(1)Aysha Mohammed Murad and (2) Layla Mohammed Murad v (1) Hashim Ibrahim Khalil Al-Saraj and (2) Westwood Business Inc [2004] EWHC 1235 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2004] EWHC 1235 (Ch)Case No Case No: HC 03C01722Venue Royal Courts of Justice, Strand, London, WC2A 2LL
Between
(1)Aysha Mohammed Murad and (2) Layla Mohammed MuradClaimant(1) Hashim Ibrahim Khalil Al-Saraj and (2) Westwood Business IncDefendant
Before
Mr Justice EthertonMr Ajmalul Hossain QC and Mr Tom Fyfe (instructed by Baker & McKenzie) for the ClaimantsMr Stephen Cogley (instructed by Tarlo Lyons) for the DefendantsHearing dates: 24 March – 2 April 2004, 21 – 27 April 2004 and 5 May 2004Date 28 May 2004
[1], leaving outstanding only closing submissions. Finally, I turn to the oral evidence of Mr Al-Arbash. Mr Al-Arbash is a successful and wealthy businessman. He is 85 years of age. Despite his advanced years, he is mentally alert and has remarkable stamina. He gave oral evidence, and was subject to extensive cross-examination, for more than a day. His memory of particular historic events was, unsurprisingly, not always reliable. I formed the view, however, that he was an essentially honest witness in relation to broad issues relevant to the factual disputes between the parties. In several areas, I considered that his evidence was to be preferred to that of Mr Al-Saraj. Mr Hossain applied, on the first day of the trial, for certain parts of the evidence of the witnesses, which were in dispute, to be given orally, and that their witness statements should not stand as their evidence in chief in respect of those matters. I so directed. The parties' legal advisers subsequently agreed the areas in which evidence in chief was to be given orally. Was there a misrepresentation as to the purchase price? The first, and most critical, issue of fact is whether Mr Al-Saraj misrepresented to Mrs Murad, and thereby Layla, that the price of the Hotel was £4.1m when, in fact, it was £3.6m. The starting point is that, on the one hand, Mr Al-Saraj undoubtedly represented to Mrs Murad that the purchase price of the Hotel was £4.1m, whereas, on the other hand, absent any knowledge of Mrs Murad as to the separate payment of £3.6m to HHL and the £500,000 set-off with Mr Al-Arbash, anyone in Mrs Murad's position would reasonably consider that the actual purchase price of the Hotel was, in fact, only £3.6m. The board of directors of Danescroft formally resolved to acquire the Hotel for £3.6m. That was the consideration specified in the Sale Contract and in the Transfer. In ordinary legal parlance, and in the ordinary understanding of a member of the public, like Mrs Murad and Layla, that was the purchase price. The fact that the sale could only be achieved by the payment of other costs and expenses, including a payment, direct or indirect, to a third party, such as Mr Al-Arbash, would not result in a different purchase price. It would increase the cost of the acquisition, like any other expense necessary to achieve completion of the purchase, but the price would remain the same. A reasonable analysis, for example, would be that the payment to Mr Al-Arbash was a personal inducement to him to procure the sale of the Hotel by HHL to the Claimants and the Defendants for the price of £3.6m. Such an inducement would be a cost of the acquisition, but could not properly be described as part of the purchase price. In his submissions, Mr Cogley referred to a "global price" of £4.1m. There is no evidence that anyone, at the time of the purchase, ever used the word "global" in the context of the price of the Hotel. Reference was made at the time to the "price"; and, as I have already said, that expression, as understood in ordinary language and as likely to have been understood by Mrs Murad, was the contract price to be paid to the vendor, exclusive of other costs and expenses. It makes no difference that the payment was required by the beneficial owner of HHL, since English law is clear that a company has a distinct legal personality of its own. There is no evidence the board of directors of HHL ever resolved to sell the Hotel to the Claimants and the Defendants for anything other than the price specified in the Sale Contract, namely £3.6m. The price at which the purchaser, Danescroft, agreed to acquire the Hotel was specified in the resolution of its board of directors, namely £3.6m. Accordingly, as Mr Cogley himself submitted, the critical issue of fact, in relation to the allegation of a misrepresentation as to the price for purchasing the Hotel, is whether Mrs Murad was aware at all relevant times that, of the £4.1m mentioned by Mr Al-Saraj as the purchase price for the Hotel, only £3.6m was to be paid to HHL and would be the sum specified in the Sale Contract. As I have said earlier in this judgment, the Defendants' case is that Mrs Murad was so informed at the meeting in Paris in early September 1997. They contend that, at all times after that meeting, she was aware of the structure of the proposed purchase, under which £500,000 would be contributed towards the purchase price of £4.1m by virtue of a separate , but related, transaction between Mr Al-Saraj and Mr Al-Arbash involving the notional set-off of Mr Al-Arbash's indebtedness to Mr Al-Saraj against the purchase price of the Hotel. In my judgment, the Claimants have clearly established that Mrs Murad was unaware of those matters, and, in particular, had no knowledge that the amount to be paid to HHL and specified in the Sale Contract was only £3.6m. Mrs Murad's case, and her evidence, is that she did not learn that only £3.6m was to be paid to HHL and was the price specified in the Sale Contract until she was shown a copy of the completion statement by Mr Rahman in July 2002. I am satisfied that Mrs Murad's case, on this aspect, is correct. I have already explained that Mr Al-Saraj's oral evidence is to be treated with caution. Generally speaking, where his evidence conflicts with that of Mrs Murad, I prefer the evidence of Mrs Murad. Mrs Murad's case that she did not learn until July 2002 of the separate payment of £3.6m to HHL or that £3.6m was the price to be specified, and in fact specified, in the Sale Contract is supported by a range of evidence. Mrs Murad's oral evidence was that, when she was shown the completion statement by Mr Rahman in July 2002, she was shocked. That evidence was supported by Mr Rahman. Mr Rahman's evidence was that, on the day Mrs Murad arrived in England in July 2002, following her telephone conversations with Mr Mustafa and Mr Rahman in which serious allegations were made about the conduct of Mr Al-Saraj, Mrs Murad went to Mr Golinsky's office before she had been shown a copy of the completion statement by Mr Rahman. Mr Rahman's evidence was that he showed her the completion statement that night, when he went to her hotel. Mrs Murad's recollection of the sequence of events when she came to England in July 2002 was rather different. Her recollection was that she had been shown the completion statement in the evening of the day of her arrival in London, but she did not see Mr Golinsky until the following day. Her version of events, however, conflicted with other evidence that she had not raised the question of the purchase price with Mr Golinsky when she saw him. Indeed, in cross-examination, she became uncertain whether she told Mr Golinsky her concerns about the purchase price or not. I accept the evidence of Mr Rahman as to the sequence of events at the time when Mrs Murad came to England in July 2002. Mr Rahman had a clear recollection that, when he showed Mrs Murad the completion statement on the first night of her arrival, but after they had seen Mr Golinsky, Mrs Murad became very agitated and upset. Mr Cogley sought to challenge the accuracy of Mr Rahman's recollection as to the disclosure of the completion statement to Mrs Murad by pointing out that his witness statement did not say that Mrs Murad reacted in any particularly emotional way when she was shown the completion statement. The relevant part of his witness statement said that, when he showed the completion statement to Mrs Murad:
"Mrs Murad asked how the completion was for £3.6m, when it was supposed to be £4.1m."
Notwithstanding the absence of any reference in the witness statement to the emotional reaction of Mrs Murad to the production of the completion statement, I am satisfied that Mr Rahman was giving his oral evidence honestly and accurately in relation to the events at Mrs Murad's hotel when he showed her the completion statement. The Claimants' case, and Mrs Murad's evidence, that she was not told anything about a private transaction between Mr Al-Saraj and Mr Al-Arbash involving the setting-off of debts owed to Mr Al-Saraj by Mr Al-Arbash against the purchase price for the Hotel is consistent with a body of evidence that demonstrates that Mr Al-Saraj was at all times concerned to keep secret any such personal dealing between himself and Mr Al-Arbash. I have already referred, for example, to the board resolution of Danescroft on 8 October 1997 to purchase the Hotel "at a price" of £3.6m to be paid by a deposit of £800,000 on exchange of contracts and a loan of £2.6m from the National Bank of Kuwait. It is quite clear that Danescroft was never informed that the true price was £4.1m, and that the transaction involved the set-off of personal indebtedness from Mr Al-Arbash to Mr Al-Saraj. It is also clear that the solicitors retained by Danescroft on the purchase of the Hotel, Franks Charlesley, were also always under the impression that the purchase price was £3.6m, and were unaware of the alleged private transaction between Mr Al-Arbash and Mr Al-Saraj. Danescroft wrote to Franks Charlesley on 8 October 1997 instructing them "to act … in the purchase of the above named hotel at a price of £3,600,000 …". Further, I conclude, for the reasons I state more fully later in this judgment, that on a balance of probabilities Mr Golinsky was also under the impression that the price of the Hotel was £3.6m and was also unaware of any private transaction between Mr Al-Arbash and Mr Al-Saraj. Mr Al-Saraj knew that the price specified in the Sale Contract was only £3.6m. That was specifically drawn to the attention of Danescroft by Franks Charlesley in a letter dated 20 October 1997. Mr Al-Saraj knew that the completion statement also specified the purchase price to be £3.6m. Further, Mr Al-Saraj knew that the Transfer specified the "consideration" (a wider expression than "price") as £3.6m. Of particular significance are the accounts of Danescroft. These were prepared on the basis of instructions and information given to BDO by Mr Al-Saraj. Mr Dallal was the principal contact of Mr Al-Saraj at BDO. It is quite clear that Mr Dallal was always under the impression that the purchase price for the Hotel was £3.6m, and he was unaware of any private transaction between Mr Al-Saraj and Mr Al-Arbash. The opening balance sheet for Danescroft at 26 November 1997 showed the Hotel as having a value of £3,685,582, made up of the purchase price of £3.6m and acquisition expenses of £85,582. It also showed the directors' loan account of £1,085, 482. It is common ground that the entry for the directors' loan account was intended to reflect the amounts contributed by the Claimants and Mr Al-Saraj to the purchase of the Hotel. Accordingly, it is clear, and is common ground, that the alleged set-off of £500,000 was not mirrored by any corresponding entry in Danescroft's accounts, unlike the other contributions that were made to the purchase price and expenses. The balance sheet for Danescroft for the accounting periods ending 31 March 1998, 31 March 1999, 31 March 2000 (when the directors' loan account was re-branded as the shareholders' loan account), 31 March 2001 and 31 March 2002 were all prepared on the same basis. I have already referred, earlier in this judgment, to the correspondence between Mr Dallal and Mr Al-Saraj in August 1999 as to the beneficial ownership of Danescroft, and Mr Al-Saraj's confirmation to Mr Dallal that members of the Murad family were the controllers of that company. The impression that Mr Al-Saraj did not have any beneficial interest in, or control over, the affairs of Danescroft was further reinforced by the statement in the director's report and financial statements for AML for the period ended 31 August 1998 and subsequent accounting periods that Mr Al-Saraj did not have a beneficial interest in AML's holding company and was not aware "of the controlling party" of Danescroft. I have already referred earlier in this judgment to the absence of any reference in Mr Al-Saraj's tax returns to the discharge by Mr Al-Arbash of £500,000 of indebtedness of Mr Al-Arbash to Mr Al-Saraj. Moreover, in Mr Al-Saraj's tax return for the year ended 5 April 1998 Mr Al-Saraj declared that he had not "at any time made, or been associated with, a transfer of assets which has resulted in income becoming payable to a foreign entity" and nor had he "benefited in any way from such transfer made by someone else." I accept Mr Rahman's evidence that he was never told by Mr Al-Saraj that the price for the purchase of the Hotel was £4.1m, and that he was led to believe that the purchase price was £3.6m, since that was the figure contained in the completion statement which he was handed by Mr Al-Saraj. Further, I accept Mr Rahman's evidence that he was told by Mr Al-Saraj that Mrs Murad's contribution towards the purchase price was made up of her own money and money which had been obtained by way of loans, on her behalf, from a friend. I further accept Mr Rahman's evidence that he was expressly forbidden by Mr Al-Saraj to send Mrs Murad any documents relating to the Hotel, its acquisition or its business, at least until there was a confrontation between Mr Al-Saraj and Mrs Murad in July 2002. I accept Mrs Murad's evidence that, on more than one occasion, she asked Mr Al-Saraj for documents relating to the purchase, but he did not provide any copies for her. Even after the dispute between Mrs Murad and Mr Al-Saraj began in July 2002, it appears that Mr Al-Saraj continued to give the impression (through his lawyers) that he had made an actual contribution in money to the purchase price, rather than being given a credit against the purchase price equal to £500,000 of personal debt owed to him by Mr Al-Arbash which was treated as re-paid. For example, in a letter to Baker & McKenzie dated 23 August 2002, Mr Al-Saraj's then solicitors, Howard Kennedy, stated:
"we attach a copy of the Vendors' faxed receipt dated 7 November 1997 for the deposit of £500,000 paid by our client …"
. That receipt, to which I have referred earlier in this judgment, recorded that "A deposit of £500,000 … was paid in Kuwait by Mr …Al Saraj on the day of exchange.". Further, in a letter dated 12 September 2002 to Baker & McKenzie, Howard Kennedy stated:
"We are instructed that your clients knew very well that the vendor required £500,000 paid to him direct in Kuwait and £3.6m recorded as the purchase price … There is no bank statement showing the transfer of funds as this was dealt with between Mr Al-Arbash and our client by way of deduction from monies held to the account of our client."
It was only in a letter dated 23 December 2002 to Baker & McKenzie from Mr Al-Saraj's then solicitors, Clifford Chance, that it was stated that, following the meeting in Paris between Mr Al-Saraj and Mrs Murad, "given that Mr Al-Arbash owed Mr Al-Saraj in excess of £500,000, it was agreed that £500,000 would be set-off against the monies owed to him by Mr Al-Arbash and that the purchase price between Danescroft and Halfway House would be £3.6 million.". Even then, and thereafter, Mr Al-Saraj was extremely coy about the factual basis for the alleged indebtedness of £500,000 from Mr Al-Arbash to Mr Al-Saraj. Following unsuccessful attempts by the Claimants' solicitors to obtain information as to the basis for the indebtedness, the Claimants issued a formal Request for Further Information in July 2003. Following the failure of the Defendants to serve a Response to that Request, an order for service of a Response was made by Chief Chancery Master Winegarten on 23 December 2003. On 31 December 2003 the Defendants served a Response, which was inadequate. Eventually, pursuant to a further order of Master Winegarten on 14 January 2004, a list was served by the Defendants on 21 January 2004 setting out the Defendants' case on the amount of each debt, the date when each debt was incurred, and how each debt arose. That history demonstrating Mr Al-Saraj's persistent and extreme reluctance to disclose to third parties anything about the alleged separate, but related, transaction between Mr Al-Arbash and himself as to the £500,000 set-off against the purchase price of the Hotel is entirely consistent with, and supportive of, Mrs Murad's case that she was never informed about that separate transaction and was always led to believe that the purchase price was £4.1m and that Mr Al-Saraj would be making a cash or direct payment of £500,000. The Claimants' case, and Mrs Murad's evidence, on this aspect, is also consistent with my impression, from Mr Al-Saraj's evidence, of his care and concern to maintain secrecy about his business affairs. He was reluctant, for example, in cross-examination, to answer questions about his business affairs generally, until I directed him to do so (transcript 1 April 2004 p.62). Mr Al-Saraj's oral evidence that, at the meeting in Paris in early September 1997, he mentioned HHL, and explained about the set-off, and actually offered proof in connection with the £500,000, is inherently highly improbable. At that stage, his primary interest was to obtain the general interest of Mrs Murad in the proposed transaction. He knew that Mrs Murad did not then have the consent of her sister to any proposal. There would have been no need whatsoever to mention the specific name of the vendor company. The suggestion that, at that first meeting at which the proposed transaction was discussed, and before Mrs Murad had obtained the approval of her sister, he offered to provide proof as to the existence of the £500,000 indebtedness of Mr Al-Arbash to himself (transcript 31 March 2004 p.104) is both inherently improbable, is not contained in his witness statement, and runs counter to all the evidence to which I have referred as to the secretiveness of Mr Al-Saraj concerning his business dealings generally and the make-up of the indebtedness in particular. It is equally improbable that Mrs Murad's response, as Mr Al-Saraj contends, was that she had no need to see any such proof. One indication that Mr Al-Saraj's approach on that occasion was hardly one of complete openness is that he did not show Mrs Murad, or inform her about, a valuation dated 3 April 1997 by Robert Barry & Co, chartered surveyors ("the Barry Valuation"), which had been obtained on the instructions of Mr Al-Saraj, and which valued the freehold interest in the Hotel, as at March 1997, at an open market value of £3.5m and an estimated realisation price of £3.75m. Furthermore, Mr Al-Saraj's account of what he told Mrs Murad at the meeting in Paris in early September 1997 conflicts with what was said by Clifford Chance to Baker & McKenzie in the letter of 23 December 2002, to which I have already referred, that it was only after the meeting in Paris that Mr Al-Arbash and Mr Al-Saraj agreed that £500,000 would be set-off against the monies owed to him by Mr Al-Arbash and that the purchase price between Danescroft and HHL would be £3.6m. Further, at one point in his evidence, Mr Al-Saraj appeared to be saying that Mrs Murad's knowledge that HHL was to receive £3.6m dated from a meeting with Mr Golinsky, which, on any footing, came after the meeting in Paris in September 1997 (transcript 2 April 2004 p. 20 ll. 14-16). Mrs Murad's case as her lack of any knowledge of the £3.6m paid direct to HHL and any separate, but related, £500,000 transaction between Mr Al-Arbash and Mr Al-Saraj is also consistent with the impression created by the wording of the Westwood Agreement. That Agreement records no such division of the purchase price. On the other hand, the contributions and bank loan specified in the Agreement amount to £4.1m. I accept the evidence of Mrs Murad that, prior to July 2002, she was never shown a copy of the completion statement or the Transfer, whether at the time the Westwood Agreement was signed by her at the end of 1997 or on any other occasion. Mrs Murad's case and evidence in relation to her knowledge of the split transaction, and, in particular, the separate payment of £3.6 million to HHL, conflicts with the evidence of Mr Golinsky. His evidence was that, at the inception of the transaction, Mr Al-Saraj brought Mrs Murad to his office, and it was explained to Mr Golinsky that Mr Al-Saraj and Mrs Murad and her sister were going to purchase the Hotel, and a company was to be incorporated as the vehicle for the purchase; they were each to have one third of the company; and the price was to be £3.6m. Mr Golinsky's evidence was that he was told the parties would be contributing to the capital, but was not provided with precise details of their respective contributions. He said that Mrs Murad was present throughout the meeting, and played an active part in the discussion. To a certain extent, that evidence of Mr Golinsky supports the evidence of Mr Al-Saraj that Mr Al-Saraj and Mrs Murad went to Mr Golinsky's office and discussed with Mr Golinsky the proposed transaction between the meeting in Paris and Mrs Murad's return to Bahrain on 11 September 1997. Mrs Murad's evidence was that she met Mr Golinsky for the first time on a visit to London between 29 October 1997 and 2 November 1997, and neither at that meeting nor at any subsequent meeting with Mr Golinsky was she ever told that the purchase price to be paid, or which had been paid, to HHL was only £3.6m. Mr Golinsky's evidence was that, apart from that initial meeting, he met Mrs Murad on several occasions and their conversations always referred to the payment of £3.6m as the purchase price. Mr Golinsky and the Defendants maintain that Mr Golinsky's recollection of his first meeting with Mrs Murad is supported by a document on which Mr Golinsky has written various details relating to the proposed purchase of the Hotel. There are three "post-its" attached to that piece of paper, which also have details concerning the transaction. Those notes of Mr Golinsky refer to a sum of £3.6m. Mr Golinsky's evidence is that those notes were taken at his initial meeting with Mrs Murad. I am satisfied, on a balance of probabilities, that there was never a meeting between Mrs Murad and Mr Golinsky at which he or Mr Al-Saraj made clear that the purchase price payable to HHL for the Hotel was £3.6m. Mrs Murad made a complaint to the Office For the Supervision of Solicitors ("the OSS") in relation to the handling of the purchase of the Hotel by Mr Golinsky. It was suggested, on behalf of the Claimants, that Mr Golinsky's evidence was tailored to rebut that complaint. I reject that suggestion. I find that Mr Golinsky was not intentionally misleading the court in the evidence which he gave. He has, however, sought to reconstruct the historic events long after they occurred and has done so inaccurately. In evaluating the evidence of Mr Golinsky as to Mrs Murad's knowledge of the payment of £3.6m to HHL, it is important to observe, at the outset, that his evidence does not agree in important respects with that of Mr Al-Saraj or of other witnesses called by the Defendants. Mr Al-Saraj gave clear and firm evidence that Mr Golinsky was, at all times, aware that the overall price for the purchase of the Hotel was £4.1m, and that part of the purchase price was to be paid by setting-off £500,000 of debts due to Mr Al-Saraj from Mr Al-Arbash. Mr Al-Saraj's evidence was that Mr Golinsky said that he was only prepared to deal with the UK element of the transaction. At one point in his cross-examination, Mr Al-Saraj's evidence became somewhat inconsistent and confusing, when he appeared to indicate that Mr Golinsky thought that the £500,000 would be used for the benefit of the Hotel after its purchase by the Claimants and the Defendants. He expressly confirmed, however, the accuracy of the explanation in Clifford Chance's letter of 23 December 2002 that in September 1997 Mr Al-Saraj approached Mr Golinsky, and informed Mr Golinsky of the details of the deal reached with Mr Al-Arbash, including the setting-off of £500,000. Mr Al-Arbash also gave evidence that he told Mr Golinsky about the £3.6m and the £500,000 transaction with Mr Al-Saraj. Mrs Murad's evidence was that Mr Golinsky talked about the price being £4.1m (transcript 26 March 2004 p.120). Notwithstanding the oral evidence of Mrs Murad, Mr Al-Saraj and Mr Al-Arbash, I find, on a balance of probabilities, that Mr Golinsky was never made aware that the purchase price for the Hotel was £4.1m, of which £3.6m was to be paid to HHL and the balance was to be provided by way of a notional set-off, against the purchase price, of indebtedness owed by Mr Al-Arbash to Mr Al-Saraj. First, as I have said earlier in this judgment, there is in evidence a written letter of instruction from Mr Al-Arbash to Mr Golinsky dated 12 September 1997, which refers only to a price of £3.6m, to be funded by a cash payment on completion of £1m by "the buyers" and a loan from the National Bank of Kuwait for £2.6m. There is no reference whatever in that letter to a separate, but related, transaction between Mr Al-Saraj and Mr Al-Arbash in respect of £500,000, nor any reference to a "global" price of £4.1m. Mr Al-Saraj sought to explain the terms of that letter by saying that he had already agreed with Mr Al-Arbash about the £500,000 before the letter of 12 September 1997 was written. That evidence is, however, inconsistent with the document dated 7 November 1997 signed by Mr Al-Arbash that the deposit of £500,000 was paid in Kuwait on exchange of contracts, a statement which was repeated in Howard Kennedy's letter to Baker & McKenzie dated 23 August 2002. Further, if there was any deal at all between Mr Al-Saraj and Mr Al-Arbash as to the £500,000, the more natural course of events would have been for the £500,000 to be credited towards the purchase price only after Mrs Murad and her sister had agreed to proceed with the transaction. That could not have been prior to her return to Bahrain on 11 September 1997. Second, the document in Mr Golinsky's handwriting, to which I have referred, and which he claims contained his notes of what he was told at the initial meeting with Mrs Murad, does not contain any reference to a purchase price of £4.1m or a separate transaction between Mr Al-Arbash and Mr Al-Saraj in relation to the £500,000. Third, there is, in fact, no contemporaneous written documentation which supports the case that Mr Golinsky was instructed that the "global" price for the Hotel was £4.1m, and that only £3.6m was to be paid to HHL and be specified in the Sale Contract as the purchase price, and that the balance was to be contributed by way of a set-off, against the purchase price, of indebtedness owed to Mr Al-Saraj personally by Mr Al-Arbash personally. It is true that the Westwood Agreement, which was drafted by Mr Golinsky, is, as I have said, consistent with a purchase price of £4.1m. Mr Golinsky's evidence, however, was that he was led by Mr Al-Saraj to understand that the increase over the contract price of £3.6m was due to an agreement by Mr Al-Saraj to contribute further money for renovation work to the Hotel after the purchase. That evidence was, to some extent, supported by Mr Al-Saraj himself, who, as I have previously mentioned, said at one point in his cross-examination that Mr Golinsky may have thought that the £500,000 was to be used after the purchase of the Hotel. Fourth, no credible reason has been put forward as to why Mr Golinsky would have wished to participate in a transaction involving a deliberate mis-statement of the true purchase price in the Sale Contract and of the true consideration in the Transfer, effectively making him a party to a conspiracy to defraud the Revenue in relation to stamp duty. Mr Cogley submitted that I should "cherry pick" Mr Al-Saraj's evidence, accepting those parts which are consistent with the evidence of Mr Golinsky and rejecting other parts. That submission is a remarkable acknowledgement of the general unreliability of the evidence of Mr Cogley's own client. I consider that it would be most unsafe and unsound to support Mr Golinsky's evidence by reliance on part of Mr Al-Saraj's evidence which, by rejection of the remainder, is shown to be inherently unreliable. Although I reject Mrs Murad's case that, in her meetings and conversations with Mr Golinsky, he always spoke in terms of a purchase price of £4.1m, I also reject Mr Golinsky's evidence that Mrs Murad was present at the initial meeting at which Mr Golinsky was informed of the proposed transaction, and it was at that meeting that it was clear to everyone that the purchase price was £3.6m. Mr Golinsky was firm and clear in his recollection of what took place at that meeting. His evidence was that Mrs Murad was intent on proceeding with the deal at that time. He was absolutely convinced that the meeting took place before the letter of instruction from Mr Al-Arbash dated 12 September 1997. As I have said, Mr Al-Saraj's evidence was also that the initial meeting with Mr Golinsky took place between the date of the meeting in Paris at the beginning of September 1997 and Mrs Murad's return to Bahrain on 11 September 1997. The problem with this account of events, however, is that it is common ground that, at that stage, Mrs Murad had not obtained the consent of Layla to the proposed transaction. Unless and until that consent was given, there could be no question of Mrs Murad having resolved to proceed with the deal. Indeed, Mr Cogley himself acknowledged that, at that stage, there was no agreement of any kind. It is, therefore, against all the probabilities that Mr Golinsky is correct in his recollection that there was a meeting with Mrs Murad at that time at which she made it clear she was intent on proceeding with the purchase. The difficulty that the Defendants and Mr Golinsky must then face is that Mrs Murad did not visit England again before 29 October 1997, which was after exchange of contracts for the purchase of the Hotel. Further, as I have previously mentioned, it was stated in the letter from Clifford Chance to Baker & McKenzie dated 23 December 2002 that it was only after the Paris meeting that Mr Al-Saraj agreed with Mr Al-Arbash that they would set-off the monies owed to him by Mr Al-Arbash and that the purchase price to be paid to HHL would be only £3.6m. As I have said, Mr Al-Saraj confirmed in his oral evidence that Clifford Chance wrote that letter on his instructions. If such agreement as to the payment of £3.6m direct to HHL was reached after the Paris meeting, it is clear from the evidence that it must have been after 11 September 1997 when Mrs Murad returned to Bahrain. There could not have been a meeting before then, between Mr Golinsky and Mrs Murad, at which the purchase price was said to be £3.6m. In fact, at one point in his cross-examination Mr Al-Saraj conceded that he could not remember precisely when the initial meeting between Mrs Murad and Mr Golinsky took place. As I have said, if that meeting did not take place prior to 11 September 1997, then it must have been after exchange of contracts. Indeed, in the letter from Clifford Chance to Baker & McKenzie dated 23 December 2002, written on Mr Al-Saraj's instructions, it was stated that Mr Al-Saraj had not, in September 1997, sought any English legal advice on the deal. Mr Al-Zayani's evidence was that he and Mrs Murad first met Mr Golinsky at the beginning of November 1997. He was not cross-examined on that part of his evidence. The hand-written notes of Mr Golinsky, which he maintains record what he was told at his initial meeting with Mrs Murad at the inception of the proposed transaction, are not cogent corroborative evidence of Mr Golinsky's evidence that Mrs Murad attended an initial meeting with him at which a purchase price of £3.6m was discussed. The notes comprise, as I have said, different pieces of paper. There are "post-its" stuck to a page, both the page and the "post-its" bearing Mr Golinsky's handwriting. That part of the document which refers to a purchase price of £3.6m is consistent with initial instructions on the transaction. It appears that that figure was initially denominated by a $ sign and then changed a £ sign. In that part of the document there is a reference to £1m being available within two weeks. There is nothing whatever on any part of the document to indicate that Mrs Murad was present at a meeting at which, or following which, the notes were taken. Details are recorded of telephone numbers and a fax number for Mrs Murad and her husband, but that is the nearest. Mr Golinsky acknowledged that none of the notes were designed to constitute a proper attendance note. He also acknowledged, as indeed appears plainly to be the case, that the writing on the "post-its" was probably not at the same time as the other notes. The notes, or at least that part of the document which appears to be earliest in time and a record of instructions given at the outset of the transaction, are entirely consistent with those instructions having been given in, and the notes made following, a conversation only between Mr Golinsky and Mr Al-Arbash or Mr Al-Saraj. In this connection, it is to be noted that in a letter from Mr Golinsky to the OSS dated 11 March 2004 Mr Golinsky stated that in the autumn of 1997, after a potential sale had fallen through, Mr Al-Arbash told Mr Golinsky that he had had discussions with Mr Al-Saraj and there was a possibility of selling the Hotel to a consortium led by Mr Al-Saraj, and that the sale price had been agreed at £3.6m. Mr Golinsky's handwritten notes, at least as to the part recording the £3.6m, are consistent with them being a record of those discussions. Moreover, in cross-examination, in answer to a question as to who had instructed that the purchase price of £3.6m was to be inserted in all the documents, Mr Al-Saraj said:
"Mr Al-Arbash, when he took the £500,000, how much left from the whole price, it is £3.6m. So I went to Mr Golinsky and I told him the price is 3.6, which is the remaining, the rest to finish the whole deal. So I told Mr Golinsky that 3.6 is the price that had to be paid up to the £500,000."
