NEUTRAL CITATION
No. [2004] EWHC 1513 (Ch)
IN THE HIGH COURT
CHANCERY DIVISION
Friday 25th June 2004
Between:
-and-
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The Claimant
in Person
D McCue (Placidi & Co) for the Defendant
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1. This is a dispute over the ownership of a gym business ("the Business") known originally when established in April 1993 as World Gym Southampton, from September 1994 as the Zone Aerobics and Fitness Centre and more recently as Zone Health and Fitness Centre. Throughout, the Business has been conducted in the name of the defendant, Mr Pickering, as a sole trader. The business accounts are sole trader accounts and in a lot of the other documentation that I have seen Mr Pickering is named as the proprietor. The lease of the premises from which, throughout its life, the Business has operated (at Centurion Industrial Park, Northam Bridge Road, Southampton) has been held in Mr Pickering's sole name. Employees working in the Business have contracts with Mr Pickering as the sole employer.
2. The claimant, Mr Lloyd, claims that the Business was, in effect, a joint venture in which he and Mr Pickering were and all along remained equal participants. He seeks a declaration that Mr Pickering holds the Business on trust for the two of them in equal shares, alternatively in such shares as the court thinks fit, and a declaration that Mr Pickering holds one half of the net sale proceeds of the Business on trust for him, after taking account of its proper expenses. He claims damages for breach of trust and contract, an injunction to restrain Mr Pickering from excluding him from the Business pending its sale, and accounts and enquiries. In the alternative, he claims that the Business was carried on as a partnership between the two of them and seeks an order that the affairs of the partnership be wound up. He also relies on proprietary estoppel. Mr Pickering disputes all of these claims.
3. There is a separate dispute between the parties over the ownership of an apartment at 71, The Chronos Building, 9-25 Mile End Road, London E1, together with a parking space ("the Chronos property") which was acquired in the name of Mr Lloyd on 12 October 2000 for an overall price, inclusive of expenses and net of an allowance, of £250,138.67. Mr Pickering claims that this property is owned by him and Mr Lloyd in equal shares. He counterclaims for a declaration to that effect and an order for the sale of the property with an equal division of the net sale proceeds. In the alternative, he asks the court to declare what the shares are in which the property is owned. Mr Lloyd denies that Mr Pickering has any interest in the property. He admits that Mr Pickering made a loan to him towards its acquisition. He says that he is willing to repay what is due. He seeks a declaration that he is the sole beneficial owner of the property and a declaration as to the terms on which he is obliged to make repayment of Mr Pickering's loan to him.
4. This trial has necessitated a close investigation of the parties' business and, to an extent, personal relationship going back to late 1991 when the idea of establishing a fitness centre first arose. It has also necessitated examining a number of property transactions, culminating in the purchase of the Chronos property.
5. The conduct of the trial has not been assisted by very late disclosure, the absence of a number of key documents relating to the circumstances in which the Business was established, the unhelpful manner in which the documentation, which is voluminous, has been prepared for trial (for which Mr Pickering and those acting for him are not responsible) and the fact that Mr Lloyd, owing I was told to lack of funds, has appeared in person at the trial (although he had the advantage of representation by solicitors and counsel until almost the eve of trial). Mr Lloyd, I should say, has conducted his case with care, courtesy and considerable skill.
6. Despite the voluminous documentation, there were very few documents which touched on the circumstances in which the Business was established or which shed much light on the nature of their subsequent business relationship. Some of the later documents were supportive of Mr Lloyd's claim to a share in the Business; others were supportive of Mr Pickering's claim that Mr Lloyd had no interest.
7. As between Mr Lloyd and Mr Pickering there was very little to choose as regards veracity and reliability. Both came across as credible witnesses. Each clearly had wholly different and genuinely held perceptions of past events and explanations for them. Where Mr Pickering came across as outgoing in nature, Mr Lloyd appeared to be somewhat introverted. Mr Pickering's strengths, it is clear, are in his skills as a salesman and his ability to mix with staff and others. He clearly had and inspired a loyal and devoted staff. Mr Lloyd's skills, by contrast, lay more in the background focused on the administrative side of the Business. I have the impression, too, that at times he could be abrasive towards others.
8. Of the other witnesses, I found the various employees, past and present, of the Business to be witnesses of truth. But their evidence as to who they thought owned the business was, as it seemed to me, of very questionable value. All of those witnesses were called by Mr Pickering. The same is true of the evidence of the three witnesses called by Mr Lloyd, namely Richard Lee-Ainslie, Jeff Des'Ambrois and Sandra Waller. Those three witnesses, also David Moss who was called by Mr Pickering, came across as credible but I consider that their evidence shed little light on the true nature of the parties' business relationship.
9. Richard Thornback, a solicitor, and Christopher Robinson, an accountant, both called by Mr Pickering, had been involved in the setting-up of the business. In addition Mr Robinson, through his firm Warner Marsh, had acted as accountant to the Business, preparing its annual accounts, until late 1996. I accept both of those persons as reliable witnesses of truth.
10. Mr Daleep Pandey, a chartered accountant in practice as Pandey & Co, who was called by Mr Pickering and who has prepared the accounts for the Business and for two associated companies, Zone Fitness Ltd ("Zone Fitness") and Zone Consulting Ltd ("Zone Consulting") (companies which traded between roughly April 1996 in the case of Zone Fitness and roughly April 1997 in the case of Zone Consulting until each ceased to trade in or about early 2000), also gave evidence. He had succeeded Warner Marsh as accountant to the Business in late 1996. I treat Mr Pandey's evidence with caution, not because I consider he was not endeavouring to give an honest account of events but because he came across as somewhat combative and rather too much of an advocate in Mr Pickering's cause. In short, I considered that his evidence lacked objectivity. John Grimes, who was also called by Mr Pickering, was very hostile towards Mr Lloyd. As it happens, although I doubt whether this was Mr Grimes' intention, his evidence was on balance supportive of Mr Lloyd's case and harmful to Mr Pickering's. Nevertheless I did not find him a credible witness and I largely disregard what he had to say.
11. Alex Liddle also gave evidence. She was called by Mr Pickering. Mr Lloyd did not challenge what she had to say. She was therefore no more than a couple of minutes in the witness box. I have no reason to doubt her evidence but, as with so many of the other witnesses, what she had to say was of limited value on the issue of ownership of the Business.
12. Signed witness statements by a Mr Uretz, relied on by Mr Lloyd, and by Mr Fereday-Jaskowski, Mr Neville-O'Brien and Mrs Phyllis Pickering (Mr Pickering's mother) relied on by Mr Pickering were admitted under the Civil Evidence Act. Their evidence, particularly that of Mr Uretz, was of limited value. So far as the evidence of the other three is concerned, I have no reason to doubt what those persons said.
13. The parties met in November 1989. At the time, Mr Lloyd worked for Barings Asset Management (part of Barings, the investment bank) in the City. According to the documentation his employer was Barings Services Limited. He was 19 years old. He worked initially as an assistant computer systems manager and subsequently as a computer systems manager. In the year to 5 April 1993 he earned (gross) just under £26,500. He remained with Barings until June 1993 when he took sick leave. This followed his diagnosis as HIV positive in late 1991. He continued to receive his salary until September 1993. He received a £5,900 payment in December 1993 in settlement of any claims he had arising out of his employment with Barings.
14. At the time they met, Mr Pickering was an air steward with British Airways. He was aged 28. He was to remain with British Airways until 11 February 1991 when he took advantage of a six-month stand-down option offered by the airline and began working as a car salesman for Wiggins of Winchester, a BMW dealer. I find that his reason for his career change included the fact that his father had fallen terminally ill (he died towards the end of that year). He gave up working for Wiggins at the end of January 1993.
15. In the spring of 1990 Mr Lloyd moved in to live with Mr Pickering at the latter's home in Southampton, a two-bedroomed property at 2 Beattie Rise. They lived together as a gay couple. Their relationship broke down in acrimonious circumstances in early February 2002. This followed an earlier breakdown in February 2000 although they were able to achieve a reconciliation some weeks later.
16. Mr Lloyd claimed that the idea of setting up a business and, after investigating what type of business that might be, eventually deciding on a gym was prompted by his diagnosis as HIV positive at the end of 1991 and the wish, as a result, to reorganise their lifestyles and spend as much time together as possible in circumstances where Mr Lloyd could better manage his medical condition. He also claimed that, being a member of the Broadgate Club - a fitness centre - in the City and knowing how busy and expensive membership of it was, he saw the setting-up of a gym as a lucrative business possibility. Mr Pickering claimed that he had had the intention of running a health club for some time prior to meeting Mr Lloyd, that by 1989 he was already researching the idea, that as a flight attendant with BA he visited gyms on his trips to the USA and that the decision to set up his own gym in this country had nothing to do with Mr Lloyd's diagnosis. I do not consider that it much matters who first thought of running a gym. I suspect that, as each had experience of gyms, the idea of setting up and running their own gym gradually evolved in the course of their discussions about their future together.
