Jobson v Johnson

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date25 May 1988
Judgment citation (vLex)[1988] EWCA Civ J0525-8
Docket Number88/0472
Date25 May 1988

[1988] EWCA Civ J0525-8






Royal Courts of Justice


Lord Justice Kerr

Lord Justice Dillon


Lord Justice Nicholls


CH 1985 J 4023

Victor Thomas Jobson
Plaintiff (Respondent)
Anton Leslie Johnson
Defendant (Appellant)

MR. LESLIE JOSEPH, Q.C., and MR. VICTOR LEVENE (instructed by Messrs. Maurice Hockenbrach & Co., Solicitors, London W1H 9LA) appeared on behalf of the Defendant (Appellant).

MR. JAMES MUNBY Q.C. and MR. GUY NEWEY (instructed by Messrs. Jefferies, Solicitors, Southend-on-Sea, Essex SS2 6DG) appeared on behalf of the Plaintiff (Respondent).


The defendant, Mr. Johnson, appeals against an order of Harman J.of 5th February, 1987 whereby the judge ordered, in favour of the plaintiff Mr. Jobson, as assignee of two brothers named Rubin ("the Rubins") specific performance of an agreement in writing of 12th August 1983 whereby the defendant agreed, in the events which have happened, to sell 62,566 ordinary shares of 25p. each in Southend United Football Club Ltd. ("the Club") to the Rubins for a sum of £40,000. The appeal raises a narrow point of considerable difficulty, which only arises because of the unusual course these proceedings have taken.


Briefly the origin of this matter is that in August 1983 the Rubins were, by inheritance from their father, entitled to 62,666 ordinary shares in the Club, which consituted 44.914% of the issued share capital of the Club. By two documents, both dated 12th August 1983, which have to be read together to get the full terms of the contract, the Rubins contracted to sell the 62,666 shares to the Defendant.


The first of these two documents was a sale agreement made between the Rubins and a Mr. Machutchon who was a nominee for the defendant. It. provided for the sale by the Rubins to Mr. Machutchon of the 62,666 shares for a price of £40,000 in cash, and for completion to take place immediately after the signing of the agreement. The sale agreement contained many other provisions but none is relevant to this appeal.


The second of the two documents was a side-letter of the same date. It was written by the defendant to the Rubins and was countersigned by them and was expressed to be agreed in consideration of the Rubins' entering into the sale agreement with Mr. Machutchon.


Paragraph 2 of the side-letter provided for the Rubins, without extra consideration, to procure the transfer to Mr. Machutchon of extra shares in the Club to bring the total sold to over 50% of the share capital, but that did not happen and an option given to the defendant by paragraph 5 of the side-letter to require the Rubins to reacquire the shares for £40,000 if the extra shares were not acquired was never exercised. These provisions can therefore be ignored. What is important about the side-letter is however:

"6(a) In the event of any default by me in payment of the first instalment of the sum referred to in paragraph 3 of this letter for a period of 7 days from the due date of payment I shall transfer (or procure the transfer) of ordinary shares of 25p. each in the Company amounting to not less than 44.9% of the issued share capital of the Company as at the due payment date to you jointly subject to the payment to me (or as I may direct) of £15,666.50.

(b) In the event of any such default by me in respect of any subsequent instalment of the sum I shall transfer (or procure the transfer) of ordinary shares of 25p. in the Company amounting to not less than 44.9% of the issued share capital of the Company at the due payment date to you jointly subject to the payment to me (or as I may direct) of £40,000."

  • (1) that by paragraph 3 and the last three lines of paragraph 2 the defendant agreed to pay the Rubins, in addition to the £40,000 under the sale agreement, a sum of £311,698 by six equal half-yearly instalments of £51,948 commencing on 12th February 1984—the £311,698 represented £260,000 plus interest at 12 1/2. per cent per annum on a reducing balance; and

  • (2) that by paragraph 6 there were alternative provisions for the re-transfer to the Rubins of 44.9% of the issued share capital of the Club in the event of default by the defendant as follows:


It is the re-transfer under paragraph (b) that the plaintiff, as assignee of the Rubins, now claims to enforce. Because the number of shares comprised in the Sale Agreement represented, as indicated above, slightly more than 44.9% of the issued share capital of the Club, the action has been about, and the judge's order relates to, the slightly smaller number of 62,566 shares. But nothing turns on precise numbers.


