Secretary of State for Justice v Topland Group Plc & Ors [2011] EWHC 983 (QB)

[2011] EWHC 983 (QB)Case No HQ10X01672
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 18/04/2011
Before
MR JUSTICE KING
Between
THE SECRETARY OF STATE FOR JUSTICEClaimantTOPLAND GROUP PLCDefendantsTOPLAND COL LIMITEDDefendantCLIVE EDWARD BUSHDefendantEDDIE ZAKAYDefendantCase No: HQ08X03617IN THE HIGH COURT OF JUSTICEQUEEN'S BENCH DIVISIONRoyal Courts of JusticeStrand, London, WC2A 2LLDate: 18/04/2011
Before
MR JUSTICE KING
Between
THE SECRETARY OF STATE FOR JUSTICEClaimant(1) LSM PROFESSIONAL LIMITED trading as LSM PARTNERSDefendants(2) ANDREW GRAEME SMITHDefendantMr Browne-Wilkinson QC and Mr Gott (instructed by The Treasury Solicitor) for Claimant (for both actions)Mr Beazley QC and Mr Weisselberg (instructed by Mishcon de Reya) for Defendants (HQ10X01672)Mr McGrath (instructed by Peters & Peters) for 2 nd Defendant (HQ08X03617)Hearing Hearing dates: 28 th February 2011 – 1 st March 2011
Judgment
[1]I shall refer to the action between the Secretary of State for Justice (Claimant) and LSM Professional Ltd (trading as LSM Partners) (‘LSM’) (the First Defendant) and Andrew Graeme Smith (“Mr Smith”) (the Second Defendant) as theSmith action; and that between the same Claimant and the two Topland companies and their two directors ((1) Topland Group PLC (2) Topland Col Ltd (3) Clive Edward Bush (4) Eddie Zakay) as the Topland action.[2]As regards the Smith action, the only appearance before me has been on behalf of Mr Smith. The First Defendant went into creditors’ voluntary liquidation on 29th of October 2010. To date the administrators have indicated that they do not intend to take any active part in the proceedings.[3]At the Case Management Conference held on the 28th of February 2011 in respect of both actions, I gave rulings on a number of applications in respect of directions to be incorporated into a final form of order. These concerned disclosure and inspection and whether there should be consolidation or the concurrent hearing of the respective trials of the two actions. The order has yet to be drawn up pending my giving judgment on two matters. The first is the Claimant’s application in each action to strike-out parts of the respective Defences. The second relates to the scope of the expert evidence to be adduced at trial. The outcome of the second depends in part on the outcome of the first.

The nature of the proceedings

[4]Both proceedings arise out of the same basic allegation that without the knowledge and consent of the Claimant, a bribe was paid or agreed to be paid, by way of a secret commission, by the now freehold owners, but at the time only prospective purchasers, of the property known as First Avenue House High Holborn (‘FAH’), to property agents acting on the Claimant’s behalf and advising the Claimant in respect of two transactions relating to the Claimant’s lease of that property.[5]Those two transactions were: i) a rent review (the “Rent Review”) agreedwith effect from September 2002 with the then freeholder and lessor, Standard Life Investment Limited (Standard Life); ii) the negotiation of and the surrender of the current lease and the negotiation of and entry into a new lease (“the Surrender and New Lease”) with the Topland Second Defendant on the 1st of October 2003, the Second Defendant having by then purchased the freehold title from Standard Life.[6]The Smith action concerns the proceedings brought against those whom the Claimant alleges were the property agents concerned and the alleged recipient of the bribe, that is to say LSM, and Mr Smith, the director of LSM and a Fellow of the Royal Institute Chartered Surveyors (RICS) who allegedly provided the services to the Claimant in relation to the Rent Review and the Surrender of the original lease and the grant of the New Lease. These proceedings were issued in 2008.[7]The nature of the relationship between LSM and Mr Smith on the one hand and the Claimant on the other, and whether any fiduciary duties were owed by LSM and/or Mr Smith arising out of that relationship is matter of dispute on the face of the pleadings. It appears (from the witness statements of Alan Eccles, London Regional Director of her Majesty’s Court Service lodged in support of both strike-out applications) that prior to October 2002 (namely in September 2001) the Claimant had entered into a managing agency agreement (the Agreement) with a property management company later renamed as HBS Facilities Management Limited (‘HBS’) for the provision of the services which were ultimately to be carried out by LSM acting through Mr Smith (and one Jonathon Salmon a Member of the RICS), and that HBS subsequently in October 2001 with the Claimant’s consent, appointed LSM and Mr Smith to carry out HBS’s obligations to the Claimant under the Agreement. Whether the effect of this appointment was to make LSM and/or Mr Smith the Claimant’s agent or co-agent or sub-agent and/or whether this relationship arose by reason of other circumstances, and the nature of any duties which arose as a result, will be one of the issues to be resolved at trial.[8]The Topland action commenced in 2010, concerns the proceedings brought against the alleged briber. The Second Defendant is described as being a special purpose vehicle used to acquire the freehold of FAH and is said to be part of the Topland Group of Companies, as is the First Defendant, a property investment company. For present purposes it is unnecessary to distinguish between the four Defendants in the Topland action to whom I shall refer collectively as ‘Topland’.[9]The bribe in question is alleged to have taken the form of a fee or commission equal to 1% of the purchase price paid for the acquisition of FAH. It is alleged to have been agreed to be paid by Topland to the property agents in an agreement (‘the Bribe Agreement’) entered into in October 2002 on terms that it would be paid in the event Topland purchased the freehold “with a regeared/restructured lease”.[10]The Defendants in the Topland action do not deny that such an agreement was made, at least initially, but deny it was a bribe and say it was an introduction fee payable to LSM for introducing Topland to the property. The Defendants in the Smith action similarly refer to the 1% fee as being an introduction fee but they deny that any binding agreement for such fee was ever entered into.[11]Both sets of Defendants deny that any such fee was in fact paid. The Claimant’s case is that it was paid albeit disguised through the use of invoices rendered by LSM purportedly for other services (alleged consultancy advice in relation to ‘Pavillions Bristol’ and a Portfolio Review) when in fact the sums paid on those invoices represented the bribe agreed to be paid. The Defendants in the Smith action deny these allegations and say these were fees paid for unrelated work (Smith Defence paragraph 42). The Defendants in the Topland action make similar denial save they do aver (Defence paragraph 121.3(d) and (e)) that Topland agreed to pay a fee of the size it did for this work “in part by way of recognition that it had resiled from its previous agreement to pay the 1% fee”.[12]The Claimant’s further case is that this is a case of “double brokerage”: a case of the Claimant’s agents (LSM/Smith) being paid for services in the same transaction by both their principal (the Claimant) and the other party to transaction (Topland). In this regard the Claimant relies, inter alia, upon(i) payments made by him to HBS on invoices rendered by HBS in respect of an accommodations study by LSM relating to FAH (paid in November and December 2002) and services rendered by LSM in respect of the Rent Review (paid to HBS in or around January 2003) and upon(ii) the payment of £350,000 plus VAT made directly to LSM in November 2003 on an invoice from LSM rendered in October 2003 for producing a Retention Study and all work done in connection with the negotiation and completion of the New Lease.[13]Topland by their Defence (paragraph 20.3(2)) admit that as from a meeting between them and LSM on the 24th or 25th of October 2002, Topland knew that LSM had been retained as the Claimant’s agent “to negotiate the rent review of FAH and to secure its long term future in (FAH)”, although they aver that this knowledge was acquired after the initial contact from LSM offering “to introduce Topland to an opportunity to undertake a back to back purchase and restructuring of a lease with a good tenant in return for a 1% fee in the event that (Topland) purchased the property” (see Defence 20.3(1) and 58.2) and further that they believed that the LSM had been authorised by the Claimant to approach Topland to make this proposal (20.3(3)).[14]However, Topland do not concede that this case can properly be characterised as one of ‘double brokerage’, given the 1% fee, on the Defendants’ case, was an introduction fee for introducing Topland to the property for purchase from Standard Life, rather than being in relation to the same transaction or transactions in which the agents were rendering services to the Claimant. Whether there is any substance in this submission given the close linkage between the purchase and the subsequent entry into the new lease, will again no doubt be a matter to be resolved at trial.[15]The Claimant’s case is that following the making in October 2002 of what the Claimant describes as the Bribe Agreement, and pursuant to a conspiracy between the Smith Defendants and the Topland Defendants to injure and defraud the Claimant, the Smith Defendants: i) in relation to the Rent Review with Standard Life, failed to give the Claimant proper advice and procured the Claimant to agree a rent which was above the true market value, resulting in a loss arising from an overpayment in rent between 29 September 2002 and 1 October 2003 when the existing lease was surrendered; ii) in relation to the Surrender and New Lease, between May and September 2003, at the same time as Topland were persuading Standard Life to sell FAH to Topland for £58 million procured the Claimant to surrender the existing lease (which was not due to expire until March 2012) and to enter into a new lease of much longer duration (35 years) at a rent above the true market rent, resulting in a substantial loss to Claimant.[16]The overall losses sustained by the Claimant are alleged to be in excess of £20 million. The pleaded causes of action The Smith Action

