|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Parti v Aysha Hamad Nassir Sabah Al-Nassir Al Sabah & Ors  EWHC 1869 (Ch) (31 July 2007)
Cite as:  EWHC 1869 (Ch)
[New search] [View without highlighting] [Printable RTF version] [Help]
Strand, London, WC2A 2LL
B e f o r e :
| Vikki Parti
|- and -
|(1) Aysha Hamad Nassir Sabah Al-Nassir Al Sabah
(2) Munira Hamad Nassir Sabah Al-Nassir Al Sabah
(3) Mohammad Shukri Mohammad
Christopher Nugee QC and Gabriel Fadipe (instructed by Haldanes) for the Respondents
Hearing dates: 24th July 2007
Crown Copyright ©
Peter Smith J :
"I had not been back in Kuwait very long when Mr Mohammad telephoned me to say that he had found a buyer at a price of £1.6m. I told him that the figure of £1.6m was not enough because, although I had no detailed information, I felt sure that properties in that area were worth a good deal more. He replied that the house was in very poor condition and difficult to sell. He led me to believe that a valuation of the Property had taken place and that a better price would not be obtained due to the condition of the Property. This was the only offer that Mr Mohammad relayed to us."
FIRST AND SECOND DEFENDANTS' DEFENCE
"22. Further, the Claimant must at the time have known, or deliberately turned a blind eye to the fact, that:
(1) As the agent or attorney of the First and Second Defendants, the Third Defendant owed them duties as set out in paragraph 9 above or of the kinds therein set out;(2) By proceeding to accept the Claimant's offer of £1.6 million and purporting to bind the First and Second Defendants to a sale at that price pursuant to the terms of the Contract, the Third Defendant was thereby:(a) acting in a manner which was inconsistent with and in breach of the said duties to the First and Second Defendants (including the duties set out in paragraph 9 above); and consequently(b) acting in excess of his authority as the agent (or attorney) of the First and Second Defendants.
23. The Claimant's knowledge, as alleged in paragraph 22 above, is evidenced by or to be inferred from the following facts and matters:
(1) The Contract specifically referred to the Third Defendant having been appointed "as attorney for and on behalf of [the First and Second Defendants] under a power of attorney dated 3rd December 2005;(2) The Claimant must therefore have realised that the sale of the Property had been entrusted by the First and Second Defendants to the Third Defendant with a view to the Third Defendant seeking the best possible price for the Property;(3) The Claimant knew, as set out in paragraph 21 above, that his offer of £1.6 million significantly undervalued the Property;(4) The Claimant also knew that the Third Defendant:(a) had not sought or obtained any independent valuation of the Property;(b) had not marketed it in the ordinary way via estate agents or in any other way such as would maximise the prospects of obtaining the best possible offers;(c) was proposing to sell it within a matter of days of his having been appointed under the POA;(d) was prepared to agree to the offer of £1.6 million without any or any serious attempt to persuade the Claimant to increase his offer through negotiation;(5) The Claimant must therefore have realised - or, at the very least, suspected - that the Third Defendant did not seriously entertain any bona fide belief either that the price offered by the Claimant was the best possible price obtainable for the Property, or that a sale of the Property at the Contract price of £1.6 million was in the best interests of the First and Second Defendants;(6) Furthermore, the Claimant was aware of the connection between him and the Third Defendant, through his brother-in-law, Mr Thukral, since it was through that connection that he was introduced to the opportunity of purchasing the Property;(7) The Claimant must consequently have appreciated that the Third Defendant's loyalties might be torn between (on the one hand) conveniently agreeing a price with the Claimant (a relative of the Third Defendant's business associate) without any or much negotiation and without any independent valuation and (on the other hand, as he was duty bound to do) conducting serious negotiations with the Claimant only after obtaining an independent valuation and so as to achieve the best possible price and being prepared (if necessary) to walk away from those negotiations if the Claimant's offer did not reflect the best price achievable for the Property; and/or(8) In the light of the speed at which contracts were exchanged and the absence of any substantial negotiations between the Claimant and the Third Defendant in relation to the Claimant's offer of £1.6 million, the Claimant cannot have entertained any serious belief that the Third Defendant had disclosed to the First and Second Defendants the nature and extent of his connection with the Claimant and/or the possibility of conflicting loyalties as described in (7) above".
