(1) Ratilal Patani (2) Anaash Holdings Ltd v (1) Rakesh Manubhai Patel (2) Baljit Singh Sandhu (3) S

Facts

The applicants (X) applied for summary judgment on, or striking out of, the claim of the respondents (P) for declarations regarding the non-enforceability of charges and loans arising out of a property development agreement.

The first applicant (L) was a chartered accountant who caused his firm, the fourth applicant, to set up the second respondent company (H) in order to acquire a property for three others (M). M's initial purchase through H was financed by two loans: one under an agreement where L and the second applicant (S) loaned funds as trustees of a pension fund, and a loan from the third applicant company. Both loans were secured by registered charges over the property. Repayments under the loans were not honoured by H, and the outstanding amounts became payable in full; interest was uplifed from 12 per cent to 40 per cent capitalised per annum and the arrangement fee was also capitalised and added to the loan. M then approached the son of the first respondent (T), with a proposal that T buy and develop the property as student accommodation, on the completion of which M would buy-back the developed property. T and another investor began to fund the redevelopment. Much of the factual evidence remained in dispute. As the parties were personally known to each other, it had not been thought necessary to have a written agreement in place.

P submitted that X had, through misrepresentations, allowed them to redevelop the property in ignorance of the loans and charges and had made it clear that they were the outright property owners; an estoppel was raised as it was inequitable for P to have to pay off the loans concealed where they had funded the redevelopment; it was arguable that a relationship of agency had arisen between P and X, and that the interest constituted a penalty. P also alleged breaches of fiduciary duty. They withdrew an additional allegation that the loans were shams. X submitted that whatever impression P had been under it had not been due to them; it was P's fault that they had not been aware of the loans and charges which had been properly registered; the default interest rate was commercially possible between lenders and borrowers and was not therefore a penalty. X also submitted that the withdrawal of the sham allegation casted doubt on the bona fides of P's litigation.

Held

(1) The overall burden of proof was on a defendant applying to strike out a cause of action or a judgment dismissing a claim to show that even if a party were to succeed in proving all the facts that he sought to prove he would not be entitled to the remedy sought; the object of the rule was designed to deal with cases that were not fit for trial at all, Three Rivers DC v Bank of England (No.3) [2003] 2 A.C. 1applied. (2) It was not open to the court to conclude that the withdrawal of the sham allegation case doubt on the bona fides of the instant litigation; X's position on that point was untenable. Rather, it was for the court to deal with the sustainability of the remainder of P's claims. (3) In relation to the agency claim, the relationship between X was not straightforward and could not be properly determined on a strike-out application. However it was not right to treat the question of agency as unarguable at the instant stage. (4) There was evidence that the alleged misrepresentations had been made; it was not accepted that the matters P had pleaded as misrepresentations were in fact true; for example, it was not true that D owned the property outright. If established at trial, it was arguable that T had been misled in a fundamental particular; the time to resolve that question was at trial on the evidence. (5) Whether T had had notice of the registered loans and charges, and whether there had been a deliberate attempt to conceal their existence from T, was a question of fact which depended on the resolution of disputed conversations between the parties at trial. Similarly, although there was force in some aspects of the argument that it would be unfair to allow T to raise an estoppel as T would receive the full benefit of the developed property without accounting for its purchase price, that question was for a trial judge to resolve. (6) Although the argument that there had been a breach of fiduciary duty was very weak, the court was just persuaded that there was sufficient evidence that the claim ought not be struck out. From a practical viewpoint, not striking out that claim would not make an appreciable difference to the length of the trial in any event. (7) Although there was force in X's argument that the uplift in interest was understandable against the background of short-term commercial loans where there was a considerable risk of non-payment, it only needed to be decided in the instant case whether the court could, at trial, decide that the relevant rate was penal; X failed in their argument that it could not be considered penal. Overall, the instant application was a late application with many factual disputes which could be assessed by the court at trial with appropriate relief, if any.

Application refused

Comment

A court refused a late application to strike out claimants' causes of action which included allegations of misrepresentation in relation to the existence of charges over real property where there were many factual disputes to be resolved at trial.

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