Jersey Unreported Judgments

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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> 1998/162 - Harris v Crichton	 [1998] UR 162 (24 July 1998)
URL: http://www.bailii.org/je/cases/UR/1998/162.html
Cite as: [1998] UR 162

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ROYAL COURT

(Samedi Division)

Hearing dates: 8, 10, 12 June 1998

Judgment delivered: 24 July 1998

Before: Sir Peter Crill, KBE Commissioner and Jurats E W

Herbert and P J de Veulle

 

In The Matter Of An Agreement

BetweenColin Alexander HarrisRepresentor

Representation of the Representor, seeking a Declaration in such terms as are just concerning the proper construction of an Agreement to dissolve a partnership between the parties and any variation thereto.

The parties were partners until 1988 when they entered into agreement under the terms of which the Representor retired and received various sums from the Respondent who was effectively buying him out. Those sums included goodwill payments during the joint lifetimes of both parties and a business sale payment in the event of the Respondent disposing of his interest in the business. The parties subsequently agreed that the Respondent would reduce the goodwill payments by making capital payments in lieu thereof and, eventually, the goodwill payments were completely extinguished by such capital payments.

The First Issue: The parties failed to agree what the effect of the extinguishment of the goodwill payments would be upon the business sale payment.

The Second Issue: The Representor is also claiming that the agreement in relation to the capitalization of the goodwill payments did not extinguish the liability of the Respondent to make a death payment upon the death of the parties.

 

Advocate M St J O’Connell for the Plaintiff

Advocate P C Sinel for the Defendant

JUDGMENT

THE COMMISSIONER: Although this is a Representation it will be convenient to call the parties "the plaintiff" and "the defendant" respectively.

The plaintiff and the defendant are certified accountants. The defendant is also a chartered accountant. They practiced as a partnership at Queensway House, Queen Street, St. Helier, Jersey. Across the corridor were the offices of David Morgan and Co., a firm of English Solicitors. In 1988 the plaintiff, without warning, asked to see the defendant and at a meeting said that he wished to dissolve the partnership. Accordingly they drew up heads of agreement and sent it to David Morgan and Co., for Mr Morgan to draw up a formal dissolution of partnership which he did. The parties then made certain alterations to the draft and then asked Mr Morgan (it is immaterial who actually did this) if it was "watertight". He assured them it was and both parties signed the amended agreement on the 23 August 1988. There is a dispute about whether there was a meeting between the parties and Mr Morgan at which the draft heads of agreement were discussed. The plaintiff says that there was, and that, at that meeting, some manuscript additions were made in the margins of page one and two. The addition on page two reads :

The relevance of this addition will be mentioned later. Neither the defendant nor Mr Morgan recollects the meeting and Mr Morgan identified the manuscript additions as being in the handwriting of his son, Mr Nicholas Morgan, a partner in his firm. Mr Morgan further said that the original heads of agreement had been lost as a result of an incompetent filing clerk. It was not, therefore, possible for the court to see it, but he felt sure that the additions were added not at the time the heads of agreement were drawn up but at a later date in 1995 when a dispute arose between the parties over the meaning of some amendments that had been proposed at the request of the defendant.

The relevant clauses in the original agreement are as follows:

"4. By way of compensation for goodwill Crichton shall pay to Harris with effect from 1 June 1989 a capital amount ("the Goodwill Payment") by equal monthly payments as follows:

Crichton agrees with Harris to secure such Goodwill Payments by maintaining adequate insurance.

5. In the event that Crichton shall dispose of his interest in the Harris Crichton Business or any successor business to such Business within one year of such disposal he shall pay to Harris ("the Business Sale Payment") a capital sum which shall be the greater of

Both clause 4 and 5 are connected by a common method of calculating the respective amounts due by using a multiple of the annual goodwill payments.

We stop here to say that there is no dispute about the meaning of those clauses nor for that matter about any of the other provisions. It is clear that the Plaintiff was entitled to an annual sum until one or other of the two eventualities, death of either of the parties or the sale, in whole or part of the business by the defendant. That annual sum was to be increased annually but upon a capital sum becoming due, and calculated according to the appropriate formula, the annual payments would cease either to the plaintiff or to his estate. The dispute over the proposed variations arises because the plaintiff says that these were an attempt to erode his entitlements under the dissolution agreement. We heard both parties and Mr Morgan but not, strangely enough Mr Nicholas Morgan who was not called by either party. As it was claimed by the plaintiff that certain figures were inserted at the disputed meeting, and the defendant denies that such a meeting took place at all, it seems to us that the plaintiff, who sets up the meeting and relies on the inserted figures, ought to have called Mr Morgan. It does not appear that even a witness’s proof was taken.

Whilst the evidence we heard in court has assisted us to determine the issue about the disputed meeting the proposals for variation were all contained in the correspondence and it is the normal rule that extrinsic evidence cannot be considered if the intention of the parties can be ascertained from the documents that purport to set out the intentions of the parties. See Sarum Hotels -v- Select Agencies (Jersey) Ltd & Ors. (1987-1988) JLR 343. It is mainly therefore to the correspondence that we have looked to ascertain the intentions of the parties.

In the original agreement no provision was made to capitalize the annual goodwill payments (AGP). The defendant proposed to do this because he found that the rate of inflation was hurting him. There can have been nothing improper in this. However the plaintiff claims that, on a proper construction of the variations as evidenced in the correspondence, the capital sum due in respect of the business sale payment has not been extinguished, whilst the defendant says that the capitalization of the AGP extinguishes the contingent sale of the business payment.

