James Hay Pension Trustees Ltd.& Ors v Hird & Ors [2005] EWHC 1093 (Ch)

[2005] EWHC 1093 (Ch)Venue Royal Courts of JusticeStrandLondon WC2A 2LLFriday, May 27, 2005
Before
MR JUSTICE LAWRENCE COLLINS
Between
JAMES HAY PENSION TRUSTEES LIMITEDClaimantCOLIN MOLYNEUXClaimantALISON MOLYNEUXClaimant(all suing as trustees of the Repton Securities Directors Pension Scheme)Claimant– and –
Between
KEAN HIRDDefendantIAN HARRISDefendantANDREW COEDefendantFRAME INVESTMENTS LIMITEDDefendantFRAME (SUSSEX) LIMITEDDefendantDANIEL AUERBACH & COMPANY LLPDefendantAPPROVED JUDGMENTMiss Elizabeth Jones QC and Mr Tom Smith (instructed by Forsters LLP) for Claimants.Mr John Tackaberry QC (instructed by CKFT Solicitors) for Defendants.Hearing: May 25, 2005Date 2005-05-27

I Introduction: the Partnership Deed

[1]This is an application by the claimants for summary judgment on their claim (and parts of the defendants’ counterclaim) pursuant to CPR Part 24. The claimants are the trustees of a pension scheme, the Repton Securities Directors Pension Scheme (“the Pension Scheme”), and sue in that capacity. The first claimant, James Hay Pension Trustees Ltd (“JHPT”), specialises in the provision of pension services and is a subsidiary of Abbey National plc, now part of Banco Santander Central Hispano SA. Repton Securities is now called Molyneux Investments Limited (“MIL”). MIL is an investment vehicle of Mr Colin Molyneux (“Mr Molyneux”). Mr Molyneux and his wife, Alison Molyneux, are the second and third claimants as the other trustees of the Pension Scheme. Mr Molyneux is also a party (both as claimant and as defendant) to Part 20 claims in this action.[2]The first, and principal, defendant, is Mr Kean Hird(“Mr Hird”).Mr Hird had been a director of Imry Group plc. In 1997 Imry Group plc sold off part of its property portfolio to the South Downs Partnership, a limited partnership formed in that year (“the SDP”). The general partner in the SDP was Prudential Insurance Company of America (PRICOA) and lead investors included Hanover Property Unit Trust, Trans European Investment Trust and Sir Robert MacAlpine trusts.[3]When he left Imry Group plc, Mr Hird secured a management contract to manage the substantial portfolio held by the SDP, consisting of 79 properties and 345 tenants. He formed Sussex Asset Management Ltd (“SAM”) to enter into the management contract. The terms of the management contract also permitted SAM (or its nominee) to subscribe £400,000 for a Special Partner Share (representing 16%) in the SDP.[4]Mr Harris, the second defendant, had worked with Mr Hird at Imry Group plc, and later with him at SAM. Frame Investments Ltd (“FIL”), the fourth defendant, is Mr Hird’s principal vehicle, and Frame (Sussex) Ltd, the fifth defendant held the Special Partner Share in the SDP which is the subject of this application. The sixth defendants are Mr Hird’s accountants, and are joined because they hold the proceeds of the relevant distributions of the SDP.[5]On March 30, 2001 a Partnership Deed was executed in which the parties were expressed to be Mr Hird and the Pension Scheme. The Partnership Deed was executed by Mr Hird and JHPT.[6]The Partnership Deed included the following terms: “2 Nature of business and duration2.1 The Partnership shall with effect from the Commencement Date [which was defined by clause 1 to mean June 1, 1998] carry on the business of ‘Special Partner’ (as set out in a clause 7.3 of the Private Placing Memorandum … dated October 1997 issued by PRICOA PH (Regulated) LTD in relation to the South Downs Partnership (as therein described) (‘the South Downs Partnership’)2.2 The nature of the Partnership business shall not be changed except by the unanimous vote of the Partners2.3 The duration of the Partnership shall be co-extensive with the duration of the South Downs Partnership and shall continue only thereafter for the purposes of fulfilling the Partnership’s duties in relation to the South Downs Partnership and thereafter winding up the Partnership and the date on which all the foregoing has been completed in herein referred to as the Termination Date … 4 Firm Name4.1 The Firm Name of the Partnership shall be Frame (Sussex) Partners and the Partnership shall be known by and contract in the name of and conduct its business using only the Firm Name from time to time. Each of the Partners acknowledges that all proprietary and other rights in the Firm Name are vested exclusively in the Firm4.2 The Firm Name shall be changed only by unanimous vote of the Partners … 6 Partners’ duties Each Partner shall:6.1 be just and faithful to the other Partners and at all times give to the other Partners full information and explanations of all matters relating to the affairs of the Partnership6.2 devote such time and attention to the Partnership as the Partners may by majority vote agree (except when absent as provided in clauses 10 or 11) and diligently and faithfully employ himself in the Partnership business and use his best skills and endeavours to carry on that business for the benefit of the Partnership6.3 punctually pay his separate debts and taxes and indemnify and keep indemnified the other Partners from and against all losses damages actions proceedings and costs that they may suffer or incur arising directly or indirectly from his failure to do so … 9 Capital9.1 All Partnership assets including goodwill in which the Partnership business shall be Partnership property and shall (unless otherwise agreed) belong to the Partners in accordance with the Third Schedule hereto and shall (if vested in any individual Partner) be held by him in trust for all of the Partners and the other Partners shall indemnify such Partner against all liability which may arise whether directly or indirectly out of such ownership9.2 No interest shall be payable upon the capital of any Partner9.3 Except on the Termination Date of the Partnership and as set out in Third Schedule hereto no Partner may withdraw capital from the Firm9.4 Any Profits or losses or liabilities of a capital nature shall belong to or be borne by the Partners in the proportion set out in Part 1 of the Second Schedule 10 Profits, losses and liabilities10.1 The Profits of an income nature for each Financial Year shall belong to the Partners in such proportions as are set out in the Second Schedule or as shall otherwise be agreed by all of the Partners from time to time10.2 All losses and all liabilities of an income nature of the Firm shall unless otherwise agreed by all of the Partners be borne by the Partners in the same proportion as those in which they would have been entitled to share in the Profits for the Financial Year during which such losses or liabilities are incurred10.3 The profits shall only be distributed after the repayment of the loan capital as set out in Part 2 of this Second Schedule 11 Banking All money and securities belonging to the Partnership shall be paid into the Partnership Bank [defined by clause 1 as Lloyds Bank, Pall Mall, St James Branch, 8-10 Waterloo Place SW1Y 4BE or such other bank as the Partners may choose from time to time] account at or deposited for safe custody with the Partnership Bank. All cheques on the Partnership Bank account shall be drawn in the name of the Partnership … 13 Management 13.1 Kean Hird shall exercise the day to day management and conduct of business and affairs of the Partnership as though the Partnership were a limited company and he is the Managing Director …” 2.1 The Partnership shall with effect from the Commencement Date [which was defined by clause 1 to mean June 1, 1998] carry on the business of ‘Special Partner’ (as set out in a clause 7.3 of the Private Placing Memorandum … dated October 1997 issued by PRICOA PH (Regulated) LTD in relation to the South Downs Partnership (as therein described) (‘the South Downs Partnership’) 2.2 The nature of the Partnership business shall not be changed except by the unanimous vote of the Partners 2.3 The duration of the Partnership shall be co-extensive with the duration of the South Downs Partnership and shall continue only thereafter for the purposes of fulfilling the Partnership’s duties in relation to the South Downs Partnership and thereafter winding up the Partnership and the date on which all the foregoing has been completed in herein referred to as the Termination Date 4.1 The Firm Name of the Partnership shall be Frame (Sussex) Partners and the Partnership shall be known by and contract in the name of and conduct its business using only the Firm Name from time to time. Each of the Partners acknowledges that all proprietary and other rights in the Firm Name are vested exclusively in the Firm 4.2 The Firm Name shall be changed only by unanimous vote of the Partners 6.1 be just and faithful to the other Partners and at all times give to the other Partners full information and explanations of all matters relating to the affairs of the Partnership 6.2 devote such time and attention to the Partnership as the Partners may by majority vote agree (except when absent as provided in clauses 10 or 11) and diligently and faithfully employ himself in the Partnership business and use his best skills and endeavours to carry on that business for the benefit of the Partnership 6.3 punctually pay his separate debts and taxes and indemnify and keep indemnified the other Partners from and against all losses damages actions proceedings and costs