In re White (Dennis), decd (White v Minnis)

A partnership agreement governing payment for a deceased partner’s interest must be construed from its language in the circumstances in which it was made. There is no presumption that partnership assets must be valued at current market value rather than historic cost.

Where the agreement makes the last annual account decisive, equity treats an account which ought to have been prepared before death as having been prepared. The estate is bound by an account subsequently drawn on a basis which the deceased partner could have been required to accept. A consistent history of accounting and dealings may show that a contractual requirement for a “just valuation” means historic cost, particularly where the arrangement was intended to permit the surviving partner to continue a family business.

Two brothers carried on a family business in partnership under a 1949 partnership deed, adopted with necessary modifications by a 1961 dissolution agreement. The deed provided that, following a partner’s death, the survivor would continue the business and pay the deceased partner’s estate the deceased’s share of capital and undrawn profits. It also deemed the value of the partnership’s freehold premises to be the figure appearing in the partnership accounts.

After one brother died, his personal representative claimed that the premises should be valued at their open market value. Park J held that the relevant account should be reopened and the property revalued at market value: [1999] 1 WLR 2079. The surviving brother’s executors appealed. The central questions were which annual account governed the payment and whether the deed’s requirement for a “just valuation” required market value or the historic cost consistently used in the accounts.

1. Appeal allowed unanimously. Chadwick LJ delivered the leading judgment. Mance LJ agreed with his reasoning and conclusions. Peter Gibson LJ agreed with the result and gave additional reasons. The order below was set aside.

2. The agreement excluded the ordinary dissolution and winding-up consequences of sections 33 and 39 of the Partnership Act 1890. It instead permitted the surviving partners to continue the business and required payment to the deceased partner’s estate under clause 18. That payment comprised the deceased’s capital share, valued from the last General Account, and undrawn profits accruing after the date of that account.

3. Applying Hunter v Dowling [1893] 3 Ch 212, the relevant account was the account which ought to have been taken on the accounting date immediately preceding death. Equity treated that account as having been prepared even though it had not then been approved and signed. The relevant account was therefore the General Account for the year ending 31 March 1993.

4. The estate could be bound by the account subsequently prepared only if it used a basis which the deceased could have been required to accept while alive. The decisive question was whether he could have refused to approve an account placing the freehold property at historic cost.

5. Chadwick LJ held that the phrase “a just valuation” required historic cost in the circumstances of this partnership. That conclusion followed from the initial capital provisions, the deeming clause, the longstanding accounting treatment, the historic-cost payment to the founder’s estate, and the treatment of the retiring sister’s interest. These matters showed an agreed arrangement intended to allow the survivor to continue the family business for a relatively modest payment.

6. No presumption favoured market value. The court’s task was to identify the parties’ intention from the words used and the circumstances of the agreement. Cruikshank v Sutherland (1923) 92 LJ(Ch) 136 did not compel a different result because the articles there were silent about valuation, whereas the present deed contained a specific deeming provision and operated through a pre-death account.

7. Peter Gibson LJ added that evidence of the brothers’ shared understanding supported the historic-cost construction. The declaration and order of inquiry were set aside, with costs of the appeal and proceedings below.

• Court of Appeal: The appeal was allowed unanimously. The order requiring market valuation was set aside, together with the declaration and order of inquiry.
• High Court, Chancery Division: Park J held that the deceased partner’s capital share should be calculated using an open-market valuation of the partnership premises: [1999] 1 WLR 2079.