Marsfield Automotive Inc v Siddiqi

In this case the Claimant has brought a claim against the Defendant in restitution for the sum of £50m. The Claimant has issued an application for summary judgment. It has been opposed by the Defendant. The matters upon which he relies to resist the application are set out in a detailed skeleton argument of counsel running to 25 pages. Those defences are supported by 5 witness statements much of the content of which is disputed by witness statements served on behalf of the Claimant. The subject matter of the claim being restitution many authorities have been referred to and on several issues there is considerable dispute between counsel as to the applicable principles. A substantial claim in restitution involving disputed evidence and principles of law is not an obviously fertile ground for summary judgment.

It is first necessary to summarise the background to the claim. The Claimant, Marsfield Automotive Inc., is a company registered in the British Virgin Islands. Behind it is a Russian entrepreneur and businessman Mr. Dennis Sverlov. The Defendant, Mr. Kamal Siddiqi, is an inventor, engineer and entrepreneur who controls a group of companies including Frazer-Nash which has developed an electric vehicle. The Defendant is also the sole shareholder of Eco Motive AG, a Swiss company.

The Claimant and Eco Motive entered negotiations and agreed certain terms which are set out in a Term Sheet dated 9 May 2014. Save with regard to provisions concerning non-solicitation, confidentiality and the governing law and arbitration the Term Sheet was expressly stated not to be legally binding. The Term Sheet envisaged the setting up of a “platform company” jointly owned by Eco Motive (as to 35%) and by the Claimant and Genii, a Luxembourg company which was to be incorporated thereafter (as to 65%). Eco Motive was to provide a licence to the platform company to use the intellectual property concerning an electric vehicle. The Claimant and Genii wished to develop the product “on a global scale” utilising their access to financial resources and expertise, starting with a pilot project. The purpose of the venture was described in clause 1 of the Term Sheet and clause 2 described the share capital, structure and funding of the platform company. The intellectual property involved was described in clause 5 and clause 6 dealt with the proposed licence. The respective obligations of the parties were set out in clause 7. Clause 8 envisaged that Eco Motive would deliver two prototype vehicles to the platform company. Payments were dealt with in clause 9. The Claimant and Genii were to pay £50m. for the use of the licence and the sum would include compensation for costs incurred by Eco Motive for assisting in the setting up of the platform company and for its support for the pilot project. Within one week of signing the term sheet £40m. was to be paid to Eco Motive or its order. Two further sums, each of £5m. were to be paid later, the final tranche being on delivery of the two prototype vehicles under the pilot project. The proposed time scale was set out in clause 13. It envisaged that the shareholders’ agreement and licence agreement would be signed by 9 June 2014, and the service agreement would be signed by 30 July 2014.

On 16 May 2014 the Defendant executed a deed on behalf of Eco Motive, entitled Payment Letter. It recited that the Claimant was to pay £40m. by way of down payment of the fee to be payable under the Licence. Clause 1.4 provided that the Claimant was instructed to pay £40m. to the account of the Defendant. Clause 1.6 provided:

“The final retention of the Payment by us is subjected to the execution of final agreements set out of clause 13 of the Term Sheet or any other such terms mutually agreed in writing. ”

There is evidence, which I do not understand to be challenged, that the Defendant asked for the payment to be made to him personally and that the Claimant’s bank required the basis of the payment to be documented. That was the reason for the Payment Letter.

On 8 September 2014 a Supplemental Agreement was made by the Claimant and Eco Motive. It again was expressed to be not legally binding, save for provisions relating to non-solicitation, confidentiality, the governing law and arbitration. The licence was to be owned by Charge AG, a company to be incorporated in Switzerland, R and D was to be conducted by Charge Engineering Limited, a UK owned company (which I was told was owned by the Defendant) and Charge Holding AG, a company to be incorporated in Switzerland, was to hold 100% of the shares in Charge AG and Charge Engineering. Clause 2 dealt with the time line. It envisaged that the required agreements would now be agreed by 3 November 2014.

On 9 September 2014 the Defendant executed a deed on behalf of Eco Motive entitled Payment Letter. It recited that the Claimant was to pay Eco Motive £10m. in good faith and in advance of entering into the agreements to establish the joint venture. It provided for the sum to be paid into the account of the Defendant and clause 1.6 was in the same terms as clause 1.6 of the earlier Payment Letter.

There is no dispute that the sums referred to in the two Payment Letters were paid to the Defendant. There is also no dispute that the requisite agreements were never finalised. It is clear that by June 2015, if not before, the Claimant wanted the £50m. returned.