The defendant paid the £40,000 provided for by the sale agreement and the 62,666 shares were transferred to him or to his nominee. He defaulted, however, in paying the first instalment, due on 12th February 1984, under paragraph 3 of the side-letter. A variation agreement was accordingly entered into on 1st June 1984 between the Rubins and the defendant. This substituted a sum of £300,000 for the £311,698 specified in paragraph 3 of the side-letter and provided for that sum to be paid by instalments:

  • (a) as to £50,000 on the signing of the variation agreement.

  • (b) as to a further £50,000 on 31st August 1984 and

  • (c) as to the balance of £200,000 by 12 quarterly instalments of £15,000 each commencing on 31st March 1985 and a final instalment of £20,000 on 31st March 1988.


There were certain provisions included in the variation agreement for the protection of the Rubins in that the defendant agreed that the freehold or leasehold properties of the Club should not be sold without their consent; he agreed not to charge or incumber the shares and agreed to deposit the share certificate relating to the shares with his then solicitors with irrevocable instructions not to part with it. The defendant also agreed that until a certain level of payments has been reached (which has not yet happened) the Rubins should have the right to appoint one director to the board of the Club.


The defendant paid the Rubins the first £100,000 under the variation agreement, in addition to the £40,000 already mentioned, but he has failed to make any payment at all in respect of the balance of £200,000. The rights of the Rubins against the defendant were assigned to the plaintiff for value in July 1985, and he now claims against the defendant to enforce the re-purchase of 62,566 shares under paragraph 6(b) of the side-letter.


At the trial a great deal of time was devoted to claims by the defendant that the sale agreement and the side-letter were tainted with fraud and illegality, and so could not be enforced. The judge held that there was no sufficient evidence to support these claims, which he accordingly rejected, and as to that there is no appeal. Apart from that, however, the defendant pleaded in his defence that the provisions contained in paragraph 6 of the side-letter constituted penalties and were accordingly unenforceable. He then counterclaimed that if, which he denied, paragraph 6 was valid and enforceable, he ought to be granted relief, which was described as "relief from the forfeiture of his said shares."


In a reserved judgment delivered on 23rd January, 1987, after the trial of the action, Harman J. held that paragraph 6(b) of the side-letter was indeed a penalty clause, but he held that the effect of that was not that the clause was unenforceable or to be "blue-pencilled out", but that, all other things being equal, the defendant might in the discretion of the court be granted relief under his counterclaim. He then at the defendant's request adjourned the hearing of the counterclaim to 9th February. It appeared, however, after Harman J. had given judgment on 23rd January 1987, that the defendant was then in default in complying with certain undertakings given to the court in November 1986 to disclose documents relating to the defendant's own recent financial circumstances. Harman J. accordingly extended the defendant's time for compliance with those undertakings to the close of business on 30th January 1987, but as by that time the defendant still had not complied with the undertakings, Harman J. on 5th February struck out the counterclaim for relief. There is no appeal against the striking out.


The defendant challenges by this appeal the judge's ruling that, although a penalty clause, paragraph 6(b) of the side-letter creates an enforceable obligation from which the only escape for the party bound would be by relief, akin to relief against forfeiture, granted to that party by the court in its discretion. The defendant submits that the true view is that paragraph 6(B), being a penalty clause, is unenforceable. Thus the defendant relies on his defence that the penalty clause is unenforceable, and says that he does not need to rely on his counterclaim for relief, which has been struck out. The position on the record is that if the defendant fails on this submission the appeal must fail because the striking out of the counterclaim is not challenged.


The plaintiff's submission is that the law as to penalty clauses is that a penalty clause creates a binding obligation which the courts will enforce unless the courts see fit to grant equitable relief. This view of the law Harman J. accepted in his judgment of 23rd January 1987—contrary, as he said, to his initial reaction when the proposition was first advanced. The plaintiff submits that if this view of the law is correct, it must follow that, as the counterclaim for relief was struck out, the court cannot give the defendant...

To continue reading

Request your trial
56 cases
1 firm's commentaries
  • Does Andrews v ANZ herald the end of time bars under construction contracts?
    • Australia
    • Mondaq Australia
    • 7 May 2013
    ...event; a penalty does not need to be a requirement to pay a sum of money (the High Court cited the decision in Jobson v Johnson [1989] 1 All ER 621); and the NSW Court of Appeal's view in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292 that the modern ru......
1 books & journal articles

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT