[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Mehdi v Bates aka Muhammad Rafiq [2001] EWCA Civ 1948 (3 December 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1948.html Cite as: [2001] EWCA Civ 1948

[New search] [Printable RTF version] [Help]

IN THE SUPREME COURT OF JUDICATURE
CIVIL DIVISION
ON APPEAL FROM CROYDON COUNTY COURT
(His Honour Judge Ellis)

		The Royal Courts of Justice The Strand London Monday 3 December 2001

Monday 3 December 2001

1. LORD JUSTICE WALLER: This is an appeal brought with the permission of Judge LJ from the decision of His Honour Judge Ellis given on 23 March 2001. Judge Ellis gave summary judgment in favour of the defendant, Paul Bates, who is also known as Muhammad Rafiq. In so doing the judge reversed the decision of the district judge. The district judge had made orders as to the appropriate track on which this case should be tried and given directions in relation to that trial.
2. So far as the summary judgment application was concerned, the point in issue was whether the claimant, Hussein Mehdi, had a reasonable prospect of establishing that he had contracted personally with the defendant also personally, or whether the defendant could establish that such contract as there was had been made between two companies controlled by the two individuals. On the claimant's side the relevant company was said to be ContinuNet Ltd and on the defendant's side Eight Gates Inc, a Belize-registered entity. One might think it unfortunate that any issue of this sort needed to be resolved at all, in that the main dispute between the parties related to the supply of certain computers to Sudan. There was a genuine commercial dispute between them and, in one sense, who was liable (that is, the individuals or the companies controlled by them) should have been an irrelevance if the two persons stood behind their companies or the companies stood behind them.
3. In any event, the only written agreement which was before the court (and is before us) was one between the two individuals, Hussein Mehdi and Muhammad Rafiq. That is headed "Is-tisna'a agreement" and runs from pages 117-119 in our bundle. It leads in with certain intentions which are clearly of a religious nature, but it then sets out the nature of what is called "the requester" which relates to one party to the agreement and "the producer" which relates to the other. It sets out the specification of the equipment to be supplied and it deals with the terms as to payment; for example in that clause it says:

"Therefore a total of £33,500.00 is payable. The Requester agrees to pay the Producer the sum of £10,000.00 on completion of this agreement, a further £10,000.00 between the completion of this agreement and the delivery of the working network and the balance of £13,500.00, is to be paid after the delivery of the working network."

4. Then it refers to travel costs and expenses. It also states, in a paragraph which is at the bottom of page 118, that it was agreed by both parties:

"... that they are each at liberty to utilise non-Muslim agents such as lawyers and other legal agents, accountants etc and to utilise other standard business practices and methods in order for the business to be able to interface with non-Muslim business partners."

5. It also referred to the recognition by both parties of the right of an aggrieved party to nominate the school of jurisprudence of their choice in the event that a dispute arose over the fulfilling of either party's obligations in the contract. Then it is signed by both individuals and there is a witness who witnesses the agreement.
6. It is that agreement upon which the claimant relied when he brought his claim, though it is right to say that when he gave particulars behind the claim form, he said this:

"I supplied the goods and services to Mr Bates through my company ContinuNet Ltd (of which I am the sole director). Mr Bates has used his company Eight Gates Inc, an overseas registered company, as the medium for the business transaction and payments."