that they may suffer or incur arising directly or indirectly from his failure to do so 9.1 All Partnership assets including goodwill in which the Partnership business shall be Partnership property and shall (unless otherwise agreed) belong to the Partners in accordance with the Third Schedule hereto and shall (if vested in any individual Partner) be held by him in trust for all of the Partners and the other Partners shall indemnify such Partner against all liability which may arise whether directly or indirectly out of such ownership 9.2 No interest shall be payable upon the capital of any Partner 9.3 Except on the Termination Date of the Partnership and as set out in Third Schedule hereto no Partner may withdraw capital from the Firm 9.4 Any Profits or losses or liabilities of a capital nature shall belong to or be borne by the Partners in the proportion set out in Part 1 of the Second Schedule 10.1 The Profits of an income nature for each Financial Year shall belong to the Partners in such proportions as are set out in the Second Schedule or as shall otherwise be agreed by all of the Partners from time to time 10.2 All losses and all liabilities of an income nature of the Firm shall unless otherwise agreed by all of the Partners be borne by the Partners in the same proportion as those in which they would have been entitled to share in the Profits for the Financial Year during which such losses or liabilities are incurred 10.3 The profits shall only be distributed after the repayment of the loan capital as set out in Part 2 of this Second Schedule All money and securities belonging to the Partnership shall be paid into the Partnership Bank [defined by clause 1 as Lloyds Bank, Pall Mall, St James Branch, 8-10 Waterloo Place SW1Y 4BE or such other bank as the Partners may choose from time to time] account at or deposited for safe custody with the Partnership Bank. All cheques on the Partnership Bank account shall be drawn in the name of the Partnership 13.1 Kean Hird shall exercise the day to day management and conduct of business and affairs of the Partnership as though the Partnership were a limited company and he is the Managing Director[7]Part 1 of the Second Schedule provided for profits to be divided as to 63% to Mr Hird and 37% to the Pension Scheme. Part 2 of the Second Schedule provided for the loan capital to be repaid as to £252,000 to Mr Hird and £148,000 to the Pension Scheme. The Third Schedule provided for capital to be divided as to 63% to Mr Hird and 37% to the Pension Scheme.[8]The property portfolio of the SDP was sold in October 2002, and about £2,000,000 representing the 16% share due to the Special Partner was distributed to Mr Hird’s company Frame (Sussex) Ltd, and was then transferred to the client account of Mr Hird’s accountants, Daniel Auerbach & Co LLP, the sixth defendant.[9]When the solicitors for the Pension Scheme trustees sought payment of the 37% allocated to the Pension Scheme under the Partnership Deed, solicitors for Mr Hird claimed that(a) the partnership established by the Partnership Deed, Frame (Sussex) Partners, did not hold the Special Partner Share in the SDP;(b) the Special Partner Share had been held by Frame (Sussex) Ltd, which had transferred it to a new partnership, Frame (Sussex) Partnership in August 2000 (the partners of which were Mr Hird, Mr Coe, Mr Harris, the Pension Scheme and Mr Molyneux in his personal capacity); and(c) the partnership constituted by the Partnership Deed could not be looked at in isolation, and had to be considered in conjunction with other projects.

II Background

[10]In this section I shall set out the background and some of the principal documents, but in so doing I am making no findings of fact. Mr Hird says that in 1997 he began to look for prospective partners in a property investment venture. He invited Mr Terry Smith (“Mr Smith”) to join the partnership, a former director at Imry Group plc who was trained as a architect. He asked Mr Molyneux, whom he knew to have been particularly experienced in the retail sector, to join the partnership. He also arranged for Mr Harris to join the partnership; Mr Harris was formerly an associate at Imry Group plc and was to be primarily responsible for the day to day activities of SAM. Andrew Coe joined them also at an early stage to assist Mr Harris and to develop new business.[11]Mr Molyneux is a surveyor and retail specialist. In late 1997 he was pursuing a number of development opportunities, in which he would put together a team to pursue the project, and take a fee and typically carried interest which would be realised upon completion. In late 1997, Mr Molyneux was pursuing four schemes for assembling and managing development projects: in Aylesbury, Cambridge, Feltham and a retail regeneration scheme in the Potteries.[12]During late 1997 Mr Hird and Mr Molyneux started discussions about working together. The idea was to pool their then respective interests (i.e. SAM, with its management contract and potential to invest in the SDP, and Mr Molyneux’s four projects), to look for further such schemes and to involve Mr Smith. The opportunity to invest £400,000 in the SDP had to be taken by June 1, 1998.[13]Initially, only Mr Smith and Mr Hird invested in the Special Partner interest in the SDP (Mr Smith contributing £225,000 and Mr Hird contributing £175,000) although Mr Molyneux says that he made Mr Hird a temporary loan to enable the investment to be made in time. The Special Partner interest was subscribed for by a company called Frame (Sussex) Ltd, beneficially owned by Mr Hird.[14]However, in June 1998 SAM was advised by its accountants that it would be more tax efficient for the investment to be through a partnership than through a limited company.[15]Mr Hird’s solicitor was Mr Nigel Burnett, the senior partner of Cooper & Burnett, Tunbridge Wells (“Mr Burnett”), and he was instructed by Mr Hird to draft the partnership agreement. On September 14, 1998 Mr Burnett sent a draft Partnership Deed to Mr Hird. Clause 2.1 of the draft provided that the partnership was to carry on the business of being a Special Partner in the SDP, and is in the same terms as the Deed executed on March 30, 2001.[16]On January 5, 1999 Mr Molyneux wrote to JHPT to say that he intended to participate together with Mr Hird and Mr Smith in the acquisition of a freehold income producing shop investment. It was their intention to subscribe in three equal shares and he intended to cover his part through the Pension Scheme. After some further correspondence, the approach to JHPT did not proceed further at that stage.[17]On November 1, 1999 Mr Burnett wrote to Mr Hird with a revised Partnership Deed. The nature of the partnership was the same. Clause 10.4 provided that after repayment of the loan capital the profits would be distributed after payment of a bonus equivalent to the amount of loan capital to the party which contributed it. At that stage the loan capital was to be provided as to £190,000 by Mr Hird, and as to £210,000 by Mr Smith. The profit shares were 30% each to Mr Hird, Mr Smith and Mr Molyneux and 10% to Mr Harris.[18]On November 18, 1999 Mr Molyneux wrote to Miss Targett of JHPT to ask for confirmation that an investment by him of £100,000 would qualify as a pension contribution. He told her that the £400,000 investment had actually been made in early 1998 but had not yet been fully documented.[19]On November 25, 1999 Mr Clarke of JHPT asked Mr Molyneux to confirm whether he was a partner in the SDP. If that was the case the investment might not be allowed as it would be classed as a connected party transaction. On November 29, 1999 Mr Molyneux said that the answer was in the negative.[20]By the end of 1999 Mr Smith had decided that he no longer wished to continue the association. He agreed that he would seek only to have his return out of his investment in the SDP at par, and Mr Hird and Mr Molyneux decided that Mr Molyneux would replace Mr Smith in the investment in the SDP.[21]In April 4, 2000 Mr Hird wrote to Mr Burnett to say that he had agreed to buy out Mr Smith. He said that with regard to the ongoing relationship with Mr Molyneux and himself, they would like a 50/50 deadlock partnership agreement in respect of both FIL and the partnership. As regards the partnership, Mr Molyneux would be supplying Mr Burnett with details of how he was going to pay £125,000 by the end of April. It was essential that Mr Smith should think that the money was coming from Mr Hird as a repayment of a loan.[22]On April 5, 2000 Mr Molyneux wrote to Mr Burnett to say that, in the absence of Mr Hird on holiday, Mr Molyneux had agreed to submit to Mr Burnett the changes which would be required to both the shareholders’ agreement and the Partnership Deed. The major change related to the Partnership Deed where he would, in two tranches, replace the loan capital produced by Mr Smith, £125,000 on exchange (within the next 4 to 6 weeks) and the remainder within 12 months. He went on to say:
“The departure, however, is that I wish to do this via my self administered pension scheme which is possible because of the nature of the Limited Partnerships and the role that Frame (Sussex) has within this. I have checked this out with my Pension Trustee and further, myself administered scheme was in fact set up in 1986 around a similar type of investment which was dissolved in the early 1990s.”
