Aharon Nathan v (1) Svi Smilovitch (2) Queenscroft Investments Inc.
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PETER GIBSON,LORD JUSTICE LONGMORE,LORD JUSTICE JONATHAN PARKER,Lord Justice Mance,Lady Justice Hale,Lord Justice Peter Gibson |
| Judgment Date | 08 November 2002 |
| Neutral Citation | [2002] EWCA Civ 1607,[2002] EWCA Civ 759 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2001/2542 |
| Date | 08 November 2002 |
[2002] EWCA Civ 1607
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (FERRIS, J.)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Peter Gibson
Lord Justice Mance and
Lady Justice Hale
Case No: A3/2001/2542
James Dingemans QC (instructed by Messrs Orchard) for the Appellant
Colin Edelman QC and Nicholas Bard (instructed by Messrs Mishcon de Reya) for the Respondent
This is an appeal from such part of a judgment of Ferris J dated 31 st July 2001 as declared that three disputed properties fell within a joint venture agreement made between the appellant (the first defendant) and the respondent (the claimant). The three properties were 126/7 Shoreditch High Street, 135/9 Curtain Road and 1–5 Chapel Place.
The joint venture was not set out in writing. Both parties ran their affairs in a manner which involved neither paper nor, so far as appears, compensating email traffic. The appellant's 'office' is apparently his car. Nonetheless, the parties' affairs were substantial. The appellant has particular expertise in the development of urban residences in the Shoreditch area, and the respondent, who with his sons accumulated considerable funds in the textile business, has developed a substantial property portfolio.
Before the judge, a joint statement was prepared and agreed, which set out the common ground and the issues between the parties. It reads:
"Agreement
1. In 1995 [AN and ZS] agreed ("the agreement") that [AN and [ZS] would cause to be acquired property known as 341/345 Old Street, 3–7 Drysdale Street and 2 Virginia Road/5 Calvert Avenue, 126/127 Shoreditch High Street and 135/139 Curtain Road, "the Melcro properties", in the Shoreditch area of London, which property was to be exploited including by means of development and/letting and/or sale.
2. The following were terms of the agreement:
2.1 that the property might be acquired by corporate entities controlled by or associated with [AN];
2.2 that principally [ZS] would deal with the arrangements relating to the properties and the refurbishment and administration of the same and [AN] would provide necessary finance, predominantly the payments for which loans could not be arranged;
2.3 that the amount of profits from the property (being the proceeds of sale and rental income from the property less the costs of acquisition, development, management, maintenance and selling) would be shared equally by [AN] and [ZS].
3. There are disputes between the parties about whether or not:
3.1 It was agreed at the time of the proposed acquisition of the Melcro properties (as opposed to a later date) that property acquired for the purpose of the agreement might be acquired by corporate entities controlled by or associated with [ZS];
3.2 It was agreed that the corporate entities which acquired the property for the purposes of the agreement would hold the property for the benefit of [AN] and [ZS];
3.3 It was agreed that 126/127 Shoreditch High Street would cease to be part of the agreement (and if not whether [ZS] has to account for the whole of the profits of 126/127 Shoreditch High Street or only the share of the property held for his benefit);
3.4 135/139 Curtain Road ceased to be part of the agreement because it was acquired by Murex Limited (and if not whether [ZS] has to account for the whole of the profits of 135/139 Curtain Road (if any) or only a proportion of those profits and if a proportion what proportion);
3.5 it was agreed in 1998 that for the purposes of accounting between [AN] and [ZS] any payment of profits would be net of tax, with agreement to provide for a deduction of 40 per cent tax from properties held by corporate entities controlled by or associated with [AN] substantially in the manner explained by [AN] in evidence;
3.6 it was agreed that a party who procured direct finance towards the purchase of a property would be entitled to recover fixed interest at the rate of 15 per cent per annum on monies advanced for such purchase from the date of advance until the date of repayment of that loan;
3.7 the obligation to account arose on the receipt of rental income, the disposal of each property or at some later (and if so what) date.
