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Case No: B2/1999/0695
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
HIS HONOUR JUDGE PREVITE
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 20th July, 2000
B e f o r e :
LORD JUSTICE SIMON BROWN
LORD JUSTICE MUMMERY
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SANDHU
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Appellant
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and -
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CHAUHAN
& ORS
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Respondent
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Miss Catharine Otton-Goulder QC (instructed by Mr K S Sandhu, 40 Oak
Drive, Ickenham, Middlesex, UB10 8LR for the Appellant)
Mr Kenneth Hamer (instructed by Messrs KE Davis & Sons, Warley
Chambers, Warley Road, Hayes, Middlesex, UB4 OPU for the Respondent)
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Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE MUMMERY:
Introduction
This distressing dispute between two generations of two families related by
marriage has been in the courts for nearly twelve years. It is about the
financial consequences of the purchase of a suburban mini-supermarket business
as long ago as April 1988.
The Parties
The principal claimants, Mr Manjit Chauhan and Mrs Hardeep Chauhan, are of
the older generation. They are now in their 60's. They lived at 220 Beaumont
Avenue, Northfleet, Gravesend, Kent which they had bought in January 1988. They
also owned 226 Beaumont Drive, their former home, which they proposed to let to
the council. Each house was worth about £80,000. Number 220 was subject to
a First Charge of £40,000. The couple had lived in Gravesend, where they
both worked, since about 1974. Mr Chauhan was a full time pipe lagger (Thermal
Installation Engineer). Mrs Chauhan was a quality controller with a wire
company. She gave up that job in June 1988.
Mrs Chauhan is the aunt of the third claimant, Mr Manjit Dhillon. He was an
accountant employed by a multi-national. He lived in Hillingdon, Middlesex.
Mr Kenneth Hamer appears on their behalf.
The defendant is Mr Kulwant Sandhu. His wife, Mrs Pardip Sandhu, is of the
younger generation. She is the sister of Mr Dhillon and the neice of Mrs
Chauhan. The Sandhus lived in Hillingdon at 40 Oak Drive, Ickenham. Mr Sandhu
was an academic involved in teaching at a polytechnic. He was an external
examiner at various other institutions. In the late 1980's, when this dispute
started, Mr &Mrs Sandhu owned a Londis supermarket at 81 Swakeleys Road,
Ickenham, Hillingdon. It was run by Mrs Sandhu (trading as HK Stores), with
help from Diane Moyes and before that assisted by a brother of Mr Manjit
Dhillon.
Miss Catherine Otton-Goulder QC appears on behalf of Mr Sandhu under the Bar
Pro Bono Scheme.
The Property
2, Long Lane, Ickenham (the Property) consisted of a retail shop with
accommodation above. It was just down the road from the Sandhus' shop in
Swakeleys Road. In 1988 it was subject to a lease for 14 years from 29
September 1979 at an annual rent of £5250, with rent reviews every 5
years, to Bishops Group Limited which traded under the name Budgen.
The Transaction
The Property, including goodwill, fixtures and fittings, was put up for sale
by Bishops Group , through Guinea Properties Management Limited, at the end of
1987. Mr Sandhu made an offer on 29 October 1987 to buy it for the asking price
of £90,000. The stock was to be purchased at valuation on completion. That
was agreed early in November 1987. But Mr Sandhu negotiated a reduction in the
purchase price to £67,000 following the service of a Schedule of
Dilapidations by the landlords. Contracts were exchanged on 24 March 1988. Mr
Sandhu paid a deposit of £6,500. The Property was transferred into his
name on 14 April 1988. He also agreed the value of the stock in trade at
£14,376.94.
The entire purchase price (apportioned as to £5,000 for the lease,
£42,000 for the goodwill and £20,000 for the fixtures and fittings)
was in fact paid by Mr & Mrs Chauhan.They also paid for the stock at
valuation and the solicitors' fees and stamp duty. They did not have any
independent legal or financial advice in connection with this transaction. They
obtained a loan of around £80,000 from Mr Sandhu's branch of the National
Westminster Bank at Hendon Central Circus. The loan was secured by a charge on
their house at 226 Beaumont Drive. They also sold some shares to raise the
necessary money. The same firm of solicitors, Messrs EDC Lord & Co, acted
for both Mr Sandhu and for the Chauhans in relation to the transaction.
