Beverley Winchester & Anor v Farmer [2013] EWCA Civ 1235

Case No A3/2013/0909[2013] EWCA Civ 1235
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM the Central London Civil Justice Centre
His Honour Judge Gerald
2CL10613
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Wednesday 16 th October 2013
Before
LORD JUSTICE LONGMORELORD JUSTICE LEWISONLORD JUSTICE UNDERHILL
Between
BEVERLEY WINCHESTER & ANRAppellantsJOHN ADRIAN FARMERRespondent
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr Christopher Quinn (instructed by Simons Muirhead and Burton) for AppellantsMr Lloyd Sefton-Smith (instructed by McMillan Williams Solicitors) for Respondent
JudgmentLord Justice Underhill :INTRODUCTION
[1]The Appellants, Beverley and Patrick Winchester, own a care home business. Mr Winchester is an accountant by profession. His wife is qualified as a mental health nurse. They opened their first home, “Chippings”, in Horley in Surrey, in December 1998. It and the next two to be opened – “Upfield” and “Poplars”, opening in August 2000 and April 2002 respectively – were operated under the name Gresham Care. They have since opened other homes under the name Cavendish Care; there is a question whether they are to be regarded as part of the same business. At the time that the business was being established Mr Winchester had mental health problems, and in the early years it proved simpler to proceed, so far as the outside world was concerned, on the basis that it was wholly owned by Mrs Winchester; but in practice it has always been run by the two of them jointly and in 2007 they formed a formal partnership. The business is not incorporated.[2]The Claimant, Mr John Farmer, and his then wife Carolyn (now Mrs Westcott) were close friends of Mr and Mrs Winchester at the time that Gresham Care was first set up. Between February 1997 and March 1999 Mr Farmer made a series of payments, totalling £119,500, to Mr and/or Mrs Winchester which were, or were in any event treated as being, for the purpose of financing that venture. It is his case that an oral agreement was reached between himself and Mr and Mrs Winchester at the beginning of 1998 that in return for those payments he would have – putting it broadly at this stage – a 20% interest in the business. Between 2001 and 2010 he received annual payments of what was represented as being 20% of the net profits of Gresham Care - i.e. initially Chippings, but later also Upfield and Poplars. (Latterly, following their divorce, one half of the profit share was by agreement paid direct to Mrs Westcott; but that is an immaterial complication for present purposes.) Gresham Care was increasingly profitable, and the total amount paid over those nine years came to £635,000.[3]What gives rise to the present proceedings is that as from the end of the 2009/2010 financial year Mr and Mrs Winchester have declined to make any further payments by way of profit share. It is their position that, although there were indeed discussions in 1998 and 1999 about Mr Farmer having an interest in the business, no agreement was ever concluded. Accordingly, they say, the payments of profit share between 2001 and 2009 were not made as a result of any legal obligation. They paid them because they thought it was the right thing to do, not least because they appreciated the friendship and help which they had received from Mr and Mrs Farmer in the early days of the venture: in 1997 in particular Mr Winchester was at a low ebb as a result of his illness and Mr Farmer’s faith in him was a great support. But by 2010 they believed that enough was enough: Mr Farmer had had back more than twice what, on any possible calculation, he could reasonably have expected.[4]Mr Farmer issued proceedings in the Chancery Division in September 2012, seeking, in short, declarations as to his entitlement under the agreement which he alleged and an account of sums due. The case was transferred to the Central London County Court. The matter came before HH Judge Gerald on 25 and 26 March 2013. He decided in Mr Farmer’s favour. Mr and Mrs Winchester appeal with the permission of Lloyd LJ.

