His Honour Judge Anthony Thornton QC:
A. Introduction
- This case is primarily a partnership dispute whose essential issues are whether the partnership ("the Partnership") that the first claimant ("Mr Barber"), the second claimant ("Mr Jangra") and the second defendant ("Mr Rassouli") set up has already been dissolved and, if not, whether it should now be dissolved and what accounts and inquiries should be ordered. There are also further issues for determination that arise out of the claims brought by the third claimant ("Ceng") against the first defendant ("Rasco").
- All three partners are British although Mr Barber lives and is based in Thailand and Mr Rassouli lives in Azerbaijan although he has retained a residence in London and his wholly-owned company, Rasco, is registered in England and Wales. The Partnership was initially formed informally by the three partners in 2005 and it was formalised by a Partnership Agreement ("the Partnership Agreement") that was entered into between them on or about 6 July 2006. The Partnership Agreement is accepted as governing the affairs of the Partnership from its inception in 2005. The Partnership was established to bid for, procure and provide pipeline protection and maintenance services for pipelines in Azerbaijan and Georgia that were operated by BP Exploration (Caspian Sea) Ltd ("BP"). The partners agreed that these services would be provided to BP by Rasco under a contract dated 1 April 2006 ("the BP Contract"). They also agreed that these services would be provided in the name of Rasco since it was anticipated that BP wished to contract with a company based in Azerbaijan and also to limit their personal financial exposure.
- Rasco obtained the BP Contract and the partners provided relevant services by managing and operating the BP Contract. However, the relationship of Mr Rassouli with Mr Barber and Mr Jangra began to break down in 2008 and broke down completely in May 2009 when Mr Rassouli excluded the other two partners from involvement in the BP Contract which the Partnership Agreement described as the "Project". The fixed term of the BP Contract was extended on 28 January 2009 and was further extended on a number of occasions and was then replaced by a new contract in 2010. Meanwhile, on 24 November 2009, without informing his partners that he was going to take this step, Mr Rassouli went to court in Azerbaijan and obtained an order purportedly terminating the Partnership Agreement. He also altered Rasco's banking arrangements which had been undertaken through accounts located in London by denying the other two partner access to these accounts and he also set up an account in Dubai through which Rasco undertook its banking arrangements.
- On 18 February 2011, Mr Barber and Mr Jangra obtained a freezing injunction in the Queen's Bench Division in respect of the two bank accounts in London held in Rasco's name and this injunction was extended to cover bank account that had been opened in Dubai by an order dated 22 July 2010. The action underlying these freezing orders, as originally pleaded, alleged that the claimants were contractually entitled to be paid various sums by the defendants. The action was transformed by an amendment order made by Mr Richard Salter QC, sitting as a deputy judge of the Queen's Bench Division, on 22 July 2011. The amended claim changed the claimants' action from a claim for monetary relief into a partnership action that claimed the dissolution of the partnership and its winding-up following the taking of appropriate enquiries and accounts. Ordinarily, a partnership action should proceed in the Chancery Division[1] but the deputy high court judge, as he was entitled to do when granting the claimants permission to amend the claim, also permitted the action to continue in the Queen's Bench Division on the grounds of convenience, expedition and cost saving. It is for these reasons that, unusually, a partnership action was allocated to me for trial in the Queen's Bench Division.
- The parties agreed, and the judge granting permission to amend ordered, that the trial should proceed in two stages. This first stage involved my determining a list of 24 agreed issues and one further issue[2]. It is intended that these issues, once determined, will enable the action to proceed to the second stage when all necessary enquiries and accounts can be undertaken. This first stage must also determine whether, and if so in what form and over what timescale, the freezing injunctions should be continued and what orders for the payment out and release of funds from the frozen London and Dubai accounts should be made.
- The issues that I must determine can be conveniently split into seven groups as follows:
(1) The nature of the Partnership (Issues 1, 1A, 2 and 3)[3];
(2) Whether, and if so, when the Partnership was dissolved and, if it still subsists, whether it should now be dissolved (Issues 4 - 6)[4];
(3) What enquiries and accounts should be ordered (Issues 7, 23 and 24)[5];
(4) The date or dates by reference to which the necessary accounting exercises should be undertaken (Issues 8 and 9)[6];
(5) The separate claims of Ceng that are made against Rasco (Issues 11 17 and 25)[7];
(6) Rasco's counterclaims (Issues 18 22)[8]; and
(7) The freezing orders issues (Issue 10)[9].
The issues and my answers to them are set out in Appendix 1 to this judgment and a copy of the Partnership Agreement is set out in Appendix 2.
- Before addressing these issues individually, I will deal with the formation and nature of the Partnership and the general basis for which it is urged that it and Mr Rassouli's relationship with Mr Barber and Mr Jangra has broken down.
B. The Formation of the Partnership
(1) The Chirag oilfield
- The Partnership is governed by English law but its business involved oil and gas pipeline services that were performed in Azerbaijan. Oil has been exploited from Azerbaijan's still abundant oil fields for many centuries. There is, for example, evidence of what is now Azerbaijani petroleum being used in trade as early as the 3rd and 4th centuries and information about the production of oil on the Absheron peninsula can be found in the manuscripts of many Arabian and http://en.wikipedia.org/wiki/Persian_peoplePersian authors. Marco Polo, in his Travels of Marco Polo, wrote:
"Near the Georgian border there is a spring from which gushes a stream of oil, in such abundance that a hundred ships may load there at once. This oil is not good to eat; but it is good for burning and as a salve for men and camels affected with itch or scab. Men come from a long distance to fetch this oil, and in all the neighbourhood no other oil is burnt but this." [10]
- The Baku oil and gas fields started to be developed in the late nineteenth century and for much of the twentieth century these were exploited by the Soviet Union. Since its collapse at the end of 1991, this exploitation has greatly intensified and has included the opening up of the Chirag field, located in the Caspian Sea to the east of Baku. Vast exploitation, refining and transportation facilities have been constructed to enable its exploited oil and gas to be exported. These have included, in recent years, four great pipelines that run from Baku on the Caspian Sea to Turkey in the south, Georgia in the West and Russia in the north from where the oil is transported to destinations around the world[11].
- The BP Group has operated in Azerbaijan since 1992 and for many years has undertaken its operations in that country through BP. It has a significant interest in the oil and gas obtained from the Chirag Field and in its associated facilities having taken a lead in its initial exploitation in the early 1990s. These facilities, which include platforms, pumping stations and pipelines, require constant monitoring and inspection coupled with associated repair and maintenance. These activities rely heavily on the use of Cathodic Protection ("CP"). This is a simple and effective method of preventing corrosion that would otherwise occur to the pipelines, tanks and the other metallic parts forming the transportation system for the oil and gas. This corrosion arises from the creation of a galvanic cell across the metal of the pipeline and tanks and the ground on which they lie which allows the electrically charged ions in the substrate to corrode the metal. The galvanic cell's propensity to corrode is arrested by CP technology which reverses the electric current in the cell. The CP system requires constant monitoring and maintenance. It is this CP monitoring work which the Partnership was involved in through the Contract entered into between BP and Rasco on stretches of pipeline in Azerbaijan and Georgia and their associated pumping stations and tanks.
(2) The partners
- Mr Barber. Mr Barber graduated with a degree in Engineering in 1989 and he has worked as a project manager in the field of pipeline technical support since his graduation. For nearly ten years, he worked for BPA, a company based in Hemel Hempstead, Hertfordshire. BPA is an English-registered pipeline operating and engineering company which is partly owned by the BP Group. Whilst working for BPA, Mr Barber initially worked as an operations technologist and then, between 1990 and 1998, as a project engineer and he was involved in the project management of projects in various locations in South America, Kuala Lumpur and the Ukraine. In 1998, he was invited by the BP Group to join a BP Group company, the Georgian Pipeline Company, based in Tbilisi, Georgia so as to be involved in the management of the commissioning of the Western Route Export Pipeline ("WREP") that that company was directly involved in.
- In 2000, on completion of the WREP project, he left the Georgian Pipeline Company and his involvement with BP Group companies because he decided to exploit opportunities that were available to him and he moved to Thailand where he is still based. Since then, he has worked as a consultant in the oil and gas pipeline industry. His particular expertise, that has been acquired during a twenty-year period of working in the pipeline engineering field, is in the management of both pipeline construction and long-term maintenance projects. These projects are highly specialised and he developed this expertise working on a wide range of pipeline projects for BPA and the Georgian Pipeline Company in the course of which he obtained considerable experience of the BP Group's pipeline projects.
- On moving to Thailand, Mr Barber initially worked for Ipedex as part of its commissioning team for a large gas pipeline project in Malaysia. He also undertook some consultancy work in Nigeria. When the Malaysian work was completed, he became a full-time consultant and, in May 2001, he set up Ceng with Mr Jangra that was registered in Cyprus and, in December 2002, he set up a second consultancy company, Ceng Siam Ltd, through which to undertake his own consultancy work, particularly in Thailand and the Far East. He provided engineering services in the period 2001 2004 to two Azeri companies, initially to Azertrans Ltd and, subsequently, AZPetrol Ltd. During that period, he would often meet Mr Jangra socially when visiting Baku and was introduced by him to Mr Rassouli so that the three men had occasional social nights out together. In 2004, his work for AZPetrol required him to stay in Baku for about nine months continuously and he met Mr Rassouli more frequently and they became friends.
- Mr Jangra. Mr Jangra has spent his working life as a pipeline engineer with a particular niche in pipeline inspection, maintenance and safety systems. He graduated with a degree in Engineering in 1980. Since graduation, he has developed an expertise in the fields of pipeline integrity management and employee health and safety. Between 1985 and 1997, Mr Jangra worked for BPA and between 1998 and 2005 directly for BP Group companies operating in Azerbaijan and Georgia. Mr Jangra first met Mr Barber in 1994 when Mr Barber to work for BPA where Mr Jangra was, at that time, working as a senior inspection and integrity engineer. The two men worked together at BPA until 1998 and then for a BP company on the WREP project until 2000.
- Between September 1985 and August 1998, whilst at BPA, he worked as an inspection and integrity engineer in a variety of increasingly senior positions involved with pipeline quality control and employee health and safety. He formed a close friendship with Mr Barber since the two men frequently worked together whilst they were both at BPA and then, in 1998, when both moved to work on the WREP project. In 2000, he moved to BP and worked for that company for four years in Baku, largely on the commissioning, development and monitoring of its assets in Azerbaijan, particularly those that were being used in connection with the Chirag field. This work involved him in developing and implementing pipeline integrity systems and it provided him with a detailed knowledge of CP monitoring and maintenance systems and of the pipelines and other assets located in Azerbaijan that BP had an interest in.
- Mr Jangra left BP in January 2004 in order to spend more time with his family who had continued to live in England whilst he was working in Azerbaijan. However, BP persuaded him to accept the role of Project Client Site Representative so as to act on its behalf in the Azerbaijan section of the Baku to Ceyhan pipeline. He worked in this capacity from February 2004 until December 2005 when he moved to become an asset integrity management engineer in Kazakhstan for a Kazakhstani company, KPO. This assignment lasted until March 2006 since when he has worked on projects in Nigeria and Kazakhstan.
- Ceng. Mr Barber and Mr Jangra's friendship had developed over the years from 1994 to the point when, in May 2001, they agreed to form a business partnership to supply management and technical services to oil and gas pipeline operating companies. They therefore jointly set up Ceng as the corporate vehicle through which they would jointly supply their pipeline engineering consultancy services and also to supply other appropriately qualified engineers for particular pipeline projects.
- Mr Rassouli. Mr Rassouli graduated with a degree in Structural Engineering from Queen Mary College, London in 1983. He is, therefore, a structural engineer by training who has also worked in the construction field. Initially, he worked as a design and site engineer for various companies in the United Kingdom and he moved to live and work in Azerbaijan in 1994 where he has remained ever since. He established Rasco in 1996. This company is registered in England and Wales and he has used this one-man company as the vehicle for undertaking his construction business in Azerbaijan. In the period 1996 - 1998, Rasco acted as the Azerbaijani representative for Romet International Ltd, a non-Azerbaijani construction company, in relation to that company's contract to supply gas rotary meters to, and then install for, the Azeri Gas company. In 2001, Mr Rassouli's evidence was that it fulfilled the same role for another non-Azerbaijani company, TD Williamson, in relation to its contract to supply gas leak detection products to the Azeri Gas company. Mr Rassouli described Rasco's role in these contracts as being that of a sub-contractor although this role was confined to the supply of in-country logistical support to these two contractors.
- Rasco. It is clear from its accounts filed at Companies House in the United Kingdom in the years between 1996 and 2005 that Rasco actually undertook very little work other than an in-country agent's role for Romet International Ltd. The accounts show that it could not have played any significant role for Williamson and that it undertook little of any additional work of any kind. Mr Rassouli informed Mr Barber about two small construction projects that Rasco undertook for BP, being the construction of a warehouse at one of BP's mudplants and some steel fabrication on a building being built by or for Petrofac. The accounts showed Rasco as having turnovers of £87,248 in 1996, £42,610 in 1997 and £41,526 in 1998 and as either being dormant or having a negligible turnover in the years between 1999 and 2005 so that this work was either not carried out by Rasco or had not taken place at all. Rasco was, therefore, in 2005, a shell company looking for construction work in the oil industry with no experience of working in that or, possibly, in any other construction field save for its role as an in-country representative for one construction project undertaken by Romet International Ltd in 1997 - 1998.
- In 2001, Mr Rassouli attended an oil and gas exhibition in Baku and passed his business card and Rasco's brochure to Mr Roy Richardson who was the BP representative on the BP stand having explained both the construction services that Rasco provided and its role as an in-country representative for international pipeline services contractors wishing to undertake work in Azerbaijan. Mr Rassouli contacted Mr Richardson soon afterwards who passed his contact on to Mr Jangra. Mr Rassouli then telephoned Mr Jangra and said he wanted to secure work from BP for Rasco which he described as being a general building and steel erection company. The two men met socially on a number of occasions and became friends. Mr Rassouli continuously pressed Mr Jangra for construction work from BP and he arranged for Rasco to get a small $10,000 job in late 2002 which was completed satisfactorily. As a result, Rasco became a recognised supplier to BP for small-scale construction work. This led to Mr Jangra and Mr Rassouli developing a close relationship and to Mr Jangra giving Mr Rassouli advice on how to expand Rasco's business activities so as to include maintenance and monitoring work for BP and the rest of the oil and gas industry in the Caspian region.
- On Mr Jangra's advice and to further this suggested method of developing Rasco's business, Mr Rassouli set up a company called CES Ltd ("CES"), which was wholly owned by Rasco and was registered in the Seychelles, to act as a small service unit to Rasco to provide local support to Rasco's BP Caspian projects. Mr Rassouli found a well-placed plot of land close to BP Caspian's terminal on which to locate this unit and decided to buy it at a cost $20,000. He asked Mr Jangra to contribute to this acquisition and, in return for being made a director of CES, Mr Jangra provided half the acquisition cost of this plot. Thus, by late 2004, the three men had become friends and, during their meetings, Mr Rassouli would press Mr Jangra for further BP work for Rasco.
(3) The birth of "the Project"
- Between January 2000 and January 2004, Mr Jangra had been working for BP Caspian as a consultant in a senior technical and support role implementing integrity management systems for all processing and export pipelines including the 1,500km main export pipeline running from Baku to Supsa. This work particularly involved the preparation of CP monitoring and maintenance strategies. This involved him in setting up and outsourcing a three-year contract for the management of the monitoring contract for these facilities to Corroconsult Ltd in 2002. This company specialised in CP work and the contract was due for renewal in 2005. On leaving that post, Mr Jangra agreed to act for BP on the BTC/SCP pipeline construction project and that took him to Baku on frequent occasions during 2004 and 2005 during which time he assisted Mr Rassouli in setting up CES and in looking for work for Rasco. This provided the opportunity for Mr Jangra to hatch the idea of what became the Project because he realised that the Corroconsult contract was up for renewal in 2005 and that BP would have to put this CP maintenance contract out for retendering in open competition with Azeri-based contractors. He also knew that the existing contractor was not well thought of within BP and, being aware of the pricing structure of that contract, was aware that a rival bid could be put together that would provide a financial incentive to BP to award the new contract to another company. He therefore saw the potential for Mr Barber and himself, through Ceng, obtaining that fresh contract. He knew that it was BP policy to outsource these contracts and that a locally-based contractor with a proven ability to carry through such a contract would be the favoured contractor. Thus, any bid for this contract would have to be made through an Azeri-based contractor. He considered that Rasco could be used for this purpose since he was now a good friend of Mr Rassouli and that company had an operating base in Azerbaijan. Moreover, he had an interest in the company through his directorship of CES and its ownership of a strategically-based plot of land. Further, all the necessary engineering and management expertise could be supplied by Ceng using his and Mr Barber's services.
- Mr Jangra therefore suggested to both Mr Rassouli and Mr Barber the possibility of the three men together obtaining the BP contract through Rasco and running it with their joint engineering expertise provided through Ceng and then using the successful undertaking of that contract as the springboard for obtaining even more lucrative long-term maintenance contracts from BP in the Caspian region. Both Mr Barber and Mr Rassouli readily agreed and Mr Rassouli was asked to keep his eyes out for BP's advertisement for prospective bidders for this renewed contract which he knew would occur sometime in the early part of 2005.
