A2/2001/2591
Neutral Citation Number: [2002] EWCA Civ 1337
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(His Honour Judge Price QC)
	Royal Courts of Justice
	Strand
	London WC2

	Thursday, 30th May 2002

B e f o r e :

LORD JUSTICE WARD
LORD JUSTICE MANCE 
and
SIR MARTIN NOURSE

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GDS GARDNER DESIGN SERVICES LIMITED
Claimant/Respondent

-v-

BASIC PARTITION SYSTEMS LIMITED
Defendant/Appellant
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Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited
190 Fleet Street  London EC4A 2AG
Tel: 020 7421 4040  Fax: 020 7831 8838
(Official Shorthand Writers to the Court)
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Mr M Duggan (instructed by Messrs Manuel Swaden, London NW6) appeared on behalf of the Appellant Defendant.

Mr P Infield (instructed by Messrs Paul Davidson Taylor, Horsham, West Sussex) appeared on behalf of the Respondent Claimant.

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J U D G M E N T
1.	LORD JUSTICE WARD: I will ask Lord Justice Mance to deliver the first judgment. 
2.	LORD JUSTICE MANCE: This is an appeal from a decision of His Honour Judge Price dated 19th October 2001. He held that the appellant, Basic Partition Systems Limited (“Basic”), was in repudiatory breach of contract in relation to the respondent, GDS Gardner Design Services Limited (“GDS”), and liable to pay sums under two agreements, which can be described as the heads of agreement and the service agreement. The heads of agreement was dated 2nd January 1999 and the service agreement remained always a draft, but it is common ground that it reflected the terms of a binding contract between the parties in respect of the services to be provided by GDS through Mr Gardner as managing director of the appellant. 
3.	The appellant, Basic, is a company that has at all times been engaged to carry on a business manufacturing and selling partition systems. Its founder was a Mr Glanmor Jones. He, together with his wife, were the main shareholders and controlling parties of the appellant from about 1997 to 1998. They had been considering selling the appellant company in order to retire, it appears, to Gibraltar, although it was contemplated that some further involvement on Mr Jones's part would continue. There were protracted discussions with Mr Gardner, who has had a very long career in the same line of business, and also with a Mr Barton, who plays a walk-on part in the matter and was introduced by Mr Gardner. It was agreed that Mr Gardner and Mr Barton would become joint managing directors of the appellant, with a view to building up the appellant and effecting the sale of the shares in the appellant at the best price obtainable over the next few years. Mr Gardner's role, in view of his experience, was primarily to be in sales and marketing; that is clear from his job description. The relationship so far as Mr Barton was concerned did not last long, but his role was originally to be the day-to-day active managing director, on site for five days a week. Mr Gardner was originally intended only to be involved for some three days a week. Mr Barton's involvement, however, only lasted about two months and after his departure Mr Gardner's role and fees were increased to meet the situation. At about the same time as Mr Barton and Mr Gardner commenced the agreements (to the terms of which I will come in a moment) three other long-serving employees of the appellant, a Mrs Patti, a Mr Hopkin and Mr Williamson, were also appointed to the board. The intention was that Mr Jones would, as I have said, retire abroad and take a back seat in the business, while Mr Gardner and Mr Barton managed it actively. 
4.	The terms of agreement were as follows. First, the heads of agreement dated 2nd January were made between Mr and Mrs Jones, the appellant company (Basic Petition Systems Limited), Mr Gardner, Mr Barton and Mr Gardner's company (then known as Gardner Limited, now known as GDS Gardner Design Services Limited). The agreement provides, so far as material, as follows: 
“WHEREAS:
A.It is the joint intention of Mr and Mrs Jones to withdraw from active management of Basic a company which they wholly own.
B.It has been agreed that Mr Barton and Mr Gardner will become shareholders of Basic and will be appointed joint managing directors of Basic.
C.These heads of terms are intended to set out the agreement of the parties to the terms for the ongoing management and ownership of Basic.
D.The parties confirm that their intention is to manage Basic to a sale within five years of this agreement.
IT IS HEREBY AGREED AS FOLLOWS:...
8.Mr Barton shall enter into a service contract in the terms attached hereto and shall serve the Company as joint Managing Director.
In addition to the remuneration within the contract of employment Mr Barton shall be provided by Basic with the following `Benefits' at no cost to himself.
(a)Term assurance to age 65 to provide death in service cover to a total sum of £300,000 during the duration of the contract of employment.