THE STORY IN OUTLINE

[5]I need not give a full narrative of the involvement of Mr Farmer with Mr and Mrs Winchester. I confine myself to the facts which are material to the issues on this appeal, which to a large extent consist of, or appear from, the contemporary documents.[6]The first payment made by Mr Farmer to Mr Winchester was of £50,000, paid on 27 February 1997. At that time Mr Winchester was intending to go into the care home business with a couple called Mr and Mrs Millsted. There is a dispute on the pleadings about whether the payment was made in order specifically to help with the financing of that project (and, if so, whether the property in question was Chippings or some other property) or whether it was, as pleaded on Mr Winchester’s behalf, as an act of friendship and “a general show of confidence in him and his abilities”. But the dispute is of no materiality because Mr Farmer’s case is that the agreement which he alleges came later, and under it the £50,000 already paid (in fact £44,000, because £10,000 had been repaid but it was agreed that £4,000 should be added to the loan by way of interest) was rolled into the investment in Gresham Care.[7]Mr Winchester’s venture with the Millsteds broke down in the second half of 1997, at which point Chippings had already been bought; but he and Mrs Winchester decided to go into the business on their own. It is common ground that he approached Mr Farmer to help finance that venture and that it was that which led to the payment of the remaining £75,500, in some dozen irregular payments starting on 21 January 1998. It was Mr Farmer’s evidence that before making any payment he and Mr and Mrs Winchester reached a concluded oral agreement. He said there were two key meetings. He described the first, which was between the two of them alone and was at his home in December 1997, as follows (witness statement, para. 12):
“Firstly I agreed not to call in the £40,000 loan and we had further discussions about converting my loan into an equity share in the business. Now the Millsteds were out of the way I could become more directly involved. The precise description of what I was offering and getting didn’t matter a great deal to me. Whether you called me a “venture capitalist” or “business angel” or a “partner” in the business didn’t matter to me but what we discussed was that I would get a 20% share of Gresham Care. In return I would help finance the business in its crucial early stages and provide as much practical support as I could. I was quite clear my 20% share would be a figure that was calculated before any salaries paid to Beverley and Patrick that came out of any profit share for the obvious reason that they would be in control of what they paid themselves and if they wanted to could prevent me from earning anything. Patrick agreed to the 20% share – I think I originally asked for 25% but he pushed me down to that figure. When I reported this to Carolyn immediately after the discussions ended she felt I should have pushed for more than 20% because of the risk involved. ”
He said the second meeting was on 10 January 1998 and included also Mrs Farmer and Mrs Winchester. He said (witness statement para. 13):
“The initial agreement we had in December was firmed up when all of us four met at the Home Cottage Pub in Redhill on 10th January 1998. That was a meeting with all the four of us, Beverley and Carolyn, Patrick and myself. The 20% share figure was confirmed – with everybody present and fully understanding exactly what was going on.”
Mrs Westcott gave similar evidence, though as regards the December meeting she could only give evidence of what her husband told her at the time; she recalled her reaction that he should have asked for a higher percentage because this was “an unproven business venture” and their investment was very speculative. About the January meeting she said:
“I confirm we met up for a second discussion at a local pub in Redhill, the Home Cottage Pub on 10th January 1998 where all four of us sat at one table and there were further discussions to confirm the details of the exact deal. John would be asked for money and other help and he would get his 20% share of the business. John made it quite clear that the deal involved a calculation of his share before any salaries were payable to Beverley and Patrick as they otherwise could easily have paid his 20% share on an amount of their choosing.”
[8]Mr and Mrs Winchester’s evidence about the alleged meetings was simply that they did not occur and that there was no oral agreement of the kind claimed. It is not clear on what basis Mr Farmer is said by them to have started to make the further payments: the thrust of Mr Winchester’s evidence was simply that everything was done as between friends and was accordingly very informal.[9]In March 1998 Mr and Mrs Winchester had a meeting with a firm of solicitors called Morrisons, and asked them to prepare a draft agreement between Mrs Winchester and Mr Farmer. A draft was sent on 16 April. I need not set the terms out in detail. In outline:(1) The recitals referred to the purchase of Chippings (“the Property”) and the intention to operate it as a care home. They also recorded that Mr Farmer had contributed £70,000 to the purchase and to improvement works and that his total contribution was expected to amount to £90,000.(2) Clause 3 provided that Mr Farmer was to receive 20% of the net profit, defined at cl. 1 (c) as “the net profit of Gresham Homes derived from the Property”, “while this Agreement subsists”. Provision was made for the method of calculation of net profit to be stipulated, but it was left blank.(3) Clause 5 provides for the agreement to be terminable in one of four ways: “on disposal of the Property”; by agreement; by “a buy-out under clause 4”; or on breach by either party. Clause 4 is headed “Right of Mrs Winchester to Buy Mr Farmer’s Interest” and gives her a right to buy out that interest at any time by repaying “all monies advanced” plus 20% of the increase in market value of the Property above £235,000 and a small amount in relation to interest in March-August 1997. While Morrisons may well have come up with the legal machinery for themselves it is inconceivable that the core commercial terms did not reflect their instructions from Mr and Mrs Winchester; and it is barely conceivable that those instructions simply reflected what Mr and Mrs Winchester thought would be a good idea as opposed to discussions which had taken place with Mr Farmer.[10]The draft was sent to Mr Farmer but he was not happy with it. He sent it back with clause 4 struck through, together with one or two other annotations. It is not clear, and does not matter, whether this led to further discussions at the time; what matters is that the draft was not agreed.[11]Among the documents disclosed by Mr and Mrs Winchester was the draft of a letter dated 10 September 1998 from them to Mr and Mrs Farmer in response to a problem which Mr Farmer is said to have raised in July of that year. It is common ground that the letter was not in fact sent, but it is nevertheless of value as an indication of the parties’ understanding of their obligations at the time. Mr Farmer had apparently been seeking an increase in his profit share. The response in the draft letter reads as follows:
