Estate agents — Partnership dispute — Conflicts as to whether one of the partners, the original principal and founder of the firm, had given unconditional notice of retirement and as to whether he was under a binding obligation to execute a sublease in favour of the partnership of premises in which the firm had been carrying on business — He held a long lease of the premises in question — Appeal by the founder partner from a decision of Judge Paul Baker QC, sitting as a High Court judge, holding, as claimed by the other two partners, that both questions should be answered in the affirmative — It was common ground that if the founder partner had not given an unconditional notice of retirement the court should order a dissolution of the partnership — There had been protracted negotiations for the execution of a formal partnership deed and a formal sublease of the premises but the engrossments were never executed and discussions ceased for about 4 1/2 years until difficulties arose
before Judge Paul Baker lasted for 20 days and his judgment ran to 60 pages
(the appeal took 9 days) — The judge decided that the founder partner had given
unconditional notice of retirement and rejected the latter’s claim that his
retirement was to be conditional on agreement being reached as to the terms on which
he was to retire — The judge also decided that there was a binding obligation
on the founder partner to grant a sublease of the premises to the firm and that
there was a written memorandum in existence which satisfied section 40 of the
Law of Property Act 1925 (the Court of Appeal reached the latter conclusion on
somewhat different grounds) — The judge also held, although a decision on this
point was unnecessary, that the other partners would have been entitled to
succeed on the ground of proprietary estoppel
Appeal rejected the appellant’s criticisms of the judge’s decision and, with
one exception, approved the judge’s order — The exception was that the sublease
to be executed should include the appellant as one of the three persons who together
constituted the tenant — Appeal dismissed
The following
cases are referred to in this report.
Attorney-General
of Hong Kong v Humphreys Estate (Queen’s
Gardens) Ltd [1987] 1 AC 114; [1987] 2 WLR 343; [1987] 2 All ER 387, PC
Hollington
Brothers Ltd v Rhodes [1951] WN 437; [1951]
2 TLR 691; [1951] 2 All ER 578n
Leveson v Parfum Marcel Rochas (England) Ltd [1966] EGD 676; (1966)
200 EG 407
This was an
appeal by James Anthony Farrell, defendant in an action by David Robert Toogood
and Keith Laurence Williams, as plaintiffs, from the decision of Judge Paul
Baker QC, sitting as a judge of the High Court. The matters in dispute
concerned the partnership of James Anthony & Co, estate agents and
surveyors, of 179-181 North End Road, Kensington, London W14. The business was
founded by the defendant in the early 1970s and the plaintiffs became partners
with the defendant from July 1 1978. The plaintiffs succeeded before Judge Paul
Baker on the main issues but he dismissed their claims for damages. The
defendant appealed. A cross-appeal by the plaintiffs (the present respondents)
for damages was abandoned.
John Colyer QC
and Norman Primost (instructed by Douglas Wignall & Co) appeared on behalf
of the appellant; Robert Pryor QC and Nicholas Wood (instructed by Willey
Hargrave) represented the respondents.
Giving the
first judgment at the invitation of Kerr LJ, NICHOLLS LJ said: This appeal
concerns an unfortunate partnership dispute. James Anthony & Co, a
successful firm of estate agents and surveyors in the West End of London, was
founded in the early 1970s by the defendant, Mr James Anthony Farrell. The
plaintiffs, Mr Toogood and Mr Williams, became partners with him in that
business from July 1 1978.
There are two
principal questions in this action. The first (which I shall call ‘the notice
of retirement’ issue) is whether Mr Farrell’s oral announcements in November
and December 1984 of his wish to retire from the partnership constituted, as
contended by Mr Toogood and Mr Williams, an unconditional notice of retirement
as from June 30 1985. The other question (‘the underlease issue’) is whether Mr
Toogood and Mr Williams are entitled to require Mr Farrell to execute, in
favour of the three of them, an underlease of the principal premises of the
firm, namely the front offices at 179-181 North End Road, W 14.
It was common
ground before the judge that the partnership should not continue and that if Mr
Farrell was correct on the notice of retirement issue, the court should order a
dissolution of the partnership. Thus the matters in issue are (1) whether the
partnership has the benefit of an underlease and (2) whether there should be a
dissolution pursuant, now, to an order of this court as distinct from the
partnership having been determined as far as Mr Farrell is concerned by his
having retired on June 30 1985. In fact Mr Farrell ceased to act as a partner
on March 6 1986 pursuant to an order made in interlocutory proceedings. Each
party also claimed damages.
Mr Toogood and
Mr Williams succeeded before the judge on both the main issues, but he
dismissed their claim for damages. His Honour Judge Paul Baker QC gave his
decision on July 22 1986, and from that decision Mr Farrell has appealed. Mr
Toogood and Mr Williams have abandoned their cross-appeal regarding damages.
The hearing
before the judge lasted 20 days, so that costs have by now assumed a formidable
size in this most regrettable dispute.
The underlease
issue falls to be decided against a background of long, protracted negotiations
for the execution of a formal partnership deed and a formal underlease of
179-181 North End Road and the carrying on of the business by the three parties
as partners from July 1 1978. In his thorough and careful judgment, the
transcript of which occupies 60 pages, the judge set out this background fully.
I shall not attempt to rehearse the whole history, but I must refer to some of
the principal events.
The estate
agency business was started by Mr Farrell as I have mentioned. In 1976 Mr
Farrell acquired by assignment two leases of the ground floor and basement of
179-181 North End Road. One was in possession, the other in reversion. Their
combined effect was that Mr Farrell enjoyed a term expiring in 2005. There was
a rent review in 1977, whereunder the rent payable became £7,650 per annum. The
next, and only other, rent review was 14 years thereafter, in 1991.
The basement
and the rear part of the ground floor were surplus to Mr Farrell’s needs and on
July 20 1977 he sublet this accommodation to Tiddar Ltd for a period of 20
years at an initial annual rent of £5,500, with five-yearly rent reviews
starting February 1982. On that date the rent under this underlease was
increased to £13,500.
The
ground-floor accommodation, retained by Mr Farrell, comprised three offices,
through one of which access was had to a kitchen and wcs at the rear. In that
office there was a desk for an employee engaged in the business of a
flat-letting agency which was also conducted at the premises by Mr Farrell
through the medium of a company, incorporated in 1973 and owned by Mr Farrell
and his wife, called Furnished Lettings Services Ltd (‘FLS’ for short).
In 1975 or
thereabouts Mr Williams was employed by Mr Farrell as a negotiator in the
business then being carried on by Mr Farrell as sole principal under the name of
James Anthony & Co. As I have said, he and Mr Toogood became partners with
Mr Farrell in that business from July 1 1978. Mr Toogood and Mr Williams each
contributed one-third of £20,000, the value placed on the goodwill of Mr
Farrell’s existing business. From the outset Mr Toogood and Mr Williams were
concerned with the need for security of tenure in the premises. They did not
wish to be at risk of being turned out, either by Mr Farrell himself or, if he
should die, by his personal representatives. The three of them instructed
separate solicitors to act for them in connection with the proposed partnership
deed and the proposed underlease; there was no question of the leases held by
Mr Farrell themselves becoming partnership property. Mr Toogood instructed Paul
Woolf & Co (Mr Foreshew handled this matter mainly, but Mr Cunningham
became involved at a later stage). Mr Williams instructed Rance & Co (Mr
Morgan). Mr Farrell instructed Turner Peacock.
