JULIE ANN MORTON (As Executrix to the Estate of Jennifer Ruth Morton Deceased) v SIMON NIGEL MORTON & Anor.

Under section 42 of the Partnership Act 1890, an outgoing partner may elect between a share of profits attributable to the use of partnership assets and statutory interest, subject to agreement to the contrary. A contractual option to purchase does not exclude that statutory right merely because the option provisions continue to apply after dissolution. Where an initial option contract has been set aside and a replacement option is awarded as a proprietary-estoppel remedy, the replacement right derives from the court’s remedy rather than an extant contractual option for the purposes of section 42(2). The statutory interest is confined to assets used in carrying on the business. Capital mortgage repayments and interest may require different treatment according to the partnership agreement and the parties’ beneficial interests.

The judgment followed an earlier decision, [2022] EWHC 163 (Ch), concerning the ownership and dissolution of a family partnership. The court had enlarged Simon Morton’s share under proprietary estoppel, set aside his and Alison Morton’s original option contract, and extended time for a further option to be exercised under the partnership deed.

This hearing determined outstanding accounting issues, the purchase price if the option was exercised, and whether Julie Morton, as executrix, remained entitled to statutory interest under section 42 of the Partnership Act 1890. The central issue was whether the contractual option provisions or the court-awarded remedy excluded that statutory entitlement.

1. Accounting issues. Interest paid on borrowing used to acquire partnership land was properly treated as a business cost and apportioned according to the profit-sharing ratios. Capital repayments were treated as drawings benefiting Simon, because the partnership deed allocated the secured borrowing to his share and reflected the parties’ beneficial ownership arrangements.
2. Mortgage payments did not, without contractual provision or admissible evidence of an intention to create a trust, create an interest in other property. The treatment of the Fairoak Grange mortgage was different because Simon assumed responsibility for the borrowing and clause 15.3 applied to payments made before dissolution as well as the dissolution account.
3. The entries in the children’s loan account were properly written back. A unilateral intention to make a gift did not constitute a gift, and there was no evidence of a completed transfer, an unconscionable basis for retracting it, or any contract for a loan.
4. Section 42(2) applies to both alternatives in section 42(1), including statutory interest. It would be illogical to exclude the outgoing partner’s right to profits while preserving the alternative right to interest where a contractual option is exercised.
5. Julie remained entitled to statutory interest. The replacement option arose from the proprietary-estoppel remedy and the court’s order, rather than an extant contractual option. The partnership deed did not amount to an agreement contrary to the statutory right in those circumstances. The original option contract had been set aside, and the statutory proviso could not operate on that extinguished contract.
6. The interest entitlement was limited to partnership assets used in carrying on the business. The value of Pheasant Lodge was excluded while it remained in Jennifer’s possession or was treated as remaining in her possession until her death.
7. Further directions were to be given concerning the price and exercise of the option, possible remuneration claims, marketing or sale of the properties, and the statutory order for distribution under section 44.

The judgment was a further first-instance decision following the court’s earlier judgment at [2022] EWHC 163 (Ch) and subsequent orders concerning dissolution, proprietary-estoppel relief, the option, and valuation. No appeal was described.