(b)Permanent Health Insurance cover on the same terms as presently enjoyed (copy policy attached) during the duration of the contract of employment.
The Benefits under this clause will be provided from the date of this agreement.
9.Gardner Limited will enter into a contract to provide the services of Mr Gardner to Basic as joint Managing Director on similar terms to the contract of employment of Mr Barton, but on the basis that Mr Gardner will be available for at least 3 days per week (subject to 5 weeks absence per annum through normal holiday) at an annual fee of £55,000. In addition to the aforesaid fee Basic will pay an additional fee to Gardner Limited to allow Gardner Limited to fund a term assurance in the sum of £300,000 to age 60 during the duration of the contract for services. The Benefits under this clause will be provided from the date of this agreement.
10.It is intended that Mr and Mrs Jones will resign their executive position with Basic on or before the 31st March 1999.
11.Mr Gardner shall be appointed a director of the Company at a date to be agreed between 17th March 1999 and 31st March 1999. ...
13.It is intended that the company be managed to a sale at a price in excess of £6,000,000 within a three to five year period and the company budgets and plans will be set by the board to reflect this intention.
14.Whereas the board shall be responsible for the executive management of the company the parties recognise that in the following circumstances the holders of the `A' ords shall be entitled without prejudice to any other rights they may have to:
(a)appoint new board members with or without executive authority, and/or;
(b)negotiate to and sell the company or any of its assets without reference to Mr Barton, Mr Gardner or the C, D or E ord shareholders.
The circumstances envisaged are:
(i)a.Profits before tax per the audited accounts for the year to 31st December 1999 does not exceed £450,000.
b.Profits before tax per the audited accounts for the year to 31st December 2000 exceed £550,000.
c.Profits before tax per the audited accounts for the year to 31st December 2001 does not exceed £650,000.
d.Profits before tax per the audited accounts for the year to 31st December 2002 does not exceed £750,000.
e.Profits before tax per the audited accounts for the year to 31st December 2003 does not exceed £850,000.
f.Profits before tax per the audited accounts for the year to 31st December 2004 or any year thereafter does not exceed £950,000.
OR
(ii)in a year in which a budget is set by the board and endorsed in writing by Mr Jones that 50% of the budgeted profit before tax is not achieved.
After 31st March 2009 the holder of the A ords shall be allowed to terminate the agreement at will. ...
16.If the Company is sold for in excess of £6,000,000 Mr Barton shall be entitled to a bonus of £300,000 and Gardner Limited an additional fee of £300,000 provided services are still being provided pursuant to the service contracts referred to in clauses 8 and 9 respectively.
If this agreement is terminated at any time in circumstances not provided for pursuant to clause 14 and services are still being provided pursuant to the service contracts referred to in clauses 8 and 9 respectively the bonuses in this clause shall be paid as if the company were sold as at the date of termination for £6,000,000 and the C and D shares shall become deferred in accordance with the provision of appendix II.
17.If the Company is sold for between £5,000,000 and £6,000,000 pursuant to their respective contracts Mr Barton and Gardner Limited will each be entitled to a bonus/additional fee equivalent to 30% (gross of any tax) of the excess over £5,000,000 provided services are still being provided pursuant to the agreements referred to in clauses 8 and 9 respectively. ...”
5.	The services agreement was contemplated to be made (as I say, it never got beyond the stage of a draft) between Mr Gardner's company, Mr Gardner himself and the appellant. I should say (though no point whatever has been taken at any stage on this) that it seems open to some question whether Mr Gardner's company at that stage even existed, but no point has been made on that and it certainly exists now. The agreement provides, in clause 2: 
“Commencement:
This agreement starts on the 1st day of April 1999 and remains in force until it is terminated by prior written notice sent by either party to the other to take effect not earlier than three months if such notice is given during the first year of the agreement. The period of notice shall be extended by one month for each additional year of the agreement up to a maximum six months after four years.”
6.	Clause 12 contains further provisions entitling the company in certain familiar situations to terminate immediately and without liability for compensation or damages. They are not relevant. Clause 3.3 provides for the director (that being the position to which Mr Gardner was to be appointed): 
“... in a proper and efficient manner to perform the role as specified in Schedule 1 hereto and use his best endeavours to develop, maintain and extend the Company's business ...” 
7.	Schedule 1 refers to his “job description” as follows:
“1.Main task as joint managing director to take responsibility for expanding the business with new and existing clients, in particular building new key accounts.