Mr Al-Saraj then confirmed that he believed that he had given those instructions verbally (transcript 2 April p.21 l.22 to p.21 l.6). He said nothing about those instructions being given at a meeting attended by Mrs Murad. The plain inference from what he said is that he gave those instructions at a meeting or in a conversation with Mr Golinsky on his own. Further, as a general observation, it is clear that Mr Golinsky's recollection of the events in 1997 and 1998 was not in material respects clear or accurate. For example, in cross-examination he said that he could not recall whether the formal letter of instruction from Mr Al-Arbash dated 12 September 1997 was typed in his office. Bearing in mind that it would have been an unusual arrangement if the letter of retainer had been prepared and printed in Mr Golinsky's own office, that lack of recollection casts doubt on the conviction with which he gave his evidence of what took place at the alleged meeting with Mrs Murad immediately before the date of the letter of instruction. By way of further example, in letters to the OSS dated 27 August 2003 and 11 March 2004, Mr Golinsky stated that in January 1998 he drafted both the Westwood Agreement and the letter to Valmet dated 9 January 1998, and that Mrs Murad gave him a power of attorney when she was in London in January 1998. It is clear, however, from the evidence of Mr Al-Saraj, Mrs Murad and Mr Al-Zayani, that all those documents were signed by Mrs Murad in December 1997 in Bahrain. Those may appear to be small discrepancies, set against the larger picture of the totality of Mr Golinsky's evidence. Nevertheless, they confirm what would be a natural inference in relation to events which took place so many years before the dispute arose between Mrs Murad and Mr Al-Saraj in July 2002, namely that an accurate recollection of those events would have been severely impaired over time; and that Mr Golinsky's actual recollection of what took place on specific dates, let alone during specific conversations on those dates, is likely to be far less certain than his evidence indicated. I conclude that, on a balance of probabilities, Mr Golinsky did not meet Mrs Murad in early September 1997, but, even if he did meet her then, neither on that occasion nor on any other occasion prior to 2002 did he ever tell her anything or indicate anything to her to give her cause to believe that the purchase price was other than £4.1m, as she had been led to believe by Mr Al-Saraj. Apart from the evidence of Mr Golinsky, no other witness provided any corroboration of Mr Al-Saraj's evidence that he told Mrs Murad that the purchase price of £4.1m was to be split into the two components of a payment of £3.6m to HHL and a set-off of indebtedness from Mr Al-Arbash to Mr Al-Saraj. Mr Al-Saraj's evidence that those components of the transaction were discussed at a lunch meeting in Mrs Murad's house in Bahrain attended by Mr Al-Saraj and Mr Al-Arbash, prior to exchange of contracts, was not supported by any evidence of Mr Al-Arbash. At most, following a leading question by Mr Cogley, Mr Al-Arbash's evidence went no further than that a price of £4.1m was discussed. Nor did Mr Nass give oral evidence that he had ever personally heard those matters being discussed with Mrs Murad. In his evidence in chief, he stated that he first met Mrs Murad in September 1997 when he visited her house with Mr Al-Saraj and that, at that meeting, he overheard discussions on "various aspects of the deal itself, the nature of the property. I overheard the prices which the deal was structured, the way the deal is structured." In elaborating on that evidence, however, he made no reference to a split in the purchase price between the payment of £3.6m to HHL and the £500,000 alleged transaction between Mr Al-Arbash and Mr Al-Saraj. Further, in cross-examination, he said that the first time he received any detail of the structure of the financing deal was when he saw the letter from HHL of 7 November 1997. That letter, however, only refers to a purchase price of £4.1m and a £500,000 deposit paid in Kuwait by Mr Al-Saraj on exchange of contracts, which is entirely consistent with Mrs Murad's evidence and case as to what she was told by Mr Al-Saraj and understood the transaction to be. I reject Mr Al-Saraj's evidence that, in December 1997, he disclosed to Mrs Murad in Bahrain documents showing the alleged split in the purchase price between the £3.6m paid to HHL and the £500,000 transaction with Mr Al-Arbash. In particular, I reject Mr Al-Saraj's evidence that he then showed Mrs Murad the completion statement or the Transfer or the document from HHL dated 7 November 1997 . The Claimants challenge the authenticity of the latter document, and maintain that it was not in existence or, at any event, signed on the date which it bears, 7 November 1997. It is not necessary for me to resolve that issue for the purpose of these proceedings. On the evidence as to what documents Mr Al-Saraj showed or offered to show Mrs Murad in December, 1997, I prefer the evidence of Mrs Murad for all the reasons I have previously mentioned. Furthermore, I consider it inherently improbable that those documents would have been taken by Mr Al-Saraj to Bahrain at that time specifically for the purpose of showing them to Mrs Murad. There was no reason for him to do so at that time. If he had wanted to disclose them to Mrs Murad, he could have sent or procured the sending of them to her much earlier. Furthermore, if he had genuinely wanted to show her those documents, he would have provided her with copies of them to be retained by her. There is no evidence whatever that he left any such copies with her. I reject as wholly implausible Mr Al-Saraj's evidence that in December 1997 in Bahrain he offered to leave copies of those documents with her, but she declined. Mrs Murad denied that she had received any documents from Mr Golinsky showing that the price paid to HHL was only £3.6m. I accept her evidence on this. Further, there is no evidence that Mrs Murad saw any of Danescroft's accounts prior to the present dispute. Finally, it will be appreciated that, if Mrs Murad has not told the truth as to her knowledge of the division of the purchase price of £4.1m between the payment of £3.6m to HHL, and the provision of £500,000 towards the purchase price by way of set-off of personal indebtedness as between Mr Al-Arbash and Mr Al-Saraj, the entire dispute which is the subject of these proceedings has been initiated and continued on the basis of a blatant and deliberate falsehood by her and her husband. Mr Cogley did not shrink from so submitting. At one point, Mr Cogley sought to support that submission with an assertion that Baker & McKenzie did not refer to the issue of the £3.6m purchase price in its early correspondence. That assertion is incorrect as a matter of fact. Baker & McKenzie's first letter to Mr Al-Saraj dated 19 August 2002 clearly set out a legal case based on a fraudulent misrepresentation by Mr Al-Saraj in relation to the purchase price of the Hotel and his alleged contribution of £500,000 towards the purchase. Further, and importantly, the allegation that Mrs Murad and her husband have mounted the litigation and pursued it on the basis of a fundamental lie, so constituting an abuse of process and an attempt to pervert the course of justice and a contempt, is entirely at odds with my perception of the character of Mrs Murad and her husband. For the foregoing reasons, I find that the Claimants were, at all times until the present dispute commenced, unaware that the amount to be paid to HHL was only £3.6m. Accordingly, in the light of the evidence, I also conclude that Mr Al-Saraj misrepresented to Mrs Murad, and thereby Layla, that the price of the Hotel was £4.1m when, in fact, it was £3.6m. Was there a misrepresentation as to Mr Al-Saraj's contribution? At the trial the Claimants contended that Mr Al-Saraj represented that his contribution of £500,000 was to be made in cash, whereas he did not intend, and was not in a position, to make that cash contribution towards the price of the Hotel. The Claimants' case is that they agreed to act with Mr Al-Saraj in acquiring the Hotel, and made their contribution towards the purchase price of the Hotel, and entered into the Westwood Agreement, and agreed to the transfer of the beneficial interest in one third of the shares in Danescroft to Mr Al-Saraj or Westwood, in reliance on that misrepresentation. Mr Cogley submitted that there is no allegation in the Particulars of Claim that Mr Al-Saraj would make his contribution of £500,000 in cash. He referred to the wording of paragraph 3.6 of the Particulars of Claim, in which it is alleged that the Claimants relied upon the representation:
"3.6.1.2 that Mr Al-Saraj intended, and (by implication) was in a position, to contribute £500,000 towards the price of the Hotel"
. The Particulars of Claim must be read in the light of the issues ventilated between the parties prior to the commencement of the proceedings. In the very first letter from Baker & McKenzie to Mr Al-Saraj of 19 August 2002, in which Baker & McKenzie set out the Claimants' case of fraudulent misrepresentation, they stated that:
"the Murads agreed to go into business with you in late 1997 based on your representations that the purchase price of the Parkside Hotel was £4.1 million and that you would contribute initial cash of £500,000 towards the purchase price." [my emphasis] Further, the word "price" mentioned in paragraph 3.6.1.2 of the Particulars of Claim would ordinarily be understood to refer to a contribution towards the price paid to the vendor and specified in the sale contract. In all the circumstances, I consider that the Claimants were entitled to advance at trial a case based on an alleged misrepresentation that Mr Al-Saraj intended, and was in a position, to contribute £500,000 cash towards the price of the Hotel. I am satisfied that Mr Al-Saraj represented to Mrs Murad and, through her, Layla, that his contribution would be in actual money, as distinct from the set-off arrangement as between himself and Mr Al-Arbash on which he relies. As I have said, I reject Mr Al-Saraj's evidence that, at the meeting in Paris in early September 1997 or at any subsequent time prior to the present dispute, Mr Al-Saraj told Mrs Murad that his contribution of £500,000 would be, or had been, by way of a set-off transaction with Mr Al-Arbash. Mrs Murad's evidence in chief was that Mr Al-Saraj said at the meeting in Paris that he was going to put in £500,000 and that money was "ready" (transcript 25 March 2004 p.84 l.1). She also said, in chief, that, shortly after the lunch at her house with Mr Al-Arbash and Mr Al-Saraj, Mr Al-Saraj said: "
I have my money ready with the solicitor the 500, now you can send yours." (Transcript 25 March 2004 p.95 ll.13-14.) In cross-examination Mrs Murad said:
"From when I transferred my money, Mr Al-Saraj told me my money now with Mark Golinsky; you transfer your money on that basis"
. She also gave evidence, in cross-examination, that Mr Al-Saraj said he had the money "ready" (transcript 26 march 2004 p.97 l .25 – p.98 l , p.99 ll.3-5). She also said that Mr Al-Saraj "said he had the money" (transcript 26 March 2004 p.99 ll.4-5). Mrs Murad's evidence, in this respect, is corroborated by the wording of the disputed letter of 7 November 1997 from HHL, on which the Defendants rely, recording that a deposit of £500,000 "was paid" in Kuwait by Mr Al-Saraj on the day of exchange of contracts. Similarly, the reference in the Westwood Agreement to the contribution made by Westwood would reasonably have created the impression of a direct payment in cash, as distinct from the type of set-off arrangement as between Mr Al-Arbash and Mr Al-Saraj on which the Defendants rely. Mrs Murad's evidence as to the manner in which Mr Al-Saraj represented he would make his contribution is also supported by her evidence that she was reluctant to invest in the purchase of the Hotel, because she knew nothing about the hotel business, and did not like to borrow from a bank, but that she decided nonetheless to do so because Mr Al-Saraj was also risking a substantial amount of his own money (transcript 26 March 2004 p.58 ll.16-19, p.69 l.10, p.97 l.24 – p98 l.3). It is not in dispute that Mr Al-Saraj never intended to pay £500,000 in cash towards the purchase price. Accordingly, in the light of the above evidence, I conclude that the Claimants have established that Mr Al-Saraj misrepresented that he would make a contribution of £500,000 in cash towards the purchase price of the Hotel. Was there a £500,000 set-off? In his written opening skeleton argument Mr Cogley stated (at paragraph14) that:
"The Court is accordingly required to determine … (2) Whether Mr Al-Saraj did in fact contribute (in addition to any other sums) the difference between £3.6 million and £4.1 million – namely £500,000."
By contrast, in his closing submissions, Mr Cogley submitted that, if I concluded that Mrs Murad was not aware the £3.6m was to be paid as a separate amount to HHL and was to be the purchase price specified in the Sale Contract, and that Mr Al-Saraj misrepresented that the purchase price was £4.1m, when in fact it was £3.6m, or that Mr Al-Saraj's contribution to the purchase price was to be in cash, then it is irrelevant whether a proper accounting between Mr Al-Saraj and Mr Al-Arbash did result or would have resulted in £500,000 or less. He submitted that, if, on the other hand, I concluded that Mrs Murad did know that £3.6m was to be paid by way of separate amount to HHL, or the purchase price was £4.1m but Mrs Murad understood that Mr Al-Saraj's contribution of £500,000 could be paid in any manner which would satisfy Mr Al-Arbash, then again it would be irrelevant whether a proper accounting between Mr Al-Saraj and Mr Al-Arbash did result or would have resulted in £500,000 or less: as long as Mr Al-Arbash was willing to credit towards the purchase price the amount of £500,000, it was unimportant to Mrs Murad whether that figure was the product of an accurate accounting or not. I consider that the question whether, and if so, in what manner, there was an accounting between Mr Al-Saraj and Mr Al-Arbash as part of the transaction for the purchase of the Hotel by the Claimants and the Defendants is material to the issues before me. In particular, it is relevant to the relief to be granted to the Claimants. The Claimants' primary position, on this aspect of the case, is that there never was any accounting of any kind between Mr Al-Saraj and Mr Al-Arbash as part of the transaction for the purchase of the Hotel by the Claimants and the Defendants. Mr Hossain submitted that Mr Al-Arbash was actually willing to sell the Hotel for £3.5m. In advancing that submission, he relied principally on the Robert Barry Valuation, which was commissioned by Mr Al-Saraj, and which gave the Hotel an open market value of £3.5m as at 14 March 1997 and an estimated realisation value (if the Hotel was sold around six months later after proper marketing) of £3.75m, and on the evidence of negotiations for a sale of the property to Mr Al-Murbati in 1997. I reject that submission of Mr Hossain. In my judgment, the weight of the evidence shows that Mr Al-Arbash was not willing to sell the Hotel in 1997 for £3.5m or £3.6m, but only for something in excess of that. So far as concerns the Robert Barry Valuation, the report indicated, as I have said, a range of value between £3.5m and £3.75m. The evidence before me was to the effect that Mr Al-Arbash wished to sell his property interests in England in 1997. There is no evidence, however, that he was so pressed or keen to sell, that he would have been willing to dispose of the Hotel at the lowest end of the valuation range advised in the Robert Barry Valuation. It is clear that there were a number of different prospective purchasers willing to bid for the Hotel in 1997 for a value of, at least, £3.5m. The existence of a healthy market for the Hotel at that price reinforces the conclusion that £3.5m was indeed at the lowest end of the range of possible values for the Hotel. Mr Hossain submitted that the evidence showed that Mr Al-Arbash was willing to accept, and did accept, an offer by Mr Al-Murbati to purchase the Hotel for £3.5m. The evidence as to Mr Al-Murbati's negotiations with Mr Al-Arbash is not clear, consistent or satisfactory. Mr Al-Murbati did not attend to give evidence. Mr Al-Zayani gave hearsay evidence of what he was recently told by Mr Al-Murbati concerning Mr Al-Murbati's offer to purchase the Hotel in 1997. The essence of Mr Al-Zayani's evidence was that Mr Al-Murbati stated to Mr Al-Zayani that he had offered £3.5m for the Hotel, which included a payment of £500,000 to Mr Al-Arbash personally. Mr Al-Murbati gave Mr Al-Zayani two documents in relation to Mr Al-Murbati's negotiations with Mr Al-Arbash, one of which was the Robert Barry Valuation. Mr Al-Murbati also referred to a written contract for the sale of the Hotel at that price, but he never handed the contract or a copy of it to Mr Al-Zayani. There is in evidence a letter dated 14 March 2004, purportedly signed by Mr Al-Murbati and addressed to Baker & McKenzie, which "is to confirm that our offer for Parkside hotel was 3.5 million-pound". A Civil Evidence Act notice was served in respect of that letter. The authenticity of the letter was challenged by the Defendants. In relation to Mr Al-Murbati's offer, Mr Hossain also relied upon a letter from Mr Al-Arbash to Mr Golinsky dated 2 February 1997, which referred to an agreed sale of the Hotel to "purchasers from Bahrain", and an exchange of correspondence between Mr Golinsky, on behalf of HHL, and Peter Gillis & Co, on behalf of the proposed purchaser, in February 1997. A letter from Mr Golinsky to Peter Gillis & Co dated 24 February 1997 referred to an agreement to purchase the Hotel for the sum of £3.5m, and confirmed that HHL had received a "preliminary deposit" of £500,000 from the purchasers "pending exchange of Contracts". Reliance was also placed upon a document in Mr Golinsky's handwriting, which stated that HHL had received £500,000 as a preliminary deposit, pending exchange of contracts, and mentioned a sum of £3.5m next to the words "as a going concern". Mr Golinsky's evidence was that the document recorded a conversation between Mr Golinsky and Mr Gillis of Peter Gillis & Co. Although it is the Claimants' case that this documentation was part of the transaction with Mr Al-Murbati, Mr Golinsky's evidence was that he could not recall Mr Al-Murbati's name in connection with the transaction. Mr Al-Saraj's evidence in connection with the negotiations with Mr Al-Murbati was difficult to follow. Mr Al-Arbash's evidence was clear that Mr Al-Murbati had agreed to purchase the Hotel for £4m, and provided a deposit of £500,000. Mr Al-Arbash said that, after Mr Al-Murbati had obtained a valuation, Mr Al-Murbati said that the Hotel required £1m to renovate it, and therefore he would not pay £4m. Mr Al-Arbash said that Mr Al-Murbati wanted to withdraw from the deal, and Mr Al-Arbash agreed. There is some echo of that evidence of Mr Al-Arbash in the second witness statement of Mr Al-Zayani dated 19 March 2004, in which he set out what he had been told by Mr Al-Murbati. In that witness statement Mr Al-Zayani said that Mr Al-Murbati told him that Mr Al-Arbash had asked for £4m but he did not believe he could offer this much, since the valuation report only gave a valuation of between £3.5m and £3.75m; moreover, he would have needed to make a further investment of between £1.5m and £2m to refurbish the Hotel, which he had been planning to convert into flats. The logic of that hearsay statement of what Mr Al-Zayani was told by Mr Al-Murbati rests on the hypothesis that Mr Al-Murbati was not willing to offer £4m, because he had already received the Robert Barry Valuation of between £3.5m and £3.75m before he made his initial offer. It seems clear, however, that Mr Al-Murbati's recollection in that respect was incorrect. According to the Claimants, the instructions from Mr Al-Arbash to Mr Golinsky were contained in the letter dated 2 February 1997 to which I have already referred, and which was followed by the exchange of correspondence between Mr Golinsky and Mr Gillis in February 1997. The Robert Barry Valuation, however, is dated 3 April 1997 and followed an inspection on 13 March 1997. A report on the state of repair and structural condition of the Hotel by Moffatt & Partners, which was also handed by Mr Al-Murbati to Mr Al-Zayani, and which was said to be the basis for the estimated further investment of between £1.5m and £2m to refurbish the Hotel, is dated 18 March 1997. Accordingly, it would appear that the chronology of events given by Mr Al-Arbash, who did attend the trial in person, is to be preferred to the recollection of Mr Al-Murbati, whose evidence has been given by hearsay statements. In my judgment, it is likely that the correspondence between Mr Golinsky and Peter Gillis in February 1997, and the document said to be an attendance note of a conversation between Mr Golinsky and Mr Gillis, proceeded on a misunderstanding as to the way in which Mr Al-Arbash and Mr Al-Murbati regarded the £500,000 which had already been paid prior to the instruction of solicitors. I find, on a balance of probabilities, that the "preliminary deposit" of £500,000 was intended by both Mr Al-Arbash and Mr Al-Murbati to be in addition to the £3.5m, just as Mr Al-Arbash and the Defendants maintain that the £500,000 was demanded by Mr Al-Arbash, in his accounting with Mr Al-Saraj, as a payment to secure the purchase of the Hotel, in addition to the contract price of £3.6m. I conclude, therefore, that Mr Al-Murbati's initial offer was, in fact, £4m, in accordance with the evidence of Mr Al-Arbash. There is clear evidence that, in negotiations in 1997 between Mr Al-Arbash and HHL, on the one hand, and Galliard, on the other hand, the asking price for the Hotel was around £4.2m. It also appears from the evidence that a constant theme of the negotiations and the proposals was that £500,000 would be paid directly to Mr Al-Arbash. There is in evidence a letter from Rivage Management Limited to Mr Al-Saraj dated 10 July 1997, in which an offer of £3.5m for the Hotel and business, as a going concern, was confirmed. There is no evidence that that offer was ever followed up or accepted. The non-acceptance of the offer is more supportive of the Defendants' case than the Claimants' case as to the amount which Mr Al-Arbash was willing to accept for the sale of the Hotel. I turn now from the question of the price at which Mr Al-Arbash was willing to sell the Hotel in 1997 to the question of the state of account between Mr Al-Arbash and Mr Al-Saraj at that time. I am satisfied, and indeed Mr Hossain accepted, that the evidence shows that Mr Al-Saraj did act on behalf of Mr Al-Arbash as his representative in England dealing with Mr Al-Arbash's property affairs. I accept the evidence of Mr Al-Saraj and Mr Al-Arbash that Mr Al-Saraj, from time to time, spent his own money to meet property expenses of Mr Al-Arbash in England, when the rental income from the properties was insufficient. I also accept the evidence of Mr Al-Saraj and Mr Al-Arbash that Mr Al-Saraj would, or would normally, be paid commission in respect of sales or purchases on behalf of Mr Al-Arbash. Such commission would be paid, not only in respect of properties in England, but also, it appears from the evidence, in respect of sales or purchases by Mr Al-Saraj, on behalf of Mr Al-Arbash, abroad. Mr Al-Saraj also claims that he was entitled to receive from Mr Al-Arbash a management fee of 15% of the value of any works of repair or renovation carried out on the properties. Mr Al-Saraj's evidence was that there was no proper accounting between Mr Al-Saraj and Mr Al-Arbash between 1994 and 1997. In his written opening submissions, Mr Cogley stated that Mr Al-Arbash owed Mr Al-Saraj £630,400, in respect of commissions, management fees and for reimbursement of expenditure, as at the date of the purchase of the Hotel by the Claimants and the Defendants. Those written opening submissions cross-referred to paragraph 20 of the witness statement of Mr Al-Saraj. According to the Defendants' case, therefore, the £500,000 treated as set-off against the purchase price of the Hotel was, in fact, substantially less than the actual indebtedness of Mr Al-Arbash to Mr Al-Saraj. The oral evidence given by Mr Al-Saraj in relation to commissions, management fees and expenditure on Mr Al-Arbash's behalf, was in many respects confusing and often very difficult to follow. Those advising the Claimants have carried out an analysis of the written documentation provided by, or on behalf of, the Defendants as to commissions, management fees and reimbursement of expenditure claimed by the Defendants to have been due from Mr Al-Arbash to Mr Al-Saraj at the time of the purchase of the Hotel by the Claimants and the Defendants. That analysis shows that a total of £633,268.59 is said to have been due, comprising £110,415.88 in respect of expenditure, £461,700 in respect of commissions and £61,152.71 in respect of management fees. As I have said, the Claimants' case is that there was never any accounting or set-off arrangement at all between Mr Al-Saraj and Mr Al-Arbash at the time of the purchase of the Hotel in 1997. Among other things, the Claimants rely upon the fact that there was no written agreement between Mr Al-Saraj and Mr Al-Arbash as to the contractual arrangements between them for commissions or accounting. Nor is there any written record of the actual accounting or set-off said to have taken place in 1997. The Claimants also point to the changing and, they submitted, unreliable nature of the evidence said to corroborate the Defendants' case on this aspect. The only contemporaneous documentary record of the £500,000 said to have been contributed by Mr Al-Saraj to the purchase of the Hotel is the letter from HHL dated 7 November 1997 which refers to a deposit of £500,000 having been paid in Kuwait on the day of exchange. The authenticity of that letter is challenged by the Claimants in the light, among other things, of Mr Al-Arbash's evidence that he only met Mr Nass, who the Defendants claim was instrumental in procuring the signature of Mr Al-Arbash to the letter, some two years ago (transcript 22 April 2004 pp.44 and 80). Further, the statement in the letter that the deposit of £500,000 was paid in Kuwait on the day of exchange conflicts, the Claimants maintain, with the current case of the Defendants that the £500,000 arrangements were agreed between Mr Al-Arbash and Mr Al-Saraj before Mr Al-Saraj met Mrs Murad in Paris in early September 1997 and before any solicitors were instructed. The Claimants also rely upon what they say has been the changing character of the Defendants' explanation of the manner in which the £500,000 was contributed to the purchase of the Hotel. The Claimants say that the disputed letter of 7 November 1997, and the first explanation given in the letter dated 23 August 2002 from Howard Kennedy to Baker & McKenzie, suggest an actual payment by Mr Al-Saraj of £500,000 in cash. The letter of 12 September 2002 from Howard Kennedy to Baker & McKenzie, by contrast, referred to "deduction of monies held to the account of our client", suggesting that the payment was made by a deduction from money actually held by Mr Al-Arbash. The Claimants maintain that a third change in the story occurred when Clifford Chance wrote to Baker & McKenzie on 23 December 2002 referring, for the first time, to a set-off, against the purchase price, of indebtedness of Mr Al-Arbash to Mr Al-Saraj. The Claimants also point out that the Defendants' account of the timing of the alleged agreement between Mr Al-Saraj and Mr Al-Arbash as to the £500,000 has varied. In the letter from Clifford Chance to Baker & McKenzie of 23 December 2002 it was said that the agreement was after the meeting in Paris between Mr Al-Saraj and Mrs Murad. Mr Al-Saraj's oral evidence in cross-examination, however, was that the set-off was agreed before Mr Al-Saraj went to Paris (transcript 301 March 2004 pp.101, 102, 103). Mr Hossain relied on the, yet further, discrepancy arising from the Westwood Agreement, which recorded a contribution by Mr Al-Saraj of only £641,000, whereas Mr Al-Saraj's case is that he actually contributed £725,817.99 (being the £500,000 set-off, plus money which he advanced in cash towards the balance of the purchase price and costs and expenses of the purchase). Further, the Claimants rely upon all those documents, which I have mentioned earlier in this judgment, in which the purchase price is recorded, or reflected as being, £3.6m. Those documents include the accounts of Danescroft, in which the alleged £500,000 contribution is not included at all as a director's or shareholder's loan. They also rely upon the absence of any reference to the £500,000, or any part of it, in the tax returns of Mr Al-Saraj. They also rely on the difficulty they encountered in obtaining information and documents relating to the debts said to have been written-off by way of set-off, leading to an application for further information dated 9 January 2004 and an application for specific disclosure issued on 17 February 2004. As I have said, I am satisfied that Mr Al-Arbash wanted more than £3.6m for the purchase of the Hotel. I accept Mr Al-Arbash's evidence, which is consistent with the evidence of the negotiations with Galliard and my interpretation of the evidence relating to Mr Al-Murbati's negotiations, that Mr Al-Arbash and Mr Al-Saraj did enter into a private accounting arrangement, under which Mr Al-Arbash, in his own mind, treated £500,000, over and above the contractual purchase price of £3.6m payable to HHL, as credited towards the purchase of the Hotel. I do not accept, however, that the £500,000 included any, or any substantial, amount in respect of expenditure by Mr Al-Saraj on Mr Al-Arbash's properties or in respect of management fees, or that the £500,000 represented any legally binding or enforceable debt due from Mr Al-Arbash to Mr Al-Saraj. As I have said, Mr Al-Saraj's evidence was that there was no accounting between Mr Al-Saraj and Mr Al-Arbash between 1994 and 1997. If Mr Al-Saraj meant, by that evidence, that he remained out of pocket for all expenditure by him during that period on Mr Al-Arbash's properties, that is not only highly improbable, but against the over-whelming weight of the evidence. The evidence of both Mr Al-Saraj and Mr Al-Arbash was that expenditure by Mr Al-Saraj on Mr Al-Arbash's properties was, in the first instance, paid or reimbursed out of rental income. Their evidence was that, if there was a shortfall, then Mr Al-Arbash would reimburse Mr Al-Saraj when Mr Al-Arbash visited England. The evidence of both of them was that Mr Al-Arbash did come to England on a number of occasions during the period 1994 to 1997. Indeed, in cross-examination, Mr Al-Saraj appeared to accept that he was given some money by Mr Al-Arbash in 1997. Mr Al-Saraj also appeared to say that he would obtain money from Mr Al-Arbash when Mr Al-Saraj went to Kuwait. He further appeared to say that, during the period 1994 to 1997, Mr Al-Arbash and Mr Al-Saraj would sit down together every year, at an informal meeting, when Mr Al-Saraj would show Mr Al-Arbash the receipts paid on his behalf and would take money from him when needed. All this is contrary to his overall contention that there was no accounting between them during the period 1994 and 1997. Mr Al-Arbash's evidence was that he paid Mr Al-Saraj an annual sum of some £15,000 in respect of one of his properties, the Westbourne Hotel. As I have said, there is no single document which records any substantial or changing balance over time as between Mr Al-Saraj and Mr Al-Arbash. There are no bank statements produced on behalf of the Defendants which clearly show that £110,000 or so of expenses were in fact paid by Mr Al-Saraj on behalf of Mr Al-Arbash. Reliance was placed by the Defendants on certain transactions on the account of Mr Yahya at the Arab National Bank, but the origin of the money in that account is far from certain. I am not prepared to accept, without further corroboration, that all the money in that account, which was applied in payment of expenses on Mr Al-Arbash's properties, originated from Mr Al-Saraj. Further, and critically, it is clear from Mr Al-Saraj's tax returns for the years ending 5 April 1994 and 5 April 1995 that the expenses said to have been paid on behalf of Mr Al-Arbash in the calendar year 1994, but were allegedly not reimbursed, exceeded the combined total of Mr Al-Saraj's income for those two tax years. Analysis of the expenditure alleged by Mr Al-Saraj for the years 1995, 1996 and 1997, and of Mr Al-Saraj's tax returns for the same period, also indicates that it is highly unlikely that Mr Al-Saraj could, or would, have borne the alleged expenditure, without reimbursement, out of his net income after tax. Mr Al-Saraj claimed, in cross-examination, to have various foreign business interests operated though his HIS group. No documents have been disclosed as to those businesses or as to Mr Al-Saraj's interest in them, and no evidence was provided by Mr Al-Saraj as to his bank accounts. There is no entry in the relevant tax returns of Mr Al-Saraj to indicate that income or capital gains were remitted by Mr Al-Saraj from abroad to pay the expenses he claims to have paid on behalf of Mr Al-Arbash. Mr Al-Saraj did, however, affirm the accuracy of his income tax returns for the relevant period. Further, Mr Al-Arbash said nothing, in his oral evidence, as to any, or any significant, amounts due to Mr Al-Saraj in 1997 in respect of unpaid management fees. In my judgment, taking the evidence as a whole, the Defendants have not established a case that, at the time of the purchase of the Hotel by the Claimants and the Defendants in 1997, Mr Al-Arbash was under any legal obligation to Mr Al-Saraj to reimburse some £110,000 worth of expenses and to pay some £61,000 of management fees. If the burden of proof, in this respect, is on the Claimants, then the Claimants have satisfied me that, on the balance of probabilities, there was no such obligation. The largest part of the £500,000 indebtedness alleged by the Defendants is constituted by commissions allegedly due from Mr Al-Arbash to Mr Al-Saraj in respect of the sale or purchase of properties on behalf of Mr Al-Arbash. The Claimants' analysis of the written material provided on behalf of the Defendants shows that £461,700 is said to have been due from Mr Al-Arbash to Mr Al-Saraj in respect of such commissions. Mr Al-Saraj' evidence was that he was entitled to a commission of 3 per cent of the purchase price of any of Mr Al-Arbash's properties in England, the purchase of which was arranged by him, a commission of 12 per cent of the gross profit earned by Mr Al-Arbash on the sale of any property in England arranged by Mr Al-Saraj, and a commission of 5 per cent commission on the purchase of the Farwania complex in Kuwait. Mr Al-Saraj claimed that, at the time of the purchase of the Hotel in 1997, he was entitled to commissions in respect of several properties in England. The only specific properties mentioned by Mr Al-Arbash, in cross-examination, as giving rise to a commission due to Mr Al-Saraj in 1997 were the Farwania building and the Hotel. Mr Al-Arbash's evidence was that the commission due on the sale of the Hotel (to the Claimants and the Defendants) was 9 per cent of 4.1m. That would have given rise to a commission of £369,000. The discrepancy between Mr Al-Saraj's evidence as to calculation of the commission on the sale of the Hotel (12 per cent of gross profit) and the evidence of Mr Al-Arbash (9 per cent of the total price) is important. In my judgment, it provides part of the clue as to the true position in relation to commissions. The essence of Mr Al-Saraj's case on commissions is that there was, as a term of his contractual retainer as Mr Al-Arbash's agent in England, an entitlement to certain rates of commission on the purchase or sale of any properties achieved by him as such agent. I find, however, that there was no such continuing and legally binding arrangement. The evidence certainly points to an expectation on the part of both Mr Al-Saraj and Mr Al-Arbash that commissions would be paid as and when properties were sold and bought by Mr Al-Saraj on behalf of Mr Al-Arbash. That expectation, however, was not an enforceable contract. Mr Al-Saraj himself said, in giving his evidence in chief, that the dealings between himself and Mr Al-Arbash were not by way of "contracts or agreements just through words, verbal agreements". He then referred to the position under "our law", setting out the rates of commission which he stated applied. He continued that it was a matter which rested "on trust" between them (transcript 31 March 2004 p.31). Significantly, he explained the arrangement as to commission by reference to Mr Al-Arbash's faith as a Shia Muslim, and stated that Mr Al-Arbash would deal in the same way with everybody (transcript 31 March 2004 p.63). Mr Al-Arbash's evidence, in chief, was that:
"the arrangements we have that we always reached a deal or agreement every year, whenever I sell a property and I get a profit, I give him a percentage out of this profit" (transcript 21 April 2004 p.66). Mr Al-Arbash did not, in fact, corroborate any of the fixed percentages given by Mr Al-Saraj in his evidence. On the contrary, Mr Al-Arbash's evidence was that there was no particular formula for determining the commissions on sales. He said: "
It varies. It is all based on what we agree on" (transcript 23 April 2004 p.10). Mr Al-Arbash said:
"we always agree on these things. So if we agreed at that time to pay him the commission based on the profit, so that is what I would do" (transcript 23 April 2004 p.10). The only commission on which the evidence of Mr Al-Arbash and Mr Al-Saraj agreed concerned the purchase of the Farwania building, in relation to which they both gave evidence of a commission in the region of £180,000. In my judgment, not only was there no overriding and continuing contract of retainer containing an enforceable agreement for commissions to be paid at the rates specified by Mr Al-Saraj, but the evidence does not indicate that there was any agreement on any particular commission, said to constitute all or part of the £500,000, before the Claimants and the Defendants agreed to purchase the Hotel. There was an agreement at that time which was prompted by, and reached for the purposes of, the acquisition of the Hotel by Mr Al-Saraj. Accordingly, I conclude that, at the time of the purchase of the Hotel by the Claimants and the Defendants, and as part of the overall transaction for the purchase of the Hotel, there was an agreement between Mr Al-Arbash and Mr Al-Saraj that Mr Al-Arbash was to be treated as having paid commissions in respect of the purchase of the Farwania building and the purchase and sale of the Hotel, and possibly other properties in England, for the global sum of £500,000. There was no binding agreement in relation to those commissions prior to that time. In my judgment, the agreement was a broad brush agreement, by which Mr Al-Arbash discharged what he regarded as a business or moral or religious duty. That broad brush approach is consistent with the fact that, if Mr Al-Saraj's evidence or Mr Al-Arbash's evidence is taken at face value, the actual amount due was £630,000 or more. What was ultimately agreed on that occasion, as on every other occasion when a commission was discussed and agreed, was a matter of discretion and negotiation. Mr Cogley submitted that that interpretation of events is not set out in the Particulars of Claim. That observation is misconceived. The Claimants' case is that Mr Al-Saraj did not contribute £500,000 towards the purchase price as he represented he would do or had done. It is the Defendants who seek to rebut that allegation by relying on an alleged set-off against the purchase price of existing indebtedness of Mr Al-Arbash to Mr Al-Saraj. It is for the Defendants to set out their case on the set-off and to adduce the evidence to establish it. A question may be said to arise, in the light of my conclusion that, contrary to Mrs Murad's primary case, there was an agreement between Mr Al-Saraj and Mr Al-Arbash as to the £500,000 at the time of the purchase of the Hotel in 1997, as to why the £500,000 was not mentioned in any contemporaneous documents (save the disputed HHL letter of 7 November 1997) and was not mentioned by Mr Al-Saraj to Mrs Murad or any professional advisers at the time. It is not necessary for me to reach a conclusion on this point, which is plainly a matter of speculation. Nevertheless, I would observe that I do not find Mr Al-Saraj's conduct in this respect surprising. As will have appeared from what I have said earlier in this judgment, Mr Al-Saraj's disclosures to the Inland Revenue have been less than frank. Further, there is evidence that Mr Al-Saraj has channelled money from abroad by covert means, including the use of at least one account in the name of another person. In the light of those matters, and the clear impression I obtained of the general secretiveness of Mr Al-Saraj in relation to his business affairs, Mr Al-Saraj's reluctance to disclose to third parties the private transaction with Mr Al-Arbash as to the £500,000 is not surprising. So far as concerns disclosure to Mrs Murad, as I have concluded earlier in this judgment, Mr Al-Saraj gave her the impression, deliberately in my view, that his contribution would be in cash. That is not surprising. Disclosure to Mrs Murad that Mr Al-Saraj's contribution would be by way of a set-off of personal indebtedness from Mr Al-Arbash would have invited all manner of complications, including investigation by her of the state of accounting between Mr Al-Saraj and Mr Al-Arbash, a scepticism by her (as, indeed, manifested by these proceedings) that any such genuine indebtedness existed, dissemination to a wider public, through Mrs Murad, of Mr Al-Saraj's various dealings with Mr Al-Arbash and their financial consequences, and the creation of further difficulties from the disclosure that part of the consideration for the purchase would not be paid to the vendor company but by way of private benefit to Mr Al-Arbash. Consequential loss It is convenient, at this point in my judgment, where I am dealing with my conclusions on issues of fact, to consider what would have happened if Mr Al-Saraj had frankly and fully disclosed to Mrs Murad that his contribution towards the purchase price of the Hotel was to be made, in whole or in part, by way of the set-off arrangement which actually took place, in the way I have described, as between Mr Al-Arbash and Mr Al-Saraj. It is common ground that, in the end, Mr Al-Saraj contributed £225,817.99 in cash towards the purchase price and expenses of the purchase. In paragraph 54 of her first witness statement dated 25 February 2004 Mrs Murad refers to the respective contributions of £858,744 and £641,256 of the Claimants and Mr Al-Saraj recorded in the Westwood Agreement. She continued, in paragraph 55 of that witness statement, as follows: "
I was content to agree to share the proceeds of sale on this basis. Mr Al-Saraj had apparently contributed a significant share of the money and was going to look after the business of the hotel. He also said that he should get 50% because he had brought the deal to us. For all these reasons, I thought the deal was a fair one. Had I known, however, that he had contributed nothing to the purchase price or, at most, only about £200,000 out of £1 million, I would not have agreed to this "fifty – fifty" split. A 50% share of the proceeds of sale, having only contributed about 20% or less of the monies, would have been too much." The clear implication from that statement is that, even though Mr Al-Saraj contributed only some £225,000 in cash, rather than the £500,000 Mrs Murad believed he would contribute, she would still have wished to proceed with the transaction, but only on the basis that he would enjoy a lower percentage of the capital profit arising from any sale of the Hotel by Danescroft. Mrs Murad's witness statement does not, however, appear to take into account, in this connection, the complication that, as I have found, Mr Al-Arbash was only willing to permit sale of the Hotel if he received more than £3.6m. Nor does it take into account that, in the case of the proposed sale to the Claimants and the Defendants, Mr Al-Arbash wished to discharge, as part of the sale transaction, what he perceived to be his religious or moral or business obligation to pay commissions in respect of the acquisition and subsequent sale of the Hotel, the purchase of the Farwania building in Kuwait and possibly the sale or purchase of other properties, and was willing to attribute to those commissions some £500,000 to be credited towards the purchase price of the Hotel. I have no doubt that, if all those matters had been disclosed, the immediate reaction of Mrs Murad would have been one of great scepticism as to the true nature and existence of the non-cash contribution of Mr Al-Saraj. I am satisfied that Mrs Murad was not immediately attracted by the proposal to invest substantial sums in the acquisition of the Hotel. The impression I have is that Layla made her decision to invest solely on the recommendation of Mrs Murad. As I have said, Mrs Murad had significant reservations about investment in the Hotel since she had no experience of owning or managing a hotel and she was concerned at the size of the proposed bank loan for funding the purchase. I am also satisfied, from her evidence, that she was persuaded to invest because she was assured by Mr Al-Arbash that the terms of the investment were highly advantageous, and Mr Al-Saraj would be risking a substantial amount of his own money. 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. 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 the capital profit on any resale. Neither side has advanced any submissions to me as to what percentage would have been agreed between the parties if Mr Al-Saraj had disclosed all the facts to Mrs Murad. For the reasons which appear subsequently in this judgment, it is not necessary for me to reach any conclusion as to what precise share would have been agreed in favour of Mr Al-Saraj or Westwood. Rescission In the light of what I have said earlier in this judgment, I conclude that the Claimants were induced to contribute towards the purchase of the Hotel by virtue of fraudulent misrepresentations made by Mr Al-Saraj, on which they relied. The primary relief sought by the Claimants is a declaration that they have validly rescinded the Westwood Agreement, any transfer to Westwood of the beneficial interest in one third of Danescroft's shares, and any agreements that may have been made prior to the Westwood Agreement as to the division of the beneficial interest in shares in Danescroft or of its assets. That rescission is said to have taken place by the issue and service of the proceedings. Alternatively, the Claimants seek an order of the court for rescission of those agreements and the transfer. The effect of such rescission, Mr Hossain submitted, is that the Claimants are left with the sole beneficial title to the shares in Danescroft and accordingly, are entitled, to the exclusion of Mr Al-Saraj or Westwood, to the net assets of Danescroft, including the proceeds of sale of the Hotel. The Defendants say that rescission is not possible in the present case. Mr Cogley submitted that the rescission sought by the Claimants will not "unravel" the entire venture, but is intended to leave the Claimants enjoying the benefits of the transaction by which the Hotel was acquired and managed by Danescroft, while excluding Mr Al-Saraj. Further, Mr Cogley submitted that rescission is not possible in the present case because "restitutio in integrum" is not possible; the constituent agreements of the transaction have been affirmed; and there has been delay. It is a trite law that, if a contract is to be rescinded, the representee must rescind the whole contract or none of it. He cannot elect to rescind only the part affected by the misrepresentation, whilst retaining the advantages of the remainder of the contract. Similarly, if the representee is unable to make restitution of parts of the benefits obtained under the contract, he cannot rescind as regards the remaining part. Mr Hossain submitted that those principles are satisfied in the present case. He submitted that the Westwood Agreement was a stand-alone agreement as to the distribution of the proceeds of sale of the Hotel, and that it can be rescinded without impinging on any other agreement between the parties. He submitted that only the Westwood Agreement constituted a binding agreement between the parties as to the distribution of the proceeds of sale of the Hotel. Mr Hossain submitted that rescission would not, therefore, disturb Mr Al-Saraj's right to retain his past remuneration and other benefits for managing the Hotel, or preclude him from recovering (in so far as not already paid) his contribution of £225,817.99 from Danescroft which, as between himself and Danescroft, has been treated as a loan. The Claimants recognise, of course, that rescission of the Westwood Agreement would not, of itself, disturb the entitlement of Westwood (and so Mr Al-Saraj) to share in the assets of Danescroft by virtue Westwood's beneficial entitlement to one third of Danescroft's shares. Accordingly, for that reason, the Claimants separately seek rescission of the transfer to Westwood of the beneficial interest in one third of Danescroft's shares, which took place following the Claimants' letter to Valmet of 9 January 1998 requesting Mr Perera of Valmet to take appropriate action so that Danescroft's shares were owned as to one third by each of the Claimants and Westwood. The Claimants contend that, prior to the action taken in response to that request, the Claimants were solely beneficially entitled to the shares in Danescroft. Accordingly, they submit, the effect of rescission of the transfer of the beneficial interest in one third of the shares to Westwood would be to leave the Claimants as the sole beneficial owners of Danescroft. In my judgment, rescission, as claimed by the Claimants, is not an available remedy in the present case. I agree with Mr Cogley that it would not unravel the transaction between the parties, but would, in effect, rewrite the commercial deal between them so as to confer on the Claimants the sole beneficial right to the revenue and capital profits from the transaction, notwithstanding the actual contributions in cash and otherwise of Mr Al-Saraj. The intention from the outset of the discussions between Mr Al-Saraj and Mrs Murad was that the acquisition of the Hotel was to be a joint venture. It was never intended that the Claimants alone would be the sole owners of the Hotel or the corporate vehicle through which it was to be acquired, and solely entitled to the revenue and capital profits arising from the acquisition and management of the Hotel. At the very first meeting between Mrs Murad and Mr Al-Saraj in Paris in September 1997, the proposal was for a one third division of revenue participation between the Claimants and Mr Al-Saraj, and a division of capital profits from a resale of the Hotel in the proportions 50% to the Claimants and 50% to Mr Al-Saraj. Whether or not there was a binding agreement at that stage is irrelevant. Danescroft was incorporated, on the initiative and instructions of Mr Al-Saraj alone, for the benefit of the joint venture and on the basis of the terms proposed at the meeting in Paris and subsequently endorsed by the Claimants, through Mrs Murad, after she had returned to Bahrain. Mr Golinsky's evidence, which I accept, is that the shares in Danescroft were originally treated as beneficially owned by the Claimants purely as a matter of administrative convenience (transcript 2 April 2004 p.145). Further, it is plain that, by the time the Hotel was acquired by Danescroft, the essential ingredients of the joint venture were agreed between the Claimants and Mr Al-Saraj, under which he would be entitled to one third of the shares in Danescroft and 50% of the capital profit arising from any resale of the Hotel. If it is necessary to do so, I hold that there was a legally binding and enforceable agreement to that effect at that time. That agreement was varied by the Westwood Agreement only to the extent that the latter recognised that Mr Al-Saraj's interest would be held through Westwood, and in recording certain specified contributions by the parties. Similarly, the instructions by the Claimants to Valmet in their letter of 9 January 1998 as to the beneficial ownership of the shares in Danescroft merely gave effect to the agreement between the parties which pre-dated the acquisition of the Hotel by Danescroft. The Hotel would not have been acquired by Danescroft without the contributions by Mr Al-Saraj directly in cash and indirectly pursuant to the private transaction between himself and Mr Al-Arbash. Those contributions would not have been made in the absence of an agreement that he, or Westwood, be entitled to share in the revenue and capital profits of the Hotel. Accordingly, if rescission was granted in the manner, and to the effect, sought by the Claimants, it would re-write the commercial transaction, leaving the Claimants with the benefits flowing from the acquisition of the Hotel that resulted from Mr Al-Saraj's contributions, while excluding Mr Al-Saraj completely from essential features of the commercial transaction without which he would never have made those contributions. This conclusion is not disturbed in any way by the fact, as submitted by Mr Hossain, rescission would not retrospectively deprive Mr Al-Saraj of any remuneration or other benefits he has previously received for managing the Hotel, and would not, on the facts, disturb any resolution by or action taken on behalf of Danescroft. Further, to grant rescission as sought by the Claimants, would be likely to leave Mr Al-Saraj substantially disadvantaged in relation to the set-off as between himself and Mr Al-Arbash. The £500,000 set-off has not been treated as a loan by Mr Al-Saraj or Danescroft in the books of Danescroft. I am very doubtful whether it would be possible or proper for the accounts to be altered so that the £500,000 set-off is retrospectively so treated. Danescroft has written to the court stating that it does not wish to be joined as a party to the proceedings and will abide by any findings of fact of the court. It remains the position, however, that the accounts of Danescroft have been drawn to reflect the fact that the contract price for the Hotel was £3.6m, and that was all that HHL received. I have received no accountancy evidence that, in those circumstances, it would be proper to treat the £500,000 set-off arrangement between Mr Al-Arbash and Mr Al-Saraj as a loan to Danescroft. If it cannot be so treated, this highlights the inability of rescission to restore the parties to their previous position by unravelling the transaction in its entirety, since the Claimants would be left with the entire benefit of the joint venture, whereas Mr Al-Saraj would be left out of pocket in respect of a substantial part of the contribution made by him to the joint venture, and without which the Hotel would not have been purchased. In the circumstances, it is not strictly necessary for me to address the submissions of Mr Cogley that rescission is not available as a remedy to the Claimants since they have affirmed the transaction and, in any event, have delayed too long in seeking relief. For the sake of completeness, however, I find that the Claimants are not precluded from obtaining rescission by virtue of either affirmation or delay. The principal matters on which the Defendants rely in support of their contention that the Claimants have affirmed the transaction is that they have used their powers as shareholders to remove Mr Al-Saraj from AML, and to cause various enquiries to be made, and generally used their powers as shareholders to intervene in the affairs of Danescroft, including causing Danescroft to sell the Hotel. It is said that they have also affirmed the transaction by offering to purchase the shareholding of Mr Al-Saraj or Westwood in a letter from Baker & McKenzie to Clifford Chance dated 11 November 2002. The evidence does not support the submission that the Claimants have used their interest in Danescroft's shares in order to secure the removal of Mr Al-Saraj as a director or employee of AML or otherwise to intervene in the affairs of Danescroft or AML. The evidence is that Mr Hodson was appointed an independent director of AML with the agreement of both Mr Al-Saraj and Mrs Murad, and that Mr Al-Saraj was dismissed for gross misconduct as an employee of AML, by decision of the directors of AML following the interim report of Gibson Booth, chartered accountants. There is no evidence before the court as how Mr Al-Saraj was removed as a director of AML. The offer to purchase the shares of Mr Al-Saraj or Westwood in Danescroft was not an affirmation. The offer was made as part of an attempt in good faith to compromise all or some of the matters in dispute. The letter of 11 November 2002, in which the offer was made, followed an earlier letter from Baker & McKenzie to Mr Al-Saraj of 19 August 2002, in which it was expressly alleged that Mr Al-Saraj's one third shareholding had been obtained by fraudulent misrepresentation, and should be re-transferred to the Claimants. Further, it is clear from the wording of the letter of 11 November 2002 that, if the offer to purchase Mr Al-Saraj's shares in Danescroft was not accepted, the Claimants would pursue their claims. Accordingly, the offer to purchase the shares was not an unequivocal act of affirmation. Further, so far as concerns delay, I find that there was no significant delay in the commencement of proceedings by the Claimants. The Claimants' legal case was set out in the letter from Baker & McKenzie to Mr Al-Saraj of 19 August 2002. There then ensued a period of several months during which the Defendants put forward various explanations as to the apparent disparity between the purchase price on the documentation and the figure of £4.1m, and as to the manner in which Mr Al-Saraj made his £500,000 contribution. Following exchange of correspondence between the parties in relation to those matters and correspondence and meetings in which the parties attempted to settle the dispute, the proceedings were then instituted. I can see no basis for the submission, in those circumstances, that there was any undue delay in the commencement of proceedings. Damages for misrepresentation Mr Hossain's primary contention, in relation to loss and damages, is that the Claimants are entitled to damages equivalent to the additional value they would have received if rescission had been granted. In other words, damages should be equal to that proportion of the net proceeds of the sale of the Hotel to which Westwood is entitled under the Westwood Agreement, but which would go to the Claimants if rescission was granted. That appears to me to be an entirely misconceived approach to the quantification of loss for misrepresentation. The correct measure of damages for fraudulent misrepresentation is an amount of damages which would put the Claimants in the position in which they would have been if the misrepresentations had not been made. Mr Hossain did not advance any argument that, on the evidence, it was possible to say that, if the Claimants had not invested in the purchase of the Hotel, they would have made one or more investments elsewhere which would have exceeded the profit which they are entitled to enjoy under the agreements they reached with Mr Al-Saraj and Westwood in relation to the Hotel and Danescroft. Mrs Murad gave evidence concerning investment in Kuwait, but that evidence was far too general and vague to amount to cogent evidence of actual loss. On the other hand, for the reasons I have explained earlier in this judgment, I find that, on a balance of probabilities, if the misrepresentations had not been made and Mr Al-Saraj had fully disclosed the true position to the Claimants, the transaction would have proceeded, but with Mr Al-Saraj receiving less than 50% of the capital profit on any resale of the Hotel by Danescroft, and the Claimants receiving a commensurately larger share than the 50% specified in the Westwood Agreement. This is the proper measure of loss suffered by the Claimants. Mr Cogley submitted that any loss suffered as a result of misrepresentations by the Defendants resulted in loss to Danescroft rather than to the Claimants personally. He submitted, on the principles in Johnson v Gore Wood [2002] AC 1 , that Danescroft would be entitled to recover any loss, and its recovery would be reflected in the value of its shares. Accordingly, he submitted, the Claimants have suffered no actionable loss. It is clear, however, from my analysis of the revised arrangements that would have been agreed between the Claimants and the Defendants as to the distribution of the capital proceeds of sale of the Hotel, that the loss which has been suffered is the loss of the Claimants personally. Further, the misrepresentations relied upon were made to the Claimants personally. There is no evidence at all that the misrepresentations were made to Danescroft. Accordingly, the Claimants have established, on a balance of probabilities, that the misrepresentations, on which they relied, and which induced them to enter into the arrangements with the Defendants concerning the Hotel, including the Westwood Agreement, have caused loss and given rise to a cause of action for deceit. Breach of contract In the alternative to rescission or damages for misrepresentation, the Claimants contend that any agreement between the Claimants and the Defendants for Mr Al-Saraj or Westwood to participate in any profit on a sale of the Hotel by Danescroft was conditional on Mr Al-Saraj contributing £500,000 (in cash) towards the price of the Hotel. Mr Hossain clarified, in his closing submissions, that, in relation to this aspect of the Claimants' case, what is being alleged is a breach of a promise that Mr Al-Saraj would make that contribution, and, by virtue of that breach, the Claimants were entitled to treat the agreement or agreements between themselves and the Defendants as repudiated. He submitted that such repudiation was accepted by issue and service of the proceedings. The difficulty with that analysis, as Mr Hossain frankly accepted in his closing submissions, is that, even if correct, the agreement or agreements between the Claimants and the Defendants would only be discharged as to the future. Whilst this would discharge the Westwood Agreement, it would not affect the existing status of Westwood as beneficial owner of one third of Danescroft's shares. Accordingly, it would not preclude Westwood from entitlement to share in one third of any distribution of Danescroft's assets to its shareholders. Further, there is no evidence of any damages suffered by the Claimants, calculated on the contractual basis, that is to say loss of the profit that would have been made if the promise had been met. For those reasons, Mr Hossain relegated this part of the Claimants' case to the bottom of their various alternative heads of relief. Account of profit If the Claimants are not entitled to rescission, their first alternative claim is for an account of the Defendants' profit. The claim to that relief is advanced on two grounds. Firstly, the Claimants claim that remedy by virtue of Mr Al-Saraj's breach of fiduciary duty. Secondly, the Claimants claim that remedy as a consequence of Mr Al-Saraj's fraudulent misrepresentation, and as an alternative remedy to damages for deceit. Breach of fiduciary duty The Claimants contend that Mr Al-Saraj owed fiduciary duties to the Claimants in connection with the pursuit of the joint venture to acquire the Hotel and that, in breach of those fiduciary duties, Mr Al-Saraj did not disclose to the Claimants either the true position as to the split between the payment of the purchase price of £3.6m to HHL and the separate accounting transaction between Mr Al-Saraj and Mr Al-Arbash, or the nature and basis of that private accounting. The Claimants contend that the Defendants have been able to procure a profit from the joint venture by virtue of Mr Al-Saraj's breaches of fiduciary duty, and accordingly must account to the Claimants for that profit. Mr Hossain submitted that joint venturers have fiduciary duties. In this connection, he cited Goff & Jones on The Law of Restitution (6 th ed.) paragraph 33-001 f/note 10; Hampton & Sons v Garrard Smith (Estate Agents) Limited [1985] 1 EGLR 23, at p.24; John v James [1991] FSR 397, at p.433; and Elliott v Wheeldon [1993] BCLC 53, at p.57 d-f. He further submitted that the authorities show that fiduciary duties can arise in relation to joint venturers before any formal agreement has been concluded between them. In this connection, he cited Fawcett v Whitehouse (1829) 1 Russ & M 132, at p.148; Directors of the Central Railway Company of Venezuela v Kisch (1867) LR 2 HL 99 , at p.113; and United Dominions Corporation Limited v Brian Pty Limited (1985) 157 CLR 1 (High Court of Australia). In the latter case Mason, Brennan and Deane JJ said, at p.12:
"A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation."
