Lord Justice Arnold:
Introduction
- Kevin
Taylor
is a successful businessman with a passion for boats. On 24 July 2015 Mr
Taylor
agreed to lend the sum of US$1,591,040 for a period of six months pursuant to written Heads of Terms ("the Heads of Terms") which named the borrower as
Van
Dutch
Marine
Holdings
Ltd ("
VDMH").
The Heads of Terms envisaged that the parties would enter into a detailed loan agreement. Although a loan agreement between Mr
Taylor
on the one hand and (i)
Van
Dutch
Marine
Limited ("
VDML"),
(ii)
VDMH,
(iii) Hendrik Erenstein and (iv) Ruud Koekkoek (collectively "the Original Defendants") on the other hand was substantially drafted and executed by the Original Defendants on about 30 November 2015 (this draft being referred to as "the Loan Agreement"), it was neither completed nor executed by Mr
Taylor.
The loan matured on 26 January 2016, but was not repaid. On 17 May 2016 Mr
Taylor
commenced proceedings against the Original Defendants. On 2 August 2016 Mr
Taylor
obtained a default judgment against the Original Defendants for the amount of the loan, contractual interest to date and further damages to be assessed. The default judgment remains wholly unsatisfied.
- On 21 September 2017 an order was made giving Mr
Taylor
permission to join Mohammed Khodabakhsh, New Beginnings Technologies LLC ("NBT") and Rhino Overseas Inc ("Rhino") (collectively "the Additional Defendants") as defendants to the proceedings and to amend his Particulars of Claim to advance claims against the Additional Defendants for breach of contract, misrepresentation, conspiracy, unjust enrichment and constructive trust. These claims were tried by Julia Dias QC sitting as a Deputy High Court Judge ("the Judge") in April and June 2019. On 22 July 2019 the Judge handed down an impressive judgment ([2019] EWHC 1951 (Ch)) running to 323 paragraphs dismissing all of Mr
Taylor's
claims.
- A considerable part of the Judge's judgment was devoted to examining the true basis for the so-called "rule in Kendall
v
Hamilton" (1879) 4 App Cas 504 (so-called because it derives from a passage in the speech of Earl Cairns LC at 514-515 which was neither agreed with by the other members of the majority of the House of Lords nor even the subject of argument at the Bar). The rule is stated in Bowstead & Reynolds on Agency (21st edition), Article 82(1) as follows:
"Where an agent enters into a contract on which he is personally liable, and judgment is obtained against him, the judgment, though unsatisfied is, so long as it subsists, a bar to any proceedings against the principal, undisclosed or (perhaps) disclosed, on the contract."
- Mr
Taylor
sought permission to appeal against the Additional Defendants on three broad grounds. On 4 October 2019 Rose LJ granted Mr
Taylor
limited permission to appeal against Rhino alone on two grounds, namely (i) the Judge erred in
holding
that
VDML
was not, at the time of the loan, acting as agent for Rhino as undisclosed principal pursuant to an agreement dated 15 October 2007 ("the Agency Agreement") and (ii) the Judge erred in
holding
that, if Rhino was an undisclosed principal, Mr
Taylor's
claims against it were barred by the rule in Kendall
v
Hamilton as a result of the default judgment against the Original Defendants. Although on its face Rose LJ's order appears clear both as to the extent of the permission granted and as to the reasons for her decision, there was a dispute before us as to whether Mr
Taylor
had permission for some of the contentions advanced by his counsel. I will address those points in context.
- Mr
Taylor
has recently commenced proceedings to set aside the Judge's judgment as having been procured by fraud. For the purposes of this appeal, however, it must be assumed that the judgment is not tainted by fraud.
Factual background
- The Judge set out the facts in considerable detail at [6]-[20] and [58]-[193]. It is important to note, for reasons that will appear, that the Judge was not asked to make, and therefore did not make, any findings of fact concerning any period of time earlier than 2013. Many of the facts found by the Judge are not germane to the issues on the appeal. I can therefore briefly summarise the relevant facts as follows.
VDML
is a company incorporated in England and Wales. For reasons that will appear, it must have been in existence since at least October 2007.
VDMH
is a Maltese company incorporated at the end of April 2015, when it became the sole owner of
VDML.
Mr Erenstein and Mr Koekkoek are
Dutch
nationals who each own 50% of the shares in
VDMH.
It appears that, prior to that, they each owned 50% of the shares in
VDML.
- Rhino is a Panamanian company. It appears from the Judge's findings that it was incorporated on 5 October 2007. Prior to 5 May 2015, it had bearer shares. When the
Van
Dutch
group was restructured in late April to early May 2015, Rhino became a wholly-owned subsidiary of
VDMH.
