Claim No. 2003 Folio 16 
Neutral Citation Number: [2004] EWHC 716 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL

Date:    31st March 2004

Before :

MR RICHARD SIBERRY QC,
sitting as a DEPUTY HIGH COURT JUDGE
- - - - - - - - - - - - - - - - - - - - -
Between :

GMAC COMMERCIAL CREDIT DEVELOPMENT LIMITED
Claimant

- and –

(1)	KALVINDER SINGH SANDHU
(2)	KEWAL SINGH SANDHU
  Defendants

Mr Richard King  (instructed by Paul Davidson Taylor) for the Claimants 
Mr Steven Berry QC and Mr Edmund King (instructed by Stephenson Harwood) for the First Defendant
Mr T W E Evans (instructed by Nicholas Drukker & Co.) for the Second Defendant 

Hearing dates : 24th - 26th February and 1st March 2004 
- - - - - - - - - - - - - - - - - - - - -

Judgment

1.	In these proceedings the Claimant, GMAC Commercial Credit Development Limited (“GMAC”) claims against the Defendants, Kalvinder Singh Sandhu (“Kalvinder”) and his father Kewal Singh Sandhu (“Kewal”), under separate Deeds of Guarantee and Indemnity in identical terms, each dated 18th June 1999 (“the Guarantees”). The Guarantees were expressed to be given in consideration of GMAC, then known as BNY Financial Limited (and before that called UCB Invoice Discounting Limited), among other things continuing with an agreement for the factoring or discounting of debts made between GMAC and a company called Palmier Plc (“Palmier”), then in administrative receivership, of which the Defendants were former directors. (For convenience, I shall ignore the previous appellations of the Claimant, and refer to it throughout as “GMAC”). By the Guarantees, the Defendants agreed, among other things, to pay GMAC on demand all sums then or at any time thereafter due to GMAC from a British Virgin Islands company, Donnaway Ventures Limited (“Donnaway”), subject to the terms of and aggregate limit of liability set out in each Guarantee.

2.	This judgment follows a Case Management Conference at which various applications were before the Court, including applications for permission to amend the parties’ respective statements of case, and applications under CPR Parts 3.4 and 24. I shall describe these applications in more detail below, but before doing so I shall first outline the background against which the Guarantees were signed, and then describe the history of the proceedings between the parties - the present proceedings being the third set of proceedings in which GMAC have claimed against the Defendants under the Guarantees.
The background to the Guarantees
3.	The background against which the Guarantees were signed was summarised in paragraphs 2-9 of the judgment of Potter LJ in the previous proceedings. In the description that follows, I acknowledge my indebtedness to that judgement.

4.	Kalvinder is an international businessman. He was the principal director of and moving spirit behind Palmier, and the overall controller of its activities. Palmier was in the garment business. Kalvinder built up the business over the years, and conducted business not only in this country but in association with companies established in various countries to further Palmier’s foreign business.

5.	On 20th September 1994, Palmier entered into an Invoice Discounting Agreement with GMAC (“the IDA”), whereby Palmier (referred to therein as “the Client”) sold to GMAC all its book debts and ancillary rights as at the date thereof and arising thereafter, at a purchase price defined in clause 5 of the IDA. The procedure provided for in respect of future sales was that under clause 6 Palmier would notify GMAC, on delivery of the relevant goods, by delivery to GMAC of a completed transmittal form, upon receipt of which GMAC would credit Palmier with its purchase price on Palmier’s client account and would otherwise account as set out in clause 7, the purchase price payable by GMAC being “the Gross Purchase Price” less discount and administration charges as provided for in clauses 5 and 8 of the IDA. Under clause 11 GMAC was entitled to debit the client account with the amount of any obligations owed to it by Palmier, any such debits to be treated as a payment on account of the purchase price of receivables. Whereas the property in the receivables passed to GMAC, and Palmier agreed to receive and pay into a trust account for GMAC all moneys received on account of the goods sold, and whereas under clause 20 of the agreement GMAC had the sole rights of collection and enforcement in respect of the receivables, under clause 20.3 GMAC appointed Palmier as its agent for administering the accounts of the debtors and procuring payment and enforcing all ancillary rights for GMAC's account, Palmer undertaking to act promptly and efficiently in that respect. By clause 15 Palmier also had the obligation to keep and maintain all appropriate books and records and to deliver monthly to GMAC a schedule of all receivables owed, aged by date of invoice, together with a copy of Palmier’s sales ledger control account, including all details required by GMAC. 

6.	Clause 17 of the IDA provided, under the heading “RECOURSE TO CLIENT”:

“17.1.	[GMAC] may require the Client at any time after receiving a written notice from [GMAC] (‘the Repurchase Notice’) to immediately repurchase any Receivable:
17.1.1	which remains unpaid, whether in whole or in part after payment thereof has become due; or
17.1.2	which even if not due remains unpaid by the end of the Permitted Credit Period; or
17.1.3	where the Debtor at any time disputes liability for payment or asserts any right or lien retention or set-off
17.2	The Repurchase Notice shall detail the relevant Receivable to be repurchased and the price at which it is to be repurchased which shall be the amount of the Receivable as included in the relevant Transmittal Form less any amount already paid by a Debtor in respect of such Receivable (‘the Repurchase Price’)
17.3	Until all the monies payable by the Client under the Repurchase Notice to [GMAC] have been paid the Receivables included in such notice and its Ancillary Rights any Transferred Goods relating therefore shall remain vested in [GMAC].
17.4	After the ownership of any Receivable shall be revested in the Client [GMAC] will credit the Client with all sums subsequently recovered by [GMAC] in respect of such Receivable as a result of [GMAC]’s enforcement of any of the Ancillary Rights vested in [GMAC] pursuant to Clause 2.2.
17.5	[GMAC] has an additional right to require the Client to repurchase any Receivable at any time in its absolute discretion whether or not the Client is in breach of any of its obligations hereunder.”

By clause 19.1, the IDA was terminable on one month’s written notice by either party. Clause 19.2 gave GMAC a right to terminate forthwith in the event of breach by or insolvency of Palmier, or on the happening of various other specified events, including, by clause 19.2.7, the making of a request by GMAC in accordance with clause 17. 

7.	Clause 7.5 of the IDA provided that:

“At any time when [GMAC] shall have the right to terminate this Agreement pursuant to clause 19.2 (whether or not it shall have exercised such right) [GMAC] may withhold all payments of or on account of the Purchase Price of any Receivable and shall have the right on demand to the immediate repayment by the Client of all payments previously made in respect of the Purchase Price of Receivables then Outstanding.”

8.	At the time the IDA was made a debenture was taken as a security over the book debts of Palmier. However, it ranked second to a debenture in favour of Midland Bank Plc, Palmier’s principal bankers.

9.	Palmier’s business was faltering in 1998. On 3rd December 1998 Midland Bank Plc appointed two partners of BDO Stoy Hayward (“BDO”) as joint administrative receivers (“the Receivers”) of Palmier’s business and undertaking pursuant to powers granted to it under its debenture. At that time there were outstanding receivables which had been purchased by GMAC pursuant to the IDA which were said to amount to some £7.5m. Some £4m was quickly collected in by the Receivers and paid over to GMAC, leaving then due from debtors an unrecovered sum said to have been in excess of £3m according to Palmier’s book debts ledger. However, GMAC was not concerned to hold out for that sum, being content to recover what it had paid out under the IDA, which it calculated at £1,618,000 (inclusive of anticipated discounting charges).

10.	The Receivers who, as the administrative receivers of Palmier, were in possession of the records and were still GMAC’s agents for collection of the debts, were anxious to enlist the assistance of Kalvinder, who had an intimate knowledge of the business and customers and was in the best position to supply information and assist in the recoveries. Kalvinder also had a keen interest in doing so. As he put it at paragraph 17 of his first witness statement in the previous proceedings:

“I appreciated that there could be a commercial advantage in facilitating [GMAC’s] collection of the book debts providing as part of any deal the entity which was to act as [GMAC’s] collection agent could also purchase from Palmier its rights to the book debts in excess of those Palmier owed to [GMAC], ie. the difference between the £1.6 million owed to [GMAC] and the £3 million outstanding (being approximately £1.4 million).”

11.	With this in mind, Kalvinder having ceased to be a director of Palmier on 31st December 1998, on 22nd January 1999 Palmier, acting by the Receivers, sold the goodwill and other assets of Palmier, including its books and records to P&P Designs Plc., another company controlled by Kalvinder. It was proposed that Donnaway, another vehicle for Kalvinder’s interests, should purchase the book debts of Palmier. 

12.	However it subsequently became appreciated that under the existing arrangements the book debts of Palmier were not Palmier’s to sell, property being in GMAC under the terms of the IDA. Accordingly, an agreement which has been referred to as the Deed of Assignment (“the DOA”) was entered into between Palmier (described therein as “the Vendor”), the Receivers, Donnaway (described therein as “the Purchaser”) and GMAC. The DOA was eventually signed on 18th June 1999. It was agreed therein that the amount of the “Outstanding Prepayments” in respect of money advanced by GMAC to Palmier on account of GMAC’s obligation to pay the purchase price of the book debts it had purchased under the IDA was £1,618,000. Clause 2 of the DOA provided as follows:

“ASSIGNMENT
In consideration of the mutual undertakings and agreements 
hereinafter contained it is hereby agreed as follows:
2.1 The Vendor hereby assigns to the Purchaser absolutely all its title 
and interest (if any) in and to the [IDA].
2.2 The Purchaser undertakes with [GMAC] that with effect from the 
date hereof all of the obligation of the Vendor to [GMAC] under and in 
pursuance with the [IDA] shall be owed to [GMAC] by the Purchaser. 
2.3 [GMAC] hereby consents to the assignment contained in Clause 
2.1 above.”

The “Assignment Consideration” for this assignment was £300,000 plus VAT, which by clause 4 of the DOA was to be payable to Palmier on or before 19th November 1999. By clause 5.1, Donnaway agreed to use all reasonable efforts to collect in the book debts up to a net sum of £1,918,192 as expeditiously as possible, and to pay the proceeds into a trust account, where such receipts were to be held on trust, first to pay GMAC up to a sum equal to the Outstanding Prepayments, secondly to pay the Receiver the Assignment Consideration, and thereafter for Donnaway absolutely. Thus Donnaway was entitled to retain the net proceeds of book debts collected after both GMAC and Palmier had been paid off.

13.	The Guarantees were given as part of the package agreed on 18th June 1999. They were expressed to be given

“In consideration of [GMAC] at the request of the Surety entering into or continuing with any agreement for the factoring or discounting of Debts which agreement was made with Palmier PLC (in Administrative Receivership) (“the Agreement”) the entire benefit of which has been assigned to [Donnaway] or in accordance with the Agreement treating any debt as approved…” 

The Agreement as thus defined is clearly a reference to the IDA. Each of the Defendants, as Surety, amongst other things 

1. “AGREE[D] to pay to [GMAC] on demand all sums now or at any time hereafter due to [GMAC] from [Donnaway] however arising whether under the Agreement or any other agreement for the provision of financial facilities or financial accommodation whether entered into prior or contemporaneously with or after the date hereof.

2. GUARANTEE[D] the due performance of all other obligations of [Donnaway] to [GMAC] however arising.”

14.	Clause 13 of the Guarantees provided:

“IT IS AGREED and declared that the aggregate demand or demands under this Guarantee and Indemnity shall not in any event exceed the lesser of (a) the sum of £1,618,492 plus VAT save that the Surety shall be liable to pay interest upon such demand or demands pursuant to clause 4(vii) and that the obligations of the Surety under this Deed shall be subject to this limitation of liability and (b) the balance of the Asset Purchase Price from time to time outstanding under the Agreement. Without prejudice to the foregoing it is agreed that [GMAC] may make demand if and to the extent that any such remain outstanding on 19 November 1999.”

15.	Each Guarantee concluded with a “Declaration on behalf of Surety”, in the following terms:

“ I confirm that before I signed this document and in relation to its nature, meaning, effect and risks:
1)	I was recommended to take independent legal advice; 
and
2)	I have taken or have had the opportunity to take Independent legal advice.
I confirm that I fully understand the obligations placed upon me following my signature. I have signed this deed of my own free will without duress or undue influence.
I declare that in deciding to sign this guarantee and indemnity I have not placed any reliance upon any advice, opinion, or representation of (i) any person having any interest in [Donnaway] whether by reason of directorship, shareholding or employment, or (ii) any other representative or agent of [Donnaway], or (iii) you or any representative or agent of yours or of any company in your Group.”

The history of these proceedings

16.	DAL Consultancy Group (“DAL”) was appointed on a commission basis to help Donnaway collect in the outstanding book debts. However, despite their efforts, by 18th January 2000, Donnaway had failed to collect sufficient of the book debts to meet the Outstanding Prepayments as defined in the DOA. On that date, solicitors acting for GMAC wrote to Donnaway, referring to the IDA and the DOA, and to the sum of £1.618 million said to have been outstanding under the IDA as at 18th June 1999, and continuing:

“The account has only reduced since that time to £1,249,899.66. As a result of the non-performance of the ledger, notwithstanding all efforts to obtain payment, our clients have decided to give notice of recourse pursuant to Clause 17 of the Invoice Discounting Agreement. Our clients therefore require you to immediate [sic] repurchase all outstanding receivables which remain unpaid.

Please arrange to let us have payment of the amount outstanding £1,249,899.66 within the course of the next seven days by TT to our Client Account…”

17.	This produced no result.  On 16th August 2000, GMAC’s solicitors wrote as follows:

“We refer to our letter of 18th January 2000 (copy attached)… Notwithstanding this demand, no payment has been made. Our clients, for the avoidance of doubt, repeat their demand for the sum due of £1,249,899.66 and further to the provisions of Clause 7.5 of the Invoice Discounting Agreement, demand payment of £1,249,899.66.”

18.	These two letters to Donnaway had been preceded by demands under the Guarantees, made by letters to the Defendants dated 14th January 2000.

19.	On 8th February 2000, proceedings in what I shall call “the first action” were issued by GMAC against the Defendants as guarantors. GMAC applied for summary judgment therein under CPR Part 24.

20.	 In response the Defendants asserted that the demands made under the Guarantees were premature, as they were made before GMAC’s purported clause 17 notice, and no sums were due from Donnaway prior to service of a valid Repurchase Notice under clause 17 of the IDA. They also contended that the letter of 18th January 2000 was not a valid Repurchase Notice, as it did not list the Receivables to be repurchased and the price at which they were to be repurchased.

21.	GMAC’s Part 24 application in the first action was heard by Deputy Master Chism on 3rd May 2000. He rejected both defences raised, and gave summary judgment for GMAC. The Defendants appealed.

22.	Before the appeal was heard, on 16th August 2000 GMAC served a further Repurchase Notice on Donnaway, and on 21st August 2000 GMAC made fresh demands under the Guarantees. Based on these demands, on 24th August 2000 GMAC issued a second set of proceedings against the Defendants (“the second action”), and applied for summary judgment therein, against the possibility that the Defendants’ appeal in the first action might succeed. 

