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Victory for Dickon Mitchell

The Court of Appeal has finally brought an end to a longstanding dispute between two local attorneys on the sale of the law firm Grant Joseph & Company following the death of one of its principal partners, Linda Grant.

The other partner, retired high court judge, Rita Joseph-Olivetti was at odds with attorney-at-law, Dickon Mitchell who made the bold move to purchase the shareholding interest to become the sole owner of the company.

Mitchell has since moved out of Grant Joseph and Company to form his own law firm known as Mitchell & Co which operates at Excel Plaza in the south of the island.

Joseph-Olivetti was seeking to collect more money on the sale after the audited financial statement of Grant Joseph & Company was done, insisting that this was not part of the original sale agreement.

Attorney Mitchell disagreed and challenged the decision of a high court judge who ruled against him when the matter was heard in the lower court.

However, the Court of Appeal after hearing legal arguments from lawyers for both sides decided to overturn the decision of the high court judge and to rule in favour of Mitchell.

As a public service, THE NEW TODAY reproduces Part 11 of the judgment delivered by the Court of Appeal on the sale of the law firm:

In my opinion, both section 38 and the cases establish that a partnership can continue for a limited time after dissolution for the purpose of winding up the business of the partnership by realising its assets and distributing the net proceeds between the remaining partners and the estate of the deceased partner.

This twilight period can be advantageous to the partners to allow them to realise the highest return on the assets. However, the twilight period must be temporary. It cannot continue indefinitely.

Following the death of Mrs. Grant, the Executors and the respondent began discussions regarding the future of the Firm. There is no evidence that the respondent made any attempt during this period to purchase the estate’s 65% share of the partnership so as to become sole proprietor in the true sense.

The evidence from both sides is that the business of the Firm continued after dissolution. In the case of the respondent, the evidence is at page 63 line 22 to page 64 line 3 of the transcript:-

“Q. And with respect to the practice, Mrs Olivetti, what was your — do you have knowledge of the nature of the practice during the period or after Mrs Grant’s death?

A. Well the only knowledge, the Practice was supposed to be continuing business until we decided what we should do with it, whether we should sell it or close it down.”

The respondent’s evidence was ambivalent as to whether she would sell the Firm or close it down. What is clear is that there was no suggestion that she would continue the Firm as a sole proprietorship indefinitely.

And it is unlikely that there would have been such evidence since the respondent was, at the time, a sitting judge of the High Court.

Mr. Hugh Dulland gave evidence for the appellant. He was very clear about his intentions for the Firm. He said at page 277 lines 10-23 of the transcript:-

“Q. As executor, what was your intention with respect to the firm?

A. Well the immediate thinking was that the both partners, literally out of the business, the thought went through my mind that we should look at selling.

Q. So you had no intention to operate a law firm, you and Ms. Parris?

A. I don’t think I have the competence to do that.

Q. So, is that yes, no intention to do that?

A. I had no intention of doing it.”

On page 278 line 12-13 he said, “You cannot run a business like that, that’s why I made the suggestion to sell.” And on the next page at line 25 he spoke about selling the Firm before “…it began to deteriorate”.

The evidence of the respondent and Mr. Dulland regarding the future of the Firm is clearly in the direction of selling the Firm or shutting it down. In the case of Mr. Dulland his sole intention was to continue running the Firm until it was sold.

As it turned out the sale took place ten months after the dissolution, which is not an unreasonable amount of time to complete the sale of an on-going business.

The respondent’s evidence is different only to the extent that she also contemplated shutting down the Firm.

I disagree with the judge’s finding at paragraph 71 of the judgment that the respondent carried on the business of the Firm as a sole proprietor during the Relevant Period, and that she had a lien on any surplus assets of the Firm. This is a finding of mixed law and fact and this Court is in as good a position as the judge to make its own finding.

I find that the Firm dissolved upon the passing of Mrs. Grant in April 2005 but continued to operate until it was sold on 28th February 2006. During this period, the respondent was the sole surviving partner, but the Firm was not run as a sole proprietorship in the true sense because it was owned by two persons. As such the profits of the Firm (if any) during the Relevant Period did not belong exclusively to the respondent.

