FIRST DISCOUNT LIMITED v Claimant (Respondent) [2002] EWCA Civ 71

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr Justice Buckley)
[2002] EWCA Civ 71Case No A2/2001/1191, A2/2001/1191/A, A2/2001/1191/BVenue Royal Courts of Justice, Strand, London WC2, Thursday, 24th January 2002
Between
FIRST DISCOUNT LIMITEDClaimant (Respondent)JAMES NEIL PERCIVAL CRANSTONDefendant (Applicant/Appellant)
Before
Lord Justice WardLord Justice SedleyLord Justice LongmoreMr B Eder QC (instructed by Messrs Devonshires, London EC2) appeared on behalf of the Applicant/Appellant Defendant.Mr S Berry (instructed by Messrs Baker & McKenzie, London EC4) appeared on behalf of the Respondent Claimant.Date 24 January 2002

LORD JUSTICE WARD:

[1]I will ask Lord Justice Longmore to deliver the first judgment.

LORD JUSTICE LONGMORE:Anglian Processors Limited ("Anglian") was a company which processed packaged foods and needed finance. This it obtained from a company called City (Europe) Plc ("City Europe") on terms that Anglian accepted bills of exchange usually payable in 90 days. These bills of exchange were signed by Mr James Neil Cranston for Anglian, who thus accepted the bills and became liable to pay at maturity. They were also endorsed on the reverse by Mr Cranston personally and such endorsement would ordinarily render Mr Cranston liable on the bills.

[3]The bills were discounted by City Europe with various financial institutions such as, for example (on the one that we have taken for the purposes of the argument) Riggs Bank Europe Limited. In 1997 it became apparent that Anglian could not meet its liabilities. The financial institutions, as holders in due course of the bills, could have sued Mr Cranston by reason of his endorsement once the bills had been dishonoured, but City Europe did not want that to happen because, on their evidence, they were reluctant for their own bankers to see that they had lent money to financially insecure debtors. An arrangement was, therefore, made whereby a company called First Discount Limited ("First Discount") should purchase the bills from the financial institutions for a commission at their full value and themselves be responsible for recovering the amount of the bills from Mr Cranston.[4]This is what First Discount did in respect of bills accepted by Anglian in 1997. Anglian dishonoured the bills. First Discount gave notice of dishonour and served a writ on Mr Cranston in August 1997. He served a defence in September. First Discount then applied for summary judgment. In November 1997 Mr Cranston swore an affidavit in which he stated that he had signed the bills of exchange on the reverse because a representative of City Europe, Mr Ravi Tuli, had told him that he was required to sign the back of the bills to identify the name of the authorised signatory on behalf of Anglian which appeared on the front of the bill. He did not at that stage (as he does now) say that that was a false representation made by Mr Tuli, let alone one that Mr Tuli knew to be false. Even if any such allegation had been made, it would not have provided a defence to a claim by First Discount if First Discount were a holder in due course, viz a holder of the bills who had no notice of any fraud. Moreover, even if First Discount did have notice of the fraud, that would not give any defence to Mr Cranston since First Discount had themselves purchased the bill from a holder in due course. In such circumstances First Discount were what is known in the trade as a "sheltered holder" pursuant to section 29(3) of the Bills of Exchange Act 1882 and could recover on the bills provided that they were not themselves "party to any fraud".[5]Not surprisingly, on 25th November 1997 Master Rose gave First Discount summary judgment under Order 14 of the Rules of the Supreme Court in the sum of £436,337 plus interest, and one would have expected Mr Cranston to have taken steps to satisfy that judgment. He did not do so. First Discount were unable to find any assets of Mr Cranston in England, but did in due course find some assets in Poland and they set about registering their judgment there and attempting to execute on those assets. Mr Cranston did nothing in respect of the judgment given against him until 29th April 1999, when he served an application for permission to appeal from Master Rose's judgment and applied for an extension of time of about 500 days to make that application. Only in December 1999 did Mr Cranston serve evidence in support of that application. At that stage and later he sought to introduce a considerable amount of new evidence in support of an allegation that he had been deliberately deceived by Mr Tuli into endorsing the bills of exchange on the reverse and that First Discount and City Europe were both companies controlled by Mr Tuli, with the result that First Discount were a party to Mr Tuli's fraud. The application came before Mr Justice Buckley on 14th April 2000, when Mr Cranston was represented by leading counsel. Mr Justice Buckley refused to extend time for the purpose of applying for permission to appeal to him. Any time for applying for permission to appeal that decision expired soon thereafter.[6]There is now an application for permission to appeal to this court. That was made on 30th May 2001 and itself needs a grant of a substantial further extension of time. Yet again there is an application that this court read further evidence in addition to that before Mr Justice Buckley.[7]The judge dealt with the application before him by considering first whether there was any adequate explanation for the substantial delay that had occurred and then by considering the merits of the case as a whole. He held that there was no adequate explanation for the period between judgment on 25th November 1997 and 29th April 1999, when the notice of appeal was served, nor for the further time between service of notice of appeal and 21st December 1999, when the first part of the further evidence was served. He also considered that the case in fraud was "hard to believe" on the misrepresentation and "incredible" on reliance. He said further that he was far from convinced that Mr Cranston could "fix the claimant with fraud".[8]In order to obtain a flavour of the learned judge's judgment I will read the following paragraphs from the judgment of Mr

Justice Buckley:

"28.My conclusion is that the long delay in issuing the Notice of Appeal is largely unexplained and certainly unsatisfactorily explained. Doubtless it was this embarrassment that caused Mr Knowles [who was then representing Mr Cranston] to submit, as I have mentioned, that whatever view I formed of the delay it should be outweighed by his assertion as to the merits of the defence. Mr Berry submitted that the reason for the delay was clear. The Claimant had commenced enforcement proceedings in Poland against Mr Cranston. He believed the judgment would not be enforced in Poland and from November 1997 to late-1998 the Claimant made no significant progress there, hence Mr Cranston took no steps to appeal the judgment. In late-1998 and early-1999 the Claimant made progress and succeeded in having its judgment recognised in Poland and certain shares in a Polish company seized by the bailiff. Mr Cranston promptly appealed the English judgment. No further progress was made in Poland for some six months, hence the further delay in bringing the appeal to a hearing. Only when the sale of the shares in Poland became imminent were the application and appeal re-listed. It had been taken out of the List in May as both parties estimated the time allotted in the general List was insufficient. A special appointment was required. I should add I was referred to the inter-solicitor correspondence concerning this last period of delay and it satisfied me that there was delay by the Defendant. The best Mr Knowles could do in that respect was to submit that both parties had an obligation to bring on the appeal. 29.Whilst the inference for which Mr Berry contends is clearly there to be drawn, given the coincidence of timing between events in Poland and the progress of this appeal together with the lack of proper explanations from the Defendant, it is enough for me to conclude that there has been a very long delay in seeking to appeal Master Rose's judgment back in 1997 and no satisfactory explanation for it has been established. Paragraph 45 says as follows: "
As I mention earlier, Mr Knowles submitted that the evidence was clearly enough for leave to defend and that should suffice for present purposes. I am far from convinced on the present evidence that the Defendants could fix the Claimant with fraud and I consider the probabilities to be clearly against the Defendants on the representation and reliance issues. However, in fairness to Mr Knowles, I am prepared to find that I would give leave to defend if this were an application for summary judgment, albeit on terms."[9]Mr Cranston has now instructed new leading counsel in the form of Mr Eder QC, who has submitted as follows: (1)The new evidence before this court could not have been obtained for the hearing before Mr Justice Buckley and should now be admitted because it would have made a difference to the judge's conclusion. For that reason we should grant an extension of time for the hearing of the application for permission to appeal to this court. (2)If the new evidence had been before Mr Justice Buckley, he would not have said that he would have granted leave to defend on terms if an application had been made in time, but he would have granted unconditional leave to defend. (3)The judge's discretion was therefore vitiated because the merits of any defence were considerably greater than he had been led to believe. There was now a prima facie case of fraud which, if raised in time, would have led to unconditional leave to defend. An extension of time should therefore be granted to avoid the claimants' fraudulent conduct giving rise to a judgment in their favour.[10]He accepted that, but for the new evidence in this court, it would be difficult, if not impossible, to attack the judge's exercise of discretion.[11]I therefore consider first the new evidence which has been tendered to this court. It is important to bear in mind the state of the evidence before the judge. That can be summarised by saying: (1)There was evidence that Mr Tuli had said that the purpose of Mr Cranston being asked to sign bills of exchange on the reverse was to identify his signature on the front.[12](2)There was evidence that First Discount and its personnel took instructions from Mr Tuli. That evidence was given by Mr Dawson, who was the managing director of First Discount until June 1999, in his third affidavit in these proceedings. In paragraph 5 of that affidavit he says:
"I joined First Discount as a Director in June 1996. I had had no dealings with, or knowledge of, Mr Tuli prior to my appointment at First Discount other than my interview with him. I was appointed a director from the outset following the interview with Mr Tuli. At the interview I was told by Mr Tuli that `he just wanted someone to fill a position'. I cannot remember who signed the forms making me a director. Whilst I was employed by First Discount, and although I was the sole director, in reality I took my instructions from Mr Tuli. I understood the shareholders were registered offshore and I never met or had contact with them. Mr Tuli represented all these matters. I have just been advised that Mr Tuli was a bankrupt and also had been disqualified from being a director. I certainly had no knowledge of this at the time of joining First Discount."