“When we first suggested going alone from the Millsteds, we discussed profit sharing and agreed the 80:20 split with your investment rising to £90,000. Originally I argued that the percentages be phased to rise with your payments into Gresham Care but you didn’t want this. There was no agreement to reconsider that percentage at a later stage and to adjust it retrospectively, which is our main reason for not wanting to do it now. On the subject of your £90,000 being locked into Gresham Care for longer than you would have liked, again there was no discussion of this. Indeed it was because we could not give a specific timeframe on this that we were prepared to go for a profit share as opposed to a straight loan. Additionally that profit share is open-ended and relates to any other projects we undertake. We are committed to refinancing the project when Chippings opens and our first priority will be to arrange terms for repaying your injection, but should the project fail we have agreed in any event to repay you from the equity in Chippings and 14 Ardshiel Drive. As this equity still remains intact we feel that your capital is secure and that any resultant capital losses will be borne wholly by us. On that basis we feel that the current arrangement is fair.”
The significance of this passage is of course that Mr and Mrs Winchester appear to be positively asserting not only that a 20% profit share had been discussed but that there was a concluded agreement, which was why Mr Farmer could not renegotiate the terms. It is also important to note the statement that “the profit share … relates to any other projects we undertake”.[12]In November 1999 Mr Farmer sent Mr and Mrs Winchester a draft partnership deed apparently prepared for him by an accountant. It is not a well-drafted document. Most of the provisions are standard-form and cast no light on Mr Farmer’s understanding; and those that are specific largely track the corresponding provisions in the Morrisons draft. The draft was rejected by Mr Winchester. Again, there is no evidence of the details of his objections.[13]In 2000 Mr and Mrs Farmer separated. For the purpose of divorce proceedings Mr Farmer had to identify his assets. On 4 September he wrote to Mrs Winchester as follows:
“I have been asked by my solicitor to confirm the nature and extent of my interest in Gresham Care Homes. Effectively what is needed is a letter from you to confirm the position and then, as I understand it, I will need to attach that to a document which I will swear. I would be grateful for your written confirmation on the following points: - In 1997 I made a loan of £120,000 to you as the sole proprietor of Gresham Care Homes. This was obviously a loan that required to be repaid at a date to be agreed but did not carry interest as a consequence of the other aspects of our agreement. I made an additional loan to you of £8,000 for carpets and equipment and that too was repayable with no interest to be paid as above. That I receive a 20% share of the gross profit of you trading as Gresham Care Homes, on any successful entity. I need to give my solicitor some idea as to the future value of my interest and I would be grateful for copies of any projections that you have say for the next five years.”
On 12 September Mr Winchester replied:
“Following your draft letter to Beverley dated 4th September, I am writing to clarify the position on your account with Gresham Care. 1. Over the period of 27th February 1997 to 25th March 1999 you advanced a total of £115,000 to Beverley and myself through the channel of PA Winchester and Co. 2. Because of our original agreement around the Millsteds in 1997, some of the above (£50,000 from 27th February 1997 to 13th August 1997, £40,000 from 4th August 1997 to 1st September 1997) earned interest at 15% and this amount totalling £4000 was credited to your account. 3. A further £6075.47 was credited to your account for expenses incurred by you on behalf of Gresham Care. These were as detailed by yourself. 4. It was agreed that you would receive 20% of the net profit of Gresham Care in recompense for 1-3 above. Your profit share for the year ended 31st March 2000 was £12,000 and this is credited to your account also. Further to this a cheque for £12000 is included.”
It will be noted that he did not contradict Mr Farmer’s reference to “any successful entity”. In 1997 I made a loan of £120,000 to you as the sole proprietor of Gresham Care Homes. This was obviously a loan that required to be repaid at a date to be agreed but did not carry interest as a consequence of the other aspects of our agreement. I made an additional loan to you of £8,000 for carpets and equipment and that too was repayable with no interest to be paid as above. That I receive a 20% share of the gross profit of you trading as Gresham Care Homes, on any successful entity.[14]The payment of £12,000 included with Mr Winchester’s letter of 12 September 2000 was the first payment of profit share made, reflecting the fact that the year ending 31st March 2000 was Gresham Care’s first profitable year. Thereafter payments were made, as I have said, annually and in increasing amounts. On each occasion Mr Winchester sent Mr Farmer annual accounts for “Gresham Care”. It is common ground that these covered not only Chippings but Upfield and Poplars as they came on stream. On each occasion the balance sheet included “J A Farmer £119,500” under the heading “Owner’s/Shareholder’s Capital” or “Capital”. (Mr Winchester’s evidence in cross-examination was that this was an artefact of the accounting software which he used; but the Judge did not accept that.)[15]Finally, in May 2005 Mrs Winchester wrote to Mrs Westcott asking for information about “how John’s investment in Gresham Care is provided for in your settlement agreement with him on divorce”. The use of the term “investment” is to be noted.[16]I need not set out the circumstances of the decision to stop payment of the profit share and its communication to Mr Farmer and Mrs Westcott, about which the evidence is in any event sparse. It is clear, however, that it was on any view not sensitively handled.

