Case No: CH/2007/APP/0273
CH/2007/APP/0309
Neutral Citation Number: [2007] EWHC 2662 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION	

Royal Courts of Justice
Strand
London WC2A 2LL

Date: Friday, 12th October, 2007

BEFORE:

THE CHANCELLOR

BETWEEN:
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CAPCON HOLDINGS PLC

Appellant
-v-

EDWARDS & OTHERS
Respondents

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Miss G Kyriakides  (instructed by Duane Morris) appeared on behalf of the Applicant.
Mr B Shaw (instructed by Evans Dodds) appeared on behalf of the Respondents.

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J U D G M E N T

1.	THE CHANCELLOR:  This an appeal of Capcon Holdings plc brought to the leave of Deputy Master Beruns from his order made on 26th April 2007 granting specific performance of an agreement dated 23rd January 2003 for the sale of shares in a company then called Argen Limited, now called Capcon Gulf Limited (“Argen”). 

2.	Capcon carries on business by providing audit, stocktaking, commercial, investigative and administration services.  Its shares have been quoted on the alternative investment market since 2001.  In that year, it received a sales memorandum in relation to the issue of share capital of Argen. Argen had been incorporated on 17th August 1968 with an authorised capital of £10,000 divided into 10,000 shares of £1 each.  By the time of the sales memorandum, 110 of those shares had been issued and were held as to 100 jointly by (1) Anchor Trustees International Limited (2) Intertrust New Zealand Limited and (3) the third claimant, Richagent Limited, as trustees for the family of Gwyneth Farrah Smith. Five were held by the first claimant, Mr JB Edwards, and five by the second claimant, Mrs Edwards.

3.	Argen had a half-owned subsidiary called Argen information Services GMBH (“GMBH”).  That company had been incorporated in Germany in 1977 and 50% of its shares were held by Argen.

4.	In 2002 negotiations for the acquisition of shares in Argen by Capcon commenced.  Capcon enquired as to the identity of the other 50% owner of GMBH, and was told that the shares were held by a Panamanian company called Argen International Incorporated and were owned beneficially by Mr David Cowling.  Representations to that effect were made on 26th April 2002 by Mr Edwards and Mrs Farrah-Smith and on 22nd January 2003 by Mr Edwards, as reflected in a diligence report of that date conducted on behalf of Capcon by its accountants, Vantis plc.

5.	The negotiations resulted in an agreement dated 23rd January 2003 made between the members of Argen (of the first part), Capcon Holdings plc (of the second part), and Mrs Farrah-Smith (of the third part), for the sale of the shares in Argen for an initial consideration of £1,350,000 and a further consideration, the amount of which depended on the profits of Argen over the next two years.  That further consideration could not exceed the further sum of £1,915,250.

6.	Clause 6.2 of the agreement provided for a mechanism whereby the relevant future profits were to be ascertained.  It stated – I quote from page 56 of the bundle:  
“The purchaser shall and shall procure that the company (and/or newco as appropriate) shall, so soon as practicable, following the end of each relevant financial year, and in any event within four calendar months thereof, provide to each of the parties hereto a copy of the draft accounts of the company (and/or newco, as appropriate) and certificate as to the amount of the applicable net profit before tax.  Provisions of clause 10 shall apply in relation to such a certificate.”

7.	Clause 1 had contained a number of definitions.  The Company, of course, was defined as Argen. The term “Certificate” was defined as: “A certificate issued by the auditors under clause 6.2.”

8.	Clause 10 (referred to in clause 6.2) provided a mechanism whereby disputes arising from the certificates might be resolved by an independent expert.

9.	The agreement was completed on 19th February 2003.  On that day, and for tax reasons, the business of Argen, including the shares in GMBH, was transferred to Capcon Argen Limited (“CAL”), a subsidiary of Capcon itself.  On 19th February 2004, i.e a year later, Capcon delivered to representatives of the claimants draft accounts of Argen for the year ended 31st December 2003.  The claimants contend that these were the relevant draft accounts for the purposes of clause 6.2.  

10.	On 30th June 2004 Mr David Cowling sent an email to Vantis plc (the accountants for Capcon) referring to a declaration that he had made to the tax authorities in Cologne on 20th November 2001 to the effect that he was not the beneficial owner of the shares in GMBH registered in the name of Argen International Incorporated.  This caused Capcon to pursue enquiries with the claimants as to who the beneficial owner was.  It is common ground that, by September 2004 at the latest, Capcon knew that the representations made to them as to the beneficial owner of the other 50% of GMBH were false. 