7. It is perhaps right to say at the outset that, if English law were the relevant law by which to assess the position and if that were the only contract between the parties, there is no reason why two persons should not agree to be personally liable in relation to a transaction, but to perform their contractual liability through other persons or other entities. If they do arrange to perform the contract through other entities, then the arrangement that they make might be one under which the original contractual liability was replaced in its entirety by a fresh contractual arrangement between two new entities; but, alternatively, the terms of the original contract arrangement might remain in force, performance therein being carried out vicariously by others. For that proposition I get support from the two paragraphs in Chitty, 28th edition, to which we referred Mr Pearson in the course of argument, paragraphs 20-079 and 20-082.
8. The defendant by his defence asserts that any agreement made for the supply of this computer equipment was made orally before that agreement of 20 December was signed. What he asserts is that the two individuals agreed matters orally over the telephone. Originally it was pleaded that that oral agreement was made on 13 December 1999, but when the application for summary judgment came to be made it was asserted that the date was 15 December, and we are informed by Mr Pearman that it was recognised that the original assertion of the 13th was a typographical error.
9. Reliance was placed first and foremost on the fact that the final invoice and a final account statement were sent by ContinuNet, and it is suggested that those were addressed to Eight Gates Inc. Reliance was also placed on the pleading of the claimant which I have already quoted; that is to say, the claimant's assertion that it was agreed the contract would be performed through corporate entities. Some submissions were further made on the basis that the Is-tisna'a agreement was a religious agreement and simply a religious agreement, and thus was not intended to be the binding contract, enforcible in English law, under which this material was delivered.
10. I have to say that, even on a recitation of the facts as they are so far, it seems to me that a summary judgment application to resolve the issue as to whether the agreement between the parties was contained in the document in writing which we have, or in an oral contract of which one has no written evidence and which is in hot dispute seems to me to be quite unsuitable. That was the view of the district judge, who felt that evidence was necessary and indeed that some assistance might be needed from an expert as to the effect and status of an Is-tisna'a agreement.
11. However, the district judge having ruled the way he did, the judge was persuaded to conduct a rehearing. What was placed before him was further evidence by way of a statement which was available from a former employee of ContinuNet. Then, in the light of the final invoice and the final account and the way the claimant had pleaded his case, he was further persuaded that it was so unlikely that individuals would have made this type of international business agreement accepting personal liability (as opposed to limited liability), that there was no real prospect of the claimant succeeding in proving personal liability on the part of the defendant.
12. When one looks at the documentation which was before the judge and which is before us, it reveals the following. First of all it reveals that the defendant - and I am now talking about the personal defendant, Paul Bates - was, via an e-mail, seeking a quotation in relation to computer equipment from Husain Mehdi. At that stage the e-mail address of Mr Bates appears to be "Rabo-bank", which I would understand to be the place where he was employed and his place of work, and it was not the e-mail address, for example, of the Belize company Eight Gates. One notes also that it was actually addressed to Mr Mehdi personally. That is at page 87-98 of our bundle.
13. If one were taking the matter chronologically, the position then was that, so far as the defence was concerned, a conversation was said to have taken place on 13 December. But apparently that must now be placed later, on the 15th, so the next point in sequence is a faxed message which is dated 14 December 1999. This is on ContinuNet paper. It is from Hussein Mehdi to Mr Bates personally, but refers to the company Eight Gates Inc. Now, that quotation does on its face appear to be a quotation from ContinuNet and at first sight one might think that, since it is dated the 14th, that is the relevant date. But the evidence shows that in fact that quotation was only faxed on 20 December. That is the date of the religious agreement, and confirmation that that was so appears from pages 147-150 of the bundle which actually bears the fax date and time at the top.
14. What in fact was happening on 14 December was that a company, Ancar, was sending to a Mr J Holding (an employee, apparently, of ContinuNet) a specification for this equipment which J Holding, on behalf of ContinuNet, forwarded to the defendant. He forwarded that to "batesp" at an e-mail address now at globalnet.co.uk (and that is at page 143 of the bundle), still not to any Belize company.
15. On 15 December, both sides agree, a conversation took place. The version of Mr Bates is that it was during this conversation that some oral contract was going to be reached. On the other side, it is said that on this occasion there was a discussion as to whether the specification and price offered by Ancar could be matched by either Mr Mehdi or by his company, ContinuNet.
16. One can see the way in which Mr Bates puts that conversation at pages 131-132. One notes the language he uses:

"I asked him [that is Mr Mehdi] if ContinuNet Limited could match the price offered by Ancar B Limited. Mr Mehdi said that it could and that he would throw in a copy of Lotus Domino software at no extra cost. I told Mr Mehdi that if ContinuNet could supply a same specification system as that which Ancar B Limited was going to supply and at the same price, then it could have the business."

