Condliffe & Anor v Sheingold

Goodwill belongs to the business that generates it, and may be separate from the lease of the premises in which the business operates. A director who appropriates corporate goodwill remains accountable after liquidation. The absence of goodwill from statutory accounts, failure to pay for it on a business transfer, or the liquidators’ failure to pursue a claim does not determine ownership. Unanimous shareholder consent to vest corporate property in a director cannot be inferred without clear evidence. Once liability to account is established, the fiduciary must raise any proper deduction from the profit received. Where a sale agreement attributes a specified consideration to goodwill, the court will not re-apportion it on a fiscal hypothesis.

Baja Ltd operated a restaurant through its director, Felicia Sheingold, who personally held the relevant lease and business development arrangements. Baja later entered creditors’ voluntary liquidation. Its liquidators sold fixtures and fittings to a company owned by Ms Sheingold, who continued the business and sold it to Mr Nesbit. The sale agreement attributed £71,837 to goodwill.

The appellants, as assignees of claims belonging to Baja, alleged that Ms Sheingold had misappropriated Baja’s goodwill and sought an account. HH Judge Griggs dismissed the claim, holding that the lease and goodwill belonged beneficially to Ms Sheingold. The central issues on appeal were ownership of the goodwill, the amount for which Ms Sheingold should account, and whether the failure to object to the liquidation affected the claim.

1. Appeal and ownership. The appeal was allowed in part. Ms Sheingold was liable to account for Baja’s goodwill. Goodwill is attached to the business that generates it and can be distinct from the lease of the premises. The judge’s findings showed that Baja carried on the restaurant business on its own account, rather than merely providing management or catering services to Ms Sheingold. The goodwill sold to Mr Nesbit therefore belonged to Baja.
2. The absence of goodwill from Baja’s statutory accounts did not affect ownership. Internally generated goodwill may not appear in those accounts. Nor did the failure to pay for goodwill when Baja took over the business, or the liquidators’ failure to pursue a claim, determine whether Baja owned it.
3. Fiduciary duty and shareholder consent. Ms Sheingold’s fiduciary duty not to appropriate corporate property continued after liquidation, although her powers as director ceased. Unanimous shareholder consent to vest the goodwill in the individual shareholders could not be inferred. The judge had made no finding of such an agreement. Mr Miner’s failure to object to the liquidation was no bar, particularly since Ms Sheingold was responsible for producing an accurate statement of affairs and did not rely on estoppel.
4. Amount of the account. Ms Sheingold had to account for £71,837, plus interest. Once liability was established, she had to raise any proper deduction from the profit actually received. The judge had rejected any increase in goodwill attributable to her post-liquidation efforts. The agreed apportionment in the sale agreement could not be re-opened on the suggested basis that it was arranged for fiscal advantage. The late argument for an inquiry into value was refused.
5. The court did not decide ownership of the lease, as the point had not been fully argued and was unnecessary. It agreed that there was no evidence that the fixtures and fittings had been sold at an undervalue. If interest was not agreed, it was to be determined on written submissions.

• Court of Appeal (Civil Division) — [2007] EWCA Civ 1043: appeal allowed in part; Ms Sheingold ordered to pay £71,837 plus interest.
• Truro County Court — HH Judge Griggs, judgment dated 21 December 2006: claim dismissed. The judge held that the lease and goodwill belonged beneficially to Ms Sheingold and rejected the allegation that the fixtures and fittings were sold at an undervalue.