2.To discuss and create sales policy with the sales and marketing team.
3.To offer constant support to the sales team.
4.To act as PR and back up for the company.
5.To find and explore new products and new markets.
6.To locate and recommend possible new appointments to the company through existing sources and contacts.
7.To at all times maintain an executive profile and leadership within the company.
8.In all of these activities maintain close liaison with I.B.”
8.	Then the agreement contained these important terms, as alleged at paragraph 7 of the claim: 
“There were express terms of the Management Agreement that:
(a)Mr and Mrs Jones would withdraw from the active management of Basic from 1 March 1999;
(b)Mr Gardner would be appointed joint Managing Director of Basic from 1 March 1999;
(c)GDS would enter into the Service Agreement with Basic and Mr Gardner to provide the services of Mr Gardner to Basic as joint Managing Director.”
9.	The issues can be derived from the pleadings and, in particular, from clauses 18 and 19 of the amended particulars of claim, as follows: 
“18.In repudiatory breach of the Management Agreement and/or the Service Agreement, Basic gradually removed authority from Mr Gardner so that he was no longer carrying out the function of Managing Director and/or Basic by its Directors caused or permitted or acquiesced in the gradual removal of authority from Mr Gardner by Mr Jones.
PARTICULARS
(a)Mr Jones cancelled two orders made by Mr Gardner for the purchase of polo shirts, notwithstanding that the Board of Directors had resolved to purchase the same on 6 April 1999;
(b)Mr Jones countermanded Mr Gardner's decision to provide David Tallent, a salesman of Basic, with a new company car;
(c)Mr Jones cancelled the distribution of a newsletter and various product literature for the sales force to promote Basic;
(d)Mr Jones countermanded Mr Gardner's decision to order a new section for the partitioning system;
(e)Mr Jones frequently telephoned staff at the Gatwick branch of Basic to monitor the performance of Howard Hainsworth, the branch Manager;
(f)Mr Jones conspired with a Director, Nigel Williamson, to trap two employees suspected of theft;
(g)Mr Jones purported to retain the authority to grant bonuses and by Basic to the Directors;
(h)Mr Jones refused to allow Mr Gardner to introduce a dual system of measuring sales within each branch;
(i)Mr Jones consistently contacted Directors and employees of Basic in order to keep up-to-date with the business of the company;
(j)in or about August 1999 Mr Jones instructed Lin Patti, Gordon Hopkin and Nigel Williamson, being the other Directors of Basic, to report to him weekly on the affairs of Basic;
(k)on 24 November 1999 the Board of Directors resolved to re-appoint Mr Jones as a Director of Basic;
(l)on or about 3 December 1999 Mr Jones told Mr Gardner that he was taking over full control of Basic, that he wanted Mr Gardner to report to him and, if he did not accept Mr Jones taking full control, he had `better consider your [his] future'.
19.By a letter dated 7 December 1999 Mr Gardner accepted the repudiatory breach on behalf of GDS thereby bringing the Management Agreement and Service Agreement to an end.”
10.	The defence contains important admissions, particularly an admission of the express terms set out in paragraph 7, save it was pleaded that Mr Gardner was given the title “joint managing director” purely as a title; his job was to increase sales. That qualification was not accepted by the judge in his judgment and therefore can be put on one side. There also appear in the defence allegations of breach by GDS and/or Mr Gardner, justifying, it was suggested, termination on that ground by the appellant. Again those were not accepted by the judge and are not pursued before us.
11.	The issues before us turn on paragraph 18 of the amended particulars of claim, which I have set out. The judge ruled out subheads (a) to (i). Again those are not pursued before us and are not relevant. Subhead (j) is likewise, as it seems to me, not really significant. The case turns essentially on the pleas at (k) and (l). The factual basis for those pleas, in somewhat expanded form, is as follows. 
12.	There was a meeting in August 1999 in Spain between Mr Gardner and Mr Jones. That is dealt with in the judge's judgment. It is clear that Mr Gardner at that stage was somewhat uncertain about whether he wanted the agreement to continue: 
“... as things had not worked out in the way that he had expected with the departure of Barton and he would think about it and let Mr Jones know by the end of the year.”
