Cayzer v Beddow

This is an appeal from an order dated 27 April 2006 made by Tugendhat J on the basis of two judgments. He handed down the first judgment on 20 March 2006 (the Judgment). On 4 May 2006 he delivered the second judgment (the Further Judgment) dealing with the form of the order to be made in consequence of the Judgment. According to the grounds of appeal there are serious inconsistencies within the Judgment and between it and the Further Judgment.

The dispute is about the beneficial ownership of 67,500 shares in CVS (UK) Limited (the Company), which was incorporated in 1999 to raise finance for the acquisition of veterinary surgeries and practices. The shares are currently held in the names of two bodies, neither of which is a party to the action: Perth Business Corporation (PBC), a Panamanian corporation, and Gulf Securities Corporation (GSC).

The court inquired about the likely value of the shares which were the subject matter of such costly and drawn out proceedings, but received no information or indication from counsel on this point. Presumably the parties must think that their worth justifies the expense. Attempts at mediation have failed.

The principal points of dispute in the litigation are (a) whether a binding oral contract was concluded at a meeting on 11 February 1998 (and affirmed on 27 July 1998) in connection with the promotion of a company and the issue of shares in it (the contract point); and, if not, (b) whether, as a result of the parties’ conduct, shares issued are held on a constructive trust (the constructive trust point).

The preliminary issues for decision on this hearing of the appeal are easier to explain by starting with the judge’s order rather than with the origins of the dispute and the institution of legal proceedings.

The judge’s order contains a declaration and directions about the destination of the disputed shares. The order is made against Mr Nigel Cayzer, who is the defendant in the proceedings and the appellant in this court. The order is in favour of Mr Robert Beddow, a former stockbroker, who is the claimant in the action and the respondent in this court.

Mr Cayzer is ordered to direct PBC and GSC to transfer to him the full legal and beneficial interest in the shares held by them in the Company. The judge found that Mr Cayzer has power to give directions about the shares to those entities. The judge also found that Mr Cayzer holds that power in trust for Mr Beddow; that Mr Cayzer held the right and opportunity to subscribe for the disputed shares, prior to a Subscription Agreement dated 13 August 1999, on trust for Mr Beddow; and that he is liable to account to Mr Beddow for the shares or their value. Mr Cayzer is accordingly ordered to take all such steps as are necessary to transfer the full legal and beneficial interest in the shares to Mr Beddow by 24 June 2006 upon Mr Beddow paying to Mr Cayzer a sum equivalent to the price paid in respect of the shares pursuant to the Subscription Agreement. Failing such transfer, Mr Cayzer is ordered to pay damages and equitable compensation to Mr Beddow.

Mr Cayzer is also ordered to pay Mr Beddow’s costs of the action and to make an interim payment of £110,000.

Neuberger LJ granted permission to appeal on 27 July 2006 for all 18 grounds of appeal, but on the basis that the parties should consider having a preliminary hearing of the appeal. The purpose of such a hearing would be to determine whether a clear point or points could be identified and decided. This might be a relatively short way of disposing of the whole appeal without having to decide the remaining grounds of appeal on law, mixed law and fact and fact.

The appeal was complicated by the service in November 2006 of a respondent’s notice running to 21 pages seeking to uphold the Judgment on other grounds.

The outcome of the direction of Neuberger LJ and of further consideration by him and the parties is an agreed document setting out three preliminary issues of law for determination at this hearing: first, whether the judge was wrong in law to find a binding contract; secondly, whether the judge was wrong in law to find that the dealings between the parties gave rise to Mr Beddow’s beneficial interest in the shares in accordance with the principle in Pallant v. Morgan [1953] Ch 43.

As for the third issue, the parties were initially unable to agree its scope and formulation. I directed that, in the absence of agreement, the court would decide whether it should determine any preliminary issue in addition to the contract point and the constructive trust point and, if so, what that issue is and how it should be answered. It has since been agreed that the third issue should be as formulated by Mr Alan Steinfeld QC, who appears on behalf of Mr Cayzer. (He did not appear in the court below.) It is common ground, however, that the third issue adds nothing of substance to the first two issues. It is only a matter of labelling the legal relationship between the parties.

