Gary James Keane v David Sargen & Ors

This is an appeal from a decision of Insolvency and Companies Court Judge Jones, sitting as a Judge of the High Court (“the Judge”). In a judgment dated 6 May 2022 (“the Judgment”), the Judge concluded that the claimant, Mr Gary Keane, had on 18 June 2012 become a partner in a partnership relating to the shares in the fifth defendant, Document Risk Solutions Limited (“DRSL”). The first to fifth defendants appeal against that decision.

This section of this judgment seeks to provide a summary of events by reference to matters which are not (at any rate before us) in dispute.

The appeal concerns a business known as “DRS” which was started in 2009 to provide alternative legal services to financial institutions. The founders were the first and fourth defendants, Mr David Sargen and Mr Jonathan Martin, and Mr Sean MacGloin, who was the third defendant until his death in 2021. The second defendant, Mr Michael Beaton, joined the business in 2010. Mr Sargen, Mr Beaton and Mr Martin had met when working for Barclays Capital, and Mr Sargen and Mr Martin had also both worked for Derivatives Consulting Group (“DCG”). Mr MacGloin had been manager of the legal department of Mitsui’s energy risk management arm before also working for DCG. All four were solicitors.

The business was initially carried on by DRSL. Following Mr Beaton’s arrival, the directors of DRSL were Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin, and each of them held one of the company’s four issued shares.

In early 2012, the possibility of Mr Keane joining DRS was discussed. Mr Keane was at the time global head of collateral operations projects with Bank of America Merrill Lynch and had previously gained experience with a number of other banks as well as DCG, where he had met Mr MacGloin and Mr Martin.

On 21 February 2012, Mr Sargen, who tended to handle DRSL’s corporate and administrative matters, sent Mr Keane an email which, he said, was “to follow up on our discussion last week to confirm our proposal and reiterate our enthusiasm for getting you on-board”. Mr Sargen explained that he and Messrs Beaton, MacGloin and Martin were intending “to move to a model whereby the directors share equally in the profits of DRS” and, in that context, had suggested a package under which, among other things, Mr Keane would be granted “a 5% equity stake in the Company” on joining, rising by increments to equal parity with DRSL’s existing directors after 18 months subject to Mr Keane meeting performance criteria. Mr Sargen referred to “very early discussions with others [i.e. persons other than Mr Keane, Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin] regarding a broader management role”, but said that “[t]he aim of creating a structure whereby you would achieve equal parity with the existing directors would remain however”.

Mr Sargen emailed Mr Keane again on 1 March 2012 with an updated proposal following discussions Mr Keane had had with Mr MacGloin. The email recorded that Messrs Sargen, Beaton, MacGloin and Martin were “happy to agree that, subject to the Performance Criteria being met, the increase in both profit share and equity increases at a higher level than previously, such that [Mr Keane] would achieve parity with the existing directors at the first anniversary of [his] joining”. On this basis, Mr Keane would have a 7.5% equity stake from the start. The email also contained suggested performance criteria.

A month or so later, the sixth defendant, Derivatives Risk Solutions LLP (“LLP”), was incorporated. Messrs Sargen, Beaton, MacGloin and Martin had instructed Kingston Smith LLP, the accountancy firm, to advise them on how their business could be restructured so as to reduce their tax burden. In a report of 20 February 2012, Kingston Smith proposed that DRSL’s shareholders should become members of a “newly formed Document Risk Solutions LLP”. This, they said, would achieve tax savings through “profits being taxed at [the] more favourable Capital Gains Tax rate of 10% rather than at Income Tax rates of up to 50%” and, further, “a reduction in National Insurance Contributions and Corporation Tax”. The scheme involved Mr Sargen, Mr Beaton, Mr MacGloin, Mr Martin and DRSL all becoming members of the new LLP; DRSL’s trade being hived down to the LLP at book value; the LLP recognising goodwill; and, after an interval of at least 12 months, Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin selling “a share of their LLP goodwill” to DRSL at market value. Kingston Smith explained:

LLP was formed in pursuance of Kingston Smith’s advice on 2 April 2012. Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin were named as the designated members and DRSL as a corporate member. On 4 April, Mr Sargen completed applications for LLP to be registered for VAT and also for LLP and DRSL to be treated as members of a group for VAT purposes. The form relating to group treatment included this:

In the morning of 27 April 2012, there was a meeting attended by Mr Keane, Mr Sargen, Mr Beaton, Mr MacGloin, Mr Martin and representatives of Kingston Smith. Mr Keane explained in cross-examination that he had no real recollection of the event, but Mr Martin described it as a meeting led by Kingston Smith to discuss the tax structure. Mr Martin also said that Kingston Smith had mentioned that Mr Keane might incur a tax liability if he took equity in DRSL and was a director or shareholder of the company.