"23. But those inconsistencies in the story do again seem to me to show that there is a matter for investigation, that one is not in a position at this stage to know at all what the true story is. The transaction is an odd one in that Mr Parti was introduced to the property by his brother-in-law who happens to be a friend or someone who has business dealings with Mr Mohammad, there was no asking price for the house and the price of £1.6m was offered and accepted with no intervention of agents or valuers on either side, apart from what Mr Dwimoh may have done subsequently to the subject to contract agreement, and it is a sale on the evidence in front of me at a very substantial undervalue.
24. Of course it cannot be the case that a purchaser dealing with an agent cannot enforce the contract against the principal just because he is getting a bargain. Far more than that has to be shown. But in the present case the bargain was on the material in front of me arguably a remarkable bargain to purchase at half price, which Mr Parti as someone with knowledge of property values may well have appreciated. You cannot tell without disclosure as it seems to me of any documents that Mr Dwimoh may have and the documents passing between Mr Parti and his lenders who were going to finance the deal had it gone through and of course without cross-examination of Mr Parti himself what his state of knowledge at the time was.
25. That very great undervalue coupled with the fact that this was a sale without any agent acting, without there even being any advertisement of the house being for sale and the deal being done through the brother-in-law who happened to be in touch with both sides, makes it, it seems to me, a distinctly unstandard transaction. In those circumstances it seems to me that it is a case that apart from the express ratification of the deal by the sellers requires investigation to establish whether in fact Mr Parti was turning a blind eye and did appreciate that Mr Mohammad was not carrying out his duty to his principal.
26. It is right that there appears to be is no reason as to why Mr Mohammad should have been failing in his duties in this respect and the defence is not at all a strong defence, however it is the case seemingly that Mr Mohammad was intending to divert part of the proceeds of sale to himself personally. It was that discovery by the solicitor acting for the vendors which led to the sacking of Mr Mohammad and the repudiation of the contract by the vendors, so on the material in front of me there is real reason to suppose that Mr Mohammad was dishonest though there is nothing to link that dishonesty to Mr Parti. But given that murky background without the ratification of the deal expressly by the two sisters I would have thought that the matter would have to go to trial. One simply is not in a position at this stage to be able to rule out a real prospect of success of Mr Parti appreciating that things were being done wrongly and that Mr Mohammad was not acting for the benefit of his principals. One also I think needs the evidence of Mr Thukral.
27. Therefore, if that were the only issue I would dismiss the application. However the matter does not end with the agreement between Mr Mohammad and Mr Parti. Indeed there never was an agreement just between those two. Mr Mohammad never took it upon himself to agree with Mr Parti. What he required was the written letter of offer which he got, and which he then sent off to his principals in Kuwait, who when they received it and had spoken to him about it instructed him to accept. They subsequently instructed their solicitors also and the contract was signed by Mr Mohammad and the solicitor. Therefore, this is a case where the principals have expressly directed the agents to enter into the very contract which the agents have entered into, at the price authorised by the principals".
1 The inconsistencies in the story show that there is a matter for investigation and that one is not in a position at this stage to know at all what the true story is but the transaction appears to be an odd one and the manner of the sale is odd and on the evidence it is a substantial under value (paragraph 23).
2 In paragraph 24 he observed rightly that it cannot be the case that a purchaser dealing with an agent can not enforce a contract against the principal just because he is getting a bargain. With respect to the Master I do not believe he meant to say that. I think he meant to say that the principal cannot resist enforcement of the contract merely because the purchaser was getting a bargain. What he does say in paragraph 24 is that the bargain was so remarkable being at half price which the Claimant with his knowledge would appreciate. It is impossible without disclosure he observed of documents that Mr Dwimoh might have and documents passing between the Claimant and his lenders and without cross examination of the Claimant as to his state of mind.
3 In paragraph 25, the circumstances of the sale, namely, the great under value without an agent without an advertisement and a sale and the deal being done through the brother in law who happened to be in touch with both sides, made it a distinctly un-standard transaction. Apart from the question of "express ratification" the circumstances required an investigation to establish whether in fact the Claimant was turning a blind eye and did appreciate that Mr Mohammad was not carrying out his duties to the principal. The parties agree that the Learned Master did not mean to use the word ratification because there was no argument addressed before him as to ratification and that the correct word ought to be "authorisation". Mr Nugee QC conceded that before me and accepted that the arguments put forward on ratification by Mr Marshall QC who with Mr Choo Choy appears for the First and Second Defendants would be correct if that was what the Master intended.