13.	According to the judge, Mr Jones told Mr Gardner to concentrate on sales: 
“... because there was no way we would reach the targets ... unless the sales increased. While these had improved after Barton's departure, the staff still needed encouragement, guidance and goals. I [i.e. Mr Jones] told him to leave the day-to-day management of [the appellant] to the other members of the board and I would be available to assist when necessary. I told him that I wanted him to undertake the role which had been specified in his job description, that of sales and marketing.” 
14.	After that agreement and a board meeting on 7th September Mr Gardner's mild discontent evidently continued because he wrote saying that he would change the basis on which he was operating. He would not be in the head office on a regular basis. However, he would continue to perform his functions as managing director, and he laid down the basis on which that would occur, and he would continue actively to represent and promote the company and always be available to help in any way. On the judge's findings, that is what he did continue to do, with some success, so it appears, in the matter of sales. As I have said, the judge did not accept the suggestion that Mr Gardner was himself in repudiatory breach, or any breach. 
15.	On 9th November 1999 Mr Jones, however, expressed his continuing dissatisfaction regarding the progress of sales in the following letter:
“Dear Peter
I refer to our telephone conversation today confirming that a Board Meeting will be called to re-elect Pat and myself back on the Board of Basic Partitions Systems Limited.
I am very unhappy about the lack of profitability of the Company and to that end I will take full responsibility for the running of the Company.
This will enable you to devote all your time at Basic to expand the sales primarily to new key accounts where in my opinion there is a substantial lack of activity. To this end, I would like you to report in writing to me your activities since commencement on a general basis and from August on a detailed basis and this is to be ongoing on a fortnightly basis, to include daily tasks and achievements.
I look forward to this information shortly, perhaps you could leave it in a sealed envelope at Southall or post it together with any other aspects you have been involved in to my son at 14 Holly Crescent, Windsor, Berks SL4 5SL as I am due to be in the UK from late on Friday 19th until late on Sunday 21st November.
Any additional information to set us back to where we were before would be appreciated.
Looking forward to your comments.
Yours sincerely
GLAN”
16.	On 11th November there was a board meeting pursuant to that letter at which Mrs Patti informed the other board members that Mr Jones wanted to come back into the appellant company on a practically full‑time basis as he was concerned about the falling profitability of the company; also that Mr Jones wanted Mr Gardner to concentrate his time on obtaining new key accounts for the company, and that Mrs Jones would come on board as well to give Mr Jones full secretarial support both in this country and in Gibraltar. Mr Gardner replied that, if a vote from the board was necessary, that could take place at the next board meeting. 
17.	At the next board meeting, when again the three employee directors and Mr Gardner were the only directors present, Mr Gardner brought up the subject of Mr and Mrs Jones returning to the board. The three employee directors agreed and Mr Gardner dissented. Thus Mr Jones came back as an executive director. Mr Duggan, for the appellant, accepts that Mr Jones was, from that time on at least, one of the managing directors. Mr Duggan also accepts that Mr Jones could, and did, thereafter speak as such for the company. He was of course still, under the agreement, the sole effective shareholder with his wife. 
18.	On 26th November, in a letter written by Mr Gardner, GDS complained about this situation and about the changes in position. The penultimate paragraph reads: 
“It would appear from your letter of 9th November 1999 that you now intend to return to the UK and run Basic as before; this is a complete change of heart and strategy from your original intentions and would suggest that the company cannot run without you and therefore would seriously damage the possibility of a sale as well as denting the confidence of the senior staff and management team.” 
19.	In the last paragraph he indicated some willingness to discuss how the present “fluid arrangement” (as he described it) might be changed and the existing contract altered. 
20.	However, what followed appears to have been a meeting on 3rd December 1999, which led to a further letter from GDS describing the meeting in a way which the judge accepted. The letter said that at the meeting Mr Jones was adamant that he was returning to run the company. It referred to the actions of Mr Jones in insisting that he and Mrs Jones be reappointed to the board and, in taking over the running of the company, thereby usurping Mr Gardner's position of managing director, and, it was alleged, interfering with the running of the company before such reappointment, as constituting fundamental breaches of the heads of agreement which Mr Gardner, on behalf of GDS, accepted as a repudiation. 
21.	Curiously, in his witness statement Mr Gardner said that the meeting on 3rd December had been postponed to 7th December, but the letter of 7th December is of course quite inconsistent with that. Mr Duggan sought in his notice of appeal to make something of the inconsistency and also to make something of the judge's failure to address it in his judgment. However, there seems to me to be nothing in that. Mr Gardner in his witness statement was simply asserting that the statements on which he relies had been said on 7th December (rather than 3rd). He seems on the face of it to have been clearly wrong in his witness statement since it seems inconceivable that he would have written on 7th December about those things being said on 3rd December if they had not then been said. Mr Duggan eventually accepted that there was nothing in the point and he did not pursue it further orally. 
