Richard Edwards (Claimant/Appellant) v Jahit Ahmet Ashik
| Jurisdiction | England & Wales |
| Judge | Mr Fancourt |
| Judgment Date | 24 July 2014 |
| Neutral Citation | [2014] EWHC 2454 (Ch) |
| Docket Number | Case No: CH/2014/0134 |
| Court | Chancery Division |
| Date | 24 July 2014 |
2014 EWHC 2454 (Ch)
Timothy Fancourt QC
Sitting as a Deputy High Court Judge
Case No: CH/2014/0134
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mark Warwick Q.C. (instructed by Kaye Tesler & Co) for the Appellant
Philip Kremen (instructed by Hughmans) for the Respondent
Hearing dates: 3 July 2014
Mr Fancourt QC:
The Appellant, Mr Edwards, appeals from an order of the Central London County Court made on 23 January 2014, upon the trial of preliminary issues in this action by Her Honour Judge Faber. The preliminary issues were directed to be tried by order made on 16 November 2012 and are the liability issues in a claim for rescission of a lease, mortgage and sale agreement on the basis of fraudulent misrepresentation. The lease, sale agreement and mortgage were all made on 8 November 2010 and I shall refer to them compendiously (though technically inaccurately) as "the Contract" and to the lease as "the Lease". The misrepresentations alleged were made in replies to pre-contract enquiries relating to the sale of a business of a nightclub operated from 19, 23 and 25 Lewisham Way, London SE14 ("the Premises") and the grant of a new lease of the Premises, by the Respondent, Mr Ashik, to Mr Edwards. Mr Edwards completed the purchase of the business and went into occupation of the Premises pursuant to the Lease.
The issues directed to be tried as preliminary issues were the following:
(1) Whether there were actionable misrepresentations as pleaded at paragraph 5 of the Particulars of Claim;
(2) Whether the Claimant was induced by and relied upon any misrepresentations pleaded in entering into the various agreements pleaded at paragraph 4 of the Particulars of Claim;
(3) Whether the Claimant has lost any right to rely upon any misrepresentations as contended for generally by the Defendant and in particular at para 15(ii) of the Defence;
(4) The legal effect of any actionable misrepresentation in the light of the findings on the above preliminary issues.
Para 15(ii) of the Defence pleaded affirmation by continuing to trade from the Premises with knowledge of the right to elect to rescind.
The Judge found that there were fraudulent misrepresentations in the replies to the pre-contract enquiries. There were in fact several different replies to different sets of enquiries, but for the purposes of the appeal it is unnecessary to distinguish between them and I shall refer to them as "the Replies". The Judge concluded:
"On the evidence in the case, in particular, those points set out above I find that the Defendant knew that there had been a complaint, that the local authority had made recommendations for dealing with the problem and that he had not implemented all of them, that he did not tell the Claimant of this problem and that he deliberately and dishonestly decided not to tell the Claimant about it because he was anxious to sell the club and produce an income from it and the Claimant was the only person who offered for it." (para 186)
There is no appeal by Mr Ashik against those findings.
In view of her conclusion, the Judge then proceeded to address the second preliminary issue in the following terms:
"Thus in the light of the agreed law Mr Edwards has the benefit of a presumption that he was influenced at least to some extent by the defective statements and the burden of proof lies on Mr Ashik to rebut that presumption. So I shall now move to consider whether or not Mr Ashik has rebutted that presumption." (para 187)
In the course of that consideration, the Judge identified as an issue the question of what Mr Edwards would have done had he been told of the noise complaints that had been made to the local authority. She said:
"If the Defendant can establish that Mr Edwards would have gone ahead with the acquisition anyway then he will have proved that there was no reliance on the representations in the pre-contract enquiries." (para 195)
It is the Judge's identification and resolution of that issue that forms the basis of Mr Edwards' appeal.
After reviewing the evidence relating to that issue, the Judge made the following findings:
"the Defendant has established on the balance of probabilities that even had the solicitor told Mr Edwards about the complaints it is more likely than not that Mr Edwards would have proceeded with the purchase. I find that the answers to pre-contract enquiries played no part at all in Mr Edwards' decision to go ahead." (para 204)
In view of that conclusion, the third preliminary issue did not strictly arise, but the Judge understandably nevertheless proceeded to decide the issue. She concluded that, if Mr Edwards had a right to rescind, he lost it by affirming the Contract: see paras 216, 217 of the Judgment.
