Cowan v Wakeling

This is a claimant’s appeal against parts of an order dated 8 May 2007 made by Mr Recorder Price QC in the Central London County Court. The claimant is George Cowan, who represented himself before the judge, as he has before us. The defendant, and respondent to the appeal, is Brian Wakeling, who neither appeared nor was represented before the judge but who has appeared in person before us. We have also received a letter dated 22 February 2008 from solicitors on his behalf, MacLeish Littleston Cowan, making various representations as to the disposal of the appeal. I should point out that that firm is not on the record for Mr Wakeling. The part of the order against which Mr Cowan appeals is that awarding him damages of £11,146.47 against Mr Wakeling. Mr Cowan’s complaint is that the award was unjustifiably low and he asks us to increase it. There is no cross-appeal by Mr Wakeling against any part of the judge’s order.

The dispute arises out of an agreement that the parties signed, purportedly on 1 October 1995. I say “purportedly” because the agreement itself refers to an agreed valuation as at 7 November 1995 and so the printed date of signing may be incorrect. It is a homemade agreement. Mr Cowan’s case was, and is, that it was a partnership agreement. The judge said that it was a moot point whether it was a partnership agreement or an agreement for a joint venture but I see no reason not to accept Mr Cowan’s assertion that it was the former, and both parties before us have accepted that it was. I will first explain its terms. I will then summarise the course of the proceedings and the issues before the judge. I will then explain his findings and conclusions. I will then deal with the issues raised by the appeal.

The agreement was concerned with the proposed exploitation for the  benefit   of   the two partners of premises at the rear of 10 Cameron Road, Seven Kings, Ilford, Essex (“the property”). It was held under a 99-year lease. Immediately before 1 October 1995 it was held in the sole name of Mr Wakeling, but on that day it was transferred into the names of the two partners and their title as joint owners was registered at HM Land Registry in 1996. The property became partnership property and Mr Cowan’s position before the judge was that the two partners held it beneficially as tenants in common.

The agreement opened by recording that the partners had agreed the value of the property at £110,000 although the evidence explained that that value included the value of the plant and the goodwill of the business carried on at the property. The property was valued at £65,000, the plant at £35,000 and the stock and goodwill at £10,000. The plant was printing plant and the agreement recorded that the purpose of the partnership was to make a profit from the use of the property and plant and to increase their value. The agreement provided that the property and plant was to be held by the two partners, who were described as “BW and GC Holdings”, but insofar as this may suggest that there was a company of that name, in fact there was not; it was simply a reference to the two individuals and can perhaps be regarded as the firm name.

The agreement went on to provide that:

“ALL OPERATIONS AND OCCUPATION OF THE PREMISES SUCH AS THE PRODUCTION OF PUBLICATIONS OR MARKETING VENTURES OR GENERAL PRINTING WILL BE CARRIED OUT BY OCTOBER PUBLICATIONS OR OCTOBER PUBLICATIONS LIMITED OR ANY OTHER NAME OR COMPANY THAT IS AGREED BETWEEN BRIAN WAKELING AND GEORGE COWAN AND THESE COMPANIES WILL PAY THEIR OWN WAY TO BW & GC HOLDINGS.”

There followed a reference to the current occupation of the property by Raremaster Limited, the agreement recording that that company was apparently failing to achieve the success hoped for it and that Mr Cowan was going to investigate its financial future. Raremaster does not thereafter feature in the story and I need say no more about it. I should, however, set out the four provisions with which the agreement concludes:

“IF FOR ANY REASON BRIAN WAKELING SHOULD WANT TO SELL THE PREMISES AND BUSINESS AND PLANT BRIAN WAKELING WILL RECEIVE ALL MONIES UP TO £110,000 LESS 5% TO BE PAID TO GEORGE COWAN, AND FROM THE £110,000 IT IS AGREED THAT THE LOAN SECURED AND INTEREST WILL BE PAID FIRST OUT OF THE £110,000 ANY AMOUNT ABOVE £110,000 WILL BE SHARED EQUALLY BETWEEN BRIAN WAKELING AND GEORGE COWAN, NO PART OF THE BUSINESS (PUBLICATIONS) OR PREMISES OR PLANT TO BE SOLD SEPARATELY UNLESS BOTH AGREE.