[13]He then says in paragraph 7:
"First Discount's business was that of purchasing Bills of Exchange. It did not employ any sales or marketing personnel. All of its business came from City Europe."
[14]Then in paragraph 11 he says: "I was told by Mr Tuli that the reason for First Discount purchasing the Bills of Exchange in the way it did was that it would have two benefits:- 11.1Firstly, the chances of recovery would be higher, as First Discount would be a `holder in due course' of the Bill of Exchange rather than have the lesser status as a `holder for value' which City Europe would have (I do remember being told by Mr Tuli on more than one occasion that the `holder in due course' status was important to the modus operandi of First Discount); and 11.2Secondly, City Europe did not wish to have its own bankers see that Bills of Exchange drawn by it on its own customers were being dishonoured on presentation (which would have undermined its own credibility with its bankers)." (3)There was evidence from six witnesses on behalf of First Discount which went to negate the evidence of Mr Dawson and sought to give the impression that First Discount and City Europe were independent creations.[15]The evidence now tendered as further evidence to this court is in the form of a number of witness statements, but Mr Eder accepted that the essence of the new evidence could be distilled from the statements of Mr Edis, Mr Castle and Mr Taylor, as well as a yet further witness statement from Mr Dawson. The new element in the witness statement of Mr Dawson is said to be that the only business of First Discount is the business of discounting bills purchased for and at the request of City Europe. But, as I have indicated, that evidence was also before Mr Justice Buckley. Otherwise it is difficult to see that Mr Dawson adds very much to what he has already said or to the case as a whole. The statements of Mr Edis and Mr Castle are more significant inasmuch as Mr Edis was the in-house solicitor to City Europe between 17th January 2000 and 27th April 2001. He states in terms that City Europe was controlled by Mr Tuli; that City Europe had close links with companies such as First Discount and others he names which he would describe as being operated as a group with City Europe; and he further says that the directors of those companies took their instructions from Mr Tuli as a matter of course. Mr Castle is, in a sense, the converse of that. He was employed as the in-house solicitor to First Discount from January 1997 until early July 1999. He agrees that Mr Tuli was effectively the person controlling the company. He also says that Mr Dawson told him that he took instructions from Mr Tuli. So Mr Eder submits that the case is now much stronger on the identity of both of the two companies concerned having their operations being run by Mr Ravi Tuli. The other statements tendered to us do not, in my judgment, take the matter any further. Mr Berry submitted that the new evidence as a whole is not substantially different from the evidence before Mr Justice Buckley, particularly the evidence of Mr Dawson. But in my judgment it does give somewhat more credence to the assertion that there is an identity between First Discount and City Europe and a limited further degree of credence to the fact that, if there was a fraud, First Discount might arguably be said to be a party to it.[16]It is for that reason that my Lord, Lord Justice Ward, has already said that we have decided to admit the further evidence and to grant an extension of time for the purpose of an application for permission to appeal. Indeed, now that we have heard this case for a day and a half, we have also granted permission to appeal and the remainder of this judgment will deal with the question whether the judgment of Mr Justice Buckley is to be upheld or is to be reversed.[17]In my judgment the important feature of the case as a whole, despite the admission of the new evidence, is that that evidence only goes to one of the two issues on the merits which were addressed by Mr Justice Buckley, viz whether the defendant can fix First Discount with the fraud or, more accurately, in the terms of section 29(3) of the Bills of Exchange Act, whether First Discount was a party to the fraud. The other issue is whether a fraudulent misrepresentation was made and was relied on. The new evidence does not go to this issue. Mr Eder submitted that it went to the credibility of the claimants' evidence on that issue because, if believed, it would mean that the six statements put in before Mr Justice Buckley were lying and perjured statements. That, to my mind, is somewhat fanciful, especially since the approach of Mr Justice Buckley was to assess the likelihood, not only of any misrepresentation having been made, but also of its having been relied on by the defendant.