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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Wood v Priestley & Anor [2016] EWHC 2986 (Ch) (25 November 2016) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2016/2986.html Cite as: [2016] EWHC 2986 (Ch) |
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CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
IN THE MATTER OF THE POPPLETON & APPELBY PARTNERSHIP
Oxford Row Leeds LS1 3BG |
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B e f o r e :
sitting as a Judge of the High Court in Leeds
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ANDREW PHILIP WOOD |
Claimant |
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- and – |
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(1) JEREMY JOHN PAUL PRIESTLEY (2) JOHN RUSSELL |
Defendants |
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Mark Cawson QC (instructed by hlw Keeble Hawson LLP) for the Defendants
Hearing date: 10 November 2016
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Crown Copyright ©
Judge Behrens:
1 Introduction
1. an application brought by the liquidators of F W Mason & Sons Ltd ("FWM"), any award that is made against him in those proceedings,
2. investigations into the affairs of P & A by the Department of Business Innovation and Skills and by the Insolvency Practitioners Association.
2 The underlying facts
1. That they had acted in breach of fiduciary duty in causing FWM to pay an improper referreal fee (of £22,500 plus VAT) to a firm of accountants (Haines Watts).
2. That they deliberately and/or dishonestly charged and drew from FWM's assets remuneration to which they were not entitled. A number of allegations are particularised. It is suggested that it is improbable that total time costs amounting to £1,219,860 could be genuine. It is alleged that P & A adopted a practice of time dumping. It is pointed out that the time charges are not supported by proper particulars of the work done. Some 31% of the administration fees are not supported by any narrative; some 49% of the liquidation fees are similarly unsupported. It is, however, to be noted that all of the fees charged by Mr Wood are supported by a narrative.
3. In the alternative that Mr Wood and Mr Wilson were negligent in drawing fees in excess of what they ought to have known represented their proper entitlement.
3 The Partnership Agreement
"Partners means the Partners and such other persons as shall become equity partners in the Partnership during the subsistence of the Partnership"
"Partnership means the practice of accountants carried on by the Partners in partnership under the name or style "Poppleton and Appleby" or any other name or style from time to time adopted".
"Partnership Business means the business from time to time of the Partnership".
"Any appointments taken by the Salaried Partner whether as liquidator, administrator, receiver or administrative receiver, supervisor, nominee or trustee or in any other capacity for the benefit of the Partners and shall be held on trust for the Partners. … Upon the termination of [Mr Wood's] employment any such appointment shall notwithstanding its personal nature continue to be held for the benefit of the Partners.
"The Partners undertake with the Salaried Partner to pay and discharge all liabilities of the Partners including all actions and proceedings in respect of negligence against the Partnership (save to the extent that any such liability is actually the subject matter of payment by the professional indemnity insurers of the Partners) and to indemnify and keep indemnified the Salaried Partner and his personal representatives indemnified against all such liabilities and against all claims, proceedings, costs, demands and expenses in respect of the same. The Partners undertake to use all reasonable endeavours to effect and maintain professional indemnity insurance in an amount and on such terms as the Partners from time to time deem appropriate, (such insurance to contain indemnity cover in respect of the professional negligence of the Salaried Partner) in respect of the Partnership Business."
4 The Settlement Agreement.
4.2 "[The Partners] shall procure that so far as necessary the Partnership or the Company shall:
4.2.1 take all reasonable steps to respond to and deal with the Investigations and the Claims, including instructing suitable legal and other professional advisors to respond to the Investigations and the Claims on behalf of the Partnership and on behalf of [Mr Wood];
4.2.2 bear all of the legal costs that the Partnership or the Company incurs in the Investigations and the Claims (including for the avoidance of doubt but without limitation any legal costs incurred in responding to the Investigations and Claims on [Mr Wood] behalf and not seek any contribution from [Mr Wood] towards those legal costs"
5.1 "For the avoidance of doubt, the indemnity in clause 11 of [the Partnership Agreement] shall continue to bind [the Partners] and shall remain in full force and effect both before and after the Termination Date.
5.2 To the extent that the Company has insurance cover of any form of risk that covers any Claims or the Investigations then the Company shall utilise such cover and take all reasonable steps to ensure that any financial liabilities incurred by [Mr Wood]in respect of any Claims are the responsibility of an insurer under the relevant insurance policy. For the avoidance of doubt and subject to 4.2 and 5.1 above, nothing in this clause 5.2 shall require the Company or the Partnership to meet [Mr Wood's] financial liabilities relating to any Claims or the Investigations.
