ED&F Man Liquid Products Ltd. v Patel & Anor [2003] EWCA Civ 472

Case No A3/2002/1450[2003] EWCA Civ 472
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(HHJ DEAN QC SITTING AS A JUDGE OF THE HIGH COURT)
Venue Royal Courts of JusticeDate Friday 4 April 2003
Strand,
London, WC2A 2LL
Before
LORD JUSTICE PETER GIBSONLORD JUSTICE POTTER
Between
ED&F MAN LIQUID PRODUCTS LTDAppellantPATEL & ANRRespondent
(Transcript of the Handed Down Judgment ofSmith Bernal Wordwave Limited, 190 Fleet StreetLondon EC4A 2AGTel No: 020 7421 4040, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr RobertThomas (instructed by Clyde & Co) for appellantMr Simon Bryan (instructed by Mills & Co) for respondent
JudgmentAs Approved by the CourtCrown Copyright ©
[1]This is an appeal from a judgment of His Honour Judge Dean QC sitting as a judge of the High Court by which he rejected the application of the first defendant to set aside a judgment obtained against him in default of acknowledgment of service. The action had been brought against the first defendant and the second defendant, as partners trading in industrial alcohol under the name of “Quickstop Group” and, as such, liable to pay for two shipments of alcohol the subject of the claim. Judgment had also been signed against the second defendant who applied with the first defendant to set it aside. The second defendant was successful. Each defendant faced the burden placed upon him by CPR Part 13.3(1)(a), namely to demonstrate that he had “a real prospect of successfully defending the claim”. The judge held that the second defendant had a real prospect of success on the basis of his assertion that he was not a partner in, but merely employed by, the Quickstop Group. However, so far as the first defendant was concerned, the judge dealt with the matter upon the merits as they appeared from the evidence before him and held that, in the light of a series of unqualified admissions of the claimants’ debt over a prolonged period prior to judgment, there was no real prospect of a successful defence.[2]Before the judge, as on this appeal, there was debate over the precise meaning or emphasis of the test to be applied to the defendant’s prospects of success under CPR 13.3.(1)(a); in particular(1) whether it is the same as under CPR Part 24 which uses similar terminology in respect of the criterion for summary judgment against a defendant, namely that he has “no real prospect of successfully defending the claim or issue” (see CPR 24.2(a)(ii)) or(2) whether (if different) the court should adopt the approach set out in Alpine Bulk Transport Co Inc v Saudi Eagle Shipping Co Inc [1986] 2 Lloyd’s Rep 221, a decision under the equivalent rule of the former Rules of the Supreme Court, as adopted and applied with reference to CPR 13.3.(1) by Moore-Bick J in International Finance Corporation Utexafrica S.p.r.l. (2001) CLC 1361.[3]In the Saudi Eagle, when comparing the test to be met by a defendant under R.S.C. Order 14 (“an arguable case”), with the standard laid down in Evans v Bartram (H.L.) [1937] AC 473 in respect of a defendant seeking to set aside a regular judgment signed in default, the Court of Appeal (per Sir Roger Ormrod) said:
“… Evans v Bartram … clearly contemplated that a defendant who is asking the court to exercise its discretion in his favour should show that he has a defence which has a real prospect of success. … Indeed it would be surprising if the standard required for obtaining leave to defend (which has only to displace the plaintiff’s assertion that there is no defence) were the same as that required to displace a regular judgment of the court and with it the rights acquired by the plaintiff. In our opinion, therefore, to arrive at a reasoned assessment of the justice of the case the court must form a provisional view of the probable outcome if the judgment were to be set aside and the defence developed. The “arguable” defence must carry some degree of conviction.”
[4]Later, having considered the facts of the case, the court concluded:
“In the circumstances we do not think that the defendants have shown that they have a defence which has any reasonable prospect of success.”
[5]In the Utexafrica case, Moore-Bick J applied the Saudi Eagle approach to CPR 13.3.(1) in the following passage of his judgment at p.1363:
“The application is made under 13.3.1 of Civil Procedure Rules which gives the court the power to set aside the default judgment if the defendant has a real prospect of successfully defending the claim. Mr Howard drew my attention to the commentary in paragraph 13.3.1 of Civil Procedure and the decision of the Court of Appeal in the Saudi Eagle in which the court held that in order to set aside a default judgment under Order 13 of the Rules of the Supreme Court the defendant had to show that he had a realistic prospect of defeating the claim. It was said in that case that merely arguing a defence was not sufficient. It had to be a defence which had a real prospect of success which carried some degree of conviction. Mr Popplewell, on the other hand, submitted that unless the defence was one which could be said to have no realistic prospect of success, it must follow that the tests in 13.3.1(a) are satisfied. However logical the proposition may be on its face, it is not one I am able to accept. The fact is that in ordinary language to say that a case has no realistic prospect of success is generally much the same as saying it is hopeless, whereas to say that the case has a realistic prospect of success suggests something better than that it is merely arguable. That is clearly the sense in which the expression was used in the Saudi Eagle and, in my view, it is also the sense in which it is used in Rule 13.3.1(a). There are good reasons for that. A person who holds a regular judgment, even a default judgment, has something of value, and in order to avoid injustice he should not be deprived of it without good reason. Something more than a merely arguable case is needed to tip the balance of justice to set the judgment aside. In my view, therefore, Mr Howard is right in saying the expression “realistic prospect of success” in this context means a case which carries a real conviction.”
