#6699 - Jobson V. Johnson - Commercial Remedies BCL

Jobson v. Johnson

Facts

The defendant, Mr. Johnson, appeals against an order of Harman J. of 5 February 1987 whereby the judge ordered, in favour of the plaintiff, Mr. Jobson, as assignee of two brothers named Rubin (“the Rubins”) specific performance of an agreement in writing of 12 August 1983 whereby the defendant agreed, in the events which have happened, to sell 62,566 ordinary shares of 25p each in Southend United Football Club Ltd. (“the club”) to the Rubins for a sum of 40,000. The appeal raises a narrow point of considerable difficulty, which only arises because of the unusual course these proceedings have taken.

Briefly the origin of this matter is that in August 1983 the Rubins were, by inheritance from their father, entitled to 62,666 ordinary shares in the club, which constituted 44.914 per cent. of the issued share capital of the club. By two documents, both dated 12 August 1983, which have to be read together to get the full terms of the contract, the Rubins contracted to sell the 62,666 shares to the defendant.

The first of these two documents was a sale agreement made between the Rubins and a Mr. Machutchon who was a nominee for the defendant. It provided for the sale by the Rubins to Mr. Machutchon of the 62,666 shares for a price of 40,000 in cash, and for completion to take place immediately after the signing of the agreement. The sale agreement contained many other provisions but none is relevant to this appeal.

The second of the two documents was a side letter of the same date. It was written by the defendant to the Rubins and was countersigned by them and was expressed to be agreed in consideration of the Rubins' entering into the sale agreement with Mr. Machutchon.

What is important about the side letter is however: (1) that by paragraph 3 and the last three lines of paragraph 2 the defendant agreed to pay the Rubins, in addition to the 40,000 under the sale agreement, a sum of 311,698 by six equal half-yearly instalments of 51,948 commencing on 12 February 1984 — the 311,698 represented 260,000 plus interest at 12 per cent. per annum on a reducing balance; and (2) that by paragraph 6 there were alternative provisions for the re-transfer to the Rubins of 44.9 per cent. of the issued share capital of the club in the event of default by the defendant.

It is the re-transfer under paragraph (b) that the plaintiff, as assignee of the Rubins, now claims to enforce.

The defendant paid the Rubins the first 100,000 under the variation agreement, in addition to the 40,000 already mentioned, but he has failed to make any payment at all in respect of the balance of 200,000. The rights of the Rubins against the defendant were assigned to the plaintiff for value in July 1985, and he now claims against the defendant to enforce the re-purchase of 62,566 shares under paragraph 6(b) of the side letter.

In this court the plaintiff does not challenge the judge's ruling that paragraph 6(b) is a penalty clause.

Holding

All the cases to which I have referred were cases where the penalty was a sum of money. Now that the jurisdictional differences between the courts of common law and equity no longer exist, any court, English or Scottish, when faced with a claim for a sum of money payable on default which it identifies as a penalty, must refuse to enforce the penal part of the sum and must give judgment for the claimant merely for the actual damages suffered by the claimant — with, as appropriate, interest and costs. Where the penalty is a sum of money, the relief, once the penalty has been identified, does not involve a consideration of the circumstances of the defendant, or of the factors which might be appropriate to a grant of relief against forfeiture in such a case as Shiloh Spinners Ltd. v. Harding [1973] A.C. 691, where there was no question of penalty.

Does it make any difference then, that the penalty in the present case is not a sum of money? In principle, a transaction must be just as objectionable and unconscionable in the eyes of equity if it requires a transfer of property by way of penalty on a default in paying money as if it requires a payment of an extra, or...