17. At all events, in the summer of 1992, contact was made with a Mr McInerney of Tropicana World, the UK representative of a Californian organisation called World Gym and, through this contact, a meeting arranged with a Mr Mike Uretz during a holiday that he and Mr Lloyd had in California in September 1992. Mr Uretz was the chief executive officer of World Gym. As a result of this meeting, the decision was made to set up a gym business as a World Gym franchisee.
18. The Business opened on 18 April 1993. There was a dispute over who provided the start-up costs and what those costs amounted to. It is common ground that a considerable sum was raised by pre-selling membership of the gym. The evidence suggests that the sum in question was of the order of £33,000. I am also satisfied that Mr Pickering contributed several thousands of pounds (a) from savings and from borrowings including £8,000 from his mother (b) from the sale of a motorbike and (c) from the surrender of an endowment policy. Mr Pickering thought that £13,750 derived from these last two sources (and from the sale of a watch) of which £10,000 was said to have resulted from the endowment policy. I am inclined to think that this was an over-estimate of the amounts derived from those sources, (particularly the sum said to have been received for the policy) and am doubtful whether there was any sale of a watch. For his part, Mr Lloyd said that he contributed several thousands of pounds from the sale of a number of Omega watches (provided for him, at a discount, he said, by a friend who worked for Omega in Eastleigh and on-sold for a considerable profit to colleagues of his in the City), and a motorcycle. Mr Pickering disputed the making of any contribution by Mr Lloyd. He said that the motorcycle was not sold until some time after the Business started.
19. I accept that Mr Lloyd did make a contribution in cash, find that it was more than nominal in amount but rather less than the sum provided by Mr Pickering. The paucity of documentary evidence about these matters makes it impossible to put a precise figure on the amount each contributed. It follows that I reject Mr Lloyd's claim that he contributed at least as much as Mr Pickering. It also follows that I reject Mr Pickering's claim that Mr Lloyd made no cash contribution to the start-up of the business.
20. I also accept that Mr Lloyd, although still employed full-time at Barings in the City, assisted with the pre-selling of membership.
21. Another valuable source of finance was a £20,000 overdraft facility provided by Barclays Bank (the business's bankers). That facility was secured by a second mortgage over 99 Elliot Rise, a property in Southampton in which Mr Lloyd and Mr Pickering then lived and which belonged to them beneficially in equal shares. (I come later to the property dealings in which the two of them were involved.) The Bank's mortgage remained outstanding until the property was sold in the autumn of 1998.
22. Unlike Mr Pickering, who had given up paid employment (for Wiggins, the car dealer) at the end of January 1993 in order to devote himself full-time to preparing for the opening of the Business and, subsequent to its opening, to its running, Mr Lloyd continued in Baring's full-time employment until June 1993 when, as I have mentioned, he went on sick leave. It is common ground, however, that both before and after leaving Barings, Mr Lloyd assisted in the running of the Business although the extent of his involvement and the capacity in which he provided that assistance are very much in dispute.
23. What is clear is that, as I have already mentioned, the lease of the premises at which the Business was located (at Centurion Park) was in Mr Pickering's sole name and that he was the employer of all the staff employed in the business, the sole registered proprietor of the Business for VAT purposes and the signatory on all equipment leases and on the World Gym Licensing Agreement. Consistently with that, the Business accounts were drawn up as sold trader accounts in Mr Pickering's name.
24. After a difficult initial two or three years, the Business prospered. In late 1994, it severed its connection with the World Gym Organisation and re-established itself under its "Zone" name. By the end of the fourth year of trading (30 April 1997), turnover had reached £324,500 odd and net trading profits (before drawings and tax) had reached £32,000 odd. By 30 April 2000, turnover had reached £550,000 and net profits (before drawings and tax) were just under £200,000. Since then, turnover has been at or around £590,000 and net profits (before drawings and tax) at around £120,000.
25. An important factor in the profitability of the business, particularly in the year to 30 April 2000, was the implementation of a VAT partial exemption scheme. This took advantage of an exemption from VAT available in respect of supplies of sporting services by non-profit-making organisations. In the case of the Business, the exemption was claimed by means of a scheme whereby the supply of facilities to members of the public in consideration of their payment of a subscription was by a separate company independent of the supply to that company of the use of the premises and equipment by the Business. The corporate vehicle chosen to take advantage of this exemption was a company specially acquired for the purpose and incorporated on 1 April 1996 as Zone Fitness Ltd. ("ZFL"). The Business charged ZFL a licence fee calculated by reference to the subscription income. The scheme was structured to ensure that ZFL was non-profit-making and that all profits passed to the Business by means of the licence fee. The aim was to avoid the need to account to HM Customs & Excise for VAT on the subscriptions charged to and paid by members.
26. The scheme, which was introduced to the Business and advised upon by an organisation called AIC Consulting, was implemented with effect from 1 May 1996. For so long as it remained in place, the scheme achieved its aim. It survived a Customs & Excise inspection in late 1998. It was suspended between 1 May 1998 and 1 January 1999 while refurbishment works were carried out to the gym and Mr Pickering wished to recover VAT paid on the cost of the works involved. The scheme then resumed and continued until the end of April 2000. By then new VAT regulations had been introduced which meant that the scheme would no longer operate. In order to ensure, as far as possible, the efficacy of the scheme, Mr Pickering arranged (in December 1998) for all of the shares in ZFL to be transferred to and thereafter held by Mr Lloyd, who also became ZFL's sole director in substitution for Mr Pickering who hitherto had been its only director and the beneficial owner of its shares.
27. From September 1993 (or thereabouts) until the late spring of 1998, Mr Lloyd was in receipt of income support, including a substantial weekly sum towards housing costs. Since, as I have mentioned, Mr Lloyd was involved in the running of the Business (I will explain just how a little later) during this period, it is questionable whether, but I do not need to reach any conclusion, he should properly have drawn such benefits. But the fact that he continued throughout this period to draw these benefits meant that he could not be, or be seen to be, in receipt of any regular income from the Business. One of the unattractive features of Mr Lloyd's claim is that if, as he maintains, he was throughout this period, an equal co-owner of the Business, he was having to conceal that interest and, presumably, his right to an equal share of the net profits if he was to continue to draw his state benefits. But I have disregarded that feature of his case in deciding whether he was indeed an equal co-owner (or entitled to some lesser share) of the Business. Mr McCue appearing for Mr Pickering did not suggest otherwise.
28. Although in receipt of income support and housing benefit between September 1993 or thereabouts and late Spring 1998, Mr Lloyd's evidence, which I largely accept, is that he was active during this time in the running of the Business. In particular, I accept that he was involved in interviewing and recruiting staff, that he drafted contracts of employment and other documentation for use in the Business and that he played a regular part in attending at the gym as 'duty manager' opening the gym in the mornings, closing it in the evenings and occasionally doing the cleaning. More significantly from the point of view of the success of the Business was his involvement in (1) being trained for and thereafter operating the Sage automated bookkeeping system used, inter alia, to generate VAT returns, management and year-end accounts, (2) taking responsibility for the staff payroll, (3) installing and undertaking responsibility for a computerised membership record system (called Membertrack), which recorded details of each member, including the state of the member's account with the Business, (4) taking responsibility for and operating from 1994 until late 1996 or early 1997, through a collection arm of the business called "Global Securities", the collection of membership subscriptions (a task which, with 1,000 or more members, was time-consuming and, for that reason, was subsequently contracted out to an outside organisation), and (5) being responsible for the operation of the Business's computer systems (ie the software and the computer network in place for use by staff). Later on, he also handled the Business's on-line banking.
29. Already, by the second half of 1996, Mr Pickering was providing consultancy services to other gym owners, particularly in connection with VAT and sales and marketing. To this end, in April 1997 he incorporated a company called Zone Consulting Ltd., ("ZCL") of which he became sole director and sole shareholder (with Mr Lloyd appointed as company secretary). In fact nothing much came of this venture at first. In the meantime, in the late spring of 1998, Mr Lloyd decided to terminate further receipt of income support to enable him (like Mr Pickering) to offer his services on a consultancy basis to outsiders. (There is an issue, which I do not need to decide, as to whether, for a brief period, after ceasing to receive income support, Mr Lloyd went on to the Business payroll). At all events, at about this time - towards the middle of 1998 - Mr Lloyd became involved with an organisation called Leisure Finance. This was the same organisation that had previously provided the Business with a membership subscription factoring service before subscription collection was undertaken in-house through Global Securities. Leisure Finance was interested in developing a consultancy service in connection with the exploitation of the Membertrack software system which Mr Lloyd had successfully developed for use in the Business. The upshot was that between mid-July 1998 and October 1998, Mr Lloyd was employed as general manager of a company called Leisure Finance Systems Ltd., at a salary of £50,000 per annum, together with a car allowance. This venture, however, was not a success and by November 1998, Mr Lloyd had returned to work in the Business. He did so as 'general manager'. From this time onwards he was on the Business payroll.