IF FOR ANY REASON BRIAN WAKELING WISHES TO SELL HE WILL FIRST GIVE GEORGE COWAN THE OPTION TO PURCHASE THE SAME AND GIVE HIM 3 MONTHS NOTICE IN ADVANCE AS TO HIS INTENTIONS WHICH GEORGE COWAN WILL ACKNOWLEDGE RECEIPT OF THE SAME.

THE CAPITAL VALUE OF BW AND GC HOLDINGS HAS BEEN AGREED AS AT THE 7^TH NOVEMBER 1995 AT £110,000 LESS THE LOAN AT NAT WEST BANK AND ALL INCOME AND PURCHASERS [sic] WILL SEEK TO INCREASE THE CAPITAL, AND ANY DRAWINGS BY EITHER GEORGE COWAN OR BRIAN WAKELING WILL BE AGAINST THEIR CAPITAL INTEREST AND DEBITED ACCORDINGLY.

GENERALLY GEORGE COWAN WILL MANAGE THE PREMISES FROM 7.30AM TO 12.30PM AND BRIAN WAKELING WILL MANAGE THE PREMISES FROM 12.30PM [TO] 5.30PM UNLESS THEY AGREE OTHERWISE.”

Mr Cowan commenced his proceedings in 2003 in Ilford County Court. His Particulars of Claim, drafted by counsel, opened by describing the claim as one for damages arising out of Mr Wakeling’s “breach of a partnership agreement” regarding the use of the property, being the agreement just referred to. Paragraph 3 pleaded that Mr Cowan had been managing Mr Wakeling’s business at the property since the beginning of 1995 on an unpaid basis and that he continued to do so under the terms of the partnership agreement. It alleged that in 1997 he provided computer equipment and publishing software at a cost of at least £5,500 in order to advance and improve the services provided by the partnership in general and October Media Publications Limited (“OPM”) in particular.

Paragraph 7 alleged that Mr Cowan and Mr Wakeling:

“… presided over [OPM] which traded as Real Printers and which operated successfully from the premises through the combination of, amongst other things, a large customer base and the administration and management of the Claimant.”

That was another way of saying that Mr Cowan and Mr Wakeling ran OPM. The Particulars alleged that OPM occupied only half of the property and that it was the partnership’s intention to let the remainder to other businesses.

Paragraph 8 alleged that, in breach of the agreement, on about 7 April 1997 Mr Wakeling changed the locks of the property and prevented Mr Cowan from having any further access to it, either for carrying on the business of OPM or at all. Mr Cowan alleged that this prevented him from “acting in the interests and towards the benefit of the agreement.” Paragraph 9 alleged that Mr Wakeling caused the staff of OPM to resign and then continued to operate a company called BW Wakeling Limited, trading as “The Printers”, at the property and wrongfully took over the assets and customer base of OPM for its and his own benefit. The Particulars also alleged that he had collected outstanding accounts of some £15,000 due to OPM. At the hearing before the judge, Mr Cowan explained that Mr Wakeling re-engaged the staff who had formerly worked for OPM.

On the basis of those allegations Mr Cowan claimed relief under four heads: (i) an account of the profits accrued to Mr Wakeling in the operation of the property; (ii) damages to reflect Mr Cowan’s loss of profit from rental incomes which were, or ought to have been, received from businesses operating within the property; (iii) a declaration that Mr Cowan held a share of the property entitling him to 5% of the first £110,000 on any sale (after payment of the mortgage) and 50% of any net proceeds in excess of £110,000, “or alternatively damages to the same value as [such] share ….”; and (iv) interest on any damages.

