NUA Facades Limited, Nua Interiors Limited and Silk Property Developments Limited v Terry Brady T/A Terry Brady Developments Limited
This recent case has not received a great deal of attention. However, it should be of interest to contractors, project managers and employers. It reaffirms the difficulties parties face when seeking to set aside agreements, even where the court has evidence of impropriety before it. This is particularly in circumstances where the terms of the agreement are clear and the parties have had the benefit of professional advice. Although fact specific, the judgment is an interesting reminder of the difficulties parties will face in seeking to undo agreements on the basis of fraud.
In 2007 Mr Brady, an inexperienced developer, obtained planning permission for a site in Islington and sought to transform the buildings into a ‘mixture of private and affordable apartments and nine houses’ (“the Project”). After failing to sell the site, Mr Brady chose to develop it himself and in early 2011 tendered for contractors. Mr Brady was advised by two professionals, Mr Pierce and Mr Sims and, latterly, by their incorporated form as Four Square Management Limited (“FSM”). FSM eventually became project manager and also acted as Mr Brady’s agent in negotiations with the Claimants.
Mr Rishipal Singh, the controlling mind of the Claimants - Nua Facades Limited, Nua Interiors Limited (together, “Nua”) and Silk Property Developments Limited (“Silk”) - was retained through those entities as principal contractor and to carry out work on the Project. Mr Pierce was known to Mr Singh and the two had previously worked together for 10 years.
During the tender process, and to assist Nua with the level of its bid, FSM provided Mr Singh (and only Mr Singh) with a list of other contractors’ bids. Later on, in February 2011, Mr Singh unsuccessfully sought to influence FSM’s Mr Sims with an ‘allowance’ of £25,000 in return for the award of the Project’s windows contract. Mr Pierce discovered the plan and rejected the idea. No payment was ever made to FSM or its directors, although Nua was still awarded the windows contract in March 2011. Nua was successful with some (but not all) of its remaining bids.
The Project suffered various set-backs. In March 2012, there was a dispute between FSM (acting as Mr Brady’s agent) and Mr Singh as to whether Mr Brady should pay deposits for flooring and tiling works. On 1 May 2012, Nua gave notice suspending works for non-payment and the following month removed all of the windows and doors from the Project. FSM responded by reporting Nua to the police for theft. During this time, Mr Singh sought to exert his influence by decreasing the number of workers on the Project and threatened to remove the windows again. On 31 July 2012, Mr Singh provided Mr Brady with Nua’s final account. On 11 September 2012, a meeting was held on site between Mr Singh, Mr Brady and FSM which resulted (despite FSM’s advice to the contrary) in a number of agreements and further instructions to Nua and Silk. During the next two months FSM, as agent for Mr Brady, negotiated further settlements with Mr Singh and his companies. In total, Mr Brady agreed to pay an additional £986,672.39 (“the Settlement Agreements”)
Mr Brady refused to pay the Settlement Agreements and maintained that these were unenforceable, although the precise Defence shifted up to and during the trial. Mr Brady asked the court to infer dishonesty and impropriety from the disadvantageous nature of the Settlement Agreements. A key concession was that Mr Pierce was not dishonest from the outset however gradually became so following an email from Mr Singh. The judge accepted that the Settlement Agreements were on unfavourable terms to Mr Brady. However, he rejected the allegations that Mr Singh’s conduct was anything other than everyday commercial bargaining and awarded the vast majority of the amounts sought by the Claimants.
Mr Brady lost comprehensively. Dealing with each of the allegations in turn:
1. Bribery. Agreements procured by bribery are unenforceable. Mr Brady sought unsuccessfully to show that the £25,000 ‘allowance’ meant that bribery had led to the Settlement Agreements and, therefore, these were non-binding. However, correlation between the payments and agreement is key and the judge found no causal link between the bribe (which was unsuccessful in any event) and the Settlement Agreements. Other payments made by Mr Singh were either unspecific, explained or simply lacking causal connection.
2. Unlawful means conspiracy. If Mr Brady could establish that FSM and Mr Singh had been conspiring by unlawful means then this would give rise to a claim for damages (it did not give Mr Brady the right to rescind the Settlement Agreements). Although not fully pleaded, the judge dismissed it out of hand and refused to accept there was anything untoward in Mr Pierce or FSM’s actions (interestingly Mr Sims did not give evidence).
