England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Birmingham Civil Justice Centre Bull Street, Birmingham B4 6DS
		15/09/2011

HHJ David Cooke:

1. This claim concerns that most elusive of assets, partnership goodwill. The first defendant is (or strictly speaking was, since its business has now been incorporated) a well-known firm of chartered accountants. I will refer to it as "Bentley Jennison" or "the firm". The claimant Mr Castledine joined the firm as an equity partner on 1 November 1999. The arrangements under which he did so were discussed in a series of meetings in October of that year between Mr Castledine and the firm's national managing partner, Mr Stockdale. Mr Castledine retired as a partner with effect from 8 April 2003. It is his contention that when he joined the firm he acquired an equal share in the firm's goodwill, and that he retained ownership of that asset notwithstanding his retirement from the firm. He seeks a declaration that he continues to own that share in the firm's goodwill to this day. Alternatively, he makes a claim for its value, described as a claim for damages, in the event that I should find that he has ceased to own his share in the goodwill at some date after his retirement.
2. Mr Castledine alleges that in the discussions leading up to his joining the firm, Mr Stockdale made statements to him the effect of which, or the necessary implication of which, was that the goodwill in the firm was owned equally by all the partners and that he would acquire an equal share on joining. The claim is put in one of two ways. The constitution of the firm at the time Mr Castledine joined it was based upon a written partnership agreement entered into in 1995 between the then partners, as amended from time to time subsequently. Mr Castledine's position (subject to a concession made at the opening of the trial, which I refer to below) is that either the effect of that constitution was as Mr Stockdale is said to have described it, or alternatively that whatever may have been the terms of the partnership applicable between the previous partners, the effect of the statements alleged to have been made to Mr Castledine was to incorporate a term in the contract pursuant to which he became a partner which vested in him an equal share in the goodwill. As to the position when he retired, Mr Castledine points to a provision in the written partnership agreement which expressly vests any interest he may have in the partnership assets 'other than goodwill' in the continuing partners, but says nothing about goodwill. This specific exclusion, he contends, means that his interest in goodwill is retained.
3. The firm's position is that the effect of its constitution at the time Mr Castledine joined was not as he alleges, and that goodwill was owned in specified, unequal, proportions by the then equity partners. Mr Castledine acquired no goodwill when he joined the firm and no statement was made to him to the effect that he would. It is accepted that the constitutional arrangements had been varied in January 1999 so that if the business was sold, any gain or loss realised on goodwill as against the value at which it was carried in the balance sheet would be shared equally between the equity partners at the time, whether or not they owned any interest in the goodwill. This was a matter of sharing of capital profits and losses however, rather than equal ownership of the underlying asset, ie goodwill. It is also accepted that Mr Castledine was probably told that if a sale took place he would receive an equal share of any gain on goodwill. That, it is said, would be in accordance with the arrangement for sharing capital profits, but he has mistakenly interpreted it as a statement that he would acquire an equal share in the ownership of goodwill on joining.
4. It is also accepted by the firm that pursuant to the arrangements made in 1999, various transfers of goodwill were made to Mr Castledine while he remained a partner as part of a process of equalisation of goodwill ownership among the partners. However, the firm's position is that this arrangement involved accounting entries being made in the firm's books on each transfer of goodwill to Mr Castledine showing the accounting value of the goodwill transferred as his asset, matched by a corresponding and equal liability to pay for it, so that the balance on his capital account was not altered. When he retired, these entries were effectively reversed; he was shown as disposing of the goodwill standing in his name at its accounting value so that his asset reduced to zero, and receiving a consideration of an equal amount which satisfied his corresponding liability.
5. Insofar as the firm's arrangements for dealing with goodwill were changed in January 1999, Mr Castledine's position is that he was not told of those changes before he joined, and therefore is not bound by any variation in the terms of the agreement between the partners that they may have made. His position is to be determined on the basis of the documents and information provided to him, and on their correct interpretation he maintains that he acquired an equal share in goodwill and did not dispose of it on leaving.
6. The foregoing is a brief summary of the positions of the parties by way of overview. The basis of Mr Castledine's claim fluctuated as the trial progressed, and I have not sought to set out here all the evolutions of the argument put forward for him. Insofar as necessary, I will deal with other contentions in the course of this judgment.

The nature of goodwill as a partnership asset

7. Lindley & Banks on Partnership contains the following (in a section dealing with drafting and construction of partnership agreements):

"10-192 The goodwill of a firm will frequently be one of its most valuable assets, even though it may not feature as such in its annual accounts. It is accordingly essential that the agreement deals with its ownership and, where necessary, its protection in the event of one or more partners leaving the firm.

Meaning of "Goodwill"

10-193 Given its intangible nature, it is difficult to produce a precise definition of "goodwill", as Lord Lindley explained:

"The term goodwill can hardly be said to have any precise signification. It is generally used to denote the benefits arising from connection and reputation; and its value is what can be got for the chance of being able to keep that connection and improve it. Upon the sale of an established business its goodwill may have a marketable value, whether the business is that of a professional man or of any other person. But it is plain that goodwill has no meaning except in connection with a continuing business; it may have no value except in connection with a particular house, and may be so inseparably connected with it as to pass with it under a will or deed without being specially mentioned. In such a case the goodwill increases the value of the house; but the value of the goodwill of any business to a purchaser depends, in some cases entirely, and in all very much, on the absence of competition on the part of those by whom the business has previously been carried on." "

8. Although goodwill may be referred to as if it is a single asset, it may also be considered as a parcel of factors which could increase the opportunities of a successor to the business to enjoy the benefits that Lord Lindley referred to and so persuade him to pay more to become such a successor. The 'right' to use the name of the business is obviously one important factor, although as the author notes (para 10-195) it is doubtful whether that right is capable of being transferred independently of other elements going to make up goodwill. Other factors may consist of the ownership of assets associated in the minds of customers with the business itself, such as premises, registered trademarks or other intellectual property rights, even if those assets could be sold independently of any sale of the business. Others may relate to the involvement of particular individuals with the business, either in a positive sense in that they continue to work in the business under the ownership of the successor, or in the negative sense that they are prevented from offering services in competition with him.
9. Goodwill arises by virtue of the operation of the business and is, initially at least, vested in the person or persons who own and operate the business. It is intimately connected with the operation of the business itself, and although it may be bought and sold by explicit transaction, such transactions normally occur in the context of a transfer of the business. The idea of goodwill being owned by a person who does not operate the business is not without its conceptual difficulties.
10. Condliffe v Sheingold [2007] EWCA Civ 1043 concerned at the ownership of goodwill in a restaurant business. The leasehold premises were owned personally by a director (Mrs Sheingold), but the business was run by a limited company (Baja) which owned the fixtures and fittings and accounted for the trading receipts and expenditure in its own profit and loss account. When the company went into liquidation, its tangible assets were sold to another company owned by Mrs Sheingold, but no payment was made for goodwill. Some time later, she sold the business to a third party, receiving a substantial payment for goodwill and the question was whether the goodwill that she sold belonged to Baja, or was derived from an asset belonging to Baja which she had appropriated in breach of duty as director. Arden LJ gave the judgment, the other two Lords Justices agreeing with her. In a passage dealing with the meaning of goodwill, she said this:

"MEANING OF GOODWILL

[8] Mr Colin Elliott, for the Appellants, relies on the following passage from the speech of Lord Macnaghten in Commissioners of Inland Revenue v Muller & Co Margarine [1901] AC 217 at 223, 70 LJKB 677, [1900-3] All ER Rep 413:

"What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of a good name, reputation, and connection of business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old established business from a new business at its first start."

[9] In the same case, Lord Lindley said at 235:

"Goodwill regarded as property has no meaning except in connection with some trade, business, or calling. In that connection, I understand the word to include whatever adds value to the business by reason of the situation, name and reputation, connection, introduction to old customers, and agreed absence from competition, or any of these things, and there may be others which do not occur to me. In this wide sense, goodwill is inseparable from the business to which it adds value, and, in my opinion, exists where the business is carried on."

[10] Any goodwill which Baja had would have been internally generated, rather than purchased. Internally generated goodwill may not be shown in the statutory accounts of a limited company: see note (3) of the notes to the balance sheet formats in Sch 4 to the Companies Act 1985. (By contrast, goodwill representing the surplus of the fair value of the consideration paid on the acquisition of a subsidiary over the fair value of its net assets may be shown in consolidated accounts). Accordingly, nothing turns on the fact that Baja's accounts did not show any goodwill from the restaurant business. The question whether in this case the goodwill belonged to Ms Sheingold or Baja is a question of fact: see generally Butler v Evans [1980] STC 613, 53 TC 558."

She went on to hold that as the judge had found that the business was operated by the limited company, the goodwill arising from that was owned by the limited company and not by the director personally, whether by virtue of her ownership of the lease or otherwise. She had misappropriated the value of that goodwill and was liable to account for the profit made.

11. As with companies, partnerships may choose for themselves whether they recognise the value of internally generated goodwill on their balance sheet. If a partnership buys another business, paying a price for goodwill in addition to any amount paid to acquire tangible assets, the goodwill acquired (which in this case was referred to as "purchased goodwill") may be shown on the firm's balance sheet as an asset. The alternative treatment would be to write it off against profits in the year of acquisition. Thus, the balance sheet of a partnership may show the value of all, some, or none of the goodwill that the firm owns at the balance sheet date.
12. It is common ground that whether or not the value of goodwill is recognised on the balance sheet, it is not necessarily the case that all partners have an interest in the goodwill, or that those who do have such an interest have an equal interest. It is a matter which may be agreed between the partners.