The pleaded causes of action

[17]The causes of action pleaded in the Smith action (as described on the Claim Form) are in Breach of Fiduciary Duty, Deceit, Negligence, Breach of Contract and Conspiracy to Injure/Defraud.[18]As against the Smith Defendants, the Claimant seeks (paragraph 35 of the Particulars of Claim) damages or alternatively equitable compensation representing the Claimant’s losses from the Rent Review and what is described as the “lease regear”. He further or alternatively seeks an account of the profits made by the Smith Defendants arising from the Rent Review and the agreement to pay the secret commission, and all payments made and received in consideration for the entitlement to 1% of the £58m purchase price paid by Topland for FAH.

The Topland Action

[19]The causes of action pleaded in the Topland action against Topland are in: i) Deceit, Fraud by Bribery, Dishonest Assistance and Breach of Confidence by the Topland Defendants (paragraph 1(1) of the Brief Details of the Claim) and ii) Unlawful Conspiracy by the Topland Defendants and the Smith Defendants, i.e. LSM and Mr Smith, “to injure the Claimant and/or to cause loss to the Claimant by deceit and/or bribery and/or dishonest assistance and/or breach of confidence and/or in breach of the fiduciary duties and/or the contractual and/or the common law duties of the (Smith Defendants)”. (Brief Details at paragraph 1(2)).

Dishonest Assistance

[20]The Brief Details of Claim in the Topland action also plead (at paragraph 1(3)) that the Claimant (in respect of the Rent Review and the Surrender of lease and grant of the New Lease) has been the victim also of “deceit and/or breach of fiduciary duties and/or breach of confidence and/or breach of contractual duties” by the Smith Defendants. I mention this because the claim in ‘Dishonest Assistance’ made against the Topland Defendants is more fully explained in the Particulars of Claim at paragraph 175 as being a claim that the Topland Defendants “dishonestly assisted in the breaches of LSM’s fiduciary duties”. Those breaches of fiduciary duty are themselves more fully pleaded at paragraphs 131-167 of the Particulars of Claim but they in particular include the plea (paragraphs 131-132) that in connection to both the Rent Review and the New Lease, the Smith Defendants by reason of the alleged Bribe Agreement, put themselves in the position whereby their personal interests conflicted or might conflict with those of the Claimant, and further concealed from or failed to disclose to the Claimant the Bribe Agreement. Hence it is pleaded that the Smith Defendants in breach of their fiduciary duties:
“without the knowledge or consent of the Claimant …agreed to (1) act for the benefit of a third party without the informed consent of their principal; (2) receive a bribe or secret commission of one per cent of the purchase price of (FAH).”
[21]The particulars of ‘Dishonest Assistance’ continue (paragraph 175) by referring back to paragraphs 173 to 174 which are headed “Fraud by Bribery” and repeat (173(1)) that on or around 25 October 2002 the Topland Defendants and the Smith Defendants, entered into the Bribe Agreement; that (173(2)) the Claimant was at all material times unaware of the Bribe Agreement; that (173(3)) LSM made the Bribe Agreement and/or received the sum said to have represented the agreed Bribe, in breach of its fiduciary duties and in fraud of the Claimant.[22]The Claimant then at paragraph 174 pleads knowledge on the part of the Topland Defendants in these terms: “(the Topland Defendants) knew at all material times that neither LSM, nor Andrew Smith had disclosed to the Claimant (the Bribe Agreement) and or the receipt of the sum referred to”.[23]I record at once that in their Defence (at paragraph 129), in relation to this allegation of knowledge, Topland plead as follows:
“paragraph 174 is denied. The Claimant has failed to state the basis for making such an allegation. The Defendants had no idea as to the precise information that LSM provided to the Claimant, but believed that LSM and/or Mr Smith were acting bona fide, with the knowledge of and approval of and in the best interests of the Claimant in dealing with (FAH) and had no reason not to.”
[24]It is then pleaded in the Topland Claim, at paragraph 176, still under “Dishonest Assistance”, that all profits or other benefits obtained by the Smith Defendants and/or the Topland Defendants were “produced by bribery”, and “accordingly” the Topland Defendants are “liable to account to the Claimant for any profits and/or benefits obtained thereunder.” The Remedies sought in the Topland action Money remedies

The Remedies sought in the Topland action

[25]In the Topland action, the Claimant seeks (see again the Brief Details of Claim at paragraphs 2 and 3) to recover its losses occasioned by the Rent Review and the Surrender and the New Lease, by way of damages. In addition he seeks against the Topland Defendants recovery of the amount of the Bribe as money had and received; and an order that they account to the Claimant for any payments, profits or benefits arising from the conspiracy, the deceit, the fraud by bribery, the dishonest assistance and/or breach of confidence.

Rescission

[26]Further as against the Topland Second Defendant the Claimant seeks an order for Rescission of the New Lease (‘An order that at the Claimant’s sole election, the New lease is rescinded; or (b) a Declaration that the New Lease will come to an end three years from the date of Judgment’) (Brief Details of Claim at paragraph 3(2)(a)).

The Strike-Out Applications

[27]In each action the Claimant has made an application seeking an order that certain parts of the Defendants’ respective Defences be struck out pursuant to CPR rule 3.4(2)(a) and/or (b) on the grounds that they disclose no reasonable grounds for defending the claim (3.4(2)(a)) and/or are an abuse of the process of the court (3.4(2)(b)).[28]The approach to be adopted by the court to any such application is not controversial.[29]As regards an application under the first limb of the rule ((a)), I accept that such application should succeed only in a plain case where the Court is certain that the pleaded facts or matters at which the application is directed even if they be established at trial, do not disclose any legally recognisable defence. I further accept that if the relevant area of law is subject to any uncertainty and can be said to be in a state of development, it is in principle desirable that the actual facts be found at trial so that any further development can be based on actual and not hypothetical facts. Furthermore, no statement of case should be struck out if it raises a serious live issue of fact that can only properly be determined by hearing oral evidence. If any authority be required for these propositions they are to be found in Hughes v Richards [2004] EWCA Civ 266 at paragraph 22; Barrett v Enfield LBC [2001] 2 AC 550 at 557; Phelps v Hillingdon BC [2001] 2 AC 619, 644D: Berezovsky v Abramovich [2010] EWHC 647 ( Comm).[30]As regards an application under the second limb (ground (b)) I accept that this would cover in the context of this application, a pleaded defence which is incoherent, vexatious, scurrilous or otherwise obviously unfounded. I did not however find the reliance upon ground (b) added anything to the strength of these applications which are in reality founded on a plea that the pleaded statements of case of which complaint is made, cannot amount to a defence in law. This however demands a careful consideration by the court of the Claimant’s pleaded causes of action and to which cause of action the material pleaded statement of case is allegedly relevant and in what respect. I turn now to consider the individual applications.