THE PLEADINGS

[17]The Particulars of Claim were drafted by counsel (not Mr Sefton-Smith, who represents Mr Farmer before us). They are shortly pleaded. They can be summarised as follows:(1) Paras. 3 and 4 plead the initial payment of £50,000, described as “the First Loan”.(2) Para. 5 pleads an oral agreement between the Claimant and Mr Winchester “that the Claimant would lend further sums to the Defendants in order to set up Gresham Care”. The agreement is said to have been made “at a series of meetings of a social nature, the precise locations of which and the precise words spoken at which are not now recalled”. No date is pleaded; but it is clear that the agreement is alleged to have post-dated the First Loan and preceded the first of the further payments.(3) Paras. 6 and 7 set out the terms of the alleged agreement. They read as follows: “6. The Agreement contained the following express terms: a) The principal sum loaned would remain a debt of the Defendants to the Claimant. b) The Defendants would pay to the Claimant 20% of the net profits of Gresham Care annually in arrears. c) In consideration of the commercial risk taken by the Claimant, the Claimant would be entitled to a 20% share of Gresham Care. d) The principal sum would, as of 1 September 1997, be treated as £44,000 representing the outstanding principal on the First Loan and £40,000 interest. 7. The Agreement contained the following implied terms: a) So long as Gresham Care remained a going concern in the hands of the Defendants, neither party could terminate the Agreement. b) On sale or dissolution of Gresham Care, the Claimant would be entitled to: (i) the return of the principal, as a liability ranking ahead of any entitlement to any partners’ share in Gresham Care; and (ii) 20% of the net proceeds realised from the sale or dissolution of Gresham Care. c) The terms of the Agreement applied to the Defendants’ carrying on the business of care home operators, regardless of its name, so that if further property was acquired or operated as part of the business it would all be treated, for the purposes of the Agreement, as being a part of “Gresham Care” even if operated and accounted for separately. d) The Defendants would supply year end accounts, including a profit and loss account and balance sheet, for Gresham Care as soon as reasonably practical after the end of each accounting year.” a) The principal sum loaned would remain a debt of the Defendants to the Claimant. b) The Defendants would pay to the Claimant 20% of the net profits of Gresham Care annually in arrears. c) In consideration of the commercial risk taken by the Claimant, the Claimant would be entitled to a 20% share of Gresham Care. d) The principal sum would, as of 1 September 1997, be treated as £44,000 representing the outstanding principal on the First Loan and £40,000 interest. a) So long as Gresham Care remained a going concern in the hands of the Defendants, neither party could terminate the Agreement. b) On sale or dissolution of Gresham Care, the Claimant would be entitled to: (i) the return of the principal, as a liability ranking ahead of any entitlement to any partners’ share in Gresham Care; and (ii) 20% of the net proceeds realised from the sale or dissolution of Gresham Care. c) The terms of the Agreement applied to the Defendants’ carrying on the business of care home operators, regardless of its name, so that if further property was acquired or operated as part of the business it would all be treated, for the purposes of the Agreement, as being a part of “Gresham Care” even if operated and accounted for separately. d) The Defendants would supply year end accounts, including a profit and loss account and balance sheet, for Gresham Care as soon as reasonably practical after the end of each accounting year.”(4) Para. 8 reads: “The term “Gresham Care” will be used in the remainder of these pleadings to include any business to be treated as part of “Gresham Care” in accordance with the Agreement as set out in point 7(c) above.”(5) Para. 9 pleads the payments made by Mr Farmer by reference to a Schedule. Para. 10 refers to certain documents which will be relied on as evidence. Para. 11 pleads the failure to pay his share of the profits of Gresham Care for 2010/2011 and 2011/2012.