Goodwill arrangements within Bentley Jennison

13. Prior to January 1999, the constitution of the firm was set out in two documents. The first was a Partnership Agreement and the second was titled "Equity Partners Deed" and expressed to be supplemental to the Partnership Agreement. Both were dated 11 December 1995. The Partnership Agreement defined the term "Equity Partners" as meaning "the equity sharing partners in the firm from time to time" and "Equity Partners Deed" as meaning "a deed of even date made between the Equity Partners relating to ownership of the goodwill of the Firm".
14. The Equity Partners Deed set out the names of the equity owning partners and the proportions in which they held the goodwill of the firm. As at 11 December 1995 there were 28 persons named as partners in the Partnership Agreement of whom 25 were Equity partners. The other three partners were referred to as "Fixed Share Partners". Part of the background to both documents was that it had been agreed to merge together various different partnerships which had operated under different names and with different profit sharing and equity ownership arrangements into a single firm under the name Bentley Jennison, with effect from April 1994. These two documents set out the constitution under which the merged firm would operate.
15. The Equity Partners Deed set out the agreed values of the goodwill in the various predecessor partnerships, and the value and percentage of the goodwill in the merged firm agreed to be owned by each Equity Partner at the date of the deed. There were also various mechanisms provided for subsequent dealings in that goodwill as follows:

i) a system for revaluing the goodwill of the firm at the end of each financial period by reference to its performance in that period and projected performance in the next,

ii) a system by which any retiring partner was required to sell his share in goodwill to the continuing Equity partners, who would purchase it at the value shown in the accounts, payable over a period of three years,

iii) provision enabling equity partners to offer all or part of their share for sale to other Equity partners before retirement, and

iv) provision for new Equity partners to be admitted, entering into a deed of adherence to the Equity Partners Deed and purchasing amounts of goodwill on a pro rata basis from the existing Equity partners. The minimum amount of any such purchase was to be £100,000.

16. By far the largest holdings of goodwill were in the names of three partners, Mr David Bentley, Mr John Jennison and Mr Anthony Stockdale. Each of them held approximately 17% of the total. It was evidently intended that this disparity should be reduced, and the deed provided by clause 8 that any acquisition of goodwill by incoming Equity partners in the first three years should be by way of sale from these three partners, rather than pro rata from all the Equity partners, and further that:

" In view of the current imbalance in the ownership of goodwill Messrs Bentley, Jennison and Stockdale shall endeavour to arrange an equalisation after three years from the Effective Date of their holdings with other Equity Partners within the firm based on those Equity Partners holding less than the average goodwill holding acquiring shares from them. "

17. The Partnership agreement contained a number of provisions which distinguished between the position of Equity partners and Fixed Share Partners. In particular clauses 7 and 8 provided for the distribution of profits in a manner which, to summarise, was that all partners should first receive a "Fixed Profit Share Level set annually by the Management Board", that Equity Partners would then in addition receive a share of the profits of their local business unit, and that any remaining overall surplus or deficit "shall be enjoyed or borne by the Equity Partners as described in the Equity Partners Deed". It would be necessary to refer to the deed itself to discover that it provided that such distribution would be in proportion to their interests in goodwill. Clause 18 provided for the duties and responsibilities of the Management Board, including separate provisions authorising the appointment and removal of "Partners" and the appointment of "Equity Partners".
18. Clause 26 of the Partnership Agreement, headed "Accounting on retirement etc" included the following provisions:

"26.3 the share of an Outgoing partner in the assets and liabilities (other than goodwill) as at the Succession Date shall vest in the Continuing Partners in the proportions in which they are then entitled to share in the capital (excluding goodwill) of the Partnership …

26.5 the Continuing Partners shall discharge their liability to the Outgoing partner by repaying to him the balance of his Capital account and his Current Account … by 36 equal monthly instalments without interest over the period commencing one month after his Succession Date…

26.10 the Outgoing partner shall sign execute and do all such documents deeds acts and things as the Continuing Partners may reasonably request for the purpose of enabling the Continuing Partners to recover and collect in the book debts and other assets of the Partnership and shall use his best endeavours to ensure that clients remain with the Firm … or for the purpose of conveying assigning or transferring to the Continuing Partners any of the Partnership property which immediately prior to the Succession Date is vested in the Outgoing Partner as one of the Partners or in trust for the Partnership. "

19. Other provisions relating to a partner leaving the firm included a perpetual covenant against using or divulging trade secrets or confidential information (clause 29), an obligation to deliver up any "lists of clients correspondence and all other documents papers and records (in whatever form these may be stored) which may have been prepared by him or have come in to his possession while he was a Partner and relate to the Partnership… Title and copyright in the same shall vest in the Continuing Partners" (clause 31) and a perpetual covenant against holding himself out as connected with the Partnership or using any of the firm's business names (clause 32.2).
20. The two documents between them thus provided that not all partners owned a share in goodwill, that those that did, did not do so in equal proportions, that incoming Equity partners would have to purchase any goodwill they acquired, that while they remained partners, shares in goodwill could be bought and sold between the Equity partners, and that when an equity partner retired, his share in the assets of the firm other than goodwill would automatically vest in the continuing partners without payment, but his share in goodwill would be sold to the remaining Equity Partners (not to all partners) at its value in the balance sheet at the date of retirement (which value would have been adjusted from the amount he had paid for it by the annual revaluations). If the business of the firm had been sold, any amount received for goodwill (including any profit above the value for the time being in the balance sheet) would have been a profit payable to the Equity partners in the proportions in which they owned the goodwill.

The "new arrangements" adopted in January 1999

21. This was a somewhat old-fashioned model for running the firm's affairs, and the partners recognised that the requirement to purchase goodwill on joining the firm acted as a deterrent to recruitment of Equity partners. Other firms with which Bentley Jennison was in competition were operating on the basis that a partner joining the firm paid nothing to purchase goodwill when he did so, and if he retired, received nothing in respect of the value of the firm's goodwill at that date. If the business was sold whilst he remained a partner, anything received by way of goodwill payment would be distributed amongst those who were partners at the date of sale in accordance with their partnership agreement, but nothing would be paid to former partners. That was regarded as a more modern and attractive model.
22. The purpose of the arrangements that were discussed and adopted in January 1999, as explained by Mr Stockdale and Mr Bentley who gave evidence for the defendants, was to move towards this more modern model. It was a process that was under discussion for some time in different forms; see in particular Mr Bentley's second witness statement (B2/2 para 6ff). Three strategy reports were produced, in December 1997, June 1998 and December 1998, along with a number of memos leading up to the partners AGM in January 1999 at which a resolution was proposed which was intended to implement the new model. The process of transition was not straightforward however, particularly because of a very substantial amount of goodwill recognised on the balance sheet. It represented a valuable asset of the existing Equity partners, which they were not willing to give up, not least because they had paid for it. If they had agreed to redistribute the ownership of goodwill so that each partner held an equal share, that would be treated as a disposal by some of the existing partners, potentially triggering a taxable gain.
23. The June 1998 paper included the following:

" Summary and Conclusions

1.6 …

The practice should be owned equally by all of the partners

The principle of goodwill should be abolished and the value paid out to existing equity partners over an extended period…

Goodwill and Capital

"6.1 Last November the partners voted to freeze the value of goodwill at the 31 December 1997 level pending revised arrangements …

6.2 …with effect from 1.1.99 it is proposed that the practice is "owned" equally by the partners. In addition the distinction between equity and fixed profit share partners will be abolished, i.e. all partners will be equity partners.

6.3 The goodwill values at 31 December 1997 will be repaid to current equity partners in equal monthly instalments in the period to their normal retirement age of 60 ....

6.4 The balance sheet value of goodwill (c£7.6m net) will remain as an asset and thus part of [partners'] capital. In order to fund the payment of goodwill assumed in 6.3 above future drawings will be restricted by £6000 pa per partner which provides an automatic profit retention of some £270k pa.

6.7 The effective abolition of the principle of goodwill means in addition a complete revision of profit sharing arrangements. This is dealt with in section 7 of this report.

6.13 All new partners will be equity partners. "

24. The proposal that existing goodwill balances should be paid out by the firm and not funded by funds introduced by new partners acquiring goodwill would clearly require cash to be obtained by the firm from elsewhere, hence the proposal to restrict drawings. Paragraph 6.5 of the paper set out a table showing "the cash commitment on goodwill for the next 10 years" on the basis of the existing arrangements and the proposed arrangements, showing that the new arrangements would require additional cash to be provided over that period of some £3.1 million.
25. Section 7 of the report set out a proposal that in future each partner would receive an initial fixed share and thereafter profits would be divided on the basis of a pool of points to be allocated between the partners.
26. The December 1998 report was expressed to be a supplemental paper, and gave further details of the proposed allocation of points, following the discussion and feedback that had taken place in the meantime. In relation to goodwill it repeated the proposal to pay out the value of goodwill as described in the earlier paper, but proposed that the value should be written down by 10% and the reduced balance paid out over a shorter period.
27. At the meeting itself, the minutes record a lively discussion on the proposal, followed by two votes, one among the Equity partners relating to the goodwill arrangements, and one among all the partners relating to the management and organisational proposals, including the new profit sharing arrangements. The resolution put to the equity partners was unanimously approved, in the following terms:

" with effect from 1 January 1999 the goodwill arrangements for the practice will be changed in accordance with the initial strategy report issued in July 1998 as modified by the revised proposals issued in December 1998, namely that the practice will in principle be owned equally, the goodwill value at 31.12.97 be paid out to retirement and all capital gains and losses will be shared equally …"

The general vote to approve the other provisions of the strategy paper was approved by a sufficient majority of all the partners, including the fixed share partners.

28. This resolution was intended to encapsulate no doubt briefly the concepts that had been set out in the strategy papers and discussed at the meeting. It is significant in my view that it refers to the practice being "in principle" owned equally, and to capital gains and losses being shared equally, but that it does not say that the goodwill value recognised in the balance sheet as it then stood would become owned equally by all the partners; instead it recorded that this value would be "paid out to retirement".
29. Mr Bentley described the result as follows, in his second witness statement:

"15. The words "will in principle be owned equally" in the resolution were intended to indicate that the firm intended to move towards a situation where the practice was owned equally, not that the expectation was that this would be achieved 'overnight'. This was very much a long-term aspiration. The firm had begun as essentially three individuals (Tony Stockdale, John Jennison and myself) and was fast becoming a major accountancy firm. Over the longer term, it was sensible to transfer the substantial goodwill held by those three founding partners and redistribute it across the firm more equally.