- When BP advertised for local contractors to register as prospective bidders in early 2005, Mr Rassouli registered Rasco as an interested bidder. This involved registering Rasco with the Enterprise Centre in Baku. This body, or clearing house, had been set up in 2002 by BP with its other partners in the Shah Deniz and BTC oil export pipeline projects with the aim of helping local companies to develop their businesses in support of major oil and gas developments in Azerbaijan and to act as a focal point for international and local supplies in the oil and gas industry. On 1 March 2005, the Enterprise Centre sent Mr Rassouli notification of an invitation to local companies to apply to be considered as bidders for the forthcoming CP contract. The contract that was to be put out to tender was described by the Enterprise Centre as providing:
"Business Opportunity
[BP Caspian] operating in Azerbaijan is looking for local Cathodic Protection contractor
to provide corrosion management services, monitoring, testing, maintenance and CP survey services for onshore and offshore pipelines, pipeline intermediate facilities, onshore terminal and offshore platforms. In addition, CP contractor is also required to actively participate in the preparation and update of, and maintain, the Pipeline Integrity Management Schemes and Facilities Integrity Management Scheme.
Contractor personnel shall have a certification equivalent by virtue of their experience or qualification to at least one of the following:
NACE Cathodic Protection or NACE Corrosion Specialist."
- Although the contract was not described in any greater detail, it was immediately clear to Mr Rassouli, from what he had previously been told by Mr Jangra, that the described Business Opportunity was the Baku Supsa CP replacement contract. This essentially CP monitoring contract would be carried out by field technicians carrying out regular routine field measurements which would then be analysed and reported on to BP by the contractor. It was, therefore, repetitive, arduous and occasionally dangerous work that could be carried out by foreign or locally-based trained technicians whose readings would be analysed by similar trained technicians and reported on by appropriately trained and qualified pipeline engineers who would also manage the project and ensure that the necessary control, testing and reporting standards were maintained.
- On 6 June 2005, BP sent out to Rasco and all others who it was prepared to consider seeking a tender from a pre-bid screening request seeking information from those who were interested in bidding for the proposed contract. This letter made it clear that BP was interested in contractors who currently had the technical and financial capacity to undertake the works at all of the facilities to BP's satisfaction. The information requested included details of the bidder's track record in the provision of CP monitoring, maintenance and trouble shooting for the last five years, its experience in working in a similar environment, the bidder's current manpower level with details of the number of CP engineers and field technicians employed by the company and details of the bidder's financial performance over the last three years expressed in US$. The bidder's experience in surveying, mitigation systems and monitoring procedures was also sought.
- The discussions leading to the formation of a partnership occurred in the three months leading up to the receipt of this letter and the decision to form a partnership was reached by the collaboration by the three partners in deciding on the answers that would be given to this request and then in preparing and submitting the answers which were received by BP on 17 June 2005. It is significant that the three men formulated a bid strategy which had a number of clearly thought out and agreed ingredients which were given effect to in their answers and in the subsequent tender that they submitted. In formulating this strategy, the partners made considerable use of information that they obtained from Mr Barber and Mr Jangra's detailed knowledge and experience of BP's working in the Caspian region and from their many contacts within BP who they contacted to obtain information about the proposed contract and about BP's intentions in vetting tenders and awarding the contract. As a result, the partners knew that the scope of the proposed contract was to to set up the contractual framework for CP's maintenance services for all of its Caspian offshore and on shore oil and gas facilities. It was intended that the contract for this project would be awarded for a defined period but it would be subject to renewal if the contractor proved itself to be reliable and technically competent in the CP monitoring services that it provided and in its ability to undertake future and potentially more extensive renewed contracts of this kind. It project would be divided into two phases. Phase 1 was to be the initial base scope covering the routine CP monitoring and maintenance of the Early Oil Project assets and Phase 2 was to extend the Project to cover assets which were at that time still under the care and custody of their respective construction projects. BP's representatives had informed Mr Jangra that the intention was to incorporate Phase 2 into the contract at a later date by initially using contract variation rates and then converting the cost of providing those services from a rates to a lump sum basis of contracting.
- The three partners decided to use Rasco as the bidding contractor but were conscious that although it was a locally-based contractor who would be using locally-based and trained personnel for much of the technical and administrative work, it could not demonstrate any track record of financial strength and stability. However, they intended to circumvent this difficulty by providing a technical package which involved a highly experienced and technically proficient team with world-class technical support to draw on if necessary who could find and recruit any necessary out of country technicians and engineers and who would provide an efficient management service which would be self-sustained by the turnover obtained from the contract.
- The partners therefore evolved this strategy with the principal input for this strategy coming from Mr Barber and Mr Jangra:
(1) The three partners would run their business as a partnership and would enter into a Partnership Agreement for that purpose. The business of the partnership, or Project, would be the provision of the CP services to BP that BP were seeking for its entire Caspian assets through BP's proposed contractual arrangements.
(2) The contractor providing those services would be by Rasco since BP required their provision by, and the contractor who was providing them to be, a locally-based contractor who would be employing a significant number of locally-based and trained employees. They also adopted Rasco as their contracting vehicle since it would minimise their personal financial exposure, because it was a one-man company owned by Mr Rassouli in which Mr Jangra had some influence from his directorship of CES and because, although locally based, it was an English registered company which gave all of them a measure of security so far as expatriating any profit was concerned. All three partners were also aware that Rasco was virtually a dormant company but had the advantage of having apparently operating as a contracting company in Azerbaijan for almost 10 years.
(3) Neither Mr Barber nor Mr Jangra was based in Baku and both were working for a large part of the time on other projects outside Azerbaijan. Both of them would provide most of their support for the Project by way of advice in their respective areas of expertise but Mr Barber would also have a defined role in the contract as one of the two Project Managers working in rotation under Mr Rassouli who would be the Project Director. When the other Project Manager or Managers were not present in Azerbaijan, Mr Barber would be present. However, it was envisaged that each individual visit would be of short duration and the cumulative amount of time he spent in Azerbaijan in any year would not be significant.
(4) The two out-of country partners would provide their in-country services to the project through Ceng and would arrange that that company would provide the services of any other out-of country engineer or technician that was required for the Project under a contract with Rasco and that these services would be paid for by Rasco under that contract. Ceng would be responsible for paying those personnel out of the monies received from Rasco.
(5) To give the bid and the management and technical quality of the services to be provided greater credibility and quality, the partners arranged with BPA that it would provide technical services, largely of an advisory nature, to Rasco and in connection with the performance of the proposed contract. This was a particularly significant move since both Mr Barber and Mr Jangra had previously been employed for many years by BPA. It was partly owned by the BP Group of companies who had a high regard for its technical abilities in oil pipeline maintenance.
(6) Mr Jangra would contribute his knowledge of BP pipeline maintenance contracting and his contacts within BP in both promoting the bid and in helping Mr Barber to fix competitive rates that would better the existing contractor's rates and have the best possible chance of obtaining the contract at rates which would still enable the contract to be performed successfully.
(7) Mr Rassouli would use Rasco's premises and staff to manage and run the contract and would be responsible for hiring and training all in-country staff as well as managing the day-to-day running of the contract as both the Project Director and the managing director of Rasco.
(8) The three partners would take all significant decisions relating to the contract jointly. This was given effect to by a clause in the Partnership Agreement which provided in clauses 1.2, 2.1 and 2.2 as follows:
"Each [partner] shall be considered as a Project Director and a Project shareholder of equal executive status and voting rights within the Project
The operation, management and finances of the Project shall be autonomous from all other Rasco activities, management and operations
The executive management authority shall by majority Partnership Agreement of all the [partners] unless otherwise required by any statutory or legal obligations of Rasco."
- The partners submitted a successful pre-tender bid on 17 June 2005 and a tender on 6 September 2005 which was finally accepted in February 2006 and which led to the signing of the BP on Contract on 1 April 2006. It is particularly significant that much of the lobbying that was undertaken with BP personnel was undertaken by Mr Jangra, that the negotiations leading to BPA's involvement, which proved to be a particularly significant and attractive feature of Rasco's bid for BP, were undertaken by Mr Barber and that the tender, and particularly the putting together of the individual rates for specific work items in the tender, were prepared exclusively by Mr Barber and Mr Jangra working together. It was known to all three partners that these rates were set at a low rate and at some risk to Rasco's successful performance of Phase 1. All three partners agreed on this strategy since it seemed to be the only way that would ensure success with the bid. This was a significant prize to win since, if the bid was accepted and Phase 1 was then completed satisfactorily, the three partners had a good prospect of obtaining the Phase 2 work for many years thereafter at enhanced levels of remuneration which would provide a significant and steady profit stream well into the future.
C. The Partnership
(1) Introduction
- Mr Barber, Mr Jangra, Mr Rassouli and Rasco all accept and admit that they entered into a partnership, that that the terms governing the Partnership are set out in the Partnership Agreement signed by each of them on 10 July 2006, that the Partnership is governed by English Law and that this dispute about its dissolution is properly brought before and to be tried by the English High Court. This acceptance of the full nature of the partners' relationship and as to its being governed by the English law of partnership has only occurred at a late stage in this dispute. Mr Barber's evidence was that he considered that the parties were entering into a partnership and he drafted the Partnership Agreement himself without the benefit of any legal assistance or advice having discussed and agreed its general scope and content with both Mr Jangra and Mr Rassouli. However, it is clear that none of the partners were aware at the time that it was signed that they were entering into a partnership that was governed by English law and, hence, by the provisions of the English Partnership Act 1890 ("the Act") and none of them had any detailed understanding of the full nature of that relationship.
- In consequence, these proceedings were started in February 2010 by Mr Barber, Mr Jangra and Ceng without the claim form or particulars of claim making any reference to the Partnership Agreement being a partnership. Instead, the pleadings made claims from Rasco and Mr Rassouli based on contract and for an account on debt and for damages. Similarly, the defence and counterclaim made no reference to partnership law and instead put forward a series of defences to the claim and a counterclaim that were based on alleged breaches of contract by Mr Barber and Mr Jangra. The claim and counterclaim were only transformed into a partnership action and the parties only jointly accepted that their relationship was one of partnership governed by English law when both groups of parties' respective cases were transformed by amended pleadings following the first case management conference held in July 2011.
- Notwithstanding their agreement that the Partnership Agreement is a partnership governed by the English law of partnership, the parties remain in significant disagreement as to the nature of their partnership, the interpretation of its significant terms, how it may be and whether it has already been dissolved, what its assets are, how the partnership accounts should be drawn up, and what accounting exercise or other remedies should now be ordered by the court. Of these issues, the principal ones are as to whether the partnership has already been dissolved and whether the current replacement BP Contracts are partnership assets.
(2) General legal principles
- It is helpful to consider and to have fully in mind the long-standing applicable legal principles of the English law of partnership. These principles are still grounded in the Act, enacted in 1890, which was enacted so as to provide a statutory basis for the existing law governing partnerships which had developed over the previous two centuries. The Act was not, and was not intended to be, a consolidating Act so that the its underlying equitable principles have survived to this day. It follows that partnership law is based on equity and was shaped by the Court of Chancery's desire to provide a commercially just solution to the problems encountered by businessmen when trading together in unincorporated firms. The roots of English partnership law are to be found in the principles of Roman law that governed the Roman sociatas and in the development of equity by the great equity lawyers of the eighteenth century. It was partnership law that provided the basis for the statutory development of company law in the nineteenth century. That is why, in the light of this long history, that partnership law was and remains firmly grounded in the law of equity rather than in the law of contract or obligations.
- A partnership is defined in section 1 of the Act as being:
"
the relation which subsists between persons carrying on a business in common with a view of profit."
The business that was to be carried out in common by these partners is defined in Partnership Agreement and the purpose of the partnership was to provide the means of undertaking the business in question in such a way that the profits generated would be shared by the partners in the manner and to the extent provided for in the express and implied terms of the Partnership Agreement.
- It is a fundamental principle of partnership law that each partner must act towards each of the other partners in all matters concerning the partnership with utmost good faith. The relationship of each partner to all the other partners is, therefore, a fiduciary one and it requires each partner to act honestly towards the other partners, to be fully accountable and completely transparent to each of them about their involvement in the business of the partnership, to account to all of them for any profit made out of partnership property or at the partners' expense, to share in all losses incurred by the partnership, to use management powers conferred by the partnership honestly and in good faith but not arbitrarily or capriciously and to hold partnership assets acquired or under that partner's control on trust for the partnership as a whole. These principles, usually referred to compendiously as the duty of utmost good faith, arising from the equitable foundations of partnership law, therefore ensure that each partner must be completely transparent in relation to everything that he does in relation to the partnership business and as to any aspect of the accounts relating to the partnership within his knowledge or control.
- The way in which these principles are to be given effect to in any particular partnership is to be ascertained from the express or implied provisions of the partnership agreement and the relevant provision of the Act. Since a partnership agreement is a commercial contract, its wording should be construed so as to assist in the attainment of the objects of the partnership and in its factual matrix prevailing at the date of the partnership agreement. Its words should, wherever possible, be given their natural and ordinary meaning. The overall objective is to give the partnership agreement a meaning that accords with business common sense. This approach to construction is particularly important with this Partnership Agreement which was drafted by one of the partners, a non-lawyer, to give effect to the detailed discussions and agreements reached by all three partners and whose wording was agreed to and entered into by them without the benefit of legal advice. It is also material that the three prospective partners discussed all details of their prospective partnership with equal standing and with full knowledge of what they wished to achieve and how they wished to achieve it.
(3) The business and scope of the partnership
- The business or scope of the partnership is defined in clause 1.1 of the Partnership Agreement in this way:
GENERAL
1.1 SCOPE
The scope of this agreement
includes the provision and management of the resources, assets, expertise, services and capabilities (hereinafter referred to as the "PROJECT") established in the name of Rasco International Ltd (hereinafter referred to as "RASCO") to perform the Cathodic Protection Services to BP Exploration (Caspian Sea) Ltd under the BP Contract reference H-06-BPCS-88887 (hereinafter referred to as the "CONTRACT").
This agreement also extends to include any addition, variation, extension or continuation to the CONTRACT and any additional contracts or services that may be performed by the PROJECT.
- This provision defines the scope or business of the Partnership although this scope is only clearly ascertainable when its wording is construed in the light of the Partnership Agreement's matrix of fact that I have already set out. That scope was the provision by the three partners of CP services to BP. These services were defined in considerable detail in the contract documents for the contract which BP was proposing to put out to tender and in the BP Contract when it was finally entered into. Since the partners did not want to enter into that contract as individuals and, in any case, would not have obtained it in their own names had they tendered for it in this way because BP wanted to contract with an Azeri-based limited company, they agreed to tender for and obtain it in the name of Rasco which was wholly owned by Mr Rassouli. The scope or business of the partnership was, therefore, to obtain and then to carry out and complete the BP Contract for the provision of CP services to BP.
- The partners also envisaged seeking and obtaining one or more addition, variation, extension or replacement of the BP Contract. This was an important consideration for them since they were tendering for the BP Contract as a loss leader for, and as a means of obtaining, the much more lucrative CP services work that it was known would be available by way of a variation, extension or replacement of BP Contract following its successful performance by the BP contractor for the BP Contract. They regarded the performance of the BP Contract as a trial run for, and as a means of persuading BP to award them, that much more lucrative work. Any such extension of the BP Contract fell within the scope of the Partnership as did the replacement contracts that were awarded to Rasco since these were covered by the second paragraph of clause 1.1. These further contracts fell within the words of that paragraph since they were ones that were entered into by Rasco in order to further and support the carrying out of its scope.
- It is clear, therefore, that the business of the Partnership that the partners were to carry out in common was that set out in and defined by the "Scope" clause 1.1 of the Partnership Agreement and that that scope was equated with the Project that is also defined in clause 1.1. In other words the Partnership Agreement equated the scope of the Partnership with both "the Project", as defined in the Partnership Agreement, and the business that the partners were to perform in common. However, it was contended on behalf of Mr Rassouli that the Partnership's scope was much more limited than this and that it was confined to the provision of services to Rasco by individual partners to assist Rasco to undertake the BP Contract on its own so that the BP Contract was neither within the scope nor an asset of the Partnership. On this construction, the scope or business of the Partnership did not extend to the provision of the entirety of the CP services that were covered by the BP Contract but was instead confined to providing management services to Rasco to enable it to perform the BP Contract in its own name and on its own behalf. On this basis, the partners were doing no more than undertaking individual roles in the management of the BP Contract, in Mr Rassouli's case to act as the BP Contract's Project Director, in Mr Barber's case to act as its Project Manager and in Mr Jangra's case, in an ephemeral and undefined role as an adviser to Rasco on quality and health and safety standards.
- However, the wording of the Partnership Agreement clearly provides that the words "scope" and "Project" have the wide meaning contended for by Mr Barber and Mr Jangra. On the assumption that Mr Rassouli's more limited meaning of the words "scope" and "Project" as found in clause 1.1 of the Partnership Agreement is arguable, the meaning of these words of that clause is ambiguous so that it would then become permissible to construe its words in the light of the detailed factual matrix of the Partnership Agreement that all three partners had both brought about and were aware of. Once that matrix is considered, it is clear that that more limited and restrictive construction of clause 1.1 and the words "scope" and "Project" appearing in the Partnership Agreement is untenable.
(4) The obligations of each partner
- The partners in this Partnership had three separate roles. First and foremost, each was a partner in the Partnership whose business was the undertaking of the Project. For that role, each partner was entitled to share in the net profit of that business which was to be calculated in the manner and divided up into the shares defined in the Partnership Agreement[12].
- Each partner was also declared to be a director of the Project, thereby giving each a decision-making role in the way in which the Project was performed. As a director, each was entitled to participate in the necessary executive and management decisions that were required to enable the Project to be undertaken, whether or not that partner was involved in providing relevant services affected by that decision[13]. For those services, each partner was entitled to be paid a monthly director's fee of $1,000[14].
- Finally, Mr Barber and Mr Jangra were to provide occasional in-country services as technicians and managers through Ceng and Mr Rassouli additional services in-country as the Project Director through Rasco. These services were provided for in the Partnership Agreement[15] and the partners agreed that these would be supplied, in Mr Barber and Mr Jangra's case, under Ceng's contract with Rasco on a call-off basis. In Mr Rassouli's case, the supply was part of Rasco's chargeable cost of running the BP Contract but if services over and above the services that he was required to provide for the BP Contract as part of the Rasco team were required, those funded out of the services would be paid for separately by Rasco and would be treated as Partnership expenditure[16].