30. Mr Lloyd's salary started at £1500 per month in November 1998 and rose to £3500 per month by December 2000. Throughout this time Mr Pickering too made substantial drawings. Quite how much was not investigated but, to judge by the Business accounts, his drawings were rather more than what Mr Lloyd was receiving. The position before 1998 - when Mr Lloyd was in receipt of income support and housing benefit - was very unclear. He was free to draw on the Business account - and did so - but quite how much did not emerge. It was not suggested that his personal drawings in those early years were other than modest in amount. It is common ground that his drawings were debited to Mr Pickering's account and that Mr Pickering was, of course, free to draw on the Business and did so.
31. In early January 2001, Mr Martin Olney was recruited as general manager but Mr Lloyd continued to have responsibility for the computer side of the Business including, in particular, the Membertrack and payroll functions. The employment of Mr Olney enabled Mr Pickering and Mr Lloyd to reduce the amount of time which each devoted to the Business. By late 2001, Mr Lloyd was attending the gym on just two days a week and by Spring 2002, this had reduced to one day a week (a Friday).
32. In February 2002, there was a breakdown in the personal relationship between Mr Lloyd and Mr Pickering. It had followed a previous, temporary, breakdown in early 2000. The details of what led to the breakdown do not matter. Allegations of various kinds were made by the one against the other. The breakdown affected their ability to cooperate in the Business. Difficulties occurred in this regard the details of which are likewise not material. Suffice it to say that Mr Pickering had grounds for unhappiness over Mr Lloyd's conduct in connection with the temporary removal of the Business's computer server in April 2002. There was an attempt by the two of them, acting through the good offices of Mr Pandey (the accountant to the Business), to reach an accommodation but nothing ultimately came of the attempt. A further incident in late 2002 (the rights and wrongs of which I do not need to resolve) resulted in Mr Lloyd's exclusion from the gym, followed by further recriminations and ultimately, in early January 2003, the issue of these proceedings.
33. There is no doubt that from the time that the Business began, indeed, during the months preceding its formal launch on 18 April 1993, until the time that the parties' relationship finally broke up in 2002, Mr Lloyd contributed to the start-up and, after it was launched, to the operation of the Business. Mr Pickering and a number of the witnesses who were employees of the Business and were called by him to give evidence were inclined to understate the extent of Mr Lloyd's involvement. For example, in para 41 of his witness statement, Mr Pickering described Mr Lloyd's attendance at the business as 'varied, sporadic, and totally a matter of his own choice and discretion'. Equally, Mr Lloyd was inclined to overstate the extent of his involvement. But I am satisfied, on reviewing the evidence as a whole, that Mr Lloyd's involvement was regular (ie more than casual or merely occasional), significant (as I have already mentioned he had day-to-day responsibility for a number of the Business's essential operating systems, notably its membership tracking system and the operation of its computer network and had an important role in the operation of the Business's computerised accounting system, the handling of the Business payroll, its on-line banking and, for some years, the collection of member subscriptions) and of considerable value to the success of the Business. It was clear to me that Mr Lloyd had a detailed grasp of the way that the Business operated, a fact which is difficult to reconcile with the picture, sought to be painted of him by Mr Pickering and some of his witnesses, that Mr Lloyd had no real interest in the Business and that his presence at the gym and his involvement in what went on were very much a matter of what at any time Mr Lloyd felt like doing.
34. Although not their employer, Mr Lloyd played an important role in recruiting and interviewing some at least of the staff employed in the Business. He shared the same office as Mr Pickering. Although his precise position within the Business was a matter of some doubt, there is no doubt that he fulfilled a senior management role. Several of the Business's employees called by Mr Pickering were unclear just how Mr Lloyd fitted into the scheme of things, not least when, after 1998, he ceased to appear on any internal staff structure plan. In many Business documents, he was described as 'general manager'. In others as a 'director' (the only other director being Mr Pickering) and, occasionally even, as 'proprietor'. The most notable examples of Mr Lloyd's description as a proprietor are the job specification for a new general manager (it led to Mr Olney's employment in early 2001) in which the general manager is described as reporting 'directing to Tony Pickering and Chris Lloyd (proprietors) ...' (I reject Mr Pickering's evidence in which he sought to distance himself from this document), the business plan for 2001 (prepared by Mr Pickering and dated 18 December 2000) stating that 'it is the intention of Chris [Lloyd] and I [Mr Pickering] to be at Zone only 3 days a week. This appointment [of a general manager] will take pressure off us ...', a press release announcing another refurbishment of the gym in which Mr Pickering is described as 'one of the Proprietors' (and not, it is to be noted, as the proprietor') and a document dated some time in 1997 entitled 'Zone Consulting Ltd: Company Profile' in which Mr Pickering and Mr Lloyd are referred to as 'owners of World Gym Southampton which they opened in 1993'. Long before there was dispute between Mr Lloyd and Mr Pickering, Mr Lloyd was in the habit of referring to himself in documents (apparently without complaint by Mr Pickering) as "director" or "non-executive director", or "business partner" or "proprietor". Memoranda issued by staff were invariably copied to Mr Lloyd and Mr Pickering. From the outset, Mr Lloyd was a signatory on the Business bank account and appears to have been free to draw monies from it whenever he wanted. His credit card, which was in Mr Pickering's name, was paid from the Business bank account. Equally there are many other documents which refer to Mr Pickering alone as the 'proprietor' (in the singular) of the Business and which do not suggest that Mr Lloyd had any claim to it.
35. The staff, it is clear, regarded Mr Pickering as the sole owner of the Business. It is equally clear, however, that staff regarded Mr Lloyd as a senior person, indeed senior to everyone involved in the Business other than Mr Pickering and, occasionally it would seem (see para 23 of the witness statement of Joe Hitchings, the Assistant Reception Manager), as one of the 'bosses'. Mr Richard Lee Ainslie, on the other hand, who worked in the Business between 14 July and 30 August 1997 and was called by Mr Lloyd, thought that the Business was jointly owned by Mr Pickering and Mr Lloyd but his presence at the gym was very short.
36. Viewed as a whole, however, there is no doubt that the preponderant understanding of those who were employed in the Business was that the Business belonged to and, ultimately, was run by Mr Pickering but that Mr Lloyd had a senior role in its management. Staff perceptions of Mr Lloyd's role in the business, although of interest, cannot at the end of the day determine whether, as between Mr Lloyd and Mr Pickering, the evidence justifies, as Mr Lloyd would have it, a finding that he has an equal half share in the Business or, as Mr Pickering would have it, that Mr Lloyd had no interest at all in the Business.
37. In his re-amended particulars of claim, Mr Lloyd put his claim to an equal (or some other) share in the Business on a number of alternative bases: (1) resulting trust (2) constructive trust (3) proprietary estoppel and (4) partnership.
38. At the heart of Mr Lloyd's claim is the contention, pleaded in para 2 of his re-amended particulars of claim, that during the course of 1992 he and Mr Pickering decided to set up the Business and that "it was orally agreed and understood ... that the proposed business would be their joint business and that they would own the business in equal shares". His witness statement is unspecific as to quite where and when such an agreement was made. There is reference (in paras 27 and 29) to discussions between them during 1992 over starting a business together and, in para 30 and in subsequent passages, to their search for a suitable kind of business eventually identifying a gym or health club as the appropriate venture. This culminates, in para 40, with the assertion that, as a result of meeting Mike Uretz of World Gym in Los Angeles in September 1992, he and Mr Pickering "agreed that we would open our own gym business together as a World Gym franchisee. From that moment on we did not consider any other business concepts."
39. This leaves unanswered why, if they did indeed agree to set up in business together running a gym as franchisees of World Gym, the Business was subsequently set up and thereafter conducted in Mr Pickering's name alone. Mr Lloyd ventures an explanation in paras 54 to 56 of his witness statement. After referring to the financial risks involved in running a gym (not least the liabilities involved in taking on the lease of the premises in Centurion Park), Mr Lloyd says this:
54 ... Although there is a break clause in the lease after every 5 years, we knew that if subscriptions did not meet our expectations and projections, the costs of financing over this short period could force the business into insolvency. We discussed what would happen in such an event and this included putting the business in the name of one of us instead of both parties. It made sense for me to continue working as I had a fixed salary and was entitled to the mortgage subsidy, whereas Mr Pickering's salary [from Wiggins of Winchester] tended to fluctuate and he was just entering a quieter period at the beginning of the year in 1993.
55. We decided that, if the business was to be put into the name of one of us, it should be in his name. We discussed the fact that, if the business went bankrupt, I could purchase the equipment in the bankruptcy for £10 and business could continue and I would take over the lease. We discussed the fact that this would give us a second bite at the cherry, and although all my available assets would be put into the business (and therefore available for the creditors) at least we would not both be made insolvent.
56. However, the business was always our business. The character of our discussions, agreements and understandings in this regard did not change from the time we first started looking at the possibility of setting up a business together to the time the business started with the lease and equipment registered in his name. It was our business and was always going to be our business.
40. I do not accept that explanation, which is denied by Mr Pickering, of the reason why the lease was taken by Mr Pickering alone and why the business was conducted in his sole name. Nor do I accept alternative reasons volunteered when Mr Lloyd opened his case, namely that he, Mr Lloyd, was on a fixed income (presumably his salary at Barings) or that, from and after September 1993 until late spring 1998, he wished to keep a low profile because he was drawing social security benefits. Not least of the reasons for not accepting the last explanation in that, until June 1993, Mr Lloyd had no reason to think that he would be drawing such benefits.