[18]As to those matters, I share the difficulty that Mr Justice Buckley had about the formulation of the allegation of fraud. That has never been put into a pleading and only yesterday did Mr Eder offer overnight to draft a formulation for the purposes of being incorporated into an appropriate pleading if the appeal from Mr Justice Buckley were allowed. I do not propose to read it all, but the essence of it is as follows:
"1.2... the Defendant asked Mr Tuli why he had to sign the back of the bills of exchange. Mr Tuli represented to the Defendant that he was required to sign the back of the bills to identify the name and signature of the authorised signatory on behalf of Anglian which appeared on the front of each bill as his name was not printed on the front and confirm that the signature was his. 1.3The Defendant thereafter relied upon this representation in signing the bills of exchange subsequently signed by him including those bills of exchange the subject matter of this action. In so doing it was never the actual intention of the Defendant (as Mr Tuli and/or City well knew) to render himself personally liable to City and/or any subsequent holder of the bill."
[19]Certain matters are then set out in support. Then the falsity is alleged as follows:
"1.5The said representation was untrue in that the signing on the back of the bills by the Defendant would or would arguably render the Defendant personally liable to any holder of the bill in the event of dishonour by Anglian."
[20]Even in its current form, this plea is still difficult to follow. The representation is that the signature on the back was for the purpose of verifying the signature on the front, whereas the falsity alleged is that signing on the back would render the defendant personally liable. That is not on the face of it, or at all, part of the representation alleged, which would have to be that the defendant would not be personally liable. The difficulties of formulating this plea (which is itself different, as drafted in written form by Mr Eder, from the form which he submitted to us orally yesterday morning and is also different from the plea suggested by Mr Knowles to Mr Justice Buckley when the matter was before the judge) show the very real difficulty of understanding what the alleged fraud is. It is axiomatic that a bill of exchange cannot be said to be affected by fraud in the absence of a fraudulent misrepresentation, see Credito Italiano v Birnhak [1967] 1 Lloyd's Rep 314, 317 per Sachs LJ; and yet the more one looks at it, the more it seems to be an expression that nothing positive was said about personal liability and, if anything is to be implied, any such implication would be a matter of opinion. The judge felt it was incredible that Mr Cranston could have relied on any expression of opinion, let alone an implied expression of opinion, from someone who was on the other side of the negotiating divide in the discussions about granting credit to Anglian.[21]There are yet further difficulties. The representation was made apparently in 1995. It therefore has to be a continuing representation up to and including the time when these particular bills were signed. First Discount was not itself incorporated at the time when the representations were first made; and Mr Cranston was signing bills of exchange in this form in 1994, before the representation was made in 1995.[22]For all these reasons there is serious difficulty in the way of success on the issue of fraudulent representation. Mr Eder invites the court to look at the matter in a global way and to say that there was a fraudulent misrepresentation made in 1995; that it did continue; that when Mr Tuli, who was the author of that representation, decided to get First Discount to buy the bills from the intermediary banks and thus obtain the position of sheltered holder, the fraud continued and that made First Discount a party to the fraud. That is, while not an impossible scenario, just the kind of assertion that judges of the Queen's Bench Division, when faced with applications for summary judgment, almost always resolve either by giving judgment (because they just do not believe the defendant on matters such as the making of the representation or reliance) or granting conditional leave to defend, the terms usually being that the money is to be brought into court.