Prasad v Hanif

A partnership agreement takes effect according to its properly construed terms, viewed in its relevant factual matrix. Parties may compromise earlier disputes by fixing a retrospective commencement date and defining the partnership’s assets and ownership. Property used by a partnership becomes partnership property only where it was both used and treated as such; the treatment of the property in the agreement and accounts is important, though not necessarily decisive. A contractual restriction on expenditure does not automatically invalidate proper partnership expenditure. It may justify disallowance only where the expenditure was not proper partnership expenditure or could have been avoided or reduced. A partner in culpable breach of duty may be required to indemnify the firm against losses which would otherwise be shared.

The claimant and defendant were doctors who had operated a two-person medical practice. The partnership was dissolved by order in July 2018, but disputes delayed preparation of the final account. The defendant was permitted to raise specified matters on the taking of the account, although she had not obtained permission to bring a counterclaim for declaratory relief.

The trial concerned employee liabilities, alleged interests in the practice property, alleged diversion of partnership receipts and allegedly unauthorised expenditure. The central questions included whether the defendant had been an equity partner before the 2013 partnership deed, whether the property was partnership property or beneficially owned by her, and what financial adjustments were required.

1. Employee liabilities. The defendant was debarred from contesting the pleaded breaches of duty. The claimant was entitled to an indemnity for the partnership’s liability of £401,435 to three dismissed employees. The proposed reverse-indemnity claim failed because the claimant had not been asked to authorise representation on the limited settlement basis actually available, and there was no sufficient causal prospect of a favourable settlement or reduced award. Declarations were made concerning any additional liability to Dr Anupama Prasad and Dr Anicatt caused by the defendant’s pleaded breaches.
2. Partnership status and property. The defendant had been a salaried partner from 1 October 2002, not an equity partner. The practice property remained the claimant’s property. It had been treated as his property in the accounts and under the 2013 deed. The deed also compromised any earlier claim to an equity partnership or interest in the property by fixing 1 April 2011 as the commencement date and providing for future partnership assets and a separate landlord-and-tenant arrangement. The defendant therefore had no legal or equitable interest in the property.
3. Receipts. The partnership accounts for the year ending 31 March 2016 had to be adjusted to include partnership income paid into the claimant’s RBS account after 28 September 2015 which had not been accounted for. No wider adjustment was justified.
4. Unauthorised expenditure. The expenditure restriction in paragraph 17.2.8 of the deed did not mean that every payment made without prior consent was wholly disallowed. Proper partnership expenditure remained partnership expenditure. The complaints concerning salaried GP and locum payments, the claimant’s wife and family or personal expenses failed on the evidence and pleading. The restriction had no retrospective effect before the deed was executed.
5. The claim was disposed of by declarations and directions necessary to complete the partnership account.

This was a first-instance trial of preliminary issues following the partnership dissolution order made in July 2018 and subsequent procedural orders concerning the taking of the account.