41. In October 2002, some months after the breakdown in the relations between them but before Mr Lloyd had begun his proceedings, solicitors instructed by him, Messrs T V Edwards, wrote to Moore & Blatch, the solicitors retained by Mr Pickering, to explain the basis of Mr Lloyd's claim to 50% of the net sale proceeds of the Business. They referred to "an oral agreement" made "in or around late 1992" between the two of them "to set up a business, each contributing equally to the acquisition costs, which business would be built up and run by our clients", that it was agreed "that the business would be sold approximately ten years from the time of set-up or later by agreement" and that each contributed £10,000 to the set-up costs. I should say that there has been no reference in the evidence before me to any agreement that the Business would continue for just ten years or for longer by agreement. Of more immediate significance is the following passage in T V Edwards' letter:
In terms of legal ownership of the business, it was agreed that your client [ie Mr Pickering] would be the proprietor although there was no particular reason for the proprietor being your client rather than ours but it had been agreed that one of them would be the proprietor.
There was no suggestion in the letter of anything remotely resembling any of the explanations which Mr Lloyd has since given for the fact that the Business was set up in Mr Pickering's name.
42. Moreover, if it had been explicitly agreed at that early stage that Mr Lloyd was to have a share in the Business (certainly as a partner but even in some respect falling short of a partnership) it is surprising that, as I find, this fact was never communicated to Mr Robinson of the accountancy firm Warner Marsh. Mr Robinson had been consulted by Mr Pickering before the Business was established (for advice on how to set out matters in a business plan). He provided accountancy services, once the Business was up and running, until late 1996. Mr Robinson's evidence, which I accept, was that there was never any suggestion of which he was aware that the Business was anything but that of a sole trader enterprise, a matter apparent, he said, from every step which the Business took. As he put it "the question of Mr Lloyd being an owner or having an interest in the business never arose whilst I was retained". His understanding of the relationship between the parties was, as he put it, that they were "relationship partners", not that they were business partners as well. I cannot therefore accept Mr Lloyd's evidence (in his witness statement) that he and Mr Pickering raised with Mr Robinson that the Business would be put in Mr Pickering's name as a sole trader but that it was intended to belong to them both. Nor was Mr Thornback, who acted for Mr Pickering on the acquisition of the leasehold premises at Centurion Park, aware of Mr Lloyd having any interest in the Business to be conducted from those premises. It was also common ground that Mr Pickering alone met and dealt with Mr Cooke, the local Barclays Bank manager, through whom the Business overdraft facility was negotiated, and in collaboration with whom the business plan was developed.
43. A copy, which I accept as accurate, of the business plan of the then proposed Business (the document is dated 1 March 1993) was in evidence. It is expressed in the first person ("... my personal objectives are ..."). In a section headed "personnel requirements" it refers to the "management requirement [being] shared between Tony Pickering and two full time Managers ...". It sets out personal details of Mr Pickering and his work experience, refers to Mr Robinson as accountant and Mr Thornback as solicitor, but contains not one mention of Mr Lloyd.
44. I can well understand why, after he had started to draw welfare benefits in late 1993, Mr Lloyd might have wished to conceal his interest (if any) in the Business. I can also understand that for so long as he was in Barings' full-time employment he would not wish to be shown as working in the new Business. But it is surprising that if, as Mr Lloyd claims, it was agreed in late 1992 that he was to have a share in the Business, whether as a partner within the meaning of the Partnership Act 1890 or simply as a co-owner whose share fell short of that of a partner within the meaning of that Act, his interest would not have been referred to in the business plan or, at the very least, the fact of his interest would not have become known to Mr Robinson.
45. The reality of the matter is and I find that at no stage prior to the break-up of their relationship in February 2002, and certainly not in the months proceeding the opening of the Business, did the two of them positively agree or otherwise reach an understanding either that Mr Lloyd would have a share in the Business or, conversely, that he would not.
46. I therefore reject any claim founded upon an initial agreement between the parties (made sometime in late 1992) that Mr Lloyd was to have a defined share in the Business, whether the claim is put in partnership or in reliance on a trust relationship. This conclusion weighs equally against Mr Lloyd's claim founded upon proprietary estoppel, pleaded in para 23 of his re-amended particulars of claim (which in turn refers inferentially to para 2), that Mr Pickering represented to Mr Lloyd during 1992 that the (then) proposed Business "would be their joint business and that they would own it in equal shares". In any event, I am not persuaded by Mr Lloyd that any such representation was made. Moreover, I accept Mr Pickering's evidence that Mr Lloyd was unwilling, at any rate whilst their personal relationship lasted, to be responsible to third parties for any of the business liabilities. This factor weighs heavily against the existence of a partnership within the meaning of the 1890 Act.
47. Mr Lloyd's claim must therefore rest, as in the alternative he seeks to do, on the establishment by him of a constructive trust of the kind referred to in the second of the two paragraphs of the following well known passage from the speech of Lord Bridge of Harwich in Lloyds Bank plc v. Rosset [1991] 1 AC 107:
The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust or a proprietary estoppel.
In sharp contrast with this situation is the very different one where there is no evidence to support a finding of an agreement or arrangement to share, however reasonable it might have been for the parties to reach such an agreement if they had applied their minds to the question, and where the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether any thing less will do.
48. Typically, in disputes over the beneficial ownership of property, the issue identified in Lord Bridge's speech arises in connection with the ownership of the house in which the disputants have made their home. In such a case, considerations as to whether the person who is not the legal owner made a contribution to the purchase price, whether initially or by mortgage instalments, are readily understood if not always easy on the facts of a particular case to determine. Here by contrast the subject matter of the dispute - the Business - is a collection of assets, some of which (for example equipment used in the gym) are likely to have been replaced or added to as time has passed. Another asset is the lease although, since a market rent is paid for it (subject to periodic review), it is unlikely in itself to have much value. Although the matter was not explored in evidence (there was no valuation of the Business before me) I imagine the main asset of value to be the Business goodwill represented by the gym members and in particular the income derived from the subscriptions payable by them and built up over the years as a result of the hard work which has gone into running the gym.
49. There is no conceptual reason why, in the case of an unincorporated business such as this, a person should not, through participation in its running (and provided that the participation is sufficiently substantial and continuous) acquire an interest in it even though the business is (like the Business in the instant case) conducted exclusively in the name of another. See, for example, Nixon v. Nixon [1969] 1 WLR 1676. The authorities (some of them, including Nixon v. Nixon, are referred to in Lewin on Trusts, 17th Edition at para 9-67, footnote 45) were not explored in argument before me. But I did not understand Mr McCue to contest the proposition.
50. I have already explained the nature and extent of Mr Lloyd's involvement in setting up and subsequently running the Business. I have described that involvement, at any rate after the Business had started and Mr Lloyd was no longer working full time for Barings, as regular, significant and of value to the success of the Business. The essential question is whether, as Mr McCue submitted, that involvement was no more than what Mr Lloyd, as Mr Pickering's "partner in life", wanted to do by way of support for the man with whom he was sharing his life - in short, gratuitously and out of affection for Mr Pickering - with Mr Pickering allowing Mr Lloyd (as acts of indulgence towards his lifetime partner) to participate in the Business very much as Mr Lloyd chose, putting him on the Business payroll after October 1998 and providing him with a regular salary. The alternative is whether, as Mr Lloyd maintains, he gave of his time and energies in the running of the Business in the belief shared by Mr Pickering that he was entitled to a share in it, initially without expectation of receiving any particular reward for doing so (although entitled to draw on the Business account to meet his personal needs) and from and after November 1998 on the basis that he, like Mr Pickering, would (and did) draw a regular income from it.
51. I have come to the conclusion that the evidence justifies the inference of a common intention on the part of the two of them that ownership of the Business was shared. In reaching this conclusion I am fully alive to the fact that, in legal structure, the Business appeared to belong exclusively to Mr Pickering and that this was reflected in some at least of the Business documentation. I also have fully in mind the fact that those advising Mr Pickering at the time the Business was established had no understanding that Mr Lloyd might have any interest in the Business and that the great majority of those who worked in the Business understood Mr Pickering to be its owner. Mr McCue naturally drew attention to these matters in his closing submissions.
52. He also argued that the fact that no more than a few weeks after the Business was launched Mr Lloyd left Barings was detrimental to the establishment of the Business (in that Mr Lloyd's regular earnings were intended, according to Mr Pickering, to ensure that their joint living and other household expenses continued to be met so as to enable Mr Pickering to devote all of his resources to the Business). So also, he argued, was Mr Lloyd's failure to invest in the Business the £5,900 severance payment which he received from Barings. He pointed also to the fact that Mr Lloyd took no (or no significant) part between 1998 and 2000 in an initiative called Investors in People (concerned with the efficient management of the Business and which resulted in an award) and that he devoted progressively less time to the Business from 2001 onwards. He submitted that all of these matters are inconsistent with the existence of the common intention. He also drew my attention to a variety of acts - they are listed in para 47 of his closing submissions - which showed that Mr Lloyd had little regard for the wellbeing of the Business, a state of affairs, he submitted, which is scarcely compatible with the existence of an underlying common intention that ownership of the Business should be shared.