16. The equal sharing of 'all capital gains and losses' is important to understand. The balance sheet shows capital at a given value. That capital includes within it goodwill. In the event of a sale of the business (whether an outright sale, or sale by way of merger[)] then the extent to which any sale achieved a value for the firm (including its goodwill) over and above its capital value on the balance sheet, that 'gain' (referred to in accountancy terms as "a capital profit") would be shared equally by the then partners. Equally, in the fairly unlikely event of a loss as against balance sheet value on a sale or merger … that loss would be shared equally. "

30. The way in which goodwill was shown in the firm's accounts was not entirely straightforward. The firm produced a set of accounts each year which were distributed to partners. These came to be referred to in hearing as the "consolidated accounts", as they included the consolidated results of the partnership and a number of subsidiary companies which it owned and which provided services to the partnership. The consolidated accounts for the year ended 31 December 1998 (D2/41) show an amount of goodwill on the balance sheet of £11,422,018. A note to the accounts in the form of the schedule headed "Partners Goodwill" lists the partners who have shares in that goodwill (being those partners who were party to the Equity Partners Deed) and shows in the first column their percentage interest. The second column shows the total balance sheet value of £11.4 million divided into those percentages. The third column is headed "Goodwill Cost" and, as Mr Bentley explained, shows the value of what is referred to as "purchased goodwill", i.e. the amount that the firm had paid to buy goodwill when it acquired other practices. The total of the amounts in that column is £4,399,670. The fourth column is headed "Total" and the figures represent the difference between those in the second and third columns, adding up to £7,022,346. This represents, as Mr Bentley explained, what was referred to as "revaluation goodwill" i.e. the amounts by which goodwill value was increased on the annual revaluation provided for by the Equity Partners Deed.
31. No further detail in respect of goodwill holdings is shown in the consolidated accounts, but the firm maintained records showing the ownership and effect of transactions in relation to goodwill for each partner, which were set out in a schedule to a different set of accounts, referred to as the "Financial Accounts". These accounts it seems were not sent to partners routinely, and their existence emerged at a late stage in the trial. It was explained that these represent the separate accounts of the partnership alone (i.e. without consolidating the subsidiary companies) and they were prepared for submission to HMRC. There were other differences arising from their tax purpose; in particular the accounting treatment of work in progress was as required for tax purposes and not as the partners adopted for their own purposes.
32. The Financial Accounts for the year ending December 1998 are in bundle X tab 3. The relevant schedule is headed "Goodwill" and lists for each partner the opening value of goodwill held and all movements in that value during the year, leading to a closing value at the end of the year. The closing values total £11,422,018, being the amount shown in the consolidated balance sheet, and the individual amounts making up that total reconcile with the "Partners Goodwill" schedule to the consolidated accounts.
33. It is apparent that the strategy papers and minutes sometimes use the expression "goodwill" to refer to the whole value of goodwill on the balance sheet, and sometimes only to the element of "revaluation goodwill". Mr Bentley and other witnesses explained for instance that the proposal to reduce the value of goodwill by 10% referred to the revaluation element, with the result that the figure of approximately £7 million referred to above in the 1998 consolidated accounts was written down to approximately £6.3 million. However it was the total figure of £11.4m (less the £0.7m written off) that was to be 'paid out to retirement'.
34. In years subsequent to 1998 and there was a change of presentation in the consolidated accounts. Instead of the whole value of goodwill being shown in the balance sheet, only the element of purchased goodwill was shown as an asset. The revaluation element was separated out into a schedule attached to the notes, described as "Amount due for goodwill". The consolidated accounts for the 1999 year are in bundle D tab 144. Mr Castledine became a partner during that year, and his name appears in the schedules of partners capital and profit shares. He does not appear in the schedule showing "Amount due for goodwill". The total of those amounts is approximately £5.3 million, which is derived from the closing balance at the previous year end of approximately £7 million, less the 10% writing down and after the effect of retirements and other movements during the year. The amounts attributed to the individual partners named in the schedule are not equal, consistent with their ownership of the partnership goodwill being unequal.
35. Mr Bentley described these changes, and the proposal to pay out goodwill value over a period, as follows (again in his second witness statement):

"17. The process of paying out goodwill value 'to retirement' in instalments needs some explanation. When a firm was acquired (for which cash was paid) what would then happen is that the goodwill of the acquired firm would then be brought into the balance sheet of Bentley Jennison… a value would have to be attributed to that goodwill… Over the years… revaluations were carried out in accordance with the formula set out in the Equity Partners Deed. The transition from the old arrangements to the new arrangements involved the division of goodwill on the balance sheet into two parts. The original acquisition value of goodwill remained in the balance sheet as an asset. The sum previously in the balance sheet representing the revaluation over the years in respect of goodwill was reduced by 10% and frozen. The part of the goodwill transferred into the notes was the current value of goodwill less its purchase cost ...

18. The intention was not for there to be a substantial cash handout of £6.3 million to those partners. The way in which an asset such as goodwill is represented in the accounts is to show its value coming across into the capital accounts of the various equity partners… When the revaluation element of goodwill was placed into a note, capital accounts of the various partners fell accordingly on the face of the balance sheet. However what was done was that gradually over time small amounts of the removed goodwill would be reintroduced into the capital accounts. We took the total amount of goodwill that had been placed in the note to the accounts and worked out for each individual partner how many years the partner had between 1 January 1999 and their normal date of retirement age 60. The total sum of revaluation goodwill that had been placed in the note attached to their name would then be reintroduced in an equal percentage each year spread across the period through to their retirement. By way of numerical example if a particular partner had £100,000 of revaluation goodwill placed against their name in the note and had 20 years through to retirement then each year £5000 would be brought back into that partner's capital account in respect of the accrued revaluation goodwill. (This is what was meant in the resolution which was approved on [28] January 1999 by the phrase "the goodwill value at 31.12.97 he paid out to retirement". "

The effect of the process would be that a partner would have benefited from the amounts recredited annually to his capital account in that he may have been able to make additional drawings during the year. When he retired, the balance remaining would be paid out by the firm to him as part of his capital account.

36. The consolidated accounts for years subsequent to 1999 were prepared in the same format. Mr Castledine's name at no stage appeared in the schedule stating the "amount due for goodwill". Nor did the names of any others who became partners from 1999 onwards. The total amount stated in that schedule reduced year by year, as would be expected to happen from the process of gradual recrediting to capital accounts, and the retirement of partners as time went by. The amounts attributed to the partners named in the schedule continued to be unequal.
37. These then were the "new arrangements" that were put in place by the changes voted on by the partners at the meeting in January 1999. The new arrangements were not at the time put into writing in any greater detail, either by amendments to the partnership agreement or some document comprehensively describing them. Nevertheless, apart from Mr Castledine and his witness Mr Stubbs, none of the other witnesses, including Mr Evans who was called on behalf of Mr Castledine, disputed Mr Bentley's description of the nature and effect of those arrangements. Mr Talbot expressly accepted (transcript, day one, page 37) that the resolutions were effective to introduce these changes as between the partners in the firm at that date, and that the effect of the new arrangements was not such as to divide the ownership of the goodwill equally between those partners, his case being put on the basis that whatever the arrangements as to ownership of goodwill between the other partners, the terms of Mr Castledine's joining the firm conferred on him an equal share of that goodwill. Mr Castledine in his oral evidence continued to maintain that the effect of the new arrangements was to introduce an equal ownership of goodwill between all the partners, but that contention in my view was completely unsustainable (quite apart from the concession made by Mr Talbot). It was not supported by the evidence of any other witness apart from Mr Stubbs, who said only in his witness statement that he 'became aware' that goodwill was owned equally by reference to accounts and other documents after he became a partner, but had no convincing answer when it was put to him that those documents showed no such thing. In my judgment it was not consistent with any of the documents produced prior to, at the time of, or subsequent to the introduction of the new arrangements.

The alleged goodwill term

38. I come on then to the events surrounding Mr Castledine's joining the firm, and his key allegation that in the course of meetings with Mr Stockdale he was told expressly that he would acquire an equal share of goodwill. Mr Castledine's pleaded case in this respect, as amended at the opening of the trial and set out in the re-amended Particulars of Claim, is that he met Mr Stockdale, the National Managing partner of Bentley Jennison to discuss the possibility of his joining the partnership on four occasions between 4 October and 29 October 1999, and:

"5. During these meetings, Mr Stockdale stated, inter alia:

(a)…

(b) that the firm was looking at options for sale to one of the larger companies who were at that time buying up accounting practices e.g. American Express, and that the claimant would share equally in any gain since goodwill was held in equal proportions and not based on profit shares…

9. In the premises, the terms on which the claimant joined the partnership were (i) the terms contained in the [Partnership] Agreement and (ii) the expressly agreed term that the claimant would acquire an equal share of the partnership's goodwill on joining (the "goodwill term"), alternatively if (which is denied) the goodwill term was not agreed, the terms contained in the [Partnership] Agreement alone. "

This pleading is in my view far from clear but must be taken as alleging that the alleged statement that goodwill was held in equal proportions led to an expressly agreed term that he would acquire an equal share on joining.

39. In his fifth witness statement, Mr Castledine describe what was said to him in very similar terms, as follows (B/5/p6):

"8(i) the firm was looking at options for sale to one of the larger corporates who were at the time buying up accountancy practices e.g. American Express, and that I would share equally in any gain since goodwill was held in equal proportions and not based on profit shares. My meeting notes in this respect say "American Express might buy out".

9. Kevin Derbyshire, a former partner of mine at BDO Stoy Hayward, agreed to join the firm at the same time as I did and was in at least one of the pre-joining meetings attended by me with Mr Stockdale.

10 … I am sure that Mr Stockdale did say that we would have an equal share in the firm's goodwill, although my notes do not record this. I clearly remember that Mr Derbyshire and I spoke about this as we drove away from the meeting and our expectation was of an equal share on a sale; so I am sure that Mr Stockdale must have said, or at the very least, implied this. Had this not been the case, I am sure that one of us would have questioned Mr Stockdale about our share in the goodwill of the firm in this discussion. "

40. Mr Castledine recognises that the notes he made at the various meetings contain no reference to the ownership of goodwill or sharing in the proceeds of sale of goodwill. They range over wide areas of the firm's business and strategy, its profitability and the share of profits Mr Castledine might have, and include discussions of the amount he would be required to put in by way of capital. The passage he specifically refers to is in a section which clearly reflects a discussion about the firm's future plans and whether there was a prospect of the business being sold. It reads as follows (D/23 p7):

"BJ are seeking to grow in a particular niche

They have a clear game plan

Profits are growing

No chance of upward merger

[No chance of] larger practice buying

American Express might buy out"

If there was any discussion as to the benefit to Mr Castledine on such a sale, or whether it was linked to ownership of goodwill, he did not record it.