(6) The prayer reads: “… AND the Claimant claims: a) A declaration that: (i) the Claimant is entitled to a 20% share in the net profits and the net capital value [of] Gresham Care; (ii) on cessation of business of Gresham Care or its transfer out of the hands of the Defendants, the Claimant is entitled to a repayment of his loan of £119,500, before any share of the capital value is divided between himself and the Defendants. b) An account of all profits made by the [sic] Gresham Care and in relation to what the Claimant is entitled in respect of profits. c) Payment by the Defendants to the Claimant of any sum found due to the Claimant upon taking such an account together with the said interest pursuant to section 35A of the Supreme Court Act 1981 to be assessed. d) All further proper accounts, inquiries and directions.” (i) the Claimant is entitled to a 20% share in the net profits and the net capital value [of] Gresham Care; (ii) on cessation of business of Gresham Care or its transfer out of the hands of the Defendants, the Claimant is entitled to a repayment of his loan of £119,500, before any share of the capital value is divided between himself and the Defendants. No Request for Further Information was made in relation to that pleading.[18]The Defence (pleaded by Mr Christopher Quinn of counsel, who represents Mr and Mrs Winchester before us) is rather more elaborate. It contains a fair amount of background which I need not summarise. It disputes that the initial £50,000 payment had anything to do with Chippings or Gresham Care; but, as I have said, that is not a matter of real significance in the events that happened. The essential parts of the pleading are as follows: (1) Para. 17 pleads to para. 6 of the Particulars of Claim as follows:
“17.1. Generally, it is denied that the parties agreed terms of repayment of the loans at the time that each was made whether as alleged or at all; 17.2. Paragraph 6(a) is admitted to the extent that Patrick understood each of the payments made to him by the Claimant to be a loan. However it is denied that there was ever an ‘express term’ as to that effect and the Claimant is put to proof of such allegation; 17.3. As to paragraph 6(b), Patrick agreed that until such time as the capital sum lent by the Claimant had been repaid in full, the Defendants would pay the Claimant 20% of the net profits of the then entity known as Gresham Care i.e. the Chippings care home; 17.4. Paragraph 6(c) is denied. The Claimant is being dishonest in making this contention which he knows full well was never agreed to by the Defendants; 17.5. It is denied that there was ever an express term as contended for in paragraph 6(d), which appears to be no more than an accurate statement of the position between the parties as of the said date.” (2) Para. 18 pleads to para. 7 of the Particulars of Claim as follows: “18.1. The implied term contended for in paragraph 7(a) is denied and in any event is liable to be struck out in the circumstances that the pleader does not plead, let alone justify, the ground(s) upon which the alleged implied term is contended for; 18.8. The implied term(s) contended for in paragraph 7(b) is denied and in any event is/are liable to be struck out in the circumstances that the pleader does not plead, let alone justify, the ground(s) upon which the alleged implied term(s) are contended for; 18.3. The implied term(s) contended for in paragraph 7(c) is denied and in any event is liable to be struck out in the circumstances that the pleader does not plead, let alone justify, the ground(s) upon which the alleged implied term is contended for; 18.4 The implied term contended for in paragraph 7(d) is denied and in any event is liable to be struck out in the circumstances that the pleader does not plead, let alone justify, the ground(s) upon which the alleged implied term is contended for.” (3) Para. 19 reads as follows: “Paragraph 8 is mischievous. The Claimant knows full well that at the time any discussions between the parties as to “Gresham Care” were limited solely to the Chippings care home. In these proceedings he is attempting to derive benefit from the Defendants’ subsequent expansion into other care homes – an exercise to which he made no contribution, whether financial or otherwise, whatsoever. It is to be noted that paragraph 8 depends upon paragraph 6(c) which rests upon a contention of an implied, as opposed to any express, term.” (4) Paras. 20-21 plead the abortive attempts to reach agreement. Para. 22 reads as follows: “In the absence of any agreement the Defendants paid considerable sums totalling £635,000 to the Claimant. There is no legal or equitable obligation upon them to pay any further sums to him and they ceased doing so as of September 2010. Such payments are not evidence of the agreement for which the Claimant contends in these proceedings and, as he well knows, reflect instead the varying demands of friendship, loyalty, appreciation for his earlier financial assistance, concern as to his own well-being and that of his by then estranged wife as well as the fact that the parties had not actually reached agreement.”