17. That is not, at least at first blush, the language of contract. If one then recognises that after this conversation took place there was a further exchange of e-mails between Mr Mehdi and Ancar on 16 December (that is at page 90) and if one recognises the fact that the quotation, coming as it were from the Mehdi side and from ContinuNet, only comes into the hands of Mr Bates by the fax of 20 December, it seems, at least on the face of it, unlikely that a contract was reached prior to 20 December. On any view nobody could decide on a summary application that any contract had been reached prior to the 20th.
18. What one therefore has is a document coming into being on 20 December which is in writing and signed between the two individuals. Thereafter one has payments being made. Some reliance is placed on the fact that Eight Gates made some payments. So it did but, equally, payments came also from a company called Essential Edge Ltd, and I think it possible even that some cash came from the defendant personally. I pick that up from page 84, at paragraph 27 in the statement of Mr Mehdi:

"Further payments were received by ContinuNet Limited for performance of the contract and were drawn on the accounts of Eight Gates Incorporated and Essential Edge (UK) Limited, in both of which the Defendant was a Director. The Defendant also made a cash payment of £2500 into the ContinuNet Limited account on the 11th of January 2000."

19. What clearly happened in January and February 2000 was that the two individuals, Mr Mehdi and Mr Bates, fell out. They fell out over whether or not certain items in the equipment were within the specification. It is not necessary in considering the present issue to investigate the rights and wrongs of that dispute. But that ultimately led to the sending of the invoices which really provide the high point of the defendant's argument that it must have been companies contracting and not the individuals. If one looks at the invoice (which is at page 154) and at the account statement (at page 155), what one sees, first of all, is that those documents are on ContinuNet Ltd paper and they are addressed "Accounts Payable Eight Gates Inc". On the account statement that is "Belise", but care of an English address in Croydon. But on the right-hand box opposite the "Accounts Payable" box, it refers to "Order No" and there is the name "P Bates". So it is not absolutely clear who that document is suggesting is the other contracting party. But on any view it is a document powerful in support of the defendant's case that it was ContinuNet who were contracting in that at the bottom of each document is a note which says, "Title of all goods supplied remains with ContinuNet Ltd until paid for in full". Of course the defendant places great significance on that condition.
20. So one asks oneself what are the factors pointing one way or another as to who the contracting parties were, remembering that possibly it is individuals on both sides, possibly it is companies on both sides or possibly it is a mixture of the two. But in favour of individuals on both sides, as it seems to me looking at it at this stage, first, the only agreement in writing in relation to a substantial contract for the supply of equipment is between individuals. What is more, such expert evidence as we have (and Judge LJ gave permission to allow that evidence to be admitted here) would support the view that that contract would be a binding business contract. It would support the view that the contract is enforceable and enforceable in a court of law. Furthermore, the rival contention that there was an oral contract is not consistent with the surrounding documentation. At first it was said to have taken place on 13 December but, accepting that that was a typing error, the rival date of the 15th still seems unlikely to produce a contract, having regard to the fact that negotiations were still going on with Ancar on the 16^th, and having regard to the fact that ContinuNet and Mr Mehdi only sent out details of the specification on the 20th. Then finally one reminds oneself that there is no reason as a matter of English law why two parties should not agree to be individually contractually bound, but also agree that the performance of the contract will be vicariously carried out.
21. On the other hand, in the other direction, one does have the final invoice. That would indicate that ContinuNet would have title to the goods until they were paid for. Furthermore, the document can be said at least to suggest (albeit a little faintly) that Eight Gates Inc was intended to be the contracting party on the other side.
22. It is right just to add that of course one possibility (not at the moment put forward in argument by the defendant) is that yes, a contract was originally signed between the two individuals indicating that the companies were going to carry out the contractual obligations, and that the two companies then did carry out the contractual obligations with the result (so it could be argued) that the companies took on the liability. The effect of the arrangement, it could be argued, was to negate the personal liability. That is a possible argument not pursued at present.
23. But, as already indicated, there is also an argument that there was no reason why the individuals should not retain the personal liability and have the contract carried out vicariously.