[6]It is perhaps worth mentioning in relation to that passage, that the phrase used by the court in the Saudi Eagle was “any reasonable prospect of success” and that, in making its observation that the defence advanced “must carry some degree of conviction” it was seeking to convey the nuance to be attached to “a real prospect of success” as propounded in Evans v Bartram [1937] AC 473. It nowhere made use of the word “realistic” as the passage in Moore-Bick J’s judgment might suggest. However, in this context, I regard use of the words “real” and “realistic” as interchangeable so far as nuance of meaning is concerned.[7]What is clear is that, in drafting the Civil Procedure Rules the draftsman adopted the phrase “real prospect of successfully defending the claim” for the purposes of both CPR 13.3.(1) and 24.2 and, subject to the question of burden of proof, may be taken to have contemplated a similar test under each rule. It was stated by Lord Woolf MR in Swain v Hillman [2001] 1 All ER 91 at 92j that:
“The words “no real prospect of succeeding” do not need any amplification, they speak for themselves. The word “real” distinguishes fanciful prospects of success … they direct the court to the need to see whether there is a “realistic” as opposed to a “fanciful” prospect of success.”
[8]I regard the distinction between a realistic and fanciful prospect of success as appropriately reflecting the observation in the Saudi Eagle that the defence sought to be argued must carry some degree of conviction. Both approaches require the defendant to have a case which is better than merely arguable, as was formerly the case under R.S.C. Order 14. Furthermore, both CPR 13.3(1) and 24.2 have provisions whereby, for the purposes of doing justice between the parties, the court can order that judgment be set aside under 13.3.1(b) if it appears to the court that there is some other good reason to do so, and, under 24.2(b) that summary judgment be withheld on the ground that there is some compelling reason why the case or issue should be disposed of at trial.[9]In my view, the only significant difference between the provisions of CPR 24.2 and 13.3(1), is that under the former the overall burden of proof rests upon the claimant to establish that there are grounds for his belief that the respondent has no real prospect of success whereas, under the latter, the burden rests upon the defendant to satisfy the court that there is good reason why a judgment regularly obtained should be set aside. That being so, although generally the burden of proof is in practice of only marginal importance in relation to the assessment of evidence, it seems almost inevitable that, in particular cases, a defendant applying under CPR 13.3(1) may encounter a court less receptive to applying the test in his favour than if he were a defendant advancing a timely ground of resistance to summary judgment under CPR 24.2.[10]It is certainly the case that under both rules, where there are significant differences between the parties so far as factual issues are concerned, the court is in no position to conduct a mini-trial: see per Lord Woolf MR in Swain v Hillman [2001] 1 All ER 91 at 95 in relation to CPR 24. However, that does not mean that the court has to accept without analysis everything said by a party in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporary documents. If so, issues which are dependent upon those factual assertions may be susceptible of disposal at an early stage so as to save the cost and delay of trying an issue the outcome of which is inevitable: see the note at 24.2.3 in Civil Procedure (Autumn 2002) Vol 1 p.467 and Three Rivers DC v Bank of England (No.3) [2001] UKHL/16, [2001] 2 All ER 513 per Lord Hope of Craighead at paragraph [95].[11]I would only add that, where there is a claim or judgment for monies due and issues of fact are raised by a defendant for the first time which, standing alone would demonstrate a triable issue, if it is apparent that, with full knowledge of the facts raised, the defendant has previously admitted the debt and/or made payments on account of it, a judge will be justified in taking such acknowledgements into account as an indication of the likely substance of the issues raised and the ultimate success of the defence belatedly advanced.[12]In the instant case, the judge held that, if there was a difference to be detected in the approach set out in the Saudi Eagle and that defined in Swain v Hillman it was unnecessary to resolve it because, upon either approach, the first defendant had no real prospect of success in the light of admissions made prior to judgment.[13]The state of the evidence and the nature of the issues before the judge were as follows.[14]The claim was for a principal sum of US $283,860.00, the balance of the price of two deliveries, one of ethyl alcohol and the other of grain alcohol, made to the defendants by the claimants in the course of March to May 1997. The first delivery was alleged to have been made pursuant to an oral contract made on the telephone between the first defendant and Mr Macaire of the claimants on 9 February 1997 and the second between the first defendant and Mr Duriez on behalf of the claimants on 6 March 1997 as evidenced by subsequent invoices. The price under the ethyl alcohol contract (no.1696.01) was US$681,408 payable on delivery DDU Chimkent, Kazakhstan. The price for the grain alcohol was US$61,360 payable on delivery DDU Alma Ata, Kazakhstan. Each delivery was the subject of a detailed invoice dated 4 March 1997 and 10 March 1997 respectively. Each stated: “Price: US$130.00 per Hectolitre at volume” and “Payment: Cash on Delivery” and provided that the funds would be remitted by telegraphic transfer to the claimant’s New York bank under advice to the claimants in London. They were thus on their face outright sales with payment due from the defendant following delivery.[15]It was common ground between the parties that, following their first commercial contacts in 1994, they had entered into an agreement dated 26 October1995 but signed by the first defendant on 15 November 1995 entitled “J V Agreement between Quickstop Group and ED&F Man Alcohol for the sale of ethyl alcohol, 96% in Uzbekistan”. That agreement provided that the parties would have a 50% participation in the joint venture and all profits would be shared equally after deduction of all costs relating to the operations of the joint venture. The contracts of sale and spot sales into the Uzbekistan market were to be procured by Quickstop with payment made locally to Quickstop in US$. The title of the product shipped to Tashkent would remain with the claimants until passed to a buyer under the relevant terms and conditions of sale. The claimants would deliver the alcohol to Quickstop’s bonded warehouse under All Risks cover to be provided by the claimants till such delivery, with Quickstop providing All Risks insurance cover thereafter until delivery to the local buyer. Quickstop would keep a running account of transactions, supplying the claimants with regular trading statements by way of account. Under the heading ‘Share of the Profit and Loss’ it was provided that:
“Both parties shall declare all related costs of the Joint Venture. Upon sale of the Product and receipt of payment by [the first defendant], a profit shall be calculated. [The first defendant] shall pay [the claimants] for all of [the claimants’] expenses plus 50% of the profit. Payment to be made by telegraphic transfer to bank account of Man”
Payment to be made by telegraphic transfer to bank account of Man”[16]The evidence before the judge may be summarised in this way. The application was originally made supported by the first witness statement of Mr Preston the defendants’ solicitor on the basis of the defendants’ instructions. He spoke to, and exhibited documents in relation to, a total of six shipments of alcohol which he stated were all made under the terms of the joint venture agreement. These showed commercial invoices for various shipments by the claimants to the defendants which were on the face of them similarly outright sales at a price in US$ per litre at volume but with provision for “Payment: Prompt”. Mr Preston stated that Quickstop usually managed to increase the prices of those sales to about US$1.60 per litre, sometimes obtaining less and sometimes more from the on-sales. On that basis it was agreed between the parties that US$1.60 should be treated as the average on-sale price and by agreement the claimants consistently invoiced Quickstop thereafter for US$1.30 per litre, representing their costs and share of the profits. It was said that, because the market in Central Asia was volatile and Quickstop’s on-sales were often in the form of barter for other commodities which Quickstop would then sell to realise cash, the payments made to the claimants to reimburse them for their costs and share of the profits, were often greatly delayed.[17]Mr Preston stated that the invoices the subject of the claim were the seventh and eighth shipments under the joint venture arrangements. It was stated that Quickstop subsequently sold most of the alcohol shipped, transferring a total of US$458,908 to the claimants on receipt of the proceeds of their on-sales. However it was said the market deteriorated badly and several buyers cancelled leaving several hundred thousand litres unsold in Quickstop’s warehouses. A series of problems concerning customs laws and licences in Uzbekistan followed, including certain confiscations with the result that no payments had ever been received in respect of various of the on-sales negotiated and a substantial quantity of the alcohol was in warehouses in Uzbekistan where it remained the legal property of the claimants or had been destroyed by persons unknown to the Quickstop group.[18]It was asserted that in those circumstances, under the provisions of the joint venture agreement, the terms of which were never altered, title to the alcohol in the warehouses had never passed to Quickstop, the obligation to pay the claimants never arose and thus nothing was due to the claimants under the invoices. It was stated that the invoices sent to Quickstop were not documents with contractual force or effect. They merely evidenced the joint venture relationship under the agreement being “mainly issued for the benefit of customs authorities, who required contracts to be registered with them before allowing the goods to pass”. Mr Preston referred to a fax dated 27 March 2002 from the claimants’ solicitors in which, in response to the request to vacate the judgment, they refused to do so in reliance inter alia upon the fact that the defendants had repeatedly admitted that the outstanding purchase price was due without any suggestion of reliance on the joint venture agreement. In this respect Mr Preston stated that the first defendant recalled being contacted by a representative of the claimant whom he believed to be Mr Orbart and that, in the course of a conversation, the latter had explained that, for accounts purposes, the claimants required a schedule of payments in order to prove the debt. He went on:
“Mr Mahesh Patel explained that the goods had not been sold so no money was due to the Claimants. The representative acknowledged this point but advised that he needed something from Quickstop Group to acknowledge that money may be forthcoming in the future. It was certainly not Mahesh Patel’s intention that monies were in fact due at the time.”
[19]In response to Mr Preston’s witness statement, the claimant’s solicitor Mr Smith provided a statement, similarly stated to be made on the basis of instructions and the documents provided to him. He stated as follows so far as the joint venture agreement was concerned:
“From the very first supply the Agreement was never properly implemented. The Claimants were never given any information regarding Quickstop’s sales or profits. Instead, a price was agreed to replace the Claimants’ share of the joint venture profits. Then after a few shipments Quickstop began to ask the Claimants to quote a fixed price. The price which the Claimants thereafter charged Quickstop [i.e. the $1.30 appearing on the invoices] was not their cost of acquiring the alcohol plus delivering it but was an entirely separate figure including the Claimants’ profit margin. As part of this further agreement it was agreed that no payment by Quickstop was conditional upon their receipt of funds from their purchasers.”
