Castledine v RSM Bentley Jennison (a firm) & Anor

Partnership goodwill is not necessarily owned equally by all partners, or by every partner. Its ownership depends on the agreement governing the partnership and may be separate from arrangements for sharing capital profits and losses. Partnership documents must be read together where they cross-refer to a separate instrument regulating goodwill. An incoming partner cannot construe the agreement provided to him as if relevant cross-references were absent, particularly where those references put him on notice of another document dealing with goodwill. On retirement, a partner who owns goodwill is ordinarily entitled to payment for its value at the retirement date; continued ownership does not follow merely because the partnership agreement excludes goodwill from automatic vesting provisions.

Paul Castledine joined Bentley Jennison as an equity partner in November 1999 and retired in April 2003. He claimed that he had acquired an equal share in the firm’s goodwill, either because that term had been agreed during pre-joining discussions or because it followed from the Partnership Agreement. He further claimed that the agreement’s provision concerning vesting of partnership assets other than goodwill meant that he retained his goodwill share after retirement.

The defendants maintained that goodwill remained owned in unequal proportions by pre-existing equity partners, while newer arrangements provided only for equal sharing of capital gains and losses. The central issues were the effect of those arrangements, the proper construction of the partnership documents, and the effect of the goodwill transactions recorded during the claimant’s partnership.

1. Claim dismissed. The claimant failed to prove that he was told, expressly or by implication, that goodwill was owned equally or that he would acquire an equal share on joining. The evidence instead supported a statement that partners would share equally in any gain on a sale, meaning capital profit rather than ownership of the underlying goodwill.
2. Goodwill may be recognised in partnership accounts in whole, in part or not at all. Whether partners own goodwill, and in what proportions, is a matter of agreement. Equal sharing of capital gains or losses does not establish equal ownership of the goodwill asset.
3. The Partnership Agreement and Equity Partners Deed had to be read together. The cross-references to the Equity Partners Deed put an incoming partner on notice that another document dealt with goodwill. The Partnership Agreement did not itself confer a goodwill interest, either expressly or by implication. The claimant’s status as an equity partner did not alter that conclusion.
4. The clause providing for automatic vesting of assets other than goodwill on retirement did not imply that every partner owned goodwill or retained it after retirement. It reflected the separate contractual machinery governing goodwill.
5. The claimant’s proposed new case, based on retaining goodwill transferred through tax computations while rejecting the corresponding liabilities, was raised after trial and was refused. It was insufficiently clear, unjustifiably late and had no real prospect of success. A party could not accept the benefit of the transactions while rejecting their burdens.
6. Alternatively, even if the claimant had acquired a goodwill interest, retirement would ordinarily have entitled him to payment for its value at retirement, rather than continuing ownership while the business was carried on by the remaining partners.