Broadhurst v Broadhurst

INTRODUCTION

1. This is a partnership dispute between two cousins. The Claimant (Mark Broadhurst) is a car dealer from Auckland, New Zealand. At all material times the Defendant’s primary business was that of a freight forwarder in England. Both conducted their businesses through the medium of limited liability companies.

2. The Claimant had considerable experience of importing Japanese vehicles into New Zealand and, thereafter, in seffing the same to the public. As such, he had acquired substantial contacts in Japan for the purposes of purchasing vehicles in Japan. What is, however, self evidently obvious from the evidence which I have heard is that the Claimant had no experience, whatsoever, of the market for, or the marketing of, used or nearly-new vehicles in the United Kingdom.

3. Conversely, and whilst the evidence before me shows the Defendant (despite his subsequent protestations to the contrary) developing a keen amateur interest in the saleability of imported vehicles in the United Kingdom, he was an entire amateur in this field.

4. It is, perhaps, not surprising that the parties entered into a venture which was so ill conceived and so ill planned. But the fundamental problems facing the venture were exacerbated by the Defendant’s dishonesty towards the Claimant. Whether, however, that dishonesty has caused the Claimant any recoverable loss is an issue I must consider in detail below.

5. The essence of the venture into which the parties entered, put simply, was this. The Claimant would purchase, in Japan, various new, or nearly new, vehicles which the parties, primarily on the basis of the Defendant’s research, thought would be readily saleable at a profit in the United Kingdom. The Claimant would pay for the transportation costs but the Defendant would, thereafter, take all steps necessary to ensure that the vehicles were imported, registered and then sold. The venture was agreed upon, orally, during the course of various telephone conversations between the Claimant and the Defendant in May 1998. Prior to this, there had been discussions from, about, April 1997 between the Claimant and the Defendant as to the possibility of doing business in this sort of way (albeit with different sorts of vehicles), It is common ground between the parties that the Claimant and the Defendant created a partnership between themselves for this venture. Unfortunately, they appear to have devoted as little though to the terms of that partnership as they did to the substantive venture itself.

6. Fired by enthusiasm, 25 vehicles were purchased between June 1998 and August 1998. The purchase price of those vehicles was New Zealand $1,020,174.19 (equating, I am told, to £322,722). As will be seen, not all these vehicles reached the United Kingdom immediately (various thereof languishing for a substantial period of time in Rotterdam). More importantly, the vehicles did not sell. By January 1999 the Defendant had sold only one, Over the next two years he had sold only a further nine. This was a matter of grave concern to the Claimant who had indirectly funded the original purchase price of £322,000 odd.

7. Eventually, the difficulties between the parties reached such a pitch that the partnership was dissolved on or about 7th September 2000. At that stage the Claimant retook possession of the then unsold cars and sought to sell the same on to various dealers. To add insult to the Claimant’s injury he was then defrauded by one of those dealers, a Mr. Nick Matheson, who failed to account to him for the sale price of various of the cars.

8. The cars in question have been given various stock numbers in the Statements of Case and I shall refer to them, where necessary, by those stock numbers. In essence, the cars in question consisted of:

(a) 1 Mercedes SLK;

(b) 5BMWZ3’s;

(c) 4 Rover MGF’s;

(d) 7 Rover MGF VVC’s; and

(e) 8 Rover RV8’s.

9. It is common ground between the parties that the partnership has been dissolved and that all necessary and consequential accounts must be taken.

10. By Order of Master Price in this Action of 23^rd May 2005 I am required to try certain liability issues only. I am not required to consider issues of quantum nor am I required to take the appropriate account.

CLAIMANT’S STATEMENT OF CASE

11. It is understandable that the Claimant should have been deeply concerned, and frustrated, by the failure of the venture. It is equally understandable that he should have been gravely disappointed by certain of the Defendant’s activities towards him. What is less understandable is how his Claim came to be formulated in the way in which it was. Certain allegations (such as those relating to advertising and storage) no doubt reflect the Claimant’s instructions but seem to bear little resemblance to reality. Others of the claims appear to be ill thought out, or patently misconceived. Yet again, the misrepresentation allegation in respect of VAT was originally pleaded on the basis that the Defendant had made the same fraudulently. The allegation of fraud was withdrawn on opening, albeit in terms which disclosed a somewhat ill grace.