THE TRIAL AND THE JUDGMENT

[19]Sadly, it appears that Mr Farmer is terminally ill. For that reason it was agreed that the trial should be expedited; and, as I have said, it was heard before Judge Gerald over two days in March this year. The parties were represented by Mr Sefton-Smith and Mr Quinn. The Judge heard oral evidence from Mr Farmer, Mrs Westcott and Mr and Mrs Winchester. There was also a witness statement from a Mr Cowan lodged by Mr and Mrs Winchester which Mr Sefton-Smith did not seek to challenge. The evidence was concluded early in the morning of the second day, and counsel proceeded directly to closing submissions, which – with the encouragement of the Judge – were very short. The Judge began to deliver judgment as soon as Mr Sefton-Smith sat down and completed it before the short adjournment. There was then some further discussion on ancillary matters.[20]In his submissions before us Mr Quinn submitted that the speed with which the trial proceeded was inappropriate and gave an impression of injustice. He was particularly critical of the Judge for giving judgment immediately on the conclusion of submissions. No point of this kind is taken in his Grounds of Appeal and it is not open to him to rely on it now. We have, however, seen a full transcript, and I think it is appropriate to say that I do not accept his criticisms. It is clear that the Judge kept a tight grip on proceedings, holding counsel to a timetable for cross-examination which they themselves had volunteered and encouraging very focused submissions. But that is in itself a matter for commendation, not criticism. There is of course always the risk that such an approach can lead to important points being missed or insufficiently explored; but if that occurs it is the job of counsel to object. Mr Quinn made no such objection at any point, and I cannot in fact see any sign in the transcript of him being stopped from addressing any point of real significance. As for the Judge not taking time for consideration, there is nothing wrong in a judge forming a provisional view as the evidence proceeds; and if, as was evidently the case here, that view is not altered by counsel’s submissions, there is nothing wrong in his proceeding to judgment straightaway provided he feels able to do so. This case was presented to the Judge by both counsel as straightforward and essentially depending on his assessment of the facts – Mr Sefton-Smith observed to him that neither party’s skeleton arguments referred to any authority.[21]The judgment can be summarised as follows:(1) First, and fundamentally, the Judge accepted Mr Farmer’s account of the oral agreement made in December 1997/January 1998, which I have set out above. He said at para. 10 of the judgment “I have no doubt that there was the agreement which Mr Farmer says there was” and at paras. 38-39 he fully summarised, and again explicitly accepted, Mr Farmer’s and Mrs Westcott’s evidence. The corollary of that was that he rejected such contrary evidence as there was from Mr and Mrs Winchester and in particular their evidence that no concluded agreement was ever reached.(2) He gave his reasons for accepting that there had been a concluded agreement in the form of a review of the matters which I have summarised at paras. 6-14 above. He believed that those events and documents were only consistent with Mr and Mrs Winchester believing Mr Farmer to have a 20% interest in Gresham Care and to be legally entitled to a 20% profit share. Most obvious was the mere fact of payment of the share over nine years; but he also placed weight on the terms of the various documents emanating from Mr and Mrs Winchester, including the balance sheets. He observed that the unsent letter of 10 September 1998 was “perhaps the most telling document” because it showed Mr Winchester positively asserting that there was an agreement.(3) He acknowledged that the parties had failed to agree the terms of a written contract, but he observed at para. 10 of his judgment that “the fact that the parties have not reached or been able to reach a written detailed agreement as to what had been previously agreed does not mean that there was not any prior agreement”.(4) He acknowledged that the draft formal agreements identified only Mrs Winchester as the owner of Gresham Care, but he said that that was simply because, as I have already noted, Mr Winchester’s history of mental ill health meant that formally the business operated in Mrs Winchester’s name alone, and that in truth they were joint owners and that Mr Farmer’s agreement was made with both of them (para. 22).(5) He held that the agreement was that Mr Farmer should have an interest not only in Chippings but in Gresham Care as it extended to other homes. Again, he relied primarily on the simple fact that, once Upfield and Poplars opened, profit share was paid in relation to them as well; but he noted the reference to “any other projects we undertake” in the unsent letter of September 1998 and Mr Farmer’s uncontradicted reference in his letter of 4 September 2000 to “any other entity”. He explicitly rejected the evidence of Mr Winchester that he had included the further two homes in the calculation as an act of generosity and in recognition of Mr Farmer’s generosity to him in 1997 (para. 14).(6) The judgment concludes (para. 40):
“I therefore find that the Claimant, Mr Farmer, has a 20% interest in the business then known as Gresham Care which was the business of owning and operating care homes, and that certainly by financial year ending 31st March 2002 that included Chippings, Upfield and Poplars. Whether or not that business included or includes any of the care homes which were subsequently purchased after Gresham Care was restyled “Cavendish Care” in 2003 will be the subject of an enquiry and further directions as will the question of any further profits. No findings need be made or directions given in respect [of] termination of the agreement or repayment of the £119,500 because it does not form the [sic] part of either side’s case that the agreement has been terminated or the loan called in.”
[22]The Order in due course promulgated reads (so far as material) as follows:
“UPON HEARING Counsel for the Claimant and for the Defendants upon the trial of this action UPON THE COURT FINDING THAT the Claimant orally agreed to lend funds to the Defendants to establish a new business of owning and operating care homes which became known as Gresham Care in return for receiving 20% of its net profits before payment of salaries to the Defendants and a 20% interest in the business THAT the Claimant loaned the Defendants £119,500 AND THAT no steps have been taken to determine or otherwise terminate such agreement IT IS DECLARED that: - 1. The Claimant loaned the Defendants £119,500 2. The Claimant owns and is entitled to a 20% interest in the business of owning and operating care homes which in the financial year ending 31st March 2002 was known as “Gresham Care” (“the Business”) and then included (without limitation) the care homes known as “Chippings”, “Upfield” and “Poplars” 3. The Claimant was and remains entitled to 20% of the net profits of the Business calculated before payment of salaries to either Defendant IT IS ORDERED that: - 4. There be an inquiry as to: - (a) The assets, liabilities and effects of and now comprised in the Business (including whether it comprises any homes additional to said Chippings, Upfield and Poplars) (b) The net profits of the Business (calculated as aforesaid) since 31st March 2002 (to include said Chippings, Upfield and Poplars and any additional homes now comprised within the Business (if any)) and (c) The Claimant’s 20% share of said net profits save to the extent already paid to him 5. The Defendants shall pay to the Claimant the amount of unpaid profits (if any) found due to the Claimant together with interest thereon as further ordered after the inquiry.”
The remaining parts of the order are concerned with directions for the account and with costs and the refusal of permission to appeal. The directions included an order for disclosure aimed at establishing whether the Cavendish Care homes fall to be treated as part of “the Business”. IT IS DECLARED that: - IT IS ORDERED that: - (a) The assets, liabilities and effects of and now comprised in the Business (including whether it comprises any homes additional to said Chippings, Upfield and Poplars) (b) The net profits of the Business (calculated as aforesaid) since 31st March 2002 (to include said Chippings, Upfield and Poplars and any additional homes now comprised within the Business (if any)) and (c) The Claimant’s 20% share of said net profits save to the extent already paid to him

