BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just Β£1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
 |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
England and Wales High Court (Queen's Bench Division) Decisions |
||
|
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Jani-King (Gb) Ltd. v Alan James Manchett [2011] EWHC 1659 (QB) (01 July 2011) URL: http://www.bailii.org/ew/cases/EWHC/QB/2011/1659.html Cite as: [2011] EWHC 1659 (QB) |
||
[New search] [Printable RTF version] [Help]
QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
| Jani-King (GB) Ltd |
Claimant/Respondent |
|
| - and - |
||
| Alan James Manchett |
Defendant/ Applicant |
|
| - and- |
||
| Paul Haworth |
Third Party |
____________________
Mr J Evans-Tovey (instructed by Cubism Law) for the Respondent
Hearing date: 31st March 2011
____________________
Crown Copyright ©
Mr Justice Sweeney :
Introduction.
"1. The Claimant is a limited company that carries on business franchising commercial cleaning services.
2. The Defendant is an experienced businessman formerly carrying on business in the field of commercial cleaning, with a turnover of more than £2 million a year.
3. On the 24th March 2010, the Claimant and Defendant entered into a written franchise agreement ("the agreement").
4. The agreement contained stipulations as follows:
(1) The Defendant must pay the Initial Franchise Fee of £111,000.00 plus V.A.T. by no later than 25/03/10: § 6.1.1 and Schedule 1;
(2) The Claimant would provide business to the value of £22,000 a month: § 8.2;
(3) The Defendant acknowledged that:
(A) He had sought independent legal advice: § 36.1 and
(B) He had decided to enter the agreement on the basis of his own judgment and experience, and that no oral representation or warranty had been made or relied upon by him: §36.2.
5. The Defendant initialled every single page of the agreement, notably § 6.2 and Schedule 8 (Finder's Fees) and indeed on some pages initialled every single provision, notable examples being Schedules 1 (the definition of the Initial Franchise Fee) and 5 (his business-experience as at Paragraph 2 above).
6. The Defendant did not pay the Initial Franchise Fee.
7. Instead:
(1) On the 30th March 2010, he objected that he had not understood that he must pay extra fees if he wanted the Claimant to provide more than £22,000-worth of business monthly (i.e Finder's Fees); and
(2) On the 7th April 2010 his accountant sent the Claimant an email-message, stating that "the Finder's Fees provisions were a bombshell" to the Defendant.
8. On the 10th May 2010, the Claimant brought this action, claiming payment of the £110,000 plus V.A.T.
9. On the 2nd July 2010, the Defendant served a Defence, in which he objected that:
(1) He had signed the agreement on the footing, communicated at the time orally to the Claimant, that his agreement was conditional upon his receiving advice about the agreement from his accountant.
(2) Both his acknowledgment at § 36 and his statement at Schedule 5 were untrue.
(3) The Claimant's Mr Haworth had orally stated to the Defendant that the agreement was for £40,000-worth of business each month.
(4) Mr Haworth's statement was made fraudulently.
10. On the 2nd August 2010, the Claimant applied for summary judgment.
11. In his 1st witness-statement dated the 19th November 2010, the Defendant for the first time voiced the further objection that:
(1) Mr Haworth had told him orally that the work that would be coming to the Defendant was at the time being done by a franchisee called Shayona R & D Limited ("Shayona").
(2) Shayona had in fact been dissolved some months previously.
(3) Since that company had been dissolved, it followed that there was no such business.
(4) Mr Haworth's statement was "deceitful, misleading and fraudulent".
(5) At the hearing on 4/02/11, the Defendant sought leave to amend to plead this further objection.
12. In his 2nd witness-statement dated the 2nd February 2011, the Defendant explained that Shayona's existence was crucial to him.
13. Counsel for the Claimant and for the Defendant have provided detailed written arguments, to which reference must be made.
14. The points made on behalf of the Claimant in its Counsel's written argument are a complete answer to the Defendant's objections apart from the further objection regarding the existence of Shayona.
15. As regards that further objection:
(1) The evidence is that the business of Shayona was at the relevant time being carried on, if not by Shayona itself, by the individuals that controlled Shayona; and the suggestion that the existence in law of Shayona was material to the Defendant is fanciful.
(2) Any such representation by Mr Haworth as is alleged is caught by § 32.12 of the agreement.