23.	The Defendants’ appeal in the first action, and GMAC’s application for summary judgment in the second, came on for hearing before Mr. J. Mitting QC, sitting as a Deputy High Court Judge, on 13th October 2000. He gave two judgments that day. In the first, he rejected the defence based on the alleged inadequacy of the Repurchase Notice, but upheld the appeal, on the grounds that the demands of 14th January 2000 had been premature, so that the first action was not well founded.

24.	In his second judgment, Mr Mitting QC considered and rejected a number of other defences raised by the Defendants, on the grounds that there was no reasonable prospect of any of them succeeding at trial, namely (1) that the DOA was vitiated by unilateral mistake on the part of Donnaway known to GMAC; (2) that the Guarantees were induced by material misrepresentation by GMAC as to the amount of Palmier’s book debts; and (3) (a defence raised only by Kewal) that Kewal’s guarantee was unenforceable by reason of undue influence on the part of Kalvinder. In the result, he gave Part 24 judgment for GMAC in the second action, for £1,249,899.66.

25.	The Defendants appealed to the Court of Appeal, by leave of Mance LJ. The Court of Appeal upheld the defence based on the alleged inadequacy of GMAC’s Repurchase Notice. The leading judgment was delivered by Potter LJ, with whom Hale LJ and Sir Anthony Evans agreed. At paragraph 20, Potter LJ said this: 

“……The context and crucial purpose of clause 17 in my view plainly contemplates the situation where, in the course of an ongoing factoring agreement relating to many sales and purchases regularly reported and accounted for by Palmier, [GMAC] for particular reasons set out in paragraph 17.1, or other reasons within their discretion, require repurchase of a particular factored debt or debts. In such circumstances, the onus is placed on [GMAC] to provide details of the balance, bearing in mind it is requiring a repurchase by Palmier for its own reasons and on its, rather than Palmier’s, terms. …..particulars of the individual receivable and the individual repurchase prices are required to be given by way of break-down or itemisation, so that Palmier in turn can check the price and take up any issue which may appear.”

26.	The Court of Appeal also rejected an argument to the effect that it was unnecessary to found a claim under the Guarantees on a clause 17 Repurchase Notice, or indeed on any default by Donnaway, by reason of the last sentence of clause 13 of the Guarantees (set out in paragraph 14 above), which GMAC submitted had the effect that it could make demand on the Defendants as guarantors if Donnaway had by 19th November 1999 failed to get in sufficient receivables to pay off the £1.618 million “Outstanding Receivables” as defined in the DOA. I shall revert below to what the Court of Appeal said about the meaning and effect of clause 13.

27.	The Court of Appeal’s conclusions that GMAC’s Repurchase Notice was deficient and that clause 13 of the Guarantees did not impose an additional and freestanding obligation on the Defendants to respond to a demand made after 19th November 1999, were sufficient for the success of the Defendants’ appeal. However, the Court commented briefly on the misrepresentation and undue influence defences (the unilateral mistake defence was not pursued.) As to misrepresentation, Potter LJ stated that, whilst GMAC had strong grounds to assert that Kalvinder had not relied on the representation alleged, none of Mr. Mitting QC’s rulings should give rise to any issue estoppel if and when the issues in the case were tried (para.29). As to “undue influence”, while giving the plea little encouragement on the evidence he had seen, Potter LJ made it clear that that too should not be the subject of any plea of issue estoppel or res judicata “later in the proceedings” (para. 30). Evans LJ also indicated (at para.38) that he thought future proceedings were inevitable.

28.	Although the second action had come before the Court of Appeal by way of an appeal against a Part 24 judgment in favour of GMAC, because the grounds on which that appeal was decided in favour of the Defendants were determinative of the second action, the parties were agreed that it followed that the second action should be dismissed. The Court of Appeal so ordered, by its Order dated 12th November 2001.

29.	On 5th August 2002, GMAC’s solicitors served on Donnaway a fresh clause 17 Repurchase Notice, dated 26th July 2002, referring to the IDA and the DOA, and requiring Donnaway immediately to repurchase the unpaid receivables specified in Schedule C to the notice, for the total sum of £50,510.33. This schedule gave particulars of 16 book debts, including the price  at which each was to be repurchased. It has not been suggested that this Repurchase Notice was wanting in particularity in any way. A further copy thereof was sent to Donnaway on 4th September 2002.  On 16th September 2002, GMAC’s solicitors wrote again to Donnaway, referring to the Repurchase Notice, and continuing:

“Clause 17.1 of the [IDA] entitles GMAC to require you at any time after receiving written notice from GMAC to immediately purchase any Receivables specified in the Repurchase Notice.

You are hereby notified that GMAC requires you to repurchase the Receivables specified in Schedule C of the Repurchase Notice dated 26th July 2002 within seven days of the date of this letter”.

30.	In the absence of any response from Donnaway, on 27th September 2002 GMAC’s solicitors wrote again to Donnaway, referring to the Repurchase Notice and Donnaway’s failure to repurchase the specified Receivables and continuing:

“3. GMAC now has the right by notice to terminate the [IDA] pursuant to clause 19.2 of the [IDA] and in particular clauses 19.2.1 and 19.2.7”.

Instead of exercising this right of termination, the letter invoked clause 7.5 of the IDA (which was quoted), as follows:

“5.  We hereby demand on behalf of GMAC immediate payment by you of all payments previously made in respect of the purchase price of receivables outstanding pursuant to clause 7.5.
6. GMAC has calculated that payments previously made under the
[IDA] in respect of the purchase price of receivables outstanding at the
date when it became entitled to treat the [IDA] as terminated amount to 
£1,425,756.01 as per the statement attached [which comprised a copy 
of GMAC’s sales ledger and prepayment account, showing that sum to 
be the balance outstanding from Palmier on 5th August 2002].
7. Accordingly, (without prejudice to the generality of the demand made in paragraph 5 above) we hereby demand on behalf of GMAC payment by you of £1,425,756.01.

They requested payment to be made, to a specified account, within 14 days. Once again, there was no response from Donnaway.  

31.	GMAC’s next step was to make demands on each Defendant under the Guarantees. It did so by its solicitors’ letters dated 8th November 2002. These letters of demand referred to the IDA, the DOA, the Guarantees, the Repurchase Notice and the payment demand on Donnaway under clause 7.5 of the IDA, and Donnaway’s failure to comply with either. The letters went on to demand payment (under the Guarantees) of the sum of £1,425,756.01 demanded under clause 7.5 of the IDA, and the sum of £50,510.33 allegedly due from Donnaway under clause 17 of the IDA.

32.	No payment was forthcoming from either Defendant in response to these demands (Kalvinder denies that the letter to him was sent to the correct address). Accordingly, by a Claim Form, with attached Particulars of Claim, issued on 9th January 2003, GMAC commenced the present proceedings, in which it claims against each Defendant the sum of £1,425,756.01, or such other sum as the Court finds to be due from Donnaway to GMAC pursuant to clause 7.5 of the IDA, alternatively £50,510.33, or an indemnity in respect of losses suffered by reason of Donnaway’s alleged failure to perform its obligations under the IDA, together with interest.

33.	In a Defence served on 26th March 2003, apart from making various non-admissions and disputing quantum, Kewal has raised the following main defences:

1)	That GMAC gave no consideration for the DOA or his Guarantee (paras. 8 and 11);

2)	That Donnaway’s obligation under the DOA was confined to the business of collecting Palmier’s outstanding book debts and accounting for the proceeds up to a limit of £1.618 million (para.9);

3)	That clause 13(b) of the Guarantees has no discernible meaning, as a result of which the Guarantees are meaningless as a whole and accordingly unenforceable (para. 11);

4)	That Donnaway was induced to enter into the DOA, and he was induced to enter into his Guarantee, in reliance on a representation by GMAC that Palmier’s book debts were approximately £3million, which was materially untrue (in that some half a million pounds included in the £3million had been collected before 3rd December 1998), with the result that he is entitled to rescission of the Guarantee (para. 12);

5)	That if the DOA imposed any greater obligation on Donnaway than asserted in defence (2) above, Kewal is entitled to rectification of the DOA by deletion of clause 2.2 thereof (para. 14);

6)	That the DOA is unenforceable by GMAC against Kewal because (and here I both summarise and paraphrase in the light of the parties’ submissions) Kalvinder misrepresented to Kewal the effect of the DOA and Kewal’s consequent exposure under his Guarantee, and GMAC, having been put on inquiry by the fact that the relationship between Kewal as (prospective) guarantor and Donnaway as principal debtor was (allegedly) not a commercial one, took no steps to ensure that Kewal understood what he was letting himself in for (para. 15);

7)	That GMAC was never entitled to serve a Repurchase Notice on Donnaway pursuant to clause 17 of the IDA, and the Notice purportedly served thereunder was ineffective for all purposes (para. 16);

8)	That GMAC never had any right as against Donnaway to make any demand pursuant to clause 7.5 of the IDA (para. 21).

34.	On the 6th June 2003, GMAC served a Reply to Kewal’s Defence, in which it took issue with each of the various defences pleaded. Among other matters raised in this Reply.

1)	GMAC has asserted that it was an abuse of process for Kewal to have raised various allegations (para.3 – see further below);

2)	It has alleged that the phrase in clause 13 (b) of the Guarantees, “Asset Purchase Price from time to time outstanding under the Agreement” meant the sum of £1.618 million allegedly receivable by GMAC under the DOA less sums received by GMAC thereunder, so that clause 13(b) did have a discernable meaning; alternatively if it did not, that did not render the Guarantee as a whole meaningless or unenforceable (para.6);

3)	Apart from denying the representation as to Palmier’s book debts, and any reliance thereon if made and if false, GMAC has invoked the “Declaration on behalf of Surety” at the end of the Guarantee, on the basis of which it has contended (among other things) that Kewal was estoppel from asserting he entered the Guarantee in reliance on any representation made by GMAC (or Kalvinder) (para. 10).

35.	GMAC had some difficulty in effecting service of the Claim Form on Kalvinder. On 10th April 2003 it obtained an Order from David Steel J for an alternative method of service, namely on his solicitors Messrs. Stephenson Harwood. Thereafter directions as to service of the Claim Form and service of Defence and Reply were agreed and recorded in a Consent Order made by Langley J., dated 24th June 2003.

36.	Kalvinder’s Defence was served on 22nd August 2003.  In that Defence, Kalvinder has raised many (but not all) of the defences pleaded by his father, with some elaboration as indicated below:

1)	By denying that Donnaway agreed to pay GMAC the Outstanding Prepayments as defined in the DOA (para. 6);
	
2)	By asserting that clause 13(b) makes no sense, and that accordingly clause 13, and the Guarantees as a whole, are meaningless and unenforceable, alternatively void for uncertainty (para. 7(2));

3)	By pleading that he was induced to enter into the Guarantee by material misrepresentation as to Palmier’s book debts, and is accordingly entitled to rescission thereof (para. 8);

4)	By denying that GMAC was entitled to serve a clause 17 notice on Donnaway, or that it had any right to terminate the IDA as against Donnaway – taking the additional points that clause 2.2 of the DOA referred only to obligations of Palmier in existence at the date of the DOA, and that the clause 7.5 demand was in any event insufficiently particularised and invalid for that reason (paras. 10(1), 14, 15(2)and 15(3)).

In addition, he has contended that the demand under the Guarantee was sent to an address which is not his address, so that no valid demand has been made on him (para. 18).

37.	GMAC served its Reply to Kalvinder’s Defence on 10th September 2003, taking similar points to those pleaded in its Reply to Kewal’s Defence, and in addition taking issue with Kalvinder’s point as to the obligations referred to in clause 2.2 of the DOA (para. 9), and asserting that the Guarantee had been properly served on him (para. 13).

The applications before the Court

38.	I have heard argument on the following applications which were before the court at the Case Management Conference:

1)	An application by Kewal (by Application Notice dated 2nd April 2003), supported by Kalvinder, for an order under CPR Part 3.4(2)(a) striking out the Particulars of Claim on the grounds that they disclosed no reasonable grounds for bringing the claim, and a consequential order under Part 3.4(3) dismissing the claim with costs.  This application was founded on the proposition that clause 13(b) of the Guarantees was meaningless, and that in consequence the Guarantees as a whole were unenforceable and/or void for uncertainty so that GMAC’s claims thereunder were bound to fail.  As the Defendants acknowledged, the vehicle for such an argument should have been a Part 24 application, not an application under CPR Part 3.4, and the point was argued, without objection, as if it had been a Part 24 application;

2)	Applications by GMAC (by Application Notice dated 12th November 2003), for orders under CPR Part 24.2 giving summary judgment against the Defendants on various defences they have raised, in particular:

a)	The Defence that the Guarantees had been induced by material misrepresentations by GMAC;

b)	Kalvinder’s defence to the effect that clause 2.2 of the DOA referred only to existing obligations of Palmier and not obligations not in existence at the date of the DOA;

c)	The defence to the effect that “the Client” under the IDA was and remained Palmier, not Donnaway, notwithstanding conclusion of the DOA, so that any notice under clause 17 and any demand under clause 7.5 required to be served on Palmier, not Donnaway;

d)	Kewal’s defence to the effect that his Guarantee was unenforceable by reason of the misrepresentation allegedly made to him by his son as to the effect of the DOA and his exposure under the guarantee, and GMAC’s failure to take steps to ensure that he understood what he was letting himself in for by signing the Guarantee;
 
3)	Applications by GMAC (also by its Application Notice dated 12th November 2003) to the effect that the defences referred to in sub-paragraph (2)(b) and (c) above were an abuse of process and should accordingly be struck out pursuant to CPR Part 3.4;

4)	An application by GMAC (by Application Notice dated 8th January 2004) for permission to amend its Particulars of Claim to add a claim for correction of a misnomer or mistaken designation in, or for rectification of, clause 13 of the Guarantees (set out in paragraph 14 above).

5)	An application by Kalvinder (notified by his solicitors’ letter of 9th December 2003) for permission to amend his Defence to take a further point on the construction of clause 13 of the Guarantees, and to plead various points directed to the validity and efficacy of the notices and demands on Donnaway upon which the demands under the Guarantees were founded.

39.	Various other applications were made in GMAC’s Application Notice, some of which were not argued in the light of concessions made in the course of the hearing. Thus, for example, Mr Evans on behalf of Kewal told me that Kewal would not be pursuing his defence based on alleged want of consideration for the DOA or his Guarantee, or his plea that the DOA should be rectified by the deletion of clause 2.2, and so there was no need for GMAC to pursue its Part 24 application in relation thereto. (Allegations and defences which have been abandoned should be deleted from the respective statements of case.) The fate of other applications is dependent on my rulings in relation to the applications summarised above. At least one, namely an application by GMAC for the trial of certain issues as preliminary issues, may require further argument in the light of those rulings.