4. Further agreements were made between the parties, on the same terms as the terms of the original agreement providing for the acquisition of the properties at 97–113 Curtain Road, 47/49 Charlotte Road and the freehold of 1–12 Chapel Place, 3 long headleases of 9, 10 and 12 Chapel Place, long lease of a wine bar at 7 Chapel Place and leases of 11 car parking spaces and 50 per cent of the property at 315 Kingsland Road (save that the corporate entities referred to in paragraph 2.1 above which acquired 47/49 Charlotte Road and 50 per cent of 315 Kingsland Road would be controlled by [ZS].
5. There is a dispute between the parties about whether or not 50 per cent of 74 Rivington Street, 50 per cent of Suna House and the headleases of 1–5 Chapel Place were acquired on the same terms of the original agreement (with the corporate entities referred to in paragraph 2.1 above which acquired control of these properties being controlled or associated with [ZS]."
The appeal therefore arises on the basis that 126/7 Shoreditch High Street and 135/9 Curtain Road were originally agreed to be within the joint venture, but that they ceased to be so, either by agreement or otherwise. In those circumstances, Mr Dingemans QC for the appellant accepted that the onus lay upon his client to establish that these properties had ceased to be within the joint venture. As to the acquisition of the headleases of 1–5 Chapel Place, although the issue as formulated was whether it was agreed that this would be undertaken within the joint venture, it was common ground that at one point it was to be within that venture. Mr Dingemans accepted that, in those circumstances, there was at least a factual onus on his client to establish that it had ceased to be so.
The background and surrounding facts are complicated, but need only be shortly stated. The appellant had formed an association with a company engaged in the importation and sale of shoes called Melcro Shoes ("old Melcro"), which involved the acquisition of a number of properties (including 126/7 Shoreditch High Street and 135/9 Curtain Road). Old Melcro and others, including the appellant himself and a Swiss company called Murex Limited ("Murex") and Murex's apparent principal Mr Bordogna, had incurred significant bank indebtedness. This led the bank, Bank Leumi, in early 1995 to appoint receivers in respect of both old Melcro and 126/7 Shoreditch High Street. The respondent became involved, on the introduction of Bank Leumi, in a proposed rescue operation. This was effected by the purchase of the shoe business of old Melcro by a newly formed company, new Melcro. This was financed by inter alios the respondents' three sons ("the Nathan brothers") and the appellant became chief executive of new Melcro. The joint venture was formed in order to acquire the properties held by old Melcro, which Bank Leumi was now entitled to sell as mortgagee in possession, so further reducing old Melcro's bank indebtedness.
Originally, it was envisaged that the joint venture would be conducted through a company called Woodfall Properties Limited ("Woodfall") incorporated for that purpose on 12 th September 1995 and that the parties interested would all hold shares in Woodfall; the respondent even prepared a draft agreement to that effect. But the judge found that, although Woodfall was used for certain purposes in the transactions which followed, it never became a joint venture company in the sense envisaged by the draft or at all. Its shares remained owned at all times by the respondent's sons. Thus arose an informally constituted joint venture, on the lines set out in the agreed statement, but giving rise to the disputes as to the further terms of the parties' agreement which the court had to resolve.
To resolve the disputes, the judge heard evidence on eleven days, on six of which the parties themselves gave evidence. But he gained little assistance from the parties' oral evidence. He said:
"42. The result is that I do not feel able, in relation to disputed matters, to rely upon the evidence of either AN or ZS except where that evidence is corroborated by written material or other credible evidence or has a high degree of probability about it. My reasons for mistrusting their evidence are different in each case. It appears to me that AN's evidence was, as Mr Strachan suggested, rambling, evasive and occasionally nonsensical. Even when AN addressed the question which he was asked and he had been personally concerned in a conversation or transaction his evidence lacked particularity. As to ZS, his evidence contained many inconsistencies and it seemed to me that at times he was making things up as he went along. Examples of this were his evidence in respect of 135/139 Curtain Road which I consider later and his evidence about proceedings taken by the Nathan side in 1999 to recover loans of £200,000 and £100,000, which I shall also mention later."
As to other witnesses, in particular two solicitors, Mr Fishman of Philip Ross and Mr Bluston of Malkins, solicitors who acted for respectively the respondent and the appellant, the judge said this:
"43. I did not have the same reservations about other witnesses. The main problem in their cases was that they simply did not have direct knowledge of the relevant events. This was particularly so with Michael Nathan whose...
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