Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
MR JUSTICE WARBY
Between:
STARTWELL LIMITED | Claimant/ Respondent |
- and - | |
(1) ENERGIE GLOBAL BRAND MANAGEMENT LIMITED (2) ENERGIE GLOBAL LIMITED | Defendants/ Appellants |
Gabriel Buttimore (instructed by Teacher Stern LLP) for the Claimant/Respondent
David Lewis (instructed by Owen White) for the Defendants/Appellants
Hearing date: 13 February 2015
Judgment
Mr Justice Warby:
INTRODUCTION
This is a franchise dispute in which the claimant franchisee claims sums in excess of €2 million against the two defendants. The claims against the first defendant are for damages for misrepresentation under the Misrepresentation Act 1967, damages for breach of contract, and restitution. These claims arise from and in connection with two International Master Franchise Agreements (“IMFAs”) entered into in November 2006. The claims against the second defendant are for damages for breach of three Master Licence Agreements (“MLAs”) entered into in May 2010.
The claim form was issued on 1 August 2013. The Defence served on 30 September 2013 admitted a claim for unpaid fees, which have now been paid, but denied all other claims. A defence of limitation was pleaded in answer to a majority of the claims against the first defendant. On 14 November 2013 the defendants issued an application seeking summary judgement for the first defendant or the striking out of the claims against it, and security for the costs of both defendants. The hearing of those applications has been much delayed due to other developments, most notably an attempt by the claimant to amend to add a claim in deceit.
On 20 November 2013 the claimant served draft Amended Particulars of Claim seeking to add such a claim. An application notice for permission to do so was issued on 16 January 2014. The application was heard on 8 May 2014 by Deputy Master Nussey, who gave a draft judgment granting permission on 29 May 2014. Due to illness of the Deputy Master the order formally granting permission was made on 6 October 2014, by Master Kay QC. In the meantime, in June 2014 the defendants served a draft Amended Defence which, among other things, sought to withdraw an admission previously made by the first defendant, that the IMFA had been executed as a deed. In July 2014 the claimant served a Reply seeking to meet the limitation points taken by the defendants.
In January 2015 the claimant served draft Amended Particulars of Claim, and on 3 February 2015 a draft Amended Reply taking fresh points on limitation. The statements of case before me are, in consequence, all in draft amended form.
ISSUES
The following matters are before the court:
The first defendant’s appeal against the order of 6 October 2014 granting permission to amend the Particulars of Claim, and the consequential costs orders. Permission to appeal was granted by Master Kay QC without opposition. The claimant concedes that the appeal should be allowed and the Master’s order reversed. The claimant also accepts that the costs orders should be reversed. There is a dispute over the interim payment on account of costs which is claimed by the first defendant.
The first defendant’s application dated 29 January 2015 to withdraw an admission. The claimant consents to this application, subject to the court’s approval.
The first defendant’s summary judgment and strike-out application, issued 15 months ago in November 2013. This is resisted in its entirety by the claimant. The future shape of the statements of case will depend on the outcome of this application, as well as those at (i) and (ii) above.
The defendants’ application for security for costs. This also is resisted. If any order is appropriate its nature depends on, among other things, the outcome of the summary judgment application.
At a hearing on 13 February 2015 I allowed the appeal, gave permission to withdraw the admission, granted the application for summary judgment, and announced that I would make an order for security for costs. I held that security should be provided in stages. This judgment gives the reasons for those decisions, and sets out my conclusions on the quantum of the security that should be given.
FACTUAL BACKGROUND
The claimant is an Irish company formerly named Highland Estates (Dun Laoghaire) Limited, then Energie Fitness Clubs Ireland Limited, and now named Startwell Limited. The first defendant is an English company, formerly named Energie Fitness Clubs Limited. The first defendant was the owner of the franchise for the Energie Fitness Clubs business and operated three brands (i) Energie Fitness Clubs, (ii) Energie Fitness for Women, (iii) Fit4less. The premier brand was Energie Fitness Clubs. The second defendant is an English company 100% beneficially owned by the first defendant. It was the owner and/or licence holder of the method and system under which the Energie Fitness Clubs business model was operated when the MLAs were entered into in May 2010.
In and between May and November 2006 contractual discussions took place between the claimant and the first defendant with a view to the claimant taking a master franchise for one or more Energie brands within Ireland. During the same period, the claimant alleges, significant due diligence was undertaken by it on the first defendant.
During this period, on 14 June 2006, the first defendant entered into a franchise purchase agreement (“FPA”) with a Mr Alphie Rodgers. On 22 June 2006 Mr Rodgers and the first defendant entered into a side letter (“the Rodgers Side Letter”) granting Mr Rodgers exclusive rights to set up an Energie Fitness Club franchise in a territory extending from "a minimum of a one-hour drive time" from Ennis, Ireland. It is common ground that this curious wording is to be treated as meaning a maximum, or radius, of a one hour drive from Ennis. The claimant was aware of the FPA, but maintains that it was unaware of the Rodgers Side Letter and the extent of the territory granted to Mr Rodgers.
In November 2006 the claimant and the first defendant entered into an IMFA (“the EFW IMFA”) relating to the Energie Fitness for Women brand, and covering the territory of the Republic of Ireland. It was dated and came into effect on 1 November 2006. At the same time the parties signed three documents intended to give effect to a second franchise agreement, relating to the Energie Fitness Clubs brand, and to the whole of the island of Ireland. One of these documents was an IMFA (“the IMFA”). A second document was a side letter which amended the IMFA in certain respects (“the IMFA Side Letter”). Sean Ormonde, Mike Ormonde, and John Hannaford were also parties to the IMFA Side Letter. The third document was an option agreement, by which the claimant had the option to bring the Energie Fitness Clubs IMFA into force (“the Option Agreement”).
The option period was 12 months. However, a shorter period could be triggered if the first defendant gave notice that it had entered into a sub-franchise agreement, and received the relevant fee from the sub-franchisee. In that case, the claimant was to have 30 days in which to exercise the option. It is common ground that the effect of these arrangements was that the IMFA, though executed, was to be held in abeyance until the claimant exercised its option to commence performance.
On 26 January 2007 the first defendant entered into a sub-franchise agreement with a Mr Johnny Heywood, based in Belfast. On 1 February 2007 Jan Spaticchia on behalf of the first defendant emailed the claimant with a letter of the same date stating that the first defendant had entered into such a franchise agreement, and that this triggered the 30 day period under the Option Agreement, which it was said would lapse on 25 February 2007. Appended to the letter was an “Irish Master Completion Statement” which referred to a “Franchise fee of £30,000 received by” the first defendant. In early to mid-February 2007 (the precise date is unclear, and does not matter for present purposes) the claimant exercised the option and began performance of the IMFA.
The fee of £30,000 referred to was the fee payable by Mr Heywood, which was to be and was in fact credited to the first defendant’s account with the claimant. However, by a side letter with Mr Heywood dated 26 January 2007 (“the Heywood side letter”), the first defendant had agreed to accept a down payment of £10,000 from Mr Heywood, with the balance to follow. It is said by the first defendant that this was because Mr Heywood was awaiting receipt by him of a redundancy payment he was due from the Army.
The claimant alleges that it did not become aware that the full £30,000 had not been paid by Mr Heywood until September 2007. In an e-mail of 26 September 2007 to Sean Ormonde and John Hannaford, Jan Spaticchia of the first defendant referred to having been offended by “the suggestion that we had acted in anything but good faith in the completion of the franchise purchase agreement with Johnny Heywood and the subsequent triggering of the option…” Mr Spaticchia attached to his email a copy of the agreement with Mr Heywood and the side letter. He asserted that “we netted off the whole £30k of the completion statement for the option trigger therefore meaning that we took the risk on the £20k not you.” He denied the suggestion that had evidently been made, that Mr Heywood was an inappropriate franchisee. No claim was then made by the claimant, nor were steps taken to pursue this complaint further at that time, it appears.