The agreed preliminary issues to be determined at this hearing are as set out in the Appendix to the judgments of this court.

Before turning to the salient facts, two points of practice call for comment.

The first point is that, in my view, this case should have been brought in the Chancery Division. This is not a criticism of the judge, who was given no choice in the matter and had to try the case that was listed for hearing before him. Nor is it a criticism of counsel who appeared in this court, none of whom were instructed in the case when the proceedings were instituted in the Queen’s Bench Division.

The subject matter of the case includes the promotion of the Company, the beneficial ownership of shares in it, the possible intervention of equity to impose a constructive trust on the shares and a relationship variously described as a joint venture, a project or a partnership at will. Breach of the equitable duty of confidence was also pleaded, though later abandoned. These are obviously all matters for the Chancery Division. The Divisions of the High Court do not exist solely for administrative convenience. The judges assigned to the Chancery Division and the practitioners regularly practising there have relevant individual expertise and (just as important) a wealth of collective professional experience in the specialised areas of practice assigned to the Division.

The second point is a word of caution about the use of preliminary issues on an appeal. Neuberger LJ sensibly encouraged the parties to shorten the appeal by exploring the possibility of slimming down the glut of grounds of appeal and concentrating on the important points at the hearing. The parties co-operated and agreed on the preliminary issues, which are presented as a mixture of issues of fact and law, grounds of appeal and submissions.

Although the parties agreed the preliminary issues, they are still not prepared to commit themselves at this stage on whether the answers to the preliminary issues will dispose of the entire appeal one way or the other. Naturally they want to wait and see the judgments of this court.

Further, the agreed wording of the issues may present difficulties. If followed to the letter, the terms in which the court can express its views on the contract and constructive trust points may be unduly restricted. The parties cannot have intended the court to adhere literally to the agreed wording of the preliminary points if it did not think that it would be helpful to do so. The members of the court must be free to express their judgment in their own words on the material before them.

A further problem arising from the preliminary issues approach is that in the oral and written submissions the court was taken through only a few paragraphs in the very detailed Judgment. It was thought that that was all that was necessary in order to deal with the three preliminary issues. Although that is nothing to complain about in itself, it has been difficult to know how much more of the Judgment needs to be referred to in this judgment in order to put the preliminary issues in proper context.

The directions of the court on the destination of the shares are based on the judge’s finding that a legally binding oral contract was made on 11 February 1998 regarding a project to raise money for the acquisition, consolidation and operation of veterinary surgeries and practices through a company to be floated on the Stock Exchange.

The feasibility of such a project followed from the acceptance in November 1997 by the Royal College of Veterinary Surgeons, after consultation with the Office of Fair Trading, that it had no power to prevent companies from owning and operating veterinary surgeries and practices. This development is an example of the pressures driving the current process of de-professionalising the practice of professional skills.

Mr Beddow conceived his original project in about May 1997. He researched it and discussed it with a former City fund manager, a Mr Steven Brunnock. In January 1998 they agreed “to go into partnership” on an equal basis. They proposed to raise the money required for the project through individuals and small institutional investors.

In January 1998 Mr Brunnock approached a Mr Rupert Galliers-Pratt to discuss the project with a view to raising finance. Mr Galliers-Pratt is Mr Cayzer’s brother, has “wide experience of corporate life” and was believed to be “a man of substantial personal wealth” with very good connections and access to substantial capital. As he was interested in exploring the idea, a further meeting was arranged for 11 February.

In the meantime, on 5 February 1998, Mr Beddow and Mr Brunnock had a meeting to discuss the project with a Mr John Sheridan, who operated a veterinary consultancy business. Mr Sheridan informed them that he was himself close to obtaining funding from venture capitalists for a similar project for which he had formed a company called VPI.

Mr Beddow and Mr Brunnock attended the meeting with Mr Galliers–Pratt on 11 February 1998. The judge held that a binding contract to engage in a joint venture, or for a partnership at will, in equal shares, was made at the meeting (the February Agreement). He also found that Mr Galliers-Pratt held himself out as acting on behalf of Mr Cayzer, who was accordingly bound by the February Agreement.

The contract terms pleaded by Mr Beddow (in paragraph 18 of the Amended Particulars of Claim) were that, in return for the introduction of Mr Beddow’s scheme and the continued development of it by him and Mr Brunnock, Mr Galliers-Pratt and Mr Cayzer would obtain and personally underwrite £5m worth of equity investment; that they would obtain a further £10-£15m of debt finance; and that Mr Beddow and Mr Brunnock would each receive one quarter share of the equity available after the equity transferred to investors, such share not to be less than a 7% stake each in the company that was to be incorporated and floated on the stock-market as the vehicle for the project.

Various implied terms were also pleaded, such as an obligation to act in good faith towards each other and to keep each other informed of progress in the development of the scheme. There was an alternative plea that, if the February Agreement fell short of a binding agreement to progress towards the establishment of a company with the shareholdings and investment pleaded in paragraph 18, the parties nevertheless entered an agreement in the nature of a joint venture to the effect that each would work towards the development of the joint venture and the establishment of such a company.

During the meeting they also discussed making an offer to Mr Sheridan to invest in VPI. A written proposal, which was later prepared and sent to VPI on 18 March 1998, was rejected. It was not contemplated at that time that the money would be raised from venture capitalists, as was subsequently done by Mr Cayzer.

Further meetings were held. They were attended by Mr Beddow and Mr Brunnock, who explored veterinary contacts for advice regarding the project and with a view to finding suitable veterinary practices for sale, and by Mr Galliers-Pratt and Mr Cayzer, who took steps to raise funds and to set up the Company.

In March 1998 Mr Galliers-Pratt contacted an Omani businessman, a Mr Mohamed Habib, regarding the project. He also approached and had meetings with various veterinary consultants and other people in the veterinary community for advice about the project.

At a meeting on 9 June 1998 Mr Galliers-Pratt instructed a consultancy firm Anval Limited to produce a business plan for the establishment of a company to acquire and operate veterinary surgeries. At the same meeting he instructed Mr Harry Hyman of Nexus Structured Finance Limited to prepare an information memorandum for the purpose of raising equity finance in the Oman.

Between April and July 1998 Mr Hyman, Mr Geoff Parkin, Mr John Foster, Mr Brian Pound and Mr Bruce Robinson became members of the team working on the project.

In July 1998 Mr Galliers-Pratt became very busy with another project. He asked Mr Cayzer to take over his role on this project. At a meeting at the offices of Mr Galliers-Pratt on 27 July 1998 attended by Mr Beddow, Mr Brunnock, Mr Hyman and Mr Foster, Mr Cayzer said that he was taking over his brother’s role and that the deal was the same. An agreement was made confirming and affirming the terms of the February Agreement (the July Agreement). It had no separate existence from the February Agreement.

At a meeting on 4 August 1998 there were discussions about a business plan and the appointment of a chief executive. On 5 August Mr Beddow visited the Barton Veterinary Hospital in Canterbury and met the accountants to discuss terms of a potential acquisition.

In August and September 1998 the services of Mr Brian Pound and Mr Bruce Robinson were secured as a director and Chief Executive Officer of the Company respectively. Mr Cayzer personally paid Mr Robinson’s salary for his services. Both Mr Pound and Mr Robinson played leading roles in the preparation of business plans and the raising of finance. No agreements were reached, however, as to their entitlement to receive shares in the Company as remuneration for their work on the project.

In September 1998 a business plan and information memorandum were sent to Mr Aubyn Hill , who was the Chief Executive of the National Bank of Oman, with a view to raising finance for the project. He subsequently reported that there was little interest in it. Mr Cayzer informed Mr Beddow and Mr Brunnock that the only way of financing the project was through the venture capital market. They agreed with this approach. In Mr Cayzer’s view this approach required a much more detailed business plan and top level financial advisers.

Approaches were made to Arthur Anderson for advice and to a number of venture capitalists. Mr Beddow and Mr Brunnock were not involved in the meetings and negotiations with potential funders.

At a meeting of the parties in November 1998, at Mr Cayzer’s home, Mr Cayzer informed Mr Beddow and Mr Brunnock that he had secured the services of Mr Bruce Robinson, whom they had not met, as Chief Executive Officer of the Company and others to form the Company and “that is an end of it.” As pleaded by Mr Beddow, the implication was that the involvement of Mr Beddow and Mr Brunnock was at an end. They were shocked, as they understood that Mr Cayzer meant that the relationship with Mr Robinson was a relationship with himself and that in effect gave him control of the project.

In late January 1999 Nash Sells & Partners Limited (Nash Sells), a firm of venture capitalists, indicated that they would be prepared to finance the project and made a formal offer of finance by a “subject to contract” letter dated 5 February 1999.

In February subject to contract terms were agreed for the acquisition by the Company of Barton Veterinary Hospital.

On 17 May 1999 the Company was formed. The directors were Mr Robinson, Mr Pound, Mr Cayzer, a finance director and two nominees of Nash Sells.

Nash Sells were initially unwilling to allow Mr Beddow and Mr Brunnock, who had not been involved in the negotiations with them and whom they did not regard as directly associated with their investment, to subscribe for shares in the Company, but they were persuaded by Mr Cayzer to permit each of them to subscribe for 1.5% of the share capital of CVS.

By letters dated 20 July 1999 Mr Beddow and Mr Brunnock were offered the opportunity to subscribe for shares in the Company representing 1.5% of the ordinary share capital of the Company. They contended that this was in breach of the February Agreement, but Mr Brunnock reluctantly accepted the offer and paid £12,857 for his shares. Mr Beddow rejected the offer, contending that he was entitled under the February Agreement to a quarter share of the equity available after the equity transferred to investors, such shares not to be less than a 7% stake.

He sued Mr Cayzer in proceedings issued on 21 December 2000. He claimed damages for breach of the February Agreement, alternatively for breach of the July Agreement. He claimed a declaration that Mr Cayzer held 7% of the equity in the Company on trust for him, relying at the hearing on the case of Pallant v. Morgan. This principle is based on a non-contractual arrangement or understanding relating to the shares in the Company, which would make it inequitable for Mr Cayzer to deny Mr Beddow’s beneficial interest in 7% of the share capital. It was pleaded that Mr Beddow carried out the work of creating and developing the joint venture in the expectation and belief that he was engaged in a joint venture with Mr Cayzer, which would result in his being allotted a shareholding of not less than 7% of the Company; that even if the February and July Agreements were not binding, Mr Cayzer held the shares allotted to him or which were under his beneficial ownership or control on trust for Mr Beddow and that Mr Cayzer was obliged in equity to pay to Mr Beddow a reasonable reward for his work which should be valued at not less than a 7% shareholding in the Company; and that if Mr Cayzer had not made certain misrepresentations and had kept Mr Beddow properly and accurately informed, Mr Beddow and Mr Brunnock would have pursued the joint venture and made arrangements to obtain funding from other sources and would have been successful in so doing on terms no less favourable than those agreed with Mr Cayzer. By the time Mr Cayzer had engineered events to proceed without the involvement of Mr Beddow it was too late for Mr Beddow to pursue the joint venture with alternative funding. Mr Cayzer therefore held 7% of the equity in the Company in trust for Mr Beddow.

Claims for breach of confidence, misrepresentation, unlawful interference with business, breach of duties of care and fiduciary duty and for a quantum meruit were abandoned or not pursued during the course of the trial.

Mr Cayzer denied that he was ever a party to a legally binding contract, arrangement or understanding with Mr Beddow or that he held any shares in the Company on trust for him.

Under the heading “Was there an agreement on 11^th February 1998?” the judge concluded that there was a joint venture agreement to which Mr Cayzer was a party -

“254.

In my judgment there was an agreement reached between the Claimant and Mr Brunnock on the one hand and Mr Galliers-Pratt on the other. I accept their evidence in preference to his about the meetings and telephone calls in January and on 11 February 1998. Mr Galliers–Pratt said what is attributed to him in para 23 above. They agreed to participate in a joint venture, which in this case meant a partnership, just as Mr Brunnock and the Claimant had previously agreed between themselves. They had a project at an early stage to which they would bring in due course a veterinary practice to be acquired and people experienced in veterinary matters to manage. He would provide the funding. At the least it was an agreement for a partnership at will with equal shares for the partners for carrying on business together with a view to profit.”

