. They concluded that the state of disrepair was so extensive that far from having a value of at least £5 million, as the Claimant had always contended, its leasehold interest in 1999 had a negative value. The burden of the repairing covenants in the Lease far outweighed any value in March 1999 of the remaining term of the lease which was then nearly 21 years. This removed the basis of the claim in fraud and the defendants were promptly notified in late September.

It is important to emphasise that all allegations of fraud and conspiracy previously made in these proceedings against Mr Davenport and other defendants have been abandoned. As the Claimant readily accepts the evidence now clearly establishes that these allegations were groundless.

Against that background, the Claimant has applied to amend its Claim Form and Amended Particulars of Claim not only to delete all allegations relevant to its fraud claim but also to make further very extensive amendments by introducing (i) an entirely new claim that the Agreement was void for uncertainty, or void or unenforceable by reason of a failure to state all express terms in the written agreement as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 ("the 1989 Act"), giving rise in either case to restitutionary remedies and (ii) a very substantial expansion of its alternative claim for breach of contract. Apart from the deletion of the fraud claim, these amendments are opposed. As a result of the abandonment of the fraud claim and other matters, the Claimants no longer seek any relief against any of the Defendants other than Mr Davenport and one of his companies Capricorn Financial Investments SA ("Capricorn") which is named as the Second Defendant.

The remaining and proposed claims can properly be brought only against the parties to the Agreement. The parties named in the Agreement are the Claimant and Capricorn. Accordingly, these claims can be advanced against Mr Davenport only if Capricorn acted as his agent or nominee in entering into the Agreement or can in some way be treated as a façade for him. Mr Davenport applies to strike out the present pleading of "alter ego" (as it is called in the Particulars of Claim) and opposes the application to introduce an expanded version by way of amendment.

The continuation of the freezing order against Mr Davenport is brought into question by the abandonment of the fraud claim. He has applied to discharge it, while the Claimant contends that it should be continued but subject to a lower limit of £1.5 million.

The Claimant also seeks an order restraining Capricorn from dealing with or diminishing the value of its interest in the property, in order to protect its restitutionary claim if permission to amend is granted.

I shall deal with each of these issues in that order, after setting out more detail of the factual background and procedural history.

Until 1999 the properties known as 33 Portland Place ("Portland Place") and 4/4a Weymouth Mews (the "Mews") (together, "the Properties") were occupied by the High Commission of the Republic of Sierra Leone. The Claimant was the leasehold owner by assignment of the Properties under a lease (the "Lease") originally granted by Howard De Walden Estates Limited (the "Head Landlord") on 2 June 1960. The Claimant became the assignee of the Lease at some time before 8 December 1993. The Lease expires in January 2021.

The Claimant was unable to maintain the Properties, which consequently fell into disrepair and required considerable expenditure to repair and refurbish them. By early 1997 the High Commissioner was looking into ways of refurbishing the Properties, and entered into negotiations with, among others, Mr Davenport. On 26 February 1998, the Claimant granted a sub-lease of the Mews to Capricorn Investments SA ("Capricorn Investments"), a company registered in Nevis and wholly-owned and controlled by Mr Davenport, for a term expiring on 31 December 2020 at a premium of £75,000 (the "Sub-lease").

Negotiations continued with Mr Davenport regarding Portland Place, which resulted in a written agreement (the "Agreement") dated 13 April 1999 between the Claimant and Capricorn Financial Investments SA ("Capricorn"), another company registered in Nevis and wholly-owned and controlled by Mr Davenport. The Agreement included the following provisions:

It is not in dispute that at least parts of the Agreement have been performed. The Claimant’s leasehold interest in Portland Place was assigned to Capricorn which paid the agreed price of £50,000 and was duly registered as the proprietor of that interest. The Claimant was provided, by another company owned and controlled by Mr Davenport, with temporary accommodation in Oxford Circus House at a nominal rent. The Claimant continues to occupy it.

In May 1999 the Attorney General of Sierra Leone began an investigation into the Agreement at the request of the Director General of the Ministry of Foreign Affairs and International Cooperation. On 11 April 2000, the day before the buyback option was due to expire, Stephenson Harwood, solicitors for the Claimant, wrote to Capricorn’s solicitors asking for an undertaking that Capricorn would not dispose of Portland Place in any manner for a period of one month pending the Attorney General’s investigation. Capricorn’s solicitors replied stating that Capricorn had granted a lease of Portland Place on 1 December 1999 to York House SA ("York House"), a company registered in Nevis and wholly-owned and controlled by Mr Davenport. Capricorn refused to give the undertaking requested by the Claimant.

On 12 April 2000 Stephenson Harwood wrote to Capricorn’s solicitors asking for an undertaking that Capricorn would notify them of any planned disposal of the building and making clear that the Claimant maintained that it had not approved the Agreement. Capricorn’s solicitors replied, stating that "contracts were exchange (sic) following the fax of all documentation to Sierra Leone and in the presence of the writer, our clients, your client’s ambassador, solicitor and Counsel and consent was faxed back to the Embassy".

On 20 March 2001, the Claimant made an Application without Notice for a freezing order against Mr Davenport, to which I refer below. The Claimant issued proceedings on 22 March 2001, against Mr Davenport, Capricorn, Capricorn Investments, Cyril Foray the High Commissioner at the relevant times and Donald George a legal adviser to the High Commission. The following claims were made:

On 21 March 2001, on the Claimant’s Application without Notice, Lightman J granted a freezing order against Mr Davenport. As well as containing general restrictions on dealing with his worldwide assets up to a value of £5 million, the order prohibited him from causing or procuring any disposal, dealing or diminution in the value of the Properties. The order required Mr Davenport to inform the Claimant in writing of all of his assets, whether in his own name or not, giving the value, location and details of all such assets and to answer certain questions relating amongst other things to the performance of the Agreement, the current occupation and ownership of the Properties and the ownership of interests in Oxford Circus House. On 23 March 2001 Mr Davenport’s solicitors wrote to Stephenson Harwood stating that Mr Davenport would not comply with those parts of the order requiring disclosure of information as to his assets and its subsequent confirmation by affidavit but would instead contend that they were inappropriate.