12. In opening, Mr. Rees for the Claimant indicated that he would wish to amend the Particulars of Claim. In one respect, at least, this was hardly surprising since the claim over failure to sell the cars appeared to be mounted against the Defendant primarily, perhaps exclusively, on the basis that, by the partnership agreement, the Defendant had entered into some form of contractual warranty that the cars would be sold within three months of landing in the United Kingdom and so the Defendant was absolutely liable (irrespective of any efforts he might have put into their sale) for the fact that they did not sell within this time. Despite objections from Mr. Swirsky for the Defendant I allowed the bulk of the amendments which Mr. Rees sought by a ruling on the morning of the second day of the trial. I believed that, on the evidence as it stood, Mr. Swirsky could deal with the amendments which I allowed without forensic prejudice. However, I refused to allow Mr. Rees to amend the Particulars of Claim by adding the allegations contained in the intended paragraphs 3.7.3 and 8(1)(vi). The essence of the disallowed amendments was that the Defendant had been under a contractual duty to use reasonable care and skill to gauge the UK car market to assess whether the prices being asked for the vehicles were reasonable in accordance with market conditions and, where the prices had altered, to reduce the price of any or all of the cars to reflect those market conditions. It was alleged (8(1)(vi)) that the Defendant had failed to make such a reasonable assessment. It seemed to me that if I allowed these amendments the Defendant would, indeed, suffer forensic prejudice. No particulars had been provided as to how, and when, the market had moved and it seemed to me that this was an issue on which, in any event, expert evidence would have been required. There was no such expert evidence and no order therefor. Accordingly, any allegation that the Defendant failed to assess whether the prices being asked were reasonable in accordance with varying market conditions is not an issue before me, and not an issue on which liability can be placed upon the Defendant.

THE DEFENDANT

13. In his closing submissions to me Mr. Swirsky readily, and realistically, accepted that his client, the Defendant, was not an honest man. On his own admission, the Defendant had told many lies to the Claimant (in particular in respect of stock number 23 — the Mercedes) - and in respect of the retention of the four RV8’s in Rotterdam. (These RV8’s were, in fact, the subject matter of a lien which the storage company was exercising in respect of a small debt due from one of the Defendant’s other companies which had nothing, whatsoever, to do with the partnership. That said, however, the Defendant patently sought to mislead the Claimant by not informing him of this fact and by pretending that the vehicles in question were, indeed, in the UK). Most seriously of all, the Defendant also admitted that, on the import of various of the vehicles into the United Kingdom, he defrauded HM Customs & Excise by producing false, and forged, invoices which sought to show that the vehicles had been purchased at a cost less than their true cost of purchase. The Claimant had no part, in, and was wholly unaware of, this. It will not be necessary for me to outline, in detail, each and every lie told by the Defendant to the Claimant. Suffice to say that Mr. Swirsky’s concession is clearly well made. I must, therefore, approach the Defendant’s evidence with the utmost care.

14. That said, however, I must caution myself against falling into the trap of saying that it, therefore, axiomatically follows that everything the Defendant said was untrue or that everything he did was, necessarily, dishonest (see, for example, paragraph 13 of the Judgment of Jacob L.J. in Ultraframe (UK) Ltd v Fielding [2006] EWCA Civ 1133. Equally, I must caution myself against the error of simply saying that because the Defendant had lied in a particular respect to the Claimant, therefore the Claimant must recover some damages. At times, I could have been forgiven for thinking that the Claimant’s case overlooked the fact that damages in English law are (with certain exceptions not material for present purposes) entirely compensatory. However much the Defendant lied to the Claimant, that lie gives rise to no entitlement to substantial damages (as opposed to entirely nominal damages for the breach of the duty of good faith) unless, thereby, the Claimant suffered loss.

OTHER WITNESSES:

15. Mr. Swirsky mounted an attack on the credibility, and reliability, of Mr. Gary Carver (“Mr. Carver”). Mr. Carver’s services had been retained by the Defendant to assist in the sale of the vehicles. He was substantially out of pocket as a result, but had not been able to recover his out of pocket expenses because when he came to sue the Defendant for those out of pocket expenses the Defendant was able, successfully, to defend those proceedings in the local County Court on the basis that his services had been retained not by the Defendant himself but by one of his companies, PRB Resources (“Resources”). Further, he had been sacked from his former employment with another of the Defendant’s companies, Jassak Maritime Limited because, having become entirely disifiusioned and intending to leave, he had pre-empted matters by setting up a competing business whilst still employed. For these reasons, Mr. Swirsky says that I should take Mr. Carver’s evidence with considerable care. I do take these circumstances into consideration but, ultimately, Mr. Carver impressed me greatly as a witness of integrity, and reliability. Whilst I accept that his recollection cannot be perfect, and I factor that into the equation, I have no difficulty in accepting the broad thrust of what he had to say to me.

16. Mr. Swirsky did not seek to attack the integrity and credibility of the Claimant, but he did attack his reliability. There was, to my mind, some force in this criticism. Thus, for example, at points the Claimant seemed to find it impossible, conceptually, to distinguish between himself personally and a limited liability company in which he had an interest. He regarded the company, and himself, as entirely the same thing. Equally, for example, I am certain that the Claimant has now persuaded himself that there was, indeed, an agreed cap on advertising and storage costs. But, in so doing, he has through the stresses and strains of the failed venture and the stresses and strains of this litigation, honestly persuaded himself that something which was merely an estimate has become an agreed term. Therefore I must, and do, take Mr. Swirsky’s criticisms into account when assessing the evidence of the Claimant.