Mrs Chauhan began to run the business at the Property (trading under the name
ACE). The Chauhans both continued to live and work in Gravesend. They very soon
found that Mrs Chauhan could not cope with the business. They claimed that Mr
Sandhu refused to take the shop back in breach of a promise which he had made
in order to induce them to enter into the transaction.
On 13 September 1988 Mr Dhillon paid £50,000 for the lease and the
business to Mr & Mrs Chauhan. He assumed liability for the bank overdraft.
The £50,000 and other money of the Chauhans was used to repay the bank
loan which funded the purchase.
Their solicitors then wrote to Mr Sandhu on 15 September 1988 asserting that
he held the legal interest in the Property upon trust for Mr & Mrs Chahaun
and asking him to co-operate in the disposal of the Property. The response of
his solicitors, EDC Lord & Co, on the same day was to ask for payment of
£11,500. It was alleged that this further sum should be paid on the actual
assignment of the Lease by Mr Sandhu to the Chauhans.
The Proceedings
On 28 October 1988 a writ was issued in the Chancery Division of the High
Court. Mr & Mrs Chauhan and Mr Dhillon claimed a declaration that Mr Sandhu
held the Property on trust for them. They also claimed repayment of the
purchase price as money had and received to their use, as well as an account
and damages. In the Statement of Claim served on 28 November 1988 it was
alleged that the Chauhans were the purchasers of the Property; that they had
paid the balance of the purchase price which was funded by a bank loan on the
security of their house in Gravesend, and refunded Mr Sandhu for the deposit;
and that there was a collateral agreement prior to the purchase under which Mr
Sandhu, in order to induce the Chauhans to purchase the Property and in
consideration of their doing so,
"....represented and/or warranted that he would run and manage the said
business carried on at the property and that in the event of the[Chauhans]
being unable to run it he would buy it from them."
It was alleged that Mr Sandhu was in breach of that collateral contract in
failing to give assistance in running the business and in refusing to take over
the business or buy the Property from them when they told him at the beginning
of May 1988 that, in view of the poor takings and their lack of experience,
they could not manage it. They claimed damages for breach of contract. This was
later calculated as the total sum of £82,101.60 paid by them for the
Property, less the £50,000 paid to them by Mr Dhillon in September 1988 .
They also claimed trading losses for the period from April to September
1988.
The defence advanced by Mr Sandhu was that the initiative for the investment
in the Property and the management of the shop came from the Chauhans, who
wanted to move from Gravesend; that he agreed to their funding the purchase on
the basis that they paid £67,000 on the purchase from Budgen and that they
would pay £11,500 when the lease was transferred to them; that they later
told him that they would pay him £11,500 prior to any completion if a
suitable buyer could be found ; and that he was entitled to that sum. He denied
having agreed to buy back the lease if the Chauhans were unable to run the
shop. Mr Sandhu alleged in evidence that Mr Dhillon was keen to buy the
Property and that he undermined Mrs Chauhan's confidence in her ability to run
the shop so that he could buy it from her.
It should be noted that no point was taken in the pleadings or at the
subsequent hearings that the oral agreement relied on by the Chauhans was
unenforceable for want of writing, for lack of certainty or on account of the
absence of an intention on the part of the various members of the family to
enter into legal relations.
Mr Sandhu counterclaimed for £11,500 and for £1,968 for goods
alleged to have been ordered by the Chauhans from Londis (Holdings) Limited and
delivered to the shop. He also claimed against Mr Dhillon for charges and costs
incurred and paid by Mr Sandhu in respect of the shop and not reimbursed by Mr
Dhillon.
Trial: Part 1.