Negotiations
and drafting went on for two years until, in April 1980, the parties gave up
further negotiations and drafts when matters had reached an advanced stage. In
the end, no definitive partnership deed or underlease was actually executed by
the parties.
The proposed
underlease was not an altogether straightforward document. In particular, what
was arranged was that, for fiscal reasons, Mr Farrell would not charge the
partnership a full market rent for the property, but that to compensate him he
would receive extra, preferential drawings from the partnership. In 1978 the
annual rent payable under the headlease was £7,650 and the annual sum
receivable under the underlease to Tiddar Ltd was £5,500. It was agreed that as
rent the partnership should make up the shortfall of £2,150. As preferential
drawings, it was agreed that Mr Farrell should receive £3,000 per annum up to
June 30 1981, £5,000 per annum for the next five years and then £7,500 per
annum for the following five years, at the end of which (that is to say, in
1991) the next rent review date was due under the headlease. This form of
compensation would not assist Mr Farrell if he should die or retire, so it was
agreed that if he died or retired before 1991 the rent payable under the
partnership underlease would be reviewed to a market rent.
A further
complication concerned FLS. It was always accepted by the three of them that
FLS would share the use of the premises without having exclusive occupation of
any specific part. Mr Toogood and Mr Williams had no interest in that business,
so some provision needed to be made for FLS, including provision for FLS to
make a contribution to the outgoings.
The form of
the drafts evolved as time passed. At an early stage there was to be an
agreement for an underlease as well as a partnership deed (or heads of
agreement), but in January 1979 it was decided to dispense with the agreement
for the underlease and proceed straight to the proposed underlease. At a
meeting held on January 30 1979, attended by the three partners and their
solicitors, it was agreed that the term of the partnership underlease should
continue until February 5 2005, when the headleases expired, on the footing
that the rent would be reviewed (to a market rent) in 1996 and 2001 in addition
to the reviews already proposed in 1991 and on the prior death or retirement of
Mr Farrell.
Turner Peacock
proposed a form of side-letter to cover the position of FLS. On February 6 Mr
Foreshew, acting for Mr Toogood, proposed an amendment, so that the letter would
read:
In
consideration of you today completing an underlease of part of the ground floor
of the above property, I confirm that notwithstanding the provisions of clause
24 sub-clause (iii) of the said underlease prohibiting the under-letting or
parting with possession of part only of the property thereby demised, the
existing occupation by Furnished Letting Services Limited shall not be deemed
to constitute a breach of the said clause 24(iii) and may for the time being
continue on the terms enjoyed by Furnished Letting Services Limited at present
until such time as the new terms are agreed between us.
By letter to
Turner Peacock dated February 14 Mr Farrell agreed that letter as amended, as
did Mr Williams in the following September through his solicitors.
In February
1979 Mr Farrell changed his solicitors. He ceased to employ Turner Peacock and
thereafter, with the consent of all concerned, he instructed Mr Toogood’s
solicitors, Paul Woolf & Co, to act for him also.
At the end of
August 1979 Mr Foreshew engrossed the underlease. He sent the engrossed
underlease to Mr Farrell, and he sent the counterpart to Mr Toogood’s
solicitors for signature by Mr Toogood and onward transmission to the other
partners. At some date which is not clear, but which was before the middle of
November 1979, the three partners executed the counterpart. Mr Farrell did not
execute the actual underlease. This engrossment in fact contained, erroneously
as the three partners agreed, provision for a rent review in 1986.
On November 14
1979 all three partners signed a letter, addressed to Mr Foreshew, setting out
amendments to be made to what was described by Mr Farrell as ‘the deed of
partnership as finally drafted’. Two days later, on November 16, Mr Farrell
sent Mr Foreshew some comments on the engrossed underlease circulated earlier
in the year. One of these related to the need to exclude a rent review in 1986.
Mr Farrell wrote:
Other than
the alteration in the review dates I cannot see that there is any material
amendment and if you have any further comments or advice to make, please let me
know.
On November 20
Mr Farrell wrote again to Mr Foreshew. The material part of that letter reads:
Many thanks
for your letter of November 16 addressed to David and I. Having discussed the
matter further I have decided not to make any further amendments to the present
engrossment and we would all be grateful if you would now register the lease at
H M Land Registry.
Following
telephone discussions with Mr Farrell, Mr Foreshew prepared a revised draft of
the underlease, omitting the provision for rent review in 1986. The revised
draft underlease, and what was hoped to be a final draft of the partnership
deed, were circulated early in January 1980. Rance & Co approved the drafts
with trivial amendments to the underlease. On March 3 Mr Cunningham sent to Mr
Morgan engrossments of the counterpart underlease and of the deed of
partnership, ‘in readiness for the completion of this matter’. On March 26 Mr
Cunningham also sent the engrossed underlease to Mr Farrell for execution. On
April 15 Mr Morgan sent the two engrossments to his client for execution. Mr
Williams replied on May 16 as follows:
My sincere
apologies for not replying to you sooner. Fortunately or unfortunately I have
been overwhelmed with work recently and have not had an opportunity of going
through the sublease with James Farrell in detail to check that it is correct.
As soon as we have an opportunity to do this I will return these documents to
you so that this matter can proceed further.
That is how
matters remained. The engrossments were never executed nor were there any
further discussions between the parties. They were busy getting on with their
practice for the next 4 1/2 years.
The judge made
the following findings:
I note that
Mr Morgan had not asked him
That is Mr
Williams
to go through
the matter with Mr Farrell. What he had asked him to do was, if he found that
they
— the
engrossments —
were
satisfactory to him [Mr Williams] to execute them, but that is how Mr Williams
saw it, and in his evidence he said that the matter was totally allowed to
slide. He never did what he was asked to do, and neither went through it with
Mr Farrell nor executed them as his solicitor had suggested, and of course that
meant that nothing else happened because until Mr Williams had signed the
others would not do so. Having got the custody of those documents into the
office, one of them held by Mr Farrell, the other two held by Mr Williams
–that is the
two engrossments —
and copies
held by Mr Toogood, the parties then just went ahead with their business and
just ignored the matter from then on. At one point Mr Williams did meet with
his solicitor, though I think it was a casual meeting. He was being asked in
examination in chief in relation to the two letters that I have mentioned
— they are the
letters of April 15 and May 16 —
and he said
‘Matter not taken any further except for my asking Colin Morgan if I should
sign it and he said ‘No’. Quite a while afterwards. No need to bother to sign
it. He said ‘No, it is binding as it is, but don’t fall out or you will have a
problem’. Could have been three to six months after receiving the letter’. Then
he said: ‘May have thought I had signed the sublease and it just remained to
sign the partnership agreement’. So that his discussion with his solicitor then
related, as I find, to the partnership agreement; that after this time Mr
Williams thought he had signed the sublease, and indeed he had signed one, as
we have seen. He thought he had signed it and there just remained the
partnership agreement. That is really as far as the matter went until the
present matters I am more immediately concerned with blew up.