EXPRESS TERMS PARTNERSHIP

17. The starting point is to ascertain the terms of the partnership. As I have indicated, the partnership was created orally in, it would seem, May 1998.

18. In paragraph 4 of the Amended Particulars of Claim certain specific duties are identified as implied terms of the partnership. For my part, I do not think it is necessary to analyse what is set out in paragraph 4 in any great detail. Sufficient for the purposes of this case (and for the Claimant’s purposes) is that the partnership was undoubtedly subject to the fundamental obligation on each partner to display complete good faith towards the other in all partnership dealings and transactions. Equally, this partnership was governed by the obligations set out in sections 28 and 29 of the Partnership Act 1890.

19. The Claimant’s contentions as to the terms of the partnership were set out in paragraph 3 of the Amended Particulars of Claim. Certain of those terms are not in issue, others most so definitely so. Thus, by way of introduction, it was not in issue but that it was orally agreed between the Claimant and the Defendant that the Claimant would locate suitable cars in Japan, through his buying agents, and purchase cars for onward transportation to England (paragraph 3.1) and that the Claimant would bear the initial cost of purchasing the cars and the costs of transportation to the UK (paragraph 3.2).

20. The next alleged term is, however, substantially more difficult. It is alleged that the proprietary title in the cars would remain with the Claimant until they were sold (paragraph 3.3). Now the whole purpose of the partnership was to sell the cars so the partnership, undoubtedly, would have had authority (from whoever owned the cars) to pass on good title to the same to the purchaser — in practical reality that meant that the Defendant would have had such authority. But were the cars themselves assets of the partnership? The Defendant contends that they were. I think that neither the Claimant nor the Defendant have thought that issue through at all. From the Claimant’s point of view he seems to proceed on the basis that title in the cars remained with him. But there is a fundamental difficulty with that because, as was crystal clear from his evidence, the cars were not purchased by him at all but by a limited liability company — Hartley Investments Limited (“Hartley”). Whilst the Claimant clearly had an interest in Hartley and, indeed, on his evidence provided much, perhaps all, of the funding to Hartley to purchase the cars, on the Claimant’s evidence it was Hartley, not he, who had initial title to the cars. And from the Defendant’s point of view, if the cars were, indeed, assets of the partnership then the losses sustained in disposing of the same on the winding up of the partnership (in particular the defalcations of Mr Matheson) might be argued to be losses to be borne by the partners (unless it be said that the Claimant had taken the cars, in specie, as part of some sort of informal dissolution agreement). Quite frankly, I would be astounded if this Claimant and this Defendant, when they were forming their partnership, ever directed their minds to this issue. That said, they created a partnership which either did, or did not, have title to the cars and I must seek to ascertain, from an objective analysis of the evidence which I have heard, what the true position was. Although I was referred to certain authority on this point by the Claimant I need not, I think, set it out. Suffice to say that there is no rule of law which requires the cars to be assets of the partnership, no rule of law which prevents title in the cars not being an asset of the partnership. Either way, one of the two partners is making an unequal contribution towards the partnership. Either the Claimant, or Hartley, is bringing into the partnership the value of the cars (which is grossly disportionate to the Defendant’s contribution) or, alternatively, the Defendant is making his contribution (VAT, registration fees, compliance fees, advertising and marketing) when the Claimant is bringing in nothing. On an objective view of the facts, in the context of resolving an issue which, I am certain, the partners themselves never addressed, I form the view that the Claimant is right to this extent, namely that the partnership did not acquire title to the cars themselves. Rather, that title remained with Hartley but Hartley was content for the partnership to carry on business as, effectively, its agent for the sale of the cars. Hartley conferred upon the partnership actual authority to sell the cars, and to pass good title thereto on Hartley’s behalf, but the cars themselves were never assets of the partnership.

21. This conclusion, which is in accord with the Claimant’s case save for the Hartley issue, has certain knock on consequences for the Claimant’s present claims. Various of the causes of action (in particular those in conversion either for wrongly disposing of the cars or for damage to the cars) would appear to be the causes of action of Hartley, not the Claimant. The Claimant seemed unable to grasp this point, and did not make any submissions to me to the effect that the causes of action could be mounted by the Claimant as Hartley’s agent. Strictly speaking, it seems to me, that Hartley’s claims are claims against the partnership, not claims within the partnership. As such, if properly mounted, they would have priority to claims between the partners themselves.

