Hurst v Bryk

JurisdictionEngland & Wales
JudgeLORD JUSTICE PETER GIBSON,LORD JUSTICE HOBHOUSE,LORD JUSTICE SIMON BROWN
Judgment Date04 February 1997
Judgment citation (vLex)[1997] EWCA Civ J0204-2
Docket NumberCHANF 95/0875/B
CourtCourt of Appeal (Civil Division)
Date04 February 1997
Hurst
and
Bryk

[1997] EWCA Civ J0204-2

Before:

Lord Justice Simon Brown

Lord Justice Peter Gibson

Lord Justice Hobhouse

CHANF 95/0875/B

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

(MR JUSTICE CARNWATH)

Royal Courts of Justice

Strand

London W2A 2LL

MR IAN LEEMING QC and MR GERARD VAN TONDER (instructed by Messrs Penningtons, London EC2M 1PE) appeared on behalf of the Appellant (Plaintiff).

MR PHILIP HOSER (instructed by Messrs Rabin Leacock Lipman, London W1M OLL) appeared on behalf of the Respondents.

LORD JUSTICE PETER GIBSON
1

The Plaintiff, Mr Hurst, and the 19 Defendants were the partners in a short-lived partnership of solicitors under the name Malkin Janners. The partnership was formed in 1989 and dissolved 17 months later in 1990. There were disputes between the parties as to the work in progress brought in by some partners at the commencement of the partnership, as to the way the partnership was terminated and as to the financial and other consequences of the dissolution. In these proceedings Mr Hurst claimed an account and other relief and the Defendants counterclaimed for payment by Mr Hurst of his share of the partnership liabilities. The 5th to 9th Defendants reached agreement with Mr Hurst and did not participate in the trial. Carnwath J. on 11 April 1995 dismissed Mr Hurst's claim and declared that Mr Hurst was liable to pay his share of the partnership liabilities, including ongoing liabilities and losses yet to be realised. Included in the ongoing liabilities were the rent and other outgoings in respect of the partnership's lease of premises at 15 King Street, London WC2. Mr Hurst now appeals and the 1st to 4th and the 11th to 13th Defendants by a Respondent's Notice ask that the judge's decision should be affirmed on a number of additional or alternative grounds.

2

The facts relevant to the issues on this appeal can be summarised as follows. In 1964 the 4th Defendant, Mr Simmons, was the sole proprietor of the long-established firm, Malkin Cullis & Sumption ("MCS"). He expanded the firm by taking new partners and by amalgamation. Mr Hurst joined the firm as a salaried partner in 1986. In July 1988 MCS had 14 partners and they entered into a new Partnership Deed. In November 1988 Mr Hurst accepted an offer to become a full equity partner on 1 June 1989. In early 1989 Mr Simmons entered into discussions with the 5th to 9th Defendants, who were 5 of the 8 partners of another firm, Janners, concerning a possible merger. On 9 February 1989 at a meeting of all the MCS equity partners except for the 15th Defendant, who was on holiday, Heads of Agreement providing for a merger of MCS with Janners (except insofar as any Janners partners were retiring as at 30 April 1989) were signed by the MCS equity partners. Mr Hurst attended that meeting and signed that document, which was signed by the 5 Janners partners on 21 February 1989. Amongst the provisions of the Heads of Agreement was one relating to work in progress and another expressly contemplating that a Partnership Deed would be executed. On 3 May 1989 a Partnership Deed was signed by the 1st to 4th and 10th to 19th Defendants, being the MCS equity partners, by Mr Hurst and by the 5 Janners partners. The Deed contained provisions for the partners' profit shares and the amounts they could draw, for retirement on giving not less than 9 months' notice expiring on an Accounting Date (31 May), and for "the Successor Partners", who continued to be members of the partnership after the date of a partner ceasing to be a partner, to pay all debts and liabilities of the partnership. The Deed contained no provision as to what was to happen on the dissolution of the partnership. Mr Hurst contributed £37,000 as capital, as he was obliged to do under the Deed.

3

When the firm commenced practice on 1 June 1989, the 5 Janners partners did not contribute their work in progress to the assets of Malkin Janners. The new firm did not prosper, a major cause being the effect of the recession on commercial conveyancing. Further, the earnings of the firm were substantially lower than the firm's expenses and the partners' drawings. On 26 July 1990 the 5 Janners partners indicated their intention to serve notices of retirement. During August 1990 all the partners except for Mr Simmons served retirement notices to take effect on 31 May 1991. Mr Hurst served his notice on 28 August. Mr Simmons initially indicated his intention to succeed to all the retiring partners' shares so as to become sole proprietor of the firm.