On 27 March 2001 Rimer J made an order requiring Mr Davenport to attend court by 4pm that day to provide the information required by the order of Lightman J. Rimer J also extended the order made by Lightman J. On 11 April 2001 Mr Davenport’s application that the freezing order be discharged was dismissed by Peter Leaver QC and the freezing order was extended until after judgment or further order.

In the meantime, on 3 April 2001 the Claimant issued an Application Notice to commit Mr Davenport. The application came before Blackburne J on 12 October 2001 and Mr Davenport was found to have been in contempt of court but no order on the committal application was made against him other than costs on an indemnity basis.

At a Case Management Conference on 5 October 2001 Blackburne J gave directions for the future conduct of the action including a direction that the trial should be fixed to take place between 1 October 2002 and 20 December 2002. There was very little progress in the action over the course of the next 11 months for which the Claimant was largely responsible. The Claimants’ solicitors came off the record between 29 May and 17 July 2002.

On 21 May 2002 a notice was given on behalf of Capricorn ("the May 2002 Notice") that the refurbishment of the basement and ground floor had now been completed under clause 14 of the Agreement and requesting that the Claimant take up a lease of part basement and part ground floor within three months in accordance with the Agreement.

On 12 August 2002 the Claimant sought inspection of the basement and ground floor to inspect the refurbishment which was said to have been completed. Correspondence ensued in which the request for inspection was not refused outright but there was a marked lack of cooperation on the part of Mr Davenport and Capricorn, amounting to obstruction. This correspondence echoed similarly unsuccessful attempts to inspect the interior of Portland Place in 2000.

By a letter dated 4 September 2002 solicitors for Capricorn asserted that the Claimant’s response to the May 2002 Notice was a repudiatory breach of the Agreement and stated that Capricorn elected to accept the repudiation and treat the Agreement as terminated.

On 27 August 2002 the Claimant issued an application for a further Case Management Conference which came before Chief Master Winegarten on 25 September 2002. He gave detailed directions for the further conduct of the Action and re-fixed the trial to take place between 29 April and 31 July 2003. One of the directions was for the appointment of a single expert jointly instructed by the parties in relation to the value of the leasehold interest in Portland Place. The Claimant had wanted separate experts but Mr Davenport and his companies had pressed for a joint expert.

In the course of the following months steps were taken to make progress with the Action, with disclosure of documents, exchange of witness statements and the provision of security of costs. However, the appointment and instruction of a joint expert proved to be very troublesome. There was disagreement as to the identity of the expert, resolved by consent on 26 March 2003 when each side’s nominee was appointed as a joint expert. There was further difficulty in agreeing the instructions and gaining access to the interior of the Properties. In the light of these problems, on 5 June 2003 Peter Smith J vacated the trial date which had been fixed for 16 June 2003 and gave further directions as regards the expert evidence, including a direction that the experts be given access to the Properties before 17 June 2003 and each side put their solicitors in funds for 50% of the reasonable costs of the joint experts. There was further delay in inspection of the Properties and on 2 July Mr Davenport and his companies informed the Claimant that they no longer wished to adduce expert evidence. By orders made by Hart J on 21 July and 25 July 2003, directions were given for the Claimant to adduce its own expert evidence of value, and for Mr Davenport and his companies to permit inspection of the Properties by 29 August 2003, failing which they would be debarred from further defending the claims in the Action. They were ordered to pay the costs of the first application before Hart J and to pay the Claimant’s costs (including relevant experts’ fees) thrown away by the aborted joint instructions of the experts.

The Claimant’s experts inspected the Properties on 28 and 29 August 2003. Mr A P Guthrie FRICS has prepared a report on the value of the leasehold interest in the Properties and on the internal condition of Portland Place. His report contains for present purposes two important conclusions. The first, already mentioned, is that in view of the state of disrepair the open market value of the leasehold interest in April 1999 was a negative figure of over £400,000. This evidence destroyed the Claimants’ case that the assignment to Capricorn had been at a gross undervalue and that the true market value in April 1999 was a positive figure of at least £5 million. It led promptly to the Claimants’ notification to the Defendants that the fraud claim was abandoned in its entirety.

The second important conclusion was that there was no evidence at all that the ground floor and the basement had been refurbished. Despite Mr Davenport’s suggestion that a recent occurrence of damp had resulted in the previous refurbishment work being stripped out, it appeared that there had been virtually no refurbishment at any time. The area which Mr Davenport considered was sub-let to the Claimant under the Agreement was, in Mr Guthrie’s opinion, not at all suitable for use as an embassy or for any commercial use.

The claimant seeks to make radical and wide-ranging amendments to its Particulars of Claim. As presently pleaded, its case is that it was induced to enter the Agreement as a result of a fraudulent conspiracy between the Defendants involving dishonest breaches of duty by its then High Commissioner, deliberate misrepresentations of the true nature of the Agreement and other matters, and the deliberate suppression of material facts. The pleaded loss to the Claimant included the difference between the price of £50,000 paid for the assignment of the Lease under the Agreement and the true value of the leasehold interest which was alleged to be not less than £5 million. This is described in the Particulars of Claim as the Claimant’s primary case, but in an alternative and on the basis that it is bound by the Agreement, it pleads that Mr Davenport and/or Capricorn are in breach of the Agreement in failing to commence or complete with a satisfactory level of speed and competence the refurbishment of the parts of Portland Place to be sub-let to the Claimant, failing to use best endeavours to obtain a licence from the Head Landlord for the Underlease, failing to provide suitable temporary accommodation and failing to secure alternative permanent accommodation. The only particulars given relate to the temporary accommodation.