In paragraph 23 the judge had said-

“23.

The earliest documentary reference to the meeting was later in the year, 21^st December 1998, when Mr Brunnock was formulating a statement which he and the Claimant later provided to the Defendant in March 1999 in support of the claim that he and the Claimant were then making to be entitled to a shareholding in the company that was about to be formed. After referring to the approach for £100,000, Mr Brunnock wrote:

“ Rupert phoned after the weekend and stated that with his brother Nigel Cayzer they would underwrite the project with an Omani investor group for £5,000,000. He stated that the initial idea ‘..would not be worth considering unless all parties had at least 7% of the equity each’”.

After referring to the activities of the joint venturers together and to his preference on particular points for the evidence of Mr Beddow and Mr Brunnock, the judge turned to the question whether the February Agreement was in the terms alleged by Mr Beddow in paragraph 18 of the Amended Particulars of Claim. He accepted the evidence of Mr Beddow and Mr Brunnock as to what was said and then considered the question whether what was said “amounted to a legally enforceable agreement.” He said:

“259.

Mr Adair [counsel for Mr Cayzer] submits that an agreement to the figures of £5 million of equity funding plus £5-10 million of debt finance, and shares of 7% of the equity of an as yet unformed company, and the underwriting of an investment the terms of which had not yet been settled, are all too vague to be enforceable. I accept this submission. Once the BBG offer to VPI had been rejected, there was no agreement as to the date by which Mr Galliers-Pratt was to obtain funding. It was then contemplated that there would be a company formed, but the Articles of Association, and the terms of the proposed debt funding of £5-10m had not been agreed. These figures were discussed, and they were figures which the parties expected to be able to achieve, but they were not legally binding terms of the joint venture agreement.”

The judge went on to deal with the question whether Mr Cayzer was a party to the joint venture. He found that he was, as Mr Galliers-Pratt had said at the meeting of 11 February that he was acting on behalf of Mr Cayzer and was authorised by Mr Cayzer to say that. He also held that the fact that the Barton Hospital was available for purchase was confidential, that it was a partnership asset and that Mr Cayzer was not free to exclude Mr Beddow and use the information for his own benefit.

The judge also preferred the evidence of Mr Beddow and Mr Brunnock as to what was said at the meeting on 27 July 1998. The judge held that Mr Cayzer became involved in the joint venture and was engaged in carrying on the business with them, “that is the business of incorporating veterinary practices.”

Mr Alan Steinfeld QC submitted on behalf of Mr Cayzer that the judge was wrong in law to find in paragraph 254 that a legally binding agreement was concluded on 11 February 1998. The finding was inconsistent with his holding in paragraph 259 that the pleaded terms, which related to important financial arrangements and the interests of the parties in the company to be formed, were too vague to be legally enforceable: see Murray v. Yorkshire Fund Managers Limited [1998] 1 WLR 951 at 959.

For the same reasons the alleged affirmation and implementation of this agreement on 27 July 1998 was ineffective and the judge was wrong in holding that the agreement gave rise to a partnership at will.

It was also submitted that there was no concluded agreement of any kind binding on Mr Cayzer, who was not present at the February meeting. His brother was not acting as agent on his behalf at the meeting; and no offer and acceptance was pleaded or identified in the evidence corresponding to the agreement which the judge held had been concluded and affirmed.

It was rightly accepted by Mr Nigel Jones QC for Mr Beddow that certain specific terms were excluded by the judge from the February Agreement as being too vague to be binding. His case was that, although the judge concluded that the terms relating to financing of the project were too vague to be enforceable and did not form part of a concluded agreement, it did not follow that there was no binding “entire agreement.” There were, he said, two different issues; first, whether there was an agreement, and, if so, what were its terms. The judge, who preferred the evidence of Mr Beddow to that of Mr Cayzer, had found that there was an agreement for a joint venture as pleaded in paragraph 18 of the Amended Particulars of Claim. An agreement could be binding, even if there were further terms to be agreed. It was not too vague and incomplete to be unenforceable.

