Jersey Unreported Judgments

ROYAL COURT

(Samedi Division)

24 September 1998

Before: Sir Peter Crill, KBE, Commissioner, sitting alone

In The Matter Of An Agreement

BetweenColin Alexander HarrisRepresentor

AndAndrew David Denzil CrichtonRespondent

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.

Application by the Defendant for full indemnity costs, following Judgment of 24 July 1998 [1998.162]

Advocate M St J O’Connell for the Plaintiff

Advocate P C Sinel for the Defendant

JUDGMENT

THE COMMISSIONER: The delay has been caused by the fact that I asked the Greffier to be kind enough to get a copy of the Judgment in the case of Dixon -v- Jefferson Seal (21 January 1998) Jersey Unreported CofA where there are useful passages in relation to the award of indemnity costs. There are a number of authorities cited in that Judgment which are not entirely conflicting but I reflect on what was said in Cepheus Shipping Corporation -v- Guardian Royal Exchange Assurance plc [1995] 1 Lloyds Reports 647 in the judgment of Mance J where he said:

The learned Judge then went on to refer to the case of Bowen-Jones -v- Bowen-Jones [1986] 3 All ER 163, where Knox J indicated that it was only "in very special cases" - those are in fact the words you have used, Mr O’Connell - "that indemnity costs should be awarded". He went on to say:

I interpolate here to say that I do not necessarily accept that Mr Harris was ill-advised and I certainly do not accept that litigation was stupidly conducted. Therefore, I do not really think that the observations of Kerr LJ areapplicable here, but he nonetheless does have this to say:

Therefore I think I would reject Mr O’Connells submission that where a case is bitterly fought that, in itself, would preclude me from making an order. For reasons which I am going to mention in a moment, I am not inclined to make the order asked for by Mr Sinel, but I will go on reading from the Court of Appeal Judgment:

The Court then referred to the case Berkeley Administration -v- McClelland [1990] FSR 565 and went on to quote from the case of Marie Claire Album SA -v- Hartstone Hosiery Ltd [1993] FSR 692 and in effect the appropriate words are to be found at the bottom of p12 of the Judgment and I quote:

What it comes down to is whether I consider that, in this case, it would be appropriate for me to make an order for indemnity costs.

I have before me a number of letters in support of that application by the defendant. I should add here that the representation was launched in January, 1997. On 6 January 1998, Mr Sinel for Mr Crichton admitted that under the terms of the dissolution agreement in 1990, Mr Crichton recognised that he had accepted an obligation to make an extra capital payment to Mr Harris - it had been called a ‘bonus’ payment or a ‘kickback’ payment. In that letter he accepted the method which Mr Harris had suggested for calculating that payment in a letter which he had written to Mr Crichton on 9 May 1990. Mr Crichtons failure to deal with that letter for such a long period of time is criticised by Mr O’Connell as indicating a reason why it would not be appropriate to make an order for indemnity costs. The matter does not stop there. In a very fully reasoned letter of 9 March 1998, within three months of the Courts sitting to try the issues, Mr Sinel set out why his clients regarded the claim as ill-founded and further stated that he was reserving the right to produce that letter - which he has done - on the question of costs but he did not then mention indemnity costs. However, he mentions indemnity costs for the first time in a letter to Mr O’Connell dated 29 May 1998, in which an offer is made to discontinue without any order, but the threat is made that if the action is not discontinued then there will be an application for indemnity costs and that statement is repeated on 4 June 1998, in which a figure of £50,000 is suggested in respect of the ‘kickback/bonus’ payment: "our offer with respect to the litigation which expires today is simply that our client will ask your client to discontinue the proceedings without being punished by a costs order". I think I am entitled to read into that letter a costs order for full indemnity costs which would be qualified by the previous letter.

As Mr O’Connell has said and as the Court recognised, this was a dispute between two qualified accountants who failed - as Mr O’Connell will agree, most inappropriately and foolhardily as it turned out - to take proper legal advice - though they did take it when they were creating the original agreement, but not when they were varying it and dissolving their arrangements - with the result that this litigation ensued. Each, however, interpreted the agreements and the variation agreement in a different way. Therefore it was those interpretations which the Court had to solve. The question of the ‘kickback’ matter was something extra, so to speak, which arose from an original counterclaim on an admission in the counterclaim that there was an amount due, but that is not pursued. It was not a matter on which the Court felt obliged to pronounce and it confined itself to considering what was the effect of the variations, what did the order mean and what did the variations mean? We preferred, as has been said, on the evidence, the case for the defendant. Is there an element of something special in either the bringing of the representation, or the failure to accept an offer of compromise, or the way in which the litigation was conducted which would entitle me to reach the conclusion that it would be appropriate to order indemnity costs? I have come to the decision that it would not be appropriate in all the circumstances. However, I can see no reason why taxed costs

should not follow the event in the ordinary way and I accordingly order that the plaintiff will pay the taxed costs to the defendant. I am not prepared to vary it in relation to the relatively small issue of the counterclaim. I think the responsibility must lie where it falls.

Authorities

Dixon, Richardson-v-Jefferson Seal (12 January 1998) Jersey Unreported. CofA

Cepheus Shipping Corporation -v- Guardian Royal Exchange Assurance plc [1995] 1 Lloyds Reports 647

Berkeley Administration -v- McClelland [1990] FSR 565

Marie Claire Album SA -v- Hartstone Hosiery Ltd [1993] FSR 692

Bowen-Jones -v- Bowen-Jones [1986] 3 All ER 163