Emerson v The Estate of Emerson

Compensation for the compulsory slaughter of partnership livestock after dissolution is not a post-dissolution profit within section 42(1) of the Partnership Act 1890. Any excess over the livestock’s value at dissolution is instead profit under section 24(1), and is shared according to the partners’ agreed shares.

A surviving partner who preserves partnership assets while winding up acts as trustee and is entitled to indemnity for expenses properly incurred in performing that duty. Where the parties accept trading accounts rather than seek an inquiry, the permitted allowance is confined to the properly calculated losses shown in those accounts. Payments made as wages to someone other than the deceased partner’s estate cannot be set off against that estate’s entitlement.

Two brothers carried on a farming partnership. The death of one brother dissolved it, but the surviving brother continued the livestock business while the partnership was wound up.

Following the 2001 foot-and-mouth outbreak, the livestock was compulsorily slaughtered and the surviving partner received approximately £119,000 in compensation. The High Court held that the payment was capital and should be shared equally. The surviving partner’s estate appealed, claiming an allowance for trading losses and payments made after dissolution.

The central issue was the proper division of the compensation, including whether the surviving partner could recover the cost of preserving the livestock pending its slaughter.

1. Appeal allowed. Lord Justice Chadwick, with Lord Justice Scott Baker and Lord Justice Brooke agreeing, varied the order by adding a deduction of £28,080 before distribution.

2. Section 42(1) of the Partnership Act 1890 did not govern the compensation. Post-dissolution capital profits are not profits within that provision. Applying Popat v Shonchhatra [1997] 1 WLR 1367, the excess of the compensation over the value of the livestock, or corresponding livestock, at dissolution was profit under section 24(1). Since the brothers held equal partnership shares, both the capital value and that profit fell to be shared equally, subject to proper allowances.

3. The surviving partner was entitled to indemnity for obligations properly incurred in preserving partnership assets while they awaited realisation. The Court applied the trustee indemnity principle stated in Carver v Duncan [1985] 1 AC 1082. Keeping livestock alive and in condition necessarily involved expenditure, and there was no suggestion that the surviving partner had acted outside his powers.

4. The parties accepted the trading accounts rather than incur the disproportionate cost of an inquiry. Correcting an arithmetical error and removing double counting produced an allowable loss of £28,080. The further £5,100 paid to the deceased partner’s son was wages paid for his own benefit. It had not been charged in the accounts and could neither be introduced belatedly nor set off against the estate of the deceased partner.

• Court of Appeal (Civil Division): Allowed the appeal and varied the High Court order by adding a deduction of £28,080: [2004] EWCA Civ 170.
• High Court: His Honour Judge Behrens, sitting at Leeds, made the order appealed from on 2 May 2003. No citation was stated in the judgment.