In Procter v Procter [2024] EWCA Civ 324, Bruce Walker acts for successful 1st Respondent in which the court clarified several issues of partnership law.
First, a change in the composition of a partnership (in Procter by retirement or resignation) effects a “technical dissolution”. A partnership is a contractual relationship between persons, so the identity of the partners defines the partnership, and a change in those identities ends the original contractual relationship – a dissolution of the original contractual relationship.
Second, an agreement that a partner should retire or resign, without more, is no more than that – an agreement that he or she is no longer to be a partner. Retirement or resignation alone, has nothing to say about the outgoing partner’s entitlement.
Third, as to entitlement, the partnership deed is the first port of call. If the deed is silent, the next port of call is any ad hoc agreement at the time of retirement. If there is no such agreement, either in the deed or ad hoc, the outgoing partner retains his or her interest in the net assets at the time of retirement. Section 42 PA 1890 assumes that the continuing partners are liable to account to the outgoing partner for her share of those assets.
Fourth, as to valuation, there is no agreement (by deed or ad hoc) so the decided cases on interpreting agreements as to valuation have no application (White v White, Drake v Harvey, Ham v Ham). Rather, one returns to the nature of a partner’s “share” defined by Lord Lindley as the “proportion of the partnership assets after they have been all realised and converted into money, and all the debts and liabilities have been paid and discharged”. A retirement necessarily requires the outgoing partner to give up any right to a general dissolution and winding up. It does not involve an agreement that her “share” should be reduced or quantified at any figure less than if there had been a general dissolution. If the other partners wish to continue the business with the outgoing partner’s “share” (i.e. share of the net assets) they must account to her for the value of her share – the amount she would have received if the business had been wound up. Necessarily, that is based on actual value, not book value, because a winding up would have involved a sale of the assets in the open market.
