Partner reluctantly accepting unlawful termination of agreement by remaining partners – Assets including onerous lease – Whether innocent partner discharged from contractual liability to indemnify named lessees against rents and other outgoings – Judge finding partner liable – Appeals dismissed
The appellant was a partner in a firm of solicitors created by a deed of partnership, executed in May 1989, that merged two previously existing firms. Clause 3.3 of the deed provided that partners who held any freehold or leasehold property would do so as trustees for all the partners, who would in turn indemnify them against rent and other outgoings. No provision was made as to dissolution. In due course, the 19-year residue of a lease of office premises in King Street, London WC2, came to be vested in four of the partners.
The firm did not prosper and, in August 1990, all the partners, with one exception, served retirement notices to take effect on 31 May 1991. Meanwhile, trading conditions deteriorated and, in October 1990, the partners, with the exception of the appellant, who opposed an accelerated dissolution, agreed that the partnership should cease to practise on 31 October 1990. In November 1990 the appellant wrote to his former partners stating that, since he had not concurred, their conduct amounted to a wrongful repudiation that, as a practical matter, he had to accept.
In subsequent proceedings brought by the appellant, the respondents counterclaimed for a declaration that he remained liable under clause 3.3 to pay, inter alia, his share of the losses attributable to the King Street premises, which the trustee partners had been forced to sublet at a rent substantially lower than that payable under the headlease. The appellant contended, relying on Bank of Boston Connecticut v European Grain & Shipping Ltd [1989] AC 1056, that his acceptance of the repudiation operated to discharge him from performing any future obligation under the partnership agreement, including his obligation under clause 3.3.
The judge rejected that argument, holding that the appellant’s responsibility for his share of the liabilities of the partnership depended not upon the continuation of the partnership, but upon the fact that he was a partner at the time they were incurred. He held that it made no difference that the partnership was brought to an end by repudiation rather than by agreement. The Court of Appeal dismissed the appellant’s appeal: see [1997] PLSCS 34.
Held: The appeal was dismissed.
1. The finding of the courts below that the dissolution of the partnership had been brought about by the appellant’s acceptance of his partners’ repudiatory breach of contract, and not by mutual agreement, had not been challenged. Accordingly, it was appropriate to proceed on that basis, while reserving for future consideration the question of whether it was correct.
2. Although the acceptance by one party of a repudiatory breach of contract by the other discharged both parties from future performance of their obligations, rights that had already been unconditionally acquired were not divested. Rights and obligations that arose by partial execution of the contract continued unaffected. The appellant’s liability to contribute to the accrued and accruing liabilities of the firm, and his partners’ rights of contribution, arose from the fact that the liabilities were incurred when the appellant was a partner. Once the firm had undertaken or assumed liability for rent, each partner in the firm was entitled to have the liability taken into account in ascertaining his share of the firm’s profits or losses, both before and after dissolution, and that right was not lost merely because the appellant’s partners repudiated the contract and the appellant accepted that repudiation. Section 38 of the Partnership Act 1890 continued the rights and obligations of the partners, notwithstanding the dissolution, as far as might be necessary to wind up the firm. The appellant’s liability to contribute his share of the rent continued unaffected by the dissolution, unless he could demonstrate that it had been unnecessary to retain the King Street premises, a proposition that was contradicted by the evidence.
Clive Freedman and Charles Samek (instructed by Robert Hurst) appeared for the appellant; Philip Hoser (instructed by Thomas Eggar Church Adams, of Reigate) appeared for the respondents.
Thomas Elliott, barrister