The proposed amendments would involve the complete deletion of the primary case of fraud, as the Claimant accepts that in the light of its expert evidence as to the value of the leasehold interest in Portland Place that case cannot be maintained. It proposes to introduce a new case that the Agreement was void for uncertainty and to expand its alternative claim for beach of contract. If the amendments are permitted, the Action would proceed only against Mr Davenport and Capricorn. By abandoning its fraud case, the Claimant no longer has any claim against the Fourth and Fifth Defendants. The Sixth Defendant is no longer relevant as it surrendered its Underlease of Portland Place and has been dissolved. The Claimant no longer pursues any claim in respect of the Mews, so that no claim survives against the Third and Seventh Defendants.

In place of its fraud case, the Claimant wishes to introduce a new case that the Agreement is void for uncertainty or is void or unenforceable for failure to incorporate all the express terms in the document or documents signed by the parties as required by section 2 of the 1989 Act. It alleges that the terms which were either not agreed or not included in the Agreement include identification of the parts of Portland Place to be demised by the proposed Underlease, the rent and service charge payable under the Underlease, the term of the Underlease, and the specification of the works for the refurbishment. As the Agreement provided that, in the event of a refusal by the Head Landlord to give a licence for the Underlease, the Claimant would be provided with alternative permanent accommodation offering "similar" accommodation in terms of size, location and standard, to that to be demised under the Underlease and on similar terms to the Underlease, that provision was necessarily also uncertain. On this basis, the Claimant seeks declaratory relief that the Agreement is void or unenforceable, alternatively rescission, and restitution of the Lease against compensation for the benefits which it has received under the Agreement.

The Claimant also seeks permission to expand substantially its alternative claim based on breach of contract. It seeks specific performance of the Agreement on the basis of the terms which it alleges were agreed and, if necessary, rectification of the Agreement. Further or alternatively, it challenges the validity of the May 2002 Notice served by Capricorn and alleges a series of breaches of contract by Mr Davenport and/or Capricorn involving principally a failure to undertake or complete the required refurbishment works and a failure to use best endeavours to obtain the Head Landlord’s licence. It seeks specific performance of the relevant contractual obligations or damages in lieu of specific performance. As a second additional or alternative case, and on the basis that the 2002 Notice was valid, it alleges that, as a result of the absence of a licence from the Head Landlord, Mr Davenport and/or Capricorn are obliged to provide alternative permanent accommodation on the same terms as the proposed Underlease and it seeks specific performance of that obligation or damages in lieu of specific performance. It has a third additional or alternative case for damages in relation to the obligation to provide temporary accommodation.

It is not suggested by Mr Davenport or Capricorn that, as against Capricorn, the claims set out in the proposed amendments are not seriously arguable. On their behalf Mr Nugee accepted that the uncertainty claim, the claim under the 1989 Act and the claims for breach of contract represented arguable cases against Capricorn. In particular he accepted that if there was no plan of the part of Portland Place to be sub-let to the Claimant attached to the Agreement or to the annexed draft Underlease, there was a serious difficulty but he said that it was his client’s case that a plan had been attached. He also accepted that if the written Agreement is void for uncertainty, it cannot be made good by reference to orally agreed terms because of the effect of the 1989 Act. Mr Nugee does however submit that there is no arguable case against Mr Davenport. Capricorn is the party named in the Agreement and Mr Davenport can be liable for breach of it only if Capricorn contracted as his agent or nominee or was merely a façade for him. It is submitted that neither the present Particulars of Claim nor the proposed amendments present a sustainable case that he can be held liable on the Agreement. I consider this issue later in this judgment. For the purposes of this section, dealing with the broad issue as to whether the Claimant should have permission to amend at all, I shall not distinguish between Capricorn and Mr Davenport.

In opposing the application to amend, Mr Nugee relied on the unreported decision of the Court of Appeal (Lord Bingham CJ, Peter Gibson and Waller LJJ) in Worldwide Corp Ltd v GPT Ltd (2. 12. 98). Although it is a judgment refusing permission to appeal, the application was evidently fully argued and the judgment reviews the approach to be taken by the Court to a late application to amend. It was a decision on the Rules of the Supreme Court, but it is fair to say that it anticipates the general approach contained in the CPR which were soon to be adopted. In particular, the Court of Appeal decisively rejected an approach to amendments which would allow an amendment at almost any time provided the other party could be compensated in costs. In commenting on the well-known dictum on amendments of Bowen LJ in Cropper v Smith (1884) 26 Ch D 700 at 710 – 711, Waller LJ (giving the judgment of the Court) said:

After reviewing a number of decisions in the Court of Appeal, which led the Court to prefer the stricter approach to amendments adopted by the Court of Appeal in MGN Pension Trustees Ltd v Invesco Asset Management Ltd (Lexis 20. 12. 93) and Thermaware v Linton (Lexis 17. 10. 95) and by Lord Griffiths in Ketteman v Hansel Properties Ltd [1987] AC 189 at 220 to that of Millett LJ in Gale v Superdrug Stores plc [1996] in 1WLR 1089 at 1098-1099, the judgment continued as follows under the heading "Approval to last minute amendments":

The Court gave some consideration as to whether a second action would be an abuse of process where permission to amend the claim in the first action had been refused, but came to no concluded view on it. Mr Nugee submitted, and I accept, that in considering an amendment the Court should not assume that if permission is refused a second action could be brought to trial.

