J. J. Coughlan Ltd v Ruparelia and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Dyson,Lord Justice Longmore,Lord Justice Peter Gibson |
| Judgment Date | 21 July 2003 |
| Neutral Citation | [2003] EWCA Civ 1057 |
| Docket Number | Case No: A2/2002/1954 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 July 2003 |
[2003] EWCA Civ 1057
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(Mr Justice Mackay)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Peter Gibson
Lord Justice Dyson and
Lord Justice Longmore
Case No: A2/2002/1954
Mr Andrew Sutcliffe QC and Mr David Quest (instructed by Messrs Woolsey Morris & Kennedy) for the Appellant
Mr Michael Pooles QC and Mr Mark Cannon (instructed by Messrs Reynolds Porter Chamberlain) for the Respondent
Outline of the case
The defendants have at all material times been in practice as partners in a firm of solicitors known as Ruparelia Thaker. In these proceedings, the claimant alleges that it was the victim of a fraud in which Mr Ruparelia participated, whereby it lost US $500,000. There are two principal claims. The first is a claim in the tort of deceit on the basis of statements made by Mr Ruparelia on 28 June 1999. The liability of the firm in relation to this claim depends on whether the statements were made "in the ordinary course of the business of the firm" within the meaning of section 10 of the Partnership Act 1890 ("the 1890 Act"). The second is a claim for damages for breach of an Escrow Agreement. The firm's liability in relation to this claim turns on whether the making of the agreement was "an act for carrying on in the usual way business of the kind carried on by the firm" within the meaning of section 5 of the 1890 Act.
Following a trial, Mackay J found for the claimant against Mr Ruparelia in respect of both claims, and awarded damages in the sum of $622,520 (inclusive of interest). But he dismissed the claims against the firm on the grounds that the acts of Mr Ruparelia were not in the ordinary course of the business of the firm. He considered that there was no material difference between "the ordinary course of the business" within the meaning of section 10, and "the usual way of business of the kind carried on" within the meaning of section 5. In my judgment, he was right to do so, and the contrary has not been argued on this appeal. The claimant appeals against the dismissal of its claim against the firm with the permission of Ward and Jonathan Parker LJJ.
The facts
The claimant company is a successful ground work contractor in the building and engineering field. Its managing director is Mr McGarry. The company's turnover is about £5 million a year. By 1999, it had built up a sum of about £1 million surplus cash. The directors of the company were looking for investment opportunities. To this end, Mr McGarry engaged the services of Mr Mohanan, who describes himself as a "corporate strategy analyst". In the middle of 1999, a man called Maher telephoned Mr Mohanan from Canada, saying that he was aware of an investment opportunity. The upshot of this was that on the 28 June Mr McGarry and Mr Mohanan attended a meeting to hear a presentation of a proposed investment. The meeting was also attended by Mr Hinojosa, who produced a business card purporting to show that he represented "Economic Solutions", which dealt in joint ventures and international bank programmes. Also present were Mr Sarasia of Grosvenor House Finance Corporation ("GHFC") and Mr Ruparelia. Mr Hinojosa introduced Mr Ruparelia as his solicitor. Mr Ruparelia produced a company letterhead from notepaper showing the name of his firm as "Ruparelia Thaker" with an address in Leicester, and Mr Thaker as his only partner. The judge described Mr Hinojosa as "a fraudsman from beginning to end", and said that the others (including Mr Ruparelia) "were party to his fraudulent intentions". There is no challenge to these findings. The investment scheme was described by Mr Hinojosa. It involved the claimant paying $500,000, in return for which it would have the use of a $10 million investment fund for one month. The $500,000 would be paid into Mr Ruparelia's solicitor's account. It would be released only after Mr Ruparelia had confirmed that the $10 million was in place with a major bank and he had verified that "bank pay orders" were in his possession. Mr Hinojosa explained that a "bank pay order" was a binding obligation from a bank to pay the claimant its share of the profits. As Mr Hinojosa put it, this would "give the company guaranteed security from the bank". In return, the claimant would receive as its share in the venture $2.5 million in one month, an annualised return of 6000%. At paras 20 and 21 of his witness statement, Mr McGarry said that he was "rather sceptical" as to whether this return would be achieved, and that his main concern was to ensure that his company's money was safe. But the judge found that, in the presence of Mr Ruparelia, Mr Hinojosa promised a return of 6000% per annum, and Mr Ruparelia later confirmed this. There is no challenge to this finding of fact. Indeed, there is no challenge to any of his findings of primary fact.
