Hurst v. Bryk and Others

The Appellate Committee dismissed the appeal. The court held that the contractual doctrine of accepted repudiation does not, by itself, operate to discharge an innocent partner from his equitable obligation to contribute to partnership debts incurred while he was a partner. The Partnership Act 1890 (notably sections 9, 38 and 44) and equitable principles governing winding up and contribution govern partners' liabilities after dissolution.

Rights and obligations unconditionally acquired before acceptance of repudiation survive that acceptance; the contractual doctrine discharges only future mutual performance and does not divest accrued equitable rights of contribution. The court therefore upheld the view that liabilities arising before dissolution, and continuing liabilities from transactions entered into before dissolution, remain joint liabilities to be taken into account in the dissolution account under section 44.

This was an appeal by a former equity partner (the appellant) who had accepted what he alleged was a repudiatory breach by his fellow partners and contended that by so accepting he was discharged from any obligation to contribute to partnership liabilities (including a continuing rent liability under a lease of premises at King Street). The partnership had been wound up after partners entered a dissolution agreement; the appellant refused to sign, left the firm and contended that he had accepted a repudiatory breach and that the partnership was thereby dissolved.

The appellant sought a declaration that he was discharged from obligations to contribute to liabilities of the firm both as at dissolution and as they accrued thereafter, and sought a general partnership account; the respondents counterclaimed for the appellant's share of liabilities. At first instance (Carnwath J.) the judge found that the respondents had committed a repudiatory breach but rejected the appellant's contention that acceptance of repudiation discharged him from contribution liabilities. The Court of Appeal unanimously (two judges for the same conclusion for different reasons, one dissenting) upheld the judge's decision. The appellant appealed to the House of Lords.

The primary issues framed were:

• whether acceptance of a repudiatory breach of a partnership agreement automatically dissolves the partnership as a matter of law; and
• whether, if dissolution followed repudiation, an innocent partner is thereby discharged from his equitable obligation to contribute to partnership debts incurred while he was a partner, including continuing liabilities arising from transactions entered into before dissolution.

The House of Lords proceeded on the factual and legal assumption (as found by the courts below and not challenged on this appeal) that the partnership had been dissolved by acceptance of repudiation, while leaving open for another occasion the broader question whether a partnership can be automatically dissolved by such acceptance. The court reasoned that partnership law and equitable principles, as codified and reflected in the Partnership Act 1890, govern the consequences of dissolution. Section 38 preserves partners' authority to bind the firm as necessary to wind up affairs; section 44 prescribes the order and manner of settling accounts and distribution of assets and losses after dissolution. Those provisions, and equitable doctrines of contribution, show that liabilities incurred while a person was partner remain available to be taken into account in the dissolution account and that acceptance of repudiation does not operate to divest rights and obligations already unconditionally acquired. The appellant could seek damages for breach of contract but could not, without rescinding the partnership ab initio or obtaining agreement, escape his share of liabilities to creditors which were incurred during his partnership. The court therefore dismissed the appeal and refused the general account order sought by the appellant.

Appeal dismissed. The court held that the contractual doctrine of accepted repudiation does not automatically relieve an innocent partner of his equitable duty to contribute to partnership debts incurred while he was a partner. The Partnership Act 1890 and equitable rules governing winding up (notably sections 38 and 44) determine the partners' liabilities on dissolution; rights and obligations unconditionally acquired before acceptance of repudiation survive that acceptance. The court therefore upheld the lower courts' conclusion that the appellant remained liable to contribute to the partnership liabilities, including continuing rent liabilities.

Trial: High Court (Chancery) — Carnwath J (trial judge) (full details in judgment). Court of Appeal: appeal dismissed, reported at [1999] Ch. 1 (majority upholding trial judge; Hobhouse L.J. dissenting). House of Lords: appeal dismissed [2000] UKHL 19.