Suzanne Elaine Procter v Philip John Procter & Ors

Retirement from a partnership means ceasing to be a partner while the remaining partners continue. It does not, without more, amount to an agreement to surrender the outgoing partner’s proprietary interest in partnership assets for nothing or to release the partner from existing liabilities. If the partnership agreement or a separate agreement fixes the financial consequences, it governs on ordinary contractual principles. Otherwise, the outgoing partner is entitled to the value of the proportionate share of the net assets at retirement, assessed by valuation of actual values rather than book values. Continuing partners using those assets must account for them, including through the statutory interest alternative. The appeal was dismissed.

The claimant resigned from a farming partnership in 2010. The remaining partners accepted her retirement and continued the business, but no financial terms were agreed. Later proceedings established that the partnership held a valuable agricultural tenancy. At a second trial, the High Court held that the claimant was entitled to a quarter share of its value at retirement, plus interest, and ordered an inquiry: [2022] EWHC 1202 (Ch).

The defendants appealed, challenging the finding of a technical dissolution and the absence of any express or implied basis for payment. An earlier appeal had established the existence and protected status of the tenancy: [2021] EWCA Civ 167. The central issue was whether retirement, without agreement on financial terms, extinguished the outgoing partner’s interest in assets taken over by continuing partners.

The Court of Appeal unanimously dismissed the appeal. Lord Justice Nugee gave the judgment, with Lady Justice Falk and Lord Justice Peter Jackson agreeing.

1. Technical dissolution. A partnership is a relationship between its partners. A change in membership ends the old firm and creates a new one. A partner’s retirement may therefore be described as a technical dissolution as regards the outgoing partner, although it is not a general dissolution requiring winding up. The approach was consistent with the reasoning considered in Hadlee v Commissioner of Inland Revenue [1989] NZLR 447, HLB Kidsons v Lloyd’s Underwriters subscribing to Policy No 621/PKID00101 [2008] EWHC 2415 (Comm), Eason v Miller [2016] CSOH 59 and Rojoda Pty Ltd v Commissioner of State Revenue [2018] WASCA 224.
2. Retirement and financial terms. If the deed or an ad hoc agreement provides for payment or vesting of an outgoing share, ordinary contractual interpretation governs, without a presumption in favour of any particular valuation. But acceptance of retirement alone means only that the partner ceases to be a partner. It does not imply a surrender without payment or an indemnity against existing liabilities. Gray v Smith (1889) 43 Ch D 208 was distinguishable because an agreement to sell and payment existed.
3. Entitlement and valuation. Section 42(1) of the Partnership Act 1890 assumes that continuing partners using partnership assets without final settlement must account. In the absence of agreement, the outgoing partner is entitled to the value of the proportionate share of the net assets at retirement, assessed by actual value rather than book value. Since retirement precludes a general winding-up, the court directs accounts, inquiry and valuation. The orders declaring a technical dissolution, entitlement to a quarter share, inquiry and 5% interest were upheld.

• Court of Appeal (Civil Division): The appeal against the High Court’s second-trial decision was dismissed. The claimant remained entitled to the value of a quarter share in the relevant partnership asset, assessed by inquiry, with interest.
• High Court (Chancery Division): At the second trial, the court held that retirement on 8 July 2010 caused a technical dissolution and entitled the claimant to a quarter share of the partnership assets, including the tenancy, valued at that date: [2022] EWHC 1202 (Ch).
• Earlier Court of Appeal stage: An earlier appeal concerning the tenancy issue was allowed, establishing that the partnership could hold the tenancy and that it was protected by the Agricultural Holdings Act 1986: [2021] EWCA Civ 167; [2021] Ch 395.