A3/02/1450
Neutral Citation Number: [2002] EWCA Civ 1550                                                 
IN THE SUPREME COURT OF JUDICATURE 
IN THE COURT OF APPEAL (CIVIL DIVISION) 
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
(HIS HONOUR JUDGE MICHAEL DEAN QC)
Royal Courts of Justice 
Strand 
London, WC2 

Wednesday, 16 October 2002
 
B E F O R E:

LORD JUSTICE RIX 
 
- - - - - - - - - - - - - - -
 
ED & F MAN LIQUID PRODUCTS LTD
Defendants/Applicants 
‑v‑
 
1. JITENDRA PATEL
2. MAHESH PATEL 
Claimants/Respondents 
- - - - - - - - - - - - - - -

(Computer‑Aided Transcript of the Palantype Notes of
Smith Bernal Wordwave Limited
190 Fleet Street, London EC4A 2AG
Tel No:  020 7404 1400 Fax No: 020 7831 8838
(Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - -

MR ROBERT THOMAS (instructed by Messrs Clyde & Co, London, EC3M 1JP) appeared on behalf of the Applicants
The Respondent did not appear and was not represented. 

- - - - - - - - - - - - - - -

J U D G M E N T
1.	LORD JUSTICE RIX:    This is an application for permission to appeal from a judgment of His Honour Judge Dean QC, sitting as a judge of the High Court.  Judgment in default of acknowledgment of service issued against the first defendant in this case, Jitendra Patel, and the learned judge's judgment below was by way of rejecting Mr Patel's application to set aside that default judgment.  On that application Mr Patel had to satisfy the court that he had a real prospect of successfully defending the claim.  On this application the question is whether there is a real prospect of this court differing from the view of the judge below on the prospects of a successful defence in this case.
2.	The burden that carried Mr Patel to defeat on his application rested in the fact that his defence, when sued upon two contracts of sale, those, were not contracts of sale but part of a joint venture arrangement under which he only had an obligation to make remittances to the claimant upon the sale of the goods in question to third parties and after receipt from those third parties of payment. 
3.	The judge held that in the light of acknowledgment of indebtedness and a series of payments in partial discharge of that acknowledged indebtedness, Mr Patel's case was simply not worthy of belief.  The judge concluded that Mr Patel's explanations were risible and dishonest.  The judge said at the bottom of page 19 of the transcript of his judgment:
"This defence is fanciful, almost certainly dishonest and has no chance of success whatsoever."
He also said that it would be a gross injustice to the claimants to set aside the judgment.  
4.	Mr Thomas has submitted,  on behalf of Mr Patel, that Mr Patel's defence has to be seen against the background of the judge's own acknowledgment that the claimant's case for a change from what he himself accepted was a joint venture basis along the lines put forward by Mr Patel to a straight sale basis was unparticularised and weak, and also against the background that no evidence specifically challenging Mr Patel's explanation of how the acknowledgments of payments came to be made had been put in evidence on behalf of the claimant.   The explanation was that the acknowledgments were made as an accommodation to the claimants in order to assist them with their auditors at a time of financial difficulty when the claimants were seeking fresh refinancing.  It was also said that the payments pursuant to those acknowledgments of indebtedness were made at a time when Mr Patel considered it opportune to remain on good terms with the claimants as a result of ongoing business with them.  Mr Thomas has also pointed out two omissions or errors in the judge's judgment.  One is in relation to the critical point in February 1996 when, on the claimant's case, the joint venture changed into a relationship of straight sale and purchase between these parties.  In that context, Mr Thomas points out that at pages 14 and 15 of the transcript, the judge simply fails to deal with the submission that the February 1996 sale (see invoice at p169 of the bundle) is the very transaction which has been referred to in a letter dated 16 January 1996 in which the claimant speaks of costs having gone up to $1.08 per litre, so:
"Please see if you can get a better price."
That letter, when read together with the preceding letter dated 11 January 1996 which refers to a shipment "for the JV", suggests, Mr Thomas submits, that in January and February 1996 the joint venture was still ongoing.  
5.	The other factual error referred to by Mr Thomas relates to the way in which the judge dealt with Mr Patel's case in relation to the acknowledgment of indebtedness contained in the second defendant's letter of 17 March 1998.  In that connection Mr Thomas points out that the judge appears to have misunderstood or overlooked the evidence of the defendants that that letter of 17 March 1998 was itself generated by a specific request from the claimant's officers to accommodate them even before the official letter from the auditors came forward requesting confirmation of the debit balance previously acknowledged in the earlier letter.  