11.	In the meantime, on 30th July 2004, Capcon paid the claimants a further £100,000 plus interest due under clause 6.1.2 of the agreement.  In mid August 2004 there was a meeting of the board of Capcon to consider what they should do in the light of the discovery that the beneficial owner of the other 50% was not Mr David Cowling. The minute of that meeting is in the following terms – page 214:
“GMBH	
We really must sort this out and put pressure on our advisors.  I cannot see why we cannot put a case forward for retention against warranties especially as the advice we have is that an exposure exists. Also, the fact that we relied on Gwen and Jonathan for warm and comfort re ownership, which they led us to believe was with DC.  This was also verified in Vantis documents and we now not only find out that this was not the case but, worse still, they have no idea as to the identity of the other shareholder. I suspect the other shareholder is DC, Gwen, or even Jonathan. If it is DC, then it is a straightforward tax fraud.  If it is Gwen, it would be more serious under the warranties. And JE even worse.  These are the facts as we know to date.”

	The writer of the memorandum then set out in numbered paragraphs 1 to 15 various considerations that he or she was bearing in mind.

12.	The memorandum then continues at the bottom of page 214:
“Now forgive me for being a tiny bit suspicious. We may never find out who the beneficial owner of the other 50% truly is, as they will be bearer shares.  A shareholders’ meeting may uncover a nominee but we are unlikely to get beyond that mark.  We have three options, viz (a) battle on putting resolution after resolution including appointing an MD in Germany; (b) purchase the other 50% (probably no chance as we are likely to find out too much for DC’s comfort); (c) sell our 50% to DC or unidentified.  For me, (c) is the only realistic option, but we may need pressure from A first.  It may just suit DC to get us out to protect its position.  Such a sale could be funded out of the business over say three to five years at circa £200 K per annum.  Such income could go into a newco.”

13.	In the event, that is what happened.  In December 2004 Mr David Cowling agreed to buy the other 50% in GMBH for £360,000.  In the meantime, in October 2004, in the course of negotiations between Capcon and Mr Edwards regarding his bonus, Capcon clearly acknowledged that the agreement was binding.  Correspondence in April and May 2005 also indicates that, from the point of view of Capcon, the sale of 50% of GMBH was regarded as closing the matter.  On 10th May 2005 Capcon relied on the agreement as giving rise to cross claims it could set off against the further consideration due under clause 6 of the agreement and paid further additional consideration due under that provision.  On 3rd June Capcon delivered draft accounts for the year ended 31st December 2004 to the claimants.  The claimants contend that those accounts were what clause 6.2 required, albeit provided four days late.  On 28th May 2006 Mr Edwards resigned as the Managing Director of Argen.

14.	On 14th November 2006 the claimants served a statutory demand on Capcon for £381,164 in respect of further consideration for the Argen shares allegedly due under clause 6.1 of the agreement.  On 19th December 2006, Mr Cavender, the Managing Director of Capcon, made a witness statement in support of an intended application to apply for an injunction to restrain the claimants from presenting a winding-up petition.  He referred to the history of the matter in some detail, but advanced no claim to rescind the agreement.  By contrast, he relied on cross claims arising under the agreement as a reason for enjoining the presentation of the petition.  

15.	The claim form in this action was issued on 23rd February 2007 by the claimants.  They claimed £100,000 allegedly due under clause 6.1.2 plus interest.  In addition they sought specific performance of clause 6.2 of the agreement so that their entitlement to further consideration might be ascertained and enforced.  On 6th March 2007 they applied for summary judgment under Part 24 of the Civil Procedure Rules.  That sought specific performance of the agreement but not an order for payment of the £100,000 allegedly due. The application is supported by the first witness statement of the claimants’ solicitor, Mr Scott.  

16.	On 21st March 2007 a letter was sent by Capcon’s solicitors to the solicitors for the claimants purporting (for the first time) to rescind the agreement. The letter particularised the representations to which I have referred, Capcon’s reliance on them, and their falsity.  No allegation was then made as to whether the representations had been made innocently, negligently, or fraudulently.

17.	On 23rd March 2007 Mr Cavender made a further witness statement in answer to the application for summary judgment.  He contended that Capcoin had validly rescinded the agreement by the letter of 21st March 2007 and that the representations on which Capcon relied had been made fraudulently; alternatively, negligently.  In paragraph 31 of his witness statement at page 168 of the bundle he stated:
“Whilst in 2004 Capcon became aware that David Cowling was not the ultimate beneficial owner of the other 50% of the shares in GMBH, Capcon was not aware at the time that it had any legal right to rescind the agreement on the ground of misrepresentation.  It was only once Evans Dodds [the claimants’ solicitors] had agreed not to proceed with the petition for the winding up of Capcon, that Capcon was advised by its solicitors that the representation gave Capcon the right to rescind the agreement.  Accordingly, Duane Morris [Capcon’s solicitors] were instructed to rescind the agreement.”

18.	In addition, Mr Cavender contended, amongst other things, that Capcon’s obligation under clause 6.2 to supply draft accounts for the years ended 31st December 2003 and 2004 had not been performed so that no certificate could be produced sufficient to trigger any right to further consideration.  

19.	The hearing of the application for summary judgment was originally fixed for 28th March and was then adjourned in the light of this late development.  On 5th April 2007 there was a further statement of Mr Scott in reply.  At page 233 of the bundle he accepted for the purposes of the summary judgment application that:
“(a) the claimants made the representation; (b) the misrepresentation was false; (c) the claimants made the misrepresentation negligently; and (d) the defendant was induced to enter into the agreement as a result of the misrepresentation.”

