Contract of service - Written particulars of contract

Castledine v Bentley Jennison (a firm) and another: Chancery Division, Birmingham District Registry (Judge David Cooke sitting as a judge of the High Court): 15 September 2011

The claimant joined the first defendant firm of chartered accountants in November 1999 as an equity partner. The arrangements under which he joined were discussed in meetings between the claimant and S, the first defendant's national managing partner. Two documents were of particular importance regarding the goodwill of the first defendant: the Partnership Agreement and the Equity Partners Deed.

The Equity Partners Deed, inter alia, set out agreed values of goodwill in the firm to be owned by each equity partner at the date of the deed. Between them, the two documents provided the following: that not all partners owned a share in goodwill; that those that did, did not do so in equal proportions; and that when a equity partner retired, his share in the assets of the firm other than goodwill would automatically vest in the continuing partners without payment.

The claimant was only given a copy of the Partnership Agreement, which made mention of the Equity Partners Deed. Shortly before the claimant had joined the first defendant, there had been some reorganisation of the way in which goodwill, inter alia, was managed. In April 2003, the claimant resigned as a partner. He contended that he was entitled to a share of the goodwill of the first defendant.

The claimant contended that in the discussions leading up to him joining the first defendant, S had made statements to the effect that the goodwill in the firm was owned equally by all the partners and that the claimant would acquire an equal share on joining. He noted a provision in the Partnership Agreement, which stated that any interest he might have in the partnership assets 'other than goodwill' in the continuing partners, but said nothing about goodwill in itself. He further submitted that the Equity Partners Deed would not apply to him, as he had not been provided with a copy and had been rendered obsolete by the changes made in the way goodwill was managed.

The first defendant submitted that the Equity Partners Deed was not without effect at the point when the claimant had become a partner, and that it was not appropriate to read the Partnership Agreement by disregarding all references to it. It contended that its aim had been to move gradually from the previous scheme of goodwill management to a newer scheme, and that at the point of the claimant's joining of the defendant company, the matters referred to in the Equity Partners Deed were sufficiently extant so that it was not appropriate to simply disregard that document. The application would be dismissed.

(1) On the evidence, S did not tell the claimant either expressly or by implication at any point in the negotiations prior to joining the firm that goodwill in the firm was owned equally, or that he would acquire a share of the goodwill by becoming a partner. It was likely that S had told the claimant that if there was a sale of goodwill while he was a partner, then all parties would share equally in any gain (see [44] of the judgment).

(2) On the evidence, reading the two documents together, it was clear that a person becoming a partner under the terms of the Partnership Agreement did not thereby acquire a share in the goodwill of the firm. The goodwill in the firm would be owned only by those party to the Equity Partners Deed, and its acquisition and dispersal would not be an automatic process occurring simply by virtue of becoming or ceasing to be a partner.

For goodwill to be transferred, an explicit transaction between the parties had to take place. A person in the circumstances of the claimant, who had become a partner without seeing one of the documents, would be put on notice of the other document by the references made in it to that document, and would not be able to have the document he had seen construed as if those references did not apply to him. In itself, the Partnership Agreement did not confer on an incoming partner an interest in goodwill. The Equity Partners Deed dovetailed with the Partnership Agreement and had to be seen as doing such.

Furthermore, the fact that the documents stated that when a equity partner retired, his share in the assets of the firm other than goodwill would automatically vest in the continuing partners without payment, did not mean that every outgoing partner would have an interest in the goodwill (see [55]-[60] of the judgment).

On the true construction of the terms of the Partnership Agreement to which the claimant had become a party, a share of goodwill had not been conferred on him (see [63] of the judgment). Condcliffe v Sheingold [2007] All ER (D) 473 (Oct) applied.

Patrick Talbot QC and Dan McCourt Fritz (instructed by McDaniel & Co) for the claimant. Jeremy Callman and Naomi Winston (instructed by Martin Kaye) for the defendants.