6.	In the meantime, I am informed that the default judgment has been fully secured.  
7.	It seems to me that it is understandable that the judge should have referred in strong terms to the burden placed on Mr Patel in the light of the repeated acknowledgment of indebtedness and the repeated payments pursuant to such acknowledgments of sums amounting to $225,000.  I would acknowledge the difficulties that those facts place upon the defendant.  
8.	Nevertheless, the fact remains that the evidential basis of the transition from a joint venture arrangement to a straight sale arrangement remains extremely thin, as the judge himself acknowledged.  It is all the thinner once account is taken of the judge's failure to deal with the immediate background to the invoice in relation to 20 February 1996 transaction. The fact also remains that Mr Patel's explanation for the acknowledgments of indebtedness and for the payments pursuant to those acknowledgments has not been challenged on the claimant's own evidence.  
9.	I am also concerned at a passage of the judge's judgment at the top of page 14 of the transcript where he appears to assume that, because the invoices passing between the parties named a specific price, therefore one has reached a case of a straight sale because the profit sharing had been abandoned.  I am not sure that the judge fully grappled with the defendant's explanation of the invoice pricing as being a de facto agreement as to how the profit should be shared at a time when the arrangement was subject to the joint venture agreement.  It appears that the first transaction between the parties, even preceding February 1996, also proceeded upon a specific price being named in the invoice (see invoice of 20 November 1995).  
10.	In these circumstances, I am concerned that, despite the grave difficulties in the way of the defendant's case, the judge may have erred in treating the application as a mini trial of the issues raised between the parties, in the course of which he has on a summary application been prepared to find dishonesty against Mr Patel and Mr Mahesh Patel,  the second defendant, without their having had the opportunity of presenting their evidence at trial subject to cross‑examination.  
11.	I also bear in mind that the structure of this litigation has already reached a point whereby, under the judge's judgment, Mr Mahesh Patel has obtained the setting aside of the default judgment against him on the ground that he at least has a real prospect of succeeding in his defence that he was not the applicant's partner and, therefore, not personally liable on the transactions in question.  In circumstances where there must, subject to any further applications, be a trial in relation to Mr Mahesh Patel, it might be said to be unfortunate that he should enter upon that trial with the judge's aspersions on his, as well as the first defendant's, likely dishonesty in the context of the other defence being put forward in their witness statements on the question of liability in relation to the alleged straight sale transactions in question.  Is that question foreclosed by the judge's judgment, and, if not why should the second defendant alone be able to go to trial on it?
12.	For all those reasons, I think that it is properly arguable that the judge has conducted a mini trial on a summary application in circumstances where there are issues which need to be investigated at trial.
13.	In my judgment, therefore, there is a real prospect of Mr Jitendra Patel showing on appeal that he has a real prospect of successfully defending the claim.  In those circumstances, I would grant permission to appeal.
14.	So far as the second defendant's application for permission to appeal on the question of costs is concerned, Mr Thomas has not pressed it in his oral submissions before me.  Although the second defendant obtained the setting aside of default judgment against him, the judge made no order as to costs.  In the circumstances of this case, and bearing in mind that it would in any event be very difficult to see in what respect Mahesh Patel's separate defence that he was not the first defendant's partner added to the costs involved in his putting forward evidence in support of the overall merits in relation to the transactions in question, there is no reason to question the judge's exercise of discretion on a matter of costs.  
15.	I would therefore confirm that, in the case of Mahesh Patel, his application for permission to appeal on the question of the order for costs is refused. 

Order:  Permission to appeal allowed  first defendant's application.  Estimated at half a day to be heard before two Lords Justices and placed in the short warned list.  Permission to appeal refused on second defendant's application.