41. Paragraph 10 of the witness statement moves away from the express statement that was pleaded, opening up the possibility that there was only an implication. Mr Castledine was, understandably, pressed in cross-examination about whether his evidence was that Mr Stockdale had said to him exactly the words set out in the pleading. He said repeatedly that he was unable to recall the exact words used, though he was certain of the understanding that he gained as a result of what was said. He said that Mr Stockdale "might for instance have said 'the practice was owned equally and as a result…', because he did use that term. He used that term on a number of occasions. He may well have used that term; I can't remember if he used the term 'the practice' or 'the goodwill' " (Day 1 p57 line 17).
42. The concept that the practice was owned equally is one that is mentioned at various points in the strategy papers and minutes, but in my judgment it is clear from reading those documents and from the witness evidence that it indicates a philosophy or aspiration of equal participation and unity of purpose of the partners and not any statement of immediate movement to equal ownership of goodwill or other partnership assets. Mr Evans, who gave evidence for Mr Castledine, accepted that this was so. The June 1998 paper for instance when using this expression put the word 'owned' in quotation marks (see para 6.2 quoted above), indicating that it was not used in its literal sense. There would thus be a very substantial difference between Mr Stockdale saying that Mr Castledine would 'share equally in any gain on sale of goodwill because the practice was owned equally' (indicating an equal division of capital profit on the sale of goodwill arising from the philosophy behind the January 1999 new arrangements but implying nothing about the underlying ownership of the goodwill value in the balance sheet) and his saying that Mr Castledine would share equally in such a gain 'because goodwill was owned equally'.
43. Mr Stockdale denied that he would have said, or implied, that goodwill was owned equally between the partners, not least because it was not true. My finding as to whether he did or not turns on the relative credibility of the two men as witnesses. The burden of proof in establishing that such a statement was made is on Mr Castledine. I am in no doubt that he has not discharged it. There are many reasons that lead me to this conclusion; it is sufficient to mention the following:

i) Mr Castledine's own evidence as to exactly what was said was uncertain, as described above, in circumstances in which the meaning of what was said depends on the exact words used.

ii) All that Mr Castledine said he was sure of was the impression that was left on him from whatever words were used. I do not regard that as a reliable indicator of what was said; Mr Castledine was in my view not an impressive witness. Mr Callman described him in his closing submissions as having been "evasive, argumentative, dissembling, inconsistent and, at times, simply disingenuous". I agree. There is a very strong possibility, in my view, that Mr Castledine's firm conviction as to the effect of what was said has arisen because he has convinced himself that this was so in the course of his long and aggressive pursuit of the grievances that he feels against Bentley Jennison, and against Mr Stockdale in particular, rather than being his reliable recollection of what in fact happened. That pursuit has involved Mr Castledine putting forward in correspondence and in his oral evidence a number of serious and in my view wild allegations, such as that the manner of treatment of the £6.3m revaluation goodwill was a fraud on the Revenue or incoming partners like himself, and that documents had been deliberately withheld from him before he joined the firm in order to mislead him. Mr Callman described these, justifiably, as "conspiracy theories". None of them was in my view supported by the evidence. It has also led Mr Castledine to write a number of letters to senior members of Bentley Jennison putting forward his extreme allegations and making what can at best be described as thinly veiled threats that he will publish them to other partners, or Revenue or other authorities, unless his claims are settled. This conduct in my view is, to put it no higher, very damaging to his credibility.

iii) The only other witness called who was at any of the relevant meetings was Mr Kevin Derbyshire, who was previously a partner at BDO Stoy Hayward with Mr Castledine and negotiated with him for them both to join Bentley Jennison. Mr Castledine's evidence (B/5 p6 para 10) was that Mr Derbyshire had been present at a meeting at the Hilton Hotel when the statement about equal ownership of goodwill was made, and that the two of them had regarded it as important and specifically discussed it and what it meant for them when returning from the meeting together in a car, near the power station at Ratcliff. Mr Derbyshire gave evidence for the defendants and did not support what Mr Castledine said or the view he had taken of the partnership arrangements. He said in his witness statement (B/8 p2 para 10) "I do not recall anything being said at the meetings about the prospect of BJ being sold. Neither do I recall anything being said about ownership of goodwill" and later (para 19-20) "During my time as a partner I have not considered myself to be entitled to an equal share in the firm's goodwill… I think some of the older partners who were part of the group entitled to the goodwill had actually bought into goodwill in the past. After the [1999] AGM however partners were no longer expected to buy goodwill as they had in the past. However when they departed from the firm they would not receive a payment for goodwill either. Basically they would come in with nothing ad they would leave with nothing which is in line with the modern approach taken by accountancy firms… if during a [partner's] time with the firm the business was sold then that partner would share in any profit ie a surplus over the balance sheet value of goodwill as a result of that sale." Pressed in cross examination about the meeting alleged at the Hilton Hotel, Mr Derbyshire said he clearly recalled two other meetings to discuss joining Bentley Jennison, but neither of them was at the Hilton hotel and he could recall no discussion of ownership of goodwill at or after any of them. It is of course possible that Mr Derbyshire's memory has completely failed him in respect of this meeting, but do not think it is likely that there can have been a discussion which as Mr Castledine contended, left a clear impression on both of them that they would acquire an equal share in goodwill in circumstances where Mr Derbyshire says he has never shared that impression.

iv) It was suggested that Mr Stockdale was not careful or consistent in his negotiations with prospective partners in that he did not show all of them the same documents and his offer letters to them were not all in similar terms. He appears to have sent all of them a copy of the Partnership Agreement, but only to have provided other documents (such as the Equity Partners Deed) on specific request. However this seems to me for the most part an unrealistic criticism- the course of negotiation with new partners joining from other firms is bound to be dependent on the particular matters of concern to those individuals, and the letter of offer sent to them will inevitably have to be tailored to the discussions that have been held. That said, it clearly would have been prudent for Mr Stockdale to have considered a minimum quantity of information about the firm that all new partners ought to receive.

v) It was suggested in particular that Mr Stockdale may well have made the statement to Mr Castledine that goodwill was owned equally because he made similar statements to other partners in their letters of offer. Mr Talbot relied on five such letters which he said made such statements without qualification:

a) A letter to Ms Sue Bayley, dated 29 March 2004 (D4/4 p5) which said "You are aware that Bentley Jennison is "owned" equally by the Equity partners. As such any matter that is the subject of a vote of the Equity partners is on the basis of "one man one vote". With regard to ownership the effect of this is solely that if any profits, or losses, of a capital nature arise they are split equally between the Equity partners at the time they are incurred." This however is very far from an unqualified statement, again putting the reference to ownership in quotation marks and also making it clear that the concept of equal ownership meant "solely" equal sharing of capital profits and losses.

b) Four other letters, all sent in 2004 (D4/4 pp 53, 57, 68 and 88) and all using identical language so that the same observations apply.

These letters, if anything, seem to me to support Mr Stockdale's position and not that of Mr Castledine.

vi) The supposed statement that goodwill was owned equally is not one that Mr Stockdale was likely to have made. It was not true, because as I have set out above the effect of the 'new arrangements' was not to equalise the ownership of goodwill between the existing partners. Mr Stockdale was an architect of the new arrangements and well knew that this was the case, so that if he had made such a statement it could only have been as a result of a deliberate falsehood. If such a false statement had been made, it is not a matter that could be expected to have remained undiscovered- Mr Castledine would be able to find out quickly from looking at the accounts and talking to other partners that no one else in the firm (with the possible exception of Mr Stubbs, although he did not join until later) considered that goodwill was owned equally or that all partners had a share in it.

vii) If Mr Stockdale had intended to state that goodwill was owned equally, he would have been more likely to say that the consequence on a sale of goodwill would be that the proceeds would be shared equally between the partners, rather than the gain. Reference to "gain" must in the context be to the amount of proceeds exceeding the value in the balance sheet, raising the question how the proceeds up to the balance sheet value were to be distributed. There would be no need to differentiate, if this was also to be done equally between the partners. On the other hand, there would be every reason to differentiate if the balance sheet value was considered to be owned in unequal proportions, but the amount of any profit was to belong equally to all partners, which was the effect of the "new arrangements". Mr Callman attempted to bring this distinction home to Mr Castledine in cross-examination, when he appeared to me to be doing his best to obfuscate by his answers.

viii) The alleged statement does not appear in any of the contemporary documents. I have referred to Mr Castledine's own notes of the meetings. Before he agreed to become a partner he made a detailed list of points to discuss with Mr Stockdale (D/3 p 13) which makes no mention of it. It is not mentioned in either the letter sent by Mr Stockdale recording the specific terms of his offer to Mr Castledine (D/19)^[1] or the deed of adherence drafted by the firm which was the operative instrument by which he became a partner (D/22), nor was its absence remarked on by Mr Castledine at the time despite the importance he says he attached to it and the fact that he says that he noticed the references in the Partnership Agreement to the Equity Partners Deed before he signed the deed of adherence. His pleaded case refers to his having made enquiries about the Equity Partners Deed and being told that it was no longer in effect (Particulars of Claim para 8), the impression being there given that this was before he became a partner but it is clear from his own witness statement that his enquiry about the Deed was not made until after he had joined the firm (B/5 p 17 para 34-5) so that whatever he was told about it cannot have formed part of his decision to join the firm.

ix) Nor was it raised by Mr Castledine for a considerable period after he came to be in dispute with the firm. At the time of his retirement, a number of documents were generated in relation to the grievances he had and the terms he wished to negotiate. None of them mentions the alleged statement.

x) The allegation that Mr Castledine retained a share in goodwill notwithstanding retirement was first made in a letter to Mr Bentley dated 25 April 2005 (E/1 p5) in which he said:

"2. … I appreciate that partnership goodwill is not revalued in the firm's accounts. Given the substantial increase in the firm's turnover since I joined the partnership, there has however been a significant increase in its true value.