- The Ceng sub-contract was a simple contract dated 1 April 2006 and was entered into by Mr Barber on behalf of Ceng and Mr Rassouli on behalf of Rasco. It provided that:
"This sub-contract Agreement is made by
Ceng as sub-contractor and Rasco as contractor.
1. Ceng has agreed to sub-contract their professional personnel to Rasco to be engaged in Cathode protection project. Rasco has a contract with BP to execute that project.
2. Ceng is responsible for salaries and expenses outside of the territorial jurisdiction of the Republic of Azerbaijan. Rasco will pay for flights, visas and accommodation.
3. This Agreement is for the benefit of the parties hereto and shall be governed by the English law."
This wording clearly covered the provision of professional services to Rasco both in-country and out of country. Payment for such management and advisory services that were provided in-country by Mr Barber and Mr Jangra or any other professional would be provided through Ceng pursuant to this sub-contract and Ceng would itself pay for services performed outside the territorial jurisdiction of Azerbaijan and would be reimbursed for those services by Rasco. Any professional services provided by Ceng for Rasco that were performed within Azerbaijan would be paid for by Rasco and treated as Partnership expenditure[17]. All these services were, wherever performed, nonetheless performed for Rasco by Ceng under this sub-contract.
- It sometimes occurred that Rasco authorised Ceng to supply goods and materials under the Ceng sub-contract and thereby incurred a contractual liability to pay for them since these goods and materials were supplied and delivered to the Project in Azerbaijan. Rasco's ability to use the Ceng sub-contract to order goods and materials for its use in the Project arose from the implied agreed of the partners to extend the sub-contract in this way since the goods and materials were ordered by Mr Barber acting for and with the implied authority of Rasco and were supplied by Ceng to Rasco without any objection from any of the partners.
- The Ceng Agreement was, therefore, a simple call-off sub-contract that enabled Rasco to order from Ceng and Ceng to supply to Rasco goods, materials, professional services and personnel to further Rasco's performance of the BP Contract and the Project.
- When Mr Barber or Mr Jangra supplied services to Rasco under the Ceng Partnership Agreement, they were acting as contractors to, and directors of, Ceng whose obligation under the sub-contract was to provide the professional services that were supplied with reasonable skill and care. Thus, if either of them acted in a way that caused that term to be broken, it was Ceng and not that partner who was in breach of contract and, if there was a remedy at all, it would be by way of a claim for damages by Rasco brought against Ceng.
- Mr Barber and Mr Jangra's obligations as partners owed to Mr Rassouli were different and more onerous. Strictly, it is necessary to consider the obligations of each partner to the other two partners separately. In order to understand the nature and effect of each partner's obligations to each of the other two, it is helpful to consider the speech of Lord Millet in Hurst v Bryk[18] in this passage in which he provides an illuminating modern explanation of the nature and effect of an Agreement, such as this one which involved three men forming and undertaking a commercial relationship as a partnership:
"It is impossible to say whether the modern contractual doctrine of accepted repudiation might have infiltrated the law of partnership if partnership had been treated as merely a particular species of contract enforceable in the common law courts. 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); it is a continuing personal as well as 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. Bank of England[19] and Green v. Hertzog[20]. 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 ("the Act"), 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."
By entering into the relationship of partnership, the parties submit themselves to the jurisdiction of the court of equity and the general principles developed by that court in the exercise of its equitable jurisdiction in respect of partnerships. There is much to be said for the view that they thereby renounce their right by unilateral action to bring about the automatic dissolution of their relationship by acceptance of a repudiatory breach of the partnership contract, and instead submit the question to the discretion of the court. For a similar principle in a different contractual context see Johnson v. Agnew[21]."
- It can be seen from this passage that a partnership agreement is not a commercial contract in the conventional sense. The Agreement's essential characteristics may be summarised in this way:
(1) The Agreement created a group relationship between the partners whereby the partners agreed to operate a business or commercial undertaking collectively.
(2) The partners were bound by the duty to perform their respective parts in relation to that business with utmost good faith and to share the fruits of that business collectively in the ways provided for in the Agreement. The only additional obligations that were owed by a partner to the other partners were those obligations that arose by virtue of the Act or by the terms of the Agreement.
(3) By entering into the relationship of partnership, the partners submitted themselves to the jurisdiction of the court exercising the jurisdiction of the pre-Judicature Act Courts of Chancery and Equity[22] and to the general principles developed by those courts in the exercise of their equitable jurisdiction in respect of partnerships. Thus, any financial remedy, save for those provided for expressly in the Agreement, that was sought by a partner against the other partners has to be solely by way of an account. This is a flexible remedy developed in equity and administered in the Courts of Chancery and Equity and, more recently, by the Chancery Division of the High Court and it enables the partner in question to both identify and to recover his share of the collectively held assets of the partnership. This remedy is only available following the dissolution of a partnership as part of the process of the winding-up of that partnership.
(4) Unless expressly or impliedly provided for in the Agreement or by the agreement of all the partners, the partnership may only be dissolved by the court.
- It follows that the critical question in this case is whether the conduct of Mr Barber and Mr Jangra was such as to entitle Mr Rassouli to seek and obtain all four of the following: the dissolution of the Partnership, the taking of an account, the winding-up of the Partnership and the distribution of its assets in accordance with the account.
- For that purpose, it is necessary for Mr Rassouli, who wishes to show that the Partnership has already been dissolved by the adverse conduct of Mr Barber and Mr Jangra and to wind up the Partnership on that basis, to show that that dissolution had occurred because either or both of them had, in breach of the Partnership Agreement:
(1) Failed to acted at all times and in all respects towards the other partners with utmost good faith; and/or
(2) Acted in a way calculated to prejudicially affect the carrying on of the Partnership business; and/or
(3) Acted in wilful and persistent breach of the Partnership Agreement or had conducted themselves in relation to the Partnership business in ways which made continuation of that business impracticable.
The first of these obligations arises from the equitable basis of the Partnership and the second and third arise from the grounds provided by the Act for the dissolution of a partnership in sections 35(c) and (d)[23] of the Act. Thus, any failure by Mr Barber or Mr Jangra to act with reasonable skill and care would amount to a breach by Ceng of the sub-contract but that failure would only be capable of also being a breach by that partner of the Partnership Agreement if the mal-performance of that partner was deliberate, persistent and calculated to harm the Project or amounted to a breach of that partner's duty of good faith.
(4) Dissolution, repudiation and winding up of the Partnership
- There were possibly five separate ways of dissolving this Partnership but only two ways of then winding up its assets. The five ways of dissolving the Partnership were by agreement, by notice, by the court, by the acceptance of a repudiation and by implied agreement.
- Agreement. To dissolve the Partnership by agreement, there would have had to have been an express agreement of all the partners reached in conformity with terms found in the Partnership Agreement (e.g. a retirement or dissolution notice provision) but no such term was provided for or by an ad hoc agreement reached by all the partners during the lifetime of the Partnership.
- Notice. To dissolve the Partnership by notice, there would have had to have been served a notice of dissolution served in accordance with the terms of the Partnership Agreement that permitted a partner unilaterally to serve a notice of dissolution, if such a term was found in the Partnership Agreement but no such term was provided for, or by recourse to the statutory notice provisions contained in the Act if the Partnership was a partnership at will[24].
- The Court. The court can dissolve the Partnership if any of the circumstances provided for in section 35 of the Act are applicable.
- Repudiation. It has been thought that it is possible for a partner to dissolve a partnership by accepting the repudiation of a partnership agreement brought about by all the other partners. In Hurst v Bryk[25], Lord Millet showed that, historically, the Court of Chancery did not permit a partner to dissolve a partnership by accepting another partner or partners' repudiation of the Partnership Agreement. The case itself involved a determination of whether a partner remained liable for a post-dissolution debt following a finding by the Court of Appeal that the partnership in question had been dissolved in that way. That issue was the subject of an appeal to the House of Lords but the finding that the partnership had been dissolved by the relevant partner's acceptance of the other partners' repudiation of the partnership agreement was not the subject of this appeal. The House was, therefore, unable to address or overrule that finding but was still able to allow the appeal since the relevant partner, although he had been able to dissolve the partnership, remained liable for post-dissolution debts for the period between dissolution and the subsequent account-taking and winding-up had been completed by the court.
- However, Lord Millet expressed strong doubts as to the legal validity of the Court of Appeal's finding that a partner may dissolve a partnership by accepting another partner's repudiation of the partnership agreement. In his detailed analysis of the history of partnership law, he showed that partnerships were governed by equitable principles and that these did not recognise the doctrine of repudiation in relation to a partnership agreement. Instead, a partnership had to be wound up by the court following a breakdown of trust and confidence amongst the partners. However, it was not necessary for the House of Lords to reverse this finding since it was able to allow the appeal on the grounds that a partner remains liable for a partnership's post-dissolution debts until it has been wound up by the court following the taking of an account. Until that occurs, no distribution of the partnership assets was possible and any further accretion or depletion of the assets following the acceptance of the repudiation had to be brought into account in the winding-up process.
- It follows that the authority of the Court of Appeal's decision in Hurst that a partnership agreement can be repudiated by a partner and that that repudiation can be accepted by another partner with the effect that the partnership is dissolved has been severely dented, if not removed, by the decision and reasoning in the same case. This was the view of Neuberger J in Mullins v Laughton and others[26] where he concluded:
"93. While the point is plainly difficult, I have reached the conclusion that, on the basis of the written material and the brief oral argument on the topic, Lord Millet's provisional view should prevail."
I am clear that I should follow and apply the views of Lord Millet and Neuberger J and should conclude that in this three-partner partnership, there is no scope for the partnership to be dissolved by the acceptance by Mr Rassouli of the repudiatory conduct of Mr Barber and Mr Jangra even if such conduct had occurred.
- Implied agreement. In rare cases the court has accepted that a partnership had previously been dissolved on the basis of evidence that all partners had been acting as if that had occurred or that they were to be presumed or inferred to have previously agreed to a dissolution. This suggested method of dissolving a partnership is, on analysis, similar to dissolution occurring by the consent of the partners save that the evidence for that consent is not available. In those circumstances, a court would need to be persuaded that it could presume that an agreement had been reached by virtue of the subsequent conduct of the partners which was only consistent with the partners had previously agreed to dissolve the partnership but evidence of that agreement was no longer available[27].
- Conclusion. In this case, it makes no practical difference whether the Partnership is dissolved by the court, by notice (if that is possible in this case), by express or inferred agreement (if such is possible on the facts of this case) or by the acceptance of a repudiation (if that is possible in law and possible on the facts of this case). This is because, until the court prepares and settles the necessary accounts, its assets cannot be distributed, any assets acquired by the Partnership following the dissolution remain Partnership property and the partnership cannot be wound up.
D. Alleged Breaches of the Partnership Agreement
(1) Introduction
- Mr Rassouli contended that the Partnership was dissolved by notice. If it was not, he contended that it was dissolved by the conduct of Mr Barber and Mr Jangra that amounted to serious and repudiatory breaches of the Partnership Agreement and that that conduct resulted in an express or inferred agreement by the partners to dissolve the Partnership or that that repudiation was accepted by Mr Rassouli. It is also contended that this conduct gave rise to a loss of confidence between the partners such that the Partnership should be dissolved under sections 35(c) and (d) of the Act.
- However, the facts alleged by Mr Rassouli, even if they were established, did not amount to conduct that would bring sections 35(c) and (d) into play nor did they amount to any breach of the Partnership Agreement or to an agreement to dissolve or to an acceptance of a repudiation. This is for the following reasons:
(1) This Partnership Agreement contained no express power allowing it to be dissolved on notice.
(2) There is no possibility of inferring that the Partnership has already been dissolved by agreement.
(3) Mr Rassouli was unable to show that Mr Barber's conduct had amounted to any breach of the Partnership Agreement.
(4) Mr Rassouli was himself guilty of conduct which amounted to serious breaches of his duty of good faith and would have enabled the court to proceed under sections 35(c) and (d) of the Act to dissolve the Partnership.
(5) All parties concede that the Partnership should be dissolved by the court under section 35(f) so that it is not necessary to embark on a determination of a disputed factual basis for dissolution. Instead, the court can dissolve the Partnership under section 35(f). This is because the partners all agree that the relationship between Mr Barber and Mr Jangra on the one hand and Mr Rassouli on the other hand has irretrievably broken down since:
(a) The two claiming partners have lost all trust and confidence in the one defending partner and vice versa; and
(b) Mr Rassouli has irrevocably excluded Mr Barber and Mr Jangra from the affairs of the Partnership and the business of the Partnership cannot any longer be performed.
- In consequence, it is not in conformity with the overriding objective nor with overriding equitable principles for the court to embark on a series of detailed findings about the alleged shortcomings of Mr Barber or Mr Rassouli since that exercise has no useful or practical utility and will, in any event, exacerbate the tensions between the partners at a time when they need to collaborate so as to enable the Partnership to be wound up and its assets to be distributed. I will, however, briefly set out my findings which support the conclusion that no agreed or accepted dissolution occurred.
(2) Mr Rassouli's allegations in summary
- Absenteeism. Mr Barber was required, as project manager, to attend the project in-country for several days every two to three weeks. Instead, he attended on no more than two days per month over the first three years of the contract. Mr Barber contended that it was envisaged that he would not attend the project frequently or for any extended period of time and that there would be a rotating project manager who would be available. However, this post was unfilled for the period from January 2007 until March 2008. The result was that the BP Contract was effectively without a project manager for much of the time in the period up to June 2008.
- Lack of expertise. In a number of detailed respects, it was contended that Mr Barber failed to display the necessary or required technical abilities required of a project manager. These respects included allowing work to start before appropriate method statements had been finalised and approved by BP; allowing a so-called technical competence gap in the management of the project to develop when no project manager was working in-country; allowing there to be occasions when there was a lack of appropriate data analysis; a failure to provide sufficient or appropriate training to the in-country engineers; a failure to prevent the poor quality of operational reports and a failure to ensure that an anomaly recording database was created and that BP's record keeping requirements were complied with.
- Poor relations with BP. This allegation was based on the evidence of Mr Millett who was appointed to be BP's Integrity Management Team Leader for BP's Baku-based export pipelines. He started to work with Rasco in January 2008 and he concluded that there were serious concerns as to the quality of Rasco's performance. His auditing of that performance brought him into contact with Mr Barber who he found it difficult to work with and who appeared to be insufficiently concerned with the serious concerns that he was raising and unwilling to develop the necessary measures needed to allay his concerns.
- Poor relations with BPA. BPA had entered into a consultancy Agreement with Rasco and the use of BPA to provide technical advice and assistance to the BP contract was an essential part of Rasco's strategy for the performance of the BP Contract and which had been influential in persuading BP to award Rasco the BP Contract. However, largely through alleged financial difficulties arising from Mr Barber and Mr Jangra's inadequacies in preparing the contract rates and in making appropriate claims for additional payments during the contract, BPA were not properly or sufficiently consulted by Mr Barber with the result that Rasco's quality of work suffered.
- Lack of good faith. Mr Barber, when preparing some of the invoices submitted by Ceng to Rasco, marked up the sum being claimed so that Ceng, and hence Mr Barber and Mr Jangra, were paid by Rasco greater sums than they were entitled to. Mr Barber maintained that this mark-up had been agreed with Mr Rassouli who vehemently denied that he had ever agreed to it. Mr Rassouli's case was that the marking up of these invoices was deliberate and amounted to dishonest or fraudulent behaviour by Mr Barber.
(2) Underlying basis of the allegations
- The BP Contract was entered into in April 2006 and the Project started immediately afterwards. The setting up of the method of working, quality controls, fieldwork, measurements, management structures, management working methods, report preparation and liaison and reporting to BP were achieved without any undue difficulties or obvious dissatisfaction from BP. It was contended on behalf of Mr Rassouli that relations between him and his two co-partners were toxic, dysfunctional and rife with suspicion from the start but the evidence does not support that analysis. It is clear that there were considerable difficulties experienced by the partners collectively in their overall management of the BP Contract and in the performance of the Project in the period up to late 2007. These difficulties arose because:
(1) As was agreed between all three partners before and as part of the agreement of the Partnership Agreement and in their collective discussions before and during the setting up of the BP Contract, Mr Barber and Mr Jangra would spend appreciable amounts of time on their other non-Project work out of country and would keep in touch with Mr Rassouli by email, telephone and other modern means of communication. Mr Rassouli would keep a constant overall eye on the Project with the assistance of the necessary number of experienced engineers recruited through Ceng supplemented by regular visits to the Project by the two out of country partners, by BPA under the terms of its call off contract with Rasco and by the advice provided from afar at times when needed from Mr Barber or Mr Jangra.
(2) This working method was subject to the need to pay Mr Barber and Mr Jangra, any engineer recruited for the Project and BPA in addition to paying Rasco's in-country employees and field engineers and the running expenses of the Project. These payments, including the withholding tax payable on the salaries and emoluments paid to out of country engineers and professional staff, had to be made out of the cash flow generated by the BP Contract. It rapidly became clear that that cash flow was insufficient to enable all these payments to be made. The principle reason for this was the low and uneconomic rates that Rasco had had to put forward in its tender in order to secure the BP Contract. All three partners accepted the risk inherent in their strategy of underbidding other rivals sufficiently to secure the BP Contract and all three accepted that the loss that the Partnership would incur in the first phase was worth it given the prize available if the BP Contract was renewed or replaced by the second phase. However, it turned out that the loss was far greater than expected due to a number of factors such as the greater levels of quality controls and contract performance standards that were required compared with those that had been identified in the tender documents, high levels of inflation in Azerbaijan in the period between 2006 and 2008, the unexpected difficulty of recruiting out of country staff and the unexpectedly high levels of remuneration needed to attract them and the resulting additional and unbudgeted for costs of running the contract as a result of these other unforeseen difficulties.
