[View without highlighting]
[Printable RTF version]
||Neutral Citation Number:  EWCA Civ 1151
||Case No: B2/2010/1416
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BRISTOL COUNTY COURT
HIS HONOUR JUDGE DENYER QC
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
PRESIDENT OF THE FAMILY DIVISION
SIR NICHOLAS WALL
LORD JUSTICE RIX
LORD JUSTICE MOORE BICK
|| Christie Owen & Davies plc
||- and -
||RAOBGLE Trust Corporation
Mr Duncan Macpherson (instructed by Royds Solicitors) for the Appellant
Mr George Branchflower (instructed by Ware & Kay Llp) for the Respondent
Hearing dates : Wednesday 15th June 2011
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Rix :
- This is an appeal about an agent's commission. The judge, HHJ Denyer QC, found that it had not been sufficiently proved that the undoubted introduction to the property or business concerned, by the agent, of a Mr Chris Kimitri, during the period of the agent's sole selling rights, had anything to do with the later sale of the business property by the agent's client. The agent appeals against that conclusion. It submits that there was ample evidence that the ultimate purchaser was a partnership involving Mr Kimitri; and that from beginning to end Mr Kimitri was involved as a purchaser, even if the property was taken in the name of one of his partners and then transferred to a corporate vehicle of the partnership. The agent also applies for permission to adduce further evidence deriving from Mr Kimitri to add to the evidence already before the judge at trial.
- The agency contract contained the following clause:
"Purchaser shall include anyone acting on behalf of the eventual purchaser…
When and how does the liability for payment arise? You will be liable to pay an agency fee under this sole selling rights agreement in addition to any other costs or charges agreed, in each of the following circumstances:
(a) if contracts for the sale of the business are unconditionally exchanged in the period for which we have sole selling rights, even if the purchaser was not found by us but by another agent or by any other person, including yourself,
(b) if contracts for the sale of the business are unconditionally exchanged after the expiry of the period during which we had sole selling rights but to a purchaser who was introduced howsoever to a business by anyone, including yourself, during that period or to a purchaser with whom you had negotiations or with whom we had negotiations about the business or to whom we provided particulars of the business during that period."
The facts and the issue on this appeal
- Some of the facts are not in dispute. The significance of others is in dispute.
- The claimant, here the appellant, is a substantial firm of commercial agents which specialises in the sale of businesses and business properties: Christie Owen & Davies plc (the "agent"). The agent was commissioned by the defendant, here the respondent, a charity known as the Buffaloes, or to give it its proper name the RAOBGLE Trust Corporation or, in full, the Royal Antediluvian Order of Buffaloes Grand Lodge of England (the "vendor"), to sell a convalescent home called The York, at 1-3 St Margaret's Terrace, Weston-Super-Mare, in Somerset (the "property"). The agent and the vendor entered into a sole selling rights contract which the vendor signed on 11 May 2007 (the "contract"). The contract gave the agent sole selling rights for a period of at least six months commencing with 10 May 2007, terminable in the sixth month by the vendor on giving four weeks' notice and otherwise extending until terminated by four weeks' notice given by either party. The clause recited above defining the event upon which the agent earned its commission meant, broadly speaking, that the agent earned its commission if it introduced the purchaser to the vendor within the period of the contract, even if that ultimate purchase took place outside that period. Moreover "purchaser" was given a broad meaning. The contract named £1 million as the (guide) asking price.
- The contract was terminated by the vendor's notice dated 10 October 2007 (at the earliest possible moment), and that termination took effect on 10 November 2007.
- During that period the agent introduced Mr Kimitri to the vendor, in July 2007. Mr Kimitri was a businessman in the Greek-Cypriot community in Weston-Super-Mare, and also a local councillor (albeit he was disqualified from being a company director). He owned a restaurant on the sea front, the Nook & Harbour. His wife owned a number of properties in the town, including one to the rear of the property, which was also on the sea front. By 19 July 2007 Mr Kimitri had already entered into a memorandum of sale, subject to contract, for the purchase of the property from the vendor at a price of £940,000. The judge accepted that Mr Kimitri was keenly interested to buy the property.
- However, Mr Kimitri ran into difficulties in funding the purchase, and subsequently made a revised offer of only £840,000, which was not acceptable. As a result Mr Kimitri's solicitors were requested by the vendor's solicitors to return the papers, which they did, in January 2008. That ended the first stage of the negotiations.