(3) The assertion that what Mr Haworth said was said fraudulently is devoid of substance, and the draft pleading anyway offends the principle expressed in Three Rivers, &c. v Governor, &c., at §184.
16. There accordingly is no defence having any real prospect of success, and the Claimant's application must be granted, and the Defendant's refused."
The Grounds of Appeal
"1. The decision of Master Eyre involved serious procedural irregularity in that the Master failed to give any, or any adequate, reasons for his determination of the issues raised on the application.
2. The Master gave no proper judgment and made no findings of fact or law and in particular in that regard the Master gave no or no proper reasons for preferring the Claimant's case over the Defendant's case.
3. The Master failed to examine consider and weigh the available evidence and then to make appropriate findings and to apply such findings to the correct principles of law.
4. The Master failed to appreciate or understand the weight and nature of the evidence before the Court and/or failed to identify and explain his reasons for departing from such evidence.
5. The Master failed to deal with the evidence of two witnesses that the agreement the subject of this action was signed by the Defendant in escrow.
6. The Master failed to deal with the Defendant's submissions as to the effect of the agreement being signed in escrow other than to say that "the points made on behalf of the Claimant in its Counsel's written argument are a complete answer to the Defendant's objections". The Claimant's written argument did not address the effect of the Defendant's signature being in escrow, namely that that there was no agreement at all. Accordingly the Master did not address the Defendant's case that there was never any effective agreement.
7. The Master failed to deal with the Defendant's submissions that the contractual clauses relied upon by the Claimant were of no effect if the agreement had not been entered into. The Claimant's written argument did not address this issue.
8. The Master failed to deal with the evidence of three witnesses that the representations made by the Claimant as to the level of business being purchased were untrue.
9. The Master failed to deal with the Defendant's submissions that the representations must have been known to be untrue at the time they were made and so were fraudulent, other than to say that "the points made on behalf of the Claimant in its Counsel's written argument are a complete answer to the Defendant's objections". The Claimant's written argument did not address this issue.
10. The Claimant's written argument relied inter alia upon the terms of the contract, and the Master failed to address the Defendant's submissions that a party is not permitted to contract out of his own fraud. The Claimant's written argument, and so accordingly the Master, failed to address the binding authority cited by the Defendant in support of this proposition (HIH Casualty and General Insurance v Chase Manhattan Bank [2003] 2 LL Rep 61).
11. The Claimant's written argument, and so the Master, failed to address the issue of fraudulent misrepresentation at all.
12. Further, the Claimant's written argument asserted that the representations pleaded were not a statement of fact and so were not actionable. The Master failed to address the Defendant's submissions, supported by authority (Edgington v Fitmaurice [1885] 24 Ch 459), that the representations were a statement of fact and so were actionable.
13. Further, the Master failed to address the Defendant's submissions that the contractual exclusion clauses relied upon by the Claimant were not effective to exclude liability for fraud. This issue was not addressed by the Claimant's written argument.
14. Further, the Master failed to address the Defendant's submissions that in any event the authorities relied upon by the Claimant (Springwell v JP Morgan [2010] EWCA Civ 1221, Peekay Intermark Ltd v Australia and New Zealand Banking Group [2006] EWCA Civ 386) were not material because they were not concerned with cases of fraudulent misrepresentation. This issue was not addressed by the Claimant's written argument.
15. Further, if and insofar as the Claimant was entitled to rely upon such exclusion clauses, the Master failed to address the Defendant's submissions that by reason of s.3 of the Misrepresentation Act 1967 it was for the Claimant to show that the terms relied upon by the Claimant were reasonable. This issue was not addressed by the Claimant's written argument.
16. The Master's reasons for refusing permission to the Defendant to amend the Defence are defective and wrong in that:
(i) The proposed amended pleading was not limited to an allegation that the existence in law of Shayona R&D Ltd (Shayona') was material to the Defendant.
(ii) In any event there was positive and detailed evidence before the Court that the existence of Shayona was of importance to the Defendant in entering into the contract and the Master has given no reason for disbelieving such evidence or for finding it to be 'fanciful'.
(iii) The fraudulent representation alleged is not caught by cl. 32.12 of the agreement because the agreement itself provides that cl 32.12 does not apply to fraudulent misrepresentations.