3. Dishonest Assistance. If proven, Mr Brady could demand that the Claimants account to him for all profits they made as a result of the Settlement Agreements. Mr Brady maintained that there was a joint venture between the Claimants and FSM/Mr Pierce. That venture, he claimed, led to the Claimants assisting Mr Pierce in the breach of his fiduciary duties (relationships of trust and confidence owed when acting as agent).The judge however found that Mr Pierce was not acting in breach of fiduciary duty when entering into the Settlement Agreements (in fact, he had Mr Brady’s authority to do so). At most it was a failure of Mr Pierce/FSM to exercise reasonable care and skill which arose in his position as adviser, not agent. Mr Brady did not plead negligence against Mr Pierce/FSM, nor had those parties had a chance to respond to those allegations and the judge refused to comment further.
4. Surreptitious dealing. An agreement can be undone if it is found that an agent and third party have entered into an agreement where there is a conflict of interest between an agent and its principal (i.e. Mr Brady and Mr Pierce). However, neither Mr Pierce nor FSM received any additional payment or benefit as a result of entering into the Settlement Agreements on Mr Brady’s behalf. The judge found that there could be no conflict of interest and, therefore, no surreptitious dealing.
5. Undue Influence. Where an agreement has been obtained as a result of undue influence then that agreement is unenforceable. A party must prove the following i) the capacity to influence, ii) that influence was exercised, iii) the influence was undue, and iv) that it brought about the transaction in question. The judge was unable to see what influence the Claimants could have exerted over Mr Brady, nor was there any relationship of trust or confidence (Mr Brady took his own decisions on the advice of FSM). This allegation therefore failed at the first hurdle.
6. Duress. An agreement will be voidable if procured by wrongful or illegitimate pressure including economic pressure. Having already removed them once, Mr Singh made further threats during negotiations to re-remove windows however the court considered these to be “semi facetious”. Similarly, downing tools and supplying fluctuating levels of labour was not illegitimate – at that time there was no formal contract specifying a minimum number of workers on the Project and this was simply part of Mr Singh’s negotiating strategy and ‘part of the deal’.
It is clear that the numerous amendments to Mr Brady’s case irritated the court. Clarity of pleadings concerning fraud and dishonesty are vital, not merely because of a “technical issue of pleading” but also to recognise “the importance of the party knowing the case he has to meet”. This is not restricted to the primary facts but also “the inferences that it is sought to draw from them…where those inferences are unclear, it must cast doubt on whether they are proper inferences to draw”. The number and timing of amendments were fatal to Mr Brady’s credibility and revealed an “internal confusion” which overcomplicated matters and undermined his case.
It was a case of Occam’s Razor: where there is a simpler and more straightforward explanation then this is likely to receive judicial preference, especially when the court is asked to infer fraud. The fact that one party ends up accepting a bad deal does not immediately suggest impropriety, particularly where that party was under increasing financial pressure. Likewise, there is a “vast spectrum” of scenarios between “fabricating time sheets or invoices to support a claim” and an “overstated claim”: the presentation of inflated accounts between contractors is “commonplace” and is far more likely to have been done as part of the overall negotiating position than as part of an overarching conspiracy or fraud.
The judgment also demonstrates the importance of dealing with witnesses’ impropriety clearly and promptly. Mr Singh addressed and accepted his attempt to bribe FSM as naïve and, in the process, came across as ‘an open and credible witness’. Mr Brady, on the other hand, was “a businessman in a hurry” who was “essentially an honest witness but [whose]… evidence was often unreliable”. Consequentially, the court formed the impression that “whatever he signed, Mr Brady did not truly believe that any agreement was binding on him and that, if he did not like what had been agreed, he would simply renegotiate”. Mr Brady’s allegations had the “distinct feel of the pot and kettle” and were unpersuasive.
It is unclear whether a claim in negligence against Mr Pierce/FSM would have had more success, although it would almost certainly have been a great deal simpler and cheaper to bring - as it stands, the judgment is a stark reminder of the pitfalls and difficulties in pleading fraud.