Hammonds (A Firm) v Jones

JurisdictionEngland & Wales
JudgeMR JUSTICE WARREN,Mr Justice Warren
Judgment Date13 February 2009
Neutral Citation[2009] EWHC 216 (Ch)
CourtChancery Division
Docket NumberCase No: HC07C01528
Date13 February 2009

[2009] EWHC 216 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Warren

Case No: HC07C01528

Between:
Hammonds (A Firm)
Claimant
and
(1) M Danilunas
(2) John Deacon
(3) Mark Hilton
(4) Jonathan Hosie
(5) David Jones
(6) Jonathan Moore
(7) Mark Newcombe
(8) Gerard O'neil
(9) Simon Palmer
(10) Dermot Preston
(11) Nigel Proctor
(12) Philip Rees
(13) Martin Thomas
(14) Stephen Tupper
Defendants

Mr Alan Steinfeld QC and Mr Richard Ritchie (instructed by Hammonds LLP) for the Claimant

Mr Charles Flint QC and Mr Andrew George (instructed by Messrs Addleshaw Goddard) for the 1st,2nd,3rd,4th,9th,13th, & 14th Defendants

Mr Ian Croxford QC and Mr Andrew Mold (instructed by Messrs Aaron and Partners) for the 5 th Defendant

Hearing dates: 25th, 26th, & 27th November 2008

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE WARREN Mr Justice Warren

Introduction

1

The Claimants in this action are Hammonds, a firm of solicitors. They claim against a number of former partners in the firm amounts which it is alleged were drawn in excess of their true share of profits for two years of accounts ending on 30 April 2004 and 30 April 2005. Under the terms of the relevant partnership deed, which I will come to in a moment, provision was made for drawings in respect of anticipated profits for the year. In accordance with that provision, and perfectly properly, partners, including the Defendants, drew amounts which, in the event, were considerably in excess of their respective shares of profits as shown in the accounts which were eventually prepared and which the Claimants say are binding on the Defendants. The firm has sought repayment of excess drawings on the basis of those accounts. All the relevant partners have come to terms with Hammonds other than eight of the Defendants (the other six Defendants having come to terms since the commencement of these proceedings against them).

2

Seven of the remaining eight Defendants since leaving Hammonds, have joined other law firms and have instructed the firm of Addleshaw Goddard for the purpose of these proceedings. I shall call them the Addleshaw Defendants. They are represented by Charles Flint QC and Andrew George. The fifth defendant, Mr David Jones, is represented by Ian Croxford QC and Andrew Mold. Hammonds are represented by Alan Steinfeld QC and Richard Ritchie.

3

The Addleshaw Defendants and Mr Jones maintain that they are not bound by the accounts which have been prepared by Hammonds. They say that those accounts are deficient in various ways and that they are entitled to have an account taken by the Court. Six of the Addleshaw Defendants (those other than the fourteenth defendant, Mr Tupper) also allege that misrepresentations were made to them, which were not corrected, as a result of which they say that they have been prejudiced. They say that Hammonds is now estopped from going back on the representations. Hammonds assert that certain parts of the case pleaded against them in that respect are unsustainable and should be struck out.

4

Subject to the claims based on misrepresentation, all of the remaining Defendants now accept, although they have not always done so, that they must repay any excess drawings, although there is disagreement about the juridical basis – restitution or implied term – on which they must do so. It is those Defendants' case, absent of any express agreement between them and Hammonds, that that excess is to be ascertained by reference to an account taken by the Court and not by reference to the allegedly defective accounts prepared by Hammonds.

5

Before me are two matters:

a. The first is a preliminary issue ordered by Briggs J on 4 June 2008.

b. The second is Hammonds' application for summary judgment or strike out of certain parts of the Defence of the Addleshaw Defendants. There is no similar application in respect of Mr Jones' Defence since he does not allege prejudice in the way that the Addleshaw Defendants do.

The Preliminary Issue

6

The preliminary issue is a pure question of construction of the partnership deed. It is whether former partners are bound by the partnership accounts which are to be prepared in accordance with that deed. The issue is formulated in this way:

"Whether on a true construction of clause 16.2 of [the UK Partnership Deed as described below] and/or as a matter of law the Partnership Accounts to which that clause refers are, at the expiration of the period specified in the last sentence thereof, binding on all persons who were partners of the Partnership at any time during the accounting year covered by those Partnership Accounts including persons who have since the commencement of such accounting year ceased to be partners in the Partnership."