Mr Hossain submitted that Mr Al-Saraj clearly owed the Claimants fiduciary duties for the following reasons. Mr Al-Saraj and the Claimants were in the position of joint venturers in relation to the acquisition of the Hotel, the incorporation of Danescroft and the issue of its shares for the purpose of that joint venture. The relationship between the Claimants and Mr Al-Saraj was one of trust and confidence because: Mr Al-Saraj had run the Hotel since 1995; he was the contact and the negotiator with HHL and Mr Al-Arbash, and in that respect acted as the Claimants' agent; he was responsible for instructing professionals in connection with the acquisition, and in that respect also he acted as the Claimants' agent, for example, in instructing Mr Golinsky to prepare the Westwood Agreement, the letter to Valmet of 9 January 1998 regarding the transfer of the beneficial interest in one third of Danescroft's shares to Westwood, and in preparing certain powers of attorney dated 9 January 1998. The Claimants, on the other hand, had no experience of acquiring or running a hotel; they had no knowledge of the nature of the arrangements between Mr Al-Saraj and Mr Al-Arbash; and they entrusted Mr Al-Saraj with extensive discretion to act in relation to matters affecting the Claimants' interests. Mr Cogley submitted that, on the particular facts of the present case, Mr Al-Saraj did not owe the Claimants any fiduciary duties, or at any event any relevant fiduciary duties, in connection with the venture to acquire the Hotel. In particular, he emphasised that the parties agreed to execute the joint venture through a corporate vehicle, Danescroft. He submitted that any fiduciary duties that may have been owed by any of the parties would have been owed to Danescroft (or AML) rather than to each other. In support of that submission, he cited the decision and analysis of Rimer J in Shalson v Russo [2003] EWHC 1637 . Further, Mr Cogley relied upon the following statement by Mason J the High Court of Australia in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 , at p.97, which was cited by the House of Lords in Kelly v Cooper [1993] AC 205, at p.215:
"That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liberties of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."
Mr Cogley submitted that the various cases cited by Mr Hossain all turned on their own particular facts, and all are distinguishable from the present case. In my judgment, Mr Al-Saraj did owe fiduciary duties to the Claimants in relation to the joint venture to acquire the Hotel. That fiduciary relationship arose by virtue of the matters upon which Mr Hossain relied, and which I have set out above. In addition to the matters mentioned by Mr Hossain, I would add that the evidence shows that, prior to the proposal by Mr Al-Saraj for the acquisition of the Hotel, the relationship between Mr Al-Saraj and Mrs Murad was one in which Mrs Murad, who lived abroad, looked to Mr Al-Saraj, who was an Iraqi businessman living and working in England, to make appropriate recommendations to her and to assist her in connection with possible investments in England. The reality was, as Mr Al-Saraj was well aware, that the Claimants were wholly dependent upon Mr Al-Saraj for his advice and recommendation in relation to the Hotel, and for the negotiations with Mr Al-Arbash and HHL, the instruction of professionals on their behalf, including in relation to the structure of the transaction and the documentation. The relationship between them was a classic one in which the Claimants reposed trust and confidence in Mr Al-Saraj by virtue of their relative and respective positions. I do not accept that the analysis of Rimer J in Shalson v Russo assists in the present case. It is not necessary to set out here the facts or the detailed reasoning of the Judge in that case. On the particular facts of that case, Rimer J concluded that, because the relevant parties chose to conduct their venture though a company, it was only to the company that each would have owed fiduciary duties. An important characteristic of the joint venture between the Claimants and the Defendants in the present case, however, is that the arrangements for distribution of the capital profit from the venture was to be determined, not by the corporate structure which involved shareholdings of one third each, but through the Westwood Agreement, to which neither Danescroft nor AML was a party, and which provided for a division of the capital profit in different proportions to the shareholdings in the company. Mr Al-Saraj's failure to disclose that the contractual purchase price, and the amount to be paid to HHL, was only £3.6m, and that the difference between that figure and £4.1m was to be treated as paid by a personal accounting between Mr Al-Saraj and Mr Al-Arbash, and that Mr Al-Saraj's contribution was not to be, or had not in fact been, in cash or wholly in cash was a plain breach of his fiduciary obligations to the Claimants. It was a deliberate breach, which was probably made for the reasons I have set out earlier in this judgment. I can see nothing in the passage in the judgment of Mason J in Hospital Products , on which Mr Cogley relies, which precludes my conclusion on this aspect of the case. Mr Cogley submitted that there is no pleaded allegation that, in breach of fiduciary duty, Mr Al-Saraj failed to disclose that Mr Al-Saraj's contribution was by way of set-off and not wholly in cash. For the reasons I have given earlier in this judgment, particularly in the light of the background correspondence between the parties and their legal advisers prior to the commencement of the proceedings, I consider that it is plain that such an allegation is made in paragraph 9.3.3 of the Particulars of Claim. In those circumstances, the Claimants contend that the Defendants should account for their entire capital profit from the joint venture and, in particular, the profit to which Westwood is entitled under the Westwood Agreement. The Claimants contend that this would be an application of equity's "inflexible rule … designed to strip a fiduciary of his unjust enrichment and to ensure that a fiduciary has not abused his position of trust": Goff & Jones at p.710; Guinness plc v Saunders [1990] 2 AC 663 . Mr Cogley submitted that an account of profits is not an appropriate remedy for any breach of fiduciary duty by Mr Al-Saraj in the present case since there has been no unjust enrichment of the Defendants at the expense of the Claimants. I reject that submission for the reason I gave earlier in this judgment, namely that the deliberate deceit by Mr Al-Saraj enabled the Defendants to procure the agreement of the Claimants that the Defendants should enjoy a contractual right to 50% of the capital profit from the resale of the Hotel, whereas, if there had been full disclosure by Mr Al-Saraj, the Defendants would only have enjoyed a lesser share. Furthermore, the result would be a just one in that, rather than casting upon the Claimants the obligation to establish precisely what proportion, less than 50% of the capital profit, would have been agreed to be paid to the Defendants, with all the expense and difficulty and doubt attaching to that exercise, the Defendants are merely obliged to give up such profit as they have made. That is a particularly appropriate remedy in the case of deliberate and dishonest conduct designed to achieve a commercial advantage for the fiduciary over those to whom he owes his fiduciary duty. In this connection, I record, for the sake of completion, that Mr Cogley accepted that, if I found there was a deliberate and dishonest breach of duty by Mr Al-Saraj, there could be no claim by him for any reward or allowance for introducing to the Claimants the investment of acquiring the Hotel. Waiver of tort The remedy of an account of profit gained by the a defendant as a result of his actionable deceit is now well established: Goff & Jones on The Law of Restitution (6 th ed.) para 36 – 005. In United Australia Limited v Barclays Bank Limited [1941] AC 1, at pp. 18-19, Viscount Simon LC said:
"The true proposition is well formulated in the Restatement of the Law of Restitution promulgated by the American Law Institute, p.525, as follows: "
A person upon whom a tort has been committed and who brings an action for the benefits received by the tortfeasor is sometimes said to 'waive the tort'. The election to bring an action of assumpsit is not, however, a waiver of tort but is the choice of one of two alternative remedies." Contrast with this, instances of true waiver of rights, e.g., waiver of forfeiture by receiving rent. … There is nothing conclusive about the form in which the writ is issued, or about the claims made in the statement of claim. A plaintiff may at any time before judgment be permitted to amend. The substance of the matter is that on certain facts he is claiming redress either in the form of compensation, i.e., damages as for a tort, or in the form of restitution of money to which he is entitled, but which the defendant has wrongfully received. The same set of facts entitles the plaintiff to claim either form of redress. At some stage of the proceedings the plaintiff must elect which remedy he will have. There is, however, no reason of principle or convenience why that stage should be deemed to be reached until the plaintiff applies for judgment." Mr Cogley submitted that the restitutionary remedy of an account of profit by reason of Mr Al-Saraj's deceit could not be granted in the present case because the Defendants have not been unjustly enriched at the expense of the Claimants. He cited, in support of that submission, Halifax Building Society v Thomas [1995] 4All E R 673, a decision of the Court of Appeal concerning a mortgage advance from the plaintiff building society to finance the purchase of a flat by the first defendant, having been induced to make that advance by reason of the fraudulent misrepresentations of the first defendant as to his identity and credit worthiness. The society, having obtained an order for possession, exercised its power of sale and discharged its mortgage from the proceeds, leaving a surplus which it placed in a suspense account. The society then commenced proceedings against the first defendant, seeking a declaration that it was entitled to retain the surplus for its own use and benefit. The Court of Appeal held that the law did not afford a restitutionary remedy to a secured creditor such as the building society, which had affirmed the mortgage and had successfully exercised its power of sale as a mortgagee, and had fully recovered all that to which it was contractually entitled. In my judgment the Halifax Building Society case is of no relevance to the Claimants' restitutionary remedies in the case before me. In the Halifax case, it was of the essence of the decision of the Court of Appeal that the building society had fully recovered all that was due to it and had suffered, therefore, no loss. In the present case, for the reasons I have given, the Claimants have suffered loss as a result of Mr Al-Saraj's deceit. Further, for the reasons I have given, by way of contrast with the Halifax case, the Claimants have not affirmed the relevant transactions with the Defendants. In my judgment, the Claimants are entitled, by reason of Mr Al-Saraj's actionable deceit, to an account of the profit to which Westwood is entitled under the Westwood Agreement. In this connection, I should observe that no submission was made to me by either side that, if I came to the conclusion that the Claimants are entitled to an account of profit by reason of Mr Al-Saraj's deceit, the account of profit should be for anything less than the entire profit to which the Defendants are entitled out of the proceeds of sale of the Hotel by Danescroft. "Profit" In relation to an account of profit, an issue may arise between the parties as to whether all or any part of the £500,000 set-off is to be treated, in the light of my findings of fact, as part of the cost and expenditure of the Defendants for the purpose of calculating the Defendants' profit from the transaction. In the absence of agreement between the parties on this issue, I will hear further submissions. Decision For the reasons set out in this judgment, I give judgment on the claim for an account of the Defendants' profit. I dismiss the counterclaim. In these proceedings the Claimants seek wide-ranging relief in connection with the purchase of the Parkside Hotel, 48-52, Clapham Common Northside, London SW4 ("the Hotel") in 1997 by themselves and the Defendants, through the corporate vehicle Danescroft Properties Limited ("Danescroft").[2]The Claimants claim that they were induced to agree that the First Defendant would be beneficially entitled to shares in Danescroft and the Second Defendant would be entitled to receive part of any profit on the re-sale of the Hotel by Danescroft by promises made by the First Defendant which have not been satisfied and by reason of his fraudulent misrepresentations.[3]The relief sought by the Claimants, namely, declarations, rescission, an account of profits and other benefits, and damages, is intended to deprive the Defendants of any right to share in the profit made by Danescroft on the re-sale of the Hotel. The Hotel was, in fact, sold by Danescroft in February 2004, after the commencement of the proceedings, giving rise to a substantial capital profit. The background: a summary[4]There are many areas of factual dispute between the parties. The following is a summary of the principal factual matters forming the background to the present dispute. I emphasise that it is not intended to be a comprehensive statement of the factual history, but merely a summary sufficient to understand the issues that require to be resolved in the proceedings.[5]The Claimants, Aysha Mohammed Murad ("Mrs Murad") and Layla Mohammed Murad ("Layla") are sisters who live in Bahrain.[6]The First Defendant, Hashim Ibrahim Kalil Al-Saraj ("Mr Al-Saraj") was born in Iraq in 1950, but has lived in the United Kingdom since 1977. He is a businessman, with business interests in England and in several countries abroad.[7]After Mr Al-Saraj finished his studies in 1983, he acted on behalf of a number of persons of Kuwaiti nationality seeking properties in the United Kingdom. He would look for properties for them to buy, and, if they wished to proceed with the purchase, would arrange solicitors and surveyors and oversaw completion, in return for a commission.[8]One of the Kuwaitis, for whom he acted, was Abdul Rasool Al-Arbash ("Mr Al-Arbash). He first met Mr Al-Arbash in connection with the purchase of a property, the Westbourne Hotel, in 1987. In due course, Mr Al-Saraj acted generally as Mr Al-Arbash's agent in England with regard to his various property holdings here, including several flats. His evidence is that he was not only involved in the acquisition and sale of those properties, but also responsible for letting the properties and collecting rent, renovating and repairing the properties, and paying expenses, including for the supply of utilities.[9]In 1995 Mr Al-Saraj acted on behalf of Mr Al-Arbash in connection with the purchase of the Hotel from Access Hotels Limited. The Hotel was acquired by Halfway House Limited ("HHL") for £2.7m pursuant to a contract for sale made in June 1995, which was completed by a transfer dated 21 July 1995. HHL was a company which was controlled by Mr Al-Arbash and members of his family. By early 1997 Mr Al-Arbash was the sole beneficial owner of the entire issued share capital of HHL. Mr Al-Arbash was, however, never a director of HHL.[10]The business of the Hotel was to house homeless persons who were dependant on local authorities.[11]After the acquisition of the Hotel by HHL, Mr Al-Saraj became responsible for the management of the Hotel. The structure that was used for the management of the Hotel was as follows. The Hotel was leased by HHL to Acrosstown Limited ("Acrosstown") by a lease dated 9 February 1996 for three years from 21 July 1995 at an annual rental of £300,000. Acrosstown was a subsidiary of HHL. Mr Al-Saraj was the sole director of Acrosstown from 31 July 1995. By an agreement dated 9 February 1996 ("the Service Contract"), Acrosstown agreed to employ Mr Al-Saraj as managing director for a period of 3 years at an annual salary of £51,000 and with other benefits.[12]In early 1997 Mr Al-Arbash decided to sell the Hotel, together with all or most of his properties in the United Kingdom.[13]Various offers were made for the Hotel but were not carried through to a concluded contract, for one reason or another.[14]Mr Al-Saraj decided to attempt to purchase the Hotel himself.[15]Mr Al-Saraj had met Mrs Murad in 1995 or 1996. She, and her sister Layla, had inherited a substantial amount of money from their deceased father. Mrs Murad, who already had a property investment in Manchester, had spoken at that time to Mr Al-Saraj about the possibility of purchasing another property in England.[16]Mrs Murad and her husband, Sameer Saleh Al-Zayani ("Mr Al-Zayani"), were in London at the end of August 1997, together with their children, for a holiday, and were intending to travel to Euro Disney in Paris, before returning to Bahrain.[17]Mrs Murad and her husband and their children went to Paris in early September 1997. Mr Al-Saraj travelled to Paris to meet Mrs Murad and to put to her a proposition concerning the acquisition of the Hotel. Several aspects of that meeting are hotly disputed by the parties. For present purposes, it is sufficient to say that it is undisputed that Mr Al-Saraj proposed the purchase of the Hotel by himself, Mrs Murad and Layla for the price of £4.1m, of which £1m would be paid by Mrs Murad and her sister, £500,000 would be contributed by Mr Al-Saraj, and the balance of £2.6m would be raised by a bank loan.[18]The case of Mrs Murad and her sister is that, at that meeting, Mr Al-Saraj promised or represented that his contribution of £500,000 would be paid in cash, that is to say by a transfer of actual money. Mr Al-Saraj's case is that he made clear to Mrs Murad that the vendor was HHL, and the owner of HHL was Mr Al-Arbash, and Mr Al-Saraj's contribution of £500,000 would be made by setting off, against the purchase price of the Hotel, indebtedness owed to him personally by Mr Al-Arbash personally, so that only £3.6m cash would actually be paid direct to HHL.[19]It is common ground that, during the course of the meeting, Mr Al-Saraj proposed that he and Mrs Murad and Layla would share revenue profit as to one third each, but capital profit on a future sale of the Hotel would be shared 50-50 between Mrs Murad and her sister, on the one hand, and Mr Al-Saraj, on the other hand. That split of capital profit on sale was intended to reflect the fact that Mr Al-Saraj had introduced Mrs Murad and her sister to the business opportunity of acquiring the Hotel, and Mr Al-Saraj would manage the Hotel until sale.[20]It is common ground that, at the date of the meeting, Mrs Murad did not have Layla's consent to the proposed acquisition.[21]Mrs Murad was sufficiently interested in the proposal to agree to return to London in order to view the Hotel, before she and her family went home to Bahrain.[22]Mrs Murad duly visited the Hotel, prior to her returning to Bahrain on 11 September 1997.[23]Mr Mark Golinsky, a solicitor and partner in Philip Ross & Co, and who had acted for Mr Al-Arbash and had received instructions from Mr Al-Saraj in the past, has given evidence that he met Mr Al-Saraj and Mrs Murad prior to her return to Bahrain on 11 September 1997, and that, at that meeting, it was explained to him that the purchase price was to be £3.6m. His evidence was that he was not then told, and he never knew until after the present dispute arose, that the price was £4.1m or that there was to be a related transaction by which Mr Al-Saraj's contribution to the purchase price was to be effected by means of a set-off of sums due to Mr Al-Saraj from Mr Al-Arbash. Mrs Murad denies that any meeting with Mr Golinsky took place at that time.[24]By a letter dated 12 September 1997 from Mr Al-Arbash to Mr Golinsky, Mr Al-Arbash instructed Mr Golinsky as follows:
"As the sole beneficial owner of Halfway House Limited the Company which owns the above property I should be grateful if you could accept this letter as irrevocable instructions from me to sell the Hotel. The transaction agreed with the purchasers is as follows:- 1. The property is sold as it stands. 2. The price is £3.6M. 3. A cash payment on completion of £1,000,000 is to be made by the Buyers. 4. I will arrange a loan to the Buyer from National Bank of Kuwait for the sum of £2.6M and will guarantee this loan with a cash deposit either in my name or in the name of one of my Companies for the period to be agreed but not less than eighteen months. 5. You will arrange with the Bank that in the event of them calling in the loan for whatsoever reason and resorting to my cash guarantee, that the benefit of the mortgage will be transferred to me or the company in whose name the cash deposit is made so that I will stand in the shoes of the Bank and hold the mortgage. 6. The Purchaser is to undertake full responsibility for all staff and on going contracts relating to the Hotel."
[25]On the instructions of Mr Al-Saraj, Mr Golinsky proceeded to arrange the incorporation of Danescroft, a Gibraltar company, at the end of September 1997, as the corporate vehicle for the acquisition of the Hotel. The legal nominee shareholders of Danescroft were Finsbury Nominees Limited and Valmet Nominees Limited ("Valmet"). The director of Danescroft was Finsbury Corporate Services Limited, the company secretary was Finsbury Secretaries Limited, and the manager was Mutual Trust Management (Gibraltar) Limited.[26]Minutes of a meeting of the board of directors of Danescroft held on 8 October 1997 record a board resolution to purchase the Hotel at a price of £3.6m to be paid by a deposit of £800,000 on exchange of contracts, and £2.6m by bank loan from the National Bank of Kuwait.[27]On 8 October 1997 Danescroft wrote to David Marcus of Franks Charlesley, solicitors, instructing that firm to act for Danescroft on the purchase of the Hotel at a price of £3.6m, and stating that the purchase price was to be paid by an £800,000 deposit on exchange of contracts, a bank loan from the National Bank of Kuwait for £2.6m secured first by a legal charge on the property and a guarantee and cash deposit "by an individual whose identity is known to the vendor's solicitors and the Bank", and the remaining £200,000 was to be paid on completion. The "individual whose identity is known to the vendor's solicitors and the Bank" was, in fact, Mr Al-Arbash himself.[28]At some point after returning to Bahrain, Mrs Murad informed Mr Al-Saraj that she and Layla would only be able to contribute approximately £800,000, rather than the £1m contemplated by Mr Al-Saraj at the meeting in Paris in September 1997.[29]Contracts for the sale of the Hotel to Danescroft were exchanged on 21 October 1997. The contract for sale ("the Sale Contract") stated that the sale price was £3.6m, and that a deposit of £800,000 was to be paid on signing.[30]Paragraph 19 of the Sale Contract provided that Danescroft should enter into a service agreement with Mr Al-Saraj in the same terms as his service contract with Acrosstown for the remaining period under such service contract. In fact, no such new service agreement was ever entered into, and Mr Al-Saraj at all relevant times continued to manage the Hotel on the terms of the Service Contract with Acrosstown.[31]It is common ground that the £800,000 deposit was duly paid, and originated from money provided by Mrs Murad and her sister.[32]It is Mr Al-Saraj's case that, prior to the Sale Contract, he agreed with Mr Al-Arbash that he was to be treated as having contributed £500,000 towards the purchase price of the Hotel by a notional payment to him of that amount in respect of commission and other sums due to him personally from Mr Al-Arbash personally.[33]On 14 November 1997 Franks Charlesley sent Danescroft a completion statement, showing the amount required to complete. That completion statement showed the purchase price as £3.6m, and that a deposit of £800,000 had been paid, leaving a balance payable of £2.8m. It further showed that, after the deduction of various fees and expenses, the gross loan of £2.6m would be reduced to £2,540,426.37, and that, after taking into account Franks Charlesley's costs on the purchase, money in hand and interest, a balance of £252,604.56 would be required for completion. There are several completion statements in evidence, but, in relation to the details I have mentioned, they can be regarded as identical in all material respects. I shall refer to them singly and generally as "the completion statement".[34]On 18 November 1997 Acrosstown Management Limited ("AML") was incorporated for the purpose of managing the Hotel after the acquisition by Danescroft. Of the one hundred issued shares in AML, one was held by Mr Al-Saraj, and the other ninety-nine were held by Danescroft.[35]Completion of the sale of the Hotel took place on 26 November 1997 when HHL executed a transfer of the Hotel in favour of Danescroft ("the Transfer"). The Transfer was expressed to be in consideration of £3.6m.[36]It is common ground that, of the outstanding balance due on completion, £58,744 was contributed by Mrs Murad and Layla. It also appears to be common ground that Mr Al-Saraj contributed £225,817.99 in cash towards the balance of the purchase price and associated costs and expenses.[37]According to the accounts of AML for the period ended 31 August 1998, AML began to trade at the Hotel on 26 November 1997. Its principal business was the letting of rooms to homeless persons.[38]Those accounts also state that Mr Al-Saraj was the only director of AML during that period. They record that AML's ultimate parent company was Danescroft, and Mr Al-Saraj was not aware of the "controlling party" of Danescroft, and that Mr Al-Saraj did not have a beneficial interest in the ordinary share capital of either AML or its holding company.[39]In December 1997 Mr Al-Saraj went to Bahrain in order to obtain the signature of Mrs Murad and Layla to various documents which had been prepared by Mr Golinsky, on the instructions of Mr Al-Saraj. There is a dispute between the parties as to precisely what took place on that occasion and who was present. It is common ground, however, that one of the documents which was signed by Mrs Murad and Layla was an agreement between them and the second Defendant, Westwood Business Inc. ("Westwood"). Westwood is a Panamanian company, the shares in which were beneficially owned by Mr Al-Saraj. That agreement ("the Westwood Agreement") was intended to regulate the entitlement of Mrs Murad and Layla, on the one hand, and Mr Al-Saraj, through his corporate vehicle, Westwood, on the other hand, to the proceeds of any future sale of the Hotel by Danescroft.[40]The Westwood Agreement recited that the parties were shareholders in Danescroft, and had contributed towards the purchase of the Hotel, and they had agreed to enter into the Westwood Agreement to regulate the disposal of the proceeds of any sale of the Hotel.[41]The operative part of the Westwood Agreement provided that, on any sale of the Hotel, the sale proceeds should be distributed in the following order of priority:(a) repaying to the National Bank of Kuwait any sums due to it,(b) repaying to Mrs Murad and Layla the sum of £858,744 contributed by them to the purchase of the Hotel,(c) repaying to Westwood £641,256 "being the sum contributed by them towards the purchase of the [Hotel]",(d) the balance (if any), after payment of costs on such disposal, to be split as to fifty per cent to Mrs Murad and Layla, on the one hand, and fifty per cent to Westwood, on the other hand.[42]It appears that, at the same meeting in December 1997, Mrs Murad and Layla signed a letter, which had been prepared by Mr Golinsky, addressed to Mr Perera of Valmet stating that the shareholding of Danescroft was beneficially owned by the two of them equally, and they wished to change the shareholding so that it was owned as to one third by each of them and one third by Westwood. They asked Mr Perera to take appropriate action to transfer the shares accordingly. That letter was in due course forwarded to Mr Perera under cover of a letter from Mr Golinsky dated 9 January 1998.[43]It does not appear to be in dispute between the parties that, following receipt of that letter of instruction from Mrs Murad and Layla to Mr Perera, the legal shareholders of Danescroft executed declarations of trust that one third of the issued shares were held for each of Mrs Murad, Layla and Westwood beneficially.[44]In July 2002 Mrs Murad received a telephone call from Mr Alaa Mustafa, an employee of AML responsible for guest services at the Hotel; and she subsequently spoke on the telephone to Mr Syed Lutfar Rahman, who was employed at the Hotel as a book-keeper. During those telephone calls serious criticisms were made by Mr Mustafa and Mr Rahman about Mr Al-Saraj's management of the Hotel and his intentions as to the disposal of the Hotel, and also various criticisms of Mr Al-Saraj in relation to another property, the Rosecourt Hotel, in which Mrs Murad had an interest.[45]After those telephone calls, Mr Al-Saraj visited Mrs Murad in Bahrain and took with him a draft letter from her to Mr Golinsky, which requested Mr Golinsky to take such steps as might be required to transfer her shareholding in Danescroft to another company in which she had no interest.[46]Following, and in consequence of, those telephone conversations between Mrs Murad and Mr Rahman and Mr Mustafa and Mr Al-Saraj's visit to Bahrain, Mrs Murad and her husband came to London.[47]There is disagreement between the witnesses as to what took place during her visit, and as to the precise sequence of events after she arrived. For the purpose of this summary of background facts, it is sufficient to say that Mrs Murad's case is that, at some point following her arrival, she was shown a copy of the completion statement by Mr Rahman, and that was the first occasion on which it came to her notice that the purchase price for the Hotel was not £4.1m, as she had been led to believe by Mr Al-Saraj, but only £3.6m.[48]Mrs Murad then retained her present solicitors, Baker & McKenzie. Following correspondence between them and Mr Al-Saraj and solicitors instructed on his behalf, the present proceedings were commenced in May 2003.[49]The Hotel was sold by Danescroft for £6.65m in February 2004. The parties' respective cases[50]Mrs Murad and her sister claim that they entered into any agreement with the Defendants, including the Westwood Agreement, in reliance on, and induced by, representations by Mr Al-Saraj that the purchase price of the Hotel was £4.1m and that Mr Al-Saraj intended, and (by implication) was in a position to contribute, £500,000 towards the price of the Hotel. Their case is that those representations were false and were made dishonestly, that is to say, without any belief in the truth of them. They claim that, consequently, they are entitled to rescission of any agreement, including the Westwood Agreement, between themselves and Mr Al-Saraj or Westwood as to the entitlement of Mr Al-Saraj or Westwood to receive any part of the profit on the sale of the Hotel and to one third of the shares in Danescroft.[51]If, for any reason, Mrs Murad and Layla are not entitled to rescind those agreements and the transfer of any interest in the shares in Danescroft to Westwood, they contend that a fundamental condition of the agreements, namely Mr Al-Saraj's obligation to invest £500,000, has been breached, and those agreements have been terminated on that ground.[52]In the further alternative, they claim damages or an account of the profit that Mr Al-Saraj or Westwood is entitled to receive from the sale of the Hotel.[53]The factual basis for the legal case of Mrs Murad and Layla is that the actual price for the purchase of the Hotel by Danescroft was £3.6m, and not £4.1m, and that Mr Al-Saraj made no payment towards the purchase price of £3.6m. They contend that, even if the purchase price was £4.1m, Mr Al-Saraj made no payment of actual money towards that purchase price, and, indeed, there was not even a real transaction between Mr Al-Saraj and Mr Al-Arbash by which any part of the purchase price, let alone £500,000, was set-off against indebtedness of Mr Al-Arbash to Mr Al-Saraj.[54]The explanation proffered by Mrs Murad and her sister for the conduct of Mr Al-Saraj is that he wished dishonestly to acquire for himself an interest in the Hotel, without making any actual payment, by falsely representing to Mrs Murad and her sister that the purchase price was £500,000 greater than it actually was and leading them to believe that he had paid £500,000.[55]The Defendants deny that Mrs Murad and Layla are entitled to any of the relief claimed. The Defendants dispute the factual basis for the Claimants' case. The Defendants contend that Mr Al-Arbash, as the beneficial owner and controller of HHL, was not prepared to sell the Hotel for less than £4.1m, and insisted that the transaction should be structured so that £3.6m was paid to HHL, and the balance paid in one way or another to Mr Al-Arbash direct. The Defendants contend that there was a true accounting between Mr Al-Saraj and Mr Al-Arbash, at the time of, and for the purpose of, the purchase of the Hotel by Danescroft, by virtue of which indebtedness of at least £500,000 due from Mr Al-Arbash to Mr Al-Saraj was treated as discharged and such amount credited towards the purchase price of £4.1m.[56]Moreover, the Defendants claim that, in view of the time which has passed and the events which have occurred since Danescroft purchased the Hotel in 1997, it is not possible for there to be rescission of the agreements by virtue of which Mr Al-Saraj or Westwood is entitled to beneficial ownership of one third of Danescroft's shares and fifty per cent of the capital profit arising from the sale of the Hotel by Danescroft. For the same reason, the Defendants contend that rescission cannot now be obtained of the transfer to Westwood of the beneficial interest in one third of Danescroft's shares.[57]Further, and in any event, the Defendants contend that no loss has been suffered by Mrs Murad and her sister. It is, indeed, not in dispute that the sale of the Hotel in February 2004 for £6.65m has resulted in a significant profit for Danescroft.[58]The Defendants have counterclaimed that, if, contrary to the Defendants' case, the Claimants are entitled to the relief they claim, then the Hotel is held on trust for the Claimants and Defendants (or either of the Defendants) in the proportions £858,744:£225,817.99 respectively, reflecting the respective cash contributions of the Claimants and the Defendants.[59]The Defendants have counterclaimed, further or alternatively, that Mr Al-Saraj is entitled to a reasonable fee for finding the investment in the Hotel and managing the investment on behalf of the Claimants.