John and Others v Price Waterhouse (A Firm) and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Robert Walker,Sir Martin Nourse,Lord Justice Pill |
| Judgment Date | 24 June 2002 |
| Neutral Citation | [2002] EWCA Civ 899 |
| Docket Number | Case No: A3/2001/1357 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 June 2002 |
[2002] EWCA Civ 899
Lord Justice Pill
Lord Justice Robert Walker and
Sir Martin Nourse
Case No: A3/2001/1357
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (FERRIS J)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mark Howard QC and Neil Calver (instructed by Eversheds) for the appellants
Mark Hapgood QC and Cyril Kinsky (instructed by Barlow Lyde & Gilbert) for the respondent
Michel Kallipetis QC and Simon Monty (instructed by Ince & Co) for the Part 20 defendant
Introduction
This is a preliminary issue in an appeal by Sir Elton John and three associated companies ("the EJ companies") against an order of Ferris J made on 11 April 2001. By that order, and a consequential order made on 6 June 2001, Ferris J dismissed an action by Sir Elton and the EJ companies against Price Waterhouse ("PW"), the well-known accountants who have since become PricewaterhouseCoopers, and Mr Andrew Haydon. PW is the only respondent to the appeal.
Sir Elton was knighted in 1998 but it is simplest to refer to him throughout by his present title. The claim made by Sir Elton and the EJ companies against PW and Mr Haydon was based on allegations of breaches of duty by them in connection with a management company called John Reid Enterprises Ltd ("JREL"). JREL took its name from Mr John Reid, who was from the 1970s both a close personal friend of Sir Elton and the manager and administrator of his business affairs. The thrust of the claims was that PW (as auditors and financial advisers) and Mr Haydon (as an officer of the EJ companies during the late 1980s and early 1990s) had failed to ensure that certain costs and expenses incurred in connection with Sir Elton's highly successful musical activities were borne by JREL (rather than by the EJ companies and so, ultimately, by Sir Elton).
Before the judge this claim was pursued against both defendants in respect of two categories of costs. The first category was generally referred to at trial as the tour agents' costs (although it was recognised that this might be a misnomer). The second category was the salaries and expenses of three particular individuals on Sir Elton's personal staff. This second category is not a live issue on the appeal, nor is a claim in respect of the first issue pursued against Mr Haydon. The only live issue on the appeal is that of PW's liability in respect of the tour agents' costs.
The supervising lord justices have taken the unusual course of directing a preliminary issue in this court. The circumstances in which they did so are that PW's primary defence to the claim was that they had not been in breach of duty because the tour agents' costs were indeed, on the correct understanding of the parties' contractual arrangements, intended to be borne by the EJ companies (and not by JREL). If that was not correct as a matter of construction, PW relied on a variety of further defences, including (but not limited to) a denial of breach of duty, a denial of any loss caused by any breach, and reliance on the Limitation Act 1980.
At the start of the trial the judge was asked to hear and decide the issue of construction as a preliminary issue. That course had obvious attractions, not only in possible savings of time and costs, but also in enabling the judge to consider the issue of construction without having to hear and then shut out from his mind all the evidence on the issue of what was called quasi-rectification. On that part of the case PW contended that if the contract between Sir Elton and his companies (on the one hand) and JREL and Mr Reid (on the other hand) did provide for the latter to bear the tour agents' costs, then JREL and Mr Reid would have been able to obtain rectification of the contract, a management agreement dated 14 March 1986 ("the 1986 agreement"). This claim was pleaded in detail in paragraph 43 of the defendants' reamended defence and counterclaim. In fact there never were any proceedings claiming rectification, because Sir Elton and Mr Reid resolved their differences by a compromise agreement entered into on 15 May 1998 (an event which is relied on as a further defence to the claim against PW).