The claimant contends that it first discovered the extent of the territory that had been granted to Mr Rodgers in 2008, when it sought to open a club in Galway and Mr Rodgers objected on the basis of the rights he had been granted by the first defendant. No claim was advanced at that time. According to the claimant, it sought to mitigate its loss by means of a new arrangement with the first defendant and Mr Rodgers, by which Mr Rodgers became a director of the claimant, invested €50,000, and waived all claims over the territory.
Both the IMFAs were terminated by agreement in May 2010. The claimant entered into three Master Licence Agreements dated 24 May 2010 (“MLA”s) with the second defendant. The then current directors of the claimant, Sean Ormonde, Michael Ormonde, John Hannaford, and Alphie Rogers were parties, as guarantors. By clause 27 of the MLAs the claimant and guarantors warranted that the Owners of the claimant were as set out in a Schedule to the MLAs, and to ensure that there were no changes to the Owners or to the rights of any of these (including any changes in shareholding) without the second defendant’s prior written consent.
Changes to the directors and shareholders of the claimant did take place thereafter, and it is alleged by the second defendant that this occurred without its consent. On 31 May 2013 the second defendant gave notice of termination of the MLAs, in reliance on the rights under cl 27. On 1 August 2013 the claim form in this action was issued.
THE ACTION
The Particulars of Claim, as originally framed, allege that the first defendant’s letter of 1 February 2007 and the attached completion statement contained three representations on behalf of the first defendant: (a) that by the time of completion on 26 January 2007, a franchise fee had been received from Mr Heywood in the sum of £30,000; (b) that the relevant franchise fee for Mr Heywood's territory had been received by the first defendant, and the conditions in clause 3.1 of the option agreement had been met; and (c) that the option period would accordingly expire on 25 February 2007.
It is alleged that these representations (“the Option Notice representations”) were made with the intention of inducing the claimant to exercise the option, and that the claimant exercised the option in reliance upon them. Paragraph 20 of the Particulars of Claim pleads that “the representations negligently made on behalf of the First Defendant” in the 1 February 2007 letter and Completion Statement were false, because the first defendant had not received the £30,000 and the 30 day option period had not, therefore, been triggered. Paragraph 24 alleges that “As a result of the misrepresentations negligently made by the first defendant the claimant was induced to enter into the IMFA…”
The claimant further alleges that the first defendant failed to inform it of the extent of the territory granted to Mr Rodgers by the Rodgers Side Letter and that this amounted in context to an implied misrepresentation that there were no other franchisees operating in the territory covered by the IMFAs. In support of that contention it is alleged that it was the first defendant’s practice to grant far more limited territories, and that this is what the claimant expected. It is alleged that the claimant would not have entered into the IMFAs or exercised the option if it had known of the existence of the Rodgers Side Letter.
It is clear, and common ground, that the misrepresentation claims advanced in the Particulars of Claim are claims made pursuant to the Misrepresentation Act 1967. The short title of the 1967 Act explains its purpose: “to amend the law relating to innocent misrepresentations”. “Innocent” representations for this purpose are those made otherwise than fraudulently.
The primary claim for damages which is advanced in reliance on these causes of action is for damages in the form of wasted expenditure of £180,000, by way of the franchise fee for the IMFA, and €579,000, said to have been incurred in establishing and running clubs. The alternative claim is for lost profit of €515,000. The claimant’s complaints about non-disclosure of the Heywood and Rodgers side letters are also pleaded as involving breaches of duties of express or implied terms of the IMFA and Option Agreement requiring good faith and disclosure. Other additional contractual claims are advanced against the first defendant, which include failures to perform "initial obligations", including providing a business plan, and training and support. The damages claimed in this regard are a minimum of £392,420. Further, the claimant claims against the first defendant some £15,000 as money paid under a mistake of fact and/or law.
Against the second defendant the claimant claims damages for failures of a nature similar to those complained of against the first defendant, namely failures to provide training, support, guidance and consultation; for breaches of its exclusive territory rights under the MLAs; and for wrongful termination. Unspecified but evidently substantial sums are claimed by way of damages for the alleged breaches during the term of the MLAs. The claim for wrongful termination gives rise to a claim for loss of profit over the remaining term of the MLAs which is estimated at €1.4 million. A small claim is made for failures to pay fees (failures which have been, as mentioned above, admitted and remedied by the second defendant).
The Defence denied the allegations of negligence, as well as other elements of the claims, and pleaded limitation as a defence to the misrepresentation claims and the claims for breaches of contract occurring before 1 August 2007. The claimant’s application for permission to amend followed, as I have noted. The application notice gave this explanation of why the application was being made: “Further information has come to light since the claim was issued that allows the claimant to plead fraudulent misrepresentation as well as negligent misrepresentation against the defendants.”
The second witness statement of Mr Philpot of the claimant’s solicitors, made in support of the application also contained assertions that information had “come to light” which “illustrated” that the representations were made knowingly, or without belief in their truth, or recklessly as to the truth. This new approach was reflected in a proposed amendment to paragraph 24 which, after the reference to misrepresentations “negligently made”, sought to add this: “Further, the Claimant avers that the Option Notice representations were made fraudulently …” It was then alleged that Mr Spitacchia had known they were untrue, or made them recklessly.
The initial skeleton argument for the amendment application filed on behalf of the claimant by Counsel then instructed submitted that “the proposed amendments at paragraphs 24(b) and (c) go further by categorising the Option Notice Representations as fraudulent”. It said, however, that whilst the amendments “cloak the existing allegations in fraud [they] do not add or substitute a new cause of action” or, if they did, they arose from the same or substantially the same facts as the existing claim. Before the hearing took place Mr Buttimore, who now appears for the claimant, was instructed in place of previous Counsel. He filed a supplemental skeleton argument in which it was “accepted that now raising fraudulent misrepresentation gives rise to a new claim, namely one in deceit”, but submitted that it arose out of the same or substantially the same facts. The Master rejected these submissions.
THE APPEAL
As already noted, this is not opposed but conceded. However, an appeal court will not normally allow an appeal unless satisfied that the decision of the lower court was wrong: PD52A 6.4. The appeal turns on a short point of limitation law, in relation to which I consider the Master clearly fell into error. I am therefore satisfied that the appeal should be allowed. I should explain why.
The proposed claim in deceit relates to representations allegedly made on 1 February 2007, and relied on by the claimant shortly thereafter. That is more than 6 years before the issue of the claim form. There is no dispute that the relevant primary limitation period is 6 years. By s 32(1)(a) of the Limitation Act 1980, however, it is provided that the limitation period for a claim based on the fraud of the defendant does not begin to run until the claimant has discovered the fraud or could with reasonable diligence have done so. (Section 32 is set out in this judgment below). If the claimant is right to say that it did not discover the fraud until shortly before Mr Spaticchia’s email of 26 September 2007, the 6 year limitation period did not start to run until then, and continued to run until 25 September 2013. That was after the issue of the claim form. However, it was nearly 2 months before an intention to make a claim in deceit was first intimated, 4 months before the application to amend was issued, 8 months before it was heard and over a year before the order granting permission.
By s 35(1) of the Limitation Act a “new claim” made by amendment is deemed to have been commenced on the same date as the original action – the doctrine of “relation back”. Consequently, if the claim in deceit amounts to a “new claim” the grant of permission to amend would have the effect of defeating a limitation defence that would have been available to the defendant if the claim had been brought by a separate action when it was first put forward in November 2013, or at any later time. The grant of permission which would achieve that result is controlled by s 35(3) of the Limitation Act 1980 and CPR 17.4(2). These prohibit the court from granting permission to add a “new claim” after the limitation period has expired, unless the new claim arises out of the same or substantially the same facts as a claim in respect of which the applicant has already claimed a remedy in the proceedings. The term “new claim” is defined so as to include one that involves the addition of a cause of action. Section 35 provides for rules of court to be made to govern the grant of permission in cases within its scope. The current rule is CPR 17.4.
Here, the Deputy Master held that the claim in deceit was a “new claim” for the purposes of the Act, and that it did not arise out of the same or substantially the same facts as the existing claims. In my judgment he was plainly right to do so. As he noted at [6], “… Paragon Finance plc v D B Thackerar & Co [1999] 1 All ER 400 confirms the long standing rule that a claim in deceit does not arise out of the same or substantially the same facts as a claim in negligent misrepresentation since the element of intention required in deceit is not an element of negligent misrepresentation.”
The Deputy Master held, however, that the claim in deceit was not statute-barred, because the relevant date for determining whether that was so was the date of issue of the claim form; and since that was within 6 years of the date when the claimant arguably became aware of the fraud for the first time, the amendment should be permitted. That was an error of law. The effect of s 35 of the Limitation Act is that permission to amend cannot be given if the limitation period has expired at the time the court is considering the matter; the new claim is not made until the pleading is actually amended: Welsh Development Agency v Redpath Dorman Long [1994] 1 WLR 1409 (CA), 1419F-G, 1421C-D. The wording of CPR 17.4(1) also makes clear that the relevant question is whether a limitation period has expired at the time the application to amend is made. If so, the grant of permission is prohibited unless the case meets the “same or substantially the same facts” requirement, which is not met here.
Here, on the claimant’s own factual case, the limitation period in respect of the deceit claim had expired well before the application for permission was heard by the Deputy Master. Indeed, it had expired before the claimant first intimated an intention to amend to plead a claim in deceit. For these reasons I allowed the appeal with costs here and below.
The general rule is that I should make a summary assessment: PD44 9.2(b). However, the defendants did not press for a summary assessment and I did not think it appropriate. The complex procedural history of the application and appeal has led to a number of relevant costs schedules, with potential overlap between those schedules, and between the issues they cover and other issues. If the court orders detailed assessment, as I did, it should make an order for a payment on account of those costs “unless there is good reason not to do so”: CPR 44.2(8). I saw no good reason not to and accordingly I ordered the claimant to make an interim payment, in the sum of £20,000. This was less than half the total set out in the statements of costs relied on, which I considered to be on their face excessive.
WITHDRAWAL OF ADMISSIONS
The Particulars of Claim allege that the IMFAs and Option Agreement were executed and delivered as deeds. This was admitted in the Defence served in September 2013. In mid-2014, however, the first defendant changed its position on the issue. Paragraph 10 of its draft Amended Defence struck out the admission, and substituted a denial of that allegation and an averment that the Guarantee and Indemnity provisions of the IMFAs were executed as deeds but the IMFAs as simple contracts. The first defendant now, by an application notice issued on 15 January 2015, seeks permission to withdraw the admission. It is said that it was wrong, and was made by mistake. The claimant consents to the withdrawal of the admission, subject to the court’s approval and costs.
As with an appeal, so with an application to withdraw an admission, the court should not make an order blindly, simply because the parties agree. The court’s power to permit the withdrawal of admissions is governed by PD14 7.2, which provides that the court will have regard to all the circumstances of the case, including eight specific matters which can for present purposes be summarised: (a) the grounds for seeking to withdraw the admission; (b) the conduct of the parties; any prejudice caused by (c) withdrawal of the admission or (d) refusal of the application; (e) the stage in the action at which the application is made; (f) the effect on the prospects of success of the claim in respect of which the admission was made; and (g) the interests of the administration of justice.
There is another and stronger reason to examine this issue closely. The limitation period for a claim on a deed is 12 years: Limitation Act 1980, s 8. If the IMFAs were deeds, therefore, the limitation period in respect of claims for breach has not expired even now. If the IMFAs are simple contracts then, as Mr Buttimore accepts, the claimant has no answer to the defendants’ pleaded case that claims for breaches prior to 1 August 2007 are statute-barred. There would remain an issue as to whether some of the breaches alleged are continuing, so that claims in respect of them would survive. I have not heard argument on that issue as yet.
The first defendant’s case now is that not only were the IMFAs not deeds, there is no real prospect that a court would conclude that they were, and it should have summary judgment on that issue. It is convenient to examine that issue at this point in this judgment. I do so by reference to the summary judgment principles which I summarise below, considering whether the claimant has a real prospect of success on the issue or there is “some other compelling reason” for a trial in respect of it.
Mr Buttimore has submitted that the claimant does have a real prospect of success; or alternatively that there is another compelling reason for a trial because there are oddities about the documents, and the first defendant’s case ought not to be accepted before disclosure, especially when the honesty of those in charge of the first defendant’s business has been impugned.
A third statement of Mr Anderson was made on behalf of the first defendant on 30 January 2015 in support of the application to withdraw the admission, and the summary judgment application. The statement refers to “the IMFA documents”, plural, and describes their format in some detail. Mr Anderson gives references to a copy of the EFW IMFA which was exhibited to his first statement, made in November 2013. However, what he says appears on its face to relate to both IMFAs. I am therefore unimpressed by Mr Buttimore’s argument that the claimant’s evidence is deficient, because the other IMFA is not exhibited. This was an especially unattractive argument when it emerged that – as one would expect - the claimant had a copy of that IMFA, and had enclosed it with the letter of claim. A copy of the first defendant’s copy of the IMFA which was produced at the hearing in response to Mr Buttimore’s argument confirmed that it is substantially identical to the EFW IMFA in the material respects. This was in my judgment sufficiently stated on the face of the evidence anyway.
Mr Anderson’s third statement points out, and it is clear, that the form of the IMFAs is unusual. I shall describe the EFW IMFA and then note the small differences between it and the IMFA. As is common, there is a form of agreement followed by a number of Schedules. The main agreement begins, at what is stated to be page 1 of 76, thus: “This Master Franchise Agreement is made on 3 November 2006”. One would normally expect the execution clause and signatures to appear at the end of the agreement, and before the Schedules. At the end of the main agreement, on page 55 of 76, there do appear the words “As witness the hands of the parties hereto the day and year first before written”. However, there are no signatures there, or on the next page. On the next page, page 56 of 76, the Schedules begin.
On the pages numbered 56 of 76 to 58 of 76 appear “The First Schedule – Guarantee and Indemnity”. By it, Sean and Mike Ormonde and John Hannaford, defined collectively as the “Principal”, agree with the first defendant as Master Franchisor to guarantee the claimant’s performance of the IMFA and to indemnify the first defendant against losses incurred by reason of any breach by the claimant of the IMFA. The Schedule begins: “This Deed is made the 3rd day of November 2006”. The recitals state that “this agreement is supplemental to [the EFW IMFA]”. The Schedule concludes, “In witness whereof the parties have duly executed this Deed the day and year first above written”.
Below this appear signatures of or on behalf of the Master Franchisor and the individuals defined as Principal, each opposite the words “Executed as a deed by”. Below the claimant company’s name appear these words: “acting by two directors or a director and the Secretary”. There are two signatures, which are witnessed, and the signature, name, address and occupation of the witness appear. The Second Schedule is entitled “Confidentiality Undertaking” and the document also provides for it to be “executed as a deed”, though copy in the hearing papers has no signatures. This is plainly because this is a template for deeds to be executed by employees of the claimant.
There then follow the Third, Fourth and Fifth schedules, which end at page 73 of 76. None of these is stated to be a deed, nor does any of them contain any provision for a signature, or any signature. There is no page 74 or 75. At the very end of the document there come two pages with an execution clause and signatures, witnessed. These are numbered 1 of 76 and 2 of 76. The signatures are witnessed in the same way as the First Schedule, but the names and signatures of the individuals signing each appear opposite the words “Signed for and on behalf of” or “”Signed by”. The signatures are for the Master Franchisor, the Sub-Franchisor and the Principal, that is to say the parties to the IMFA. The word Deed does not appear.
The Energie Fitness Clubs IMFA follows the same form as described above, except that (i) the pages are numbered “X of 75”, not 76; (ii) after the Fifth Schedule there is a table numbered 1 of 75, setting out services to be provided, which is absent from the EFW IMFA, and (iii) the signature pages are numbered 1 and 2 of 75.
The question whether an instrument is a deed is governed by section 1 of the Law of Property (Miscellaneous Provisions) Act 1989, as amended by the Regulatory Reform (Execution of Deeds and Documents) Order 2005/1906 art 7(3) (15 Sept 2005) (“the 1989 Act”). Section 1 of the 1989 Act provides, so far as relevant:
“(2) An instrument shall not be a deed unless—
(a) it makes it clear on its face that it is intended to be a deed by the person making it or, as the case may be, by the parties to it (whether by describing itself as a deed or expressing itself to be executed or signed as a deed or otherwise); and
(b) it is validly executed as a deed [—]
(i) by that person or a person authorised to execute it in the name or on behalf of that person, or
(ii) by one or more of those parties or a person authorised to execute it in the name or on behalf of one or more of those parties.
…
(3) An instrument is validly executed as a deed by an individual if, and only if—
(a) it is signed—
(i) by him in the presence of a witness who attests the signature; or
(ii) at his direction and in his presence and the presence of two witnesses who each attest the signature; and
(b) it is delivered as a deed [...].”
Mr Buttimore refers to the statement of truth on the Particulars of Claim, verifying the claimant’s belief in the allegation that the IMFAs and Option Agreement were deeds. Although I have not been shown the statement of truth I accept there is one. Mr Buttimore relies also on the witness statement of his instructing solicitor Mr Philpot, made in response to that of Mr Anderson. That statement contains the following: “The claimant’s position remains as stated in the Amended Particulars of Claim, that the IMFA was executed as a deed (at the same time as the other documents) and that this took place in the office of Mr Sean Ormonde’s solicitor, Ken Cunningham. Mr Sean Ormonde is a solicitor and understands the formalities required of a deed.” Mr Buttimore submits that something has plainly gone awry with the documents presented, and in particular it appears that the execution pages have become detached from the body of the agreement. An explanation for the form of the documents may be that there is a further “signed as a deed” page or pages missing. Disclosure may throw up some further documentation that would support that case, he suggests. He relies also on the fact that other documents executed at this time, including the Option Agreement, were executed as deeds.
It seems to me that on examination of the documents before me the first defendant is plainly correct to submit that the IMFAs are not deeds but simple contracts. They begin and end with words which are not apt for a deed. The only sensible, indeed the only possible interpretation of the documents, taken as a whole, is that the signature pages at the very end were intended to relate to the IMFA and its schedules. The wording that professes to execute a document as a deed was clearly intended to relate, and to relate only, to the schedules in which that wording appears. As pointed out on behalf of the defendants, there is a sensible reason for executing the First and Second Schedules as Deeds: to obviate the need for consideration. Even bearing in mind that the Option Agreement and others were executed as deeds, I cannot see a real prospect of a court concluding that the IMFAs were so executed.
I can see no purpose to the signatures that appear at the end of the documents other than to attest to the parties’ agreement to the terms of the IMFAs. No other purpose has been suggested. If that is the purpose of those signatures then, so far as the IMFAs are concerned, the requirements of s 1 of the 1989 Act are not met, because there is nothing on the face of the instrument to make clear or even indicate that it is intended to be a deed, and the signatures do not attest to the contract being signed as a deed. The fact that there is a witness to the contract is not of itself enough to satisfy what Mr Lewis called the “face value requirement” of section 1. The execution of the First Schedules as deeds does not affect the status of the IMFAs, for two reasons. First, the Schedules are on their face instruments separate from the IMFAs; secondly, they are expressly stated to be supplemental to the IMFA.
If I am right to conclude that the execution page that forms part of the First Schedules is not intended to relate to the IMFA there is a further reason why the IMFAs cannot rank as deeds: the formalities required for the execution of a deed by a company are not present. At the present time a company can execute a deed by the signature of a single director in the presence of a witness: Companies Act 2006, s 44(2). However, that provision did not come into force until 6 April 2008, after this instrument was signed.
At the time a company could execute a deed, if not under seal, in the manner provided for by the Companies Act 1985, s 36A(1) and (4)-(5) (as inserted by the Companies Act 1989, s 130(2)). Section 36A provided that a document signed by a director and the secretary, or by two directors, and expressed (in whatever form of words) to be executed by the company had the same effect as if executed under the common seal of the company. The First Schedule to the IMFA complies with these requirements; it is signed by a Director and a Director/Secretary. The two pages that appear at the very end of the agreement contain provision for only one signatory on behalf of the claimant and one on behalf of the first defendant.
The claimant’s suggestion that something might turn up on disclosure or otherwise to show that contrary to all present appearances the IMFAs were executed as deeds is in my view fanciful. I see no compelling reason why the resolution of this issue should await a trial. I attach importance in this context to the following: (i) the fact that this issue has been live for many months, allowing ample opportunity for searches to be made for any missing documents; (ii) the somewhat bare nature of the claimant’s case on the issue; (iii) the fact that the hypothesis floated by Mr Buttimore would not explain the signature pages that do appear within the documents before the court; (iv) the fact that the claimant’s evidence comes from the solicitor acting for it in this action and not from the individual, Mr Sean Ormonde, who is said to have been present at the execution of the documents, or from the solicitor, Mr Cunningham, at whose offices the execution is said to have taken place. Mr Ormonde has made a witness statement since the application to withdraw admissions was made, but it deals only with security for costs and not this issue. No good reason is apparent.
In these circumstances I have concluded, having had regard to the matters identified in PD14 para 7.2, that the application to withdraw the admission should be granted. That will prejudice the claimant by enabling the first defendant to maintain a limitation argument which would otherwise be unavailable. Moreover, given my conclusions above, it will enable the first defendant to obtain summary judgment on that argument, to the extent that the breaches of the IMFA complained of took place before 1 August 2007. However, both points cut both ways. I can see no good reason to hold the defendants to the admission, which would clearly create a greater injustice than the claimant would suffer if it was withdrawn. The claimant does not oppose the application, so long as the first defendant pays the costs of and caused by the admission and its withdrawal, which is plainly the right order and is conceded by the first defendant. At the claimant’s request those costs will be subject to detailed assessment if not agreed.
SUMMARY JUDGMENT OR STRIKING OUT
The claims in respect of which these remedies are sought by the first defendant are the breach of contract claims relating to breaches before 1 August 2007, and the claims for misrepresentation. An application was initially made for summary judgment in respect of the restitution claims, but was not pursued.
Principles
The court may grant summary judgement against a claimant on a claim or issue if it considers that the claimant has no real prospect of succeeding on the claim or issue, and there is no compelling reason why the case or issue should be disposed of at a trial: CPR 24.2. In Easyair Ltd v Opal Telecom Limited [2009] EWHC 339 (Ch) at [15] Lewison J, as he then was, summarised the correct approach:
“The correct approach on applications by defendants is, in my judgment, as follows:
i) The court must consider whether the claimant has a “realistic” as opposed to a “fanciful” prospect of success: Swain v Hillman [2001] 2 All ER 91;
ii) A “realistic” claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8]
iii) In reaching its conclusion the court must not conduct a “mini-trial”: Swain v Hillman;
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10];
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;
vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.
CPR 3.4 (2) provides that the court may strike out a statement of case, or part of one, if it appears to the court (a) that it “discloses no reasonable grounds for bringing … the claim”, or “(b) is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; or (c) that there has been a failure to comply with a … practice direction”. Permission will not be given to amend in a way which would offend any of these principles.
The claims in contract
I have concluded that there is no real prospect of the claimant establishing that the IMFAs were deeds rather than simple contracts; the contrary is plain; and there is no other compelling reason for that issue to be tried. It follows that the ordinary 6 year limitation period applies in respect of any claim for breach of their provisions. The first defendant sought a declaration that the claims which relate to breaches occurring before 1 August 2007 are statute-barred. I will grant that declaration. The precise impact on the pleaded claims will remain to be worked out.
