Jaswinder Singh Bahia v Inderdeep Singh Sidhu & Anor

On dissolution of a partnership, assets capable of sale should ordinarily be realised on the open market, with liabilities discharged and the surplus divided according to the partners’ interests. Absent agreement or exceptional circumstances, no partner may take partnership property in specie at an expert valuation. Departure is justified only where an open-market sale would fail to maximise value or cause material unfairness. A partner’s preference, greater liquidity, personal attachment, valuation concerns, costs, delay or a desire for early repayment of a partnership debt do not by themselves justify departure. Financial imbalance may be addressed by allowing a partner to bid on credit.

Mr Bahia and the late Mr Tara Singh Sidhu were equal partners in a property investment partnership dissolved in 2016. Following earlier dissolution proceedings, the High Court directed the transfer of four Schedule A properties to Mr Bahia at the higher of specified and independent valuations, while other properties were to be sold. The Sidhu estate and related appellants appealed from that order, reported at [2023] EWHC 3028 (Ch). The central issue was whether the deputy judge had lawfully departed from the normal course of open-market realisation because of the estate’s judgment debt, valuation and timing issues, competing financial positions and Mr Bahia’s attachment to the properties.

1. Disposition. Permission to appeal was granted and the appeal was allowed. The order requiring the immediate transfer of the Schedule A properties to Mr Bahia was contrary to established partnership principles. The properties were to be put into auction as soon as practicable, with Mr Bahia permitted to bid on credit up to the amount of the judgment debt owed by the estate to the partnership.
2. Section 39 of the Partnership Act 1890 confirms that, on dissolution, partnership property is applied first towards the firm’s debts and liabilities, with the surplus applied in settling sums due to the partners. The ordinary method of realising value, where assets are saleable, is an open-market sale, usually by auction, because competing bids provide the best evidence of market value and maximise the value available to all partners. This principle was supported by Darby v Darby (1856) 3 Drew 495 and Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie [1918] AC 239.
3. The rule is not absolute. Syers v Syers [1876] 1 AC 174 and Hammond v Brearley [1992] 12 WLUK 185 establish a limited discretion to adopt another course in exceptional circumstances. The correct approach is first to ask whether an open-market sale would produce an unjust result and, only if it would, whether the proposed alternative would produce a fairer outcome. The examples discussed included disproportionate injury from selling a going concern, assets whose separate sale would destroy value, a contractual or properly inferred buy-out arrangement, and possibly an artificial bidding strategy.
4. The deputy judge wrongly treated the discretion as an overarching power to choose whichever proposal appeared just. He failed to begin with the normal rule and gave undue weight to early repayment of the judgment debt, possible costs and delay, Mr Bahia’s wishes and his status as the surviving partner. Those matters did not make the case exceptional. A reserve at the existing valuation and a private-treaty discretion if the reserve were unmet could address concerns about an inadequate auction price.
5. The respondent’s notice added nothing. The Sidhu estate’s conduct had already been reflected in other orders, and personal attachment to investment properties was not a reason to avoid the auction process. The fact that the lower order had been executed and might create practical difficulties did not justify leaving an order standing which was wrong in principle; consequential matters could be managed by further directions.

• Court of Appeal (Civil Division): In [2024] EWCA Civ 605, permission to appeal was granted and the appeal was allowed. The Schedule A properties were directed to be placed into auction, with provision for credit bidding and protective sale arrangements.
• High Court (Chancery Division): Nicholas Thompsell, sitting as a Deputy High Court Judge, made the order reported at [2023] EWHC 3028 (Ch), transferring the Schedule A properties to Mr Bahia at valuation and directing sale of the Schedule B properties.
• High Court (Chancery Division): Joanna Smith J, in [2022] EWHC 875 (Ch), resolved the disputed dissolution inquiries, appointed a receiver and manager, and directed further proceedings for the taking of the dissolution account.