The Claimant has not commenced proceedings against Eco Motive for the return of the money. It fears that Eco Motive is not able to repay the money and has no assets. Rather, it has commenced proceedings against the Defendant, alleging a claim in restitution.

The basis of the claim was explained by Mr. Kitchener QC on behalf of the Claimant. The Claimant made the payment of £50m. as a deposit. It was not obliged to do so and when it was apparent that the parties could not reach a final and binding agreement the Claimant was entitled to its money back. The position was analogous to the facts of Chillingworth v Esche [1924] 1 Ch. 97 where, in the absence of a binding contract to purchase land, a deposit was paid. In the event the negotiations failed and it was held by the Court of Appeal that the intended purchaser was entitled to his deposit back. Warrington LJ said at p.112:

“The purchaser has not bound himself, but in order to show a definite intention he is willing to part with money, and run the risk of the vendor spending the money and being unable to return it if negotiations are broken off. The purchasers contend that this is a deposit paid in anticipation of a final contract and nothing more. That seems to me to be the true view. ”

Mr. Kitchener said that the Claimant’s entitlement to the money back is made clear by clause 1.6 of the Payments Letters. The money can only be retained by Eco Motive if the requisite agreements were made. Since the money was in fact paid to the Defendant, albeit as agent for Eco Motive, Mr. Kitchener says that in circumstances where the basis of the payment has failed the Defendant has been unjustly enriched and is liable to repay the money in restitution.

Mr. Flynn QC, on behalf of the Defendant, has raised a number of defences to this claim. The question, on the Claimant’s application for summary judgment, is whether any of them has a real prospect of success.

It became clear during Mr. Flynn’s oral submissions that his “fundamental” defence to the claim was that in circumstances where the Claimant had chosen to deal with Eco Motive the Claimant could only have a claim against Eco Motive and could have no claim against the Defendant. This proposition was based upon the decision of the Court of Appeal in MacDonald Dickens & Macklin v Costello [2012] QB 244.

In that case a firm of builders entered into a contract with a company owned by Mr. and Mrs. Costello for the construction of houses on land owned by the Costellos. The builders’ invoices were not paid and so proceedings were issued against both the company and the Costellos. The claim against the Costellos was in restitution for unjust enrichment. The Court of Appeal held that, notwithstanding that the Costellos had been enriched by the work done on their land, the claim in restitution failed. Etherton LJ said, at paragraph 23:

“……the unjust enrichment claim against Mr. and Mrs. Costello must fail because it would undermine the contractual arrangements between the parties, that is to say, the contract between the claimants and Oakwood and the absence of any contract between the claimants and Mr. and Mrs. Costello. The general rule should be to uphold contractual arrangements by which parties have defined and allocated and, to that extent, restricted their mutual obligations, and, in so doing, have similarly allocated and circumscribed the consequences of non-performance. That general rule reflects a sound legal policy which acknowledges the parties’ autonomy, and so limits disputes and litigation.”

There are, it seems to me, some difficulties with the application of that general principle to the facts of this case. First, the Claimant has not contracted with Eco Motive save to the extent of the non-solicitation, confidentiality, governing law and arbitration provisions of the Term Sheet and Supplemental Agreement. It was not suggested that they were of relevance in this context. Second, because of the absence of a relevant contract, it cannot be said that the Claimant has restricted the mutual obligations of the parties or circumscribed the consequences of the parties’ failure to make the agreements required by clause 13 of the Term Sheet.

Mr. Flynn submitted that the Payment Letters were of contractual force between the Claimant and Eco Motive and that clause 1.6 of those letters restricted and circumscribed the Claimant’s right to repayment of the £50m. to a contractual claim for repayment from Eco Motive. However, the Payment Letters did not evidence a contract. They evidenced obligations of Eco Motive which were binding on it because they were in the form of a deed. Clause 1.6 recognised that Eco Motive could only retain the money if the requisite agreements were executed but clause 1.6 did not give the Claimant a contractual right to the return of the money. Its right to the return of the money from Eco Motive was a right in restitution in circumstances where the basis of the payment, namely, the anticipated execution of the requisite agreements, had failed. Mr. Flynn then said that if the Payment Letters and clause 1.6 in particular were not contractual the principle in Costello nevertheless applied. But that principle depends upon a claimant having restricted or circumscribed his rights of recovery; and the Claimant has not done so.

Mr. Flynn’s submission raises a question of law. Such questions can be determined in a summary judgment if they do not require prolonged argument. The argument on this point was not prolonged. The short question is whether the principle established in Costello applies to the rather different facts of the present case. I am satisfied that it does not and therefore that the Defendant has no real prospect of this first defence succeeding.