Before coming
to the difficulties between the parties starting in November 1984, I should
pause to mention three matters. First, some of the provisions in the draft
partnership deed. Recital (B) was to the effect that Mr Farrell had agreed to
take Mr Toogood and Mr Williams into partnership with him in consideration of
making stated payments in respect of goodwill, fixtures and fittings and office
equipment, and, in subclause (iii) of recital (B):
The grant to
the partners by J A Farrell of a sublease on the terms and conditions of a
draft annexed hereto and marked A.
Clause 2 of
the operative part of the deed read as follows, the heading of the clause being
‘The term’.
From 1st July
1978 until 5th February 2005 and thereafter until determined by any partner
giving to the others six months’ notice in writing or until prior dissolution
in the event of the expulsion of a partner under clause 13 hereof or the death
or retirement of any partner under clause 14 hereof.
Clause 10(a)
is headed ‘Partnership property’ and reads:
The leasehold
premises at 179/181 North End Road, West Kensington to be the subject of the
lease to be granted by J A Farrell, D R Toogood and K L Williams in accordance
with the terms of a draft annexed hereto and marked ‘A’.
In that clause
plainly the word ‘by’ in the phrase ‘granted by J R Farrell’ is a slip for ‘to
J A Farrell’.
Clause 14
dealt among other matters with the retirement of a partner. Clause 14(a) reads:
A partner may
retire from the partnership on the expiry of not less than six months notice
given in writing to each of the other partners.
Clause 14(b)
provided that if a partner retired, the assets of the partnership of a capital
nature were to be valued by the firm’s accountant and consequential adjustments
were to be made to the partners’ capital accounts. Clause 14(c) provided for
repayment to the outgoing partner of the sum due to him on his capital and
current accounts at the date of retirement and also, under subclause (iii), an
amount equal to his share of the goodwill of the business. Goodwill was to be
valued by an independent valuer appointed by the partners or, failing
agreement, by the Institute of Arbitrators. Payments would be made six months
after the date of retirement if the retiring partner so requested and the
liquid position of the partnership allowed. Otherwise payments were to be made,
with interest, quarterly over a five-year period beginning six months after the
date of retirement.
Second, the
judge made the following finding of fact regarding the basis on which Mr
Toogood and Mr Williams entered into the partnership:
. . . I find
that Mr Toogood and Mr Williams entered into the partnership and paid for the
goodwill on the clear understanding, known to Mr Farrell, that they would get
some form of security of tenure. Death was specifically mentioned, but the
security in my judgment must also cover the possible retirement of Mr Farrell.
There was that clear understanding that if they parted company with Mr Farrell,
either through death or through his retirement, then they would get some form
of security of tenure.
Third, the
judge’s conclusions on the underlease issue. He held that there was a final
agreement for the grant of the underlease. In particular he referred to Mr
Farrell’s letter of November 20 1979 and the fact that the parties acted on the
partnership deed and in conformity with it. The judge said that the partners
accepted that the partnership deed governed the relationship of the parties and
that that deed refers to the lease.
I move on now
to the events from November 1984. Over these events there was some conflict of
evidence. The judge summarised his conclusions as follows:
On Monday
November 5 1984 Mr Farrell came into the office which he shared with Mr
Williams and said to him ‘I am resigning’. He apparently was dissatisfied with
certain aspects of Mr Williams’ conduct towards him.
The judge then
observed that these were relatively small matters, and he continued:
Mr Farrell,
before he made this approach, had discussed apparently with his wife, and later
with Mrs Culverhouse, that he wanted to change his life. He was dissatisfied
with estate agency, and he said to me that he could not afford to retire
without a settlement with his partners because he wanted some capital to go
into other businesses which he had in mind. But it is manifest that he did not
approach his partners on the basis that he wanted a settlement which included a
cash payment before he went. He did not come to his partners and ask for some
sort of negotiated settlement without which he could not consider resigning.
That came later. His immediate approach was to say ‘I am resigning, and I will
present my proposals in due course for settlement’. There was some conflict of
evidence between the witnesses as to what date Mr Farrell said he was going. Mr
Farrell said to me that he made it clear at the outset that he wanted to go on
June 30 and that it was quite a few months ahead — more than six. The
importance of it was that that was a convenient date because that was the end
of the partnership financial year.
Mr Williams
and Mr Toogood and at least five other witnesses have told me that the June
date was not mentioned at first. It is not clear whether Mr Farrell mentioned
any date to Mr Williams at the outset, but all these witnesses say that within
a matter of hours it had become apparent that some date in March was being
mentioned and put about to the staff that he was going. Mr Williams and Mr
Toogood say that June 30 was settled on in early December; that by that time
June 30 was the date he was to go.
In so far as
it is necessary to resolve this conflict I accept what Mr Toogood and Mr
Williams have told me.
Later the judge
added that initially some date in March was mentioned, perhaps not very
seriously, in discussion between the partners, but that by the middle of
December at all events, June 30 was the date on which Mr Farrell was proposing
to retire. I should add that although the judge preferred the evidence of Mr
Toogood and Mr Williams in this way, he accepted that Mr Farrell was doing his
best to tell him the truth and assist to the best of his recollection, as
indeed he held was true of all the witnesses, with one immaterial exception.
The judge
rejected Mr Farrell’s case that his retirement was conditional or dependent
upon agreement being reached on the terms on which he was to retire. Having
referred to some of the evidence, the judge said:
In the face
of that evidence, and especially that of Mrs Culverhouse, what I find is that
Mr Farrelll had said he was going on June 30. He was to present proposals but
there is no suggestion there that his going was dependent on the acceptance of
the proposals by his partners. No one was suggesting that some negotiation
might be available under which he could be persuaded to stay or something of
that sort. Mr Farrell was intent on going on June 30 and had made that clear to
his partners and to Mrs Culverhouse. It is true he had not given formal notice
in writing, as the partnership deed requires, but no one has argued here that
that vitiates any notice which he may have given. What he did was that he gave,
and Mr Toogood and Mr Williams accepted, an oral notice by the end of the year
1984, and it is not until the following April that there is any suggestion that
he might not be retiring on June 30 unless some settlement is reached in the
meantime.
In short, what
happened was that, as the judge found, early in March Mr Farrell presented to
the others a document containing the terms proposed by him. The judge rejected
Mr Farrell’s case that he had presented these terms on January 29 1985.
Mr Farrell’s
terms were elaborate. All I need mention is that the terms included provision
for the payment to Mr Farrell of £100,000 for goodwill and provision for Mr
Farrell to grant to the others a new underlease at a rent of £11,000 per annum
— which, I interpose, was not said to be an unfair figure — with upward rent
reviews every three years for a term to be agreed. Thus, Mr Farrell was
proposing terms different from those of the underlease negotiated up to 1980.
Mr Farrell also proposed that he should buy from the partnership The Lodge, 540
Fulham Palace Road. This was a property bought by the partnership in May 1983
and used for further office accommodation. In March 1985 the parties agreed,
subject to contract, that Mr Farrell would buy this property for £85,000, and new
solicitors were instructed, Douglas Wignall & Co, to act for Mr Farrell,
and Blok Bull & Co, to act for Mr Toogood and Mr Williams.