- By March 2008 the vendor had decided to sell the property through Savills at auction in London. It informed the agent of its plans and of the date of auction, to be on 12 May 2008. The matter was handled at the agent by Mr Russell Brooks, who made a contemporaneous and detailed log of all events running from 31 July 2007 down to 14 May 2008. The judge said he had no doubts at all about the honesty of Mr Brooks and had no reason to doubt the accuracy of his log. Mr Brooks informed Mr Kimitri of the vendor's intentions. Mr Kimitri expressed disappointment, for he remained interested in the property. On 28 April 2008 Mr Brooks spoke to Mr Kimitri again and was told that Mr Kimitri would attend the auction. In the meantime it is clear from Mr Brooks' log that Mr Kimitri remained keenly interested in the property.
- On 12 May 2008 the auction took place. Mr Kimitri was there, with his relative, Mr Kyriacos Pavlou, another member of the Greek-Cyrpiot business community in Weston-Super-Mare. The property failed to meet the auction reserve.
- It is the agent's case that after the failure at auction Mr Kimitri and Mr Pavlou negotiated a purchase of the property at £950,000, for a partnership comprising those two and a third relative and friend, Mr John Tsaroullas. The sale was expressed, however, as a sale to Mr Pavlou personally.
- The judge did not deal with what happened at Savills' premises after the auction, nor even record that the property failed to sell: save to record in bare outline that Mr Pavlou purchased the property for £950,000 and paid a deposit of £95,000. The judge referred to the sale memorandum dated 12 May 2008. He also said that "in respect of what was taking place at and immediately after the auction, I do prefer the evidence of Mr Patel and Mr Gale for the defendants, so far as that is relevant in this case." Mr Arvind Patel was the corporate trust director of the vendor. Mr Robert Gale was the retired general manager of the vendor. Both attended the auction (as did quite a number of other vendor representatives). The judge does not say why he preferred the evidence of Messrs Patel and Gale, other than that he was not persuaded by the evidence of Mr Kimitri (he did not mention the evidence of Mr Pavlou) that the purchase had been for their partnership. I cannot for myself see where the evidence of Messrs Patel and Gale undermines the evidence of Messrs Kimitri and Pavlou in any relevant respect. On the contrary, Mr Gale said that after the deal was done (by Savills), the vendor's representatives (other than Mr Patel) and Messrs Kimitri and Pavlou all went for a drink in the pub. Mr Gale himself did not know them although his colleagues knew Mr Kimitri. Mr Gale said he was not aware of the identity of the buyer, however "I became aware while we were in the public house, that Mr Pavlou had made the bid. Mr Kimitri said something like "I got my own way in the end". That gave me the impression that he had been involved somehow". The judge did not mention this revealing evidence.
- Savills' sale memorandum simply records that the vendor agreed to sell and Mr Pavlou agreed to buy the property for £950,000 and that a deposit of £95,000 had been paid. It incorporates Savills' sale conditions.
- The narrow issue on this appeal, during the course of which the submissions of counsel have clarified the limited extent of the parties' current dispute, is whether at the time of Mr Pavlou's agreement to purchase the property he was doing so on behalf of an already existing partnership comprising Mr Kimitri and Mr Tsaroullas. It is conceded by Mr George Branchflower on behalf of the vendor that those three relatives and friends, Mr Pavlou, Mr Tsarouallas and Mr Kimitri, as of the time of the agreement on 12 May 2008, intended to form a partnership to exploit the property; but it is said that that intended partnership had not yet come into existence as of that time.
- Mr Branchflower also concedes that if that partnership had already existed as of 12 May 2008, then the agent is entitled to its commission, for the fact that the purchase was ultimately taken in the name of one only of the three partners would not prevent the original introduction having been made to a "purchaser" within the meaning of the contract: see Christie Owen & Davies plc v. Ryelance  18 EG 148 (CA) at paras 12/13 (Mr Recorder Main QC, 13 April 2005). There the introduction during the currency of the agency contract was to an individual, but the ultimate purchase was made by a corporate vehicle which had not even been incorporated until after the agency contract had been terminated. Nor would it matter that at the time of the introduction within the currency of the contract Mr Kimitri was not as yet acting as a partner for the partnership which on any view had not yet been formed. As it seems to me there is a good sense in that concession. If the property was bought for a partnership which included Mr Kimitri, then the introduction to Mr Kimitri was instrumental for the ultimate purchase and Mr Kimitri qua partner was himself a "purchaser", and Mr Pavlou was merely an agent for the partnership and the partners.
- So the limited issue on this appeal is whether the partnership of Messrs Pavlou, Tsaroullas and Kimitri was already in existence on 12 May 2008. If it was, then the vendor accepts that it is responsible for the agent's commission. If it was not, then the sale was simply to a third person, Mr Pavlou (and, as will be seen, his corporate vehicle).
- Mr Branchflower's concession has simplified this appeal. At trial Mr Branchflower had, it seems, taken a broader point, or had at any rate been understood by the judge to have taken a broader point, to the effect that there was no evidence whatsoever of a partnership comprising the three friends. In effect the vendor invited the judge to disbelieve the evidence of Mr Kimitri and Mr Pavlou. The judge accepted that submission: he said (at para 23 of his judgment) that "other than the assertions in the witness statements and in the witness box absolutely no evidence as to the nature, working and running of any partnership has been provided"; and (at para 26) that "there is no formal documentation about the partnership, and certainly, as I say, absolutely no evidence to indicate that The York is partnership property" (emphasis added). The judge was particularly impressed that there was, as he believed, no documentary evidence (there was however Mr Kimitri's and Mr Pavlou's sworn testimony, and there was, as will appear, more besides) that Mr Kimitri had ever contributed to the purchase cost of the property. Thus he said:
"28. So the evidence, if such it be, for Mr Kimitri being a purchaser within the ambit of clause 5(b) seems to me to be extremely exiguous. It is not supported by any documentation, and I have made the point that I allow for family arrangements, it is directly contrary to the official legal documentation which does exist. There is no formal evidence of the payment of money by him towards the purchase, and there is no evidence as such that the premises (a) constitute partnership property; or (b) what the partnership is."
- As will appear below it is impossible to say that there is absolutely no evidence about a partnership between the three gentlemen to purchase the property. There is a great deal of evidence. In the course of Mr Duncan Macpherson's cogent submissions on behalf of the agent, it became increasingly clear that the judge's approach to the case was prima facie unsustainable. It was at this point that Mr Blanchflower clarified the sole issue for this court: was it enough that the three gentlemen had intended to form a partnership to take effect after the purchase of the property, eg by running a restaurant there or otherwise exploiting the property, if they had not yet commenced to do so? Or could it be said that the initial purchase of the property was itself the putting into effect of the partnership?
- Before I seek to answer that question, I should briefly set out the witness and documentary evidence which the judge to a very great extent ignored (or else sought to discount). I shall do so in less detail than might have been necessary if the issue on appeal had not been confined in the way I have indicated. It must also be borne in mind that Mr Kimitri and Mr Pavlou (who gave evidence for the agent) were not giving evidence on their own behalf. The claim was the agent's. Messrs Kimitri and Pavlou were independent parties who had no axe to grind as to whether the vendor did or did not owe a commission to the agent (on top of the fee which it had had to pay to Savills) – although the judge did speak of a "slight animus" against the vendor on the part of Mr Kimitri. The agent had to subpoena Messrs Kimitri and Pavlou to obtain their evidence. It had no real power, especially given the limited efforts which a relatively small claim (some £45,000) would justify, to obtain all their papers.
- In his witness statement Mr Kimitri explained his interest in the property. He already managed one restaurant on the sea front. His wife had property to the rear of The York. There was an opportunity to develop the combined site as a whole, and to turn the sea front premises into a bar/restaurant. However he could not finance the purchase by himself, so he needed a partner or partners. He went with Mr Pavlou to the auction and bid up to £940,000, but the lot failed to sell (it clearly had a reserve at a higher price). After the auction he spoke to Savills and was told it would be possible to negotiate a private sale. He confirmed his interest. He said "my family colleagues and I made an offer, this time we offered £950,000". This was accepted. The purchase had to be financed: "we secured a bank loan in all three names, together as a partnership, not as an incorporated body". They had later wished, however, to purchase using a corporate vehicle, but the vendor refused to sell to anyone but Mr Pavlou (and did not want to sell to Mr Kimitri). The bank therefore had to amend the financing documentation: the purchase would be taken by Mr Pavlou but there would be an immediate transfer to P&T (WSM) Limited of which Mr Pavlou was the sole director, and Mr Tsaroullas the company secretary; however the three partners had to guarantee the loan, and insured the property. He said that the "true owners (by which I mean those persons having equal shares in the business) are myself, Mr Pavlou and John Tsaroullas". He later confirmed in his oral evidence that the three partners had an agreement for equal shares in P&T (WSM) Ltd, albeit undocumented as yet.