22. This conclusion does, however, enable me to reach a firm view on a further disputed term. Although not specifically pleaded as such, it is clearly the Claimant’s case that when each car was sold, the proceeds of sale (in total) should have been remitted to the Claimant in New Zealand. Having repaid Hartley for that particular car (the Claimant says having repaid himself but that is wrong) the Claimant was then to divide up the money in accordance with the other terms of the partnership to which I shall refer below. Conversely, the Defendant says that he was entitled to take his share of expenses and profits from that particular car (plus interest on expenses — see below) and only remit the balance to the Claimant. I prefer the Claimant’s view on this — granted the major investment that Hartley was making and granted the necessity to ensure that Hartley was repaid for the cars sold on its behalf.

23. It follows from this, I think, that in respect of each and every car the Defendant should have remitted the whole proceeds of sale to the Claimant in New Zealand. That remittance would, of course, have been converted into New Zealand Dollars at the rate of exchange then prevailing. The Claimant advances a further claim namely that he would be repaid the purchase price of each car in the same amount of New Zealand dollars as he (the Claimant) had paid for that car at the time of purchase. Purchase was, of course, in Japanese Yen which Hartley had to purchase with New Zealand dollars at the rate of exchange then prevailing. I can find no evidence that the partners ever agreed this at the time, although it is fair to say that the Defendant did seem to accept this postulate on a number of subsequent occasions. Of course subsequent acceptance does not amount to an express agreement either at the time the partnership was created, or subsequently. However, the true position seems to me to be as follows. Having purchased the car in question in Japanese Yen at a specific cost to it in New Zealand dollars (say, for the sake of ifiustration, New Zealand $100,000) Hartley had an expectation to recover that price (New Zealand $100,000) from the partnership. Hartley, as a stranger to the partnership, did not expect to be paid New Zealand $95,000 for that car just as the partnership would have objected, with fluctuations in currency rates, to paying Hartley New Zealand $105,000 for that car. My view is that Hartley was entitled, when matters are objectively analysed, to recovery of, in the example I give, its New Zealand $100,000 — nothing more or less (save for interest). To that extent, therefore, I agree with the Claimant’s contention that Hartley would be repaid for the purchase of each car in the same amount of New Zealand $ as it had paid at the time of purchase of that car.

24. It is common ground between the partners that each were to be entitled to interest at 10% per annum on the expenses they incurred for the partnership. Whilst this arrangement was not entered into at the time the Partnership was created it was quite clearly entered into subsequently. Within those expenses the parties must have, and did, contemplate that part of the relevant expenses were the purchase costs of the cars. Taking all this together, it seems to me that Hartley’s is entitled, as against the partnership, to 10% interest per annum on the New Zealand dollars it expended in purchasing the cars.

25. It is quite clear that the partners, in their initial euphoric state, contemplated that the cars would be easily sold and that advertising and storage costs would be a bare minimum. They quite clearly estimated those advertising and storage costs as up to £100 per car (E100 for advertising plus £100 for storage). That was based upon the clear expectation of both partners that each car would sell within three months of arrival. From this, the Claimant seeks to advance as a term of the partnership that advertising costs and storage costs would each be capped to £100 per car and that to the extent that the Defendant has incurred advertising, or storage, costs over this figure he must bear those costs himself. That contention I entirely reject. No such term was ever agreed and the Claimant is seeking to mutate an expectation into a term to the detriment of the Defendant. In any event, this fits in extraordinarily ill with the Claimant’s subsequent contention that the Defendant failed to take any adequate steps to sell the cars. Did this Defendant agree to take upon himself, entirely, the risk that advertising and storage costs would each exceed £100 per car? In my judgment clearly not.

26. As to the Defendant’s obligations these were originally pleaded as having been to ensure that the cars were imported into the UK (which included paying all duties) prepared for sale (not merely by valeting but, also, by the modifications needed to comply with UK Regulations) and then marketed for sale. Pleaded this way, the allegation was admitted by the Defendant and, quite clearly, what the Defendant agreed to do was to import the cars into the UK (not, for example, Rotterdam). As I have indicated, as originally pleaded, it would seem that the Claimant was alleging that the Defendant accepted a contractual warranty that the cars would be sold within three months of arrival in the UK. That hopeless claim was abandoned by the amendment and, in its place, certain further express, or implied, terms were alleged:

(1) first it is alleged that the Defendant was under an obligation to import the cars into the United Kingdom within a reasonable period of time. That I accept. The cars were to go to the United Kingdom — not somewhere else. Unless the Claimant consented to the same being, for example, in Rotterdam (which I find on the evidence clearly he did not) they should have been in the United Kingdom. It was no excuse for the Defendant to say that he was drip feeding the cars into the United Kingdom because of cash flow difficulties with the payment of VAT. The obligation to discharge these sums, in the first instance, the Defendant took upon himself under the terms of the partnership;

(2) then an implied term is alleged against the Defendant to keep the cars in a marketable condition, such that they were sufficiently saleable so as to attract available purchasers. That, again, I accept;