On April 22
Douglas Wignall wrote to Blok Bull & Co, as follows:
As you are no
doubt aware, my client is retiring from the partnership known as James Anthony
& Co, and it is hoped that such retirement will become effective on June 30
1985 being the end of the accounting year of the partnership. We understand
that the present situation is that our client has submitted his notice of
intention to retire to the other two as well as his proposed terms for the
distribution of the partnership assets on his retirement. Although the precise
terms of retirement are yet to be finalised, the parties have agreed to this
transaction subject to contract. The completion date, however, should obviously
be linked with the date of retirement from the partnership of our client, which
is the reason for our inclusion of Special Condition M.
Special
Condition M reads:
(1) The parties hereto are presently the only
partners in a partnership known and trading as James Anthony & Co (the
partnership) and the purchaser has prior to the date hereof given notice of his
intention to retire from the partnership. Completion shall take place within
three weeks after the date fixed for the retirement of the purchaser from the
partnership and/or the distribution of the partnership assets whichever is the
later. If by January 1 1990, the date for the retirement of the purchaser from
the partnership and/or the distribution of the partnership assets has not been
fixed, then completion shall take place on a date to be mutually agreed between
the partners, but if no such date has been agreed by 5.0 pm on January 14 1990,
then this contract shall forthwith at such time be rescinded and upon such
rescission this contract shall be null and void.
(2) Notwithstanding (1) above the purchaser shall
be entitled to occupy the property as from June 30 1985 in accordance with the
terms of this contract.
Progress was
slow. On May 9 Douglas Wignall told Blok Bull that although Mr Farrell was
prepared to pay the outgoings of The Lodge if he took possession before
completion, he would expect to continue to draw his share of the profits until
the terms of his retirement, or the dissolution of the partnership, had
effectively been settled.
On May 13 Mr
Farrell wrote to his two partners a letter which included the following
passages:
I am getting
very concerned about the lack of progress we are making regarding my proposed
retirement from the partnership on June 30 of this year and the consequent
dissolution of the partnership. You did of course receive notice of my
intention to retire from the partnership during December 1984 and shortly
after, on receipt of the 1984 draft accounts, I prepared and presented to you
my proposed retirement terms.
Lower down in
the letter he said:
Further,
despite repeated reminders you have still yet to comment formally on my
proposed terms. Because of my frustrations I have felt no longer obliged to
offer such generous terms and felt it was reasonable to give you a deadline for
a decision of April 30 1985, but regrettably you failed to respond by this
time. I withdrew my proposed retirement terms and gave you notice that I
intended to ask my solicitor to write to the Institute of Arbitrators
requesting the appointment of a valuer.
On the same
day Douglas Wignall wrote to the president of the Chartered Institute of
Arbitrators; the material part of the letter reads:
During
December last year our client gave notice to the other partners of his
intention to retire from the partnership. The partnership agreement states inter
alia that an outgoing partner is entitled to an amount equal to his share
of the goodwill of the business. Some months ago our client forwarded to the
other partners his proposed retirement terms including his estimate of his
share of the goodwill. These terms have not been accepted by the other
partners. The partnership agreement further states that in default of agreement
with regard to the value of the outgoing partner’s share of the goodwill then
the same shall be valued by a valuer appointed by the Institute of Arbitrators,
acting as an expert and not as an arbitrator. In accordance with our client’s
instructions we shall be grateful if you could kindly arrange for such a valuer
to be so appointed.
In evidence Mr
Farrell said that the reference in both those letters to December was a mistake
and that it should have been November.
Still there
was no substantive response from Mr Toogood or Mr Williams. On May 24 Mr
Farrell wrote again, putting them on notice that, since they were unlikely to
be able to agree terms by June 30, the effective date of his retirement would
be June 30 or the date on which final settlement was reached on terms,
whichever was the later.
On May 31 Mr
Toogood and Mr Williams sent to Mr Farrell their brief counterproposals. They
included payment of £30,000 for goodwill. In those proposals Mr Toogood and Mr
Williams said, regarding the property, that while the underlease had not been
executed, it was ‘clearly subsisting and enforceable’. In their letter they
recorded that Mr Farrell had formally resigned, giving six months’ notice to
expire on June 30, and that, although this was not in writing in accordance
with the terms of the partnership deed, it had certainly been accepted by them.
They added that there could be no question of their remaining in partnership
after June 30.
On June 27 Mr
Farrell sent revised proposals to his partners, in which he required an
increased sum for goodwill, but he still offered an underlease on the same
rental terms as those set out in the previous proposals, for a term continuing
until the year 2005. Proceedings followed speedily: Mr Toogood and Mr Williams
issued their writ on July 11 1985.
The
underlease issue: a binding contract
On this appeal
Mr Colyer, for Mr Farrell, submitted that for two reasons there was no binding
contract for the grant of an underlease of the front offices at 179-181 North
End Road. First, the terms were never finally agreed, because the FLS
side-letter was never signed or submitted to the parties for signature. I am
unable to accept this. The judge considered that everyone had forgotten about
the side-letter. I understand him to be referring to the position from the
autumn of 1979 onwards, and I can see no reason for disturbing that conclusion.
In the correspondence I have already referred to, there is to be found evidence
that each of the three approved the terms of the amended ‘stop gap’ side-letter.
The partnership deed, in clause 3(b), provided for FLS to make a contribution
to expenses. Although the deed did not, in so many words, confer any right on
FLS to use the partnership premises, by November 1979 Mr Farrell and the others
were anxious to finalise the documentation. In the letters then passing there
is no mention of FLS. I think that it is reasonable to infer that from this
time onwards the parties no longer had in their minds the need for any
side-letter regarding FLS as part of their partnership documentation.
Second, it was
submitted that the parties, acting as they were through solicitors, were
contemplating exchange of underlease and counterpart underlease, and they are
to be presumed to have been negotiating ‘subject to lease’.
Reliance was
placed on the decisions of Harman J in Hollington Brothers Ltd v Rhodes
(1951) 2 TLR 691 and of Plowman J in Leveson v Parfum Marcel Rochas
(England) Ltd (1966) 200 EG 407. Those were cases in which solicitors for
parties were engaged in negotiations on the terms of proposed leases which were
intended to culminate in the exchange of lease and counterpart in the usual
way. In both cases the court held that there was no binding obligation, no
contract, prior to exchange.
Harman J
concluded, at p 694, that there was:
no intention
on either side to be bound by the course which negotiations took until the
lease was exchanged with the counterpart, and this was never done.
Plowman J
followed that decision. He said, at p 408:
Prima
facie when parties were negotiating the terms of a
proposed lease the approval of the draft lease did not conclude a contract
between the parties. The contract was concluded only upon exchange of lease and
counterpart in the usual way.
Judge Baker
distinguished those cases in this way:
Those were
both ordinary cases where the sole relationship is to be landlord and tenant.
Here we have a dispute between partners who were, as I have found, acting under
the partnership agreement. They were concerned to reach agreement as to the terms
on which they should be associated. They were not particularly concerned with
the form in which it was done. They left that to their solicitors. Mr Farrell
was willing for the lease to be registered without further ado, as we have
seen, and he had in fact signed the counterpart, and he had himself acted on
the partnership agreement which contained a reference to the grant of the
lease. It was a case where it was part of the partnership agreement that there
should be the grant of the sublease, all the provisions had been agreed and the
partnership deed was acted on.