(iv) The proposed amended pleading is not devoid of substance and does not offend the principle expressed at paragraph 34 of Three Rivers DC v Governor of the Bank of England (No.3) [2003] 2 AC 1, in that the fraudulent misrepresentation is distinctly pleaded and particularised and the reasons why the misrepresentation was fraudulent are clearly and distinctly set out so that the Claimant knows the case it has to meet."
i) The escrow issue (Grounds 5-7).
ii) The fraudulent misrepresentation issue (Grounds 8-15).
iii) The amendment issue (Ground 16).
The Broad Background
i) Three statements by Mr Haworth - two of which were dated 30 July 2010 and 2 December 2010 respectively. The third was undated.
ii) Two statements by the Defendant dated 19 November 2010 and 2 February 2011.
iii) A statement from each of Lee Briggs, David Manchett and Michael Love all dated 19 November 2010.
iv) A number of documents produced in the various statements.
i) In recitals (H) and (I) and in clauses 36.1 and 36.2, it was stated that the Defendant variously stated and acknowledged that he had not relied on any representations or warranties made by or on behalf of the Claimant other than those contained in schedule 5; that he had represented as much to the Claimant; that he had been strongly advised by the Claimant to take independent legal and financial advice, and to speak with other Franchisees before entering into the agreement; that he had done so; and that he had represented as much to the Claimant.
ii) In clause 1.1 it was stated that the Defendant warranted that he had not relied on any information in entering into the Agreement other than that contained in schedule 5.
iii) In clause 4.1 it was stated that the Franchise would commence on the commencement date (defined in the Agreement as the commencement date set out in schedule 1) of 1 April 2010.
iv) In schedule 1, each part of which the Defendant initialled, it was stated that the term of the Agreement was 20 years, and that a non-refundable Initial Franchise Fee of £129,500 (£110,000 plus VAT) was payable no later than 25 March 2010 (which date was handwritten, and was initialled by the Defendant).
v) In clauses 6.1.1 and 6.2 it was stated that the Initial Franchise Fee was non-refundable and was to be deemed to be fully earned upon execution of the Agreement, and was to be paid in addition to other fees due under the Agreement, and that in the event that the Claimant agreed to the Defendant taking on work other than that secured by the Claimant the Finders Fee Agreement would come into effect as detailed in clause 8.6 and schedule 8 (see (ix) & (x) below).
vi) In clauses 8.1 and 8.2 it was stated that the Claimant undertook, after the successful completion by the Defendant of a training period, to use its reasonable endeavours to provide Initial Business to the Defendant over the period and in the amounts specified in the Plan in Schedule 2 to the Agreement, whilst reserving the right to provide customer accounts ahead of the Plan.
vii) Schedule 2 and the accompanying Plan in schedule 2.1(A) stated that the Initial Business that the Claimant undertook to use its best endeavours to provide was to be to a maximum of £22,000 per month - in the increments set out in the Plan from May 2010 until July 2011.
viii) In clauses 8.3 and 8.4 it was stated that the Claimant undertook that if by the end of any given month it had failed to receive and offer to the Defendant cumulative revenue to the level set out in the Plan (in schedule 2.1(A)) then it would be liable to pay a Plan Fee (as set out in schedule 2.1(B)); and that if by the end of July 2011 it had been unable to secure and offer the full £22,000 per month, the Claimant would have the option to continue paying the Plan Fee each month, or to pay a refund equal to three times the shortfall.
ix) In clause 8.6. it was stated that the Claimant and the Defendant had entered into a Finder's Fee Agreement in escrow which would automatically come into effect if the Claimant provided the Defendant with business over and above £22,000 per month during the period until the end of July 2011, and that in such circumstances the Defendant would have to pay further sums to the Claimant.
x) The Finder's Fee Agreement was set out in schedule 8 and provided that the Defendant agreed to a Finder's Fee in respect of business over £22,000 per month; and that, depending on how it was paid, the fee would be between 3 times and 3.4 times the gross monthly invoice amount of the additional business.
