Gross v Lewis Hillman Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HARMAN,LORD JUSTICE CROSS,LORD JUSTICE WIDGERY |
| Judgment Date | 07 July 1969 |
| Judgment citation (vLex) | [1969] EWCA Civ J0707-6 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 July 1969 |
[1969] EWCA Civ J0707-6
Lord Justice Harman
Lord Justice Widgery and
Lord Justice Cross
In The Supreme Court of Judicature
Court of Appeal
(Civil Division)
(From: Lord Justice Russell - sitting as an Additional Judge of the Chancery Division)
Mr. JOHN BALCOMBE, Q.C. (instructed by Messrs. A. Kramer & Co.) appeared on behalf of the Appellant (Plaintiff).
Mr. RAYMOND WALTON, Q.C. and Mr. PETER MILLETT (instructed by Messrs. Clintons) appeared on behalf of the Respondents (Defendants).
I will ask Lord Justice Cross to deliver the first judgment.
This is an appeal by the plaintiff, Anne Gross, against an order of Lord Justice Russell (sitting as an additional judge of the Chancery Division) made on the 4th October last year by which he dismissed her claim against the first defendants, Lewis Hillman Ltd., to rescind their conveyance to her made on the 19th November, 1965, of the freehold reversion of 93 Castle Street, Edgeley, Stockport, Cheshire, on the ground of fraudulent misrepresentations made as to the status of the lessee, and also her claim against both the first defendants and the second defendants, Henry James & Partners, for damages.
The first defendants are a company wholly controlled by one Edward Allan James, and the second defendants are a firm of estate agents, which again is in substance James; so stripped of technicalities, the action can be regarded as one brought against James.
On the 21st October, 1965, the first defendants contracted to sell the freehold reversion in question subject to a lease for 21 years from the 8th September, 1965, to a company known as H.G. Somers & Sons Ltd. at a rent of £800 a year, with provision for subsequent adjustment to a company known as Grace Rymer Investments Ltd., which was controlled by a Colonel Sinclair.
The statements which are relied on as being fraudulent misrepresentations were contained in two letters, dated the 1st and 3rd September, 1965, addressed by the second defendants to Grace Rymer Investments Ltd., and in a banker's reference enclosed in the second letter.
Grace Rymer Investments Ltd. entered into the contract on its own account and not as agent for Mrs. Gross, but Colonel Sinclair was prepared to allow the lady to have the benefit of it if she wished on the terms of paying a commission. She accepted that offer, and the property subject to the lease was eventually conveyed directly to her by the first defendants, who owned it,and she paid the purchase price of £7,700.
So two separate questions arise: first, whether the contract between the first defendants and Grace Rymer was induced by fraudulent misrepresentations made by James, and secondly, whether, if it was, the plaintiff can in the circumstances claim rescission of the conveyance to her on account of those misrepresentations. The judge held that James was not guilty of fraud; and expressed no view on the second point.
I must now say something of the way in which James makes his living. He buys as cheaply as he can in the name of one of his companies, such as the first defendants, a property which he thinks will be suitable for letting as a shop. As soon as possible after the purchase he lets it to a shop tenant at the highest rent which he can get - and in order to induce the tenant to take the lease he often makes it a substantial capital payment which is described as a "shopfitting allowance". Having in that way, to use his words, "created an investment", he sells the reversion as quickly as he can for as large a sum as he can get.
James has carried on this mode of business with success for a number of years, and it is only fair to him to say that many of the people to whom he has sold the investments which he has created in this way have been big property companies, advised by eminent surveyors, who have not subsequently complained of their bargains.
In 1963 James met two brothers, John and Robert Marshom, who were running grocery supermarkets through a company called Marshom (Provisions) Ltd. and fruit shops through a company called Marshom (Fruiterers) Ltd. In the course of the next year or eighteen months James offered to them and they took leases of a number of properties which he had recently bought and after the grant of the leases he - according to his ordinary practice - promptly sold the reversions.
The Marshoms indulged in what is called "over-trading". At the end of 1964 their companies went into insolvent liquidation, and the liquidator disclaimed the various leases.