The question
raised by this point is essentially one of fact, as to the intention of the
parties: when did the parties intend to be bound? The judge found that the parties accepted
that the partnership deed governed their relationship. That deed was acted on
for over four years. That deed recited that the grant of an underlease was part
of the consideration for the partnership, and that deed provided for the
partnership property to include an underlease to be granted in accordance with
the annexed draft. Those circumstances, it seems to me, are inconsistent with
the parties intending, none the less, that there should be no binding agreement
at all between them regarding the underlease until such time as the
engrossments were formally executed. I have no hesitation in agreeing with the
judge’s conclusion on this point.
Memorandum
in writing
I turn to the
question of whether there is to be found in the documents a sufficient written
memorandum for the purposes of section 40 of the Law of Property Act 1925. Mr
Pryor relied primarily on three documents read together: first, Mr Farrell’s
letter to Mr Foreshew dated November 16 1979; second, the engrossed counterpart
underlease with some manuscript amendments; and, third, Mr Farrell’s letter of
November 20 1979. These documents could not, in this case, constitute a
memorandum of a contract which came into being at a subsequent date, but Mr
Pryor’s primary claim was that the contract was made by November 20.
The judge
accepted that these documents did constitute a sufficient memorandum. With
respect to the judge, I have difficulty in sharing his view on this. In his
letter dated November 16 Mr Farrell pointed out to his solicitor some items
which he said required amendment or clarification. One of these was the
omission from the draft of any provision in the habendum for termination of the
term as provided in clause 7 of a previous draft. This had provided for the
term continuing only so long as the partnership should continue. Mr Farrell
himself did not see that these queries called for any material amendment, other
than the alteration in the review dates. But nevertheless he was raising them
for consideration by his solicitor. This letter left open what, if anything,
was to be done regarding these points.
That letter
must have crossed with the letter of the same date written by Mr Foreshew to Mr
Farrell and Mr Toogood, reminding them that he was still waiting to hear from
them with confirmation about the rent reviews.
It was in
answer to that letter from Mr Foreshew that Mr Farrell wrote the all-important
letter of November 20. When he said that ‘having discussed the matter further I
have decided not to make any further amendments to the present engrossment’, Mr
Farrell was, it seems to me, referring to the rent review point raised in the
letter written by Mr Foreshew which he was answering. It is true that Mr
Farrell plainly indicated to his solicitor that, so far as he and the others
were concerned, there was nothing else they wished to say: ‘we would all be
grateful if you will now register the lease at HM Land Registry’. But I am
unable to read that letter as superseding or cancelling what Mr Farrell had
said in his letter of November 16 and absolving Mr Foreshew from the need to
consider the points raised with him in that letter. Those points were still in
the air, and to that extent I have difficulty in seeing how the letter of
November 20 can fairly be read as an acceptance by Mr Farrell of the existence
of a binding agreement between the parties. Moreover, if that is right I
think that, quite apart from the question of a written memorandum, there may
also be difficulty in concluding that by that date there was a binding
contract.
But that is
not the end of the matter. The correspondence in November 1979 was followed by
the circulation of the amended engrossments in March 1980. For my part, I would
be disposed to hold that the contract was made when, after the lapse of a
reasonable time from the distribution of those engrossments, the parties
carried on with the partnership activities regulated by the partnership deed to
which the draft underlease was expressed to be annexed.
So the next
question is whether there is a written memorandum of that contract. In my view
there is. In March 1985 Mr Farrell sent to the others a document headed on the
front ‘Terms on Retirement of J A Farrell from the partnership of James Anthony
& Co’ and, inside, ‘Terms Proposed by J A Farrell on Retirement from
Partnership on June 30 1985’. In that document, as part of a proposal that he
would grant a new sublease, there appeared the following:
Existing rent
payable under sublease, £2,150 per annum. In my view those words were a clear
acknowledgment that there was in being a sublease of the partnership premises
at a rent of £2,150 per annum. The sublease referred to could only be the
sublease to the partnership which was engrossed for execution in 1980. There is
no other sublease to which Mr Farrell could be referring. As to identifying the
terms of the sublease whose existence was being acknowledged, there is no
difficulty. The references, in the headings of Mr Farrell’s retirement terms,
to the partnership were, plainly, references to the partnership which for some
years had been regulated in accordance with the engrossed, but unexecuted,
partnership deed. The term of that partnership was from July 1 1978 until
February 5 2005, subject to prior termination by expulsion, death or
retirement. In the partnership deed there was reference to the grant of a
sublease on terms of a draft expressed to be annexed, one of those terms being
payment of a rent of £2,150 per annum, and another being that the term of the
underlease was from July 1 1978 to February 5 2005. In my view, this draft
underlease and the retirement terms can properly be read together. So read,
there is here an acknowledgment by Mr Farrell that he was bound by the terms of
the draft underlease. That acknowledgment must be, and in my view is, a sufficient
written memorandum of a contract by Mr Farrell to grant that underlease. The
signature is supplied by Mr Farrell’s name in the headings, written by him.
Estoppel
Having reached
that conclusion, it is not strictly necessary for me, any more than it was for
the judge, to go on to consider the alternative case framed by the plaintiffs
in estoppel. However, in deference to the arguments addressed to us I shall
state my views on this as shortly as I can.
The judge held
that if there was no agreement, or if it was unenforceable through the absence
of a memorandum in writing, the plaintiffs would still have succeeded by reason
of proprietary estoppel. This is what he said:
. . . the
plaintiffs entered into this partnership and paid for the goodwill in the
expectation known to and encouraged by the defendant that they would obtain
security of tenure. The representation and acting to the detriment occurred at
the outset when they went into partnership in July 1978, and therefore I would
set on one side all considerations which turned on what they knew and what they
might not have known in 1980. I would refer to the passage in Lord Kingsdown’s
speech in Ramsden v Dyson (1866) LR 1 HL 129 at 170, as it is
cited in Crabb v Arun DC in [1976] Ch 179 in the judgment of Scarman
LJ. I have in mind p 194.
The judge would
have held, if necessary, that the appropriate way to give effect to the
resultant equity was by ordering Mr Farrell to grant the underlease which had
been argued over by all the parties and looked into thoroughly.
Mr Colyer
relied on the case of Attorney-General of Hong Kong v Humphreys
Estate (Queens Gardens) Ltd [1987] 1 AC 114. There a group of companies,
HKL, and the Hong Kong government engaged in negotiations for an exchange of
properties which did not result in a contract. Agreement was reached in
principle, but subject to contract. The government was aware, and intended,
that either party could at any time and without any reason withdraw. A major
part of the arrangements had been carried out, when HKL withdrew. The Privy
Council held that they were not estopped from doing so. Having referred to the
well-known authorities, Lord Templeman said, at p 124:
Their
Lordships accept that the government acted to their detriment and to the
knowledge of HKL in the hope that HKL would not withdraw from the agreement in
principle. But in order to found an estoppel the government must go further.
First the government must show that HKL created or encouraged a belief or
expectation on the part of the government that HKL would not withdraw from the
agreement in principle. Second the government must show that the government
relied on that belief or expectation. Their Lordships agree with the courts of
Hong Kong that the government fail on both counts.