- Mr Pavlou gave detailed (and perhaps more precise) evidence to similar effect. His statement said:
"4. Back in about March or April 2008 I was contacted by my friend, Mr Chris Kimitri about an investment possibility. Chris also contacted John Tsaroullas. We are all members of the Greek Cypriot Community in Weston-Super-Mare, and we are in fact related. Chris explained that he had been trying to purchase The York, but needed partners to come in with him…
5. Each of us was to be a partner in the business and we would each raise one third of the purchase monies. We decided that we would create a new company to buy the property and through that company carry out the development required to convert The York from a convalescent home into a seafront bar and restaurant and hotel. John, Chris and I would be one third owners however, Chris is disqualified from being a Company Director so John and I would be appointed, and we would manage the business using Chris' experience to guide us. Chris Kimitri is the owner of the Weston-Super-Mare seafront restaurant, The Nook & Harbour.
6…Chris Kimitri and I attended [the auction] and proceeded to make bids up to £940,000 at which point we dropped out. I think that the bidding continued, but anyway, we could not go beyond £940,000. The York did not sell and was withdrawn. The auctioneers later explained that this was because it did not reach its reserve.
7. As Chris Kimitri and I were leaving the auction room we were stopped by a representative from Savills. He introduced us to the representatives from the Trustee company that owned The York, and invited us to discuss a private sale. We explained that we had gone to our financial limit, but negotiations continued and standing there in the Ballroom at Claridges we agreed to buy at £950,000."
- Mr Pavlou went on to explain that the purchase was taken in his name because the vendor's representatives were anxious not to use the name of Mr Kimitri, because of his previous dealings with the agent. (If Mr Gale's witness statement is correct, the insistence on Mr Pavlou's name must have come from Savills. No one from Savills gave evidence, but they would probably have been aware of the danger of two sets of commission.)
- Thus the evidence was that Savills got a deal for £950,000 from Mr Kimitri and Mr Pavlou, and then discussed how the contract was to be signed. There was no challenge in cross-examination to this evidence that the two cousins had gone to the auction to bid and buy as partners (and for Mr Tsaroullas as well). Mr Branchflower explained that he had not intended to challenge this evidence in cross-examination, because an intention or agreement to form a partnership did not make a partnership. He submitted that the fact that the sale memorandum was taken in Mr Pavlou's sole name meant that the partnership never matured into existence.
- The judge made no reference to Mr Pavlou's evidence.
- In fact, the evidence of Mr Kimitri and Mr Pavlou was supported by a wealth of contemporaneous documentary evidence. Mr Russell's log for the date 14 May 2008 (two days after the auction) records: "Spoke with Chris Kimitri and confirmed he has agreed to buy The York with the vendors directly, after the auction. The price agreed is £950.000 and contracts were exchanged on the day with completion agreed to take place within three months". The judge accepted the accuracy and honesty of this log, but remarked "That may well have been the understanding of Mr Brooks". That disparagement of this evidence makes no sense. If it was Mr Brooks' honest understanding, it was because that was what he was told. Mr Brooks of course had an interest in evidence that would support his firm's claim to its commission, but Mr Kimitri had no interest at all in misleading him in this respect. (Later, however, he did have a contrary interest in downplaying his involvement, because the vendor was certainly creating difficulties about selling, nominally, to anyone but Mr Pavlou: see below.) Mr Brooks gave evidence and was not challenged on this log entry.
- Secondly, Mr David Hyams of the firm of Ware Kay LLP, the vendor's solicitors, made an attendance note dated 12 May 2008 which confirms that "Kimitri and others" had turned up at the auction and, after the property had failed to meet its reserve of £1.1, had "confirmed they were prepared to offer £950,000". He spoke of the "Buyers" and of "they". It is illuminating that he referred to "Kimitri and others". It was of course Mr Kimitri who was well known to the vendor and its solicitors as the party who was keen to purchase the property. This is the contemporaneous note of the vendor's own solicitor. Mr Hyams was present at the auction with the vendor's representatives (see Mr Gales's witness statement at para 6).
