Animatrix Ltd & Ors v O'Kelly [2008] EWCA Civ 1415

[2008] EWCA Civ 1415

Case No A3/2008/0859

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

(CHANCERY DIVISION)

MR PHILIP SALES QC (SITTING AS A JUDGE OF

THE HIGH COURT OF JUSTICE, CHANCERY DIVISION)

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 16/12/2008

Before

LADY JUSTICE ARDEN

LADY JUSTICE HALLETT

MR JUSTICE BLACKBURNE

Between

ANIMATRIX LIMITED & ORSRespondents

JEFFREY O'KELLYAppellant

(Transcript of the Handed Down Judgment of

WordWave International Limited

A Merrill Communications Company

190 Fleet Street, London EC4A 2AG

Tel No: 020 7404 1400, Fax No: 020 7831 8838

Official Shorthand Writers to the Court)

Ms Julia Clark (instructed by Jeffrey O'Kelly) for Appellant

Mr Alan Gourgey QC & Mr Tim Penny (instructed by Messrs Davenport Lyons) for Respondents

Hearing Hearing dates : 2/3 December 2008

Judgment

Lady Justice Arden :

Introduction

[1]This is the judgment of the court to which all members of the court have contributed.

[2]Mr Jeffrey O’Kelly (the defendant in the action) appeals against the order dated 10 March 2008 of Mr Philip Sales QC, sitting as a deputy judge of the High Court of Justice, Chancery Division. This order contains the following declarations, which are expressed to be without prejudice to any issues that arise in respect of the control and/or membership of the second claimant in the action:

“1. All rights held in the literary, artistic and musical work entitled Dr Snuggles ("the Work”) held by the Defendant immediately prior to the deed of assignment dated 10 April 2002 (“the Rights") are vested in the First Claimant as trustee for the Second Claimant (“the LLP"); 2. The Defendant has no rights in the Dr Snuggles character or otherwise in the Work.”

[3]The order also granted an injunction against Mr O’Kelly, but no argument has been addressed to the terms of this injunction, which followed from the terms of the declarations.

Background

[4]The order was made on the application of the respondents to enforce the terms of a written agreement entered into in September 2005 with a view to compromising certain proceedings which they had brought against Mr O’Kelly. The question raised by this appeal is whether the judge was justified in granting those declarations.

[5]The proceedings in question concerned a cartoon character called “Dr Snuggles” which had been the subject of a television series in the 1980s. Mr O’Kelly was the creator and writer of the series. Wishing to produce a new television series featuring Dr Snuggles, Mr O’Kelly looked for financial backing. He interested the third respondent in the project. This resulted in an agreement, recorded in a letter dated 7 March 2002, from the third respondent to Mr O’Kelly. The agreement contemplated, among other matters: i. the formation of a limited liability partnership between Mr O’Kelly and the third respondent to hold the intellectual property and other rights in relation to Dr Snuggles and to develop the project, ii. the assignment by Mr O’Kelly of various rights in relation to Dr Snuggles to the limited partnership, and iii. the provision by the third respondent of further funding to enable a pilot programme and other materials to be produced so that the project could be brought to the stage where it could be taken to third parties to see if they would produce the new series.

[6]The letter also included a provision that in the event that a pilot programme was made, but it proved impossible to get funding for the production of a full series, the third respondent would resign from the partnership. Mr O’Kelly would then regain sole control over the rights in Dr Snuggles but on the basis that the partnership would refund to the third respondent his funding contributions up to that point.

[7]In due course the second respondent was incorporated to become the proposed limited liability partnership envisaged by the transaction. Its first partners were the first respondent representing the third respondent’s interest in the transaction, and a company called Snuggles Inc Limited representing Mr O’Kelly’s interests. By a deed of assignment dated 25 April 2002 Mr O’Kelly assigned the copyright and associated rights in Dr Snuggles to the first respondent to hold as trustee for the second respondent. Thereafter, the first respondent provided funds towards the pilot programme.

[8]Sadly, however, the relationship between the parties broke down. This led to an allegation by Mr O’Kelly that the Deed of Assignment was ineffective to pass the various rights in Dr Snuggles from himself to the first respondent. Consistently with that stance, he represented to production companies that he was the owner of those rights and sought to secure a production contract directly with himself rather than with the first or second respondent.

[9]The details of the dispute do not matter. The upshot was that the respondents issued proceedings against Mr O’Kelly in February 2004 with a view to establishing their entitlement to the rights assigned by the Deed of Assignment. The prayer for relief claimed(1) a declaration that all rights in the Work (defined as the literary, artistic and musical work entitled “Dr Snuggles” created by Mr O’Kelly, together with various related matters) held by Mr O’Kelly immediately prior to the execution of the Deed of Assignment were vested in the first respondent as trustee for the second respondent,

(2) a declaration that Mr O’Kelly had no rights in the Dr Snuggles character or otherwise in the Work and

(3) an injunction to restrain Mr O’Kelly from representing (a) that he had any rights in the Dr Snuggles character or in the Work and (b) that the first respondent or the second respondent had no such rights. For reasons which will appear the relief claimed was in the same terms as the declaration and injunction contained in the order under appeal.