(3) then it is alleged that the Defendant was to register the cars and to keep the registration documents in good order and available. This is more difficult, but the difficulties to my mind go to the question of the effect of breach, not to the substance of the obligation. The starting point, as I have indicated, is that the whole venture proceeded upon the enthusiastic postulate that all the cars would be sold within three months of landing. For that to occur the cars would have to be modified in accordance with UK requirements and registered. So when the partnership was formed, and the cars purchased, the parties clearly contemplated that the cars would be modified and registered within a reasonable period of time sufficient to enable them to be sold within three months. I, therefore, find that the contractual obligation contended for by the Claimant did, indeed, exist. However, the Defendant does advance a cogent case as to why it made commercial sense not to register the cars once they had begun to “stick” (briefly the car would be more attractive if there were no pre-registration and/or no registration too early). But this does not affect the nature of the basic contractual obligation. Rather, it affects the issue whether the failure to register timeously has caused any loss. That is a matter for any subsequent quantum hearing (as is the issue whether failure to register had any causal effect at all if purchasers were not, in fact, available);

(4) the most important term which the Claimant contends for, in this amendment, is a term whereunder the Defendant was to take all reasonable steps to market the cars (which included, inter alia, giving a sufficient amount of his time and effort to actively encouraging sales). The term is subsequen.tly reformulated by the Claimant, in a separate paragraph, as a “best endeavours” obligation on the part of the Defendant to sell the cars within a reasonable time. Clearly, any objective analysis of the commercial realities of the venture would require some obligation on the part of the Defendant to market the cars. But it must be remembered that the Defendant was an amateur in this field and this was not meant to be his primary occupation. I think that the term to be implied is that the Defendant was to take all reasonable steps to market the cars, taking into account the fact that this was not his primary occupation and that he was an amateur in this field;

27. Finally, I should indicate that, following repayment to Hartley and, thereafter, payment to the Claimant and the Defendant of their expenses in the venture and interest thereon at 10% per annum respectively, the profit was by common consensus to be divided between the Claimant and the Defendant in equal shares. From this it follows that they would share the losses equally.

28. I shall turn, below, to deal specifically with the various allegations of breach of duty presently before me. However, over and above those specific allegations, the undoubted postulate is that there must be an account between the parties. The form, and nature, of that account wifi be informed and governed by the findings as to the term of this partnership which I have made above (so far as not specifically dealt with below when I turn to the particular breaches complained of in the Amended Particulars of Claim).

VAT

29. Before, however, turning to the specific breaches identified the Amended Particulars of Claim I must deal with the VAT issue.

30, It is extremely difficult to follow the Claimant’s case on this particular point. The essence of that case appears to be this — that the Defendant orally represented to him just before the partnership was entered into that any VAT payable on importation of the cars could be reclaimed. It was only on this basis that he entered into the partnership. If I understand the position correctly, the Claimant’s case is that all VAT paid on importation must be borne by the Defendant alone.

31. Now, of course, a distinction needs to be made between import duty and VAT. Import duty on most of the cars (but not all because certain were manufactured outside the EU) was either not payable or reclaimable because the cars were “homeward bound”. But VAT was entirely different and was not subject to the “homeward bound” rule. It is difficult not to reach the conclusion that the Claimant entirely misunderstood the distinction between import duty and VAT since, otherwise, it would appear that he seems to have thought that the State should be funding the business of the partnership.

32. The matter is made that more complicated because, faced with the obligation to pay VAT, and with the cars not selling as quickly as anticipated, the Defendant decided to assist his own cash flow by paying VAT on false invoices which showed the purchase price of the cars being less than they actually were. This is admitted by the Defendant, who says that he has subsequently reached a compromise with HIM Customs & Excise on this point. It is not ended up paying less VAT than (even allowing for interest and position seems to me to be as impossible that this partnership actually it should, properly, have done on import penalties). On the false declaration the position seems to me to be as follows. The partnership ought to have ultimately, it paid more than that sum the Defendant must, himself, bear those But if it paid that sum, or less, then the Partnership has not suffered any loss (even if the sum it actually paid was made up of interest and penalties). paid a certain sum in VAT. If, (with interest and penalties) then interest and penalties exclusively.

33. As it happens, all save one of the cars (the Mercedes stock number 23) were imported in the name of Resources. Resources was, as I understand the position, VAT registered which meant that it could reclaim the VAT paid on import but had to account to HM Customs & Excise for the VAT payable on sale of the car. The Claimant’s perception appears to have been that so long as import was by a VAT registered person then VAT could be reclaimed, but need not be accounted for on the sale of the car. I find it impossible to see how the Claimant reached this conclusion which, as I have said, seems to have involved the State funding the business of the partnership. Back in April 1997, when the parties were first contemplating doing business together, the Defendant did send a Fax to the Claimant (dated 7th April 1997) indicating that for limited companies which were VAT registered, the Import VAT could be reclaimed on a quarterly basis but, equally, he also indicated that he was still checking as to whether VAT had to be charged on subsequent sale on of second hand cars. Similar representations were made on a Schedule which the Defendant produced on 16th April 1997. But nothing is therein said about the VAT which has to be paid and accounted for on actual sale of the vehicle. I should refer, also, to one further document namely an e-mail from the Defendant of 8th July 1998 (after the partnership was formed) indicating that in respect of one particular potential import (a MX 5) he would need to handle the same as a private import and therefore would have to pay VAT at 17.5% which could not be reclaimed.

