Hopper & Anor v Hopper

Undrawn partnership profits become capital only by an express or implied agreement of all partners. Signed accounts may provide compelling evidence of such an agreement and of separate capital entitlements.

Following the death of a partner in a partnership at will, the partnership is dissolved. Former partners’ rights continue only as necessary for winding up. Where the business instead continues for the personal benefit of some former partners while another former partner’s assets remain in use, Partnership Act 1890 section 42(1) applies. An agreement displacing its default profit-or-interest entitlement must be proved. It is not generally inferred from accounts signed without awareness of the dissolution’s legal consequences.

Mr and Mrs Hopper, their son Robert and his wife Lyn had carried on a wholesale market business as equal partners in a partnership at will. Mr Hopper’s death dissolved the partnership. Robert nevertheless continued the business.

Mrs Hopper, personally and as personal representative of her husband’s estate, claimed the partners’ undrawn profit shares and a continuing equal share of post-death profits. Mr Justice Briggs held that the undrawn profits had been added to separate capital accounts, were not barred by limitation or laches, and that Mrs Hopper was not an outgoing partner for the purposes of section 42(1) of the Partnership Act 1890.

Robert and Lyn appealed. The central questions were whether the profits had become capital, whether the capital claim was time-barred, and whether section 42(1) governed profits made after dissolution.

1. Disposition. Etherton LJ, with whom Moore-Bick and Thomas LJJ agreed, allowed the appeal only on the post-dissolution-profit issue. The declaration that Mrs Hopper was not an outgoing partner was replaced by a declaration that she and the estate were entitled, from 31 December 2004, only to the entitlement specified by section 42(1) of the Partnership Act 1890. The appeal was otherwise dismissed.
2. Undivided profits do not become capital merely because they remain in the business. They require an agreement, which may be implied. The signed accounts, particularly those for 1990 and 1991, recorded the crediting of Mr and Mrs Hopper’s undrawn profits to their capital account. They supported the judge’s finding of an implied agreement to capitalise those profits, consistently with Bouche v Sproule (1887) 12 App Cas 385.
3. The accounts also supported the finding of separate capital accounts for Mr and Mrs Hopper and for Robert and Lyn. Later accounts, which stated only an aggregate capital figure, were silent rather than inconsistent with those separate entitlements. The capital claim arose on dissolution and was brought within six years. Examining earlier defective accounts did not make it time-barred, and there was no inequity warranting laches.
4. A partnership at will is dissolved on a partner’s death. Under sections 33 and 38, former rights continue only for winding up and unfinished transactions. If all former partners and the deceased partner’s personal representative agree to continued trading for winding up, they may continue to share both profits and losses as before. That was not this case: Robert continued the business for his own benefit, not to realise it for winding up.
5. Section 42(1) therefore applied. Mrs Hopper was an outgoing partner because neither a winding-up arrangement nor a new partnership had been established. Her receipt of payments, signature of the 2004 accounts, and failure to demand her share could not imply a new partnership. Nor did the accounts establish a general agreement to displace section 42(1); at most they governed the accounting year ended 31 December 2004.

• Court of Appeal (Civil Division): Allowed the appeal in part and substituted a declaration applying section 42(1) of the Partnership Act 1890 to post-2004 profits: [2008] EWCA Civ 1417.
• High Court of Justice, Chancery Division: Mr Justice Briggs held that undrawn profits had become capital, rejected limitation and laches defences, and declared that Mrs Hopper was not an outgoing partner.