There is clearly a heavy burden placed on the Claimant in this case to justify so radical a re-casting of its case at so late a stage in the proceedings. A number of the grounds of opposition advanced by Mr Davenport and Capricorn have obvious and substantial weight. First, the proposed amendments to the Claimant’s "primary case" involve abandoning a case of fraud which has been conducted for 2½ years. It is a very serious matter for a party to be accused of fraud and when, after a long period, it is abandoned as having no substance on the facts, there is much force in the view that he should not be subjected to a new and different claim particularly when the other factors to which I refer in this paragraph are also present. Moreover, on the basis of the fraud claim, Mr Davenport was the subject of a worldwide freezing order, involving the extraction of confidential information from him and restrictions on his right to conduct his own affairs as he sees fit. Secondly, the amendments are proposed at a very late stage. The trial has twice been postponed and was refixed in June 2003 to start in late October 2003 with an estimate of two to three weeks. The Claimant notified the Defendants that it was abandoning its fraud claim towards the end of September and served its proposed amendments on or about 1 October 2003. If allowed, the amendments would necessitate a further adjournment of the trial, as the Defendants could not fairly be expected to prepare for the new case in the time available. Thirdly, there has been material delay in bringing the case to trial. In particular, there appears to have been little activity from November 2001 to August 2002 when the Claimant took steps to bring the case before the Master for a further case management conference. This delay was plainly not consistent with the particular obligation of a claimant who has obtained a freezing order to proceed with the action as quickly as possible: Lloyds Bowmaker Ltd v Britannia Arrow Holdings plc [1988] 1WLR 1337. It was said on behalf of the Claimant that whilst this delay was largely its responsibility, the Claimant has been subject to political and economical difficulties which go a long way to explaining if not excusing the delay. The problems faced by Sierra Leone are well-known but in the absence of evidence showing the link with the conduct of these proceedings it is impossible to assess this point. In any event, the point is of no concern to a defendant against whom a freezing order has been obtained and a claim of fraud made. Fourthly, the new case that the Agreement is void for uncertainty or for failure to comply with the 1989 Act is not based on the discovery of new facts or any change in the law. The points now taken have been available since the Agreement was made, although it is no doubt fair to say that the difficulties inherent in the Agreement have been brought into sharper focus by the Underlease proposed by Mr Davenport and Capricorn and by the results of the recent inspection.

I consider these to be substantial factors against acceding to the Claimant’s application to amend.

There are other factors relied on by the Defendants which on analysis carry less weight. First, it is said that they would suffer specific prejudice for which they cannot be compensated. This is an important matter because, if correct, it would certainly be a powerful factor against allowing the amendments. Mr Davenport has not himself provided a witness statement as to the prejudice which he or Capricorn would suffer, but his solicitor David Horsfall has provided a statement (his 13^th in these proceedings, dated 14 October 2003) on the basis of information from Mr Davenport. He says that from the outset of the proceedings Mr Davenport has been as certain as he could be that the fraud claim would fail, as it was essentially a question of fact and he knew the facts so far as they concerned him. The proposed new case based on the uncertainty of terms and section 2 of the 1989 Act involves questions of law as well as fact. Mr Horsfall continues:

The suggested prejudice falls into a number of different categories. First, he caused one of his companies to pay for alternative temporary accommodation for the Claimant and caused Capricorn to incur substantial costs in refurbishing Portland Place (upper and lower floors). If the Agreement is held to be void, these items of expenditure would be reimbursed as a term of restitutionary relief or, if not reimbursed, would lead to a refusal of restitution in favour of the Claimant. Secondly, Mr Davenport has suffered inconvenience and damage to his reputation caused by the freezing order and has lost the opportunity to pursue other business opportunities. No details of these points are given, but in any event they stem not from the adoption of a new case but from the original case of fraud and the freezing order. As such, if the injunction should not have been granted, Mr Davenport can advance a claim for compensation on the undertaking in damages given by the Claimant when the freezing order was made. Thirdly, he has devoted considerable time to the litigation and to the property. So far as time spent on the litigation is concerned, this again was the result of the original claim, not the proposed amendment. More generally, Mr Davenport’s point could have force only if he said that, faced from the outset with the proposed new case, he would not have defended the proceedings but would have agreed to restitution of benefits. Unsurprisingly, he says no such thing. The same is true of the assertions that he has organised his business and personal life on the footing he would succeed in resisting the fraud claim and that his dealings with third parties, including his banks and the Head Landlord, have been on this basis. These assertions also lack any detail at all. In the course of his submissions, Mr Nugee made the additional point that further delay was likely to increase the price which Capricorn would have to offer for an extended lease. I have no evidence as to this, and no evidence on any negotiations for an extension which may have occurred before the commencement of the proceedings.

I am not therefore satisfied that Mr Davenport or Capricorn have shown any prejudice which would flow from the proposed amendments and for which they cannot be compensated, other than the general prejudice from further uncertainty in a case which up till now has proceeded on a false basis of fraud. As I have already said, I recognise this latter point as a significant factor against permission to amend.

A further point relied on by Mr Davenport and Capricorn is the position of Michael Lynn, who acted as their solicitor when the agreement was made. He was to have been one of their witnesses on the fraud claim and would be likely to be an important witness in the claim based on uncertainty. If the uncertainty claim is well founded, Mr Davenport and/or Capricorn may have a claim for negligence against Mr Lynn. It is suggested that a late pleading of the uncertainty claim would put them in an impossible position with regard to Mr Lynn. Either they must join his firm in these proceedings as a third party, which will increase costs and delay a trial, or sue his firm in separate proceedings, in which event his firm would not be bound by findings in these proceedings. They will put him forward as a reliable witness, but if his evidence is rejected they will subsequently have to attack him as unreliable. These are by no means unusual problems, when a client and his solicitor make common cause on the facts, on the basis that the client may have a claim against the solicitor if the Court makes findings of fact contrary to their evidence. They add some complexity and need to be taken into account, but Mr Lynn would have a common interest in giving evidence for Mr Davenport and/or Capricorn, and in this as in other similar cases the problems created by proceedings against Mr Lynn’s firm could be dealt with by appropriate case management directions.

Finally, Mr Nugee submits that the Defendants would face real practical difficulties from the inconsistent claims, on the one hand, that there is no contract and, on the other, that they are in breach of the contract. The suggested practical difficulty is that they do not know whether or not they should be taking steps and spending money to perform their obligations under the Agreement. This could be a point of some importance were it not that Capricorn has elected to treat the Claimant’s failure to enter into an Underlease pursuant to the May 2002 Notice as a repudiatory breach of the Agreement and as bringing the Agreement to an end. Apart from the provision of rent-free accommodation, itself now in issue, there is no evidence that Capricorn is spending or intends to spend further sums on performance of its obligations under the Agreement.