40.	I propose to deal with the applications mentioned in paragraph 38 above under the following headings, which correspond to those under which the applications were dealt with (and grouped together) at the Case Management Conference, namely:

(A)	Rectification and related issues;
(B)	Alleged misrepresentation as to book debts;
(C)	Issues of construction of IDA and DOA – abuse of process;
(D)	Alleged misrepresentation by Kalvinder.

(A)	Rectification and related issues

The plea that clause 13(b) rendered the Guarantees unenforceable or void for uncertainty

41.	As mentioned above, on the appeal in the second action GMAC submitted that the last sentence of clause 13 of the Guarantees was sufficient to justify a demand directly upon the Defendants as Guarantors, if Donnaway had by 19th November 1999 failed to get in sufficient book debts to pay off the £1.618 million “Outstanding Receivables” under the DOA.  In rejecting this argument, Potter LJ first quoted clause 13(b) and the final sentence of clause 13,

“… (b) the balance of the Asset Purchase Price from time to time outstanding under the Agreement.  Without prejudice to the foregoing it is agreed that [GMAC] may make demand if and to the extent that any such remain Outstanding on 19 November 1999”,

and then continued as follows:

“24.	Mr Davies [who appeared for GMAC] was obliged to accept that ‘any such’ must refer back to the earlier sum mentioned under (a) of £1,618,492 and/or under (b), the balance of the asset purchase price from time to time outstanding under the agreement.  In this respect it seems to me that Mr Davies faces insuperable difficulties.  It is no doubt the case that in drafting the guarantee GMAC had in the forefront of its mind its requirement that the guarantor should stand as surety for and in the shoes of Donnaway in respect of any failure by Donnaway to realise book debts to the amount specified for the purpose of paying off GMAC.  However, clause 13, which is principally aimed at the capping of the guarantor’s liability at £1.618 m or any lower balance due after further recoverables had been got in by Donnaway, limits the liability of the guarantors by reference to the so-called “asset purchase price” from time to time outstanding under “the agreement”, which by definition in the guarantors [sic, obviously a mistake for ‘Guarantees’] is the invoice discounting agreement.  As such, it makes no sense, there being no suitable subject in this context for the words ‘asset purchase price’.
25.	Without suggesting, let alone claiming, any remedy of rectification, however, Mr Davies argues that it is plain that (i) clause 13 of the agreement must have been intended, and should be read, to refer to the deed of assignment rather than the invoice discounting agreement, and (ii) the words ‘asset purchase price’, while not appearing in that deed either, must be taken to mean the amount of the ‘outstanding repayments’ which it was plainly intended should be recoverable from the guarantors if and when Donnaway failed to get in sufficient receivables.  Mr Davies seeks to derive support for this construction by pointing out that the date of 19th November 1999, which appears in clause 13, is the date by which the assignment consideration of £300,000 was payable to the receivers under the Deed of Assignment.  In my view, Mr Davies seeks to push the principle that a contract should be construed by reference to the so-called matrices of the agreement too far in this case.  It is plain that the form, thrust and intention of the guarantee is to provide security in respect of the obligations of Donnaway.  Furthermore, it is framed, at least principally, to cover Donnaway’s obligations under the invoice discounting agreement and not the deed.  Even if it were right to go as far as Mr Davies suggests and to [treat] clause 13 as referring to Donnaway’s obligations under the deed of assignment, I do not read the deed as imposing any time limit upon Donnaway’s obligations to get in the debts of which Donnaway can be said to be in breach as the principal debtor.  Mr Davies invites the court to say that the final sentence of the guarantee imposes an additional and freestanding liability upon the guarantor to respond to a demand made upon him after 19th November 1999 quite independent of any default by Donnaway.  In my view, it is not properly susceptible of such a construction.”

42.	Sir Anthony Evans also referred (in paragraph 37 of the judgments) to what he described as “some of the insoluble problems of construction” identified by Potter LJ.

43.	The obvious difficulty presented by clause 13(b) is that the capitalised phrase “Asset Purchase Price” does not appear in either the IDA, or the DOA (or elsewhere in the Guarantees) ─ hence Potter LJ’s comment that clause 13(b) “makes no sense”, and the Defendants’ pleas to like effect.

44.	As indicated above the Defendants have further pleaded that the consequence of this is that clause 13, and thereby the Guarantees as a whole, are meaningless and unenforceable, alternatively void for uncertainty: they have submitted that as it is impossible (so they say) to discern the meaning of the second limb of the clause 13 monetary limitation of the Defendants’ liability, it will be impossible to ascertain what the limit is in any given case; and as the limit of liability provision is a central term of the Guarantees, that renders them unenforceable or void for uncertainty – hence Kewal’s “strike-out” application, supported by Kalvinder.

The proposed rectification amendment

45.	No doubt at least in part in response to this, GMAC has sought permission to amend its Particulars of Claim to add new paragraphs 6A-6D thereto.  The proposed paragraph 6A reads as follows:

“The words ‘Asset Purchase Price from time to time outstanding under the Agreement’ in clause 13 of the Guarantees are incorrect. The words that ought to have been used are ‘Outstanding Prepayments from time to time outstanding under the Agreement’.  The term ‘Outstanding Prepayments’ was a defined term under the Deed with the meaning ‘the sum of £1,618,000 advanced by [the Claimant] on account of its obligation to pay the purchase price of Book Debts purchased by [the Claimant] under the [Invoice Discounting] Agreement [made between Palmier plc and the Claimant dated 20 September 1994]’.”

46.	In the proposed paragraph 6B, GMAC sets out the facts and matters relied upon in support of this contention.  In summary, GMAC contends that the phrase “Asset Purchase Price” used in clause 13(b) of the Guarantees was a hangover from early drafts of the DOA, where it had been used to mean the price that would be paid by Donnaway to the Receivers as consideration for assignment by Palmier to Donnaway of Palmier’s book debts – before the draft DOA had been amended to take account of the fact that the book debts were no longer Palmier’s to assign, they having already been assigned to GMAC under the IDA;  that phrase had been replaced, in later drafts and in the final version of the DOA, by the expressions “Outstanding Prepayments” (as meaning the balance of £1.618 million said to be outstanding in respect of the sums advanced by GMAC to Palmier under the IDA) and “Assignment Consideration” (as meaning the sum of £300,000 plus VAT being the consideration for the assignment of Palmier’s interest in the IDA);  the continued inclusion of the phrase “Asset Purchase Price” in clause 13(b) of the Guarantees was a mistake, which neither GMAC nor the Defendants noticed when executing the Guarantee:  the parties had intended to refer to “Outstanding Prepayments”.

47.	In the proposed paragraph 6C, GMAC pleads that if “Outstanding Prepayments” is substituted for “Asset Purchase Price” in clause 13 of the Guarantees, that makes it clear that the Defendants’ liability “is limited to the sum of £1,618,000 receivable by [GMAC] under the terms of the [DOA] less sums actually received by [GMAC]” thereunder.  The proposed paragraph 6D contains the claim for rectification, “because the reference to “Asset Purchase Price” was a mistake and did not give effect to the transaction agreed between the parties.”  However, as that paragraph indicates, rectification is sought only “If and insofar as it is necessary,” and GMAC also puts its case on the basis that the words “Asset Purchase Price” were a misnomer or mistaken designation which it would be open to the Court to correct without rectification (see Chitty on Contracts, 28th ed., para. 12-073; Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. [1959] AC 133 at 154, 162, 168-170, 178 and 184;  Nittan (UK) Ltd. v. Solent Steel Fabrication Ltd. [1981] 1LLR 633, at 637 and 639.

GMAC’s contention that clause 13(B) can, if meaningless, be ignored 

48.	GMAC also resists Kewal’s strike-out application on the grounds that if clause 13(b) is indeed meaningless (and cannot be rectified), that does not render clause 13, or the Guarantees as a whole, unenforceable or void for uncertainty.  On the contrary, GMAC submits that in that event, clause 13(b) can and should be ignored, clause 13(a) providing a perfectly comprehensible and workable limitation of liability.  GMAC relies in this connection on the decision of the Court of Appeal in Nicolene Ltd v Simmonds [1953] 1 QB 543.

49.	Although both GMAC’s rectification application and Kewal’s strike-out application were fully argued before me, it was submitted on behalf of both Defendants that I should not rule on the strike-out application if I was minded to grant GMAC permission to amend.  There was no Part 24 application on behalf of GMAC in respect of the “meaningless and therefore unenforceable or void” defence, and no agreement that I should rule finally, one way or another, on that defence. It is one of the issues that GMAC seeks to have determined as a preliminary issue.

The Defendants’ grounds for opposing the proposed rectification amendment

50.	GMAC’s application for permission to amend was opposed by the Defendants on three separate grounds:

1)	It was contended on behalf of both Defendants that the Statute of Frauds precludes rectification of a guarantee;

2)	It was contended on behalf of Kewal that:

(a)	rectification of a guarantee given without any consideration moving from the beneficiary/creditor (even if given under seal) should not be granted against the wishes of the guarantor;
(b)	in the present case, no valid consideration was given by GMAC for the Guarantees;

3)	Both Defendants contended that, having regard to the evidence relied on by GMAC in support of its proposed plea of rectification, there was no real prospect of the plea succeeding at trial, and for that reason I should not grant permission to amend.

Before dealing with each of these objections in turn, I should record that GMAC also sought permission to make some minor amendments to paragraph 6(C) of its Particulars of Claim.  These proposed amendments were not opposed.

The Statute of Frauds point

51.	The Defendants’ argument on this point can be summarised as follows.  Section 4 of the Statute of Frauds 1677 (as amended) provides that:

“No action shall be brought…..  whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person….  unless  the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised”;

on the assumption that, as contended by the Defendants, the Guarantees as signed were ineffective because clause 13(b) was meaningless, to permit rectification to create a valid and effective guarantee where none otherwise existed would breach the requirement of the Statute of Frauds that a note or memorandum of a guarantee must be in writing and signed by or on behalf of the guarantor;  there is no English authority on the point:  cases in which it has been held that the Statute of Frauds does not preclude rectification of a contract for the sale of land are distinguishable, having regard to the fact that contracts of guarantee are peculiarly onerous and present different policy considerations to those pertaining to contracts for the sale of land, in respect of which the law has developed flexible doctrines such as that of part performance;  to allow rectification in a case such as the present one would be to drive the proverbial coach and horses through section 4.

52.	GMAC for its part responded by contending that there were in existence documents, namely the Guarantees signed by the Defendants, which complied with the Statute of Frauds, albeit that (on GMAC’s case) they did not express the true intentions of the parties; and that to refuse rectification would be to permit the Statute to be used in a way that would be contrary to equitable principles – for example, if parties had agreed that the guarantor’s liability should be limited to £50,000, but the guarantee as signed mistakenly recorded the limit as £100,000, the creditor would clearly not be entitled to insist on the erroneous higher limit.  Although GMAC acknowledged that there was no English authority directly on point, it was submitted that the reasoning in the decision of the Privy Council in United States of America v. Motor Trucks Ltd. [1924] AC 196, in which rectification had been granted of a contract for the sale of land, was equally applicable in the context of guarantees. Reliance was also placed on the decision of the New Zealand High Court in Whiting v. Diver Plumbing & Heating Ltd [1992] 1 NZLR 560, in which Tipping J, applying USA v Motor Trucks Ltd., held that it was appropriate to administer interrogatories in aid of a bona fide suit for rectification of a guarantee.  In addition I was referred to passages in various textbooks, in none of which was it suggested that rectification of a guarantee was precluded by the Statute of Frauds.

53.	In USA v. Motor Trucks Ltd., the parties had agreed that certain land and buildings should be transferred to the United States, but by mistake the schedule to their formal written contract, which was intended to list the property to be transferred, did not include such land and buildings.  The United States sought rectification, and specific performance of the contract as so rectified.  The Privy Council, on appeal from the Appellate Division of the Supreme Court of Ontario, allowed their claim.  The judgment of their Lordships was delivered by the Earl of Birkenhead, who said this (at pages 200-201):

“It was further suggested that the present action involved an attempt to enforce a parol contract inconsistently with the principle of the Statute of Frauds.  It is, however, well settled by a series of familiar authorities that the Statute of Frauds is not allowed by any Court administering the doctrines of equity to become an instrument for enabling sharp practice to be committed.  And indeed the power of the Court to rectify mutual mistake implies that this power may be exercised notwithstanding that the true agreement of the parties has not been expressed in writing.  Nor does the rule make any inroad upon another principle, that the plaintiff must show first that there was an actually concluded agreement antecedent to the instrument which is sought to be rectified; and secondly, that such an agreement has been inaccurately represented in the instrument.  When this is proved either party may claim, in spite of the Statute of Frauds, that the instrument on which the other insists does not represent the real agreement.  The statute, in fact, only provides that no agreement not in writing and not duly signed shall be sued on:  but when the written instrument is rectified there is a writing which satisfies the statute, the jurisdiction of the court to rectify being outside the prohibition of the statute.”

(It has of course since been held that it is unnecessary, for the purposes of a claim for rectification, to prove a concluded contract antecedent to the instrument sought to be rectified – see Joscelyne v. Nissen [1970] QB 86.)  Lord Birkenhead went on to hold that, at least since the Judicature Act 1873, the Court could both reform, i.e. rectify, a contract, and enforce the rectified contract, in one and the same action, citing the decision of the Court of Appeal in Craddock Brothers v. Hunt [1923] 2 Ch. 136 in support of that conclusion.  

54.	In Whiting v. Diver Plumbing & Heating Ltd, the name of the principal debtor was not filled in on the printed form of guarantee executed by the appellant in favour of the respondent, and for that reason the guarantee was unenforceable as it stood.  The respondent sought rectification of the guarantee so as to include the name of the principal debtor (a company owned by the appellant), and obtained leave to administer an interrogatory designed to elicit the response that the guarantee was intended to be of that company’s prospective indebtedness to the respondent.  On appeal from that decision, the appellant submitted that it was oppressive to require him to supply in writing the crucial missing detail as to the identity of the debtor, and thereby defeat his defence under section 2 of the Contracts Enforcement Act, the New Zealand equivalent of section 4 of the Statute of Frauds. This argument was rejected, and the appeal was dismissed, by Tipping J.

55.	In the course of his judgment, Tipping J said this (at page 565):

“The real question seems to me to be whether in a rectification suit equity will rectify an instrument, ex hypothesi defective for the purposes of the Contracts Enforcement Act, in such a way as to overcome that defect.  There is good authority that equity, rectification being otherwise appropriate, will do so even if the result will be that the defendant can no longer rely upon the Statute of Frauds or the Contracts Enforcement Act.”

