Court of Appeal: Equitable damages award overturned after plaintiff relied on forged documents

Killian Flood BL

About this case:

• Citation:
  [2020] IECA 354
• Judgment:
  External link
• Court:
  Court of Appeal
• Judge:
  Mr Justice Brian Murray

The court determined that the trial judge had erred by awarding damages in lieu of specific performance, despite being aware of the falsified evidence at trial. The trial judge was wrong when he concluded that the fake evidence had nothing to do with the defendant’s alleged breach of contract and that the evidence did not affect the court’s discretion to award equitable damages, the court said.

Background

The defendant, Mr Noel Thomas Richard Heatley, was the owner and developer of 35 homes on a site in Wicklow. The plaintiffs, Ms Mary Egan and Mr Paul Barron, decided to buy a parcel of land from the defendant in order to design and construct their own house on the site. The plaintiffs verbally agreed to buy the land for €85,000 and engaged Mr Ciaran Rodgers to build the house for them.

Unfortunately, relations broke down between the plaintiffs and Mr Heatley over whether Mr Rodgers had proper insurance to construct the house. Following demands from Mr Heatley that an insurance policy for Mr Rodgers would be presented to him, the relationship became increasingly acrimonious. The defendant ultimately refused to complete the sale to the plaintiffs, despite the fact that the plaintiffs had already entered the site and had part-built the house. The defendant claimed that he was induced to entering the contract on the misrepresentation that Mr Rodgers was insured when he began work on the project.

The plaintiffs sued the defendant seeking €138,000 for damages in lieu of specific performance, while the defendant claimed that he was entitled to rescind the contract due to misrepresentation by the plaintiffs that Mr Rodgers had insurance when he began building on the site.

High Court ruling

At trial in the High Court, it became apparent that the plaintiffs had relied on a number of documents to support their claim for damages which were clearly fake. The judge, Mr Justice Senan Allen, described them as “fantastic” and “risible” on their face. The documents included a letter purportedly from AXA which had no address or contact details and a copy and pasted logo at the top of the page. There was no suggestion that the plaintiffs themselves forged this document and it was not relied on at trial.

However, there were several other documents which the plaintiffs relied on to vouch their claim in damages. These included an architectural invoice which was admitted to being made up “long after the event,” an “obviously home-made” letter from the plaintiffs’ materials supplier for €54,000 and several other fake letters and invoices amounting to more than €22,000. When it was put to him at trial, Mr Barron admitted that the documents were clear forgeries and did not seek to stand over them at all.

Despite this, the trial judge awarded more than €77,000 to the plaintiffs for damages in lieu of specific performance. The judge reasoned that the fake documents did not go to his discretion to award damages in the case because the defendant’s refusal to complete the sale pre-dated and had nothing to do with the false evidence.

Court of Appeal

The defendant appealed to the Court of Appeal, claiming that the judge was wrong to award damages in the case and that he should have allowed the defendant to rescind the contract due to misrepresentation on the part of the plaintiffs.

Giving the principal judgment of the court, Mr Justice Brian Murray held that Mr Heatley was not entitled to rescind the contract because he did not insist on the special condition of insurance being included in the contract of sale itself. The failure to do this meant that the plaintiffs were justified to operate on the basis that their legal obligations for the transaction were contained in the contract alone.

On the issue of the forged evidence, the court said that the trial judge was wrong to conclude that the fake evidence did not affect his discretion to award damages in lieu of specific performance. The court considered the relationship between damages, equity and a court’s discretion in cases such as Willis v. Willis [1986] 1 EGLR 62, Gonthier v. Orange Scaffolding Limited [2003] EWCA Civ. 873 and Fiona Trust v. Privalov [2008] EWHC 1748 (Comm). Mr Justice Murray concluded that where a party seeks equitable relief using materially false evidence, the appropriate test is not whether the evidence was connected to the event to generate entitlement to relief, but rather whether it was used by the party to obtain the relief based on the event. In other words, any reliance on false evidence will engage the “clean hands” maxim of equity.

In this case, the plaintiffs sought damages which were substantially grounded in the “patent fabrications” and the court considered this to be “misconduct by way of deception” which disentitled the plaintiffs to equitable relief. It was noted in the judgment that the plaintiffs had decided not to seek damages for breach of contract, which would not have engaged the equitable discretion of the court.

The court rejected submissions from Ms Egan that damages in lieu of specific performance was a statutory remedy under section 2 of the Lord Cairns Act 1858 and that therefore a court could not use its discretion to refuse an award of damages. The court rejected this argument, holding that the Supreme Court in McGrath v Stewart [2016] IESC 52 made it clear that the same equitable principles which govern general equitable relief apply to section 2 damages.

Conclusion

The court overturned the award of damages made in the High Court but dismissed the defendant’s appeal that he should be entitled to rescind the contract of sale.