Simon Nigel Morton & Anor. v Julie Morton

Where proprietary estoppel is satisfied by ordering that a partnership deed be read as if its terms were varied, the resulting option may be treated, between the parties, as an option contained in the partnership contract. Section 42(2) of the Partnership Act 1890 then applies if the option is duly exercised and complied with. It excludes the outgoing partner’s statutory election under section 42(1) to receive either a share of post-dissolution profits or five per cent interest on the partnership share. An order requiring payment by instalments without interest may itself amount to an agreement to the contrary. A respondent seeking to replace the lower court’s statutory basis for interest with an equitable award seeks to vary the order and requires permission to appeal.

The appellants, Simon and Alison Morton, were continuing partners in a family farming partnership. Jennifer Morton, Simon’s mother, had retired from the partnership and later died. The first trial resulted in proprietary estoppel relief. The High Court set aside the original option agreement, modified the partnership accounting provisions, and extended the appellants’ opportunity to exercise an option to purchase Jennifer’s interest: [2022] EWHC 163 (Ch).

At the second hearing, the High Court held that Jennifer’s executrix was entitled to interest under section 42(1) of the Partnership Act 1890: [2022] EWHC 2689 (Ch). The appeal concerned whether the court-ordered remedy created or varied a contractual option for the purposes of section 42(2), and whether the respondent could alternatively seek equitable interest.

1. Appeal allowed unanimously. The declaration that the respondent was entitled to statutory interest under section 42(1) could not stand.
2. Respondent’s notice. Under Civil Procedure Rules 1998, Part 52.13(1), and Practice Direction 52C, paragraph 8(2), a respondent seeking to replace the lower court’s statutory basis for an interest award with an equitable award would be seeking a variation of the order. That required an appeal notice and permission to appeal. The proposed amendment was more than six months late, there was no good reason for the failure to raise the point earlier, and it would be unfair to allow the respondent to reopen an issue after the appellants had been refused permission on a similar issue. The three-stage test in Denton v TH White Ltd, applied in Salford Estates (No 2) Ltd v Altomart Ltd, supported refusal of the amendment: [2014] EWCA Civ 906; [2014] EWCA Civ 1408.
3. Effect of the first order. The distinction between contract and proprietary estoppel was relevant to the grant of relief, but was not the issue on this appeal. The first order left open the respondent’s entitlement to interest under section 42. It did, however, exclude contractual interest by requiring payment of the option price in two instalments without interest and notwithstanding the partnership deed.
4. Effect of the estoppel remedy. A proprietary estoppel remedy may vary contractual rights. The first order required the partnership deed to be read as containing substituted terms, including the extended period for exercising the option and the accounting proviso. The order was binding between the parties, and the respondent was estopped from denying the deed in its modified form. The extended option was therefore to be treated as an option contained in the partnership contract.
5. Section 42. Section 42(1) creates a single election between a share of profits attributable to use of the outgoing partner’s assets and interest at five per cent on that share. Section 42(2) excludes both alternatives where a contractual purchase option is duly exercised and its terms are complied with. Its concluding words confirm that compliance removes liability to account under the foregoing provisions. The phrase further or other share of profits means that the outgoing partner receives no additional statutory entitlement beyond the option terms. Williams v Harris concerned an automatic purchase arising on retirement, not an option, and did not govern this case. The extended option having been treated as contractual, and the order itself providing for payment without interest, the respondent was not entitled to interest under section 42.

• Court of Appeal (Civil Division): In [2023] EWCA Civ 700, the appeal was allowed and the statutory interest declaration was set aside.
• Business and Property Court in Manchester Business List (ChD): In [2022] EWHC 2689 (Ch), the High Court held that the executrix was entitled to interest under section 42(1) of the Partnership Act 1890.
• High Court, first trial: In [2022] EWHC 163 (Ch), the court granted proprietary estoppel relief, modified the partnership accounting provisions, set aside the original option agreement and extended the time for exercising a new option. The statutory interest issue was left open.