Golstein v Bishop

A partnership agreement is a contract of utmost good faith. Partners must co-operate in preparing accounts and must exercise equal management rights where the agreement so provides. A partner’s cumulative conduct may make it impracticable to continue the partnership and may satisfy the statutory test in section 35(d) of the Partnership Act 1890. However, the acceptance of a repudiatory breach does not itself dissolve a partnership. Dissolution must occur through a recognised statutory or consensual mechanism. A contractual indemnity for a guaranteed payment ordinarily covers only a shortfall after sums payable by the partnership have been identified. A payment on account of solicitors’ costs may become office money under the Solicitors’ Accounts Rules 1998 once the requirements for appropriation have been met.

The claimant and defendant practised as solicitors in partnership under the name B&G Solicitors. Their written Heads of Agreement provided for equal management, a guaranteed payment to the claimant, specified relocation benefits, and a minimum four-year term. The partnership relationship deteriorated and ended by agreement on 30 June 2010.

The court was asked to determine preliminary issues concerning misrepresentation, fiduciary duties, construction of the agreement, the claimant’s reduced drawings, the mechanism by which the partnership ended, damages for premature termination, the defendant’s indemnity obligation, and the status of costs money received in litigation conducted for a former client.

1. The claimant’s statement that he hoped or expected to maintain fee income of about £240,000 was a prediction of future income, not a representation of existing fact. It was not actionable and did not breach the duty to disclose material facts. No breach of fiduciary duty or the partnership duty of good faith was established.

2. The relocation-savings clause was enforceable. It covered the specified former costs of the claimant’s practice that ceased to be incurred after relocation, including equipment maintenance, the annual DX box charge, accountancy fees and bookkeeping costs. It did not require a general comparison of all costs of the merged firm. The amount was to be determined when the accounts were taken, and the entitlement began only after relocation.

3. The claimant’s agreement to take half his salary meant, objectively, that he would draw half, not that he permanently surrendered half his contractual entitlement. The statement was insufficiently clear and unequivocal to create a promissory estoppel. He was therefore entitled to credit for the full contractual profit share, subject to the proper treatment of his wife’s salary.

4. Following Mullins v Laughton [2002] EWHC 2761 (Ch), the court held that acceptance of a repudiatory breach cannot itself dissolve a partnership. The partnership ended by mutual agreement. Nevertheless, the defendant’s persistent obstruction of the accounts process, unilateral management decisions and conduct undermining the claimant cumulatively satisfied the test in section 35(d) of the Partnership Act 1890: it was not reasonably practicable for the claimant to continue in partnership with him.

5. The cumulative conduct was the effective cause of the premature ending of the partnership. The claimant was therefore entitled to damages, subject to an inquiry as to quantum and mitigation. The guaranteed salary component was £100,000 per year because £20,000 was payable as the wife’s salary.

6. The defendant’s obligation to indemnify the claimant for the guaranteed salary was an obligation to make good any shortfall after the partnership’s liability had been calculated, rather than a primary obligation to pay the whole sum.

7. The costs money received in the Bradley litigation was office money belonging to B&G. It was not trust money at the time of receipt. The firm, rather than either partner personally, was liable for any repayment ordered, and the claimant was not entitled to an indemnity from the defendant.