xi) In schedule 5 (where the Defendant initialled or signed every entry) it was stated that the schedule was a summary of the main issues raised by the Defendant with Mr Haworth, and his responses, prior to the signing of the Agreement; that the Claimant had stated that it had a substantial volume of contracts in the Defendant's territory, and that there might be opportunities for the Defendant to expand his business within his territory at faster than the anticipated Plan rate, and beyond the Plan, as well as beyond the territory, but that the Defendant recognised that the Claimant had offered no guarantees, and that the Claimant's obligation to provide new business and the Defendant's remedy via Plan Fees were set out elsewhere in the Agreement; that there was a discussion about the circumstances in which Plan Fees became payable to franchisees, that the Defendant acknowledged that he understood when such fees became due and payable, and that he had made his decision to purchase the franchise fundamentally based on his entitlement to such fees; and that the Defendant warranted that the statements set out in the schedule were an accurate reflection of the main issues raised by him prior to entering into the Franchise Agreement.
xii) In clauses 32.6 and 32.8 it was stated that that the Agreement, schedules and Finder's Fee Agreement etc constituted the entire agreement between the parties, and that they superseded any negotiations or prior agreements on the subject matter, and that there were no other covenants or agreements, written or oral.
xiii) In clause 32.7 it was stated that the Claimant had made no representations of minimum or guaranteed profits, and that the Defendant had not relied on any such representations.
xiv) In clause 32.9 it was stated that the Claimant and the Defendant acknowledged that the whole of their negotiations and intentions had been included within the context of the Agreement, and that there were no other warranties representations or other matters relied upon by the Defendant, causing him to sign the Agreement, that had not been satisfied within the Agreement itself.
xv) In clause 32.10 it was stated that the Claimant and Defendant acknowledged and agreed that the Agreement and the Finder's Fee Agreement could not be modified in any way except by an instrument signed by them both.
xvi) In clause 32.12 it was stated that no agent of the Claimant had authority to make oral representations prior to or after the date of the Agreement, and that the Defendant had not relied on any oral representations in entering into the Agreement.
xvii) In Clause 32.13 it was stated that only the Claimant's Managing Director could make any agreement on its behalf to modify or to vary the Franchise Agreement, and that no agent of the Claimant had any authority to make any agreement to modify or vary the terms and conditions.
xviii) In clause 35.1 it was stated that, for the avoidance of doubt, clauses 1 34 were not intended to exclude claims for fraudulent misrepresentation.
The Escrow Issue (Grounds 5-7)
(i) Background
"5. The Defendant signed the agreement at a meeting on 23rd March 2010 at the Claimant's offices. He did so on the footing, communicated on the said date orally to one Paul Haworth who acted for the Claimant throughout, that any agreement was conditional upon his receipt of advice upon the agreement from one Michael Love, his accountant and business and financial advisor and, if so advised, payment of the franchise fee demanded by the Claimant. He did not intend there and then to be bound by the agreement and made it clear to Haworth that he would not be bound unless and until he had received satisfactory advice from the said Love.
6. As appears below the Defendant had not, despite requests therefore, received a copy of the agreement as proposed or as signed, whether before or on 23rd March aforesaid. The recitals at (H) and (I) of the agreement, and the acknowledgements at paragraph 33 of the agreement are false and untrue, as is the warranty at paragraph 1 of the agreement and, subject to paragraph 22 below, schedule 5 of the agreement as referred to in the said paragraph1, together with any other provision which asserts that no representations other than those incorporated into the agreement were made by the Claimant or relied upon by the Defendant, or which asserts that the Defendant had received, or had stated that he had received, advice about the agreement or that he had had an opportunity to do so.
7. At a meeting between Haworth and the Defendant attended by the said Love on 30th March 2010 a copy of the agreement was given to Love. Thereafter and on the same day Love advised the Defendant inter alia as to the misrepresentations set out below. The Defendant was advised not to proceed with the transaction.
8. By reason of the matters aforesaid the agreement is an escrow and the Defendant is not bound by it to pay the sums demanded or any sums to the Claimant."
i) David Manchett who, in his witness statement, says, in particular, that Mr Haworth agreed that it would be alright for the Defendant's accountant to go through the Franchise Agreement.
ii) Mr Love who, in his witness statement, says that after receiving a copy of the signed Franchise Agreement at the meeting on 30 March 2010 he examined the first part of it, concluded that there were "myriad and complicated" problems, and advised the Defendant to seek legal advice immediately.