7

In addressing that preliminary issue, there are two agreements with which I am concerned.

a. The first is a Deed of Partnership dating from 30 July 2000. It has been amended from time to time. The document on the basis of which the matters before me have been presented contains amendments up to 9 December 2004. This document is the governing instrument of the Hammonds UK partnership. I will refer to it as "the UK Partnership Deed".

b. The second is what is described as an overriding world-wide deed dated 30 June 2002. I shall refer to it as "the OWW Deed". In essence, there are a number of partnerships in different jurisdictions which are all part of the Hammonds stable. They have a number of partners in common with the UK partnership but each has local partners who are not partners in the UK partnership. The OWW Deed provides for a pooling of the profits of each partnership and for distribution of the total profits.

c. Although these are separate agreements, the UK Partnership Deed is, as will become apparent, expressly made subject in material respects to the OWW Deed. The definitions in the OWW Deed cross-refer to the definitions in the partnership deeds, including the UK Partnership Deed, of the various firms which are bound by the OWW Deed. Although it may be wrong simply to construe the UK Partnership Deed and the OWW Deed as one, there can be no doubt that the meaning of one at least informs the meaning of the other.

The UK Partnership Deed

8

To answer the preliminary issue, which is a short point of construction, it is necessary to consider several provisions of the UK Partnership Deed, starting with the definitions. Defined terms are given the meanings assigned to them "unless the context otherwise requires". The relevant definitions are these:

a. Budget: this is the budgeted profit and loss account for the Partnership adopted for any Partnership Year. This is of relevance to the ascertainment of permitted drawings on account of profit share.

b. Partnership: this is "the partnership constituted by this Deed". As we will see, the UK Partnership contains conventional provisions for partners to leave and join the firm. But death or departure does not determine the Partnership as between the other Partners. An English partnership is not, of course, a legal entity. Rather partnership is "the relation which subsists between persons carrying on business in common with a view to profit": see section 1 Partnership Act 1890. Similarly the Partnership is not a legal entity but is the enduring relationship between the individuals who, from time to time, are partners carrying on business together. Thus, where a partner leaves the Partnership, the ongoing relationship between the continuing partners remains within the definition of "Partnership"; and likewise when a new partner joins, the new relationship between the continuing partners and the new partner falls within that definition.

c. Partner: this means an Equity Partner and (unless the context otherwise requires) any Fixed Share Equity Partner and any Junior Equity Partner. It is necessary only to consider the definition of Equity Partner to understand the definition of Partner; Equity Partner is "any person who is appointed an equity partner of the Partnership" and whose share is determined in accordance with certain principles set out in Clauses 7.2, 7.3 and Schedule 2. Thus an Equity Partner as defined is, as one might expect, an equity partner (those words in lower case being given their ordinary, undefined, meaning as understood in partnership law). There is nothing expressly stated in the definition of Partner or Equity Partner which tells us that an individual who ceases to be a partner in the ordinary sense of that word ceases to be a person who remains within the definition of Partner or Equity Partner. However, it is clear, in my view, from a reading of the UK Partnership Deed as a whole, that an individual who ceases to be a partner in that sense also ceases to be a Partner as defined. That is shown, for instance, by the following definition of Partners (in the plural).

d. Partners: means "each of the signatories to this Deed and such other persons as shall become Partners during the subsistence of the Partnership for so long as in each case any such person remains a Partner in the Partnership". Perhaps slightly oddly the word "Partners" is used in the definition of "Partners", but I think it is clear that it is there being used as the plural of the word Partner as separately defined. It is as if the definition of Partners had used the words "any other person who shall become a Partner" rather than "such other persons as shall become Partners".

e. Outgoing Partner: "any Partner who: (i) has died; (ii) has retired, or resigned; or (iii) is deemed to have resigned, or who has been expelled as a Partner…..".

f. A Consultant is a person invited to become a consultant to the firm under Clause 23....

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