[20]In connection with the defendants’ assertion that the terms of the joint venture continued to apply and, in particular, govern the terms of the relevant shipments, Mr Smith pointed out, at length and in detail various reasons why it was plain on Mr Preston’s account, that the joint venture agreement did not continue to govern the relations of the parties. There was no provision in it for payment by Quickstop to the claimants on delivery of the goods supplied, simply a provision for accounting by Quickstop and calculation of the profit against a declaration of expenses by both parties with payment to the claimants of the claimants’ expenses plus 50% of the profit. None of these procedures had been followed. Instead, as both sides accepted, there had been an agreement for prompt payment by the defendant of a sum of US$1.30 per litre to include any profit to the claimants. This was against a background where Quickstop did not, as provided for in the joint venture agreement, receive payment locally in US$ but entered into a variety of on-sale transactions including barter in respect of which no accounts were ever produced to the claimants and the profit was left with Quickstop who merely paid the invoice price of the relevant deliveries to the claimant. However, the principal matter relied on by Mr Smith was a series of unqualified after-the-event admissions made by the defendants as to the balance due under the relevant contracts. Because, despite the factual issues before him, the judge relied upon this series of admissions as his ground for refusal of the defendants’ application, I propose to set them out at length.[21]On 8 January 1998, a year after the relevant deliveries, the claimants wrote to the first defendant asking him to advise when he would be “sending cash against the outstanding amounts”. When no reply was received, a chasing fax was sent on 26 January and again on 11 February 1998 asking “when we may expect settlement of the outstanding sums due”. The letter reminded the first defendant of an earlier promise made to Mr Wyper of the claimants in Tashkent that there would be full settlement by the end of December 1997. On 12 March 1998, Mr Orbart, the claimants’ financial controller, wrote referring to a conversation between the first defendant and Mr Tuite proposing a repayment schedule in relation to the outstanding debt of US$508,804. It called for payment of $150,000 on 20 March 1998, $200,000 on 20 April 1998 and $158,804 on 20 May 1998. By letter of 17 March the second defendant responded as ‘Financial Controller’ of Quickstop, stating that Quickstop proposed to pay its outstanding debt in the stages requested save that the dates for payment would be the 30th rather than the 20th of the month. On 23 March 1998 Mr Tuite faxed that the schedule was acceptable and emphasised the importance of ensuring that the first and subsequent tranches were executed without problems.[22]On 30 March 1998 a letter was written by the claimants to the defendants stating:
“Our auditors require confirmation of the net balance with you as at 31st March 1998. Please could you state the balance as at 31st March 1998 in the space below and return it directly to the auditors, Price Waterhouse.”
The balance was specified at that date as US$458,804. The defendants duly acknowledged receipt and sent such clarification.[23]On 16 April 1998 the claimants again wrote to the defendants:
“With regard to the above noted debt, we are still awaiting debt of US$100,000 as per repayment schedule agreed in your letter of 17 March 1998. We have yet to receive the response to our letter of 6 March. We therefore request that you regularise your account by 22 April 1998 and ensure that the agreed repayment schedule is adhered to.”
The letter added that if the schedule was not adhered to in the future the debt would be passed to the legal department for recovery.[24]On 8 May 1998 the defendants replied:
“Further to our telephone conversation today about the outstanding payment, we have been informed by our office in Tashkent that due to a small problem at the central bank they are unable to transfer any funds. They hope to resolve this problem in a few days. As soon as these funds are transferred to our UK bank, we will be able to transfer US$100,000 to your account.”