A 3 day hearing took place before HHJ Barr at the Uxbridge County Court, to
which the action had been transferred from the Chancery Division, on 12, 13 and
27 February 1992. At that hearing Mr Sandhu was represented by experienced
Chancery counsel, Mr Michael Furness. The judge accepted the evidence of Mrs
Chauhan that she and her husband knew nothing about running a shop; that the
lease was put into the name of Mr Sandhu, as he was a trader who could provide
the necessary references required by the landlord;that they had been persuaded
by Mr Sandhu and his wife to purchase the shop; that Mr Sandhu and his wife,who
had plenty of money, were thinking of taking over two other shops; and that
it was to their advantage to take over other shops so that the total turnover
would be over the £1m turnover required by NISA, a wholesale supplier of
small independent retail businesses with whom the Sandhus had made a supply
agreement apparently offering advantageous terms for those with an aggregate
annual turnover exceeding £1m.
The judge rejected the evidence of Mr Sandhu and his wife that the transaction
was a sub-sale to operate simultaneously with the purchase from Budgen and that
the sum of £11, 500 would be paid by them to the Sandhus. He accepted Mrs
Chauhan's evidence that the sum of £11, 500 (which was half of the
£23, 000 difference between the original asking price of £90, 000 and
the contract price of £67, 000 ) was only to be paid by the Chauhans if
the business prospered with a turnover of £7000 per week, which it did
not.
The judge made a declaration that, as at 14 April 1988, Mr & Mrs Chauhan
were the beneficial owners of the Property and that Mr Sandhu held it in trust
for them. He adjourned generally the inquiry as to damages with liberty to
restore to either party. Parts of the counterclaim (paragraphs 19 and 20) were
also adjourned. The claimants were awarded the costs of that issue in any event
payable forthwith.
Trial:Part 2.
The second part of the trial did not take place until the 5 day hearing before
HHJ Previte at the Central London County Court in January 1999. On 28 January
1999 he gave judgment for the Chauhans for £32,000 damages (being the
shortfall between the total of £82,100 paid by them for the business and
the sum of £50,000 received by them from Mr Dhillon on the sale of the
Property to him, which the judge held was a reasonable sum to pay for the shop
as a going concern) plus about £17,600 interest. The judge dismissed Mr
Sandhu's counterclaim, save for about £700 against Mr Dhillon. He refused
permission to appeal. At this part of the trial Mrs Sandhu presented the case
on behalf of her husband.
The judge accepted the evidence of Mrs Chauhan. Mr Chauhan did not give
evidence. He was in India at the time of the trial. The Judge held that the
Chauhans were persuaded by the Sandhus to invest in the purchase of the
Property; that Mr Sandhu promised to repay the money they provided for the
purchase if the Chauhans were unable to run the shop ; that the Chauhans relied
on that promise when they agreed to pay and that they did pay that sum; and
that they were unable to run the shop successfully due to lack of experience
which led to a fall in turnover;and that affected Mrs Chauhan's health and her
confidence, so that she became physically unable to run the shop or to make a
financial success of it.
Permission to Appeal
On 17 June 1999 Mrs Sandhu, speaking on her husband's behalf, applied to
Otton and Robert Walker LJJ for permission to appeal. Permission was granted
limited to the following point :-
"Whether the Judge erred as to the standard of proof required to establish an
oral agreement in such implausible terms."
The limitation is explained in the judgments given by each Lord Justice on
that application. Robert Walker LJ commented on many unsatisfactory features of
the litigation, including the fact that it was heard in two parts by two
different judges. He added
"...I have, with some hesitation, come to the conclusion that the agreement
alleged by Mr and Mrs Chauhan, and found by Judge Barr and Judge Previte to
have been established, is an agreement in such unusual and unbusinesslike terms
that it would require a particularly high standard of proof for the court to be
satisfied that that was indeed a binding legal agreement entered into between
the parties."
He said that he would give permission to appeal on that limited point. (He
also expressed the hope that some form of ADR might bring the "deplorably
protracted and expensive litigation" to an end. Unfortunately that has not
happened.)