- Thirdly, Savills' sale conditions expressly contemplate that a buyer may act as an agent, viz "You are personally responsible to buy even if you are acting as an agent. It is your responsibility to obtain an indemnity from the person for whom you are the agent."
- Fourthly, the original finance agreement arranged by the partners with the NatWest Bank (before it was changed to provide for the finance to be given to the three friends' corporate vehicle) referred to the partnership as the customer, viz "Christopher Kimitri, John Tsaroullas and Kyriakos Pavlou (the "Customer") being the partners of Kimitri, Tsauroullas and Pavlou (the "Partnership"). The document is signed for the Bank and by all three partners. It refers to an interest rate as of 16 May 2008, ie almost immediately after the day of auction and purchase, which was presumably when the loan was negotiated. The loan was in the amount of £712,050. The balance was to be put up by the partners.
- Fifthly, insurance was arranged in the name of P&T Hotels Ltd and Mr Kimitri.
- Sixthly, Hall Ward & Fox were the solicitors who acted both for Mr Kimitri on his abortive purchase of July 2007 and for Mr Pavlou in respect of his purchase. In a letter dated 3 June 2008 from them to Mr Pavlou they explain that it is because of the vendor's fear that the Kimitri connection renders them potentially liable to the agent for its commission that it is only willing to permit the property to be conveyed to parties other than Mr Pavlou himself on condition that "the purchasing parties give the sellers a complete indemnity against any claimed agents fees".
- Seventhly, in a letter dated 23 September 2008 from Hall Ward & Fox to the Plymouth District Land Registry they explained that in his purchase "Mr Pavlou was acting on behalf of himself and others and intending to buy the property in consortium", but had signed the contract in his own name although he had provided a company cheque for the deposit. There had then been an immediate transfer to the company (P&T (WSM) Ltd) at the same price. The letter was to explain that in the circumstances Stamp Duty Land Tax had been paid only on the sale to the company.
- Eighthly, there was a local newspaper article of 4 September 2008 in the Weston & Somerset Mercury showing a photograph of Messes Pavlou and Kimitri, together with three representatives of the vendor (Messrs Steele, Patel and Allen), outside the property, stating: "The new owners of what could soon be a wine bar and 'up-market' continental-style restaurant signed on the dotted line on Friday…The businessmen, who are taking on the property in Knightstone Raod as part of a consortium, have already submitted a planning application…". The sale had been completed on 28 August 2008. Behind the legal formalities of a sale to Mr Pavlou and an immediate onsale to the partnership's corporate vehicle, the reporter, whose information presumably came from the persons assembled in the photograph, was likely to have been accurate in stating the pragmatic reality of the transaction.
- There was therefore certainly a considerable amount of contemporary and documentary evidence to support the witness testimony of Mr Kimitri and Mr Pavlou.
- There was one discordant note: an attendance note dated 4 June 2008 made by Mr Pavlou's solicitors of a telephone conversation with Mr Kimitri. This arose in the context of the difficulties which the vendor was putting in the way of altering the sale to a purchaser which would acknowledge the involvement of Mr Kimitri (see Mr Pavlou's solicitors' letter dated the previous day, 3 June 2008, referred to above). The note says:
"[Mr Kimitri] advised he has been made aware of the potential complications if he has any involvement in the transaction.
It would seem that he has approached the former agents and told them that whilst he is not currently involved in the transaction, he would very much like to be and would like to join in the purchase with Mr Pavlou and others."
- Mr Kimitri was questioned about this in cross-examination. He was very frank and said that he had lied to the agent. He had committed himself to the transaction, he had already arranged the NatWest finance to the partnership, he would have to pay his share of the unfinanced equity on completion: he could not afford the transaction not going through because the vendor was unwilling to countenance a deal involving him.
- It is plain, however, on all the other documents that everyone recognised that the truth of the matter was that he was involved: the agent (Mr Brooks), the vendor's solicitor Mr Hyams, Mr Gale of the vendor, Mr Pavlou's solicitors. It was simply that the vendor was hopeful of avoiding paying a commission to the agent (which had already submitted its invoice to the vendor on 14 May 2008) if the documentation of the sale only mentioned Mr Pavlou.
