Sandhu v Gill
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE LIGHTMAN,Mr Justice Lightman |
| Judgment Date | 26 January 2005 |
| Neutral Citation | [2005] EWHC 43 (Ch) |
| Docket Number | Case No: CH/2004/PTA/618 |
| Court | Chancery Division |
| Date | 26 January 2005 |
[2005] EWHC 43 (Ch)
The Honourable Mr Justice Lightman
Case No: CH/2004/PTA/618
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Mark Blackett-Ord (instructed by SKT Thobhani, Solicitor, 2 Greenpark Court, 226 Bridgewater Road, Wembley, Middlesex HA0 1YF) for the Appellant/Defendant
Mr Timothy Walker (instructed by Lindops, 35 Clarence Street, Southend-on-Sea, Essex SS1 1BH) for the Respondent/Claimant
Hearing date: 13 th January 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Lightman
INTRODUCTION
This is an appeal from a decision dated the 24 th September 2004 ("the Decision") of Master Bowles. It is concerned with the construction of section 42 of the Partnership Act 1890 ("the Act") and in particular with the entitlement of an outgoing partner in respect of the profits made by a continuing partner attributable to his use of partnership assets between dissolution of the partnership and completion of its winding up. Section 42 of the Act reads as follows:
"Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate, then, in the absence of any agreement to the contrary, the outgoing partner or his estate is entitled as the option of himself or his representatives to such share of the profits made since the dissolution as the Court may find to be attributable to the use of his share of the partnership assets, or to interest as the rate of five per cent per annum on the amount of his share of the partnership assets."
The issue between the parties focuses on the meaning of the words "share of the partnership assets".
FACTS
The full facts of this case are set out in the Decision. It is sufficient to say that in 1995 the claimant Mr Sandhu and the defendant Mr Gill agreed as partners at will to purchase the property known as 59 Mountdale Gardens, Leigh On Sea, Essex (the Property") to convert the Property into an old peoples' residential home and to carry on business of such a home at the Property. The Property was accordingly purchased, converted and used.
The parties executed a partnership deed ("the Deed") on the 12 th September 1995 setting out the terms of the partnership. By the Deed the parties agreed that Mr Sandhu should manage the home and that the net profits should be applied first in payment of a salary to Mr Sandhu in respect of the provision of such services (the figure of £22,000 a year was agreed in the course of the proceedings) and subject thereto should be divided equally between them, and that the partnership assets (which included the Property) should belong to the partners equally.
The parties agreed to make equal contributions to the capital of the partnership of approximately £85,000. Mr Gill made his contribution in 1995. Mr Sandhu had only sufficient liquid funds to pay £21,250 and borrowed the balance from Mr Gill. Mr Sandhu agreed to repay the loan on the sale of certain properties in which he had invested and in the meantime to pay to Mr Gill in lieu of interest the rental income obtained from them.
Mr Sandhu managed the home from the date that it opened until the 12 th April 1999 when differences arose between the parties leading Mr Gill to exclude Mr Sandhu from the Property on that date. Mr Gill thereafter without the consent of Mr Sandhu carried on the business on his own account. It is agreed that the partnership was dissolved on that date. The business proved profitable under the management of Mr Gill and indeed as well as producing revenue profits the business over that period has increased in value from £600,000 to £850,000, producing a capital profit of £250,000.
It is common ground that: (1) substantially more was due to Mr Gill than to Mr Sandhu in respect of payment of capital and advances and that Mr Sandhu owed a substantial sum to Mr Gill in respect of his loan of the larger part of his share of capital; and (2) at the date of dissolution of the partnership the assets of the partnership were sufficient to pay debts to non partners and advances from the partners, but were insufficient to repay to the partners their capital in full.
THE ISSUE
Mr Sandhu commenced these proceedings on the 7 th May 1999 seeking the winding up of the partnership. A multitude of issues were raised in the proceedings which came before and were resolved by Master Bowles. It was clear and common ground that Mr Sandhu was entitled to share the capital profit of £250,000: the full proceeds of sale falls to be applied in accordance with section 44 of the Act (see Barclays Bank v. Bluff [1982] Ch 172). But there was an issue as to the entitlement of Mr Sandhu to a share of the revenue profits made by Mr Gill between the 12 th April 1999 and the conclusion of the winding up.
Mr Sandhu contended that: (1) in section 42 "share of the assets of the partnership" means "share of the proprietary ownership of everything belonging to the partnership at the date of dissolution having money value"; (2) the profits were attributable in part to the services of Mr Gill and as to the balance to the use of partnership assets; and (3) accordingly (subject to a payment to Mr Gill of a fair return for his services) the balance of the profits should be divided equally between Mr Sandhu and Mr Gill reflecting the half share which each of them had at the date of dissolution in the partnership assets.
Mr Gill however contended that: (1) in section 42 the term "share of partnership assets" means "share of net partnership assets after payment of all debts and liabilities owing to non-partners"; (2) by reasons of the disproportionate share of advances and capital provided by Mr Gill and the sums due from Mr Sandhu to Mr Gill at the date of dissolution the value of Mr Sandhu's share of the net partnership assets was nil or considerably less than half; and (3) for that reason Mr Sandhu was entitled either to no share of the profits or alternatively to the proportion of the net profits after deduction of the management charge which his share of the net assets bore to the total net assets of the partnership at the dissolution date. In a word Mr Gill contended that Mr Sandhu should receive the proportion of the profits which reflects the value of his share or interest in the partnership.
The Master upheld Mr Sandhu's contention and decided that, subject only to the entitlement of Mr Gill to a payment at the rate of £22,000 per annum in respect of the provision of his services of carrying on the business of the home during the period, Mr Sandhu was entitled as claimed to a half share of the profits made by Mr Gill. The Master ordered an interim payment of £25,000 and refused permission to appeal. An application was made to me for permission to appeal on this one issue. On the appeal Mr Gill relied on a decision which supported his contention but which had not been cited to the Master, namely the decision of HH Judge Behrens in Taylor v. Grier No 3 dated the 12 th May 2003 ("Taylor"). In the circumstances I gave permission to appeal and now determine the substantive appeal.
THE LAW
At common law subject to the provision of the partnership agreement each partner has a proprietary interest in all the assets of the partnership. The size of the proprietary interest is determined by the provisions of the partnership agreement, but in default of such provision each...
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