Mr Colyer
submitted that likewise in this case neither of those two points was
established. I cannot accept this. The judge found that Mr Toogood and Mr
Williams entered into the partnership and paid for the goodwill in the
expectation, known to and encouraged by Mr Farrell, that they would obtain
security of tenure. That finding, for which there is ample evidence, covers
both of Lord Templeman’s points in the context of the present case. Indeed, I
would go further than the judge and take into account also what happened after
the drafts were finalised in 1980. From then on, for over four years, the
parties conducted their affairs on the basis of the partnership agreement to
which, as I have said several times, the draft underlease was expressed to be
annexed. Plainly, nothing to the contrary ever being said by anyone, Mr Toogood
and Mr Williams did so in the same expectation regarding obtaining security of
tenure, and that expectation, as much after 1980 as before, must have been
known to Mr Farrell and encouraged by Mr Farrell, if only by his continuing the
relationship without ever raising any query about the underlease.
Mr Colyer
accepted, rightly in my view, that if there were an estoppel in this case the
appropriate way to give effect to it would be the way decided by the judge. So,
had it been necessary, on this ground also, for my part I would have considered
that the judge had reached the correct conclusion on the underlease issue.
The notice
of retirement issue
As Mr Colyer
recognised, in seeking to challenge the judge’s conclusions on the notice of
retirement issue, Mr Farrell faced an uphill task in this court. The issue
turns on a question of fact, which can be stated in this way: would a
reasonable person, placed in the position of Mr Toogood and Mr Williams in
December 1984, have understood from what Mr Farrell said to them that he had
given unambiguous and unconditional notice of his intention to retire from the
partnership on June 30 1985?
The
partnership deed, agreed between the parties, and substantially in accordance
with which they conducted themselves, called for a written notice, but no point
was taken on the absence of writing. Indeed, it is an unfortunate fact that it
is the informality with which the partners conducted some of their affairs,
natural enough in a small partnership, that has contributed to this costly
litigation. Written notices are commonly stipulated for precisely so as to
avoid disputes such as that raised in the notice of retirement issue in this
case, where the oral announcements relied upon were not even made formally at a
partners’ meeting.
Judge Baker
saw the witnesses, and heard evidence, over 16 days, with prolonged questioning
of the parties and the other witnesses on this issue. Thus to succeed on this
point Mr Farrell has to establish in this court that there was no evidence on
which the judge could have reached the conclusion that I have already quoted
from p 46 of the transcript of his judgment or that the judge misdirected
himself.
Mr Colyer
submitted that the evidence did not establish any plain and unambiguous notice
of retirement, and he pointed to the evidence of Mr Toogood and Mr Williams
that they had no clear recollection of what was said by Mr Farrell and to the
evidence of other witnesses who spoke of Mr Farrell’s intending departure in
less than definite terms. For example, Mrs Culverhouse’s evidence was that June
30 was the date on which Mr Farrell was hoping to retire, and Mr Davies’
evidence was that Mr Farrell told him in December that he ‘planned on
resigning’ and ‘I am planning on leaving in March’.
We were taken
on a journey, necessarily extensive, through the transcripts of evidence. At
the end of that journey I was, and I am, in no doubt that there was before the
judge evidence on which he was amply justified in reaching his conclusion on
the notice of retirement issue.
It is to be
noted that Mr Farrell’s pleaded case is not that he expressly stated that his
retirement was dependent upon the others agreeing to his proposed terms, but
that from the time of the first announcement on November 5 onwards it was
understood that his retirement was dependent on this. Consistently with this,
in his evidence Mr Farrell did not suggest that on November 5 he said to either
of his partners, or to anyone else, in so many words, that his retirement was
conditional on terms being agreed. Mr Farrell’s evidence was to the effect that
on November 5 he told Mr Williams
and present terms to them for his retirement with a view to retiring on June
30. He also said in evidence that in order to retire and start his intended new
business he needed a financial settlement and that that was made quite clear to
the other two from the outset.
As to what was
made clear to the others, and what Mr Toogood and Mr Williams understood, and
reasonably should have understood, from Mr Farrell’s announcements, both Mr
Toogood and Mr Williams were firm in their evidence that on November 5 Mr
Farrell’s announcement was unequivocal: ‘I am resigning’. Shortly thereafter,
March was the date put forward by Mr Farrell as the date of his departure. Mr
Williams’ evidence was that Mr Farrell said that he was going to present
proposals, package terms, and that if the others did not agree they should go
to arbitration. That reference to arbitration fits uneasily with Mr Farrell’s
remarks being intended by him to mean, or with Mr Williams reasonably
understanding him to mean, that Mr Farrell’s resignation in March was dependent
upon prior agreement being reached on terms. Mr Toogood’s evidence, dealing
with the position when the retirement date was changed to June 30, was that he
understood that there would be some sorting out of the financial arrangements,
but that there was absolutely no suggestion of the operative date of the notice
of retirement being dependent on the agreement of terms. Indeed, there was no
evidence that when the date was changed to June 30 the existing notice, if it
was unconditional, albeit possibly not given for a specific date in March,
became, or was thought by Mr Toogood and Mr Williams to have become, a
conditional notice.
There was
other evidence which supported the plaintiffs’ claim that Mr Farrell’s notice
was firm, unequivocal and unconditional. Efforts were made to get Mr Farrell to
change his mind, without success. According to Mr Williams’ evidence, on two or
three occasions Mr Farrell said to him that his terms were not negotiable —
‘You either accept them or we go to arbitration’. Again, in May, Mr Farrell
through his solicitors asked the president of the Chartered Institute of
Arbitrators to appoint a valuer, a course which, as spelt out in the letter of
request, predicated that Mr Farrell had duly given a binding notice of
retirement. That request to the president for the appointment of a valuer was
undeniably an invocation by Mr Farrell of the right conferred by clause
14(c)(iii) of the partnership deed.
On the other
hand, in addition to the evidence of Mr Farrell himself, there was evidence
which (it was submitted) pointed in the opposite direction. Mr Colyer accepted,
in my view rightly, that he could not disturb the judge’s conclusion that Mr
Farrell’s announcement of his retirement plans (to use a neutral word)
proceeded in November and December 1984 through the stages mentioned by the
judge, but he submitted that this was more consistent with Mr Farrell’s
announcement not being intended to be, or understood as being, a notice
intended to determine the partnership unconditionally so far as Mr Farrell was
concerned. Mr Farrell’s statement that he would be presenting proposals, which
he had made before the proposed date of retirement was changed from March to
June 30, was strongly suggestive that the notice was conditional.
Mr Colyer also
observed that the efforts made by Mr Toogood, by Mr Williams and by others to
persuade Mr Farrell to change his mind are not inconsistent with Mr Farrell’s
case. He did want to go; the others tried to dissuade him from leaving. But
that did not mean that he had already taken such a step as, under the
partnership deed, committed him to going whether or not agreement was reached.
Mr Colyer
further relied on passages in the correspondence concerning The Lodge, and on
Condition M, and on the lack of contemporary adverse reaction from Mr Toogood
and Mr Williams to the introduction of Condition M, and to Blok Bull’s letter
of April 24, as inconsistent with the parties’ understanding at that time that
there would be finality in any event as to Mr Farrell’s retirement on June 30.