It has been convenient to consider together the objections to permitting the proposed amendments. However, this should not divert attention from the fact it is for the Claimant to satisfy the heavy onus of showing that these amendments should be allowed at this late stage.

In considering whether to give permission to amend as proposed, it is important but of course by no means determinative, that the proposed case based on uncertainty and on the 1989 Act and the expanded breach of contract claims are seriously arguable. Mr Nugee submitted, and I agree, that in the particular circumstances of this case justice requires the Court to cast a critical eye over the proposed new pleading. He was, however, prepared to accept that both parts of the amended claim were seriously arguable. It does indeed appear that there is a very significant issue as to whether crucial terms with regard to the refurbishment and sub-letting were agreed and whether the Agreement complied with the 1989 Act. Likewise, and on the assumption that there is a valid contract, there is on the evidence presently before the Court (although it has of course not yet been answered by Mr Davenport and Capricorn) a real prospect of success in a claim that there has been a breach of the refurbishment obligation and that the areas offered in the Underlease to the Claimant are not in accordance with the Agreement. This is in contrast to the case presented in the amendments proposed in Worldwide Corp v GPT Ltd which was regarded by the trial judge and by the Court of Appeal as insubstantial, involving serious weaknesses including reliance on an agreement to agree.

If the proposed amendments to the breach of contract are taken on their own, the grounds for refusing permission to amend are significantly less substantial than in relation to the new case based on uncertainty and the 1989 Act. Not only is the claim already pleaded, albeit in outline terms, but a significant part of the evidence on which the expanded pleading is based became available to the Claimant only on receipt of its expert’s report in September 2003. While it was always in issue whether Mr Davenport and/or Capricorn had completed, or even commenced, the refurbishment of the ground floor and basement of Portland Place, this could be ascertained only if the interior of the building were inspected. The Claimant made sustained efforts first in 2000 and then in 2002, following service of the May 2002 Notice, to inspect the interior. This should have been a simple matter, but it is clear from the correspondence that Mr Davenport was determined to obstruct or delay an inspection. It is said on behalf of Mr Davenport and Capricorn that the Claimant could have sought an order for inspection under CPR r 25.1 (1)(c)(ii) and (2). This is true, but I agree with Mr Dunning for the Claimant that this not a point which lies well with the party who has obstructed inspection. Inspection by the experts engaged to give evidence was severely delayed for reasons which have not been attributed to the Claimant and which were at least in part attributable to Mr Davenport.

While therefore it can be said of the proposed amendments to the breach of contract claim that they are put forward at a late stage in circumstances necessitating an adjournment of the trial, they are nonetheless in my judgment properly to be allowed because they represent an expansion of the existing pleading, the allegations are agreed to be seriously arguable (and indeed the evidence before the Court would suggest a strongly arguable case that there has been no significant refurbishment, although at trial the Defendant’s evidence may show the contrary) and the delay in fully pleading the case is in part due to the conduct of Mr Davenport and, through him, Capricorn.

The breach of contract claims are themselves inextricably linked to those parts of the Agreement which are said to be so uncertain as to render it void. The central issues of uncertainty are the areas of Portland Place to be refurbished and sub-let to the Claimant, the content of the refurbishment works, the rent payable under the sub-lease and its term, and therefore also the terms of the obligation to provide alternative permanent accommodation. In determining the breach of contract claims, the Court will have to determine what, if any, terms were agreed as to those issues. It is entirely possible that the conclusion will be that as to one or more central issues no term was agreed or that it cannot be enforced because it is not included in the written agreement. This would lead to the failure of the breach of contract claim on the basis that there was no contract and therefore could be no breach. In my judgment, it would be a denial of justice if the legal consequences of the Agreement being void for uncertainty or for non-compliance with the 1989 Act could not be worked through.

Overall the circumstances of this case and in particular the factor just discussed, together with the consideration that both the uncertainty case and alternatively the breach of contract case are seriously arguable with real prospects of success and the fact that Mr Davenport and Capricorn would not suffer any significant specific prejudice which cannot be properly compensated, lead me to conclude that it is appropriate to give the Claimant permission to amend its Claim Form and Particulars of Claim as proposed.

The amended claim is not sustainable against Mr Davenport unless, although not named as a party to the Agreement, he is nonetheless liable on it, assuming of course that it is not void for uncertainty or for non compliance with the 1989 Act. The same was true of the alternative claim for damages for breach of contract in the original claim.

The Particulars of Claim have always alleged that Capricorn was the alter ego of Mr Davenport. In its present un-amended form, the pleading reads as follows:

The way in which this pleading is cast is closely linked to the fraud case. Capricorn and the other companies were, on the assumption of a valid fraud claim, recipients of assets obtained through the fraud of Mr Davenport and others. On the basis that they were simply vehicles owned and controlled by him and set up to hold assets which he had fraudulently obtained, they were to be treated as facades for him, so that "the Claimant is entitled to look at all their assets in satisfaction of any judgment awarded in its favour": cf Trustor AB v Smallbone [2001] 1WLR 1177.

In resisting the application to strike out this paragraph and in support of his own application to amend it, Mr Dunning drew attention to the fact that Mr Davenport had not previously challenged the existing pleading of alter ego. I do not find this surprising given that the claim was previously a fraud claim made against Mr Davenport personally.

With the abandonment of the fraud claim, a pleading of alter ego has to serve a very different purpose. Capricorn can no longer be treated as a mechanical part of a fraudulent scheme. The Claimant must show a sustainable case that Mr Davenport is liable on a genuine contract made in good faith, even though he is not named as a party to it. It is clearly not enough for this purpose that Capricorn is wholly owned and controlled in every respect by Mr Davenport: Salomon v A Salomon and Co Ltd [1897] AC 22. It is necessary to show, and for this purpose to plead, facts which could establish that Capricorn entered into the Agreement as agent or nominee for Mr Davenport. Alternatively, although the legal basis in this context is very far from clear, it is said that the case can still be put on the basis that Capricorn should be treated as a façade for Mr Davenport and its separate corporate existence disregarded.