[10]Mr O’Kelly defended the proceedings. He did so initially in person. In due course he obtained legal representation. He counterclaimed for a declaration that he was the sole beneficial owner of all rights in the Work, an order rescinding or setting aside the Deed of Assignment, an injunction to restrain the respondents from representing that they had any rights in relation to Dr Snuggles or in the Work and from representing that Mr O’Kelly had no such rights, delivery up of the incomplete pilot programme and related materials, and an inquiry as to damages with payment of what should be found due.

[11]The case was listed for trial in early October 2005. In late September, however, shortly before the trial was due to begin, the parties entered into an agreement in writing with a view to compromising their differences and avoiding the need for a trial. Dated 29 September 2005, the agreement, described by the judge as the “Compromise Agreement”, contained the following recitals: “1. The parties signed inter alia an agreement dated 7 March 2002 (the “Agreement”) and a Deed of Assignment dated 25 April 2002 (the “Deed”). 2. It was the intention of the Parties in entering into the Agreement and the Deed to create a new cartoon series for broadcast on television featuring Doctor Snuggles (the “New Series”). 3. The First, Second and Third Claimants have made various claims (the “Claims”) against the Defendant by way of their Particulars of Claim dated 13 February 2004, such Claims being for:(a) a declaration that all rights held in the literary, artistic and musical work entitled Doctor Snuggles (the "Work") held by the Defendant immediately prior to the execution of the Deed be vested in the First Claimant as Trustee for the Second Claimant; and

(b) a declaration that the Defendant has no rights in the Doctor Snuggles character or otherwise in the Work; and

(c) an injunction restraining the Defendant from representing that he (a) has any rights in the Doctor Snuggles character or in the Work, or that (b) the First and Second Claimants have no such rights. 4. Proceedings were issued in the High Court of Justice, Chancery Division under Claim Number HC04C00583 (the “Proceedings”). 5. The Defendant wishes to develop and create the New Series. 6. The Parties have now agreed to attempt settlement of the Claims on the terms and conditions herein contained.” (a) a declaration that all rights held in the literary, artistic and musical work entitled Doctor Snuggles (the "Work") held by the Defendant immediately prior to the execution of the Deed be vested in the First Claimant as Trustee for the Second Claimant; and (b) a declaration that the Defendant has no rights in the Doctor Snuggles character or otherwise in the Work; and (c) an injunction restraining the Defendant from representing that he (a) has any rights in the Doctor Snuggles character or in the Work, or that (b) the First and Second Claimants have no such rights.

