Patel v Patel

The death of a partner dissolves the partnership unless the partners agreed otherwise. A later partnership formed by the surviving partner and the deceased partner’s representative is a new partnership. Merely continuing the business, signing accounts or assuming the deceased partner’s apparent position does not transfer an undisclosed liability into that new partnership. Where the liability is unknown and absent from the accounts, assumption cannot be inferred on those facts.

A debt arising on dissolution is enforceable against the deceased partner’s estate, but limitation runs from the date of dissolution. An appellate court should not interfere with a costs discretion unless the judge made an error of principle or reached a plainly wrong decision.

Ramesh Patel and Ashok Patel had operated a partnership. Ramesh died on 2 June 1996, dissolving the partnership under the Partnership Act 1890. A second partnership was then formed between Ashok and Ramesh’s widow, who was also administratrix of his estate.

HHJ Cowell found that a £24,000 sum was a debt owed by Ramesh to Ashok, accruing on dissolution. He rejected the contention that the debt had been assumed by the second partnership and held that the counterclaim was barred by the six-year limitation period under the Limitation Act 1980. He awarded the claimant 90 per cent of her costs.

The appeal concerned whether the debt had been carried into the second partnership and whether the costs order was plainly wrong.

Appeal dismissed. Lord Justice May gave the leading judgment. Lord Justice Thomas agreed, and Lord Justice Pill agreed subject to additional reasons. The dismissal included the appeal against the costs order.

1. Dissolution and accrual. Subject to agreement between the original partners, the death of Ramesh dissolved the first partnership under section 33 of the Partnership Act 1890. The £24,000 sum was treated as a simple or discreet debt arising from dealings in that partnership. Proceeding on the judge’s finding that it was a debt subsisting within the first partnership, section 43 made it accrue on dissolution, 2 June 1996. No agreement between Ramesh and Ashok postponed that date.
2. Effect of the second partnership. The second partnership was legally distinct. The claimant might have accepted the overt accounting position existing at Ramesh’s death, but she did not thereby assume an undisclosed £24,000 liability. She knew nothing of the debt, Ashok had not mentioned it, and it did not appear in the accounts. The debt therefore remained enforceable against Ramesh’s estate, rather than becoming a liability of the claimant as partner.
3. Limitation. The claim was against the claimant in her capacity as personal representative. Since the debt accrued in June 1996 and proceedings were commenced more than six years later, the counterclaim was barred under section 23 of the Limitation Act 1980.
4. Costs. The Court of Appeal would intervene in a costs discretion only for an error of principle or where the decision was plainly wrong. Although the award of 90 per cent was mildly surprising, it was within the range of decisions open to the trial judge, who had heard the case in full. No basis for intervention was shown.

• Court of Appeal (Civil Division) — in [2007] EWCA Civ 1520, dismissed the appeal against the findings on the £24,000 counterclaim and the costs order.
• Central Civil Justice Centre — HHJ Cowell held that the £24,000 debt accrued on dissolution of the first partnership, was not assumed by the second partnership, and was statute-barred. The claimant recovered her rent claim and was awarded 90 per cent of her costs.