20.	Mr Scott went on to contend that Capcon had not validly rescinded the agreement because of the time which had elapsed after Capcon became aware of the falsity of the representation (September 2004 at the latest), and the purported rescission of the agreement (March 2007).  He contended that Capcon had affirmed the agreement, was estopped, or was precluded by laches from relying on its right to rescind and, in any event, that rescission was precluded by the inability of both parties to make appropriate restitution.  

21.	Further witness statements were made on 23rd and 24th April by Mr Cavender and Mr Scott, and the matter came on for hearing before Deputy Master Beruns on 26th April 2007.  At the end of a full day’s hearing, the Deputy Master gave judgment.  He proceeded on the basis that the representation alleged had been made and, for present purposes, was admitted to have been made negligently.  He considered that, though fraud was not admitted, there was evidence to support that allegation, which he considered to have been properly made.  He directed himself that affirmation requires knowledge both of the facts justifying rescission and of the right to do so.  He concluded that Capcon had known of the relevant facts for at least three years and the fact that Capcon had solicitors acting for them in the relevant period was not enough to attribute to them knowledge of their right to rescind.  He considered that the conflict on the authorities indicated that the case was not appropriate for summary judgment based on affirmation.  But he went on to consider that Capcon was estopped by its conduct from rescinding the agreement and, in addition, that rescission was barred by lapse of time.  He also considered that rescission was barred because restitutio in integrum was not then possible, given the nature of the property the subject matter of the agreement.  Finally, he concluded that clause 6.2 of the agreement was not unenforceable for uncertainty arising from the inconsistent definitions as to the precise date for the accounts.

22.	He granted both sides permission to appeal and ordered Capcon to pay the costs of the claimants, which he assessed at the sum of £18,404.  

23.	The order of the Deputy Master was drawn up on 3rd May.  It required Capcon, by 4 p.m on Friday 11th May, to procure the auditors to deliver two certificates as to the profit before tax of Argen for the years ended 31st December 2003 and 2004, such amounts to be derived from the draft accounts of Argen for those years.  The following day Capcon instructed BDO Stoy Hayward, the relevant auditors, to produce the certificates required by the order.  On 8th May Capcon decided to appeal, but not to apply for a stay on the order of the Deputy Master, and on 10th May it served their appellant’s notice and a Defence and Counterclaim to the residual claim.  The certificates, as required by the Deputy Master’s order, were produced by BDO Stoy Hayward on 11th May 2007 and were duly served as required by the order. Thereafter, both parties gave notice under clause 10 of the agreement to refer to disputes arising from those certificates to the independent expert.  

24.	On 15th May the solicitors for the claimants contended that the appeal of Capcon was pointless as the certificates had been served, they were content with them, and there was, therefore, nothing further to be done.     They issued a respondent’s notice on 25th May raising that and a number of other contentions.  

25.	I should refer briefly to the points raised in the parties’ relevant skeleton arguments.  On behalf of Capcon, it is contended that mere lapse of time cannot preclude rescission on the ground of negligent misrepresentation. The addition thereto made by the Master regarding the subject matter of the agreement was not the case advanced by the claimants.  It was contended that Capcon did not suggest that it had not represented by conduct that it intended to proceed with the agreement. The issue was whether the claimants, from whom there was no direct evidence, had a real prospect of establishing reliance on it or consequential detriment.  It was contended that the Master was wrong to suggest that they had.  It was also suggested that, in concluding that restitution was impossible, the Master had failed to appreciate the availability of equitable remedies to ensure that substantial restitution was made.  It was submitted that the Master should have exercised his discretion to refuse specific performance, having regard to the allegation of fraudulent misrepresentation.  Finally, it was contended that it was impossible to produce the certificates for which clause 6.2 provided, because there had not been any final draft accounts.  

26.	The Reply and Defence to Counterclaim was served by the claimants on 21st June and, by their skeleton argument submitted on 19th July, they contended that it was too late to appeal because the order and the agreement had been fully performed. They submitted that the Master was wrong in relation to affirmation not to attribute to Capcon the legal knowledge of its solicitors as to the right to rescind. In addition, they relied on a number of points which would, if accepted, justify the decision of the Master on other grounds. 

27.	Thus, there are, as it seems to me, two preliminary points:  (1) is the appeal competent, Capcon having done what the order of the Deputy Master required, and (2) was his order precluded by the failure of Capcon to comply with its obligations under clause 6.2 to provide draft accounts for the years ended 31st December 2003 and 2004?  I will deal with them at the outset.