(ii) The Defendant's arguments
i) If, as the Defence evidence shows, the Defendant expressly told Mr Haworth that he did not intend there and then to be bound by the terms of the Franchise Agreement, then his signatures did not indicate the existence of a binding and enforceable agreement until he had received positive advice from Mr Love and his lawyers it being self-evident that if the Defendant did not agree to be bound by the contract then he was not so bound. Thus the terms of the Franchise Agreement never became effective, and were never binding upon the Defendant.
ii) The case of Pym v Campbell (1856) 6 E&B 370, at p. 373-375, provides support for that proposition albeit that in that case all parties understood and agreed that they were not bound until another individual agreed.
iii) It is impossible to know why the Master rejected the above-mentioned argument, or failed to follow Pym v Campbell. His judgment refers to the Claimant's Skeleton Argument, but that did not deal with these matters.
iv) Equally, the evidence before the Master was all one way, and (at the least of it) what the Defendant and David Manchett say is not impossible. This is therefore a case in which the evidence from the witnesses will be decisive, and thus a trial is called for.
v) In any event, the Defendant's case is strongly arguable, or at least plausible, and thus has real (i.e. not fanciful or imaginary) prospects of success.
vi) It simply cannot be characterised as involving the absence of reality that is required to justify a striking out see the speech of Lord Hobhouse in Three Rivers v Governor of the Bank of England No.3 [2003] 2 AC 1 at p.282G.
(iii) The Claimant's arguments
i) The fact that the Franchise Agreement was not conditional or in escrow on its face, and therefore could only be conditional if the parties had entered into a collateral agreement to that effect.
ii) The entire agreement provisions within clauses 32.6 & 32.8 (see para. 20(xii) above) preclude the Defendant from trying to establish a collateral agreement see The Intreprenneur Pub Company v East Crown Limited [2000] 2 Lloyds Rep. 611 in which, at para. 7 Lightman J said:
"The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence .; it is to denude what would otherwise constitute a collateral warranty of legal effect."
iii) The fact that, in addition, the existence of any modifications or variations to the Franchise Agreement by collateral agreement or otherwise was precluded by clauses 32.10, 32.12 & 32.13 (see para. 20 (xv)-(xvii) above).
(4) My Conclusions
The Fraudulent Misrepresentation Issue (Grounds 8-15)
(i) Background
"10. The Claimant, acting by Haworth (the Third Party herein) orally represented that in return for the payment of a franchise fee of £110,000 plus VAT the Claimant would introduce new work to the Defendant with a value by turnover of at least £40,000 per month.
11. Induced by and in reliance upon the Claimant's said representation made repeatedly on the occasions set forth below the Defendant signed the agreement.
12. The said representation was made and repeated by Haworth on several occasions
(i) at a meeting with the Defendant on 16th March 2010 at the offices of the Claimant. One David Manchett and one Lee Briggs were also present at the said meeting and heard the said representations.
(ii) at a meeting with the Defendant on 23rd (sic) March 2010 at the offices of the Claimant. The said David Manchett was also present at the said meeting and heard the said representations.
.
18. The representation set out at paragraph 10 above and repeatedly made by Haworth was untrue as it appears from the terms of the agreement itself as put forward by Haworth and signed by him, and as set out at paragraphs 13 and 14 above.
19. In the said premises the said representations were made fraudulently in that Haworth knew that what he said was untrue, or he was reckless as to whether or not what he said was true."
(ii) The Defendant's arguments
i) Three witnesses say that Mr Haworth made the representations alleged, and Mr Haworth must have known or been reckless about the untruth of their content.
ii) The Master's reasoning depended entirely upon the Claimant's written submissions. However, these did not address significant aspects of the Defendant's case, but concentrated upon the assertions that the misrepresentation alleged was merely a future promise and not actionable, and that the terms of the contract had corrected any such misrepresentation.
iii) As to the Claimant's first assertion, the misrepresentation was clearly one of present fact, not a future promise see Edgington v Fitzmaurice [1885] 24 Ch 459. The deceit lay in the untruthful misrepresentation as to the price of the business; it was irrelevant that the actual payment of the price would be in the future.
iv) As to the Claimant's second assertion, none of the contractual provisions relied upon by the Claimant could preclude the Defendant's reliance on fraudulent misrepresentation to avoid the contract not least as clause 35.1 (see para. 19(xviii) above) provides in terms that a franchisee is not precluded from relying on fraudulent representations.