[23]On April 11, 2000 Mr Burnett had a meeting with Mr Hird and Mr Molyneux to go through the draft shareholders’ agreement and the draft Partnership Deed. He noted that Mr Molyneux wanted to run it past his Pensioneer Trustees and wanted to make the investment through his pension fund. Mr Burnett told him that he disclaimed any knowledge of pensions law.[24]At that stage Mr Hird and Mr Molyneux were each to provide £200,000. The drafts at that stage provided that in addition to the repayment of the loan capital, the profits would only be distributed after payment of a bonus equivalent to whatever was the greater of the amount of loan capital to the party which contributed the same or an interest coupon of 10% per annum compounded with annual rests based on the loan capital of that party (clause 10.4).[25]On April 13, 2000 Mr Burnett sent revised versions of the Partnership Deed and shareholders’ agreement to Mr Hird and Mr Molyneux for approval. The draft provided that the loan capital was to be Mr Hird £190,000, Mr Harris £10,000, Mr Molyneux £1,000 and the Pension Scheme £199,000. The profits were to be divided 40% Mr Hird, 10% Mr Harris and 22½% each to the Pension Scheme and Mr Molyneux.[26]On April 14, 2000 Mr Molyneux sent the draft to Mr Clarke of JHPT, and on May 8 Mr Clarke replied to say that:
“I would point out that we are not legal experts but it would appear that the partnership and yourself are entering into a transaction which we believe would be deemed by the Inland Revenue to be connected. If you are a partner, however small your interest in the partnership, the Scheme cannot enter into the agreement. I regret that we do not believe that the proposal would meet Inland Revenue requirements.”
I regret that we do not believe that the proposal would meet Inland Revenue requirements.”[27]On May 16, 2000 Mr Molyneux wrote to Mr Hird:
“Unfortunately whilst I am still using the same Pensioneer Trustee … I am being confronted by the response, at the moment, that RSDPS cannot participate here because my personal involvement would rate as a connected party and as a result would not be allowable under the present Inland Revenue rules. The fact that it is the same format as we previously utilised and had approved has not so far helped me although I am gradually working up the chain of experienced participators in the conversation and it remains to be seen whether the view is changed However, we cannot stand still and I believe there may be a way round this, assuming both our tax and legal advisors agree likewise. In essence, this takes the route that because the return from Frame (Sussex) Partners is only part [of] a larger group of corporate initiatives that we are sharing in together, it should surely be possible to remove reference to me personally from this document, give RSDPS an adequate return ahead of the repatriation of other profits and the imbalance can be dealt with elsewhere in a separate shareholders or other agreement. … … However, whilst it would be simple to attribute equal profits as yourself to our RSDPS we are agreed that it may well fetter our future activities if 50% of any profits disappear into a scheme who cannot reinvest in the future business because it is against the latest Inland Revenue regulations. Therefore, we are trying to give it a secure priority return, along with the other capital providers (i.e. yourself), whilst at the same time keeping our options open on profits over and above this return which can go on into other businesses or could indeed be paid to the participants in this venture on its termination if we choose to do so.”
[28]In that memorandum Mr Molyneux suggested that the documentation be amended to show Mr Hird as having an ostensible 80% profit share, but with part of it representing Mr Molyneux’s contribution. The memorandum also contained a new version of clause 10.4 on the interest coupon of 10%.[29]On May 17, 2000 Mr Molyneux wrote to Mr Burnett with a copy of his note to Mr Hird. On May 22, 2000 Mr Burnett wrote to Mr Molyneux to say that he could not really comment on the proposals because they related to tax and pension fund issues. But, he said:
“It looks somewhat uncertain to me, so I shall be interested to hear what your expert advisers have to say on the subject.”
[30]On June 5, 2000 Mr Molyneux wrote to JHPT with a revised Partnership Deed excluding himself as a connected party. The draft omitted clause 10.4 altogether and provided that the division of profits was 50% each to Mr Hird and the Pension Scheme. In paragraph 90 of his witness statement Mr Hird says that he was not aware of the deletion of clause 10.4. This appears not to be true. On June 9, 2000 Mr Hird wrote to Mr Burnett to say that he received copies of Mr Molyneux’s correspondence with Mr Burnett. He said:
“Colin has a bit of tidying up to do here in terms of his own pension fund requirements and, therefore, I have desisted from putting any final amendments to the document but I think we will get there during the next week. I shall then put my bit in to the final agreement.”
[31]On June 13, 2000 Mr Burnett supplied a further draft Partnership Deed which he said could be used as an engrossment if the parties were happy with it. This provided for the division of profits to be 50% each to Mr Hird and Repton Securities. The reference to Repton Securities was plainly an error for the Pension Scheme, and it was picked up by JHPT.[32]On July 5, 2000 Mr Molyneux wrote to Mr Burnett: “3. The trustees concerns from the outset were several fold, all bar two of which have been answered, namely:a. This investment would be inadmissible if the fund was paying me back for personal monies invested at the outset of this project.b. That there is no connection between myself personally and the funds investment. 4. You will realise when comparing the commencement of this process last November and the position reached, that I have had to remove all references to myself personally and now the company itself to avoid any connected party interpretation (despite previously similar structures) and the trustee now wants this spelt out. What I believe will happen is that I will set up an exchange of letters with Kean for payment of these monies as he has now partly re-paid Terry Smith for the total and it will be far simpler to deal with the paperwork this way. You will realise from past correspondence that the trustees has received copies of the limited partnership documentation which will need to be referred to in this correspondence as well as the projections/progress reports on the merit of the investment.” a. This investment would be inadmissible if the fund was paying me back for personal monies invested at the outset of this project. b. That there is no connection between myself personally and the funds investment.[33]On July 17, 2000 Mr Burnett sent to Mr Molyneux (with a copy to Mr Hird) a draft letter that he proposed to send to JHPT. The draft contained the following passage:
“I think you are aware that we have been instructed to prepare a Partnership Deed for Frame (Sussex) Partners in which the Repton Securities Directors Pension Scheme is a 50% partner participating equally with Kean Hird in all respects … I am instructed by Mr Molyneux that the money which is being invested by the Repton Securities Directors Pension Scheme is replacing funds formerly invested by others, and that the others will be repaid. The fund will be entitled to 50% of all profits etc as set out in the Partnership Deed, with no other party having any interest or connection with either the Partnership Deed or the funds connected with it.”
[34]An attendance note of July 20, 2000 by Mr Burnett records that he spoke to Mr Hird and discussed the fact that he had sent the letters and amended the Partnership Deed as requested.[35]On July 28, 2000 Mr Clarke wrote to Mr Molyneux to say that since they were not still fully clear as to what was happening and could not accept any responsibility for advising him as to the acceptability of the transaction, they were prepared to accept the transaction subject to the receipt of an indemnity. This was executed by Mr Molyneux and his wife as trustees in August 2000.[36]By September 20, 2000 the division had become Mr Hird £240,000 and Mr Molyneux £160,000, but by February 2001 Mr Molyneux was reporting to Miss Targett that he would be contributing £148,000, and the division of profits would be 63% to Mr Hird and 37% to the Pension Scheme, corresponding to the loan capital of £252,000 from Mr Hird and £148,000 from the Pension Scheme. Those were the figures which were in the Partnership Deed as executed on March 30, 2001.