- There remained the question of the financing of the purchase. The documentation of that was not complete at trial. In particular there was no documentation to support Mr Kimitri's assertion in oral evidence (he had not dealt with this specifically in his witness statement) that he had contributed one third of the equity put in by the three partners over and above the NatWest loan to the corporate vehicle. He mentioned a figure from memory of about £88,000, which had come via a Cyprus account, paid to P&T Hotels Ltd at the time of completion. (P&T Hotels Ltd was the company on which Mr Pavlou had drawn the deposit amount, and also the source of the balance of funding at the time of completion, as was in evidence). Mr Pavlou had also said that the three partners had given personal guarantees for the bank loan to the company, which was not in evidence. It would be strange for Mr Kimitri to give a guarantee if he was neither a director of the corporate vehicle, P&T (WSM) Ltd nor a partner. The judge held it against Mr Kimitri and the agent that there was no documentation to support Mr Kimitri's evidence about his payment of one third of the unfinanced equity. But of course, Mr Kimitri had no obligation or interest to support the agent with his documentation and had to be compelled as a witness.
- In the light of the wealth of other evidence already before the court, there was no lengthy argument about the agent's application to adduce further evidence which had come forward from Mr Kimitri subsequently to trial. That application was nevertheless opposed by Mr Branchflower on the ground that, although he accepted it was credible, it could have been obtained for trial and, on his limited issue, would not have affected the outcome of the case. It has to be stated, however, that the new evidence shows that on 3 September 2008 Mr Kimitri drew a cheque for £85,017.43 on his company's account (CK Investments (Weston) Limited) in favour of P&T Hotels, which sum is shown as having been paid and debited to that account on 5 September 2008. Other missing material was also provided, such as the rearranged NatWest finance documentation in the name of P&T (WSM) Ltd, which included a requirement for guarantees from the three individuals.
- A witness statement of the agent's solicitor, Mr Stephen Welfare of Royds LLP, explained that although Mr Pavlou had consented to the release to the agent of his solicitors' file, that had not included the final NatWest document (only the superseded document in the name of the partnership) and Mr Kimitri had not been prepared to cooperate by digging up his documents. He was prepared to give a witness statement, in the expectation, however, that he would not have to attend trial. Ultimately, of course, he had been compelled to do so. Mr Welfare listed the very numerous requests that he had made to Mr Kimitri to provide his documents or to consent to an approach to his bank. But Mr Kimitri remained unwilling to assist in that way. However, at trial it had been suggested in cross-examination that he and Mr Pavlou had been dishonest witnesses, which had upset them. Following trial Mr Kimitri had contacted Mr Welfare with an offer to help, and the further documents produced were obtained.
- In my judgment, where an independent witness gives evidence which is challenged on the basis that he is lying, and which is not accepted by the judge for lack of documentary proof thereby casting a damning shadow over the whole of the claim; where that witness has to be compelled by the litigating party to give evidence, but has failed to cooperate in providing documentary material previously, in a claim for a relatively small amount; and where it is now accepted on appeal that the factual challenge which the judge, probably correctly, thought was being made is no longer pursued and it is accepted that the witnesses were being truthful when they gave evidence of their partnership, but the legal point is taken that that partnership had not yet matured into existence and could not do so until the contemplated enterprise is up and running; it would simply be unrealistic not to admit into evidence the documentary proof the absence of which had been held against the witness and thus the claimant and which is now accepted. It confirms Mr Kimitri's and Mr Pavlou's evidence that each of the three friends contributed one third to the equity in the business venture.
- Having said that, I do not believe that it is necessary or critical to the outcome of this appeal, which ultimately turns on Mr Branchflower's limited point.
The limited point
- Mr Branchflower succinctly submitted that although the three friends had intended to form a partnership, that partnership had not yet matured into existence and could not do so until the enterprise was up and running. Perhaps that point is reflected in the judge's observation that there was no evidence "of the nature, working, running of any partnership".
- In my judgment, however, that submission is wholly inconsistent with the decision of the House of Lords in Khan v. Miah  1 WLR 2123. That dispute on both sides concerned various parties to a restaurant venture. One of the plaintiffs and one of the defendants were to be chefs; another of the defendants was to be the manager, and a third defendant, who had business experience, obtained a lease of premises. Most of the money to establish the premises as a restaurant came from the second plaintiff. When the freehold of the premises became available, it was acquired at auction in the third defendant's name. It was agreed that half of the equity not covered by the bank loan would be put up by the second plaintiff and third defendant respectively. The former needed time to come up with his share. Relations broke down. The trial judge found that there had been a partnership already in existence, even if it was hard to identify the parties' interests and liabilities within it. The court of appeal disagreed, by a majority, on the ground that the relationship had terminated before the parties had commenced trading as a restaurant:  1 WLR 477. The House of Lords restored the judgment of the trial judge.