Mr. Flynn’s next defence is a factual defence. It is said that as a result of the dealings between the parties after the Term Sheet was signed, during which Eco Motive provided or arranged for the provision to the Claimant of confidential technology, training in that technology and work on the pilot project, the parties must have formed a binding agreement. It is said that the high level of co-operation between the parties (the services provided by Eco Motive and the payment of £50m. by the Claimant) is explicable only by the existence of an agreement. The terms of that agreement by conduct were the substantive obligations in the Term Sheet.

Evidence in support of the submission that services were provided was given by and on behalf of the Defendant. That evidence was disputed by evidence adduced on behalf of the Claimant. Precisely what was done in this regard cannot be determined on this application. However, the evidence in support of the submission that the parties must have formed a legal agreement is thin. The Defendant at paragraph 105.2 asked a rhetorical question and then answered it.

“So why would Marsfield….transfer a total of £50 million without getting anything in return ? Moreover, why would Marsfield ….transfer a total of £50 million without what it considered to be appropriate agreements in place ? The reason is that the transfers were intended, Marsfield were getting something in return immediately, being access to the technology, training and undertaking the pilot project and Marsfield did consider there to be appropriate agreements in place.”

The suggested answer is not at all obvious to me in circumstances where the Claimant had expressly agreed that the Term Sheet was not legally binding. Had the Claimant desired the protection of a binding contract for the provision of technology etc. by Eco Motive before paying £50m. the obvious precaution was not to pay any money until a binding agreement was in place. But the Claimant expressly chose not to do that. Moreover, I was not referred to a single document in the form of an email from Eco Motive or the Defendant pointing out that, notwithstanding the agreement that the Term Sheet was not binding and notwithstanding Eco Motive’s recognition in the Payment Letters that the £50m. could not be retained if the requisite agreements were not executed, Eco Motive must be regarded as providing services in return for the payment of £50m. If matters were as obvious as is suggested I would have expected to see such an email.

I therefore consider that it is most improbable that the suggested contract by conduct will be established. However, this is a factual matter. Whether a contract can be implied from the conduct of the parties depends upon a close examination of what was done. There is evidence of what was done from the Defendant and three other witnesses on his behalf which is opposed by two witnesses on behalf of the Claimant. Many factual issues will have to be resolved; see pages 21-56 of Schedule 2 to Mr. Flynn’s skeleton argument. I have noted Mr. Kitchener’s points that it appears to be accepted by the Defendant that Eco Motive did not provide a prototype and that far from saying that confidential information had been handed over there were complaints that confidential information had been misused. No licence was provided. But, notwithstanding Mr. Kichener’s many criticisms of the Defendant’s evidence in his skeleton argument and the points which I have made in the previous paragraph, I find myself unable to say that there is no real prospect of the Defendant establishing at trial that there was a contract by conduct. To say that the prospects were fanciful would require the sort of “mini-trial” which is inappropriate on a summary judgment application. It is accepted by Mr. Kitchener that if this is my conclusion then summary judgment cannot be given. In that event he asked for a conditional order. I will deal with that at the end of this judgment.

The next defence put forward by Mr. Flynn was that in circumstances where some benefit had been conferred on the Claimant (as evidenced by the witness statements to which I have just referred) the Claimant is unable to establish a total failure of consideration or basis. Mr. Flynn submitted that the payment of £50m. was for the licence, the technology and the pilot project implementation as set out in the Term Sheet. Some part of this had been provided.

I was referred to authority on the question whether, for the purposes of this argument, the benefit had to be a contractual benefit or whether any benefit was sufficient. Mr. Flynn relied upon Benedetti v Sawiris [2014] AC 938 at paragraph 86 and Mr. Kitchener relied upon Stocznia Gdanska v Latvian Shipping [1998] 574 at p.588 C-E. Mr. Flynn also relied upon The Law of Restitution by Andrew Burrows 3^rd.ed at p.319. and Chitty on Contracts 32^nd.ed at paragraph 29-057. I accept that, for the purposes of this application, it is strongly arguable that the benefit need only be that which the claimant was reasonably entitled to expect and that it does not matter whether the contract is merely anticipated, rather than actual. What matters is whether, as Professor Burrows puts it, the basis for the claimant’s conferral of benefit has been undermined.