The judge recognised the attractions of hearing a preliminary issue as to construction of the 1986 agreement (and in particular, clause 7 of that agreement). But after hearing argument he did not think it right to adopt that course, for reasons which he set out as follows:
"On the face of it this part of the claimants' case depends upon a concise point of construction of a written agreement. It is one which, at an early stage of the trial appeared to me to be capable of being determined as a preliminary issue, a course which would have had a number of attractions. In the event I was persuaded it was not practicable to deal with it in this way. In arriving at this conclusion I was influenced by the fact that it seemed that there would be prolonged argument about what material constituted the relevant factual matrix."
A little later in his judgment, after referring to Lord Hoffmann's well-known speech in Investors' Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912–3, the judge stated:
"The fact that it proved impracticable to determine as a separate issue the question of the true meaning of Clause 7 means that I have heard evidence not only of matters which go to make up the factual matrix surrounding the making of the 1986 Agreement but also in respect of the quasi-rectification point. This evidence, so far as it goes beyond what is needed to establish the factual matrix, is not admissible for the purpose of construing the 1986 Agreement. While I cannot escape the fact that I have heard it, I am very conscious of the fact that I must endeavour to put such inadmissible evidence out of my mind when I am deciding the meaning of the 1986 Agreement.
However I clearly can and should take into account the factual matters which I have described at some length in the preceding sections of this judgment, so far as those facts existed at the date of the 1986 Agreement. All this material was known to, or at least was reasonably available to, the parties to that Agreement."
In the event the judge decided the issue of construction in favour of the defendants and that was determinative of the case, although the judge saw it as his duty to deal with the other issues, especially where findings of fact were required. It will be necessary to come back to the appellants' criticisms of the judge's approach to the factual matrix of the issue of construction. But no significant criticism is made of the judge's findings of fact, as such. With the advantage of having the judge's clear and thorough judgment (which runs to 448 paragraphs in all, 133 of which relate to the issue of construction) the supervising lord justices thought it right to direct that there should be a preliminary issue in this court (with the rest of the appeal to follow after an interval of a few weeks, if the appellants win on the issue of construction).
General background
The 1986 agreement was the third of a series of management agreements with JREL entered into by Sir Elton and his companies. The first set of agreements was entered into in 1973 (for three years) and the second set in 1977 (for five years, but extended by agreement and varied from time to time).
The general background to all these agreements was that Sir Elton (who was born in 1947) began his career in the late 1960's. He became an international star in the 1970s and since then his career has been continuously successful. At first he was managed by an organisation called Dick James Music, but from the early 1970s he was managed by Mr Reid through the medium of JREL. During the 1970s the general picture was, the judge said, one of inadequate financial controls, both of Sir Elton's business affairs and of JREL itself.
In 1980 Sir Elton retained Arthur Anderson ("AA") as accountants and financial advisers, and under their influence steps were taken to improve financial controls. In 1981 Mr Haydon, a chartered accountant, was employed by JREL, and he occupied increasingly senior positions in JREL. In or soon after 1986 he also became an officer (either director or secretary or both) of the EJ companies, that is Happenstance Ltd ("Happenstance"), William A Bong Ltd ("Bong") and J Bondi Ltd ("Bondi").
Particulars of these companies are given near the beginning of the judge's judgment. For present purposes it is sufficient to note that each of the companies employed Sir Elton for a particular field of his musical activities, on terms (embodied in a written service agreement) that virtually the whole of the company's income was payable (or could be made payable) to Sir Elton. The fields of activity were, in the case of Happenstance, overseas tours between 1982 and 1986; in the case of Bondi (which was a wholly-owned subsidiary of Happenstance), overseas tours as from 20 October 1986; and in the case of Bong, activities in the United Kingdom and the Republic of Ireland. There were some other companies, including Sackville Productions Ltd ("Sackville") and The Rocket Record Company ("Rocket") which played minor parts in the story.
It is also unnecessary to go far into the detail of the agreements made in 1973 and 1977. Under the first set of agreements (made between Bong, Sackville and JREL) JREL was to receive, as Sir Elton's manager, commission of...
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