53. I do not find these matters at all persuasive. The fact that Mr Lloyd gave up working for Barings so soon after the Business was established points, to my mind, rather in favour of Mr Lloyd's claim than against. He was giving up a secure employment, which brought him a good income, to work in a fledgling business with a very uncertain future. The fact that he did not, as I accept, devote the same amount of time to the Business as Mr Pickering did does not detract from the significance of the sacrifice which Mr Lloyd made. Nor do I accept Mr Pickering's stricture that, with the loss of a secure income for their joint household which resulted, Mr Lloyd's decision to give up working for Barings was an act of selfishness on his part. The view that I take of this episode is that it points rather to the extent to which Mr Lloyd was committing himself to the Business and its future than to any wish on his part to pursue his own interests without regard to those of the Business. To my mind, it reinforces the existence of the common intention rather than undermines it. Nor do I regard Mr Lloyd's actions in 2002 listed in para 47 of Mr McCue's closing submissions as throwing any light on what if any underlying understanding there was as regards ownership of the Business. For what it is worth, I find all of them to have occurred except the claim that Mr Lloyd deliberately sabotaged the operation of the Business computer system. However, because they are for the most part petty in nature and hurtful in effect, and all were the unhappy result of the breakdown in relations in 2002 between the two of them, I do not take up the time to enumerate what those various actions were.
54. Certain matters point strongly in favour of my conclusion on this issue. Thus, in March 2000 there were discussions between Mr Pickering and Mr Pandey on whether the Business should be incorporated. It was envisaged that, if incorporation occurred, Mr Pickering and Mr Lloyd would each be directors drawing £2,500 per month net of tax and NIC. In the event, it was decided that incorporation was not advisable and that the business should therefore carry on as a sole tradership. The significance of this episode is that Mr Lloyd was brought into the discussion. It is therefore difficult to square Mr Pickering's willingness to consider with Mr Pandey, whether the Business should be incorporated and Mr Pandey's action in sending financial models, illustrative of the alternatives under discussion, to Mr Lloyd and reporting to him on the discussions he was having with Mr Pickering about the matter if, as Mr Pickering would have it, the Business was his alone and Mr Lloyd was no more than his indulged lifetime partner. More generally, Mr Pandey was in the habit of corresponding with both Mr Pickering and Mr Lloyd over the financial affairs of the Business. His letters commenting on the Business management accounts are invariably addressed "Dear Tony and Chris" (ie Tony Pickering and Chris Lloyd). Mr Pandey said that he included Mr Lloyd in his correspondence - in particular when incorporation was under consideration - because he regarded the two of them as if they were husband and wife and not because he considered Mr Lloyd to hear some sort of stake in the Business. His point was, it seems, that where a client was married, he would frequently address his business correspondence to both husband and wife even though the business in question was that of one of them alone.
55. I found this to be a wholly unconvincing explanation for his actions not least when Mr Pandey himself (in his witness statement) claimed not to have appreciated the true nature of the relationship between Mr Lloyd and Mr Pickering until very much later (2002 or so) in his dealings with them. It is clear in my view that he addressed his letters to both because, notwithstanding that the Business was a sole tradership in Mr Pickering's name, he understood that Mr Lloyd's involvement in it warranted his inclusion when he corresponded about its financial affairs.
56. A further and most significant matter concerns what occurred in May 2002, following the final breakdown in relations between Mr Lloyd and Mr Pickering, when Mr Pandey attempted to broker a settlement between them. A meeting took place on 17 May attended by the three of them. Mr Pandey prepared minutes of what was discussed and agreed at the meeting. Those minutes included the following:
1. C Lloyd felt concerned that there was no documentary notes or evidence to demonstrate that in the event of the sale of Zone Aerobics & Fitness Centre Unit 2 Centurion Park Northam Bridge Road Southampton SO18 1UB, that he would be entitled to fifty percent of the net proceeds after all liabilities.
2. T Pickering acknowledge this point and stated that as far as he was concerned he was going to gift fifty percent of the net proceeds after all liabilities to C Lloyd. The business has currently run as a sole trader for the last eight years and all liabilities are in his name. All the risks associated with the business are in T Pickering's name and due to actions over the last six weeks the business could be significantly disrupted if matters were put in writing.
3. C Lloyd expressed concerns about this and stated that he did not want to be introduced into the business as a formal partner, however would like to protect his interest in a business that was jointly developed by the use of joint assets and input into the business even though this has not been formally documented.
4. D Pandey suggested that given that T Pickering was reluctant to put the matter of the deed of gift on the sale of the business in writing, a compromise could be reached that on the sale of the business the following action would be taken.
5. Joint instructions would be given to any agents and on the sale of the business joint solicitors would be instructed and the sale proceeds of the business could be deposited into a bank account where both T Pickering and C Lloyd are cheque signatories. Therefore, any funds, which would be split from the business, would have to be sanctioned by each party.
6. C Lloyd stated that he would have to consider this matter with his professional advisors, given that T Pickering was reluctant to put the deed of gift in writing.
...
15. T Pickering called after the meeting closed and informed D Pandey that he was happy to sign the meeting notes which clarify the point that C Lloyd would be gifted by T Pickering 50% of the sale proceeds of the business after all liabilities have been met. The club will be put on the market with immediate effect. D Pandey should draft the minutes of the meeting which would be signed by both parties.
...
D Pandey was not a solicitor and was not in a position to comment on the legal status of the minutes that C Lloyd and T Pickering will sign. In the event of any doubt both parties should possibly seek legal advice. However, it is being noted that C Lloyd does not want to be a partner in the business, and that all liabilities are in T Pickering's name. On the sale of the business 50% of the net proceeds after all liabilities will be split equally between C Lloyd and T Pickering. The liabilities will encompass all Tax liabilities and debts that the business has undertaken.
...
Incorporation
We have discussed incorporation on a number of occasions and a paper was presented to T Pickering. T Pickering has informed that incorporation is not on the agenda as the business is to be sold and no further works should be done on this subject.
57. Mr Pickering said that he decided to agree those minutes as a result of an emotional scene which took place immediately after the meeting. This is a reference to the fact that Mr Lloyd and Mr Pickering went outside and got into the vehicle of one of them to discuss matters. Mr Pickering said that Mr Lloyd gave him to believe, falsely, that his HIV therapy was no longer working and that he was dying. He claimed that pity for Mr Lloyd led him to agree to sign the minutes. In para 131 of his witness statement, Mr Pickering said that what occurred was "a calculated attempt by [Mr Lloyd] to use my feelings for him and my concern over his health to get what he wanted" and "emotional blackmail". In his cross-examination he said that "you [Mr Lloyd] had me in a corner ... after the meeting you played the ultimate card, the health card ... the pressure was so inordinate that I didn't know what to do." I do not accept that explanation. The parties' relationship by May 2002 had broken down irretrievably. The minutes which Mr Pickering later signed recorded matters discussed and agreed at the joint meeting with Mr Pandey before the events in the car afterwards.
58. In fact the minutes were formally agreed and signed (by Mr Pickering, Mr Lloyd and Mr Pandey) at a further meeting which took place two weeks later on 31 May. Mr Pandey's notes of that meeting (which, unlike the minutes of the previous meeting, were not the subject of formal agreement and signature) recorded Mr Pickering asking if the minutes of the previous meeting could be amended to reflect the fact that if the Business should become insolvent, Mr Lloyd should agree to meet its liabilities (meaning, as I understand it, share responsibility for them), that Mr Lloyd stated that the purpose of the meeting was to approve the previous minutes and that if Mr Pickering wanted him to meet any of the Business liabilities it would be best if solicitors drew up a partnership agreement. His notes then recorded that Mr Pickering stated that that would not be necessary but that he wanted it minuted that the earlier minutes were not being amended but that the 50% of the net proceeds to be gifted to Mr Lloyd were after all liabilities had been met.
59. It is reasonably apparent that Mr Pickering had had plenty of time since the previous meeting to reflect on matters but was evidently content to sign the minutes of that meeting. In these circumstances I have no reason to think that the minutes did not exactly reflect Mr Pickering's views at the time.
60. Their significance lies not in whether they gave rise to an enforceable agreement but in the implicit and, in my view, unforced acknowledgement by Mr Pickering that Mr Lloyd's involvement in the Business stretching back over 9 years or so merited recognition by conceding him a half-share in it. Structuring the transaction as a gift was merely the mechanism for giving effect to the underlying acceptance of his moral obligation towards Mr Lloyd. The relationship between them having broken down, there was in my view no element of intended bounty on Mr Pickering's part, rather a wish to sort out and bring to an end their financial obligations towards each other.