[60]In the event, the counterclaim has not been pursued by the Defendants at the trial. In particular, it was acknowledged, on behalf of the Defendants, at the outset of the trial that the cash contributions of the parties (that is to say other than the £500,000 which the Defendants say was contributed by Mr Al-Saraj) have been treated in the accounts and the running of Danescroft as loans by the parties to Danescroft. Those loans have been repaid in whole or in part.[61]Further, the Defendants accepted during the trial that, if the Claimants made out their case of fraud against Mr Al-Saraj, there could be no allowance, on the taking of any account of profit, for Mr Al-Saraj's work in securing the investment.[62]The Defendants' case is that, as a matter of fact, Mrs Murad knew from the outset, that is to say, from the time of the discussions with Mr Al-Saraj at the meeting in Paris in early September 1997, that the structure of the purchase was to be by way of a direct payment of £3.6m to HHL, and a separate payment of £500,000 to Mr Al-Arbash, pursuant to a separate accounting in respect of indebtedness of Mr Al-Arbash to Mr Al-Saraj and a corresponding credit towards the purchase price of the Hotel.[63]The Defendants' explanation for the bringing of these proceedings by Mrs Murad and Layla is that the Claimants are pursuing a naked and unscrupulous attempt to exclude Mr Al-Saraj from any entitlement to share in the capital profit arising from Danescroft's sale of the Hotel, as a reaction to the Claimants' (mistaken) understanding that Mr Al-Saraj intended in 2002 to acquire the interests of Mrs Murad and Layla in Danescroft by dishonest subterfuge. Representation[64]At the trial, the Claimants were represented by Mr Ajmalul Hossain QC and Mr Tom Fyfe. The Defendants were represented by Mr Stephen Cogley. Legal principles[65]I do not propose, at this stage, to comment in detail on the rival submissions of law. It is more appropriate to do so once I have reached conclusions on the major areas of fact which divide the parties and provide the framework for their legal submissions.[66]It is sufficient, at this stage, to record the following.[67]It is common ground that a representation is only made fraudulently if it has been made knowingly, or without belief in its truth, or recklessly, that is to say careless whether it be true or false: Derry v Peek (1889) 14 App Cas 337 .[68]Further, there is no dispute that a contract resulting from a fraudulent misrepresentation can be avoided by the innocent party by rescission, unless it is inequitable to do so by reason of delay, affirmation of the contract with knowledge, or an inability to restore the parties to their original positions.[69]The Defendants claim that rescission is not an available remedy in the present case by reason of each and every one of those matters.[70]There is a dispute between the parties as to the proper measure of damages in the present case if the court refuses rescission.[71]The Claimants allege that, by reason of the relationship between the parties in pursuing an investment in the Hotel, Mr Al-Saraj owed fiduciary obligations to Mrs Murad and Layla, by virtue of which the Defendants must account for any profit received by them unless the Defendants fully disclosed all material matters relating to the acquisition of that profit. The Claimants claim that, by virtue of the misrepresentations of Mr Al-Saraj, Mr Al-Saraj was in breach of his fiduciary duties to the Claimants, and failed to disclose all relevant matters, and accordingly Westwood and Mr Al-Saraj must account to the Claimants for any profit.[72]The Defendants deny that the facts gave rise to any fiduciary obligations on the part of the Defendants, or either of them, to the Claimants, and the Defendants deny, in any event, that they were in breach of any fiduciary obligations.[73]The Claimants allege that, in the alternative to rescission, and to an account of profit in equity by reason of breach of fiduciary duty by Mr Al-Saraj, the Claimants are entitled to an account of profit by the Defendants under the principle of waiver of tort. The Defendants deny that such principle has any application in the present case.[74]The parties are agreed that, generally, Westwood can be in no better legal position than Mr Al-Saraj, who used Westwood as his corporate vehicle in connection with his interest in the Hotel.[75]Neither the Claimants nor the Defendants have contended that any foreign law has any application to the present case. The evidence[76]Witness statements were made, on behalf of the Claimants, by Mr Peter Hodson, a director of AML since 17 January 2003 and a director of Danescroft since 24 February 2003; Mrs Murad; Layla; Mr Al-Zayani; and Mr Rahman.[77]The evidence contained in an edited version of Mr Hodson's witness statement was admitted as unchallenged evidence.[78]Mrs Murad, Mr Al-Zayani and Mr Rahman gave oral evidence.[79]Witness statements were made, on behalf of the Defendants, by Mr Al-Saraj; Mr Al-Arbash; Mr Mohammed Nass, who was said to have been present at various meetings when conversations took place with Mrs Murad or documents were signed by her, in connection with the purchase of the Hotel, and who was involved in the production of a document dated 7 November 1997 recording a deposit of £500,000 in Kuwait by Mr Al-Saraj on the date of the Sale Contract; Mr Mohammed Yahya, from whose bank account in London Mr Al-Saraj drew money for payment towards the purchase of the Hotel; Mr Hazim Al-Jumaily, who was involved in negotiations in 1997 for the purchase of the Hotel by Galliard Homes Limited ("Galliard") and also on his own account; Mr David White, who is an employee of Galliard; Mr Nihad Obagi, who was involved with Galliard's offer; Mr Ahmed Rasul, who provided Mr Al-Saraj with money to be applied by Mr Al-Saraj towards the purchase of the Hotel; Mr Pama Randhaura, whose evidence was that he had carried out work to various properties on the instructions of Mr Al-Saraj in the 1990s prior to 1997 (and by reason of which Mr Al-Saraj claims that Mr Al-Arbash was indebted to Mr Al-Saraj at the time of the purchase of the Hotel by Danescroft); Mr Ahmed Al-Shahib, whose evidence was that he carried out works of refurbishment, redecoration and maintenance on various properties in the 1990s prior to 1997, on the instructions of Mr Al-Saraj (and on which Mr Al-Saraj similarly relies); Mr Graham Gower, who was in 1997 a director and shareholder of Montague Goldsmith, a property development and management company which introduced Mr Jumaily to Galliard and another company which expressed an interest in purchasing the Hotel, and who was involved in the negotiations on behalf of Galliard. A witness summary was also prepared by the Defendants in respect of Mr Golinsky.[80]The witness statements of Mr Al-Jumaily, Mr White, Mr Randhaura, and Mr Al-Shahib were admitted in evidence, following Civil Evidence Act notices, with the consent of the Claimants, as hearsay evidence.[81]The evidence contained in the witness statements of Mr Yahya, Mr Obagi, Mr Rasul and Mr Gower was admitted as unchallenged evidence.[82]Oral evidence was given, on behalf of the Defendants, by Mr Al-Saraj, Mr Al-Arbash, Mr Nass and Mr Golinsky.[83]An Arabic interpreter assisted, to a greater or lesser degree as required, with the oral evidence of the witnesses, other than Mr Golinsky and Mr Nass.[84]I have the following general observations to make, at this stage of my judgment, on the quality and credibility of the evidence given by the witnesses who gave oral testimony.[85]After the conclusion of his closing submissions, Mr Cogley sent me a nine page document analysing what he said were discrepancies between Mrs Murad's evidence in her first (and principal) witness statement, and her evidence-in-chief and cross-examination and the evidence of other witnesses. I formed the clear view, however, that Mrs Murad was an honest witness, doing her best to recall past events. There is no doubt that, on some matters, the reliability of her evidence suffered from the fact that she would express an initial firm view, and then, under cross-examination, backtrack significantly to the point when she accepted that she could not in fact actually remember the position or the position was quite different to her original statement. She is plainly an intelligent person, who thought carefully about the factual history before giving her evidence in the witness box. Generally, she had a good command of English, and was less dependent on the interpreter than the other principal witnesses.[86]Mr Al-Zayani, who is a businessman, also appeared to me to be an honest witness. His command of English was less complete than his wife's. After giving evidence initially, he was recalled later in the trial in order to deal with recent conversations between himself and Mr Mohammed Murbati in connection with Mr Murbati's offer to purchase the Hotel in 1997. Mr Al-Zayani's evidence in relation to that matter was less impressive than his earlier evidence; and he appeared to be evasive and uncooperative. Mr Cogley had great difficulty, at that stage, in obtaining clear and straightforward answers. I did not form the view, however, that even then Mr Al-Zayani was deliberately telling untruths. Rather he appeared to be especially passionate about the challenge to this part of his evidence, and was concentrating on telling his side of the story, without answering the actual questions put to him.[87]Mr Rahman appeared to me to be a strongly principled and honest person. To some extent, this is reflected in his oral explanation in court that, specifically in order to show his independence of any of the parties, he had decided that he would only attend to give oral evidence if required to do so pursuant to a witness summons.[88]For the sake of completeness, I should record that, in an attempt to undermine Mr Rahman's credibility, he was recalled to give oral evidence in relation to a copy document which came into the hands of the Defendants' counsel and current solicitors after the close of evidence, and which, Mr Cogley submitted, shows that, contrary to Mr Rahman's earlier evidence, he knew that the total price for the Hotel was £4.1m and that the £3.6m paid to HHL formed only part of the price. It is sufficient to say that I accept Mr Rahman's evidence and explanation of the document, and I am satisfied that it did not undermine his previous evidence and my clear impression of him as an honest and dependable witness.[89]Mr Al-Saraj gave much of his evidence with considerable passion. I formed the view that he has a genuine conviction in the righteousness of his case. In this connection, there were several instances of his conduct which he sought to justify and explain in his oral evidence on the basis of differences between Arabic or Iraqi culture and English commercial and social behaviour.[90]Nevertheless, I formed the clear view that, where his evidence conflicted with the evidence of other principal witnesses, his evidence should be viewed with considerable caution. I shall address some of these instances of conflict later in my judgment. At this stage, it is sufficient to say that there are areas of Mr Al-Saraj's conduct which have plainly not been straightforward or honest.[91]There is no doubt that, on Mr Al-Saraj's own case, he has made false and inadequate returns to the Revenue, failing to disclose the £500,000 that he says was due to him from Mr Al-Arbash and paid in 1997 by way of credit against the purchase price of the Hotel. Further, as appears subsequently in this judgment, analysis of Mr Al-Saraj's tax returns and of his claim that he paid in excess of £110,000 for expenses in relation to Mr Al-Arbash's properties in England during the period 1994-1997, for which he was allegedly not reimbursed until the purchase of the Hotel in 1997, shows that he cannot, consistently with his case, have declared all his income to the Revenue in those years. Also connected to that aspect is his own evidence that he had foreign accounts and that he utilised at least one English bank account in the name of another person, Mr Yahya, as a channel for receiving his own money from abroad.[92]In July 1999 Mr Samy Dallal, of BDO Stoy Hayward ("BDO"), the auditors and accountants for Danescroft and AML, was in correspondence with the Revenue concerning the transfer of the Hotel and the Revenue's attempt to ascertain, among other things, who controlled HHL. In connection with those enquiries, Mr Al-Saraj wrote to Mr Dallal on 16 August 1999 stating that "the Murad family … own Danescroft …", and that Mr Dallal could pass that information to the Inspector of Taxes. That statement was clearly intended to give the impression that members of the Murad family alone were the beneficial owners of Danescroft. It is common ground between the parties, however, that, from early 1998 at the latest, one third of Danescroft's shares were held beneficially for Westwood, Mr Al-Saraj's corporate vehicle. The statement of Mr Al-Saraj to Mr Dallal, intended to be passed to the Revenue, was, therefore, both untrue and deliberately misleading.[93]Further, it is clear to me that Mr Al-Saraj was, putting it at its most generous to him, less than frank with his legal advisors and with the court in relation to an application made to the court to adjourn the hearing of evidence by Mr Al-Arbash from Friday 2 April 2004 until the beginning of the Easter term. Arrangements had been made for Mr Al-Arbash to give his evidence by video link from Kuwait on 2 April 2004, which was the last date on which I sat in the Hilary term. Until the application for the adjournment, it was hoped and expected that, at worst, all the oral evidence would be completed by the end of that day, leaving only legal submissions to be made the following term.[94]Bearing in mind the serious allegations of fraud in these proceedings, and significant areas of conflicting evidence, I was concerned to avoid, if at all possible, the oral evidence of witnesses for the Defendants spanning two legal terms, with a lengthy break in the middle. Apart from undermining the court's ability to assess the relative credibility of the witnesses, by seeing them in quick succession, a lengthy gap would give rise to the possibility of the communication to subsequent witnesses of an in depth analysis of the previous oral evidence, and so give rise to the potential for the tailoring of their oral testimony.[95]On 30 March 2004 Mr Cogley informed me that Mr Al-Arbash found himself "the subject matter of close bereavement and therefore is not particularly willing" to give evidence. On 31 March 2004 Mr Cogley informed me that Mr Al-Arbash would be attending the funeral of his deceased nephew on Friday 2 April 2004. He told me that the funeral was to take place in Iraq, and accordingly Mr Al-Arbash would have to travel on 2 April 2004 from Kuwait to Iraq for that purpose. I suggested that the video conferencing be brought forward to Thursday, but Mr Cogley stated that Mr Al-Arbash would still be unavailable because he was extremely distressed. Mr Cogley informed me that circumstances had therefore arisen, which could not have been predicted in any way, shape or form, in consequence of which Mr Al-Arbash was unwilling to give evidence under the then prevailing circumstances. Mr Cogley then applied that Mr Al-Arbash's evidence be given the following term, and that the trial be adjourned. I should add that the time estimate had already been exceeded.[96]In agreeing to the application for the adjournment of the trial to the next term, to accommodate the evidence of Mr Al-Arbash, I said, among other things as follows:
"The reason why it has been found necessary to consider whether Mr Al-Arbash's evidence should be given next term, rather than on Friday as originally scheduled, is that I am told by Mr Cogley, counsel for the defendants, that a close relative, believed to be a nephew of Mr Al-Arbash, has recently died. The funeral is due to take place on Friday in Iraq, to which Mr Al-Arbash would be travelling from Kuwait. In those circumstances, not only is Mr Al-Arbash for understandable reasons unwilling, in those present sad circumstances, to devote his attention to giving evidence in this case, but it will, I am told, be practically impossible for him to give such evidence in view of the location of the funeral and the travelling arrangements that Mr Al-Arbash will have to undertake. Mr Hossain, leading counsel for the claimants, has made the reasonable point that he assumes that … those who are instructing Mr Cogley have satisfied themselves, so far as they are able to do so, that those matters are correct. I believe that in the circumstances, it is appropriate that those matters should be recorded in a witness statement to be made by somebody of an appropriate level with knowledge in the firm of solicitors instructing Mr Cogley, that is to say Tarlo Lyons."
[97]Mr Al-Saraj was present in court throughout the entire proceedings, including, in particular, when the application for an adjournment was made in relation to Mr Al-Arbash's evidence, and the explanation was given to me as to the reasons for the application.[98]Pursuant to my direction that a witness statement be made verifying the factual basis for the application, Mr Patrick Pennal, of Tarlo Lyons, made a witness statement dated 2 April 2004 in which he stated that on 30 March 2004 Mr Al-Saraj informed him that it would be impossible for Mr Al-Arbash to give his evidence on Friday 2 April 2004 due to the recent death of Mr Al-Arbash's nephew and Mr Al-Arbash's grief in that regard. He gave evidence that a trainee solicitor was informed by Mr Al-Saraj of the name of Mr Al-Arbash's nephew, the nephew was to be buried in Najaf in Iraq on the Friday, the mourning period would continue for several days after the burial, and Mr Al-Arbash would be going to Najaf for the burial and mourning period and so would not be in Kuwait on the Friday to give his evidence at a video conference.[99]Mr Cogley subsequently confirmed to me that everything that he had told me, including reference to the distress felt by Mr Al-Arbash, was based on instructions he had been given.[100]Mr Al-Arbash gave evidence in person in court in England at the beginning of the Hilary term. He was asked questions about his whereabouts on 2 April 2004. Mr Al-Saraj was also recalled to give evidence as to the background to the instructions that he gave the Defendants' legal advisors in connection with the application to defer the giving of evidence by Mr Al-Arbash, from the Hilary term to the Easter term.[101]I do not propose to set out here, and to analyse in detail, the evidence on this particular aspect. It is sufficient to say that the evidence was that Mr Al-Arbash was in Romania on 2 April 2004. He entered Romania on 17 March 2004, and he left that country on 3 April 2004. He did not attend his nephew's funeral in Iraq, and was always unable to do so. Mr Al-Saraj never, in fact, spoke to Mr Al-Arbash prior to April 2004 about the death of Mr Al-Arbash's nephew or any intention of Mr Al-Arbash to attend the funeral in Iraq.[102]Mr Al-Saraj sought to explain his instructions to his solicitors on the basis of assumptions that were made by him as a result of speaking to members of Mr Al-Arbash's family and, according to Mr Al-Saraj, Mr Al-Saraj's own brother in Saudi Arabia. Mr Al-Saraj's explanation was wholly inadequate to explain the way he sought to lead his lawyers, and through them, the court, to understand that he had direct personal knowledge of Mr Al-Arbash's distress at the death of his nephew and his intention to attend his nephew's funeral. In my judgment, Mr Al-Saraj deliberately or recklessly misled the court in order to ensure that the time for Mr Al-Arbash's oral evidence should be deferred until Mr Al-Saraj could be certain that Mr Al-Arbash would be available, regardless of the true reason for Mr Al-Arbash's inability to give evidence on 2 April 2004.[103]An honest and straightforward approach would have led Mr Al-Saraj to state clearly that he had been unable to make contact with Mr Al-Arbash himself and was merely informing the court of his own assumptions about Mr Al-Arbash's availability in consequence of conversations that he had had with others. It is quite possible that, if I had been told the true position, that is to say, either (as was the fact) Mr Al-Arbash was in Romania on 2 April 2004 or (as Mr Al-Saraj now says) Mr Al-Saraj's information about the reasons for Mr Al-Arbash's inability to give evidence on 2 April 2004 was based on what he been told by others, I would have refused an adjournment of the trial in order to enable Mr Al-Arbash's evidence to be obtained in the Easter term, and steps would have been taken to ensure that any further oral evidence was given by the end of the Hilary term, leaving outstanding only closing submissions.[104]Finally, I turn to the oral evidence of Mr Al-Arbash. Mr Al-Arbash is a successful and wealthy businessman. He is 85 years of age. Despite his advanced years, he is mentally alert and has remarkable stamina. He gave oral evidence, and was subject to extensive cross-examination, for more than a day. His memory of particular historic events was, unsurprisingly, not always reliable. I formed the view, however, that he was an essentially honest witness in relation to broad issues relevant to the factual disputes between the parties. In several areas, I considered that his evidence was to be preferred to that of Mr Al-Saraj.[105]Mr Hossain applied, on the first day of the trial, for certain parts of the evidence of the witnesses, which were in dispute, to be given orally, and that their witness statements should not stand as their evidence in chief in respect of those matters. I so directed. The parties' legal advisers subsequently agreed the areas in which evidence in chief was to be given orally. Was there a misrepresentation as to the purchase price?[106]The first, and most critical, issue of fact is whether Mr Al-Saraj misrepresented to Mrs Murad, and thereby Layla, that the price of the Hotel was £4.1m when, in fact, it was £3.6m.[107]The starting point is that, on the one hand, Mr Al-Saraj undoubtedly represented to Mrs Murad that the purchase price of the Hotel was £4.1m, whereas, on the other hand, absent any knowledge of Mrs Murad as to the separate payment of £3.6m to HHL and the £500,000 set-off with Mr Al-Arbash, anyone in Mrs Murad's position would reasonably consider that the actual purchase price of the Hotel was, in fact, only £3.6m.[108]The board of directors of Danescroft formally resolved to acquire the Hotel for £3.6m. That was the consideration specified in the Sale Contract and in the Transfer. In ordinary legal parlance, and in the ordinary understanding of a member of the public, like Mrs Murad and Layla, that was the purchase price. The fact that the sale could only be achieved by the payment of other costs and expenses, including a payment, direct or indirect, to a third party, such as Mr Al-Arbash, would not result in a different purchase price. It would increase the cost of the acquisition, like any other expense necessary to achieve completion of the purchase, but the price would remain the same. A reasonable analysis, for example, would be that the payment to Mr Al-Arbash was a personal inducement to him to procure the sale of the Hotel by HHL to the Claimants and the Defendants for the price of £3.6m. Such an inducement would be a cost of the acquisition, but could not properly be described as part of the purchase price.[109]In his submissions, Mr Cogley referred to a "global price" of £4.1m. There is no evidence that anyone, at the time of the purchase, ever used the word "global" in the context of the price of the Hotel. Reference was made at the time to the "price"; and, as I have already said, that expression, as understood in ordinary language and as likely to have been understood by Mrs Murad, was the contract price to be paid to the vendor, exclusive of other costs and expenses.[110]It makes no difference that the payment was required by the beneficial owner of HHL, since English law is clear that a company has a distinct legal personality of its own. There is no evidence the board of directors of HHL ever resolved to sell the Hotel to the Claimants and the Defendants for anything other than the price specified in the Sale Contract, namely £3.6m. The price at which the purchaser, Danescroft, agreed to acquire the Hotel was specified in the resolution of its board of directors, namely £3.6m.[111]Accordingly, as Mr Cogley himself submitted, the critical issue of fact, in relation to the allegation of a misrepresentation as to the price for purchasing the Hotel, is whether Mrs Murad was aware at all relevant times that, of the £4.1m mentioned by Mr Al-Saraj as the purchase price for the Hotel, only £3.6m was to be paid to HHL and would be the sum specified in the Sale Contract.[112]As I have said earlier in this judgment, the Defendants' case is that Mrs Murad was so informed at the meeting in Paris in early September 1997. They contend that, at all times after that meeting, she was aware of the structure of the proposed purchase, under which £500,000 would be contributed towards the purchase price of £4.1m by virtue of a separate , but related, transaction between Mr Al-Saraj and Mr Al-Arbash involving the notional set-off of Mr Al-Arbash's indebtedness to Mr Al-Saraj against the purchase price of the Hotel.[113]In my judgment, the Claimants have clearly established that Mrs Murad was unaware of those matters, and, in particular, had no knowledge that the amount to be paid to HHL and specified in the Sale Contract was only £3.6m.[114]Mrs Murad's case, and her evidence, is that she did not learn that only £3.6m was to be paid to HHL and was the price specified in the Sale Contract until she was shown a copy of the completion statement by Mr Rahman in July 2002.[115]I am satisfied that Mrs Murad's case, on this aspect, is correct.[116]I have already explained that Mr Al-Saraj's oral evidence is to be treated with caution. Generally speaking, where his evidence conflicts with that of Mrs Murad, I prefer the evidence of Mrs Murad.[117]Mrs Murad's case that she did not learn until July 2002 of the separate payment of £3.6m to HHL or that £3.6m was the price to be specified, and in fact specified, in the Sale Contract is supported by a range of evidence.[118]Mrs Murad's oral evidence was that, when she was shown the completion statement by Mr Rahman in July 2002, she was shocked. That evidence was supported by Mr Rahman.[119]Mr Rahman's evidence was that, on the day Mrs Murad arrived in England in July 2002, following her telephone conversations with Mr Mustafa and Mr Rahman in which serious allegations were made about the conduct of Mr Al-Saraj, Mrs Murad went to Mr Golinsky's office before she had been shown a copy of the completion statement by Mr Rahman. Mr Rahman's evidence was that he showed her the completion statement that night, when he went to her hotel. Mrs Murad's recollection of the sequence of events when she came to England in July 2002 was rather different. Her recollection was that she had been shown the completion statement in the evening of the day of her arrival in London, but she did not see Mr Golinsky until the following day. Her version of events, however, conflicted with other evidence that she had not raised the question of the purchase price with Mr Golinsky when she saw him. Indeed, in cross-examination, she became uncertain whether she told Mr Golinsky her concerns about the purchase price or not. I accept the evidence of Mr Rahman as to the sequence of events at the time when Mrs Murad came to England in July 2002.[120]Mr Rahman had a clear recollection that, when he showed Mrs Murad the completion statement on the first night of her arrival, but after they had seen Mr Golinsky, Mrs Murad became very agitated and upset. Mr Cogley sought to challenge the accuracy of Mr Rahman's recollection as to the disclosure of the completion statement to Mrs Murad by pointing out that his witness statement did not say that Mrs Murad reacted in any particularly emotional way when she was shown the completion statement. The relevant part of his witness statement said that, when he showed the completion statement to Mrs Murad:
"Mrs Murad asked how the completion was for £3.6m, when it was supposed to be £4.1m."
[121]Notwithstanding the absence of any reference in the witness statement to the emotional reaction of Mrs Murad to the production of the completion statement, I am satisfied that Mr Rahman was giving his oral evidence honestly and accurately in relation to the events at Mrs Murad's hotel when he showed her the completion statement.[122]The Claimants' case, and Mrs Murad's evidence, that she was not told anything about a private transaction between Mr Al-Saraj and Mr Al-Arbash involving the setting-off of debts owed to Mr Al-Saraj by Mr Al-Arbash against the purchase price for the Hotel is consistent with a body of evidence that demonstrates that Mr Al-Saraj was at all times concerned to keep secret any such personal dealing between himself and Mr Al-Arbash.[123]I have already referred, for example, to the board resolution of Danescroft on 8 October 1997 to purchase the Hotel "at a price" of £3.6m to be paid by a deposit of £800,000 on exchange of contracts and a loan of £2.6m from the National Bank of Kuwait. It is quite clear that Danescroft was never informed that the true price was £4.1m, and that the transaction involved the set-off of personal indebtedness from Mr Al-Arbash to Mr Al-Saraj.[124]It is also clear that the solicitors retained by Danescroft on the purchase of the Hotel, Franks Charlesley, were also always under the impression that the purchase price was £3.6m, and were unaware of the alleged private transaction between Mr Al-Arbash and Mr Al-Saraj. Danescroft wrote to Franks Charlesley on 8 October 1997 instructing them "to act … in the purchase of the above named hotel at a price of £3,600,000 …".[125]Further, I conclude, for the reasons I state more fully later in this judgment, that on a balance of probabilities Mr Golinsky was also under the impression that the price of the Hotel was £3.6m and was also unaware of any private transaction between Mr Al-Arbash and Mr Al-Saraj.[126]Mr Al-Saraj knew that the price specified in the Sale Contract was only £3.6m. That was specifically drawn to the attention of Danescroft by Franks Charlesley in a letter dated 20 October 1997. Mr Al-Saraj knew that the completion statement also specified the purchase price to be £3.6m. Further, Mr Al-Saraj knew that the Transfer specified the "consideration" (a wider expression than "price") as £3.6m.[127]Of particular significance are the accounts of Danescroft. These were prepared on the basis of instructions and information given to BDO by Mr Al-Saraj. Mr Dallal was the principal contact of Mr Al-Saraj at BDO. It is quite clear that Mr Dallal was always under the impression that the purchase price for the Hotel was £3.6m, and he was unaware of any private transaction between Mr Al-Saraj and Mr Al-Arbash. The opening balance sheet for Danescroft at 26 November 1997 showed the Hotel as having a value of £3,685,582, made up of the purchase price of £3.6m and acquisition expenses of £85,582. It also showed the directors' loan account of £1,085, 482. It is common ground that the entry for the directors' loan account was intended to reflect the amounts contributed by the Claimants and Mr Al-Saraj to the purchase of the Hotel. Accordingly, it is clear, and is common ground, that the alleged set-off of £500,000 was not mirrored by any corresponding entry in Danescroft's accounts, unlike the other contributions that were made to the purchase price and expenses.[128]The balance sheet for Danescroft for the accounting periods ending 31 March 1998, 31 March 1999, 31 March 2000 (when the directors' loan account was re-branded as the shareholders' loan account), 31 March 2001 and 31 March 2002 were all prepared on the same basis.[129]I have already referred, earlier in this judgment, to the correspondence between Mr Dallal and Mr Al-Saraj in August 1999 as to the beneficial ownership of Danescroft, and Mr Al-Saraj's confirmation to Mr Dallal that members of the Murad family were the controllers of that company. The impression that Mr Al-Saraj did not have any beneficial interest in, or control over, the affairs of Danescroft was further reinforced by the statement in the director's report and financial statements for AML for the period ended 31 August 1998 and subsequent accounting periods that Mr Al-Saraj did not have a beneficial interest in AML's holding company and was not aware "of the controlling party" of Danescroft.[130]I have already referred earlier in this judgment to the absence of any reference in Mr Al-Saraj's tax returns to the discharge by Mr Al-Arbash of £500,000 of indebtedness of Mr Al-Arbash to Mr Al-Saraj. Moreover, in Mr Al-Saraj's tax return for the year ended 5 April 1998 Mr Al-Saraj declared that he had not "at any time made, or been associated with, a transfer of assets which has resulted in income becoming payable to a foreign entity" and nor had he "benefited in any way from such transfer made by someone else."[131]I accept Mr Rahman's evidence that he was never told by Mr Al-Saraj that the price for the purchase of the Hotel was £4.1m, and that he was led to believe that the purchase price was £3.6m, since that was the figure contained in the completion statement which he was handed by Mr Al-Saraj. Further, I accept Mr Rahman's evidence that he was told by Mr Al-Saraj that Mrs Murad's contribution towards the purchase price was made up of her own money and money which had been obtained by way of loans, on her behalf, from a friend. I further accept Mr Rahman's evidence that he was expressly forbidden by Mr Al-Saraj to send Mrs Murad any documents relating to the Hotel, its acquisition or its business, at least until there was a confrontation between Mr Al-Saraj and Mrs Murad in July 2002.[132]I accept Mrs Murad's evidence that, on more than one occasion, she asked Mr Al-Saraj for documents relating to the purchase, but he did not provide any copies for her.[133]Even after the dispute between Mrs Murad and Mr Al-Saraj began in July 2002, it appears that Mr Al-Saraj continued to give the impression (through his lawyers) that he had made an actual contribution in money to the purchase price, rather than being given a credit against the purchase price equal to £500,000 of personal debt owed to him by Mr Al-Arbash which was treated as re-paid. For example, in a letter to Baker & McKenzie dated 23 August 2002, Mr Al-Saraj's then solicitors, Howard Kennedy, stated:
"we attach a copy of the Vendors' faxed receipt dated 7 November 1997 for the deposit of £500,000 paid by our client …"
. That receipt, to which I have referred earlier in this judgment, recorded that "A deposit of £500,000 … was paid in Kuwait by Mr …Al Saraj on the day of exchange.".[134]Further, in a letter dated 12 September 2002 to Baker & McKenzie, Howard Kennedy stated:
"We are instructed that your clients knew very well that the vendor required £500,000 paid to him direct in Kuwait and £3.6m recorded as the purchase price … There is no bank statement showing the transfer of funds as this was dealt with between Mr Al-Arbash and our client by way of deduction from monies held to the account of our client."
