Suzanne Elaine Procter v Philip John Procter & Ors

The Court of Appeal dismissed the appeal and upheld the High Court's conclusion that when a partner retires and the remaining partners continue the business without a final settlement, the outgoing partner is entitled to be bought out of her share in the partnership assets at a valuation. The court treated Suzanne Procter’s departure as a "technical" dissolution as between her and the continuing partners and applied the principles in Sobell v Boston and section 42 of the Partnership Act 1890 to require accounting by the continuing partners for the outgoing partner’s share.

The panel held that, in the absence of any express agreement about financial terms on retirement, the outgoing partner does not lose her proprietary interest by virtue of having ceased to be a partner and is entitled to a valuation of her share (here a one-quarter share of the 1994 AHA tenancy) rather than to be limited to book values or to be treated as having surrendered the asset without payment. Interest at 5% under section 42 was awarded on the value from the date of retirement.

Background and parties: The dispute concerned a long-standing family farming partnership in Yorkshire. The claimant, Suzanne Procter, had been a partner with her parents and brothers. She wrote to resign from the partnership with effect from 8 July 2010. The remaining partners (her father and two brothers) continued the farming business. The partnership owned or farmed land that included an agricultural tenancy created in 1994; the existence and value of that tenancy became a central asset in dispute.

Procedural history: Suzanne brought proceedings in 2016 raising a number of claims against her brothers and other family entities. A first trial produced the 2019 judgment ([2019] EWHC 1199 (Ch)); that judgment was partly reversed on appeal to this Court in Procter v Procter [2021] EWCA Civ 167, [2021] Ch 395 (notably on the point that a tenancy could be granted by A and B to A, B and C). A second trial dealt with the effect of Suzanne’s 2010 retirement and the valuation of her partnership share; the High Court (HHJ Davis-White KC) found for Suzanne in the 2022 judgment ([2022] EWHC 1202 (Ch)). The brothers obtained permission to appeal to this Court.

Nature of the claim / relief sought: The remaining live issue was whether Suzanne was entitled, on her retirement, to a payment representing a one-quarter share of the partnership assets, specifically one-quarter of the value of the 1994 tenancy as at 8 July 2010. The relief sought was a buy-out valuation, an inquiry to determine that value, and interest.

Issues framed:

• Whether Suzanne’s retirement resulted in a "technical" or general dissolution and the legal consequences of that characterisation.
• Whether, in the absence of any express agreement about financial terms on retirement, the outgoing partner is entitled to the value of her partnership share or whether she is taken to have surrendered it.
• The correct basis of valuation and whether book values could be used or a market/true value approach was required; and entitlement to interest under the Partnership Act 1890.

Court’s reasoning: The court reasoned that the legal identity of a partnership depends on its constituents, so one partner leaving necessarily dissolves the existing partnership as to that partner (a "technical" dissolution). It followed that an outgoing partner retains a proprietary interest in the partnership assets at the date of departure unless there is an express agreement to the contrary. Where the continuing partners carry on the business with the outgoing partner’s share of the assets without a final settlement, section 42(1) of the Partnership Act 1890 gives the outgoing partner a right either to a share of profits attributable to the use of her share or to interest at 5% on the amount of her share; the court viewed this as consistent with established authorities (notably Sobell v Boston) that the correct remedy in such circumstances is a valuation and payment of the outgoing partner’s share rather than an implied gratuitous surrender of the proprietary interest.

The Court of Appeal therefore upheld the High Court’s declaration that Suzanne was entitled to be bought out of a one-quarter share of the 1994 tenancy, to have that value determined by inquiry (on a true/market valuation, not book value), and to interest at 5% from 8 July 2010.

The appeal is dismissed. The court held that Suzanne’s retirement produced a "technical" dissolution as to her and that, in the absence of any express agreement to the contrary, an outgoing partner whose proprietary share of partnership assets is used by continuing partners is entitled to a buy‑out valuation of that share. The continuing partners must account for one-quarter of the value of the 1994 tenancy as at 8 July 2010 (to be determined by inquiry) and pay interest at 5% from that date.

First instance and initial trial in the High Court (Business and Property Courts, Leeds) produced [2019] EWHC 1199 (Ch). That judgment was partly reversed on appeal to the Court of Appeal in Procter v Procter [2021] EWCA Civ 167, [2021] Ch 395. A second trial in the High Court produced [2022] EWHC 1202 (Ch). Permission was granted to appeal to this Court, which delivered the present judgment [2024] EWCA Civ 324 dismissing the appeal.