Mr McGarry was anxious to obtain reassurance that his funds would be entirely safe. He was given a number of documents. These included a "Partnership Financial Undertaking" which appeared under the name of an entity called "Solegasa Del Norte" from an address in Mexico. Other documents supplied to the claimant by Mr Ruparelia were drafts of a Principal Agreement and Escrow Agreement. Mr Ruparelia held the Principal Agreement on the disk of a laptop computer that he had with him. He printed off copies at the meeting. He did the same in relation to the Escrow Agreement.
The judge found that Mr Hinajosa assured Mr McGarry that he had effected this investment scheme a number of times previously, that everyone had been paid, returns were very good and that he hoped to have a long-standing relationship with Mr McGarry. After Mr Hinojosa had left the room, Mr McGarry asked Mr Ruparelia for confirmation of what he had been told by Mr Hinojosa. Mr Ruparelia provided that confirmation. The judge found that Mr Ruparelia said that he had worked with the group on a number of occasions, that the returns were very good and that "everybody gets paid and I will ensure that your funds are protected and there is no risk to your money". Mr Ruparelia's statements at this meeting form the basis of the claim in tort.
Mr McGarry and Mr Mohanan perused the documents with some care. Mr McGarry wanted some amendments. A further meeting took place on 30 June. Mr McGarry was unable to attend, but Mr Mohanan met Messrs Hinojosa, Ruparelia and Sarasia. Mr Ruparelia said that they could not amend the contract because it was approved by "major authorities or regulatory authorities". He would, however, give a separate solicitor's undertaking. Mr Mohanan reported this to Mr McGarry, who authorised the matter to proceed on that basis. Mr Ruparelia drafted a letter of undertaking whose terms did not meet with the approval of Mr McGarry. Another meeting was arranged for 1 July. This was attended by Messrs McGarry, Mohan and Hinojosa. At this meeting, Mr McGarry signed the Principal Agreement and the Escrow Agreement. He did so on the understanding that the funds would not be forthcoming from him until the solicitor's undertaking was in an acceptable form.
The judge found that the two agreements were "shams" to the knowledge of Mr McGarry. The Principal Agreement was between GHFC and the claimant. It contained a number of recitals which were untrue. These included:
"A The Applicant for himself his agents and principals and all persons for whose benefit he is acting represents and warrants to the Company that:
(1) he and they are familiar with the type of transaction provided for and contemplated by this Agreement and the Escrow Agreement;
(2) he has been involved in transactions of the nature of the transaction provided for and contemplated by this Agreement and the Escrow Agreement; ……
….
(4) the Applicant has been advised of and is aware of the
need for it to take and has taken independent legal
advice in relation to this Agreement and the Escrow
Agreement;"
The operative part of the agreement provided that, upon the parties entering into the Escrow Agreement and upon the Escrow Agents (the defendant firm) receiving the "arrangement fee" of $500,000 from the claimant, the "Bank Advice" evidencing the existence of the investment funds of $10,000,000 would be delivered by the Escrow Agents to the bank nominated by the claimant for that purpose. The agreement contained other detailed provisions to which it is not necessary to refer.
The Escrow Agreement was between the defendants (as Escrow Agents), GHFC and the claimant. This provided for the payment of the arrangement fee to the defendants and the "verification" by them of the "due issue of the Bank Advice by the issuing Bank" (clause 3.1). Clause 4.1 provided:
"The Escrow Agents shall irrevocably pay and release the Arrangement Fee to either the Company or to the Applicant (as the case may be) as follows:
…..
B. In the event that the Bank Advice is not issued within 7 banking days after the date of compliance by the Applicant with the conditions precedent set out in clause 2.1 of the Principal Agreement or that the Escrow Agents are unable to satisfy themselves that the Bank Advice has been duly issued by the Issuing Bank or that it does not in all material respects conform to the text set out in Schedule A of the Principal Agreement, then the Escrow Agents shall release and pay the Arrangement Fee to the Applicant or to its order".
The claimant's contractual claim is that there was a breach of clause 4.1 of the Escrow Agreement.
In support of his conclusion that this agreement was a sham,...
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