[12]The operative part of the compromise agreement provided, so far as material, as follows: “1. That the Proceedings shall be stayed for a period of six (6) months from the date of the signature of this Agreement (the "Stay Period"). During the Stay Period the First, Second and Third Claimants undertake that they shall not act in any way so as to prejudice the Defendant's endeavours pursuant to paragraph 2 below ... 2. The Defendant shall endeavour to procure finance so as to enable him to make payment by way of full and final settlement (the "Settlement Payment") to the First, Second and Third Claimants ... 3. The First, Second and Third Claimants will accept, by way of the Settlement Payment in order to settle all and any claims against the Defendant ... including the Claims hereunder the sum of £325,000.00 to be paid in full at any time between the date of signature hereto and the expiry of the Stay Period and if not so paid then the terms outlined at 4, 5, 6 and 7 hereunder shall apply. ... 4. In the event that the Defendant has not raised sufficient finance so as to enable him to make the Settlement Payment during the Stay Period then the parties agree in good faith to hold a meeting the purpose of which is to discuss the Defendant's progress in endeavouring to procure sufficient finance to enable him to make the Settlement Payment (the "Progress Meeting"). 5. The Defendant shall provide to the First, Second and Third Claimants at the Progress Meeting all evidence of his, his agents or associates, as the case may be, endeavours to raise finance in order to enable him to make the Settlement Payment hereunder. 6. If the Defendant is able to provide evidence that a financing arrangement is in the process of negotiation and that such negotiation is at an advanced stage, meaning that an agreement has been issued and is subject to negotiation of the terms therein then the First, Second and Third Claimants acting reasonably and in good faith at all times shall agree to an extension to the Stay Period, such extension to last for a further maximum period of six (6) months (the "Extension Period"). 7. If the negotiations for a suitable financing arrangement are concluded prior to the expiry of the Extension Period (and after the expiry of the Stay Period) then the Defendant shall pay to the First, Second and Third Claimants the sum of £325,000.00 as the Settlement Payment plus, in addition to payment of the Settlement Payment the First, Second and Third Claimants shall be entitled to receive a share of revenue derived from the net profits of the exploitation of the New Series by the Defendant ... For the avoidance of doubt, in the event that the provisions of this clause 7 become operative then the entire sum due to the First, Second and Third Claimants …will be £536,814.00… . 8. If the Extension. Period expires and the Defendant has not been successful in procuring suitable finance so as to enable him to make the Settlement Payment hereunder then the parties agree that the Defendant shall, at his own cost, place all rights in and to the Work and the character Doctor Snuggles on the open market for sale for a period not exceeding ninety (90) days. In the event that an offer in excess of £536,814.00 is received then the Claimants shall be bound to accept such offer which shall be treated as the Settlement Payment hereunder; in such an event the Defendant shall be entitled to receive any consideration in excess of £536,814.00. In the event that offers are received which are less than £536,814.00 then the Claimants will have sole discretion as to whether they accept or reject such offers. In the event that such offer is accepted then such shall be treated as the Settlement Payment hereunder. In the event that such offer is rejected by the Claimants, or no such offers are received, then the Claimants will be at liberty to enter Judgment in the terms sought in Recital 3 (a), (b) and (c) herein. 9. In the event that the Defendant does effect Settlement Payment to the First, Second and Third Claimants as envisaged hereunder then such payment shall be in full and final settlement of all the Claims and costs therein and in full and final settlement of all and any other claims that the First, Second and Third Claimants might have against the Defendant ... arising out of any alleged act or omission on the part of the Defendant prior to the Date of Settlement. … 13. Each party shall bear its own legal and/or other professional costs incurred in the Proceedings. 14. Upon receipt of the Settlement Payment the First, Second and Third Claimants shall notify the High Court of Justice that the Claims have been settled hereunder and that the Proceedings are stayed.” …

[13]On the basis of the compromise agreement the parties notified the court that the impending trial did not need to proceed, and it was duly taken out of the list.

[14]No payment was made by Mr O’Kelly to the claimants during the Stay Period (see clause 1 of the compromise agreement) which expired on 29 March 2006, with the result that, as provided by clause 3, clauses 4, 5, 6 and 7 came into effect.

[15]By letter dated 30 March 2006 to Mr O’Kelly’s solicitors, the respondents’ solicitors called for the Progress Meeting envisaged by clause 4. The purpose of such a meeting was, as clause 4 stated, “to discuss [Mr O’Kelly’s] progress in endeavouring to procure sufficient finance to enable him to make the Settlement Payment” (ie payment of the £325,000). Receiving no substantive response to that letter, the respondents’ solicitors sent a chasing letter on 13 April 2006 stating that since they had heard nothing further as regards the Progress Meeting they assumed that Mr O’Kelly was unable to provide any evidence that a financing agreement was at an advanced stage, as clause 6 of the compromise agreement envisaged, and that, accordingly, clause 8 of the compromise agreement applied. They sought confirmation that Mr O’Kelly would undertake immediately to place all rights in Dr Snuggles on the open market for sale for the 90 day period under clause 8.

[16]Mr O’Kelly’s solicitors responded by e-mail that same day to say that they had “a contract on the table” and that matters were “at an advanced stage”. They promised to come back with dates for a meeting. Later that same day the respondents’ solicitors responded by suggesting a meeting on 19 April. They called for sight of documentary evidence “of the proposed funding” in advance of any meeting. Further delays occurred. The solicitors continued to press for a substantive response and again stressed that the 90 day period for sale on the open market was running from the date the Stay Period expired (ie from 29 March).

[17]In the event no date for a Progress Meeting was suggested. Instead, Mr O’Kelly’s solicitors e-mailed the respondents’ solicitors on 21 April a copy of a draft financing and production agreement which, they stated, was the subject of negotiations. They suggested that sight of it by the respondents might avoid the need for any meeting. The respondents’ solicitors responded to this in some detail on 9 May 2006. They stated that for a number of reasons, which they set out, the draft financing agreement was inadequate and unsatisfactory. They stated that as matters stood the respondents were not prepared to agree to any extension period and expressly reserved their right to apply for an order requiring Mr O’Kelly to comply with clause 8, failing which the respondents would be entitled to enter judgment “as originally sought”. This was a reference to the relief set out in recital 3 to the compromise agreement which, in turn, repeated the relief sought by the respondents in their original particulars of claim. They continued:

“For the avoidance of doubt it will be argued on any such application that the 90 days runs from the date of this e-mail. If such an application is unsuccessful, then in the alternative the Extension Period runs from 29 March 2006 and will therefore expire on 29 September 2006 whereupon clause 8 of the agreement will become operative (in the absence of the Settlement Payment) in any event.”

