Anju Tannu and Shiraz Salehbhai Moosajee & Perveen Sadikali Moosajee
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Lord Justice Dyson,Lady Justice Arden |
| Judgment Date | 20 June 2003 |
| Neutral Citation | [2003] EWCA Civ 815 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2002/2075 |
| Date | 20 June 2003 |
[2003] EWCA Civ 815
Lord Justice Mummery
Lady Justice Arden and
Lord Justice Dyson
Case No: A3/2002/2075
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (MR JUSTICE LLOYD)
Royal Courts of Justice
Strand,
London, WC2A 2LL
MR RICHARD LORD QC (instructed by Field Fisher Waterhouse) for the Appellant
MR FRANCIS MORAES (instructed by Shah & Burke) for the Respondents
Introduction
This is a partnership case now proceeding in the Chancery Division. It started life as an action in the Queen's Bench Division. The claimant sought a money judgment for the sum of £110,000 (with interest) which, she alleged, she had lent to the defendants and was due for repayment. In their defence and counterclaim the defendants denied that the relationship between the parties was that of creditor and debtor. They contended that there was a partnership between the claimant and the second defendant.
The judge (HHJ MacDuff QC) dismissed the claim for repayment of a loan. By his order of 29 March 2001 he made a declaration that an equal partnership at will existed between the claimant and the second defendant, that it commenced trading on 1 May 1999 and that it was dissolved on 29 September 1999. The order directed that the affairs of the partnership should be wound up. He adjourned the taking of all necessary accounts and enquiries to a Master of the Chancery Division.
The partnership in question was a retail pharmacy business, Ashworth's Pharmacy, at 64 Ruislip High Street, which had been carried on by the second defendant as a sole trader from 1986 until 1 May 1999, when the partnership commenced trading.
In the course of taking the dissolution accounts a disagreement arose about the correct treatment in the accounts of the sum of £110,000, which the judge had held was not a loan. A series of payments totalling that sum was made by the claimant into the current bank account of Ashworth's Pharmacy over a period of five months prior to the commencement of trading by the partnership.
In his decision of 1 July 2002 Master Bowman read HHJ MacDuff's judgment as deciding that the payment of £110,000 was a capital contribution by the claimant to the partnership. He accordingly struck out a claim by the second defendant, which was contained in a witness statement in the proceedings for the account, that the £110,000 had been paid to her by the claimant as the price for acquiring a half share in the business and that she was entitled to use the purchase price as she pleased.
On the second defendant's appeal against Master Bowman's striking out order Lloyd J took a different view. On 26 September 2002 he allowed the second defendant's appeal. In his judgment the rule in Henderson –v—Henderson (1843) 3 Hare 100, which is designed to bring finality to litigation by requiring the parties to bring forward their whole case in respect of the subject matter of the litigation, precluded the claimant from denying that she had paid the total sum of £110,000 to the second defendant as the purchase price for a half share in Ashworth's Pharmacy. Lloyd J's ruling makes a significant difference to the respective financial positions of the parties on the accounts. In the revised dissolution accounts prepared by the second defendant as at 30 September 1999 the claimant was shown as owing over £43,000 to the second defendant, who was treated as having introduced £110,000 capital into the partnership, even though HHJ MacDuff had described the claimant in several passages of his judgment as having made an "investment" of £110,000 in the business only months before the partnership started trading. In these circumstances the claimant has been allowed to bring a second appeal with the permission of Aldous LJ.
The Facts
The hearing before HHJ MacDuff QC was the trial of the action. The parties gave oral evidence. Findings of fact were made. The obvious starting point for the resolution of the present dispute is the extempore judgment delivered on the issues identified in the pleading of the claim and of the cross claim. The crucial question is: what was the decision of the trial judge as to the basis on which the claimant had paid £110,000?