28.	First, is the appeal in vain?  Counsel for the claimants contends, rightly, that an appeal is from an order; not from the judge’s reasons for making it. He points out that the order regarding the production of certificates has been wholly performed, his clients are satisfied with that performance, and that the whole process has moved on to the resolution of differences under clause 10 of the agreement. What is the point of the appeal, he says?  The court, he contends, cannot put the clock back.  I do not accept this submission. The order must be read in the light of the application for it and the judgment granting it.  It is, without doubt, an order for the specific performance of the agreement. Though the specific steps required by the order to be taken in pursuance of that specific performance were spelt out and performed, the entitlement of the claimants to specific performance is now, subject to this appeal, res judicata.  Capcon is manifestly entitled to appeal against it in that respect.  But, in any event, the order requires Capcon to pay the claimants’ costs of the application. Capcon is entitled to appeal against that requirement in any event.  In my judgment, Capcon is entitled to pursue this appeal on its merits.  I turn then to the question of whether appropriate draft accounts have been produced for the purposes of clause 6.2.  

29.	Clause 6.2 requires the production of “draft accounts”.  There is no gradation of draft; seemingly any draft will do.  It is clear that drafts were produced by Capcon and were sufficient to enable the auditors, BDO Stoy Hayward, to provide the requisite certificates as to the amount of the applicable profit before tax for both 2003 and 2004.  The parties do not agree on the validity or amount of certain constituent items, but their differences are being dealt with by the contractual procedure set out in clause 10.  The fact that Capcon produced the draft accounts for 2004 four days late is not a matter on which Capcon itself can, or indeed does, rely. The claimants do not seek to do so either.  In my judgment, there is no merit in the contention that the Master’s order, if otherwise justified, was precluded by contractual preconditions laid down in clause 6.2.

30.	Accordingly, I turn to the substance of this appeal.

31.	Capcon contends that the Deputy Master was wrong in his conclusion on the issues of (1) estoppel, (2) restitution, (3) laches or delay, and (4) discretion.  By its respondents’ notice, the claimants also raise the question of whether the judge was wrong on (5) affirmation.  I will, so far as necessary, deal with those points in that order.

32.	First, I should note some submissions made to me on the test to be applied on an application such as this.  It is that prescribed by CPR 24.2, namely that, there being no suggestion of any compelling reason why the case should go to trial, whether Capcon has “no real prospect” of successfully defending the claimants’ claim for payment or further consideration and, so far as necessary, specific performance of the agreement.  In considering that question, the court should not embark on a mini trial and should bear in mind that a court at trial would probably have the benefit of further disclosure and cross-examination of relevant witnesses.  

33.	In that connection my attention was drawn to the well-known cases of Three Rivers District Council v The Bank of England (No 3) [2003] 2 AC 1 and Doncaster Pharmaceutical Group v Bolton Pharmaceutical Company [2006] EWCA Civ 661 – see, in particular, paras 17 and 18.  

34.	I turn then to the question of estoppel.  

35.	The Deputy Master considered that Capcon was estopped by its subsequent conduct from rescinding the agreement.  He correctly directed himself as to the law at paragraph 15 of his judgment, where he said:
“In order to found an estoppel the claimants must prove some representation by the defendants that they have waived their right to rescind and some detriment.”

36.	Capcon accepts that the requisite unequivocal representation is made out.  The issue is as to reliance thereon by the claimants and result in detriment. The claimants relied (and now rely) on four matters: (1) the sale of the 50% holding in GMBH in December 2004 to David Cowling, and Mr Edwards’ assistance in it; (2) the resignation of Mr Edwards in May 2006; (3) the denial of control of Argen, which would have been the consequence of rescission in the late part of 2004; and (4) the consequential inability of the claimants to sell their shares in Argen.  The Deputy Master was satisfied that the necessary reliance on detriment was established by those facts.  

37.	Counsel for Capcon submits that he was wrong to do so.  First, she points out, quite correctly, that none of these four matters are dealt with by evidence from any of the claimants individually; two only of the relevant contentions being advanced by their solicitor, Mr Scott, in his witness statements; and all four by their counsel Mr Ben Shaw in his written and oral arguments.  Second, she suggests that the various matters relied on were not necessarily detrimental to the claimants.    Thus, Mr Edwards was paid for his assistance in selling the GMBH shares to David Cowling.  There is no evidence that the shares were sold at an undervalue, and Mr Edwards resigned in May 2006 in order to take up a better paid job with a hedge fund.  She accepted that, though the failure of Capcon to rescind earlier denied opportunities to the claimants to re-take control of Argen and/or to sell the shares to a third party, there is no evidence that the claimants would have taken the opportunity to do anything in particular.  

38.	Counsel for the claimant submitted that counsel for Capcon were seeking to apply too strict a test of “detriment”. He relied on Gillett v Holt [2001] 1 Ch 210 at 232 for the proposition that detriment must be substantial but is to be ascertained as part of an enquiry as to whether it would be unconscionable to repudiate the assurance previously given.  He submitted that the four matters on which he relied were either the legal consequences of rescission or proper inferences to be drawn from the unchallenged facts or those consequences.  He submitted, by reference to Knights v Whiffen [1870] LR 5 QB 660, that mere loss of an opportunity may constitute sufficient “detriment”.  