Express misrepresentation: the Option Notice Representations
Limitation
This is the primary ground relied on as an unanswerable defence to all the claims for misrepresentation. On the face of things, it is indeed unanswerable. I shall deal first with the Option Notice Representations. These, as stated above, were made in February 2007 and are said to have been relied on then to the detriment of the claimant. The limitation period for such claims is 6 years. The claim form was not issued until August 2013, over 5 months after that period expired. Limitation was pleaded immediately, in September 2013. No answer was offered by way of Reply at that time. The claimant’s substantive response consisted instead of the application to amend to claim in deceit. The first defendant’s summary judgment application followed in November 2013.
The answer to the limitation defence which is now offered on behalf of the claimant is one that seems to have emerged for the first time in late May 2014, in the supplemental skeleton argument of Mr Buttimore for the hearing before Deputy Master Nussey. At the very end of that skeleton argument it was suggested that “in relation to both the MA 1967 misrepresentation claim and the deceit claim if allowed, C will be entitled to rely on s 32(1)(b) [of the Limitation Act 1980] since the key fact that the full franchise fee of £30,000 had not been [paid] was not discovered until September 2007”.
Section 32 of the Limitation Act provides, so far as relevant, as follows:
“32.— Postponement of limitation period in case of fraud, concealment or mistake.
(1) Subject to subsections (3) and (4A) below, where in the case of any action for which a period of limitation is prescribed by this Act, either—
(a) the action is based upon the fraud of the defendant; or
(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or
(c) the action is for relief from the consequences of a mistake;
the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.
References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.
(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”
As is clear from the drafting, the kind of case identified in s 32(2) is a subset of the class of case described in s 32(1)(b). The claimant’s proposed case is now fleshed out in the draft Amended Reply. This pleads that facts relevant to the claimant’s right of action have been deliberately concealed from it by the first defendant and/or the first defendant’s conduct amounted to a deliberate breach of duty. The case in support of those contentions is put in this way in the particulars under paragraph 3A:
“Whilst no claim in deceit is presently relied upon as a cause of action in these proceedings, the Claimant avers that the Option Notice representations were made fraudulently in that Jan Spaticchia (whose knowledge is to be imputed to the First Defendant) knew that they were untrue or made them recklessly (i.e. not caring whether they were true of false) with a view to inducing the Claimant to enter into the IMFA and by reason of the Option Notice representations the Claimant exercised its option and entered into the IMFA. The Claimant will contend that this conduct by the First Defendant amounted to a deliberate breach of duty within the meaning of s.32(2) of the Limitation Act 1980, being a deliberate misrepresentation under the Misrepresentation Act 1967.
….
C. Further or alternatively the claimant will rely on the foregoing in support of its plea of deliberate concealment … ”
At the same time, amendments are proposed to the Particulars of Claim which seek to modify the presentation of the claimant’s case by qualifying the allegation that the first defendant “negligently misrepresented” the true position. It is proposed to add the following (at paragraph 20): “for the avoidance of doubt, references to negligent misrepresentation herein are references to the cause of action based on s 2(1) of Misrepresentation Act 1967”.
Section 2(1) of the Misrepresentation Act 1967 provides as follows:
“2.— Damages for misrepresentation.
(1) Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true.
For the first defendant Mr Lewis objects to the proposed amendment and submits that there is in reality no answer to the limitation defence. He argues that the premise of the claimant’s argument is fundamentally flawed, and that the pleaded case is bad in law and an abuse. Mr Lewis refers to the solicitors’ negligence case of Cave v Robinson Jarvis & Rolf (A Firm) [2002] UKHL 18, [2003] 1 AC 384, and in particular paragraph [25] of the speech of Lord Millett, where he held that:
“section 32 deprives a defendant of a limitation defence in two situations: (i) where he takes active steps to conceal his own breach of duty after he has become aware of it; and (ii) where he is guilty of deliberate wrongdoing (deliberate commission of a breach of duty) and conceals or fails to disclose it in circumstances where it is unlikely to be discovered for some time. But it does not deprive a defendant of a limitation defence where he is charged with negligence if, being unaware of his error or that he has failed to take proper care, there has been nothing for him to disclose.”
Here, submits Mr Lewis, the starting point is that the claimant has chosen to advance in the Particulars of Claim allegations of negligence, that is to say, inadvertent error. Such a case cannot be brought within the scope of s 32. Negligence is by definition not deliberate wrongdoing (Lord Millett’s second situation). And it is not alleged here that the defendant later realised its negligent error and took active steps to conceal it (Lord Millett’s first situation). The claimant, recognising that mere negligence will not get it home under s 32, has sought to amend to plead a claim in deceit, says Mr Lewis. Finding the way barred by the provisions of s 35(3) of the Act, the claimant now seeks to achieve the same result by advancing the same allegations in the Reply. That is an abuse.
I understood Mr Lewis to say that this was so for three reasons. First, it is an abuse to seek to circumvent the provisions of the Limitation Act, when these have been held to bar a claim in deceit for the reasons I have given. Secondly, the pleaded case, if amended in the way proposed, would invite the court to make two inconsistent findings of fact: one of negligence and the other of fraud. That is an impossibility. Thirdly, the CPR prohibit a party from advancing two inconsistent cases. Mr Lewis refers first to PD16 9.2: “A subsequent statement of case must not contradict or be inconsistent with an earlier one. For example a reply to a defence must not bring in a new claim.” In support of his contention that the new case would be inconsistent with the existing case Mr Lewis points to the terms of s 2 of the Misrepresentation Act, which make plain that the cause of action is for representations which are not made fraudulently.
Mr Buttimore submits that it is important to identify the relevant principles. He says Mr Lewis’s submissions involve some ill-defined abuse arguments whereas the primary question of relevance is whether the proposed amendment to the Reply would offend the prohibition in s 35 of the 1980 Act on the pleading of “new claim” after the limitation period in respect of such a claim has expired. He submits that it would not, and that there is no other reason to deny his client the opportunity to argue that the limitation defence can be overcome by proof of what he calls “deliberate misrepresentation under the 1967 Act”. The proposed Reply is not inconsistent with the Particulars so as to offend the principle in PD16 9.2, he submits, as a claim under the Act does not involve an averment of negligence. The Act casts the burden of proving a reasonable belief in the truth of what was said on the defendant. The term “negligent misrepresentation” is merely a label used by Chitty on Contracts for a 1967 Act claim, and its use in the Particulars of Claim is no more than a way of indicating that the claim is made under the Act. Hence what he would describe as a clarification in paragraph 20 of the draft Amended Particulars of Claim.
Mr Buttimore seeks to draw support for these submissions from the decision of the Court of Appeal in D&G Cars Limited v Essex Police Authority [2013] EWCA Civ 514. This was the decision, it seems, that led to the introduction of PD16 9.2, Briggs LJ having found it “perhaps unfortunate” that this important principle did not then find expression in the Practice Direction as opposed to the notes in the White Book: see [70]. The case involved a claim for breach of the Public Contracts Regulations 2006. Such claims are subject to a special three month limitation period under Reg 47(7)(a). The claimant sought to add allegations of intentional wrongdoing and bad faith after the expiry of that period. The Court of Appeal, upholding the Master and the judge, held that this was impermissible, as it involved a new claim that did not arise from the same or substantially the same facts as were already in issue. A question was raised as to whether some at least of the same allegations might properly be introduced by way of reply to the police authority’s defence under Reg 23(4)(e). The judge had declined to address the issue, leaving the parties to make an application to the Master. The Court of Appeal upheld that decision also. Two members of the court (Leveson and Briggs LJJ) expressed the view, however, that such a course should be left open.