Mr Wakeling took no steps to defend the proceedings beyond putting in a defence which denied any partnership, which he later amended in 2005 to admit that there was a partnership. On 16 February 2007 District Judge Lightman extended the time for exchange of witness statements until 21 March 2007 and directed that if Mr Wakeling did not serve his statement by then he would be debarred from adducing any written or oral evidence at trial. Any such failure was not, however, to relieve Mr Cowan from serving his own witness statement on time, as he did. The judge also ordered Mr Wakeling to give specific disclosure of banking documents relating to OPM’s account with Barclays.

The trial was fixed to take place over 16 to 18 April 2007. Shortly before then Mr Wakeling applied for an adjournment. On 16 April His Honour Judge Knight QC adjourned the trial and extended until 30 April 2007 Mr Wakeling’s time for complying with Judge Lightman’s order for the service of his witness statement and the giving of specific disclosure. In default, Mr Wakeling was to be barred from defending the claim and “there shall be judgment for the Claimant with damages to be assessed.” Paragraph 3 of the order provided that, if Mr Cowan were to become entitled to such a default judgment, the assessment of damages was to take place on 8 May 2007. For that purpose Mr Cowan was to serve a further witness statement setting out “the claim for damages under the various heads, how the sums claimed are calculated, and referring to any documents in support in the trial bundle or attaching relevant documents ….”

Mr Wakeling still failed to comply with Judge Lightman’s order and so Mr Cowan did become entitled to a default judgment with damages to be assessed. No point is made by Mr Cowan that he thereupon became entitled to a default judgment in some particular form. What happened was that in early May 2007 he produced a further witness statement in support of his claim for damages and the matter of their assessment came before Mr Recorder Price QC on 8 May. The judge made a comprehensive order as to what, in his view, Mr Cowan was entitled to and it is against part of that order that Mr Cowan now appeals.

We have a transcript of the argument and the oral evidence which the judge heard from Mr Cowan. The judge was only provided with the papers in the case on the morning of the hearing. Mr Wakeling did not attend the hearing. He had been in hospital but had been discharged some days before. The judge noted that even though Mr Wakeling had been debarred from defending the proceedings, there was no reason why he could not attend on the assessment of damages, and the judge said that he had not applied for any adjournment of the hearing.

Mr Cowan told the judge that various offers had been received for the property and that he was currently trying to sell it for £140,000, although he needed Mr Wakeling’s co-operation to that end, which was not forthcoming. He asserted that Mr Wakeling had disposed of both the business and the plant. He made it plain that his primary claim for the damages the judge was being asked to assess was in respect of the non-receipt by him of the rents that ought to have been earned by, and paid to, the partnership over the period since April 1997 when he was excluded from the property. Since then the property had been occupied by Mr Wakeling through companies in his control: first, BW Wakeling Limited, trading as “The Printers”, until 2002, when it got into trouble; then “BW Wakeling Printers” for about three years. In addition, Mr Cowan asserted that another Wakeling company, Farley Plant Hire, began occupying the property in about 1998. Then, having sold off the plant, Mr Wakeling abandoned the property and moved to the East Coast, where he had some boats. The property apparently became something of a rubbish tip. The landlord served a Section 146 notice threatening to forfeit the lease, but Mr Cowan told the judge that he had managed to prevent any forfeiture from happening. He had further claims for damages in respect of the expense he had incurred in that respect, although damages of that nature had not been claimed in his Particulars of Claim.

Before the judge Mr Cowan disclaimed any suggestion that the partnership had been dissolved, either when he was excluded from the property or at all. His case was and is that the partnership was and is continuing and that he was and is entitled to damages for Mr Wakeling’s breach of it. The basis on which he asked for his compensation in respect of the rents to be calculated was founded exclusively on the assertion that OPM was, or was supposed to be, paying rent of £200 a week during the year ending 30 September 1997. There was no evidence that any such sum was in fact ever paid by way of rent, and Mr Cowan told us that no such rent was paid during the period down to April 1997 when he was excluded from the property. The £200 figure was derived from a cashflow forecast for the year ending 30 September 1997 that Mr Cowan and Mr Wakeling had prepared for OPM in connection with the raising of an overdraft facility from the bank. Mr Cowan’s point was that, had he not been excluded from the property in April 1997, OPM would have paid, and continued to pay, that rent, and he would have been entitled to half of it over the following years down to the date of the assessment of damages. In fact, his position was that the £200 rent would have been paid for just one third of the property, with the balance being intended to be rented out to other companies, although he accepted that he and Mr Wakeling never got as far as finalising precisely what space such other companies might occupy before he was excluded from the property.