[135]It was only in a letter dated 23 December 2002 to Baker & McKenzie from Mr Al-Saraj's then solicitors, Clifford Chance, that it was stated that, following the meeting in Paris between Mr Al-Saraj and Mrs Murad, "given that Mr Al-Arbash owed Mr Al-Saraj in excess of £500,000, it was agreed that £500,000 would be set-off against the monies owed to him by Mr Al-Arbash and that the purchase price between Danescroft and Halfway House would be £3.6 million.".[136]Even then, and thereafter, Mr Al-Saraj was extremely coy about the factual basis for the alleged indebtedness of £500,000 from Mr Al-Arbash to Mr Al-Saraj. Following unsuccessful attempts by the Claimants' solicitors to obtain information as to the basis for the indebtedness, the Claimants issued a formal Request for Further Information in July 2003. Following the failure of the Defendants to serve a Response to that Request, an order for service of a Response was made by Chief Chancery Master Winegarten on 23 December 2003. On 31 December 2003 the Defendants served a Response, which was inadequate. Eventually, pursuant to a further order of Master Winegarten on 14 January 2004, a list was served by the Defendants on 21 January 2004 setting out the Defendants' case on the amount of each debt, the date when each debt was incurred, and how each debt arose.[137]That history demonstrating Mr Al-Saraj's persistent and extreme reluctance to disclose to third parties anything about the alleged separate, but related, transaction between Mr Al-Arbash and himself as to the £500,000 set-off against the purchase price of the Hotel is entirely consistent with, and supportive of, Mrs Murad's case that she was never informed about that separate transaction and was always led to believe that the purchase price was £4.1m and that Mr Al-Saraj would be making a cash or direct payment of £500,000.[138]The Claimants' case, and Mrs Murad's evidence, on this aspect, is also consistent with my impression, from Mr Al-Saraj's evidence, of his care and concern to maintain secrecy about his business affairs. He was reluctant, for example, in cross-examination, to answer questions about his business affairs generally, until I directed him to do so (transcript 1 April 2004 p.62).[139]Mr Al-Saraj's oral evidence that, at the meeting in Paris in early September 1997, he mentioned HHL, and explained about the set-off, and actually offered proof in connection with the £500,000, is inherently highly improbable. At that stage, his primary interest was to obtain the general interest of Mrs Murad in the proposed transaction. He knew that Mrs Murad did not then have the consent of her sister to any proposal. There would have been no need whatsoever to mention the specific name of the vendor company.[140]The suggestion that, at that first meeting at which the proposed transaction was discussed, and before Mrs Murad had obtained the approval of her sister, he offered to provide proof as to the existence of the £500,000 indebtedness of Mr Al-Arbash to himself (transcript 31 March 2004 p.104) is both inherently improbable, is not contained in his witness statement, and runs counter to all the evidence to which I have referred as to the secretiveness of Mr Al-Saraj concerning his business dealings generally and the make-up of the indebtedness in particular. It is equally improbable that Mrs Murad's response, as Mr Al-Saraj contends, was that she had no need to see any such proof.[141]One indication that Mr Al-Saraj's approach on that occasion was hardly one of complete openness is that he did not show Mrs Murad, or inform her about, a valuation dated 3 April 1997 by Robert Barry & Co, chartered surveyors ("the Barry Valuation"), which had been obtained on the instructions of Mr Al-Saraj, and which valued the freehold interest in the Hotel, as at March 1997, at an open market value of £3.5m and an estimated realisation price of £3.75m.[142]Furthermore, Mr Al-Saraj's account of what he told Mrs Murad at the meeting in Paris in early September 1997 conflicts with what was said by Clifford Chance to Baker & McKenzie in the letter of 23 December 2002, to which I have already referred, that it was only after the meeting in Paris that Mr Al-Arbash and Mr Al-Saraj agreed that £500,000 would be set-off against the monies owed to him by Mr Al-Arbash and that the purchase price between Danescroft and HHL would be £3.6m.[143]Further, at one point in his evidence, Mr Al-Saraj appeared to be saying that Mrs Murad's knowledge that HHL was to receive £3.6m dated from a meeting with Mr Golinsky, which, on any footing, came after the meeting in Paris in September 1997 (transcript 2 April 2004 p. 20 ll. 14-16).[144]Mrs Murad's case as her lack of any knowledge of the £3.6m paid direct to HHL and any separate, but related, £500,000 transaction between Mr Al-Arbash and Mr Al-Saraj is also consistent with the impression created by the wording of the Westwood Agreement. That Agreement records no such division of the purchase price. On the other hand, the contributions and bank loan specified in the Agreement amount to £4.1m.[145]I accept the evidence of Mrs Murad that, prior to July 2002, she was never shown a copy of the completion statement or the Transfer, whether at the time the Westwood Agreement was signed by her at the end of 1997 or on any other occasion.[146]Mrs Murad's case and evidence in relation to her knowledge of the split transaction, and, in particular, the separate payment of £3.6 million to HHL, conflicts with the evidence of Mr Golinsky. His evidence was that, at the inception of the transaction, Mr Al-Saraj brought Mrs Murad to his office, and it was explained to Mr Golinsky that Mr Al-Saraj and Mrs Murad and her sister were going to purchase the Hotel, and a company was to be incorporated as the vehicle for the purchase; they were each to have one third of the company; and the price was to be £3.6m. Mr Golinsky's evidence was that he was told the parties would be contributing to the capital, but was not provided with precise details of their respective contributions. He said that Mrs Murad was present throughout the meeting, and played an active part in the discussion.[147]To a certain extent, that evidence of Mr Golinsky supports the evidence of Mr Al-Saraj that Mr Al-Saraj and Mrs Murad went to Mr Golinsky's office and discussed with Mr Golinsky the proposed transaction between the meeting in Paris and Mrs Murad's return to Bahrain on 11 September 1997.[148]Mrs Murad's evidence was that she met Mr Golinsky for the first time on a visit to London between 29 October 1997 and 2 November 1997, and neither at that meeting nor at any subsequent meeting with Mr Golinsky was she ever told that the purchase price to be paid, or which had been paid, to HHL was only £3.6m.[149]Mr Golinsky's evidence was that, apart from that initial meeting, he met Mrs Murad on several occasions and their conversations always referred to the payment of £3.6m as the purchase price.[150]Mr Golinsky and the Defendants maintain that Mr Golinsky's recollection of his first meeting with Mrs Murad is supported by a document on which Mr Golinsky has written various details relating to the proposed purchase of the Hotel. There are three "post-its" attached to that piece of paper, which also have details concerning the transaction. Those notes of Mr Golinsky refer to a sum of £3.6m. Mr Golinsky's evidence is that those notes were taken at his initial meeting with Mrs Murad.[151]I am satisfied, on a balance of probabilities, that there was never a meeting between Mrs Murad and Mr Golinsky at which he or Mr Al-Saraj made clear that the purchase price payable to HHL for the Hotel was £3.6m.[152]Mrs Murad made a complaint to the Office For the Supervision of Solicitors ("the OSS") in relation to the handling of the purchase of the Hotel by Mr Golinsky. It was suggested, on behalf of the Claimants, that Mr Golinsky's evidence was tailored to rebut that complaint. I reject that suggestion. I find that Mr Golinsky was not intentionally misleading the court in the evidence which he gave. He has, however, sought to reconstruct the historic events long after they occurred and has done so inaccurately.[153]In evaluating the evidence of Mr Golinsky as to Mrs Murad's knowledge of the payment of £3.6m to HHL, it is important to observe, at the outset, that his evidence does not agree in important respects with that of Mr Al-Saraj or of other witnesses called by the Defendants.[154]Mr Al-Saraj gave clear and firm evidence that Mr Golinsky was, at all times, aware that the overall price for the purchase of the Hotel was £4.1m, and that part of the purchase price was to be paid by setting-off £500,000 of debts due to Mr Al-Saraj from Mr Al-Arbash. Mr Al-Saraj's evidence was that Mr Golinsky said that he was only prepared to deal with the UK element of the transaction.[155]At one point in his cross-examination, Mr Al-Saraj's evidence became somewhat inconsistent and confusing, when he appeared to indicate that Mr Golinsky thought that the £500,000 would be used for the benefit of the Hotel after its purchase by the Claimants and the Defendants. He expressly confirmed, however, the accuracy of the explanation in Clifford Chance's letter of 23 December 2002 that in September 1997 Mr Al-Saraj approached Mr Golinsky, and informed Mr Golinsky of the details of the deal reached with Mr Al-Arbash, including the setting-off of £500,000.[156]Mr Al-Arbash also gave evidence that he told Mr Golinsky about the £3.6m and the £500,000 transaction with Mr Al-Saraj.[157]Mrs Murad's evidence was that Mr Golinsky talked about the price being £4.1m (transcript 26 March 2004 p.120).[158]Notwithstanding the oral evidence of Mrs Murad, Mr Al-Saraj and Mr Al-Arbash, I find, on a balance of probabilities, that Mr Golinsky was never made aware that the purchase price for the Hotel was £4.1m, of which £3.6m was to be paid to HHL and the balance was to be provided by way of a notional set-off, against the purchase price, of indebtedness owed by Mr Al-Arbash to Mr Al-Saraj.[159]First, as I have said earlier in this judgment, there is in evidence a written letter of instruction from Mr Al-Arbash to Mr Golinsky dated 12 September 1997, which refers only to a price of £3.6m, to be funded by a cash payment on completion of £1m by "the buyers" and a loan from the National Bank of Kuwait for £2.6m. There is no reference whatever in that letter to a separate, but related, transaction between Mr Al-Saraj and Mr Al-Arbash in respect of £500,000, nor any reference to a "global" price of £4.1m. Mr Al-Saraj sought to explain the terms of that letter by saying that he had already agreed with Mr Al-Arbash about the £500,000 before the letter of 12 September 1997 was written. That evidence is, however, inconsistent with the document dated 7 November 1997 signed by Mr Al-Arbash that the deposit of £500,000 was paid in Kuwait on exchange of contracts, a statement which was repeated in Howard Kennedy's letter to Baker & McKenzie dated 23 August 2002. Further, if there was any deal at all between Mr Al-Saraj and Mr Al-Arbash as to the £500,000, the more natural course of events would have been for the £500,000 to be credited towards the purchase price only after Mrs Murad and her sister had agreed to proceed with the transaction. That could not have been prior to her return to Bahrain on 11 September 1997.[160]Second, the document in Mr Golinsky's handwriting, to which I have referred, and which he claims contained his notes of what he was told at the initial meeting with Mrs Murad, does not contain any reference to a purchase price of £4.1m or a separate transaction between Mr Al-Arbash and Mr Al-Saraj in relation to the £500,000.[161]Third, there is, in fact, no contemporaneous written documentation which supports the case that Mr Golinsky was instructed that the "global" price for the Hotel was £4.1m, and that only £3.6m was to be paid to HHL and be specified in the Sale Contract as the purchase price, and that the balance was to be contributed by way of a set-off, against the purchase price, of indebtedness owed to Mr Al-Saraj personally by Mr Al-Arbash personally.[162]It is true that the Westwood Agreement, which was drafted by Mr Golinsky, is, as I have said, consistent with a purchase price of £4.1m. Mr Golinsky's evidence, however, was that he was led by Mr Al-Saraj to understand that the increase over the contract price of £3.6m was due to an agreement by Mr Al-Saraj to contribute further money for renovation work to the Hotel after the purchase. That evidence was, to some extent, supported by Mr Al-Saraj himself, who, as I have previously mentioned, said at one point in his cross-examination that Mr Golinsky may have thought that the £500,000 was to be used after the purchase of the Hotel.[163]Fourth, no credible reason has been put forward as to why Mr Golinsky would have wished to participate in a transaction involving a deliberate mis-statement of the true purchase price in the Sale Contract and of the true consideration in the Transfer, effectively making him a party to a conspiracy to defraud the Revenue in relation to stamp duty.[164]Mr Cogley submitted that I should "cherry pick" Mr Al-Saraj's evidence, accepting those parts which are consistent with the evidence of Mr Golinsky and rejecting other parts. That submission is a remarkable acknowledgement of the general unreliability of the evidence of Mr Cogley's own client. I consider that it would be most unsafe and unsound to support Mr Golinsky's evidence by reliance on part of Mr Al-Saraj's evidence which, by rejection of the remainder, is shown to be inherently unreliable.[165]Although I reject Mrs Murad's case that, in her meetings and conversations with Mr Golinsky, he always spoke in terms of a purchase price of £4.1m, I also reject Mr Golinsky's evidence that Mrs Murad was present at the initial meeting at which Mr Golinsky was informed of the proposed transaction, and it was at that meeting that it was clear to everyone that the purchase price was £3.6m.[166]Mr Golinsky was firm and clear in his recollection of what took place at that meeting. His evidence was that Mrs Murad was intent on proceeding with the deal at that time. He was absolutely convinced that the meeting took place before the letter of instruction from Mr Al-Arbash dated 12 September 1997. As I have said, Mr Al-Saraj's evidence was also that the initial meeting with Mr Golinsky took place between the date of the meeting in Paris at the beginning of September 1997 and Mrs Murad's return to Bahrain on 11 September 1997.[167]The problem with this account of events, however, is that it is common ground that, at that stage, Mrs Murad had not obtained the consent of Layla to the proposed transaction. Unless and until that consent was given, there could be no question of Mrs Murad having resolved to proceed with the deal. Indeed, Mr Cogley himself acknowledged that, at that stage, there was no agreement of any kind. It is, therefore, against all the probabilities that Mr Golinsky is correct in his recollection that there was a meeting with Mrs Murad at that time at which she made it clear she was intent on proceeding with the purchase.[168]The difficulty that the Defendants and Mr Golinsky must then face is that Mrs Murad did not visit England again before 29 October 1997, which was after exchange of contracts for the purchase of the Hotel.[169]Further, as I have previously mentioned, it was stated in the letter from Clifford Chance to Baker & McKenzie dated 23 December 2002 that it was only after the Paris meeting that Mr Al-Saraj agreed with Mr Al-Arbash that they would set-off the monies owed to him by Mr Al-Arbash and that the purchase price to be paid to HHL would be only £3.6m. As I have said, Mr Al-Saraj confirmed in his oral evidence that Clifford Chance wrote that letter on his instructions. If such agreement as to the payment of £3.6m direct to HHL was reached after the Paris meeting, it is clear from the evidence that it must have been after 11 September 1997 when Mrs Murad returned to Bahrain. There could not have been a meeting before then, between Mr Golinsky and Mrs Murad, at which the purchase price was said to be £3.6m.[170]In fact, at one point in his cross-examination Mr Al-Saraj conceded that he could not remember precisely when the initial meeting between Mrs Murad and Mr Golinsky took place. As I have said, if that meeting did not take place prior to 11 September 1997, then it must have been after exchange of contracts.[171]Indeed, in the letter from Clifford Chance to Baker & McKenzie dated 23 December 2002, written on Mr Al-Saraj's instructions, it was stated that Mr Al-Saraj had not, in September 1997, sought any English legal advice on the deal.[172]Mr Al-Zayani's evidence was that he and Mrs Murad first met Mr Golinsky at the beginning of November 1997. He was not cross-examined on that part of his evidence.[173]The hand-written notes of Mr Golinsky, which he maintains record what he was told at his initial meeting with Mrs Murad at the inception of the proposed transaction, are not cogent corroborative evidence of Mr Golinsky's evidence that Mrs Murad attended an initial meeting with him at which a purchase price of £3.6m was discussed.[174]The notes comprise, as I have said, different pieces of paper. There are "post-its" stuck to a page, both the page and the "post-its" bearing Mr Golinsky's handwriting. That part of the document which refers to a purchase price of £3.6m is consistent with initial instructions on the transaction. It appears that that figure was initially denominated by a $ sign and then changed a £ sign. In that part of the document there is a reference to £1m being available within two weeks. There is nothing whatever on any part of the document to indicate that Mrs Murad was present at a meeting at which, or following which, the notes were taken. Details are recorded of telephone numbers and a fax number for Mrs Murad and her husband, but that is the nearest.[175]Mr Golinsky acknowledged that none of the notes were designed to constitute a proper attendance note. He also acknowledged, as indeed appears plainly to be the case, that the writing on the "post-its" was probably not at the same time as the other notes.[176]The notes, or at least that part of the document which appears to be earliest in time and a record of instructions given at the outset of the transaction, are entirely consistent with those instructions having been given in, and the notes made following, a conversation only between Mr Golinsky and Mr Al-Arbash or Mr Al-Saraj. In this connection, it is to be noted that in a letter from Mr Golinsky to the OSS dated 11 March 2004 Mr Golinsky stated that in the autumn of 1997, after a potential sale had fallen through, Mr Al-Arbash told Mr Golinsky that he had had discussions with Mr Al-Saraj and there was a possibility of selling the Hotel to a consortium led by Mr Al-Saraj, and that the sale price had been agreed at £3.6m. Mr Golinsky's handwritten notes, at least as to the part recording the £3.6m, are consistent with them being a record of those discussions.[177]Moreover, in cross-examination, in answer to a question as to who had instructed that the purchase price of £3.6m was to be inserted in all the documents, Mr Al-Saraj said:
"Mr Al-Arbash, when he took the £500,000, how much left from the whole price, it is £3.6m. So I went to Mr Golinsky and I told him the price is 3.6, which is the remaining, the rest to finish the whole deal. So I told Mr Golinsky that 3.6 is the price that had to be paid up to the £500,000."
[178]Mr Al-Saraj then confirmed that he believed that he had given those instructions verbally (transcript 2 April p.21 l.22 to p.21 l.6). He said nothing about those instructions being given at a meeting attended by Mrs Murad. The plain inference from what he said is that he gave those instructions at a meeting or in a conversation with Mr Golinsky on his own.[179]Further, as a general observation, it is clear that Mr Golinsky's recollection of the events in 1997 and 1998 was not in material respects clear or accurate. For example, in cross-examination he said that he could not recall whether the formal letter of instruction from Mr Al-Arbash dated 12 September 1997 was typed in his office. Bearing in mind that it would have been an unusual arrangement if the letter of retainer had been prepared and printed in Mr Golinsky's own office, that lack of recollection casts doubt on the conviction with which he gave his evidence of what took place at the alleged meeting with Mrs Murad immediately before the date of the letter of instruction.[180]By way of further example, in letters to the OSS dated 27 August 2003 and 11 March 2004, Mr Golinsky stated that in January 1998 he drafted both the Westwood Agreement and the letter to Valmet dated 9 January 1998, and that Mrs Murad gave him a power of attorney when she was in London in January 1998. It is clear, however, from the evidence of Mr Al-Saraj, Mrs Murad and Mr Al-Zayani, that all those documents were signed by Mrs Murad in December 1997 in Bahrain.[181]Those may appear to be small discrepancies, set against the larger picture of the totality of Mr Golinsky's evidence. Nevertheless, they confirm what would be a natural inference in relation to events which took place so many years before the dispute arose between Mrs Murad and Mr Al-Saraj in July 2002, namely that an accurate recollection of those events would have been severely impaired over time; and that Mr Golinsky's actual recollection of what took place on specific dates, let alone during specific conversations on those dates, is likely to be far less certain than his evidence indicated.[182]I conclude that, on a balance of probabilities, Mr Golinsky did not meet Mrs Murad in early September 1997, but, even if he did meet her then, neither on that occasion nor on any other occasion prior to 2002 did he ever tell her anything or indicate anything to her to give her cause to believe that the purchase price was other than £4.1m, as she had been led to believe by Mr Al-Saraj.[183]Apart from the evidence of Mr Golinsky, no other witness provided any corroboration of Mr Al-Saraj's evidence that he told Mrs Murad that the purchase price of £4.1m was to be split into the two components of a payment of £3.6m to HHL and a set-off of indebtedness from Mr Al-Arbash to Mr Al-Saraj.[184]Mr Al-Saraj's evidence that those components of the transaction were discussed at a lunch meeting in Mrs Murad's house in Bahrain attended by Mr Al-Saraj and Mr Al-Arbash, prior to exchange of contracts, was not supported by any evidence of Mr Al-Arbash. At most, following a leading question by Mr Cogley, Mr Al-Arbash's evidence went no further than that a price of £4.1m was discussed.[185]Nor did Mr Nass give oral evidence that he had ever personally heard those matters being discussed with Mrs Murad. In his evidence in chief, he stated that he first met Mrs Murad in September 1997 when he visited her house with Mr Al-Saraj and that, at that meeting, he overheard discussions on "various aspects of the deal itself, the nature of the property. I overheard the prices which the deal was structured, the way the deal is structured." In elaborating on that evidence, however, he made no reference to a split in the purchase price between the payment of £3.6m to HHL and the £500,000 alleged transaction between Mr Al-Arbash and Mr Al-Saraj. Further, in cross-examination, he said that the first time he received any detail of the structure of the financing deal was when he saw the letter from HHL of 7 November 1997. That letter, however, only refers to a purchase price of £4.1m and a £500,000 deposit paid in Kuwait by Mr Al-Saraj on exchange of contracts, which is entirely consistent with Mrs Murad's evidence and case as to what she was told by Mr Al-Saraj and understood the transaction to be.[186]I reject Mr Al-Saraj's evidence that, in December 1997, he disclosed to Mrs Murad in Bahrain documents showing the alleged split in the purchase price between the £3.6m paid to HHL and the £500,000 transaction with Mr Al-Arbash. In particular, I reject Mr Al-Saraj's evidence that he then showed Mrs Murad the completion statement or the Transfer or the document from HHL dated 7 November 1997 . The Claimants challenge the authenticity of the latter document, and maintain that it was not in existence or, at any event, signed on the date which it bears, 7 November 1997. It is not necessary for me to resolve that issue for the purpose of these proceedings. On the evidence as to what documents Mr Al-Saraj showed or offered to show Mrs Murad in December, 1997, I prefer the evidence of Mrs Murad for all the reasons I have previously mentioned. Furthermore, I consider it inherently improbable that those documents would have been taken by Mr Al-Saraj to Bahrain at that time specifically for the purpose of showing them to Mrs Murad. There was no reason for him to do so at that time. If he had wanted to disclose them to Mrs Murad, he could have sent or procured the sending of them to her much earlier. Furthermore, if he had genuinely wanted to show her those documents, he would have provided her with copies of them to be retained by her. There is no evidence whatever that he left any such copies with her. I reject as wholly implausible Mr Al-Saraj's evidence that in December 1997 in Bahrain he offered to leave copies of those documents with her, but she declined.[187]Mrs Murad denied that she had received any documents from Mr Golinsky showing that the price paid to HHL was only £3.6m. I accept her evidence on this.[188]Further, there is no evidence that Mrs Murad saw any of Danescroft's accounts prior to the present dispute.[189]Finally, it will be appreciated that, if Mrs Murad has not told the truth as to her knowledge of the division of the purchase price of £4.1m between the payment of £3.6m to HHL, and the provision of £500,000 towards the purchase price by way of set-off of personal indebtedness as between Mr Al-Arbash and Mr Al-Saraj, the entire dispute which is the subject of these proceedings has been initiated and continued on the basis of a blatant and deliberate falsehood by her and her husband. Mr Cogley did not shrink from so submitting.[190]At one point, Mr Cogley sought to support that submission with an assertion that Baker & McKenzie did not refer to the issue of the £3.6m purchase price in its early correspondence. That assertion is incorrect as a matter of fact. Baker & McKenzie's first letter to Mr Al-Saraj dated 19 August 2002 clearly set out a legal case based on a fraudulent misrepresentation by Mr Al-Saraj in relation to the purchase price of the Hotel and his alleged contribution of £500,000 towards the purchase.[191]Further, and importantly, the allegation that Mrs Murad and her husband have mounted the litigation and pursued it on the basis of a fundamental lie, so constituting an abuse of process and an attempt to pervert the course of justice and a contempt, is entirely at odds with my perception of the character of Mrs Murad and her husband.[192]For the foregoing reasons, I find that the Claimants were, at all times until the present dispute commenced, unaware that the amount to be paid to HHL was only £3.6m.[193]Accordingly, in the light of the evidence, I also conclude that Mr Al-Saraj misrepresented to Mrs Murad, and thereby Layla, that the price of the Hotel was £4.1m when, in fact, it was £3.6m. Was there a misrepresentation as to Mr Al-Saraj's contribution?[194]At the trial the Claimants contended that Mr Al-Saraj represented that his contribution of £500,000 was to be made in cash, whereas he did not intend, and was not in a position, to make that cash contribution towards the price of the Hotel.[195]The Claimants' case is that they agreed to act with Mr Al-Saraj in acquiring the Hotel, and made their contribution towards the purchase price of the Hotel, and entered into the Westwood Agreement, and agreed to the transfer of the beneficial interest in one third of the shares in Danescroft to Mr Al-Saraj or Westwood, in reliance on that misrepresentation.[196]Mr Cogley submitted that there is no allegation in the Particulars of Claim that Mr Al-Saraj would make his contribution of £500,000 in cash. He referred to the wording of paragraph 3.6 of the Particulars of Claim, in which it is alleged that the Claimants relied upon the representation: "3.6.1.2 that Mr Al-Saraj intended, and (by implication) was in a position, to contribute £500,000 towards the price of the Hotel".[197]The Particulars of Claim must be read in the light of the issues ventilated between the parties prior to the commencement of the proceedings. In the very first letter from Baker & McKenzie to Mr Al-Saraj of 19 August 2002, in which Baker & McKenzie set out the Claimants' case of fraudulent misrepresentation, they stated that: "the Murads agreed to go into business with you in late 1997 based on your representations that the purchase price of the Parkside Hotel was £4.1 million and that you would contribute initial cash of £500,000 towards the purchase price." [my emphasis][198]Further, the word "price" mentioned in paragraph 3.6.1.2 of the Particulars of Claim would ordinarily be understood to refer to a contribution towards the price paid to the vendor and specified in the sale contract.[199]In all the circumstances, I consider that the Claimants were entitled to advance at trial a case based on an alleged misrepresentation that Mr Al-Saraj intended, and was in a position, to contribute £500,000 cash towards the price of the Hotel.[200]I am satisfied that Mr Al-Saraj represented to Mrs Murad and, through her, Layla, that his contribution would be in actual money, as distinct from the set-off arrangement as between himself and Mr Al-Arbash on which he relies.[201]As I have said, I reject Mr Al-Saraj's evidence that, at the meeting in Paris in early September 1997 or at any subsequent time prior to the present dispute, Mr Al-Saraj told Mrs Murad that his contribution of £500,000 would be, or had been, by way of a set-off transaction with Mr Al-Arbash.[202]Mrs Murad's evidence in chief was that Mr Al-Saraj said at the meeting in Paris that he was going to put in £500,000 and that money was "ready" (transcript 25 March 2004 p.84 l.1). She also said, in chief, that, shortly after the lunch at her house with Mr Al-Arbash and Mr Al-Saraj, Mr Al-Saraj said: "I have my money ready with the solicitor the 500, now you can send yours." (Transcript 25 March 2004 p.95 ll.13-14.)[203]In cross-examination Mrs Murad said: "From when I transferred my money, Mr Al-Saraj told me my money now with Mark Golinsky; you transfer your money on that basis".[204]She also gave evidence, in cross-examination, that Mr Al-Saraj said he had the money "ready" (transcript 26 march 2004 p.97 l .25 – p.98 l , p.99 ll.3-5). She also said that Mr Al-Saraj "said he had the money" (transcript 26 March 2004 p.99 ll.4-5).[205]Mrs Murad's evidence, in this respect, is corroborated by the wording of the disputed letter of 7 November 1997 from HHL, on which the Defendants rely, recording that a deposit of £500,000 "was paid" in Kuwait by Mr Al-Saraj on the day of exchange of contracts.[206]Similarly, the reference in the Westwood Agreement to the contribution made by Westwood would reasonably have created the impression of a direct payment in cash, as distinct from the type of set-off arrangement as between Mr Al-Arbash and Mr Al-Saraj on which the Defendants rely.[207]Mrs Murad's evidence as to the manner in which Mr Al-Saraj represented he would make his contribution is also supported by her evidence that she was reluctant to invest in the purchase of the Hotel, because she knew nothing about the hotel business, and did not like to borrow from a bank, but that she decided nonetheless to do so because Mr Al-Saraj was also risking a substantial amount of his own money (transcript 26 March 2004 p.58 ll.16-19, p.69 l.10, p.97 l.24 – p98 l.3).[208]It is not in dispute that Mr Al-Saraj never intended to pay £500,000 in cash towards the purchase price.[209]Accordingly, in the light of the above evidence, I conclude that the Claimants have established that Mr Al-Saraj misrepresented that he would make a contribution of £500,000 in cash towards the purchase price of the Hotel. Was there a £500,000 set-off?[210]In his written opening skeleton argument Mr Cogley stated (at paragraph14) that:
"The Court is accordingly required to determine … (2) Whether Mr Al-Saraj did in fact contribute (in addition to any other sums) the difference between £3.6 million and £4.1 million – namely £500,000."