At 12.35 pm on 27 April 2012, Mr Sargen sent Mr Chris Hughes and Mr Chris Barker of Kingston Smith an email whose subject was given as “New Member – Gary Keane”. Given the significance which the Judge attached to this, I think I should quote the email in full. It read:

There was a further meeting attended by Mr Keane, Mr Sargen, Mr Beaton, Mr MacGloin, Mr Martin and Kingston Smith on 10 May 2012. At 8.24 that morning, Mr Sargen sent Kingston Smith an email in which he said:

Mr Sargen, Mr Beaton, Mr MacGloin (in a witness statement made before his death which was admitted into evidence) and Mr Martin all gave evidence to the effect that, at the 10 May meeting, Mr Keane said that he did not want shares in DRSL. Mr Sargen, for example, said in his witness statement:

The DRS business was transferred to LLP by DRSL pursuant to a business transfer agreement dated 14 May 2012. The consideration was to be calculated on the basis of the market value of the business as determined by a valuer and to be credited to an account showing “the interest of [DRSL] in [LLP] in its capacity as a member thereof”.

On 18 June 2012, a limited liability partnership agreement (“the LLP Agreement”) was concluded in respect of LLP “to set out the basis on which the LLP is to be organised and the rights and obligations of the Members of the LLP” (to quote from a recital). Aside from LLP itself, the parties were Mr Keane, Mr Sargen, Mr Beaton, Mr MacGloin, Mr Martin and DRSL as the “Initial Members”. The LLP Agreement provided for the “Initial Members” to contribute £1,000 each to the capital, save that DRSL’s contribution was the “transfer of those assets set out in the Transfer Agreement”. Profits and losses were to be divided in accordance with part 2 of schedule 3 to the LLP Agreement. DRSL was to receive a “multiple of £10,000” which was to be “determined by the Designated Members but … not to be less than 2”. Profits were otherwise to be shared between the individual Members (Mr Keane, Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin) as they determined. The Judge termed the provisions in schedule 3 relating to the division of profits and losses “the Contractual Waterfall”.

The LLP Agreement made no provision for performance criteria. Nor did a draft of what became the LLP Agreement, disseminated on 8 May 2012, make such provision. The Judge explained in paragraph 73 of the Judgment that “[n]o-one was able to recollect when or in what circumstances those criteria were dropped”.

A few days earlier, on 14 June 2012, HM Revenue and Customs (“HMRC”) had written to ask for further information in relation to the request for group VAT treatment. Noting that “if David Sargen, Jonathan Martin, Sean MacGloin and Michael Beaton are not in a natural partnership, and they do not carry out any other work – as a legal partnership – with a view to furthering the business activities of the group, then group registration cannot be allowed to proceed”, HMRC requested a description of “how the control condition as per schedule 43(A) of the VAT Act 1994 is met”. This example was given by HMRC:

On 21 June 2012, Mr Sargen emailed Kingston Smith about HMRC’s letter. He said:

In letters of 5 July 2012, HMRC said that the application for group VAT treatment had been approved.

On 27 July 2012, Kingston Smith sent Mr Sargen drafts of (a) a partnership agreement for a partnership called “DRS Partnership” with Messrs Sargen, Beaton, MacGloin and Martin as the partners, (b) a deed of adherence providing for Mr Keaton’s admission to the partnership and (c) minutes for a meeting of the partnership. The last of these referred to Messrs Sargen, Beaton, MacGloin and Martin reviewing stock transfer forms transferring their shareholding in DRSL to the partnership, to legal ownership of the shares being vested in the names of Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin while “the beneficial ownership … would be subject to the provisions of the Partnership Agreement” and to Mr Keane having agreed “to join the Partnership with effect from the close of the meeting”. The draft partnership agreement recorded that the partnership, “having been established by the Partners before the Commencement Date, shall be deemed to have been carried on under the terms of this agreement at all times”, and referred to Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin each contributing one share in DRSL. The draft deed of adherence provided for Mr Keaton to be admitted to the partnership with a capital contribution of £1 and for profits and losses to be divided as agreed by the “Applicable Majority” and, in the absence of any agreement, equally. Under the draft partnership agreement, “Applicable Majority” was defined as “all but one of those Partners that have the mental and physical capacity to vote”.

Mr Sargen sent these various documents on to Mr Beaton, Mr MacGloin, Mr Martin and Mr Keane on 6 August 2012. He said in his email:

There was little response. Mr Martin told Mr Sargen, “Nothing further from me over and above the comments that you’ve already made on the doc.” Mr Keane said, “To be honest not had chance to go through …. I’m presuming everyone else is same or in agreement?” The Judge accepted evidence given by Mr Sargen, Mr Beaton and Mr Martin that “they each expected at least one further redraft and that the terms within the draft disseminated were not progressed or, it follows, agreed”: see paragraph 132 of the Judgment. “[T]he discussions were not concluded” (paragraph 215) and the documents “remained in draft” (paragraph 233).

In 2013, two “members’ interest purchase agreements” (“MIPAs”) were executed. As the Judge observed in paragraph 138 of the Judgment, “[t]he purpose of the MIPAs was to implement the [Kingston Smith] Report’s tax advice by achieving transfers to which capital gains tax, not income tax, applied and by moving towards the position of DRSL becoming the main recipient of profit distributions at corporation tax rates (insofar as it would not be already based upon majority voting in accordance with the Contractual Waterfall)”. The earlier of the MIPAs, dated 22 May 2013, provided for the sale to DRSL by each of the other members of LLP (i.e. Mr Keane, Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin) of 37.5% of his interest as a member of LLP. The consideration payable to each transferor was £267,000, a figure determined by reference to valuations prepared by Kingston Smith, and this amount was credited to a loan account with DRSL in favour of each member. The later MIPA, dated 22 November 2013, similarly provided for the sale to DRSL by the other members of LLP of 55% of their interests in LLP. This time, the amount due to each transferor was specified as £246,000, to be credited to the relevant loan account with DRSL.

By the end of 2016, deteriorating relationships led to the parties discussing Mr Keane’s departure. The discussions ultimately resulted in a deed of asset transfer dated 30 November 2017. This provided for the sale to DRSL by LLP of its business. It was explained that Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin were transferring their interests in LLP by way of gift. In contrast, DRSL was to pay Mr Keane the “Interest Purchase Price” for his interests in LLP. “Interest Purchase Price” was defined to refer to (a) a payment of £220,000 to be made on the date of the deed and (b) “[f]urther additional payments, subject to a floor of £160,000 … , representing a proportion of gross profits derived by [DRSL] from certain projects delivered for Barclays Bank plc (or any affiliates thereof) in a 12 month period from the date hereof and determined in accordance with the Contract for Services”. The “Contract for Services” was an agreement also dated 30 November 2017 by which a company associated with Mr Keane agreed to supply services for 12 months in return for 40% of the gross profit, subject to a minimum of £160,000. In the event, Mr Keane received some £640,000 pursuant to the “Contract for Services”.

Kingston Smith had on 8 November 2017 concluded that “a valuation range of £7.151m to £8.076m for the trade of the LLP is reasonable”.

As the Judge noted in paragraph 162 of the Judgment, Mr Keane said the following in his witness statement about the background to the deed of asset transfer:

In the course of the negotiations leading to the deed of asset transfer, Mr Keane sent Mr Sargen, on 1 September 2017, an email which included the following:

The Judge explained in paragraph 173 of the Judgment that there was “no dispute that the interest sold by Mr Keane was and was valued as a 4.5% interest in the LLP”. In paragraph 174 of the Judgment, the Judge said:

LLP was dissolved on 7 May 2019. The individual defendants have, however, agreed to discharge any sums found to be owed by it to Mr Keane.

The Judge declared in paragraph 1 of his order that “the beneficial interest in the issued share capital of [DRSL] is the partnership property of a partnership formed between [Mr Keane] and [Messrs Sargen, Beaton, MacGloin and Martin] on 18 June 2012”. The Judge termed this “the DRSL Shareholding Partnership”.

The conclusions on which that determination was based included these:

The Judge went on in paragraphs 238-240 of the Judgment:

“[E]ven assuming in favour of [Messrs Sargen, Beaton, MacGloin and Martin] that Mr Keane’s 10 May 2012 Statement had been binding and not subject to investigation,” the Judge said in paragraph 244 of the Judgment, “it would only have been a variation of the term of the Equal Parity Agreement entitling him to an interest in the DRSL shares”. Mr Keane “did not reject the agreement of parity including his entitlement to share equally in the LLP’s profits” and “that agreement would in itself have created a partnership” (paragraph 244). The Judge continued:

In paragraph 264(a) of the Judgment, the Judge said that he had decided:

In paragraph 258 of the Judgment, the Judge expressed the view that the “DRSL Shareholding Partnership” was continuing. However, in the light of submissions made on the defendants’ behalf, the Judge concluded at a hearing concerned with consequential matters on 27 June 2022 that the partnership had in fact come to an end on 30 November 2017. The Judge’s order therefore includes a declaration to that effect.

The Judge further declared that the “DRSL Shareholding Partnership” ought to be wound up by the Court and directed accounts and inquiries to that end. The order includes specific provision for the first to fourth defendants to pay Mr Keane the amount of any profits made by DRSL since 30 November 2017 which were attributable to use of Mr Keane’s share of its assets should Mr Keane make an election under section 42 of the Partnership Act 1890. The order also provides for DRSL to pay Mr Keane the amount found to be outstanding on the loans which Mr Keane made to DRSL pursuant to the MIPAs.

It had been submitted to the Judge at the trial that the case being advanced by Mr John McDonnell KC, who was appearing for Mr Keane (as he also did before us), was not within the ambit of his pleaded case, in part because the claim form sought a declaration that Mr Keane and Messrs Sargen, Beaton, MacGloin and Martin “had carried on the business of holding and managing the shares in [DRSL] in partnership since about 20 August 2012” (emphasis added). In paragraph 188 of the Judgment, however, the Judge rejected that submission. He further, by paragraph 4 of his order, granted Mr Keane permission “to amend the date in para 1(a) of his Claim Form from ‘about 20 August 2012’ to ‘18 June 2012’”.

I should also, I think, mention the Judge’s views of the witnesses. Oral evidence was given by Mr Keane, Mr Sargen, Mr Beaton and Mr Martin. The Judge said of Mr Keane that “some of his evidence was unsatisfactory, particularly when he sought to suggest that he really did not understand the difference between fundamental concepts such as a limited company and a limited liability partnership”, but “the reality is that he honestly recognised that he did not have a good memory of the detail which surrounded and gave rise to him joining the LLP”: paragraph 38 of the Judgment. With regard to Mr Sargen, Mr Beaton, Mr MacGloin and Mr Martin (though Mr MacGloin’s death meant that there was only written evidence from him), the Judge explained that he “approach[ed] their evidence from the perspective that they have sought to assist the Court but do not have the accuracy of recollection that they probably think they have”: paragraph 44. No one from Kingston Smith gave evidence. As to that, the Judge said in paragraph 46:

Although there are five grounds of appeal, it seems to me that the main issues to which the appeal gives rise can be summarised as follows:

I find it convenient to consider these issues in reverse order.

It is trite law that there are only limited circumstances in which an appellate Court should interfere with a finding of fact made by a trial judge. Thus in Henderson v Foxworth Investments Ltd [2014] UKSC 41, [2014] 1 WLR 2600, Lord Reed (with whom Lords Kerr, Sumption, Carnwath and Toulson agreed) said at paragraph 67:

Of course, questions as to whether contracts have been concluded, or partnerships formed as a result, are not exclusively factual and may potentially turn on issues of law rather than fact. The present case, however, is one where the Judge’s decision turned to a very substantial extent on his assessment of factual matters.

It is nonetheless the appellants’ case on this appeal that this Court should reject the Judge’s conclusion that a partnership in respect of the DRSL shares was formed between Mr Keane and Messrs Sargen, Beaton, MacGloin and Martin. They maintain, putting matters broadly, that the Judge’s decision lacked an evidential foundation and cannot reasonably be justified.

As I read the Judgment, the Judge’s overall conclusion depended crucially on a finding that what he termed the “Agreed General Package” had been contractually agreed by 27 April 2012. In paragraph 63 of the Judgment, the Judge rejected evidence that the proposal previously put to Mr Keane was “not formally accepted” as “contradicted by the contemporaneous correspondence” and, after noting that Mr Sargen had referred in his email to Kingston Smith of 27 April to “the general package agreed with [Mr Keane]”, the Judge said in paragraph 65 that Mr Sargen “would not have referred to the package being agreed without meaning it”. Further, the Judge is, I think, to be understood to be have found, not merely that the “general package” had been agreed in principle, but that a contract to that effect had been concluded. Both Ms Lesley Anderson KC, who appeared for the appellants, and Mr McDonnell endorsed that view, and it is borne out by various passages in the Judgment. If the Judge had seen the “general package” as no more than an agreement in principle, he would hardly have taken issue with Mr Sargen’s description of it as an “outline proposal” (as to which, see paragraph 66). When considering the 10 May meeting, the Judge referred to an “incorrect understanding that there was only an outstanding offer and, therefore, that the parties were not proceeding on the basis of two agreements, namely the Agreed General Package and an LLP Agreement”: see paragraph 86. Likewise, the Judge spoke of the defendants’ recollection being “incorrectly based upon an offer rather than agreement having been reached on or about 27 April 2012” and of an “extant agreement, … not an unaccepted offer”: see paragraphs 73 and 208. The Judge, moreover, used the language of contract when referring to whether the “Agreed General Package” had been “varied”, the subject of “variation” or “terminated”: see paragraphs 68, 73, 94, 95, 209, 232 and 235.

The Judge’s finding as regards the “Agreed General Package” affected his assessment of evidence on other matters: he said that evidence given by Messrs Sargen, Beaton, MacGloin and Martin was “based upon the incorrect premise that the 1 March 2012 offer had not been accepted and was rejected by Mr Keane’s 10 May 2012 Statement” (paragraph 242) as well as “based upon their incorrect understanding that there was only an outstanding offer” (paragraph 86). More importantly, the fact that, as the Judge saw things, the “Agreed General Package” had taken effect contractually can be seen to have played a key role in the reasoning which led him to hold that Mr Keane had become a partner in the “DRSL Shareholding Partnership” on 18 June. The effect of “Mr Keane’s 10 May 2012 Statement” fell to be determined in the context of “that extant agreement” (paragraph 208) and, the “Equal Parity Agreement” derived from the “Agreed General Package” having “only been materially varied to the extent that parity with the 1-4 Ds … would start immediately upon Mr Keane joining the LLP” (paragraph 234(a)), on 18 June the parties “entered into two, inter-linked agreements: the LLP Agreement and the Agreed General Package (subject to its variations)” (paragraph 235) and “in accordance with the Equal Parity Agreement (as varied) … [t]he DRSL shares became partnership property now of a partnership of five not four partners” (paragraph 238). As I understand the Judgment, it was the Judge’s view that Mr Keane became a partner in the partnership which held the DRSL shares because there was a pre-existing contract between the parties in the form of the “Agreed General Package”, as varied.

