Gill v Sandhu

Under section 42 of the Partnership Act 1890, an outgoing partner’s “share of the partnership assets” means the partner’s proprietary share in the partnership assets at dissolution. It does not mean the value of the partner’s net interest after deducting advances, liabilities or other sums owed between the partners. A continuing partner who uses partnership assets after dissolution without consent must account for profits attributable to that use, subject to a proper allowance for the continuing partner’s services. The outgoing partner’s entitlement is proportionate to his proprietary ownership of the assets used.

This was an appeal from Master Bowles’s decision of 24 September 2004 concerning the winding up of a partnership that had operated an old people’s residential home. After the parties’ differences, the partnership was dissolved and the continuing partner carried on the business without the outgoing partner’s consent.

The business generated revenue profits and increased in value. The parties agreed that the outgoing partner shared in the capital profit, but disputed his entitlement under section 42 of the Partnership Act 1890 to revenue profits made before completion of the winding up. The central issue was whether “share of the partnership assets” meant a proprietary share in the assets or a share of the net assets after debts, advances and liabilities had been taken into account.

1. The appeal was dismissed. The Master was correct to hold that the outgoing partner was entitled to a half share of the profits, subject to the continuing partner’s entitlement to remuneration of £22,000 per annum for carrying on the business.

2. On dissolution, partners have both the right and the duty to realise the partnership property and may continue the business only so far as necessary for a beneficial winding up or completion of unfinished transactions. A partner who continues the business otherwise, without the outgoing partner’s consent, acts on his own account and may be liable to account.

3. Section 42 concerned the proprietary ownership of the partnership assets. The outgoing partner’s entitlement therefore reflected his ownership share in the assets at dissolution. It was not calculated by reference to the value of his net partnership interest after payment of liabilities, advances or sums due between the partners.

4. The court followed the principle stated in Manley v Sartori [1927] Ch 157, and supported by Willett v Blanford, 1 Hare 253, 66 ER 1027, Popat v Shonchatra [1997] 1 WLR 1367 and Pathirana v Pathirana [1967] 1 AC 233. Profits must be apportioned according to the outgoing partner’s proprietary share, after allowing for profits attributable to the continuing partner’s own work or additional assets.

5. Taylor v Grier No 3 was rejected. Its proposed valuation by reference to sections 39 and 44 was inconsistent with section 42 and with the reasoning in Manley v Sartori and Popat v Shonchatra. The court also considered De Renzy v De Renzy [1924] NZLR 1065, which reaffirmed the general principle, although the judge expressed reservations about reducing the proprietary share by a payment made on account.

6. The interim payment order was upheld.

• High Court (Chancery Division): On appeal from Master Bowles’s decision dated 24 September 2004, Lightman J dismissed the appeal and upheld the decision that the outgoing partner was entitled to a half share of the relevant profits, subject to remuneration for the continuing partner’s services.