[211]By contrast, in his closing submissions, Mr Cogley submitted that, if I concluded that Mrs Murad was not aware the £3.6m was to be paid as a separate amount to HHL and was to be the purchase price specified in the Sale Contract, and that Mr Al-Saraj misrepresented that the purchase price was £4.1m, when in fact it was £3.6m, or that Mr Al-Saraj's contribution to the purchase price was to be in cash, then it is irrelevant whether a proper accounting between Mr Al-Saraj and Mr Al-Arbash did result or would have resulted in £500,000 or less.[212]He submitted that, if, on the other hand, I concluded that Mrs Murad did know that £3.6m was to be paid by way of separate amount to HHL, or the purchase price was £4.1m but Mrs Murad understood that Mr Al-Saraj's contribution of £500,000 could be paid in any manner which would satisfy Mr Al-Arbash, then again it would be irrelevant whether a proper accounting between Mr Al-Saraj and Mr Al-Arbash did result or would have resulted in £500,000 or less: as long as Mr Al-Arbash was willing to credit towards the purchase price the amount of £500,000, it was unimportant to Mrs Murad whether that figure was the product of an accurate accounting or not.[213]I consider that the question whether, and if so, in what manner, there was an accounting between Mr Al-Saraj and Mr Al-Arbash as part of the transaction for the purchase of the Hotel by the Claimants and the Defendants is material to the issues before me. In particular, it is relevant to the relief to be granted to the Claimants.[214]The Claimants' primary position, on this aspect of the case, is that there never was any accounting of any kind between Mr Al-Saraj and Mr Al-Arbash as part of the transaction for the purchase of the Hotel by the Claimants and the Defendants.[215]Mr Hossain submitted that Mr Al-Arbash was actually willing to sell the Hotel for £3.5m. In advancing that submission, he relied principally on the Robert Barry Valuation, which was commissioned by Mr Al-Saraj, and which gave the Hotel an open market value of £3.5m as at 14 March 1997 and an estimated realisation value (if the Hotel was sold around six months later after proper marketing) of £3.75m, and on the evidence of negotiations for a sale of the property to Mr Al-Murbati in 1997.[216]I reject that submission of Mr Hossain. In my judgment, the weight of the evidence shows that Mr Al-Arbash was not willing to sell the Hotel in 1997 for £3.5m or £3.6m, but only for something in excess of that.[217]So far as concerns the Robert Barry Valuation, the report indicated, as I have said, a range of value between £3.5m and £3.75m. The evidence before me was to the effect that Mr Al-Arbash wished to sell his property interests in England in 1997. There is no evidence, however, that he was so pressed or keen to sell, that he would have been willing to dispose of the Hotel at the lowest end of the valuation range advised in the Robert Barry Valuation. It is clear that there were a number of different prospective purchasers willing to bid for the Hotel in 1997 for a value of, at least, £3.5m. The existence of a healthy market for the Hotel at that price reinforces the conclusion that £3.5m was indeed at the lowest end of the range of possible values for the Hotel.[218]Mr Hossain submitted that the evidence showed that Mr Al-Arbash was willing to accept, and did accept, an offer by Mr Al-Murbati to purchase the Hotel for £3.5m.[219]The evidence as to Mr Al-Murbati's negotiations with Mr Al-Arbash is not clear, consistent or satisfactory.[220]Mr Al-Murbati did not attend to give evidence. Mr Al-Zayani gave hearsay evidence of what he was recently told by Mr Al-Murbati concerning Mr Al-Murbati's offer to purchase the Hotel in 1997.[221]The essence of Mr Al-Zayani's evidence was that Mr Al-Murbati stated to Mr Al-Zayani that he had offered £3.5m for the Hotel, which included a payment of £500,000 to Mr Al-Arbash personally. Mr Al-Murbati gave Mr Al-Zayani two documents in relation to Mr Al-Murbati's negotiations with Mr Al-Arbash, one of which was the Robert Barry Valuation. Mr Al-Murbati also referred to a written contract for the sale of the Hotel at that price, but he never handed the contract or a copy of it to Mr Al-Zayani.[222]There is in evidence a letter dated 14 March 2004, purportedly signed by Mr Al-Murbati and addressed to Baker & McKenzie, which "is to confirm that our offer for Parkside hotel was 3.5 million-pound". A Civil Evidence Act notice was served in respect of that letter. The authenticity of the letter was challenged by the Defendants.[223]In relation to Mr Al-Murbati's offer, Mr Hossain also relied upon a letter from Mr Al-Arbash to Mr Golinsky dated 2 February 1997, which referred to an agreed sale of the Hotel to "purchasers from Bahrain", and an exchange of correspondence between Mr Golinsky, on behalf of HHL, and Peter Gillis & Co, on behalf of the proposed purchaser, in February 1997. A letter from Mr Golinsky to Peter Gillis & Co dated 24 February 1997 referred to an agreement to purchase the Hotel for the sum of £3.5m, and confirmed that HHL had received a "preliminary deposit" of £500,000 from the purchasers "pending exchange of Contracts". Reliance was also placed upon a document in Mr Golinsky's handwriting, which stated that HHL had received £500,000 as a preliminary deposit, pending exchange of contracts, and mentioned a sum of £3.5m next to the words "as a going concern". Mr Golinsky's evidence was that the document recorded a conversation between Mr Golinsky and Mr Gillis of Peter Gillis & Co. Although it is the Claimants' case that this documentation was part of the transaction with Mr Al-Murbati, Mr Golinsky's evidence was that he could not recall Mr Al-Murbati's name in connection with the transaction.[224]Mr Al-Saraj's evidence in connection with the negotiations with Mr Al-Murbati was difficult to follow.[225]Mr Al-Arbash's evidence was clear that Mr Al-Murbati had agreed to purchase the Hotel for £4m, and provided a deposit of £500,000. Mr Al-Arbash said that, after Mr Al-Murbati had obtained a valuation, Mr Al-Murbati said that the Hotel required £1m to renovate it, and therefore he would not pay £4m. Mr Al-Arbash said that Mr Al-Murbati wanted to withdraw from the deal, and Mr Al-Arbash agreed.[226]There is some echo of that evidence of Mr Al-Arbash in the second witness statement of Mr Al-Zayani dated 19 March 2004, in which he set out what he had been told by Mr Al-Murbati. In that witness statement Mr Al-Zayani said that Mr Al-Murbati told him that Mr Al-Arbash had asked for £4m but he did not believe he could offer this much, since the valuation report only gave a valuation of between £3.5m and £3.75m; moreover, he would have needed to make a further investment of between £1.5m and £2m to refurbish the Hotel, which he had been planning to convert into flats.[227]The logic of that hearsay statement of what Mr Al-Zayani was told by Mr Al-Murbati rests on the hypothesis that Mr Al-Murbati was not willing to offer £4m, because he had already received the Robert Barry Valuation of between £3.5m and £3.75m before he made his initial offer.[228]It seems clear, however, that Mr Al-Murbati's recollection in that respect was incorrect. According to the Claimants, the instructions from Mr Al-Arbash to Mr Golinsky were contained in the letter dated 2 February 1997 to which I have already referred, and which was followed by the exchange of correspondence between Mr Golinsky and Mr Gillis in February 1997. The Robert Barry Valuation, however, is dated 3 April 1997 and followed an inspection on 13 March 1997. A report on the state of repair and structural condition of the Hotel by Moffatt & Partners, which was also handed by Mr Al-Murbati to Mr Al-Zayani, and which was said to be the basis for the estimated further investment of between £1.5m and £2m to refurbish the Hotel, is dated 18 March 1997. Accordingly, it would appear that the chronology of events given by Mr Al-Arbash, who did attend the trial in person, is to be preferred to the recollection of Mr Al-Murbati, whose evidence has been given by hearsay statements.[229]In my judgment, it is likely that the correspondence between Mr Golinsky and Peter Gillis in February 1997, and the document said to be an attendance note of a conversation between Mr Golinsky and Mr Gillis, proceeded on a misunderstanding as to the way in which Mr Al-Arbash and Mr Al-Murbati regarded the £500,000 which had already been paid prior to the instruction of solicitors. I find, on a balance of probabilities, that the "preliminary deposit" of £500,000 was intended by both Mr Al-Arbash and Mr Al-Murbati to be in addition to the £3.5m, just as Mr Al-Arbash and the Defendants maintain that the £500,000 was demanded by Mr Al-Arbash, in his accounting with Mr Al-Saraj, as a payment to secure the purchase of the Hotel, in addition to the contract price of £3.6m. I conclude, therefore, that Mr Al-Murbati's initial offer was, in fact, £4m, in accordance with the evidence of Mr Al-Arbash.[230]There is clear evidence that, in negotiations in 1997 between Mr Al-Arbash and HHL, on the one hand, and Galliard, on the other hand, the asking price for the Hotel was around £4.2m. It also appears from the evidence that a constant theme of the negotiations and the proposals was that £500,000 would be paid directly to Mr Al-Arbash.[231]There is in evidence a letter from Rivage Management Limited to Mr Al-Saraj dated 10 July 1997, in which an offer of £3.5m for the Hotel and business, as a going concern, was confirmed. There is no evidence that that offer was ever followed up or accepted. The non-acceptance of the offer is more supportive of the Defendants' case than the Claimants' case as to the amount which Mr Al-Arbash was willing to accept for the sale of the Hotel.[232]I turn now from the question of the price at which Mr Al-Arbash was willing to sell the Hotel in 1997 to the question of the state of account between Mr Al-Arbash and Mr Al-Saraj at that time.[233]I am satisfied, and indeed Mr Hossain accepted, that the evidence shows that Mr Al-Saraj did act on behalf of Mr Al-Arbash as his representative in England dealing with Mr Al-Arbash's property affairs.[234]I accept the evidence of Mr Al-Saraj and Mr Al-Arbash that Mr Al-Saraj, from time to time, spent his own money to meet property expenses of Mr Al-Arbash in England, when the rental income from the properties was insufficient.[235]I also accept the evidence of Mr Al-Saraj and Mr Al-Arbash that Mr Al-Saraj would, or would normally, be paid commission in respect of sales or purchases on behalf of Mr Al-Arbash. Such commission would be paid, not only in respect of properties in England, but also, it appears from the evidence, in respect of sales or purchases by Mr Al-Saraj, on behalf of Mr Al-Arbash, abroad.[236]Mr Al-Saraj also claims that he was entitled to receive from Mr Al-Arbash a management fee of 15% of the value of any works of repair or renovation carried out on the properties.[237]Mr Al-Saraj's evidence was that there was no proper accounting between Mr Al-Saraj and Mr Al-Arbash between 1994 and 1997.[238]In his written opening submissions, Mr Cogley stated that Mr Al-Arbash owed Mr Al-Saraj £630,400, in respect of commissions, management fees and for reimbursement of expenditure, as at the date of the purchase of the Hotel by the Claimants and the Defendants. Those written opening submissions cross-referred to paragraph 20 of the witness statement of Mr Al-Saraj. According to the Defendants' case, therefore, the £500,000 treated as set-off against the purchase price of the Hotel was, in fact, substantially less than the actual indebtedness of Mr Al-Arbash to Mr Al-Saraj.[239]The oral evidence given by Mr Al-Saraj in relation to commissions, management fees and expenditure on Mr Al-Arbash's behalf, was in many respects confusing and often very difficult to follow. Those advising the Claimants have carried out an analysis of the written documentation provided by, or on behalf of, the Defendants as to commissions, management fees and reimbursement of expenditure claimed by the Defendants to have been due from Mr Al-Arbash to Mr Al-Saraj at the time of the purchase of the Hotel by the Claimants and the Defendants. That analysis shows that a total of £633,268.59 is said to have been due, comprising £110,415.88 in respect of expenditure, £461,700 in respect of commissions and £61,152.71 in respect of management fees.[240]As I have said, the Claimants' case is that there was never any accounting or set-off arrangement at all between Mr Al-Saraj and Mr Al-Arbash at the time of the purchase of the Hotel in 1997. Among other things, the Claimants rely upon the fact that there was no written agreement between Mr Al-Saraj and Mr Al-Arbash as to the contractual arrangements between them for commissions or accounting. Nor is there any written record of the actual accounting or set-off said to have taken place in 1997. The Claimants also point to the changing and, they submitted, unreliable nature of the evidence said to corroborate the Defendants' case on this aspect.[241]The only contemporaneous documentary record of the £500,000 said to have been contributed by Mr Al-Saraj to the purchase of the Hotel is the letter from HHL dated 7 November 1997 which refers to a deposit of £500,000 having been paid in Kuwait on the day of exchange. The authenticity of that letter is challenged by the Claimants in the light, among other things, of Mr Al-Arbash's evidence that he only met Mr Nass, who the Defendants claim was instrumental in procuring the signature of Mr Al-Arbash to the letter, some two years ago (transcript 22 April 2004 pp.44 and 80). Further, the statement in the letter that the deposit of £500,000 was paid in Kuwait on the day of exchange conflicts, the Claimants maintain, with the current case of the Defendants that the £500,000 arrangements were agreed between Mr Al-Arbash and Mr Al-Saraj before Mr Al-Saraj met Mrs Murad in Paris in early September 1997 and before any solicitors were instructed.[242]The Claimants also rely upon what they say has been the changing character of the Defendants' explanation of the manner in which the £500,000 was contributed to the purchase of the Hotel.[243]The Claimants say that the disputed letter of 7 November 1997, and the first explanation given in the letter dated 23 August 2002 from Howard Kennedy to Baker & McKenzie, suggest an actual payment by Mr Al-Saraj of £500,000 in cash.[244]The letter of 12 September 2002 from Howard Kennedy to Baker & McKenzie, by contrast, referred to "deduction of monies held to the account of our client", suggesting that the payment was made by a deduction from money actually held by Mr Al-Arbash.[245]The Claimants maintain that a third change in the story occurred when Clifford Chance wrote to Baker & McKenzie on 23 December 2002 referring, for the first time, to a set-off, against the purchase price, of indebtedness of Mr Al-Arbash to Mr Al-Saraj.[246]The Claimants also point out that the Defendants' account of the timing of the alleged agreement between Mr Al-Saraj and Mr Al-Arbash as to the £500,000 has varied. In the letter from Clifford Chance to Baker & McKenzie of 23 December 2002 it was said that the agreement was after the meeting in Paris between Mr Al-Saraj and Mrs Murad. Mr Al-Saraj's oral evidence in cross-examination, however, was that the set-off was agreed before Mr Al-Saraj went to Paris (transcript 301 March 2004 pp.101, 102, 103).[247]Mr Hossain relied on the, yet further, discrepancy arising from the Westwood Agreement, which recorded a contribution by Mr Al-Saraj of only £641,000, whereas Mr Al-Saraj's case is that he actually contributed £725,817.99 (being the £500,000 set-off, plus money which he advanced in cash towards the balance of the purchase price and costs and expenses of the purchase).[248]Further, the Claimants rely upon all those documents, which I have mentioned earlier in this judgment, in which the purchase price is recorded, or reflected as being, £3.6m. Those documents include the accounts of Danescroft, in which the alleged £500,000 contribution is not included at all as a director's or shareholder's loan.[249]They also rely upon the absence of any reference to the £500,000, or any part of it, in the tax returns of Mr Al-Saraj.[250]They also rely on the difficulty they encountered in obtaining information and documents relating to the debts said to have been written-off by way of set-off, leading to an application for further information dated 9 January 2004 and an application for specific disclosure issued on 17 February 2004.[251]As I have said, I am satisfied that Mr Al-Arbash wanted more than £3.6m for the purchase of the Hotel. I accept Mr Al-Arbash's evidence, which is consistent with the evidence of the negotiations with Galliard and my interpretation of the evidence relating to Mr Al-Murbati's negotiations, that Mr Al-Arbash and Mr Al-Saraj did enter into a private accounting arrangement, under which Mr Al-Arbash, in his own mind, treated £500,000, over and above the contractual purchase price of £3.6m payable to HHL, as credited towards the purchase of the Hotel.[252]I do not accept, however, that the £500,000 included any, or any substantial, amount in respect of expenditure by Mr Al-Saraj on Mr Al-Arbash's properties or in respect of management fees, or that the £500,000 represented any legally binding or enforceable debt due from Mr Al-Arbash to Mr Al-Saraj.[253]As I have said, Mr Al-Saraj's evidence was that there was no accounting between Mr Al-Saraj and Mr Al-Arbash between 1994 and 1997. If Mr Al-Saraj meant, by that evidence, that he remained out of pocket for all expenditure by him during that period on Mr Al-Arbash's properties, that is not only highly improbable, but against the over-whelming weight of the evidence.[254]The evidence of both Mr Al-Saraj and Mr Al-Arbash was that expenditure by Mr Al-Saraj on Mr Al-Arbash's properties was, in the first instance, paid or reimbursed out of rental income. Their evidence was that, if there was a shortfall, then Mr Al-Arbash would reimburse Mr Al-Saraj when Mr Al-Arbash visited England. The evidence of both of them was that Mr Al-Arbash did come to England on a number of occasions during the period 1994 to 1997. Indeed, in cross-examination, Mr Al-Saraj appeared to accept that he was given some money by Mr Al-Arbash in 1997. Mr Al-Saraj also appeared to say that he would obtain money from Mr Al-Arbash when Mr Al-Saraj went to Kuwait. He further appeared to say that, during the period 1994 to 1997, Mr Al-Arbash and Mr Al-Saraj would sit down together every year, at an informal meeting, when Mr Al-Saraj would show Mr Al-Arbash the receipts paid on his behalf and would take money from him when needed. All this is contrary to his overall contention that there was no accounting between them during the period 1994 and 1997.[255]Mr Al-Arbash's evidence was that he paid Mr Al-Saraj an annual sum of some £15,000 in respect of one of his properties, the Westbourne Hotel.[256]As I have said, there is no single document which records any substantial or changing balance over time as between Mr Al-Saraj and Mr Al-Arbash. There are no bank statements produced on behalf of the Defendants which clearly show that £110,000 or so of expenses were in fact paid by Mr Al-Saraj on behalf of Mr Al-Arbash. Reliance was placed by the Defendants on certain transactions on the account of Mr Yahya at the Arab National Bank, but the origin of the money in that account is far from certain. I am not prepared to accept, without further corroboration, that all the money in that account, which was applied in payment of expenses on Mr Al-Arbash's properties, originated from Mr Al-Saraj.[257]Further, and critically, it is clear from Mr Al-Saraj's tax returns for the years ending 5 April 1994 and 5 April 1995 that the expenses said to have been paid on behalf of Mr Al-Arbash in the calendar year 1994, but were allegedly not reimbursed, exceeded the combined total of Mr Al-Saraj's income for those two tax years.[258]Analysis of the expenditure alleged by Mr Al-Saraj for the years 1995, 1996 and 1997, and of Mr Al-Saraj's tax returns for the same period, also indicates that it is highly unlikely that Mr Al-Saraj could, or would, have borne the alleged expenditure, without reimbursement, out of his net income after tax.[259]Mr Al-Saraj claimed, in cross-examination, to have various foreign business interests operated though his HIS group. No documents have been disclosed as to those businesses or as to Mr Al-Saraj's interest in them, and no evidence was provided by Mr Al-Saraj as to his bank accounts. There is no entry in the relevant tax returns of Mr Al-Saraj to indicate that income or capital gains were remitted by Mr Al-Saraj from abroad to pay the expenses he claims to have paid on behalf of Mr Al-Arbash. Mr Al-Saraj did, however, affirm the accuracy of his income tax returns for the relevant period.[260]Further, Mr Al-Arbash said nothing, in his oral evidence, as to any, or any significant, amounts due to Mr Al-Saraj in 1997 in respect of unpaid management fees.[261]In my judgment, taking the evidence as a whole, the Defendants have not established a case that, at the time of the purchase of the Hotel by the Claimants and the Defendants in 1997, Mr Al-Arbash was under any legal obligation to Mr Al-Saraj to reimburse some £110,000 worth of expenses and to pay some £61,000 of management fees. If the burden of proof, in this respect, is on the Claimants, then the Claimants have satisfied me that, on the balance of probabilities, there was no such obligation.[262]The largest part of the £500,000 indebtedness alleged by the Defendants is constituted by commissions allegedly due from Mr Al-Arbash to Mr Al-Saraj in respect of the sale or purchase of properties on behalf of Mr Al-Arbash. The Claimants' analysis of the written material provided on behalf of the Defendants shows that £461,700 is said to have been due from Mr Al-Arbash to Mr Al-Saraj in respect of such commissions.[263]Mr Al-Saraj' evidence was that he was entitled to a commission of 3 per cent of the purchase price of any of Mr Al-Arbash's properties in England, the purchase of which was arranged by him, a commission of 12 per cent of the gross profit earned by Mr Al-Arbash on the sale of any property in England arranged by Mr Al-Saraj, and a commission of 5 per cent commission on the purchase of the Farwania complex in Kuwait.[264]Mr Al-Saraj claimed that, at the time of the purchase of the Hotel in 1997, he was entitled to commissions in respect of several properties in England.[265]The only specific properties mentioned by Mr Al-Arbash, in cross-examination, as giving rise to a commission due to Mr Al-Saraj in 1997 were the Farwania building and the Hotel. Mr Al-Arbash's evidence was that the commission due on the sale of the Hotel (to the Claimants and the Defendants) was 9 per cent of 4.1m. That would have given rise to a commission of £369,000.[266]The discrepancy between Mr Al-Saraj's evidence as to calculation of the commission on the sale of the Hotel (12 per cent of gross profit) and the evidence of Mr Al-Arbash (9 per cent of the total price) is important. In my judgment, it provides part of the clue as to the true position in relation to commissions.[267]The essence of Mr Al-Saraj's case on commissions is that there was, as a term of his contractual retainer as Mr Al-Arbash's agent in England, an entitlement to certain rates of commission on the purchase or sale of any properties achieved by him as such agent.[268]I find, however, that there was no such continuing and legally binding arrangement. The evidence certainly points to an expectation on the part of both Mr Al-Saraj and Mr Al-Arbash that commissions would be paid as and when properties were sold and bought by Mr Al-Saraj on behalf of Mr Al-Arbash. That expectation, however, was not an enforceable contract.[269]Mr Al-Saraj himself said, in giving his evidence in chief, that the dealings between himself and Mr Al-Arbash were not by way of "contracts or agreements just through words, verbal agreements". He then referred to the position under "our law", setting out the rates of commission which he stated applied. He continued that it was a matter which rested "on trust" between them (transcript 31 March 2004 p.31).[270]Significantly, he explained the arrangement as to commission by reference to Mr Al-Arbash's faith as a Shia Muslim, and stated that Mr Al-Arbash would deal in the same way with everybody (transcript 31 March 2004 p.63).[271]Mr Al-Arbash's evidence, in chief, was that: "the arrangements we have that we always reached a deal or agreement every year, whenever I sell a property and I get a profit, I give him a percentage out of this profit" (transcript 21 April 2004 p.66).[272]Mr Al-Arbash did not, in fact, corroborate any of the fixed percentages given by Mr Al-Saraj in his evidence. On the contrary, Mr Al-Arbash's evidence was that there was no particular formula for determining the commissions on sales. He said: "It varies. It is all based on what we agree on" (transcript 23 April 2004 p.10).[273]Mr Al-Arbash said: "we always agree on these things. So if we agreed at that time to pay him the commission based on the profit, so that is what I would do" (transcript 23 April 2004 p.10).[274]The only commission on which the evidence of Mr Al-Arbash and Mr Al-Saraj agreed concerned the purchase of the Farwania building, in relation to which they both gave evidence of a commission in the region of £180,000.[275]In my judgment, not only was there no overriding and continuing contract of retainer containing an enforceable agreement for commissions to be paid at the rates specified by Mr Al-Saraj, but the evidence does not indicate that there was any agreement on any particular commission, said to constitute all or part of the £500,000, before the Claimants and the Defendants agreed to purchase the Hotel. There was an agreement at that time which was prompted by, and reached for the purposes of, the acquisition of the Hotel by Mr Al-Saraj.[276]Accordingly, I conclude that, at the time of the purchase of the Hotel by the Claimants and the Defendants, and as part of the overall transaction for the purchase of the Hotel, there was an agreement between Mr Al-Arbash and Mr Al-Saraj that Mr Al-Arbash was to be treated as having paid commissions in respect of the purchase of the Farwania building and the purchase and sale of the Hotel, and possibly other properties in England, for the global sum of £500,000. There was no binding agreement in relation to those commissions prior to that time. In my judgment, the agreement was a broad brush agreement, by which Mr Al-Arbash discharged what he regarded as a business or moral or religious duty. That broad brush approach is consistent with the fact that, if Mr Al-Saraj's evidence or Mr Al-Arbash's evidence is taken at face value, the actual amount due was £630,000 or more. What was ultimately agreed on that occasion, as on every other occasion when a commission was discussed and agreed, was a matter of discretion and negotiation.[277]Mr Cogley submitted that that interpretation of events is not set out in the Particulars of Claim. That observation is misconceived. The Claimants' case is that Mr Al-Saraj did not contribute £500,000 towards the purchase price as he represented he would do or had done. It is the Defendants who seek to rebut that allegation by relying on an alleged set-off against the purchase price of existing indebtedness of Mr Al-Arbash to Mr Al-Saraj. It is for the Defendants to set out their case on the set-off and to adduce the evidence to establish it.[278]A question may be said to arise, in the light of my conclusion that, contrary to Mrs Murad's primary case, there was an agreement between Mr Al-Saraj and Mr Al-Arbash as to the £500,000 at the time of the purchase of the Hotel in 1997, as to why the £500,000 was not mentioned in any contemporaneous documents (save the disputed HHL letter of 7 November 1997) and was not mentioned by Mr Al-Saraj to Mrs Murad or any professional advisers at the time. It is not necessary for me to reach a conclusion on this point, which is plainly a matter of speculation. Nevertheless, I would observe that I do not find Mr Al-Saraj's conduct in this respect surprising. As will have appeared from what I have said earlier in this judgment, Mr Al-Saraj's disclosures to the Inland Revenue have been less than frank. Further, there is evidence that Mr Al-Saraj has channelled money from abroad by covert means, including the use of at least one account in the name of another person. In the light of those matters, and the clear impression I obtained of the general secretiveness of Mr Al-Saraj in relation to his business affairs, Mr Al-Saraj's reluctance to disclose to third parties the private transaction with Mr Al-Arbash as to the £500,000 is not surprising.[279]So far as concerns disclosure to Mrs Murad, as I have concluded earlier in this judgment, Mr Al-Saraj gave her the impression, deliberately in my view, that his contribution would be in cash. That is not surprising. Disclosure to Mrs Murad that Mr Al-Saraj's contribution would be by way of a set-off of personal indebtedness from Mr Al-Arbash would have invited all manner of complications, including investigation by her of the state of accounting between Mr Al-Saraj and Mr Al-Arbash, a scepticism by her (as, indeed, manifested by these proceedings) that any such genuine indebtedness existed, dissemination to a wider public, through Mrs Murad, of Mr Al-Saraj's various dealings with Mr Al-Arbash and their financial consequences, and the creation of further difficulties from the disclosure that part of the consideration for the purchase would not be paid to the vendor company but by way of private benefit to Mr Al-Arbash. Consequential loss[280]It is convenient, at this point in my judgment, where I am dealing with my conclusions on issues of fact, to consider what would have happened if Mr Al-Saraj had frankly and fully disclosed to Mrs Murad that his contribution towards the purchase price of the Hotel was to be made, in whole or in part, by way of the set-off arrangement which actually took place, in the way I have described, as between Mr Al-Arbash and Mr Al-Saraj.[281]It is common ground that, in the end, Mr Al-Saraj contributed £225,817.99 in cash towards the purchase price and expenses of the purchase.[282]In paragraph 54 of her first witness statement dated 25 February 2004 Mrs Murad refers to the respective contributions of £858,744 and £641,256 of the Claimants and Mr Al-Saraj recorded in the Westwood Agreement. She continued, in paragraph 55 of that witness statement, as follows:
"I was content to agree to share the proceeds of sale on this basis. Mr Al-Saraj had apparently contributed a significant share of the money and was going to look after the business of the hotel. He also said that he should get 50% because he had brought the deal to us. For all these reasons, I thought the deal was a fair one. Had I known, however, that he had contributed nothing to the purchase price or, at most, only about £200,000 out of £1 million, I would not have agreed to this "fifty – fifty" split. A 50% share of the proceeds of sale, having only contributed about 20% or less of the monies, would have been too much."