Recognising that the abandonment of the fraud claim puts a plea of alter ego in a very different context, the Claimant has proposed an amendment to this part of its case. The amendment was developed and refined over the adjournment of the hearing and its final form is as follows:

I will consider first whether the proposed amendments raise an arguable case that Capricorn was an agent or nominee for Mr Davenport. There is no conceptual difficulty in the proposition that a company may enter into a contract as agent or nominee for its sole or controlling shareholder. The basic principles for determining the existence of an agency relationship are as applicable in these circumstances as they are in other contexts. Lord Pearson stated the principles in Garnac Grain Co Inc v HMF Faure & Fairclough Ltd (Note) [1968] AC 1130 at 1137:

If there is no express agreement between the company and the shareholder, and none is alleged in this case, the difficulty for the Claimant lies in identifying facts from which a sustainable case of agency may be inferred. As already noted, the facts of sole ownership and control of the company by the shareholder are not sufficient. Moreover, as Mr Nugee urged, the fact that the shareholder causes the contract to be made by his company, not by him personally, is itself evidence that he did not himself intend to be a party, particularly if the contract imposes onerous obligations. This is indeed one of the fundamental purposes of the whole system for limited liability companies and underlies much of the way in which commercial dealings are organised. The point was made by Toulson J in Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia (No 2) [1998] 1 WLR 294 at 304. Having referred to Salomon v A Salomon and Co Ltd he continued:

Nonetheless, there may be particular facts from which an agency could properly be inferred, despite the importance of the considerations just discussed. This has been recognised in a number of authorities: for example, Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89, Smith, Stone and Knight Ltd v Lord Mayor, Aldermen and Citizens of the Citizens of the City of Birmingham [1939] 4 All ER 116, Adams v Cape Industries plc [1990] Ch 433, 545 – 549, Yukong Line Ltd v Rendsburg (supra). Although regularly recognised in principle, it seems rarely to have been held that the facts of any particular case justify the inference of agency between a company and its controlling shareholder. An exception is the Smith, Stone and Knight case. Mr Dunning placed some weight on this decision and the proposed Appendix 3 to the Particulars of Claim contains in effect the list of six general points set out at p 121 of the report which Atkinson J considered were relevant to determining the issue of agency. In my judgment, with the exception of the first of those points (the profits of the subsidiary company were treated as the profits of its parent company), none of the points individually or collectively is a sufficient basis from which to infer an agency relationship. They are entirely consistent with the relationship which frequently exists between a holding company and a wholly-owned subsidiary or between a "one-man company" and its owner. In JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1989] Ch 72 at 189 – 190, Kerr LJ, in commenting on that decision, said that ".. the facts were so unusual that they cannot form any basis of principle" and that "no conclusion of principle can be derived from that case".

The principle that there may be sufficient facts from which a relationship of agency between a company and its shareholder may be inferred is well illustrated by the unreported decision of Sir Andrew Morritt V-C in Hyundai Engineering and Construction Co Ltd v HRH Jefri Bolkiah (9 March 2001). The claimant ("Hyundai") had entered into a contract for the construction of a marina with Amedeo Development Corporation Sdn Bhd ("ADC"), a company wholly owed by the defendant ("Prince Jefri") and his son who were its sole directors. Hyundai commenced proceedings for damages for breach of contract against Prince Jefri, on the alternative bases that ADC entered into the contract as agents for him or that ADC was a mere façade with no identity independent from him. The particulars of claim pleaded facts from which it was said that these conclusions could be inferred. Prince Jefri applied to strike out or dismiss the claim on grounds which included that the allegations of agency or façade could not be inferred from the pleaded facts. As a matter of general principle it was submitted on behalf of Prince Jefri that the pleaded facts must be such that if proved they lead inevitably to the inference of agency or façade. The Vice-Chancellor rejected this submission, saying that "..it is sufficient that they are capable, if proved, of leading to that inference". The issue was therefore:

The Hyundai case is relevant here for the approach to be adopted to an agency claim of this sort. The decision in any particular case will depend on the particular facts pleaded in that case, so that it cannot, contrary to Mr Nugee’s submission, be distinguished simply by reference to its different facts. The issue is therefore whether the facts pleaded in the proposed Appendix 3 are such that if established they could justify an inference that Capricorn was an agent or a façade. It is not necessary to analyse each of the facts pleaded if at least some of them would be sufficient for this purpose. Mr Dunning placed particular emphasis on written responses given by Mr Davenport on 26 March 2001 to the questions set out in the original freezing order. These answers appear to be carefully prepared, and there was no challenge to Mr Dunning’s suggestion that they were prepared with the benefit of legal advice. In answer to a question (question 10) to identify the entity, person or persons controlling the Claimant’s immediate superior landlord in its temporary accommodation in Oxford Circus House and "state whether they (or the entity they control) are bound by the terms of a contract dated 13 April 1999", Mr Davenport replied that a Guernsey trust company controlled the immediate landlord "as nominees for myself" and that since the trust company

In answer to another question (question 7) he identified himself as carrying out the refurbishment, as paying the purchase price of £50,000 for the assignment and as providing temporary accommodation to the Claimant. It is clear from other answers that he uses "I" to mean himself personally, rather than his companies. In his Affidavit sworn on 26 March 2001, Mr Davenport says that:

In a further Affidavit sworn on 4 June 2001, Mr Davenport stated, by way of further elaboration of his answer to question 7 of the questions referred to above:

In addition there is no evidence of any activity by Capricorn, whether by way of internal management or external dealings other than being named as a party to the Agreement which was signed on its behalf by Mr Davenport’s solicitor, being registered as the proprietor of the leasehold interest in the Properties, apparently granting sub-leases of Portland Place (since surrendered) to another of Mr Davenport’s companies for no consideration and apparently granting a life tenancy of Portland Place to Mr Davenport again for no consideration. The statements referred to above, particularly when combined with this absence of any activity, are in my judgment sufficient material from which at trial a court could infer the existence of an agency or nominee relationship. Facts are also pleaded which indicate that Mr Davenport has treated Portland Place as his own property. As just mentioned, Mr Davenport has given evidence that Capricorn has granted him a life tenancy. When cross-examined in 2001, he was vague about various aspects of this life tenancy and I am not aware that the tenancy agreement has ever been produced. Given that Capricorn had no other assets but is subject to substantial liabilities under the Head Lease and the Agreement, any legitimate basis for the grant of the life tenancy is not obvious unless Capricorn was in truth Mr Davenport’s agent or nominee. Mr Davenport will of course have the opportunity at trial to adduce evidence to show that an inference of agency or nominee-ship is not justified, to dispute the alleged facts relied on the Claimant and to explain his various statements.