Once, however, it is found that the terms relating to the financing of the joint project or venture in which the parties were to participate and to what their interests in the project were to be, were too vague and uncertain to constitute a binding agreement, it becomes very difficult, in my judgment, for Mr Beddow to contend for a binding contract between the parties. This is so whether the relationship is described as a partnership at will, joint venture or otherwise. There is nothing on which to base a contractual claim to shares in the Company or to damages for breach of contract.

There can be no contract without some terms, express or implied. If the express terms that are pleaded are significant, but are too uncertain and vague to be legally enforceable, there can be no concluded and binding agreement creating a partnership or joint venture.

I would therefore find for Mr Cayzer on this preliminary issue.

The judge’s finding of consensus on equality of shares to be issued in the proposed Company to the four parties may, however, form the basis of a non-contractual arrangement or understanding, on which it may be possible to contend for a constructive trust of property, that is the shares in the Company or the opportunity or right to subscribe for them. I now turn to that aspect of the appeal.

As to this claim, the judge said that it did not arise, as he found that there was a binding contract, but he helpfully decided to deal with it in case he was wrong on the contract claim.

Mr Beddow invoked Equity in the form of a principle based on an arrangement or understanding relating to property reached between the parties before the acquisition of the property by one of the parties to the arrangement. It was contended by Mr Beddow that there was a pre-acquisition arrangement or understanding which coloured the subsequent acquisition of the shares by Mr Cayzer and justified treating him as a trustee of them, if he subsequently sought to act inconsistently with the preceding arrangement or understanding. It is now too late for Mr Beddow to acquire the relevant shares for himself or to take steps to obtain alternative sources of finance for the joint project.

Mr Nigel Jones QC argued that the facts were close enough to Pallant v. Morgan to attract the application of the principle laid down in it. He emphasised the role of Mr Beddow in originating and advancing the joint venture project in the belief and expectation that he would receive not less than 7% in the equity of the Company. Mr Cayzer had minimised the role of Mr Beddow with regard to the business opportunity that had been disclosed under the February Agreement or on an understanding, which included joint efforts for the formation of a company in which shares would be issued to Mr Beddow, who had carried out his side of the arrangement.

Mr Cayzer had used the opportunity to subscribe for the shares in the Company for himself. The right or opportunity to acquire the shares was property covered by the case of Pallant v. Morgan. Mr Cayzer had proceeded to treat that property as his own. Had there no been that agreement or understanding, Mr Beddow would have gone it alone or sought support elsewhere. The joint venture was now too far advanced for him to be able to do that. The property held or controlled by Mr Cayzer through off-shore corporate vehicles was subject to the obligation to hold the shares acquired by him in accordance with the understanding of the parties to the joint venture.

It is common ground that it is unnecessary for the arrangement or understanding in Pallant v. Morgan cases to be contractually enforceable. What is essential is that it is contemplated that one party will take steps to acquire the relevant property and that, if he does so, the other party will acquire some beneficial interest in it.

Having cited a valuable passage from the judgment of Chadwick LJ in Banner Homes plc v. Luff Developments Limited [2000] Ch 372 at 398 analysing the circumstances in which a Pallant v. Morgan equity might arise, the judge held, first, that the relevant property in question was the shares in the Company which Mr Cayzer could have acquired under his own name under the Subscription Agreement; and, secondly, that, even if there was no legally enforceable contract, there was an arrangement or understanding that gave rise to a moral obligation on the part of Mr Cayzer.

In all the circumstances this made it inequitable for Mr Cayzer to retain the shares for himself in a manner inconsistent with the arrangement or understanding on which Mr Beddow had acted. The judge said

“273.

What Mr Brunnock and the Claimant did throughout 1998 was undoubtedly detrimental to them, in the sense that they spent a lot of time and effort and skill which they would not have done, except in reliance upon the arrangement or understanding. Their efforts in finding Barton Hospital and introducing, directly or indirectly Mr Pound, Mr Robinson and Mr Foster to the board of [the Company] conferred an advantage upon the Defendant. Without that work the Defendant would not have obtained funding from NSP. But for the arrangement the Claimant and Mr Brunnock would have pursued their original idea to raise £2 million, with, as I find, good prospects of success. They refrained from doing that.”

Mr Steinfeld submitted that the judge was wrong, as a matter of law, to find that the dealings between the parties would give rise to an equitable obligation in favour of Mr Beddow in respect of the shares in the Company. The requirements for the application of the equitable principle were not satisfied.

There was no suggestion in the pleadings or in the evidence of an agreement, arrangement or understanding that Mr Cayzer would acquire or try and obtain shares in the Company on behalf of Mr Beddow. The only agreements pleaded and put to Mr Cayzer were those of February and July 1998. It was not alleged that either of those agreements contemplated Mr Cayzer acquiring share capital in the Company on behalf of Mr Beddow. Nor was there any suggestion of reliance upon any such arrangement or understanding by Mr Beddow by acts or omissions which caused him to suffer a detriment or which conferred an advantage on Mr Cayzer.

Further, any understanding or arrangement between the parties had been repudiated by Mr Cayzer in November 1998 and had come to an end. Mr Beddow ceased to be involved in the project before the shares in the Company were issued. The shares were not therefore clothed with a trust in his favour.

The most that Mr Cayzer accepted, Mr Steinfeld contended, was a moral obligation to try to obtain some share capital in the Company for Mr Beddow in recognition that the project had been Mr Beddow’s idea. This explained the opportunity afforded to Mr Beddow and Mr Brunnock to subscribe for 1.5% each of the share capital of the Company, which Mr Beddow declined to take up.

For Mr Beddow it was argued that he believed that Mr Cayzer was acting in the interest of the joint venturers following his introduction to the project, whereas from August 1998 he progressively excluded Mr Beddow and pursued the project for his own benefit, so that by the time that Mr Beddow found out what had happened it was too late to do anything about it.

In my judgment, the case for a constructive trust of or equity in the shares in the Company for Mr Beddow has not been established.

Mr Beddow’s strongest points were that the veterinary company project was his idea in the first place; that he had done work on the project to make it commercially viable; and that he had not been paid for what he had contributed by way of ideas or work.

This is insufficient to give rise to a constructive trust of or equity in the shares. Protection for a developed idea might be obtained by means of contract, but none was proved, or by the action for breach of confidence, which was claimed, but not pursued. This was a pre-contractual disclosure of an exploratory idea, possibly serving as the basis of a business plan for which it would be necessary to raise finance; but the negotiations never resulted in a concluded contract.

Depending on all the circumstances, payment for work done in anticipation of a contract that is never concluded may give rise to an implied contract to pay for the work or to a restitutionary claim for unjust enrichment, but no such claims have been pursued in this case.

The sole ground for the alternative case contended for below and in this court has been the Pallant v. Morgan equity. This relates to the acquisition of identified property by one person in accordance with a non-contractual arrangement or understanding with another person. The classic case is that of two people interested in buying the same identified property, which is up for sale by auction; one of them does not attend the auction on the understanding with the other that the other person will attend the auction and that, if he acquires the property, it will be for the benefit of both of them. The other person is able to buy the property in the absence of the other interested person, but then acts contrary to the prior understanding. Even in the absence of a binding contract such conduct, which smacks of fraud, cries out for a remedy. Constructive trust is a remedy available in cases covered by Pallant v. Morgan.

I agree with Mr Steinfeld QC that the facts necessary for such a claim have not been pleaded or proved and there is no justification for extending the scope of Pallant v. Morgan or constructive trust to cover a case such as the present.

Mr Steinfeld QC cited the passage from Banner Homes at p.398 in which Chadwick LJ stated that-

“It is necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclusion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding which enabled him to acquire it.”

The only arrangement or understanding relied on by Mr Beddow was that pleaded regarding the February Agreement and the July Agreement. There was no pleading or finding that Mr Cayzer would acquire shares in the Company on behalf of Mr Beddow or that Mr Beddow relied on any such understanding or arrangement by doing, or omitting to do, something in relation to the acquisition of the shares in the Company, which caused him detriment.

Further, any understanding or arrangement had ceased by the time that Mr Cayzer subscribed for the shares in 1999. On the facts found by the judge Mr Cayzer had, by November 1998, made it clear to Mr Beddow that he repudiated any understanding or arrangement there may have been between them in relation to the joint project.

In my judgment, it was not open to the judge on the facts found by him to conclude that, as an alternative to the claim in contract, there was an equity in or constructive trust of the shares arising from the application of Pallant v. Morgan.

I would find for Mr Cayzer on this preliminary issue.

In the respondent’s notice seeking to uphold the judgment on different grounds it is contended that, on the findings of fact made by the judge, it was open to him to find that there was a contract, a binding agreement, a joint venture or a partnership at will.

In holding that a contract was made on 11 February 1998 the judge characterised the relationship between the parties as “a partnership at will with equal shares for the partners for carrying on business together with a view to profit” (see paragraph 254 quoted above).

The only contracts pleaded were those alleged to have been made in February and affirmed in July 1998 and they related to the formation and use of a company to acquire and operate veterinary surgeries. The pleadings made no mention of a partnership. Nor is there a claim for a declaration as to its existence or its dissolution or for an order to wind it up. As partnership formed no part of either side’s pleaded case, it was not explored in evidence or submissions.

In the Further Judgment arguments were advanced on the form of the order by reference to the partnership at will mentioned in the Judgment. For Mr Cayzer it was submitted that no order for compensation should be made, as the proper procedure was the taking of an account in equity on the basis of equal shares in the partnership property after the partnership had been dissolved, but that the account could not be taken in these proceedings, as Mr Galliers–Pratt and Mr Brunnock were necessary parties and had not been joined in the action.

The judge rejected these submissions saying

“8.

…The joint venture in this case was one in which, from the outset, it was contemplated by the parties that, if the project succeeded, it would involve the formation of a company in which each of the joint venturers or partners would individually acquire a proportion of the shares. It was not contemplated that the shares in the company would be owned by them jointly as partners. Accordingly, and by way of example, the shares ultimately acquired by Mr Brunnock in CVSUK were acquired by him personally and are not held by him on behalf of his partners. None of the joint venturers bound themselves to acquire any shares. When the opportunity to subscribe for shares arose any of them could have chosen not to subscribe, or to subscribe for less than his full entitlement.

9.

The only issue in this case is the Claimant’s claim against the Defendant. There is no claim against Mr Galliers-Pratt or Mr Brunnock. Justice can be done without taking a general account of all partnership dealings and transactions. …”

In my judgment, these passages in the Further Judgment on the form of the order are inconsistent with the passages in the Judgment characterising the relationship between the parties in relation to the promotion of the Company and the holding of shares as one of a partnership at will. The judge is saying that the holding of shares in the Company by the parties was not as a partnership or as partnership property, but by the parties as individuals.

In brief, there was no partnership relationship between the parties in relation to the shares or the acquisition of shares in the Company, just as there was no contract or trust relationship for the reasons stated earlier.

For the reasons mentioned above I would determine the preliminary issues as follows:

In the light of the rulings on the preliminary issues I hope that the parties can agree an order which will dispose of the entirety of this appeal, including costs. On points that cannot be agreed the parties should make written submissions to the court in advance of the handing down of these judgments.

I agree.

I also agree.

Whether the learned Judge was wrong as a matter of both law and fact to find that a binding agreement was concluded between the Claimant, Stephen Brunnock (“Mr Brunnock”) and Rupert Galliers-Pratt (“Mr Galliers-Pratt”) at Mr Galliers-Pratt’s offices on 11^th February 1998 (“the February Agreement”) because:

Whether the learned Judge was wrong as a matter of law to find at paragraphs 270 to 274 of the Judgment that, in the event that he was wrong regarding the conclusion of the February Agreement, the dealings between the Claimant and the Defendant would give rise to a Pallant v. Morgan equity in favour of the Claimant in respect of any part of the share capital of CVS (UK) Limited (“CVS”) acquired by or on behalf of the Claimant because:

Whether, on the facts pleaded and found by the learned Judge, it was open to the learned Judge to find any such binding contract, joint venture agreement or partnership at will as is referred to at paragraph 26 of the Respondent’s Notice.