- On 15 October 2007
VDML
and Rhino entered into the Agency Agreement, which is central to the first ground of appeal. On 1 April 2013
VDML
and Rhino entered into a nominee agreement ("the Nominee Agreement"), which is relied upon by Rhino by way of a Respondent's Notice.
- Certainly by 2013, and it appears since at least 2009,
VDML
carried on business designing, manufacturing and selling luxury leisure yachts. Rhino owned all the relevant intellectual property rights, moulds and tools, however.
- On 18 November 2013
VDML
entered into an agreement with Marquis Yachts LLC ("Marquis"), a US company, which provided for Marquis to build yachts which
VDML
would purchase. It expressly recorded that the IP rights, moulds and tools were owned by Rhino. The Judge found that the whole basis of the business had been changed in 2013, with production in the Netherlands ceasing and all manufacturing operations being moved to the USA. The 2013 agreement was subsequently replaced by an agreement dated 4 May 2015 which recorded that
VDML
owned and had exclusive rights to the moulds and tools, and did not mention Rhino. A French manufacturer was added in 2015.
- Mr Khodabakhsh is a US citizen of Iranian extraction. He is a physicist and engineer by training. He is the owner of NBT. By an agreement dated 30 May 2015
VDMH
undertook to transfer all of the shares in Rhino to Mr Khodabakhsh as nominee for NBT as part of a joint
venture
between the
Van
Dutch
group and Mr Khodabakhsh/NBT to develop a green motor for
marine
use. The Judge found that Rhino was beneficially owned by Mr Khodabakhsh/NBT from that date, although the shares in Rhino were not formally registered in the name of NBT until 25 January 2017.
- It is not necessary for present purposes to recite all the Judge's findings concerning the circumstances in which the Heads of Terms were entered into. One aspect which is germane is that part of the background was that Marquis was pressing for payment of unpaid invoices. Immediately after the Heads of Terms were signed by Mr Erenstein, Mr
Taylor
arranged for the funds to be advanced by way of direct remittance to Marquis.
- At the time of the Heads of Terms Mr
Taylor
knew that Rhino owned the IP rights, mould and tools, but was unaware of the possibility that
VDML
might be acting as agent for Rhino. Mr
Taylor
only became aware of this possibility when it was asserted by Messrs Erenstein and Koekkoek in affidavits served in these proceedings on 23 November 2016. That was also when Messrs Erenstein and Koekkoek asserted for the first time that Rhino was (beneficially) owned by Mr Khodabakhsh/NBT. On 21 April 2017 NBT confirmed to Mr
Taylor's
solicitors that at all material times
VDML
had acted as agent for Rhino. It was not until some time after that that the transfer of the shares in Rhino came to light.
- On 20 October 2017, by which time he was aware of the involvement of Mr Khodabakhsh and NBT with Rhino, Mr
Taylor
made an ex parte application to the President of the Court of First Instance of Monaco for an order for the precautionary seizure of shares held by Messrs Erenstein and Koekkoek in a Monegasque company called Eko Invest SCI. The application stated that Mr
Taylor
planned (according to the translation which was before the Judge):
"to initiate proceedings against [Messrs Erenstein and Koekkoek] to obtain enforcement exequatur in Monaco of the default judgment granted by the High Court of Justice in London on 2 August 2016, but wants first to exercise a precautionary measure with regard to the
valuable
assets belonging to [Messrs Erenstein and Koekkoek] that might be transferred easily to third parties."
- The order was made on 24 October 2017 and served on 21 March 2018 when Messrs Erenstein and Koekkoek were summoned to appear in court on 5 April 2018.
- No application has ever been made by Mr
Taylor
to set aside the default judgment he obtained against the Original Defendants.
The Agency Agreement
- As the Judge noted, the Agency Agreement is expressly governed by Panamanian law, but neither side adduced any evidence of Panamanian law and both sides proceeded on the basis that it did not differ in any material respect from English law.
- The Agreement defines
VDML
as "the Agent" and Rhino as "the Principal". The recitals state:
"(A) The Principal carries on or intends to carry on the Business of trading in the buying of pleasure yachts from the Netherlands and selling worldwide ('the Business').
(B) The Principal wishes to appoint the Agent to carry out duties ('the Duties') in connection with the Business as its agent on behalf of the Principal but in the name of the Agent.
"
- By clause 1
VDML
is appointed as Rhino's agent to carry out the Duties. By
virtue
of clause 2, the Agreement is to continue indefinitely unless terminated by no less than 30 days' notice in writing.
