Fairstate Ltd v General Enterprise
| Jurisdiction | England & Wales |
| Judgment Date | 29 November 2010 |
| Neutral Citation | [2010] EWHC 3072 (QB) |
| Docket Number | Case No: HQ09X04314 |
| Court | Queen's Bench Division |
| Date | 29 November 2010 |
[2010] EWHC 3072 (QB)
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Strand, London WC2A 2LL
Before: MR RICHARD SALTER QC
Sitting as a Deputy Judge of the Queen's Bench Division
Case No: HQ09X04314
Mr Nicholas Berry (instructed by OJS Law, Solicitors) appeared on behalf of the Claimant
Mr Oliver White (instructed under Direct Access) appeared for the Second Defendant
Hearing dates: 20, 25, 26, 27 October, 1, 29 November 2010
MR SALTER QC:
Introduction
In this action the Claimant, Fairstate Limited (“Fairstate”) claims the sum of £178,868.98 (alternatively, damages) from the First Defendant, General Enterprise & Management Limited (“GEML”) under a Management Contract dated 1 st September 2006 (“the Management Contract”). Fairstate also claims the like sum from the Second Defendant (“Mr Sarian”) under a guarantee which Fairstate alleges that Mr Sarian gave to secure the liabilities of GEML under the Management Contract.
While it is common ground that, on 1 st September 2006, Mr Sarian signed both the Management Contract and a document which refers to itself as “this guarantee” and which describes him as “the Guarantor” (“the Guarantee Form”), Mr Sarian's case is that the Management Contract and the Guarantee Form, whether considered separately or together, do not contain either an effective contract of guarantee, or a memorandum of any agreement of guarantee sufficient to satisfy the requirements of the Statute of Frauds 1677 s 4. Fairstate disputes these contentions, and says that Mr Sarian is in any event estopped by a recital in the Management Contract from denying that the Guarantee Form is an effective guarantee. Fairstate alternatively claims rectification of the Guarantee Form, in order to meet Mr Sarian's points about its wording.
Mr Sarian also relies upon two other independent grounds of defence to Fairstate's claims against him: first, that he signed both the Management Contract and the Guarantee only in his capacity as a director of GEML, and not in his personal capacity; and secondly, that the effect of the Guarantee Form was in any event misrepresented to him prior to his signing of it, thus entitling him to avoid any contract contained in that document.
On 21 st May 2010 Master Foster ordered that the issue of whether Mr Sarian is liable to Fairstate as a guarantor of GEML's obligations should be tried first, as a preliminary issue. At the trial of that issue, Fairstate was represented by Mr Nicholas Berry. Mr Abdullah Kaheel, who is the sole director of and shareholder in Fairstate, gave oral evidence on Fairstate's behalf. Mr Sarian, who gave oral evidence in his own defence, was represented by Mr Oliver White. This is the judgment of the Court on that preliminary issue.
The Factual Background
The facts which constitute the relevant background to this dispute were not in issue, and can be shortly stated.
Mr Sarian is a businessman of Egyptian origin. He came to England when he was 17, speaking little English, and soon afterwards enrolled in a language course at Ealing Hammersmith and West London college. It was there that he met Amjad Salfiti (“Mr Salfiti”). Mr Salfiti, who later went on to qualify as a solicitor, and Mr Sarian thereafter remained (in Mr Sarian's words) “close and loyal friends”.
Mr Sarian eventually dropped out of college, and went to work in the catering industry. At the age of 33, he bought his first investment property. By the time of the events with which I am concerned, he owned and managed 5 investment properties. He and his wife also owned and ran a company called Glen Overseas Limited, which imported fresh produce from Egypt.
Mr Kaheel is also a businessman of Arab origin. He has business interests in a number of countries, including England, though his usual place of residence for a number of years has been in China. In 1979, he arranged for Fairstate to be incorporated, in order for it to acquire a long lease of 12 residential flats in a block at 22–23 Marylebone High Street, London W1 (“the Property”). These flats were let on assured shorthold tenancies, usually to visitors from overseas, and Fairstate employed an on-site manager to collect the rents and to manage the Property on its behalf.
However, after a time, Mr Kaheel became dissatisfied with that arrangement. Because he spent so much time out of England, he was unable to supervise the management of the Property as closely as he would have wished. So, in about August 2006, he decided to appoint a different manager, and to change the way in which the Property was managed. Henceforward, the manager would pay Fairstate a fixed sum each month, but would be entitled to keep for the manager's own account any profits that the manager could make, after expenses, from letting the flats. This would ensure that Fairstate received a defined income, and would pass the risk of unforeseen expenses, poor management, uncollected rents and voids (as well as the chance of additional profit) on to the manager.