(3) Mr Barber faced particular difficulties. The Project could not afford to pay him his earnings as a director of the Project or the payments due to him from Ceng and he had to spend much more time than expected working on other projects in South Africa and in the Far East in order to keep his family. He also had considerable difficulty funding the necessarily high travel costs out of his own resources. As a result, he spent less time in-country than envisaged, albeit that it had always been planned that he spend relatively infrequent and relatively short periods of time in-country. He also had difficulty in recruiting rolling Project Managers to fill the gaps when he was not present, again due to the financial difficulties of the Partnership and the relative difficulty of recruiting suitable engineers. Finally, there was insufficient funding available to pay BPA so that very little use was made of their services.
(4) There were also inter-personal difficulties since neither Mr Barber nor Mr Rassouli were easy to work with and it is clear that both of them had, at times, difficult working relationships with the other engineers employed on the Project. Mr Jangra was principally involved in quality control matters which he undertook without obvious difficulty. He did not get involved with Rasco's running of the BP Contract since he was not named as one of its personnel in the contract documents, was not recognised as being involved in it by BP and was, in any case, not qualified by training or experience to undertake any significant management role.
- Despite these considerable difficulties, the BP Contract survived for nearly three years without any complaint from BP. However, towards the end of 2007, the BP Group implemented a programme across its entire world-wide areas of operation of greatly enhancing its safety and asset integrity working practices. It would appear that this programme was driven by the perceived need, in the light of a number of well-publicised problems of safety and asset degradation that had beset the BP Group around the world in the mid-2000s. That led to Mr John Millet being appointed by BP to act as Team Leader to implement the BP Integrity Management Standard across all its assets in Azerbaijan and to ensure that the requisite standards were incorporated and embedded prior to the start of the newly introduced BP Internal Safety Operations and BP Integrity Audit systems that were planned to start in January 2009.
- One of the areas of integrity management that came under Mr Millet's direct responsibility was, inevitably, the BP Contract and he paid that Project particular scrutiny in the first three months of 2008. He became very concerned that the way that Rasco was performing the BP Contract fell far short of the enhanced levels of scrutiny and performance that BP was introducing. As a result, he requested his senior management to implement a Contract Performance Review ("CPR") and this request was immediately implemented. This CPR led to a Quality Performance Review ("QPR") and then to the implementation of a Project Improvement Plan ("PIP"). These processes had been introduced by the BP Group as part of its overall implementation plan of its improved integrity control procedures. They had two objectives: firstly to audit Rasco's performance of the contract to ensure that it had the capability of completing the present contract and secondly to bring its capabilities up to the requisite standards that were to be introduced from 1 January 2009. In Rasco's case, there was no contractual obligation to allow itself to be subjected to this onerous procedure but BP had the whip hand since it indicated that if Rasco did not comply, it would face contractual difficulties and would not be considered for any extension or renewal of the BP Contract when the current Contract expired at the end of its three-year programme on 1 April 2009.
- It is important to consider what the aims and objectives of the PIP process were. These were set out in the introduction to the Rasco PIP dated 5 June 2008 as follows:
"Since the formation of the Onshore Integrity Management Team, concerns with the performance of Rasco in the performance of their Scope of Work under their contract were identified. Onshore Pipelines adopted the process outlined in Section 2.0 to be able to fully understand the issues and problems with Rasco performing the contract Scope of Work.
The final outcome of the process is that Rasco is to be put on PIP to enable the facilitation of compliance to the contract and the Group BP IM Standard. Assurance and delivery of Integrity Management is critical to on-going operations. Also due to the close proximity of the OI & S audit for Onshore Pipelines team it is important that BP show a robust process for dealing with non-performance.
The BP PIP Process is a very serious step that needs to be taken with Rasco to ensure that the integrity of the BP facilities and pipelines including the WREP Pipeline, can be clearly be shown to be managed by both BP and Rasco. Failure to comply and to show success through the PIP process may have serious ramifications to the on-going contract."
The PIP then set out a series of shortcomings that had been identified by the CPR and QPR that had preceded it, a list of Key Performance Indicators ("KPI") and the way that the PIP process would operate to enable the shortcomings to be eradicated and the KPIs to be achieved in the future.
- It follows that the PIP process was not introduced as a result of identified breaches of the BP Contract by Rasco. The CPR and QPR had identified "concerns" about Rasco's performance which needed to be addressed and the PIP was intended to assist Rasco to enhance its performance, to eliminate those concerns and any others thrown up by the PIP process, to learn about the further standards that would be introduced from 1 January 2009 and to prove that it had now acquired the capability to maintain the necessary outputs in the future. This would be accomplished in a two-month intensive on-site programme starting with immediate effect. A large team of BP personnel would be assigned to the programme and would meet with all the personnel involved in the BP Contract, would audit Rasco's performance in all areas, would provide assessments, training and guidance in all areas and would meet every 2 weeks with the relevant BP personnel to track Rasco's compliance with the programme and to identify any further areas requiring improvement.
- Given the short notice that Rasco was given for the start and duration of the PIP programme, Mr Barber felt unable to attend it due to his need to continue working in South Africa during the critical 8-week period and the lack of funds that precluded his leaving that assignment early and travelling from South Africa to Azerbaijan at short notice. This was, of course, most regrettable given his role as one of the Project Managers. It was also unfortunate that there was, at that time, no second rolling project manager in post although there was what turned out to be a most capable deputy who satisfied BP as having appropriate experience and training to act as Project Manager in the future. However, his financial difficulties and his prolonged absences out of country were known to and accepted by Mr Rassouli. Moreover, although Mr Barber's absence was noted by the BP team, it was not, and it proved not to be, significant.
- Rasco's team was led by Mr Rassouli who proved himself to be a capable and acceptable Project Director and who was able, with his team, to inspire confidence in BP as to Rasco's ability to perform to BP's satisfaction both for the remaining stages of the then current BP Contract and for any variation, extension or replacement contract and to be able to comply with the new integrity programme once it was introduced on 1 January 1999. In short, Rasco came through the PIP process with flying colours. Thus, nothing that Mr Barber had done or failed to do had in any way hindered the BP Contract or the Partnership, no loss had been caused by that conduct and, most importantly, the end result was that the BP Contract was varied, extended and then replaced. It matters not that the PIP process and the subsequent replacements were achieved solely by Mr Rassouli's efforts, if that was indeed the case, Mr Barber had not breached the Partnership Agreement and the replacement contracts became Partnership assets.
- Mr Rassouli's case was that during the PIP process, BP personnel made it clear that Mr Barber was no longer acceptable to them for any purpose connected with the BP Contract. In other words, he was told that Mr Barber had to be expelled from all involvement with the BP Contract and that if he was not, BP would consult their lawyers to see what could be done to implement that wish and would not be prepared to extend or renew the BP Contract when it expired.
- There is, however, no evidence of this save from Mr Rassouli himself. He did not produce any evidence from BP in either witness statement or documentary form until April 2009 when Mr Barber was sent a curt email by Mr Graeme Duncan, a senior manager within BP, informing him that he was to cease all involvement with the BP Contract. The only BP witness who gave evidence was Mr Millet. He clearly had found it difficult to work with Mr Barber during the brief occasions he had met him but he provided a clear and objective assessment to the effect that he considered that the entire Rasco management needed to improve and change its performance otherwise the BP Contract would be unworkable once BP's enhanced standards were introduced.
- What seems to have happened was that Mr Rassouli decided during or at the conclusion of the PIP process that he wanted to take over the BP Contract for himself and that he would exclude both Mr Barber and Mr Jangra from it and from any extension or replacement contract. As a result, he appears to have asked Mr Duncan to send the email in question in order to provide an excuse for himself excluding Mr Barber from the BP Contract.
- This is the likely turn of events because Mr Rasouli at no time, before, during or after the PIP process raised any concerns about Mr Barber or Mr Jangra's performance, about the need to exclude Mr Barber from the BP Contract or as to any other matter about which he now complains. Had he had any of these concerns in the period from 2007 until April 2009, he would have raised them with both Mr Barber and Mr Jangra. The Partnership Agreement was clear. It provided that:
"2.2 Executive Management
The executive management authority shall be by majority agreement of all the [partners] unless otherwise required by any statutory or legal obligations of Rasco."
Thus, the partners had agreed that any significant problem, whether it be concerned with matters of finance, personnel, resources, technical or strategic issues or relations with BP, that arose would be raised with all three partners and the decision as to how to proceed would be taken by a majority. Further, and even more importantly, Mr Rassouli had an obligation, in compliance with his partner's duty of utmost good faith, to discuss with his two other partners any concerns he had about their performance and to let them know at the earliest possible opportunity of any concerns about them that had been expressed by BP.
- Instead of discussing any of the complaints that he now makes about Mr Barber, Mr Rassouli appears to have engineered Mr Barber's dismissal from involvement with the BP Contract, to have characterised his actions throughout the time that he was involved as being breaches of not merely his contract through Ceng with Rasco but of the Partnership Agreement, to have decided that Mr Barber was no longer to be regarded as a partner as soon as he ceased to have an active role in Rasco's performance of the BP Contract and that he was entitled summarily to exclude him from both the BP Contract and the Partnership. As a result, he shut both Mr Barber and Mr Jangra out from the BP Contract in April 2009 and declined to have anything more to do with them.
(3) Mr Barber and Mr Jangra's allegations in summary
- Mr Barber and Mr Jangra make a series of complaints about Mr Rassouli to the effect that he was in serious breach of his duties of utmost good faith and that he deliberately frustrated the objects and smooth running of the Partnership. The principal complaints are these:
(1) He promoted a breakdown of the relationship between BP and Mr Barber which would not have occurred without this intervention and he failed to inform both him and Mr Jangra of his communications and dealings with BP as soon as these took place in relation to Mr Barber and his alleged personal shortcomings as a Project Manager.
(2) He did not discuss with his two partners any of the concerns he now has about Mr Barber and the manner in which the Project was being managed notwithstanding his contractual and equitable obligations owed to his two partners and he never attempted to obtain their agreement to any necessary corrective measures.
(3) He negotiated various extensions to and replacements of the BP Contract without informing either of his partners and with the intention of excluding them from their proceeds.
(4) He deliberately shut both partners out of the in-country affairs of the Partnership, the Project and the BP Contract.
(5) He reported Ceng, and in particular Mr Barber and Mr Jangra, to the Georgian tax authorities by making unfounded allegations that all three had evaded paying relevant taxes in Georgia during the currency of the BP Contract, in particular payroll and related taxes. This step appears to have been taken in an attempt to harm them and their business reputation in Georgia.
(6) He started proceedings in Azerbaijan knowing that these would not be brought to the attention of Mr Barber and Mr Jangra and obtained what amounts to a declaration that the Partnership Agreement had been dissolved. The Azerbaijani courts had no jurisdiction to dissolve an English Partnership which was governed by English law nor to grant relief against two individuals who had not been served with the relevant process and were not living in or located within the jurisdiction of the Azerbaijani courts and the purpose of starting these proceedings was clearly to harm both Mr Barber and Mr Jangra and to make it more likely that he would be able to take over the entire assets of the Partnership for himself.
(7) He moved the Project bank accounts out of the jurisdiction of the English courts in order to make it more likely that he would wrest the profits being made on the replacement BP Contracts from the Partnership and to retain them exclusively for himself.
(4) Breaches of the Partnership Agreement
- In the light of the evidence, particularly about the PIP process, Mr Rassouli failed to show that any of his complaints about Mr Barber and Mr Jangra amounted to breaches by them of their contracts with Ceng or Rasco or that they were in any way in breach of the Partnership Agreement, let alone had breached it to such an extent that either of them had repudiated it.
- The allegations made about Mr Rassouli were by and large established by the evidence. Taken together, they demonstrated beyond doubt that the affairs of the Partnership have irretrievably broken down and that it would be inequitable for the court to dissolve the partnership on any other ground than that provided for in section 35(f) of the Act.
(5) Conclusion Repudiation, implied agreement to dissolve
- I conclude that the Partnership was not repudiated by Mr Barber or Mr Jangra, that there was no basis for contending that their conduct was such as to lead to the conclusion that the Partnership had been dissolved by agreement or for it to be dissolved by the court under sections 35(c) or (d) of the Act.
E. The Issues
A. First and Second Claimants' claim against the Second Defendant
Issue 1: Is the BP Contract an asset which belongs in equity to the Partnership or does the First Defendant hold it free of any other interest?
- This issue arises because it was contended on behalf of Mr Barber and Mr Jangra that the BP Contract was a Partnership asset whereas it was contended on behalf of Mr Rassouli that the BP Contract was held for Rasco and that the Partnership had no interest in it and it was limited in its scope so that its only interest was in the net profit earned from the original BP Contract and to the physical assets that were acquired for the Project such as vehicles, equipment, furniture and other immovable property[28].
- The only sensible interpretation of the Partnership Agreement is that the BP Contract and all the subsequent variations, extensions and replacements were and remain assets of the Partnership. This is because the partners tendered for that contract in the name of Rasco and agreed that they personally would control all of the income and enjoy all the profits from it. It would be glaringly inconsistent with this arrangement for the BP Contract to be an asset which belonged beneficially to Rasco. It was, instead, the fundamental business of the Partnership and its principal asset. It would be contrary to the basis of the Partnership Agreement, and in particular to its definition of "the Project", to allow one of the parties, namely Mr Rassouli through his sole control and ownership of Rasco, to take the benefit of this core Partnership asset.
- This analysis is confirmed by section 20 of the Act provides as follows:
"All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the Partnership Agreement."
- The BP Contract was originally brought into the Partnership for the purposes and in the course of the Partnership business. The Partnership Agreement makes it clear that the Partnership exists to perform the BP Contract. The BP Contract is therefore an asset of the Partnership property and all benefits derived from it must be held exclusively for the purposes of and on trust for the Partnership and in accordance with the Partnership Agreement.
- This conclusion is supported by authority. In the most recent, being an authority that is directly relevant to the facts of this case, it was held by the Court of Appeal in Don King Productions Inc v Warren[29] that partnership assets should include all assets to which a partner was entitled and which all partners agreed should be treated as partnership property. This can include intangible assets, such as the benefit of contracts[30]. The defendants in that case held various boxing promotion and management contracts, which were expressed to be personal and non-assignable. Notwithstanding this, the defendants held them on trust for the partnership and had to apply them for the benefit of the partnership. Morritt LJ stated:
"The question whether, in the terms of section 20 of the Partnership Act 1890 an asset is "brought into the partnership stock or acquired ... on account of the firm ... or for the purposes and in the course of the partnership business" does not depend on whether it is assignable at law. In both Ambler v. Bolton[31] and Pathirana v. Pathirana[32] the asset was inalienable. In both cases the inalienable asset had been acquired by the individual partner in his own name during the subsistence of the partnership but was still treated as acquired on account of the firm. In my view, it would make no difference if the asset had been acquired before the commencement of the partnership but the partner in question was required by the terms of the partnership to bring it into the common stock. The reason is quite simply that partnership property within section 20 of the Partnership Act 1890 includes that to which a partner is entitled and which all the partners expressly or by implication agree should, as between themselves, be treated as partnership property. It is immaterial, as between the partners, whether it can be assigned by the partner in whose name it stands to the partners jointly."
- In the first of the cases referred to in this passage, Ambler v Bolton, Lord Romilly MR held that an inalienable government contract held by one of the partners constituted a partnership asset. On the dissolution of the partnership, a value had to be given to it (since it could not be sold) and the partner who held it debited with that amount in the partnership accounts. In the second of these cases, Pathirana v Pathiran, the partnership held a contract for the exclusive supply of a foreign company's goods in Ceylon (as it then was). One of the partners cancelled the partnership's contract and took a new contract in his name alone. This contract was said to be personal to that partner. However, the Privy Council advised that this new contract was to be treated as partnership property, since it arose out of the substantial goodwill which the partnership had generated.
- Mr Hughes QC sought to distinguish Don King on the ground that, in that case, the second Agreement expressly provided that the benefit of the contracts were to be held for the partnership absolutely, whereas in the present case the Partnership Agreement contained no such clause. However, the Don King decision does not rest solely on this express term of the second Agreement. Morritt LJ held that it was the parties' intention from the beginning of the partnership that the beneficial interests in the contracts were to be held on trust for the partnership. Similarly, in this case, the Partnership Agreement, on analysis, provided that the BP Contract, being the "Project" or business of the Partnership, was to be the Partnership's principal asset.
- Since the various extensions of the BP Contract and the contract entered into by Rasco with BP and dated 4 May 2010 were renewals, variations or replacements for the original BP Contract[33], all of them are also partnership assets and are to be treated in the same way as the original BP Contract.
- Answer:
The BP Contract is an asset of the Partnership and it must be held and operated exclusively for the benefit of the Partnership and in accordance with the terms of the Partnership Agreement. The variations, extensions and replacement BP Contracts entered into with BP were all renewals, variations or replacements of the original BP Contract and all of them are, therefore, assets of the Partnership.
Issue 1A: What would be the effect on the account of a finding (contrary to the Claimants' case) that the Partnership is already in dissolution?
- Even if there has been a dissolution of the Partnership, the BP Contract, including that part of it which is the result of renewals or variations after dissolution, would still continue to be an asset of the Partnership until the Partnership expires, or is disposed of in the winding-up of the Partnership. This was confirmed in Don King[34] in relation to Partnership Agreements renewed by the defendants after the dissolution of the partnership but before it was wound up by the Court.
- The decision in Don King on this point was based on the line of equity cases starting with one of the great equity cases, Keech v Sandford[35]. In that case, a trustee held a lease on trust for an infant. He tried to renew the lease for the infant but the lessor refused. The trustee then took the renewal of the lease for himself. Lord King LC held that the renewed lease was held on trust for the infant and the trustee liable to account for profits. This case is not confined to trustees holding leases, but applies to any fiduciary position, including partners in respect of partnership property held at the time of dissolution.
- This was further explained in Thompson's Trustee in Bankruptcy v Heaton[36] by Sir John Pennycuick VC as follows:
"The fiduciary relation here [between partners] arises not from a trust of property but from the duty of good faith which each partner owes to the other. It is immaterial for this purpose in which partner the legal estate in the leasehold interest concerned is vested. What then is the position when a partnership is dissolved but there remains property of the former partnership which has not been realised? The general principle, I think, is correctly stated in Lindley on Partnership 13th ed. (1971), p. 615, in the following terms:
'Upon the dissolution of a partnership, and in the absence of any Partnership Agreement to the contrary, it has been seen
. . .
(4) That, for the purposes of winding up, the partnership is deemed to continue; the good faith and honourable conduct due from every partner to his co-partners during the continuance of the partnership being equally due so long as its affairs remain unsettled; and that which was partnership property before, continuing to be so for the purpose of dissolution, as the rights of the partners require.'
It necessarily follows, I think, that where the property of a dissolved partnership includes a leasehold interest, then subject to any other arrangement which may be made between the partners concerning that interest, each of the former partners owes the same obligation to the other former partner in respect of that interest as he did while the leasehold interest remained the partnership property and, accordingly, he is under the same limitations with regard to the purchase of the reversion as he would have been had the partnership still been subsisting."
- This statement of principle was upheld by the High Court of Australia in Chan v Zacharia. Deane J expressed the rule as follows:
"The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one 'fundamental rule' embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the 'use of fiduciary position' doctrine is but an illustration or part of a wider 'conflict of interest and duty' doctrine [citations omitted], the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain:
(i) Which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain; or
(ii) Which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee[37]."
- This rule is also codified as section 29 of the Act, which provides as follows:
"29. Accountability of partners for private profits.
(1) Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership, or from any use by him of the partnership property name or business connexion.
(2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner, and before the affairs thereof have been completely wound up, either by any surviving partner or by the representatives of the deceased partner."
- The BP Contract was varied and extended several times, during the lifetime of the Partnership. The following extensions, variations and replacements were evidenced:
(1) On 28 January 2009, the extension until 31 December 2009 (Variation Order 1);
(2) On 3 March 2009, an increase in scope (including the addition of the BTC/SCP pipelines): (Variation Order 2)
(3) On 26 November 2009, a revised contract value and extension until 30 April 2010 (Variation Order 3);
(4) On 15 February 2010 another variation in scope and price (Variation Order 4);
(5) At some point around April 2010, a stop-gap extension until May 2010 or June 2010;
(6) On 1 June 2010, a replacement BP Contract.
- When the principles governing partnership assets are applied, it makes no difference whether or not there has been a dissolution of the Partnership, all of these contract variations, extensions and replacements are and still remain Partnership assets. They were all ones that arose out of and were intimately connected with the original BP Contract and they were all part of the Project and of the business of the Partnership. In terms of the twofold analysis of Deane J, adopted by the Court of Appeal in Don King:
(1) There was a conflict between, on the one hand, Mr Rassouli's duty as partner and/or Rasco's duty as trustee to hold the contracts for the Partnership, and on the other hand, their personal interests in taking the extended and renewed contract for themselves beneficially; and
(2) The extended and renewed contract was acquired using the opportunity and knowledge which the Partnership had built up from working on the BP Contract: this included the Partnership staff and resources and the goodwill generated with BP from having operated the contract successfully in the past. It is irrelevant for these purposes whether more work was done by Mr Rassouli than by Mr Barber and Mr Jangra.
- Mr Rassouli suggested that BP would not have awarded any of the renewals and variations to Rasco if Mr Barber and Mr Jangra had retained some role under the BP Contract. However:
(1) There was no evidence to support this suggestion;
(2) Even if BP would not have renewed the BP Contract with Mr Barber and Mr Jangra as managers of the service delivered under it, this would not have affected Mr Barber and Mr Jangra's entitlement as partners to share in the fruits of the renewals which was not dependent upon their personally managing the delivery of the service to BP. This was because Mr Jangra never had any formal role in the BP Contract and Mr Rassouli accepted that Mr Barber's partnership was unaffected by whether or not he was Project Manager[38].
(3) Even if the renewal was one which was only available to Mr Rassouli and Rasco, Mr Rassouli would have held the benefits of the renewed contracts on trust for the Partnership. This was the decision in Keech v Sandford itself. As Dixon J said in the High Court of Australia in Birtchnell v Equity Trustees Executors & Agency Co Ltd[39]:
"
the general principle that
no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal
is an inflexible rule, and must be applied inexorably by the Court, which is not entitled
to receive evidence, or suggestion, or argument as to whether the principal did or did not suffer any injury in fact by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that
Further, and this, perhaps, is a necessary corollary, the partner is responsible to his firm for profits, although his firm could not itself have gained them[40].
As I understand, the rule is a rule to protect directors, trustees, and others against the fallibility of human nature by providing that, if they do choose to enter into contracts in cases in which they have or may have a conflicting interest, the law will denude them of all profits they may make thereby, and will do so notwithstanding the fact that there may not seem to be any reason of fairness why the profits should go into the pockets of their cestuis que trust, and although the profits may be such that their cestuis que trust could not have earned them at all. With reference to this last point, there is a recent and direct decision that the fact that the profits could not have been earned by the cestuis que trust is wholly immaterial and that is a decision of the [English] Court of Appeal in Boston Deep Sea Fishing and Ice Co v Ansell[41]."
- Therefore, even if BP had stated that it would not have renewed the BP Contract with Mr Barber and Mr Jangra present (either in the Partnership or in any executive role), Mr Rassouli and Rasco would still hold the renewed contract assets on trust for the Partnership.
- Answer:
The BP Contract, including any renewal, variation or replacement contract, remains and continues to be an asset of the Partnership until it and any renewal, variation or replacement of it have expired or are disposed of in the winding-up of the Partnership. The BP Contract entered into by Rasco with BP and dated 1 June 2010 is such a renewal, variation or replacement and it is therefore an asset of the Partnership.
Issue 2. Does the First Defendant hold the money in the dedicated bank accounts on trust for the Partnership or free of any other interest?
- The Partnership Agreement provides:
"3.4 Bank Account
A dedicated bank account (or bank accounts) shall be established for the sole use of the PROJECT. All income to the PROJECT shall only be paid in to the dedicated bank account(s). Each of the PARTIES shall have the right to access the balance and transaction history of any bank accounts established for the PROJECT."
- The dedicated bank accounts are in Rasco's name but they were opened and remain for the sole use of the Partnership. Such an arrangement created a trust of the money in favour of the Partnership. The clearest statement of the relevant legal principle is to be found in this passage of the speech of Lord Millett in Twinsectra Ltd v. Yardley[42] when dealing with a similar case concerned with a solicitors' undertaking to hold funds:
"It is unconscionable for a man to obtain money on terms as to its application and then disregard the terms on which he received it. Such conduct goes beyond a mere breach of contract. As North J explained in Gibert v Gonard[43]:
"It is very well known law that if one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given. He may decline to take it if he likes; but if he chooses to accept the money tendered for a particular purpose, it is his duty, and there is a legal obligation on him, to apply it for that purpose."
The duty is not contractual but fiduciary. It may exist despite the absence of any contract at all between the parties, as in Rose v Rose[44], and it binds third parties as in the Quistclose[45] case itself. The duty is fiduciary in character because a person who makes money available on terms that it is to be used for a particular purpose only and not for any other purpose thereby places his trust and confidence in the recipient to ensure that it is properly applied. This is a classic situation in which a fiduciary relationship arises, and since it arises in respect of a specific fund it gives rise to a trust."
- Thus, since the BP Contract, or strictly the benefits generated by that Contract, are Partnership assets, any income derived from the BP Contract is held on trust for the Partnership. The monies in the dedicated bank accounts are assets which were acquired on account of the Partnership's performance of the BP Contract and are therefore assets of the Partnership. This follows from the application of these well-established equitable principles to the relevant terms of the Partnership Agreement. It also follows from section 20 of the Act which provides:
"20(1) All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm or for the purposes and in the course of the partnership business, are called in this Act partnership property and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the Partnership Agreement.
The Partnership is still subsisting. Thus, the monies in the accounts into which BP Contract monies are being paid are held by Rasco and Mr Rassouli on trust for the Partnership. This would still be the case had the Partnership been terminated since the BP Contract, including the replacement contracts, remain Partnership assets until the Partnership has been wound-up since section 39 of the Act has the effect that Partnership assets continue to be held on trust until they are distributed between partners and the Partnership is finally wound up."
- Answer:
The money in the dedicated accounts is held on trust for the Partnership until the Partnership is dissolved and its winding-up has been completed.
Issue 3: In so far as the First Defendant or the Second Defendant is in possession of any other money or property, being derived from the BP Contract, is such money or other property held by that Defendant on trust for the Partnership or free of any other interest?
- The money or property derived and still being derived from the BP Contract and all of its variations, extensions and replacements are held on trust for the Partnership since the assets making up and derived from BP Contract are held on trust for the Partnership and any money or property derived from it is, in consequence, held on trust. This is confirmed by clause 5.6 of the Partnership Agreement:
"5.6 Legal Title
All assets, including vehicles, equipment, furniture, immovable property and other similar assets purchased by the PROJECT shall, where required, by purchased in the name of Rasco. It is recognised by all PARTIES that all rights, title and benefit of any such assets are the sole property of the PROJECT and that Rasco relinquishes all claim to title of such assets. The PROJECT shall be responsible for the maintenance, upkeep and disposal of all assets purchased by the PROJECT."
- Although Rasco retains the legal title to such property, all beneficial rights in the property are owned solely by the Partnership. Even if the Partnership had already been dissolved, the money derived from the BP Contracts since dissolution continue to be held on trust for the Partnership and will continue to be so held until the winding-up of the Partnership has been completed.
- Answer:
Yes, on trust for the Partnership and free of any other interest until the Partnership is dissolved and its winding-up has been completed.
Issue 4: Was the Partnership capable of being dissolved unilaterally by the Second Defendant, either by express or implied notice of dissolution or under clause 1.4 of the July 2006 Partnership Agreement?
(1) Introduction
- The claiming partners contended that the Partnership cannot be dissolved unilaterally by Mr Rassouli either by notice or under clause 1.4 of the Partnership Agreement but only by the court. whereas Mr Rassouli contended that he had a unilateral contractual right to dissolve the Partnership by a notice given to the claiming partners and also that the court could, and should in this case, infer from the acts of all the partners that they had intentionally dissolved the Partnership. He also contended that the claiming partners repudiated the Partnership and that he accepted that repudiation.
- Section 32 of the Act provides as follows:
Subject to any Agreement between the partners, a partnership is dissolved
(a) If entered into for a fixed term, by the expiration of that term;
(b) If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking;
(c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership.
In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is so mentioned, as from the date of the communication of the notice.
Thus, a partnership can only be terminated unilaterally by notice from one partner if:
(1) There is an express power to dissolve or terminate the Partnership Agreement [46]; or
(2) The partnership is a partnership at will as defined by the Act, that is it is one that was entered into for 'an undefined time'.
(2) Express power to terminate
- Mr Hughes QC contended that an express right of termination is to be found in clause 4.4, of the Partnership Agreement where it provides that profit is to be determined 'on termination of the PROJECT or on termination of this Partnership Agreement'. On behalf of the claiming partners, it was submitted that this is not a tenable construction.
- It is clear that this phrase was merely providing for what should happen to profit in the event of termination; it did not itself provide a power to terminate the Partnership.
- In those circumstances, the Partnership Agreement did not expressly create a power to terminate the Partnership.
(3) An implied power to terminate
- Mr Hughes QC also contended for an implied power to terminate and he cited a number of cases in which the court has implied a power to terminate a contract where no such power was expressly provided for. However, all these cases were concerned simple contracts, not partnerships, and no such power is to be implied in relation to a partnership since the Act provides the sole means of dissolving a partnership where no express term is provided for in the partnership agreement. This is because the provisions of the Act provide a statutory code setting out all the circumstances in which a partnership may be terminated. Moreover, a partnership imposes on all partners equitable duties of good faith between each of them. These duties would be undermined if one partner could unilaterally terminate the partnership relying only on an implied power to terminate.
- There is, in relation to the power to terminate, a parallel with companies rather than with simple contractual relationships. As Lord Hoffmann stated in O'Neill v Phillips[47] with his customary clarity:
company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith.
- O'Neill v Phillips is the leading case on what is now section 994 of the Companies Act 2006. It was concerned with a company in which trust and confidence had broken down between the two shareholders in what was a 'quasi-partnership' company. One shareholder tried to force the other to buy out his shares and allow him to exit the company. The House of Lords held that, in the absence of unfairly prejudicial conduct which was the subject of a statutory remedy provided for in the Companies Act, there was no right of unilateral withdrawal from a company. This was explained by Lord Hoffmann in this way[48]:
"Mr Hollington, who appeared for Mr O'Neill, said that it did not matter whether Mr Phillips had done anything unfair. The fact was that trust and confidence between the parties had broken down. In those circumstances it was obvious that there ought to be a parting of the ways and the unfairness lay in Mr Phillips, who accepted this to be the case, not being willing to allow Mr O'Neill to recover his stake in the company. Even if Mr Phillips was not at fault in causing the breakdown, it would be unfair to leave Mr O'Neill locked into the company as a minority shareholder.
Mr Hollington's submission comes to saying that, in a "quasi-partnership" company, one partner ought to be entitled at will to require the other partner or partners to buy his shares at a fair value. All he need do is to declare that trust and confidence has broken down. In the present case, trust and confidence broke down, first, because Mr Phillips failed to do certain things which, on the judge's findings, he had never promised to do; secondly, because Mr O'Neill wrongly thought that Mr Phillips had committed various improprieties; and finally because, as the judge said
he was "inclined to see base motives in everything that Mr Phillips did." Nevertheless it is submitted that fairness requires that Mr [Phillips] or the company ought to raise the necessary liquid capital to pay Mr O'Neill a fair price for his shares.
I do not think that there is any support in the authorities for such a stark right of unilateral withdrawal. There are cases
in which it has been said that if a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the breakdown. Such breakdowns often occur (as in this case) without either side having done anything seriously wrong or unfair. It is not fair to the excluded member, who will usually have lost his employment, to keep his assets locked in the company. But that does not mean that a member who has not been dismissed or excluded can demand that his shares be purchased simply because he feels that he has lost trust and confidence in the others. I rather doubt whether even in partnership law a dissolution would be granted on this ground in a case in which it was still possible under the articles for the business of the partnership to be continued."
- This approach to the duties of partners between themselves is reinforced by the terms of the Partnership Agreement which tellingly provides in clause 1.2 that:
'Each PARTY shall be considered as a PROJECT director and a PROJECT shareholder of equal executive status and voting rights within the PROJECT'.
- There is therefore no basis for implying a right of unilateral withdrawal from or dissolution of the Partnership since this has not been provided for in the Partnership Agreement and the Partnership's business can be and is still being continued. The position in the present case is at least similar to that dealt with in O'Neill v Phillips.
- The error contained in the contentions made on behalf of Mr Rassouli is highlighted by his further contention that Mr Barber and Mr Jangra had no entitlement to buy out his share in the Partnership nor that their share to be bought out by him. Instead, it was contended on his behalf that he could, by exercising a unilateral right of dissolution, retain all the Partnership assets after the termination wholly for himself without paying anything for their value. Since he cannot do this, he cannot create this power by creating an implied power to terminate.
(4) Partnership at will
- It is quite evident that the Partnership was not entered into for 'an undefined time' so as to make it a partnership at will within section 32(c) of the Act that could be terminated on notice as provided for by section 32(c). Equally, it was not a Partnership 'where no fixed term has been agreed for the duration of the partnership' so as to make it one that could be determined by a partner at any time on giving notice of his intention to do so within section 26(1).
- On behalf of the defending parties, it was contended that the Partnership Agreement was within sections 26(1) and 32(c) of the Act. That contention involved an erroneous construction of the words 'undefined time' in section 32(c) of the Act and 'no fixed term' in section 26(1). Those words are not confined to a fixed period with a stated end date. They refer to any period of time which is not fixed by the wording of the agreement. In this Partnership Agreement, it was stated that the Project, and hence the Partnership, would terminate after all Project services had been performed, that is when the BP Contract was fully and finally completed. Even though the Partnership business was extended by the inclusion of two or more contracts that sprung from the original BP Contract, it was still for a fixed term since it would end on the date when the last of these contracts expired. That date could be ascertained by looking at the BP contract documents.
(5) Partnership for a fixed term
- The terms of the Partnership Agreement, taken together, provided unambiguously that the Partnership was one for a defined or fixed term, being the term of the BP Contract. That term was the period provided for in the programme produced under the BP Contract to carry out the scope of that Contract. This is clear both from the express words of the Partnership Agreement, especially clauses 1.1, 1.4 and 1.5, and from its factual matrix.
- The length of that fixed term was defined by clauses 4 and 5 and section 10 of the BP Contract General Conditions. The effect of these is that Rasco was to complete the services to be provided in accordance with the provisions of the BP Contract which required Rasco to develop a detailed programme for that performance and which, once developed and agreed, was to be complied with. Thus, the relevant period was that defined by the section 10 programme.
- Thus, the Partnership was for 'for a fixed term' within section 32(a) of the Act and since it was entered into for such a term, it expired at the expiration of that term as provided for by section 32(a).