He cited both USA v. Motor Trucks Ltd. (quoting the passage set out above), and Craddock Bros. v. Hunt, in which Lord Sterndale MR had declared that:
“After rectification the written agreement does not continue to exist with a parol variation; it is to be read as if it had been originally drawn in its rectified form…. and it is that written document, and that alone, of which specific performance is decreed”,

thus confirming the view “that an instrument once rectified speaks ab initio in its rectified form”.  Other Commonwealth authorities were also cited, including an earlier New Zealand case, Samson v. Butt [1927] NZLR 119, in which it had been held that a contract which did not comply with the Statute of Frauds could be rectified in such a way that it did then comply.  In that case, Ostler J. had concluded:

	“If the court accepts the evidence [as to rectification] as true, its duty is to rectify the written contract so as to make it conform with the real intention of the parties, and the contract as so rectified becomes the true contract between the parties ab initio.  If as rectified it then conforms with the provisions of the Statute of Frauds, that statute ceases to be a defence to specific performance.”

56.	Reference was also made by Tipping J. to a number of leading textbooks, including Spry on Equitable Remedies (4th ed., 1990), and Treitel’s The Law of Contract (7th ed., 1987), in each of which the learned authors or editors had expressed the view that rectification could be ordered even though its effect might be to defeat a Statute of Frauds defence – and in none of which it was suggested that any distinction should be drawn between different types of agreement covered by the Statute of Frauds.  He concluded (at page 568):

“Rectification and enforcement, while available in the same proceeding, are two distinct steps.  The first step is for the court to determine whether the instrument in question ought to be rectified.  The second and separate step is to determine whether the instrument in its rectified form is enforceable.  As earlier seen if rectification is granted the instrument is deemed to have been in its rectified form from the start.

In my judgment interrogatories should be allowed in aid of a bona fide rectification suit…. Provided that the rectification suit is bona fide then it would be wrong in my view to deprive a party of his right to interrogate on matters relevant to that stage of the proceedings simply because the answers would or might destroy a defendant’s defence at the second stage of the proceedings.”

57.	I was also referred to the current, 11th, edition of Treitel’s The Law of Contract, in which the learned author states at pages 321-323 (in terms identical to those of the 7th edition, cited by Tipping J.):

“Rectification can be ordered although the contract is one which must be in, or evidenced in, writing,”

and to Andrews & Millett’s Law of Guarantees, 3rd ed., where (at pages 61-64) the learned authors discuss the issue at some length, indicating that they can see 

“no reason in principle why the doctrine of rectification should not be used to make  good omissions in a written guarantee in the same way as in any other type of contract.”

58.	In my view there is indeed no reason in principle for distinguishing, in this context, between contracts for the sale of land and contracts of guarantee.  I reject the submission of Mr. Berry QC for Kalvinder that such a distinction is made in the original wording of section 4 of the Statute of Frauds: contrary to his submission, the words “to charge any person [upon]” clearly applied to each of the three categories of agreement that followed, including “any contract or sale of lands [etc.].”  A claim for rectification of a guarantee (or other instrument) is not, as it seems to me an “action ….brought….whereby to charge the defendant upon” the guarantee: as Lord Birkenhead said,  the jurisdiction of the court to rectify is “outside the prohibition of the Statute”.  Although USA v. Motor Trucks Ltd. concerned a contract for the sale of land, Lord Birkenhead’s reasoning is not restricted to such contracts, but is equally applicable, as it seems to me, to contracts of guarantee. In the present case, as in Whiting v. Diver Plumbing & Heating, there is in the case of each Defendant an instrument in writing, namely the Guarantee signed by him.  If as a result of a shared mistake that does not record the common intention of the parties, GMAC is entitled to invoke the equitable jurisdiction of the court to rectify the Guarantee to accord with such common intention.  To allow GMAC to claim under such rectified instrument would not offend against the Statute of Frauds.  Accordingly, I reject the Defendant’s objection based on the Statute of Frauds.

Consideration

59.	Kewal’s objection based on alleged want of consideration for the Guarantees had two limbs, as indicated above.  I shall deal first with the issue of whether in fact GMAC provided valid consideration for the Guarantees.  If it did, the issue of whether a Court should grant rectification of a guarantee given under seal, for which the beneficiary/creditor had given no consideration, and against the wishes of the creditor, becomes academic.

60.	The undertakings of the Defendant sureties in the Guarantees were expressed to be given:

“In consideration of [GMAC] at the request of the Surety [1] entering into or [2] continuing with any agreement for the factoring or discounting of Debts which agreement was made with Palmier PLC (in Administrative Receivership) (‘the Agreement’) the entire benefit of which has been assigned to the Client or [3] in accordance with the Agreement treating any debt as approved….”

(for convenience, I have numbered the three items of alleged consideration mentioned in this recital.)

61.	GMAC did not challenge Mr Evans’ submission on behalf of Kewal that neither item [1] nor item [3] constituted valid consideration: item [1] comprised past consideration and therefore no consideration at all, GMAC having entered into the IDA long before the Guarantees were given; item [3] was, as Mr Evans submitted, “impossible”, there being no provision in the IDA for the approval of any debt.  The issue was therefore whether item [2], in effect continuing with the IDA, constituted valid consideration.  Mr Evans submitted that it did not, on the basis that forbearing to terminate the IDA could not in the circumstances have amounted to consideration, as the only possible consequence thereof, said to be a continuing obligation to purchase new book debts, was illusory.  I disagree.  The IDA was continued, no steps being taken by GMAC to terminate it, either in June 1999 or thereafter.  Such continuation afforded ample consideration for the Guarantees. Thus for example none of the consequences of termination as specified in clause 19.3 arose (at least prior to Donnaway’s failure to comply with GMAC’s clause 17 Repurchase Notice, as to which, see below).  On the contrary, by virtue of the DOA GMAC gave up its rights under clause 20 of the IDA to collect book debts, and any entitlement to retain the proceeds over and above the amounts payable to GMAC and the Receivers.  Accordingly, I reject the argument that no valid consideration was provided for the Guarantees.

62.	That makes it unnecessary for me to deal with the argument that rectification should not be granted of a guarantee given under seal, but without consideration, against the wishes of the guarantor.

Burden and standard of proof for rectification

63.	As stated in Chitty on Contracts, 28th ed., at para.5-069:

“The burden of proof is on the party seeking rectification.  He must produce ‘convincing proof’ not only that the document to be rectified was not in accordance with the parties’ true intentions at the time of its execution, but also that the document in its proposed form does accord with their intentions.  It is essential that the extent of the rectification should be clearly ascertained and defined by evidence contemporaneous with or anterior to the contract.  The denial of one of the parties that the deed as it stands is contrary to his intention ought to have considerable weight, and unless the other party can convince the court that the document does not represent both parties’ intentions at the time of execution, rectification will only exceptionally be ordered.  Indeed, it has been said that it is not sufficient that the written contract does not represent the true intentions of the parties; it must be shown that the written contract was actually contrary to the intention of the parties…….”

The cases demonstrate that (as stated in the latest supplement to Chitty on Contracts), 

“Rectification will not be ordered unless there is convincing evidence that the document says one thing when it was meant to say another, and what that other was intended to be” (my emphasis)

- see, for example, Pappadakis v Pappadikis (judgment, 25th October 1999; reported in The Times, 19th January 2000). I bore these principles in mind in considering the substance of the proposed rectification claim, to which I now turn. 

Does the proposed rectification plea have a real prospect of success?

64.	It was common ground that permission to amend should not be granted if the proposed rectification claim stood no real prospect of success.  It was also accepted on behalf of the Defendants that I should address the issue of whether it did or not, having regard, not only to the terms of GMAC’s draft Amended Particulars of Claim, but also to the written evidence which was before me, which included a statement from Mr Alan Hooper, the Legal Director of GMAC, who had handled, on behalf of GMAC, the negotiations that led to the execution of the DOA and the Guarantees in June 1999.  It is important to emphasise at the outside of this discussion that the issue for me was whether the rectification claim stood a real (as opposed e.g. to a fanciful) prospect of success – not whether GMAC had proved its case on the evidence before me.

65.	In considering this issue, it is necessary to set out some of the detail of the negotiations which led to the execution of those agreements, as it has emerged from the evidence before me.

66.	Having just mentioned Mr. Hooper, I must now identify the other persons involved in those negotiations. The Receivers, and Palmier, were represented by solicitors Clifford Harris & Co. (“Clifford Harris”), in the person of Mr Sunil Varma.  Donnaway was represented by Silver Quastel Murrell (“SQM”), in the person of Mr David Quastel.  GMAC was under the impression that SQM were also acting on behalf of the Defendants, though this was denied by SQM and is denied by the Defendants.  However, both Defendants accepted that, for the purposes only of GMAC’s amendment application, I should proceed on the basis that the knowledge and intentions of SQM with regard to the terms of the Guarantees could be treated as attributable to the Defendants.  The Defendants did not put in any witness statement to counter that of Mr. Hooper.  They were, of course, under no obligation to do so, but the result was that I did not, for example, have the benefit of seeing any account of the negotiations from Mr Quastel. The account that follows is therefore largely taken from Mr Hooper’s witness statement and the documents he exhibits thereto

67.	The first draft of the proposed Deed which eventually became the DOA appears to have been prepared by Mr. Varma. It was faxed by Clifford Harris to Mr Hooper on 21st April 1999.  The draft was in the form of a tripartite agreement between Palmier, the Receivers, and Donnaway, whereby Palmier sold the book debts to Donnaway for an “Asset Purchase Price” which was left blank in the draft, but which Mr. Hooper understood was to be the sum of £300,000 plus the amount owing by Palmier to GMAC (inclusive of anticipated discounting charges).  At the same time, Clifford Harris provided Mr Hooper with a copy of a draft Deed of Guarantee, naming Kalvinder and Kewal as Guarantors, and expressed as a guarantee of Donnaway’s obligations to Palmier and/or the Receivers under the Deed, with no monetary limit.  In a telephone conversation on 30th April 1999 Mr Hooper pointed out to Mr Varma that the proposed Deed did not provide for payment to GMAC of sums received from Donnaway, an omission with which Mr. Varma proposed to deal by means of a side letter from the Receivers, a draft of which he sent to Mr Hooper. At some stage (perhaps during this conversation) Mr Hooper also pointed out to Mr Varma that the book debts were not Palmier’s to sell.

68.	Mr Hooper made various manuscript amendments to the draft Deed and side letter. By this time, he had received from Mr. Titley, then GMAC’s Manager of Corporate Recovery, details of Palmier’s indebtedness to GMAC, which, together with anticipated discounting charges, came to a total of £1,618,492.  To this he added the £300,000  which he understood to be the sum required to be paid to the Receivers, and he inserted the resultant total of £1,918,492 as the “Asset Purchase Price” in the definition section of the draft Deed.  The figure of £1,618,492 he inserted into the draft side letter as the sum to be paid by the Receivers to GMAC.

69.	On 10th May 1999 Mr Hooper faxed to Mr Quastel a revised draft Guarantee of Palmier’s obligations to GMAC (based on an earlier draft of a guarantee proposed, but never given, prior to the Receivership).  Clause 13 of this draft provided as follows:

“IT IS AGREED and declared that the aggregate demand or demands under this Guarantee and Indemnity shall not in any event exceed the sum of £1,918,492 plus VAT save that the surety shall be liable to pay interest upon such demand or demands pursuant to clause 4(vii) and that the obligations of the Surety under this Deed shall be subject to this limitation of liability.”

70.	At the same time he faxed to Mr Quastel three pages of the draft Deed, with his manuscript amendments, including the insertion of £1,918,492 as the “Asset Purchase Price”.

71.	On the following day, Mr Quastel returned both draft documents, with manuscript amendments and comments.  His amendments to the draft Guarantee made clear his understanding that the Defendants were to guarantee the obligations of Donnaway, not Palmier.  Mr Quastel (or someone else at SQM) had also amended clause 13, so that it read:

“IT IS AGREED and declared that the aggregate demand or demands under this Guarantee and Indemnity shall not in any event exceed the lesser of (a) the sum of £1,918,492 plus VAT save that the surety shall be liable to pay interest upon such demand or demands pursuant to clause 4(vii) and (b) the balance of the Asset Purchase Price from time to time outstanding under the Agreement, and that the obligations of the Surety under this Deed shall be subject to this limitation of liability.” (I have italicised the manuscript amendments.)

This is the genesis of clause 13(b) of the Guarantees as signed.  It is to be noted that Mr Quastel introduced clause 13(b), and its reference to the “Asset Purchase Price”, at a time when that was defined in the draft Deed as being the sum of £1,918,492 payable as the purchase price for Palmier’s interest in the book debts.  Mr Hooper has said he does not specifically recall discussing these amendments to the draft Guarantee with Mr Quastel, but says he would undoubtedly have done so in the detailed conversation referred to in the next paragraph.  Mr Quastel’s manuscript comments on the draft Deed included a question mark against that figure, which was overwritten by the word “Agreed” on the copy faxed to Mr. Hooper, and also his notation that GMAC was to be a party to the agreement.

72.	Mr Hooper’s evidence is that this latter notation highlighted the problem over the structure of the transaction, namely that the book debts were not Palmier’s to sell, and that he had a detailed conversation with Mr Quastel, as a result of which he decided that it would be appropriate to make a fundamental change to that structure, which would include GMAC becoming a party to the transaction.

73.	Mr Hooper then sought and obtained clean copies (including an electronic copy) of the documents from SQM and Clifford Harris.  He made manuscript amendments to the draft Deed, which included the addition of GMAC as a party, the redefinition of “Asset Purchase Price” as the sum of £300,000 plus VAT, the insertion of a new term, “The Outstanding Prepayments”, defined as “the sum of £1,618,000 owed to [GMAC] on account of its obligation to pay the purchase price of the Book Debts purchased by [GMAC] under the [IDA],” and the addition of new clauses 2-5.2 which (with some amendments) became clauses 2-5.2 of the DOA as executed.  In a letter to Mr. Varma of 13th May 1999, Mr. Hooper explained the reason for this structural change, namely

“that the book debts are not Palmier’s to sell as they are owned by [GMAC] and instead Palmier has the benefit of certain contractual provisions under the IDA.”

He sent a copy of this letter, together with the amended draft Deed, to Mr. Quastel, under cover of a fax of 13th May 1999, in which he added:

“I am happy with your suggested changes to the guarantees and amended versions are attached with the changes marked.”

74.	In the amended versions of the guarantees, he had adopted SQM’s proposed wording for clause 13 (see paragraph 71 above).  Thus clause 13(b) continued to refer to “the balance of the Asset Purchase Price from time to time outstanding under the Agreement”, notwithstanding that that term had been redefined, in the latest version of the draft Deed, to mean only the £300,000 plus VAT payable to Palmier/the Receivers.

75.	Mr Hooper’s evidence is that after he had thus amended the draft Guarantee and after he had redrafted the Deed (though he is not sure precisely when),

“I re-visited clause 13 of the Guarantee and made further amendments to the hard copy draft containing David Quastel’s [manuscript] amendments. I put a line through ‘Asset Purchase Price’ and wrote in manuscript over the top ‘Outstanding Prepayments’.  This was because the ‘Asset Purchase Price’ was no longer relevant so far as the sum advanced by [GMAC] to Palmier was concerned, which was defined in the re-drafted Deed as ‘Outstanding Prepayments’.  I then added a further provision that ‘It is further agreed and declared that demand may be made by [GMAC] in respect of the Outstanding Prepayments to the extent that any such remain outstanding on or after 19 November 1999.”