- Clause 3 provides:
"DUTIES OF AGENT
As agent of the Principal, the Agent shall perform the Duties and carry out such transactions, dealings, acts and things as may be necessary or expedient for carrying out the duties to the best account, and without prejudice to the generality of the foregoing, the Agent shall in particular:-
(a) Use its best endeavours and work diligently at all times to carry out the Duties to the best of its abilities; and
(b) Not without the prior written consent of the Principal engage or be concerned or interested either directly or indirectly in any activity likely to compete or interfere with the Business or the carrying out of the Duties; and
(c) Engage and employ such staff and personnel as may in its opinion be appropriate for the proper carrying out of the Duties;
(d) Place orders with, enter into commitments, obligations and liabilities of any description with and to third parties for or in the course of the carrying out of the Duties, purchase, sell and turn to account all assets materials and goods used therein
purchase, sell, construct, install or dispose of all plant and equipment and effects used in connection with the carrying out of the Duties or ancillary or incidental thereto and procure services for the purposes of carrying out the Duties.
(e) Open and maintain in its own name such banking account or accounts as the Principal shall agree and credit thereto all moneys received by it in connection with carrying out the Duties or which may be paid to it by the Principal for the purposes of carrying out the Duties and debit thereto all expenses incurred in connection with carrying out the Duties and any sums which the Principal may from time to time require to be paid to it out of such account or accounts by the Agent;
(f)
Hold
any assets of the Business or collect any commissions or other payment due to the Principal in the name of the Agent as agent and nominee for the principal.
"
- Clause 5 provides expressly that the agency is to be undisclosed, while clause 11 provides that the parties are not partners or joint
venturers
and that
VDML
has no authority to act on behalf of Rhino save as authorised under the Agreement.
The Nominee Agreement
- The Nominee Agreement expressly provides that it is governed by English law. It also provides that it "amends all previous agreements". Rhino is defined as "the Principal" and
VDML
as "the Nominee".
- Clause 1 provides:
"The Principal by this Agreement instructs the Nominee to retain one time exclusive right to exercise in the name of the Nominee but in trust and on behalf of the Principal and at the latter's risk the following assets (hereafter referred to as the 'Assets'):
The Beneficial ownership of the Assets held by the Nominee or registered under its name in its capacity as nominee of the Principal shall at all times belong to the Principal."
- Other relevant provisions are:
i) Clause 4(a), which provides that Rhino agrees that
VDML
"acts in the capacity of nominee of the Principal";
ii) Clause 4(b), which provides that
VDML
will, when entering into any agreement on behalf of Rhino, "inform the parties that all assets are the property of the Principal and not of the Nominee";
iii) Clause 5(a), which provides that the proceeds received by
VDML
from any transaction in relation to which Rhino had beneficial ownership should be credited to Rhino;
iv) Clause 5(b), which provides that, if
VDML
does not receive funds due, then it will on request assign the claim or claims to Rhino;
v)
Clause 6, which provides for a fee to be paid to
VDML;
vi)
Clause 7, which requires
VDML
and its agents to "use its best endeavours to act in accordance with the best interests of the Principal" and not to "place the Assets of the Principal into any situation where they may incur any liability whatsoever to the Principal";
vii)
Clause 9, which provides that
VDML
and its agents will indemnify Rhino against "any and all losses, costs, expenses and liabilities whatsoever wheresoever and howsoever arising directly or indirectly out of or in consequence of any act or omission of the Nominee in carrying out or failing to carry out any of the terms of this Agreement";
viii)
Clause 10(b), which provided that Rhino accepted no liability for any transactions entered into by
VDML.
The Heads of Terms
- The Heads of Terms provide:
"From: KEVIN
TAYLOR
[address]
Van
Dutch
Marine
Holding
Ltd
Represented by
Hendrik R Erenstein
This letter sets out the principal terms and conditions on and subject to which Kevin
Taylor
is willing to enter into an Loan with
Van
Dutch
subject to the agreement and signing by the parties of a detailed legally binding agreement (Formal Agreement).
A loan will be provided by Kevin
Taylor
to the Company on the following terms:
Amount: USD 1,591,040
Interest rate 4% per month for 6 months with a minimum charge of 4 months and rising to 5% per month of total outstanding if principal and interest not repaid in full after 6 months.
Options to be granted
Kevin
Taylor
is granted the option to purchase any 2
Van
Dutch
at cost price
VD
40 Euros 275,000 (plus transport)
VD
55 Euros 610,000 (plus transport)
VD
75 Euros 1,400,000 (plus transport)
In the event that Mr
Taylor
does not take up one or both of his option boats he will receive 75% share in the profits of the sale of a
VD
55 for each option boat not taken.
Kevin
Taylor
to be given an option to purchase 33.33% of the entire business at a 10% discount to market price within 2 years.