34, None of this involves a representation by the Defendant that VAT was not accountable for on sale of the vehicles. Either it was not (in which case there is no problem) or, as clearly seems to be the case, it was (but that had no effect on the ability to reclaim, quarterly, the original import VAT payment). The Claimant has been wholly unable to identify to my satisfaction how and when the Defendant represented to him that if the importer were VAT registered VAT did not need to be accounted for on sale of the vehicle, if the VAT reclaim were made. Quite frankly, I find it impossible to see how the representation, let alone a misrepresentation, was made. On the evidence, I reject the Claimant’s contention that any such express representation, let alone misrepresentation, was made to him orally by the Defendant before the partnership was entered into. Both partners may well have been contemplating that import VAT could be reclaimed quarterly by the importer if VAT registered. Neither, in this ill conceived enterprise, may properly have contemplated what the VAT position on sale would be. I am not satisfied that the Defendant ever made any representation to the Claimant on this issue. Despite, therefore, what the Claimant sets out in paragraphs 18 to 23 of his witness statement. I reject the suggestion that the Defendant ever made the alleged representation. Indeed, paragraph 18 of that witness statements seems to me to show the confusion in the Claimant’s mind between import duty and VAT. And even if a misrepresentation were made what loss has the Claimant suffered? The partnership has merely paid VAT for which it was always, truly, liable. It may, thereby, have made a lesser profit, or a loss, but that lesser profit, or loss, was always integral in the business of the partnership properly conducted and properly paying its taxes. As I have said, the Claimant’s claim on this point, to the extent I understand it, appears to amount to an allegation that the Defendant assumed a contractual warranty to the effect that no VAT would be payable. It is impossible, on the evidence I have heard, to see how the Defendant did this.

THE CARS - FAILURE TO SELL:

35. The most major allegation of breach brought by the Claimant concerns the fact that the cars did not sell. I have identified, above, the term to which the Defendant was subject to take all reasonable steps to market the cars. Having abandoned his contractual warranty claim on this point, the Claimant stifi seems to proceed upon the basis that each of the cars were highly marketable and should have been sold with a high degree of speed. Thus, under the heading of Particulars of Breach in paragraph 8(1) of the Amended Particulars of Claim, the Claimant relies only on the failure to sell more than 10 cars by June 2000 (to a degree this has to be taken in conjunction with certain other particulars of breach set out in paragraph 8(1) of the Amended Particulars of Claim but the fundamental thrust of the Claimant’s claim remains that the cars should have, but did not, sell).

36. Now as Mr. Swirsky so correctly points out there were many factors militating against easy sale of these cars. The cars were not being sold from the forecourt of an attractive, and reputable, garage. They were being sold, initially, from the Defendant’s driveway and, then, subsequently from a storage facility which consisted of a glorified wooden barn. No warranties whatsoever were being offered to the purchaser on sale. Nor did the purchaser have the confidence that would arise from sale from a reputable garage. Until at least August 1999 no finance could be made available to a purchaser (on the 19th August 1999 the Defendant seems to have applied for a credit licence). Any purchaser had to be found by advertising (which, in turn, required the potential purchaser to see the advert). Most importantly, all these vehicles were “grey” imports — originally exported to Japan and then re-imported. They could not, commonsense dictates, have been as attractive as UK or EU originating new, or nearly new, cars.

37. It must be remembered that the Defendant, too, had a financial interest in this project — a financial interest in seeing these cars sold as quickly as possible. As I have indicated, he retained the services of Mr Carver to assist him. It may be that, on occasions, there were difficulties with contacting the Defendant through his mobile phone number as it appeared on adverts but, as Mr. Swirsky again correctly points out, this was a secondary business for the Defendant. The Claimant could never have expected the Defendant to make the sale of these cars his primary task. In any event, the Claimant has wholly failed to satisfy me that such difficulties had any causal effect (i.e. caused one or more of the cars not to be sold).

38. All the above problems were inherent in the venture, as contemplated and enacted. The Claimant cannot, justifiably, complain about them. And yet the Claimant’s case appears, simply, to be that the cars did not sell and therefore, the Defendant must have been in breach of his duty to make reasonable efforts to sell the same. That is a case which, quite simply, on the evidence before me I cannot accept. I have heard no expert evidence to say that “grey” imports being sold in the circumstances identified above would, and should, have been sold within a particular timescale by a person such as the Defendant (who, after all, was only an amateur). I cannot, from the simple fact that the cars were not sold, form the view that the Defendant was in breach of his obligations as I have identified them. Quite simply, on this aspect of the case, the Claimant has failed to prove his case.