A copy of the draft Guarantee with these additional amendments was exhibited to his witness statement. As indicated above these amendments were not incorporated into the draft Guarantee sent to Mr. Quastel on 13th May 1999.

76.	Thereafter there were further exchanges about the draft Deed.  On 17th May 1999 Mr. Hooper received amended drafts from both Mr. Quastel and Mr. Varma.  In the definitions clause and throughout the Deed (apart from in clause 11.11), Mr. Varma had replaced the words ‘Asset Purchase Price’ with ‘Assignment Consideration’, namely the sum of £300,000 payable by Donnaway to the Receivers.  All of Mr. Varma’s amendments (and most of those proposed by Mr. Quastel) were incorporated into a further draft Deed prepared by GMAC, which was then sent to Messrs. Quastel and Varma on 18th May 1999.  Further minor amendments were made before the DOA was prepared for execution.  These included the substitution of the remaining references to ‘Asset Purchase Price’ in clause 11.11 (where it had first occurred in that clause, it was replaced by “Outstanding Prepayments”, and where it secondly occurred, it was replaced by “Assignment Consideration”).  Thus the phrase ‘Asset Purchase Price’ was eliminated from the DOA.

77.	Separate draft guarantees for each Defendant were prepared on GMAC’s computer.  In the draft prepared for Kewal, in clause 13 ‘Asset Purchase Price’ was replaced by ‘Outstanding Prepayments’, and the words “Without prejudice to the foregoing it is agreed that [GMAC] may make demand if and to the extent that any such Outstanding Prepayments remain Outstanding on 19th November 1999” were added at the end, reflecting Mr. Hooper’s manuscript amendments to the draft Guarantee bearing Mr. Quastel’s earlier manuscript amendments (see paragraph 75 above).  However, in the draft Guarantee prepared for Kalvinder, no change was made in clause 13 to the words ‘Asset Purchase Price’, and the last sentence read ‘Without prejudice to the foregoing it is agreed that [GMAC] may make demand if and to the extent that any such remain outstanding on 19 May 1999’ – a truncated and inaccurate version of Mr Hooper’s concluding words, omitting the words ‘Outstanding Prepayments’ after ‘any such’, and specifying the wrong date.

78.	I should record at this point that the Guarantees as executed were in the form of the draft prepared for Kalvinder, save that November 1999 was substituted in manuscript for May 1999 at the end of clause 13.

79.	On 20th May 1999, Mr. Quastel wrote to Mr. Hooper in the following terms:
	
“I refer to my conversation with you of yesterday and confirm that in fact the engrossment deed has been sent directly to Switzerland.

In the circumstances, I would suggest that a fresh engrossment be re-sent to [BDO] and I would be obliged if you could also forward a clean copy of the engrossed document to me, including copies of the guarantees incorporating the various amendments.”

80.	In his witness statement, Mr. Hooper refers to this letter, noting from it that he spoke to Mr. Quastel on 19th May 1999, and that he was asked to forward copies of the guarantees incorporating the various amendments. He does not, however, give any details of that conversation.  He adds:

“In retrospect, it is clear that, although the changed definitions used in the [DOA] were correctly dealt with in that document, in the heat of the moment they were not accurately carried over into the draft of the Guarantee for [Kalvinder] and that this draft (rather than the correct wording in the draft for [Kewal] was then used.  However, the intention was and is obvious.”

81.	It seems clear, on the basis of Mr. Hooper’s evidence and the documents that he exhibits, that he intended the Guarantees, and in particular clause 13, to be in the form of the draft prepared, but not used, for Kewal, and that the use of the form prepared for Kalvinder, with the single manuscript amendment to the date at the end of clause 13, was a mistake on his part.  I did not understand the Defendants to contend to the contrary. The phrase ‘Asset Purchase Price’ was no longer apposite in the light of the restructuring of the draft Deed, the changes in the Definition Section, and the total elimination of that phrase from the DOA in the form in which it was executed.  What is more, it is difficult to make sense of the last sentence, with the omission of ‘Outstanding Prepayments’ after ‘any such’.

82.	The issue was whether GMAC has a real prospect of establishing at trial, not only Mr Hooper’s mistake and true intentions, but also that SQM too intended clause 13(b) of the Guarantees to refer to “Outstanding Prepayments” and not to “Asset Purchase Price”.

83.	It was submitted on behalf of the Defendants that there was no evidence that SQM ever had that intention. There were, it was said, a number of possibilities as to what might have happened if Mr Quastel had had his attention drawn to the fact that the words “Asset Purchase Price”, having been eliminated from the DOA, were no longer appropriate in the context of clause 13 of the Guarantees: he might simply have agreed to the deletion of clause 13(b); he might have agreed to the substitution of the words “Outstanding Prepayments”; or, because his goal had been to limit the Defendants’ liability to a reducing balance, and because in theory at least (by virtue of the provisions of clause 11 of the IDA) the unpaid balance under the IDA could go up, he might have insisted on an alternative form of words which made clear that the Defendants’ potential liability would decrease as book debts were collected in and paid to GMAC.

84.	GMAC for its part submitted that the issue at trial, if the rectification plea was allowed, would be whether the parties had a common intention to use the words “Outstanding Prepayments” rather than “Asset Purchase Price”, not whether they had a common understanding as to what the words “Outstanding Prepayments” meant, as to which there might be issues of construction. Although there is at present no direct evidence that Mr. Hooper discussed his further amendments to clause 13 with Mr. Quastel or that Mr. Quastel agreed to the substitution therein of the phrase “Asset Purchase Price” with the phrase “Outstanding Prepayments” (or indeed to the concluding words as set out in the draft prepared for Kewal), there is the evidence (referred to in paragraphs 79-80 above) that a conversation took place between Messrs Hooper and Quastel on 19th May 1999, following which Mr. Quastel wrote to Mr. Hooper requesting “copies of the Guarantees incorporating the various amendments”.  GMAC submitted that that it was inconceivable that the two lawyers, Mr Hooper and Mr Quastel, would have agreed to the words “Asset Purchase Price” remaining in the Guarantees, given their elimination from the draft DOA and that in the light thereof they made no sense in the context of clause 13; and that in the circumstances it was a reasonable inference that Mr Quastel agreed to Mr Hooper’s further amendments (including the crucial substitution) in the course of that conversation, and that that is what he was referring to in his letter.

85.	In my judgment, in the light of Mr Hooper’s evidence and of the contemporaneous documentation, in particular of the evidence of the conversation on 19th May 1999 and Mr Quastel’s letter of 20th May 1999, and in the absence of any denial by Mr Quastel of the proposition that the final wording clause 13(b) was contrary to his intentions, the rectification plea does stand a real prospect of success. Accordingly, I propose to allow the amendment.

86.	In the circumstances it is unnecessary for me to say anything about GMAC’s alternative argument based on the Court’s jurisdiction to correct misnomers or mistaken designations without formal rectification.

Consequences if clause 13(b) is meaningless as it stands

87.	I have already summarised the Defendants’ case on this point – see paragraph 44 above.  They referred me to para.2-133 of Chitty on Contracts, 28th ed., in which the learned editors, having correctly observed that “The court will make considerable efforts to give meaning to an apparently meaningless phrase; but even where these efforts yield no results, such phrases do not necessarily vitiate the agreement,” and having cited the well-known example of the latter point, Nicolene Ltd v Simmonds [1953] 1 QB 543, in which the Court of Appeal held that a clause which provided that a sale was subject to “the usual conditions of acceptance” was meaningless, but was severable and could be ignored, leaving the contract enforceable, conclude:  

“[The] cases show that the question whether the inclusion of a meaningless clause vitiates the contract, or can be ignored, depends on the importance which the parties can be considered to have attached to it. If it is simple verbiage, not intended to add anything to an otherwise complete agreement, or it relates to a matter of relatively minor importance, it can be ignored. But if the parties intend it to govern some vital aspect of their relationship its vagueness will vitiate the entire agreement”

88.	The Defendants submitted that clause 13, which was obviously intended to provide a monetary limit to the Defendants’ liability under the Guarantees, was clearly a central provision thereof, and that accordingly no part of it could be ignored.  They submitted moreover that if (as they contended) no sensible meaning could be given to clause 13(b), the situation was equivalent to one where the parties had provided for a monetary limit “to be agreed”: they referred me to the Queensland case of Relwood Pty Ltd v Moving Homes Pty Ltd [1990] 1Qld R 481, in which a box-form printed guarantee had a space for “credit limit required,” in which the intended guarantor had written in, “to be agreed”, no such agreement ever being reached, and in which the Full Court, upholding the trial judge, held that there was no concluded contract of guarantee.

89.	In response, Mr King on behalf of GMAC submitted (among other things) that it was impossible to say that the parties, and in particular the Defendants on whose behalf clause 13(b) had been introduced, must have attached importance to it if in truth it was meaningless; that the case was similar to Nicolene Ltd v Simmonds; if clause 13(b) was ignored as meaningless, clause 13 still provided a perfectly workable monetary limit of liability, namely that stipulated in clause 13(a), and (in contrast to the position in Relwood) there was nothing left over for further agreement and the   Guarantees as a whole were operable. 

90.	I see considerable force in GMAC’s submissions.  However, in view of the fact that Kewal made clear through Counsel his wish not to pursue his strike out application in the event that I gave permission to GMAC to amend to plead rectification, as I propose to do, and in the absence of any Part 24 application on this issue by GMAC, I shall resist the temptation to say anything more on the consequences of meaninglessness.

(B)	Alleged misrepresentation as to book debts

91.	As mentioned above, among the defences raised by each Defendant is the allegation that he was induced to enter into his Guarantee by a material misrepresentation by GMAC, as a result of which he is entitled to rescission of the Guarantee.  Thus, Kalvinder has pleaded that in early 1999, Mr Titley of GMAC orally represented to him that the value of Palmier’s book debts was approximately £3.2 million, whereas the book debts were overstated by at least £574,000.  Kewal has likewise pleaded a representation that Palmier’s book debts were approximately £3 million, alleged to have been materially false to the tune of some £500,000, as a result of which he claims rescission.  Though not made clear in his Defence, it appears that Kewal relies on the alleged misrepresentation made to Kalvinder.

92.	GMAC has sought summary judgment against the Defendants on the issues raised by these misrepresentation allegations, under CPR Rule 24.2, on the grounds that the Defendants have no real prospect of succeeding on these issues at trial.

93.	The argument before me focused on Kalvinder’s misrepresentation defence. In order to succeed on that defence, Kalvinder would have to prove:

1)	That the alleged representation was made to him by Mr. Titley;
2)	That it was false in a material respect;
3)	That he relied on it in giving his Guarantee.

94.	If he proved these three components of his misrepresentation defence, that would not be an end of the matter, because GMAC has pleaded that Kalvinder is, by reason of the “Declaration on behalf of Surety” at the end of the Guarantees (“the Declaration”), estopped from asserting that he was induced to enter into the Guarantees in reliance on any representation by GMAC.

95.	The Declaration, set out in full in paragraph 15 above, provided, in material part,

“I declare that in deciding to sign this guarantee and indemnity I have not placed any reliance upon any advice, opinion or representation of …. (iii) you or any representative or agent of yours….”

96.	I shall deal first with each of the three necessary components of the misrepresentation plea, and then with GMAC’s estoppel plea.

The representation

97.	Kalvinder’s evidence, in his witness statement of 16th February 2004 prepared for the purpose of these proceedings, is that at a meeting in early 1999, Mr. Titley represented to him that Palmier’s book debts were about £3.2 million.  As he observes, this figure corresponds closely to the figure of £3,233,152.12 listed in the ledger of Palmier book debts passed over to Donnaway and DAL for collection.  The DOA defined “the Book Debts” as “the ….book debts created by [Palmier] in relation to the Business [i.e. Palmier’s business of importing and exporting ladies’ garments] as set out in the attached Schedule, ownership of which is vested in [GMAC].”  The Schedule was not produced in evidence, but it is reasonable to infer that it comprised a list of some 600 book debts the total face value of which was £3,233,152.12 (as indicated in later correspondence from DAL, referred to below, and as stated by Kalvinder in his third witness statement in the earlier proceedings).  In earlier witness statements, he had first said that Mr. Titley had represented that Palmier’s book debts were in the region of approximately £3 million, and had later recalled that the figure of approximately £3.2 million was given.

98.	In his witness statement served in the first action, Mr. Titley did not dispute Kalvinder’s evidence that he made a representation as to Palmier’s book debts.  However, in his witness statement served in the present proceedings, he strongly denies that he made any such statement, asserting that he would not have been in a position to make any statement as to the value of Palmier’s book debts, because he would not have known the amount of the book debts – only the amount of the investment balance due to GMAC.

99.	There was some debate at the hearing as to the nature of the misrepresentation alleged – whether it was as to the face value of the outstanding book debts, or as to the net worth thereof having regard to issues of collectability.  Mr. Berry QC on behalf of Kalvinder made clear that it was the former that was intended.

100.	Mr. King on behalf of GMAC very properly accepted that I could not, at this stage of the proceedings, resolve this conflict of evidence between Kalvinder and Mr. Titley.  In the light of this conflict, I cannot, as it seems to me, conclude that there is no real prospect of Kalvinder proving the representation alleged.

Alleged falsity

101.	Kalvinder’s case was that the representation, albeit allegedly made in early 1999, was a continuing one, upon the accuracy of which he was entitled to rely, unless it was corrected (which it was not) up to the time the transaction was concluded in June 1999.  The issue raised by this second limb of the misrepresentation defence was therefore whether Kalvinder has a real prospect of showing that Palmier’s outstanding book debts as at June 1999 were materially less than about £3.2 million.

102.	The evidence before me included two letters from DAL to SQM on which the Defendants placed particular reliance.  The first, dated 17th March 2000, described DAL’s role in assisting Donnaway to collect the book debts, and recorded that “The ledger was comprised of approximately some 600 matters with a total value of £3,233,152.12.”  It enclosed a 9-page schedule, listing the amount of each book debt, and recording payments made.  DAL stated that (as recorded by the schedule) “Our work and analysis at today’s date indicates that some £164,343.16 of the purchased debt by our client may well have been paid to [GMAC] as the Joint Receivers PRIOR to the Sale.”  Mr. Berry QC submitted that this itself constituted triable evidence of falsity of the alleged representation. The second, dated 4th April 2000, set out DAL’s response to SQM’s request that DAL conduct a detailed analysis of various payments allegedly made by debtors but which might not have been recorded in GMAC’s balance calculation.  Among other things it identified “a likely £41,504.27 seemingly paid to Midland Bank PLC prior to the purchase of the Palmier Book Debt which may not have been passed to [GMAC] together with at least £363,389.71 of Book Debt Monies seemingly banked by Habib Bank Zurich immediately prior to the appointment of the Joint Receivers.”  This evidence was also submitted to give rise to an arguable case on falsity.