[25]Although US$100,000 was then paid, the payment schedule was not adhered to and a further chasing letter on 6 October 1998 having been ignored, the claimants wrote a formal letter on 8 January 1999 referring to a telephone call concerning the outstanding debt and pointing out that the defendants had committed themselves to a repayment schedule that had been submitted to the claimants’ auditors. It stated that, in conversations before Christmas, the defendants had undertaken to remit a tranche of cash and discuss a new payment schedule but nothing had been received. The letter insisted on proposals for repayment backed by a guarantee from a financial institution such as a bank by 15 January 1999 and in the absence of such a proposal the matter would be passed to lawyers.[26]On 15 January 1999 the defendants replied by letter headed “Re Outstanding Debt”. They proposed a repayment schedule, namely US$50,000 to be paid by the end of business on 22 January with subsequent payments of similar amount until the debt had been paid in full. Thereafter two payments each of US$25,000 (and not $50,000 as proposed) were made on 2 and 14 February 1999 and a third such payment on 14 May 1999.[27]On 8 June 1999 the claimants wrote referring to an indication from the first defendant in a recent meeting with Mr Tuite that the outstanding debt of US$283,860 ‘would be settled in three to four months’ and an undertaking to transfer $28,000 by mid-June. The claimants’ letter proposed a schedule for repayment of the balance over a four month period. No reply, nor any payment was received.[28]After further sporadic correspondence, the claimants’ letter dated 7 February 2001 addressed to both defendants, stated the writer’s understanding that the first defendant had agreed at a meeting with a representative of Man Sugar to whom the first defendant had proposed some sugar business in the near future, “ … to make a payment by Friday 16 February of US$50,000 on account of the balance owed to Man Alcohols of US$283,860.” The letter asked for confirmation by return fax and an arrangement to make payment by bank transfer to the claimants’ New York bank. It proposed a discussion the following week to arrange “to settle the remaining indebtedness”. No payment was received and the meeting did not take place.[29]In response to the statement of Mr Smith, the first defendant himself supplied a witness statement on 8 June 2002 largely confirming the earlier contents of Mr Preston’s affidavit. In particular he said at paragraph 5 that, while he had never taken legal advice on the meaning of the joint venture agreement until 2002, his understanding was that a joint venture meant that he and the claimants were sharing in the risks and the profits of the business and that “We only got paid once we had received the proceeds of sale, and I understood that we would only have to pay the Claimants after that”.[30]He explained the arrangements which had in fact been followed:
“I agreed to basically offer them an upfront split on the profit. It was simply more convenient for us to use this average price of US$1.30 for the joint venture and it meant that I didn’t have to trace the alcohol sales through a variety of other transactions to try and calculate the complete profit after the event. This way the Claimants passed a lot of their market risks to me and I would bear the loss if I could only sell the alcohol for say US$1.50 per litre.”
[31]He said that, if he had been buying the alcohol, he would simply have accepted a lower “straight sale price” for the alcohol and taken the extra profit himself. He said that, since the claimant seemed happy to perform the administrative tasks of the joint venture by keeping the running accounts and trading statements, he was happy for them to do so. He said that, so far as he was concerned, the agreement set out the general terms on which the claimants were prepared to do business with Quickstop but it was not a manual on how the business would be run and he believed there was flexibility in how things were to be run, the agreement simply setting out the principles. In response to Mr Smith’s detailed comments on(i) the inadequacy of any documents produced to show that any of the confiscation measures of the Uzbekistan authorities or the alcohol involved related to the shipments of alcohol in question,(ii) the absence of any evidence that Quickstop had not in fact received payment for those shipments and(iii) the fact that, in the midst of its alleged problems in 1998 and 1999, Quickstop continued to make a number of (albeit insufficient) payments to the claimants, the first defendant stated:
“I am currently reviewing all my files and documents from this period to try and establish exactly what happened to the quantities of alcohol that were confiscated/destroyed in 1997/98. So far I have only had about two months to collect this information and it will take some time. These events happened some 4 years ago and many of my employees in Tashkent have left since then. I had assumed that the Claimants would accept their responsibility under the Agreement, but that is obviously not the case now.”
[32]Finally, the first defendant sought to deal with the admissions made in the letters to which I have referred in the following way. He said that, in early 1998, as the claimants’ financial year end approached, he had received a telephone call from Mr Tuite explaining that the claimants needed something on paper from the defendants. The first defendant understood that the claimants were having problems with their auditors and, in order to oblige, he instructed the second defendant to send the claimants a payment schedule which was the fax of 17 March 1998. He said it was never his intention to make any admission of liability to the claimants and that he “just wanted to stop them hassling us”. However, he failed to advert to, or explain why, in response to the claimants’ later threats to place the matter in the hands of their lawyers, he made the unqualified proposals for payment contained in Quickstop’s letters dated 8 May 1998 and 15 January 1999 or failed to reply to any of the later letters recording admissions made by him.[33]The second defendant also made a witness statement in which he stated that he was employed by Quickstop as Financial Controller and was not a partner of the first defendant who controlled the day to day business of Quickstop, including that with the claimants. He (the second defendant) was not aware of how the day to day business was run and had no operational involvement with Quickstop’s operations in Central Asia. He was not aware of the terms of the joint venture agreement. However, he spoke to the letter of 17 March 1998 which he had written on the instructions of the first defendant who told him that he had been telephoned earlier by the claimants and told that they were approaching the end of their financial year and needed something to help satisfy the auditors. He said that when he wrote the letter it was not his intention to acknowledge a legally enforceable debt. He later received the letter of 30 March 1998 which asked for him to write to the auditors. He said:
“We were happy to co-operate with the Claimants because we still had on-going contracts for the supply of sugar in early 1998 and we did not want to jeopardise that business.”
[34]In relation to the payments made following the letter of 8 January 1999 threatening legal proceedings, he said:
“I believe that Jitendra Patel simply wanted to make a goodwill gesture to the Claimants and finish the matter.”