PRINCIPLES ON APPEAL AND SUMMARY JUDGMENT APPLICATIONS
NATURE OF APPLICATION
DEFENDANTS' GROUNDS OF APPEAL
1 On the basis of an assessment of the evidence before him and his findings at that stage the Learned Master ought to have concluded that Mr Mohammad had exceeded his authority as it was limited to putting forward a sale at the best price reasonably obtainable with the benefit of a marketing exercise through agents and with a valuation. As he exceeded his authority the Agreement is void as it was negotiated in excess of his authority. The Agreement further was contrary to the interests of the principals and therefore Mr Mohammad was not acting within the scope of his express authority which was the limited authority to sell subject to the compliance of the terms set out above.
That Defence if successful arises irrespective of whether or not the Claimant knew Mr Mohammad was exceeding his authority.
2 The second ground of Defence put forward by the First and Second Defendants is that the evidence and findings of the Master showed that there was a real prospect of success of establishing that Mr Mohammad was acting in breach of his duties and the Claimant knew it. It is true they concede that they do not allege that he expressly participated in a fraudulent design but he had constructive notice or turned a blind eye to the obvious. The Master as set out in the paragraphs of his judgment recited above found there was a real prospect of success on the part of the First and Second Defendants on this basis.
LACK OF AUTHORITY
"Every authority conferred upon an agent, whether express or implied, must be taken to be subject to a condition that the authority is to be exercised honestly and on behalf of the principal. That is a condition precedent to the right of exercising it, and, if that condition is not fulfilled, then there is no authority, and any act purporting to have been done under it unless in dealing with innocent parties, is void. Further it is quite clear that if a person dealing with an agent has knowledge that there has been a fraudulent exercise of the authority then as far as he is concerned, he is not allowed to say that the authority exists".
" The principal issue in this case is the actual and ostensible authority of Mr Towey as deputy managing director of the Defendants to sign the 1995 Letters on behalf of the Defendants, and to commit DC and DG to the liabilities assumed thereunder. Before I look at the facts I should say a word on the relevant law. The authority of an agent is "actual (express or implied) where it results from a manifestation of consent that he should represent or act for the principal expressly or impliedly made by the principal to the agent himself": Bowstead & Reynolds on Agency 17th ed ("Bowstead") art 22(1). This authority extends to doing "whatever is necessary for, or ordinarily incidental to, the effective execution of his actual authority': Bowstead art 27. The authority may in appropriate circumstances extend to raising funds and giving security for borrowings for the purpose of fulfilling the functions and duties assigned to him. Where a board of directors appoint one of the members to an executive position "they impliedly authorise him to do all such things as fall within the usual scope of that office" ...Hely-Hutchinson v Brayhead Ltd  1 QB 549,  3 All ER 98 at 583)."
 The grant of actual authority to an agent will not normally include authority to act for the agent's benefit rather than that of his principal and therefore, without agreement, the scope of actual authority will not include this. The grant of actual authority should be implied as being subject to a condition that it is to be exercised honestly and on behalf of the principal: Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421. It follows that, if an act is carried out by an agent which is not in the interests of his principal, for example signing onerous unconditional undertakings, then the act will not be within the scope of the express or implied grant of actual authority. As a result there cannot be actual authority:
"The agent is simply not authorised to act contrary to his principal's interests: and hence that an act contrary to those interests is outside his actual authority. The transaction is therefore void unless the third party can rely on the doctrine of apparent authority." ...Bowstead para 8-218.)
 In the case of Macmillan Inc v Bishopgate Trust (No 3)  3 All ER 747,  1 WLR 978, Millett J (as he then was) stated that "English law . . . recognises the distinction between want of authority and abuse of authority" (at 984). He then went on to approve the statement that "an act of an agent within the scope of his actual or apparent authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests". Bowstead suggests that this statement of the law should be limited to apparent authority, ie that acting fraudulently or in furtherance of own interests will by its very nature nullify actual authority, but not apparent authority. I respectfully agree.
 In my judgment Mr Towey did not have actual authority to sign the 1995 Letters for two independent reasons. The first is that the giving of the undertakings therein contained did not fall within the "usual scope" of his office of deputy managing director with full responsibility for the Marine Department and to resolve the outstanding matters relating to the Baroon and the Amra Insurance Claim. It is necessary to bear in mind (as Mr Colin Dallas stated unchallenged in his evidence) that Mr Ian Dallas was Executive Chairman, Mr Colin Dallas was managing director and Mr Towey, though deputy managing director, was subordinate to both and answerable to the Board. It is also necessary to bear in mind that, whilst Mr Towey was given a high degree of autonomy in the Marine Department and full responsibility to resolve outstanding matters relating to the Amra Insurance Claim and the Baroon, this did not give him authority to raise funds by financing trading by Mr Malik and his companies. DC had bank facilities at all times available and had no need or reason to have recourse to resort to unorthodox means. There was a requirement under the mandate for two signatories on any cheque. Mr Towey never had any authority at any time to raise money or earn profits as he thought fit, let alone enter into the onerous obligations under the 1995 Letters. Mr Towey's conduct in concealing the 1995 Letters is indicative that he knew that this was so.