22.	The issues which the judge did address were whether there was a repudiation of the relevant agreements (a) by the company by the appointment of Mr Jones as managing director from 24th November and/or (b) by the company through Mr Jones orally on 3rd December indicating that he, Mr Jones, was to be the effective sole managing director. Any such repudiation was of course accepted by GDS's letter of 7th December 1999. 
23.	Mr Duggan made a number of points, which I hope I can cover, with some reformulation, as follows. First, focusing on the service agreement (though the same would apply under the heads of agreement if there were any relevant term), Mr Duggan submitted that there was on the facts no basis for a conclusion that there was any repudiation by the appointment of a joint managing director since there was room, following the departure of Mr Barton, for a joint managing director. It is also the case that nothing in the service agreement could preclude the appointment of Mr and Mrs Jones as board members because the service agreement is not concerned on any view with that aspect. So the only possible breach of the service agreement lies in effectively ousting Mr Gardner from his role as a managing director and, by November/December, as sole managing director. Mr Duggan suggests that on the facts that is not what happened. He suggests that Mr Jones was simply to come back to fulfil, in effect, Mr Barton's day-to-day role of running the company alongside Mr Gardner, who was simply to focus on sales and marketing, which was always his forte. 
24.	That, it seems to me, is largely an issue of fact and in my view it is one which is concluded against the appellant, in a way not open to review in this court, by the judge's findings. He said: 
“What is much more important are the sentiments being expressed by Mr Jones to Mr Gardner at that time. Having heard Mr Jones and on the totality of the evidence I have no doubt that he was making it plain that he was back in the principal executive position to run the company. I accept what Mr Gardner says, that while Mr Jones never said in terms that his services were to be terminated, it was made plain Mr Gardner was going to have to keep in his good books.
The phrase is picked up by Mr Gardner in the letter he wrote on 7th December 1999 which refers to Mr Jones `being adamant that he was returning to run the company'. That letter sets out the case that GDS seek to make. It sets out three heads which are said to constitute fundamental breaches of the Heads of Agreement: first, insisting that Mrs Jones and himself be reappointed to the board; second, taking over the running of the company, `thereby usurping my position as Managing Director'; and, third, interfering with the running of the company before being reappointed. `By reason of that', the letter goes on, `Mr Gardner, on behalf of GDS, rescinds the Heads of Agreement and the contract subsequently entered into between GDS and' himself, the Service Agreement.
The central issue in the case is whether that was a justified course of action. In my judgment, it was. The restoration of Mr Jones as a director not only with an executive role but also taking over the running of the company was, I find, a clear repudiation of the scheme for the ongoing management of that company at the core of the contract expressed in the Heads of Agreement.”
25.	I therefore see no basis for any appeal in respect of the judge's finding so far as it depended upon wrongful repudiation of the service agreement. If repudiated, that agreement alone would entitle the respondent to damages which on their face would correspond with the period of three months' notice which should have been given. That is also the basis on which damages have been calculated in the sum of £27,494.76 and awarded. 
26.	I turn to the heads of agreement. Mr Duggan made two points at the outset. First, he submitted that there was, and is, no plea of any implied term and that there were, and are, no relevant express terms in this agreement. Secondly, he submitted that there was nothing to stop the board, if the directors thought fit, from appointing new directors, which is what on the face of it happened on 24th November. He distinguished activity by shareholders, dealt with under clause 14 of the heads of agreement, from activity by the board exercising its discretion. The board had power to appoint additional directors under table A incorporated in the appellant's articles. There is, it seems to me, a certain unreality about the second point, since Mr Jones was clearly the instigator of his own return, and the three employee directors on the board in effect implemented his wish. 