THE APPEAL

[23]Mr Quinn’s oral submissions before us bore only a tangential relationship to his Grounds of Appeal, which are formulated as four summary propositions amplified by some short supporting argument. (The skeleton argument does not materially develop the Grounds.) I must treat the pleaded Grounds as the basis of the appeal, though I will in considering them try to relate them so far as possible to the points made orally.

Ground 1

[24]This reads:
“The Judge erred in law in that he was required to consider and determine the particular terms of the contract as pleaded by the Respondent but failed to do so.”
At para. 1.1 of the supporting argument it is noted that Mr Farmer had pleaded, at paras. 6 and 7 of the Particulars of Claim, four express and four implied terms, all of which (it is said) were traversed in the Defence; and it is said that “the Judge failed to deal specifically (as he was required to do) with any of those terms in his Judgment”.[25]I do not accept that it is axiomatic that the Judge needed to resolve every point of dispute in the pleading. Ultimately what he had to decide was whether Mr Farmer was entitled to the relief sought in the prayer; and if issues were raised in the pleadings which were not in the end material for that purpose he was entitled to ignore them.[26]In any event, however, I believe that, subject to one exception, the Judge did make findings on all the significant pleaded terms. He plainly found in Mr Farmer’s favour on the four express terms pleaded in para. 6 of the Particulars of Claim, though (d) was not, as far as it goes, in issue. (The term pleaded at (a) is perhaps a little ambiguous. If all that it means is that the sums paid constituted a repayable loan, that was admitted in the Defence – subject to a non-point about whether the agreement to repay was express or implied. If it is meant to say something about the position on termination, see para. 29 below.) He also clearly found in his favour on the implied term pleaded at para. 7 (c).[27]It is true that the Judge did not make any finding on whether the Agreement could be terminated unilaterally or on what the position would be on any termination, which questions are the subject-matter of paras. 7 (a) and (b). But I do not think he can be criticised for that. I take the two in turn.[28]As regards para. 7 (a), Mr Quinn raised this explicitly with Mr Farmer in cross-examination. Mr Farmer said that the pleaded position seemed “slightly illogical”. The Judge then asked him whether he was withdrawing his assertion that there was such a term; and he agreed. It is not perhaps ideal that a party, rather than his counsel, should be asked to withdraw a part of the pleaded case; but Mr Sefton-Smith did not object, and a little later in the cross-examination the Judge confirmed that “you have now withdrawn the suggestion that they could never terminate”. In those circumstances it is entirely understandable that he felt it unnecessary to resolve the point in his judgment. In principle, Mr and Mrs Winchester could have sought to rely on the fact that, as appeared from that concession, no term had been agreed about termination in support of a submission that any agreement that the Judge might otherwise find was lacking an essential term and was accordingly incomplete. It does not appear that Mr Quinn put it that way in his submissions, and in any event he did not do so before us. Such a submission would have faced difficulties, since where parties have proceeded for a long period on the basis (as the Judge found here) that they have a legal agreement the court will strive so far as possible to supply any gaps in the agreement by a process of implication. As it happens, the Judge in the post-judgment discussion suggested to the parties that it must be implicit that the agreement was terminable on reasonable notice; and it appears – though the issue is not before us – that they have since proceeded on that basis.[29]As to para. 7 (b), the Judge made it clear at para. 40 of his judgment (having already flagged the point during submissions) that he did not propose to address the issue of the rights of the parties on termination since neither party asserted that a termination had occurred. That approach seems unobjectionable, and Mr Quinn has not sought to challenge it in his oral submissions.[30]Mr Quinn takes a distinct point under this head (though in fact it does not obviously fit under it), namely that the Judge gave no reasons for finding that it was a term of the agreement that Mr Farmer should have a share in the Gresham Care business beyond Chippings. I cannot accept this. It is perfectly clear why the Judge made the finding that he did. The fact that profit share had been paid for several years in respect of Upfield and Poplars, coupled with the language of the documents to which I have referred at paras. 11 and 13, gave ample reason for finding that the agreement did not extend only to Chippings. That being so, there was no logical reason why it should stop at Upfield and Poplars. It is in the nature of an investment that if the business grows the investor’s interest grows with the business. Mr Sefton-Smith in his opening at the trial, acknowledging that the particulars were “pleaded a little too widely”, had put his case as follows:
“If capital within [the Gresham Care business] generates an income and the income is reinvested in a fresh care home, so money is taken out of the business to be reinvested, then that is part of the business of Gresham Care”
. That way of putting it may conceal some complications, particularly if the facts about the funding of the further homes are not so straightforward. But the Judge’s decision did not commit the Court to any particular approach in deciding whether any other homes – and specifically those developed under the Cavendish Care brand – form part of “the Business” as defined in the order. That is a question which will have to be decided in the light of the facts as they appear following the inquiry which he directed.[31]Mr Quinn also submitted that the Judge failed to comment on the fact that Mr Farmer had accepted in cross-examination that he knew “prior to 2010” – though how long before was not identified – that Mr and Mrs Winchester had opened other homes but had raised no questions about it. He said that that was a very weighty indication that he always understood that any entitlement which he enjoyed related only to Chippings, Upfield and Poplars – if not indeed only to Chippings. This point is not raised in the Grounds of Appeal, but it is in any event in my view bad. Mr Farmer’s failure to press for more is far from a being a conclusive indication of his understanding of the agreement. Although he acknowledged that he knew in a general way of the existence of other homes, it was not established that he had any knowledge of how they were funded or any reason to believe that they might have been developed out of the profits of the Gresham Care business – and of course they were branded as Cavendish Care, which would tend to suggest otherwise. This passage could not possibly establish, once it was held that the agreement did not only relate to Chippings, that it could not extend to other homes beyond Upfield and Poplars.

Ground 2

[32]This reads:
“The Judge erred in law in that he impermissibly found for the Respondent on an unpleaded basis.”
Despite its apparent generality, this ground is directed at a particular point, namely the express recital in the order, and the incorporation in the declaration made (para. 3), of a finding that it had been agreed that Mr Farmer’s profit share should be calculated before payment of salary to Mr and Mrs Winchester. Mr Quinn submits that no such term was pleaded, and he also points out that no finding to this effect was incorporated by counsel in the draft form of order which they submitted following the judgment: the Judge added it himself.[33]In my view it is debatable whether an averment as to how the profits were to be calculated required to be pleaded in the Particulars of Claim. The pleaded term was “net profits”, and the view could legitimately be taken that the precise meaning of that term could be elucidated, so far as necessary, at a later stage of the proceedings. But even if Mr Farmer’s case on this should have been pleaded from the start, no substantial injustice has been done by the failure to do so. As appears from the extracts quoted above, both he and Mrs Westcott made clear assertions in their witness statements that it was agreed that profit would be calculated before bringing into account Mr and Mrs Winchester’s salaries (which would indeed be a natural stipulation for an investor to make); and Mr Quinn cross-examined on that question. It also appears to be common ground that the profit share paid between 2000 and 2009 was calculated on that basis. In those circumstances Mr Quinn could not and did not suggest that any prejudice had been caused by the point not having been pleaded. The Judge did not in fact specifically address it in his judgment as delivered, but that is not a significant omission since he recites and explicitly accepts Mr Farmer’s and Mrs Westcott’s evidence about the meetings in December 1997 and January 1998, which includes their case on this point. There can be no possible objection to his having sought to make this clear in the terms of the order.

