Popat v Shonchhatra

JurisdictionEngland & Wales
JudgeLORD JUSTICE NOURSE,LORD JUSTICE EVANS,SIR RALPH GIBSON
Judgment Date25 June 1997
Judgment citation (vLex)[1997] EWCA Civ J0625-9
Docket NumberCHANF 95/1633/B
CourtCourt of Appeal (Civil Division)
Date25 June 1997

[1997] EWCA Civ J0625-9

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

(Mr David Neuberger QC)

Royal Courts of Justice

Strand

London WC2

Before:

Lord Justice Nourse

Lord Justice Evans

and

Sir Ralph Gibson

CHANF 95/1633/B

Rajendra Popat
Plaintiff/Appellant
and
Dinesh Shonchhatra
Defendant/Respondent

MR A K SEN (instructed by Messrs Simmons, Borehamwood, Hertfordshire) appeared on behalf of the Appellant Plaintiff.

MR M BEAUMONT (instructed by Messrs Seymour Major & Co., Wealdstone, Middlesex) appeared on behalf of the Respondent Defendant.

1

Wednesday, 25th June 1997

LORD JUSTICE NOURSE
2

So far as is here material, section 24 of the Partnership Act 1890 provides:

"The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement express or implied between the partners, by the following rules:

(1)All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm."

3

The main question arising on this appeal is whether the profit realised on a sale, after dissolution, of the assets of a short-lived partnership at will is divisible equally between the partners pursuant to section 24(1) or, as has been held below, in shares corresponding to their respective shares of the capital of the partnership as at the date of dissolution. In order to answer that and other questions, it is necessary to restate basic principles as to, first, the distinction between the capital of a partnership and its assets and, second, the nature and size of a partner's share of the assets.

4

The appeal is by the plaintiff against part of an order made by Mr David Neuberger QC (as he then was), sitting as a deputy judge of the Chancery Division. The nature of the various matters then in dispute and the material facts are fully stated in the judge's judgment, which is reported at [1995] 1 WLR 908 and [1995] 4 All ER 646. Those reports and the narrowing of the issues in this court together make it possible for the facts to be restated relatively briefly. Many of them can be stated in the judge's own words.

5

The plaintiff and the defendant were in partnership together in the business of a newsagent from 29th September 1989 until 10th January 1990. The business was carried on at leasehold premises at 169, Church Lane, Kingsbury, London NW9, the lease having been assigned to the partners in joint names, together with fixtures and fittings and the goodwill of the business being carried on there, on 29th September 1989. The cost of acquiring those assets was funded as to about £60,000 by two development loans from the bank and as to the balance by contributions from the partners found by the judge to be £4,564 in the case of the plaintiff and £23,064 in the case of the defendant. He found that £2,700 of the plaintiff's contribution was funded by a loan of that amount made by the defendant to the plaintiff. He further found that the partnership was at will and that it was determined by the plaintiff on 10th January 1990. None of those findings has been in issue on this appeal. It has throughout been common ground that, during the subsistence of the partnership, profits and losses were to be respectively shared and borne by the partners equally.

6

After 10th January 1990 the defendant carried on the business on his own. During the first half of 1990 he entered into negotiations with the freeholder of the premises, eventually purchasing the freehold on 11th July 1990 for £80,000, of which £8,000 came from his own savings, the balance being raised by a loan from his bank secured by a mortgage of the freehold. On 10th July 1992, exactly two and a half years after the dissolution of the partnership, the premises, together with the goodwill of the business and the fixtures and fittings, were sold by the defendant for £179,750, the stock and book debts being valued at a further £7,265. It appears that the gross profit on the sale of the premises may have been of the order of £12,000.

7

The writ in the action was issued on 31st May 1990. By his reamended statement of claim served on 8th March 1995 the plaintiff claimed relief of a kind familiar in a partnership action, including all necessary accounts and inquiries and a declaration that the defendant held the freehold of the partnership premises or the proceeds of sale thereof on trust for himself and the plaintiff in equal shares. The trial took place over three days between 20th and 22nd March, the judge's reserved judgment being delivered on 4th April 1995. He said that it had become clear during the course of the hearing that it would be sensible for him to direct an inquiry before the master as to the basis upon which the respective entitlements of the parties should be assessed following dissolution. The purpose of his judgment was to make the appropriate findings of fact and to give directions as to the legal principles to be applied when the inquiry was carried out.

8

It appears that there may have been some dispute, or at any rate discussion, as to the form of the order because the matter was restored to the judge on 3rd October, being the date borne by the order, which was ultimately entered on 1st November 1995. Paragraph 1(a) contained a declaration as to the duration of the partnership "upon the terms of sharing equally the trading and capital profits and losses during the subsistence of the partnership" and as to the respective capital contributions as found by the judge. Paragraph 1(b) contained a declaration in these terms:

"Of the amount contributed by the Plaintiff towards the capital of the partnership £2,700.00 was advanced as a loan to him by the Defendant and is to be credited to the Defendant and debited from the Plaintiff upon the taking of accounts between the parties as hereinafter provided."

9

Paragraph 2 contained a declaration as to the dissolution of the partnership and the subsequent carrying on of the business by the defendant until it was sold on 10th July 1992. Paragraph 3 contained a declaration in these terms:

"The freehold of the premises acquired by the Defendant in July 1990 was a partnership asset belonging to the parties pro rata to their proportionate shares in the net partnership assets as at 10 January 1990 (emphasis added)."

10

Paragraph 4 contained a declaration that in respect of the post dissolution period the revenue profits (my emphasis) were to be apportioned between the parties in the like shares as in paragraph 3, subject to just and proper allowances to the defendant in respect of the work carried out by him in continuing the business. The first part of paragraph 5 contained a declaration in these terms:

"In respect of the capital profits of the partnership business (including the profits realised on the sale of the premises, its goodwill and fixtures and fittings) during the post dissolution period such profits are to be calculated after taking into account any contributions made by the Defendant towards the purchase of the freehold of the premises and all other costs of acquisition, and thereafter apportioned between the parties [in the like shares as in paragraph 3] …"

11

Paragraph 5 further provided that to the extent that the capital profits were attributable to the defendant's work in carrying on the partnership business in the post dissolution period then to that extent they were to be apportioned between the partners subject to first allowing the defendant any shortfall in the allowances given to him under paragraph 4. Paragraphs 6 and 7 directed accounts and inquiries before the master, including inquiries as to the revenue and capital profits earned by the partnership and the allowances to be given to the defendant under paragraph 4.

12

The principal relief sought by the plaintiff's notice of appeal is the discharge of the declarations contained in paragraphs 3 and 5 of the judge's order and the substitution therefor of declarations that the freehold of the partnership premises and the post dissolution capital profits are held and are to be apportioned respectively between the partners in equal shares. He also seeks a discharge of the declaration contained in paragraph 1(b), so that the loan of £2,700 is not taken into account for the purpose of settling the partnership accounts between the parties. He does not seek the discharge or variation of the declaration contained in paragraph 4 relating to the post dissolution revenue profits of the business, a topic to which I will return in due course.

13

The relevant principles of partnership law are well settled. I start with the distinction between the capital of a partnership and its assets. As I said at first instance in Reed v. Young [1984] STC 38, 57:

"The capital of a partnership is the aggregate of the contributions made by the partners, either in...

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