[35]The judge gave an oral judgment immediately following argument. Bearing in mind the detail of the argument he had received on the many documents before him which were presented with the relevant witness statements in a piecemeal rather than a comprehensive manner, I consider that, contrary to the submissions of Mr Thomas for the first defendant, the judgment shows a clear grasp of the effect of those documents. The judge rightly summed up the position of the claimants as being that the joint venture agreement was never properly implemented and that it had subsequently ceased to be implemented altogether, being superseded by a number of sales without reference to an account to be taken in accordance with the joint venture agreement. He also observed that that appeared to be the effect of the defendants’ own evidence.[36]The judge was critical of the state of the claimant’s evidence, on the grounds that Mr Smith’s statement that a price was agreed to replace the joint venture profits and that it had been agreed that payment by the defendants was no longer conditional upon their finding purchasers was lacking in particularity, there being no indication of when or with whom the agreement was made or whether it was oral or in writing. He said that if the case had turned simply on the validity of that statement he could well see that there should be liberty to set aside the judgment. However, the judge also observed that the effect of the first defendant’s evidence was to indicate that the fundamental accounting procedures contemplated by the joint venture agreement had been abandoned and superseded by a straight identified sale price which appeared to have no relevance to the success or otherwise of the ability of Quickstop to sell the goods. He said that, in those circumstances, he could not accept the submission for the defendants that it had to be assumed that the term of the agreement which stated that no payments were to be made until receipts had been obtained by the defendants from the local sales must still remain in force. As the judge said:
“It is one thing to say that the parties are going to share profits and losses upon the basis of credit and on-sales; it is quite a different thing to say that there is going to be a straight sale at a price and, in effect, the seller will simply have to await payment upon the disposal in an uncertain market. It seems to me that once you have abandoned the profit sharing and the accounting provisions which go with it, the basis of the agreement has gone.”
[37]The judge referred to certain other correspondence (see further below) which showed that very shortly before the invoice changed to US$1.30 per litre, the claimants were using language in letters dated 11 and 16 January which appeared to affirm the continued existence of the joint venture agreement. Also to a letter dated 9 April 1997, some time after the shipments in issue when the claimants wrote to a company in Tajikistan, which was not a designated territory in the joint venture agreement, referring them to “our partner the Quickstop Group” as the medium for any discussion about a business enquiry. However, he weighed against those statements what he described as the mass of later material “which indicates that not only did the defendants admit that they were liable for the actual sums claimed in the particulars of claim, but furthermore they paid off part of the sum due, admitted that they were liable for the balance and stated that they would seek to pay this off by instalments”.[38]The judge regarded the reference by the defendants to the request received to acknowledge their outstanding debt for the purposes of the claimants’ auditors as wholly inadequate to explain their responses and admissions in relation to correspondence pressing for payment quite independently of the auditors’ request. In particular the judge referred to the response of 8 May 1998 and 15 January 1999 in which, in response to letters threatening legal action the debt was acknowledged and funds promised (see paragraphs 24-26 above). He observed that further monies were actually paid following the acknowledgment of 15 January 1999 and stated:
“Throughout the whole of that correspondence in 1998 and 1999, going through to December 2000, there is not the least suggestion that (a) the money was not due, (b) it was subject to the Joint Venture, (c) there was any suggestion of a denial of liability … … in my judgment this defence is fanciful, almost certainly dishonest and has no chance of success whatsoever. I do not believe that any businessman who had written those letters, made those admissions and made those payments would genuinely believe that the debt was not due. It was said that the defendants wished to keep a good relationship with Man and therefore made admissions of liability and part payment pursuant to those admissions of liability, simply in the course of good relations. I regard that suggestion as risible. Mr Patel is a man in his 40s, he has been in business for some 20 years and I cannot believe that any businessman would have made those admissions and those payments if he did not genuinely accept liability. No suggestion of any defence was made until this application in witness statements to support an application and to set aside the judgment in default. So far as the first defendant is concerned, in the exercise of my discretion, I think it would be a gross injustice to the claimants to set aside this judgment and I refuse to do so.”
