Murad and Another v Al-Saraj and Another
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Jonathan Parker,Lord Justice Clarke |
| Judgment Date | 29 July 2005 |
| Neutral Citation | [2005] EWCA Civ 959 |
| Docket Number | Case No: A3/2004/1600 |
| Court | Court of Appeal (Civil Division) |
| Date | 29 July 2005 |
[2005] EWCA Civ 959
Lord Justice Clarke
Lord Justice Jonathan Parker and
Lady Justice Arden
Case No: A3/2004/1600
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
(The Hon. Mr. Justice Etherton)
Royal Courts of Justice
Strand, London, WC2A 2LL
Stephen Cogley (instructed by Messrs Tarlo Lyons) for the Appellants
Guy Newey QC, Tom Fyfe (solicitor advocate) (instructed by Messrs Baker & McKenzie) for the Respondents
This is an appeal from parts of the orders dated 28 May and 14 July 2004 of Etherton J. These orders gave effect to the various judgments of the judge following the trial of this action.
Background
The claimants in this action, who are the respondents to this appeal, are two sisters, Aysha and Layla Mohammed Murad. I shall call them the Murads. In the action, they sought from the defendants, who are now the appellants, wide-ranging relief including rescission, declarations, damages and an account of profits and other benefits. The respondents are Westwood Business Inc and Mr Hashim Ibrahim Khahil Al-Saraj, whom I will call respectively Westwood and Mr Al-Saraj. Westwood is a company owned by Mr Al-Saraj.
In about September 1997, Mr Al-Saraj proposed to the Murads that they should together buy a hotel, called the Parkside Hotel in Clapham, London, for £4.1 million, of which £1 million was to be paid by the Murads, and £500,000 by Mr Al-Saraj. The balance was to be raised by way of bank loan. It was orally agreed between the parties that Mr Al-Saraj and the Murads would share the revenue profits from the hotel as to one third each. If the hotel was sold, the capital profit would be shared 50:50 between Mr Al-Saraj on the one hand and the Murads on the other hand. The purchase of the hotel was effected by Danescroft Properties Limited ("Danescroft"), a Gibraltarian company owned by Mr Al-Saraj and the Murads on 26 November 1997, and the consideration stated in the transfer was £3.6 million. In December 1997, the Murads entered into a written agreement with Westwood, called the Westwood agreement by the judge, and this agreement regulated the disposal of the proceeds of sale.
In the action the Murads contended that prior to the purchase of the hotel Mr Al-Saraj represented to them that the purchase price for the hotel would be £4.1 million and that he would make his contribution of £500,000 to the purchase price in cash. In the event, this contribution had been made by offsetting unenforceable obligations of the same nominal aggregate amount due from the vendor, a Mr Al Arbash, to Mr Al-Saraj against part of the price. The obligations included a sum of £369,000, which represented Mr Al-Saraj's commission for introducing the purchasers to Mr Al Arbash. Mr Al-Saraj argued that it was not necessary for him to contribute the £500,000 in cash. However, the judge found against Mr Al-Saraj. He held that Mr Al-Saraj had fraudulently represented that the total price for the hotel would be £4.1 million and that his contribution of £500,000 would be in cash. He also accepted the Murads' case that the actual price of the hotel was £3.6 million not £4.1 million. However, the judge found in favour of Mr Al-Saraj that, although the £500,000 set off could not be described as part of the purchase price for the hotel, the seller would not have sold the hotel for anything less than £4.1 million in total. The judge further held that there was a fiduciary relationship between the Murads and Mr Al-Saraj in relation to the joint venture to acquire the hotel. He held that: "The relationship between [the Murads and Mr Al-Saraj] was a classic one in which [the Murads] reposed trust and confidence in Mr Al-Saraj by virtue of their relative and respective positions." (judgment, para 332). There is no appeal from that holding. The judge further held that Mr Al-Saraj was in deliberate breach of his fiduciary duty in not disclosing to the Murads that he was making his contribution by way of set off.
He found that, separately from the £500,000 referred to above, Mr Al-Saraj contributed £225,817.99 in cash towards the total purchase price and expenses of purchase. It is said by the respondents that Mr Al-Saraj lent this sum to Danescroft, and is therefore a creditor of Danescroft for this amount.