[283]The clear implication from that statement is that, even though Mr Al-Saraj contributed only some £225,000 in cash, rather than the £500,000 Mrs Murad believed he would contribute, she would still have wished to proceed with the transaction, but only on the basis that he would enjoy a lower percentage of the capital profit arising from any sale of the Hotel by Danescroft.[284]Mrs Murad's witness statement does not, however, appear to take into account, in this connection, the complication that, as I have found, Mr Al-Arbash was only willing to permit sale of the Hotel if he received more than £3.6m. Nor does it take into account that, in the case of the proposed sale to the Claimants and the Defendants, Mr Al-Arbash wished to discharge, as part of the sale transaction, what he perceived to be his religious or moral or business obligation to pay commissions in respect of the acquisition and subsequent sale of the Hotel, the purchase of the Farwania building in Kuwait and possibly the sale or purchase of other properties, and was willing to attribute to those commissions some £500,000 to be credited towards the purchase price of the Hotel.[285]I have no doubt that, if all those matters had been disclosed, the immediate reaction of Mrs Murad would have been one of great scepticism as to the true nature and existence of the non-cash contribution of Mr Al-Saraj. I am satisfied that Mrs Murad was not immediately attracted by the proposal to invest substantial sums in the acquisition of the Hotel. The impression I have is that Layla made her decision to invest solely on the recommendation of Mrs Murad. As I have said, Mrs Murad had significant reservations about investment in the Hotel since she had no experience of owning or managing a hotel and she was concerned at the size of the proposed bank loan for funding the purchase. I am also satisfied, from her evidence, that she was persuaded to invest because she was assured by Mr Al-Arbash that the terms of the investment were highly advantageous, and Mr Al-Saraj would be risking a substantial amount of his own money.[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 the capital profit on any resale.[288]Neither side has advanced any submissions to me as to what percentage would have been agreed between the parties if Mr Al-Saraj had disclosed all the facts to Mrs Murad. For the reasons which appear subsequently in this judgment, it is not necessary for me to reach any conclusion as to what precise share would have been agreed in favour of Mr Al-Saraj or Westwood. Rescission[289]In the light of what I have said earlier in this judgment, I conclude that the Claimants were induced to contribute towards the purchase of the Hotel by virtue of fraudulent misrepresentations made by Mr Al-Saraj, on which they relied.[290]The primary relief sought by the Claimants is a declaration that they have validly rescinded the Westwood Agreement, any transfer to Westwood of the beneficial interest in one third of Danescroft's shares, and any agreements that may have been made prior to the Westwood Agreement as to the division of the beneficial interest in shares in Danescroft or of its assets.[291]That rescission is said to have taken place by the issue and service of the proceedings. Alternatively, the Claimants seek an order of the court for rescission of those agreements and the transfer.[292]The effect of such rescission, Mr Hossain submitted, is that the Claimants are left with the sole beneficial title to the shares in Danescroft and accordingly, are entitled, to the exclusion of Mr Al-Saraj or Westwood, to the net assets of Danescroft, including the proceeds of sale of the Hotel.[293]The Defendants say that rescission is not possible in the present case. Mr Cogley submitted that the rescission sought by the Claimants will not "unravel" the entire venture, but is intended to leave the Claimants enjoying the benefits of the transaction by which the Hotel was acquired and managed by Danescroft, while excluding Mr Al-Saraj. Further, Mr Cogley submitted that rescission is not possible in the present case because "restitutio in integrum" is not possible; the constituent agreements of the transaction have been affirmed; and there has been delay.[294]It is a trite law that, if a contract is to be rescinded, the representee must rescind the whole contract or none of it. He cannot elect to rescind only the part affected by the misrepresentation, whilst retaining the advantages of the remainder of the contract. Similarly, if the representee is unable to make restitution of parts of the benefits obtained under the contract, he cannot rescind as regards the remaining part.[295]Mr Hossain submitted that those principles are satisfied in the present case. He submitted that the Westwood Agreement was a stand-alone agreement as to the distribution of the proceeds of sale of the Hotel, and that it can be rescinded without impinging on any other agreement between the parties. He submitted that only the Westwood Agreement constituted a binding agreement between the parties as to the distribution of the proceeds of sale of the Hotel.[296]Mr Hossain submitted that rescission would not, therefore, disturb Mr Al-Saraj's right to retain his past remuneration and other benefits for managing the Hotel, or preclude him from recovering (in so far as not already paid) his contribution of £225,817.99 from Danescroft which, as between himself and Danescroft, has been treated as a loan.[297]The Claimants recognise, of course, that rescission of the Westwood Agreement would not, of itself, disturb the entitlement of Westwood (and so Mr Al-Saraj) to share in the assets of Danescroft by virtue Westwood's beneficial entitlement to one third of Danescroft's shares. Accordingly, for that reason, the Claimants separately seek rescission of the transfer to Westwood of the beneficial interest in one third of Danescroft's shares, which took place following the Claimants' letter to Valmet of 9 January 1998 requesting Mr Perera of Valmet to take appropriate action so that Danescroft's shares were owned as to one third by each of the Claimants and Westwood. The Claimants contend that, prior to the action taken in response to that request, the Claimants were solely beneficially entitled to the shares in Danescroft. Accordingly, they submit, the effect of rescission of the transfer of the beneficial interest in one third of the shares to Westwood would be to leave the Claimants as the sole beneficial owners of Danescroft.[298]In my judgment, rescission, as claimed by the Claimants, is not an available remedy in the present case. I agree with Mr Cogley that it would not unravel the transaction between the parties, but would, in effect, rewrite the commercial deal between them so as to confer on the Claimants the sole beneficial right to the revenue and capital profits from the transaction, notwithstanding the actual contributions in cash and otherwise of Mr Al-Saraj.[299]The intention from the outset of the discussions between Mr Al-Saraj and Mrs Murad was that the acquisition of the Hotel was to be a joint venture. It was never intended that the Claimants alone would be the sole owners of the Hotel or the corporate vehicle through which it was to be acquired, and solely entitled to the revenue and capital profits arising from the acquisition and management of the Hotel.[300]At the very first meeting between Mrs Murad and Mr Al-Saraj in Paris in September 1997, the proposal was for a one third division of revenue participation between the Claimants and Mr Al-Saraj, and a division of capital profits from a resale of the Hotel in the proportions 50% to the Claimants and 50% to Mr Al-Saraj. Whether or not there was a binding agreement at that stage is irrelevant.[301]Danescroft was incorporated, on the initiative and instructions of Mr Al-Saraj alone, for the benefit of the joint venture and on the basis of the terms proposed at the meeting in Paris and subsequently endorsed by the Claimants, through Mrs Murad, after she had returned to Bahrain.[302]Mr Golinsky's evidence, which I accept, is that the shares in Danescroft were originally treated as beneficially owned by the Claimants purely as a matter of administrative convenience (transcript 2 April 2004 p.145).[303]Further, it is plain that, by the time the Hotel was acquired by Danescroft, the essential ingredients of the joint venture were agreed between the Claimants and Mr Al-Saraj, under which he would be entitled to one third of the shares in Danescroft and 50% of the capital profit arising from any resale of the Hotel. If it is necessary to do so, I hold that there was a legally binding and enforceable agreement to that effect at that time. That agreement was varied by the Westwood Agreement only to the extent that the latter recognised that Mr Al-Saraj's interest would be held through Westwood, and in recording certain specified contributions by the parties. Similarly, the instructions by the Claimants to Valmet in their letter of 9 January 1998 as to the beneficial ownership of the shares in Danescroft merely gave effect to the agreement between the parties which pre-dated the acquisition of the Hotel by Danescroft.[304]The Hotel would not have been acquired by Danescroft without the contributions by Mr Al-Saraj directly in cash and indirectly pursuant to the private transaction between himself and Mr Al-Arbash. Those contributions would not have been made in the absence of an agreement that he, or Westwood, be entitled to share in the revenue and capital profits of the Hotel. Accordingly, if rescission was granted in the manner, and to the effect, sought by the Claimants, it would re-write the commercial transaction, leaving the Claimants with the benefits flowing from the acquisition of the Hotel that resulted from Mr Al-Saraj's contributions, while excluding Mr Al-Saraj completely from essential features of the commercial transaction without which he would never have made those contributions. This conclusion is not disturbed in any way by the fact, as submitted by Mr Hossain, rescission would not retrospectively deprive Mr Al-Saraj of any remuneration or other benefits he has previously received for managing the Hotel, and would not, on the facts, disturb any resolution by or action taken on behalf of Danescroft.[305]Further, to grant rescission as sought by the Claimants, would be likely to leave Mr Al-Saraj substantially disadvantaged in relation to the set-off as between himself and Mr Al-Arbash. The £500,000 set-off has not been treated as a loan by Mr Al-Saraj or Danescroft in the books of Danescroft. I am very doubtful whether it would be possible or proper for the accounts to be altered so that the £500,000 set-off is retrospectively so treated. Danescroft has written to the court stating that it does not wish to be joined as a party to the proceedings and will abide by any findings of fact of the court. It remains the position, however, that the accounts of Danescroft have been drawn to reflect the fact that the contract price for the Hotel was £3.6m, and that was all that HHL received. I have received no accountancy evidence that, in those circumstances, it would be proper to treat the £500,000 set-off arrangement between Mr Al-Arbash and Mr Al-Saraj as a loan to Danescroft. If it cannot be so treated, this highlights the inability of rescission to restore the parties to their previous position by unravelling the transaction in its entirety, since the Claimants would be left with the entire benefit of the joint venture, whereas Mr Al-Saraj would be left out of pocket in respect of a substantial part of the contribution made by him to the joint venture, and without which the Hotel would not have been purchased.[306]In the circumstances, it is not strictly necessary for me to address the submissions of Mr Cogley that rescission is not available as a remedy to the Claimants since they have affirmed the transaction and, in any event, have delayed too long in seeking relief. For the sake of completeness, however, I find that the Claimants are not precluded from obtaining rescission by virtue of either affirmation or delay.[307]The principal matters on which the Defendants rely in support of their contention that the Claimants have affirmed the transaction is that they have used their powers as shareholders to remove Mr Al-Saraj from AML, and to cause various enquiries to be made, and generally used their powers as shareholders to intervene in the affairs of Danescroft, including causing Danescroft to sell the Hotel. It is said that they have also affirmed the transaction by offering to purchase the shareholding of Mr Al-Saraj or Westwood in a letter from Baker & McKenzie to Clifford Chance dated 11 November 2002.[308]The evidence does not support the submission that the Claimants have used their interest in Danescroft's shares in order to secure the removal of Mr Al-Saraj as a director or employee of AML or otherwise to intervene in the affairs of Danescroft or AML. The evidence is that Mr Hodson was appointed an independent director of AML with the agreement of both Mr Al-Saraj and Mrs Murad, and that Mr Al-Saraj was dismissed for gross misconduct as an employee of AML, by decision of the directors of AML following the interim report of Gibson Booth, chartered accountants. There is no evidence before the court as how Mr Al-Saraj was removed as a director of AML.[309]The offer to purchase the shares of Mr Al-Saraj or Westwood in Danescroft was not an affirmation. The offer was made as part of an attempt in good faith to compromise all or some of the matters in dispute. The letter of 11 November 2002, in which the offer was made, followed an earlier letter from Baker & McKenzie to Mr Al-Saraj of 19 August 2002, in which it was expressly alleged that Mr Al-Saraj's one third shareholding had been obtained by fraudulent misrepresentation, and should be re-transferred to the Claimants. Further, it is clear from the wording of the letter of 11 November 2002 that, if the offer to purchase Mr Al-Saraj's shares in Danescroft was not accepted, the Claimants would pursue their claims. Accordingly, the offer to purchase the shares was not an unequivocal act of affirmation.[310]Further, so far as concerns delay, I find that there was no significant delay in the commencement of proceedings by the Claimants. The Claimants' legal case was set out in the letter from Baker & McKenzie to Mr Al-Saraj of 19 August 2002. There then ensued a period of several months during which the Defendants put forward various explanations as to the apparent disparity between the purchase price on the documentation and the figure of £4.1m, and as to the manner in which Mr Al-Saraj made his £500,000 contribution. Following exchange of correspondence between the parties in relation to those matters and correspondence and meetings in which the parties attempted to settle the dispute, the proceedings were then instituted. I can see no basis for the submission, in those circumstances, that there was any undue delay in the commencement of proceedings. Damages for misrepresentation[311]Mr Hossain's primary contention, in relation to loss and damages, is that the Claimants are entitled to damages equivalent to the additional value they would have received if rescission had been granted. In other words, damages should be equal to that proportion of the net proceeds of the sale of the Hotel to which Westwood is entitled under the Westwood Agreement, but which would go to the Claimants if rescission was granted.[312]That appears to me to be an entirely misconceived approach to the quantification of loss for misrepresentation.[313]The correct measure of damages for fraudulent misrepresentation is an amount of damages which would put the Claimants in the position in which they would have been if the misrepresentations had not been made.[314]Mr Hossain did not advance any argument that, on the evidence, it was possible to say that, if the Claimants had not invested in the purchase of the Hotel, they would have made one or more investments elsewhere which would have exceeded the profit which they are entitled to enjoy under the agreements they reached with Mr Al-Saraj and Westwood in relation to the Hotel and Danescroft. Mrs Murad gave evidence concerning investment in Kuwait, but that evidence was far too general and vague to amount to cogent evidence of actual loss.[315]On the other hand, for the reasons I have explained earlier in this judgment, I find that, on a balance of probabilities, if the misrepresentations had not been made and Mr Al-Saraj had fully disclosed the true position to the Claimants, the transaction would have proceeded, but with Mr Al-Saraj receiving less than 50% of the capital profit on any resale of the Hotel by Danescroft, and the Claimants receiving a commensurately larger share than the 50% specified in the Westwood Agreement. This is the proper measure of loss suffered by the Claimants.[316]Mr Cogley submitted that any loss suffered as a result of misrepresentations by the Defendants resulted in loss to Danescroft rather than to the Claimants personally. He submitted, on the principles in Johnson v Gore Wood [2002] AC 1 , that Danescroft would be entitled to recover any loss, and its recovery would be reflected in the value of its shares. Accordingly, he submitted, the Claimants have suffered no actionable loss.[317]It is clear, however, from my analysis of the revised arrangements that would have been agreed between the Claimants and the Defendants as to the distribution of the capital proceeds of sale of the Hotel, that the loss which has been suffered is the loss of the Claimants personally. Further, the misrepresentations relied upon were made to the Claimants personally. There is no evidence at all that the misrepresentations were made to Danescroft.[318]Accordingly, the Claimants have established, on a balance of probabilities, that the misrepresentations, on which they relied, and which induced them to enter into the arrangements with the Defendants concerning the Hotel, including the Westwood Agreement, have caused loss and given rise to a cause of action for deceit. Breach of contract[319]In the alternative to rescission or damages for misrepresentation, the Claimants contend that any agreement between the Claimants and the Defendants for Mr Al-Saraj or Westwood to participate in any profit on a sale of the Hotel by Danescroft was conditional on Mr Al-Saraj contributing £500,000 (in cash) towards the price of the Hotel.[320]Mr Hossain clarified, in his closing submissions, that, in relation to this aspect of the Claimants' case, what is being alleged is a breach of a promise that Mr Al-Saraj would make that contribution, and, by virtue of that breach, the Claimants were entitled to treat the agreement or agreements between themselves and the Defendants as repudiated. He submitted that such repudiation was accepted by issue and service of the proceedings.[321]The difficulty with that analysis, as Mr Hossain frankly accepted in his closing submissions, is that, even if correct, the agreement or agreements between the Claimants and the Defendants would only be discharged as to the future. Whilst this would discharge the Westwood Agreement, it would not affect the existing status of Westwood as beneficial owner of one third of Danescroft's shares. Accordingly, it would not preclude Westwood from entitlement to share in one third of any distribution of Danescroft's assets to its shareholders.[322]Further, there is no evidence of any damages suffered by the Claimants, calculated on the contractual basis, that is to say loss of the profit that would have been made if the promise had been met.[323]For those reasons, Mr Hossain relegated this part of the Claimants' case to the bottom of their various alternative heads of relief. Account of profit[324]If the Claimants are not entitled to rescission, their first alternative claim is for an account of the Defendants' profit. The claim to that relief is advanced on two grounds. Firstly, the Claimants claim that remedy by virtue of Mr Al-Saraj's breach of fiduciary duty. Secondly, the Claimants claim that remedy as a consequence of Mr Al-Saraj's fraudulent misrepresentation, and as an alternative remedy to damages for deceit. Breach of fiduciary duty[325]The Claimants contend that Mr Al-Saraj owed fiduciary duties to the Claimants in connection with the pursuit of the joint venture to acquire the Hotel and that, in breach of those fiduciary duties, Mr Al-Saraj did not disclose to the Claimants either the true position as to the split between the payment of the purchase price of £3.6m to HHL and the separate accounting transaction between Mr Al-Saraj and Mr Al-Arbash, or the nature and basis of that private accounting. The Claimants contend that the Defendants have been able to procure a profit from the joint venture by virtue of Mr Al-Saraj's breaches of fiduciary duty, and accordingly must account to the Claimants for that profit.[326]Mr Hossain submitted that joint venturers have fiduciary duties. In this connection, he cited Goff & Jones on The Law of Restitution (6 th ed.) paragraph 33-001 f/note 10; Hampton & Sons v Garrard Smith (Estate Agents) Limited [1985] 1 EGLR 23, at p.24; John v James [1991] FSR 397, at p.433; and Elliott v Wheeldon [1993] BCLC 53, at p.57 d-f.[327]He further submitted that the authorities show that fiduciary duties can arise in relation to joint venturers before any formal agreement has been concluded between them. In this connection, he cited Fawcett v Whitehouse (1829) 1 Russ & M 132, at p.148; Directors of the Central Railway Company of Venezuela v Kisch (1867) LR 2 HL 99 , at p.113; and United Dominions Corporation Limited v Brian Pty Limited (1985) 157 CLR 1 (High Court of Australia). In the latter case Mason, Brennan and Deane JJ said, at p.12:
"A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation."
[328]Mr Hossain submitted that Mr Al-Saraj clearly owed the Claimants fiduciary duties for the following reasons. Mr Al-Saraj and the Claimants were in the position of joint venturers in relation to the acquisition of the Hotel, the incorporation of Danescroft and the issue of its shares for the purpose of that joint venture. The relationship between the Claimants and Mr Al-Saraj was one of trust and confidence because: Mr Al-Saraj had run the Hotel since 1995; he was the contact and the negotiator with HHL and Mr Al-Arbash, and in that respect acted as the Claimants' agent; he was responsible for instructing professionals in connection with the acquisition, and in that respect also he acted as the Claimants' agent, for example, in instructing Mr Golinsky to prepare the Westwood Agreement, the letter to Valmet of 9 January 1998 regarding the transfer of the beneficial interest in one third of Danescroft's shares to Westwood, and in preparing certain powers of attorney dated 9 January 1998. The Claimants, on the other hand, had no experience of acquiring or running a hotel; they had no knowledge of the nature of the arrangements between Mr Al-Saraj and Mr Al-Arbash; and they entrusted Mr Al-Saraj with extensive discretion to act in relation to matters affecting the Claimants' interests.[329]Mr Cogley submitted that, on the particular facts of the present case, Mr Al-Saraj did not owe the Claimants any fiduciary duties, or at any event any relevant fiduciary duties, in connection with the venture to acquire the Hotel. In particular, he emphasised that the parties agreed to execute the joint venture through a corporate vehicle, Danescroft. He submitted that any fiduciary duties that may have been owed by any of the parties would have been owed to Danescroft (or AML) rather than to each other. In support of that submission, he cited the decision and analysis of Rimer J in Shalson v Russo [2003] EWHC 1637 .[330]Further, Mr Cogley relied upon the following statement by Mason J the High Court of Australia in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 , at p.97, which was cited by the House of Lords in Kelly v Cooper [1993] AC 205, at p.215:
"That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liberties of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."
[331]Mr Cogley submitted that the various cases cited by Mr Hossain all turned on their own particular facts, and all are distinguishable from the present case.[332]In my judgment, Mr Al-Saraj did owe fiduciary duties to the Claimants in relation to the joint venture to acquire the Hotel. That fiduciary relationship arose by virtue of the matters upon which Mr Hossain relied, and which I have set out above. In addition to the matters mentioned by Mr Hossain, I would add that the evidence shows that, prior to the proposal by Mr Al-Saraj for the acquisition of the Hotel, the relationship between Mr Al-Saraj and Mrs Murad was one in which Mrs Murad, who lived abroad, looked to Mr Al-Saraj, who was an Iraqi businessman living and working in England, to make appropriate recommendations to her and to assist her in connection with possible investments in England. The reality was, as Mr Al-Saraj was well aware, that the Claimants were wholly dependent upon Mr Al-Saraj for his advice and recommendation in relation to the Hotel, and for the negotiations with Mr Al-Arbash and HHL, the instruction of professionals on their behalf, including in relation to the structure of the transaction and the documentation. The relationship between them was a classic one in which the Claimants reposed trust and confidence in Mr Al-Saraj by virtue of their relative and respective positions.[333]I do not accept that the analysis of Rimer J in Shalson v Russo assists in the present case. It is not necessary to set out here the facts or the detailed reasoning of the Judge in that case. On the particular facts of that case, Rimer J concluded that, because the relevant parties chose to conduct their venture though a company, it was only to the company that each would have owed fiduciary duties. An important characteristic of the joint venture between the Claimants and the Defendants in the present case, however, is that the arrangements for distribution of the capital profit from the venture was to be determined, not by the corporate structure which involved shareholdings of one third each, but through the Westwood Agreement, to which neither Danescroft nor AML was a party, and which provided for a division of the capital profit in different proportions to the shareholdings in the company.[334]Mr Al-Saraj's failure to disclose that the contractual purchase price, and the amount to be paid to HHL, was only £3.6m, and that the difference between that figure and £4.1m was to be treated as paid by a personal accounting between Mr Al-Saraj and Mr Al-Arbash, and that Mr Al-Saraj's contribution was not to be, or had not in fact been, in cash or wholly in cash was a plain breach of his fiduciary obligations to the Claimants. It was a deliberate breach, which was probably made for the reasons I have set out earlier in this judgment.[335]I can see nothing in the passage in the judgment of Mason J in Hospital Products , on which Mr Cogley relies, which precludes my conclusion on this aspect of the case.[336]Mr Cogley submitted that there is no pleaded allegation that, in breach of fiduciary duty, Mr Al-Saraj failed to disclose that Mr Al-Saraj's contribution was by way of set-off and not wholly in cash. For the reasons I have given earlier in this judgment, particularly in the light of the background correspondence between the parties and their legal advisers prior to the commencement of the proceedings, I consider that it is plain that such an allegation is made in paragraph 9.3.3 of the Particulars of Claim.[337]In those circumstances, the Claimants contend that the Defendants should account for their entire capital profit from the joint venture and, in particular, the profit to which Westwood is entitled under the Westwood Agreement. The Claimants contend that this would be an application of equity's "inflexible rule … designed to strip a fiduciary of his unjust enrichment and to ensure that a fiduciary has not abused his position of trust": Goff & Jones at p.710; Guinness plc v Saunders [1990] 2 AC 663 .[338]Mr Cogley submitted that an account of profits is not an appropriate remedy for any breach of fiduciary duty by Mr Al-Saraj in the present case since there has been no unjust enrichment of the Defendants at the expense of the Claimants.[339]I reject that submission for the reason I gave earlier in this judgment, namely that the deliberate deceit by Mr Al-Saraj enabled the Defendants to procure the agreement of the Claimants that the Defendants should enjoy a contractual right to 50% of the capital profit from the resale of the Hotel, whereas, if there had been full disclosure by Mr Al-Saraj, the Defendants would only have enjoyed a lesser share.[340]Furthermore, the result would be a just one in that, rather than casting upon the Claimants the obligation to establish precisely what proportion, less than 50% of the capital profit, would have been agreed to be paid to the Defendants, with all the expense and difficulty and doubt attaching to that exercise, the Defendants are merely obliged to give up such profit as they have made. That is a particularly appropriate remedy in the case of deliberate and dishonest conduct designed to achieve a commercial advantage for the fiduciary over those to whom he owes his fiduciary duty.[341]In this connection, I record, for the sake of completion, that Mr Cogley accepted that, if I found there was a deliberate and dishonest breach of duty by Mr Al-Saraj, there could be no claim by him for any reward or allowance for introducing to the Claimants the investment of acquiring the Hotel. Waiver of tort[342]The remedy of an account of profit gained by the a defendant as a result of his actionable deceit is now well established: Goff & Jones on The Law of Restitution (6 th ed.) para 36 – 005.[343]In United Australia Limited v Barclays Bank Limited [1941] AC 1, at pp. 18-19, Viscount Simon LC said:
"The true proposition is well formulated in the Restatement of the Law of Restitution promulgated by the American Law Institute, p.525, as follows: "
A person upon whom a tort has been committed and who brings an action for the benefits received by the tortfeasor is sometimes said to 'waive the tort'. The election to bring an action of assumpsit is not, however, a waiver of tort but is the choice of one of two alternative remedies." Contrast with this, instances of true waiver of rights, e.g., waiver of forfeiture by receiving rent. … There is nothing conclusive about the form in which the writ is issued, or about the claims made in the statement of claim. A plaintiff may at any time before judgment be permitted to amend. The substance of the matter is that on certain facts he is claiming redress either in the form of compensation, i.e., damages as for a tort, or in the form of restitution of money to which he is entitled, but which the defendant has wrongfully received. The same set of facts entitles the plaintiff to claim either form of redress. At some stage of the proceedings the plaintiff must elect which remedy he will have. There is, however, no reason of principle or convenience why that stage should be deemed to be reached until the plaintiff applies for judgment."[344]Mr Cogley submitted that the restitutionary remedy of an account of profit by reason of Mr Al-Saraj's deceit could not be granted in the present case because the Defendants have not been unjustly enriched at the expense of the Claimants.[345]He cited, in support of that submission, Halifax Building Society v Thomas [1995] 4All E R 673, a decision of the Court of Appeal concerning a mortgage advance from the plaintiff building society to finance the purchase of a flat by the first defendant, having been induced to make that advance by reason of the fraudulent misrepresentations of the first defendant as to his identity and credit worthiness. The society, having obtained an order for possession, exercised its power of sale and discharged its mortgage from the proceeds, leaving a surplus which it placed in a suspense account. The society then commenced proceedings against the first defendant, seeking a declaration that it was entitled to retain the surplus for its own use and benefit. The Court of Appeal held that the law did not afford a restitutionary remedy to a secured creditor such as the building society, which had affirmed the mortgage and had successfully exercised its power of sale as a mortgagee, and had fully recovered all that to which it was contractually entitled.[346]In my judgment the Halifax Building Society case is of no relevance to the Claimants' restitutionary remedies in the case before me. In the Halifax case, it was of the essence of the decision of the Court of Appeal that the building society had fully recovered all that was due to it and had suffered, therefore, no loss. In the present case, for the reasons I have given, the Claimants have suffered loss as a result of Mr Al-Saraj's deceit. Further, for the reasons I have given, by way of contrast with the Halifax case, the Claimants have not affirmed the relevant transactions with the Defendants.[347]In my judgment, the Claimants are entitled, by reason of Mr Al-Saraj's actionable deceit, to an account of the profit to which Westwood is entitled under the Westwood Agreement. In this connection, I should observe that no submission was made to me by either side that, if I came to the conclusion that the Claimants are entitled to an account of profit by reason of Mr Al-Saraj's deceit, the account of profit should be for anything less than the entire profit to which the Defendants are entitled out of the proceeds of sale of the Hotel by Danescroft. "Profit"[348]In relation to an account of profit, an issue may arise between the parties as to whether all or any part of the £500,000 set-off is to be treated, in the light of my findings of fact, as part of the cost and expenditure of the Defendants for the purpose of calculating the Defendants' profit from the transaction. In the absence of agreement between the parties on this issue, I will hear further submissions. Decision[349]For the reasons set out in this judgment, I give judgment on the claim for an account of the Defendants' profit. I dismiss the counterclaim.

Cited in 28 later judgments

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