5 Employee as Officeholder
Mr Collins for the defendant draws attention to the unique nature of the liquidator's office. Although he remains an employee of the firm of accountants by whom he is employed, nevertheless the appointment is personal to him. He owes duties to the general body of creditors, which are quite independent of, and may even conflict with, his duty to his employer. Mr Collins concedes that, whilst still in employment, the employee is accountable to his employer for the fees which he receives by virtue of his appointment; and he remains liable for such fees after leaving his employment, insofar as they relate to work already done. But he submits that all other fees belong to the employee. He is no longer under any duty to his employer. But his duties as liquidator continue. He is therefore entitled to be paid in the liquidation for the continuing performance of those duties. He cannot be made to account to his former employer, whether on the basis of an implied term of his contract of employment, or as fiduciary, or on any other basis.
Mr Jacob concedes the personal nature of the liquidator's office. He must be an individual, or one of a small number of individuals. But to divorce his appointment as liquidator from his position as an employee would be to fly in the face of reality. Many firms of accountants do not permit an employee or salaried partner to accept an appointment. But when they do, the individual is, in practice, appointed because he is an employee of the partnership, and because it is understood by all three parties, that is to say, the appointer, the employee, and the employer, that the employee's duties as liquidator will be performed in his employer's time, from his employer's premises, and with the help of his employer's staff.
6 Principles of Construction
15. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to used by them to mean …. And it does so by 'focusing on the meaning of the relevant words… in their documentary, factual and commercial context. That meaning has to be assessed in light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions' …
'17 First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook [2009] AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.
18 Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.
19 The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language….
20 Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed….
21 The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.
22 Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention'
7 Mr Brockman's Submissions
On clause 11 of the Partnership Agreement
1. the costs and liabilities of the Partners including all actions and proceedings in relation to negligence against the Partnership;
2. to indemnify and keep indemnified Mr Wood against all such liabilities;
3. and against all claims, proceedings costs, demands and expenses in respect of the same.
"and against all claims, proceedings costs, demands in his capacity as a salaried partner and expenses in respect of the same."
On the Settlement Agreement
"a recognition by the Partners that the payment of fees in relation to the Claim was their responsibility, whether through P&A, the Company or under the indemnity. They agreed to pay at a time when they were fully aware of the Claim and how it was put, they cannot now deny this responsibility."
In relation to the Trust
8 Mr Cawson QC's submissions.
On clause 11 of the Partnership Agreement
"and against all claims, proceedings, costs, demands and expenses in respect of the same".
On the Settlement Agreement
Trust claims
an indemnity will not be available in respect of conduct that amounts to a breach of trust or, more particularly, where the trustee has acted fraudulently, in the latter case because, as a matter of policy, an indemnity ought not to be available to provide an indemnity against the consequences of a trustee having acted fraudulently – see Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty [2002] NSWCA 29, referred to in Lewin (supra) at 21-021. As a matter of principle, this ought to be so even if the beneficiary has also been involved in the fraud, cf. the position in respect of contractual indemnities referred to in para 35 above.
In Gatsios, at paras 46-47, Meagher JA said this:
"46 It is well settled that this right to indemnification extends to reimbursement of the trustee for damages awarded against him for torts committed by him in the course of carrying on the trust business. The cases most usually cited for this proposition are Benett v Wyndham (1862) 4 DF&J 259; 45 ER 1183 and in re Raybould [1900] 1 Ch 199. In the present case the trustee argued successfully that damages under the consumer protection provisions of the Trade Practices Act should, for this purpose, be equated with damages for common law torts. I quite agree with this submission.
47 What are the limits to be placed on this right to indemnification? This is a matter which has rarely engaged the attention of either the Australian or the English Courts. Presumably if the activity which generated the liability in question were a breach of trust, the right to an indemnity under the general law would no longer exist; similarly if it were criminal in nature, but no criminal offences were charged against NKH, its associates or officers. Again, one must in principle incline to the view that if the activity in question had been fraudulent the law would withhold the right to indemnification; but in the present case Tamberlin J expressly negatived fraud. I find it difficult to formulate any other limitations. United States authorities, to which Hamilton J refers, might be read as establishing either or both these propositions: (a) that the activity in respect of which indemnity is claimed must be "reasonable", and (b) that the activity must be "proper". In my view, neither such limitation exists in Australian law. As to the former, it is in the circumstances, meaningless; no conduct has to be castigated as "unreasonable" unless one has a clear criterion of what constitutes reasonableness, and here there is none. As to the latter, it is almost as meaningless to endeavour to apply some hypothetical standard of propriety in ordinary commercial life, absent fraud and crime. I find it difficult to view occasional breaches of Trade Practices legislation as anything other than incidental aspects of ordinary commercial life." [Emphasis added]
9 Discussion and Conclusions.
General Points
"take all reasonable steps to ensure that any financial liabilities incurred by [Mr Wood]in respect of any Claims are the responsibility of an insurer under the relevant insurance policy."
Clause 11 of the Partnership Agreement
The Settlement Agreement
The Trust Claim
10 Overall Conclusion
Note 1 The Settlement Agreement provided for earlier termination if agreed by the parties. There is no evidence as to the actual date of termination. [Back]