61. This is reinforced by that what occurred at a further meeting of the three of them which took place on 23 July 2002. Relevant extracts of Mr Pandey's notes of that meeting (they were never signed by either Mr Lloyd or Mr Pickering) are as follows:
1. TP stated that he formally wanted it to be noted that he and CL had been in a gay relationship. The business known as Zone Aerobics and Fitness Centre was incorporated solely in his name so as to protect the business. In the event of the business failing, CL would have been in a position to take over.
2. TP was being pressed by CL to open a joint bank account as per point 5 of the minutes dated 17 May 02. CL stated that he wanted to move matters on and as a result wanted point 5 actioned. TP, had been advised by his solicitors that a joint bank account would not be beneficial in either parties interest. He was also reluctant to open a joint bank account in the first instance. DP, interjected and stated the following with reference to point 5.
3. DP stated that TP was reluctant to sign any documentation associated with how the proceeds of the business would be split. Points 1-5 note the reluctance that TP was not going to sign any documentation associated with any deed gift. To alleviate the stalemate that had arisen due to TP not signing any deed of gift, DP came up with the solution as noted in point 5. It should be noted that CL was going to seek legal advice as per point 6.
4. TP and CL had a meeting afterwards, and as noted in point 15, TP confirmed that he was happy to sign the notes of our meeting as he had been informed that CL was ill and that the impasse would not help CL's illness.
5. It should therefore be noted that point 5 was a compromise position suggested by DP to get around TP's reluctance to sign any formal documentation.
6. TP put forward the items that he wanted covered ... basically TP wants to clarify the following points in a legal document.
7. Currently, TP is liable solely for all the liabilities that the business has undertaken. For instance the liabilities associated with income tax, head of lease [sic] are currently all in TP's name. Given that there is a quasi partnership in place CL should acknowledge legally that in the event of any liabilities arising post the sale of the business, CL would meet 50% of such liabilities if they duly arise. CL stated that he would only meet any business Tax liabilities that arise up to the 05.02.02 (Date of separation according to CL, however TP states the date as 24.02.02), and will not be held responsible for any Taxes that arise post the 05.02.02 or 24.02.02 as his involvement in the business is limited.
8. In addition to the point noted above, TP is of the opinion that all their assets and liabilities to be taken into account up to the 05.02.02 when the relationship broke down.
...
10. The joint credit cards which were in TP's name. However the transactions transacted on these credit cards were undertaken by CL. TP wants the credit card liabilities to form part of the overall settlement when the business is sold and personal assets taken into account.
62. Although there was a measure of dispute over their accuracy I find that, in their essential respects, these notes correctly reflect what was discussed. They are a further indication of Mr Pickering's acceptance that Mr Lloyd should have a share in the Business, or at any rate in its sale proceeds, not as an act of bounty on his part but as a reflection of the underlying reality that, as Mr Pandey tellingly noted in paragraph (7), their's was a quasi-partnership. To my mind, they provide additional support for the existence of an underlying common intention that Mr Lloyd, through his participation in the business, should have a substantial share in the Business.
63. I should add by way of footnote that, as envisaged by the minutes, Mr Pickering subsequently instructed agents with a view to a sale of the Business but that he later withdrew those instructions leaving the Business to continue as before. The impasse that resulted, coupled with Mr Lloyd's exclusion in September or so of 2002 from the Business premises (and effectively from further participation in the affairs of the Business) led to the launch of these proceedings early in 2003.
64. What then is the result? In my judgment, Mr Lloyd establishes his claim to a beneficial share in the Business. The matter that has troubled me is what the size is of that share. Since I am satisfied that Mr Pickering's involvement in the business exceeded that of Mr Lloyd, there is much to be said for the view that this should be reflected in their respective shares. The reality, however, is that the Business was a joint venture. Subject only to the temporary breakdown in relations in early 2000, Mr Lloyd and Mr Pickering were, until February 2002, a couple emotionally committed to each other as lifetime partners. Tragically, throughout this time, Mr Lloyd was HIV positive and had therefore to live under the constant shadow cast by his condition. He required and took medication to combat it, happily, so far, with beneficial results. I do not doubt that this was a matter which impacted upon Mr Lloyd's ability to contribute and, what is more, that this was fully understood by Mr Pickering.
65. It is exceedingly difficult to weigh fairly all of the factors in coming to a judgment on the matter. Doing the best I can, I consider that the proper conclusion to draw from all of the circumstances, including, not least, what occurred in May 2002, is that the Business is to be regarded as owned in equal shares and I shall so declare.
66. That leaves how the shares are to be realised. Failing agreement, the Business will have to be sold so that each may realise his share in it. There may also have to be an account of what each has drawn from the Business since, I would suggest, September 2002. My understanding is that for six months from that date Mr Lloyd was in receipt of "sickness pay". There may have to be some adjustment to an equal division of the net sale proceeds to reflect the fact that Mr Pickering has had the burden of running the Business since the breakdown in February 2002 (it may be that this is adequately reflected in what he has drawn by way of remuneration) and, equally, the fact that Mr Lloyd has been denied the opportunity of participating in and, except for his sickness pay, deriving any benefit from his share in the Business since his exclusion from it in autumn 2002. Since Mr Lloyd's participation in the Business had, in any event, diminished very greatly by 2002, I am inclined to think that there is not much value to be attributed to this factor. If necessary the matter will have to be brought back for further argument and directions.
67. It is necessary to have an understanding of the parties' earlier property dealings in order to assess their respective contentions regarding the beneficial ownership of the Chronos property.
68. In September/October 1990 or thereabouts Mr Pickering and Mr Lloyd together acquired 99 Elliot Rise, Hedge End, in Southampton. The price paid is believed to have been £108,000. I say "believed to have been" because practically no documentation has survived or, if it has survived, has been disclosed about this or a number of later property transactions.
69. Elliot Rise, it is common ground, was owned by the two of them in equal shares and held in their joint names. It was acquired with the assistance of a mortgage advance provided by Bristol and West Building Society. A second mortgage was granted, also in favour of Bristol and West, to secure a further advance of around £5,000. (There was also the further charge to secure the Business bank overdraft.) Mr Pickering contributed the net sale proceeds of his previous property at 2 Beattie Rise. They were believed to amount to £4,500. Either the sum advanced under the second mortgage or, as I think more likely but I do not think that it much matters which it was, the net sale proceeds of Beattie Rise were applied towards the purchase and the balance used in decorating and furnishing the property.
70. As I have already mentioned, throughout most of the period of their ownership of Elliott Rise, Mr Lloyd was in receipt of a weekly sum from the Benefits Agency (as it came to be known) of which just over half was for housing costs. By September 1998, the weekly figure for housing costs amounted to £79.80 (equivalent to an annual rate of just over £4,000). I understand that these payments formed the basis of Mr Lloyd's contribution to the weekly mortgage instalments once he had ceased to be employed by Barings where his salary had included a supplement towards the mortgage. The balance of the mortgage instalments came out of the Business and, as I understand it, was debited to Mr Pickering as drawings. The parties continued to own Elliot Rise until it was sold in the autumn of 1998.
71. In the meantime, in September 1997, a one-bedroomed flat at 19 Wilmot Street, Bethnal Green, London E2 was acquired for use when Mr Pickering and Mr Lloyd were in London. There is a dispute over whether this property was acquired on the footing that it would be jointly owned (as Mr Lloyd contended), or whether it was intended to be and at all times remained beneficially as well as legally owned by Mr Pickering alone (as Mr Pickering contended).
72. Mr Lloyd contended that, at the time of its acquisition, it was expressly agreed between them that the beneficial interest in 19 Wilmot Street would be owned by them in equal shares but that the legal title would be registered in Mr Pickering's sole name "because he was a sole trader and could show an income, whereas I was still on income support and no bank was likely to offer me another mortgage". In his cross-examination he said that "it was always assumed that it [Wilmot Street] was our joint property". Mr Pickering denied that there was any such agreement stating in cross-examination that there was "no debate over how ownership of the property should be distributed."
73. I find that there was no agreement or understanding about how the property was to be beneficially owned. The question was left at large. It was acquired at a cost of between £60,000 and £62,500 with the assistance of a mortgage which covered all but £3,000 of the cost. The deposit and the mortgage instalments were provided by the Business and were debited to Mr Pickering as drawings. I find that the property belonged beneficially to Mr Pickering alone. This conclusion has a bearing on the beneficial ownership of later acquired properties.
74. The first of these was Mr Pickering's acquisition of 5 Monument Court, Lower Canal Walk, Southampton, in autumn 1998. Before that acquisition could take place, the parties had to sell Elliot Rise. Again, the relevant documentation is all missing. Except that it was sometime in late 1998, it is not clear quite when the sale occurred (it could not have been much before the beginning of October 1998 because there was a document in evidence, dated 29 September 1998, which was addressed to Mr Pickering at Elliot Rise) or what the sale price was. It appears to be common ground that the net sale proceeds amounted to around £28,000, Mr Lloyd saying that they were £27,500 (see para 45 of his re-amended particulars of claim) and Mr Pickering that they came to £28,000 (see his witness statement).