Collateral
30% of the equity in the Company to be pledged to Kevin
Taylor
until loans and interest are fully repaid. Hendrik R Erenstein to pledge all his available shares until his other shareholders are in a position to pledge the full 30%.
Charge to be given by the Company over the 3 stock boats owned by the Company
Whilst the loan and interest remain unpaid:
There is to be full transparency on all financial dealings
Bi weekly meeting will be held in our Monaco office
Kevin
Taylor
will be required to authorise all payments to be made by any group companies
Any receipts of funds from any source into any group company can be directed by Kevin
Taylor
to be used to repay the outstanding loans and interest.
Governing law and jurisdiction
This paragraph is legally binding.
1.1 This letter, and the negotiations between the parties in accordance with the proposed Deal and all disputes or claims arising out of or in connection with them or their subject matter or formation (including non-contractual disputes or claims) will be governed by English law.
1.2 The parties irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim that arises out of or in connection with this letter or its subject matter or formation (including non-contractual disputes or claims).
1.3 This letter is for the benefit of the parties to it and is not intended to benefit, or be enforceable by, anyone else."
- There is no dispute that the Heads of Terms were intended to be legally binding notwithstanding that they provided for the Formal Agreement to be agreed.
The Loan Agreement
- It is not necessary for present purposes to set out the terms of the Loan Agreement in any detail. The points that matter are that (i) it names
VDML
as a party, (ii)
VDML
is defined as "the Borrower", (iii) it provides in clause 7.1 for the Borrower to create a charge over three boats and (iv) it was executed on behalf of
VDML.
The Judge's judgment
- In summary, and so far as relevant to the grounds of appeal, the Judge held as follows:
i) The Agency Agreement was not superseded by the Nominee Agreement. The two agreements were to be read together, the effect being that the Nominee Agreement regulated the rights and obligations of the parties regarding the specific use of Rhino's IP rights, moulds and tools, while the Agency Agreement (amended by conduct so as to concern the Business as it was carried on from 2013) continued to apply to the distribution and sale of boats by
VDML
after 2013. This conclusion is challenged by Rhino's Respondent's Notice.
ii) Clause 3 of the Agency Agreement authorised
VDML
to take out a loan on behalf of Rhino in the ordinary course of the Business, but it did not authorise
VDML
to enter into the loan agreement in the Heads of Terms because (i) it was a short-term bridging loan on onerous terms (interest equivalent to 48% per annum rising to 60% if not repaid in full within six months) and (ii) it purported to provide security which Rhino was not in a position to offer, namely a pledge of shares belonging to
VDMH
and Mr Erenstein, an option to purchase further boats and an option to purchase a stake in the entire
Van
Dutch
business. Accordingly,
VDML
did not enter into the Heads of Terms as agent for Rhino, which meant that Mr
Taylor
had no claim against Rhino for either breach of contract or misrepresentation. This conclusion is challenged by Mr
Taylor's
first ground of appeal.
iii) In any event,
VDMH
was the sole counterparty to the Heads of Terms.
VDML
was not a party to the Heads of Terms. Even if
VDML
had been a party to the Heads of Terms, an intention to contract on behalf of Rhino was negatived both by clause 1.3 of the Heads of Terms and by the fact that Rhino had by then been sold to Mr Khodabakhsh/NBT. Mr
Taylor
also seeks to challenge these conclusions as part of his first ground of appeal, although there is a dispute as to whether this is open to him.
iv) No binding contract was ever concluded on the terms of the Loan Agreement. This conclusion is not challenged by Mr
Taylor.
v)
The basis for the rule in Kendall
v
Hamilton was merger (as Rhino contended) and not election (as Mr
Taylor
contended). Accordingly, the subsistence of the default judgment barred Mr
Taylor's
contractual claim against Rhino. This conclusion is challenged by Mr
Taylor's
second ground of appeal.
vi)
Even if the basis for the rule in Kendall
v
Hamilton was election, Mr
Taylor
had elected to
hold
the Original Defendants liable to the exclusion of the Additional Defendants by making and serving the application for asset seizure in Monaco. By that date Mr
Taylor
knew all of the relevant facts giving rise to his right to elect. The application required Mr
Taylor
to prove the existence of a
valid
debt and he had relied upon the default judgment for that purpose. He had thereby elected to
hold
the Original Defendants liable rather than to pursue a remedy against the Additional Defendants. That election barred Mr
Taylor's
contractual claim against Rhino, although not his claim in misrepresentation. Mr
Taylor
also seeks to challenge this conclusion as part of his second ground of appeal, but again there is a dispute as to whether this is open to him.