v) Section 3 of the Misrepresentation Act 1967 ("the 1967 Act") makes clear that a party seeking to rely on a contractual term excluding liability for misrepresentation cannot do so unless the term satisfies the requirement of reasonableness set out in s.11(1) of the Unfair Contract Terms Act 1977, and that it is for the party relying on the term to show that it does satisfy that requirement. However, the Claimant did not plead that the terms relied on satisfied the statutory test, and nor was any of the Claimant's evidence addressed to that issue. Thus it was wholly inappropriate for the Master to rely on any of the terms relied upon.
vi) In any event, the Defendant relied upon the principle that, on public policy grounds, a contracting party cannot exclude his own liability for fraud in inducing the making of a contract, and that any exclusion of liability for an agent's misrepresentation can only be achieved (if at all) by clear and unmistakable terms on the face of the contract see HIH Casualty and General Insurance v Chase Manhattan Bank [2003] 2 LLRep 61 at paras 15-16 (Lord Bingham), 68-69, 76-81 (Lord Hoffman) & 97-98 (Lord Hobhouse).
vii) To the extent that the Claimant relied upon Peekay Intermark Limited v Australia and New Zealand Banking Group [2006] 2 LLRep 511 and Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221 (which are authority for the proposition that a party who has signed a contract without reading it is nevertheless normally bound by its terms), the Master failed to recognise that neither case was concerned with fraudulent misrepresentation; that neither case decided that a party who was induced to enter into a contract by fraudulent misrepresentation was bound by its terms; and that Peekay specifically recognised the principle of entitlement to rescission for a person induced to enter into a contract by fraud or misrepresentation. Indeed, that Peekay was decided on its own facts, particularly that the Claimant was induced to sign the contract not by the rough and ready description of the relevant product given by the Defendant's agent, but rather as a result of his own assumption that the product corresponded to that description, whereas the terms of the contract (which the Claimant signed but did not read) made clear that the product was different see e.g. paras. 43, 47, 60 & 66 of the judgment.
viii) In reality the Defendant has a strongly arguable case in relation to fraudulent misrepresentation, with a real prospect of success.
(iii) The Claimant's arguments
i) The Defendant was undoubtedly given a copy of a pro forma Franchise Agreement at the conclusion of the third meeting on 16 March 2010, which was more than a week before the contract was signed. His initial denial of that fact (Defence and Counterclaim para. 6), and the subsequent attempts to downplay its receipt in the Defence evidence are telling.
ii) The Defendant signed the Franchise Agreement on every page and in places beside individual provisions, in consequence of which the Defendant is to be taken in law as having read and understood every provision see Springwell v JP Morgan (above) at para. 170, and also clause 36.1.2 (para. 20(i) above).
iii) The alleged misrepresentation is contrary to the express, clear unambiguous and agreed terms of the Franchise Agreement in particular schedule 2, clauses 6.2 & 8 and schedules 5 & 8 (see para. 20 (v)-(xi) above).
iv) Even if the Claimant had made the pleaded representation alleged, in law it is to be treated as having been nullified by the correction made by the clear and unambiguous terms of the contract itself, which the Defendant signed (whether he read the terms or not) see Peekay (above) at para. 43.
v) This is not a case of a party contracting out of the consequences of an alleged fraudulent misrepresentation; rather, if there ever was a misrepresentation, this is a case of the putative contractual terms correcting it before the consequences arose.
vi) The Defendant's position appears to be that while a non fraudulent statement can be subsequently corrected by the contract terms, a fraudulent statement cannot which is not supported by authority, is counter intuitive, and is contrary to commercial and common sense.
(iv) My conclusions
The Amendment Issue (Ground 16)
(i) Background
"22A During the said meeting on 9th March 2010 Haworth stated that the work which was being offered to the Defendant was then being carried on by a franchisee in Southampton called Shayona R&D Ltd ('Shayona') and that such work would be removed from Shayona by the Claimant because the said work was not being properly controlled by Shayona and so that it could be carried on by the Defendant.
22B Further, during the said meeting on 9th March 2010 Haworth gave to the Defendant two spreadsheets which purported to show and which he said showed the work which was being done by Shayona and which would be transferred to the Defendant.