It seems to me, however, that the Judge was not entitled to find that the “general package” set out in Mr Sargen’s 27 April 2012 email to Kingston Smith took effect contractually. So far as I can see, Mr Keane had never advanced such a case. Nothing to that effect is to be found in his pleadings, in Mr McDonnell’s skeleton argument for the trial or even, it appears, in Mr McDonnell’s closing submissions before the Judge. In any case, the finding was not available to the Judge on the evidence. As the Judge noted in paragraph 61 of the Judgment, Mr Keane stated in cross-examination that he had no real recollection of the 27 April meeting. For his part, Mr Sargen described his email to Kingston Smith as containing an “outline proposal” which had not been formally accepted by Mr Keane, and he was not challenged on that in cross-examination, as he should have been if Mr Keane’s case had been to the contrary (see e.g. Browne v Dunn (1893) 6 R 67, Markem Corp v Zipher Ltd [2005] RPC 31 and Chen v Ng [2017] UKPC 27). Nor was there any support for the Judge’s finding in the evidence of Mr Beaton, Mr MacGloin or Mr Martin, and, when Mr Beaton and Mr Martin came to give oral evidence, the question whether a contract had been entered into by 27 April was not explored. Again, if it was to be suggested that a contract had been made on 27 April, the point should have been put to Mr Beaton and Mr Martin given the general rule that “a party should put to each of his opponent’s witnesses in turn so much of his own case as concerns that particular witness” (to quote Phipson on Evidence, 20^th ed., at paragraph 12-35). On top of that, the 27 April email to Kingston Smith was entirely compatible with an agreement in principle rather than a concluded contract. In the course of the hearing before us, Mr McDonnell accepted that Mr Sargen might have written in the same terms had he thought, not that there was a contract, but that he and Messrs Beaton, MacGloin and Martin had agreed with Mr Keane a proposal which was to be taken forward into detailed documents. That the email does not constitute evidence of a contract is indicated by the references in it to “making good progress” and to a “general” package and by its repeated use of the word “would”. The email cannot be said to show that the parties had moved beyond heads of terms which needed to be the subject of detailed drafting. In fact, Mr Hughes of Kingston Smith appears to have forwarded the email on 28 April with that end in view.

In any event, on the Judge’s findings the performance criteria embodied in the “general package” were “dropped”: see paragraph 73 of the Judgment. The fact that, as the Judge recorded, “[n]o-one was able to recollect when or in what circumstances” that had happened is consistent with the “general package” having represented no more than an agreement in principle, such that what was envisaged could be changed or developed without a contractual variation or rescission having been agreed. Even supposing, however, that the “general package” had taken effect contractually, it is hard to see what could have survived the excision of performance criteria, which were integral to the “general package”. In fact, not a single sentence (or even line) of the “general package” would have remained applicable as it stood. The parties would surely have had to agree a new contract. The original one would have been spent.

Be that as it may, the Judge found that at the meeting on 10 May 2012 Mr Keane made “Mr Keane’s 10 May 2012 Statement”. In his submissions to us, Mr McDonnell was inclined to suggest that, having regard to what Kingston Smith had explained in their email of 8.47 on 10 May, Mr Keane need have had no concern about becoming a member of the partnership holding the shares in DRSL. It can be seen, Mr McDonnell suggested, that mere acquisition of an interest in DRSL’s shares would not have triggered any tax liability. However, the simple fact is that, on the Judge’s findings, “Mr Keane’s 10 May 2012 Statement” was made and, as a result, there was perceived to be a need for further investigation. The position Mr Keane took may in reality have been an unwise one, but that does not matter. At trial, he himself “no longer disputed that he said he would not take shares with a tax liability” (paragraph 85 of the Judgment), while Messrs Sargen, Beaton, MacGloin and Martin all testified to Mr Keane’s rejection of shares in DRSL (and, in the case of Mr Sargen and Mr Beaton, to their surprise at that).

By 10 May 2012, as the Judge found, Messrs Sargen, Beaton, MacGloin and Martin “were in partnership carrying on the business of holding the beneficial interest in DRSL’s share capital as an investment” (paragraph 201 of the Judgment). That evidently remained the case following 10 May. The Judge did not find that Mr Keane had joined the partnership on 10 May, but rather that there was a perceived need for investigation. Nor did Mr McDonnell, in his submissions before us, argue that Mr Keane had become a partner in the DRSL shares partnership by 10 May.

