TC09562 - [2025] UKFTT 00762 (TC)

It was common ground that the Agreements did not give rise to a partnership between CPW and BBUK because the two companies did not at any stage carry on a business in common with a view of profit, which is a pre–requisite for a partnership to exist – see Section 1 of the Partnerships Act 1890. In addition, the parties clearly did not intend to create a partnership as both the SPA and the MSA contained provisions to that effect – see clause 11.8 in the SPA and clause 8.8 in the MSA.

Instead, the Appellant’s position was that the legal rights and obligations to which the Agreements gave rise involved a transfer of the Businesses by CPW and BBUK with the result that, once the Agreements became effective, it was BBUK that carried on the Businesses as principal whereas the Respondents’ position was the Agreements left CPW as the sole owner of the Businesses carrying on the Businesses as principal.

Mr Gammie submitted that, even if CPW’s disposal of the Goodwill could be effective only if it was accompanied by a transfer of the Businesses to BBUK, the only sensible interpretation of the legal rights and obligations to which the Agreements gave rise was that they had effected a transfer of the Businesses from CPW to BBUK. This was because, after the Agreements became effective, BBUK had the exclusive right to carry on the Businesses and to enjoy the profits which arose from the Businesses. That was the clear intention of the Agreements as a whole and the authorities showed that commercial documents should be construed:

In this case, the parties’ intentions, as reflected in the drafting of the Agreements, were that, once the Agreements became effective, BBUK would carry on the Businesses for its own account through the agency of CPW and that BBUK would pay CPW a management fee in return for CPW’s services. The fact that none of the assets of the Businesses had been transferred to BBUK was neither here nor there because BBUK was able to carry on the Businesses through the agency of CPW and, barring any termination of the MSA caused by a default of one of the parties, that agency would continue indefinitely and for at least fifteen years. Moreover, if the agency did come to an end, then BBUK would always be able to carry on the Businesses by other means. For example, at that stage, it could engage its own employees and enter into contracts with new customers. In addition, as a company engaged in a joint venture involving two groups, it had access to services provided from those two groups. For example, it could enter into a services arrangement with a company in one of the two groups which was similar to the one into which it had entered with CPW under the MSA.  The ability of a person acquiring a business to do so without necessarily acquiring the assets or liabilities of the business was a feature of the conduct of a business to which the appointed person had referred in Kurobuta at paragraph [75] – see paragraph 70 above. In short, the conduct of a business was not dependent on a constancy in the assets which were used to carry on the business. Those assets could easily change from time to time without affecting the fact that the same business was still continuing. 

To all intents and purposes therefore, the Agreements had effected a transfer of the Businesses from CPW to BBUK. After the Agreements became effective, it was BBUK and not CPW which owned the Businesses and CPW’s activities in respect of the Businesses were merely those of a service provider providing agency services to BBUK to enable BBUK to carry on the Businesses. CPW had ceased to have the right to carry on the Businesses for its own account. It was because of that reality that, in various places in the SPA, reference had been made to the fact that the Businesses had been transferred by CPW to BBUK. For example:

Mr Gammie sought to support the proposition set out above by an analogy with circumstances where a partnership carried on a business but only one of the partners owned the goodwill in the business to the exclusion of the other partners – see Anna Trego and William Wilson Smith v George Stratford Hunt [1896] AC 7 (“Trego”) and Stekel v Ellice [1973] 1 WLR 191 (“Stekel”). He said that that was no different from circumstances where a person sold goodwill and a business to another person but then continued to carry on the business as agent for the other person. In both cases, the end result was that a person carried on the business but had no interest in the goodwill of that business. Thus, in this case, if CPW had assigned the Goodwill to BBUK and entered into a partnership with BBUK on terms that they would carry on the Businesses together, the assignment of the Goodwill to BBUK would be effective. It would therefore be perverse if a different result ensued simply because CPW and BBUK were not in partnership but CPW was carrying on the Businesses as BBUK’s agent.

A similar point had arisen in IN Newman Limited v Adlem [2005] EWCA Civ 741 (“Adlem”) where Mr Adlem had sold his business along with the goodwill to a purchaser but continued to work in the business. The majority in the Court of Appeal had upheld the passing off action brought against him by a subsequent owner of the business because he was doing business under his own name despite the sale. Adlem showed that a sale of goodwill could remain effective even if the seller continued to work for the purchaser as an employee or independent contractor after the sale. That was similar to the present case where CPW had continued to act as agent for BBUK after the sale.

Putting it another way, CPW’s agreement to carry on the Businesses as BBUK’s agent after the Agreements became effective was no different from a covenant given by an assignor of goodwill which restricted the trade of the assignor in the future. In both cases, the terms of the agreement or covenant in question provided the assignee of the goodwill with all the advantages that the assignee intended to acquire by taking the assignment and was therefore indicative that ownership of the goodwill had passed from the assignor to the assignee – see the Special Commissioner’s decision in Balloon Promotions v Wilson and another [2006] STC (SCD) 167 (“Balloon”) at paragraph [170]. Something similar had occurred in Kirby v Thorn EMI plc [1987] STC 621, where a covenant given by the seller of three companies to the purchaser of those companies to the effect that no company in the seller’s group would compete with the businesses carried on by the companies was held to be a part disposal of the goodwill held by the seller in respect of those businesses.

Mr Brinsmead–Stockham said that, on the contrary, on any realistic view of the facts, after the Agreements became effective, not only did ownership of the Businesses remain with CPW but it was CPW and not BBUK which carried on the Businesses. As such, viewed realistically, both the Goodwill and the Businesses remained in CPW. Mr Brinsmead–Stockham provided a number of reasons for reaching this view. As I refer to those reasons at some length in the conclusion which follows, I will not set them out in this section of the decision.