- It was contended on behalf of the defending parties that the Partnership was not for a 'fixed term' since such a Partnership must have a defined beginning and a defined end or, in other words, it must continue for so many years or end on a specified day. However, that test was met in the present case. The Partnership was to end on the expiry of the BP Contract and that date was easily ascertainable by looking at the BP Contract and, particularly by looking at its section 10 programme. If the BP Contract was extended, the Partnership would continue until the new expiry date. Thus, the expiry of the Partnership was on a fixed and ascertainable date and it did not cease to be for a fixed term simply because that term was ascertained by reference to another document, namely the BP Contract.
(6) Partnership for a single adventure or undertaking
- The partnership was entered into 'for a single adventure or undertaking' within section 32(b) of the Act. This is a partnership whose object is the completion of a particular project or for a defined purpose which is to be completed within a defined timescale. The time-limited but potentially extendable BP Contract was clearly, on that basis, a single adventure or undertaking. Nothing could be clearer than that the Project, or obtaining and completing the BP Contract and any variation, extension or renewal of it, was a "single undertaking". This is underlined by the partners calling the object of the Partnership "the Project".
- It was contended on behalf of the defending parties that the Partnership was not for a single adventure or undertaking since the partners had looked for other business opportunities. It was further submitted that these opportunities would have fallen under the auspices of the Partnership and the Partnership Agreement. However, when he was asked about this in cross-examination, Mr Jangra confirmed that the partners had looked at other potential opportunities. However, these new opportunities would not have fallen under the scope of the Partnership Agreement. Mr Jangra confirmed that this was so since he stated that each new venture would be carefully examined to see whether it formed part of the Project and the Partnership's existing business. If it did, the partners would have included it within the existing business, if not they would have used a separate Agreement[49]. Thus, the partners' understanding conformed to the wording of the Partnership Agreement which clearly provided that the Partnership's business was the undertaking of the BP Contract and any extension of it. It is therefore incorrect to say that simply because the parties were looking at other opportunities, that made the Partnership one at will.
(7) Defendants' contention for a dissolution by inferred agreement or conduct
- It was contended by Mr Hughes that the court should infer an agreement to dissolve the Partnership from the partners' conduct. His contention was that there was a breakdown in trust and confidence between the partners and from this the court should infer an agreement to dissolve the Partnership. Mr Roe on behalf of the claiming partners contended that any breakdown in trust and confidence between the partners that had occurred was because of the actions of Mr Rassouli, who unlawfully excluded Mr Barber and Mr Jangra from the Partnership. In those circumstances, it is little surprise if Mr Barber and Mr Jangra did not trust Mr Rassouli. However, that is very different from inferring an agreement to dissolve the Partnership. Indeed, the reverse is the case. Mr Barber and Mr Jangra sought to continue the Partnership by requiring Mr Rassouli to perform his obligations under the Partnership Agreement.
- The contentions advanced on behalf of the defending parties are misplaced. These contentions were based on there having been a quarrel between the partners that had given rise to a mutual agreement between them to dissolve the Partnership. Such a quarrel can arise where the parties cannot agree on how to perform the partnership business or as to the terms of the agreement (as was the case of Hopton v Miller[50] that was cited by Mr Hughes QC). However, no such quarrel or agreement occurred. As late as 12 March 2009, Mr Rassouli wrote to Mr Barber that 'As far as I'm concerned, I have no issues with you or with Kamal'. Instead of an agreement between the partners, there was a unilateral decision and consequent unilateral action taken by Mr Rassouli to exclude the other two partners from the Partnership.
- The defendants also argued that it was possible to infer an agreement from Mr Barber and Mr Jangra ceasing to be involved in the Partnership business. For instance, Mr Rassouli claimed that in early 2009 Mr Barber and Mr Jangra played 'no active role' in the BP Contract variation. However, he accepted in cross-examination that Mr Barber and Mr Jangra were involved in the Partnership business, but disputed the extent of their involvement, when compared with his[51]. However, this does not amount to an inferred agreement to dissolve the Partnership. Even if Mr Barber and Mr Jangra were less involved in the Partnership than Mr Rassouli, or were less involved than they had previously been, this does not mean that they ceased to be partners, or that an agreement to dissolve the Partnership can be inferred.
- The difficulty in inferring a dissolution is shown by Hodson v Hodson[52]. In that case, the Court of Appeal emphasised that the court would not readily infer a dissolution even if one partner ceased to be actively involved in the partnership business and continued only nominal activity. Rimer LJ stated[53]:
"[Dissolution of the partnership] could only have been achieved by an Agreement to that effect by the two partners, but there was none. If, for example, a partner, whether because of wilfulness, idleness or illness, ceases to attend the partnership office and to carry out any of the partnership business, he will not automatically cease to be a partner, any more than an employee who stops performing his duties because of illness will cease to be an employee. Partnership is a contractual relationship carrying with it both benefits and burdens, including a responsibility jointly and severally for the firm's liabilities. The partnership deed or agreement (if, as here, there is one) will usually provide bases on which a partnership relationship can be terminated; and cll.7 and 9 of the partnership deed did provide such bases. None was invoked in this case and there was no evidence of any express or implied dissolution of the partnership. Even if it might be said that after December 2001 Mrs Rowlands' continued activity in the partnership was no more than nominal, there is still no basis for an assertion that she ceased to be a partner at any point earlier than July 31, 2003."
- Similarly, in Pathirana v Pathirana, the appellant was 'virtually a sleeping partner'[54], but that did not prevent him from claiming his share of the partnership profits.
- Mr Hughes also cited cases in which the incorporation of the partnership business has been held to dissolve the partnership and discussions between Mr Jangra and Mr Rassouli (which sought to form a new business organisation, or for Mr Jangra to take shares in Rasco) as evidence that the Partnership was thereby dissolved. These citations are not relevant to show that the Partnership was dissolved. No incorporation occurred in this case and two of the partners may have discussed creating a new structure for the Partnership business, but they never reached any agreement on this subject.
- It follows that there was no evidence available to show that it was possible to infer that the partners had dissolved the Partnership or had agreed that it should be dissolved.
(7) Conclusion
- This Partnership was for a single adventure or undertaking and also for a fixed term and, therefore, was not, in consequence, subject to being determined by notice. There was, therefore, no question of the Partnership being terminated by notice since it was not for an "undefined time". Moreover, the Partnership Agreement did not contain an express or implied power to terminate, there was no evidence that an agreement to terminate could be inferred and it was not terminated by it having been repudiated and there was no evidence that any repudiation had been accepted.
- Answer:
(i) The Partnership Agreement did not provide any partner with the express or implied power to terminate the Partnership in the absence of the agreement of all the partners. Further, had that power existed, it could only have been exercised if the Second Defendant had given each of the other two partners notice of termination and no effective notice of termination was ever served on either of them.
(ii) The Partnership was for a single adventure or undertaking within section 32(b) of the Partnership Act and could only be terminated prior to the expiry of that time-limited adventure or undertaking by the agreement made between all the partners or by order of the court.
(iii) The Partnership was not dissolved by inferred agreement or by the conduct of any one or two partners since it was not capable of being dissolved on these grounds. Furthermore, even if the Partnership was capable of being dissolved on these grounds, no inferred agreement or conduct sufficiently grave to give rise to a non-statutory dissolution on these grounds was established.
Issue 5: If so, was the Partnership so dissolved by the Second Defendant on any of the dates listed below (and, if so, which?)
(1) Introduction
- This issue only arises if the Partnership was capable of being dissolved by an express agreement, an inferred agreement, notice or an accepted repudiation. Even if any of these ways of dissolving the Partnership was possible, a dissolution did not, on the facts, occur on any of the dates dealt with in this issue. Since these are the only dates contended for by Mr Rassouli as being the dates on which the Partnership was dissolved, it follows that even on his case, the Partnership still subsists.
- Many of these dates fell away during the course of the cross-examination of Mr Rassouli. Most importantly, he appears to have accepted that the Partnership continued in existence until the Azeri court order of 26 November 2009[55]. In answer to the court's question as to whether it was correct that the Partnership did not come to an end until the Azeri court issued its order, Mr Rassouli replied 'Correct' and 'probably, yes'. This concession undermined his case that the Partnership was dissolved on any of the dates prior to that. Each of the earlier dates will, nonetheless, be considered.
- Moreover, as noted above under Issue 1A, even if it emerges that the Partnership was dissolved on any of these dates, that finding would only put the Partnership into dissolution. It would not wind up the Partnership's affairs or give Mr Rassouli or Rasco the right to keep the benefit of the extended and renewed BP Contracts. The BP Contract would remain an asset of the Partnership until it expired or was disposed of in the winding-up by a sale of the beneficial interest to Rasco for value. This is clear from the Don King case [56].
(2) 21 January 2009
- The defendants' pleaded case remained that Mr Rassouli terminated the Partnership Agreement at a meeting with Mr Barber on 21 January 2009 at which Mr Barber was told that he and Mr Jangra were no longer required. In cross-examination, Mr Rassouli accepted that there was no termination on 21 January 2009. Mr Roe asked Mr Rassouli:
"Q. Can we agree [that the pleaded case about what happened on 21 January] is untrue, because it contradicts everything that you have been saying in your evidence for the last hour or so? Your evidence has been that Mr Barber's involvement was not terminated until 2 April, so can we agree that it's not true to say, as you do here, that it was terminated on 21 January?"
To which Mr Rassouli replied:
"A. You're absolutely right. I think 21 January was more of a notification than termination. I'm sorry, termination was maybe used wrongly by myself."
And slightly later on:
"A. It was a notification to Mr Barber that things were not going well and that I was not happy with his performance[57]."
- Later still, Mr Rassouli made similar comments: 'I see January 2009 as serious warning to Mr Barber. I do not see it as a termination of the contract' and he accepted the court's suggestion that it was 'a mistake' when he said that the Partnership ended in January.
- In her evidence, Raya Magaramova also rejected the suggestion that Mr Barber was removed from the project in January, stating that it was in April instead[58].
- As Mr Rassouli accepted, the suggestion that the Partnership was terminated on 21 January 2009 was contradicted by the documents. Mr Rassouli continued to email Mr Barber and Mr Jangra for several months after this date on matters relating to the Partnership and the BP Contract. Plainly he would not have sent these emails after 'dismissing' Mr Barber and, equally plainly, no dissolution occurred at the 21 January 2009 meeting.
(3) 4 March 2009
- On 4 March 2009, a meeting took place between Mr Jangra and Mr Rassouli during which a re-organisation of the Partnership was discussed. Mr Rassouli's case, as pleaded, about this discussion was:
"The Partnership
has been terminated by notice ... as a result of the meeting held between the Second Defendant and the Second Claimant on 4 March 2009. At this meeting, plainly expressing the position both of himself and the First Claimant, the Second Claimant proposed re-structuring of the Project and wanted a new business organisation in place of what has only recently been characterised as a partnership. The Court is invited to infer from this conduct that the First Claimant, the Second Claimant and the Second Defendant all regarded the partnership as irretrievably at an end, and dissolved."
- This pleading suggests that it should be inferred that an agreement to dissolve the Partnership was reached by all the parties at this meeting.
- This suggestion is untenable. All that occurred was a preliminary discussion between two of the partners as to a possible re-structuring their relationship. That cannot be construed as an implied agreement that the partnership was dissolved from that date. Moreover, this discussion never resulted in any agreement. Mr Rassouli's evidence was that he never replied to Mr Jangra about this proposed new relationship. He stated in his witness statement:
"Kamal said he would give me until the end of March to decide on the new organization set up. I did not respond to him."
- It is therefore not possible to infer an end to the Partnership from these discussions. They were clearly aimed at continuing the relationship between the parties in a different corporate form and were not aimed at ending it.
(4) 2 April 2009
- On this date, Mr Rassouli sent a letter on behalf of Rasco to Mr Barber. The letter was addressed to Ceng's office in Cyprus and it was sent as a scanned attachment to an email sent to Mr Barber. The letter purported to require Mr Barber to 'cease all contact with BP on behalf of Rasco' and advised Mr Barber to 'treat this letter as full and final termination of your association with this project'.
- As has already been found in this judgment, it is necessary to distinguish between, on the one hand, Mr Barber's executive role as project manager on Rasco's performance of the BP Contract and, on the other hand, his role as a partner in the Partnership under the Partnership Agreement. This distinction was clearly recognised by the partners, as shown by an email from Mr Rassouli to Mr Jangra in which he raises the need to find an alternative person as project manager to replace Mr Barber. Mr Rassouli stated in that email:
"Obviously Neil's partnership stays intact".
When this was put to him in cross-examination, Mr Rassouli accepted that Mr Barber's partnership was unaffected by whether or not he was project manager[59].
- The 2 April 2009 letter purported to terminate Mr Barber's role on the BP Contract with regard to BP. It stated that he was no longer to be involved with BP as a representative of Rasco. However, this letter did not operate to terminate the Partnership Agreement or the Partnership. It made no reference to the Partnership Agreement or to the Partnership and only dealt with Rasco and the Partnership's external relations with BP. Therefore, this letter did not operate as, and ought not to be construed as being, a notice of dissolution of the Partnership.
- This is also confirmed by Mr Rassouli's evidence. He states that he did not remove Mr Barber on 2 April 2009, but rather accepted BP's decision to remove Mr Barber:
"I did not remove Mr Barber. It was BP did it. I did not remove Mr Barber. That was BP and that was BP's decision, that was something which was forced on me. I had to do what BP asked me to do on April 2[60]."
- This passage from Mr Rassouli's evidence demonstrates that he did not see himself as terminating the Partnership on 2 April 2009, only as terminating Mr Barber's role as project manager, that is his role as regards BP. BP plainly would not have been concerned about whether Mr Barber profited from the Partnership, only whether he was involved in the performance of the BP Contract.
(5) 26 June 2009
- This date refers to another meeting between Mr Rassouli and Mr Jangra. Mr Rassouli's evidence as to this meeting did not refer to a notice of termination or dissolution of the Partnership. There was no elaboration as to how this meeting could be construed as a dissolution. There is nothing to support the contention that a dissolution occurred on this date.
(6) August 2009
- Mr Rassouli contended that Mr Jangra, by submitting invoices from Ceng to Mr Rassouli in August 2009, thereby indicated that the Partnership was at an end. This was clearly not the case. Mr Barber had been submitting Ceng invoices throughout the Partnership and Rasco had paid out on many of them. This latest submission simply added invoices which had not previously been submitted or paid, some dating back for some years.
- Mr Rassouli also accepted that there was no dissolution of the Partnership in August, since it continued in existence after that date in order to resolve the outstanding financial and commercial issues between the parties[61].
(7) 26 December 2009
- On this date, Mr Mustafayev, Mr Rassouli's lawyer, sent Mr Barber and Mr Jangra an English translation of the default judgment of the Azeri court that purportedly terminated the Partnership Agreement. The Azeri court order cannot be recognised by the English court as a matter of law since it was a default judgment following the issue of proceedings which were never served and, moreover, the Azeri court had no jurisdiction in relation to any dispute arising out of the Partnership which was governed by English law.
- It was contended on behalf of Mr Rassouli that, as a matter of fact, the default judgment constituted his notice of a dissolution of the Partnership that was served on each of the other partners. However, the difficulty with this argument is that the judgment was the result of asking the court in Azerbaijan whether it was prepared to terminate the Partnership Agreement, evidently with prospective effect. Yet Mr Rassouli's own case was that the judgment was merely provisional, subject to whatever Mr Barber and Mr Jangra might say at the appeal to which they were entitled. This would have then reopened the entire case and started a trial once again.
- Moreover, had Mr Rassouli intended the Azeri proceedings to have been a notice of his intention to dissolve the Partnership, he could simply have notified Mr Barber and Mr Jangra of this. He was still in email and telephone contact with Mr Jangra, both when he issued proceedings and received the judgment but he did not do so.
- Finally, the document is not in either substance or form a notice of dissolution. It was not issued by Mr Rassouli but was issued by the Azeri court, it does not purport to be a notification by Mr Rassouli that he is dissolving the Partnership but is a notification by the court that it will dissolve the Partnership if the order is not appealed and it was not served on either Mr Barber or Mr Jangra but, instead, was served at an address which was not their address. This situation is different from that in Syers v Syers[62] that was cited by Mr Hughes. There, the notice that was held to have constituted good notice of the relevant intention to dissolve a partnership was a letter and a subsequent pleading which, according to this passage in Lord Cairns' speech:
"
is here the clearest intimation given by the answer that if there is a partnership, the Defendant wishes it no longer to continue."
In this case, there had been no previous indication by Mr Rassouli that he intended to dissolve the partnership, the Azeri court proceedings had not been properly constituted since no notice of the claim had been served on Mr Barber or Mr Jangra, the Azeri court had no jurisdiction to dissolve the Partnership and the claim, on analysis, is one which was seeking to terminate Mr Barber and Mr Jangra's involvement in the BP Contract. For all those reasons, to paraphrase Lord Cairns, the Azeri judgment was not "the clearest intimation that Mr Rassouli wishes the Partnership to continue".
- For all these reasons, the document, when sent out, was not and could not have been a notice of dissolution of the Partnership.
(8) 18 February 2010
- On this date, the claimants obtained a without notice freezing order from the English High Court which froze all of Rasco's assets in England and Wales including the money in the London bank accounts established under the Partnership Agreement.
- This act was not and could not have been a dissolution of the Partnership. The freezing injunction was obtained on the basis that the Partnership Agreement continued to have effect and that the order was required to preserve the assets within the jurisdiction, so that the claimants could pursue its claims under the terms of the Partnership Agreement and the Ceng agreement. Furthermore, it was not suggested to either Mr Barber or Mr Jangra in cross-examination that, by obtaining the freezing injunction, they had dissolved the Partnership.
- Answer:
This issue does not arise and, in any event, the Partnership was not dissolved on any of the dates contended for by the Second Defendant and it still subsists at the date of the Judgment herein.
Issue 6: If issue 4 or (if applicable) issue 5 is answered in the negative, so that the Partnership is subsisting, is it just and equitable that (as all parties contend, albeit for differing reasons) the Partnership be dissolved by the Court under section 35(f) of the Partnership Act 1890?