The essential issue in the Queen's Bench action was whether the legal relationship between the parties was that of (a) lender and borrower or (b) partners. On that issue it was for the second defendant, as the party alleging that there was a partnership and counterclaiming for the winding up of its affairs, to plead the facts relevant to its formation and the terms on which the partnership was entered into. In paragraph 8(i) of the defence it was pleaded as an express term of the partnership agreement that
"(i) the claimant would pay the second defendant a sum of £110,000 to acquire a 50% share of "Ashworth's Pharmacy". The said sum was notionally attributed in the following manner; £60,000 for good will [the second defendant had received an offer of £120,000 for the goodwill of Ashworth's Pharmacy in October 1998], £30,000 for existing stock and £20,000 in a capital contribution towards half of the costs of refitting the premises;
(ii) that the claimant and the second defendant would share equally profits and losses of "Ashworth's Pharmacy"."
In the reply and defence to counterclaim the claimant denied such an agreement. She alleged that, in discussions between the parties, she had made it clear that, if she was to consider being involved in the business, she would need to be supplied with information, such as 3 years' accounts. That information was never provided to her at any time. She also alleged that she had made it clear that, if she became involved with the pharmacy business, it would be through a limited company and the claimant's equity in the company would be determined by the financial information provided at the level of the claimant's investment.
There was no express pleading by either side on the specific question as to how the sums paid by the claimant into the current bank account of Ashworth's Pharmacy were to be dealt in the dissolution of the partnership, should the court hold that there was a partnership. The dispute focused on the more general issue whether there was a loan or a partnership. The determination of that issue was the focus of the judgment.
It was perfectly possible for the parties to plead and argue the issue as to whether there was a loan agreement or partnership agreement and for the judge to resolve that issue, without the judge having to decide at that stage all the issues that might arise between the parties in the dissolution of the partnership. In a partnership action, especially where the partnership agreement was oral rather than by deed, it is not uncommon for issues to arise on the taking of the accounts in the course of winding up and for those issues to be directed to be tried in order to determine the legal and factual basis on which the accounts should be taken.
I should now turn to the facts set out in the judgment of the trial judge. It is only necessary to highlight the main facts. Many of them were never in dispute.
From late 1986 the second defendant conducted the business of Ashworth's Pharmacy. The claimant, who had been a close friend of the second defendant, was also a dispensing chemist. In October 1998 the parties made an oral agreement. In broad terms the agreement was that
"for an investment into the business by the claimant of £110,000 she would be an equal partner/owner/participant."
Between October 1998 and February 1999 the claimant paid the total sum of £110,000 in the form of cheques and in one case in the form of bank transfer. All the cheques and the bank transfer were made to the current account of "Ashworth's Pharmacy." The individual sums were paid as follows: £6,000 on 27 October 1998; £40,000 on 18 November 1998; £4,000 on 10 December 1998; £6,000 on 19 January 1999 and £54,000 on 18 February 1999.
The total sum of £110,000 was arrived at as a result of the second defendant putting forward a valuation of the goodwill at £120,000 (the sum for which an offer had been made in negotiations with a third party), a valuation of stock at £60,000 and the requirement of an injection of £40,000 for refurbishment. Those sums added up to £220,000, which was then halved to produce the claimant's contribution of £110,000.
At the times when the oral agreement was reached and when the unsecured payments were made by the claimant, Ashworth's Pharmacy was in a "precarious financial position." It was in danger of losing cosmetic agency contracts. It needed an injection of capital into the business, in particular for refurbishment, which went ahead in the early part of 1999 using the capital injected by the claimant.
In holding that the agreement was not a loan agreement, as alleged by the claimant, but was, as alleged by the defendant, an agreement to pay money into the business and become equal partners in Ashworth's Pharmacy with trading to commence on 1 May 1999, the judge made it clear that he preferred the defendant's evidence. He found that the claimant was an unreliable witness. He accepted the defendant's evidence that the payments were not made by way of loan, but as an investment as
"a provision of capital for the purpose of buying herself into one half of the business."
It was, he held, an investment made by the claimant in a joint enterprise. A business partner was required who " could inject some capital into...
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