Mr Buttimore’s submissions are creative and ingenious, but in my judgment the claimant is not entitled to rely on s 32, and has no answer to the limitation defence in respect of this misrepresentation claim. I consider it quite clear that the case presently pleaded in the Particulars of Claim is, and was intended to be, a case that the first defendant negligently misrepresented the true position in relation to the sub-franchise it had entered into with Mr Heywood. It is true that it is not necessary to plead negligence in order to state a tenable case under the 1967 Act, because the onus of proof lies on the defendant. However, the Act does not prohibit a claimant from assuming a burden of proof, or from specifying the nature of its factual case. Here, negligence has been expressly pleaded. The terms of the claimant’s application to amend of January 2014, and those of the witness statement and the initial skeleton argument in support, make it quite clear that the allegations of negligence meant what they said. They were not merely a convenient label for what was meant to be a case of fraudulent or deliberate misrepresentation.
The proposed Amended Reply explicitly alleges that the option notice representations were made fraudulently. That is clearly a new and distinctly different factual case from the one that is presently pleaded. That is why the Deputy Master and I have both concluded that the intended claim in deceit did not arise from the same or substantially the same facts as the existing claim. The difference between negligence and fraud is a stark one. As observed by Millet LJ, as he then was, in Paragon Finance (above) at 418 “There is in our jurisprudence no sharper dividing line than that which separates cases of fraud and dishonesty from negligence and incompetence.” In this case the allegations of fraud which it is now proposed to plead in reply are in my judgment plainly inconsistent with the case of carelessness presently pleaded in the Particulars of Claim. As Mr Lewis submits, the claimant would be inviting two inconsistent findings of fact. Further, the inconsistency would mean that the Amended Reply would contravene the principle stated in PD16 9.2. For these reasons, permission could not properly be granted to make these amendments, if the Particulars of Claim remained as they stand.
I do not consider that the proposed amendment of the Particulars of Claim would resolve the difficulty. The amendment would not remove, but merely qualify the averment that the alleged misrepresentations were made “negligently”. The qualification would not in my judgment alter the substance of the case. It would remain one in which the claimant made an averment of carelessness, which is denied in the Defence. The factual issue to which the Particulars of Claim and Defence give rise would remain the same. The Amended Reply, if allowed, would still introduce a new and inconsistent allegation.
I would go further and accept that even the removal of the express averment of negligence would not, if such an amendment were sought, save the proposed Amended Reply. I acknowledge the point made by Briggs LJ in D&G Cars at [70], that “nothing which is pleaded solely in Reply can amount to a new claim”. For my own part, however, I am inclined to the view that amendments to Particulars of Claim and Reply which, taken collectively, transform a case which is expressly pleaded as one of negligence into one which no longer makes such an allegation but avers misrepresentation coupled with a fraudulent state of mind might well involve a “new claim” within s 35 of the Limitation Act. The factual case advanced by the claimant in order to sustain a claim to a remedy would appear indistinguishable from the factual case required to establish a claim in deceit. It would seem at least arguable that this would involve a new “cause of action” within the meaning of s 35. However, this is not how Mr Lewis put the case in his argument on behalf of the first defendant, and I do not base my conclusion on that point.
Rather, it seems to me that whether or not a claimant assumes the burden of proof as the claimant has here, Mr Lewis is clearly right to submit that a case of fraudulent misrepresentation is inconsistent with a claim under the 1967 Act. Mr Buttimore’s notion of a “deliberate misrepresentation under the 1967 Act” is a contradiction in terms. The Act created a statutory tort, designed to fill gaps in the existing law relating to representations which were negligent or otherwise not fraudulent. Chitty, using the term “negligent misrepresentation” to characterise the statutory tort, acknowledges that in some respects this may not be strictly accurate (see the 31st edition at 6-073). It does not suggest, and in my judgment it is not the case, that the tort extends to fraudulent misrepresentations. The short title of the Act and the terms of s 2 make clear that the remedy is made available for non-fraudulent representations. The cause of action for fraudulent misrepresentations is the common law tort of deceit.
Estoppel
The defendant pleads that reliance on the alleged misrepresentations is in any event precluded by contract, in the form of clause 23 of the IMFAs. Clause 23.1 is a standard commercial “entire agreement” clause which provides that “no representations warranties inducements or promises made by” the first defendant “shall add to or vary this agreement or be of any force or effect.” It further provides by cl 23.1.1 and 23.1.2 that “if there are any … representations which the claimant considers have been made to it which have induced it to enter into the agreement, it is obliged to submit a written statement of them to the Master Franchisor”, and that unless an agreed form of such statement is annexed to the agreement the claimant “shall be deemed not to have relied upon any representation ... made or given by” the claimant.
The legal principle relied upon by the defendant is “contractual estoppel” of the kind held to exist in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386, [2006] 2 Lloyds Rep 511, where Moore-Bick LJ held at [57] that:
“It is common to include in certain kinds of contract an express acknowledgment by each of the parties that they have not been induced to enter into the contract by any representations other than those contained in the contract itself…. I can see no reason why it should not be possible for parties to an agreement to give up any right to assert that they were induced to enter into it by misrepresentation, provided that they make their intention clear, or why a clause of that kind, if properly drafted should not give rise to a contractual estoppel …”
These observations, though not part of the ratio of Peekay, were considered and expressly approved by the Court of Appeal in Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221, [169] (Aikens LJ), and regarded as good law by Rix LJ in Axa Sun-Life Services Plc v Campbell Martin Ltd [2-11] EWCA Civ 133, [95]. The principle is not disputed by the claimant. The claimant advances three answers. First, the draft Amended Reply asserts that on its true construction cl 23 does not extend to or have the effect of precluding reliance on the misrepresentations complained of. That in my judgment is untenable, and it was not pressed by Mr Buttimore in his skeleton or oral arguments.
Secondly, Mr Buttimore submits that “the clause needs to be read in the context of the IMFA being subject to the Option [Agreement] and so any representations which post-date the Option [Agreement] are not caught by the non-reliance clause”. That submission is clearly inconsistent with the agreed position, that the IMFA was held in abeyance until after the option was exercised. It is inconsistent also with the case pleaded by the claimant in paragraphs 16 and 24 of the Particulars of Claim, that the “[IMFA] agreement did not come into effect until February” and that the claimant was “induced to enter into the IMFA” by the representations complained of.
Thirdly, the claimant says that in the absence of clear words the clause cannot protect against a fraudulent representation. That in turn is not disputed by the first defendant. However, the proposed averment of fraud is inconsistent with the case pleaded in the Particulars of Claim, the inconsistency is not avoided by the proposed amendment to those Particulars, and the position cannot be rescued, for the reasons given above. This, therefore, is in my judgment a separate and additional ground for granting the first defendant summary judgment on the Option Notice misrepresentation claim.
Waiver/acquiescence
Paragraph 35 of the Defence pleads that despite knowing of its claim since September 2007 (according to the claimant) it did not raise the alleged misrepresentation until 2013 and in those circumstances “the claimant waived its right to rely on the allegations, alternatively acquiesced by reason of laches.” Mr Lewis relied on this in support of the summary judgment application, submitting that it was plain that the claimant had allowed the first defendant to believe, reasonably, that the claimant was waiving its right to claim misrepresentation and damages, and that there was an estoppel. These various bases for summary judgment were not, however, advanced in the application notice or in either of the supporting witness statements, and reliance on them was objected to on those grounds. I accept that for those reasons it would be inappropriate to find against the claimant on any of these bases. I was left unpersuaded by the submissions of Mr Lewis in any event.
The Rodgers Side Letter misrepresentation claim
The first defendant advances five grounds for granting summary judgment on, or striking out this claim. Three are common to this and the Option Notice misrepresentation claim: limitation, contractual estoppel, and waiver/acquiescence/estoppel. The fourth ground is that mere non-disclosure cannot give rise to a claim in misrepresentation. The fifth is that the pleaded basis for the implied misrepresentation is in any event untenable. I shall not address the third ground, for the reasons given above. I have concluded, however, that each of the other grounds is made out.