The application in the Smith action

[31]The application in terms seeks to strike-out those parts of the Defence and of the Second Defendant’s Response to the Claimant’s Request For Further Information (‘the Response’) “alleging that it was standard industry practice for a prospective purchaser to pay an introduction fee to an agent of the lessee.”[32]In particular the court is asked to strike-out the first sentence of paragraph 1(2) of the Defence which states:
“1% is the industry standard commission asked for an introducing fee which reflects industry practice” and the first sentence of the Response which states: “The Second Defendant believes that as Topland was introduced to First Avenue House by the First Defendant that, in accordance with industry standard, Topland would have expected to have been asked to pay a 1% industry standard commission for that introduction.”
[33]Ultimately although initially pursued before me, this application by the end of the hearing was no longer maintained by Mr Browne-Wilkinson QC on behalf of the Claimant. To understand why it is necessary to analyse precisely how this pleaded industry practice is used in the defence, that is to say to analyse the nature of the defence in support of which this pleaded practice is pleaded.[34]The defence pleaded in the Smith action as amplified in the Response, is that no commission/fee payable to LSM was ever agreed in the sense of any binding agreement being entered into, or was ever paid, but that in any event nothing was kept secret from the Claimant, (see Defence paragraphs 11(2); 27(2); 33(2)) and that the Defendants (if, which is denied, any fiduciary duties, were owed by them to the Claimants) never stood in a position of a conflict of interest as between the Claimant and Topland (see Defence at paragraph 27(e)).[35]At most what is pleaded in relation to any introduction fee and market practice, is that the offer by the First Defendant, through Mr Shaw, in October 2002 made to Mr Bush of Topland, to introduce Topland to FAH, was in accordance with the Claimant’s instructions of Spring 2002 approving the introduction of parties in this way, that the “1% is the industry standard commission asked for an introducing fee which reflects industry practice”, that a fee payable by Topland for the introduction to the purchase of First Avenue House was “discussed ” with Topland (Defence paragraph 11(3)) and that such “a 1% industry standard commission” was one which the Second Defendant believed Topland would have “expected to have been asked to pay for such introduction” “ in accordance with industry standard” (Response paragraph 7), and that this “discussed” and “expected” fee was later used as a lever in negotiations with Topland on behalf of the Claimant over the terms for the new lease in order to benefit the Claimant (see Defence at paragraph 11(2)(3) and again the Response at paragraph 7).[36]In particular it is pleaded (at Response paragraph 7) that the “value” of the introduction was part of the discount which the First Defendant obtained for the Claimant in negotiations of the terms of the lease ultimately agreed between the Claimant and Topland. It is averred that the First Defendant (LSM) negotiated a reduction in the first two years rent by £185,000 per annum together with a lump sum payment of £100,000 by Topland to the Claimant on completion, “as a contribution towards the Claimant’s costs” and that these terms were agreed between Jeremy King of the Claimant and the Second Defendant.[37]It is pleaded (at paragraph 11(3) of the Defence) that in “discussing” such a fee with Topland the Defendants were “acting in accordance with the Claimant’s instructions”. This is a reference back to what is pleaded earlier in this same sub paragraph that the Defendants had been told by the Claimant about the Claimant’s policy called ‘OSPC’ (“Other Side Pays Costs”) to the effect that wherever possible the other side to the transaction should be asked to pay the costs, and that they had been actively encouraged by the Claimant to employ this method to reduce costs.[38]In paragraph 7 of the Response it is further pleaded that in using the “value” of the introduction as leverage in order to obtain a discount for the Claimant on the terms of the new lease, the Defendants were acting in “response” to the Claimant’s policy of “OSPC”.[39]This part of the pleading does not make expressly clear whether what is being alleged is that the Claimant knew that this fee had been discussed with Topland andknew that this fee which Topland would otherwise have expected to be asked to pay, was being used as a lever on the Claimant’s behalf as a means of negotiating a discount on the terms of the new lease, or whether in so discussing the fee and in so using the fee as a negotiating lever, the Defendants were simply acting in what they thought were the best interests of the Claimants having regard to the OSPC policy which the Claimant had actively encouraged them to employ.[40]However at paragraph 8 of the Response it expressly pleaded that through conversations and communications between two named individuals of the First Defendant (Jonathon Salmon and Mark Carron) and the Second Defendant on the one hand, and 3 named individuals of the Claimant (Jeremy King, Alan Sloan and Doug Noon) on the other, “the Claimant …was aware that this fee value was being used as a lever in later negotiations with Topland in relation to the new lease to increase the total benefits being received by the Claimant from Topland”.

The abandonment of the application

[41]As indicated, this application was initially pursued before me by Mr Browne-Wilkinson. However in his oral Reply to the court he did not seek to maintain the application following on the oral submissions made by Mr McGrath on behalf of Mr Smith that on any proper analysis of the pleaded Defence, the pleaded alleged industry practice went not to any defence seeking to rely on the practice per se as a defence to a claim of Fraud by Bribery, or to any defence seeking to impute knowledge in the Claimant where none in fact existed. Rather, it was being used only as part of the factual background (indeed paragraph 11 of the Defence where the reference to industry practice is introduced, is headed ‘Factual Background’) to the open arrangements pleaded as existing between the Claimant and the Defendants whereby without any secrecy concealing a commission paid or payable to the Claimant’s agent by the other party, the “value” of the introduction was to be used, in pursuit of the Claimant’s OSPC policy, as a bargaining lever in the negotiations over the terms of the new lease policy.[42]Put another way, as Mr McGrath describes it in his Note to the Court responding to the Claimant’s oral Reply, the material industry practice is pleaded only as “part of the circumstances in which the pleaded arrangement between the Claimant and LSM/Mr Smith were reached”, albeit Mr McGrath submits they are an “integral” part of such circumstances.[43]Mr Browne-Wilkinson was right not to maintain the application.[44]It cannot be said that the pleaded averments do not disclose any reasonable ground of defence on the grounds put forward in the application, namely that they fall foul of that which Mr Browne-Wilkinson submits is a determined principle of law, namely that a market practice as to the payment of commission by one party to a transaction to the other side’s agent, can never have legal effect for the purposes of defeating a claim in Fraud by Bribery once the elements of a Bribe as recognised in civil law, have been established. As the analysis of the pleaded Defence set out above demonstrates, the averments as to industry practice are not being used in support of any such defence and no such defence is sought to be raised.[45]I accept that it might be said they are in the circumstances an unnecessary averment since they do no more than explain why the pleaded arrangements made between the Claimant and the Defendants, were entered into and are being used to add credibility to the averment of such an arrangement. However, I would not strike them out on this ground and Mr Browne-Wilkinson although in his Reply taking the point that in this regard the averments fell foul of the principle against pleading evidence, did not ask me to do so. The Claimant’s own pleadings disclose many examples of pleaded facts which are in truth no more than background explanations and evidence in support of the pleaded case (see for example Appendix 1 to the Particulars of Claim headed “The Factual History”).[46]Mr Browne-Wilkinson did however pray in aid the background nature of these avermentswhich he nonetheless submitted “should not have been pleaded at all”, in support of his submission opposing the grant of permission for expert evidence on market practice to be adduced at trial. This is however a separate submission relating to the second and different application with which this judgment is concerned, to which I shall return in due course.[47]Accordingly, I dismiss the Strike-Out application in relation to the Smith action.