Again, it was
submitted, an unconditional notice was inherently improbable: a financial
settlement was imperative for Mr Farrell. He could not have contemplated
retirement without funds. Further, there was no need for any terms to be put
forward if clause 14 was being invoked.
In my view,
these factors were pre-eminently for evaluation by the judge as the tribunal of
fact. It was for him to weigh these matters and to decide how the balance came
down. It is plain from his judgment that the various factors which supported Mr
Farrell’s case were put to the judge clearly and that the judge took them into
account in reaching his conclusion.
Mr Colyer
placed particular reliance on the evidence concerning the date on which Mr
Farrell presented his proposals to his partners. He submitted that the judge
was demonstrably wrong on this point from which, he submitted, two consequences
flowed. First, this should make this court less reluctant to interfere with the
judge’s assessment of the witnesses; and, second, presentation of the proposals
at the earlier date, rather than at the later date, was more consistent with Mr
Farrell’s case that his notice of retirement was always conditional upon
agreement being reached on his proposals.
Mr Colyer
outlined a challenge, by reference to documents as well as to the oral
evidence, to the judge’s finding on the date when these proposals were
presented by Mr Farrell. However, I do not think that, even if Mr Colyer is
right on this, it gets him any measurable distance along his uphill path. I do
not think that there is any question of the judge’s having treated this issue
as a touchstone of the parties’ reliability. Nor, even if it were right to
reject the judge’s reconstruction of the sequence of events between January and
March on this point, as to which I express no concluded view, do I consider
that that would entitle this court to depart from the clear findings of fact
which the judge made on the critical issues concerning the notice of
retirement.
On behalf of
Mr Farrell it was also submitted that the judge misdirected himself in the key
passage in his conclusions on p 46, because in that passage he placed
particular reliance on Mrs Culverhouse’s evidence. It was submitted that the
judge misunderstood the effect of her evidence, because the tenor of her
evidence was that although Mr Farrell always hoped to retire on June 30, he
could not have afforded to go unless terms were agreed, and that his notice was
‘always conditional’.
I cannot
accept this submission. Read in its context, the judge was relying on the part
of Mrs Culverhouse’s evidence, quoted by him, about her effort to dissuade Mr
Farrell from leaving the partnership, and about Mr Farrell being a fairly
stubborn young man. He was relying on that, as in my view he was entitled to
do, as tending to negative Mr Farrell’s case that he never expressed an
out-and-out intention to retire but only an intention to retire if terms could
be agreed.
There remain
two further submissions. The first is Mr Colyer’s submission to the effect that
announcement in November of retirement from an indeterminate date in March was
not operative as a notice of retirement under the partnership deed, and
changing the proposed date of retirement to a specific date over six months
ahead, namely June 30, did not change the character of the notice. As I see it,
there is no evidence that in November or December 1984 Mr Farrell, when telling
the others about his intention to retire, and when fixing the date first for
March and then for June 30, or Mr Toogood and Mr Williams, when receiving this
information, had clause 14 of the partnership deed in mind. If any of them had
had this clause in mind, one of them would surely have noted, or commented, in
November that less than six months’ notice was being given. Again, Mr Farrell
would surely have made it plain whether or not his notice, though not given in
writing, was intended to be a notice of retirement for the purpose of the
provisions of that clause. If none of the partners had the provisions of clause
14 in mind in November or December, what was going on makes more sense, in that
it may never have crossed Mr Farrell’s mind, when he made his successive
announcements, that if the partners were unable to agree on terms he would nevertheless,
and without further ado, automatically cease to be a partner. In particular, at
the time he and his partners may not have realised that by altering the date of
the retirement to June 30 Mr Farrell had unknowingly triggered clause 14, with
the consequence that he could — and indeed, unless the parties subsequently
agreed otherwise, he would — find himself out of the partnership when his
notice expired, with an entitlement only to be paid a sum of money. To this
extent, and in this respect, in December 1984 Mr Farrell and his partners may
possibly have thought that his retirement was in fact dependent upon agreement
being reached between them on terms.
An analysis,
along these lines, of what was going through the parties’ minds in November and
December has its attractions. But in my view this does not go far enough for Mr
Farrell’s purposes. If he gave an unambiguous notice that he intended to retire
on a specific date over six months ahead, then the event triggering the
operation of clause 14 happened. No case has been advanced on behalf of Mr
Farrell that the parties were labouring under a common
their rights under the partnership deed, so as subsequently to estop the parties
from asserting otherwise. I can see why not. In the light of the letters
written in mid-May 1985, any such case would have faced formidable
difficulties.
Thus one is
driven back simply to answering the question which I have stated earlier. In
answering that question, it is right to keep in mind that the notice given in
November for March would not, without more, have triggered clause 14. But none
the less, I can see no escape from the conclusion that when, in December, Mr
Farrell amended his unequivocal notice of intention to retire by altering the
proposed date of retirement from an unspecified date in March to a specific
date in June, namely the 30th, all the ingredients (save for the need for
writing) required for a valid and effectual notice of retirement for the
purposes of clause 14 then came into being. Mr Farrell had given to each of his
partners not less than six months’ notice of his intention to retire from the
partnership. It is no answer, if indeed it was the case, that at the time
neither Mr Farrell nor his partners appreciated that this was the consequence,
the legal effect under their partnership deed, of what Mr Farrell had done.
That might be a misfortune from Mr Farrell’s point of view, but it provides no
answer in law. In my view, the judge’s findings of fact regarding the giving
and acceptance of the notice are, for the reason I have given, fatal to Mr
Farrell.
I add that I
am comforted in this conclusion by noting what was written by, or on behalf of,
Mr Farrell in mid-May 1985. Having taken legal advice, Mr Farrell did not
suggest that there might have been a misunderstanding over his retirement or
that he had been labouring under a misapprehension when he gave his notice. Far
from it. He sought to invoke the provisions of clause 14.
The further
point with which I must deal is Mr Colyer’s submission that the judge
misdirected himself in that, having found that there was no suggestion made by
Mr Farrell that his going was dependent on the acceptance of his proposals by
his partners, the judge leapt to the conclusion that the notice given was an
effectual notice. He failed to consider whether the notice was ambiguous.
This argument,
as I understand it, draws a distinction between, on the one hand, a notice in
respect of which all three partners understood that retirement was dependent on
terms being agreed and, on the other hand, a notice in respect of which that
positive relief by all the partners is not established but which was ambiguous
in that it did not indicate clearly that it would take effect even if agreement
on terms could not be reached.
I am unable to
accept this submission. The judge did not specifically address himself to this
point in his judgment, but I find it inconceivable that he would have
overlooked this point if, having heard the evidence and any submissions that
may have been made to him on this point, he had thought that there was anything
in it. As it is, while clause 14 may not have been in the parties’ minds, Mr
Williams’ evidence was that within a week of the original announcement Mr
Farrell was saying that if they could not agree terms they should go to
arbitration. I see no reason to doubt that Mr Farrell expected that terms would
be agreed, but this evidence is inconsistent with the notice being ambiguous on
whether it was to take effect if terms were not agreed.
In my view,
the appeal against the judge’s conclusion on the notice of retirement issue
fails.