[39]Having been refused permission to appeal on paper, the first defendant made a successful oral application to Rix LJ for permission to appeal. Permission was granted on the basis of concern expressed by Rix LJ over three particular aspects of the evidence before the judge, the second and third of which might have involved misunderstandings on the part of the judge or, at any rate, were points which he failed properly to address when giving his judgment.[40]The points were as follows: i) The fact that the claimants’ case that there had been a change from what was accepted originally to have been a joint venture arrangement to a position where, by agreement, the parties dealt on a straight sale basis was stated in general terms, and in an unparticularised form, unsupported by first-hand evidence from an employee of the claimants, in which respect the claimants had been criticised by the judge. This was said by Mr Thomas for the first defendant to be of particular significance because ii) in relation to the first invoice between the parties which showed the price of US$1.30 per litre, i.e. the invoice dated 20 February 1996, it appeared that there was earlier correspondence demonstrating that the price agreed was agreed in the context of a live joint venture arrangement; iii) the judge appeared to have made an error when dealing with the defence case in relation to the acknowledgment of indebtedness contained in the letter of 17 March 1998.[41]Rix LJ also expressed concern: iv) that the judge may have assumed that because the invoices passing between the parties named a specific price, that in itself indicated that they had reached a straight sale arrangement at the same time abandoning the scheme for profit sharing under the joint venture agreement; and v) that despite the grave difficulties in the way of the defendants’ case, the judge may have erred in treating the application as a mini-trial in the course of which he had been prepared to find dishonesty, without the defendants having had the opportunity of presenting their evidence at trial.[42]On this appeal, Mr Thomas has adopted and addressed us at length upon those concerns.[43]On careful examination of the position I do not consider that, in giving judgment, the judge was subject to any significant error or misunderstanding concerning the matters raised. In relation to concern (i), the judge made clear that on the basis of the assertions of the claimants as to the contractual arrangements alone, he would not have found as he did. His judgment was based not upon the positive evidence of the claimants as to an express agreement that the joint venture arrangements would cease to operate, but upon(a) the incompatibility of everything which appeared to have happened between the parties from an early stage with continuation of the arrangements under that agreement, when combined with(b) the unequivocal and continued acknowledgement of the debt and proposals for payment from 1998 onwards when, over a period of two years, the first defendant was pressed to settle the debt.[44]The judge plainly found, as in my view he was entitled to find, that it simply was not credible that such acknowledgements would have been made (two in the face of threatened legal proceedings) without any suggestion that payment was not due under whatever contractual arrangements existed between the parties. According to the first defendant he had always understood that under the joint venture agreement he had no obligation to make payment until he had himself received payment. He therefore had no need for legal advice to take that point or to reserve his position in correspondence. The only inference which could practically arise from the terms of the correspondence was either that he accepted that payment was due under altered arrangements, or that his assertions that he had never been paid for the particular alcohol concerned were insincere.[45]In relation to concern (ii), the judge did not overlook, nor is there any reason to suppose he misunderstood, the force of the point that in relation to the first invoice in which the US$1.30 price appeared the letters of 11 and 16 January 1996 were indicative that the price was reached on the basis that the joint venture arrangement, but two months old, was in force. The letter of 11 January stated: “As per our telecon of yesterday please be advised that we have arranged for a further 10 containers to be shipped to Tashkent for the JV, to depart Hamburg with Bruhn Transport next Friday 19 Jan 96.[46]It also made clear that at that time the “pro forma invoice” would be priced at US$0.99 per litre. The letter of 16 January 1996 referred to another 15 containers being available and stated:
“Our costs on these I’m afraid has gone up to $1.08 per litre so please see if you can get a better price.”
[47]It is by no means clear that these containers were the same as those the subject of the invoice of 20 February 1996. However, even if they were, that transaction was over a year before the shipments in issue. The broad question was whether, the price of US $1.30 per litre, which it was the first defendant’s own case was a price agreed on the basis of a fixed amount to include the claimants’ loss of profit was, in February 1996 or subsequently, agreed to be treated as a sale price payable to the claimants in accordance with the terms of the invoice or whether the arrangements for payment and profit sharing under the joint venture agreement continued to regulate the parties’ relationship. It is not correct, as submitted by Mr Thomas in his skeleton argument that, despite having his attention drawn to the significance of the letters of 11 and 16 January 1996 the judge completely failed to address them in his judgment. Having referred to the invoice of 20 February 1996, which Mr Bryan for the claimants had identified as the latest date at which the joint venture arrangements must have existed, the judge said that Mr Thomas had asserted for the defendants that prior thereto the claimants were using language which appeared to affirm the continued existence of the agreement and that in this respect he relied upon “a number of documents”. He then referred in terms to the letter of 11 January as supporting this argument. It is true that he did not go on specifically to mention the letter of 16 January but in the light of his reference to “documents” there is no reason to think that he did not have it in mind. He picked in particular upon the letter of 11 January because it referred in terms to “the JV”. The judge then went on to refer to a letter following that invoice written by representatives of the claimants to possible third party customers in the local area which stated that “Our business in central Asia is handled in Tashkent by our partner the Quickstop Group.”[48]Thus, the judge acknowledged a “grey area” existing around this time. However, he came to the conclusion that he did, namely that by the time of the invoices sued upon, the joint venture arrangement had been abandoned, for two interrelated reasons. He regarded the evidence of Mr Patel that he decided to offer the claimants “an upfront split on the profit based on an average price of US$1.30” with any profit over that figure being retained by the first defendant, together with his later admissions of debt at a time when, on his own evidence, he was meeting difficulties with his on-sales, as demonstrating that:
“ … at some point the fundamental accounting procedures contemplated by the Joint Venture Agreement had been abandoned and superseded by a straight identified sale price which had no relevance to the success or otherwise of the ability of the defendants to sell the goods.”