[23]It seems to me, therefore, that, despite the new evidence, Mr Justice Buckley would not, if he had had that evidence before him, have given any further credence to the defendant's case than he did by saying that he would have been minded to grant conditional leave to defend if the matter had come before him in time. I therefore find it impossible, even in the light of the new evidence, to say that the judge's assessment of the merits of this matter was in any way in error.[24]I have said nothing so far about the lapse of time, which in one sense is the primary matter which must concern this court, as it concerned Mr Justice Buckley. Mr Eder had nothing of any substance by way of criticism of the judge's approach to the initial lapse of time between the date when Master Rose gave his judgment and the date when notice of appeal was served. He submitted merely that, although that delay was long, it was nevertheless understandable because it was not until he became aware that a similar case was proceeding (known as the Lambert case, which came to a hearing before Mr Peter Smith QC, sitting as a deputy judge of the Chancery Division, in January 1999) that Mr Cranston could have been expected to put together evidence himself for the purposes of an appeal. Mr Justice Buckley rejected that on the basis of evidence that it was only as the attempts at execution in Poland became more and more pressing that in fact Mr Cranston decided to do anything. In my judgment that approach to the matter by Mr Justice Buckley is quite unassailable.[25]There is then the further delay. Having served a notice of appeal on 29th April, Mr Cranston did not progress the matter until he served his own affidavit on 21st December 1999. Mr Eder submits that the delay between April 1999 and April 2000 was because of court commitments. But the evidence does not bear that out and indeed it would be amazing if the Queen's Bench judge in chambers were not able to give a date for an Order 14 application for a whole year and there was thus yet a further delay. That is a matter which again Mr Justice Buckley felt to be important.[26]In the end Mr Justice Buckley decided that, looking at the matter as a whole as far as the merits of the case were concerned, it was a matter for conditional leave to defend if there were no time problem. In the event, the time problem being so great and being not satisfactorily explained, he decided that the matter should rest where it did and he refused an extension of time for the purposes of this very late appeal. That was a matter which was within the discretion of the judge. In my judgment he applied the right criteria and it is impossible to criticise his conclusion. If I myself had been exercising that discretion, albeit with the new evidence, I would have come to the same conclusion: that it would be inappropriate to extend the time for the purposes of an appeal from Master Rose to the Queen's Bench judge.[27]There are innumerable authorities in which judges at first instance and this court have said that bills of exchange are to be treated as cash. That is always subject to the proviso that, in a case where there is a reasonable argument that the bill of exchange has been procured fraudulently, there would normally be leave to defend. But one has to recall two things: first, that parties in business who have judgments in their favour must be entitled to regard matters as closed after times of appeal have elapsed in other than wholly exceptional circumstances; and secondly, that if Mr Cranston has the good case in fraud which Mr Eder asserts he does, there is absolutely no reason why he cannot bring that case of fraud as a cross-action, just as, in every other case where bills of exchange have been treated as cash, parties are left to bring cross-actions for any complaint that they may have.[28]For my part, I would dismiss this appeal.

LORD JUSTICE SEDLEY: I agree with everything that my Lord has said, but I would respectfully emphasise one thing. A defendant who seeks to erect a defence which he has not so far pleaded has an elementary obligation to come to court with a draft pleading. The obligation is especially important when the new case is one of fraud. Yet it was not until the start of the second day of the hearing of this application, and then at the court's prompting, that Mr Eder QC tendered a draft pleading. For my part, it has been the opportunity to focus on this which has crystallised my thinking on the case. It should undoubtedly have been there from the start.

[30]For the reasons which have been set out fully by my Lord, Lord Justice Longmore, I too would dismiss what is now the defendant's appeal.

LORD JUSTICE WARD: I agree with both judgments and therefore the appeal is dismissed.

Order

application to extend time granted; application to admit fresh evidence granted; application for permission to appeal granted; appeal dismissed with costs (to include costs of the applications); interim payment on account of costs of £20,000.

Cited in 2 later judgments