Court dismissed appeal on contingent contract breach, awarding damages and share transfer order.

[*1656] 1972 April 24

(TRIANTAFYLLIDES,P. ,A. LOIZOU, MALACHTOS JJ. )

APPELLATE. JURISDICTION

1 . Omiros Th. Courtis

2. Omiros Th. Courtis Ltd.,

Appellants,

v.

Panos Iasonides,

Respondent.

(Civil Appeal No. 5033).

Contract - Contingent contract - For the payment of share of profits to he realised through securing agency of foreign firm and for sale and purchase of shares upon such securing - Agency secured after execution of contract but rejected a short time later - Contingency coming about on securing of agency - And, therefore, agreement a fully operative one - Rejection of agency amounting to breach of said agreement - Party in breach rightly held liable to pay compensation for loss of profits and to purchase the snares - Moreover an order should have been made compelling owner of shares to transfer them in the name of the purchaser - Basis of assessment of compensation.

Company - Shareholder claiming earnings out of profits realised by Company - Whether Court could make its own calculation on the basis of audited accounts before it - And whether in estimating such earnings liability for income tax payable in respect thereof ought to be taken into consideration.

Company - In process of voluntary winding up - Involved in Civil proceedings - No application to stay proceedings

- Judgment rightly given against the company - Section 220 of the Companies Law, Cap. 113.

L. derides with E.Lemonaris, for the Appellants.

G. Cacoyiannis, for the Respondent.

JUDGMENT

The Judgment of the Court was delivered by:-

TRIANTAFYLLIDES.P.: Appellant 1 is the majority [*1657] shareholder and managing director of appellant 2, which is a company.

Both appellants have appealed from a judgment of the District Court in Larnaca (in action 1833/67), by virtue of which (a) appellant 1 was ordered to pay to the respondent £1,914.175 mils, with interest thereon at 9% per annum from the 1st June, 1967, as a balance due to the respondent in respect of the value of his shares in appellant 2, (b) both appellants were ordered to pay to the respondent £4,630, by way of damages for breach of a contract entered into between the appellants and the respondent on the 5th May, 1967, and (c) both appellants were ordered to pay to the respondent £2,157.106 mils, as earnings due to the respondent, out of the profits of appellant 2, in respect of the year 1966 and of the period until the end of April, 1967.

The central issue of this case is the performance of the said agreement of the 5th May, 1967. By means of clause 1 thereof the respondent consented that appellant 1 and/or appellant 2 and/or any other company, partnership or person acting directly or indirectly on behalf of appellant 1 and/or appellant 2 would become the agent of the C. U. F. (Companhia Uniao Fabril) group of companies in Portugal: the agent of C.U. F. had been appellant 2 until a few days before the 5th May, 1967, when the agency was terminated by C.U.F. due to discord between appellant 1 and respondent, who were shareholders of appellant 2. By means of clause 5 of the contract the appellants undertook to pay to the respondent, so long as they were the agents [*1658] of C.U. F. as per clause 1, half of the net profits realized through being the agents of C.U. F. It was, further, provided by clause 2 that the respondent would sell to appellant 1 all his shares in appellant 2 at a price of £4,000 (out of which there would be deducted £2,085.825 mils owed by the respondent to appellant 2). Also, by means of clause 3 the appellants undertook to pay to the respondent his share of the till then profits of appellant 2.

There can be no doubt that the contract of the 5th May, 1967 (which is exhibit 40 in these proceedings) should be construed as a whole and as containing promises of the parties given in consideration of each other.

It has been the main contention of counsel for the appellants that the contract, exhibit 40, is a contingent contract and that the contingency on which its coming into effect depended, namely the securing by the appellants of the agency of C.U. F., has not happened; it was argued in this respect that the agency of C.U.F. was offered to appellant 2 on terms materially different from those in the past and that it was, therefore, justifiably not been accepted by appellant 1, who was conducting the affairs of appellant 2.

We are of the opinion that this contention of counsel is not a valid one: The agency of C.U.F. was secured by appellant 1 , on behalf of appellant 2, when an

agreement to that effect was reached in August,1967, at a meeting in Lisbon between appellant 1 and representatives of

C. U. F.; there exists in the record before us ample [*1659] documentary and oral evidence warranting this conclusion. It is true that the agency of C.U.F. was granted to appellant 2 - as a result of the meeting in Lisbon - on terms which were different from those in the past, but in our opinion such terms were not so fundamentally different as to support appellants' contention that the contingency in this respect, in clause 1 of exhibit 40, did not substantially occur.

After the C.U.F. agency reverted to appellant 2, as aforesaid, appellant 1 behaved (as it appears from the relevant correspondence) in a most unjustifiable manner, amounting, in effect, to an implied rejection of the agency, and C. U. F., eventually, withdraw it on the 8th September, 1967; in cur view this development did not render exhibit 40 void for non-occurrence of the contingency envisaged in clause 1 thereof, because when the C.U.F. agency was secured once again in August, 1967, by appellant 1, on behalf of appellant 2, such contingency did come about and so exhibit 40 became a fully operative agreement.

Proceeding, now, further, with the construction of exhibit 40, we are of the opinion that it was an implied term that after securing the C.U.F. agency the appellants would try to keep it as long as possible, or at least for a reasonable period of time; in our view such implied term is to be derived from the nature, and the contents as a whole, of exhibit 40, which was, in essence, an arrangement made between the parties to these proceedings (a few days after the C.U.F. agency had been withdrawn from appellant 2 due to discord between appellant 1 and the respondent, Who [*1660] were shareholders of appellant 2) for the purpose of providing for the withdrawal from appellant 2 of the respondent, in exchange, inter alia, of receiving his share of the profits from the agency of C.U.F. which, with his consent, would be granted once again to appellants; and that this arrangement for the sharing of the profits of the C.U.F. agency was contemplated to last for a long period of time is shown by the fact that by clause 9 of exhibit 40 it was provided that it would bind the successors and heirs of appellant 1 and the respondent.