22C Accordingly and by reason of the facts and matters set out at paragraphs 22A and 22B and the Claimant expressly and or alternatively impliedly represented to the Defendant that (i) Shayona existed and (ii) it was carrying on the business which the Claimant intended to transfer to the Defendant and (iii) there was a ready-made business being carried on by Shayona which could be taken on by the Defendant.
22D Induced by and in reliance upon the Claimant's said representation (which were repeated as set forth below) the Defendant signed the agreement.
22E The said representations were repeated at the said meeting on 24th March 2010 when Haworth offered further work to the Defendant to a value of £44,000 per month, also to be removed from Shayona. At the said meeting Haworth produced a further spreadsheet purporting to show all the work which was being offered to the Defendant to a total value of £84,606.09, and purporting to show that it was all being carried out by Shayona.
22F In truth and in fact Shayona had been dissolved on 13th October 2009 and thereafter and in particular during the negotiations described above it did not exist and it was not carrying on the said or any business and there was no ready-made business being carried on by Shayona which could be taken on by the Defendant.
22G Accordingly the representations set out at paragraph 22C above were untrue.
22H The said representations were made fraudulently in that Haworth knew that they were untrue, or he was reckless as to whether or not they were true.
PARTICULARS
The Claimant as a franchisor has a close relationship with its franchisees including but not limited to detailed monthly accounting as between franchisee and franchisor. Such accounting requires, inter alia, the preparation and service of a month end report by the Claimant and the completion of Monthly Accounting Proformas by the franchisee; the deduction of Management Services fees, System Support fees, Administration fees, Software fees, Advertising fees and payment for Products and Equipment, and the payment of sums due from the franchisor to the franchisee or vice versa; the completion and provision of monthly management accounts, monthly management reports and quarterly management accounts by the franchisee to the Claimant; and the provision by the franchisee to the Claimant of bank statements, VAT returns, payroll records and labour costs per customer account. The Claimant could not have been unaware that Shayona was unable to perform such monthly accounting or to provide such accounts, records and information at least after 13th October 2009. The Claimant could not honestly have believed that Shayona was then carrying on the business which was purportedly to be transferred to the Defendant. Further, the Claimant could not honestly have believed that there was a ready-made business being carried on by Shayona which could be transferred to the Defendant.
22I Alternatively the said representations were made negligently in that Haworth took no or no proper care to ascertain that Shayona existed or that it was carrying on business or that there was a ready-made business being carried on by Shayona which could be transferred to the Defendant."
i) After pleading his Defence, and consequent upon investigations resulting from the Claimant's strike out application, he discovered that Shayona R&D Limited, whose business he had been led to believe by Mr Haworth he was getting, had been struck off the previous year and did not exist.
ii) The fact that he would have been getting the business of an existing and functioning entity was important to him in making his decision to sign the contract, as he was reassured to know that an existing franchisee was carrying on the business which had implications for him as regards, inter alia, customers' goodwill, payment terms, credit facilities and profitability.
iii) He had specifically asked to meet the directors of Shayona but had been fobbed off on the basis that it was not necessary.
iv) Had he realised that there was no ready made business being run by a franchisee to be transferred to him, and had he been told that Shayona had been dissolved, he would have made further enquiries and would not have signed the agreement when he did.
v) The Claimant's suggestion, in the proceedings, that customers often did not even know the name of the franchisee was untrue.
vi) He believed that the representations that Mr Haworth had made to him in relation to Shayona were fraudulent.
i) The Defendant had no interest in the existing franchisee.
ii) The name Shayona was not even mentioned during the discussions.
iii) In any event, he (Mr Haworth) had believed at the time that Shayona R&D Limited still existed.
"Having read and re-read the pleadings, I remain of the opinion that they are demurrable and could be struck out on this ground. The rules which govern both pleading and proving a case of fraud are very strict. In Jonesco v Beard [1930] AC 298 Lord Buckmaster, with whom the other members of the House concurred, said, at p 300:
"It has long been the settled practice of the court that the proper method of impeaching a completed judgment on the ground of fraud is by action in which, as in any other action based on fraud, the particulars of the fraud must be exactly given and the allegation established by the strict proof such a charge requires" (my emphasis).
