Hammonds (A Firm) v Danilunas & Ors

Partnership accounts prepared under an agreement may bind former partners where the agreement, construed as a whole, identifies all persons who were partners during the relevant accounting year. Defined terms must ordinarily retain their contractual meaning, and contextual interpretation cannot be used merely to improve the commercial result. A term cannot be implied where the contract already addresses the subject and the proposed term would be inconsistent with its proper construction.

On an application for summary judgment or strike out, the court should be cautious about finally resolving a difficult and developing area of law, particularly where the result depends on disputed facts and a trial may determine that the issue does not arise.

Hammonds, a solicitors’ partnership, sought repayment from former partners of drawings allegedly exceeding their entitlement under partnership accounts for two accounting years. The defendants contended that the accounts were not binding on former partners and that an account should instead be taken by the court. Some defendants also alleged misrepresentations and concealments concerning the firm’s financial position, asserting estoppel, damages and set-off.

The court determined a preliminary issue concerning the construction of clause 16.2 of the UK Partnership Deed. It also considered Hammonds’ application under CPR Part 24 and for strike out of the misrepresentation-based defences.

1. Preliminary issue. Clause 16.2 of the UK Partnership Deed was construed as referring, in its first sentence, to individuals who had been Partners at any time during the relevant Partnership Year. The later references to a Partner or Partners referred to members of that group, except for the references to the Senior Partner and the Partners’ Meeting. The Partners’ Meeting meant a meeting of persons who were Partners when the meeting took place.
2. The construction was supported by the deed read as a whole and by the overriding worldwide deed. The latter treated the Net Profits of the UK partnership as the profits disclosed by the clause 16 accounts when calculating the combined profit and each partner’s total profit share. The court was prepared to make a declaration, but would hear the parties on its precise form.
3. Defined expressions should ordinarily retain their defined meanings. The qualification “unless the context otherwise requires” was not a general licence to depart from those meanings. The approach in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 and the guidance cited from City Alliance Ltd v Oxford Forecasting Services Ltd [2001] 1 All ER (Comm) 233 were applied.
4. No term could be implied to make former partners bound by the accounts. The clause either had the meaning contended for by Hammonds or that contended for by the defendants. There was therefore no contractual gap capable of being filled by implication.
5. Summary judgment and strike out. The court declined finally to determine whether alleged misrepresentations or concealments by the Partnership Board could give rise to liability of other partners, or whether the alleged estoppel and damages could be reflected in the partnership accounts. The issues were difficult, fact-sensitive and arose in a developing area of law. The pleaded facts had to be assumed in the defendants’ favour, and disputed evidence would require a trial.
6. Hammonds’ late “no loss” argument also raised a serious factual issue concerning enforcement of notice periods. The summary judgment and strike-out application was dismissed.