The claimant’s case is one of misrepresentation by non-disclosure. “The general rule is that mere non-disclosure does not constitute misrepresentation, as there is no duty on the parties to a contract to disclose material facts to one another, however dishonest such non-disclosure may be in particular circumstances”: Chitty, op cit, 6-017. Doubtless in recognition of this general rule, it has been pleaded on behalf of the claimant that the first defendant was under a duty to disclose the existence of the Rodgers Side Letter. The duty to disclose is said to have arisen “In the light of the express and implied terms of the IMFA and Option Agreement”. The first defendant is alleged to have acted in breach of duty by failing to disclose “the Rodgers Side Letter before execution of the IMFAs, notwithstanding the extensive due diligence undertaken by the claimant.” The failure to disclose, in breach of this duty, is said to have amounted to a representation “that there were no other franchisees operating in the territory covered by the IMFA”. The claimant’s case is that had it known of the Rodgers Side Letter it “would not have entered into the IMFAs and/or exercised the option.” Given the claimant’s case as to when the IMFAs were entered into, I take this to be an averment of reliance on the misrepresentation at the time the option was exercised, and the IMFA entered into.
Having read and re-read the proposed amended case and listened carefully to Mr Buttimore’s submissions I am left with my initial response to this pleaded case: that it cannot possibly succeed. First, I cannot identify any tenable basis for the allegation that a relevant duty of disclosure existed prior to the alleged breach of that duty. In paragraph 28 of the draft Amended Particulars it is alleged that the IMFA or Option Agreement contained an implied term that the first defendant would inform the claimant if it had granted rights in competition with those granted to the claimant. Even if the existence of such a term is accepted, it is the claimant’s own case (in paragraph 31 of the Particulars) that it was aware that Mr Rodgers had been granted rights in respect of territory in the Republic of Ireland. What the claimant needs to establish but has not pleaded is a duty to disclose the extent of the territory granted to Mr Rodgers. Secondly, the duty being an implied term of the contract it would not have existed at the time of the alleged breach which is said to give rise to or amount to a misrepresentation. That is sufficient to dispose of the case as it stands, though I add that it also seems to me questionable whether an implied representation arising from non-disclosure is one that is “made” within s 2(1) of the 1967 Act.
The claimant seeks, by amendments to paragraphs 29, 33, 35 and 37 of the Particulars, to plead a new case. In these amendments it is alleged that the Option agreement and IMFA both contained express or alternatively implied terms obliging the claimant to act in good faith in entering into and/or during the currency of the Option Agreement and IMFA; and that these terms gave rise to a duty to disclose the existence of the Rodgers Side Letter. The basis for the alleged duty of good faith is found in paragraph 23 of the IMFA Side Letter, by which the parties agreed to add to the IMFA a clause 32.24 providing as follows:-
“Both parties recognise that this Agreement has been entered into in good faith and relates to a new and uncertain market. Nothing in the agreement shall be interpreted so as to penalise either party where best endeavours have been utilised to achieve the spirit of the Agreement. Both parties agree that unilateral termination should only occur where there is a substantial breach of contract or duty, breach of good faith, breach of trust or commission of an illegal act by either Party”.
This provides an arguable basis for an allegation that the IMFA contained an express or implied duty to act in good faith during its currency, but otherwise appears to me to amount to an anti-technicality clause. I would not read the acknowledgment in the first sentence as amounting to a warranty by either party that it had acted in good faith in entering into the contract. However that may be, I do not consider it arguable that the alleged warranty or duty of good faith was incorporated or implied into the Option Agreement. The IMFA Side Letter is the sole pleaded basis for that contention. The express purpose of that letter is however to add terms to the IMFA, and the implication of such a term into the Option Agreement is not alleged to be necessary, nor is it in my judgment arguably necessary to give that agreement business efficacy. It follows that the duty alleged is, if anything, a term of the IMFA which the claimant alleges it entered into as a result of the misrepresentation. Such a term cannot be relied on as giving rise to a duty to disclose “before execution of the IMFAs”.
In my judgment this claim is in any event barred by limitation. Again, the claimant seeks to avoid the operation of the 6 year limitation period by reliance on s 32(1)(b) and 32(2) of the Limitation Act. The attempt is the more remarkable in the case of this claim, as the claimant has never previously sought to allege fraud in this respect. The application to amend to plead deceit related only to the Option Notice Representations. The existing pleaded case in respect of the Rodgers Side Letter is a bare case of misrepresentation by non-disclosure in breach of an implied contractual duty to disclose the existence of a competing franchise. Now, it is proposed to expand the claim to add the new duty of good faith and to plead a breach of that duty; and new allegations are advanced in the draft Amended Reply that the existence and terms of the Rodgers Side Letter were “deliberately concealed”, and that the breach of the duty of good faith was a “deliberate breach of duty” within s 32(2). There is no explanation of the change of stance.
In my judgment the allegations of deliberate concealment and deliberate bad faith which are set out in the draft Amended Reply are not just different from but inconsistent with the case presently pleaded under the 1967 Act, for reasons given above: the claim under the Act is necessarily for non-fraudulent misrepresentation, yet the Reply in substance alleges fraud. It may be that the inconsistency would be resolved if the Particulars of Claim were amended in the way the claimant seeks, or some similar way; but if so that could only be because such amendments would introduce a “new claim” for deliberate misrepresentation, ie fraud. For the reasons I have given in disposing of the first defendant’s appeal, that course is barred by the s 35 criteria which Mr Buttimore himself suggests provide the only relevant test.
I also conclude that the misrepresentation claim in respect of the Rodgers Side Letter is barred by contractual estoppel by virtue of cl 23.1 of the IMFAs, for the same reasons as I have given above.
SECURITY FOR COSTS
The application is made pursuant to CPR 25.13(2)(c) on the grounds that the claimant is a company or other body (whether incorporated in or outside Great Britain) and there is reason to believe that it will be unable to pay the defendants’ costs if ordered to do so. The claimant is not trading and accepts that this threshold condition is satisfied. The dispute is as to whether the discretion which is triggered by satisfaction of this condition should be exercised so as to grant an order for security. The discretion to do so exists if the court “is satisfied, having regard to all the circumstances of the case, that it is just to make such an order”: r 25.13(1)(a).
Principles
The factors to be taken into account in determining whether and if so how to exercise the discretion include the following:-
“(1) Whether the claimant's claim is bona fide and not a sham;
(2) Whether the claimant has reasonably good prospect of success;
...
(5) Whether the application for security was being used oppressively, e.g. so as to stifle a genuine claim;
(6) Whether the claimant's want of means has been brought about by any conduct by the defendant, such as delay in payment or in doing their part of any work…”
Sir Lindsay Parkinson & Co v Triplan Ltd [1973] QB 609 (Lord Denning MR).
As to factors (1) and (2), it is settled law that the court should not attempt to go into the merits of the case unless it can clearly be demonstrated one way or another that there is a high degree of probability of success or failure: Porzelack Kg v Porzelack (UK) Ltd [1987] 1 WLR 420.
The onus of establishing factor (5) lies on the respondent. A claimant must adduce satisfactory evidence that (i) he does not have the means to provide security and (ii) that he cannot obtain appropriate assistance to do so from any third party, including a relative or friend, who might reasonably be expected to provide such assistance if they could, litigation funding, (iii) that the claim would be stifled and (iv) that the claim would be unfairly stifled.
Before the court refuses to order security on the ground that it would unfairly stifle a valid claim the court must be satisfied that, in all the circumstances, it is probable that a claim would be stifled: Keary Developments v Tarmac Construction [1995] 1 All ER 534, 540 (Peter Gibson LJ). If the court is so satisfied it will undertake a balancing exercise, weighing the injustice to the claimant if prevented from pursuing a proper claim by an order for security against the injustice to the defendant if no security is ordered. The court will be concerned not to allow an impecunious company to use its inability to pay costs as a means of putting unfair pressure on the more prosperous company: Pearson v Naydler [1977] 1 WLR 899, 906.