It is well established that fraud or dishonesty (and the same must go for the present tort) must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake, 7th ed (1952), p 644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney General for Victoria [1901] AC 196; Armitage v Nurse [1998] Ch 241, 256. This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.
It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means "dishonestly" or "fraudulently", it may not be enough to say "wilfully" or "recklessly". Such language is equivocal. A similar requirement applies, in my opinion, in a case like the present, but the requirement is satisfied by the present pleadings. It is perfectly clear that the depositors are alleging an intentional tort.
The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved. "
(ii) The Defendants arguments
i) Originally, there was no reference to this issue in the judgment at all, it was all added following the Defendant's application on 18 February - as already touched on in paragraph 4 above.
ii) The application to amend the Defence and Counterclaim was first made at the hearing on 8 December 2010, not at the adjourned hearing on 4 February.
iii) The judgment wrongly records the Defendant's case as being that since Shayona had been dissolved there was no business to transfer to him, which had never been the Defendant's case.
i) The existence of Shayona as a matter of law was not a material matter to the Defendant. It was nothing to the point.
ii) Clause 32.12 (see para. 20(xvi) above) was not relevant to an allegation of fraudulent misrepresentation, the right to rely upon which was, in any event, preserved by clause 35.1 (see para. 20(xviii) above).
iii) There was plain substance to the allegation on the face of it the Claimant misrepresented to the Defendant that Shayona existed, that it was carrying on the business that was the subject of the negotiations, and that there was indeed a ready made business being carried on by it which could be taken on by the Defendant. His case was supported by detailed witness statements and by detailed and clear proposed pleading which did not offend against the principle set out in paragraph 184 of the judgments in the Three Rivers case (above). The proposed pleading made clear that it was to be inferred that, against the background of the necessarily close relationship between the Claimant and its franchisees, the Claimant knew that Shayona no longer existed, or that the Claimant was reckless whether it existed, when the relevant representations were made.
(iii) The Claimant's arguments
i) At all times an entity using the name Shayona R&D carried on and operated the franchise and operated the accounts.
ii) For understandable, if not common, reasons the Claimant did not know that the entity was no longer the company because it had been dissolved.
iii) Following the dissolution of the company, a de facto franchisee carried on the franchise using the name R&D Shayona.
iv) The de facto franchisee was Mr Manish Patel, who was the former owner of the company and had controlled it.
v) There was in fact no material that could properly support any allegation of fraudulent misrepresentation by Mr Haworth in relation to Shayona - not least as it was clear from the evidence that the Claimant was still invoicing by reference to Shayona R&D Limited, and continuing to make payments to the account of Shayona R&D Ltd from March 2010 until September 2010, when a managed exit agreement was signed with Shayona R&D Limited and its customers were taken in house by the Claimant, and that it was not until October 2010 that the Claimant learned that Shayona R&D Limited had been dissolved a year before.
vi) Any misrepresentation claim was going to have to be to the effect that the fact that the contracts being discussed were being serviced by a company rather than a person was a fact material to the Defendant, that he relied upon it, and that he would not have entered into the contract had he known that the contracts being discussed were being serviced by a person, not a company.
vii) The Defendant's suggestion that it was material to him that R&D Shayona was a company was fanciful.
i) The proposed amendment did not disclose a reasonably arguable case of fraudulent misrepresentation because the particulars of fraud were not sufficiently particularised, being consistent with innocence see the judgment in the Three Rivers case (above) at paragraphs 183-190.
ii) In particular, the specific averments in paragraph 22C of the proposed pleading make no allegation that it was suggested that Shayona was successful, just that it existed and was carrying on the work that could be taken on by the defendant, and no necessary primary facts are pleaded in paragraphs 22H & 22I.
iii) The proposed amendment had been overtaken by the material served on behalf of the Claimant, such that by the time of the renewed application there was in fact no material that could properly support any allegation of fraudulent representation in relation to Shayona, and the proposed draft took no account of that material, such that the Master was entitled to refuse the amendment sought.
iv) In any event, clause 32(12) of the Franchise Agreement (see para. 19(xvi) above) provided that no agent of the Claimant had authority to make oral representations prior to or after the date of the agreement, and that the Defendant had not relied on any oral representations in entering into the agreement. The clause was valid relying again on Overbrooke Estates v Glencombe (see para.62 above).
(iv) My conclusions
Grounds 1-4
Conclusion