So, when the C.U.F. agency was, in effect, rejected, unjustifiably - as stated above - by appellant 1, who was acting on behalf of appellant 2, there occurred a breach of exhibit 40 and as a result the respondent became entitled to be compensated in respect thereof.

We are of the view that as the C. U.

F. agency was secured for appellant 2, by appellant 1,

and was lost later on by appellant 2, through the conduct of appellant 1 while acting for appellant 2, it would be only the latter appellant who would be liable to

compensate the respondent, had it not been for clause 5 of exhibit 40, by means of which both appellants undertook to pay to the

respondent his share of the profits from the enjoyment of the C.U.F. agency as long as appellant 1 and/or appellant 2 would be agents of C.U.F.; in our opinion the effect of such clause is that appellant 1 guaranteed the payment of the share of

the respondent out of the profits of appellant 2 as agent of C.U.F., and, thus, appellant 1 is jointly liable with appellant 2 to compensate the respondent in this respect. [*1661]

The amount of compensation due to the respondent was assessed by the trial court at £14,630, on the basis of an expectation of profitable enjoyment of the agency for five years; and in arriving at the said amount the trial court relied on the earnings of appellant 2 as agent of C.U.F. during the period of the preceding ten years. We have carefully listened to lengthy arguments in relation to the correctness of the assessment of the compensation at the trial. We have not been persuaded that it was not reasonably open to the court below to proceed as it has done, and we are of the view that its decision on this point is warranted by the material before it; it has not been established to our satisfaction that there has been made any error of a material nature which would prevent the assessment of compensation, as made at the trial, from being treated by as as substantially correct.

Coming, next, to the respondent's claim regarding the value of his chares in appellant 2, we cannot agree with the submission of appellants' counsel that the relevant clause of exhibit 40 (clause 2) contained merely an undertaking on the part of respondent to sell his shares to appellant 1, without any reciprocal obligation on his part to buy them; bearing in mind the nature of the arrangement between the parties, which was embodied in exhibit 40, we are of the view that once the contingency in clause 1 thereof did happen, namely the C.U.F. agency was secured again by appellant 2, with the consent of appellant 1 and on the basis of the reciprocal promises contained in exhibit 40, appellant 1 became liable to purchase the [*1662] said shares of the respondent in the manner stated in clause 2, We would add, however;, that the decision of the trial court on this issue, in favour of the respondent, should have been coupled with an order compelling the respondent to transfer his shares in appellant 2 to appellant 1, in accordance with the said clause 2, and we, therefore, do make such an order in this appeal.

The last matter with which we have to deal is that of the amount due to the respondent as his earnings, out of the amount of the profits of appellant 2 during 1966 and the earlier part of 1967. We find that the trial court rightly based itself in this respect on audited accounts of appellant 2 and we do not agree with the contention that the calculations which it sets out in its judgment amount, in effect, to embarking on the course of doing its own accounting, in substitution of that of the accountants of appellant 2; in our view the trial court merely made certain necessary calculations, on the basis of audited accounts before it - as it was bound to do - in order to ascertain the amount due to the respondent as aforesaid.

In relation to this claim of the respondent, counsel for the appellants has submitted that there ought to be taken into consideration the liability for income tax payable in respect of the earnings in question of the respondent and that the amount due to him by the appellants has to be reduced accordingly. We do not agree that such a course would be correct in a situation such as the present one; no allowance or deduction for income tax ought to be [*1663] made, especially as there is no evidence on record on which it could be calculated; but, of course, if either of the appellants, and particularly appellant 2 as company, were in future to be obliged to pay any income tax which should have burdened the respondent in respect of his said earnings then it will be open to either appellant 1 or appellant 2 or both, as the case may be, to seek to recover it from the respondent.

It is quite clear from clause 3 of exhibit

40 that in respect of the claim of the respondent for his earnings in 1966 and 1967 the appellants undertook a joint liability and, therefore, judgment against both of them was rightly given by the court below.

Before concluding this judgment we must observe that we have considered the contention of counsel for the appellants that judgment could not be given against appellant 2 as it was, at the time, a company in the process of voluntary winding-up. We have found no substance in this contention because, notwithstanding the relevant provisions of the Companies Law, Cap. 113, and particularly of section 220 thereof, no application had been made for the proceedings before the trial court to be stayed on the ground in question and, moreover, by means of clause 4 of exhibit

40 it was agreed between the parties thereto, who are the same as the parties to these proceedings and two of whom (appellant 1 and the respondent) were the shareholders of appellant 2, that the voluntary winding-up, in respect of which no court order had been made, would not take place. [*1664]

For all the foregoing reasons this appeal fails and it is dismissed accordingly, subject to the judgment of the court below being varied so as to include an order for the transfer by the respondent to appellant 1 of his shares in appellant 2.

In the light of all relevant considerations we have decided not to make any order as to the costs of the appeal.

As it has been agreed that a pending civil action between the parties, No. 2201/67 in the District Court of Famagusta, shall follow the result of the present proceedings we make, with the consent of both counsel, an order that such action should stand dismissed; and, apart from such costs as have already been paid, we make no order as to its costs.

Appeal dismissed.

No order as to costs.