The judge suggested to Mr Cowan in the course of the argument that his more appropriate claim was not for damages for breach of contract directed at compensation for the non-receipt of share of rents, as to the payment of which there was no evidence, but rather for an account of the profits made by Mr Wakeling from the operation of the property. Mr Cowan rejected that suggestion as involving the performance of what he said was an impossible exercise because Mr Wakeling had neither disclosed nor, so he said, even kept, any proper accounts and the bank statements he had produced showed no cash in the bank.

Turning to the judge’s judgment, the judge made it plain that the question before him was whether Mr Cowan had made good his claim to any, and if so what, damages for breach of the partnership agreement; and as to whether he was entitled to any declaratory relief. Dealing first with the latter question, which related to Mr Cowan’s claim to an interest in the property, the judge held that he was entitled to 50% of the equity in the property realised over and above £65,000. In addition, he was also entitled to 5% of the first £110,000. That was set out in paragraph 1 of the order that the judge made and there is no appeal against it by Mr Cowan and no cross-appeal by Mr Wakeling.

The judge then turned to the damages claim. The first claim, one to which little attention was apparently devoted in the argument, was for £10,000 arising out of Mr Wakeling’s disposal of the plant and equipment. This claim was regarded by the judge as one for compensation for Mr Cowan’s interest in the material so disposed of. The judge held that it was a breach of the agreement for Mr Wakeling to have disposed of the plant and equipment without accounting to Mr Cowan. He felt unable to quantify the claim either at £10,000 or at any sum, but he awarded Mr Cowan a nominal sum of £1,000 damages under this head.

The judge then turned to the claim for damages in respect of the loss of rents, namely a claim for one half of the rent of £200 a week that OPM and any successor company must be assumed to have been paying over the period down to the assessment of damages. The judge said the evidence in support of such an approach was virtually non-existent. He accepted that the parties had intended that the property would generate rents at that level but there was no evidence as to whether it did so. He held it was impossible “to infer a continuing loss amounting to damages recoverable in law over the whole of that period at £100 a week or more.” The judge was not prepared to do more than once again apply a broad-brush approach. He awarded £5,000 damages under this head.

The judge then dealt with the third head of damages claimed, namely in respect of Mr Cowan’s expenses incurred in sorting the property out after Mr Wakeling had abandoned it, including dealing with the landlords. The judge was prepared to allow some of the claims for money actually expended by Mr Cowan in this respect: Thus he allowed claims totalling just over £2,000 for various specific proved items of expenditure and a further £2,000 in respect of costs incurred in clearing the property, and in plumbing and electrical works. He disallowed the whole of the claim for £25 an hour in respect of Mr Cowan’s time expended on these matters, but did allow £500 under this head. He also allowed a claim for £500 in respect of the costs incurred by Mr Cowan in dealing with the proposed sale of the property. Those various sums to which I have referred together made up the damages of £11,146.47 awarded by paragraph 2 of the judge’s order.

Mr Cowan challenges the fairness of the award of a mere £5,000 in respect of the share of rents he claims to have lost. Whilst it took him some time to explain to us precisely what order he was asking us to make in its place, he ultimately submitted that he should be awarded a figure to compensate him for his non-receipt of half the £200 rent over a period of some six years from April 1997, or some £30,000 in all. He also challenges the award of a mere £1,000 for what he describes as his lost opportunity of an option to purchase the property and the business as a going concern and asked us to substitute an award of £10,000. He does not challenge the other elements of the judge’s order. Mr Wakeling, for his part, does not cross-appeal against the two elements of the order that Mr Cowan does challenge.