- The Partnership still subsists. The parties are in agreement that the Partnership should be dissolved on the 'just and equitable' ground, even if they differ as to the reasons for the dissolution. This issue therefore appears to have been resolved by agreement. In any event, it is self-evident that the Partnership has broken down and that it cannot any longer operate. It would, given the conduct of Mr Rassouli, be inequitable to consider dissolving the Partnership on any other ground than that provided for by section 35(f) of the Act.
- Answer:
Yes. All three partners agree that the Partnership should be dissolved by the court. The dissolution should be ordered under section 35(f) of the Partnership Act on the grounds that it is just and equitable to dissolve it.
Issue 7: Should the Court order various accounts and an enquiry - general?
- Yes. Partners are entitled to have an account from their co-partners of all things which may affect their partnership[63]. The accounts of the Partnership have not yet been taken. A direction for the taking of the necessary accounts and any necessary enquiries are the normal remedies ordered on the dissolution of a partnership in order to settle the final accounts between the parties and wind up the partnership. The parties now agree that there should be an account and, subject to drafting the appropriate order, appropriate accounts and enquiries will be ordered.
- The taking of the account need not be, and should not be, a complex matter. However, the parties should first attempt to agree on the appropriate procedure for the necessary accounts and enquiries and, in so doing, should consider whether they can agree to a mediation or to an out-of court determination by an expert or an arbitrator if informal methods are unable to settle the accounts and enquiries. The court remains as a place of last resort to settle the necessary accounts and enquiries.
Issue 7(i): Should the Court order an account of the Partnership's assets and liabilities?
- As part of this process, there would be an account of the Partnership's assets and liabilities. The assets in question should include a simple list of fixed and other assets and the liabilities should include all BP Contract-related debts owed by Rasco to all creditors.
- Answer:
Yes. The form and extent of the account and the procedure to be adopted for determining the account remain to be agreed or determined.
Issue 7(ii): Should the Court order an enquiry as to the capital value of the BP Contract?
- The BP Contract and each of the variations, extensions and replacement contracts will have to be valued as a Partnership asset by a suitable expert or experts.
- Answer:
Subject to an order which has yet to be given that the BP Contract should be sold, it should be subject to an enquiry as to its capital value. The form and extent of the enquiry and the procedure to be adopted for determining that enquiry remain to be agreed or determined.
Issue 7(iii): Should the Court order an account of the Partnership's income and expenditure from inception to the date of dissolution?
- Answer:
Yes.
Issue 7(iv): Should the court order an account (if applicable) of the receipts, payments, dealings and transactions of the Defendants in respect of the business and assets of the Partnership and their proceeds since dissolution?
- This remedy is not applicable since the Partnership has not yet been dissolved. The claiming partners have given notice that, when the necessary accounts are prepared, they will also claim a remedy for breach of fiduciary duty and under section 29 of the Act. This is because, so they contend, in continuing to run the Partnership business with the same contract, resources, staff, goodwill and knowledge, Mr Rassouli continued to use the Partnership assets, including Mr Barber and Mr Jangra's share in them. Therefore, all profits from the continued business are attributable to the use of the Partnership's assets.
- Answer:
Not applicable. The Partnership has not yet been dissolved.
Issue 7(v): Should the Court order that there be a management allowance for the Second Defendant in respect of his management of the Partnership's assets (and, if so, for what period and in what sum)?
- In principle, Mr Rassouli is entitled to claim a management allowance. It should be noted that the claimants contend that any allowance should be in accordance with the Partnership Agreement, Clause 4.3 of which provides for a fee of US $1,000 per month for each of the three partners. No other allowance is permitted and any payment of any more generous allowance would, they will also contend, contravene the prohibitions on such payments in clause 4.1 of the Partnership Agreement and in section 24(6) of the Act.
- The claimants also contend that it would appear that Mr Rassouli has in mind an allowance under section 42 of the Act for Mr Rassouli's 'trouble' in managing the Partnership after the exclusion of Mr Barber and Mr Jangra. However, this allowance is not paid to a party who is guilty of a breach of trust, as, so Mr Barber and Mr Jangra contend, Mr Rassouli is[64].
- Answer:
In principle, and subject to any further direction or Partnership Agreement during the account-taking exercises, the Second Defendant may be paid a management allowance in accordance with and subject to the limits contained in clause 4.3 of Partnership Agreement.
Issue 7(vi): Should the Court order an account of the amounts which ought to be placed to the credit or the debit of each of the First Claimant, the Second Claimant and the Second Defendant in respect of capital, advances and drawings?
- Since no Partnership accounts have ever been prepared and the accounts of payments made to Ceng and credited to Rasco and Mr Rassouli have never been audited, the account should include any sum which ought to be placed to the credit or debit of each of the partners whose source is the BP Contract.
- Answer:
Yes, in principle. These accounts should include any payments made to the Third Claimant and any sum invoiced by the Third Claimant including claims for interest.
Issue 7(vii): Should the Court order an account of the sum, if any, to which each of the First Claimant the Second Claimant and the Second Defendant is entitled by way of interest on advances and/or capital?
- Answer:
Yes, in principle but subject to further directions as to the entitlement to such interest and as to the nature and extent of the account.
Issue 7(viii): Should the Court order any other accounts and enquiries?
- Answer:
Not at this stage. The parties or the court may order further accounts or enquiries at a later stage if this can be shown to be necessary or desirable.
Issue 8: If issue 7 is answered in the affirmative, at (or, as the case may be, between) what date or dates should the accounts and enquiries be taken and made?
- Normally, a partnership dissolution is ordered at the date of judgment[65]. Therefore, the accounts should be taken for the whole period of the Partnership.
- The claiming parties have reserved their position on the dates between which the accounts should be taken. They rely on Mullins v Laughton[66] where Neuberger J held that, although a dissolution only took effect from the date of judgment, an excluded partner could elect between the date of judgment and the date of his exclusion as the date when the account was to be taken. This was because of the judge's findings about the other partner's behaviour, at and since the date of exclusion. In those circumstances, the claiming parties wish to preserve their right to apply to court seeking a dissolution account at a different date in the light of what the accounts and enquiries uncover. For example, if it were to emerge that Mr Rassouli had in fact made substantial losses after excluding Mr Barber and Mr Jangra, the latter would wish to argue at that stage for an earlier dissolution date. Although that kind of contingency seems remote, they should be entitled to apply at a later stage for the accounts to be prepared on a different basis if they wish.
- Answer:
The date of judgment subject to any application and determination during the winding-up of the Partnership that that date should be brought forward or postponed on account of the conduct of any one or more of the partners.
Issue 9: Having regard to the provisions of clause 4.4 of the July 2006 Partnership Agreement, at what date or dates and in accordance with what principles is gross profit to be determined?
- The defending parties have pointed to the possible distinction between producing annual profit accounts and producing one account for the total duration of the Partnership, carrying over profit where appropriate. They accept that there is nothing in the Partnership Agreement to prohibit the carrying over of profit from one year to the next.
- However, no annual account was taken and Mr Rassouli did not object to that course being taken. It is no longer fair for the accounts to be taken on an annual basis and they should be drawn up for the whole period of the Partnership.
- Answer:
Since no annual account was taken and no partner objected to this course being taken, the accounts now to be drawn up as part of the winding-up of the Partnership, including any determination of gross profit, should be drawn up for the whole period of the life of the Partnership and not on a year-by-year basis.
Issue 10: If the question in issue 7 is answered in the affirmative, should the Court continue the interim relief previously granted until the accounts and enquiries have been taken and made?
- The form and extent of the interim relief that should be kept in place should be dealt with separately from, and in the light of, this judgment. In principle, the interim relief should be tailored to provide Mr Barber and Mr Jangra the greatest possible protection of their interests in the Partnership assets pending the finalisation of the accounts whilst balancing against that the interests of Mr Rassouli and the paramount interest for all three partners of ensuring that the BP Contract retains and maintains its value including its income-producing potential.
- Answer:
Yes, in principle. The form and extent of the interim relief should be such as to, in the period pending the finalisation of the winding-up of the Partnership:
(1) Preserve the sums currently held and the future receipts and income of Partnership assets for the benefit of the Partnership;
(2) Provides the means of paying the costs of any partner that are ordered to be paid by another partner out of profits that would otherwise be distributed to that other partner; and
(3) Permits the BP contract to continue without jeopardising its future and its current value.
B. Third Claimant's claim against the First Defendant
Issues 11 and 13
Subject to:
(a) proof that the First and Second Claimants provided the professional services referred to in the invoices mentioned in paragraph 23 of the Amended Particulars of Claim and the professional services referred to in paragraph 25 of the Amended Particulars of Claim, and
(b) the effect (if any) on the amount recoverable of the Defendants' contentions as to the competence with which such services were provided
(which issues are to be deferred;) and
(c) the issues mentioned below in issue 17,
Is the Third Claimant entitled in principle to recover from the First Defendant the sums in respect of professional services and expenses mentioned in paragraphs 23 and 25 of the Amended Particulars of Claim?
- The answer is clear. The sums claimed for these professional services, subject to the stated provisos, should be reflected in the accounts. This is what is provided for in the Ceng sub-contract with Rasco. Clause 1 of that agreement states:
CENG has agreed to sub-contract their professional personnel to RASCO to be engaged in Cathodic Protection project. RASCO has a contract with BP to execute that project.
- The consideration for Ceng sub-contracting its professional services to Rasco was that Rasco would pay for the services of those personnel. Ceng was the vehicle by which Mr Barber and Mr Jangra provided their services to the Partnership. Rasco was the vehicle by which the Partnership held the BP Contract. It follows that Rasco was obliged to pay for these services out of funds which it held for the Partnership.
- As regards expenses, these have been incurred by Ceng personnel as part of their being sub-contracted to Rasco under clause 1 of the Ceng agreement. The reimbursement of these expenses is part of the consideration for the Ceng-Rasco Partnership Agreement. These were expenses incurred working for the Partnership, which were simply invoiced through Ceng as the vehicle for Mr Barber and Mr Jangra's services. Rasco is obliged to pay these expenses on behalf of the Partnership. Clause 4.8 of the Partnership Agreement allows the parties to nominate the method by which compensation shall be paid to them. As Mr Jangra said in evidence, Ceng was the method which he and Mr Barber chose to claim their compensation.
- Rasco has actually paid out against some of Ceng's invoices, both for professional services and for expenses. The expenses reimbursed covered flights (explicitly mentioned in clause 2 of the Ceng agreement and clause 4.2 of the Partnership Agreement), and also purchased goods and consultants' salaries (not explicitly mentioned in either clause). Rasco accepted such expenses as legitimate claims under the Ceng agreement and the Partnership Agreement. The following is a selection of such payments, to illustrate that Rasco paid for project services, goods, flights and consultancy fees claimed by Ceng, and therefore must have regarded all of these expenses as being legitimate:
(1) 6 December 2006: Invoice no. IN06-0005 for project services;
(2) 18 January 2007: Invoice no. IN06-0003 for MC Miller kit;
(3) 18 January 2007: Invoice no. IN06-0004 for Mr Barber's flights;
(4) 26 April 2007: Invoice no IN07-0004 for Abdul Chowdry's consultancy fee; and
(5) 26 April 2007: Invoice no IN07-0005 for Abdul Chowdry's flights and visa.
- Answer:
Yes, subject to the caveats contained in sub-paragraphs (a) (c). The sums claimed in paragraphs 23 25 of the Amended Particulars of Claim are claimed as outstanding payment for the value of services rendered to the First Defendant pursuant to the Third Claimant's contract with the First Defendant.
Issues 12 and 14: If not, are the First and Second Claimants entitled in principle (and subject to the same matters) to recover such sums in the account mentioned in issue 7 above (if such be ordered)?
- There is no reason why Mr Barber and Mr Jangra should not recover the relevant sums directly through the account or indirectly through Ceng's sub-contract claim against Rasco. However, they must elect through which route they seek to recover their claims, either on an invoice by invoice basis or for the entirety of their claims. No claim should appear in both places.
- Answer:
Yes. The First and Second Claimants may elect to recover such sums by themselves claiming them in the account-taking exercise or by the Third Claimant pursuing them in its claim against the First Defendant. This election may be on an invoice by invoice basis or for the entirety of the claim but there may not be double-claiming so that the claim or claims must remain being made by the Third Claimant unless and until an election or elections take place at which point that claim may no longer be pursued thereafter by the Third Claimant and may only be pursued through the winding-up of the Partnership.
Issue 15: Have the Claimants proved that the Third Claimant made, and has not been repaid, the loan to the First Defendant mentioned in paragraph 23 of the Amended Particulars of Claim and is the Third Claimant entitled to recover this sum from the First Defendant?
- This loan is the money which Rasco owed to Ceng for its paying off the outstanding salary owed by Rasco to Deepak Piwal for his work on another Rasco project. The Defendants do not dispute the obligation to repay this loan and have repaid it. The Claimants accept that a sum equal to the debt was credited to Mr Jangra's account. This issue no longer arises.
- Answer:
Yes. The loan has been repaid by Rasco to Ceng and the issue no longer arises.
Issue 16: If not, are the First and Second Claimants entitled in principle (and subject to the same matters) to recover such sum in the account mentioned in paragraph B.7 above (if such be ordered)?
- Since the loan was repaid, this issue no longer arises.
- Answer:
Not applicable.
Issue 17: In so far at the Court answers issues 11 to 16 affirmatively, are the Claimants disentitled from recovering the sum in question at all on any, and if so which, of the following grounds:
(i) Because no demand was made for the relevant sum within a reasonable period after the date on which the claim for it arose;
(ii) Because no demand was made for the relevant sum by 31 December in the year in which the claim for it arose;
(iii) Because no demand was made for the relevant sum before the closing-off of the accounts for the year in which the claim for it arose;
(iv) Because the claim for the relevant sum was not, when made, supported by reasonable evidence of cost incurred or other reasonable substantiation in accordance with standard business practice?
And the parties may illustrate their case on issues (i) to (iv) by calling evidence concerning not more than 3 invoices/claims, such to be identified in writing to the opposing party not later than 23 September 2011.
- The defendants have formally abandoned issues (i), (ii) and (iii). On issue (iv), the only remaining dispute relates to the defendants' submission that the claimants should provide more evidence to substantiate their invoices. This is a matter that should be dealt with during the taking of the account and it does not presently arise.
- Answer:
Questions (i) (iii): These questions no longer arise.
Question (iv): This question must be answered as part of the account- taking exercise.
C. Defendants' counterclaims against the First and Second Claimants
- Section 35 of the Partnership Act 1890
Issue 18: (In so far as the Court considers it necessary to determine this question in the light of its answer to the question in paragraph 6), should the Partnership be dissolved under sections 35(c) and/or (d) of the Partnership Act 1890 on the grounds of the First and Second Claimants' conduct and, if so, what conduct?
- This issue will not be answered. The partners all agree that the Partnership has broken down and dissolved on the just and equitable ground. In the light of the findings in this judgment as to the respective behaviour of each partner, it is not appropriate for the court to answer this question since the Partnership should be, and will be, dissolved by the court on the just and equitable ground.
- Answer:
In the exercise of the Court's discretion, the question will not be answered. Since all partners agree that the Partnership has broken down and it is just and equitable to dissolve the Partnership, it is neither necessary nor in accordance with the overriding objective for the court to undertake or resolve issues of conduct since that determination will have no practical purpose or utility.
- Issues 19 22
Issues 19 - 22
19. Is the First Defendant entitled on the basis of the Re-Amended Defence and Counterclaim to advance a counterclaim against the First and Second Claimants for damages for negligence?
20. If so, did the First and Second Claimants owe a duty of care at common law to the First Defendant?
21. If so, did the First and Second Claimants act in breach of such duty and how?
22. If so, has the First Defendant proved what losses it has thereby been caused to suffer in respect of (i) loss of business reputation; (ii) loss of future contracts and/or business; and (iii) costs incurred as a result of being required by BP to enter into the PIP; and are such losses recoverable from the First and Second Claimants?
- On the pleadings, Rasco advanced a counterclaim in negligence against Mr Barber and Mr Jangra personally in negligence. The particulars of breach and of loss have not been sufficiently pleaded and there was no evidence at the trial to show that Rasco had established an entitlement to recover any loss.
- The claiming parties contended that even if the defending parties' claim had been sufficiently pleaded, it did not disclose any cause of action. Their contentions, in summary, were that Rasco was simply the vehicle by which the Partnership held the BP Contract. That was not a basis on which to find a duty of care owed by Mr Barber and Mr Rassouli to such an entity. Moreover, this alleged duty of care would conflict with the partners' duty of good faith to each other. Breach of that duty requires an act committed dishonestly, or with some other improper motive; while recklessness may suffice, negligence will not. It is not however necessary to determine this issue.
- Answer:
(1) Issues 19 - 20: The First Defendant has not properly particularised or established that the First and Second Claimants have acted in breach of any pleaded duty or that they have caused any loss to the First Defendant. In those circumstances, the Court will not determine issues 19 and 20.
(2) Issue 21: No; and
(3) Issue 22: Not applicable.
D. Mark-Up
Issue 23: Were the Claimants' actions in adding a mark-up to certain invoices, submitted by the Third Claimant to the First Defendant in respect of goods supplied by the Third Claimant to the First Defendant for the purposes of the Partnership's business, dishonest and done without the consent of the Second Defendant or honest and done with his consent?
- The Claimants' submission is that the mark-up on certain goods was done honestly and with the full agreement of Mr Rassouli. In particular, Mr Barber is clear that Mr Rassouli agreed to the mark-up and appeared to think it was a good idea. The claimants' case, as put by Mr Barber in his evidence, as to its rationale was summarised by the court during Mr Rassouli's evidence[67] to enable him to comment on it in this way, which was described as being an accurate summary by the claimants' counsel in their written closing submissions:
"Mr Barber explained that. He has always said, he says, and his evidence was also of this kind, I am, on behalf of Ceng, only charging Rasco the cost of the labour and services and materials. In other words, we're doing exactly what you've just said.
