Hopton v Miller

A partnership at will may be dissolved by inference from the parties’ conduct, even without formal notice. In assessing an outgoing partner’s entitlement, the court must identify the value of that partner’s share of the partnership assets at dissolution, including any goodwill, while excluding property owned and funded personally by another partner unless a contrary intention is established. Under section 42 of the Partnership Act 1890, the outgoing partner’s share of post-dissolution profits is assessed by reference to the proportion which the amount due to that partner bears to the net partnership assets, subject to other contributing factors. Valuation evidence must be grounded in admissible evidence and realistic assumptions.

The claimant and defendant operated a guest-house business at property owned by the defendant. They were in partnership, but never concluded a written partnership agreement. Following a serious dispute in August 2005, the claimant left and took no further part in the business. The defendant continued trading and later entered into other partnerships.

The claimant sought an account and payment for her share of the business, profits and alleged increase in the property’s value. The defendant was debarred from defending because of disclosure failures, although he remained entitled to cross-examine and make submissions. The issues were when the partnership ended, whether the claimant acquired an interest in the property or improvements, and the value of her share and entitlement to post-dissolution profits.

1. Dissolution. The partnership was a partnership at will. Although no formal notice of dissolution had been served, the court could infer dissolution from the parties’ conduct. The quarrel, failed attempts at reconciliation, the claimant’s complete withdrawal, the formation of new partnerships, agreement to prepare final accounts to 30 September 2005, and related correspondence showed that the partnership had ended by that date.
2. Property and improvements. The principles in Lloyds Bank v Rossett, as illustrated by Bernard v Joseph [1982] 3 AER 162, required a common intention to alter the parties’ beneficial interests coupled with detriment. The later guidance in James v Thomas [2007] EWCA 1212 and Morris v Morris [2008] EWCA 257 confirmed that, absent an express post-acquisition agreement, the court should be slow to infer such an intention from conduct alone. The claimant acquired no beneficial interest in the property, and the property and improvements were not partnership assets.
3. Value at dissolution. The accounts were accepted as reliable as to trading profit, but goodwill existed despite the short trading period. Allowing for the publicity, rating and advance bookings, but also the property ownership, planning restrictions and restrictive covenants, goodwill was valued at £20,000. The claimant’s share was therefore £6,260.
4. Post-dissolution profits. The Court of Appeal’s decision in Sandhu v Gill [2006] Ch 456 was binding. Section 42 required the claimant’s entitlement to be calculated by reference to the amount due to her at dissolution and its proportion of the net partnership assets. The adjusted post-dissolution profits were assessed at £64,208. The claimant’s 21.09 per cent share produced £13,542, giving a total award of £19,808, rounded to £20,000.