Mr Kaheel and Mr Sarian did not at that stage know each other: but they had a mutual acquaintance in Mr Salfiti, who by that time was in sole practice as a solicitor. Mr Kaheel had employed Mr Salfiti as his solicitor in connection with a number of earlier transactions. When Mr Kaheel mentioned his plan for the Property to Mr Salfiti, Mr Salfiti suggested that Mr Sarian would make a suitable manager. According to Mr Kaheel, Mr Salfiti assured him that Mr Sarian was experienced in managing properties, and managed his own portfolio of properties in London.
Thereafter, there were 3 meetings involving Mr Kaheel in connection with this transaction. These took place on 16 th August, 21 st or 22 nd August, and 1 st September 2006. There is a conflict between Mr Kaheel's evidence and that of Mr Sarian as to the location of, and as to who was present at, the first two of these meetings, as well as a disagreement as to the length of, and as to what was said at, all 3 meetings. I shall return to those disputes later in this judgment.
What is not in dispute, however, is that the third meeting, on 1 st September 2006, took place at Mr Salfiti's office, in Mr Salfiti's presence, and that on that date, Mr Kaheel (on behalf of Fairstate, as “Owner”) and Mr Sarian (on behalf of GEML, as “Manager”) both signed the Management Contract. Mr Kaheel and Mr Sarian also initialled each page of the document. Mr Salfiti also signed the Management Contract, as witness to the signatures of Mr Kaheel and Mr Sarian.
It is also not in dispute that, at that same meeting, Mr Sarian signed the Guarantee Form. He did so twice, once above the words “signatures(s) or signature(s) and seals of guarantor”, and once immediately below the words “I Atef Sarian acknowledge receipt of a copy of the above guarantee”. Mr Sarian also initialled each page of the document. Mr Salfiti, again, also signed the Guarantee Form as witness to Mr Sarian's signature. Mr Kaheel, however, did not sign or initial the Guarantee Form.
Both the Management Contract and the Guarantee Form were documents which had been drawn up by Mr Salfiti on Mr Kaheel's instructions. Mr Kaheel's evidence (which was not challenged in cross-examination), was that each of the two documents was presented to Mr Kaheel and Mr Sarian by Mr Salfiti in three copies, all of which were signed. Mr Kaheel kept one signed copy, Mr Sarian was given another, and Mr Salfiti himself kept the third.
The Management Contract
Before I come to the matters in dispute between Mr Kaheel and Mr Sarian concerning the three meetings, I must set out the relevant provisions of the documents which they eventually signed, in order to put those matters into context.
The Management Contract is expressed to be made between Fairstate, as “the Owner”, and GEML, as “the Manager”. By clause 2.1, Fairstate appoints GEML as Fairstate's agent to manage the Property. Clause 3 sets out GEML's duties, which include managing the Property on Fairstate's behalf, purchasing “at no cost to [Fairstate] all necessary stock, operating equipment and operating supplies”, providing “at no cost to [Fairstate] .. all essential maintenance and repair services”, and keeping the Property “painted and exterior lighting systems clean and tidy and replac[ing] all bulbs, strip lights and similar items when required at no cost to [Fairstate]”.
GEML is also required by Clause 3 to pay a management fee to Fairstate of £120,000 per annum in the first year, £150,000 per annum in the second year and £180,000 per annum in the third. This fee is payable by standing order, monthly in advance on the 1 st day of each month. In addition, clause 5.2.1 provides that
A further sum of £10,000 shall be paid at the effective date by [GEML] to [Fairstate] to be held as deposit for the term of the agreement, and shall be refundable only on termination subject to clause
Clause 5.2.1 ends with a blank space. No clause number is given. This is only one of a number of infelicities in the drafting of the Management Contract. For example, clause 5.4 – which is part of the clause providing for payment of the management fee – states that interest at 8% will become payable “in the event that rent remains outstanding for 15 days”. The Management Contract does not provide for the payment of rent.
By way of return for these services and these payments, clause 5.1 states that GEML “shall be entitled to retain all profits from the management of the Property, subject to the management fee being paid to [Fairstate] and net after payment of any cost, fee, demand, expense, invoice related to the management of the Property”.
For the purposes of the preliminary issue which I have to determine, the most important provision of the Management Contract...
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