Woodfull and Lindsley and anor
| Jurisdiction | England & Wales |
| Judge | Sir Martin Nourse,Lord Justice Thorpe |
| Judgment Date | 19 February 2004 |
| Neutral Citation | [2004] EWCA Civ 165 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 February 2004 |
| Docket Number | Case No: A3/2003/1227 |
[2004] EWCA Civ 165
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
HIS HONOUR JUDGE WEEKS QC
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Thorpe
Lord Justice Arden and
Sir Martin Nourse
Case No: A3/2003/1227
M. Gadd Esq (instructed by Withy King) for the Appellant
G Adams Esq (instructed by Davy son & Jones) for the Respondent
On 27 th November 2002 His Honour Judge Weeks QC, sitting as a judge of the Chancery Division in Bristol, delivered a reserved judgment in an action between former partners in a business of screen process printers and point of sale display manufacturers carried on at Cirencester, latterly at an address in Wilkinson Road, under the name "Thumbprint". On 20 th May 2003, after further argument, the judge made an order in a form to be agreed between counsel, the order being entered on 7 th July 2003.
Each side now complains about a single provision of that order, namely a declaration:
"that the above-named Robert Wayne Woodfull ("Mr Woodfull") is liable to account to the above-named Frank Jefferson Lindsley ("Mr Lindsley") and Christoper Graham Webb ("Mr Webb") for the profits earned by Time and Place Ltd by reason of any contract made before 18 December 1998 between Time and Place Ltd and Colt Car Company Ltd."
Each complaint is directed to the cut-off date for Mr Woodfull's liability to account. He says that it ought be 30 th September 1998, being the date agreed for his retirement from the partnership. Mr Lindsley and Mr Webb say that there is no cut-off date and that the liability to account is indefinite. The judge granted each side permission to appeal against his decision on this question, and each has appealed accordingly.
At the beginning of his judgment the judge said that the dispute raised some difficult questions of fact and law. That made it necessary for him to describe the background and make findings of fact at some length. At this stage the following abbreviated statement of the facts, much of it in the judge's own words, will provide an adequate background to the question of law we have to decide.
The three partners carried on business together from 1982 to 1998. In 1982 the partnership accountants circulated a draft partnership agreement, but the blanks were never filled in and the agreement was never completed or signed. So the partnership was an oral partnership at will. By the 1990s the partnership was trading successfully and one third of its turnover came from a company called Colt Car Company Ltd. ("Colt"), which was also based in Cirencester.
On 11 th June 1997 a company called Time and Place Ltd ("TP") was incorporated, its two shares being issued to Mr Woodfull and his wife, he being appointed sole director and she the secretary. It was the case of Mr Lindsley and Mr Webb at the trial that Mr Woodfull, without their knowledge or consent, diverted to TP a maturing business opportunity for a 12 month contract with Colt, for which he had been negotiating on behalf of the partnership. Immediately after its incorporation TP began operating hospitality caravans for Colt. The business was profitable and none of the profit went, as it ought to have done, to the partnership.
On the evidence, the judge accepted Mr Lindsley's and Mr Webb's case and held that Mr Woodfull was in principle personally liable to account to the partnership for profits earned from contracts concluded by TP with Colt. He also found that Mr Woodfull had told the other two partners that TP was not his company and had therefore been guilty of misrepresentation. Mr Woodfull has not sought to question those elements of the judge's decision in this court.
On 16 th June 1998 Mr Woodfull wrote to the other two partners as follows:
"It is with regret that I inform you that as of today's date I give you notice of my intention to terminate our partnership and other business arrangements.
This has not been an easy decision but I now believe that the differences in style and direction between us are irreconcilable.
It is not my wish to cause either of you more hassle than necessary, so I suggest a meeting at the earliest possible time to establish how you wish to proceed."
The story can be taken up in the words of the judge:
"Mr Woodfull instructed the partnership solicitors to draft a retirement deed. On 10 th July, the three partners met the partnership accountant at Wilkinson Road. Draft accounts for the partnership up to May 1998 were produced and discussed. The partners agreed that Mr Woodfull should retire and be paid £150,000 for his share in the partnership. This sum included his interest in Wilkinson Road and was agreed on the basis of an estimate of the value of property. If a different valuation was obtained, the sum was to be adjusted accordingly. As a result, it was later agreed that the £150,000 should be reduced to £130,000 and it was also agreed that the retirement should take effect on 30 th September 1998, a date convenient to Mr Woodfull for tax purposes….."
The judge then referred to a payment to Mr Woodfull of £30,000 on account, which he told Mr Lindsley he wanted to invest in TP. The judge continued:
"The partnership solicitors sent out a draft deed of retirement to all partners on 6 th November. Mr Lindsley and Mr Webb then learnt, either from the solicitors or from the accountants, that Mr Woodfull was already the owner of Time and Place Ltd. They were shocked and consulted solicitors…….."
On 16 th December 1998 their solicitor wrote to Mr Woodfull, stating that she was instructed that his retirement date, as shown on the retirement deed, was 30 th September 1998. Having then set out the assets he had received in part payment on account of his share, she said:
"I understand that offers have been made by my clients to settle this matter. However, you have rejected their offers and have threatened my clients with dissolution of the partnership.
Since you are now retired, you have no recourse to the provision in the Partnership Agreement as to giving notice of dissolution."
On the second page, after two further paragraphs, the letter continued:
"Furthermore it has come my clients' attention that you are in breach of the Partnership Agreement, in that you set up and ran a company known as 'Time and Place', registered with the partnership's solicitors, as your own concern. All profits were retained by you save for a small administration fee paid to my clients.
Although my clients agreed to this business being set up, it was on terms that it was to be of the same nature as that business known as 'The Moving Poster Company'. My clients at no time were made aware of your true intentions. I understand that your turnover from 'Time and Place' over the last 12 months was in the region of £170,000.
You are therefore in breach of clauses 6(a), 8(a), and (b), and 9(a) in the Partnership Agreement. Our clients reserve their right to sue for those breaches and their subsequent losses, including the profits which have accrued to you as a result of the turnover as set out in the paragraph above. You will be aware that this may have repercussions on others involved in the startup and management of 'Time and Place' besides yourself."
The judge thought, and I would agree, that the reference to the partnership agreement was a reference to the uncompleted and unsigned draft circulated in 1982. He pointed out, however, that the solicitor's letter, having stated that Mr Woodfull was now retired, affirmed the agreement of the other two partners to accept his retirement. Later, the judge said:
"It is accepted that there was a concluded agreement in 1998 that Mr Woodfull should retire on 30 th September and be paid £130,000, and it is not sought to set that agreement aside. There is therefore no question of dissolution."
In regard to the cut-off date for Mr Woodfull's liability to account, the judge said:
"The question of how many years profits Mr Woodfull must account for is difficult. Mr Adams, for the other partners, submits that he remains liable indefinitely and relies on Don King Productions Inc v Warren [2000] Ch. 291. In that case the Court of Appeal held that the benefit of all contracts concluded by a partner before the final winding up was held on trust for the partnership because the partnership and each partner's obligations were deemed to continue for the purposes of winding up.
In the present case there is no question of dissolution. Mr Woodfull ceased to be a partner when he retired on 30 th September 1998, and his obligations to his partners ceased then, while the partnership continued between the other two."
Having read paragraph 43 of Morritt LJ's judgment in Don King Productions [2000] Ch. at 342, by which he said he was troubled, the judge continued:
"That reasoning might lead to the proposition that a former partner would for ever be under a duty to renew a contract because the goodwill which might assist him to do so was a partnership asset. That seems to me an extreme position which I ought not to apply to the facts of this case. On the other hand, I do not think it right to take 30 th September 1998 as a cut off date.
For reasons which I will explain later, I think the contract for Mr Woodfull's retirement was voidable, and so I will take the date of the decision to affirm it, i.e. 18 th December 1998, as a more appropriate date. Mr Gadd reminds me that affirmation operates retrospectively. Nonetheless, I think it right to hold that Mr Woodfull ought not to benefit from his misconduct and that the retirement...
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