Dr Vikram Bhat & Anor v Smruti Patel

A change in the membership of a partnership technically dissolves the existing partnership and creates a new one. The new partners may nevertheless agree that the new partnership will operate on the terms of the former partnership agreement. A no-variation clause in the former agreement does not prevent that adoption, because the new agreement is not a variation of the old agreement.

As an exception to the usual requirement for partnership accounts, a partner with a good, undeniable and quantifiable claim to profits diverted or retained by another partner may recover the due share before final dissolution accounts. It is relevant that the other partner has retained or distributed profits while resisting equivalent payment.

The appellants, formerly partners with the respondent in a medical practice, appealed against an order of the Central London County Court requiring them to pay £212,600 in arrears of an annual fixed payment under the partnership arrangements.

The trial judge held that the admission of a new partner in 2016 and the retirement of another partner in 2017 caused technical dissolutions, but that the successive partnerships continued on the terms of the 2014 partnership agreement, subject to changes in partner identity and profit shares. The judge also held that the respondent could recover the arrears before dissolution accounts were taken.

The appeal challenged those conclusions, including the effect of a written variation clause and alleged potential liabilities to NHS England.

1. Appeal dismissed. The trial judge was entitled to find that the admission of the second appellant in 2016 technically dissolved the original partnership and created a new partnership. The same consequence followed when the original partner retired in 2017.
2. The successive partnerships were nevertheless governed by the terms of the 2014 partnership agreement, subject to changes in the identity of the partners and profit shares. The trial judge’s findings that the appellants agreed to this arrangement were findings of fact with which the appellate court had no basis to interfere.
3. The agreement was a new agreement made by the partners in the new partnership, rather than a variation of the former agreement. The no-variation clause therefore did not prevent the parties from adopting the former terms. This was materially different from MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24 [2019] AC 119, which concerned a variation of an existing contract.
4. Alternatively, if the no-variation clause applied, the written notices sent to the NHS and signed by the relevant partners satisfied its requirement for signed writing. The use of “should” in the requirement that a variation take the form of an addendum was not mandatory and carried no stated sanction. The trial judge had misrecorded the position taken by the appellants’ advocate, but that error did not affect the result because the judge’s reasoning was independent of the supposed concession and was correct in any event.
5. The notice of dissolution served in November 2021 was ineffective because the partnership was not a partnership at will and the notice did not comply with the agreed termination provisions.
6. The usual rule that money due between partners is recovered through an account was subject to the exception applied in Mukerjee v Sen [2012] EWCA Civ 1895. The respondent had a good and quantifiable claim to a priority annual payment. The appellants had retained or distributed partnership profits while failing to pay her. She could therefore recover the arrears before final dissolution accounts.
7. The alleged NHS liability did not justify withholding payment. The evidence did not establish that the liability had to be reflected in the relevant accounts or that the accounts would be reopened. The appellants had continued to draw profits despite the alleged liability, so withholding the respondent’s priority share would have treated the partners unequally.
8. The challenge to costs was dependent on the substantive appeal and failed with it. Consequential matters were left for further determination if necessary.

• Chancery Appeals (ChD), High Court: Appeal against the order made on 21 October 2024 dismissed.
• Central London County Court: Her Honour Judge Evans-Gordon ordered payment of £212,600, with interest, on 21 October 2024. Permission to appeal and a stay were refused on 13 December 2024.
• Permission to appeal: Trower J granted permission on 20 February 2025.