III The alleged overarching partnership

[37]There is a dispute about the terms on which Mr Hird, Mr Molyneux and Mr Smith started working together. Mr Hird’s case is that there was agreed to be an overarching partnership involving Mr Molyneux, Mr Hird, Mr Smith and Mr Harris. The financial terms of this alleged partnership were that:(1) each partner would bring to the partnership the schemes it had in hand;(2) they would all undertake ventures only through the partnership during the duration of the partnership;(3) at such times as the partners agreed or on the dissolution of the partnership an account would be taken;(4) on the taking of the account the total fees and capital generated by each partner would be ascertained;(5) the percentage so ascertained would be used to divide liability between the parties for all the costs and expenses;(6) each partner’s share of the costs would be offset against that partner’s share of the profits and the resulting balance would be a debt from or to the partnership to or from the partner. In his witness statement, Mr Hird says that the agreement was that “each partner would ultimately be entitled to receive profits directly in proportion to the income and capital brought into the partnership” (para 21).[38]Mr Hird’s case is that with regards to the division of profits, the agreement was always that although there would be special purpose vehicles (SPV’s) for each project, the profit and expenses would be shared across the whole of the overarching partnership between them. Each partner would ultimately be entitled to receive profits directly in proportion to the income and capital brought into the partnership. In the event Mr Molyneux’s projects failed to materialise over several years. It was this failure that caused the ultimate split in about February 2003.[39]Mr Molyneux’s case is that he, Mr Hird and Mr Smith did indeed intend to work together. They intended to develop a property business together, using the income from the SAM management contract and other income from Mr Molyneux’s projects while they generated capital receipts. Frame Investments Ltd (“FIL”), owned and controlled by Mr Hird, was formed, and the three parties anticipated that they would in due course become shareholders in and directors of FIL.[40]Mr Molyneux’s case is that despite the production of draft shareholders’ agreements relating to FIL, they never agreed the terms on which they were to conduct business, and neither Mr Molyneux nor Mr Smith became a shareholder in FIL, which has remained in the sole ownership and control of Mr Hird. Nonetheless, in anticipation of such agreement being reached and of becoming a shareholder in FIL, Mr Molyneux permitted the projects he was conducting on his own account through Melford to be conducted through FIL, and acted as if he were a director of FIL (with Mr Hird’s and Mr Smith’s knowledge). Further, both Mr Hird and Mr Molyneux identified new opportunities which they caused to be entered into by FIL.[41]In summary the dispute between the parties as to their relationship is that Mr Hird says that there was an overarching partnership covering the development opportunities carried out through FIL, the management contract in the name of SAM and the investment in the Special Partner interest in the SDP. Mr Molyneux’s case is that there was an intention to have a company covering the management contract in SAM (which would be used to finance operations until capital returns were generated), his projects which he brought to FIL and any new projects which were agreed to be conducted through FIL; but agreement was never reached as to the terms on which they were to become shareholders and he never became a shareholder so that projects he permitted to be undertaken by FIL remained beneficially owned by him; and there was a separate investment in the Special Partner interest in the SDP made by the Trustees of the Pension Scheme under the Partnership Deed. IV The proceedings[42]These proceedings were commenced in August 2004. The claimants seek payment of what they say is their share under the Partnership Deed of their share of the Special Partner share, approximately £800,000. The defendants say that the Partnership Deed is part of the alleged overarching partnership, and by Part 20 counterclaim seek a declaration that Mr Hird, Mr Harris and Mr Molyneux are partners in that partnership, an order dissolving it, rectification of the Partnership Deed, or a declaration that it has been varied. Mr Molyneux and MIL also make claims by way of Part 20 counterclaim against FIL and Mr Hird, particularly in connection with monies received by FIL from what are said to be Mr Molyneux’s projects. A trial date for October 2005 has been fixed. The present application concerns only the claimants’ claim as trustees, and the counterclaim for rectification of the Partnership Deed. The claim that the Partnership Deed has been varied is no longer pursued by the defendants. Particulars of claim[43]The claim is that in March 2001 JHPT (in its capacity as a trustee of the Pension Scheme) and Mr Hird started to carry on business in a partnership called Frame (Sussex) Partners (“the Partnership”). The sole business of the Partnership has been to carry on the business of “Special Partner” in the SDP.[44]The business of the SDP was to invest in property. The terms of the SDP were contained in a Limited Partnership Agreement dated November 10, 1997 made between South Downs Properties (General Partner) Ltd as general partner and Barclays Bank PLC as trustee of the Hanover Property Unit Trust, TransEuropean (South Downs) Investments Ltd, The Sir Robert McAlpine Ltd Staff Pension and Life Assurance Scheme and Sir Robert McAlpine (Trade Investments) Ltd as limited partners (“the Limited Partnership Agreement”).[45]In relation to the “Special Partner”, the Limited Partnership Agreement provides as follows:
“1.1.53 ‘Special Partner’ means an entity to be proposed by Sussex Asset Management Limited which (subject to compliance with its obligations under clause 3 and clause 4) is to be admitted to the Partnership in accordance with the provisions of this Agreement on 1 June 1998 and is to acquire the number of units set against its name in Part A of schedule 1.”
Part A of Schedule 1 provided that the Special Partner was to acquire 400 units by way of a capital contribution of £4,000 and an equity loan contribution of £396,000 (“the Special Partner interest”).[46]In or about June 1998 Frame (Sussex) Ltd, the fifth defendant, was admitted to the SDP as Special Partner and subscribed for 400 units as provided for in Part A of Schedule 1 of the Limited Partnership Agreement representing the Special Partner interest. The total contribution of £400,000 made by Frame (Sussex) Ltd was funded by way of loans from Mr Hird and Mr Smith, of £175,000 and £225,000 respectively.[47]By 2000 Mr Smith indicated that he wished to withdraw and recover his investment made through Frame (Sussex) Ltd in the SDP. It was agreed that the Pension Scheme would replace Mr Smith as an investor in the Special Partner in the SDP. Accordingly:(1) In March 2001 JHPT and Mr Hird started to carry on business through the Partnership, the sole business of which was to carry on the business of Special Partner in the SDP.(2) Frame (Sussex) Ltd sold its Special Partner interest to the Partnership for a price of £400,000. It subsequently repaid the loans from Mr Hird and Mr Smith. Mr Smith resigned as a director of Frame (Sussex) Ltd on 22 August 2000.(3) The price paid by the Partnership for Frame (Sussex) Ltd’s Special Partner interest was funded by way of loan capital provided by Mr Hird (as to £252,000) and by the Pension Scheme (as to £148,000).[48]Prior to the receipt of a letter from Cawdery Kaye Fireman & Taylor, solicitors acting for the first to fourth defendants, dated July 29, 2004, it has at all times since March 31, 2001 been the claimants’ understanding that the Special Partner interest in the SDP which had been held in the name of Frame (Sussex) Ltd was held in the name of the Partnership.[49]This was the first time that the claimants were aware of the contention that the Special Partner interest in the SDP had been transferred into the name of “Frame (Sussex) Partnership” and not that of the Partnership. This was contrary to the claimants’ understanding that the Special Partner interest in the SDP which had been held in the name of the Frame (Sussex) Ltd was held in the name of the Partnership.[50]In the circumstances, the Partnership is the beneficial owner of the Special Partner interest in the SDP and, in so far as it has not been registered in the name of the Partnership, the Special Partner interest has at all material times since March 30, 2001 been held on trust for the Partnership.[51]The claimants claim:(1) A declaration that the Partnership is the beneficial owner of the Special Partner interest in the SDP and that, in so far as it has not been registered in the name of the Partnership, the Special Partner interest has at all material times since March 30, 2001 been held on trust for the Partnership.(2) An order that the first to fifth defendants do forthwith take all necessary steps and/or procure that such steps be taken to register the Special Partner interest in the name of the Partnership.[52]It is further averred that the failure by Mr Hird to ensure that the Special Partner interest was registered in the name of the Partnership was a breach by him of his duty to carry out the day to day management and conduct of business and affairs of the Partnership pursuant to clause 13 of the Partnership Deed with reasonable care and skill and/or a breach by him of his duty pursuant to clause 6.1 to be just and faithful to the other partners. Further or alternatively, the claimants claim damages from Mr Hird in respect of any loss suffered by the Scheme as a result of his failure to ensure that the Special Partner interest was registered in the name of the Partnership.[53]The payment of proceeds of sale referable to the SDP into the client account of the sixth defendant was in breach of the terms of clause 11 which required the monies to be paid into the Partnership bank account. Since its receipt by the sixth defendant the sum of £2,083,789.74 received in respect of the SDP together with the interest accrued thereon has been held by the sixth defendant on trust for the Partnership. Further or alternatively, the sixth defendant is liable to pay the sum of £2,083,789.74 together with the interest accrued thereon to the Partnership.[54]The claimants also claim:(1) An order that an account be taken to determine the sum representing the monies received by the sixth defendant in respect of the SDP together with interest accrued thereon.(2) A declaration that the sixth defendant holds the sum determined by the taking of such account on trust for the Partnership alternatively that the sixth defendant is liable to pay such sum to the Partnership.(3) An order that the sixth defendant do pay such sum to the Partnership forthwith.[55]The claimants claim that the Partnership ought to be dissolved by the court on the grounds that Mr Hird wilfully and/or persistently committed a breach of the partnership agreement and/or has otherwise so conducted himself in matters relating to the Partnership business that it is not reasonably practicable for the claimants to carry on the business in partnership with him. Further or alternatively, circumstances have arisen which render it just and equitable that the Partnership be dissolved.

The defence

[56]The defence pleads that in or about 1997 Mr Hird determined to commence the business of property development, investment and management. In substance the business involved the search for possible development ventures and, where possible, the exploitation of the same. Towards the end of 1997 or at the beginning of 1998, he invited Mr Smith, Mr Molyneux and Mr Harris to enter into partnership with him to carry on the business. Mr Smith, Mr Molyneux and Mr Harris accepted the invitation and thereby constituted the overarching partnership. It was the intention of the partners that there would be, in due course a rateable sharing or bearing of profits or losses as the case might be based on the contribution of each partner to the business. The business was to be carried on by the partners individually or through the mechanism of limited companies as might be convenient or appropriate.[57]In particular, and subject to the qualification that Mr Harris was to earn his share by managing SAM, the partners’ agreement, which was oral so far as express and otherwise necessarily to be implied to give business efficacy to the agreement, was as follows:(1) each partner would bring to the partnership the ventures that each presently had in hand;(2) for the duration of the partnership each partner would only undertake ventures as part of the partnership business;(3) at such times as the partners might agree, otherwise on the dissolution of the partnership, an account would be taken;(4) on the taking of the percentage the total capital and fees generated by each partner would be ascertained;(5) the percentage so ascertained would be used to divide liability between the partners for all the costs and expenses of the partnership incurred in generation as aforesaid;(6) each partner’s share of the costs was to be offset against that partner’s share of the profits, and the resulting balance was to be a debt from the partnership assets to the partner or vice versa as the case might be;(7) all business leads solicited or pursued by one or the other or any of the employees engaged by them or their companies in connection with the partnership or joint business was for the benefit of the partnership or joint business;(8) each partner would act in all matters in connection with the partnership with the utmost good faith towards each other partner.[58]Mr Hird anticipated that(a) substantial fees for SAM would be generated by the SDP over the next five years; and(b) a substantial capital profit would be achieved when a distribution was effected. Mr Molyneux anticipated that two projects (Market St Cambridge and Cambridge Close Aylesbury) which he proposed to bring (and did bring) to the partnership would likewise generate substantial fees and a capital profit. Both Mr Hird and Mr Molyneux expected to find further ventures which it was hoped would be profitable.[59]The initial venture was the SDP. This venture served two purposes. It generated management fees; and it was hoped it would show a capital profit at the end of the day. The management of the SDP was effected by SAM. The management fees were utilised to finance the office and related administrative services which were required not only in respect of the SDP but also to service the partners, namely Mr Hird, Mr Smith, Mr Molyneux and Mr Harris in such other ventures as might be initiated. The SDP venture including SAM was part of the partnership business.[60]During 1998 and after, Mr Hird, Mr Smith (while he remained in the partnership), and Mr Molyneux pursued various ventures and Mr Harris managed SAM. During 1998, (and thereafter), Mr Molyneux was the lessee of premises at 143 New Bond Street. Frame (Sussex) Ltd utilised the premises for part of its activities. Subsequently Frame (Sussex) Ltd took over the lease; but it was returned to Mr Molyneux in about February 2003. It was at all times clearly understood by Mr Molyneux and Mr Hird that the costs of such utilisation were to be part of the general accounting between the parties. It was also accepted by Mr Hird that Mr Molyneux might bill for such sums as were due from Frame (Sussex) Ltd to Mr Molyneux for such utilisation by way of invoices from Repton.[61]In the summer of 1999, Mr Smith intimated a wish to withdraw from the overarching partnership. It was agreed that Mr Smith’s withdrawal should be on the basis that he would simply be paid out his investment in the SDP and would recover no other profits or be liable for any costs and expenses. The overarching partnership continued with Mr Hird, Mr Molyneux and Mr Harris as partners.[62]Mr Smith’s withdrawal afforded Mr Molyneux an opportunity to invest in the SDP and in the process potentially to enhance his position in the overarching partnership. Mr Molyneux initially hoped to invest £200,000, which would have given him a half share in the Special Partner’s entitlement.[63]In the event, however, Mr Molyneux invested the sum of £148,000 in a partial buy out of Mr Smith’s interest. Mr Hird bought out the balance. All relevant negotiations were conducted by Mr Molyneux on behalf of himself, MIL and the Pension Scheme on the one hand and Mr Hird on the other. In order to permit Mr Molyneux to effect his investment without delay, the parties used the mechanism of another partnership, the instrument for which was signed on the March 30, 2001.[64]It was at all times understood by Mr Molyneux, Mr Hird and Mr Harris that the realisation of the profit or loss from the SDP would fall to be brought into account in an the overarching partnership distribution. If which is not admitted, the claimants were to be entitled to any sum, that sum would be dependent on there being a positive balance left after such accounting and would in any event be limited to the return of the investment of £148,000 and interest.[65]In his dealings with the defendants Mr Molyneux did not distinguish at all between those situations where he was acting on his own behalf and those, if any, where he was acting for MIL. At all relevant times, Mr Molyneux acted personally and not for or on behalf of MIL.[66]Any claim by the claimants should be made against Mr Molyneux personally and not against the defendants. Alternatively, no distribution should take place in favour of the claimants until the overarching partnership has been wound up, all relevant inquiries made and accounts taken and Mr Molyneux has fully discharged his liabilities in respect thereof.[67]If which is denied, the overarching partnership did not come into existence, then in the alternative the individual companies, created each for a particular venture, are the owners of and solely entitled to the benefits accruing from the respective ventures.[68]If, which is denied, it was not the case that(1) the realisation of the profit from the SDP fell to be brought into account in the overall finalisation of the outcome of the various projects undertaken by or on behalf of the Frame group; and(2) any distribution to the claimants would depend on there being a positive balance left after such accounting then it is contended that the Partnership Deed falls to be rectified.[69]In the further alternative, it is contended that the Partnership Deed was varied to achieve that position.[70]In the further alternative, it is contended that the claimants are estopped from contending otherwise.[71]In the reply it is admitted that in December 1997 Mr Molyneux, Mr Hird, Mr Harris and Mr Smith discussed bringing certain of their respective property development, investment and management businesses together. In particular, it was intended that they would enter into a shareholders’ agreement whereby the parties would become shareholders in FIL which in turn would carry on the relevant businesses through itself and its subsidiaries. In the event no such agreement was ever entered into and Mr Molyneux never became a shareholder in FIL. It is specifically denied that Mr Molyneux ever entered into partnership with Mr Hird, Mr Harris or Mr Smith whether as alleged in the defence or at all. V The arguments Claimants’ case Mr Clarke’s evidence[72]The evidence of Mr Clarke of JHPT is that it was always understood by JHPT that any profit earned as a result of the £148,000 investment made by the Pension Scheme would be distributed in accordance with the terms of the Partnership Deed. The letter from Cooper & Burnett dated July 17, 2000 confirmed to Mr Clarke that the Pension Scheme would be entitled to all profits as set out in the Partnership Deed and no other party would have any interest or connection with either the Partnership Deed or the funds connected with it.[73]If Mr Molyneux was to have any interest in the investment then JHPT certainly would not have agreed to be a signatory to it as the Inland Revenue would have challenged the transaction and it would certainly be disallowed. In particular, it is not permissible for a member of a Pension Scheme to benefit from monies invested by that scheme. The benefit which a member of a pension scheme can receive from that scheme is by way of the permitted benefits payable upon retirement.[74]He says that he has at no time been aware of the existence of any wider partnership and JHPT was not at any time a party to it. It is not true, as Mr Hird alleges, that the most to which the trustees would be entitled was the return of the original £148,000 plus 10%. The trustees were entitled to 37% of the profits.[75]The Partnership Deed records what was agreed. Miss Jones’ submissions[76]The claimants’ claim is based on the clear and unambiguous terms of the Partnership Deed. As contemplated by the Partnership Deed, the Pension Scheme Trustees paid £148,000 which was used to invest in the Special Partner interest in the SDP. There is no real prospect of the defendants successfully defending the claim and no other compelling reason why the claim should be disposed of at trial.[77]The overarching partnership is specifically alleged to have been between Mr Hird, Mr Molyneux in his personal capacity, Mr Smith and Mr Harris. There is no allegation that the obligations such a partnership might give rise to (even if it existed) would bind the Trustees of the Pension Scheme. On the contrary, it is specifically alleged that Mr Molyneux entered into this alleged partnership in his personal capacity. There is no basis on the pleadings for a claim that the alleged overarching partnership binds the claimants as trustees of the Pension Scheme, still less any evidence to support such a claim.[78]In effect, Mr Hird is relying on an alleged collateral contract made between himself, Mr Molyneux and Mr Harris as to how the accounting between themselves is to be conducted, and in effect saying that as between himself, Mr Molyneux and Mr Harris, there is an agreement that the trustees’ contribution and receipt is to be treated as Mr Molyneux’s contribution and receipt. This cannot affect the trustees’ claim to have the money to which the Partnership is entitled transferred from Mr Hird’s sole control to the Partnership, to have the Partnership wound up in accordance with its terms and the money to which the Trustees are entitled paid to them. If, in the separate accounting between Mr Hird and Mr Molyneux (and if appropriate Mr Harris) arising from their relationship which is the subject of the Part 20 claim, those sums are to be treated in a particular way, that can only be relevant on the Part 20 claim, not on the claim.[79]Accordingly, the alleged overarching partnership is irrelevant to this application. In any event(1) Mr Hird does not even argue that the somewhat peculiar terms of the alleged partnership were expressly agreed, but that some (unidentified) terms are to be implied;(2) there is not a shred of written evidence of any overarching partnership being in anyone’s contemplation at any time prior to March 30, 2001; and(3) all the contemporary evidence supports Mr Molyneux’s contention that there were two entirely separate sets of negotiations relating on the one hand to the proposed partnership to hold the Special Partner interest in the SDP and on the other to anticipated shareholdings in “Frame”, the partnership negotiations leading to a concluded agreement, the other negotiations not.[80]Rectification is a remedy which may be available where by mistake a contract or instrument does not record the true agreement between the parties. To justify the court correcting a mistake in an instrument the evidence must be clear and unambiguous that a mistake has been made in recording the parties’ intention, what that intention was and that the alleged intention to which it is desired to make the agreement conformable continued concurrently in the parties’ minds down to the time of the execution of the instrument. The party seeking to rectify must also be able to show precisely the form to which the deed ought to be altered.[81]The burden is on the party seeking rectification and he must put forward convincing proof. The burden is a particularly onerous one where there have been prolonged negotiations between the parties eventually assuming the shape of a formal instrument in which they have been advised by their respective skilled legal advisers: Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at 664-5. Where experienced negotiators have reduced the agreement into a detailed, lengthy document, the task of showing that this document did not represent the parties’ intention is “formidable”: Snamprogetti International SA v Phillips Petroleum [2001] EWCA Civ 889 at para. 36. In cases where common mistake is alleged, it is necessary to establish not merely a continuing common intention, but also some outward expression of that prior accord: Joscelyne v Nissen [1970] 2 QB 86 at 97-98; Snamprogetti International SA v Phillips Petroleum at paras. 32-5.[82]The defence alleges that Mr Molyneux was afforded an opportunity to invest in the Special Partner Share in the SDP by reason of Terry Smith’s withdrawal, and that “in order to permit CM to effect his investment without delay”, the parties used the Partnership Deed. Paragraph 22 pleads that “it was at all times understood by [Molyneux, Hird and Harris] that the realization of the profit and loss from the SDP would fall to be brought into account in an FSP-1 distribution [ie the alleged overarching partnership]. If, which is not admitted the Claimants were to be entitled to any sum, that sum would be dependent on there being a positive balance left after such accounting and would in any event be limited to the return of the investment of £148,000 plus interest”[83]Paragraph 28 pleads that “… If, which is denied, it was not the case thata. the realisation of the profit from the SDP fell to be brought into account in the overall finalisation of the outcome of the various projects undertaken by or on behalf of the Frame Group, andb. any distribution to the Claimants would depend on there being a positive balance left after such accounting then these Defendants will contend that the said Deed falls to be rectified.” then these Defendants will contend that the said Deed falls to be rectified.”[84]Mr Hird’s evidence relating to this issue can be summarised as follows;(1) he says that “it was clear to us all that whilst the SDP project should go into a separate vehicle, as is routine in property management”, it formed part of the overall businesses upon which “we” (i.e. Mr Hird, Mr Molyneux, Mr Smith and Mr Harris) had agreed in principle that all their interests would be taken into account;(2) on April 5, 2000, Mr Molyneux wrote a document suggesting a 10% annual coupon to the pension fund trustees;(3) on May 16, 2000, Mr Molyneux wrote him a memorandum suggesting that the pension fund trustees had agreed that FIL and Repton Securities “might properly render invoices in order to reflect the wider activities of the Frame partnership in return for which their investment would be secure for at least 10% per annum”;(4) Mr Molyneux then changed the terms of the then draft of the Partnership Deed in order to delete the 10% return to the trustees, and without giving Mr Hird any notice of this change, engineered a deed in which Mr Hird and the trustees obtained a return proportionate to their investment.[85]In fact, there was at one stage an intent that the trustees’ investment should produce a fixed return and the remainder of any profit go to Mr Molyneux and Mr Hird. Frustrated by what he perceived to be the Pensioneer Trustee’s intransigence over the issue of whether Mr Molyneux was a connected party, in the memorandum of May 16, 2000, Mr Molyneux was suggesting an arrangement whereby ostensibly Mr Hird would receive 80% of the profit, but would hold part of that profit on trust for Mr Molyneux. On May 22, 2000 Mr Burnett effectively said that he was doubtful about the propriety of this arrangement and it was abandoned. Thereafter the drafts reflect a 50/50 split between the trustees and Mr Hird, and it is obvious from the documents that Mr Hird was well aware of this.[86]The court is not to conduct a mini-trial. It is, however, obvious on the contemporaneous documents that the scheme to keep some profit out of the hands of the trustees was abandoned on advice, and that when Mr Hird says that he was unaware of the changes, he cannot be telling the truth because Mr Burnett specifically advised him that the proposed partnership was now a 50/50 deadlock partnership.[87]But in any event there is no allegation in the pleadings that JHPT had any inkling of the alleged agreement, and it is specifically alleged that the alleged agreement by Mr Molyneux was in his personal capacity. There is simply no basis whatsoever for asserting that JHPT, which signed the Partnership Deed (and which under Inland Revenue rules was required to sign the Partnership Deed and whose requirements as to the arrangement not being with a connected person were fundamental to it being willing to enter into the Partnership Deed), had any idea of any alleged side agreement or made any mistake relating to the terms of the Partnership Deed.[88]There are a number of other fundamental problems with the alleged rectification case. There is no evidence even from Mr Hird that he did not understand the terms of the Partnership Deed or that he made a mistake. There is no evidence from Mr Burnett to the effect that he made a mistake in preparing or advising on the Partnership Deed. It is entirely unclear what the terms of the alleged rectification are – in particular, what words does Mr Hird say should be included in, or deleted from, the Partnership Deed. Even if Mr Hird were to establish at trial that he and Mr Molyneux had a private understanding that, whatever the Partnership Deed said, FIL and Repton Securities would submit “invoices” to the Partnership in order to abstract money for the alleged payment of expenses of those companies, such an agreement could not possibly bind the Trustees of the Pension Scheme, but would at most affect the accounting between Mr Hird and Mr Molyneux on the Part 20 claim.[89]So far as the allegation that the Partnership Deed was in fact varied is concerned, there is no evidence at all to support this contention. In fact, the clear evidence from JHPT is that the Partnership Deed was not varied at any time.[90]There is no allegation of a representation or promise made by the claimants (which must have been sufficiently clear and precise and intended to be binding) which the defendants acted on to their detriment, or of any common assumption which crossed the line. Defendants’ case Mr Hird’s evidence[91]The position that Mr Molyneux himself took in respect of the investment of the pension fund monies was that the most that the trustees would be entitled to would be the return of the investment plus 10%.This is not what the Partnership Deed says and highlights the necessity for its rectification. But even that repayment to the pension fund was subject to the outcome of the various projects that the partners had on foot. The existence of this partnership is evidenced most emphatically by Mr Molyneux describing himself as a partner in letters to third parties and written on FIL paper. The proposed rectification of the Partnership Deed must take this aspect into account.[92]All of the activities of FIL, including the management of the investment in SDP, have since about 1997 been the subject of a partnership of which Mr Hird and Mr Molyneux (personally) were members. As cornerstones to the creation of this new enterprise were the expected contributions from Mr Hird (in the form of management fees from and equity investment available in the SDP and from Llandudno) and from Mr Molyneux (in the form of fees from projects at Cambridge and Aylesbury (Cambridge Close)).[93]Mr Molyneux wished to invest in the SDP and sought to use his pension funds. For this he needed the approval of his fellow trustees and thus came up with the suggestion of a subsidiary and subordinate partnership arrangement, to be reflected in the Partnership Deed. It was never agreed or intended by any of them that this document would alter the underlying partnership arrangements whereby profits and losses would be shared appropriately across the whole range of the partnership’s activities. The profit splits referred to in the document were always agreed to follow an appropriate share across the other sectors of the partnership business.[94]The agreement was always that although there would be special purpose vehicles (SPV’s) for each project, the profit and expenses would be shared across the whole of the overarching partnership. Each partner would ultimately be entitled to receive profits directly in proportion to the income and capital brought into the partnership. The SDP equity investment was the first major single project that was secured and it was always understood that it would be applied first in making a proper contribution to the wider partnership expenses to date.[95]From inception in 1997 until February 2003 the business of FIL, including the investment in the SDP, was conducted as a partnership. The shareholders agreement and the Partnership Deed were dealt with together, as both of these documents were inherently intertwined.[96]Subsequent drafts removed Mr Molyneux from the various schedules altogether, replacing his interest wholly with his Pension Scheme. This was as a result of communications he had with JHPT in which they raised concerns about the extent to his involvement in the scheme as a whole.[97]His understanding was that Mr Molyneux was giving him specific reassurance that JHPT agreed that Frame and/or Repton might properly render invoices in order to reflect the wider activities of the Frame partnership in return for which their investment would be secure for at least 10% per annum. On June 5, 2000 Mr Molyneux wrote to Mr Clarke of JHPT simply attaching a revised Partnership Deed. Mr Hird suggests he did not see these at the time, but this appears to be incorrect: see his letter of June 9, 2000 to Mr Burnett.[98]Mr Hird says that he was not party to any conversations or explanations that Mr Molyneux may have had with JHPT. He does not know what explanations Mr Molyneux put to them or what approval, if any, they gave to the proposal to secure their interest at 10%. Mr Molyneux told him on several occasions that they had agreed it and he would not have entered into the Partnership Deed had he understood how Mr Molyneux and the other trustees now seek to argue that the SDP investment and other FIL activities were wholly unconnected. By this stage, he left the arrangements to Mr Molyneux to deal with, and he did not at any stage have any communication with any trustee other than Mr Molyneux himself.[99]From the time when Mr Molyneux became heavily involved in acquiring a share of the SDP, and in particular once it became clear that he would be using his pension fund to do so, he had been the primary point of contact with Mr Burnett for the purposes of dealing with this matter and all of the necessary amendments to the proposed SPV to take account of it. Mr Tackaberry’s submissions[100]It was intended and understood by Mr Hird and Mr Molyneux that the funds generated by the asset were to be included in a general accounting - which Mr Hird contends should be as part of the unwinding of the overarching partnership; and that JHPT’s right to any payment out was to be subject to the resolution of that general accounting; alternatively that JHPT was only to be entitled to the return of the sums invested plus interest at 10% per annum.[101]The negotiations leading up to the Partnership Deed were part and parcel of the ongoing interaction between Mr Hird and Mr Molyneux. Both Mr Hird and Mr Molyneux understood that the proceeds of the SDP project were to be subject to substantial deductions before any monies accrued due to JHPT. In particular, it is necessary to identify and to take into account the costs incurred in and the fees generated by the management of the SDP. This management was carried out by another vehicle subject to the overarching agreement, namely SAM. That this analysis was in accord with Mr Molyneux’s understanding is supported by letters written by him after the Partnership Deed was executed.[102]Mr Hird had no discussions at any time with JHPT. All discussions with JHPT leading up to the execution of the Partnership Deed were conducted by Mr Molyneux. Accordingly, Mr Molyneux’s understanding of the nature of the arrangement is relevant to the issues that Mr Hird raises in these proceedings by way of defence.[103]Mr Tackaberry QC drew my attention to documents which, it was submitted, showed that Mr Molyneux was of the view that the interest in the Special Partner share was part of a wider arrangement, and that he expected JHPT to receive only 10% compound interest, and that FIL could deduct some its overall expenses from the distribution: letter of April 25, 2002 to his accountants, Bolton Colby; a draft memorandum to bankers; and a letter of May 30, 2002 to Barclays Premier.[104]It is more than arguable that Mr Hird at one end of the transaction understood what was intended in a different manner from the way that Mr Clarke understood it; that being so, JHPT is not entitled to summary judgment. There are issues which warrant investigation.[105]The heart of this dispute is the interaction, in a wider sense, of Mr Hird and Mr Molyneux. They are commercial men. They dealt informally with their business relationships over a considerable period of time. It is clear that they pooled their activities. Such a situation is not appropriate for summary determination of one particular element arising out of that interaction. The main trial in October 2005 will determine whether or not there was any such overarching agreement. If that contention is made good, then that would be highly relevant in the evaluation of Mr Hird’s contention in opposition to JHPT. Accordingly, the JHPT contention should not be determined in advance of that decision.[106]There are doubts as to Mr Molyneux’s honesty, and given the extensive involvement of Mr Molyneux in the discussions leading up to the execution of the Partnership Deed, it would not be safe to reach a conclusion as to JHPT’s entitlement on this application without the opportunity of hearing Mr Molyneux’s oral evidence at the full trial of all the issues in the case. This point is reinforced by the fact that there is no question but that the dealings between Mr Molyneux and Mr Hird are extensive and complex; and there is no suggestion that the other disputes between them are susceptible of summary resolution. It is clear that, absent settlement, any full resolution will have to follow a full trial in the normal way. The JHPT claim should await determination in those proceedings and as part of them, where much will turn on the credibility of the two main actors, Mr Hird and Mr Molyneux.[107]Whether it is a case of mutual or unilateral mistake with or without unfair dealing or sharp practice, an estoppel may arise or the court may have a discretion to rectify the Partnership Deed.[108]In the present case Mr Molyneux was the channel of communication, conveying, so far as can be seen, one impression at one end and perhaps another at the other. That role should be investigated, along with the other matters that are the subject of the full trial scheduled for October, at that trial and that there should not be summary judgment on this issue at this time. At that trial the Court may well conclude that Mr Hird has made out a case for rectification or estoppel. Alternatively, given Mr Molyneux’s central role, and the matters of which complaint are now made against him in the context of the Part 20 proceedings, there is matter which should be subject of investigation and not disposed of summarily. VI Conclusions[109]The grounds for summary judgment as set out in CPR 24.2 are that the court must consider that the defendant has no real prospect of successfully defending the claim and that there is no other compelling reason why the claim should be disposed of at trial. The defendant must have a case which is better than merely arguable. The word “real” distinguishes “fanciful” prospects of success: Swain v Hillman [2000] 1 All ER 91. The court should not conduct a mini-trial but, on the other hand, it does not have to accept everything said by a party, particularly where such statements are contradicted by the contemporary documents: ED&F Man Liquid Products Ltd v Patel [2003] EWCA 472, para 10.[110]I am satisfied that the claimants are entitled to summary judgment, and that there is no arguable basis for the case that the Partnership Deed should not be enforced in accordance with its terms. Overarching partnership[111]As regards the argument that the Partnership Deed is subject to the overarching partnership, I will say as little as possible about whether there was such an agreement, since that question (and whether the monies due to JHPT should be taken into account as between Mr Hird and Mr Molyneux) is an issue to be determined, mainly as between Mr Hird and Mr Molyneux,at trial. What is plain from the documents is that Mr Hird will find it very hard indeed to suggest that he did not know that an essential element of the arrangement reflected by the Partnership Deed was that Mr Molyneux should have no interest in the investment.[112]But there is no pleaded or evidential basis for a case that any such overarching partnership could bind the claimants as trustees of the Pension Scheme. On the contrary, what is alleged is that the profit from the SDP has to be brought into the account of the overarching partnership as between the partners in the latter. That does not effect the initial right of the Pension Scheme trustees to the funds.

Rectification: common mistake

[113]There was no dispute as to the basic principles on rectification. For convenience I take them from my judgment in T&N Ltd (in administration) v. Royal & Sun Alliance plc [2003] EWHC 1016 (Ch), [2003] 2 All ER (Comm) 939, 964-5 (which was recently applied by Laddie J in Camridge Antibody Technology v Abbott Biotechnology Ltd [2004] EWHC 2974 (Pat)): “[133] ... In the case of common or mutual mistake the party seeking rectification must show that the concluded instrument does not represent the common intention of the parties, and must show some outward expression of accord or evidence of a continuing common intention outwardly manifested: Frederick E Rose Ltd v. William H Pim Jnr & Co Ltd [1953] 2 All ER 739 at 747-748, [1953] 2 QB 450 at 461-462 and Joscelyne v. Nissen [1970] 1 All ER 1213 at 1221, [1970] 2 QB 86 at 97. [134] There has to be outward accord for otherwise – ‘[t]here could be no certainty at all in business transactions if a party who had entered into a firm contract could afterwards turn round and claim to have it rectified on the ground that the parties intended something different”: (Denning LJ in Frederick E Rose (London) Ltd v. Wm H Pim Jnr & Co Ltd [1953] 2 All ER 739 at 747-748, [1953] 2 QB 450 at 462.’ [135] The party seeking rectification does not have to meet more than the civil standard of balance of probabilities, but convincing proof is required to counteract the cogent evidence of the parties’ intention displayed by the instrument (see Thomas Bates and Son Ltd v. Wyndham’s (Lingerie) Ltd [1981] 1 All ER at 1090, [1981] 1 WLLR 505 at 521 and Grand Metropolitan plc v. William Hill Group Ltd [1997] 1 BCLC 390 at 394).[136] Rectification may be available if the document contains the very wording that the parties intended it to contain, but it has in law or as a matter of true construction an effect or meaning different from that which was intended: Re Butlin’s Settlement Trust, Butlin v Butlin [1976] 2 All ER 483 at 487, [1976] Ch 251 at 260 and Grand Metropolitan plc v. William Hill Group Ltd [1997] 1 BCLC 390 at 394. Contrast Harlow Development Corp v Kingsgate (Clothing Productions) Ltd (1973) 226 EG 1960.[137] It is not necessary that the parties should at the material time have formulated the words which it is sought to insert by rectification. It is sufficient that the parties had the necessary common continuing intention as to the substance of that which would be achieved by the rectification sought: Crane v. Hegeman-Harris Co Inc [1939] 1 All ER 662 at 669, [1971] 1 WLR 1390 at 1399 and Grand Metropolitan v. William Hill Group Ltd [1997] 1 BCLC 390 at 394.” ‘[t]here could be no certainty at all in business transactions if a party who had entered into a firm contract could afterwards turn round and claim to have it rectified on the ground that the parties intended something different”: (Denning LJ in Frederick E Rose (London) Ltd v. Wm H Pim Jnr & Co Ltd [1953] 2 All ER 739 at 747-748, [1953] 2 QB 450 at 462.’[114]In the case of alleged unilateral mistake by one party, the other party must have knowledge of the mistake such that it is unconscionable for the party with knowledge to rely on the agreement: George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77.[115]The allegation in the defence is that, contrary to the terms of the Partnership Deed, it was at all times understood by Mr Molyneux, Mr Hird and Mr Harris that(a) the realisation of the profit and loss from the SDP would fall to be brought into account in the distribution in the overarching partnership;(b) in any event the sum payable to the claimants would be dependent on there being a positive balance left after such accounting and would in any event be limited to the return of the investment of £148,000 plus interest.[116]In his evidence Mr Hird disclaims knowledge of the contents of correspondence passing between Mr Molyneux and Mr Burnett, and between Mr Molyneux and JHPT. To the extent that this is relevant it can be explored at trial, but it is plain from the correspondence and attendance notes that this disclaimer cannot be wholly true.[117]But irrespective of Mr Hird’s state of knowledge, the plea of rectification has no real prospect of success. First, it is clear that Mr Hird does not suggest that he signed the Partnership Deed under any mistake or misapprehension. Second, Mr Hird does not suggest that if there had been any such mistake it was shared by JHPT. Third, there is no plea or evidence of any continuing common intention, or any outward expression of accord. Fourth, as regards the alleged link with the overarching agreement, the uncontradicted evidence of JHPT is that JHPT would not have executed the Partnership Deed if it had been linked to other interests of Mr Molyneux personally, and indeed it is plain from Mr Molyneux’s note to Mr Hird of May 16, 2000 that Mr Hird was well aware that the Pension Scheme investment would not work if Mr Molyneux was a connected party. Mr Hird also received Mr Burnett’s letter of July 17, 2000 to JHPT in draft, in which Mr Burnett said:
“I am instructed by Mr Molyneux that the money which is being invested by the Repton Securities Directors Pension Scheme is replacing funds formerly invested by others, and that the others will be repaid. The fund will be entitled to 50% of all profits etc as set out in the Partnership Deed, with no other party having any interest or connection with either the Partnership Deed or the funds connected with it.”
Unilateral mistake: variation: estoppel[118]Because there is no plea that Mr Hird was mistaken in signing the Partnership Deed (nor any suggestion that JHPT was, or should have been, aware of any such mistake) there is no basis for a case of unilateral mistake. Any suggestion that the Partnership Deed had been varied was abandoned at the hearing. Nor is there any pleaded or evidential basis for an alleged estoppel, and no reasoned argument was put forward for the pleas that the claimants are estopped from relying on the Partnership Deed. Remedy[119]I will hear argument on the form of the order. Mr Mackinnon, of FIL, has made a witness statement claiming that various items are a charge on the monies due to JHPT, including the overheads and fees of FIL, an additional 10% profit share to Mr Hird, and a charge for work done to enhance the value of the SDP investment. The claimants’ position (which I accept) is that the only items which are chargeable are legitimate expenses of the partnership constituted by the Partnership Deed. I would therefore accept that there might be some genuine partnership expenses, and that some part of the receipts or interest might be retained in a partnership bank account or in court. The figure suggested by the claimants is £250,000, representing the accrued interest on the sum claimed. Subject to further argument, I will make an order to that effect, and also that the partnership be dissolved.

Cited in 1 later judgment