Mr Edwards appeals against the determination of the second and third issues, with permission given by the Judge. In giving permission, the Judge gave as her reasons that the decisions on causation and affirmation were difficult and could have gone either way.
On the second issue there is in substance a single ground of appeal, presented by Mr Warwick QC on behalf of Mr Edwards, namely that the Judge misdirected herself in treating the issue of inducement as turning on the answer to the question: what would Mr Edwards have done if he had been told the truth about the complaints? Mr Warwick argues that, in view of the presumption in favour of inducement by a dishonest misrepresentation, and in view of the terms of clause 10.3 of the contract of sale, the Judge should have held that the dishonest answers were a material cause of Mr Edwards' entry into the Contract.
On the third issue, Mr Warwick argues that the Judge was wrong to hold that continuation of use of the nightclub was an unequivocal act affirming the Contract in view of the correspondence written by Mr Edwards' solicitors to Mr Ashik at the same time, alleging fraud and threatening legal proceedings.
Mr Ashik has served a Respondent's Notice in relation to the second issue. Represented by Mr Kremen, Mr Ashik seeks to uphold the Judge's decision on the additional grounds that –
(1) The Judge should have found that Mr Edwards had no knowledge of the Replies and so could not have been induced thereby;
(2) On the pleaded case, it was not open to the Judge to hold that Mr Edwards was induced by what he had been told by his solicitor, who had read the Replies;
(3) The Judge should have held that Mr Ashik succeeded in disproving inducement by reason simply of the admissions made by Mr Edwards in his cross-examination.
I shall deal first with the issue of inducement.
Inducement
Mr Edwards' pleaded case was that before the Contract was made, and in order to induce him to enter into the Contract, Mr Ashik made various representations concerning the Premises and the nightclub business, and these representations are set out in paragraph 5 of the Particulars of Claim. Paragraph 6 then pleads: "the Claimant was induced to enter into the contracts by the Representations".
Paragraph 7 of the Defence states:
"It is denied that the aforesaid statements and replies induced the Claimant to enter into the contract with the Defendant as alleged in paragraph 6 of the Particulars of Claim. The Claimant was fully appraised of the situation regarding noise issues and the Council's recommendations in that regard in May 2010 (see below) and relied on what he had been told in May 2010, not the matters referred to in para 5 of the Particulars of Claim."
In his Reply, Mr Edwards denied the second sentence of paragraph 7 of the Defence, denied the particular factual allegation and then pleaded:
"Further and in any event it is quite wrong of the Defendant to seek to negate his formal responses to enquiries by relying upon the (disputed) contents of a conversation. The purpose of inter-solicitor pre-contract enquiries is to provide a prospective buyer/lessee with information upon which he can rely. The Claimant repeats that he relied upon the Representations."
Mr Edwards gave evidence in chief to the effect that he and his wife had sold their home and were prepared to gamble their life savings on buying a nightclub. He said that they instructed their solicitor to undertake all the usual enquiries on their behalf, and that the solicitor advised them having made those enquiries and agreed the form of the Contract. He further said that they relied upon the solicitor to advise them if anything untoward was found out in relation to the Premises and the lease; that, being inexperienced in such matters, they relied on the solicitor, and that if they had been informed that there had been complaints in the past resulting in visits by officers of the Council then they "most certainly would not have proceeded with the acquisition".
Mr Edwards was cross-examined by Mr Kremen on the afternoon of the first day of the trial. I have a full transcript of the cross-examination. The clear impression given by Mr Edwards' evidence is that he was a very unsophisticated purchaser, having no experience of carrying on or buying a nightclub business, but very much liking the idea of it and wishing to proceed with the acquisition. The flavour of this is captured at page 11F–12C of the transcript, where Mr Edwards admitted that he didn't look at any other clubs, didn't inspect the business books, wasn't concerned about the business financial history and didn't commission any survey of the Premises. He said the Premises just looked nice and the club felt right.
Mr Edwards was then asked about what he knew in 2010 about the replies to the pre-contract enquiries. He said:
"As I said, I can't recall anything. I do – the only thing...
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...ER (D) 782 §§ 59–60, quoting Australian Steel & Mining Corp v Corben [1974] 2 NSWLR 202, 209 per Hutley JA. (See also Edwards v Ashik [2014] EWHC 2454 (Ch) §§ 366 The representee, having shown that the representation was actively present in his mind, may be assisted by an evidential presum......