Hurst v Bryk

Acceptance of a repudiatory breach discharges future contractual performance, but preserves rights and obligations already unconditionally acquired through partial execution of the contract.

On the dissolution of a partnership, whatever its cause, the partners remain jointly liable for debts incurred while they were partners. The dissolution account allocates any deficit between them in their proper profit-sharing proportions. This equitable right of contribution does not arise from contract and is unaffected by the wrongdoing which caused the dissolution.

Continuing liabilities arising from transactions undertaken before dissolution remain partnership liabilities so far as necessary to complete the winding up. An innocent partner may recover damages caused by the breach, but cannot avoid a proportionate share of those liabilities without an indemnity or rescission of the partnership agreement ab initio.

Hurst v Bryk concerned the dissolution of a solicitors' partnership after all the appellant's fellow partners entered into a dissolution agreement without him. The courts below found that their conduct was a repudiatory breach which the appellant accepted. The firm nevertheless retained a burdensome lease of premises at King Street, and rent continued to accrue during the winding up.

The appellant sought a declaration that the accepted repudiation discharged him from contributing to partnership liabilities accrued before dissolution or accruing afterwards. Carnwath J dismissed the claim and declared him liable for his share. The Court of Appeal, by a majority, upheld that decision: [1999] Ch 1.

The central question was whether an innocent partner, following dissolution for repudiatory breach, remained liable to contribute to the firm's accrued and continuing obligations. A separate issue concerned the competence of the appeal against Mr Trepass, against whom the Court of Appeal proceedings had remained stayed.

1. Appeal dismissed unanimously. Lord Millett delivered the leading speech. Lord Browne-Wilkinson, Lord Hope and Lord Clyde agreed with his reasons. Lord Nicholls also agreed that the appeal should be dismissed, while expressly leaving open the question whether accepted repudiation can itself dissolve a partnership automatically.

2. Per Lord Millett, acceptance of a repudiatory breach discharges both sides from future contractual performance. It does not divest rights already unconditionally acquired, nor affect rights and obligations arising from partial execution. The appellant's liability arose because the firm assumed the lease while he was a partner. It did not arise from any later counter-performance owed by his fellow partners.

3. The rules in section 44 of the Partnership Act 1890 apply to every dissolution, whatever its cause and regardless of the partners' conduct. They reflect the equitable doctrine of contribution. Partners remain jointly liable for the firm's debts, while the dissolution account ensures that any deficit is borne between them in their proper proportions. An innocent partner is not relieved of accrued property obligations merely because another partner's wrongdoing caused the dissolution.

4. Section 38 continues the partners' authority, rights and obligations so far as necessary to wind up the firm and complete unfinished transactions. The King Street lease had not been disposed of. Its rent therefore remained a continuing liability of the old firm during the winding up, unlike the rent of premises transferred to a successor firm. The appellant remained liable to contribute his share unless retention of the premises was shown to be unnecessary, which the evidence contradicted.

5. The appellant could claim damages for loss caused by the repudiatory breach, such as lost income proved to result from the dissolution. He could not treat his proper contribution to the firm's accrued and continuing liabilities as such loss. Avoiding liability to contribute would not protect him from creditors; that would require an indemnity. He could not shift his proportionate liability to his partners without rescission of the partnership agreement ab initio.

6. Lord Millett expressed considerable doubt that accepted repudiation can automatically dissolve the partnership relationship. Partnership is an equitable relationship, and section 35 confers a discretionary power to dissolve for serious breach. The point was not open on the appeal and was reserved for future decision.

7. As to Mr Trepass, the Court of Appeal stay had never been lifted and no effective appeal against him had been determined there. The appeal to the House against him was therefore incompetent. He was awarded costs on the standard, not indemnity, basis. The appeal was dismissed against all respondents with costs on the standard basis.

1. House of Lords: The appeal in Hurst v Bryk was dismissed unanimously. The appeal against Mr Trepass was incompetent because the stay below had not been lifted.
2. Court of Appeal: By a majority, the court upheld Carnwath J's dismissal of the claim and the declaration that the appellant remained liable for his share of partnership liabilities: [1999] Ch 1. It unanimously upheld the refusal to order a general partnership account. The appeal against Mr Trepass remained stayed.
3. High Court: Carnwath J found repudiatory breach and consequential dissolution, but dismissed the appellant's claim. He declared that the appellant remained liable for his share of accrued and continuing partnership liabilities and declined to order a general partnership account.