Stocking v Montila

On taking partnership accounts after dissolution, a partner who improves partnership property is entitled to credit for the increase in value attributable to the improvement, subject to the amount of the expenditure or labour. No assumed spending cap applies without evidence of an agreement imposing one. Where one partner occupies the improved partnership asset as a family home, equity may require an occupation rent, even if the evidence is insufficient to quantify it immediately. Valuation should use the date and basis that most closely correspond to the notional realisation of the asset, particularly where an actual sale has been abandoned.

The parties were declared partners in a venture to acquire, develop and resell a barn. The partnership was dissolved by notice on 6 March 2001, and the court ordered the taking of accounts. The barn was later converted into a dwelling and occupied by the defendant and his family.

The claimant sought credit for his contributions and argued that the defendant’s allowable expenditure should be capped and that the accounts should use 2003 values. He also sought an occupation rent. The defendant claimed credit for the value added by the conversion and resisted the proposed valuation basis.

1. Accounts and contributions. The claimant was entitled to credit for financial contributions of £68,160.63. His claims for the caravan, portacabins, utility installation and an alleged £15,000 payment were rejected, while specified haulage, storage, road and regulatory expenses were allowed.
2. Conversion expenditure. There was no evidential basis for a £300,000 cap on expenditure. The appropriate allowance was governed by the value of the improvement to the partnership asset. Applying the principle recognised in Rowley v Ginnever [1897] 2 Ch 503 and Rowan v Dann, the defendant was allowed £557,500, representing the improved value of the barn (£795,000) less its unimproved value (£237,500).
3. Valuation date. The court rejected the claimant’s argument for 2003 values. As no sale would be ordered and the claimant had accepted a buy-out, the agreed 2005 valuations were the closest equivalent to a sale and provided the proper basis for the notional proceeds.
4. Occupation rent. The parties’ broadly equivalent occupation before March 2003 did not justify an allowance. The evidence was insufficient to quantify a rent for the later period, but equity required the defendant to account for a fair occupation rent from 1 March 2003 to judgment, with the amount to be agreed or determined by the Master.
5. Under section 24(6) of the Partnership Act 1890, neither partner could claim remuneration for work in the partnership business before dissolution. The court declined to allow notional sale costs and directed that the remaining notional net proceeds be divided equally, subject to the allowances.

The judgment itself records that, on 13 May 2003, Mr Peter Leaver QC, sitting as a Deputy High Court Judge, declared the parties to be partners, declared the partnership dissolved on 6 March 2001 and ordered the winding up and taking of accounts. This judgment determined the resulting accounts.