Hurst v Bryk

CourtHouse of Lords
JudgeLORD BROWNE-WILKINSON, LORD NICHOLLS OF BIRKENHEAD, LORD HOPE OF CRAIGHEAD, LORD CLYDE, LORD MILLETT
Judgment Date30 Mar 2000
JurisdictionEngland & Wales

[2000] UKHL J0330-1

HOUSE OF LORDS

Lord Browne-Wilkinson

Lord Nicholls of Birkenhead

Lord Hope of Craighead

Lord Clyde

Lord Millett

Hurst
(Appellant)
and
Bryk

And Others

(Respondents)
LORD BROWNE-WILKINSON

My Lords,

1

I have read the speech prepared by my noble and learned friend Lord Millett. For the reasons which he gives I would dismiss the appeal.

LORD NICHOLLS OF BIRKENHEAD

My Lords,

2

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Millett. I agree that for the reasons he gives this appeal should be dismissed. I too prefer to keep open for another occasion the question whether a partnership can be automatically dissolved by an innocent partner or partners treating the other partner's or partners' breach as repudiatory. That question does not call for decision in the present case.

LORD HOPE OF CRAIGHEAD

My Lords,

3

I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend Lord Millett. I agree with it, and for the reasons which he has given I too would dismiss the appeal.

LORD CLYDE

My Lords,

4

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Millett and I agree, for the reasons which he gives, that the appeal should be dismissed.

LORD MILLETT

My Lords,

5

It sometimes happens that a partnership is dissolved following a fundamental breach of the partnership agreement by one or more of the partners. The question in this appeal is whether the innocent partner or partners are thereby discharged from all further liability to contribute to the debts and obligations of the partnership, whether accrued at the date of dissolution or accruing thereafter.

6

The facts

7

Mr. Hurst has been in practice as a solicitor since 1975. In 1986 he joined a firm of solicitors by the name of Malkin Cullis & Sumption ("M.C.S.") as a salaried partner. The firm carried on practice from Inigo House, Covent Garden, London W.C.2 ("Inigo House"). On 1 June 1989, following a merger with five of the partners of another firm by the name of Janners, M.C.S. changed its name to Malkin Janners. On the same day Mr. Hurst joined the firm as an equity partner on the terms of a partnership deed dated 3 May 1989. There were 20 partners in all.

8

Shortly before this M.C.S. had taken a 20 year lease of additional premises at 15 King Street ("King Street") at an annual rent of £95,000. The terms of the lease had been negotiated towards the end of 1988, and the lease was taken in the names of four of the equity partners of M.C.S. as trustees for the firm. Mr. Hurst, who was not yet an equity partner, was not consulted on this transaction. Nothing, however, turns on this. Clause 3 of the partnership deed of 3 May 1989 (which replaced a clause in almost identical terms in the M.C.S. partnership deed) was in the following terms:

3.1 The Partnership Business shall be carried on under the firm name of 'Malkin Janners' and the principal places of business shall be at Inigo House, 29 Bedford Street, Covent Garden, London WC2E 9RT and additionally or alternately at such other place or places as the Partners may from time to time determine ('the Partnership Premises').

3.2 The Partnership Premises shall be held by the Partners as Partnership Property and the cost of all rent, rates, repairs and insurance and other outgoings and expenses relating thereto or to any other property acquired for the purpose of the Partnership Business shall be borne by the Partnership.

3.3 The legal estate in all freehold or leasehold property acquired for the purpose of the Partnership (including the leasehold property referred to in Clause 3.1) shall be vested in the Partners upon trust for sale or in some of the Partners as trustees for all the Partners and the net proceeds of sale and the rents and profits until sale shall form part of the Partnership assets and the Trustees shall be entitled to be indemnified by the Partnership against the rent and all outgoings in respect of the said property and the costs and expenses of observing the covenants relating thereto."

9

Clause 3.3 merely set out in terms what would be the legal position in the absence of express agreement. Malkin Janners was not the same firm as M.C.S. by a new name. It was a new partnership with new partners who included Mr. Hurst. It took over King Street as well as Inigo House and assumed liability for the rent of both properties. By becoming a partner in Malkin Janners Mr. Hurst acquired a beneficial interest in both leases and became jointly with his fellow partners liable for the rent.

10

By the Spring of 1990 relations between the partners had deteriorated to such an extent that several of them were actively considering giving notice of retirement with a view to moving elsewhere. At a partners' meeting in July 1990 all five former Janners partners indicated their intention to serve notices of retirement. During August all the remaining partners except one served such notices to take effect on 31 May 1991. Mr. Hurst was among those who served notice. Had these notices been allowed to take effect, the firm would have been dissolved on 31 May 1991.

11

It was clear that the firm had no future. By September most of the partners were in agreement that it would not be possible to continue the partnership until the following May. Steps were put in hand to bring about its earlier dissolution. Staff were given notice. On 4 October 1990 all Mr. Hurst's fellow partners entered into an agreement ("the dissolution agreement") to dissolve the partnership on 31 October 1990. Under the terms of the dissolution agreement five of the partners would form a new firm under the name Malkins with effect from 1 November 1990; Malkins would carry on practice from Inigo House; Malkin Janners would assign Inigo House to Malkins; and any continuing liabilities in respect of King Street would remain the responsibility of the partners of Malkin Janners.

12

Mr. Hurst was invited to sign the dissolution agreement but refused to do so. The judge (Carnwath J.) described his attitude as unrealistic. On 2 November 1990 Mr. Hurst informed his partners that he regarded their conduct in entering into the dissolution agreement as a repudiatory breach of the partnership agreement which he had had no alternative but to accept with effect from 31 October 1990. He had already accepted an offer to become a partner of D. J. Freeman, and he joined that firm on 5 November 1990. Other partners moved to other firms.

13

It is obvious that the partnership did not survive these events, and it is common ground that, if it was not dissolved with effect from 31 October 1990 (as Mr. Hurst alleges) by his acceptance of his partners' repudiatory breach of contract, it was dissolved with effect from that date by mutual consent.

14

A Steering Committee was formed to wind up the firm's affairs. Mr. Hurst attended occasionally and received some of the papers, though not all of them. The partners in Malkins duly took over Inigo House and assumed responsibility for the tenants' obligations under the lease. They paid no premium for the lease because it was considered to have no value. There had been a substantial fall in property values since the rent for King Street had been negotiated at the end of 1988, and it proved impossible to dispose of the property or to sublet it except at a rent considerably below the rent payable to the landlord. It has been sublet but remains undisposed of to this day. There is a continuing liability for rent.

15

In other respects the winding up of the affairs of Malkin Janners was completed without difficulty. An interim dissolution account was prepared by the firm's accountants. It contained no entries in relation to Inigo House or King Street. It has still not been possible to produce a final account because of the continuing liability in respect of King Street. The interim account showed a small sum slightly in excess of £4,000 to be due to the firm from Mr. Hurst.

16

Mr. Hurst began these proceedings against his former partners in 1992. His main object was to avoid the continuing liability under the King Street lease. To this end he alleged that the partnership had been dissolved by his acceptance of his partners' repudiatory breach of contract and sought a declaration that he was thereby discharged from any obligation to contribute to the liabilities of the firm as they stood at 31 October 1990 or as they accrued thereafter. In addition he asked for a general partnership account to be taken by the court. The defendants counterclaimed for payment by Mr. Hurst of his share of the partnership liabilities.

17

In 1993 the landlord of King Street brought proceedings for arrears of rent against the four partners in whose name the lease had been taken. They in turn brought third party proceedings for contribution against their former partners including Mr. Hurst. By his third party defence Mr. Hurst denied liability on the grounds (i) that any trust which might have been created by clause 3 of the partnership deed had come to an end on 31 October 1990; (ii) that the claimants' right to contribution was entirely dependent on clause 3.3 of the partnership deed; and (iii) that he was discharged from all obligations under the partnership deed with effect from 1 November 1990 by reason of his acceptance of his partners' repudiatory breach of contract.

18

Although the defendants denied that their conduct in entering into the dissolution agreement constituted a repudiatory breach of the partnership deed, the judge found that it did and his conclusion was unanimously upheld by the Court of Appeal. There has been no further appeal to your Lordships' House from this finding or from the underlying assumption in both courts below that it was this which...

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