Otton LJ added
"Mrs Sandhu has persuaded me that the effect of the agreement as found by the
judge is so one sided as to be inherently implausible. This being so, I have a
feeling of unease as to whether the evidence justified the judge's conclusion
on this aspect. It does seem that Mr and Mrs Sandhu have suffered a devastating
outcome from a family business venture which went sour. I, too, would allow the
application and grant permission to pursue this single ground only."
Otton LJ emphasised the "very limited basis for an appeal" and said that no
other ground would be advanced without the leave of the court. No application
to expand the grounds of appeal has been made at this hearing.
He also referred to the possibility of the differences of the parties being
resolved through this court's mediation services and to the availability of
the Bar Pro Bono scheme.
Appellant's Submissions.
In her helpful written and oral submissions Miss Otton-Goulder highlighted
the following points:-
(1) The evidence does not enable the Chauhans to surmount the hurdle of the
particularly high standard of proof to be satisfied in respect of the alleged
agreement. The judge did not have the benefit of any submissions from counsel
on the appropriate standard of proof.
(2) There was evidence that Mr Chauhan, who never took any part in the
running of the shop, had injured his leg and foot and was considering partial
retirement. It was significant that Mr Chauhan did not give evidence at either
hearing. He was a party to the alleged agreement. His evidence was crucial.
Although he was away in India at the time of the second hearing, there was no
suggestion that he was unavailable to make a statement to be put in evidence
under the Civil Evidence Act. The judge was not alerted to the possibility of
drawing an adverse inference to the Chauhans' case from the absence of evidence
from Mr Chauhan.
(3) The Sandhus were not legally represented at the second hearing. As a
result crucial issues were never investigated. It was a family dispute with
strange and unexplained features, such as how the Chauhans ever hoped to manage
to run the shop at all. That point alone cast doubt on the idea of a legally
enforceable agreement that Mr Sandhu would take back the Property at a moment's
notice.
(4) The judge did not have the benefit of submissions on the issue whether
the parties, who were in a family relationship, could be taken to have intended
to enter into legal relations at all and whether this was a domestic
agreement, which was not intended to be binding. This issue was never
considered by the judge. It was implausible that they ever intended to enter
into legal relations. The relationships betwen the members of the family were
close. It was a family arrangement in which the parties behaved in an
unbusinesslike fashion.
(5) The judge should have been told that the Chauhans' unexplained delay
after 1992 in pursuing the claim for damages indicated that they knew that
there was no legally enforceable agreement and that no loss was suffered by
the failure of Mr Sandhu to take back the shop.
(6) The terms of the alleged agreement as to the running of the shop and the
taking of it back, if they were unable to manage the business, were too vague
to be enforceable and did not constitute a legally binding agreement.
(7) It was thoroughly implausible that Mr Sandhu would ever have entered into
a collateral contract to buy back the shop if the Chauhans were not successful
and were unable to manage the business. Miss Otton-Goulder developed a range
of detailed reasons, including the evidence of the Chauhans' conduct and of Mr
Dhillon's conduct in their attempts to require Mr Sandhu to buy back the
Property, for asserting the high improbabilty of an arrangement which the two
judges, who heard the witnesses give evidence, found to be probable.
Conclusion.
I would dismiss this appeal.
Miss Otton-Goulder has given valuable assistance at this hearing which was
not available to the court hearing the application for permission to appeal.
In the light of her legal submissions and of her detailed references to the
documents and to the transcipts of evidence , it is now possible to say, with
as much confidence as can realistically be expected in a dispute turning
entirely on the parties' recollections of an oral agreement made long ago
without independent advice, that, notwithstanding the unusual features of the
agreement and the unfortunate procedural course of the action, there has been
no miscarriage of justice such as would justify ordering a re-trial of this
action almost 12 years after its commencement.
I would highlight the following factors which point me to this conclusion.