39.	In reply, counsel for Capcon accepted that “detriment” did not have to be financial but must be substantial.  She reiterated that the court was not entitled on this application to infer what would have happened in the absence of evidence from the claimants personally.  In particular, so she submitted, the court should not conclude that, in the event of an earlier rescission by Capcon, the claimants would have taken up the opportunity to retake the shares of Argen or to sell them on to another third party.

40.	I prefer the submissions of counsel for the claimants.  First, the judgment of Walker LJ in Gilett v Holt [2001] 1 Ch 210 at 232 shows clearly what is meant by detriment in the context of estoppel.  Though the case concerned proprietary estoppel, it was not suggested that the principle does not apply to estoppels of any particular category.  At page 232 between D and F Walker LJ said:  
“The overwhelming weight of authority shows that detriment is required. But the authorities also show that it is not a narrow or technical concept. The detriment need not consist of the expenditure of money or other quantifiable financial detriment, so long as it is something substantial. The requirement must be approached as part of a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances.

There are some helpful observations about the requirement for detriment in the judgment of Slade LJ in  Jones v Watkins  26 November 1987. There must be sufficient causal link between the assurance relied on and the detriment asserted. The issue of detriment must be judged at the moment when the person who has given the assurance seeks to go back on it. Whether the detriment is sufficiently substantial is to be tested by whether it would be unjust or inequitable to allow the assurance to be disregarded—that is, again, the essential test of unconscionability. The detriment alleged must be pleaded and proved.”

41.	Second, detriment in that sense may arise from the loss of an opportunity which would arise if the relevant right had been exercised earlier.  Thus, in Knights v Whiffen [1870] LR 5 QB 660 the defendant’s statement to a carrier that, on production of a forwarding note, he would deliver the goods in question for carriage to the plaintiff, estopped him from denying that the property in the goods had passed to the plaintiff.  At page 665 Blackburn J (with whom Mellor J and Lush J agreed) said this:
“…the position of the plaintiff was altered through the defendant's conduct. The defendant knew that, when he assented to the delivery order, the plaintiff, as a reasonable man, would rest satisfied. If the plaintiff had been met by a refusal on the part of the defendant, he could have gone to Maris”

I interpose to say that Maris had gone bankrupt.
“and have demanded back his money, very likely he might not have derived much benefit if he had done so; but he had a right to do it. The plaintiff did rest satisfied in the belief, as a reasonable man, that the property had been passed to him. If once the fact is established, that the plaintiff's position is altered by relying on the statement and taking no steps further, the case becomes identical with…”

The judge then referred to a number of previously decided cases.  Later, on page 665 he added this:
In the present case the plaintiff altered his position, relying on the defendant's conduct when the delivery order was presented. The plaintiff may well say, ‘I abstained from active measures in consequence of your statement, and I am entitled to hold you precluded from denying that what you stated was true.’”

42.	Applying those principles to the facts of this case, it is common ground that, from September 2004 until March 2007, Capcon, by its conduct, unequivocally represented that it had waived its right to rescission and would continue to implement the agreement.  The consequence of such action must have been that the claimants did not have the opportunity to retake control of Argen to prevent the sale of the shares in GMBH and, if they wished, to sell the shares in Argen to another purchaser.  In my judgment, the requisite detriment is both clear and substantial.

43.	It is not disputed that, in the autumn of 2004, Mr Edwards assisted in the sale of the shares of GMBH and in May 2006 resigned as Managing Director of the Capcon subsidiary to which the original business of Argen had been transferred in February 2004, i.e. CAL.  The Master drew the inference that Mr Edwards would not have taken either course if Capcon had indicated an intention to rescind the agreement.  There is no evidence from any party to suggest any reason why that obvious inference is not the correct one.  It follows that, in those two respects at least, Mr Edwards and, through him, the other two claimants, relied on the unequivocal representation of Capcon.  

44.	In those circumstances I return to the test indicated by Walker LJ in Gilett v Holt at page 232 and ask myself whether it would be unconscionable for Capcon in March 2007 to gainsay the unequivocal assurance it had given since September 2004 that it would not rescind the agreement.  The answer is, to my mind, obvious and affirmative.  Accordingly, I conclude that Capcon has no real prospect of establishing at a trial that the necessary ingredients of the estoppel relied on by the claimants are not made out. 

45.	I turn then to the issue of restitution.  The Deputy Master considered that it was not possible and was itself a bar to the rescission of the agreement.  He said in paragraph 23 of his judgment – page 35 of the bundle:
“Counsel for Capcon says that where restitutio in integrum is impossible, the court can nonetheless do justice by making appropriate adjustments to the price.  It can, I am sure that is right, in appropriate cases make adjustments, but in cases of share sale agreements where the business has changed substantially, where, as in the present case, many senior personnel have changed, in particular the loss of the managing director, it is not effectively the same business any more. I do not think that the court is in the business of rewriting an agreement to that extent.  

My attention was drawn to the case of The Sheffield Nickel and Silverplating Company v Unwin, which demonstrates that rescission of the share sale agreement may be impossible on the grounds that the company’s business has changed since the agreement was entered into.  This, I think, is one of those cases.”