The Judge nevertheless held that, on 18 June 2012, the “DRSL Shareholding Partnership” was created, in that there was “a contractual agreement which produced a relation between [Mr Keane] and [Messrs Sargen, Beaton, MacGloin and Martin] carrying on in common a business of holding the DRSL shares as an investment with a view of profit” (paragraph 237 of the Judgment). It seems to me, however, that there is more than one objection to that conclusion. In the first place, as I have already indicated, the conclusion appears to be rooted in the Judge’s view that the “Agreed General Package” had been contractually agreed by 27 April and remained in force, subject to variations, yet, as I see it, (a) the Judge was not entitled to find that the “Agreed General Package” ever had contractual effect and (b) there would anyway have been a need to agree a new contract once the performance criteria had been dispensed with. Even assuming, however, that, as was the Judge’s view, the “‘Agreed General Package’ (subject to its variations)” was contractually binding on 18 June, I cannot see on what basis the Judge could have been justified in concluding that on 18 June Mr Keane acceded to the partnership holding the DRSL shares. Matters had been left on 10 May on the basis that there would be investigation, and there is nothing to indicate that those investigations had been concluded by 18 June. The Judge himself said that “the investigations produced the potential solution of a partnership agreement”, but “the evidence establishes that the discussions were not concluded” (paragraph 215 of the Judgment). He evidently had in mind the draft documents circulated to Mr Beaton, Mr MacGloin, Mr Martin and Mr Keane by Mr Sargen on 6 August, which, as the Judge noted in paragraph 233, “remained in draft”. It is noteworthy, moreover, that Mr Sargen referred in the email to which he attached the draft documentation to a “deed of adherence for Gary to come into the partnership” and that the draft partnership minutes spoke of Mr Keane agreeing to join “with effect from the close of the meeting” (emphasis added in each case). It thus appears that, even in August, the parties had not moved beyond investigations and Mr Keane had yet to become a partner in the DRSL shares partnership. Nor is there any other evidence to show that Mr Keane joined the partnership on 18 June. The LLP Agreement was finalised on that date, but that cannot establish that Mr Keane had by then overcome his doubts and acceded to the partnership and the Judge did not identify anything else from which it could be inferred that it had been agreed that Mr Keane should be added as partner. Mr McDonnell himself observed in submissions that “nothing happened, in a sense, in that the abortive discussions over the documents produced by Kingston Smith appear not to have reached a conclusion”. Mr McDonnell said that emails for the period between 10 May and 18 June were missing, but (a) Ms Anderson disputed that there was any reason to believe that relevant emails were not available, (b) it is apparent from the Judgment (especially paragraphs 93, 97-99, 101 and 103) that some emails from the period were before the Judge and (c) there is in any case no basis for inferring that any email would have evidenced accession by Mr Keane to the partnership.

During his submissions, Mr McDonnell reminded us of what Mr Sargen had said in the email to Kingston Smith of 21 June 2012 quoted in paragraph 18 above and told us that he had suggested to Mr Sargen during cross-examination that he (Mr Sargen) had meant that the four-man partnership previously notified to HMRC had become a five-person one. As, however, Mr McDonnell recognised, the Judge addressed Mr Sargen’s email in paragraphs 219 and 220 of the Judgment and said that “it would not be right to conclude on the balance of probability that the reference to the change in the percentage ‘split’ reflected the effect of Mr Keane’s addition to the partnership”. Further, when we asked Mr McDonnell whether this was challenged, he did not say that it was, and there is in any event no respondent’s notice. In the circumstances, I do not think the 21 June email can assist Mr Keane.

All in all, it seems to me, with respect, that the Judge was not entitled to find that Mr Keane became a partner in the partnership relating to the DRSL shares. There was no evidence to support that conclusion.

It is clearly the case that, in 2012, Messrs Sargen, Beaton, MacGloin and Martin would have been happy for Mr Keane to accede to the DRSL shares partnership. In fact, at least Mr Sargen and Mr Beaton were surprised when Mr Keane declined to take DRSL shares at the meeting on 10 May 2012, and no one raised any objection to partnership documentation substantially in the form of the drafts circulated in August being executed. In the event, however, the discussions “were not concluded”, the documents “remained in draft” and no further steps were ever taken to make Mr Keane a partner.

I would accordingly allow the appeal and dismiss the claim.

One of the grounds of appeal is to the effect that the trial was unfair because the Judge intervened too much when Mr Keane was giving oral evidence. Ms Anderson did not advance the point with any force, but I should nevertheless address it briefly.