In the present case Mr. Kitchener submitted that the Claimant paid £50m. as a deposit to show a real intention to reach a binding agreement with Eco Motive. The basis upon which the payment was made was that the parties would execute the requisite agreements. That never happened and so there was a failure of basis; the basis upon which the payment was made was undermined. The fact that other benefits were provided is not relevant because they were not the basis upon which the payment was made; see Chitty at paragraph 29-060. This appears to me to be a cogent argument. The question is whether the Defendant has a real prospect of establishing at trial that the sum of £50m. was paid on the basis that there would be provided benefits of the kind that the Defendant and his other witnesses have said were provided. It seems to me that this will require an examination of the parties’ expectations at the time of agreeing the Term Sheet. The Defendant has said in his witness statement that at that time the parties had a common understanding that the work described in the Term Sheet would be undertaken almost immediately. This does not appear to be challenged. He then described the work which was done, which evidence is challenged. In the light of this evidence I am unable to say that there is no real prospect that it will be established at trial that the sum of £50m. was paid in the expectation that, or on the basis that, Eco Motive would provide benefits in return. I think it is improbable that this will be established because otherwise one would have expected the Defendant to have said at the time he signed the Payment Letters on behalf of Eco Motive that in fact the Claimant would be receiving the benefit of the technology etc. in return for the payment. But I cannot say that there is no real prospect of this being established. This is a further reason for refusing summary judgment; but again the question arises whether a conditional order should be made.

Mr. Flynn’s next argument is that the remedy of restitution is only available if the claimant can give counter-restitution of the benefits conferred upon the defendant. In the present case it is not possible for the Claimant to do that because the monetary value of the benefits conferred by Eco Motive cannot be quantified.

Mr. Kitchener’s response to this argument was that any such benefit was not provided in return for the payment of £50m. and therefore does not have to be the subject of counter-restitution. This mirrors the debate on the last point and my conclusion is the same. The Defendant is unlikely to succeed on this argument at trial but there is a real prospect, arising out of his evidence and that of his other witnesses, that he will succeed.

The final argument advanced by Mr. Flynn was that a person who received money in his capacity as an agent is not liable in restitution because in law the payment is regarded as having been made to his principal. This has been described as the defence of “ministerial receipt”. Mr. Flynn said this defence applied because the Defendant received the £50m. on behalf of Eco Motive. Mr. Kitchener submitted that the agent only has a defence in respect of monies paid out by the agent before he has notice that his principal no longer has any right to retain the money.

The Defendant has said in his witness statement that he has paid out some £38,424,000 and CHF 9,648,501 in accordance with the instructions of Eco Motive. He has provided a schedule of those payments with the dates on which they were made. I am told that he has been asked for the underlying accounting evidence supporting this schedule but has supplied none. For this reason the Claimant does not accept that these payments have been made. However, it is unlikely that the schedule has been fabricated (for if it has been fabricated the Defendant may face serious difficulty at trial in persuading a court to accept his evidence on other matters) and so there must be real prospect that this schedule of payments will be proved at trial.

On 19 June 2015 the Claimant made a demand for the return of £50m. Although the demand letter does not articulate a claim in restitution against the Defendant there can be no real prospect of the Defendant establishing at trial that by this date he was unaware that Eco Motive was no longer entitled, on the Claimant’s case, to retain the money. Before this date the Defendant had paid out £16,377,000 on the instructions of Eco Motive. (That is the figure appearing in Mr. Flynn’s schedule which I assume to be correct. If it is wrong the parties will no doubt tell me.) Mr. Kitchener accepted that the Claimant cannot obtain summary judgment in respect of sums paid by the Defendant on the instructions of Eco Motive before the Defendant was aware that Eco Motive was no longer entitled to retain the money.

Thus it is necessary to consider whether a claim in restitution against a person who has received a sum of money as agent is unavailable, because of the defence of ministerial receipt, or whether such a claim can succeed but only in respect of money still retained by the agent once he knows that his principal is no longer entitled to the money.

Mr. Flynn relied upon the discussion in Professor Burrows’ Restatement of the English Law of Unjust Enrichment p.124-125. Professor Burrows says that it is very difficult to state the law. The cases support two versions of the law. The first version (“the strong version”) is that only the principal can be sued because it is the principal who is enriched, the agent holding the money for him. The agent is not enriched because although he has received the money he is obliged to account for it to his principal. The other version (“the weak version”) is that the agent has a defence provided that he has transferred the money in accordance with the instructions of his principal before he has notice of the claimant’s right to restitution. This version of the defence is said to be the one favoured by the cases. Mr. Kitchener submitted that I was bound as a matter of authority by this version of the agent’s defence. He provided me with a list of 11 cases supporting this submission, beginning with Buller v Harrison (1777) 98 ER 1243 and ending with Jones v Churcher [2009] EWHC 722. Included in the list were cases in the House of Lords and in the Court of Appeal. After the hearing Mr. Flynn supplied me with a response setting out why he said there was no decision which was binding on me. Mr. Kitchener then provided a further note explaining why four cases (two in the House of Lords and two in the Court of Appeal) were binding authorities in favour of his submission. They were Kleinwort v Dunlop Rubber (1907) 97 LT 263, British American Continental Bank v British Bank for Foreign Trade [1926] 1 KB 328, Gowers v Lloyds and National Provincial Foreign Bank [1938] 1 AER 766 and Rahimtoola v Nizam of Hyderabad [1957] Ch 185 and [1958] AC 379.