46.	Counsel for Capcon submits that the Deputy Master was wrong. She submits that, in the case of rescission for fraudulent misrepresentation (as alleged in this case), changes wrought by the fraudster do not preclude rescission, but the court ensures substantial rescission by other means.  In that connection, she referred me to Professor (inaudible) book The Law of Contract, pages 378 to 381, Armstrong v Jackson [1917] 2 KB 822, and Spence v Crawford [1939] 3 AE 271.  She submitted that the Deputy Master had misunderstood the facts in the Sheffield Nickel case, to which he referred.

47.	The matters relied on by the claimants in support of their contention that any right to rescission was barred by the impossibility of making restitution were (1) the hiving off for tax reasons of the original business of Argen to CAL; (2) the fact that, in consequence of the dividends paid by Argen to Capcon, it had been, in substance, stripped of all its assets; (3) the sale of the shares in GMBH; and (4) the change in the key personnel in Argen.

48.	Counsel for Capcon submitted that the hive-off could be reversed and the dividends repaid. She argued that the claimants could not complain of the sale of the shares in GMBH, as that was the consequence of their own misrepresentation. She contended that changes in employees of Argen is immaterial if the shares themselves can be restored.  Counsel for the claimants contended that the Deputy Master was right for essentially the reasons he gave. 

49.	In Sheffield Nickel and Silver Plating Company Limited v Unwin [1877] 2 QBD 214 the defendant sold to a company in the course of incorporation various businesses and patents belonging to him for a mixture of shares and cash.  In addition, he guaranteed that the company, of which he became the managing director, would pay a specified minimum dividend.  A year later the defendant was released from his guarantee on the surrender of his shares in the company and giving up certain patent rights he still had.  The company then sold one of the businesses and one of the patents.  Subsequently, the company sought to rescind the agreement under which the defendant was released from his guarantee and to sue him on it.  The company relied on the fraudulent representation of the defendant.  It was held that the company could not do so. Lush J, with whom Mellor J agreed, held that the company could not. At page 223 he said:
“A contract voidable for fraud cannot be avoided when the other party cannot be restored to his status quo:  Clarke v. Dickinson. For a contract cannot be rescinded in part and stand good for the residue. If it cannot be rescinded in toto, it cannot be rescinded at all; but the party complaining of the non-performance, or the fraud, must resort to an action for damages.

Now, the company, it is clear, accepted the 200 shares, treated the defendant in virtue of his surrender of them as no longer qualified to act as director, and appointed another managing director in his stead. By him the businesses were carried on for upwards of four months before the directors resolved to repudiate the agreement under which the shares had been given up. And in the meantime they disposed of one of the businesses, the resolution for selling which was part of the resolution of the 11th of May, which sanctioned the release of the defendant from his guarantee, and evidently part of one entire arrangement. They also sold one of the patents which was included in the original purchase, and they retained and had the benefit of the patent, one of the five, which was part of the consideration for the release. It is true they had not disposed of the shares, or the last-mentioned patents, nor had they taken a transfer of the shares; but it is clear that the return of these would not have restored the defendant to, or placed the concern in, the same condition in which he or it was at the date of the resolution to release. The position of both parties had been materially altered, and it was therefore too late in October to repudiate the contract.”

50.	Thus, the concern was that the business of the company had so changed that, to restore the shares to the defendant (the alleged fraudster) would not have sufficiently restored him or the company to his or its previous position.

51.	In Armstrong v Jackson [1917] 2 KB 822 a broker sold his shares to his client instead of buying them in the market as instructed. The shares decreased in value and seven years later the client sought to rescind the purchase. The broker relied on the change in circumstances in the intervening period as a ground for resisting rescission of the sale.  This contention was rejected.  At pages 828 and 829 McCardie J said this:
“…although, of course, it is clear law that restitutio in integrum is essential to a claim for rescission. The plaintiff still holds the shares he bought in 1910. He can hand them back to the defendant. The company is the same as in 1910. Its name only has been changed. The objects of the company have not changed though the assets of the company may have varied. The market valuation of the shares has greatly dropped, but the shares are the same shares.”

Later, on page 829 he added:
“The phrase ‘restitutio in integrum’ is somewhat vague. It must be applied with care. It must be considered with respect to the facts of each case. Deterioration of the subject-matter does not, I think, destroy the right to rescind nor prevent a restitutio in integrum. Indeed, it is only in cases where the plaintiff has sustained loss by the inferiority of the subject-matter or a substantial fall in its value that he will desire to exert his power of rescission.”