[18]Following what the judge described as “some inconclusive discussions” Mr O’Kelly’s solicitors wrote on 23 May 2006 in reply to the e-mail of 9 May 2006. They disputed the respondents’ contention that the arrangements that Mr O’Kelly was negotiating were unsatisfactory. They added:

“The Settlement Agreement [ie the compromise agreement] is clear at clause 6 and my client has provided all that is required to satisfy that provision.”

[19]They said that they awaited “confirmation by return that the Extension Period is now running, expiring on the 29th September 2006”.

[20]Further exchanges between the solicitors then occurred, culminating in an e-mail from the respondents’ solicitors on 1 June 2006. In that e-mail, after referring to information sent by a potential funder indicating that the funder was confident of being in a position to bring negotiations regarding the financing agreement to a close by the end of June 2006, the solicitors stated that they were “instructed to accept an extension of the stay period to 31 July 2006”.

[21]This evoked an e-mail response later that same day from Mr O’Kelly’s solicitors protesting that the respondents were seeking “to re-write the rules”. “As far as I am concerned” the author of the e-mail wrote “the agreement [ie the compromise agreement] is clear and the extension runs to 29 September 2006 if needs be”. The writer then stated that he would be overjoyed if the potential funder should be able to “deliver by the end of June” but he was not willing to indulge the respondents’ “unilateral attempts to vary the terms (again).”

[22]The next communication of relevance was an e-mail from the respondents’ solicitors dated 13 June 2006. By that e-mail, the solicitors complained that Mr O’Kelly had consistently failed to comply with the compromise agreement. They rehearsed the history of the matter starting with the attempt to convene a Progress Meeting. They contended that the circumstances were “sufficient to entitle our client[s] not to agree to any Extension Period”. They referred to clause 6 of the compromise agreement and stated that, in the light of what they had heard from the potential funder (with whom, they understood, Mr O’Kelly was in negotiation), it was entirely reasonable to seek to impose a deadline which allowed an additional month beyond the end of June 2006 which was the date by which the funder expected the negotiation to have completed. They continued:

“At the risk of repetition, your client has failed to arrange or attend a Progress Meeting (despite our prompting) which might have had the effect of triggering the Extension Period (clause 4). In actual fact, your client has unilaterally failed to discharge his obligations under the Settlement Agreement. Therefore, should your client require an extension post 31 July 2006, I respectfully suggest that he produce some evidence (of value) that the negotiations are both advanced and of substance. Should your client fail to do so, I expressly reserve all my clients’ right and remedies as regards any application to enforce the terms of the Settlement Agreement.”

[23]The next significant communication between the parties was an e-mail dated 17 July 2006 from the respondents’ solicitors expressing surprise that Mr O’Kelly had not (as they understood it) instructed his solicitors regarding the matter since the end of May and enquiring therefore whether the solicitors were still instructed. After referring to the expectation of the potential funder that a financing deal would be concluded by the end of June they requested a copy of the agreement, observing that they were yet to see any evidence that there were any negotiations of substance, let alone that the negotiations were “advanced”.

[24]Having heard nothing of substance for three months or so the respondents’ solicitors wrote to Mr O’Kelly’s solicitors on 1 November 2006 to complain that Mr O’Kelly had failed to comply with the compromise agreement and to say that the Extension Period had expired. The letter continued:

“In the circumstances, and in accordance with the Settlement Agreement, your client is under an obligation to place all rights on the open market for sale for a 90-day period, which expires on 28 December 2006.”

[25]That was a reference to the 90 day period prescribed by clause 8 of the compromise agreement.

[26]Several weeks later, on 19 December 2006, Mr O’Kelly’s solicitors replied to that letter. They stated that they would be ceasing to act for Mr O’Kelly with effect from midday on 22 December. They requested “an extension of the period ending on 28 December 2006 to enable Mr O’Kelly to instruct another firm…”.

[27]The following day, 20 December, the respondents’ solicitors wrote to Mr O’Kelly’s solicitors to remind them that under the compromise agreement Mr O’Kelly was obliged to place all rights on the open market for sale for a 90 day period “which expires on 28 December 2006” - again a reference to the obligation under clause 8 of the compromise agreement - and drew attention to the respondents’ right under clause 8 if by the end of the 90 day period no offer had been received in excess of £536,814 (or no lesser offer had been received acceptable to the respondents) “to enter judgment forthwith in the terms originally sought”. The letter drew attention to other provisions of the compromise agreement, complained of a breach of the Deed of Assignment and, responding to the letter of 19 December, refused to agree to any extension of the 90 day period. It advised Mr O’Kelly of the respondents’ intention to apply for judgment in accordance with the provisions of the compromise agreement without further notice.

