Khan v Khan

A settlement of identified matters does not compromise wider partnership claims unless a full and final settlement term was expressly agreed or is necessary and obvious to imply. In the absence of agreement to the contrary, partners share profits equally. That entitlement applies to revenue profits during the partnership and to the surplus on winding up after payment of debts and repayment of advances and capital contributions, but it does not determine the parties’ respective capital entitlements. Property shown in the partnership accounts as a partnership asset should ordinarily be treated as such on winding up, subject to third-party claims. The mere payment of mortgage liabilities or receipt of rent through the partnership does not by itself introduce property into the partnership stock.

The claimant and defendant were brothers who carried on businesses together, including a property letting and management business known as Khan & Co. Their relationship broke down and the partnership was dissolved. The claimant sought accounts and inquiries concerning the partnership assets and his entitlement on dissolution.

The court tried issues concerning whether an agreement dividing jointly held properties compromised the claimant’s wider claims, the terms of the partnership, the date of dissolution, and whether properties managed by the business formed partnership assets.

1. Compromise. The agreement reached at the family meeting dealt principally with the division of properties known or assumed to be jointly owned. It did not contain an express full and final settlement term. In the circumstances, no such term was necessary or obvious to imply. The claimant’s wider claims were therefore not compromised.
2. Partnership terms. The parties had become partners in the letting and management business after 31 December 1990 and held themselves out as such. There was no agreement making the claimant’s entitlement dependent on the defendant’s yearly discretion. The partnership terms were that the brothers were entitled to profits in equal shares.
3. The equal division applied to revenue profits during the partnership and, after dissolution and winding up, to what remained after payment of partnership debts and repayment of advances and contributions to capital. That conclusion did not determine the parties’ capital entitlements; the distinction was recognised by reference to Popat v Shonchatra [1997] 1 WLR 1367, especially at 1373E-F.
4. Dissolution. The partnership was at will and was dissolved with effect from 1 April 2002, when the defendant gave sufficient notice of dissolution.
5. Partnership assets. The accounts prepared by Raei & Co treated most disputed purchased properties as assets of the partnership, and showed their acquisition and mortgage liabilities as funded through the partnership business. Those properties were accordingly to be treated as partnership assets for winding-up purposes, subject to third-party claims. The fact that partnership funds paid a mortgage or received rent did not, without more, make a property a partnership asset.
6. The issue concerning jointly owned properties was substantially agreed to be answered affirmatively, although the position concerning 86 Hainault Road remained unresolved on the submissions made.