52.	In Spence v Crawford [1939] 3 AE 271 the plaintiff sough rescission of an agreement under which he had sold shares to the defendant on grounds of the fraudulent misrepresentation of the defendant.  The defendant contended that the remedy of rescission was not available because of dealings of the defendant with the shares and other related property. The House of Lords held that the dealings of the defendant (the perpetrator of the fraud) could not bar the claim for rescission sought by the purchaser.  The principle is clearly expressed by Lord Wright at page 288 to 289 where he said this:
“The court must fix its eyes on the goal of doing ‘what is practically just’.  How that goal may be reached must depend on the circumstances of the case, but the court will be more drastic in exercising its discretionary powers in the case of fraud than in a case of innocent misrepresentation.  It is clearly stated by Lord Linley MR in the Lagunas case:

‘There is no doubt that the reason for the distinction in a case of innocent misrepresentation may be regarded rather as one of misfortune than as one of moral obliquity. There is no deceit or intention to defraud.  The court will be less ready to pull a transaction to pieces where the defendant is innocent where, as in the case of fraud, the court will exercise its jurisdiction to the full in order, if possible, to prevent the defendant from enjoying the benefit of his fraud at the expense of the innocent plaintiff.  Restoration, however, is essential to the idea of restitution. To take the simplest case, if a plaintiff who has been defrauded seeks to have the contract annulled and his money or property restored to him, it would be inequitable if he did not also restore what he had got under the contract from the defendant.  Though the defendant has been fraudulent, he must not be robbed, nor must the plaintiff be unjustly enriched, as he would be if he both got back what he parted with and kept what he had received in return.  The purpose of the relief is not punishment but compensation.  The role is stated as requiring the restoration of both parties to the status quo ante, but it is generally the defendant who complains that restitution is impossible.  The plaintiff who seeks to set aside the contract will generally be reasonable in the standard of restitution which he requires.  However, the court can go a long way in ordering restitution if the substantial identity of the subject matter of the contract remains.’”

53.	In this case it is Capcon who is seeking to rescind the agreement, where under it bought shares in Argen.  The alleged fraud is that of the claimants.  It is not the claimants’ dealings which are alleged to have precluded the rescission of the agreement but those of Capcon. Capcon hived off the business of Argen to CAL.  Capcon sold the shares in GMBH.  Capcon received the dividends from Argen. Capcon has, through its subsidiary, run the business of Argen in which, according to the evidence, significant staff changes have occurred in the intervening two and a half years.

54.	In these circumstances, I consider that the Deputy Master reached the only proper conclusion.  Capcon is unable to restore to the claimants that which it obtained under the agreement, if only because it had sold the shares in GMBH.  But, in addition, the underlying business was hived off for tax reasons, its personnel has changed, and the shares in Argen, whilst still recognisably shares in the same company, as were sold, carry rights to what is now little more than a shell.  In my judgment, the Deputy Master was right.  I conclude that Capcon has no real prospect of establishing at any trial the right to rescission which it claims because it cannot give proper restitution to the claimants.

55.	I turn then to the questions of affirmation and laches.  Given my conclusions on the issues of estoppel and restitution, it is not necessary for me to deal with either of these issues.  Nor, in my view, would it be appropriate for me to do so.  In the case of affirmation, it is common ground, as established by the Court of Appeal in Peyman v Lanjani [1985] 1 Ch 457 that the claimants would need to establish that (1) Capcon represented unequivocally that it intended to perform the agreement at a time or times when it knew of both (2) the facts giving it a right to rescind and (3) its right to do so.  It was and is common ground that the first and second conditions are satisfied from September 2004 onwards.  The evidence of Mr Cavender, which counsel for the claimants accepted he could not challenge on this application, is that Capcon was unaware of its right to rescind the agreement until shortly before the letter from its solicitors to those for the claimants dated 21st March 2007.  The claimants submitted that the knowledge of the solicitors for Capcon should be imputed to them.

56.	The Deputy Master disagreed.  At paragraphs 12 and 14 of his judgment he said this – page 33 of the bundle:
“The question is whether, even though they knew of the misrepresentation they knew that it gave them the right to rescind the contract.  It is clear that they had solicitors acting for them. There is specific evidence by the defendant that they were only advised of their right to rescind in early 2007.  Of course, by March 2007 they had exercised that right.  The cases are slightly inconsistent as to whether the fact that a party has solicitors acting for them means that they must be treated as having the knowledge of the right to rescind.  As I say, the defendants have had a firm of competent solicitors acting for them.  Those solicitors may or may not have advised them.  There is lurking in the background to the present dispute a possible action for professional negligence, but I do not need to determine that.  I am satisfied that counsel for Capcon is right that the mere fact that a firm of solicitors are acting for a party does not in itself mean that those solicitors advised the client that they had a right to rescind.”

57.	In paragraph 14 the Deputy Master referred to the two insurance cases to which he had been referred and concluded at the end of that paragraph:
“The authorities are in conflict, but in my judgment counsel for Capcon is right, that on the evidence before me today I cannot say that the defendant has affirmed a contract.”

58.	The claimants, by their respondent’s notice, contend that the Deputy Master was wrong.  They submit that either the legal knowledge of the solicitors is, without more, to be attributed to the client, or that the availability of legal advice gives rise to a presumption that the client was advised of his legal rights and, therefore, did have the requisite knowledge unless and until he waives his privilege and demonstrates the contrary.  