It is to be noted that in all or most of the cases relied upon by Mr. Kitchener money was paid to an agent under a mistake of fact. In the present case there was no mistake of fact. This might be an important distinction. I see from Mr. Kitchener’s note that in Rahimtoola v Nizam of Hyderabad [1957] Ch 185 counsel relied upon a passage from Halsbury which said:

“The receipt of money from a third person by an agent on his principal’s behalf does not in itself render the agent personally liable to repay it when the third person becomes entitled as against the principal to repayment, whether the money remains in the agent’s hands or not. But if a third person pays money to an agent under a mistake of fact, or in consequence of some wrongful act, the agent is personally liable to repay it unless, before the claim for repayment was made upon him, he has paid it to the principal or done something equivalent to payment to his principal.”

It seems to me that the first part of that statement of the law is consistent with Professor Burrows’ “strong version” of the law and the defence of ministerial receipt urged upon me by Mr. Flynn. That version of the law is also preferred by Goff and Jones, The Law of Unjust Enrichment 9^th.ed at paragraphs 28-01 to 28-06 and gains support from the approach of Sales J. in Jeremy D Stone Consultants Ltd. v National Westminster Bank [2013] EWHC 208 (Ch) at paragraphs 240-243. The passage in Halsbury remains unaltered; see the 5^th.ed. vol.1 (Agency) at paragraph 162. The second part of the statement of the law in Halsbury reflects the submission urged upon by me Mr. Kitchener and the authorities to which he has referred. But the proposition assumes that money has been paid to an agent under a mistake of fact or in consequence of some wrongful act. That is not alleged in the present case.

In The High Commissioner for Pakistan in the United Kingdom and The 8^th Nizam of Hyderabad and others [2016] EWHC 1465 (Ch) at paragraphs 140-150 Henderson J. noted that both arguments were supported by authority. He was concerned with whether the argument advanced in this case by Mr. Kitchener had a real prospect of success. He held that it did. I am concerned with whether the argument advanced in this case by Mr. Flynn has a real prospect of success. It has both judicial and academic support. It is supported by the approach of Sales J. in Jeremy D Stone Consultants Ltd. v National Westminster Bank. Goff and Jones supports it and Professor Burrows describes the argument as “powerful”. The argument is reflected in the current and past editions of Halsbury. The statements of law in the cases to which Mr. Kitchener has referred and which are said to be binding on this court assume receipt by the agent under a mistake of fact or in consequence of some wrongful act. Those are the not the facts of the present case and so it appears to me strongly arguable that those cases can be distinguished. The mistake of fact or wrongful act arguably provides the basis of the claim for repayment of the money by the agent. He is given a defence to the extent that he pays over the money before he has knowledge that the principal is no longer entitled to it. Where there is no mistake of fact or wrongful act it appears to me to be arguable with a degree of conviction that the claim for repayment lies against the principal and not the agent.

The issue is clearly capable of prolonged argument and is not suitable for determination on a summary basis. Moreover, it appears to me desirable that if and when a court has to decide the issue it does so when all the surrounding facts and circumstances of the case have been found after trial. That is particularly desirable when the claim arises out of a developing area of the law such as restitution. This defence is therefore a further reason for refusing summary judgment.

It may be thought that in circumstances where the Defendant, albeit an agent of Eco Motive, is its sole director and shareholder the defence of ministerial receipt is unattractive. Such difficulties as that circumstance might pose for the defence have not been canvassed and will no doubt lead to further debate. The circumstance that the Defendant is the sole director and principal shareholder of Eco Motive does not enable me to say that it is improbable that the defence will succeed.

I have held that the Defendant has a real prospect of success in defending the claim on the basis of his “contract by conduct” defence, his “no total failure of consideration or basis” defence, his “counter–restitution” defence and his defence of “ministerial receipt”. It is, however, improbable that the first three defences will succeed and so the question arises whether a conditional order should be made, that is, an order that judgment be entered if the defendant does not pay a sum of money into court; see Kazeminy v Siddiqi [2009] EWHC 3207 (Comm). However, since I cannot say that it is improbable that the Defendant’s fourth defence of ministerial receipt will succeed it appears to me that it would not be right to make a conditional order. I therefore dismiss the application for summary judgment.