The form
of the judge’s order
As drawn up,
the judge by his order directed the parties to execute an underlease and
counterpart to which Mr Farrell would be landlord and Mr Toogood and Mr
Williams would be tenants. It was common ground before us that one of the
tenants should be Mr Farrell, so that all three of them would be named in the
underlease as the tenant.
Accordingly,
for my part, I would vary the judge’s order in this respect, but otherwise I
would dismiss this appeal.
Agreeing,
CROOM-JOHNSON LJ said: The part of this case which has given me some concern is
the question of the notice of retirement given on November 5 and later revised
in December. It is fairly clear that to begin with none of the partners had
clause 14 of the partnership deed in mind. At what time each became aware of it
is not clear, but it may well be not until they had consulted their legal
advisers at some time in the following year. No one said at the time that a
notice to expire in March was too short. When, in December, March was changed
to June, it was done because June was the obviously convenient date. No one
made the comment at that time that now that the notice was to expire in June,
after six months from the December date, it therefore complied with clause 14.
Later, when it
became a question whether the oral notice otherwise complied with the terms of
the partnership deed, then clause 14 became the appropriate mechanism, although
it would always have been open to the parties to agree, if they wished, between
themselves that some different way of proceeding should apply.
It is in this
context that it has been necessary to examine whether the oral notice, as
amended, complies with the requirement that the notice was definite and
unambiguous if it was to be a good notice. The oral evidence which was given
shows how wise it had been to insert, in clause 14, that the notice of retirement
should be in writing. It is a great pity that Mr Farrell did not give his
notice in writing.
There are
variations and differences in the evidence of each witness, between Mr Toogood
and Mr Williams as between each other, and between Mr Toogood and Mr Williams
on the one hand and Mr Farrell on the other. The relevant evidence on this
point of what notice was given is that of the three partners, and not of the
other witnesses, who were not present when the conversations between the
partners took place. The other witnesses were not really in a position to give
evidence of what was said or how it was said, and their evidence must clearly
be based largely on gossip, on hearsay, and may well be incomplete.
I have been
particularly concerned to see whether the mention of Mr Farrell of his
forthcoming proposals for dealing with the partnership assets, obviously made
by him, either at the time when he indicated that he was resigning or very soon
afterwards, did not of itself and by necessity introduce a condition into the
notice.
In this
respect, the fact that a date was given is a neutral fact. The date may be
there as a final certain time when it is intended to bring about the conclusion
of the period of the notice. On the other hand, it may be there as a target,
only to be effective if a condition depending upon the agreement of the
proposals is met. With that in mind I have reread both the judgment and the
evidence.
I have
concluded that the learned judge did consider each of the factual issues which
he had to decide. He decided the case on his preference for the evidence of Mr
Toogood and Mr Williams over that of Mr Farrell on the point which mattered,
which was what the notice given by Mr Farrell amounted to. There was evidence
to support the judge’s conclusion. This was something which was particularly
within the province of the trial judge, and in those circumstances I do not
think that his finding on the question of notice can be successfully
challenged.
I, too, would
dismiss the appeal.
Also agreeing,
KERR LJ said: My reason for adding a few remarks of my own is merely so that Mr
Farrell should be able to see that all of us have given anxious, careful and
independent consideration to this unfortunate case. I have great sympathy with
all three parties, but at the end of the day Mr Farrell alone must accept
responsibility for the outcome.
It is clear
that he did not appreciate the legal effect of his conduct, and for some months
neither did Mr Toogood nor Mr Williams. No one foresaw the impasse into which
Mr Farrell’s decisions were inexorably leading this partnership.
There is
nothing which I could usefully add to the reasons given by Nicholls LJ for
concluding that Mr Farrell was bound by the sublease just as much as by the
partnership deed, both as the result of agreement, and enforceable agreement
despite section 40 of the Law of Property Act 1925, as well as by estoppel.
I think that
all might have been well if Mr Farrell had had the fairness and firmness of
mind to accept that fact — that is to say, the fact that he was bound by both
the partnership deed and the underlease, without prevarication, and to proceed
on that basis. But that question arose only towards the end of the history. No
one gave any clear thought to the legal position in this regard — let alone to
clause 14 of the partnership deed — when, on November 5 1984, Mr Farrell
announced his unconditional and unqualified intention to retire from the
partnership, at first vaguely by reference to March 1985 and then firmly by
December 1984, as from June 30 1985. It then became an unconditional notice.
True, it was
accompanied, or shortly followed, by a statement that Mr Farrell would present
terms which would govern his departure. But this did not make his notice
equivocal, qualified or conditional. For that to have happened, his approach
would have had to have been quite different. He could have said to his
partners: ‘I would like to
row with Keith Williams and we don’t get on too well together. I think we had
better part. I will leave you two to carry on the firm, but of course
everything depends on whether we can agree terms’.
What he did
was entirely different. He insisted on maintaining his unilateral and
unqualified decision to retire, come what may, on June 30, until he saw how
matters were going towards the end of May 1985. He thought — perhaps
understandably — that he nevertheless had the right to bargain about the terms
of his retirement, and in any event all three parties initially felt certain
that terms would be agreed.
But one can
now see quite clearly why Mr Farrell’s approach had got him into the unhappy
position which he faces today. Of course, even where, as in the great majority
of partnerships, everyone concerned knows that there is a binding partnership
deed and has its terms in mind, it is quite common for an outgoing partner and
the remaining partners to envisage that some special terms will be negotiated
and agreed between them to deal with matters for which the deed makes no
provision or no satisfactory provision. And usually this works out perfectly
well. But if such an ad hoc agreement does not work out, then it is obvious
that the outgoing partner cannot go back on his notice by insisting that he
remains a partner until — if ever — there is a mutually acceptable set of terms
on which the severance is agreed to take place. That would cause chaos, as
shown by the present case. It would mean that partners who had fallen out about
someone’s retirement terms and could no longer work together in their common
interest and in the interest of their firm nevertheless remained tied by the
concept and contract of partnership indefinitely while being at loggerheads.
Such a result can of course be the regrettable effect of their mutual conduct
at an earlier time when the possibility of such a state of impasse had not been
foreseen. But it would be an unfortunate and exceptional situation.
The normal
situation is that in default of agreement the notice must stand and that the
partnership deed must take effect, or, in the absence of any appropriate
provision, the Partnership Act.
That is the
only correct and just answer in the present case; not that these three parties
should still now be in partnership after 2 1/2 years of bitter litigation.
Speaking for
myself, I would add that a highly regrettable feature of this case is that it
occupied no less than 20 days below, with 17 days of evidence, and that we are
giving judgment on this appeal today on the ninth day in this court. Without
attributing blame for this to anyone in particular, and without in any way
underestimating the complexity of the case, in my view the length of the
hearings was quite unjustifiable. It is essential that counsel (and judges)
should ensure that actions do not get out of hand and in effect run away with
themselves into matters which are of no more than marginal relevance. That is
what happened below in relation to the conduct of the action by counsel. And
the length of this appeal has reflected an excessive investigation of evidence
which, in my view, should clearly have been avoided.
I agree that
this appeal should be dismissed.
The appeal
was dismissed with costs and the cross-appeal dismissed with costs up to
November 13 1987. The order of the judge below was varied by directing that Mr
Farrell should be named as one of the three constituting the tenant in the
underlease.