75. It is common ground that the whole of the Elliot Rise net sale proceeds were applied by Mr Pickering towards the purchase of 5 Monument Court. It was a purchase in his sole name. An offer of advance in the sum of £90,000 made by the Woolwich to Mr Pickering in late September 1998 refers to £112,000 as the purchase price of 5 Monument Court. That would suggest a somewhat smaller amount than £28,000 as the net sale proceeds of Elliot Rise, even allowing for the costs of transaction. At all events, it is common ground (1) that 5 Monument Court was at all times beneficially owned by Mr Pickering alone in whose sole name the property was registered and (2) that this was unaffected by the fact (a) that he applied Mr Lloyd's half-share of the net Elliot Rise sale proceeds towards the acquisition and (b) that he subsequently discharged the mortgage instalments out of monies from the Business which were debited to him as drawings. It was common ground that he became indebted to Mr Lloyd for the latter's half-share of the Elliot Rise net sale proceeds, presumably £14,000.
76. On 29 July 1999, Mr Pickering effected a re-mortgage of 19 Wilmot Street raising, it would seem, £14,280.94 net of expenses. It is common ground that of that sum £14,000 was paid to Mr Lloyd to provide the 10% deposit on his purchase of 57 Globe Wharf, Rotherhithe, London E2 the price for which was £140,000 and that the balance, £280.94, was paid to Mr Pickering. A letter from Mr Pickering dated 15 June 1999 to a Ms Mullen stated that the £14,000 was returned to Mr Lloyd as "part of his settlement of the equity from our joint property sale namely Elliot Rise ..."
77. It follows from my conclusion concerning the beneficial ownership of 19 Wilmot Street that I reject Mr Lloyd's case that he was entitled beneficially to half of the monies raised by the re-mortgage. I should say that Mr Lloyd claimed that he and Mr Pickering were advised that, for tax reasons (concerned with the VAT partial exemption scheme) they needed to separate their individual property interests. He said that, because 19 Wilmot Street was jointly owned (assuming it was), it was decided either to transfer it to himself or to sell it, with Mr Lloyd purchasing a new property in his own sole name with the sale proceeds. Mr Lloyd claimed that, pursuant to that advice, liability for BT, electricity, water and council tax bills in respect of 19 Wilmot Street was transferred from Mr Pickering's name into his own name in early 1999, that it was intended that legal title to that property should be transferred into his sole name as well and that he would have become the beneficial owner of it except that events overtook these plans when 19 Wilmot Street was sold and, instead, he acquired 57 Globe Wharf. Indeed, Mr Lloyd claimed that the sale of Elliot Rise in autumn 1998 and the purchase by Mr Pickering of 5 Monument Court at around the same time were part of the same separation of their property interests driven by the wish to take advantage of the VAT partial exemption scheme.
78. Mr Pickering accepted that he and Mr Lloyd received tax advice in 1997/1998 that they should own their properties separately but denied that it had anything to do with VAT, rather with Capital Gain tax. He agreed that, for that reason, Elliot Rise was sold. But that was as far as agreement on the issue went.
79. I prefer Mr Pickering's explanation of events. In particular, it is not apparent why the successful implementation of the VAT partial exemption scheme should be prejudiced by any sharing of property interests. The sale of Elliot Rise and Mr Pickering's purchase of 5 Monument Court appear to have occurred at a time when the decision had been taken to suspend operation of the scheme (ie between 1 May 1998 and 1 January 1999) and before a Customs and Excise inspection of the Business took place in December 1998 which, as I understand matters, provided the go-ahead for the reintroduction of the scheme with effect from 1 January 1999. Mr Lloyd said that a Ms Claire Battye, a solicitor with Warner Goodman & Streat, had been consulted on the matter and that the reasons for the proposed transfer of 19 Wilmot Street had been explained to her. Ms Battye was not called as a witness. There was not so much as a letter from her confirming that she had provided any advice on the matter. Nor was there any support for Mr Lloyd's explanation of events from Mr Pandey. Although not instructed by either party on their acquisition and disposal of properties, he had given Mr Pickering some advice concerning his liability to CGT on gains realised from property sales. I would have expected him to have had some knowledge of the matter given that he was the accountant dealing with the financial affairs of the Business during this time if, as Mr Lloyd claimed, the separation of property interests was driven by the wish to take advantage once more of the VAT partial exemption scheme. As it was, 19 Wilmot Street remained in Mr Pickering's legal (and therefore apparent) ownership until it was sold in the autumn of 1999.
80. Why then the transfer in early 1999 into Mr Lloyd's name of liability for the utility bills in respect of 19 Wilmot Street? A more persuasive explanation for this undoubted occurrence was that Mr Lloyd was referred in or about April 1999 to the Chelsea and Westminster Hospital for treatment in connection with his condition as someone diagnosed as HIV positive and that, to qualify for such assistance, he needed to be able to demonstrate a London residence. But whatever the explanation, I am not persuaded that it was connected to any form of agreement or understanding that 19 Wilmot Street should be transferred to Mr Lloyd or that it should be sold and the proceeds used to enable Mr Lloyd to acquire a property in his own name.
81. Mr Lloyd's purchase of 57 Globe Wharf was completed sometime in August 1999. By providing him with the £14,000 deposit, Mr Pickering had discharged his indebtedness to Mr Lloyd resulting from his earlier use in his purchase of 5 Monument Court of Mr Lloyd's share of the net sale proceeds of the Elliot Rise property. Like Mr Pickering in respect of 19 Wilmot Street and 5 Monument Court, Mr Lloyd drew on his own earnings from the Business (by August 1999 he was drawing significant earnings from it) out of which to pay the mortgage instalments.
82. In October 1999 Mr Pickering sold 19 Wilmot Street for £89,950. A completion statement in respect of the transaction, together with other documents emanating from Warner Goodman & Streat relating to it, were in evidence. The net sale proceeds totalled £14,609.71. Of that sum £7,500 was paid by the solicitors on Mr Pickering's instructions to his mother. They accounted to Mr Pickering for the £7,109.71 balance. Warner Goodman & Streat's ledger entry for the £7,109.71 payment was "balance due to CL". Mr Lloyd claimed that "CL" was a reference to himself (Christopher Lloyd) and that it showed that he was indeed beneficially entitled to an interest in that property. A letter dated 14 March 2004 from Ms Battye to Mr Pickering's solicitors pointed out that the "CL" referred to "client" (ie Mr Pickering) and not Mr Lloyd. I find that a convincing explanation for the entry. In any event, it is difficult to see why Mr Lloyd should be referred to on the ledger as simply "CL" when other third parties are referred to by their full names.
83. In February 2000, Mr Pickering sold 5 Monument Court. Out of the net sale proceeds he applied £53,660.89 towards the purchase by him of 43 Quay 2000, Horseshoe Bridge Road, Southampton. He contributed a further £7,200 out of his own monies and raised the £90,000 balance needed to complete the purchase by means of a loan secured by a mortgage over the property. The purchase was completed on or about 10 April 2000. It is common ground that that property was and remains entirely Mr Pickering's.
84. That brings me to the purchase by Mr Lloyd of the Chronos property.
85. By late spring 2000, less than a year after acquiring 57 Globe Wharf, Mr Lloyd had found another property, then in the course of conversion, which he wished to buy. This was at the so-called Old Bath House in Cheshire Street, London E1. He made an offer for the property at around £220,000 and obtained an offer of a £155,000 mortgage advance towards the cost. In the meantime, 57 Globe Wharf was put on the market, a purchaser for it was found and contracts exchanged for its sale at the price of £184,995. The sale was completed on 6 September 2000 yielding net sale proceeds of £51,171.16.
86. Owing to delays in the likely completion of the conversion works to the Cheshire Street property and possibly for other reasons, Mr Lloyd began to look around for an alternative property to buy. Mr Pickering, in the meantime, had come across a new development comprising a number of flats and apartments known as the Chronos Building in the Mile End Road. He interested Mr Lloyd in accompanying him to the sales launch of the development on 1 July 2000. Mr Lloyd liked what he saw and decided there and then to buy one of the apartments on offer. He signed a reservation form for apartment 71 that very day, undertaking to exchange contracts within 21 days of the vendor's head office approval of the transaction and to pay a 10% deposit on exchange. The difficulty was that the price for the apartment was more than he could afford taking into account his existing mortgage offer of £155,000 for his intended purchase of the Cheshire Street property and the net sale proceeds which he could expect to receive from the sale of 57 Globe Wharf. When contracts were later exchanged, sometime towards the end of July 2000, the deposit paid appears to have been £15,000 which was rather less than 10% of the overall contract price of £249,950 for the property stipulated at the time that Mr Lloyd had signed the reservation form. Completion took place on 12 October. A completion statement was in evidence. The vendor appears to have provided an allowance of £3,735.81 against the price which, when set against the expenses of purchase, meant that the overall sum paid for acquiring the property (taking into account the £15,000 deposit) was £250,138.67.
87. Warner Goodman & Streat, the solicitors who acted for Mr Lloyd in the purchase, were put in funds for the transaction out of the following sources: (1) a £155,000 building society advance secured by a first mortgage over the property; (2) £51,171.16 being the net sale proceeds of 57 Globe Wharf; (3) the £15,000 deposit received from Mr Lloyd on or about 27 July; and (4) £32,447 received from Mr Pickering. It is common ground that the £15,000 was part of a larger sum of £30,000 which Mr Pickering had paid to Mr Lloyd on 12 July. Mr Pickering had provided that sum out of two sources: a £29,000 cheque drawn on his personal account and £1,000 drawn on the Business.