3. … As this purchased goodwill is therefore part of the firm's net assets, I acquired my share of it together with my share of all other assets and liabilities of the firm when I joined the partnership. My share in the goodwill value has [since] increased …

Tony [Stockdale] did confirm on more than one occasion in conversations to me, Kevin Derbyshire and Paul Johnson that goodwill is owned equally.

4. My fundamental disagreement with certain of the figures you have given to me to enter onto my tax return is that you have assumed there has been a disposal by me of my share in the partnership goodwill. However, the partnership agreement states at clause 26.3

The share of an Outgoing Partner in the assets and liabilities (other than goodwill) as at the Succession Date shall vest in the Continuing Partners …

The disposal of goodwill is therefore specifically excluded from the sale of partnership assets. As far as I can see there is no mention in any of the documents I signed at the time of my retirement of any sale by me for any consideration or otherwise of my share in the partnership goodwill. "

The thrust of this letter is therefore that an interest in goodwill has been acquired automatically, as a necessary consequence of Mr Castledine having become a partner in the firm. It does not appear to be alleging a specific statement or agreement made prior to joining that Mr Castledine would acquire an equal share of goodwill. Although there is a reference to Mr Stockdale having 'confirmed' that ownership of goodwill was equal, in the context this appears (although the matter is not free from ambiguity) to be a reference to confirmations said to have been given after Mr Castledine joined, and not an assurance given or agreement reached before he joined.

xi) That letter led the firm to refer the matter to solicitors, who replied on 15 June 2005 setting out the firm's position as to the new arrangements in relation to goodwill, and in particular that since those arrangements came into effect new partners joining the firm introduced capital but did not acquire goodwill by virtue of becoming partners. Mr Castledine responded with a detailed letter dated 7 July 2005 (E/1 p 13) in which he said that goodwill had been discussed on several occasions both before and after he joined the firm. In relation to discussions after he joined, he said that he had been concerned when Mr Stockdale had "made it very clear… that because goodwill was owned equally by all the partners then in the event of a sale at undervalue the deficit would be shared equally between all partners at the time" (underlining in original).

xii) For similar reasons to those given above, I consider it unlikely that Mr Stockdale would have said this. If Mr Castledine owned an equal share of goodwill, he would be entitled to an equal share of the proceeds, whether more or less than book value, and if he (unlike other partners) had been given that share without payment he would suffer no loss. The risk of loss to partners who had not purchased a share in goodwill arose because under the "new arrangements" they participated in capital losses as well as profits. It was a risk recognised by the non- equity partners at the time the new arrangements were approved, and resulted in an amendment to the wording of the resolution to introduce a temporary cap on their exposure (D4/3 p1).

xiii) In relation to discussions before he joined, Mr Castledine referred (at page 15) to discussions about profits, which he said Mr Stockdale had over represented to him, and went on:

" it was however the representations made by Tony in relation to goodwill which proved to be one of the deciding factors in my agreeing to join Bentley Jennison… he said that the firm's medium-term aim was to sell out to a multiplier such as Tenon… Kevin and I were left with the very clear impression that all partners would gain from any such sale and a sale of this nature was a realistic objective. At no time in these discussions did Tony Stockdale tell us that a disposal at below balance sheet value would in fact leave us open for an equal share in the loss… the only other point made about goodwill in the meetings leading up to me agreeing to join the practice was that each partner's drawings were restricted each year by £6000 to finance the cost of newly acquired goodwill… new partners do acquire goodwill-they acquire an equal share of it on admission to the partnership and they acquire a full and equal share of the risk of any loss or chance of any profit on disposal. "

This also was a reference to Mr Castledine's position that he automatically acquired a share in goodwill by virtue of becoming a partner, and to what he was told about the likelihood of realising a gain on sale. It does not refer to any specific assurance given by Mr Stockdale about the acquisition of an equal share in goodwill, and the reference to exposure to loss on a sale below balance sheet value suggests that he has no interest in the proceeds up to that value. If such an assurance had been given, this would have been an obvious opportunity to mention it even if only by way of reinforcing what Mr Castledine says he understood to be the position in any event. When asked about this in cross-examination, Mr Castledine said that he had no need to mention the express promise that he would acquire an equal share in goodwill because he had seen during his time as a partner that goodwill was shared equally between the partners. In his pleaded case and in his evidence Mr Castledine had referred to a considerable number of factors which he said confirmed that goodwill was owned equally between the partners while he was a partner at the firm. I will refer to these in due course; in my view none of them made out that contention (which in any event was not pursued by Mr Talbot, as referred to above).

I note in passing that that although Mr Castledine remarks, apparently intending a criticism, that he was not told by Mr Stockdale that an entitlement to share in gains carried a concomitant risk of sharing in losses he was well aware of the point, as would be expected of an experienced accountant and as shown by his own closing words quoted above. When cross examined about it, although to my mind seeking to dance around the point (Day 2 pp 96 ff) it is clear that his concern was not that he did not know he was potentially liable for losses but that he had come to think that losses might be incurred and wished to be protected from them.

xiv) In a letter dated 31 August 2005 to Mr Stockdale (D/161), Mr Castledine referred to a number of representations alleged to have been made in meetings on 5 and 7 October 1999 before he joined the firm in relation to its profitability. He did not mention any assurance about acquisition of an equal share in goodwill. His explanation in cross-examination, which I accept, was that he was separating out the issues relating to misrepresentation of profitability from his claim that he retained a share in goodwill at the request of the firm's solicitors, who regarded them as unrelated.

xv) Mr Castledine then pursued his claim against Mr Stockdale for alleged misrepresentation as to profits, which was in due course compromised. In that compromise he expressly reserved his position as to the making of further claims regarding the ownership of goodwill. He then sent an e-mail to Mr Stockdale on 11 September 2007 (E/1 p 24A) setting out his allegations in relation to goodwill, which focused entirely on his allegations as to the effect of the documentation entered into when he left the firm, and again made no reference to any specific assurance prior to joining as forming the basis of his alleged acquisition of goodwill.

xvi) It seems that Mr Castledine having failed to secure a submission by the firm to his claim then decided to press it by writing individually to every partner in the firm, by letter dated 5 November 2007. I have not been able to find a copy of that letter in the bundle, but it is referred to in other correspondence and was followed by a threatening letter and memorandum also sent to every partner in the firm on 27 November 2007 (E/1 p 38-40). That document also focused on his contentions that he had not relinquished a share of goodwill when he left the firm, making no mention of any assurance that he would acquire such a share when he joined it.

xvii) In response, the firm's solicitors wrote on 3 December 2007 (E/1 p41) asking amongst other things that Mr Castledine should explain "your understanding of the definition of goodwill upon joining the practice, how it was calculated and the amount apportioned to you on joining BJ and how it was subsequently treated in the accounts". Mr Castledine's response the following day (page 43) was that he had already set out clearly the basis of his claim in his previous correspondence. So he did not then take the opportunity of referring to the specific promise he now says he was given.

xviii) The alleged statement was first referred to in the original particulars of claim. As Mr Callman pointed out, the original pleading was that the terms on which Mr Castledine joined the partnership were only those set out in the Partnership Agreement, and it was not until the particulars of claim were re-amended at the opening of the trial that it was pleaded that the alleged statement was part of the mechanism by which a share in goodwill was acquired.

44. I reject therefore Mr Castledine's evidence and find that Mr Stockdale did not tell him either expressly or by implication at any point in the negotiations prior to joining the firm that goodwill in the firm was owned equally, or that he would acquire an equal share in goodwill upon becoming a partner. I am satisfied however that it is likely, as he accepted, that Mr Stockdale said to Mr Castledine that if there was a sale of goodwill whilst it was a partner he and all other partners would share equally in any gain. This however was not a matter of ownership of goodwill but of the distribution of capital profit between the partners, and was in accordance with the intention and effect of the "new arrangements".
45. Having made that finding, it is not necessary for me to deal with the arguments raised as to intention to create legal relations or want of authority in making the disputed statement.

Construction of the Partnership Agreement

46. I move on to Mr Talbot's submission that even without the specific assurance pleaded, the terms on which Mr Castledine was admitted as a partner were contained in the partnership agreement that he was shown, and that on their true construction he acquired an equal share of goodwill on joining.
47. It is common ground that prior to joining Mr Castledine was sent a copy of the 1995 Partnership Agreement. He was not given, and did not ask for, a copy of the Equity Partners Deed. Perhaps remarkably, he does not seem to have seen any accounts of the firm he was about to join. He said in his witness statement that he had asked for accounts but "cannot remember Mr Stockdale's reason for not providing them". The notes he made of points to discuss with Mr Stockdale (D/23 p15) include the entry "Accounts/ MIS", against which he has placed a tick, which does not make clear what question he asked though it does suggest that whatever it was, he was satisfied with the response. I proceed on the footing that he was not given a set of accounts and therefore did not see any references in those accounts to the holdings of goodwill.
48. Mr Castledine's evidence was that he was given the first 41 pages of the June 1998 strategy paper. These comprised five sections of the paper, headed respectively "Summary and Conclusions", "Geographical Coverage", "Client Base", "Services" and "Organisation Structure". He was not sent the remainder of the paper, being for further sections headed respectively "Goodwill", "Profit Sharing", "Accounting", and "Implementation", or the 10 appendices, one of which was headed "Draft goodwill values and percentages at 31 December 1997". Nor was he sent the contents page which would have disclosed the existence of the other sections. Mr Castledine presented these omissions as part of a deliberate campaign to mislead him as to the firm's affairs and conceal the existence of the obligation on the firm to pay out the value of goodwill to partners, which he regarded as a hidden liability of £6.3 million. Mr Stockdale's evidence was that he could not positively recall which sections of the paper he had sent to Mr Castledine, but had no reason to dispute Mr Castledine's contention that he received only the first five. These, he said, would have been sent because they related to the business strategy of the firm, and Mr Castledine asked questions about that. He would not have regarded the remaining sections as relevant to those enquiries.
49. I am bound to say that both these explanations seem somewhat incomplete. On Mr Castledine's copy of the strategy paper (D/4 p4) he has marked the two statements referred to above:

"- the practice should be owned equally by all the partners

- the principle of goodwill should be abolished and the value paid out to existing partners over an extended period "

writing against the first "what does this mean" and putting a box round the word "equally" to emphasise it. So it would appear that he noticed these two points, and intended to ask Mr Stockdale about them. If he did, he does not appear to have made a note about the reply. He might also have noticed that the pages he had been provided with may not have been complete, since these two points did not appear to relate to anything in the five sections he was given. Mr Castledine does not address these points in his witness statement, and I do not recall that he was asked about them. It would be surprising if Mr Stockdale thought that the firm's arrangements in relation to goodwill, profit sharing and accounting would not be of interest to a prospective partner who was enquiring about the strategy of the firm even if they were not what he had been specifically asked about, so that providing information relevant to the areas he had been asked about does not seem an adequate reason for excluding those sections of the strategy paper. But I am not persuaded that this means that the reason for exclusion was a strategy to mislead Mr Castledine about the obligation to pay out the value of goodwill; apart from anything else the extract that have been provided, which Mr Castledine had remarked on as noted above, referred to that obligation.