During the course of the project, there wasn't enough money to pay everything that Ceng was incurring. We were Ceng that is paying out money for materials such as the Miller kit, we were paying out money on salaries for the expats, but we were not able to get back all that money because there was a shortage of money. So we decided only to invoice for the materials because that was the first type of payment we were wanting back and we chose the materials because we did not have to deduct withholding tax on materials, whereas we did have to deduct withholding tax on salaries, and, because this was a way of getting money to Ceng, we decided it's said in agreement with [Mr Rassouli] to charge in the invoice for the materials plus a little bit more. Now, the little bit more, the mark-up, would have been credited to the outstanding monies on salaries and so on when those were paid, but the advantage of doing it this way was that we were able to get a little bit more when money was tight without having to pay withholding tax.
So the mark-up is not a mark-up that would be for all time, it would only be a temporary additional payment on account, which, when the time came, and that time has now come, we will credit against the overall outstanding claims which are largely due for salaries."
- Mr Rassouli denied that this agreement existed at all and has alleged that the mark-up was dishonest. However, if Mr Barber's evidence is accepted, the mark-up was not designed to make the claimants a profit at the expense of Rasco or the Partnership. While the marked-up cost was invoiced to Rasco and was to be paid for out of Partnership funds, only the actual cost was credited to Ceng. The difference was therefore used to reduce the Partnership's overall global deficit to Ceng. This explanation was consistent with what was shown in the ledger if a comparison was made between what was shown in the debit column (the true amount) with the amount shown in the credit column (the marked-up amount) for each item. These figures were also set out in a table in Mr Barber's first witness statement. Since Mr Barber's unchallenged evidence was that the ledger was built up from time to time on the dates of each entry, the ledger is compelling evidence that it was never intended that Ceng should profit from the mark-up.
- I therefore find that there was no dishonesty, that the mark-up practice that was explained by Mr Barber was correctly described by him and was one that Rasco and Mr Rassouli knew about throughout the time that this practice was used and agreed to it. Although they might not have known about the precise (and variable) percentage mark-up in each case, they clearly agreed to the general level of mark-up, which appears to have been up to 40%. This finding is also based on my not accepting as credible Mr Rassouli's denial, albeit vehement denial, in his evidence that he did not agree with Mr Barber that this practice should be adopted and did not know about it until reading Mr Barber's witness statements.
- Answer:
The mark-up was not dishonest and was done with the knowledge of the First Defendant.
Issue 24: In the light of the Court's answer to the preceding question, should there be an account of all sums paid to and received by the Claimants and each of them?
- The claimants, through counsel, stated in counsel's closing submissions:
"
if the Court thinks that there is any room at all for doubt as to whether or not sums already paid out of Partnership funds were properly paid, they will willingly provide whatever account the Court thinks they should provide."
Although there is no doubt that the sums that were invoiced and paid were not obtained dishonestly or that they were paid on the basis of their containing a temporary mark-up of up to about 40% in the full knowledge and agreement of Mr Rassouli, there is or may be some uncertainty as to the total amount of the mark-ups that were paid and as to what proportion of that mark-up represents genuine mark-up that Ceng was entitled to charge and receive as opposed to a payment on account of other unpaid claims. In those circumstances an account should be taken of the mark-up and the additional cost of that account paid in an equitable manner once the results of that account are known.
- Answer:
Given the nature of the First Defendant's allegation and the extensive account-taking that will in any event take place, an account should none the less be taken of all sums paid to and received by the Claimants and each of them pursuant to the invoices submitted by the Third Claimant. The additional costs of that particular account should be reserved and paid for as directed following the account following a consideration of the extent to which it was reasonable and necessary to incur those additional costs.
Issue 25: Does the Court's answer to Issue 23 affect the recoverability of the sums mentioned in section B above and, if so, how?
- This issue is premised on there being a finding of dishonesty in issue 23. Since there was no dishonesty, there is no basis for the mark-up practice affecting or altering the recoverability of sums by any one partner or the manner and way in which the Partnership accounts are prepared. Those accounts will, of course, give appropriate credit for sums marked up that were not mark-ups to which Ceng was entitled to on the items being invoiced.
- Answer:
No.
HH Judge Anthony Thornton QC
Appendix 1 The Issues and the Court's Answers
A. First and Second Claimants' claim against the Second Defendant
It being agreed that:
(i) In or before July 2006 the First Claimant, the Second Claimant and the Second Defendant became partners (within the meaning of the Partnership Act 1890) on the terms of the July 2006 Partnership Agreement;
(ii) The BP Contract (which expression includes an extension and/or variation of the original contract within the meaning of the July 2006 Partnership Agreement) continues in existence;
(iii) The money in the dedicated bank accounts constitutes part of the proceeds of the BP Contract:
- Is the BP Contract an asset which belongs in equity to the Partnership or does the First Defendant hold it free of any other interest?
Answer:
The BP Contract is an asset of the Partnership and it must be held and operated exclusively for the benefit of the Partnership and in accordance with the terms of the Partnership Agreement. The variations, extensions and replacement BP Contracts entered into with BP, including that dated 4 May 2010, were all renewals, variations or replacements of the original BP Contract and all of them are, therefore, assets of the Partnership.
- A. What would be the effect on the account of a finding (contrary to the Claimants' case) that the Partnership is already in dissolution?
Answer:
The BP Contract, including any renewal, variation or replacement contract, remains and continues to be an asset of the Partnership until it and any renewal, variation or replacement of it have expired or are disposed of in the winding-up of the Partnership. The BP Contract entered into by Rasco with BP and dated 4 May 2010 is such a renewal, variation or replacement and it is therefore an asset of the Partnership.
- Does the First Defendant hold the money in the dedicated bank accounts on trust for the Partnership or free of any other interest?
Answer:
Yes, on trust for the Partnership until the Partnership is dissolved and its winding-up has been completed.
- In so far as the First Defendant or the Second Defendant is in possession of any other money or property, being derived from the BP Contract, is such money or other property held by that Defendant on trust for the Partnership or free of any other interest?
Answer:
Yes, on trust for the Partnership until the Partnership is dissolved and its winding-up has been completed.
- Was the Partnership capable of being dissolved unilaterally by the Second Defendant, either by express or implied notice of dissolution or under clause 1.4 of the July 2006 Partnership Agreement?
Answer:
No. In particular:
(i) The Partnership Agreement did not provide any partner with the express or implied power to terminate the Partnership in the absence of the agreement of all the partners. Further, had that power existed, it could only have been exercised if the Second Defendant had given each of the other two partners notice of termination and no effective notice of termination was ever served on either of them.
(ii) The Partnership was for a single adventure or undertaking within section 32(b) of the Partnership Act and could only be terminated prior to the expiry of that time-limited adventure or undertaking by agreement between all the partners or by order of the court.
(iii) The Partnership was not dissolved by inferred agreement or by the conduct of any one or two partners since it was not capable of being dissolved on these grounds. Furthermore, even if the Partnership was capable of being dissolved on these grounds, no inferred agreement or conduct sufficiently grave to give rise to a non-statutory dissolution on these grounds was established.
- If so, was the Partnership so dissolved by the Second Defendant on any of:
(i) 21 January 2009;
(ii) 4 March 2009;
(iii) April 2009;
(iv) 26 June 2009;
(v) August 2009;
(vi) 26 December 2009; or
(vii) 18 February 2010
(and, if so, which)?
Answer:
This issue does not arise and, in any event, the Partnership was not dissolved on any of the dates contended for by the Second Defendant and it still subsists at the date of the Judgment herein.
- If the question in paragraph 4 or (if applicable) the question in paragraph 5 is answered in the negative, so that the Partnership is subsisting, is it just and equitable that (as all parties contend, albeit for differing reasons) the Partnership be dissolved by the Court under section 35(f) of the Partnership Act 1890?
Answer:
Yes. All three partners agree that the Partnership should be dissolved by the court. The dissolution should be ordered under section 35(f) of the Partnership Act on the grounds that it is just and equitable to dissolve it.
- Should the Court order:
(i) An account of the Partnership's assets and liabilities;
Answer:
Yes. The form and extent of the account and the procedure to be adopted for determining the account remain to be agreed or determined.
(ii) An enquiry as to the capital value of the BP Contract;
Answer:
Subject to an order which has yet to be given that the BP Contract should be sold, it should be subject to an enquiry as to its capital value. The form and extent of the enquiry and the procedure to be adopted for determining that enquiry remain to be agreed or determined.
(iii) An account of the Partnership's income and expenditure from inception to the date of dissolution;
Answer:
Yes.
(iv) An account (if applicable) of the receipts, payments, dealings and transactions of the Defendants in respect of the business and assets of the Partnership and their proceeds since dissolution;
Answer:
Not applicable. The Partnership has not yet been dissolved.
(v) That there be a management allowance for the Second Defendant in respect of his management of the Partnership's assets (and, if so, for what period and in what sum);
Answer:
In principle, and subject to any further direction or Partnership Agreement during the account-taking exercises, the Second Defendant may be paid a management allowance in accordance with and subject to the limits contained in clause 4.3 of Partnership Agreement.
(vi) An account of the amounts which ought to be placed to the credit or the debit of each of the First Claimant, the Second Claimant and the Second Defendant in respect of capital, advances and drawings;
Answer:
Yes, in principle. These accounts should include any payments made to the Third Claimant and any sum invoiced by the Third Claimant including claims for interest.
(vii) An account of the sum, if any, to which each of the First Claimant the Second Claimant and the Second Defendant is entitled by way of interest on advances and/or capital;
Answer:
Yes, in principle but subject to further directions as to the entitlement to such interest and as to the nature and extent of the account.
(viii) Any other accounts and enquiries?
Answer:
No at this stage. The parties or the court may order any further account or enquiry at a later stage if this can be shown to be necessary or desirable.
- If the question in paragraph 7 is answered in the affirmative, at (or, as the case may be, between) what date or dates should the accounts and enquiries be taken and made?
Answer:
The date of judgment subject to any application and determination during the winding-up of the Partnership that that date should be brought forward or postponed on account of the conduct of any one or more of the partners.
- Having regard to the provisions of clause 4.4 of the July 2006 Partnership Agreement, at what date or dates and in accordance with what principles is gross profit to be determined?
Answer:
Since no annual account was taken and no partner objected to this course being taken, the accounts now to be drawn up as part of the winding-up of the Partnership, including any determination of gross profit, should be drawn up for the whole period of the life of the Partnership and not on a year-by-year basis.
- If the question in paragraph 7 is answered in the affirmative, should the Court continue the interim relief previously granted until the accounts and enquiries have been taken and made?
Answer:
Yes, in principle. The form and extent of the interim relief should be such as to, in the period pending the finalisation of the winding-up of the Partnership:
(i) Preserve the sums currently held and the future receipts and income of Partnership assets for the benefit of the Partnership;
(ii) Provides the means of paying the costs of any partner that are ordered to be paid by another partner out of profits that would otherwise be distributed to that other partner; and
(iv) Permits the BP contract to continue without jeopardising its future and its current value.
B. Third Claimant's claim against the First Defendant
- Subject to:
(a) Proof that the First and Second Claimants provided the professional services referred to in the invoices mentioned in paragraph 23 of the Amended Particulars of Claim and the professional services referred to in paragraph 25 of the Amended Particulars of Claim, and
(b) The effect (if any) on the amount recoverable of the Defendants' contentions as to the competence with which such services were provided
(which issues are to be deferred) and
(c) The issues mentioned below in paragraph 17,
is the Third Claimant entitled in principle to recover from the First Defendant, in respect of such services, the sums mentioned in paragraphs 23 and 25 of the Amended Particulars of Claim?
Answer:
Yes, subject to the caveats contained in sub-paragraphs (a) (c). The sums claimed in paragraphs 23 25 of the Amended Particulars of Claim are claimed as outstanding payment for the value of services rendered to the First Defendant pursuant to the Third Claimant's contract with the First Defendant.
- If not, are the First and Second Claimants entitled in principle (and subject to the same matters) to recover such sums in the account mentioned in paragraph 7 above (if such be ordered)?
Answer:
Yes. The First and Second Claimants may elect to recover such sums by themselves claiming them in the account-taking exercise or by the Third Claimant pursuing them in its claim against the First Defendant. This election may be on an invoice by invoice basis or for the entirety of the claim but there may not be double-claiming so that the claim or claims must remain being made by the Third Claimant unless and until an election or elections take place at which point that claim may no longer be pursued thereafter by the Third Claimant and may only be pursued through the winding-up of the Partnership.
- Subject to:
(a) Proof that the Third Claimant incurred the expenses referred to in the invoices mentioned in paragraph 23 of the Amended Particulars of Claim
(which issue is to be deferred); and
(b) The issues mentioned below in paragraph 17;
is the Third Claimant entitled in principle to recover from the First Defendant, in respect of such expenses, the sums mentioned in paragraph 23 of the Amended Particulars of Claim?
Answer:
Yes. The sums claimed in paragraphs 23 25 of the Amended Particulars of Claim are claimed as outstanding payment for the value of services rendered to the First Defendant pursuant to the Third Claimant's contract with the First Defendant.
- If not, are the First and Second Claimants entitled in principle (and subject to the same matters) to recover such sums in the account mentioned in paragraph 7 above (if such be ordered)?
Answer:
Yes. The First and Second Claimants may elect to recover such sums by themselves claiming them in the account-taking exercise or by the Third Claimant pursuing them in its claim against the First Defendant. This election may be on an invoice by invoice basis or for the entirety of the claim but there may not be double-claiming so that the claim or claims must remain being made by the Third Claimant unless and until an election or elections take place at which point that claim may no longer be pursued thereafter by the Third Claimant and may only be pursued through the winding-up of the Partnership.
- Have the Claimants proved that the Third Claimant made, and has not been repaid, the loan to the First Defendant mentioned in paragraph 23 of the Amended Particulars of Claim and is the Third Claimant entitled to recover this sum from the First Defendant?
Answer:
Yes. The loan has been repaid by Rasco to Ceng and the issue no longer arises.
- If not, are the First and Second Claimants entitled in principle (and subject to the same matters) to recover such sum in the account mentioned in paragraph 7 above (if such be ordered)?
Answer:
Not applicable.
- In so far at the Court answers the questions in paragraphs 0 to 0 affirmatively, is the Third Claimant (or, as the case may be, are the First and Second Claimants) disentitled from recovering the sum in question at all on any, and if so which, of the following grounds:
(i) Because no demand was made for the relevant sum within a reasonable period after the date on which the claim for it arose;
(ii) Because no demand was made for the relevant sum by 31 December in the year in which the claim for it arose;
(iii) Because no demand was made for the relevant sum before the closing-off of the accounts for the year in which the claim for it arose;
(iv) Because the claim for the relevant sum was not, when made, supported by reasonable evidence of cost incurred or other reasonable substantiation in accordance with standard business practice?
And the parties may illustrate their case on issues (i) to (iv) by calling evidence concerning not more than 3 invoices/claims, such to be identified in writing to the opposing party not later than 23 September 2011.
Answer:
Questions (i) (iii) no longer arise.
This question must be answered as part of the account-taking exercise.
C. Defendants' counterclaims against the First and Second Claimants
1. Section 35 of the Partnership Act 1890
- (In so far as the Court considers it necessary to determine this question in the light of its answer to the question in paragraph 6), should the Partnership be dissolved under sections 35(c) and/or (d) of the Partnership Act 1890 on the grounds of the First and Second Claimants' conduct and, if so, what conduct?
Answer:
In the exercise of the Court's discretion, the question will not be answered. Since all partners agree that the Partnership has broken down and it is just and equitable to dissolve the Partnership, it is neither necessary nor in accordance with the overriding objective for the court to undertake or resolve issues of conduct since that determination will have no practical purpose or utility.
2. Issues 19 22
- Is the First Defendant entitled on the basis of the Re-Amended Defence and Counterclaim to advance a counterclaim against the First and Second Claimants for damages for negligence?
- If so, did the First and Second Claimants owe a duty of care at common law to the First Defendant?
- If so, did the First and Second Claimants act in breach of such duty and how?
- If so, has the First Defendant proved what losses it has thereby been caused to suffer in respect of (i) loss of business reputation; (ii) loss of future contracts and/or business; and (iii) costs incurred as a result of being required by BP to enter into the PIP; and are such losses recoverable from the First and Second Claimants?
Answer:
The First Defendant has not properly particularised or established that the First and Second Claimants have acted in breach of any pleaded duty or that they have caused any loss to the First Defendant. In those circumstances, the Court will not determine issues 19 and 20 and answers:
Issue 21: No; and
Issue 22: Not applicable.
D. Mark-Up
- Were the Claimants' actions in adding a mark-up to certain invoices, submitted by the Third Claimant to the First Defendant in respect of goods supplied by the Third Claimant to the First Defendant for the purposes of the Partnership's business, dishonest and done without the consent of the Second Defendant or honest and done with his consent?
Answer:
The mark-up was not dishonest and was done with the knowledge of the First Defendant.
- In the light of the Court's answer to the preceding question, should there be an account of all sums paid to and received by the Claimants and each of them?
Answer:
Given the nature of the First Defendant's allegation and the extensive account-taking that will in any event take place, an account should none the less be taken of all sums paid to and received by the Claimants and each of them pursuant to the invoices submitted by the Third Claimant. The additional costs of that particular account should be reserved and paid for as directed following the account following a consideration of the extent to which it was reasonable and necessary to incur those additional costs.
- Does the Court's answer to the question at paragraph 23 affect the recoverability of the sums mentioned in section B above and, if so, how?
Answer:
No.
Appendix 2 The Partnership Agreement
(pages 100-106)
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