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Murad V. Al Saraj Notes

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MURAD V. AL SARAJ FACTS The claimants in this action, who are the respondents to this appeal, are two sisters, Aysha and Layla Mohammed Murad. I shall call them the Murads. In the action, they sought from the defendants, who are now the appellants, wide-ranging relief including rescission, declarations, damages and an account of profits and other benefits. The respondents are Westwood Business Inc and Mr Hashim Ibrahim Khahil Al-Saraj, whom I will call respectively Westwood and Mr Al-Saraj. Westwood is a company owned by Mr Al-Saraj. In about September 1997, Mr Al-Saraj proposed to the Murads that they should together buy a hotel, called the Parkside Hotel in Clapham, London, for PS4.1 million, of which PS1 million was to be paid by the Murads, and PS500,000 by Mr Al-Saraj. The balance was to be raised by way of bank loan. It was orally agreed between the parties that Mr Al-Saraj and the Murads would share the revenue profits from the hotel as to one third each. If the hotel was sold, the capital profit would be shared 50:50 between Mr Al-Saraj on the one hand and the Murads on the other hand. The purchase of the hotel was effected by Danescroft Properties Limited ("Danescroft"), a Gibraltarian company owned by Mr Al-Saraj and the Murads on 26 November 1997, and the consideration stated in the transfer was PS3.6 million. In December 1997, the Murads entered into a written agreement with Westwood, called the Westwood agreement by the judge, and this agreement regulated the disposal of the proceeds of sale. In the action the Murads contended that prior to the purchase of the hotel Mr Al-Saraj represented to them that the purchase price for the hotel would be PS4.1 million and that he would make his contribution of PS500,000 to the purchase price in cash. In the event, this contribution had been made by offsetting unenforceable obligations of the same nominal aggregate amount due from the vendor, a Mr Al Arbash, to Mr Al-Saraj against part of the price. The obligations included a sum of
PS369,000, which represented Mr Al-Saraj's commission for introducing the purchasers to Mr Al Arbash. Mr Al-Saraj argued that it was not necessary for him to contribute the PS500,000 in cash. However, the judge found against Mr Al-Saraj. He held that Mr Al-Saraj had fraudulently represented that the total price for the hotel would be PS4.1 million and that his contribution of
PS500,000 would be in cash. He also accepted the Murads' case that the actual price of the hotel was PS3.6 million not PS4.1 million. The judge further held that there was a fiduciary relationship between the Murads and Mr Al-Saraj in relation to the joint venture to acquire the hotel. He held that: "The relationship between [the

Murads and Mr Al-Saraj] was a classic one in which [the Murads]
reposed trust and confidence in Mr Al-Saraj by virtue of their relative and respective positions." (judgment, para 332). There is no appeal from that holding. The judge further held that Mr AlSaraj was in deliberate breach of his fiduciary duty in not disclosing to the Murads that he was making his contribution by way of set off. Defendant's argument: The appellants appeal against the judge's order for an account. There are a number of grounds of appeal, but the primary ground is that the account of profits should have been limited to the profits obtained by the breach of fiduciary duty. They submit that the judge should have taken account of the fact that he found that, if the set off had been disclosed to the Murads, they would have agreed to go ahead with the acquisition of the hotel but demanded a higher profit share. Accordingly, the appellants' case is that they should only be liable for the loss incurred by the Murads as a result of the nondisclosure of the set off arrangement. HOLDING ARDEN LJ Finding by the trial judge The learned Judge concluded that the effect of the fraudulent misrepresentations which also founded a breach of fiduciary duty, was that if full disclosure had been made, i.e. no misrepresentation, the joint venture would still have gone ahead but each party would have negotiated a different profit share: accordingly instead of the Defendants receiving 50% of the net distributable profits they would have received a lesser percentage. Irrelevant whether breach of duty or disability There has been some debate as to whether Mr Al-Saraj was liable for breach of fiduciary duty because he was under a duty to disclose information which he failed to disclose, or whether he made a secret profit for which, in the absence of disclosure and the consent of the Murads, he is liable to account on the basis that such liability is an incident of the fiduciary relationship rather than a breach of duty. The judge's judgment suggests the former. The respondents rely on the latter because that leads them directly to the Regal case. For my own part, for the purposes simply of the question on this appeal, I do not think it matters which way the appellants' liability is analysed. Causation - Apportionment of Profits To test Mr Cogley's argument on the extent of the liability to account, in my judgment it is necessary to go back to first principle.

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