- Lord Millett (who gave the only substantive speech) said (at 2127B/G):
"I think that the majority of the Court of Appeal were guilty of nominalism. They thought that it was necessary, not merely to identify the joint venture into which the parties had agreed to enter, but to give it a particular description, and then to decide whether the parties had commenced to carry on a business of that description. They described the business which the parties agreed to carry on together as the business of a restaurant, meaning the preparation and serving of meals to customers, and asked themselves whether the restaurant had commenced trading by the relevant date. But this was an impossibly narrow view of the enterprise on which the parties agreed to embark. They did not intend to become partners in an existing business. They did not agree merely to take over and run a restaurant. They agreed to find suitable premises, fit them out as a restaurant and run the restaurant when they had set it up. The acquisition, conversion and fitting out of the premises and the purchase of furniture and equipment were all part of the joint venture, were undertaken with a view of ultimate profit, and formed part of the business which the parties agreed to carry on in partnership together.
There is no rule of law that the parties to a joint venture do not become partners until actual trading commences. The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it. Any commercial activity which is capable of being carried on by an individual is capable of being carried on in partnership. Many businesses require a great deal of expenditure to be incurred before trading commences. Films, for example, are commonly (for tax reasons) produced by limited partnerships. The making of a film is a business activity, at least if it is genuinely conducted with a view to profit. But the film rights have to be bought, the script commissioned, locations found, the director, actors and cameramen engaged, and the studio hired, long before the cameras start to roll.
The work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customers walk through the door. Such work is undertaken with a view to profit, and may be undertaken as well by partners as by a sole trader."
- Lord Millett went on to say at 2128D/E:
"The question in the present case is not whether the parties "had so far advanced towards the establishment of a restaurant as properly to be described as having entered upon the trade of running a restaurant," for it does not matter how the enterprise should properly be described. The question is whether they had actually embarked upon the venture on which they had agreed. The mutual rights and obligations of the parties do not depend on whether their relationship broke up the day before or after they actually transacted any business of the joint venture. The question is not whether the restaurant had commenced trading, but whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. Once the judge found that the assets had been acquired, the liabilities incurred and the expenditure laid out in the course of the joint venture and with the authority of the parties, the conclusion inevitably followed."
- In the present case the three friends had entered upon the joint venture to buy and develop the property when they bought it. The only question is whether they bought it as a joint venture, or whether Mr Pavlou had bought it entirely for himself. Mr Branchflower no longer submitted that he had bought it for himself, and if he had, it would on the evidence, even the evidence at trial unsupplemented by the additional financial documentation, have been an impossible submission. That would have been a different kind of nominalism. Mr Branchflower did, however, submit that the purchase of the property was not enough for the partners to have embarked upon the venture on which they had agreed. He said that they had to carry on a business from those premises. He pointed out that in Khan v. Miah the parties had done much more than simply buy the restaurant premises.
- However, in my judgment, those submissions will not do. On the facts of Khan v. Miah the parties there had indeed done more than just buy the premises: they had first leased them, and then fitted them out. Those were the facts of that case. But it is clear from the rationale of Lord Millett's speech that it would have been enough for the parties simply to have bought the premises to develop into a restaurant, as a joint venture partnership. In the present case the three friends formed a partnership to buy The York. It was at present a convalescent home. In the short run, pending development, it might have been run as a form of bed and breakfast or hotel, or student lodging. In the long run, the plan was to redevelop the site as a whole, and to fit out the seafront premises as a restaurant. Such plans might all lie for their execution in the future, but the first step of the joint venture was to acquire the property. A property may be bought as an investment, or for development, by a sole trader and likewise it may be bought by a partnership, even in the name of only one of the partners. In my judgment Mr Branchflower's limited point, on which he has been driven back by the cogent evidence in the case, is mistaken.
- For these reasons, I would allow the appeal. The agent is entitled to its commission.
Lord Justice Moore Bick :
- I agree.
President of the Family Division :
- I also agree.
Copyright Policy |
Donate to BAILII