The Topland Action

[48]In the Topland action, the application by its terms is to strike-out those parts of the Defence and Counterclaim “alleging(1) it was market practice for a prospective purchaser to agree to pay an introduction fee to an agent of the lessee, when payment of that fee is conditional on the prospective purchaser purchasing property and entering into a regeared or restructured lease; and(2) it was not market practice to obtain the lessee’s consent to such an arrangement”.[49]Certain parts of the pleading are then identified which the court is invited to strike-out (the emphasis in bold is the emphasis of this court): i) at paragraph 4.4 the words ‘was in accordance with well understood commercial practices in the industry’; ii) at paragraph 4.6 the words “This was in accordance with usual industry practice”. However this strike-out is sought only ‘in so far as they relate to the allegation that LSM, by Mr Shaw, required an introductory fee prior to providing any details of the transaction to Topland’ iii) at paragraph 20.3(3) the words “it would not have been in accordance with market practice for Mr Bush to have sought express confirmation from LSM or the Claimant” in so far as ‘they relate to LSM, as the agent of the MoJ, having the authority of the MoJ to propose the introduction fee agreement’; iv) at paragraph 58.3 the words “An introduction fee, such as the 1% fee, is a regularfeature of the real estate market. The Defendants view such payments to be an unpalatable reality in the estate market” v) at paragraph 58.6 the words “introduction fees are a regular feature of the real estate market…” and “and in accordance with the view that Topland takes of introduction fees (see paragraph 58.3 above)…” vi) The whole of paragraph 67.5 which reads:
“If, which is not admitted, being a matter outside the direct knowledge of the Defendants) the Claimant knew that LSM introduced First Avenue House to Topland, by reason of the general market practice referred to in paragraph 58.3 above, knowledge of that fee should be imputed to the Claimant”
.

Voluntary Information in relation to Defence paragraph 67.5

[50]I should record at once that in relation to the application to strike-out paragraph 67.5 of the Defence, the Defendants did in the course of the hearing when the court questioned the meaning of “imputed” in that paragraph, serve what is described as “Voluntary Further Information in respect of the Defence and Counterclaim”. I was concerned to discover whether what was being averred in that paragraph was that by reason of the pleaded general market practice, knowledge of the fee was to be attributed to the Claimant when and although none in fact existed, or whether the general practice was being relied upon as in effect a circumstance, in other words a piece of circumstantial evidence, from which it was to be inferred that the Claimant’s had knowledge of the fee as a matter of fact.[51]That Voluntary Further Information in respect of the allegation made in paragraph 67.5 of the Defence and Counterclaim, reads as follows:
“It is the Defendants’ case that by reason of the Claimant’s knowledge of that general market practice (a) that the Claimant was aware of and had actual knowledge of the 1% Fee and (b) the 1% fee was not secret from the Claimant. Accordingly the non admission contained in paragraph 67.4 of the Defence and Counterclaim should be read as subject to paragraph 67.5.”
[52]The reference to the “non admission” in paragraph 67.4 relates to the Claimant’s state of knowledge of the 1% fee. It reads: “It is not admitted that the Claimant was unaware at all material times of the 1% Fee. This is a matter outside the direct knowledge of the Defendants”.[53]Although Mr Browne-Wilkinson objected to the service of such “Voluntary Information” it was agreed that I should approach the strike-out application on the basis that this further information was part of the pleadings and if in the event on this basis the strike-out application failed, it would be incumbent upon the Defendants to make formal application to amend their pleadings to incorporate these matters.[54]Thus for present purposes I proceed on the basis that in this part of their Defence (67.4 as read with 67.5 as further explained in the Voluntary Information) the Topland Defendants are putting in issue the Claimant’s asserted ignorance of the 1% fee agreement and are seeking to rely upon the general market practice described in Defence paragraph 58.3 as a regular feature of the market, as circumstantial evidence from which the court should infer that the Claimant had actual knowledge of the fee, if it further be established at trial that the Claimant knew that their agent LSM had introduced the Topland Defendants to FAH.

The meaning and legal effect of a Bribe in civil law

[55]I was referred to a number of authorities on the meaning of a bribe for the purpose of civil law and as to the legal consequences of such bribe for both the bribed and the briber for the purposes of the causes of action which may be pursued against them.[56]As to the meaning of a bribe, I was referred to Romer LJ in Hovenden & Sons v Millhoff (1900) 83 L.T.41, 43 (“If a gift be made to a confidential agent with a view of inducing the agent to act in favour of the donor in relation to transactions between the donor and agent’s principal and the gift is secret as between the donor and the agent – that is to say without the knowledge and consent of the principal – then the gift is a bribe in the view of the law”), and to Slade J. in Industries and General Mortgage Co. Ltd v Lewis [1949] 2 ALL ER 573, 575 (“for the purpose of the civil law a bribe means a payment of a secret commission, which only means(i) that the person making the payment makes it to the agent of the other person with whom he is dealing;(ii) that he makes it to that person knowing that the person is acting as the agent of the other person with whom he is dealing; and(iii) that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person’s agent”).[57]To these expressions of principle I would add the conclusions drawn from the authorities by Leggatt J in Anangel Atlas Compania Naviera S.A. and Others v Ishikawa-Harima Heavy Industries Co Ltd[1990] 1 Lloyd’s rep 167, 171 that “more succinctly it may be said that a bribe consists in a commission or other inducement which is given by a third party to an agent as such and which is secret from his principal” and that “the key to the determination of the question whether a payment …to an agent constitutes a bribe” is “whether or not the making of it gives rise to a conflict of interest, that is to say puts the agent into a position where his duty and his interest conflict.”[58]As to the legal consequences of such a bribe once found to be established, a useful analysis is to be found in the judgment Tuckey LJ in Hurstanger Ltd v Wilson [2007] 1 WLR 2351, at paragraph 34:
“An agent who receives commission without the informed consent of his principal will be in breach of fiduciary duty. A third party paying commission knowing of the agency will be an accessory to such a breach.The remedies for breach of fiduciary duty are equitable: they include rescission and compensation” and at paragraph 38: “Obviously if there has been no disclosure, the agent will have received a secret commission. This is a blatant breach of his fiduciary duty but additionally the payment of a secret commission is considered to be a form of bribe and is treated in the authorities as a special category of fraud in which it is unnecessary to prove motive, inducement or loss up to the amount of the bribe” (On this latter point see too Romer LJ in Hovenden, at p.43: “If a bribe be once established… First the court will not enquire into the donor’s motive in giving the bribe, nor allow evidence to be gone into as to motive. Secondly, the court will presume in favour of the principal and against the briber and the agent bribed that the agent was influenced by the bribe and this presumption is irrebuttable”) and again at paragraph 38: “The principal has alternative remedies against both the briber and the agent for money for money had and received where he can recover the amount of the bribe or for damages for fraud whereby he can recover the amount of any actual loss sustained by entering into the transaction in which the bribe was given; and again at paragraph 38: “Furthermore the transaction is voidable at the election of the principal who can rescind it provided counter restitution can be made (Panama and South Pacific Telegraph Co v India Rubber, Gutta Pecha and Telegraph Works (1875) LR 10 Ch App 515, 527, 532-533)”