103.	In the light of this and other evidence relied on by the Defendants, and Mr Berry QC’s submissions in relation thereto, Mr. King did not seek in his reply submissions to persuade me that there was no triable issue on falsity of the alleged representation.  The picture as to what if any book debts included in the ledger passed to Donnaway and DAL for collection had in fact been collected prior to completion of the transaction is unclear, but I could not conclude, on the evidence before me, that there is no real prospect of the Defendants succeeding in establishing that, if the alleged representation was made, it was false in a material respect.

Reliance

104.	In his witness statement in these proceedings, Kalvinder stated that both he and Donnaway did rely on Mr. Titley’s alleged representation that Palmier’s book debts were about £3.2 million.  It was submitted on his behalf that the reasons why this was material to him were obvious:  if the book debts were smaller than they were thought to be, then the potential profit for Donnaway was smaller – it had to recover a larger percentage of the outstanding debts before clearing the total of about £1.918 million to which GMAC and Palmier together were entitled before Donnaway could retain the proceeds of collections for itself

105.	It was submitted on behalf of GMAC that Kalvinder cannot possibly have relied on any representation by Mr. Titley as to the amount of Palmier’s book debts, because on Kalvinder’s own evidence, he had, as a former director of Palmier, “an intimate working knowledge of how Palmier operated, its customers, and the debts themselves”, and as a director of P&P, he had “direct access to all of Palmier’s original records” (paras. 13 and 15 of Kalvinder’s first witness statement in the first action).  Kalvinder had, after all, it was emphasised, been appointed to act as a consultant to Donnaway because of “the detailed knowledge that you almost certainly have with regard to the collection of such debts…. in order that we may collect this book debt swiftly and effectively”  (Donnaway’s letter to Kalvinder of 6th April 1999, to the terms of which Kalvinder signified his agreement).  It was submitted that his evidence, in his witness statement in the current proceeding, that prior to 3rd December 1998 he had not been involved with debt collection on a day to day basis, did not know about every account, and would have had only a general idea of what the level of outstanding debtors was at any given time, and that between 3rd December 1998 and June 1999 he was only involved sporadically with outstanding book debt collection, and did not have access to the records relating to Palmier’s outstanding book debts (paragraphs 6, 8 and 9), was inconsistent with his earlier evidence, and that I should reject it as untrue.  On the contrary, it was submitted that I was entitled to conclude that Kalvinder had access to and intimate knowledge of all relevant information regarding Palmier’s book debts, and that in deciding whether to give his Guarantee he must have relied on that knowledge, and not on any representation by Mr. Titley.

106.	GMAC also relied on a memo dated 11th May 1999 from Kalvinder to Mr. Titley, in which he pointed to a discrepancy between the amount outstanding to GMAC as recorded respectively by GMAC and Palmier/the Receivers, which it was suggested would have affected the value of the book debts outstanding.

107.	I do not think any inconsistencies or differences of emphasis in Kalvinder’s written evidence are such as to entitle me to conclude that Kalvinder’s more recent statements as to his lack of personal knowledge of the detail and amount of Palmier’s book debts are not credible, or that Kalvinder’s statement that he relied on the alleged representation cannot be true.  Nor does it follow from the memo of 11th May 1999 that Kalvinder must have realised that any statement by GMAC as to the book debts outstanding was likely to be inaccurate. These matters may have to be tested in cross-examination, but I cannot, on the material before me, conclude that Kalvinder has no real prospect of establishing reliance.

Estoppel

108.	That leaves the allegation of estoppel arising out of the Declaration, the material terms of which are set out in para. 15 above.

109.	The effect of clauses such as these has been considered by the Court of Appeal in two cases, neither of which, somewhat surprisingly, has been reported, and in each of which the leading judgment was given by Chadwick LJ.  In the first, EA Grimstead & Son Ltd v. McGarrigan (Case No. QBENF 97/1641C, judgment 27th October 1999), two similar clauses had been included in a share sale agreement.  The purchaser brought proceedings founded on representations allegedly made to him prior to the sale.  The Court of Appeal, reversing the trial judge, held that the alleged representations had not been made.  But Chadwick LJ went on to consider the effect of the clauses in question, clauses 2.5 and 8.1, on the remedies that might otherwise have arisen for pre-contractual misrepresentation.  He said this (at pages 31-33 of the transcript with which I was supplied):

“In my view an acknowledgement of non-reliance, in the form which appears in clauses 2.5 and 8.1 in the present agreement, is capable of operating as an evidential estoppel.  It is apt to prevent the party who has given the acknowledgement from asserting in subsequent litigation against the party to whom it has been given that it is not true.  That seems to me to be a proper use of an acknowledgement of this nature, which …….. has become a common feature of professionally drawn commercial contracts.
……….
It is of course not sufficient that the acknowledgement – in the form in which it appears at clauses 2.5 and 8.1 of the agreement in the present case – should be capable of operating as an evidential estoppel.  In order to establish an estoppel it was for Mr. McGarrigan [the Seller] to plead and prove that the three requirements identified by this Court in Lowe v Lombank Ltd [1960} 1 WLR 196 were satisfied – that is to say, (i) that the statements in those clauses were clear and unequivocal, (ii) that the purchaser had intended that Mr. McGarrigan should act upon those statements and (iii) that Mr. McGarrigan had believed the statements to be true and had acted upon them.  The difficulty in Mr. McGarrigan’s way in the present appeal, in relation to the second issue, is that he did not rely on estoppel in his defence (as originally drawn or as amended or re-amended).  The relevant pleading appears in paragraph 7 of the re-amended defence:

7.  In the premises and upon a true construction of the Agreement (in particular Clauses 2.5 and 8.1 thereof):

(a)  The Plaintiff did not rely and/or was not influenced by any representation made by or on behalf of the Defendant or Kevin John McGarrigan or either of them in deciding to enter into the Agreement, other than any representation expressly set out in the Agreement itself.

I would have no difficulty in holding that the acknowledgements of non-reliance contained in clauses 2.5 and 8.1 were clear and unequivocal.  For my part, had the matter been investigated at trial, I have little doubt that the judge would have found as a fact that the purchaser intended that Mr. McGarrigan should act on the terms of the agreement, including the terms in clauses 2.5 and 8.1.  That was, after all, the purpose of including those clauses in the agreement.  I do not think that it would have been any answer, in the present case, for Mr. Grimstead to assert that he had not himself read the clauses.  There were solicitors and accountants advising the purchaser in the transaction who must have known that the clauses were in the agreement and why.  But, in the absence of evidence on the point from Mr. McGarrigan, I do not think it safe to assume, in a case in which the point was not pleaded, that the judge would have reached the conclusion that Mr. McGarrigan entered into the agreement on the basis that the purchaser was not relying on whatever representations he had made at the meeting on 12 September 1989.  Mr. McGarrigan’s case was that he had made no representations at that meeting.  The judge held that he had made the representation alleged.  If Mr McGarrigan did make that representation, in the circumstances alleged, it is difficult to avoid the conclusion that he did so in order to persuade Mr. Grimstead to agree to the purchase.  In that case it would have been open to the judge to hold that Mr McGarrigan knew that the acknowledgements of non-reliance in clauses 2.5 and 8.1 did not reflect the true position.  If he knew that, he could not rely on any estoppel which might otherwise have been created by those acknowledgements.

For these reasons – which differ from those given by the judge – I would not have been prepared to hold, in the circumstances of this case, that Mr. McGarrigan could rely on the acknowledgements of non-reliance contained in clauses 2.5 and 8.1 of the agreement.”

Thus clauses such as this are capable of giving rise to an evidential estoppel, provided the three requirements identified in Lowe v. Lombank Ltd are satisfied.  The first two requirements will probably be relatively easy to satisfy, but the third may be more difficult, because it may be difficult to infer or prove that the person making the pre-contractual representation believed the statement in the clause that the representee placed no reliance on any such representation.

110.	This difficulty was reiterated in the second case, Watford Electronics Ltd. v Sanderson CFL Ltd. (Case No. QBENF/2000/3077/A1, judgment 23rd February 2001), which concerned a contract for the sale of and licensing of computer equipment and software.  The contract contained an entire agreement clause, providing, among other things, “that no statement or representations made by either party have been relied upon by the other in agreeing to enter into the Contract.”  The claimant alleged that it was induced to enter into the contract by pre-contractual representations made by the defendant, which turned out to be to be false.  The defendant invoked the entire agreement clause in answer to claims founded on the alleged misrepresentations.  The trial judge held that the entire agreement clause was not apt to exclude liability for misrepresentation. The appeal was from his decision that other clauses purporting to exclude or limit the defendant’s liability were unreasonable, and so could not be relied on by virtue of the Unfair Contract Terms Act 1977.  The Court of Appeal considered that the purpose and effect of the entire agreement clause was relevant to this issue.  In the course of his judgment, Chadwick LJ said this (at para. 30):

“It is true that an acknowledgement of non-reliance does not purport to prevent a party from proving that a representation was made, nor that it was false.  What the acknowledgement seeks to do is to prevent the person to whom the representation was made from asserting that he relied upon it.  If it is to have that effect, it will be necessary – as I sought to point out in Grimstead v. McGarrigan – for the party who seeks to set up the acknowledgement as an evidential estoppel to plead and prove that the three requirements identified by this Court in Lowe v. Lombank Ltd. [1960] 1 WLR 1966 are satisfied. That may present insuperable difficulties; not least because it may be impossible for a party who has made representations which he intended should be relied upon to satisfy the court that he entered into the contract in the belief that a statement by the other party that he had not relied upon those representations was true.”

111.	In its Reply to Kalvinder’s Defence, GMAC, having invoked the Declaration, pleads as follows (at para. 6(8)):

“Such declaration confirms that [Kalvinder] was not induced to enter into the Guarantee in reliance on any representation made by [GMAC].  Alternatively by reason of such declaration, [Kalvinder] is estoppel from asserting that he was induced to enter into the Guarantee in reliance on any representation made by [GMAC].”

112.	A similar plea appears in GMAC’s Reply to Kewal’s Defence (at para. 7(9)).

113.	GMAC was, in effect, seeking summary judgment on these pleas. On the face of it, they are bad in law: it is not correct simply to assert that the relevant Defendant is, by reason of the Declaration, estopped from asserting reliance on any pre-contractual representation by GMAC.  As Chadwick LJ stated in the Watford Electronics case, the party who seeks to set up the clause as an evidential estoppel must plead (and prove) the three requirements identified in Lowe v. Lombank.

114.	The first requirement, that the statement in the clause relied upon should be clear and unequivocal, could be said to be implicit in GMAC’s pleas.  It is at least arguable that the second, that the Defendants had each intended that GMAC should act thereon, is also implicit in the pleas, though I express no concluded view on this.  However, the third, that GMAC had believed the statements to be true and had acted upon them, is neither explicit nor implicit in the pleas.

115.	I cannot, as Mr King somewhat speculatively suggested, treat GMAC’s denial of a plea of non-reliance by Kalvinder in relation to statements in DOA clauses 9.1 and 9.3, as sufficient to plug this gap.

116.	But the point is not simply a pleading point.  The statements were certainly clear and unequivocal, and it is at least arguable, on the basis indicated by Chadwick LJ in the Grimstead case, that Kalvinder at least must have intended that GMAC should act on the statement in his Declaration, though again I express no concluded view on this.  But there was no evidence before me in relation to the third requirement, that GMAC believed the statements to be true and had acted upon them.

117.	GMAC submitted that I was entitled to infer such reliance, and referred me in this connection to remarks of Lord Denning MR and Waller LJ in Greasley v. Cooke [1980] 1 WLR 1306, at 1311 C-F and 1312 G-1313E, and on what was said by Oliver LJ in Habib Bank Ltd v. Habib Bank AG Zurich [1981] 1 WLR 1265, at 1283 G 1284 C and 1287 B-D.    Suffice it to say that I was not persuaded, particularly in the light of what Chadwick LJ said in the Grimstead and Watford cases, that it was appropriate in this context to apply any presumption of inducement or reliance.

118.	The circumstances in a case such as the present are different from the normal case of a representation, by words or conduct, allegedly inducing a contract or giving rise to a proprietary or promissory estoppel:  in the present context, there are (allegedly) two representations, the latter of which is said, in effect, to destroy the efficacy of the former.  What I draw from Chadwick LJ’s judgments is that in such cases it cannot be assumed that the first representor, whose representation is alleged to have induced the contract, must have believed and acted upon the now relatively common “boilerplate” representation subscribed to by the representee, to the stated effect that no reliance was placed on any representation by the first representor.

119.	It is true that, as Mr. King pointed out, the first (alleged) representation in the present case preceded the second, in the Declaration, by several months, in contrast to the position in Grimstead, where the alleged representations (or at least some of them) were made at the share sale completion meeting.  That may or may not prove to be an important ground of distinction at trial, but it cannot provide a sound basis for giving summary judgment on the estoppel plea.

120.	I should also mention that the Defendants have raised points on the form of the Declaration, such as that it appears to suggest that Kalvinder, being a representative and agent of Donnaway, had not relied on his own opinion, which they submit cast doubt on whether the second and third requirements were satisfied.

121.	At all events, in the absence of a plea, or any evidence, of reliance by GMAC, I cannot conclude that the estoppel plea would be bound to succeed at trial.

Conclusion on summary judgment application

122.	It follows from the above conclusions that I cannot, on the evidence before me, conclude that the misrepresentation plea has no real prospect of success, and that accordingly GMAC’s Part 24 applications in relation thereto must be dismissed.

(C)	Issues of construction of IDA and DOA – abuse of process
123.	The Defendants have taken, or wish to take, three main points on the construction of the DOA and the IDA as read in the light of the DOA:

1)	That the DOA did not (contrary to GMAC’s case) have the effect that Donnaway stepped into the shoes of Palmier, such that Donnaway assumed all the obligations of Palmier under the IDA, and was to be treated as “the Client” under the IDA for the purpose of provisions such as clauses 7.5, 17, and 19.2 of the IDA.  The Defendants therefore contend, or wish to contend, that:

(a)	GMAC’s Repurchase Notice, which purportedly required Donnaway to repurchase certain specified Receivables, was not a valid notice under clause 17 of the IDA, because any such notice should have been served on Palmier (cf. para. 16(3) of Kewal’s Defence, and the proposed new para. 10(1A) of the draft Amended Defence of Kalvinder);

(b)	Donnaway’s failure to comply with such Repurchase Notice was not a breach of “the Client’s obligations” under the IDA for the purposes of clause 19.2.1 thereof, because “the Client” was Palmier, and not Donnaway (cf. the proposed addition to para. 14(1) of the draft Amended Defence of Kalvinder);

(c)	GMAC accordingly had no right to terminate the IDA by virtue of service of, or Donnaway’s failure to comply with, the purported Repurchase Notice, and therefore no right to serve a clause 7.5 demand consequent thereon;

(d)	GMAC’s purported clause 7.5 demand as served on Donnaway was not a valid clause 7.5 demand, not being a demand on the Client, i.e. Palmier (cf. the proposed new para. 15(2A) of the draft Amended Defence of Kalvinder, Kewal’s Defence, para. 21(2)) 

– these points are together referred to as “the Client/Notice point”.