50. I note also that although Mr Castledine felt strongly that the "new arrangements" for repayment of goodwill value to pre 1999 partners, and the way in which part of the value of goodwill was moved from the balance sheet to a note were in some way sinister, none of the other witnesses called thought there was anything untoward about them. His own witness, Mr Evans (a partner from 1995) disawowed the suggestion that it was a fraud on the Revenue (day 5 p 32) and agreed in every material respect with the description given by Mr Bentley and Mr Stockdale of the new arrangements and how they came about. Mr Stubbs, another witness for Mr Castledine and a partner from 2000 said that the accounting treatment of the £6.3m had not caused him any concern (Day 4 p115). Mrs Dumbrill, a witness for the defence but a partner who, according to Mr Castledine had told him she was not aware of any repayments of goodwill by the firm, confirmed that although she had initially been surprised by the movement of part of the goodwill value to a note, when taken through the figures she was not concerned and regarded it as a merely presentational change (Day 7 p 99).
51. Mr Talbot's submission was that the Equity Partners Deed was only referred to in the definitions section of the Partnership Agreement, that it was common ground that this deed was obsolete by the time Mr Castledine joined the firm, and that therefore in considering the partnership agreement references to that deed should be struck through. The result, he said, was that the agreement was to be construed as if it were silent as to the ownership of goodwill. That being the case, by virtue of the rule that unless otherwise agreed partners share equally in the partnership property Mr Castledine acquired an equal share of goodwill along with all other assets of the partnership when he joined, which he had not relinquished.
52. I do not accept this submission, for a number of reasons. The first point to make is that it is not the defendant's position as I understand it, nor is it in my judgment the case, that the Equity Partners Deed had ceased to have any effect whatever at the date Mr Castledine become a partner. Mr Talbot referred to paragraph 27 of Mr Callman's skeleton argument, in which he says that "on everyone's case [the Equity Partners Deed] did not apply to the claimant in any event" as establishing the "common ground". But I do not think that paragraph indicates a concession by Mr Callman that goes as far as Mr Talbot contends for. Mr Callman makes clear that his position is that Mr Castledine joined a firm which operated on the basis of the "new arrangement", i.e. one in which the goodwill of the firm remained owned by the pre-1999 Equity partners who had paid for it, but the intention was to move towards the equalisation of goodwill over a period.
53. It is no doubt the case that the effect of the new arrangements was that the Equity partners agreed that some of the mechanisms provided for in the Equity Partners Deed would no longer operate, in particular the annual revaluation of goodwill on the balance sheet, the requirement that on retirement goodwill should be sold to the then Equity partners, and the requirement that a new Equity Partner should purchase a minimum of £100,000 of goodwill from existing Equity partners. In the latter respect, in particular, it could be said that the provisions of the Equity Partners Deed "did not apply" to Mr Castledine. But the partners did not agree in January 1999 that the interests in goodwill that had been established by way of purchase in previous years would be abandoned so that goodwill would, expressly or by implication, be immediately vested equally in all the partners at that date. Mr Evans, giving evidence for Mr Castledine, confirmed this to be his perception (Day 5 p 33ff). Those interests were established by the date Mr Castledine joined the firm, and the question is whether the terms of his joining had the effect of varying them so as to confer an interest in goodwill on Mr Castledine.
54. Nor is it in my view the correct way to construe the Partnership Agreement that the references in it to the Equity Partners Deed should be simply struck through. They were not meaningless. It is not quite correct that the only reference to the deed is by way of the defined term; it is also referred to in the definition of "Voting Rights" and in clauses 7 (division of profits) and 18 (functions of the management board). The definition of the deed referred also to the defined term "Equity Partners" which is used in many places in the Agreement and means "the equity- sharing partners in the Firm from time to time". It would thus have been clear to anyone reading the partnership agreement, particularly one who considered himself to be joining as an equity partner, that another document existed which potentially affected important matters relating to the operation of the firm and the status of an equity partner. Specifically, that it dealt with matters "relating to the ownership of goodwill in the Firm", as made clear by the defined term. These cross-references were in my judgment sufficient to put a person becoming a party to the Partnership Agreement on notice that his rights as a partner were or might be subject also to matters set out in the Equity Partners Deed. Mr Castledine could have made enquiries about that deed; it was clear from the evidence that other prospective partners had done so and, at their request, a copy of the deed had been provided to them. He said in his witness statement that he noticed the definition of the Equity Partners Deed when he read the Partnership Agreement (B/5 p17 para 34), which he suggests was after the meeting on 29 October but (he implies at least) before he joined the firm. He did not however make any such enquiries, on his own evidence, until after he had joined the firm, and then not by raising the matter with Mr Stockdale (ibid, para 35).
55. If the two documents are read together, as the cross-references in my judgment require, it is clear that a person becoming a partner under the terms of the Partnership Agreement does not thereby acquire a share in the goodwill of the firm. Rather, it is clear that the goodwill in the firm is owned only by those who are party to the Equity Partners Deed, and that its acquisition and disposal is not an automatic process occurring simply by virtue of becoming or ceasing to be a partner, but one of explicit transactions entered into between those parties. A person such as Mr Castledine who becomes a partner having seen one document but not the other, is put on notice that the terms of the other document may affect him by the cross-references to it, and cannot in my judgment seek to have the document he has seen construed as if those references were excluded, or as if he had specifically asked questions about that other document had been told that it was of no effect whatever, when he did not in fact ask those questions or receive those answers.
56. The terms on which Mr Castledine became a partner were recorded in the deed of adherence that he signed as follows (D/22):

"With effect from one of November 1999, Paul Castledine has become a Partner in the Firm of Bentley Jennison … and agrees to be bound by the terms of the Partnership Agreement dated 11 December 1995 (and all amendments to it) which govern its affairs (of which he has seen a copy and in relation to which he has had an opportunity to take his own legal advice) as if he had been an original signatory to that Agreement."

57. Mr Talbot submitted that the natural reading of this deed was that Mr Castledine was bound only by the documents which he had seen, and was not affected by any documents, such as the Equity Partners Deed or those relating to the resolution of the partners meeting in 1999 introducing the "new arrangements", which he had not. But in my judgment this submission goes too far. It is true that, looked at in hindsight in the circumstances of this case, the wording of the deed of adherence is not ideal. It may be queried whether the words "of which he has seen a copy…" refer only to "the terms of the Partnership Agreement" or whether they also include "and all amendments to it", and if the latter whether they indicate an intention that Mr Castledine should be bound by amendments of which he has seen a copy but not by amendments of which he has not seen a copy, perhaps because they have not been reduced to writing.
58. The submission goes too far because, for the reasons given above, the terms of the Partnership Agreement that Mr Castledine had been provided with did not themselves confer on an incoming partner an interest in goodwill. The goodwill ownership arrangements set out in the Equity Partners Deed were not an "amendment" to the terms of the Partnership Agreement, by which Mr Castledine could argue he was not bound if he had not seen a copy, but arrangements which complemented, and, in the words of the defence, "dovetailed with", those in the Partnership Agreement itself, dealing with the issues relating to acquisition of goodwill that were not provided for by the Partnership Agreement.
59. Nor does this involve Mr Castledine being "bound by" the provisions of the Equity Partners Deed. He was not a party to it and did not, for instance, become bound by the additional restrictive covenants it contained. He was bound by the Partnership Agreement, which did not expressly confer on him an interest in goodwill, and did not do so by implication, because it sufficiently put him on notice that the existing goodwill was owned by partners who had acquired and held it under the terms of the Equity Partners Deed.
60. Mr Castledine's position was thus in respect of goodwill exactly the same as if he had been an original signatory to the Partnership Agreement but not the Equity Partners Deed.
61. Mr Castledine referred extensively in his correspondence and his evidence to the terms of clause 26.3 of the Partnership agreement, which provided that on retirement a partner's share in the assets "other than goodwill" should vest in the continuing partners. This he said confirmed that he had a share in goodwill, and retained it after his retirement. In my view, it confirms nothing of the sort. When the Partnership Agreement is read together with the Equity Partners Deed, as in my judgment it must be, it is clear as Mr Callman submitted that the explanation for that provision is that interests in goodwill are regulated by the Equity Partners Deed, which provides for the purchase of an outgoing partner's share in goodwill by way of explicit transaction and therefore required that such interests be excluded from the automatic vesting provisions in the partnership agreement. Further, an automatic vesting clause in respect of assets excluding interests in goodwill does not imply that every outgoing partner must necessarily have an interest in goodwill. That was plainly not the case in 1995 when the Partnership agreement was drawn up, and it did not become the case in 1999 when the "new arrangements" were put in place.
62. Mr Castledine also placed weight on the fact that he was referred to as an "equity partner". But that term has no specific meaning independent of the terms agreed between partners in a particular case, and in particular does not necessarily imply ownership of an equal or any other share in goodwill. It is for instance very commonly used to denote partners who are entitled to a variable and potentially unlimited share in the firm's profits, as distinct from "fixed share partners" whose entitlement is capped at a specific amount. In relation to Bentley Jennison, insofar as it was a term used in the Partnership Agreement, it should have indicated to him that the provisions as to ownership of goodwill in the Equity Partners Deed might affect him.
63. The finding that on its true construction the terms of the Partnership agreement to which Mr Castledine became a party did not confer on him a share in goodwill is sufficient to dispose of the claim, since it follows that he is not entitled to any of the forms of relief sought. But for completeness I wish to go on and deal, relatively briefly, with some other aspects of the evidence and argument.