Ground 3

[34]The points made under his head are rather hard to pin down. However, Mr Quinn’s essential submission seems to be that the Judge was wrong to read the documents as undermining Mr and Mrs Winchester’s case that no agreement was ever concluded and that they made the payments that they did out of generosity; and, further, that he failed to appreciate that some of the documents at least were inconsistent with Mr Farmer’s case. Those errors are said to reflect, or result from, a misapplication of the burden of proof.[35]As to the first part of that point, I acknowledge that it was important for the Judge, and is important for us, to appreciate the human context in which this case arose. I do not doubt that Mr and Mrs Winchester felt very grateful to Mr Farmer and Mrs Westcott for the support they had shown when Mr Winchester was in a bad way: the initial loan of £50,000 had evidently been an act of friendship which was deeply appreciated. It is therefore not in principle implausible that they should have wished themselves to be generous in their subsequent dealings with Mr Farmer. But that is not a reason for declining to find a binding agreement where the evidence, and in particular the documentary evidence, suggests that the parties themselves believed that they had made one. That is plainly what the Judge thought that the documents showed; and I agree with him. I need not repeat the points already made about what those documents tend to show. Like the Judge, I would attach particular weight to the unsent letter of 10 September 1998 and to the exchange in September 2000. I do not understand what this has to do with the burden of proof: the Judge had conflicting evidence and decided which he preferred.[36]As to the second part of Mr Quinn’s point, I accept that particular documents can be deployed against Mr Farmer’s case. The most obvious point is the disagreement about the draft contracts each submitted to the other. However, as the Judge points out more than once in his judgment, that is as consistent with the parties disagreeing about what had in fact previously been agreed (expressly or by implication) as with the absence of an agreement in the first place; and this argument did not in fact appear to be Mr Quinn’s main focus. Rather, he pointed to Mr Farmer’s failure to contradict some particular terms in the Morrisons draft which he said were inconsistent with his pleaded case, and his assertion of other inconsistent terms in the draft partnership agreement. But it is in fact hard to see any inconsistencies of significance. It is true that both documents refer to Mrs Winchester alone as the other contracting party; but the Judge considered that as being of little significance as an indication of the parties to the original oral agreement, for the reasons which I summarise at para. 21 (4) above. It is also true that both documents refer only to Chippings rather than some broader business. But that could, and the Judge found did, simply reflect the fact that Chippings was the only home operating at the time. (I should add that the partnership agreement was not in fact put by Mr Quinn to Mr Farmer in his cross-examination.)

Ground 4

[37]This ground focuses on an observation by the Judge, at para. 39 of his judgment, that “without [Mr Farmer’s] money the business would not have got off the ground or expanded in the way it did”. This is said to involve an implicit finding that Mr and Mrs Winchester had no other source of finance available to them; and that in turn is said to be a conclusion not open to the Judge in the light of the unchallenged evidence of Mr Cowan, who said that he had lent Mr and Mrs Winchester £42,000 in the early days of Gresham Care on the basis of “an interest rate of a few percentage points above base” (he does not specify a date, but he says he was repaid “by about 2000” with what looks like about two years’ interest) and that if asked he would, “within reason”, have lent more. Mr Quinn suggests that Mr Cowan’s terms were “clearly more favourable” than those asserted by Mr Farmer.[38]This argument is built on sand. The Judge neither says nor implies that Mr Farmer was the only person who helped, or could have helped, finance the start of Gresham Care. Maybe Mr Cowan could, if asked, have provided a further £120,000; but the fact is that he did not and that Mr Farmer did. The question for the Judge was simply whether Mr Farmer’s advance was on the basis of the agreement which he alleged; and he held that it was.[39]I would add that Mr Quinn’s suggestion that Mr Cowan’s terms were more favourable than Mr Farmer’s involves an application of hindsight which seems to reflect the approach taken by Mr and Mrs Winchester more generally. If the business had failed both Mr Cowan and Mr Farmer would have been entitled to repayment of the principal lent/invested; but whereas Mr Cowan would have been entitled to interest in addition (at what appear to have been at least commercial rates) Mr Farmer would have received no return. As it has turned out, the investment has been extremely successful; but that could not be counted on at the time, and indeed the Judge accepted Mrs Westcott’s evidence that both she and Mr Farmer regarded the venture as “very speculative”. Mr and Mrs Winchester’s view that because Mr Farmer has had a handsome return on his £120,000 he cannot fairly expect more is wrong because it treats the advances as a loan and not as an investment.

CONCLUSION

[40]Mr Quinn has failed to show that the Judge’s judgment was wrong. I would dismiss this appeal.[41]There was some discussion before us about whether, if that were the outcome, the further inquiries that will now be needed should proceed before a Master in the High Court rather than in the County Court. That is not a matter for us to decide; and in any event it seems that any such decision is premature until Mr Farmer has been given the disclosure which has been ordered, which will enable a view to be taken as to the scope and complexity of the issues that may arise about Cavendish Care. I am prepared to say, however, that if the matter is to remain in the County Court in my view any substantial issues should be determined by Judge Gerald if he is available and, if he is not, by another Circuit Judge rather than by a District Judge.