 The second is that (as I have already held) he entered into the 1995 Letters, not for the benefit of DC and DG, but for his own benefit and/or the benefit of Mr Malik. He knew that it was highly disadvantageous to DC and DG to enter into the commitments which he did and it was for this reason that he never disclosed the commitments to the Defendants and was anxious that TTB should never disclose the commitments to the Defendants. In a word, he knew that he was acting in breach of fiduciary duty and indeed dishonestly in signing the 1995 Letters".
"Their first line of defence was that, as Underwood was acting within his apparent authority, the fact that he was using that authority for his own benefit was immaterial; "the apparent authority was the real authority", see per LORD MACNAGHTEN in Bryant, Powis and Bryant, Ltd v Quebec Bank (15) ( AC at p 180) and for this purpose they relied on such cases as Hambro v Burnand (16) and Lloyd v Grace, Smith & Co (17). In my view, the distinction between these cases and the present is that, in the cases cited, the apparent agent was purporting to create privity between the plaintiff and his principal by doing an act which it was within his apparent authority to do, and the fact that he did it for his own benefit, which he had no actual authority to do, was immaterial as against the plaintiff who purported to contract with the alleged principal on the faith of the agent's apparent authority. If an agent, with a general authority in writing to sell houses, sells, as agent, his principal's house to third party after production of his authority, it would be useless for the principal to assert that his agent was really selling on his own behalf intending to put the money in his own pocket. "The apparent authority is the real authority." So in the present case, if the bank were purchasing the cheque for value, apart from any question of the Bills of Exchange Act, 1882, on finding from the company's documents that the sole director had authority to endorse cheques on their behalf, it would be immaterial whether he was using that power for his own benefit, and privity would be created between the alleged principal and the bank, so that the property would pass. But in the present case AL Underwood, in asking the bank to collect and pay the proceeds into his private account, was not purporting, in this transaction, to act as agent for his company, or to create privity between them and the bank, he was acting and purporting to act for himself as principal. Just as you cannot ratify the act of an agent who did not profess to act for you, so, in my view, you cannot rely on the apparent authority of an agent who did not profess, in dealing with you, to act as agent. This line of defence, in my opinion, fails".
"In my judgment, no honest lawyer would have implemented the instructions which Mr Folchi recounts in this transaction unquestioningly and uncomprehendingly in the manner which Mr Folchi did. There can be no question about Mr Folchi's competence. An honest lawyer in his position would, to safeguard himself and his clients, have insisted on obtaining a proper understanding and assurances regarding the situation (quite possibly in writing despite the supposed confidentiality of what was occurring). If his clients would not give him this, he would have refused to become involved. I do not on the material before me conclude that Mr Folchi became knowingly party to the scheme to injure GT or THL. But I do conclude that Mr Folchi received and complied with instructions which conflicted, on their face and in the most obvious way, with the most fundamental of fiduciary duties, to keep private and corporate affairs and monies separate. Despite any confidence Mr Folchi may have had in his clients and the distinction of the officers whose accounts were in question and despite the prevalence of complementary payments, I cannot view it as honest conduct for any lawyer to facilitate indirect payments from one's client company's accounts to unknown accounts in the names of the client company's directors, without any clear understanding why this should be necessary or appropriate. Any other conclusion would be an invitation to fraud. Directors of previously impeccable reputation can succumb to the temptations of their stewardship. Any lawyer in Mr Folchi's position must be taken to be aware of this risk, and I have no doubt that Mr Folchi was as aware of it."
I applied that in AG of Zambia v Meer Care & Desai  EWHC 952 at paragraph 328. The Claimant clearly does not have to know the precise breach or how extensive it was: see Barlow Clowes International Ltd (In liquidation) v Euro Trust International Ltd  1 All ER 333 PC and the Gruppo Torras decision. I appreciate that it is a difficult decision to draw between a line between the desire of a purchaser to secure a bargain for himself as against a realisation that the bargain is so good that there must be something wrong about the conduct of the agent selling the property on the other side of the transaction. This is a matter for trial and given the Master's findings at this stage (which are not appealed) the First and Second Defendants have a Defence which has a real prospect of success.