Other matters

64. Mr Castledine's pleaded case proceeded on the footing that goodwill was owned equally between all the partners in the firm, and refers to a number of matters set to have provided confirmation of such equal ownership. It is not entirely clear how that part of the pleading fits with the concession that Mr Talbot made that the effect of the new arrangements was not such as to create equal ownership of goodwill between the other partners in the firm. It would seem to follow from that concession that Mr Castledine's position is that if there were (say) n partners prior to his joining, he acquired a 1/n+1 share of the goodwill at that date, but the other n/n+1 share was not necessarily held equally by the other n partners. But all of Mr Castledine's evidence seemed to be premised on his original contention that all partners in the firm, however many there were from time to time, shared equally in the goodwill.
65. Firstly, Mr Castledine referred to the December 1999 accounts which, he said "showed purchased goodwill an asset on the balance sheet and did not show any separate goodwill capital accounts, which is how the claimant would expect accounts to be drawn up if the goodwill was held in any proportions other than equally." (Re- Amended Particulars of Claim para 10(a). Those are the consolidated accounts that I have referred to above, in the bundle at D/144. They did not include a schedule of the separate capital accounts maintained for each party, though there is no doubt that the firm maintained such records, and that goodwill, as might be expected, was only one element going to make up the balance on a partner's capital account. They did include as a schedule that note I have referred to above showing a sum of approximately £5.2 million described as "amount due for goodwill" attributed in distinctly unequal amounts to certain partners only.
66. When Mr Castledine was asked about this schedule he said he "understood these accounts to mean that that schedule has nothing whatsoever to do with the balance sheet and therefore, yes, I do not believe that unequal holding on there has anything whatsoever to do with the accounts, it has nothing whatsoever to do with setting out equal ownership" (day 5 p106 line 28). I found it impossible to accept this; the note is part of the accounts; the balance sheet showed the value of goodwill falling from approximately £11.4 million to approximately £5.6 million, a difference which Mr Castledine cannot have failed to notice, and I cannot believe that he did not realise that it had some connection with the schedule. Even if he was so incurious as not to inquire what the schedule meant, given that it referred to goodwill and showed unequal holdings of whatever it represented, it cannot possibly have been a foundation for concluding that goodwill was owned equally.
67. Next Mr Castledine referred to "the tax computations which, though not detailed and not easy to understand did show that the claimant had acquired a significant share of the partnership goodwill." (Re Amended Particulars of Claim para 10(b)). This requires a little explanation. Each year, each partner in the firm was provided with a schedule of figures purporting to show the effect of acquisitions and disposals of goodwill between himself and other partners in the firm. The schedules prepared for Mr Castledine are in the bundle at D/164, beginning at page 5. The schedules there included cover the entire period of Mr Castledine's membership of the firm; it is accepted that the figures for each year were supplied to him separately after the end of the tax year for him to include in his tax return for that year.
68. These schedules were prepared by Mr Bentley. He and Mr Stockdale described the transactions they were intended to portray, referring to them as an "equalisation process". Mr Stockdale said that this was something that had been discussed with the partners in conjunction with the 1998 strategy papers, which referred to a process for equalising goodwill but did not set it down in detail. Their approach was that it was a matter that the partners in general were prepared to leave to the management team and the partner responsible for dealing with the firm's tax affairs to sort out. The system devised was that there would be a series of transfers between partners, the transferors being either partners who were retiring or partners who held above average proportions of the firm's goodwill. The transferees would be partners who held below average shares of goodwill. Each transfer was recorded as if it were a sale by the transferor for a price equal to the book value of the goodwill sold. The debit entry for the goodwill sold would therefore match the credit entry for the entitlement to the proceeds. The other side of the transaction would correspond; the transferee would be shown as acquiring goodwill with a given book value, the credit entry being matched by a debit entry of an equal amount representing the obligation to pay for it.
69. Thus the transactions did not involve in aggregate any movement of cash between the partners or any change in the amount of their capital accounts. The disposals and acquisitions of goodwill had tax consequences however, and in general so far as possible the amounts transferred were restricted to those which could be disposed of without incurring a tax liability. The aim was that over the years the ownership of goodwill between all the partners in the firm would be equalised. It was not explored what would have happened at that point; whether for instance the whole value of goodwill would be written off. There does not appear to have been any advance discussion with the partners concerned about the transfers shown as made to or from them. Rather, they were presented with a schedule each year showing the transactions documented in their names, which they then submitted with their individual tax returns as being disposals or acquisitions for CGT purposes.
70. The entries in the schedules for Mr Castledine show a number of acquisitions, beginning in December 1999 with one described as "purchase from SLH". SLH refers to Mr Simon Hand, a partner who retired at that date. The first column shows the consideration payable by Mr Castledine (£4,738), which is labelled 'Price' and 'Cost'. The second column shows his CGT base cost, which is the same amount in this instance and most but not all others. There are two further columns on the right of the page, the third shows a percentage figure representing the percentage of goodwill transferred and the fourth shows the book value of the goodwill transferred. In all cases, the entry in the first column (consideration) matches the entry in the fourth column (book value of goodwill transferred).
71. The figures in the third and fourth columns are totalled at the end of each tax year, showing the total amount, in percentage and value terms, of the goodwill held by Mr Castledine at the end of that year. By the final page, these figures had grown to a book value of goodwill of £309,843, representing 2.472% at the date of Mr Castledine's retirement. The total of all the amounts in the first column, representing the consideration payable by Mr Castledine, would also be £309,843. Mr Stockdale and Mr Bentley gave evidence that at that time, entries were made in the firm's records showing Mr Castledine disposing of the whole of the goodwill thus credited to him, and receiving an equivalent amount of consideration. The cumulative credit and debit entries were thus reversed, but the overall balance remained, as it always had been, zero.
72. I shall return to the effect of those transactions on Mr Castledine's position, but for present purposes it is sufficient to say that whatever Mr Castledine's understanding of those entries, and whether or not he had the benefit of the explanation which emerged in evidence, which I have attempted to summarise above, there could in my judgment be no conceivable basis for supposing that the schedules provided to Mr Castledine year by year showed that he had an equal ownership of goodwill. The percentage of goodwill he is shown as having commences at zero in December 1999 and rises to 2.472%, which would be completely inconsistent with his case that he had already acquired an equal share in goodwill (whatever share that was) when he joined in November 1999, and retained an equal share up to the date of his retirement. If Mr Castledine had acquired an equal share on joining the only transactions that might have been necessary after that date would have been to redistribute goodwill held by retiring partners equally among all the continuing partners. That is not what was done; transfers were made not only from retiring partners (identified in the schedule by their initials) but also some who had more than the average holding, referred to only as 'various partners' (see Day 6 p33). Mr Castledine may not have known who the 'various partners' were, but he must have been able to identify that they were not partners who had retired, since those had been separately identified. When he was asked about this, Mr Castledine maintained that what was shown in the schedules represented effectively a fictional presentation for tax purposes which "had nothing whatsoever to do with the commercial ownership of goodwill" (Day 3 p20 l26). There was no evidence to support the suggestion that the preparation of these schedules amounted to a tax fraud, which was not supported by any of the other witnesses and seemed to be of a piece with the other allegations made by Mr Castledine that I have referred to. Furthermore, the position he took in his oral evidence represented effectively the opposite of that which was pleaded; far from the schedules showing that the true position was that goodwill was held equally, he was forced to say that they did not represent the true position because they so obviously did not show that goodwill was held equally.
73. Next, Mr Castledine refers to a series of meetings held in 2001 or 2002 between Mr Stockdale on the one hand and four dissatisfied partners on the other. They were Mr Castledine, Mr Derbyshire, Mr Paul Johnson and Mrs Kathy Dumbrill. In such meetings Mr Stockdale is said to have confirmed that "because goodwill was owned equally, in the event of a sale gains or losses against the balance sheet value were shared equally" (Re-Amended Particulars of Claim para 10(c)). The meetings had been called because the four partners mentioned were concerned that the financial performance of the firm was such that there was a real risk of a loss being incurred. As I have indicated above in relation to other similar alleged statements, the reference to gains or losses rather than to proceeds of sale is in my view inconsistent with equal ownership of goodwill. In this connection, as in others, Mr Castledine took the position that equal sharing of gains or losses was not possible without equal ownership of the underlying asset, which is obviously not the case. He maintained a note of these meetings (D/33) which included the following:

" PJ asked BJ about Tenon sale: not talking

Based on acquisitions made to date, we are worth £30 million

1^st £10m = goodwill [illegible]. Balance to be split. No formula " (emphasis in original)

Asked about this in cross-examination (day 2, page 93) Mr Castledine said he thought the illegible word was "partners". It appears to begin with a 'p' but it has to be said that the rest of it is difficult to reconcile with "partners" or any abbreviation of that word. Nevertheless, that was Mr Castledine's own suggestion, rejecting others put to him. He went on to say:

" so bearing in mind that at that time there were equity partners that owned the goodwill and there were fixed share partners that didn't … and there was £10 million in the 2002 balance sheet… he was saying that 'first £10 million goodwill partners' -well that actually means, that's that conversation we had yesterday about the first -there's £10 million worth of assets on the balance sheet, and it sold for 30 million, the first 10 million would cancel out that asset. "