The basis of the strike-out application

[59]At the heart of the application is the proposition which I have already identified in the context of the Smith application, that as matter of law a market practice as to the payment of commission by one party to a transaction to the other side’s agent, can never have legal effect for the purposes of defeating a claim in fraud by bribery once the elements of a bribe have been established, that is to say a secret commission agreed to be paid to the agent (secret in the sense that it is not disclosed to the agent’s principal and is unknown to and not consented to by the principal) in circumstances which give rise to a conflict of interest between the agent’s duties to the principal to act in his best interests and the agent’s own interest in obtaining the commission from the other party.[60]In support of this proposition I was referred to a number of authorities. In Fullword v Hurley [1928] 1 KB 498, a plaintiff hotel broker who had already been paid commission by the vendor of a hotel by whom he had been engaged to act as agent in the sale, sought to recover in contract from the Defendant purchaser of the hotel an additional commission which he claimed the purchaser had agreed to pay him. The Court of Appeal held that no contract for the payment of commission existed between the plaintiff and the Defendant. On custom, Scrutton LJ said this at 502:
“it is not enough to say that it is the usual or customary brokerage, because the law has held that a custom to the effect that an agent shall have double brokerage without informing his principal is unreasonable, and shall not be enforced; and anybody who does want to get double commission, where he has two different interests in himself which may clash, must fulfil to the strictest extent the requirements of the law”
[61]A secondary proposition is also put forward based on the judgment of Donaldson J. in North and South Trust Co v Berkeley [1971] 1 WLR 470, 482 that in any event any such practice if it is to have “legal effect” must be “notorious, certain and reasonable” (see Donaldson J. at p.482 E) (and see too, says the Claimant, the analysis in Chitty on Contract (30th ed vol 1 at para 13-18) of the effect of the authorities therein cited, on when a term will be implied into a contract by reason of usage or custom – which analysis refers to the need for “an invariable, certain and general usage or custom” of the particular trade or place and the requirement that to be binding for these purposes “the usage must be notorious, certain and reasonable and not contrary to law”).[62]The submission is made that the market practice pleaded in the averments complained of cannot begin to qualify as one satisfying these requirements given the way in which such practice is pleaded as being no more than a “regular feature” of the real estate market. At best there is reference to a “general market practice” without the added averments of such practice being “notorious” and “certain” (and leaving aside the question of ‘reasonableness’).[63]Mr Browne-Wilkinson in support of this submission also invites the court to have regard to the uncertain way in which the alleged market practice is described by the expert witness whose witness statement the Topland Defendants have chosen to place before the court in response to this application, namely that of Mr Nick Baucher, Chartered Surveyor, himself a fellow of the Royal Institute with many years experience of working in the Central London property market facilitating large commercial property transactions in that market. At paragraph 15 he says that in his experience it is “common” for a prospective purchaser to agree to pay an introductory fee to an agent, “when payment of the fee is conditional upon some other event such as securing vacant possession, or as in this instance the sale of property and the regearing or restructuring of an occupational lease”, but then goes onto say at paragraph 16 that “for an introductory agent to be acting for a lessee (occupier) within the building that is being purchased” is “less common” but “not entirely uncommon”. He speaks at paragraph 17 of “the precise circumstances of this particular case” as being “unusual” although in his experience “similar cases are not unheard of”. So it is said on behalf of the Claimant, the pleaded Topland Defence must also be judged by the evidence the Defendants have to date produced in support of that defence, and on that basis, it is said, the defence of market practice being relied upon in this case is bound to fail at trial as a matter of law by reason of its lack of sufficient certainty and notoriety.

My conclusions on the Topland Strike-out

[64]These submissions however in my judgment beg the question of the purpose for which reliance on the pleaded market practice is placed by the Topland Defendants in their statement of case. If on the proper analysis of their pleaded case, reliance is being placed on such practice in order to defeat without more the legal effect in law recognised in the authorities, of a secret commission which would otherwise qualify as a bribe, in other words to defeat without more the cause of action pleaded as fraud by bribery, or if it were being relied upon to establish an enforceable contract for the payment of such monies (as in Fullwood) or as a legal usage allegedly binding upon the aggrieved principal and accordingly being used as a ground of resistance to a remedy to which he might otherwise be entitled (such as the disclosure of documents held by the principal’s agent but given to it by the other party as in Berkeley – although in the event the remedy was denied on other grounds) then I would have considerable sympathy with these submissions.[65]However in my judgment on such proper analysis the pleaded market practice is being used for different purposes which cannot at this stage of the proceedings, be said as a matter of certainty to have no relevance in law to any ground for defending the various causes of action being pursued and/or resisting the various claims for relief, namely(i) in relation to the issues raised on the pleadings as to whether this was a secret commission at all – the issue of the Claimant’s knowledge and consent to the introduction fee being paid and(ii) in relation to the issues raised as to the Topland Defendant’s dishonesty for the purposes of the causes of action in accessory liability. The issue as to the secrecy of the introduction fee: the state of mind of the Claimant[66]The first purpose is that revealed in the averments at paragraph 67.4 and 67.5 as further amplified in the Voluntary Information.[67]As already indicated I am proceeding for present purposes on the basis that in this part of their defence the Topland Defendants are putting in issue the Claimant’s asserted ignorance of the 1% fee agreement and are seeking to rely upon the general market practice described in the Defence at paragraph 58.3 as a regular feature of the market, as circumstantial evidence from which the court should infer that the Claimant had actual knowledge of the fee, if it further be established at trial that the Claimant knew that their agent LSM had introduced the Topland Defendants to FAH, and that accordingly the 1% fee was not secret from the Claimant.[68]The issue of whether the fee was secret from the Claimant is patently an issue to be resolved at trial which is central to the pleaded causes of action based on the finding of a Bribe (see the words, oft cited in the authorities, of Chitty L.J. in Shipway v Broadwood [1899] 1 Q.B. 369, 373 that “the real evil is not the payment of money but the secrecy attending to it”) and if resolved against the Claimant, will afford a ground of defending those claims or at the very least will be a potential ground for resisting the full extent of those claims and the remedies being sought (- on this see below under ‘Remedy’), and I cannot say with any certainty that it will not be open to the court at trial to use such circumstantial evidence as part of the evidence upon which to determine this question of secrecy.[69]That circumstantial evidence can be used to infer material knowledge of the alleged secret commission is supported by the analysis of the principles applicable to relief for bribery to be found in the judgment of Leggatt J. in Anangel to which I have already referred.[70]Anangel was an action for money had and received in which the plaintiff company sought to recover the monies paid by the Defendant company to a Mr Campbell, described as a distinguished naval architect, on the ground that such payments had been made secretly while Mr Campbell had been acting for the plaintiffs in the negotiation of shipbuilding contracts with the Defendants. Leggatt J having referred at 169 to the basic principle that ‘‘money secretly paid to the agent of the other party is recoverable unless the other party is informed of the payment made” and (at p 170) that the “payment can only be validated by actual disclosure to the other principals” and “obtaining what Lord Justice Donaldson” in Berkeley at 484Hhad ‘called their “fully informed consent”’ then said this at p171:
“Mr Hunt’s second submission is uncontroversial: it is that a principal will be unable to recover from his agent or a third party a payment made by the third party to the agent if the principal knows of it, or would have known of it, if he had thought about it. The question is whether (the plaintiff) knew or must have known that Mr Campbell was receiving payments from (the Defendants) for design of the vessels. The phrase “must have known” as used in the cases means no more than that as a proper inference from circumstantial evidence the person concerned is proved on the balance of probabilities to have known that payment was being made… It is not disputed that knowledge of and consent to the fact of payment is sufficient to legitimate it…”

