Smith & Anor v Crawshay

The court held that a single partnership existed between the deceased testatrix and the defendant from the written partnership agreement of 29 January 1998 until the death of the testatrix on 3 November 2010. The partnership accounts signed by the partners (clause 5 of the partnership agreement) were binding inter se unless a manifest error was timely rectified; in consequence Plot 12 (7 Weekaborough Drive) was part of the testatrix’s estate and not a partnership asset, and the Lower Polsham Road acquisition (Glen Court) was a partnership asset. The defendant’s contention that the capital accounts were equalised in 2008 was rejected for lack of evidence. Alternative pleas in unjust enrichment and free acceptance of services were rejected: section 24(6) of the Partnership Act 1890 precluded remuneration outside the agreed profit sharing and, on the facts, there was no unjust enrichment requiring restitution. The executors therefore succeeded in their claim for sums due to the estate on dissolution of the partnership.

Background and parties. The claim was brought by the executors of the will of the late Hope Crawshay (the testatrix) against her son, the defendant, concerning the accounting and beneficial ownership of property and partnership assets of a property development business carried on as "Genesis Homes" from 1998 until the testatrix’s death in 2010.

Nature of the claim. The executors sought repayment/adjustment of sums said to be due to the estate on dissolution of the partnership on the testatrix’s death, and declaratory findings as to beneficial ownership of specific properties and the correctness of partnership accounts.

Procedure and evidence. The claim was first issued in 2016 and tried at first instance before HHJ Paul Matthews over 28–31 May 2019. Evidence comprised witness statements, hearsay statements admitted by consent, and oral evidence from the first claimant and accountants and the defendant. The court admitted and weighed documentary materials and accounting evidence. Interlocutory steps and contested disclosure applications occurred pre-trial, including refusal of late disclosure and other applications by District Judge Watkins and refusal of permission to appeal by Birss J.

Issues framed by the court. The principal issues were: (i) beneficial ownership of Plot 12 (7 Weekaborough Drive); (ii) whether there was more than one partnership or a single continuing partnership; (iii) beneficial ownership of the Lower Polsham Road (Glen Court) development; (iv) a reduction in partnership capital between 2007 and 2008 and its attribution; (v) whether there was an agreement to equalise partners' capital in 2008 and, if so, whether it was procured by undue influence; and (vi) whether the defendant had any restitution/unjust enrichment claim or entitlement to remuneration outside the partnership profit-sharing.

Court’s reasoning and findings.

• The written partnership agreement of 29 January 1998 governed the parties’ relationship and envisaged ongoing development in phases; clause 5 required annual accounts signed by both partners to be binding unless a manifest error was rectified within three months. The court applied that clause and relevant authorities to treat signed accounts as binding inter se absent fraud or timely correction.
• Plot 12 (7 Weekaborough Drive) had been treated in the 2000 partnership accounts by debiting the testatrix’s capital account; the defendant signed those accounts and raised no timely manifest error. The court found the partners agreed the testatrix would take Plot 12 and that it formed part of her estate rather than partnership assets.
• The Lower Polsham Road purchase was made with partnership funds, the TR1 declaration box was left blank, the development proceeds were entered in partnership accounts and sold through the partnership — the court found this was a partnership asset, not a beneficial gift to the defendant.
• The evidence did not establish any valid dissolution in 2004 or creation of separate partnerships thereafter; bank and accounting records and continued operation of accounts supported a single partnership to 2010. Automatic dissolution by single-adventure rules did not apply.
• The asserted equalisation agreement of 2008 lacked documentary, independent or accountant evidence and was raised only late; the court rejected it and consequently did not need to decide undue influence.
• The defendant’s alternative claim in unjust enrichment/free acceptance failed. Section 24(6) Partnership Act 1890 precludes partner remuneration outside agreed profit-sharing; and on the facts there was no unjust factor making any enrichment unjust.
• Consequential findings included that the defendant had spent partnership bank funds after the testatrix’s death and must account to the partnership/estate.

Conclusion. The claimants (executors) succeeded on the substantive issues; the court invited the parties to agree consequential orders to implement the judgment.

At first instance the court upheld the executors' claim. The court found there was a single partnership from 1998 until the testatrix’s death, that Plot 12 formed part of the testatrix’s estate, that Lower Polsham Road was a partnership asset, that the alleged 2008 equalisation agreement was not proved and therefore did not alter the signed 2007 accounts, and that the defendant’s restitution/unjust enrichment and remuneration arguments failed (s 24(6) Partnership Act 1890). The claimants therefore succeeded and the court invited parties to agree consequential orders.

District Judge Watson gave directions to trial on 10 November 2017. District Judge Watkins refused certain applications by the defendant on 25 March 2019. An application for permission to appeal against that refusal was dismissed by Mr Justice Birss on 14 May 2019. The present decision is a first instance High Court judgment ([2019] EWHC 2507 (Ch)).