The Courts have repeatedly warned of the dangers of judges intervening when witnesses are giving evidence. In Serafin v Malkiewicz [2020] UKSC 23, [2020] 1 WLR 2455, Lord Wilson (with whom Lord Reed, Lord Briggs, Lady Arden and Lord Kitchin agreed) noted at paragraph 40 that “[t]he leading authority on inquiry into the unfairness of a trial remains the judgment of the Court of Appeal, delivered on its behalf by Denning LJ, in Jones v National Coal Board [1957] 2 QB 55”. In Jones v National Coal Board (“Jones”), Denning LJ said at 63 that a trial judge “sits to hear and determine the issues raised by the parties, not to conduct an investigation or examination on behalf of society at large” and went on:

In Southwark London Borough Council v Kofi-Adu [2006] EWCA Civ 281, [2006] HLR 33 (“Kofi-Adu”), Jonathan Parker LJ, giving the judgment of the Court of Appeal, observed at paragraph 142 that “a first instance judge is entitled to a wide degree of latitude in the way in which he conducts proceedings in his court” and at paragraph 145 that “[n]owadays, of course, first instance judges rightly tend to be very much more proactive and interventionist than their predecessors, and the above observations [i.e. those in Jones and Yuill v Yuill] (made, in the case of Lord Denning M.R., almost 50 years ago, and, in the case of Lord Greene M.R., more than 60 years ago) must be read in that context”. Jonathan Parker LJ continued, however:

In a similar vein, in Michel v R [2009] UKPC 41, [2010] 1 WLR 879, Lord Brown, giving the judgment of the Privy Council, referred in paragraph 31 to “[t]he core principle … that under the adversarial system the judge remains aloof from the fray and neutral during the elicitation of the evidence”. He went on to quote from “Denning LJ’s celebrated judgment in Jones v National Coal Board”.

On the other hand, excessive interventions by the judge during oral evidence will not necessarily render a trial unfair. Thus, in Shaw v Grouby [2017] 1 WLR 2455, Patten LJ, with whom Vos C agreed, considered that “the judge’s interventions, whilst always courteous, were … excessive and … he should have attempted to postpone his questioning, particularly of the witnesses of fact, until after counsel had conducted his cross-examination except when it was necessary to ask the witness to clarify an answer so that the judge could understand the evidence that was being given” (paragraph 45), but “reached the conclusion that there was still a fair trial and a proper judicial determination of the main issues” (paragraph 46). “The allegation of unfairness,” Patten LJ said, “requires one to look carefully at what were the real issues in the case and how the judge’s conduct impacted on them” (paragraph 46).

In the present case, Ms Anderson did not suggest that the Judge had ever been other than courteous and stressed that she was not advancing a complaint of judicial misconduct. She pointed, however, to 52 occasions when the Judge intervened during her cross-examination of Mr Keane.

Having read the relevant transcripts, it is plain, not only that the Judge was courteous, but that he was concerned to ensure that Mr Keane understood Ms Anderson’s questions and had a fair opportunity to answer them. Even so, looked at in the round, it does seem to me that the Judge interrupted more often than was appropriate.

It is worth, I think, commenting specifically on two of the interventions. So far as the first is concerned, the relevant transcript extract reads as follows:

As Denning LJ noted in Jones, “the very gist of cross-examination lies in the unbroken sequence of question and answer” and it “loses much of its effectiveness if the witness is given time to think out the answer to awkward questions”. In the intervention set out in the previous paragraph, the Judge will not merely have given Mr Keane “valuable time for thought” (to use words of Denning LJ), but pointed him to where he might find an answer to Ms Anderson’s question. It seems to me that it was inappropriate for the Judge to intervene in this way and thereby to run the risk of debilitating the cross-examination. This intervention and the questions asked by the Judge in the passage that followed also risked clouding his ability properly to weigh and evaluate the evidence.

The second intervention can be seen in the following transcript extract:

While a judge may of course form a provisional view as to the truthfulness of a witness while cross-examination is in progress, his role at that stage is not to arrive at a conclusion, let alone to voice one, but essentially to listen. To my mind, it was not appropriate for the Judge to state while Mr Keane’s cross-examination was still in progress that “[i]t is not a question of not telling the truth”. The Judge will here, I think, both have prevented Ms Anderson from asking a legitimate question and in all probability provided Mr Keane with reassurance as to how his evidence was being received and, hence, made Ms Anderson’s task generally harder. Of course, there can potentially be occasions when it is not only legitimate but incumbent on a judge to intervene during cross-examination to prevent a witness from being subjected to unfair bullying, but there was no need for that in the present case. If, alternatively, a judge feels that a point has already been explored with a witness sufficiently, he can seek to move the cross-examiner on without expressing any view as to the veracity of what the witness has said.

The ultimate question, however, is whether the Judge’s interventions made the trial unfair. I have already indicated that the Judge intervened more often than was appropriate. He should have attempted to postpone his questioning of Mr Keane until after Ms Anderson had conducted her cross-examination, save when it was necessary to clarify the evidence being given. Judicial self-restraint is required to avoid the consequences referred to above and to ensure that the trial process is fair to all involved. That said, I do not consider that the interventions either prevented the appellants from fully presenting their case at trial or impaired the Judge’s decision-making. There was a fair trial and Ms Anderson did not really suggest otherwise in her submissions to us. While the Judge may have intervened more than was appropriate, his conduct was nothing like that which led to appeals being allowed in Kofi-Adu and Serafin v Malkiewicz and, “look[ing] carefully at what were the real issues in the case and how the judge’s conduct impacted on them”, I am in no doubt that the trial remained fair.