In support of his appeal Mr Cowan submitted that the effect of the debarring of Mr Wakeling from defending the claim was also to debar him from disputing the evidence in support of the claimed damages. Part of that evidence was to the effect that Mr Cowan and Mr Wakeling had agreed that any printing company in occupation of the property would pay £200 a week rent for one third of it and for the use of plant and equipment installed there. This was said to be supported by the cashflow projection for OPM to which I have referred. Mr Cowan submitted that the judge was not justified in rejecting this as insufficient evidence of rents of this order having been paid to or received by Mr Wakeling or, perhaps more accurately, as evidence of rents that ought to have been paid and received but for Mr Wakeling’s breach of the partnership agreement. He said the judge failed to recognise that it was impossible for him to prove that Mr Wakeling had received rents when in practice it was he who should have been paying them. He said that the award of the nominal amount of £5,000 was unfairly inadequate, the award being the equivalent of about £10 a week for Mr Wakeling’s wrongful occupation of 3,500 square feet of commercial premises and the use of plant and equipment valued in 1995 at £35,000.

As regards the second limb of challenge to the judge’s order Mr Cowan submitted that the judge was in error in basing his assessment solely on the wrongful disposal of the plant and equipment, whilst giving no consideration to the point that, had Mr Wakeling honoured the implied obligation to maintain the business as a going concern and not excluded Mr Cowan from the property, this would have given Mr Cowan the chance of enjoying the business as a continuing going concern or else the prospect of its sale as a going concern. Mr Wakeling’s actions had deprived Mr Cowan of both alternatives and £1,000 was no proper compensation for a loss of that nature.

Before considering the merits of these arguments there is a preliminary question as to whether Mr Cowan in fact had any cause of action for the damages claim that he brought against Mr Wakeling. As I have pointed out, Mr Cowan disclaimed before the judge any suggestion that the partnership has been dissolved. In particular, he did not suggest that Mr Wakeling’s conduct amounted to a repudiation of the partnership agreement that he had accepted so as to dissolve the partnership. His position at the trial was that the partnership was a continuing one. But even if this court were able to, and could properly, conclude that the partnership was and is in fact dissolved, there was anyway a singular difficulty in the way of Mr Cowan’s breach of contract claims, all of which arose out of liabilities allegedly owed by one partner to the other arising under the partnership agreement. That difficulty is best described by the following quotation from the speech of Lord Millett, with which all their Lordships agreed, in Hurst v Bryk and others [2002] 1 AC 185, at 194.:

“Disputes between partners and the dissolution and winding up of partnerships, however, have always fallen within the jurisdiction of the Court of Chancery. This is because, while partnership is a consensual arrangement based on agreement, it is more than a simple contract (to use the expression of Dixon J in McDonald v Dennys Lascelles Ltd 48 CLR 457, 476); it is a continuing personal as well as a commercial relationship. Neither during the continuance of the relationship nor after its determination has any partner any cause of action at law to recover moneys due to him from his fellow partners. The amount owing to a partner by his fellow partners is recoverable only by the taking of an account in equity after the partnership has been dissolved: see Richardson v The Bank of England (1838) 4 My & Cr 165: Green v Hertzog [1954] 1 W.L.R. 1309. Only the Court of Chancery was equipped with the machinery necessary to enable such an account to be taken, and the basis upon which the account was taken reflected equitable principles. These could be modified by agreement, but they did not find their source in contract.

The basic principles of partnership law are set out in the Partnership Act 1890 which was drafted by Sir Frederick Pollock and is still in force today. It codified (though not exhaustively) the law of partnership and reflected the pre-existing principles of equity which had been developed by the Court of Chancery. These did not include the contractual doctrine of repudiation. It is noticeable that section 1 of the Act, which defines the concept of partnership makes no reference to contract. It defines partnership as ‘the relation which subsists between persons carrying on a business in common with a view of profit.’”