In the light of my conclusion on the pleading of agency or nominee-ship, it is not in my view necessary to consider further at this stage the alternative claim that Capricorn was a façade for Mr Davenport. It raises difficult issues of law as to the circumstances in which such a finding is appropriate, particularly if there is no allegation of fraud or other impropriety. As pleaded it does not raise any additional issues of fact to those pleaded in support of agency and the appropriate course in my view is to allow the allegation to remain in the Particulars of Claim.

In opposition to the entirety of the alter ego pleading, Mr Nugee on behalf of Mr Davenport had a further and separate argument based on section 2 of the 1989 Act which if well founded would mean that the agency and nominee-ship argument, and perhaps the façade argument, was bound to fail.

Section 2 requires that all the expressly agreed terms of a contract for the sale or other disposition of an interest land be set out in a document (s.2(1)) and the relevant document signed by or on behalf of each party to the contract (s.2(3)). It is counsel’s submission that if Mr Davenport is to be regarded as a party to the Agreement, the Agreement will have fulfilled neither of these requirements and that therefore Mr Davenport cannot be liable as a party to the Agreement.

This argument was raised at a late stage and Counsel for the Claimant was not in a position to deal fully with it. He did however raise some points. First, the identity of the contracting parties is not an express term of the contract within the meaning of the section 2(1), at least as regards an undisclosed principal. Section 2(1) requires all the terms which the parties have expressly agreed to be in writing and, by its very nature, the identity of an undisclosed principal is not an express term of the contract. Mr Nugee conceded that there was force in this response, which in my view is correct. He accordingly placed the weight of his argument on section 2(3). Mr Dunning suggested that this raised an important and as yet untested issue as to the relationship between section 2(3) and the position of an undisclosed principal. He referred me to Bowstead and Reynolds on Agency (17^th ed) para 8.004 in which opposing arguments are summarised. Mr Dunning went on to point out that if Mr Nugee’s argument on section 2(3) is right and if Capricorn is found to have made the Agreement as agent for Mr Davenport, the Agreement will presumably be void. While acknowledging that his argument based on section 2 raised a new and difficult point with consequences far beyond the facts of this case, Mr Nugee urged me to decide it on this application. I do not however consider that it is appropriate to decide an issue of this sort, to which the answer is not obvious and which raises an issue of general importance, on an application to amend, particularly when it is apparent that counsel for neither side has had sufficient opportunity to research and develop their arguments.

Accordingly, I will allow the amendments proposed by the Claimant to the alter ego pleading.

I now turn to consider whether the freezing order currently in place against Mr Davenport should be discharged. As mentioned earlier, the freezing order was originally granted by Lightman J on a without notice application on 21 March 2001 and was continued until trial or further order by Peter Leaver QC on 11 April 2001.

It is important to remember that at the time when the freezing order was made the Claimant’s primary case was the allegation of fraud. It was on this basis that the judge decided that there was a good arguable case against Mr Davenport. It was also an important, though not the only, basis for his conclusion of a serious risk of dissipation of assets. Now that the fraud claim has been abandoned and with it the basis on which the freezing order was made, Mr Nugee submits that Mr Davenport is entitled to a discharge of the freezing order as of right. That may well be correct but the issue then is whether in the changed circumstances it is appropriate to grant a new freezing order to the same effect. In considering that question, I would agree that the fact that Mr Davenport has been subject to a freezing order for 2½ years without, as it now transpires, any proper foundation is to be taken into account. On any view it is for the Claimant to justify the grant of a new order or the continuation of the existing order.

Mr Nugee contends that the claim as amended does not make out a good arguable case for damages against Mr Davenport since, if the Claimant is successful, damages are unlikely to be a substantial remedy in light of the fact that the Claimant’s primary and secondary claims are for rescission and specific performance respectively. Therefore there should be no further freezing order against Mr Davenport.

The Claimant would only be entitled to damages in any substantial amount against Mr Davenport if a number of conditions are satisfied.

First, the Claimant would need to succeed in its case that Mr Davenport was bound by the Agreement on the basis that Capricorn was either his agent or a facade. For the reasons already given, it is my view that there is an arguable case that Capricorn was acting as an agent or nominee of Mr Davenport in entering into the Agreement, but it is subject to considerable uncertainty. Moreover, the argument as to the application of section 2 of the 1989 Act significantly raises the uncertainty over the prospects of success for this part of the case.

Secondly, the Claimant’s primary case as amended is for rescission on the basis that the Agreement is void. If granted, this remedy would involve the Claimant paying to Capricorn (or Mr Davenport) the purchase price of £50,000 and the value of rent-free accommodation at Oxford Circus House. The Claimant is also likely to be liable, as a condition of restitution, to compensate Capricorn (or Mr Davenport) for refurbishment work that has been carried out to Portland Place. In order for Mr Davenport to be liable to the Claimant in damages, the primary case must fail, but in my judgment it has a real prospect of success.