OTHER BREACHES

39. The Claimant says that the Defendant failed to import certain of the cars into the United Kingdom — they languishing in Rotterdam. Further, in respect of the 4 RV8’s (stock numbers 13, 14, 16 and 24) the same were for a period impounded under a lien (which had nothing to do with the partnership) and the Defendant lied to the Claimant about their whereabouts. Here, it seems to me to be clear that the Defendant was in breach of his obligations under the partnership agreement by failing to import the cars into the United Kingdom within a reasonable period of time. They should not have been in Rotterdam at all (unless in transit). The Claimant is entitled to damages for this but what loss has been suffered may be a matter for speculation. Thus, if the cars could not have been sold there has been no loss through the simple fact of their detention in Rotterdam (apart from the fact that they may have suffered additional damage through being detained in Rotterdam. The cars were kept in open storage, open to the sea air — particularly damaging for the convertible models). The Defendant should not have stored the cars in Rotterdam, let alone in the open sea air and any additional damage which the cars suffered through being stored in this way seems to me to be recoverable from the Defendant. All these are, however, matters for the quantum hearing.

40. The Claimant also says that the Defendant failed to register various of the cars in a reasonable time. If so, that would be a breach of the term I have identified above. Whether any loss has been suffered thereby and, if so, in respect of which car or cars, I shall leave to the quantum hearing.

41. The Claimant also says that the Defendant failed to keep the cars in a marketable condition. This relates to the state of the cars in the wooden barn to which I have referred above. Essentially, the Claimant says that the cars were not reasonably clean, without fuel and without working batteries. That the cars got dirty in the storage facility was undoubted but I accept the evidence of the Defendant and Mr. Carver that they would, if a potential purchaser were to visit, be cleaned. Keeping the cars with a minimum of fuel was a sensible precaution — to avoid fire and damage. There was clearly a problem with the batteries but that was easily resolved. I have seen no evidence, whatsoever, that these matters caused the loss of any sale and, of themselves, they seem to me entirely de minimis — of no causal effect in causing loss.

42. The Claimant also says that the Defendant failed to keep him adequately informed about the Defendant’s efforts to sell the cars and about the difficulties which he, the Defendant, was facing. Leaving aside, for a moment, the deliberate lies told over stock number 23 (the Mercedes) it seems to me that it was self evident to the Claimant that the cars were not selling and that the Defendant was facing substantial difficulties. Before me are sufficient e-mails from the Claimant indicating his concern that the cars were not selling (see, for example, the e-mail of 12th August 1999 where the Claimant says that “things are making me feel sick”). Increasingly desperate communication from the Claimant to the Defendant follows. Whilst communication from the Defendant, at this time, may well not have been perfect it is difficult to see what loss it, thereby, caused the Claimant. On his own evidence, granted his brother’s sad terminal illness, he was unable to leave New Zealand until the end of 1999. He did, in fact, come to the United Kingdom to seek to sort matters out, but not until June 2000. The fundamental substantive problem was that the cars were not selling and how well, or badly, the Defendant explained why that was the fact to the Claimant does not impinge upon the underlying substantive fundamental problem.

ACCOUNTING

43. I have identified, above, the accounting exercise which should have been engaged in by the Defendant on the rare occasions when cars were sold. It would appear that the Defendant did not do what he should have done, namely remit the whole of the proceeds of sale to the Claimant in New Zealand. A specific allegation to that effect is made in respect of stock number 8 but, it seems to me, the same principles may well have applied to the other nine cars sold by the Defendant. The Claimant is entitled to an account of any loss he has suffered thereby.

44. Further, as the partnership was drawing to its close following the Claimant’s visit to the United Kingdom in June 2000, the Defendant unilaterally retained for his own benefit the proceeds of sale of various cars (amounting to a total, as I understand the position, of some £78,500 although the exact figure is a matter for the quantum hearing). Those cars are presently identified as stock numbers 5, 10, 11, 12 and 18. What the Defendant did was to ensure that the proceeds of sale of these cars (and certain vehicles taken in part exchange) were retained by him in satisfaction of what he claimed to be his expenses and interest. This was, in my view, quite wrongful and the Defendant must account fully therefor, in accordance with the principles as set out above, on the final taking of partnership accounts. In issue on such final taking of partnership accounts will be the precise amount wrongfully retained by the Defendant including all issues relating to the Mazda MX3 (paragraph 8(6)(ii) and the Fiat Bravo and Vauxhall Vectra (paragraph 8(6)(iii)).