88. The question is what agreement if any was made by the parties regarding the basis on which Mr Pickering had provided these payments.
89. Mr Lloyd contended that the £30,000 represented what was due to him by Mr Pickering, as to £10,000 in respect of the balance of his share of the net sale proceeds of Elliot Rise and 19 Wilmot Street and as to £20,000 the balance that was due to him against Mr Pickering's substantial personal drawings taken by him from the Business towards the refurbishment and decoration of his property at Quay 2000. In this connection, Mr Lloyd placed emphasis on the fact that on 30 June 2000, the day before the two of them visited the Chronos Building and therefore before any question of Mr Lloyd wishing to purchase the Chronos property had arisen, Mr Pickering had borrowed a further £30,000 from his building society on the security of his Quay 2000 property. Mr Lloyd said that £20,000 (being part of the £30,000 he received) was in performance of what is referred to in his re-amended particulars of claim as "the parity agreement", namely an agreement which he had reached with Mr Pickering at "around the end of the financial year ending in April 2000" as part of a wider oral agreement whereby (again quoting from his pleading):
... they would receive the same sum from the business, whether by way of drawings (as for [Mr Pickering]) or salary (as for [Mr Lloyd]) ('the Parity Agreement'),
and
... they would each pay their personal expenses from their personal accounts, rather than directly from the business account as had previously been the case ('the Expenses Agreement').
The pleading goes on to allege that of the £30,000 paid to Mr Lloyd in July, £15,000 was "in part performance of the Parity Agreement" and the other £15,000 "represented the balance of the equity due in respect of Wilmot Street and Elliot Rise ..."
90. I am not persuaded that there ever were any such agreements. The allegation that there were only surfaced for the first time in the re-amended particulars of claim served in late December 2003. It did not appear in Mr Lloyd's defence served in March 2003 in response to Mr Pickering's counterclaim in which the latter's claim to a share in the Chronos Building was first raised. The agreements are dealt with in vague terms in paras 127 to 129 of Mr Lloyd's first witness statement. Moreover, the equal split, referred to in the re-amended particulars of claim, between so much of the payment as was attributable to the so-called Parity Agreement and the balance attributable to the equity in Wilmot Street and Elliot Rise to which he claimed to be entitled, did not match the £20,000/£10,000 split set out in his witness statement. In any event, from and after his purchase of 57 Globe Wharf, his "equity" claim arising out of the sale of Elliot Rise had been satisfied and he had none in respect of 19 Wilmot Street.
91. There is no significance attached to the fact that Mr Pickering had raised £30,000 by way of further advance from his building society on 30 June 2000. Mr Pickering said, and I accept, that this money had been raised to pay for interior design works to his Quay 2000 property.
92. Mr Lloyd went on to say that the £32,447 payment from Mr Pickering was by way of a loan. In his first witness statement he said this:
Mr Pickering therefore offered to lend me the balance, and I accepted this offer. It was expressly agreed that the loan would be repaid when I sold the Chronos Building ... In fact, the surplus borrowed from Mr Pickering was the sum of £32,447. As I have stated, I am prepared to honour my obligation to repay the loan sum upon the sale of the Chronos Building.
Yet, when cross-examined about the £32,447 payment and whether it was a loan he answered that it was but that (and I quote his words):
There was no agreement as to when the loan would be repayable. No terms were discussed. Mr Pickering could have demanded it back straight away. I have never said it could not be repaid.
That is a significantly different account of the alleged loan agreement from that appearing in his witness statement.
93. According to para 42 of his re-amended defence and counterclaim Mr Pickering contended that because Mr Lloyd was unable to afford the Chronos property on his own, they agreed that (a) they would buy the flat together on the basis that it would be their London home; (b) they would own it jointly in equal shares; (c) they would be jointly liable for the outgoings, including the mortgage payments; and (d) the property would be purchased in Mr Lloyd's sole name, and he would be the sole mortgagor, in order to protect the property "should [Mr Pickering's] business fail and for tax reasons". He went on to contend that the £62,447 which he provided to Mr Lloyd were not loans but represented his (Mr Pickering's) contribution towards the purchase price of the Chronos property.
94. In his witness statement, Mr Pickering said of the purchase:
When we discussed into whose name the property should be put we looked at it in the light of our respective future liabilities. My assets were tied up in my business and in the event of some accident or other calamity my personal assets as a sole trader were at risk. Also I would have a CGT liability in respect of any second property that I owned that increased in value. It therefore seemed sensible to put the property in [Mr Lloyd's] sole name.
95. In his oral evidence in chief Mr Pickering said that the reason why the property was to be held in Mr Lloyd's sole name, even though it was to be jointly owned, was "to shield the property from any claims". This, he said, was because the gym business was high risk and accident-prone. He was concerned in case creditors could "get their hands" on his property. His intention was that the Chronos property "would not visibly be an asset of mine and so that it could not be seized". Two days later, towards the end of his cross-examination by Mr Lloyd, Mr Pickering said that he had had 40 hours to reflect on his earlier evidence. He described the decision not to put the Chronos property into his and Mr Lloyd's joint names as "an emotional decision", that "I was prepared to show commitment to our relationship", that "it was primarily Chris's home", that he wanted to enable Mr Lloyd to "upgrade", that "it was never my intention before to invest in the property", that his intention was "not to do with tax evasion" and that there was "no intention to hide anything."
96. Neither the evidence of Mr Lloyd nor that of Mr Pickering offered any coherent explanation of Mr Pickering's involvement in the transaction. Mr Lloyd's evidence provided no clear account of the basis upon which Mr Pickering had made available his contribution to the price. His oral evidence as to the terms of the loan which he said was agreed conflicted with his witness statement. Mr Pickering's evidence failed satisfactorily to explain why, if the purchase was intended to be a joint investment, the property was not taken in their joint names (as had happened with Elliot Rise). It was in conflict with his earlier acceptance (see para 32 of his re-amended defence and counterclaim) of advice that he and Mr Lloyd should keep their property interests separate.
97. I have come to the view that no particular agreement or understanding was reached between them as to the basis upon which Mr Pickering made his contribution available. I accept, indeed this appears to be common ground, that the decision to proceed with the transaction was made very much on the "spur of the moment" and that, as Mr Pickering said, it was an emotional decision. At the time, the two of them had become reconciled after the breakdown in their relationship earlier that year. They had once again become "partners in life". It is not at all surprising therefore that there should be no agreed basis upon which Mr Pickering contributed to the purchase.
98. I have therefore come to the conclusion that, there being no particular understanding between them on the basis upon which Mr Pickering's contribution was made available, Mr Lloyd holds the Chronos property upon a resulting trust for Mr Pickering to the extent of Mr Pickering's contribution towards its purchase. It has not been suggested that the contribution was a gift. See Snell's Equity, 13th Edition at para 9.09.
99. What then was Mr Pickering's contribution? Although Mr Pickering provided £62,447, only £47,447 was applied towards the overall £250,138.17 cost of the property (see para 87 above). Expressed as a percentage of £250,138.17, £47,447 is fractionally under 19%. I shall therefore declare that 19% is the proportion of the net equity to which Mr Pickering is entitled.
100. Following completion of the transaction, Warner Goodman & Streat accounted to Mr Lloyd for £3,479.94. That sum was the surplus held by them on client account for his benefit. Mr Lloyd did not account to Mr Pickering for any part of that sum. I see no reason therefore why in computing Mr Pickering's share of the net equity, I should treat his contribution to the purchase as other than £47,447.
101. That leaves the other half of the £30,000 payment made by Mr Pickering to Mr Lloyd on 12 July. That £15,000 has not been repaid. It would seem to follow from this that Mr Pickering is entitled to its return as money had and received.
102. In his re-amended particulars of claim Mr Lloyd alleged that at the meeting on 17 May 2002 (referred to at para 56 above) he agreed to waive a claim to payment out of the Business of a sum (£70,000) equivalent to what Mr Pickering had drawn to cover his outstanding personal tax liability and that he did so on the basis of an agreement between him and Mr Pickering that he was the sole legal and beneficial owner of the Chronos property and that Mr Pickering was the sole legal and beneficial owner of Quay 2000. He therefore claimed that, if contrary to his primary case, he was not the sole legal and beneficial owner of the Chronos property prior to 17 May the effect of the agreement reached at the meeting on that day is that Mr Pickering is estopped from claiming, and has waived any right to claim, a beneficial interest in the Chronos property.
103. I am not persuaded that any such agreement was made as Mr Lloyd alleges. Mr Pandey prepared minutes of the meeting. Although those minutes touched on a wide range of matters, there is no reference in them to Quay 2000 or the Chronos property. The minutes were subsequently signed by both parties and by Mr Pandey. There is no suggestion in the evidence that Mr Lloyd took up with Mr Pandey any omission from those minutes.