McCullough & Whitehead v Whiteaway & Co

• Jurisdiction: South Africa
• Judge: Innes CJ, Solomon JA and De Villiers Acting JA
• Judgment Date: 14 December 1914
• Citation: 1914 AD 599
• Court: Appellate Division

Innes, C.J.:

Though the evidence in them proceedings is of unusual bulk, the points upon which, as it seems to me, the legal rights of the parties depend, lie in a comparatively small compass. But in order to appreciate the true position it is necessary to examine, as briefly as possible, the origin and nature of the dispute. In June, 1901, an agreement was entered into between the appellant and his then partners trading together as drapers at Bulawayo, of the one part, and the respondent Whiteaway, a merchant and shipping agent carrying on business in London, of the other part. The agreement provided for a credit of £1,000 to be given to the Rhodesian firm, and for the appointment of Whiteaway as their sole agent for the purchase on commission of goods required by them in England and America. It was specially stipulated that the agency in question should remain with Whiteaway permanently whether carried an by the principals alone or with the assistance of partners; but that it might be determined by them at any time after the death of Whiteaway on payment to his estate of any amount then owing. Provisions were made to secure the advance, and it was specially agreed that should the specified margin of credit be exceeded the agent should be entitled to claim a mortgage bond over all the assets of the principals to secure the total indebtedness of the latter. But there was no clause expressly dealing with the release or the admission of partners in respect of the Bulawayo business. Dealings took place under this contract for some years, in the course of which period changes had been effected in the personnel of the interested parties. In 1907 McCullough was trading in partnership with one Whitehead under the style of McCullough Whitehead, while the respondent's firm consisted of himself and several fellow-members. During the course of that year, McCullough, in spite of the objection of Whiteaway & Co., terminated his partnership with Whitehead, in whose favour he registered a bond for £5,000, taking over the entire business of the firm. The credit originally arranged for had by this time been substantially enlarged, and McCullough was asking for further facilities. These the respondent firm would only consent to grant on condition that a bond was passed over all assets, and a new agreement entered into restricting changes of partnership for the future. The conditions suggested were accepted, and on 3rd March, 1908, a written contract was signed upon the true construction of which the issues raised in

Innes, C.J.

this litigation mainly depend. The document was of the most stringent character, restricting in various directions the appellant's power of management and control, while leaving the respondents free from almost every obligation save those which legally arose; from the fact of their acceptance of the agency. There was nothing in the agreement which compelled Whiteaway & Co to advance any money at all. They were appointed sole buying agents for the principals not only in the United Kingdom and in Europe, but "in any other country or place whatsoever." They were also made sole selling agents in Europe, and, for their services in each direction, they were to receive a substantial commission, with interest at 8 per cent. on all monies advanced or expended. Extraordinary powers of supervision and control over the, business of the principals were provided for; and it was especially stipulated that the agency created should remain with the agents "permanently" as long as they required it and should continue whether the business was carried on by the principal alone, or by him in conjunction with a partner or partners, or by his successors. The contract was to include not only the then existing business of the principal but any other businesses or branches started in the future by him or his successors. Such businesses, however, were not to be opened nor was any portion of the principal's property to be transferred, save in the ordinary way of trade, without the written consent of the agents. The latter were also to have full control over the release or admission of partners. No agreement of partnership was to be varied, no partner was to be taken in, and none allowed to retire without their prior approval in writing. On the other hand Whiteaway & Co were to be at liberty to assume any new members, and the contract was to bind the principal to the agent's firm, no matter how constituted. The clause of the old agreement with regard to the termination of the contract by the principal was not taken over; but it was provided that the agents might put an end to the contract upon any breach of it, or whenever they were dissatisfied with the condition or management of the business, in which event all monies owing to them were to become forthwith due. In return for these and other restrictions and undertakings on the part of the principals the agents agreed that they would not, during the currency of the contract, take up the buying agency for any other drapery

Innes, C.J.

or outfitting business or dealer in boots and shoes in Bulawayo or Salisbury. One of the clauses provided for the constitution of a mortgage in security of the principal's indebtedness, and in pursuance thereof a bond for the sum of £12,000 was duly passed and registered in April, 1908, hypothecating all McCullough's assets in favour of Whiteaway & Co.

Despite the drastic terms of the agreement dealings seem to have continued under it for some time, to the mutual benefit of both parties. The business of McCullough & Whitehead expanded materially, and indeed the appellant was doing so well, that he became impatient to do better. Accordingly he proceeded to England in 1910 with the view, among other things, of arranging more favourable agency conditions. These he found he could obtain from other buyers, and he so informed Whiteaway, who, however, insisted on his rights under the agreement, and refused to vary its terms. McCullough seems to have taken legal advice in the matter, and he returned to South Africa without effecting any new buying arrangements, but with the substantial consolation of a further advance of £8,000 from the respondents, of which £5,000 was to be devoted to the extinguishment of Whitehead's bond, and the balance to the general expansion of business. Thereafter, however, the relations between the contracting parties became gradually less harmonious. Complaints with regard to the manner in which buying orders were being executed became more insistent. And on the 25th November, 1911, McCullough & Whitehead concluded a letter mainly devoted to such complaints, by stating that the time had come for the termination of their existing relationship, and that they would proceed to liquidate unless within a reasonable time the respondents procured a purchaser for the business. The reply of Whiteaway & Co., dated 22nd December, 1911, contained the following: "As long as the business exists, you have not the power to terminate the agreement . . . . This agreement is a very valuable document as far as we are concerned; it conveys to us the freehold of your buying agency, and is a part of the goodwill of our business. We shall certainly not allow it to he terminated." The answer was written on 20th January, 1912; it gave notice of liquidation to commence on 1st February, and to be concluded by the end of April. This notice the respondent firm declined to accept and announced their intention of holding the appellant liable for all breaches of his agreement.

Innes, C.J.

Perhaps the largest, and certainly the most controversial, portion of the evidence was concerned with the manner in which the appellant proceeded to carry out the liquidation of which he had given notice. And it is by no means easy to obtain a connected view of the somewhat devious course of McCullough's dealings during the year 1912. He had two brothers, and he seems to have conceived the idea before the end of 1911 of making the business over to them. In November of that year one of these brothers had been in communication with Cleghorn & Harris of Cape Town in regard to the terms upon which they would act as buying agents in London for a company about to be formed for carrying on a drapery and outfitting business in Rhodesia. And it is clear that no orders were sent to Whiteaway &amp...