4

But by September 1990 most of the partners were of the view that it would not be possible to maintain the partnership until May 1991 and steps were put in hand to secure an early termination. Following a partners' meeting on 11 September, notices were given to staff. Mr Hurst was not willing to concur in the proposed early termination and on 24 September he warned the Defendants that taking matters into their own hands for the winding up of the partnership without his consent was unlawful and that it would constitute a repudiatory breach of the Partnership Deed. But on 4 October 1990 an Agreement ("the Dissolution Agreement") was signed by all the partners except Mr Hurst. Annexed thereto were Heads of Agreement setting out the terms on which the partners of Malkin Janners (other than Mr Hurst whose refusal to sign the Heads of Agreement was recited) agreed to the cessation on 31 October 1990 of the practice of the firm. Those terms included the assignment of the principal building of the firm, Inigo House, to a new firm, Malkins, of which the 1st, 2nd, 3rd, 11th and 12th Defendants were to be the equity partners, the giving of an indemnity by Malkins to the other partners of Malkin Janners in respect of Inigo House, and the setting up of a steering committee to supervise the run down of the firm.

5

On 5 October 1990 Mr Simmons served a Notice of Retirement expressed to take effect on 31 October 1990. On 31 October Malkin Janners ceased to practise. On 1 November 1990 Malkins commenced practice. The 13th, 15th, 18th and 19th Defendants are employed by Malkins as salaried partners. Mr Simmons reached agreement with the 5 equity partners of Malkins to become a consultant with them, entitled to receive £25,000 per annum for two years from that firm. The Janners partners joined another firm. Other partners have joined other firms. Mr Hurst made arrangements in October 1990 to join another firm as a partner and he began work with that firm on 5 November 1990. Three days earlier he wrote to the Defendants' solicitors that he was treating the Dissolution Agreement as a repudiatory breach of the Partnership Deed, which repudiation he accepted. By letter dated 27 January 1995 to the 19th Defendant he expressly acknowledged that since 2 November 1990 he had accepted the dissolution of the partnership on 31 October 1990. There can be no doubt that in fact and in law this was not an expulsion of Mr Hurst from a partnership which then continued without him but the termination of the partnership on 31 October 1990 which was then dissolved.

6

The judge found that arrangements were substantially complete for getting in work in progress and for the disposal of assets. The main continuing liability is the rent of 15 King Street, in respect of which a 20-year lease was taken in March 1989. The rent in 1990 was and is now considerably in excess of current market value. The premises have been sub-let at a lesser rent and there is a continuing liability for the shortfall.

7

Mr Hurst commenced proceedings on 27 January 1992 seeking damages, accounts and inquiries and a declaration that he was discharged from contributing towards the partnership liabilities accrued on or after 31 October 1990. Separate proceedings were brought by the landlord of the King Street premises (Save & Prosper Insurance Ltd.) against the 4 partners in whose name the lease was held. By cl.3.3 of the Partnership Deed those partners were entitled to be indemnified by the partnership against the rent and all outgoings in respect of that property. The 4 partners brought the Third Party proceedings against, amongst others, Mr Hurst, and those Third Party proceedings were heard by the judge at the same time as the main action.

8

The trial took place in March 1995. The judge reached the following conclusions (so far as material):

(1) Mr Hurst could not complain that the 5 Janners partners did not bring into Malkin Janners their unbilled work in progress.

(2) The Defendants were guilty of repudiatory breach of the Partnership Deed by entering into the Dissolution Agreement and Mr Hurst duly accepted such repudiation.

(3) If the partnership had not been terminated prematurely, Mr Simmons would not have become the Successor Partner liable to pay all the debts and liabilities of the partnership, because on the true construction of the Partnership Deed there had to be more than one partner for the Successor Partners to be so liable; Mr Hurst therefore lost no indemnity by Mr Simmons through the unlawful repudiation.

(4) Mr Hurst remained liable to pay his share of debts, liabilities and losses of Malkin Janners, including ongoing liabilities and losses yet to be realised and the rent and other outgoings relating to 15 King Street.

(5) The ordering of accounts was not justified in the very special circumstances of the case.

9

Mr Hurst appeals against conclusions (1), (3), (4) and (5) while the Respondent Defendants challenge conclusion (2).

10

(1) Work in progress

11

Mr Hurst in the Re-Amended Statement of Claim pleads that (a) it was expressly agreed between the parties to the Heads of Agreement and was implicit in...

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