SECRET PROFIT

45. The Claimant alleges that the Defendant made a secret profit to the Claimant’s detriment. Various instances are alleged. Some are admitted, some proven, and none reflect credit on the Defendant. Thus, in respect of stock number 5 it is admitted that the Defendant made a secret profit of £500 without informing the Claimant by seffing the hard top for this vehicle separately. Equally, in respect of stock number 6 it is admitted that the Defendant informed the Claimant that the vehicle had sold for only £10,827.50 whereas, in fact, it was actually sold for £12,500.

46. As to stock number 11 this was sold for £13,000 paid, according to the Defendant, as to £6,250 in cash and as to the balance by accepting in part exchange a Fiat Bravo. The Fiat Bravo was subsequently exchanged for a Vauxhall Vectra. However, Mr. Carver’s evidence is clear, and I accept, that in addition to the Vauxhall Vectra a cash payment of £2,250 was made. That cash payment the Defendant retained for himself without informing the Claimant. There was, accordingly, a secret profit of £2,250.

47. Stock number 15. The allegation here is that a non-refundable deposit of £1,500 was paid. By e-mail of 10th August 2000 the Defendant confirmed that this vehicle was sold and that he had, indeed, received the deposit. And yet, subsequently, in his evidence the Defendant said that he had not taken the deposit. Quite frankly, I do not believe the Defendant. He received the deposit, subsequently sought to deny it, and has made a secret profit accordingly.

48. I leave open, to be addressed in the account if necessary, stock number 22 since it is not clear to me the extent to which the Claimant is stifi pursuing this issue. This would have involved a secret profit of £1,500.

49. I turn to the major issue of the Mercedes (stock number 23). This was sold by the Defendant to his wife but, thereafter, the Defendant consistently lied to the Claimant by failing to disclose this sale and by pretending that the vehicle was still for sale. For the purposes of the sale to the wife a Finance Agreement was entered into with General Guarantee Finance Limited with, according to documentation before me, warranties as to title being given by the Defendant on the 8th June 1999. That said, however, the Defendant claims to have sold this car to his wife only on the 3rd September 1999. However, the evidence of Mr. Carver is clear that this vehicle was treated differently to all the others in that it was commandeered for the Defendant’s personal use from the very start. Mr. Carver says, and I accept, that the Defendant’s version of events to the effect that this vehicle was treated in a similar manner to all others and that a number of abortive sales fell through is quite simply not true. The Defendant’s version of events is that this vehicle was sold to his wife at exactly the same price as it had been previously offered to sale to members of the public (£32,000). The Defendant confirms that his wife did, indeed, take out a loan with General Guarantee, secured on the vehicle, to purchase the same. Most interesting is the fact that this vehicle was imported, on 9th November 1998, not in the name of Resources but in the name of Deborah Hayles, the Defendant’s secretary. From the moment of importation this vehicle was ear marked, in my view, for the Defendant personally even though the documentation would suggest that application to register the same was not made until 6th June 1999. However, I am certain that from importation (according to Form C & E 386 on the 9th November 1998) the Defendant had converted this vehicle to his own use. He must account fully, on the taking of accounts, for any loss which has been suffered thereby. There should have been remitted to New Zealand the full purchase price of this car, at its full value in November 1998, in November 1998. It is also clear to me that the Defendant has, subsequently, wrongfully claimed storage costs of £600 in respect of this vehicle when, in fact, he had appropriated this vehicle for himself. It is also clear to me that he has wrongfully claimed the cost of fitting a new stereo (and, perhaps, other items) into this vehicle, purporting it to be a repair cost in the sum of £900. He has then wrongly sought to charge that cost to the partnership. For all these matters the Defendant must account.

50. I turn, finally, to stock number 7. This allegation is admitted that the Defendant, wrongly, allowed Mr. Carver to use this motor vehicle thereby adding some 4,000 miles to its mileage. Mr. Carver is not to be blamed for this but the Defendant allowed Mr. Carver to so use this vehicle either for the purposes of assisting him (the Defendant) in selling the vehicles or for the purposes of Mr. Carver’s employment with the Defendant’s company. Account must be taken, in due course, of the loss suffered through damage to this vehicle by unnecessary deterioration.

51. All the above matters are, of course, subject to any issues which arise over the involvement of Hartley — which, again, can be analysed on the taking of the account.

CONCLUSION

52. In the circumstances, I have identified the terms of the partnership and the obligations placed upon the Defendant thereunder. I have rejected two of the major claims of the Claimant (namely the Claimant’s claims over failure to sell the vehicles and the Claimant’s claims over VAT). I have, however, identified numerous areas where issues arise on the taking of the account (subject to the Hartley issue) and left open entirely how, and in what way, that account should be taken in the light of my findings above.

53. I will hear submissions as to how this Action should now proceed when I formally hand down this Judgment. This Judgment is, of course, but an interim Judgment in this Action narrowing, but not in anyway finally deciding, the true state of account between the partners in the light of the issues I have decided above.