Never underestimate the power of file notes

But once again it passed me by
I know it always will
So now I spend my Sunday standing still

CHRISTIE OWEN & DAVIES PLC v RAOBGLE TRUST CORP (2011) [2011] EWCA Civ 1151

Introduction

The wisdom of hindsight and our quest for answers often ignores simplicity itself. Our Journey of sorts continues. 
In times of dispute we crave a simple successful outcome to conflict. The Buffalo hunter goes where needs must.

Background

Christie Owen & Davies plc is a  commercial agent specialising  in the sale of businesses and business properties: As agent it was commissioned by the defendant, and a charity known as the Buffaloes, as a vendor to sell a convalescent home  in Somerset (the “property”).

The agent and the vendor entered into a contract in 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 key clause was as follows “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.  In simple broad terms the agent earner 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. A “purchaser” was given a broad meaning and included £1 million as the (guide) asking price.

The vendor’s terminated the contract by notice dated 10 October 2007 and termination took effect on 10 November 2007. During that period the agent introduced a party  to the vendor, in July 2007.

By 19 July 2007 the proposed purchaser 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. It was accepted by the trial Judge that the proposed purchaser was keenly interested to buy the property. However the proposed purchaser ran into difficulties in funding the purchase, and subsequently made a revised offer of only £840,000, which was not acceptable. As a result his solicitors were requested by the vendor’s solicitors to return the papers, 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 an employee who made a contemporaneous and detailed log of all events running from 31 July 2007 down to 14 May 2008.

The proposed purchaser remained interested in the property and on 28 April 2008 the employee spoke to the proposed purchaser again and was told the proposed purchaser would attend the auction.

The agent alleged that after the failure at auction the proposed purchaser and another negotiated a purchase of the property at £950,000, for a partnership comprising those two and a third relative and friend. . The sale was expressed, however, as a sale to the relative. Savills’ sale memorandum simply records that the vendor agreed to sell and the relative agreed to buy the property for £950,000 and that a deposit of £95,000 had been paid. It incorporates Savills’ sale conditions.

The issues

The narrow issue is whether at the time of the relatives’ agreement to purchase the property he was doing so on behalf of an already existing partnership comprising the proposed purchaser and others.

1 Counsel for the vendor conceded that those three relatives and friends, at the time the agreement on 12 May 2008, (the auction) intended to form a partnership to exploit the property; but that intended partnership was not in existence as of that time.

2 It was also conceded 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

On Appeal it was noted 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 the relative was not as yet acting as a partner for the partnership which on any view had not yet been formed.

At trial Counsel for the vendor took 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 the relatives.

The Court of Appeal noted it was impossible to say that there is absolutely no evidence about a partnership between the three gentlemen to purchase the property.  In the course of Counsel for the agent submissions it became increasingly clear that the Judge’s approach to the case was prima facie unsustainable. At that point counsel for the vendor clarified the sole issue 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.

The Court of Appeal set out the witness evidence which the reader is referred to. In effect there was a wealth of contemporaneous documentary evidence.

1 the auction log for the date 14 May 2008 (two days after the auction)

2 the vendor’s solicitor’s attendance note dated 12 May 2008

3 the auctioneers 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.

4 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.

5 insurance

6 solicitors who acted both for the proposed purchaser on the  abortive purchase of July 2007 and for the relative in respect of his purchase and a letter from the solicitors to the land registry to explain that in the circumstances Stamp Duty Land Tax had been paid only on the sale to the company.

7 a local newspaper article of 4 September 2008 showing a photograph of the parties 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 as part of a consortium, have already submitted a planning application"

The law

Counsel for the vendor 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. That point was reflected in the Judge’s observation that there was no evidence “of the nature, working, running of any partnership”.

The court of Appeal held that submission was inconsistent with the decision of the House of Lords in Khan v. Miah [2000] 1 WLR 2123. There the 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 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: [1998] 1 WLR 477. The House of Lords restored the judgment of the trial judge.

Lord Millett said (at 2127B/G):

"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 tocarry 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".

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 the relative had bought it entirely for himself.

The court of Appeal held that 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. It was 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 property. 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.

The Appeal was allowed and the agent was entitled to its commission.

Conclusion

This was not a particularly unusual case on the facts. What is telling is how vital contemporaneous documentary evidence can be. Never underestimate file notes of a transaction or indeed a failed transaction.

The very helpful analysis Khan v. Miah [2000] 1 WLR 2123 is instructive and relatively easy to understand and apply. Simplicity is often a master.

As ever the last words go to Mr Adamson et al

I never skinned a buffalo
I never even killed
That’s why I spend my Sunday standing still

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