The insurance/reinsurance brokerage line of authority

[71]Mr Browne-Wilkinson sought to persuade me that these observations were inconsistent with the line of authority on fraud by bribery which he laid before me and must – (having regard to the reference to the phrase “must have known” as one ‘used in the cases’) – have been based upon another, what he describes as anomalous, line of authority concerning insurance/reinsurance brokerage in which that phrase occurs (Great Western Insurance Co v Cunliffe (1847) L.R.9 Ch App.525; Baring v Stanton [1876] 3 Ch 502), and see too, Longmore L J in Absalom v TCRU Ltd [2005] EWCA Civ 1586 paragraph 6).[72]Those were cases in which the plaintiff was held not to be able to complain of a fee received by his agent broker from the underwriters, being the usual fee in accordance with a practice described as ‘well established’ and ‘well known’ (Great Western p 537) or “recognised practice” (Baring). In Great Western Mellish LJ at 539, observed that the plaintiff “must have known …that (their brokers) were to be remunerated by receiving a certain allowance …from the underwriters with whom they made the bargains”.[73]Mr Browne-Wilkinson submits those insurance/reinsurance cases are distinguishable from the present case and that first line of authority on the grounds that they were not cases of double brokerage (the plaintiff reinsured was not paying the broker at all for effecting the reinsurance) and the principal in the lead authority (Great Western) knew that his broker agent was to be remunerated for this task by underwriters.[74]However even if these are legitimate points of distinction (although I observe again that the Defendants in the current litigation do not accept that this is a case of double brokerage for the reasons I have indicated), I can see nothing in the line of authority relied upon by Mr Browne-Wilkinson to support the proposition that as a matter of law it is not open to a Defendant to a claim based on fraud by bribery, to plead that the payment agreed to be paid by it to the Claimant’s agent, alleged to be the bribe, was in fact known to the Claimant and was not a secret commission at all and to further plead in support of the plea of knowledge, a general market practice of which the Claimant was aware from which the court would be invited to infer that the Claimant had such knowledge when taken with other facts yet to be determined at trial – in particular in this case that the Claimant knew that his agent LSM had introduced Topland to FAH.[75]Those authorities deal only with the situation where the commission has been found to have been kept secret from the Claimant, and on the facts of those cases it was held that the existence of any, for example, “practice of side deals” (see Imageview Management Ltd v Jack [2009] EWCA Civ 63, para 15, concerning payments made by a football club to the agent of a footballer with whom the club were negotiating a contract) or a “custom” whereby for example the agent of a prospective purchaser of a motor car would receive a commission from the vendor if the sale was effected (see Alexander v Webber [1922] 642, 644) could not legitimise those payments so as to defeat the claim to recover the secret profit.[76]Even the observations of Lawrence Collins J. in Daraydan Holdings Ltd v Solland International Ltd [2003] EWHC 3162 (Ch) at paragraph 14, much relied upon by the Claimant, have to be seen in my judgment in the context of the particular facts referred to in that paragraph namely that “the case concerned admitted bribes paid to a project manager of contracts for the refurbishment in London of properties owned by an Isle of Man company who demanded and was given a kick back of 10% which was added to the price”. It is perhaps not surprising that on those facts the Judge in that paragraph in the course of giving judgment on an application in which the material argument was in fact not maintained, was constrained to express “surprise that the application to strike-out the defence based on custom was not pursued” since the court “could not envisage any circumstances in which such an alleged custom could be consistent with English policy”. Although it would appear that the Defendant in that case did seek to plead that as a result of such custom not only were the payments thereby legitimised, but that the Claimants should be treated as having actual or imputed knowledge of the payments (Daraydan at para 11), it cannot be said in my judgment that it is inevitable that at trial in this case that the practice alleged in the Topland Defence concerning introduction fees would be similarly deemed inconsistent with English policy. Further, in any event, the obiter observations of the court in Daraydan, no matter how distinguished the court, are no more than that, given the application for strike-out was not in the event pursued.[77]I accept of course it will be a question of fact for the trial judge to determine whether such market practice as pleaded by Topland existed, and its content, and whether the Claimant had such knowledge of such practice and whether if he did, the suggested inference should properly be drawn. It may well be that the submissions made to me by Mr Browne-Wilkinson as to why the market practice as pleaded should not give rise to such an inference, may win the day at trial but they are in my judgment considerations for trial, once the facts as to the practice and the Claimant’s knowledge, have been established. They are not determinative in favour of strike-out. As I further reiterate below, this is not an application in which the court is being asked to determine the prospects of the Defendants establishing their pleaded defence at trial but rather one in which the court is being asked to determine whether even if the pleaded matters were to be established, they disclose any reasonable ground for defending the claim.[78]I should add that I see nothing in the authorities cited to me to support the proposition (inherent in the application to strike-out under sub-paragraph (20(3)) that the knowledge and consent of the principal to the other party’s agreement to pay a commission to the principal’s agent, has as a matter of law – if the agreement to pay is not to be characterised as a Bribe – to be conferred and obtained by the person agreeing to pay the commission himself, even if the fact of such knowledge and consent were to be established by some other route. I observe that in Anangel, Leggatt J. having earlier in his judgment (at 169) emphasised the words of Chitty L.J. in Shipway v Broadwood of which I have already made mention, that “the real evil is not the payment of money but the secrecy attending to it ” went on to hold (at page 176) that as the plaintiffs, despite having (as the court found) knowledge of the material payments to their agent’s company by the Defendants for both design and promotion of each ship, “were content to contract”with the Defendants they “must therefore be taken to have consented to such payments being made” and therefore the claim for recovery of the sums so paid, failed.[79]It is also of note that in Hurstanger, a case which concerned whether relief should be given to the Defendant borrowers under a regulated consumer credit loan agreement obtained though a broker, on the grounds that the Claimant lenders had paid the broker a commission allegedly kept secret from the borrowers, the court at paragraph 30 recorded that “the recorder notes that he was not invited to make any finding that this was a trade practice because if there was such a practice, it was not suggested the Defendants were aware of it”, without suggesting that such knowledge if it had been alleged, would have been irrelevant to the issues to be resolved.[80]I agree also with Mr Beazley QC on behalf of Topland that the decision in Hurstanger (see in particular the Judgment of Tuckey LJ at paragraphs 35 and 39) demonstrates that it is open to a court to make nuanced findings on the sufficiency of the principal’s knowledge of the alleged bribe for the purpose of justifying the defence or parts of the defence to the various causes of action and that it would be open to a court, for example, to find that there was sufficient knowledge to negate secrecy so as to defeat any claim based on a finding of fraud as against Topland but without there being informed consent sufficient to defeat a claim based on involvement as an accessory in a breach of fiduciary duty. This would then potentially have a consequential effect on the remedies to which the Claimant might be entitled or which the court may consider appropriate to grant in so far as they lie in its discretion (again see under ‘Remedy’ below). The pleaded matters as to market practice and the Claimant’s knowledge of the same when taken with any finding that the Claimant was aware that LSM had introduced Topland to FAH, must in my judgment be arguably relevant to such a nuanced fact finding exercise.