24. It seems to me that on any view the claimant has a real prospect of establishing that the individuals did take on personal liability by virtue of that written contract, and a real prospect of establishing that the agreement contemplated vicarious performance. It seems to me thus that it would be quite wrong to determine that question against the claimant at the summary stage. I would emphasise that I am not saying that the defendant is bound to lose that argument when it comes to a trial. The argument for saying that the companies took over the liability is clearly also a real argument. But this matter could not, as it seems to me, be sorted out other than at a trial with the assistance of expert evidence in relation to the religious agreement.
25. The right course accordingly is to allow the appeal and reinstate the decision of the district judge.
26. I should add just one more point. As can be seen now, on an entirely technical point -- that is, as to who the contracting party is -- the parties have now argued the matter before the district judge, before a circuit judge, and now in the Court of Appeal. If the matter is left as I have indicated in this judgment, they can spend another day arguing about this aspect of the matter at a trial, in which they will also incur the expense of at least one expert having to be called in order to deal with this one point. Mr Pearman informed us that the Belize company of Mr Bates is a company of substance and that Mr Bates has no intention of not standing behind that company. As we understand it, that is also the position of Mr Mehdi, that he also would stand behind his company, or his company would stand behind him. The importance of that is that Mr Bates believes that he or his company may have a counterclaim. Of course, if they do have a counterclaim it is important that Mr Mehdi stand behind his company or his company stand behind him.
27. Rather than spending a day at a trial incurring further costs on this aspect, the sensible course would seem to be to provide some form of guarantee both ways so far as these litigants are concerned. One can understand that when people have unfortunately fallen out in the way these two have, an assurance through lawyers that they will stand behind their companies or that their companies will stand behind them is likely not to be thought sufficient. But there is no reason at all why these two individuals could not give guarantees in respect of their companies and the companies give guarantees in respect of these two individuals, so that one can take the contract point completely out of the issues that have to be resolved. Clearly, the sensible course would be for the two companies to be joined in any event, so that further time is not spent arguing wastefully as to who are the correct parties and so the dispute can actually be resolved. The sensible course is to join the companies by consent, put the documents in place which will take this issue out of litigation, and get the case on and try the actual dispute between the parties.
28. You never know, if the parties have spent some time negotiating to get these documents in place, they might have the good sense to save the costs of a trial and get the real dispute settled as well. But I would allow the appeal.
29. LORD JUSTICE SEDLEY: It is a common event in the county courts to find that a contractual claim against an individual is opposed on the ground that the contract was made by a company with which the defendant is associated, usually as sole director. It is equally common to find that the reason for taking the point is that the defendant is solvent and the company is not.
30. The present case has the first, but not the second, of these features. We are told that the defendant's company, which he asserts is the single contracting party, is fully solvent and willing to pay any sum lawfully due on this transaction. It in turn wants to bring cross-proceedings against the claimant's company, ContinuNet Ltd, which the defendant says was the other contracting party, for breach of the agreement. It is unfortunate in these circumstances that, instead of simply arranging for the defendant's company to be joined and sued in the alternative so as to enable it to bring a cross-claim in a properly managed trial on the real issues, the parties have now reached this court on the arid question whether the defendant or his company is liable for any amount that may be due.
31. Not knowing the full background, I would not want to allocate the blame of this. But agreeing, as I do, with everything that Lord Justice Waller has said, I would stress how wrong it is to conduct litigation as if it were warfare. The job of litigants, and even more so of their lawyers, is to cooperate in getting the real issues before the court in a form in which they can be expeditiously tried. The course proposed by my Lord will enable this now to happen. It is an expensive misfortune that it has not happened sooner.
32. LORD JUSTICE SIMON BROWN: I agree that this appeal should be allowed for the reasons given by Lord Justice Waller. If the parties remain intent on litigating to the death the ultimately barren issue as to whether this contract was made between them as individuals or between their respective companies, I think it impossible to forecast how that issue will ultimately be decided. That indeed is why it was always inappropriate for summary determination under CPR Part 24(2). All I feel able to predict with confidence is that the resolution of this issue would cost the parties many, many thousands of pounds more than they have already spent on the lawyers. In common with my Lords, I would urge that common sense at last be allowed to prevail.
ORDER: Appeal allowed. The order of His Honour Judge Ellis to be set aside. The defendant to pay the claimant's costs of the appeal. The costs order at paragraph 14 of the district judge's order to be replaced by an order that there be no order for costs save that £750 of the defendant's costs be costs in the cause. (Order not part of approved judgment)