2)	That clause 2.2 of the DOA refers only to existing obligations of Palmier, and not to obligations not in existence at the date of the DOA – “the existing obligations point” (Kalvinder’s Defence, para. 10(1);
 
3)	That, even if GMAC had been entitled to serve a clause 7.5 demand on Donnaway, the demand served on 27th September 2002 was not a valid demand thereunder, because it did not list each payment previously made in respect of the Purchase Price of Receivables then Outstanding, or the receivables then outstanding – “the listing point” (Kalvinder’s Defence, para. 15(3)).

124.	GMAC’s response to points (1) and (2) above was twofold.  First, GMAC submitted that these points could have been, but were not (apart from one reference in Kalvinder’s Skeleton Argument for the hearing before Mr. Mitting, which was not pursued), raised in the previous proceedings, and that it was an abuse of process to raise or to attempt to raise them in the present proceedings.  GMAC invoked what has become known as the Rule in Henderson v. Henderson (1843) 3 Hare 100, the rationale and governing principles of which have recently been considered and restated by the House of Lords, in Johnson v. Gore Wood & Co. [2002] 2 AC 1.  Secondly, GMAC submitted that in any event these points stood no real prospect of success, as it was clear that the effect of the DOA was that Donnaway stepped into the shoes of Palmier, and assumed all Palmier’s obligations thereunder, not only those existing at the date of the DOA.  Accordingly, GMAC applied to strike out the relevant allegations already on the pleadings, or alternatively for Part 24 judgment in relation thereto, and resisted the application for permission to amend to raise such allegations.

125.	As to the listing point, which was not and could not have been raised in the previous proceedings (which were founded solely on purported clause 17 Repurchase Notices, not on a clause 7.5 demand), GMAC submitted that the point was wrong as a matter of construction, and accordingly sought Part 24 judgment thereon.

Alleged abuse of process

126.	In Johnson v Gore Wood & Co. (supra), the defendant’s claim that the action was an abuse of process was rejected by the House of Lords.  The leading judgment on this topic was delivered by Lord Bingham (with whose speech three other members of the Appellate Committee agreed – Lord Millett gave concurring reasons of his own).  Lord Bingham summarised the rationale and governing principles of the rule in Henderson v. Henderson as follows (at page 31):

“But Henderson v. Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them.  The underlying public interest is the same:  that there should be finality in litigation and that a party should not be twice vexed in the same matter.  This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole.  The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.  I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party.  It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether in all the circumstances a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.  As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not.  Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim.  While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party’s conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances.  Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”

127.	There is no doubt that the first two main points relied on by the Defendants, that the “Client” under the IDA was and remained Palmier following and notwithstanding the conclusion of the DOA, so that for example any clause 17 Repurchase Notice should have been served on Palmier and not Donnaway, and that in any event clause 2.2 of the DOA only applied to obligations of Palmier in existence at the date of the DOA, could have been taken in the earlier proceedings.  If correct, they would each have been complete answers to GMAC’s claim in those proceedings.  The question for me, in the light of Johnson v. Gore Wood & Co., was whether in all the circumstances it is an abuse of process for the Defendants to raise or seek to raise them in the present proceedings.

128.	Those circumstances include the following facts and matters:

1)	The “prematurity” argument was sufficient in itself to dispose of the first action;

2)	The argument that GMAC’s purported clause 17 Repurchase Notice was inadequately particularised was sufficient in itself to dispose of the second action;

3)	The Defendants never got to the stage of having to serve Defences in either the first or the second action, and if they had been unsuccessful in the arguments that led to the dismissal of those actions, they would probably have been entitled to raise the points on which they now rely in their Defences to those actions (or either of them);

4)	If one point will dispose of an action, the Defendant should not as a general rule have to take every other point open to him, for fear that his failure to do so may give rise to a Henderson v. Henderson estoppel in later proceedings – see, by analogy, Arnold v. NatWest Bank Plc  [1991] 2AC 93, and the citation therein by Lord Keith (at page 107) of a dictum of Lord Reid in Carl Zeiss Stifting v. Rayner & Keeler Ltd (No. 2) [1967] 1AC 853, at 917;

5)	However, the appeal in the second action was clearly argued and decided on the assumption that Donnaway had, by virtue of the DOA, effectively stepped into the shoes of Palmier under the IDA, so that, for example, GMAC was entitled to serve any notices thereunder on Donnaway rather than Palmier.  Thus for example at paragraph 8 of his judgment, Potter LJ referred to the DOA as one “whereby Donnaway took over the position of Palmier under the [IDA]”, and said that “Donnaway…undertook, with effect from 18th June 1999, all Palmier’s obligations to GMAC under and in pursuance of the  [IDA]”; at paragraph 17 he recorded that “Mr. Berry [for Kalvinder] acknowledges that clause 17.5, on the face of it, gives [GMAC] an additional right to require Palmier/Donnaway to repurchase any receivable at any time in its absolute discretion….”;

6)	The argument before Mr. Mitting appears to have proceeded on the same basis:  although para. 8.3 of Kalvinder’s Skeleton Argument for that hearing states that

“If Clause 2.2 of the [DOA] is effective to transfer liabilities under the [IDA] from Palmier to Donnaway, the relevant notice should have been sent both to Palmier and to Donnaway”,

that point does not appear to have been pursued before Mr. Mitting (and it was certainly not pursued in the Court of Appeal, no such point being advanced in the Notice of Appeal or in the Defendants’ Skeleton argument for the Appeal).  That suggests that a deliberate decision was taken not to pursue the notice point;

7)	If the Client/Notice point had been raised in the previous proceedings, then whether or not a ruling had been obtained on it, GMAC could have served its subsequent notices on Palmier (or on both Donnaway and Palmier) so as to prevent the Defendants from taking the point in future proceedings based on such notices;

8)	Instead, by serving its clause 17 notices and clause 7.5 demand on Donnaway and not Palmier, GMAC could be said to have acted in reliance on the assumption that IDA notices and demands could, in the light of the DOA, validly be served on Donnaway;

9)	The Client/Notice point is a purely formal point, in the sense that, if correct, it could easily be cured by service of further notices and demands on Palmier (or on both Donnaway and Palmier), and by proceedings based thereon. It has not been suggested that there would have been any prospect of Palmier complying with a clause 17 Repurchase Notice; 

10)	By not raising the Client/Notice point in the previous proceedings but seeking to do so in these proceedings, the Defendants are seeking to raise, serially, different points on the validity of GMAC’s Repurchase Notices to Donnaway, purportedly served under clause 17 of the IDA, on which the previous proceedings were based, and which constitute stage 1 of the steps leading to issue of the present proceedings, which points could all have been raised in the earlier proceedings.

129.	In the light of all these circumstances, and adopting a broad, merits-based approach, I have concluded that it is indeed an abuse of process for the Defendants to raise or seek to raise the Client/Notice point in these proceedings. To raise different points on the validity of notices or demands, in successive proceedings, in circumstances such as the present, does seem to me to amount to unjust harassment of GMAC. The Defendants disputed the validity of GMAC’s Repurchase Notices to Donnaway in the first and second actions, in which they raised but did not pursue (and did not seek to keep open) the argument that it should have been sent to Palmier as well as to Donnaway. On the contrary they were content to let matters proceed on the basis that Donnaway had effectively stepped into the shoes of Palmier for the purposes of the IDA. They now seek to resile from that position and raise points which, had they been raised and at least expressly reserved before (as clearly they could have been), could have been addressed and rendered academic by subsequent notices and demands. That, in my judgment, is an abuse of process.

130.	I have, however, concluded, with some hesitation, that is is not an abuse of process for the Defendants to raise the existing obligations point, largely because, if valid (an issue to which I shall turn next), that is not a point that, had it been taken earlier, could have been cured by service of fresh notices or demands.

Construction

131.	The existing obligations point is clearly wrong as a matter of construction of clause 2.2 of the DOA.  The wording of the clause is inelegant, but I can see no justification for reading the clause as restricted to the obligations of Palmier in existence at the date of the DOA. That would make little sense, not least because if the clause is so confined, it is difficult to see what if any effect it had:  thus, for example, Palmier owed no obligation to repurchase any Receivable unless and until a valid clause 17 Repurchase Notice had been served, and none had been as at the date of the DOA.  If the parties had intended to make Donnaway responsible only for existing obligations of Palmier, it would have been easy for them to have said so.

132.	That leads on to the more general question of whether clause 2 had the effect that Donnaway stepped into the shoes of Palmier for the purposes of the IDA, so that, for example, notices could be served on Donnaway rather than Palmier.  As this question was fully argued, I shall express my conclusion on it, although this is not strictly necessary in the light of my conclusions on abuse of process.

133.	GMAC’s case was that clause 2 of the DOA operated as a novation of the IDA, whereby all the rights and obligations of Palmier thereunder were transferred to Donnaway.  It was pointed out that Palmier was in administrative receivership, and probably insolvent, and that in those circumstances GMAC would have had no interest in a continuing relationship with Palmier.  Reliance was placed on other provisions of the DOA, such as Recital (E), “The Receivers on behalf of [Palmier] have agreed to assign to [Donnaway] its title and interest (if any) as [Palmier] has and may have in the [IDA]”, and clause 5.3, which provided that Donnaway would be released from its obligations once it had paid the Outstanding Prepayments and a sum equal to the Assignment Consideration.  It was also pointed out that if Palmier remained “the Client” under the IDA, GMAC could, immediately after the conclusion of the DOA, have terminated the IDA under clause 19.2.4 (which provided for termination if “the Client suspends or threatens to suspend its operation….”).

134.	The Defendants for their part emphasised that a novation is necessary to effect a transfer of obligations, whereas clause 2 of the DOA, which is headed “Assignment”, is nowhere expressed as a novation.  Nor, they pointed out, is there any provision whereby Palmier is released from its obligations under the DOA – which they contend is a surprising omission if that is what the parties thereto, who included the Receivers and all of whom had the benefit of legal advice, had intended. It was suggested that there might have been good reasons why GMAC would have wished to retain the liability of Palmier.  It was submitted that the proper construction and effect of clause 2.2 was that Donnaway undertook to meet and discharge any obligation of Palmier, but that the existence of an obligation of Palmier under the IDA was a necessary precondition of any liability of Donnaway under clause 2.2. Palmier was and remained “the Client” under the IDA.  Accordingly, notices and demands under the IDA had to be served on Palmier, not Donnaway.

135.	It seems to me that although clause 2 (and in particular clause 2.2) is not expressed to be a novation, it was clearly the parties’ intention, as expressed in that clause construed in its contractual and factual context, that Donnaway should indeed assume the role of Palmier under the IDA, subject of course to the other terms and conditions of the DOA.  Palmier was in receivership, and clearly not in a position to fulfil any obligations arising under the IDA.  I accept GMAC’s submission that it had no interest in retaining a commercial relationship with Palmier once responsibility for collection of Palmier’s book debts had passed to Donnaway.  I do not regard the absence of any formal release of Palmier as significant in the context in which the DOA was made.  Indeed, it does not necessarily follow from my conclusion above that Palmier ceased to have any liability under the DOA.  One possible interpretation is that Donnaway assumed a concurrent liability with that of Palmier.  But on either view, the effect of clause 2.2 was, as I find, to entitle GMAC to look to Donnaway as “the Client” for the purposes of the IDA and any notices given thereunder.

Conclusions on points (1) and (2)

136.	It follows that, even if I had not concluded that the Defendants were estopped from raising the Client/Notice point, I should have concluded that that point, as well as the existing obligations point, stood no real prospect of success, so that GMAC was entitled to summary judgment on the allegations relating thereto as pleaded in the existing Defences, and that Kalvinder should not be given permission to amend to add the Client/Notice point allegations in paras. 10(1A), 14(1) and 15(2A) of his draft Amended Defence.

The listing point

137.	That leaves the listing point.  It will be recalled that the Court of Appeal allowed the Defendants’ appeal against the Order of Mr. Mitting granting GMAC summary judgment in the second action, on the ground that no valid Repurchase Notice had been given by GMAC under clause 17 of the IDA, because clause 17.2 required any Repurchase Notice to give particulars of the individual Receivables to be repurchased, and of the individual repurchase prices.  It is the Defendants’ case that it was likewise a requirement of any clause 7.5 demand that it should list each payment previously made in respect of the Purchase Price of Receivables than outstanding, and that it should also list the Receivables then outstanding. In fact, GMAC’s clause 7.5 demand simply required Donnaway to make “immediate payment…. of all payments previously made in respect of the purchase price of receivables outstanding.”

138.	It was submitted on behalf of the Defendants that there was no commercial reason why the parties should have required detailed specification for a Repurchase Notice, but not for a clause 7.5 demand – particularly as it was implicit (so they submitted) that, upon repayment pursuant to a clause 7.5 demand, the right to the Receivables must revest in the Client.

139.	Whatever the consequences of satisfaction of a clause 7.5 demand, I must construe the IDA as it stands.  Clause 17.2 is quite specific as to the requirements for a Repurchase Notice – it provides that “The Repurchase Notice shall detail the relevant receivable to be repurchased and the price at which it is to be repurchased….”. There is no equivalent provision in clause 7.5 or elsewhere in relation to clause 7.5 demands. Clause 7.5, where applicable, gave GMAC the right to demand “the immediate repayment by the Client of all payments previously made in respect of the Purchase Price of Receivables then Outstanding.”  That is exactly what GMAC did. There is no necessity to imply into the clause a requirement for specification of what Receivables were outstanding, particularly having regard to the scheme of the IDA, and the fact that Palmier as the (original) Client was appointed as agent of GMAC for the purpose of collection of Receivables (clause 20.3), and could therefore be expected to know which were outstanding, and what payments it had received in respect thereof.

140.	Accordingly, I conclude that the listing point has no real prospect of success, and that GMAC is entitled to summary judgment in respect of that point as raised in the Defences.

(D)	Alleged Misrepresentation by Kalvinder

141.	GMAC sought summary judgment under CPR Part 24 on Kewal’s defence that Kalvinder misrepresented to him the effect of the DOA, and Kewal’s consequent exposure under his Guarantee, and that GMAC, having been put on inquiry by the fact that the relationship between Kewal as (prospective) guarantor and Donnaway as  principal debtor was (allegedly) not a commercial one, took no steps to ensure that Kewal understood what he was letting himself in for.  The misrepresentations alleged were to the effect that the Guarantee was a mere formality; it was only a Guarantee in respect of Donnaway using reasonable efforts to collect in Palmier’s book debts; and there was no likelihood of any liability arising on the Guarantee. This defence was different from the undue influence defence advanced before and rejected by Mr. Mitting QC, albeit that both were based on the same alleged misrepresentations by Kalvinder to Kewal.