One might have thought that this mishap would have discouraged James from further dealings with the Marshoms; but it did not. They had started up business again, selling men's wear through the medium of a company called Twenty Mills Clothing Ltd., and in February and March, 1965, James granted that company leases of two shops which he, or rather one of his companies, had recently bought, and soon afterwards he sold the reversions.
Then about July, 1965, the brothers, wishing to launch out on the sea of commerce on a bigger scale, conceived the idea of operating a chain of wool shops. They discussed this project with James at the end of July at a meeting at the Cumberland Hotel in London. He had already acquired earlier in 1965 four properties (including 93 Castle Street, Edgeley, Stockport)which might be suitable for their purposes, and it was arranged that the brothers should acquire a moribund wool company with a Bradford registration and that James should grant leases of the properties in question to it with a view subsequently to selling the reversions. It was also agreed that the company should open an account with James' bankers (Midland Bank, City Road, B.C., the manager of which was a Mr. Youngs) and that he would discuss the opening of the account with Youngs - to whom he was known as an old and valued customer. James said that he was given to understand by the Marshoms that members of their families were interesting themselves in the venture and would be putting £10,000 or so into it.
Immediately after that meeting James had a meeting with Youngs; and on page 217 of the bundle there is Youngs' version of what passed at that meeting, contained in a letter from him to James written in October, 1966, after trouble had arisen. It runs as follows: "Dear Mr. James, Further to our conversation to-day with regard to the Status Reports given on behalf of Somers & Sons Ltd. the position as I see it is as follows: In July last you visited me and said that the above Company had been acquired by business acquaintances in Manchester as a moribund company for the purpose of establishing a small chain of retailwool shops. Your position was that, through your own companies, you were providing initial finance to be utilised for shop fitting so that trading could commence. You felt that the project had excellent possibilities and envisaged active participation personally at a later date. You put it to me that the Company would need trade references to commence. In view of the fact that you were introducing the account, providing capital and envisaged joining the board, I agreed to co-operate in this". Of course, neither James nor Youngs at that date knew the name of the moribund company which was to be acquired because it had not yet been acquired; but subject to that correction James accepted that letter as a substantially accurate version of what passed between him and Youngs.
The Marshoms soon found a dormant textile company suitable for their purposes. It was H.G. Somers & Sons, Ltd., which had been incorporated on the 11th June, 1928, with a capital of £5,000, all of which was paid up. It had ceased to trade about 1935, and the directors, having got in its assets and paid its debts, distributed the surplus among its shareholders without any order of the Court or any liquidation. So it had remained on the register for some 30 years as a mere shell with no liabilities and no assets - unless one treats the money distributed to the shareholders as a loan made to them. Mr. Rushton, a Bradford accountant, had this company on his books - so to say - and its shareholders were willing to sell and did sell their shares to the Marshoms for £50. There is no doubt that this sale was agreed on at a meeting at Rushton's office in Bradford on August 24th at which Rushton and the Marshoms were present throughout; and that shortly afterwards the shareholders executed transfers of their shares to the Marshoms and the Marshoms paid them, through Rushton, £50. But there was a conflict of evidence as to how much James knew of the transaction. There is no doubt that he motored the Marshoms over from Manchester to Rushton's office in Bradford, and that he knew that they were buying a dormant company. There is also no doubt that he was there atthe end of the meeting and motored them back. The Marshoms and Rushton say that he was there throughout and knew that they were only paying £50 for the shares and, consequently, must have known that the company had no assets. He, on the other hand, says that he was not present at that part of the meeting at which the price was fixed, that he never realised that the £5,000 capital was not represented by any assets, but assumed that the Marshoms were paying a substantial sum for the company. The judge accepted his evidence on this point. That is a matter to which I will return later. But I should mention now that throughout nearly all the trial everyone concerned was under a misapprehension as to the date of this meeting. All of them - Rushton, the Marshoms and James - put it at the end of July; but at a very late stage in the trial James produced his diary (which he ought, of course, to have disclosed on discovery) which shows that the meeting was on the...
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