Lie v Mohile

In a partnership dispute, a partner who elects to keep the agreement alive may affirm the contract and lose the right to rely on earlier conduct as a contractual breach justifying expulsion. This is distinct from an application for dissolution under section 35 of the Partnership Act 1890, which is discretionary. Whether conduct is grave or persistent, or breaches the duty of utmost good faith, depends on the circumstances, including the state of the partnership relationship. An appellate court will not interfere with factual conclusions that were open to the trial judge or entertain an unpleaded allegation raised for the first time on appeal.

Two general practitioners were the only partners in a medical practice. Their relationship had broken down, and both accepted that the partnership had no future. The dispute concerned whether it should end by dissolution under section 35 of the Partnership Act 1890, sought by Dr Mohile, or by contractual expulsion of Dr Mohile, sought by Dr Lie.

After trial, Her Honour Judge Walden-Smith ordered dissolution under section 35(f) and directed that an account be taken. Dr Lie appealed on six grounds alleging errors concerning repudiation, good faith, grave or persistent breaches, affirmation, unpleaded findings and inconsistent pleadings.

1. Appeal dismissed. The trial judge was entitled to find that the partnership had no future and that dissolution under section 35(f) of the Partnership Act 1890 was just and equitable.
2. Contractual principles of repudiation apply to partnership agreements. However, the 2011 notice was ineffective to dissolve this partnership. Dr Lie continued working in the practice and taking partnership drawings for about three years. The trial judge was therefore entitled to find that he had elected to keep the partnership alive and affirmed the agreement. The absence of an express time limit in the expulsion clause did not prevent affirmation from having that effect.
3. The alleged breaches had to be assessed in context. The partnership relationship had already broken down, and Dr Mohile was attempting to bring it to an end. On the findings, the notices were not grave or persistent breaches, if breaches at all, and did not breach the duty of utmost good faith. The finding that registration of the practice as a sole practice with the CQC did not make performance impossible was also open to the judge.
4. Golstein v Bishop [2014] EWCA Civ 10 distinguished contractual discharge for breach from dissolution under section 35. Continuing to operate may amount to contractual affirmation, yet it does not necessarily prevent an application for dissolution where continuation remains unreasonably impracticable. That distinction did not assist Dr Lie, who sought expulsion rather than dissolution.
5. The allegation concerning Ms Pasquale’s dismissal was neither pleaded nor decided at trial and could not properly be raised on appeal. The trial judge was entitled to conclude that the issues were sufficiently pleaded and that the defence and counterclaim were not an abuse of process.
6. The application concerning compliance with the September 2014 order was dealt with separately at hand-down. The court indicated that Dr Mohile should pay Dr Lie £17,000 for drawings for September and October 2014, subject to submissions.

• Central London County Court: Her Honour Judge Walden-Smith ordered dissolution of the partnership under section 35(f) of the Partnership Act 1890 and directed an account.
• High Court (Chancery Division): The appeal was heard by Mr Justice Birss and dismissed.