The law

142.	The defence was founded on the decision of the House of Lords in Royal Bank of Scotland Plc v. Etridge (No. 2) [2002] AC 773, and in particular on the speech of Lord Nicholls, and his comprehensive analysis of the principles underlying the decision of their Lordships’ House in Barclays Bank Plc v. O’Brien [1994] 1 AC 180, and other cases in which guarantees or other security given to banks have been set aside on the grounds that the bank was put on inquiry that the surety’s consent to the transaction was procured by the undue influence or other misconduct, such as misrepresentation, of a third party to whom (or to whose company) as principal debtor the bank advanced money, but took no or inadequate steps to ensure that the surety knew what he or she was letting himself or herself in for.  The paradigm case is of course that of a husband who procures his wife to give a guarantee, or to charge her share of the family home, as security for an advance to the husband or his company. As Lord Nicholls points out, however, there are other relationships where trust and confidence are likely to exist, such as between employer and junior employee (as in Credit Lyonnais Bank Nederland NV v. Burch [1997] 1 All ER 144), and where a bank is at risk of its security being held unenforceable if it has not taken reasonable steps to see that the surety knows the risk he or she is assuming.

143.	Lord Nicholls’ speech commanded the unqualified support of all members of the Appellate Committee, as Lord Bingham confirmed (at para.3 of the speeches).  Among the many issues that he considered were the circumstances in which a bank was put on inquiry, and whether any general principle could be formulated to give guidance to banks and other creditors as to when they are at risk if they do not take such steps.  This section of his speech is of particular relevance to the present case, and I make no apology for quoting it in full:

	“A wider principle
82. Before turning to the particular cases I  must make a general comment on the O’Brien principle.  As noted by Professor Peter Birks QC, the decision in O’Brien has to be seen as the progenitor of a wider principle: see “The Burden on the Bank”, in Restitution and Banking Law, edited by Francis Rose (1998), at p 195.  This calls for explanation.  In the O’Brien case the House was concerned with formulating a fair and practical solution to problems occurring when a creditor obtains a security from a guarantor whose sexual relationship with the debtor gives rise to a heightened risk of undue influence.  But the law does not regard sexual relationships as standing in some special category of their own so far as undue influence is concerned.  Sexual relationships are no more than one type of relationship in which an individual may acquire influence over another individual. The O’Brien decision cannot sensibly be regarded as confined to sexual relationships, although these are likely to be its main field of application at present.  What is appropriate for sexual relationships ought, in principle, to be appropriate also for other relationships where trust and confidence are likely to exist.

83. The courts have already recognised this.  Further application, or development, of the O’Brien principle has already taken place.  In Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 the same principle was applied where the relationship was employer and employee.  Miss Burch was a junior employee in a company.  She was neither a shareholder nor a director.  She provided security to the bank for the company’s overdraft.  She entered into a guarantee of unlimited amount, and gave the bank a second charge over her flat.  Nourse LJ, at p 146, said the relationship “may broadly be said to fall under [O’Brien]”.  The Court of Appeal held that the bank was put on inquiry.  It knew the facts from which the existence of a relationship of trust and confidence between Miss Burch and Mr Pelosi, the owner of the company, could be inferred.

84. The crucially important question raised by this wider application of the O’Brien principle concerns the circumstances which will put a bank on inquiry.  A bank is put on inquiry whenever a wife stands as surety for her husband’s debts.  It is sufficient that the bank knows of the husband-wife relationship.  That bare fact is enough.  The bank must then take reasonable steps to bring home to the wife the risks involved.  What, then, of other relationships where there is an increased risk of undue influence, such as parent and child?  Is it enough that the bank knows of the relationship?  For reasons already discussed in relation to husbands and wives, a bank cannot  be expected to probe the emotional relationship between two individuals, whoever they may be.  Nor is it desirable that a bank should attempt this.  Take the case where a father puts forward his daughter as a surety for his business overdraft.  A bank should not be called upon to evaluate highly personal matters such as the degree of trust and confidence existing between the father and his daughter, with the bank put on inquiry in one case and not in another.  As with wives, so with daughters, whether a bank is put on inquiry should not depend on the degree of trust and confidence the particular daughter places in her father in relation to financial matters.  Moreover, as with wives, so with other relationships, the test of what puts a bank on inquiry should be simple, clear and easy to apply in widely varying circumstances.  This suggests that, in the case of a father and daughter, knowledge by the bank of the relationship of father and daughter should suffice to put the bank on inquiry. When the bank knows of the relationship, it must then take reasonable steps to ensure the daughter knows what she is letting herself into.

85. The relationship of parent and child is one of the relationships where the law irrebuttably presumes the existence of trust and confidence.  Rightly, this has already been rejected as the boundary of the O’Brien principle.  O’Brien was a husband-wife case. The responsibilities of creditors were enunciated in a case where the law makes no presumption of the existence of trust and confidence.

86. But the law cannot stop at this point, with banks on inquiry only in cases where the debtor and guarantor have a sexual relationship or the relationship is one where the law presumes the existence of trust and confidence.  That would be an arbitrary boundary, and the law has already moved beyond this, in the decision in Burch.  As noted earlier, the reality of life is that relationships in which undue influence can be exercised are infinitely various.  They cannot be exhaustively defined.  Nor is it possible to produce a comprehensive list of relationships where there is a substantial risk of the exercise of undue influence, all others being excluded from the ambit of the O’Brien principle.  Human affairs do not lend themselves to categorisations of this sort.  The older generation of a family may exercise undue influence over a younger member, as in parent-child cases such as Bainbrigge v Browne 18 Ch D 188 and Powell v Powell [1900] 1 Ch 234.  Sometimes it is the other way round, as with a nephew and his elderly aunt in Inche Noriah v Shaik Allie Bin Omar [1929] AC 127.  An employer may take advantage of his employee, as in Credit Lyonnais Bank Nederland NV v Burch [1997] I All ER 144.  But it may be the other way round, with an employee taking advantage of her employer, as happened with the secretary-companion and her elderly employer in In re Craig, decd [1971] Ch 95.  The list could go on.

87. These considerations point forcibly to the conclusion that there is no rational cut-off point, with certain types of relationship being susceptible to the O’Brien principle and others not. Further, if a bank is not to be required to evaluate the extent to which its customer has influence over a proposed guarantor, the only practical way forward is to regard banks as “put on inquiry” in every case where the relationship between the surety and the debtor is non-commercial.  The creditor must always take reasonable steps to bring home to the individual guarantor the risks he is running by standing as surety.  As a measure of protection, this is valuable.  But, in all conscience, it is a modest burden for banks and other lenders. It is no more than is reasonably to be expected of a creditor who is taking a guarantee from an individual.  If the bank or other creditor does not take these steps, it is deemed to have notice of any claim the guarantor may have that the transaction was procured by undue influence or misrepresentation on the part of the debtor.

88. Different considerations apply where the relationship between the debtor and guarantor is commercial, as where a guarantor is being paid a fee, or a company is guaranteeing the debts of another company in the same group.  Those engaged in business can be regarded as capable of looking after themselves and understanding the risks involved in the giving of guarantees.

89. By the decisions of this House in O’Brien and the Court of Appeal in Credit Lyonnais Bank Nederland NV v Burch [1997] I All ER 144, English law has taken its first strides in the development of some such general principle.  It is a workable principle.  It is also simple, coherent and eminently desirable.  I venture to think this is the way the law is moving, and should continue to move.  Equity, it is said, is not past the age of child-bearing.  In the present context the equitable concept of being “put on inquiry” is the parent of a principle of general application, a principle which imposes no more than a modest obligation on banks and other creditors. The existence of this obligation in all non-commercial cases does not go beyond the reasonable requirements of the present times.  In future, banks and other creditors should regulate their affairs accordingly.”

144.	Thus the touchstone Lord Nicholls identifies is whether the relationship between the surety and the debtor is commercial or non-commercial.  If it is non-commercial, the creditor must take reasonable steps to bring home to the prospective surety the risks he or she is running by standing as surety.  I need not dwell on the steps he recommended, because it is common ground that GMAC took no steps in the present case to explain the risks to Kewal or to ensure that he had received independent advice.

145.	It was submitted by Mr. King on behalf of GMAC that the general principle formulated by Lord Nicholls had no application to the present case, as the transactions in question took place in June 1999, the decision of the House of Lords in the Etridge case was given on 11th October 2001, and Lord Nicholls indicated, in paragraph 89 of his speech, that his formulation was a development of the law, by reference to which “In future, banks and other creditors should regulate their affairs accordingly.”  I do not read that paragraph as implying that in a case of a relationship falling within the general principle, but not the subject of any previous reported decision, a creditor which had taken no steps to bring home the risks to the surety would be able to enforce a guarantee procured by misrepresentation by the principal debtor or a related party, provided only that the guarantee was given before 11th October 2001.  It not infrequently happens that the law develops incrementally, on a case-by-case basis, until eventually a common principle is identified which unites previously decided cases and serves as guidance for the future.  That does not mean that the general principle is inapplicable to facts arising before its recognition by the Courts.  At all events it would, as Mr. King recognised, be inappropriate to decide this Part 24 application on the basis that Lord Nicholls’ general principle applied only prospectively

The relevant facts

146.	I can now turn to the relevant facts.  In order to succeed in this defence, Kewal will have to prove that the alleged misrepresentation was made, and that he relied on it giving his Guarantee.  His evidence is that it was, and he did.  Kalvinder’s evidence was broadly consistent with this. 

147.	 GMAC submitted that Kalvinder cannot possibly have believed what he is alleged to have told his father, and that as both Defendants appear to agree that Kalvinder would not have deliberately misled his father, it is therefore highly unlikely that he gave him the explanation alleged, which would have been wrong to Kalvinder’s knowledge. These are issues which may have to be explored in cross-examination, but on the evidence before me I cannot conclude that there is no real prospect of Kewal succeeding in proving both the alleged misrepresentation and his reliance thereon.

148.	The argument before me focused on the nature and extent of Kewal’s relationship with Palmier and with Donnaway, whether he had any involvement in introducing Donnaway as the vehicle for the transaction formalised in the DOA, and whether he stood to gain if Donnaway collected a surplus over and above the sum payable to GMAC and Palmier out of the proceeds of book debts collected by Donnaway thereunder. Mr. King on behalf of GMAC submitted that I should not interpret Lord Nicholls’ principle too narrowly, and that it was sufficient if Kewal had a business relationship with respect (as he put it) “to the matters in question.”

149.	GMAC placed reliance on a number of factors, including the fact that Kewal was a well-known and respected businessman with over 30 years’ experience in the ladies’ garment industry; that he had substantial, self-acquired assets; that in mid-July 1998 he had been appointed a director of Palmier, and had performed the role of chairman;  that he had used his assets to back security given at the request of Palmier to a company that provided it with warehousing and other services, and otherwise in support of Palmier’s business; and that, according to Mr Smailes of BDO, there had been at least one meeting at Palmier’s premises attended by both Defendants, at which Kewal had shown no lack of understanding of what was being discussed.

150.	I was also referred to various statements in witness statements of Mr Titley and Mr Smailes to the effect that Palmier had been built up and run over many years by both Kalvinder and his father, with various related companies throughout Europe owned and/or controlled by the two of them, and that Kewal was involved in the introduction of Donnaway, had an interest therein, and together with his son expected to collect in excess of the £1.618 million and £300,000 plus VAT payable to GMAC and Palmier under the DOA, and thereby expected to share in the resultant profit.

151.	There were two witness statements from Kewal.  It was in the first, prepared for the purposes of the first action, that he gave evidence of the alleged misrepresentation by his son.  He explained that although he can speak conversational English, his native language is Punjabi, and he cannot read much English (so he was dependent on his son to explain the nature and effect of the DOA – which he did not see before the action began – and the Guarantee).  He said that he had never been a shareholder in Donnaway, and had no other interest therein; and that there was no financial or other advantage to him in signing the Guarantee, nor did he receive or expect to receive any such benefit.  He had never had any contact with GMAC, BDO, or their respective solicitors. He did not take, and was not advised to take, independent legal advice before signing the Guarantee.

152.	His second witness statement was adduced as additional evidence before the Court of Appeal in the second action, with permission of that Court.  I was shown an unsigned copy thereof, on the basis that the statement was indeed signed in that form.  In that statement, Kewal explained that he was only a director of Palmier for some 5 months from 18th July 1998, having reluctantly accepted the appointment to satisfy a requirement for two directors following the resignation of other directors.  He said he did not have any involvement in the day to day running of Palmier, whose business was far more sophisticated than he was used to.  Nor did he have any involvement, whether as a director or shareholder, in any overseas company, other than a shareholding in an Indian company.  He said he had never met Mr Titley, and did not know where Mr. Titley would have got what he described as Mr. Titley’s incorrect information as to his business experience. He reiterated that he had not received any advice about the Guarantee.

153.	It was submitted on Kewal’s behalf that there was no evidential basis for the assertions of Mr. Titley and Mr Smailes about his alleged involvement in the introduction of Donnaway (with respect to which Mr. Titley’s own evidence was that it was Kalvinder who was driving the transaction), or that Kewal stood to gain from the transaction.  On the material before me, there is force in these criticisms: much of what Mr. Titley and Mr Smailes have had to say about Kewal seems to be unsupported, whether by contemporaneous correspondence, records or other evidence. Thus, for example, correspondence was always addressed to Kalvinder – never to Kewal. I can attach little weight to the disputed evidence about a meeting (or meetings) at Palmier’s premises, at which Kewal, if present at all, may have been a chance bystander rather than a participant.

Conclusions

154.	In the light of Lord Nicholls’ speech it seemed to me that the crucial issue, on this Part 24 application, was whether there was any real prospect of Kewal proving that he had no commercial relationship with Donnaway, such that, for example, he did not stand to gain financially or otherwise if the transaction which he was being asked to guarantee was a success.  In the light of all the material before me, and in particular Kewal’s denial of any interest in or involvement with Donnaway or any expectation of gain, and the absence at this stage of any compelling evidence to the contrary effect, the answer to that question must be, Yes.

155.	Even if GMAC’s broad interpretation of Lord Nicholls’ principle is correct, I would still have concluded that there was a real prospect of Kewal showing he had no business relationship with respect to the matters in question.

156.	In view of the fact that it was common ground that GMAC had not taken any steps to bring home to Kewal the risks involved in the (proposed) Guarantee, it follows that GMAC’s Part 24 application in relation to Kewal’s defence based on alleged misrepresentation by Kalvinder must be dismissed.

Consequential orders and other outstanding issues 

157.	I will hear Counsel on the appropriate form of Order in the light of this judgment, and on the other issues left over pending delivery thereof.