74. Mr Castledine was thus accepting, albeit hesitantly, that the first part of the proceeds of the sale of goodwill up to the balance sheet value would be paid to the equity partners that owned the goodwill shown in the balance sheet. He has not at any stage put forward any document or other evidence to suggest that the firm's records showed him as the owner of any part of this balance sheet value. On the contrary, the financial accounts (though I remind myself that Mr Castledine did not see these at the time, they show the position according to the firm's records) show that it is owned by the pre-1999 equity partners, except to the extent of transfers made under the equalisation arrangements. When it was put to him that what he had accepted supported the defendant's position and not his own, and that his note showed no reference to any statement that goodwill was owned equally Mr Castledine fell back on the unsustainable proposition that "profits or losses shared equally is confirmation of equal ownership" (Day 2 p95 line 1).
75. Mrs Dumbrill and Mr Derbyshire both gave evidence for the defendants. Neither of them recalled any statement having been made about equal ownership of goodwill, and neither regarded themselves as being an equal owner of goodwill. The evidence in relation to these meetings therefore did not show any confirmation by Mr Stockdale of equal ownership, but at best that Mr Castledine had persuaded himself, quite wrongly, that his equal entitlement to gains and liability for losses could only derive from equal ownership.
76. Finally, Mr Castledine referred to a further series of meetings in 2002 at which the partners discussed a proposal put forward by Mr Stockdale that the value of goodwill on the balance sheet should be amortised, that is to say written off against profits over a period. The proposal was that the reduction in profits would be borne equally by all the partners, and Mr Castledine's contention was again that this indicated equal ownership of the underlying asset, namely the goodwill. However his own witness Mr Evans did not support him in this but agreed that it was open to the partners to agree any basis of an amortisation that they might choose, and that the basis proposed chosen had no necessary connection with the ownership of the assets being amortised.
77. None of these supposed confirmations therefore supported Mr Castledine's position of equal ownership of goodwill. There was no evidence that he had put forward the proposition that he owned an equal share of goodwill whilst he was a partner, so if at the time he had regarded any of these events as confirming his belief in equal ownership, he does not appear to have expressed it to anybody. Whenever he came to that opinion, in my judgment his reliance on these matters as supporting it can only have come about by putting on them his own interpretation, which was in my view unjustified, and, as I find, not shared by any other witness (except possibly Mr Stubbs).
78. In closing, Mr Talbot sought to put a new case on behalf of Mr Castledine, which was that he was entitled to take the benefit of the amount of goodwill that had been shown as transferred to him under the equalisation arrangements on the schedules prepared for his tax computations, but he was bound neither to pay the purchase price for those transfers which was recorded as a liability at the time the entries were made, nor to accept the further transfers which were shown as having been made when he left, by which the entries were reversed so that the goodwill then standing in his name was distributed to other partners, and he was credited as having received an equal value of consideration for it. It was put on the basis that Mr Castledine could not be said to have assented to the equalisation process, and certainly not to have accepted the obligations that formed part of it, because he was not told about it when he joined the firm (which was accepted) and although he received the tax computations annually, those computations were provided only shortly before the date for submission of his tax return, and he was given no other explanation of the transactions represented in there, at the time or afterwards. Mr Talbot submitted that the entries did not in fact show transfers of goodwill at a cost, but that partners were simply given amounts of goodwill. The implication was that as Mr Castledine had not agreed to transfer these amounts back, he retained them notwithstanding his retirement.
79. This case was, as Mr Talbot accepted, not referred to expressly in the pleading. He submitted that it was open to him to make the case even at this late stage because the argument did not become apparent until disclosure of the financial accounts which showed the balances on capital account for each partner, including in Mr Castledine's case the goodwill transferred to him under the equalisation arrangements.
80. In my judgment this case is not open to Mr Talbot, and he should not be permitted to amend after the conclusion of the trial in order to plead it. The existing pleading may be justifiably criticised for failing to specify exactly when and by what mechanism Mr Castledine came to be entitled to his alleged equal share of goodwill. The implication from paragraph 9 of the particulars of claim is that it was by virtue of the terms upon which he agreed to become a partner; either the alleged express agreement that he should have such a share, or the terms of the partnership agreement themselves, on the construction argued for by Mr Talbot. There is a reference to acquisition of a share in goodwill shown in the tax computations in paragraph 10(b), but that is only by way of confirmation of the alleged existing share. That is how the case has always been run; it is how Mr Talbot expressed it to me in opening, and in his skeleton argument he said at paragraph 21:

" It is not suggested that the terms of Mr Castledine's partnership, or his entitlement in respect of the partnership's goodwill, were varied expressly between 1 November 1999 and 8 April 2003 when Mr Castledine retired from the partnership "

Although he emphasised the word "expressly", I do not see in his skeleton argument any argument that a variation in the ownership of goodwill was achieved in any other manner. Acquisition pursuant to the transfers shown on the tax computations must on any footing have been an "express" variation in his holding. There is nothing in the pleaded case which in my judgment could be taken fairly to encompass an argument that the transactions reflected in the tax computations had the effect of gifts, were additional to (rather than confirmation of) the share he contended he had acquired on joining, or were in any respect such that Mr Castledine was entitled to the benefit of those transactions without taking the burden of them.

81. As to whether an amendment should be allowed at this stage, both sides had occasion in the course of the trial to refer me to the recent decision of the Court of Appeal in Swain- Mason and others v Mills & Reeve [2011] EWCA Civ 14 , in which Lloyd LJ emphasised at paragraph 106 that:

" there is a heavy burden on a party who seeks to raise a new and significantly different case so late as the opening of the trial. The party applying to amend needs to show why the change is sought so late and was not sought earlier "

In refusing the amendment, he also relied on the fact that the draft amendment was insufficiently clear. In the present case, we are at a much later stage because the new case was not put until after the trial had closed, and no draft amendment has been put forward for me to consider. The latter is not a merely technical point at all; it is by no means clear what interest in goodwill Mr Castledine would claim if allowed to take this point. A considerable number of questions were directed to Mr Bentley, for instance, tending to suggest that the transfers made did not show the equalisation process being operated in fact in the way it had been originally envisaged, and that if it had been, Mr Castledine would have received more that the 2.472% shown in the tax computations. In my judgment the necessary amendment should be refused on both grounds.

82. Further, I do not accept that Mr Castledine's ability to consider this basis of claim did not become apparent until the disclosure of the financial accounts. He has known throughout his period as a partner that the tax computations showed transfers of goodwill to him, and of the amounts of those transfers. If it was his contention that they amounted to gifts or represented additional acquisitions of goodwill that he retained independently of his case that he acquired goodwill on joining the firm, he could have made it at any time.
83. Further still, the proposed case, however formulated, is one which in my view has no real prospect of success. The evidence before me as to the nature of the transactions that were reflected in the tax computations was not that they were gifts, but that they were transfers for consideration giving rise to equal and opposite accounting entries. It was suggested that the financial accounts and tax computations did not show the alleged corresponding liabilities and so supported the contention that the transfers were in effect gifts; Mr Talbot submitted a note of passages from the oral evidence given on the final day of trial that he said bore this out. But in my view this was not so, on a fair reading of the documents and the evidence given. The schedule of goodwill holdings attached to the financial accounts does not show the liability incurred on each transfer, but that is because it is a schedule of holdings in a particular asset and not an account or balance sheet. That is what the passages referred to by Mr Talbot related to. The evidence of Mr Bentley was that the corresponding liabilities were reflected elsewhere in the balance on each partner's capital account, which is as would be expected. The tax computations plainly do show a liability, labelled 'cost' and 'price' and equal to the value of the goodwill transferred, which would be inconsistent with their being by way of gift, and in my judgment nothing in the evidence of Mr Bentley or Mr Stockdale amounted to acceptance of the contrary.
84. Mr Castledine may not have understood the nature of the transactions, and insofar as they could not be effective without imposing liabilities on him, he may well have a case that they are of no effect as far as he is concerned. But the result of that would have to be that he repudiates the transactions entirely; he cannot be entitled to pick and choose, or to abrogate and reprobate as Mr Talbot put it in another context, taking the benefit of the transactions but rejecting the burden. If he repudiates the transactions, there was no effective transfer of goodwill to him at any stage under the equalisation arrangements. If he accepts them, they were part of a package of arrangements and he would have to accept them in their entirety, in which case he was subject not only to the obligation to discharge the "cost" of each acquisition shown in the tax computations, but to accept all the other implications of the equalisation arrangements operated between, and apparently accepted by, all the other partners, including the obligation to dispose of the goodwill that had been transferred to him on leaving the firm, in consideration of its then value in the accounts, to be satisfied by making the entries that were made on his retirement. In neither case would he have any continued ownership of goodwill such as he contends for.
85. Finally, in case I am wrong as to construction of the Partnership Agreement and Mr Castledine did acquire a share in goodwill on joining, I would accept Mr Callman's submission that the effect of his retiring would be that he would be entitled in principle to be paid out an amount for the value of his share in the firm, including goodwill, as at the date of retirement, see Lindley & Banks para 10-160ff. He would not continue to own a share in goodwill in any other sense, even in the absence of an express transfer of goodwill to the other partners, because the nature of goodwill is such that the value of the firm's business connection and the ability to command a price for it accrues in any event to the continuing partners when the firm's business is carried on by them, see Lindley and Banks paras 10-203, 10-204ff. Insofar as assets other than goodwill are concerned, the partnership agreement makes specific provision, in that his interest in those assets vests on the other partners and his entitlement is to be paid out the outstanding to the credit of his capital account, see clause 26.5 of the partnership agreement. I would not have accepted Mr Callman's further submission that the effect of this clause was to provide that the balance on capital account represented the totality of Mr Castledine's entitlement; that clause was drafted at a time when goodwill was explicitly bought and sold at its balance sheet value under the arrangements set out in the equity partners deed, and clause 26.5 could not be said to deal with the position in which (contrary to my finding) a partner had been given a share in goodwill without payment and without obligation to give it up for no consideration on retirement. The logic of Mr Castledine's case would have been that he became entitled to a share in goodwill proportionate to the number of partners when he joined. Whether that share reduced or increased as other partners came and left thereafter is a matter that would have to be explored by evidence of the terms on which those partners did so, in order do establish what share remained at the date of retirement, and there would also have to be evidence to establish its fair market value at that date, so I am not in a position to put a value on the amount of his entitlement, in the eventuality that he had succeeded in that contention.
86. As indicated at the conclusion of the trial, I will list a short hearing for this judgment to be handed down, at which no attendance is required. I invite the parties to seek to agree an order to reflect the judgment, and if there are matters arising that cannot be agreed, to contact my clerk with an agreed time estimate and available dates for a further hearing.

Note 1   The offer letter and various other documents at the time of joining and retiring do refer to a payment to be made by the firm to Mr Castledine for ‘goodwill’, but I ignore this as it is common ground that all such references (then and at the time of his retirement) are to a payment for clients that Mr Castledine was to bring to the firm, and nothing to do with any acquisition by him of goodwill in Bentley Jennison.    [Back]