When these proceedings were issued on 26 April 2019, paragraph 1 of the claim form explained that, as against the first to fourth defendants, Mr Keane claimed:

When, on 22 August 2019, Mr Keane served his particulars of claim, paragraph 1 of the prayer sought “a declaration that the First to Fourth Defendants hold their shares in the Fifth Defendant on trust for themselves and the Claimant in equal shares”, but there was nothing corresponding to paragraph 1(a) of the claim form. Further, while paragraph 20 of the particulars of claim asserted that Mr Keane and Messrs Sargen, Beaton, MacGloin and Martin “agreed the terms of a partnership set out in [the draft documents circulated in August 2012]” and that Mr Keane “believes that the draft partnership agreement, the draft DRS Partnership minute and the draft deed of adherence were signed”, there was no other mention in the particulars of claim of a partnership in respect of the DRSL shares having been concluded. The focus was on claiming that the shares in DRSL had become subject to a constructive trust.

Mr McDonnell nevertheless opened his skeleton argument for the trial with the sentence, “This is a Partnership Action concerning a partnership which Mr Keane claims was formed in 2012 between himself and the first four Defendants …”. He was evidently encouraged to put Mr Keane’s case in this way by the disclosure by the defendants of documents relating to the application for group VAT treatment. However, it remains the case (a) that the claim had not been framed as “a Partnership Action” in the particulars of claim, (b) that even the claim form alleged a partnership only from “about 20 August 2012” and (c) that Mr McDonnell did not argue for an earlier start date in his skeleton argument.

The Judge, however, rejected a submission by Ms Anderson that the claim presented by Mr McDonnell fell outside the ambit of Mr Keane’s statements of case (paragraph 188 of the Judgment) and ultimately, following the handing down of the Judgment, gave permission for paragraph 1(a) of the claim form to be amended so as to refer to “18 June 2012” rather than “about 20 August 2012”. In that connection, the Judge considered that, on the basis of Mr Keane’s pleaded case, the defendants “would or should have addressed events from the beginning of 2012 and through to and including August/September 2012 for the purposes of their Defence, disclosure, witness statements and the trial” (paragraph 20). The Judge further said that, while the declaration sought in the claim form would need to be redrafted if he accepted Mr McDonnell’s submissions, “[p]lainly amendments would be allowed” (paragraph 178); that, while “[s]trictly … the existence of a partnership from 4 April 2012 and the additional facts and matters concerning Group registration should have been pleaded”, those facts and matters derived from disclosure, and notice of Mr Keane’s reliance on the documents had been given in pre-trial correspondence (paragraph 180); and that he could not conclude that the defendants had been taken by surprise or that any unfairness had arisen for the trial (paragraph 183).

One of the grounds of appeal proceeds on the basis that the “Judge erred in law in allowing the Claimant to advance at trial, and then himself proceeding to make findings on, a case which was outside the scope of his pleadings which constitutes serious procedural unfairness to the Defendants”. Before us, Ms Anderson did not press the point as an independent basis for allowing the appeal and, given my conclusions on the Partnership Issue, it is in any event of no practical significance. I should still, however, say something about it.

My own view is that the case presented by Mr McDonnell at the trial, and even more so the (somewhat different) case on which the Judge ultimately founded his decision, were not within the ambit of Mr Keane’s existing pleadings. Not only had paragraph 1(a) of the claim form alleged a partnership only “since about 20 August 2012”, but that head of claim was not replicated in the particulars of claim and so had been dropped. On the other hand, (a) the Judge gave permission for the claim form to be amended, (b) the power to permit amendment is discretionary, (c) the Judge was, I think, entitled to take the view that the defendants would not suffer any relevant prejudice if the possibility of a partnership having come into being earlier in 2012 were entertained and (d) Ms Anderson did not insist on the Judge making a formal ruling during the trial. With regard to the last of these points, Mr McDonnell referred us to Hawksworth v Chief Constable of Staffordshire [2012] EWCA Civ 293, which the White Book cites at 16.0.1 for this:

In all the circumstances, I would not have allowed the appeal on this particular ground.

I would allow the appeal and dismiss the claim.

I agree with both judgments.

I also agree.

I add a few words to emphasise that, in my view, the way in which the judge interrupted the cross-examination of Mr Keane was, as Newey LJ has said, inappropriate. My reading of many of the interruptions is that the judge was, perhaps inadvertently, but certainly inappropriately, protecting the witness. I also agree that ultimately the trial was not rendered unfair, but that is only because Mr Keane had almost no detailed recollection of what had occurred and that is what the judge found (see, for example [38], [61], [79], [80], [135] and [213] of his judgment). That finding has formed a key part of our decision that the judge’s reconstruction of the facts cannot be sustained on the evidence.