The judge handed down his judgment on 28 May 2004. He made a number of orders, including an order that there should be judgment for the respondents for an account of the appellants' profit from the sale of the hotel. He adjourned the question of whether any part of the £500,000 set off should be treated as part of the costs and expenditure of the appellants for the purpose of calculating the appellants' profit from the transaction.
The matter came back before the judge on 12 July 2004 and again on 25 February 2005 when the judge made a number of further orders. In particular, he ordered that the appellants should account to the respondents for the entire profit which they made from the acquisition of the hotel excluding any sums or benefits to which Mr Al-Saraj was entitled as an employee of the company which managed the hotel. The judge further ordered that "the amount of £500,000 negotiated and agreed between Mr Al-Saraj and [the seller of the hotel] should be treated for the purposes of the account as an expense of the transaction incurred by [Mr Al-Saraj] whereby [Danescroft] was enabled to acquire the Parkside Hotel." The judge rejected the respondents' contention that the sum of £369,000 should not be allowed because it was a secret commission. He held that there should have been a separate pleaded claim for an account of that sum.
The appellants appeal against the judge's order for an account. There are a number of grounds of appeal, but the primary ground is that the account of profits should have been limited to the profits obtained by the breach of fiduciary duty. They submit that the judge should have taken account of the fact that he found that, if the set off had been disclosed to the Murads, they would have agreed to go ahead with the acquisition of the hotel but demanded a higher profit share. Accordingly, the appellants' case is that they should only be liable for the loss incurred by the Murads as a result of the non-disclosure of the set off arrangement.
The appellants raise further grounds of appeal. In particular, they submit that it was not open to the respondents on the pleadings to contend that it had been agreed between the Murads and Mr Al-Saraj that the sum of £500,000 should be contributed by him in cash.
The respondents for their part cross appeal on the issue of whether the judge was correct in holding that the sum of £500,000 should be allowed to Mr Al-Saraj on the account as an expense of the acquisition of the hotel.
The form of the judge's order of 14 July 2004 was not settled until 25 February 2005. Mr Stephen Cogley, for the appellants, has sought leave to amend his grounds of appeal so as to challenge the inclusion in the judge's order of revenue, as well as capital, profits. It is clear from the judge's judgment of 25 February 2005 that the judge intended that such revenue profits should be included on the grounds that they were a profit made in breach of duty.
The judgment below
The judge gave a lengthy judgment on 28 May 2004. As the appeal is against part only of his findings, it is not necessary for me to summarise it all. Crucially, the judge made the following findings about the effect of the alleged misrepresentation:—
"286. Having heard Mrs Murad and her husband in the witness box, and considering the evidence as a whole, I reject any suggestion that she would simply have accepted, without question or proof, that the set-off arrangement of £500,000 was equivalent to a cash contribution of the same amount. She would have enquired as to the genuine existence of the indebtedness and its composition. Such enquiry, if truthfully answered, would have disclosed that the commissions represented by the £500,000 were not the result of any legal obligation under a continuing contractual retainer, but were the result of negotiation and agreement in the context of the sale of the Hotel to Claimants and the Defendants. Mrs Murad would have discovered, on Mr Al-Arbash's evidence, that as much as £369,000 commission was attributable to the sale of the Hotel to the Claimants and the Defendants. In other words, Mr Al-Saraj was treating as a substantial part of his contribution to the purchase price a notional commission on the sale to himself. The overwhelming probability is that Mrs Murad would have rejected any such commission as giving rise to any entitlement to a share in the revenue or capital profits of the Hotel.
287. I consider that the probability is that, in the light of the complicated nature of Mr Al-Saraj's proposed contribution to the purchase price, and the scepticism with which Mrs Murad would have greeted it, Mrs Murad's strong inclination would have been to reject the investment proposal as a whole. I accept her evidence, however, that Mr Al-Saraj was extremely keen to persuade her to invest. He would have used all his skill and experience to persuade her to do so. In the light of an actual cash contribution of over £225,000, I consider, on balance, that he would have succeeded in persuading her to invest, but, in order to achieve that agreement, he would have been prepared to accept that, and Mrs Murad would only have agreed to proceed on the basis that, he (or Westwood) would be entitled to receive less than 50% of...
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