Issue of “dishonesty”: the Defendant’s state of mind

[81]The other purpose for which the Topland Defendants in the other paragraphs identified in the strike-out application, are seeking to place reliance upon the alleged market practice as to an introduction fee, is, it seems to this court, in support of their general plea which is at the heart of their pleaded defence, that in everything they did in relation to FAH (which included agreeing to pay an introduction fee to LSM), they were acting bona fide and not dishonestly, and in the belief “that LSM and/or Mr Smith were at all times and in all material respects acting with the knowledge and approval of the Claimant and that the arrangements that were made were properly considered and wanted by the Claimant” (Defence paragraph 4.4).[82]Hence the words complained of in the application in relation to paragraph 4.4. of the Defence appear in this context:
“4.4 The Defendants’ own conduct was beyond reproach and was in accordance with well understood practices in the industry”
[83]The words complained of in paragraph 4.6 are in a similar context:
“4.6 Topland was introduced to the possible acquisition and leasing of First Avenue house by LSM and/or Darren Shaw (“Mr Shaw”) of LSM as in effect a possible “white knight” (as described by LSM) who could enable the Claimant to achieve its objectives for First Avenue House on more beneficial terms than could be achieved through negotiation by the Claimant with its existing lessor. As the existing lessor would, by refusing to sell the property to Topland or anyone else (or to sell it at an appropriate price) have been in a position to prevent the Claimant achieving its objectives, the Claimant’s intention was to be kept from the Lessor. This was in accordance with usual industry practice, as was the fact that LSM, by Mr Shaw, required an introductory fee prior to providing any details of the transaction to Topland. If the Claimant, despite the large team of involved employees and professionals, was unaware of these matters, the Defendant did not know that, and had no reason to suspect it.”
[84]In other words the Defendants seek to rely upon the alleged market practice as informing and in support of their own state of mind that they were unaware, if it be the case, that the Claimants were unaware that LSM had (to quote paragraph 4.6) “required an introductory fee prior to providing any details of the transaction to Topland” given of course their pleaded case that they believed that LSM had been authorised by the Claimant to approach Topland (see again Defence para 20(3)(3)).[85]Similarly the references to the market practice on introduction fees in paragraphs 58.3 and 58.6 all go in my judgment to that part of the defence which seeks to plead the bona fides of the Defendants in agreeing to pay an introduction fee and, to plead the Defendants’ state of mind as being one in which they did not believe they were acting inappropriately or that the Smith Defendants were acting contrary to their duties to their principal or without their principal’s knowledge and approval.[86]Thus 58.3 reads: “An introduction fee, such as the 1% fee, is a regular feature of the real estate market. The Defendants view such payments to be an unpalatable reality in the real estate market and have often sought in the past to avoid paying such fees or to reduce such fees on completion. On this occasion (as in many cases in which Topland has in the past agreed to pay an introductory fee), Topland would not have been introduced to First Avenue House had it not agreed to pay an introductory fee to LSM. The Defendants had no reason to believe, and did not believe, that Mr Smith of LSM, or anybody else at LSM, was acting in any way contrary to their duties to their principal or without that principal’s knowledge and approval”.[87]58.6 reads:
“given that, amongst other things, introduction fees are a regular feature of the real estate market, and the sale of FAH and the re-structuring/re-gearing of the Lease was considered to be in the best interests of the Claimant, Topland did not consider there was anything inappropriate in agreeing (at least initially) to pay the fee…”
[88]It is to be noted that paragraphs 58.3 and 67 of the Defence and Counterclaim are cross referenced in the Defence in relation to each of the causes of action pleaded by the Claimant under Breach of Fiduciary Duty (Rent Review) (Defence para. 93); Breach of Fiduciary duty (New Lease) (para 103); Deceit (para. 126.7); Fraud By Bribery (para 128); Dishonest Assistance (para 130); Conspiracy (para 138.3).

The averment under 20(3)

[89]The application in its opening paragraph suggests that the Defence has pleaded that “(2) it was not market practice to obtain the lessee’s consent to such an agreement”. I cannot in fact find any part of the pleading which goes that far. In the strike-out application in relation to paragraph 20(3)(3), it is sought to strike-out the words identified “in so far as they relate to the allegation LSM as agent of the MoJ, having the authority of the MoJ to propose the introduction fee”.[90]This seems to me to be a misreading of the averment in 20(3) which at most is an averment that it would not have been in accordance with market practice for Topland through Mr Bush to have sought express confirmation from the Claimant that LSM as agent had the authority of the Claimant to approach Topland with the proposal (inter alia) of an introduction fee. Thus paragraph 20(3) reads: “Mr Bush understood from these discussions with LSM that(a) the proposed purchase and restructuring of the lease was considered by the Claimant to be in the best interests of the Claimant and(b) LSM as the agent of the Claimant, had the authority of the Claimant to approach Topland, to make the said proposal and to disclose information to the Topland group of Companies in relation to First Avenue House. It would not have been in accordance with market practice for Mr Bush to have sought express confirmation from LSM or the Claimant on either of these points. Topland believed, and was entitled to believe, that LSM was so authorised (and Topland had no reason to doubt that LSM was so authorised) and that LSM was keeping the Claimant informed about their discussions and arrangements with Topland in relation to First Avenue House”.[91]This is not the same as a plea that the market practice without more meant that LSM as agent of the Claimant had the authority of the MoJ (as distinct from the plea elsewhere made that the market practice concerned, informed the Defendants belief that that LSM had such authority).[92]The words sought to be struck out in paragraph 20(3)(3) go in my judgment only to the general defence of bona fides and to a particular part of the defence that the Defendants were not acting dishonestly or with any impropriety in not approaching the Claimants for confirmation of what they the Defendants honestly believed was the position as regards the agent (LSM) having the Claimant’s authority.

Grounds for defending the claim?

[93]The Claimant was able to point me to numerous statements of principle in the context of cases seeking relief for fraud by bribery, to the effect that it matters not that the parties against whom relief is sought, thought that they were doing nothing wrong (see for example Jacobs LJ in Imageview at para 15), that it was no defence to prove a belief that the agent had disclosed the circumstances to his principal and that bona fides without disclosure is no bar to rescission (Grant v The Gold Exploration and Development Syndicate Ltd [1899] 1 Q.B. 233,248-50). In similar vein is the judgment of Havers J. in Taylor v Walker [1958] 1 Lloyds Rep 490, 593 to the effect that an assurance given by the agent to the other party to the transaction that he had disclosed the payment to his principal, was no defence, absent actual disclosure to the principal. (“If they themselves do not communicate the payment to the plaintiff, they have to accept the risk of the agent not doing either. The course which they took …can only be validated by actual disclosure to the plaintiff and there was none”.)[94]Nonetheless as regards those causes of action pleaded as accessory liability, in particular dishonest assistance, the Defendants’ dishonesty does have to be established (‘a want of probity’: Royal Brunei Airlines v Tan [1995] 2AC 378, 389) and I am persuaded that I cannot say with any certainty that the pleaded market practice and the Defendant’s pleaded belief as to what it was, must be an irrelevant consideration when the court at trial comes to determine whether such dishonesty has been established.[95]I say this for two principal reasons.

The Defendants’ state of mind

[96]First, on any current understanding of the law on accessory liability (see the analysis of recent authority by the Chancellor in Starglade Properties Ltd v Nash [2010] EWCA Civ 1314), although the test of dishonesty or put another way the standard of honesty, is an objective one, there being a single standard of honesty objectively determined by the court and the views of the Defendant on what is dishonest are irrelevant, (see Barlow Clowes Ltd v Eurocrest Ltd [2006]1 WLR 1476 where the Privy Council explained and interpreted the decision of the House of Lords in Twincentra v Ltd v Yardley [2002] 2 AC 164)), the subjective state of mind of the Defendant, and what he knew or did not know about the circumstances of the impugned transaction, is still highly relevant since it is to the conduct of the Defendant in the light of that subjective state of mind that the court has to apply the objective test.[97]The Chancellor in Starglade summarised the position thus (at paragraph 25): “There is a single standard of dishonesty objectively determined by the court. That standard is applied to specific conduct of a specific individual possessing the knowledge and qualities he actually enjoyed”.[98]That expression of principle is built upon that which Lord Nicholls said in Tan at p.391B: “likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason he acted as he did”.[99]In these circumstances I find it quite impossible to hold that the Topland Defendants should not be entitled at trial to seek to rely upon their knowledge and understanding as to market practice in the way pleaded in order to undermine what is both implicit and express in the Claimant’s pleaded cause of action in dishonest assistance, namely that the Topland Defendants had the required dishonest state of mind to justify such claim.[100]As already set out, the Claimant himself has chosen to plead in the context of his plea of dishonest assistance (at POC para. 175 incorporating paragraph 174) that the Topland Defendants “knew at all material times” that neither of the Smith Defendants had disclosed the agreement to pay the fee to the Claimant. Hence the Claimant has himself put in issue the Topland Defendant’s state of mind on this particular question and in my judgment it just cannot be said with certainty that the pleaded, market practice and the Defendants’ knowledge of the same, can have no relevance to the Defendants’ defence on this aspect of the claim.

Objective honesty: what is commercially acceptable practice?