The application to enforce the compromise agreement

[28]On 22 March 2007, the respondents issued their application to enforce, on a summary basis, the terms of the final sentence of clause 8 of the compromise agreement by obtaining an order in the terms of recital 3(a) to (c) to that agreement. Their evidence in support of the application proceeded on the straightforward basis that there had been an Extension Period under the compromise agreement and that at its expiry Mr O’Kelly had failed to make the Settlement Payment or to place the rights in the Work on the open market for sale.

[29]Initially, his solicitors having ceased acting for him in early January, Mr O’Kelly acted in person. Following directions by the Master, he filed a body of evidence concerned mostly with events prior to the making of the compromise agreement. He also complained of the circumstances in which his former solicitors had advised him to enter into that agreement and invited the court to set it aside. In their reply evidence the respondents asserted that there were no grounds to set aside the compromise agreement. (When the application came before the judge, by which time Mr O’Kelly was represented by Ms Julia Clark under the Bar Direct Public Access Scheme, no more was heard of this issue.)

Submission in the court below

[30]Before the judge, Mr Tim Penny (junior counsel before us) submitted that in the events that had happened the respondents were entitled to final judgment in the terms set out in recital 3 of the compromise agreement. Further he submitted that it was not open to Mr O’Kelly to seek to resurrect the various contentions, including his claim that the Deed of Assignment was invalid, as he had indicated he would argue if the earlier trial had gone ahead. For Mr O’Kelly, Ms Clark submitted that in the events that had happened there had been no Extension Period under the compromise agreement and, therefore, clause 8, which only arose if there was an Extension Period and it had expired without Mr O’Kelly procuring suitable finance to enable him to make the settlement payment, did not come into play. She also submitted that in any event the court could not properly grant declaratory relief on the summary basis sought without first hearing evidence on the underlying issues to which the declarations were directed. She submitted that it would, therefore, be necessary to have the full trial which the parties had previously put off by entering into the compromise agreement.

[31]The contention that no extension period had been triggered by the events that had happened led in turn to a submission by Mr Penny that, given what had passed between the two sides following expiry of the Stay Period, Mr O’Kelly was estopped from denying that there was an Extension Period.

The judgment

[32]In paragraph 26 of his judgment, having set out the background leading up to the application and the parties’ contentions, the judge found that, in the course of the communications between the two sides, it had come to be common ground between them that there was in place a full six month Extension Period under clause 6 which ran to 29 September 2006 and also that, after the expiry of that period on 29 September 2006 without Mr O’Kelly having procured finance and making the requisite Settlement Payment, clause 8 came into operation. He held that, having chosen to operate the compromise agreement in this way, “both parties are estopped from denying that their respective rights and obligations under it should be resolved on the basis of this common ground between them.”

[33]He had earlier held (at paragraph 23) that the opening words of clause 8 should be construed to mean “If the Stay Period, including any Extension Period, expired …” so that the operation of clause 8 was not in any event dependent on the prior expiry simply of the Extension Period.

[34]In paragraphs 28 and 29 he went on to find that, in the absence of any offer by 29 September 2006 when the Extension Period expired, the last sentence of clause 8 came into effect and that the respondents were entitled to apply to the court to enter judgment in the terms of recital 3(a) to (c) to the compromise agreement. He noted at paragraph 30 that if judgment should be entered for the respondents in those terms there might still be other issues between the parties, in particular concerning control of the second respondent, which might have to be tried at some future date. This possibility was later to be reflected in the order he made.

[35]He next considered Ms Clark’s submission, based on observations by the Court of Appeal in Wallersteiner v Moir

[1974] 1WLR 991

, that in the exercise of its discretion the court should decline to grant declaratory relief. He felt able to distinguish that decision and concluded (at paragraph 35) that it was appropriate for the court to grant the declarations and injunction sought, pointing out that what had been said in Wallersteiner v Moir was not a rule of law but only one of practice. He stated that the granting of the declarations sought was necessary to ensure that justice was done in relation to the respondents and that they would not affect the rights of anyone other than Mr O’Kelly and persons claiming though him.

Submissions

[36]Before us Ms Clark challenges the judge's conclusions on three issues :(A) did the parties adhere to the terms of the compromise agreement, or depart from them so that the machinery in clause 8 was never triggered? (B) was the judge correct in holding that Mr O’Kelly was estopped from denying that clause 8 had been triggered? and (C) did the judge err in granting declaratory relief as above? (A). Did the parties adhere to clauses 6 and 7 of the compromise agreement?

[37]Ms Clark’s submission to us is essentially the same as the one she advanced before the judge: what was agreed by the respondents was outside the compromise agreement. Accordingly the procedure in clause 8 never came into play.