Thirdly, the Claimant’s second claim is for specific performance of the Agreement. If this succeeds, Capricorn (or Mr Davenport) would be bound to perform its obligations under the Agreement. This would involve them completing the refurbishment works and offering the Claimant the chance to execute the Underlease within three months of the date of the offer. They would then have to use their best endeavours to obtain a licence from the Head Landlord consenting to the Underlease. If this consent was obtained, they would be obliged to grant the Underlease to the Claimant; if it was not obtained, they would be obliged, at the request of the Claimant, to provide permanent alternative accommodation.

If specific performance were granted, any damages payable by Mr Davenport to the Claimant would probably be limited to a claim for delay, which is likely to be small. Therefore only if the remedy of specific performance were refused would the Claimant have a chance of recovering substantial damages from Mr Davenport. Both specific performance and damages in lieu depend on showing that Mr Davenport in breach of the Agreement. There is on the evidence presently before the Court a good arguable case that the requisite refurbishment works have never been undertaken and that the May 2002 Notice was invalid. If damages were awarded in lieu of specific performance, they would be for a substantial sum representing the cost of acquiring alternative permanent accommodation (provided that the Claimant established that the Agreement entitled it to accommodation at a nominal rent). For completeness, I should add that Mr Nugee argued that there could be no award of substantial damages because either the May 2002 Notice was valid and the Claimant failed to required alternative accommodation in time or it was not valid and the time to provide alternative accommodation has yet to arrive. I reject this submission because it ignores that damages in a substantial amount might be awarded in lieu of specific performance.

So far as a risk of dissipation is concerned, the risk is not so much that Mr Davenport will completely divest himself of control and indirect ownership of his assets, but that he will continue to use a large number of corporate entities and trusts established in a variety of jurisdictions and to move assets between then in a way which will hinder enforcement of any judgment against him. Peter Leaver QC referred to this when he said in his judgment of 11 April 2001:

The issue remains whether overall it is a proper case in which to make or continue a freezing order against Mr Davenport. I have come to the conclusion that it is not. I bear in mind and regard as relevant that Mr Davenport has been subjected to a freezing order for 2½ years largely or exclusively on the basis of a fraud claim which is now seen to be unfounded. However, my decision is based mainly on a combination of the considerable uncertainties attached to the claim against Mr Davenport personally and the fact that an award of substantial damages against him is not the relief which the Claimant is primarily seeking and would be made only if it failed in both its primary and secondary cases.

I will therefore discharge the freezing order against Mr Davenport.

The Claimant has applied for an injunction restraining Capricorn from disposing of, dealing with or diminishing the value of its interest in Portland Place. This was indirectly achieved under the freezing order against Mr Davenport which specifically referred to Portland Place. The injunction now sought is not put forward as a freezing order but as an injunction to protect the Claimant’s interest in Portland Place by virtue of its claim for restitution and to prevent frustration of any judgment.

It is accepted on behalf of Capricorn that the Claimant has a seriously arguable case for restitution. Capricorn does not strongly suggest that there is no basis for finding that there is a risk of disposal. In the light of Mr Davenport’s evidence that Capricorn granted a sub-lease in favour of York House SA and a life tenancy in favour of himself, both for no consideration, there clearly is a risk of disposal.

It is submitted for Capricorn that an injunction should not be granted because the Claimant is adequately protected by the caution which it has already registered against dealings by Capricorn and by its ability to apply, as it has indicated that it will, for a unilateral notice under the Land Registration Act 2002. Mr Nugee submits that the Court should not grant an injunction unless it is necessary to do so and the protection provided under the Land Registration legislation renders the proposed injunction unnecessary.

The protection offered by the Claimant’s caution and by a unilateral notice is that there can be no dealing with Capricorn’s interest which would adversely affect the Claimant’s position, without notice to the Claimant and without the Claimant having the opportunity in effect to defend its caution or notice. The protection is therefore the same as if an injunction were granted restraining any dealing without prior notice to the Claimant and so giving it an opportunity of applying to the Court for an injunction to restrain until trial the intended dealing. In the circumstances of this case, I do not consider that to be an appropriate approach. It simply postpones the real argument. The circumstances are such that, in my judgment, there should be no dealings by Capricorn in its interest in Portland Place pending trial, unless it can satisfy the Claimant or the Court that the proposed dealing will not adversely affect the Claimant’s interest or unless of course there has been a change in circumstances which would justify the discharge of the injunction.

I will accordingly make the injunction sought against Capricorn, with an appropriate liberty to apply for its variation. Mr Nugee has argued that if an injunction were granted, the Claimant’s undertaking in damages should be supported by further security. The position at present is that the Claimant’s undertaking in damages in the freezing order against Mr Davenport is supported by an undertaking by the Claimant not to dispose of or encumber its interest in a number of properties listed in the freezing order. The Claimant is willing to provide the same undertaking in relation to an injunction against Capricorn. It is objected on behalf of Capricorn that the properties in question must stand as security for any compensation awarded to Mr Davenport as a result of the discharge of the freezing order against him and that there is little evidence before the Court of their value.

I am concerned at the paucity of evidence of the value of the properties. The only evidence is a statement in an affidavit of the Claimant’s solicitor sworn on 21 March 2001 that an employee in his firm contacted estate agents in the relevant area to obtain a rough indication of the value of each property. The total value was in the region of £4.1 million, but this was only on the basis of a telephone call to estate agents who were given the nature of the property and a general description of its condition.

I will hear further argument as to whether and, if so, what further security should be provided. It will be convenient to consider at the same time the argument of Mr Davenport and Capricorn that as a condition of permission to amend the Claimant should be required to pay into Court a weekly sum in respect of its rent-free occupation of the temporary accommodation at Oxford Circus House.

The overall outcome is therefore that I grant permission to amend the Claim Form and the Particulars of Claim as requested, including the proposed reformulation of the alter ego allegation. I discharge the freezing order against Mr Davenport and grant the injunction sought against Capricorn subject to consideration of the question of security for the Claimant’s undertaking in damages. There remain to be resolved issues of the costs to date, although in principle the Claimant accepts that it must pay the costs thrown away on an indemnity basis. I will hear argument on those issues and on the directions sought to bring this action to trial.