In considering the amount of security that might be ordered the court should bear in mind that it can order any amount up to the full amount claimed by way of security, provided it is more than a merely nominal amount: Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 ALL ER 534, 540. It is also, in my judgment, a matter to be borne in mind that security may be ordered in stages so that the claimant is not required to post a large capital sum at one go but only to secure its opponents costs as those costs are incurred. This may be an important power, given the need to maintain a level playing field and to control costs.
As to factor (6), the issue cannot be approached on a basis that would involve pre-judging a substantive issue in the case: Automotive Latch Systems Limited v Honeywell International Inc [2006] EWHC 2340 (Comm).
Facts
The application was issued on 14 November 2013. In May 2014 the claimant offered, via Sean Ormonde, to put up security of £90,000 via “the directors”. This was said to be the “absolute maximum” that they could afford. That offer is no longer on the table. It is said that it was to be borrowed from Mike Ormonde but that he is no longer in a position to lend it. The claimant relies instead on witness statements of Mr Hannaford, Sean Ormonde, Pat Walsh, Mike Ormonde, and Alphie Rodgers to show that they do not have and are unable to raise from third parties the necessary funds and that, as the statements assert, an order for security would make it “highly unlikely” that the claimant would be able to continue with this claim. Mr Hannaford’s evidence, supplemented by a further statement produced at the hearing, is that the five I have named are the only current shareholders of the claimant, with shareholdings of, respectively, 45.2%, 21.4%, 12%, 11.4% and 10%.
I am satisfied that Mr Rodgers could not raise funds to secure the defendants’ costs. His statement shows convincingly that he has negative net assets, and that 70% of his income is dedicated to paying debts. He reports that, unsurprisingly, he has been advised by his bank manager that he is unable to borrow further under those circumstances. Mike Ormonde explains that he is heavily indebted and currently engaging with his creditors to resolve his debts. He exhibits a statement of affairs showing his net worth as -€31.3 million. He has a substantial property portfolio, but his evidence is that all the properties are in negative equity and that his annual income from the properties is exceeded by the interest payments by some €237,000. He has borrowings of nearly €9m with Vanguard Property Finance Ltd who are suing him for recovery. It seems obvious, if his account of things is true, that he will not be able to raise funds to secure the defendants’ costs.
Sean Ormonde also has negative net assets, with his family home in negative equity, and a guarantee liability of €200,000 with Vanguard which is presently being pursued against him. He produces a copy of a summary judgment application for this sum dated last October. He has a modest income after tax, according to the evidence, of some €38,000. He claims to be unable to contribute to any security. This I would accept. However, as Mr Lewis points out, both Patrick Walsh and Mr Hannaford are in somewhat better financial positions, according to their statements.
Mr Walsh, with 12% of the claimant company, has a half share in equity of €355,000 in two properties. He discloses an income of €9,000 per annum in rent from one of those properties, but says nothing of other sources of income. The bank statement he exhibits as evidence that he has no surplus income shows credits of over €60,000 in March and April (two deposits of €30,000 each) which are not explained in his statement. Mr Hannaford, with over 45% shareholding in the claimant company, has liabilities of some €90,000 and is unemployed, but he has a Dublin property worth €750,000 which he is renting at €21,000 per annum, and a spouse earning some €38,000 per annum. His evidence is that he has enquired of his bank about obtaining a loan on the house but has been turned down on the basis he would be unable to service the loan.
I also note the following: (i) the fact that the claimant company has, on its own account of things, been able to fund its own legal representatives so far without the benefit of a conditional fee agreement; the incurred costs to date on the claimant’s side are substantial; according to the Precedent H form they were some £42,000 excluding VAT up to the CMC; (ii) the fact that the offer of £90,000 was made in May 2014, when the factor which is said to have made Mike Ormonde unable to lend that sum – the claim against him by Vanguard – was already in existence; (iii) the lack of any explanation from Sean or Mike Ormonde of the basis on which it was believed in May 2014 that Mike Ormonde could lend the company £90,000.
Discussion
Mr Lewis and Mr Buttimore have each sought to persuade me that I should approach the question of security for costs on the footing that the merits of his clients’ case are strong. I have upheld Mr Lewis’s contentions in respect of the claims which were the subject of the summary judgment application, but by definition those are no longer relevant to the issue of security which can only relate to the future. I am not persuaded that I am in any position to make a reliable assessment of the merits of the claims that remain in issue, save to treat them as bona fide claims which are not a sham, but have reasonable prospects.
This means that I cannot reach a reliable conclusion on whether or not the claimant’s want of means has been brought about by any wrongful conduct on the defendant’s part. The early termination of the MLAs is said to have caused very substantial loss. On the face of it, that may be so. It appears that the terms of cl 27 of the MLAs were satisfied on the face of it but I cannot make an assessment of the strength of the claimant’s case that the breaches were known about and consented to or waived by the second defendant.
The key issues seem to me therefore to be whether the grant or refusal of an order for security would involve injustice to the claimant, by unfairly stifling the claim, or injustice to the defendants, by forcing them to defend with no prospect of recovering their costs of doing so. I agree with Mr Lewis that the form of the statements provided by the shareholders is not wholly satisfactory as evidence of efforts to raise finance but I accept that overall, reasonably diligent efforts have been made. I have thus concluded that the claimant has demonstrated that three of its shareholders are in no position to assist in posting security for costs, and that it has made reasonable efforts to obtain outside finance to help provide such security. It has not however demonstrated that it cannot reasonably be expected to put up any security at all for the defendants’ costs.
The claimant’s ability to fund the claim so far, the offer of £90,000, and the scale of the equity held by Mr Walsh and, in particular, Mr Hannaford make it improbable in my judgment that no finance could be raised. The scale of the claims – even after the grant of summary judgment on some of the claims against the first defendant – and the professed belief of these witnesses in the merits of the claims, makes it reasonable to suppose that substantial shareholders such as they would assist in funding such claims. In my judgment it is not likely that the claim would be stifled by making any order at all for security, regardless of its scale. But I do, on the present evidence, consider it likely that the claimant would be unable to satisfy an immediate order in the sum sought. That sum is £170,000, the sum approved by the Master for the rest of this litigation.
I therefore concluded that an order for security should be made, but that its amount should be moderated. Having reached that conclusion, I decided that the costs of the application should be paid by the claimant. Mr Buttimore submitted that the defendants should have accepted the offer of £90,000 made in May 2014. I concluded that it was reasonable for the defendants to press on with their application, as the evidence then put forward as to the defendants’ inability to raise funds was weak. It was not until shortly before the hearing that the defendants served the statements on which they ultimately relied.
In making an assessment of what is appropriate I bear in mind my power to set the level of security ordered below the full amount that would be likely to be recovered, and the costs orders I have made in respect of the applications for summary judgment and security for costs (a further order for a payment on account of £20,000). I also bear in mind a factor which Mr Lewis rightly acknowledged in his skeleton argument: that the level of security it is appropriate to order is dependent upon the outcome of the summary judgment application. The success of that application necessarily reduces the sums that would otherwise have been appropriate.
It is for that reason alone inappropriate to accept Mr Lewis’s invitation to order security in the full amount of the future costs in the budget approved by the Master. Moreover, the approved budget figures relate to the position as at 30 May 2014 and include five contingencies, the total unincurred costs of which were some £30,000. Contingent cost A is summary judgment/strike out/security for costs and application to amend. Those are now incurred costs, and the subject of orders made by me. The other contingencies may never happen. If they become likely, a further application for security can be made in advance. I therefore leave out of account all the contingencies.
I have concluded that an order for security in stages in the following amounts would strike a fair balance between the parties. The stages correspond with phases of the litigation identified in the costs budget, and I have had regard to the approved figures. The sums exclude VAT, which should be added if applicable (which I doubt). A stay will be imposed pending the provision of the initial tranche, with similar provision in respect of subsequent tranches. The timing of the tranches will be the subject of agreement or a determination by me.
Disclosure and exchange of witness statements | £16,000 |
Expert reports | £10,000 |
PTR | £3,000 |
Trial preparation | £16,000 |
Trial | £35,000 |