First ground of appeal
Construction of the Agency Agreement
- Mr
Taylor
contends that, upon the true construction of the Agency Agreement, it authorised
VDML
to enter into a loan agreement of the kind contained in the Heads of Terms on behalf of Rhino. Since there are no findings as to any relevant factual matrix, this is a pure question of interpretation of the words of the Agreement. Although at one stage in his submissions counsel for Mr
Taylor
attempted to rely upon the Judge's findings as to what happened subsequently, and in particular the agreements between
VDML
and Marquis, as he accepted, these cannot affect the construction of the Agency Agreement.
- A preliminary point is that, as the Judge noted, the Agency Agreement does not clearly define the term "Duties". The Judge held that, having regard to recitals (A) and (B),
VDML's
Duties were to carry on the Business on behalf of Rhino, that is to say, to buy pleasure yachts from the Netherlands and sell them worldwide. Counsel for Mr
Taylor
did not take issue with this conclusion, and in any event it seems to me clearly to be correct.
- Counsel for Mr
Taylor
focussed his argument upon the breadth of the words in clause 3(d) "enter into commitments, obligations and liabilities of any description with and to third parties for or in the course of the carrying out of the Duties". He submitted that this language meant exactly what it said. Accordingly, he argued, it extended to a short-term bridging loan at a high rate of interest. Furthermore, it was irrelevant that the Heads of Terms included security that
VDML
was not in a position to promise either on its own behalf or on behalf of Rhino, since that merely meant that Mr
Taylor
had a claim for misrepresentation.
- Counsel for Rhino submitted that the Judge was right to conclude that clause 3(d) only conferred authority on
VDML
to borrow in the ordinary course of business for the purpose of buying and selling yachts and that such authority enabled
VDML
to enter into loans on reasonable commercial terms, but not to assume onerous obligations, still less to make promises that it knew that neither it nor Rhino could possibly perform (not least because they required performance by a parent company that did not even exist at the time of the Agency Agreement). That would not be to act "to the best account", i.e. in the best interests of Rhino, as required by the general words in clause 3.
- This is a short point, which is incapable of much elaboration. In my judgment the Judge's construction of the Agency Agreement was correct. The words "of any description" merely mean that
VDML
has authority to enter into commitments of any type for the purpose of carrying on the Business. They cannot sensibly have been intended to give
VDML
carte blanche to enter into any loan agreement whatever, no matter how onerous its terms and regardless of whether
VDML
or Rhino were able to perform its terms. The Judge drew the line at borrowing "in the ordinary course of" the Business. I accept that those words are not to be found in clause 3(b), but in my
view
the Judge was right to
hold
that they were implicit.
- My only reservation is that the Judge drew support for this conclusion from the limited scope of an agent's implied authority to do what is incidental to the ordinary conduct of the principal's business (see Bowstead & Reynolds, Article 29). Since this is a case of express authority, I am not sure that that is directly relevant, although I can see that the underlying considerations are similar.
- It follows that it is not necessary for me to express any
view
on the submission made by counsel for Rhino that the Agency Agreement only authorised loans for the purpose of buying and selling yachts, and not for manufacturing them; or on the answering submissions made by counsel for Mr
Taylor
that (i) although there was no such finding by the Judge, the relationship between
VDML
and Marquis at the time of the Heads of Terms must have been that of buyer and seller of yachts (as opposed to manufacturer and contractor) alternatively (ii) a loan for the purpose of constructing a yacht was incidental to the business of selling that yacht.
Respondent's Notice
- Given the conclusion I have reached concerning the interpretation of the Agency Agreement, it is not strictly necessary to consider the Nominee Agreement. Nevertheless, I shall do so briefly.
- Again, there is a preliminary point, which is that the Nominee Agreement does not define or identify the term "Assets". The Judge held that it meant the IP rights, moulds and tools owned by Rhino. Neither party challenges that conclusion.
- Counsel for Rhino submitted that it was clear from the Nominee Agreement that it was not an agency agreement, indeed its provisions were inconsistent with
VDML
being an agent for Rhino, particularly as undisclosed principal. The Judge accepted the first part of this proposition, and for my part I accept the whole of it. As the Judge rightly held, however, it does not necessarily follow that the Nominee Agreement superseded the Agency Agreement. As she pointed out, that is not what it says. Nor is it a necessary implication because the two agreements are not entirely co-extensive. The Judge construed the Nominee Agreement as being directed specifically at the assets owned by Rhino, and as such it displaced the Agency Agreement to that extent but no further. That left the Agency Agreement applying generally to the distribution and sale of boats by
VDML.
In my opinion the Judge's analysis is correct, and none of the submissions made by counsel for Rhino persuade me to the contrary.
The Judge's contractual analysis
- Although the conclusion reached in paragraph 35 above is sufficient to dispose of this appeal, I shall also consider the correctness of the Judge's contractual analysis if (contrary to that conclusion)
VDML
had authority to enter into the loan agreement contained in the Heads of Terms on behalf of Rhino.
