Hogan -v- Byrne & Anor, [2008] IEHC 287 (2008)

Docket Number:2007 129 MCA
Party Name:Hogan, Byrne & Anor
Judge:Laffoy J.
 
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THE HIGH COURT 2007 No. 129 MCA

BETWEEEN/

DECLAN HOGANPLAINTIFFAND

THOMAS BYRNE AND HENRY J. CURTINDEFENDANTSJudgment of Miss Justice Laffoy delivered on 3rd June, 2008

The proceedings

In these proceedings the plaintiff seeks either an order under s. 38 of the Arbitration Act, 1954 (the Act of 1954) setting aside or, alternatively, an order under s. 36 of the Act of 1954 remitting for reconsideration, an arbitration award made by Timothy Bouchier-Hayes (the Arbitrator) which is described as having been made on 30th August, 2007. The arbitration arose out of the sale of an accountancy practice by the defendants to the plaintiff and another person who was not a party to the arbitration and is not a party to these proceedings. The defendants were claimants in the arbitration and the plaintiff was the respondent.

The agreement for sale

The agreement for the sale of the accountancy practice which gave rise to the arbitration was dated 29th July, 1994. The dispute which arose between the defendants, as sellers, and the plaintiff, as one of the purchasers, related to the consideration payable by the plaintiff to the defendants. The provisions of the agreement which bear on the dispute are as follows:

§ Clause 3.1, which provided that the consideration was IR£251,546, of which IR£176,080 (representing 70% of the consideration) was to be contributed by the plaintiff. Clause 3.1 set out the consideration "as stated in Schedule V". Schedule V disclosed that the consideration was 112% of the total fees payable by clients of the practice listed in Schedule I, which amounted to IR£224,595.

§ Clause 3.3, which set out the time frame for payment of the sum of IR£176,080 by the plaintiff, which was payable in three tranches as follows:(1) IR£70,432 was to be paid on 30th September, 1994, which, in effect, was the closing date provided for in the agreement;

(2) IR£52,824 was to be paid on 30th September, 1995; and

(3) the balance of IR£52,824 was to be paid on 30th September, 1996 (Clause 3.3.3).§ Clause 3.4, which deals with the eventuality of Recurring Fees, as defined, not being maintained for the two-year period from 30th September, 1994. The term "Recurring Fees" was defined in the agreement as follows: "Fees of the aggregate value from Clients [as listed in Schedule I] who are expected to remain Clients of the business for the foreseeable future in respect of services which are expected to recur annually." Clause 3.4, the interpretation and application of which has given rise to the arbitration, provided as follows in the first paragraph thereof: "The consideration is based on the assumption that income from Recurring Fees from the Business for 12 months is maintained for year 1 (i.e. year ended 30th September, 1995) and year 2 (i.e. year ended 30th September, 1996). If the said Recurring Fee income is not maintained for the said period of 24 months because of delays in performing work for Clients the period shall be extended by 9 months to allow the income from Recurring Fees to arise and the payment due under Clause 3.3.3. above shall be abated pro rata: a final payment shall then be due on 30th June, 1997 based on the fees raised in the said 9 month period for (sic) clients for whom 2 years income from Recurring Fees was not received in the period to 30th September, 1996." The second paragraph of Clause 3.4 was in the following terms

"If the said Recurring Fee income is not maintained for the said period of 24 months due to the non-retention of a Client or Clients of the Business then … the amount or amounts of the consideration attributable to such Client or Clients shall not be payable. Any such amount or amounts already paid shall be refunded to the Purchaser or credited against further payment due by the Purchaser at the discretion of the Purchaser but the Purchaser shall pay over to the Seller 50% of the fee actually paid by the Client or Clients for services rendered by the Purchaser."

§ Clause 4.5, which provided as follows: "Any amounts owing under this agreement shall bear interest from the due dates to the date of payment at the rate of 8% per annum paid separately." The agreement contained a clause, Clause 22, which was headed "Arbitration" and which provided that any dispute, difference or question which might arise at any time thereafter between the parties concerning the interpretation of any of its provisions or any other matter or thing arising out of the agreement should be "referred to the decision of an expert". Clause 22 went on to provide:

"In arriving at his decision, the decision of the Expert shall (save in the case of manifest error) be final and binding upon the parties hereto. The provisions of the [Act of 1954] shall not apply."

Events post-agreement

The plaintiff made the following payments to the defendants on foot of the agreement:

(1) the sum of IR£70,432 on 30th September, 1994; and

(2) the sum of IR£27,394 on 30th September, 1995.

The plaintiff paid less than the sum due under the agreement on 30th September, 1995 and made no further payment on 30th September, 1996, contending that he was entitled to an abatement or adjustment of the consideration payable by him under Clause 3.4, by reason of the Recurring Fees income not having been maintained for 24 months by reason on non-retention of clients.

In February, 1997 the defendants, obviously recognising that the plaintiff was entitled to some abatement of the consideration, claimed that a balance of IR£56,539.70 was due to them by the plaintiff.

Dispute resolution mechanisms were subsequently invoked by the parties and involved three stages.

The first stage was the appointment of the Arbitrator as Expert within the meaning of Clause 22 for the purpose of determining a dispute which had arisen between the parties as to the interpretation of the definition of "Recurring Fees" and the interpretation of Clause 3.4. The Arbitrator gave his opinion qua Expert under Clause 22 on 11th May, 1999, finding as follows:

"A. The reference to 'fees of the aggregate value', as referred to in the definition of Recurring Fees, is of significance. In my opinion the definition of Recurring Fees requires a determination of the total value of the fees received from Clients (as defined), subject only to the qualification that such fees are 'in respect of services which are expected to recur annually'. Accordingly, no reduction from such sum ought to be made of the amount of the original consideration attributable to Clients [who] were not retained by the Business.

  1. Pursuant to the definition of Recurring Fees, charges to Clients for services 'not expected to recur annually' should not be taken into account for the purpose of determining the aggregate value of fees received from clients.

  2. If the Recurring Fees, as determined above, are maintained for the period of 24 months (i.e. to 30 September, 1996) then the consideration as provided for under Clause 3.3 … is payable by the Purchaser to the Sellers.

  3. If the Recurring Fees, as determined above, are not maintained for the period of 24 months (i.e. up to 30 September, 1996) due to the non-retention of a Client or Clients then the adjustment as required second paragraph Clause 3.4 … is required to be made."

Subsequently, as is recited in the Interim Award hereafter referred to, further disputes arose between the parties "regarding the interpretation and the application of the Expert's Opinion and Decision" and, as is recited in the Interim Award, the parties agreed to refer such disputes to arbitration and appoint the Arbitrator as arbitrator. My understanding is that the submission to arbitration was outside the four corners of the agreement and was a submission to arbitration in accordance with the Act of 1954. That understanding is based on the only evidence before the court of the history of the dispute, other than such as is afforded by the recital in the Interim Award to which I have referred, the affidavit sworn by the plaintiff in these proceedings in November, 2007. In paragraph 14 the plaintiff averred as follows:

Notwithstanding the Arbitrator's expert opinion the parties were unable to resolve their dispute as to the correct interpretation of the Agreement and its application. The parties therefore agreed to refer the disputed matters back to the...

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