(1) The judge correctly directed himself on the standard of proof applicable
to the case regarding the oral agreement on which there was a sharp conflict of
evidence. Having stated that he preferred the evidence of Mrs Chauhan, where
there was a conflict with the evidence of Mr & Mrs Sandhu, the judge
continued
" On the balance of probability I find that Mr Sandhu did promise to repay to
Mr & Mrs Chauhan the monies which they provided, namely £82,101.60 for
the purchase of the shop and stock, if Mr and Mrs Chauhan were unable to run
the shop."
That is a correct direction on the standard of proof.
As Lord Nicholls said in Re H [1996] AC 563 at 586
"Where the matters in issue are facts the standard of proof required in
non-criminal proceedings is the preponderance of probability, usually referred
to the balance of probability. This is the established general principle."
He pointed out at 586F that
"Built into the preponderance of probability standard is a generous degree of
flexibility in respect of the seriousness of the allegation.
Although the result is much the same, this does not mean that where a serious
allegation is in issue the standard of proof required is higher. It means only
that the inherent probability or improbability of an event is itself a matter
to be taken into account when weighing the probabilities and deciding whether,
on balance, the event occurred. The more improbable the event ,the stronger
must be the evidence that it did occur before, on the balance of probability,
its occurrence will be established."
Lord Nicholls concluded that it was better to "stick to the existing
,established law on this subject" and not to cause confusion by introducing a
third standard or by adopting some such formula as that " the standard should
be commensurate with the gravity of the allegation and the seriousness of the
consequences."
(2) The transcripts of the evidence demonstrate that the oral agreement
alleged by the Chauhans was examined in detail before the judge made the
finding of fact which is now challenged on this appeal. Indeed, it is a
striking feature of this case that two different judges at first instance
heard, on two different occasions, the conflicting oral evidence and each of
them has found that the evidence of Mrs Chauhan is the more credible. This
court is not in a position to make its own decision on the credibility of Mrs
Chauhan nor would it direct that the credibility of Mrs Chauhan be put to the
test again before a third trial judge, unless very strong grounds for doing
so were established.
(3) No such strong grounds have been established on this appeal. I agree that
at first sight the bargain which the judge found had been concluded in
conversations between the Chauhans and Mr Sandhu was one sided and
implausable. If the Chauhans thought that the shop was failing they could
require the Sandhus to buy it from them at the full purchase price. When,
however , all the circumstances of the parties and of the transaction are
scrutinised, as they were in the evidence, it appears to me that it can be
reasonably asserted that it is also implausible that two people in the
position of the Chauhans living, working and settled in Gravesend would have
ever contemplated buying and running a retail shop business in Hillingdon
without a fall back arrangement of the kind which the Chauhans allege persuaded
them to step into the shoes of Mr Sandhu and finance the acquisition which he
had negotiated. Unlike the Sandhus the Chauhans had no prior experience of
running any kind of shop or business. They both worked and lived on the other
side of London and had done so for 14 years. They owned two houses in
Gravesend. They did not own a house in or near Hillingdon. There were obvious
difficulties in Mrs Chauhan attempting to run a shop in Hillingdon from day to
day, while she and her husband lived and worked in Gravesend. Further, the
documents all point to the transaction as one arranged and organised for the
Sandhus, involving their bank and their solicitors. HHJ Barr firmly rejected
the Sandhus' evidence about the transaction, in particular about the
counterclaim by them for an additional £11,500. The judge was entitled to
reject that evidence. I would add that it may well be significant that when Mr
Sandhu was asked at the hearing before HHJ Barr whether he had told his
solicitors about the agreement as to the payment of the £11,500
counterclaimed by him, his counsel intervened contending that this was
privileged. When counsel for the Chauhans mentioned that Mr Sandhu might wish
to waive privilege, Mr Sandhu stated that he wished to claim it and refused to
answer the question.
I would therefore dismiss this appeal.
Lord Justice Simon Brown
- I agree
Order: Appeal dismissed with costs. Stay lifted, if such be necessary.
(Order does not form part of approved judgment.)
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