[49]The judge went on to make the observation I have already quoted at paragraph 36 above. In my view it was a realistic observation rather than one based on any misunderstanding.[50]Concern (iii) is based on Mr Thomas’ assertion that the judge misunderstood or misconstrued the evidence of the defendants when he described as “misguided if not misleading” their explanation that the acknowledgement of debt was made simply to accommodate the claimants by demonstrating to their auditors that the claimants had a number of unchallenged trade debts. The judge appeared to base his comment upon the fact that the letter written by the claimants requiring such confirmation was written on 30 March 1998 i.e. it post-dated the letter of 17 March 1998 in which Mr Patel had made his acknowledgement and proposed a schedule of repayment. Mr Thomas rightly points out however that it was the assertion of the defendants that the claimants had telephoned the first defendant prior to the letter of 17 March to say that they needed something to help satisfy their auditors. On that basis, and because the claimants put in no witness statement in rejoinder which contradicted that sequence of events, it does indeed appear that the judge was in error at that point. However, it is a point which is of minimal significance in the overall picture. There was also before the judge a report by Mr Wyper of the claimants on a trip made by him to Uzbekistan in November 1997 which made clear that, well before any question arose in relation to the audited accounts, the first defendant was admitting the sum due, even in the knowledge of his difficulties in Uzbekistan. The relevant part of the report read:
“He received me with goodwill and told me about his operations there. He has many business interests of which importing ethanol is only a small part and owns two bonded facilities. He talked of the difficulties of conducting business in Uzbekistan but mentioned that he has regularly challenged government decrees – and won! As far as our business is concerned, he said that the money he owes us will be paid by Christmas. He is planning a partial transfer at the end of this month. As for the future, Mr Patel claimed that he wants no more contact with ED&F Man as we are ‘not serious’.”
Furthermore, after the acknowledgement in March, there were, as I have already made clear, a number of separate admissions and payments made quite independently of any question of assistance with the auditors.[51]As to concern (iv), I have already made clear that I do not consider there is any reason to suppose the judge assumed that the naming of a specific price per se meant that the profit sharing arrangement had been abandoned in favour of a straight sale price. He treated it, together with(a) the subsequent conduct of the parties’ business,(b) the absence of any profit accounting as provided in the joint venture agreement, and(c) the clear admissions made, as an indication to that effect. I consider he was correct to do so.[52]Mr Thomas has powerfully submitted that, in deciding as he did, the judge in effect conducted a mini-trial of the issues in a manner impermissible on an application to set aside judgment under CPR 13.3(1)(a). He says there were plainly issues of fact as to whether and, if so, when the provisions of the joint venture agreement were abandoned and, in particular, the provision that Quickstop should not be liable to make any payment to the claimants unless or until payment was received by Quickstop. He further submits that, the judge was wrong to reject the explanation of the first defendant for the series of admissions made that the debt was due.[53]I would accept, as the judge accepted, that without the written admissions that would plainly be correct. However, in a case where, with knowledge of the material facts, clear admissions in writing are unambiguously made by a sophisticated businessman who has ample opportunity to advance his defence prior to judgment signed, a judge is in my view entitled to look at a case “in the round”, in the sense that, if satisfied of the genuineness of the admissions, issues of fact which might otherwise require to be resolved at trial may fall away. Here, the broad issue was clear. By the time of the shipments sued upon, were the parties dealing upon the basis of a straight sale by the claimants at an invoiced price covering their costs and profit, or subject to joint venture arrangements under which they carried the risk of non-payment by Quickstop’s ultimate buyer? The series of written admissions, if informed and genuine, were a clear indication that the former was the case. In that respect, I consider that the judge was entitled to reject as devoid of substance or conviction such explanation as was advanced for the making of those admissions and in my view he was entitled to conclude that the first defendant lacked any real prospect of successfully defending the claim.[54]As to the final concern expressed by Rix LJ, Mr Thomas submits that, whether or not the judge was right to regard the evidence as insufficient to satisfy the test under CPR 13.3(1)(a), there is reason for this court to set aside the judgment against the first defendant under 13.3(1)(b) because of the judge’s observation not only that the defence was fanciful and had no chance of success but that it was “almost certainly dishonest”. Mr Thomas submits that(1) the observation cast a slur upon the first defendant’s name and reputation which was unnecessary to the judge’s finding and which the first defendant should have an opportunity to contest;(2) the second defendant having obtained leave to defend, if a trial proceeds in relation to him, he may himself be prejudiced by reason of the judge’s aspersions upon the advancement of a defence to which he was a party and would himself be entitled fully to litigate.[55]It does seem to me unfortunate that the judge felt constrained to make the observation he did as to the likelihood that the defence was dishonest, in a situation where refusal to set aside the judgment inevitably meant that the first defendant would be deprived of the opportunity to give evidence or cross-examine in relation to the circumstances surrounding the admissions made. The observation was unnecessary and collateral to the judge’s decision. However, it was not a finding of fraud or dishonesty in relation to any of the transactions in question. It simply went to the bona fides of the first defendant’s denial that he had genuinely acknowledged the debt. Were there reason to suppose that the matter will indeed proceed to trial against the second defendant, then there might have been some ‘other good reason’ for setting judgment aside against the first defendant on terms that the entire sum claimed be paid into court. However, we have been informed by Mr Bryan that, assuming the appeal is dismissed, the claimants have no intention of pursuing the second defendant to trial. In those circumstances, I do not consider there is good reason to set aside the judgment under CPR 13.3 (1)(b).[56]I would dismiss this appeal.[57]I agree. Potter LJ has set out the reasons for dismissing the appeal so comprehensively that there is nothing which I would wish to add.

Order

Appeal dismissed; costs to be paid by the 1st defendant, such costs agreed between the parties in the sum of £15,000. (Order does not form part of the approved judgment)

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