However, she would have been entitled to a proportionate share of the profits. Any suggestion that the profits for this period cannot be shared with the Executors because they are not attorneys licensed to practise in Grenada is rejected.

I note also Mr. Carrington’s objection to this Court making a finding that the Firm was being operated during the Relevant Period with a view to sale because the issue was not raised in the court below and there is no evidence to support it.

However, there is evidence from both sides that the Firm was being operated with a view to sale. This evidence is set out in paragraphs 23 and 24 above. Both parties addressed this issue in their oral and written submissions in this Court.

In exercise of the Court’s wide discretion under section 35(2) of the Supreme Court Act, this Court saw fit to deal with the issue of the parties’ intention regarding the future of the Firm during the Relevant Period “… to ensure the determination of the merits of the real question in controversy between the parties”.

I would set aside the judge’s findings at paragraph 71 of the judgment that the respondent carried on the business of the Firm as a sole proprietor during the Relevant Period, and that she had a lien on any surplus assets of the Firm.

The significance of this finding will become more apparent when I deal with the interpretation of the Agreement to which I now turn.

The Agreement

The central issue in this case is proper interpretation of the word “Share” as used in the Agreement. In construing the meaning of the word “Share” the Agreement must be construed as a whole.

The provisions that call for particular attention are the two recitals and clauses 1 and 4.

The two recitals read:-

“(1) The Vendor (Respondent) is the owner of thirty five (35) per cent (hereinafter “the Share”) of the law firm trading and known as Grant, Joseph & Co. carrying on business at Lucas Street in the city of Saint George in Grenada (hereinafter “the Firm”)

(2) The Vendor has agreed with the Purchaser (Appellant) to sell the Share to the Purchaser and the Purchaser has agreed to buy the Share on the terms and conditions herein.”

By clause 1 the respondent agreed to sell the Share to the appellant free and clear of all charges, liens and incumbrances, and by clause 4 she agreed to do all things necessary to complete the sale.

Counsel for the parties disagreed on the interpretation of the word “Share”. In this Court and in the court below counsel for the appellant submitted that the Agreement as a whole and the word “Share” means what they say, namely, that the respondent was selling her 35% share of the Firm which included the Firm’s cash in its bank accounts, as at the date of the Agreement, and its liabilities. Nothing was excluded.

That was the plain and ordinary meaning of the Share that she was selling and there was no need to resort to other canons of construction to determine the assets comprised in the Share.

Counsel for the respondent submitted that the Share that she was selling was the net assets of the Firm as at the date of dissolution in April 2005. The profits that accrued after that date belong to her as the sole proprietor of the Firm and therefore were not included in the assets being sold under the Agreement.

The judge agreed with the respondent. She found at paragraph 64 of the judgment that the meaning of the Share was not clear and free from ambiguity and in the absence of such clarity it was necessary to have regard to the objective background and understanding to determine what the parties to the Agreement intended.

She examined the background to the Agreement and concluded at paragraph 66:-

“In my opinion, the absence of the discussion of the details of the assets, the cash in the Firm’s bank accounts and the lack of financial statements for the relevant period are indicators that when the parties were entering into the Agreement the only assets, and by extension the Claimant’s (Respondent’s) share which were within their contemplation, was the Claimant’s net shares as at 27th April 2005. In my view, the relevant objective background facts leading up to the Agreement do not support a literal interpretation but rather a purposive interpretation of the Agreement.”

Applying a purposive construction, the judge found that the only assets that were included in the Agreement were the respondent’s net share as at 27th April 2005.

In my opinion, the language in the Agreement is clear and unambiguous and the judge should not have departed from its natural meaning.

Mr. Hosein, SC also referred to the recent decision of the Supreme Court in Arnold v Britton and others for the general principles of interpretation including the well-known principle that a party’s subjective evidence of what the document means is irrelevant.

Applied to this case I am satisfied that the language of the Agreement is, as I have said before, plain and unambiguous. The facts and circumstances were equally known to the parties and they both decided to proceed before the financial statements were prepared.

The overall purpose of the transaction was the sale of the respondent’s 35% share of the Firm which was achieved. The parties’ subjective views of what was intended by the Agreement are irrelevant.

The Agreement identified what was agreed and intended by the parties, not what they should have agreed.

There is no reason to depart from the plain meaning of the document. The respondent may not have intended to include the cash in the bank accounts or the undrawn profits, but that was not stated.

The Court cannot interpret the Agreement to improve on the deal that she made. As Lord Hoffmann said in Attorney General and others v Belize Telecom Ltd and another:-

“Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication.The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means.”

The Agreement represents the deal that was made between the parties. The respondent, having received the financial statements some six months later, was obviously dissatisfied with the deal she had made.

However, this Court cannot be expected to improve the terms of the Agreement by straining the language to make allowance for one segment of the assets to be subject to withholding from the remainder of the assets conveyed by the Agreement. The respondent should have made provision in the Agreement for retaining a portion of the assets, or shifting its effective date to 27th April 2005, if that was her intention.

For example, in clause 4 where the respondent agreed to do all such things as are necessary to transfer “any property of the Firm which immediately before March 1, 2006 is vested in the Vendor and owned by the Firm”.

She could easily have added “save and except the monies deposited in the Firm’s bank accounts” or “save and except/the undrawn profits”. This was not done.

In my opinion, the judge should not have ventured into the background in the way that she did and place undue weight on matters that had little if any bearing on the proper interpretation of the Agreement.

For example, in paragraph 68 she placed undue emphasis on the evidence that the Firm had approximately $750,000 in its bank accounts and the respondent’s suggestion that the appellant could have paid for the Shares that he purchased out of this money.

This is a very artificial way of looking at the sale of a business, unless of course appropriate language is included in the sale agreement. The appellant was acquiring the Firm as a going concern with all its assets and liabilities.

The financial statements show that on the closing date the Firm had approximately $1.59 million in assets including just over $1.1 million in its bank accounts. The statements also show liabilities of approximately $1.75 million. This means that the Firm was in deficit to the tune of approximately $160,000 when it was sold.

The superficial appearance of a cash rich business is not supported by the financial statements and the appellant could not, in accordance with good business practices, have written cheques for $571,000 to pay the respondent and the Estate for their shares in the Firm.

The judge’s interpretation of the Agreement could also have been influenced by her erroneous finding that the respondent carried on the business of the Firm after dissolution as a sole proprietor, and that she had a lien on the profits earned during the Relevant Period.

These considerations could easily have led to the conclusion that the assets conveyed by the Agreement did not include the net surplus assets for the relevant period, and that the assets acquired by the appellant were the respondent’s “net surplus assets in the firm as at 27th April 2005”.

However, the business was carried on during the Relevant Period with a view to sale, not as a sole proprietorship, and the respondent did not have a lien on any of the assets.

In all the circumstances, I would allow the appellant’s grounds of appeal and submissions to the effect that the Agreement, properly construed, was effective in transferring the respondent’s Share to the appellant and that as of the 1st March 2006 she no longer had an interest in the Firm.

The duty to account

I now return to the claim itself which is for an account by the appellant of his activities as an employee of the respondent and of his operation of the Firm’s bank accounts.

The duty to account arose out of the judge’s finding that the appellant was an employee and manager of the Firm, and a signatory to the firm’s bank accounts. Having found that the appellant purchased the respondent’s 35% share of the Firm that included all the assets that she owned in the Firm, and that the respondent did not have an interest in the assets of the Firm after completion of the sale in February 2006, there is nothing for which the appellant has to account.

The duty to account, if any, became redundant when the appellant acquired the respondent’s share of the Firm.

In all the circumstances, I would allow the appeal and set aside the order of the judge. The appellant does not have to account to the respondent.

Order

(1) The appeal is allowed, and the orders of the trial judge are set aside.

(2) Costs of the appeal and in the court below to the appellant, such costs to be assessed as prescribed costs on a claim for $50,000.00 in the lower court and two-thirds of the amount assessed for the costs of the appeal.

I concur.
Louise Esther Blenman
Justice of Appeal

I concur.
Mario Michel
Justice of Appeal

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