[38]She submits that the respondents did not grant any extension. Their complaint was that Mr O’Kelly had not complied with his side of the compromise agreement and at the end of their e-mail of the 13 June 2006 they reserved all their rights and remedies. The judge was wrong to hold that in a later letter of 20th December they had accepted that there had been an extension period of six months. By that time the point was academic. Their decision to treat the period as having expired was a purely pragmatic one.

[39]In our judgment, this is inconsistent with the contemporaneous documentary evidence. There was a condition precedent in clause 6 of the agreement that Mr O’Kelly should be able to provide evidence that a financing agreement was in the process of negotiation and that such negotiation was at an advanced stage. Mr O’Kelly did not comply with that condition. Under the compromise agreement, that meant that the respondents were not obliged to grant any Extension Period. However the condition in clause 6 (at least on the judge’s interpretation of clause 8) was for the respondents’ benefit and it was open to them to waive it before granting an extension (Chitty on Contracts, vol 1, 30th ed, 2008, para. 2-157). The documentary evidence shows that the respondents did indeed waive that condition.

[40]The communications between the parties, which were by letter, telephone and e-mail, have to be read in sequence. When they are so read, it is clear that the parties proceeded on the basis of the compromise agreement. The respondents gave Mr O’Kelly extra time following the terms of the compromise agreement.

[41]It is sufficient to summarise the principal communications: i) In their e-mail of 9 May 2006 to Mr O’Kelly’s solicitors, the respondents’ solicitors stated that the finance agreement which Mr O'Kelly’s solicitors had produced was unsatisfactory and that they were not prepared to agree any Extension Period and expressly reserved the right to apply for an order requiring Mr O'Kelly to comply with clause 8 of the agreement. ii) By their letter of 23 May 2006 in response, Mr O'Kelly's solicitors sought confirmation that the Extension Period was then running and expired on the 29 September 2006. iii) The respondents’ e-mail of 13 June 2006 stated that no Progress Meeting had been held as required by the compromise agreement and that that was sufficient to entitle the respondents not to agree any extension period. They pointed out that under the terms of the compromise agreement any extension would be for a maximum of six months. They stated that they were only prepared to agree an Extension Period of one month after the end of June 2006 and that if any further extension was sought there would have to be some evidence of value produced. It was in that context that the respondents reserved their rights under the compromise agreement. The rights reserved could only be of the rights which they had subject to the terms of the letter. iv) On 17 July 2006 the respondents’ solicitors sent an e-mail asking for a copy of the draft agreement with the potential provider of finance. This e-mail comments that the respondents have no evidence of negotiations, let alone ‘"advanced" negotiations’. The word “advanced” is a quotation from clause 6 of the compromise agreement. v) On 1 November 2006, Mr O'Kelly having failed to comply with his compromise agreement, the respondents’ solicitors declared that the Extension Period had expired and that clause 8 had come into operation. vi) On 19 December 2006, Mr O’Kelly’s solicitors wrote to ask for “an extension of the period ending on 28 December 2006”. That was clearly a reference to the 90 day period prescribed by clause 8 of the compromise agreement. vii) On 20 December 2006 the respondents’ solicitors stated that the period for compliance with clause 8 expired on 28 December 2006. By implication they accepted that the Extension Period had run to 29 September 2006.

[42]The communications between the parties are thus firmly anchored to the terms of the agreement. True the condition precedent in clause 6 had not been fulfilled but that could (at least on the judge’s interpretation of clause 8) be and was waived by the respondents. Moreover, even if the respondents could not themselves waive the condition precedent in clause 6 of the compromise agreement, it was open to both parties to do so. Mr O’Kelly sought extensions of time on the footing that the compromise agreement applied and thus he too waived any insistence on that condition.

(B) Estoppel

[43]The question of any estoppel does not arise on the view we have formed of the effect of the parties’ communications but as it has been fully argued by Ms Clark on behalf of Mr O’Kelly, we will deal with it on the basis that the concessions made by the respondents were not in accordance with the compromise agreement.

[44]Ms Clark submits that the estoppel in question is estoppel by convention. She submits that, for there to be estoppel by convention, there would have to have been(1) a common understanding about the effect of the compromise agreement;

(2) a shared understanding as to the way in which their future dealings were to be regulated;

(3) reliance by the respondents on the common understanding so that it would be unjust to permit Mr O'Kelly to depart from it; and

(4) injustice or unconscionability on Mr O’Kelly’s part in resiling from the common understanding.

[45]There is no real issue about the requirement for these four elements of convention estoppel, though the judge made no express finding about elements (3) or (4). The debate is whether these elements were satisfied on the evidence in this case. Ms Clark submits that the parties did not have any common understanding governing their future dealings and that the judge did not suggest that they had. Moreover the judge made no finding about reliance. In any event, on her submission it is not unconscionable for Mr O'Kelly now to resile from any common understanding. The respondents bore the onus of showing that it was unjust or unconscionable for Mr O’Kelly to resile from the common understanding and that was not shown.