27.	However that may be, it seems to me that both the points made by Mr Duggan face this difficulty: they run up against the express terms of the agreement as asserted and admitted in the pleadings to which I have referred. A company can contract not to exercise a power which it otherwise has under table A, and that is here reinforced by the fact that all the shareholders, in the person of the two Joneses, were in fact party to the heads of agreement. Here, on the pleadings and by the admissions which I have identified, there were in the heads of agreement terms to the effect that the Joneses would withdraw from active management and that Mr Gardner would be appointed as managing director, in each case from 1st March 1999. The case was, as I understand it, argued on the basis that any such obligations constituted continuing obligations; but however that may be, that seems to be the effect of the admissions. There would, but for those admissions, clearly have been a strong case for saying that (even if there were no such express terms) there were parallel, or at least partly parallel, implied terms to be derived from the recitals and from the provisions of clauses 9 to 11 and 14 of the heads of agreement. No doubt such implied terms would, if necessary, have been alleged by the claimant if the pleaded express terms had not been admitted or the case had been argued on the basis that the express terms did not cover the situation. As it is, in my view, we must take the heads of agreement as containing continuing terms to the effect which I have set out. 
28.	On that basis I consider that what happened regarding the reappointment as directors of the Joneses, and especially regarding the assumption, on the judge's findings, by Mr Jones of the role of sole managing director, constituted a breach of the heads of agreement. It is accepted that that cannot in any way increase the damages for wrongful displacement of Mr Gardner beyond the sum of £27,494.76 which I have already mentioned. That is because the heads of agreement themselves provided for Mr Gardner to be engaged on the terms of the draft service agreement which entitled the appellant to remove Mr Gardner by three months' notice. 
29.	This leads me to what is undoubtedly the most important matter financially in this case, namely the effect of clause 16 and its second paragraph in particular. The question is whether the appellant is liable for any sum under that clause, in particular for the sum of £300,000 which the judge awarded. The clause is, like the rest of this agreement, extremely badly drafted and in point of fact it only refers to bonuses being paid as if the company were sold as at the date of termination for £6 million. However, it is common ground that that must be read as if either the bonus provided by the first paragraph applied on a sale for exactly £6 million or as if the additional words “in excess of” appeared just before the reference to £6 million in the second paragraph of clause 16. No argument to the contrary is addressed. 
30.	The question is whether clause 16 applies to the present situation. It is said that the termination arose from repudiation of the heads of agreement by the same conduct as constituted repudiation of the service agreement. It is accepted now on both sides that, if the appellant had given three months' notice to GDS in respect of Mr Gardner, the heads of agreement would have been performed and not terminated. There would have been no arguable breach at all. On that basis no bonus would have been paid in the present situation, any more than any damages would have been paid. It can also be said to follow from the language of clause 16 that the heads of agreement may continue after the service agreement comes to an end. Termination of the one, it may thus be argued, does not necessarily involve termination of the other. The question which I put to counsel was: can it really be the case that failure to give three months' notice, although a breach, is itself a breach so serious as to amount to repudiation, not just of the service agreement, but also of the heads of agreement? Putting the same question another way, can a sum as large as originally £600,000 (and now, since Mr Gardner became the only managing direction, £300,000) turn on whether or not three months' notice was duly given? This point was simply not explored before the judge below, but, as I say, we heard counsel on it. 
31.	Clause 16 is, I find, of extreme opacity. It appears to be an agreement of some width, intended to be of long-term effect and to regulate a number of matters other than terms of service. Terms of service are also included in the separate service agreement. The last phrase in clause 14 might also be said to suggest that “termination” refers to release from long-term restrictions while Mr Gardner and Mr Barton remained involved. The provisions of clause 14 can hardly have been intended to apply after they left. So too the drafters of clause 16 and clause 17 were careful to qualify their operation to periods when Mr Gardner and originally Mr Barton were still acting and providing services under their service agreements. 
32.	So as I said, there is no necessary coupling between the service agreement and the heads of agreement and there is at least some scope for argument that repudiation of the service agreement is not axiomatically repudiation of the heads of agreement. Against this it is clear that the heads of agreement held out prospects of and, in some situations, entitlement to very substantial benefits on a sale of the company's shares during the currency of the service agreements, even though Mr Gardner's or Mr Barton's efforts had not necessarily contributed much, if anything, to such sale, and even though the company could have avoided an obligation to pay such a bonus by giving prior three months' notice to determine their service contracts. So, as counsel for the respondent, Mr Infield, rightly said, there is what may be regarded as a substantial element of windfall inherent in the heads of agreement. 