- The first question is whether it is open to Mr
Taylor
to challenge the Judge's analysis. Rhino contends that it is not, because the ground of appeal for which Mr
Taylor
sought, and was given, permission was that "the learned Judge misconstrued the scope and nature of the principal-agent relationship". I agree that this does not appear to challenge the correctness of the Judge's contractual analysis, particularly given that the Judge dealt with that quite separately from her analysis of the extent of
VDML's
agency; but paragraphs 59-65 of Mr
Taylor's
skeleton argument on the application for permission to appeal made it clear that Mr
Taylor
was also challenging the contractual analysis. Accordingly, I consider that Rose LJ must be taken to have granted permission to appeal on the latter aspect as well.
- Turning to the substance of the matter, the Judge set out her analysis at [277] as follows:
"i)
VDMH
was the sole counterparty to the Heads of Terms. Not only did Mr
Taylor
expressly state in evidence that he regarded himself as lending to the 'topco', but the Heads of Terms themselves provided in clause 1.3, which was expressly stated to be legally binding, that they were for the benefit of the parties alone and were not intended to be enforceable by or against anyone else.
ii) Accordingly,
VDML
was not a party to the Heads of Terms and since only
VDML
is alleged to have had any agency relationship with Rhino, there is no conceivable basis on which it can be said that Rhino was party.
iii) Even if
VDML
had been a party to the Heads of Terms, both parties agreed that an intention to contract on behalf of Rhino was an essential pre-requisite of the undisclosed principal doctrine. However, any such intention was clearly negatived by clause 1.3 which would have been sufficient to exclude the intervention of Rhino, whether to sue or to be sued: see Bowstead (op.cit.) Art. 76(4) and paragraph 8-081.9
iv) It must in any event be doubtful whether
VDML
intended to contract on behalf of Rhino in July 2015 when Rhino had by then been sold to Mr Khodabakhsh as part of the joint
venture.
There was certainly no evidence to that effect."
Footnote 9 cited Kaefer Aislamientos SA de CV
v
AMS Drilling Mexico Sade CV [2019]
EWCA
Civ
10, [2019] 1 WLR 3398.
- Mr
Taylor
contends, in outline, that the Judge ought to have concluded (a) that
VDML
was also a party to the Heads of Terms and (b) that neither of the reasons relied upon by the Judge supports the conclusion that there was no intention on the part of
VDML
to contract on behalf of Rhino.
- Having regard to the arguments on the appeal, it seems to me that the starting point is to consider the contractual status of the Heads of Terms. Although counsel for Mr
Taylor
submitted that the contract was partly written and partly oral, as counsel for Rhino pointed out, no such case was pleaded by Mr
Taylor.
On the contrary, Mr
Taylor's
pleaded case is that the contract was a written one contained in the Heads of Terms. It does not appear that this was in issue at trial, and that is how the Judge approached the matter.
- That being so, the next question is whether the identification of the parties to the contract is purely a question of interpretation of the words used in the written document or whether it is a question of fact on which extrinsic evidence is admissible. Somewhat surprisingly, counsel for Rhino submitted that it was a question of fact, and this was also implicit in the submissions of counsel for Mr
Taylor.
- Having reviewed a number of authorities, Jackson LJ summarised the relevant principles in Hamid
v
Francis Bradshaw Partnership [2013]
EWCA
Civ
470, [2013] BLR 447 at [57] as follows:
"i) Where an issue arises as to the identity of a party referred to in a deed or contract, extrinsic evidence is admissible to assist the resolution of that issue.
ii) In determining the identity of the contracting party, the court's approach is objective, not subjective. The question is what a reasonable person, furnished with the relevant information, would conclude. The private thoughts of the protagonists concerning who was contracting with whom are irrelevant and inadmissible.
iii) If the extrinsic evidence establishes that a party has been misdescribed in the document, the court may correct that error as a matter of construction without any need for formal rectification.
"
- In Barbudev
v
Eurocom Cable Management Bulgaria Eood [2011] EWHC 1560 (Comm), [2011] 2 ALL ER (Comm) 951 (which is not one of the authorities discussed by Jackson LJ) Blair J stated at [114]:
"
having held that the agreement was contained in the Side Letter (and was not partly oral), I also accept their submission that since ECMB was specifically identified as the party in the document, oral or extrinsic evidence is not admissible to show that others were the parties (Shogun Finance Ltd
v
Hudson [2004] 1 AC 919 at [49], Lord Hobhouse, and at [178] Lord Phillips). If FNCH (or Warburg Pincus International) is to be treated as a party to the Side Letter, that can only be, in my
view,
on the basis of a shared mutual assumption sufficient to give rise to an estoppel by convention (as the requirements for which see Republic of India
v
India Steamship Co [1998] AC 878, 9134, Lord Steyn)."
- It can be seen that there is some tension between these authorities. They are not in direct conflict, because Jackson LJ is addressing the question of whether, given that the contracting party is described in the document as A, it is possible to conclude that the true contracting party was B; whereas Blair J is addressing the question of whether, given that the contracting party is described as A, it is possible to conclude that B was also a contracting party in addition to A (with the counterparty C). It may be questioned, however, why a different answer should be given to these two questions. In the present case the issue is of the second kind. Nevertheless, given that (i) counsel for Rhino did not argue that extrinsic evidence was inadmissible, (ii) no doubt for that reason, neither authority was cited in argument and (iii) Hamid is a decision of this Court, I will assume for present purposes that Jackson LJ's more relaxed approach is correct and applicable.
- Counsel for Rhino relied on the Judge's finding that Mr
Taylor
intended to contract with the "topco", i.e.
VDMH,
but with respect to the Judge that evidence was plainly inadmissible on this issue.
- Counsel for Mr
Taylor
advanced two main arguments in support of the proposition that
VDML
was a contracting party in addition to
VDMH.
First, he relied upon the intrinsic evidence, namely the terms of the agreement, read against the background matrix of fact. He pointed out that the Heads of Terms granted Mr
Taylor
an option to purchase two boats and a charge over three stock boats "owned by the Company". He submitted that, since
VDMH
was merely a
holding
company and
VDML
was the trading company, the boats must have been owned by
VDML,
and this showed that "the Company" must be
VDML.
This does not necessarily follow, however. As Underhill LJ pointed out during the course of argument, a parent company may agree to procure that its wholly-owned subsidiary grants an option to purchase and/or a charge over property owned by the latter.
- Secondly, counsel for Mr
Taylor
relied upon two items of extrinsic evidence. The first item was that the loan monies were paid to Marquis and that this was for the benefit of
VDML
given that the Marquis invoices were addressed to
VDML.
As counsel for Rhino submitted, however, this does not demonstrate that
VDML
was a contracting party. Again, there was nothing to prevent
VDMH
from directing that the monies be paid for the benefit of its subsidiary.
- The second item consisted of post-contractual conduct. Counsel for Rhino disputed that post-contractual conduct was admissible on this issue. Counsel for Mr
Taylor
cited Great North Eastern Railway Ltd
v
Avon Insurance plc [2001]
EWCA
Civ
780, [2001] 2 All ER (Comm) 526 at [29] (Longmore LJ) as showing that post-contractual conduct was admissible for this purpose, but as counsel for Rhino pointed out the issue in that case was whether a term had been incorporated into a contract. Nevertheless, I shall assume for the reasons given above that counsel for Mr
Taylor
was correct as to the admissibility of such evidence.
- Counsel for Rhino also objected that this point was not advanced by Mr
Taylor
before the Judge. Given that the evidence is purely documentary, and that the question is an objective one for the court, I do not consider that this is a fatal objection to the point being taken now.
- The post-contractual conduct relied upon consists of the Loan Agreement, which the Judge found had been drafted (to the extent that it was) by Mr
Taylor's
lawyers. As noted above, this names
VDML
as a party, has provisions concerning
VDML
and was executed by
VDML.
The short answer to this point, however, is that the Loan Agreement was never concluded. At best, therefore, it represents an offer by the
Van
Dutch
parties which was not accepted by Mr
Taylor.
The fact that it evidently shows that, at that point in time, Mr
Taylor
was minded to contract with
VDML
(and Messrs Erenstein and Koekkoek) as well as
VDMH
does not show that, at the date of the Heads of Terms, the parties intended that
VDML
was to be a party to that agreement even though it was not named as such.
- I did not understand counsel for Mr
Taylor
to dispute that, if
VDML
was not a party to the Heads of Terms, then it necessarily followed that
VDML
could not have contracted as agent for Rhino. I can see some force in the submissions made by counsel for Mr
Taylor
that, if on the other hand
VDML
was a party to the Heads of Terms, neither of the reasons relied upon by the Judge for concluding that there was no intention that
VDML
should contract as agent for Rhino justified that finding, but it is not necessary for me to come to any conclusion on that aspect of the matter.
Second ground of appeal
- Given the conclusions that I have reached on Mr
Taylor's
first ground of appeal, the second ground of appeal does not arise for decision. It is therefore not necessary for me to express any
view
on the interesting question of the true basis for the rule in Kendall
v
Hamilton. Nor is it desirable that I should do so given that anything I said would be obiter. This is all the more so for two reasons.