[101]Secondly, the pleaded market practice must in my judgment be arguably relevant to the court’s determination of whether the Defendants’ conduct was objectively dishonest since again on authority in the context of a commercial transaction the court has to determine, amongst other things, whether the conduct was “commercially unacceptable conduct” (see Lord Nicholls in Tan at 390F-G; the Chancellor in Starglade at paragraph 24 “The advice of the Privy Council …clearly identified dishonesty as the touchstone of liability, and as synonymous with a want of probity and commercially unacceptable conduct”).[102]It is difficult to see how it can be properly said by a court on a strike-out application that the pleaded market practice as to the payment of introduction fees and as to whether anyone in the position of the Defendants would seek confirmation from someone in the position of the Claimant that his agent was acting with their authority in relation to the matters with they had been approached by the agent, can have no relevance to what objectively was commercially acceptable practice. I refer again to the Defendants’ pleaded case at paragraph 20(3) of the Defence. The Topland Defendants must in my judgment be entitled to submit at trial (to quote the skeleton argument of Mr Beazley) that they “were in the real commercial world entitled to assume LSM was so authorised (and had no reason to doubt that LSM was so authorised) and to believe that LSM was keeping the Claimant informed about his discussions with LSM in relation to First Avenue House”. The pleaded market practice self evidently goes to the issue of what was the real commercial world and what was commercial practice in that world. Whether even if such commercial practice is shown to exist, the court at trial will accept this attitude of the Defendants as being “commercially acceptable conduct” in accordance with honest standards of commercial behaviour as objectively determined by the court, will of course be a matter for the court, but I decline to find that the pleaded market practices can have no relevance to this issue.[103]I further agree with the submission of Mr Beazley that this is not an area where the law can be said to be completely settled and the precise role of the existence of a market practice, and of the knowledge of and reliance on such practice in consideration of whether a person has acted dishonestly requires careful reflection by the trial judge, once the actual facts have been established, and may be the subject of appeal.

Remedy

[104]I am also persuaded that the pleaded averments on market practice if made out, in particular those relating to the knowledge of the Claimant of the pleaded market practice coupled with the fact, if established at trial that the Claimant knew of the material introduction, are equally arguably relevant to the question of remedy. A distinction may have to be drawn at trial between any remedy to which the Claimant may be entitled as of right according to the facts found, such as the recovery at common law of any bribe as money had and received, and any remedy which again according to the facts as found at trial, may be held to be in the discretion of the court, such as that of rescission of the New Lease.[105]As already indicated, I accept that it must be arguable (building on the line of reasoning of Tuckey LJ in Hurstanger at paragraph 39G-H) that if for example the court were to find at trial that as a result of these matters this case was a “half way house” of the kind postulated in Hurstanger namely that this is not a true secret commission case since the Claimant did have sufficient knowledge that such an introduction fee would be payable in order to negate secrecy, but nonetheless held, for example, for lack of informed consent or for some other reason, that the Topland Defendants had procured a breach of fiduciary duty on the part of the Claimant’s agent (the Smith Defendants), then in such circumstances the pleaded market practice, the Claimant’s knowledge of it and the Topland Defendants’ state of mind, would be relevant to the exercise of the courts’ discretion as to the appropriate extent of what would be purely equitable relief. The court might be persuaded not to order rescission. (See further Tuckey LJ in Hurstanger at paragraphs 39 and 47).

Conclusion on strike-out in the Topland action

[106]In the round I agree with Mr Beazley that whether there is such a market practice or such commercial or industry practices as pleaded, and what exactly they are, who knew of them, what they deduced from them, and what are the implications of such knowledge, are all matters for trial when documents and oral evidence in relation to such matters can be explored.[107]In the context of this particular application to strike-out under CPR 3.4(2)(a) or (b), I do not consider that it is appropriate or just for the court to undertake such an exploration at this stage.[108]In particular I do not consider that the evidence contained in the witness statement of Mr Baucher should be determinative of these issues. This is not an application for summary judgment under CPR Part 24 in which the court is being asked to assess the prospects of the Defendant being able to establish the matters in the pleaded averments but rather an application to strike-out on the basis that even if such matters be established, they can not give rise to any reasonable ground for defending the claim. Whether the particular evidence of Mr Baucher would be sufficient to support the pleaded averments is in my judgment irrelevant to this question. It may well be if the court grants permission for expert evidence on market practice to be adduced at trial, that the Defendants will seek to acquire further evidence, but this is not a matter which in my judgment need trouble the court when considering this particular application for strike-out put on the basis that the identified pleaded defences disclose no reasonable grounds for defending the claim.[109]For all these reasons I decline to accede to the Claimant’s strike-out application in the Topland action which application I accordingly dismiss.

The application to adduce expert evidence on real estate market practice

[110]I turn now to the application to adduce at trial expert evidence on market practice.[111]This can be dealt with shortly. All parties agree that that expert evidence is required in relation to “rental real estate valuations” and subject to any further submissions yet to be made to the court, I understand that the parties are now agreed on the need to a defined limited extent of expert evidence on capital valuations. In his original skeleton argument Mr Browne-Wilkinson took what might be thought to be the obvious and logical stance that whether the ambit of expert evidence should be expanded to include “real estate market practice” depended on the outcome of the Claimant’s application to strike-out those paragraphs of the respective Defences in the two actions relating to the alleged market practice. Paragraph 27 of his skeleton reads in terms: “It is accepted that if the strike-out application is unsuccessful and the paragraphs of the Defence in question remain in issue, then the scope of the expert evidence should be expanded to include real estate market practice”.[112]At the hearing before me Mr Browne-Wilkinson took what he properly acknowledged to be a change in tack, namely that notwithstanding any dismissal of his strike-out applications, the application for expert evidence on the pleaded market practices should nonetheless be dismissed on the basis that the cost of obtaining and adducing such evidence would be disproportionate to the very limited benefit the court might derive from such evidence. As already indicated in the case of the Smith action, Mr Browne-Wilkinson prays in aid that such evidence is now sought to be used only as background to the discussions between the Smith Defendants and the Claimant. In the case of the Topland action Mr Browne-Wilkinson repeated in essence submissions made in the course of the strike-out application, namely that based on the witness statement of Mr Baucher, the expert evidence likely to be called on this question would be of little assistance to the court in determining the issues material to the claims since it gives little support to any certain practice of the kind pleaded.[113]I reject these submissions. The strike-out applications having failed, I see no justification for denying the Defendants in either action permission to adduce expert evidence in support of the practices pleaded in their respective defences, the existence of which is disputed by the Claimant. As regards Mr Smith, I accept as already stated that he seeks to rely on such practice only as background but it is on his case, an important part of the background. On his case it forms “an integral aspect” of the circumstances in which the pleaded arrangements between the Claimant and the Smith Defendants was reached. As regards the Topland Defendants, I do not consider that they should be held bound by the expert evidence so far obtained on this issue and Mr Browne-Wilkinson’s submissions on the weaknesses of any expert evidence ultimately to be relied on by the Defendants in support of their pleaded case, are in my judgment premature.[114]In any event I do not consider that the costs likely to be expended on obtaining and adducing such evidence are of such a scale as to trigger considerations of proportionality adverse to the Defendants. This is a case in which expert evidence is bound to feature at the trial in relation to the Claimant’s allegations based on proper rentals and market valuations. Any additional expert evidence relating to market practice is not likely to be lengthy and it will be for the court at trial to assess the weight to be put upon it and its relevance to the issues emerging at trial in the light of the facts found.[115]Thus I do grant permission to each party to adduce expert evidence in the field of real estate market practice.[116]At the handing down of this judgement I will invite submissions on the form of the order to be made in the light of the rulings I have now made, and I will deal with any consequential applications that that may be made.

Cited in 3 later judgments