To support this claim the plaintiff relies, in part, on a calculation that stems from the alleged meeting with the defendant and Mr David Morgan at the time the heads of agreement were being discussed. He said that the defendant felt that the PE should be 12, whereas he felt it should be 15 and that led to some tension. Whether it was 12 based on his last years share of the profits at £140,000 or 15 based on earnings of £110,000, the result would be a total capital payment of £1.68 Million or a sum near it. We must therefore look at the evidence in rather more detail about the figure of £1.68 Million. Before we do so, however, we should note that there is a conflict of evidence between the parties; the plaintiff considers that the defendant was being dishonest, mistaken or both. As regards the plaintiffs assertion that there had been such a meeting with Mr David Morgan, and at that meeting the figure of £1.68 Million had been mentioned, we have already noted that Mr Morgan did not recollect it, although in cross-examination he was not quite so positive. Mr Morgan said he was telling the truth and had a photographic memory. Moreover the defendant as an accountant would have remembered such a figure. This latter comment applies equally to the plaintiff. We heard nothing to suggest that Mr Morgan was not telling the truth.

The plaintiff said that he told the defendant about the figure. The defendant denies that he did. The plaintiff was not certain of the date of the meeting which was in the middle of 1988 nor where it had taken place. The defendant said that he had first heard of the figure in a letter from the plaintiff in July, 1995. The plaintiff suggested that the figure of £1.68 million which was added to the heads of agreement had possibly been added by Mr David Morgan at the meeting about the heads of agreement and that Mr Morgan had asked: "what’s the figure?" and on being told it he calculated that based on an annual payment of £60,000 it represented a return on the capital of 3½ per cent.

This part of the evidence was in the main dependent on the recollection of the parties. Indeed the plaintiff said that the figure of the multicipland was not of great importance as he was expecting a life payment (subject to the two contingencies of death and sale) of £60,000 per annum increased according to the dissolution agreement. It follows that in examining the correspondence there was clearly no meeting of minds of the parties on this question. This much is clear from the correspondence. It may be noted also that in that correspondence at the time of the variations there is no mention of the figure of £1.68 million. Moreover it was not until some five years after the variation in a letter from the plaintiff to the defendant that the figure was mentioned. Where their evidence diverged on this point we preferred that of the defendant. Accordingly we are far from satisfied that the meeting took place and that the defendant was aware of the plaintiffs capital expectations.

It seems to us that the annual payments were a convenient way of spreading the load for the defendant. Nevertheless the reference to goodwill payments contemplates a capital amount because if the defendant had sold the business shortly after the dissolution there would have been one substantial capital payment to the plaintiff and that would have extinguished any further obligation towards him.

It seems to us that the important question to be answered is whether the alternative capital payments due either upon the death of either partner or the sale, in whole or in part, of the business by the defendant can be separated from the annual goodwill payments so as to create a separate legal obligation. The plaintiff recognized in a memorandum he prepared at the time of the proposed variation that the defendant could make capital payments instead of only being payable on death or sale:

This supports our view that the obligation to pay the annual goodwill payment was not a separate and severable arrangement from the capital payments envisaged upon either partys death or the sale of the business. One substantial payment was intended under the goodwill arrangements and the fact that they could be made in instalments does not alter that intention. In our opinion bearing in mind that the defendant may have indicated that he might sell fairly early on and that death would put an end to the annual payments then the provisions under clauses 4 and 5 were a kind of "fall back" position to protect the plaintiff. The letter of the 18 March 1989 from the plaintiff to the defendant is interesting. In it the plaintiff says -

On the 27 March, 1990 the defendant wrote to the plaintiff, the relevant parts of the letter are as follows:-

Given that the protection to the plaintiff was in the alternative it is hard to see how the plaintiff can contend that he thought that any of the capital sums did not relate to a notional sale of the business. On 4 May 1990, the defendant wrote to the plaintiff as follows:

The plaintiff replied on the 9 May as follows.

In his evidence he said that the reference to the business sale payment was a mistake for annual goodwill payments. We do not think it was. We cannot ignore the normal commercial usage. Once the continuing partners in a dissolution have paid for the goodwill they are free to dispose of the business as they wish. Clause 5 was inserted as a protection for the plaintiff and not, we repeat, to create an additional obligation.

If there was a typographical error in the plaintiffs letter then it was not for some seven years that he said that it was.

The so-called "bonus payment" on the face of it might seem to conflict with the defendant’s understanding that he had paid off all his obligations under the agreement as varied.

A look at the hand written note we have already mentioned indicates to the contrary.

If further evidence were needed that the payments on death or sale were in the alternative this note provides it. The defendant says that the plaintiff has accepted the money and now cannot renege.

We are satisfied that the bonus payment was something devised by the defendant to compensate the plaintiff because once he had the option to make a capital payment that would extinguish the plaintiffs chances of participating in a profitable sale. Again that is clear from the letter of the 9 May 1990. The proposals for calculating the bonus payments were not accepted by the defendant. He later thought he should have. Those proposals meant that the plaintiff would only receive a payment if there was any balance.

We agree with Mr Sinel that the substantive question to be answered is this: Is there a remaining obligation upon the defendant to make further payments to the plaintiff apart from the "bonus payment" however calculated, now that he has extinguished his obligations in respect of the goodwill payments?

For the reasons mentioned above we conclude that there is none and accordingly we decline to make the declaration asked for by the representor.

 

Authorities

In the matter of a settlement (1996) JLR 226

Le Pennec -v- Romeril (1995) JLR N.17

Sarum Hotel Limited -v- Selected Agencies (Jersey) Limited & Another (1987-1988) JLR 343

Le Ruez -v- Le Ruez & Another (1980) JJ 229

Blackburn -v- Kempson (1971) JJ 1747

Arbaugh -v- Leyland (1967) JJ 745

Dormy Hotels Limited -v- Stewart & Ors. (1969) JJ 1247