59.	I was referred by both parties to extensive passages in the judgments of the Court of Appeal in Peyman v Lanjani [1985] 1 Ch 457 at 487 G-H, 491 H to 492B.  The judgment of Manse J (as he then was) in Insurance Corporation v Royal Hotel Limited [1998] LlLIR 151 at 171 to 172; the judgment of Aikens J in C Incorporated v L [2001] 2 LlLR 459 at 481 paragraphs 108 to 111; and the judgment of Coleman J in Moore Large & Company v Hermes Credit and Guarantee plc [2003] 1 LlLR 163 at 179 paragraphs 98 to 105.

60.	As the Deputy Master pointed out, those authorities do not speak with one clear and unequivocal voice on when and in what circumstances the legal knowledge of the solicitor may be imputed to the client, nor whether the availability of legal knowledge and of legal advice raises any presumption and, if so, how it may be rebutted.  An appeal from a summary judgment which may be disposed of on other grounds is not the time to try to resolve that issue.  The question of affirmation does not now arise and I say no more about it.

61.	Similarly, in the case of laches, there is an issue between the parties whether, where the cause of action is based on fraud, delay at a time before the relevant party knows of his legal rights arising from that fraud can be material. Counsel for Capcon submits that it cannot.  Counsel for the claimants submits that it can.  In connection with that issue, I have been referred to a substantial body of authority, namely (in chronological order) Clough v London & North West Railway Company [1871] LR 7 Ex 26; Moxom v Payne [1873] LR 8 Ch App 881 at 885; Lindsey Petroleum v Herd [1874] LR 5 PC 221; Armstrong v Jackson [1917] 2 KB 822 at 828 and 829;  Holder v Holder [1968] 2 WLR 237 at 251; Goldworthy v Prakel [1987] 1 Ch 378 at 411; Frawley v Neil CA 1st March 1999, unreported; and T v T [1996] FLR at 640.  In addition, I was referred to passages in Spry on Equitable Remedies, 7th Ed pages 225 to 228 and Halsbury’s Laws of England, 4th Ed re-issue Vol 16 para 927.  

62.	This is not an issue the Master addressed, but it is another issue on which the decided cases do not speak with one clear voice.  This is not the occasion on which to consider the issue for it is unnecessary to do so.

63.	Accordingly, I turn to the fourth substantive issue to which I referred earlier, that of discretion.  Counsel for Capcon submits, correctly, that specific performance is an equitable remedy.  She submits that, even though the claim of Capcon to rescind the agreement fails, it does not follow that the court should grant specific performance of it to the claimants.  If, as her clients claim, the contract was procured by the fraudulent representation of the claimants in order for its specific performance, an order for its specific performance would confer additional benefits on them. She contends that damages for breach of contract would be an adequate remedy for the claimants, albeit subject to cross claims based on negligence or deceit by Capcon.  She complains that the Master did not take these considerations into account; rather he appears to have thought that, once he had concluded that Capcon was not entitled to rescind the agreement, an order for specific performance followed.  

64.	Counsel for the claimants accepted that the remedy of specific performance did not follow automatically from the conclusion that there was no right to rescind. He relied on what he described as the extraordinary facts of this case, in particular the availability of legal advice to Capcon and their continued employment of Mr Edwards for 21 months after they had discovered the material facts.  

65.	It is not in doubt that the fact that a contract has been induced by fraudulent misrepresentation may be a defence to a claim for specific performance even though the normal consequential right of rescission has been lost, for whatever reason – see, for example, Re Bannister [1879] LR 12 Ch 131 at pages 142, 147 and 149; Spry on Equitable Remedies 6th Ed pages 167 and 168; and Snells Equity 31st Ed paras 15-30 para (a).  This is because the remedy of specific performance is discretionary, such discretion to be exercised in all the circumstances of the case. Accordingly, on this part of the case the relevant question is whether or not Capcon has a real prospect of resisting a degree of specific performance at trial on the ground that they entered into the agreement in reliance on a fraudulent representation.  The fraud is denied, but all the other constituents of the claim are, for the purposes of this application, admitted.  Plainly, Capcon has a real prospect of establishing the fraud alleged.  The Deputy Master so held and there is no appeal from that conclusion.  In that event, the discretion of the court would arise.  The width of the discretion and the variety of the material facts is such that it is not, in my judgment, possible to conclude that Capcon does not have a real prospect of persuading the court at trial to withhold the remedy of specific performance.  In this event, they would be left to their respective legal remedies and damages and the various cross claims arising from them.  Indeed, the unusual facts of this case, to which counsel for the claimants referred, demonstrates that the court cannot at this stage conclude that, in the event of proof of the alleged fraud, specific performance would still be granted notwithstanding the loss of any right to rescind.  In my view, the Deputy Master was wrong not to have considered this aspect of the case.  Had he done so, he would or should have concluded that summary judgment should not be given.  

66.	For this reason I allow the appeal and set aside the order of Deputy Master Beruns.  I will consider with counsel the consequences of this conclusion and what further directions I should give to ensure the prompt trial of the claim and counterclaim.
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