In my judgment, that statement of principle undermines the legal basis of Mr Cowan’s claim in the county court. It was not open to him to bring a claim at law for damages against his partner and so it was equally not open to the judge to make the damages award that he did. This is not to say that Mr Cowan did not have a claim for an account against Mr Wakeling, although it would appear from Lord Millett’s observations that the partnership must be dissolved before any such claim could be made. The judge did not take this point in dealing with Mr Cowan’s claim, but I would make no criticism of him for not doing so. The claim came before him on no prior notice and the point was not drawn to his attention. Had he raised the point, a question would also have arisen as to whether the county court had jurisdiction to entertain any claim for an account that Mr Cowan had then sought to pursue. That is because the county court’s jurisdiction in dealing with the dissolution or winding up of a partnership is confined to cases where the assets of the partnership do not exceed £30,000, whereas the assets of this partnership did exceed that amount: see section 23(f) of the County Courts Act 1984. It may therefore be that any claim for an account by Mr Cowan could only have been pursued in the Chancery Division of the High Court.

In this court, however, matters have moved on. First, we have been told by Mr Cowan that he has in fact now commenced proceedings for the dissolution of the partnership and for the taking of an account. He apparently commenced those new proceedings in the county court but we have been told that they have since been transferred to the High Court, presumably to the Chancery Division. During the course of argument this morning the court made the suggestion to the parties that a practical way forward towards the bringing of these protracted proceedings to an early conclusion would be for the parties to consent to an order that the partnership is dissolved and, further, to treat Mr Recorder Price’s damages award as constituting the taking of the account of what is due from Mr Wakeling to Mr Cowan on the winding up of the partnership. On that basis the issues on the appeal would then be whether either or both of the only two figures the subject of challenge should be the subject of adjustment. Both Mr Cowan and Mr Wakeling expressly consented to an order, if necessary, to achieve this result and to our dealing with the appeal on this basis. They further agreed to an order for the sale of the property, with the conduct of the sale being committed to Mr Wakeling’s solicitors. I would pay my own tribute to their practical good sense in agreeing to a course which ought to reduce to a minimum any further litigation in this long drawn-out dispute.

The remaining question is therefore whether there is any sound basis for Mr Cowan’s challenge to the two figures he disputes. I have come to the conclusion that there is not. As regards the major of the two claims, that in respect of the non receipt of the rents, the judge’s conclusion, expressed in paragraph 27 of his judgment, was that there was no sufficient evidence to support the claim that the rental value of the property was £200 a week. He rightly accepted that the parties intended that it should yield rent of that order but the essence of his reasoning was that there was no sufficient evidence that it either could or did. There was, of course, no expert evidence as to the rental value of the property. On that basis the judge concluded that the case that Mr Cowan sought to make was simply not made out although he was at least prepared to accept that he had suffered some rent loss, which the judge fixed at £5,000. That involved, as the judge correctly acknowledged, the adoption of an admittedly broad-brush approach and it may perhaps have under-compensated Mr Cowan. In my judgment, however, there was no evidence before the judge which enables this court to arrive at any more reliable figure than that at which the judge arrived. I would not disturb his £5,000 award under this head.

As regards the £1,000 award, Mr Cowan’s submission was that the effect of Mr Wakeling’s conduct in disposing of the plant and equipment was to bring the partnership business to an end and so prevent its continued profitable enjoyment by Mr Cowan and also to deprive him of a share of the proceeds of its sale as a going concern. His point was that this merited a materially larger award, which he put at £10,000. There was, however, no evidence as to what the plant and equipment would have been worth at the time of the sale on the footing of the business being sold as a going concern, which it was not, nor was there any evidence as to the value of the plant and equipment at the time, or even what Mr Wakeling obtained for it. On that basis the judge again considered that his only option was to adopt a broad-brush approach to the measure of compensation to which Mr Cowan was entitled and he adopted the essentially nominal figure of £1,000. Again, that may perhaps have reflected an element of under-compensation but it was for Mr Cowan to prove his loss and, given the absence of any evidence of value at the time of sale, I would not be prepared to disturb that element in the judge’s order either.

The result is that, treating the appeal before us as in substance an appeal against the taking of an account of Mr Cowan’s entitlement against Mr Wakeling following the dissolution of the partnership, I would dismiss the appeal.

I agree.

I also agree.