33.	I have ultimately come to the conclusion, in the light of the arguments that we have heard, that in the present circumstances the parties did contemplate that repudiation of the admitted terms of the agreement by way of dispensing with Mr Gardner's services as managing director would give cause to regard this agreement as repudiated and terminated. His entitlement to a bonus was, as I have said, always dependent upon his remaining in service, but while he remained in service, if the agreement was repudiated, it seems to me that the intention must have been that, although there was an element of windfall, he would in those circumstances receive the bonus as if he had managed to sell the company for £6 million or over during his period of service. 
34.	It might have been suggested perhaps that questions relating to the law of penalties and mitigation had relevance, but once again those were not argued below and have not been argued before us. The question of penalty might have gone to clause 16. The question of mitigation might have arisen in the context of an argument that if there was (as there was) a repudiatory breach by way of dismissal of Mr Gardner, then it also brought with it a very substantial benefit (which, if three months' notice had been given, would not have accrued) by way of a bonus. As I say, we do not need to consider whether there would have been any merit in that sort of point.
35.	For the reasons I have given in my judgment the judge arrived at the right result and I would dismiss this appeal. 
36.	SIR MARTIN NOURSE: I agree. 
37.	In my view the correct analysis of the contractual position in regard to the heads of agreement and its consequences is as follows. The obligation of the appellant company under clause 9 of the heads of agreement to enter into a service agreement with Mr Gardner to act as its joint managing director was discharged by the appellant's entry into that agreement, which thereafter regulated Mr Gardner's services to it. The fact that under clause 9 of the heads of agreement Mr Gardner's services were to be provided by the respondent company on similar terms to Mr Barton's does not mean that clause 8 of the heads of agreement can, as Mr Infield suggested, be relied on so as to provide that Mr Gardner was employed to serve the appellant as joint managing director on an indefinite basis. The length of his service, like the other terms of his employment, were to be regulated by the service agreement. Moreover, in my judgment a breach of the service agreement would not per se constitute a breach of the heads of agreement. 
38.	That, however, is not an end of it. Clause 10 of the heads of agreement contained a term, which was admitted on the pleadings to be of contractual effect, that Mr and Mrs Jones would resign their executive position with the appellant on or before 31st March 1999. If that term is read in the light of the recitals, in particular recitals A and B, its clear effect was that not only were Mr and Mrs Jones to resign their executive position, but also that they were not to resume it, for which purpose it would make no difference whether they reappointed themselves or were reappointed by others. 
39.	On that footing, and in the circumstances stated by Lord Justice Mance, there was a breach of the heads of agreement by the appellant and, like him, I agree that it was a repudiatory breach. Accordingly, once the repudiation was accepted, the heads of agreement were terminated and the provisions of the second paragraph of clause 16 took effect. 
40.	I have nothing to add to what Lord Justice Mance has said in regard to the service agreement. 
41.	I too would dismiss this appeal. 
42.	LORD JUSTICE WARD: The crucial question is whether, under clause 16, the heads of agreement terminated because such termination triggered the claim for £300,000, which is the substantial dispute. 
43.	The heads of agreement was, as expressed in its title, an agreement “in respect of the Share Capital and Ongoing Management of Basic Partitions Limited”. The ongoing management involved, as paragraph 7 of the particulars of claim alleged and as was admitted in the defence, Mr and Mrs Jones withdrawing from active management of Basic from 1st March 1999. The only qualification on that, perhaps, is arguably by operation of clause 14 of the heads of agreement, which contemplated Mr and Mrs Jones being entitled to exercise their rights as shareholders to appoint new board members, including, of course, themselves. 
44.	But the basic question in the case seems to me to be this: did Mr Jones resume active management of the company? I am afraid, on the judge's findings, he answered that question himself. The judge said: 
“In evidence Mr Jones told me that it was his intention to return as Joint Managing Director leaving Mr Gardner free to concentrate on sales and marketing. In cross‑examination Mr Jones simply could not sustain that assertion and conceded that `full responsibility' - to quote from his letter - `for the running of the company meant just that and that it included everything not excluding sales'.” 
45.	That was evidence which the judge accepted and it was evidence which justified his conclusion that the restoration of Mr Jones not only with an executive role (and, for this purpose, I would accept that that finding is immaterial): 
“... but also taking over the running of the company was ... a clear repudiation of the scheme for the ongoing management of that company at the core of the contract expressed in the Heads of Agreement.” 
46.	That amounts to a finding of repudiation of the heads of agreement and it brings with it the consequence that £300,000 is due to Mr Gardner's company. 
47.	I too would dismiss the appeal. 
Order: appeal dismissed with costs assessed at £6,312.11 including VAT.