[46]We do not accept these arguments. If the parties did not operate the provisions of the compromise agreement according to their tenor, they both understood that what the respondents were purporting to do was to grant an extension period on the terms of the compromise agreement. This can be seen from the communications summarised above. Our view is that these communications also show that there was clearly an understanding as to arrangements to govern the future relationship of the parties.

[47]Although judge made no finding on this point, the proper inference is that the respondents relied on this common understanding by not enforcing their rights under clause 8 immediately.

[48]Mr O’Kelly had the benefit of the extension and therefore it would be unconscionable if he were now to resile from the common understanding to put him in a position from which he could contend that clause 8 has not been triggered. In our judgment, the respondents were all along allowing Mr O'Kelly time to fulfil his obligations and it would be unjust if he were in a position now to contend that the concessions were outside the compromise agreement so that its machinery could not be implemented. We do not accept that all that happened was that the respondents allowed time to pass and then turned round to say that there was an extension period. They made their position clear from the outset.

[49]Accordingly all the ingredients of conventional estoppel were fulfilled and the judge was correct in his conclusion.

(c) Declaratory relief

[50]Ms Clark submits that the judge was wrong to make the declarations in the order. Her argument challenges the judge's order at two levels. First, she submits that the judge's approach conflicted with the established practice of the court. Secondly she submits that the exercise of discretion was wrong in any event.

[51]She submits that the established practice of the court is not to grant declarations simply because the parties have agreed to them. She relies as below upon Wallersteiner v Moir The question there was whether the judge should have made declarations as to the wrongful and fraudulent acts of a company director when granting judgment in default of defence against him as well as money judgments. The money judgments were upheld on appeal but the declarations were set aside. Lord Denning MR considered that they were unnecessary. Buckley LJ went further: “I wish to add a few words about the form of the order made by the learned judge. The order which he made was on the lines of a minute which had been prepared and submitted to him. There was little or no discussion about its form. Following the prayer in the counterclaim, it contains a large number of declarations, including declarations that Dr Wallersteiner has been guilty of fraud. I am more familiar with the practice in the Chancery Division than in any other division of the High Court, but it is probably in the Chancery Division that more use is made of declaratory relief than elsewhere. It has always been my experience, and I believe it to be a practice of very long standing, that the court does not make declarations of right either on admissions or in default of pleading. A statement on this subject of respectable antiquity is to be found in Williams v Powell, where Kekewich J, whose views on the practice of the Chancery Division have always been regarded with much respect, said that a declaration by the court was a judicial act, and ought not to be made on admissions of the parties or on consent, but only if the court was satisfied by evidence. If declarations ought not to be made on admissions or by consent, a fortiori they should not be made in default of defence, and a fortissimo, if I may be allowed the expression, not where the declaration is that the defendant in default of defence has acted fraudulently. Where relief is to be granted without trial, whether on admissions or by agreement or in default of pleading, and it is necessary to make clear on what footing the relief is to be granted, the right course, in my opinion, is not to make a declaration but to state that the relief shall be on such and such a footing without any declaration to the effect that that footing in fact reflects the legal situation.” (at 1029)

[52]The third member of the court, Scarman LJ, saw the position as being less rigid and considered that it would be open to the court to grant a declaration by consent where that was necessary to do

justice between the parties:

“In effect, Geoffrey Lane J in chambers gave Mr Moir judgment for all the relief he was seeking, the ground being the default of Dr Wallersteiner in pleading to the counterclaim. The relief thus obtained included not only money judgments but declarations of fraud, misfeasance and breach of trust; it is to be found in the elaborately structured minute of judgment annexed to the order of the judge against which Dr Wallersteiner is appealing. In my opinion the judge went too far. RSC Ord 19 declares the consequences of a default of pleading. Rule 2 provides that, where a claim is for a liquidated demand only, the claimant may have final judgment; r 3 provides that, where a claim is for unliquidated damages, he may have judgment for damages to be assessed; rr 4 and 5 deal with claims in detinue and for possession of land: and r 6 with the situation that arises where there are in one action several claims of the sort or sorts mentioned in rr 2 to 5. Rule 7 makes provision for all other descriptions of claim (of which claims for declaratory relief are one). Paragraph (1) of the rule provides that in all such cases the consequence of a failure to serve a defence within the proper time shall be that the claimant 'may … apply to the Court for judgment, and … the Court shall give such judgment as [he] appears entitled to on his statement of claim'. Notwithstanding the word 'shall', the case law has established that the court retains the right to refuse the claimant judgment even when on his pleading he appears entitled to it. If the court 'should see any reason to doubt whether injustice may not be done by giving judgment', it may refuse judgment at this stage: Charles v Shepherd ([1982] 2 QB 622 at 624) per Lord Esher MR. This discretion is a valuable safeguard in the hands of the court. Take the instant case: though I entertain grave doubts as to the bona fines and honesty of Dr Wallersteiner both in the financial dealing the court is now considering and in the conduct of this litigation, injustice might well be done to him if without benefit of trial the court should declare him fraudulent, guilty of misfeasance and of breach of trust. For the very reason that the case reeks of the odour of suspicion, it is, I believe, the duty of the court to exercise caution before committing itself to sweeping declarations; to look specifically at each claim, and to refrain from making declarations, unless justice to the claimant can only be met by so doing. Generally speaking, the court should leave until after trial the decision whether or not to grant declaratory relief and, if so, in what terms: see Williams v Powell. Different considerations, however, apply when what is sought is a money or property judgment. When a defendant fails to plead, it is ordinarily in the interests of justice that the plaintiff should be able without more ado to obtain judgment for the money or property for which he is suing; the defendant is not without remedy after judgment in default, for, if he can show a bona fide defence, he can get it set aside before it is enforced. But, when what is sought is a declaration, there is the risk of irremediable injustice; the court has spoken and words cannot be recalled, even though later they be negatived: 'nescit vox missa reverti' (Horace, Ars Poetica, line 390). The power of the court to give declaratory relief on a default of pleading, of course, exists, but, for the reason crystallised by Horace in those four words of his, should be exercised only in cases in which to deny it would be to impose injustice on the claimant. This approach leads me to the conclusion that the declaratory relief contained in the minute of judgment annexed to the order of Geoffrey Lane J should be disallowed at this stage.”

[53]Ms Clark has referred us to two further authorities, namely Patten v BurkePublishing Ltd

[1991] 1 WLR 941

and Lever Fabergé v Colgate Palmolive

[2006] FSR 19

, but they do not take the matter further so far as the issues in this case are concerned. She also took us to paras. 6.02 and 7.27 in Zamir and Woolf, The Declaratory Judgment, 2002, 3rd ed, to which the same applies. It is clear that the rule that declarations should not be granted by consent is one of practice and that it is not an immutable rule. Declarations can be granted by consent where that is necessary to do justice in the case.

[54]While we agree with Ms Clark that the court should not grant the declarations in the form asked simply because the parties consent, that is not the full picture in this case. Clause 8 of the compromise agreement provides that, if no offer was made for Mr O'Kelly's rights in Dr Snuggles on the open market, the claimants were to be at liberty to enter judgment in the terms sought in recital 3 to the compromise agreement. The declarations which the judge made went no further than those recitals. In view of the provisions of clause 8, it was not open to Mr O’Kelly to raise any of his defences to the making by the court of the declarations. Mr Kelly had entered into a commercial bargain with the respondents that in certain circumstances, which occurred, he would not oppose their seeking an order containing declarations. The position was in effect the same as if he had agreed to transfer his rights (if any) in Dr Snuggles and the parties had agreed that in default the respondents could seek an order for specific performance and a declaration that upon the transfer taking effect the second respondent was the owner of Dr Snuggles. There was no suggestion that the compromise agreement was voidable or void. In effect the submission made by Ms Clark amounts to a contention that the respondents must still establish that they were the rightful owners of the relevant rights in relation to Dr Snuggles. That is completely inconsistent with the terms of the parties’ agreement. The judge was correct to conclude that this was one of those rare cases where it is necessary to grant the declarations in order to do justice between the parties.

[55]Ms Clark submits that the judge ought not to have made the declarations in any event in the exercise of his discretion. There were other issues between the parties that still had to be resolved. We do not consider that that was any objection to the making of the declarations because as one of us, Blackburne J, observed in the course of submissions, the declarations would result in a narrowing of the issues in the current proceedings. It was not pointless to make the declarations because they relate to the ownership of the rights in Dr Snuggles, which is a different matter from the ownership of the rights in the second respondent in whom are those rights are now vested, which is still in issue between the parties.

[56]Any rights of control or ownership in Dr Snuggles which Mr Kelly had by virtue of his rights in the second respondent are preserved by the terms of the order, which, as we have stated, provided that the declarations were without prejudice to any issues that arose in respect of the control and/or membership of the second respondent.

[57]The judge carefully considered whether the court should grant the declarations. He was satisfied that he should do so, and no error of principle is shown.

Disposition

[58]For the reasons given above this appeal is dismissed. Accordingly, the respondents’ notice which seeks to uphold the judge’s order on the basis that, in any event, there was an extension to at least 31 July 2006 does not arise, and we make no order thereon. Nor is it necessary to consider whether the judge was correct to find that, on its true construction, clause 8 was capable of applying on the expiry of the Stay Period, and not just on the expiry of the Extension Period.