- First, it became clear during the course of argument that the question is tied up with the nature of the liability of an agent and an undisclosed principal to the counterparty who contracted with the agent: is it alternative (as counsel for Rhino argued) or is it joint and several (as counsel for Mr
Taylor
argued)? This is an aspect of the matter on which I would have preferred to have heard more detailed submissions than time permitted.
- Secondly, the doctrinal basis for the rule would only matter if Mr
Taylor
were able successfully to challenge the Judge's conclusion that he elected to rely on the default judgment by his actions in Monaco. A similar issue arose to that considered above as to whether it was open to Mr
Taylor
to challenge that conclusion. Mr
Taylor's
ground of appeal was that the Judge "wrongly misapplied, and erroneously misidentified the rationale and justification for the principle in Kendall
v
Hamilton". Again, however, I consider that paragraphs 44-51 of Mr
Taylor's
skeleton argument made it clear that he was challenging the judge's conclusion on election, and Rose LJ must be taken to have given him permission to do so.
- There is a further aspect to the issue this time, however. As counsel for Rhino pointed out, election is a question of fact: Evans
v
Bartlam [1937] AC 473 at 485 (Lord Wright). Mr
Taylor's
grounds of appeal did not mention any challenge to a finding of fact by the Judge. Nor did his skeleton argument in support of the application for permission to appeal make it
very
clear that he was challenging a finding of fact by the Judge, although this is apparent with the benefit of hindsight. It is therefore not at all certain that Rose LJ appreciated that that was the case.
- Practice Direction 52C paragraph 5 provides:
"(1) The grounds of appeal must identify as concisely as possible the respects in which the judgment of the court below is
(a) wrong; or
(b) unjust because of a serious procedural or other irregularity,
as required by rule 52.21(3).
(2) The reasons why the decision under appeal is wrong or unjust must not be included in the grounds of appeal and must be confined to the skeleton argument."
- It is common experience in this Court that grounds of appeal are not concise, as required by paragraph 5(1), but prolix. In the present case, Mr
Taylor's
grounds of appeal were commendably succinct. Nevertheless, they should have made it clear that Mr
Taylor
was challenging a finding of fact by the Judge. It would have sufficed to say "the Judge was wrong to find as a fact that Mr
Taylor
elected to maintain the liability of the Original Defendants to the exclusion of the Additional Defendants because that finding was not open to the judge on the evidence", leaving the supporting submissions to be developed in the skeleton argument.
- In future, parties filing appellants' notices should clearly identify any challenges to the lower court's findings of fact in their grounds of appeal and squarely address those challenges in their skeleton arguments, so as to ensure that (i) the judge considering the application for permission to appeal appreciates that such a challenge is being mounted and can decide whether or not to grant permission for it and (ii) if permission is granted, the members of the Court hearing the appeal can prepare accordingly.
- Given that it was a finding of fact, Mr
Taylor
faced obvious difficulties in challenging the Judge's conclusion that he had elected to rely on the default judgment. No doubt recognising that he faced an upward struggle, on 18 February
2020
(the day before the hearing of the appeal) Mr
Taylor
applied, purportedly pursuant to CPR rules 52.20(1) and 3.1(2)(m) but properly rule 52.21(2)(b), to adduce further evidence consisting of a witness statement of Olivier Marquet, a Monegasque lawyer who has been acting for Mr
Taylor
in the Monaco proceedings. Rhino opposed the application on the grounds that (i) it was egregiously late, (ii) the evidence did not satisfy either of the first two criteria in Ladd
v
Marshall, (iii) a substantial part of the evidence was expert evidence which Mr
Taylor
had neither sought nor obtained the permission of the court to adduce and which did not satisfy the requirements of Part 35 (e.g. because it did not contain the appropriate expert declarations), and (iv) admission of the evidence would necessitate a remission of the issue to the lower court.
- These factors explain why I do not consider that it would be desirable to prolong this judgment by considering the second ground of appeal. It is sufficient to say that the application to adduce further evidence must in any event be dismissed having regard to the failure of Mr
Taylor's first ground of appeal.
Conclusion
- For the reasons given above, I would dismiss the appeal.
Henderson LJ:
- I agree.
Underhill LJ:
- I agree that this appeal should be dismissed for the reasons given by Arnold LJ. I wish to echo what he says at paras. 61-63. It is rather surprising for this Court to be complaining that grounds of appeal are too succinct: usually, as Arnold LJ says, the problem is that they are far too discursive. But grounds do need to identify (though they should not develop) the specific errors which the Judge is said to have made, and that includes any errors of fact on which the appellant seeks to rely. The careful analysis which this may require should be as useful to the pleader as it will be to the Court.