The Partnership Act provides that a person may not become a partner without the consent of all other partners.A partnerships agreement may make other provision. For example, it might allow for the admission of a partner with the approval of the majority.
A partner may assign his interest in the partnership. However, the assignee cannot be in any better position than the assigning partner. He, therefore, takes the assignment, with all the rights and obligations of the assigning partner which affect his interest.
A new partner cannot be forced into a partnership, without the consent of the partners, unless an agreement otherwise provides. A right to substitute an assignee as a partner will rarely be permitted. Substitution could be permitted ith the consent of all other partners at the relevant time.
The partners may provide for a permitted assignment of the partner’s share in the partnership agreement. In this case, the default provisions set out below may be varied as provided.
In common with other choses in action, the assignment of a partnership interest is made in writing and is completed by way of written notice to the other partners. This should be acknowledged. The priority of assignments depends on the order of notification. When a partner assigns twice, the person who notifies the other partners first has priority.
Under the default Partnership Act provisions, a share in a partnership may be assigned. The assignee does not become a partner. A new partner cannot be forced into a partnership, without the consent of the partners, unless the partnership agreement otherwise provides.
The Partnership Act provides that the assignee is not entitled, during the continuance of the partnership to interfere in the management or administration of the partnership, require any accounts or inspect partnership books.
The assignee cannot be in any better position than the assigning partner. The assignee is entitled only, to receive the share of the profits which the assigning partner would otherwise be entitled to. The assignee must accept the accounted profits agreed to by the partners.
The assigned rights may be conditional on the assigning partner continuing to work in the business. His ceasing to work may be a breach of the partnership agreement, which terminates or limits his partnership rights
In effect, the rights and income which derive from the share are assignable. However, the assignee takes the assignment, with all the rights and obligations of the assigning partner which affect his interest, conditional on the continued performance of the assignor’s obligations, if any.
Assignee Rights I
The assignee cannot be in any better position than the assigning partner. He, therefore, takes the assignment, with all the rights and obligations of the assigning partner which affect his interest. He does not succeed to the right to work and participate in the partnership in a personal capacity.
The assignee may not during the continuance of the partnership, interfere with the management or administration of the partnership’s affairs. The assignee may not require an account of the partnership nor may he inspect the partnership books. He is entitled to receive the share of profits.
Assignee Rights II
The assignor and assignee may contract with each other to give further information and to indemnify to other as might be appropriate. However, they cannot affect the position relative to the other partners. It may be limited by obligations of confidentiality.
On a winding up, the assignee is entitled to the share of the partnership assets, to which the assigning partner was entitled. He has the right to an account of the net assets from the date of dissolution of the firm.
If the assignor dies, the partnership will be dissolved and the assignee will be entitled to a share of the partnership and to an account from the other partners from the date of death. If there is a technical winding up, the assignee is entitled to the benefit of the assignor’s share as ascertained on that technical winding up.
The Partnership Act limits the extent to which enforcement may be had against partnership assets, for the debts of a single partner. A third party may apply to enforce a judgment against a partner’s share. The Act allows for a court order by way of equitable execution against the partner’s share in the partnership.
A creditor may apply to the court to charge the partner’s interest in the partnership assets and profits with payment of a judgment debt and interest thereon. The order, if granted, is effectively a forced assignment of the partner’s interest to the judgment creditor. The court may direct accounts and enquiries and make such other orders and directions which might be necessary if a charge by deed had been made in favour of the judgment creditor by the partner.
The court may make a subsequent order appointing a receiver over the partner’s share of the profits and any other monies which may come to him in respect of the partnership. The receiver is appointed by way of equitable execution over a partner’s share of a partnership.
The other partners have a right to redeem the interest charged. If a sale is directed by the court, the partners have the right to purchase the interest.
Partnership assets continue as such on death. Regardless of how title is held, they continue to be partnership assets. There is no right of survivorship or right to acquire the deceased person’s share.
Unless the partnership agreement provides otherwise, the death of a partner causes the automatic dissolution and winding up of the partnership. The partner’s personal representative may waive this requirement and agree otherwise.
The automatic winding up may be highly disruptive so that a partnership agreement usually makes other provision.The deceased partner’s share may be left in as capital, a loan or as some other investment. This may be agreed by way of compromise at the relevant time.
Although a share of a partnership may be left by will or pass on intestacy, the successor has the status of an assignee only. The successor becomes entitled to the economic rights of the partnership, but not the right to participate in the partnership.
The personal representative has the same rights as an outgoing partner. He has the right to require the partnership to be wound up, where this is necessary in order to realise the share. The default position may be varied by the partnership agreement.
As with the assignee of a partner’s share, the personal representative and successor have no entitlement to partake in the management of the firm. They have no right to interfere in the business of the partnership. They may apply to the court to have the partnership wound up.
There are risks for a personal representative in leaving assets in the partnership. There may be a conflict of interest between the partners and the beneficiary. The personal representative may himself become liable as if he was a partner if he allows the surviving partners to hold him out as such.
The surviving partners have authority to wind up the firm. They also have authority to undertake business for the purpose of winding up. The may take action to recover debts and take legal action, as appropriate.
Where there is a specific provision in the partnership agreement as to what is to happen on death, it will determine the position. If there is no such provision, then in practice, the surviving partners will commonly negotiate with the personal representatives in order to purchase the deceased partner’s share. A partner may permit his share to remain in place the consent of beneficiaries and the other partners.
The personal representative has the same rights as an outgoing partner. He may require the partnership to be wound up, where this is necessary in order to realise the share. The right may be negated or regulated by the partnership agreement.
As with the assignee of a partner’s share, the personal representatives have no entitlement to partake in the management of the firm. The surviving partners may agree to the admission of a beneficiary or personal representative as a partner.
The amount due from or to surviving partners, to or from an outgoing partner or the personal representative of a deceased partner, is a debt which arises at the date of dissolution or death.
Liability of Estate
The agency of the other partners to bind the deceased partner terminates on his death. The estate is not liable for debts incurred by the partnership after death.
The Partnership Act provides that the estate of a deceased partner does not continue to be liable for partnership debts and liabilities, by reason only of the mere use of the deceased’s name. If the personal representative or the successors lead third parties to believe that the deceased’s estate remains liable, it may become liable for such debts.
The use of the old firm name of itself does not make the estate liable for post-death debts and liabilities of the partnership. Presumptively, the surviving partners may continue to use the name.
Every partner is jointly liable with another partner for the debts and obligations of the firm while he is a partner. After his death, a former partner and his estate are also severally liable in due course of administration, for such debts and obligations insofar as they remain unsatisfied, subject to the prior payment of the deceased’s separate debts. The deceased’s creditors have no claims against the partnership assets until the partnership creditors have been satisfied.
References and Sources
Partnership Act, 1890
Partnership Law 2000 Twomey M. Butterworths
Lindley & Banks on Partnership: (19th Revised edition) 2016 Banks, Roderick I’Anson
Partnership & Llp Law (8th edition) 2015 Morse, G.
Partnership Law (5th Revised edition) 2015 Blackett-Ord, Mark; Haren, Sarah;
Rights of assignee of share in partnership.
31.—(1) An assignment by any partner of his share in the partnership, either absolute or by way of mortgage or redeemable charge, does not, as against the other partners, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any accounts of the partnership transactions, or to inspect the partnership books, but entitles the assignee only to receive the share of profits to which the assigning partner would otherwise be entitled, and the assignee must accept the account of profits agreed to by the partners.
(2) In case of a dissolution of the partnership, whether as respects all the partners or as respects the assigning partner, the assignee is entitled to receive the share of the partnership assets to which the assigning partner is entitled as between himself and the other partners, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.
Dissolution by expiration or notice.
32. Subject to any agreement between the partners, a partnership is dissolved—
(a) If entered into for a fixed term, by the expiration of that term:
(b) If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking:
(c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership.
In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is so mentioned, as from the date of the communication of the notice.
Dissolution by bankruptcy, death, or charge.
33.—(1) Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner.
(2) A partnership may, at the option of the other partners, be dissolved if any partner suffers his share of the partnership property to be charged under this Act for his separate debt.
Dissolution by illegality of partnership.
34. A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership.
Meagher v. Meagher and Others.
 I.R. 106
Supreme Court. Kingsmill Moore J.
“ Edward Meagher died on the 18th April, 1948, and on the 3rd August, 1949, probate of his will was granted to the Governor and Company of the Bank of Ireland and the Bank or Ireland Trustee Co. Ltd., the executors named therein.
On the 14th March, 1952, the plaintiff, Emma, issued a plenary summons suing in her personal capacity and as executrix of Thomas. She named as defendants the Bank of Ireland, as executor of Edward, and also as co-executor with her of Thomas; and Patrick as the surviving partner. At a later date the Bank of Ireland Trustee Co. was added as a defendant, to represent, together with the Bank of Ireland, the estate of Edward.
The partnership at will was dissolved by the death of Thomas. It was the duty of the partners and executors to wind up the affairs of the Company, and either of the surviving partners, or the executors of Thomas, were entitled to have the assets sold in the open market to the best bidder. To avoid such a course, which might not be profitable to any of the interested parties, negotiations took place for the purpose of purchasing the interest of Thomas from his executors, and valuations were made to facilitate this, but the parties, though often apparently on the verge of agreement, never finally agreed. After the death of Edward, the negotiations continued between his executors, the executors of Thomas, and Patrick the surviving partner. Arbitration was proposed but the proposal eventually came to nothing. Meanwhile, the business of the partnership was continued. Portion of the assets of the partnership was sold realising £22,000 and this was lodged to the credit of the partnership account.
The plaintiff in her statement of claim asked for a declaration that prior to the 25th day of August, 1945, Thomas carried on business in co-partnership with Edward and Patrick, for an order that all proper accounts and enquiries be directed in relation to the said partnership, for payment of such sum as might be found due to her, and for all necessary enquiries and further or other relief. She also claimed declarations that, from the 25th August, 1945, to 1st April, 1948, she carried on a partnership business with Edward and Patrick; and that from the 1st April, 1948, onwards she carried on a business with Patrick and the executors of Edward; but she subsequently withdrew the claims sought to be established by these latter declarations.
At the trial, the conflict between the parties shortly stated was as follows. Such of the assets of the partnership as had been realised had fetched prices in excess, sometimes considerably in excess, of the valuations put on them after the death of Thomas, and it is estimated that the assets still to be sold will also fetch prices in excess of the original valuations. A large part of this excess is probably due to the general rise in prices since the death of Thomas. The plaintiff claims that the share of Thomas is to be estimated on the basis that the assets of the partnership at its dissolution are to be taken as the total of the prices fetched on actual realisation. She further claims that when the share of Thomas has been estimated on this basis she is entitled by virtue of s. 42 of the Partnership Act, 1890, to claim one-third of the profits made by the business from the death of Thomas to its final winding up or, at her option, 5 per cent per annum over the same period on the amount of the share of Thomas calculated on the basis which she puts forward. Patrick and the executors of Edward maintain that the share of Thomas is to be calculated as of the date of his death, and the assets are for this purpose to be taken at the value they would have fetched at this date; and that if the plaintiff chooses to claim 5 per cent on the share of Thomas, it is to be 5 per cent on a share so calculated.
The learned trial Judge made the following order:
AND THE COURT DOTH DECLARE, in respect of any profits earned by the surviving partners (or surviving partner, as the case may be) from the said 25th day of August, 1945, which are attributable to the user of any partnership assets, that the legal personal representatives of the said Thomas F. Meagher deceased are entitled to a share thereof proportionate to the share of the said Thomas F. Meagher deceased in the total assets of the said firm on the 25th day of August, 1945 (being the date of dissolution aforesaid) or at their election to interest at 5 per cent per annum on the said share of the said Thomas F. Meagher at the said date.
AND IT IS ORDERED that the following inquiries be made in the Office of the Examiner that is to say
No. 1. An inquiry as to the value of the share of the said Thomas F. Meagher deceased in the credits property and effects belonging to the said partnership at the date of his death on the 25th day of August, 1945, aforesaid.
No. 2. An inquiry as to what would be proper to be allowed to the said Edward C. Meagher and the said Patrick Meagher respectively on foot of their personal superintendence and management of the business of the said partnership between the said 25th day of August, 1945, and the 18th day of April, 1948 (being the date of death of the said Edward C. Meagher).
No. 3. An inquiry as to what profits (after deducting such sum as shall be certified to be proper to be allowed to the said Edward C. Meagher and the said Patrick Meagher respectively under Inquiry No. 2 hereinbefore directed) have been earned by the surviving partners in respect of the said partnership business between the said 25th day of August, 1945, and the said 18th day of April, 1948.
No. 4. An inquiry as to whether any, and if so, what part of such profits was attributable to the use of the share of the said Thomas F. Meagher deceased in the partnership assets.
No. 5. An inquiry as to what would be proper to be allowed to the said Patrick Meagher in respect of his personal superintendence and management of the business of the partnership from the said 18th day of April, 1948, onwards.
No. 6. An inquiry as to what profits (after deducting such sum as shall be certified to be proper to be allowed to the said Patrick Meagher under Inquiry No. 5 hereinbefore directed) have been earned by the said Patrick Meagher as surviving partner in respect of the said partnership business from the said 18th day of April, 1948, onwards.
No. 7. An inquiry as to whether any, and if so what part of such profits was attributable to the use of the share of the said Thomas F. Meagher deceased in the partnership assets.”
In the course of his judgment he expressed the view that the value of the interest of Thomas must be ascertained as of the date of dissolution of the partnership, that is to say, the date of the death of Thomas, and that in the event of the plaintiff electing to take 5 per cent instead of a share of the profits the 5 per cent must be calculated on the value of the share as so ascertained. Unless the increase in value in the assets can be regarded as profits (a point which does not seem to have been taken before the trial Judge) the effect of this view would be that, although the surviving partners carried on the business without paying the representative of Thomas his share, but utilising his share in the business, they would obtain for themselves all the benefit of the increase in the value of the assets. The plaintiff does not quarrel with Inquiries Nos. 2 to 7. She does, however, appeal against the refusal of the learned Judge to order a sale, against the direction that the amount payable in respect of the share of Thomas is to be valued as of the date of his death and not at the dates of the realisation of the partnership property, and against the limitation of the inquiry into the value of the share of Thomas to the value thereof at the date of his death.
It appears to me that the representatives of a deceased partner are entitled to two things. First, the value of the share at the date of dissolution; second, any profits which have been made by the “use” of the share from the date of dissolution to the date of realisation. But the valuation of the share at the date of the dissolution is not to be based on hypothetical considerations but on the price fetched by an actual sale, whenever held, with such deductions as the facts may justify; and profits include any enhanced value which may result from a rise of prices during the period for which the surviving partners retain the assets in their possession and have the use of them. In practice this will normally mean that the representatives of a deceased partner are entitled to be credited with his share of the price of the assets as fixed by a sale, subject to a deduction if it can be shown by the surviving partners that portion of the price is due neither to the value of the asset at the time of dissolution nor to a profit which has arisen by reason of keeping it unsold, nor to expenditure of partnership profits on the assets, but solely to the care and supervision and management of the surviving partners. An allowance can be made to the surviving partners in respect of such management: Manley v. Sartori (1). The representatives of the deceased partner will also be entitled to their share of any other profits made by the carrying on of the partnership business.
It is an almost universal rule in winding up a partnership on dissolution that, unless there is a provision to the contrary in the articles, a partner, or the representatives of a deceased partner, cannot be forced to accept a valuation of the assets. Any partner, or the representatives of a deceased partner, has a right to insist that the assets be sold in the open market: Hugh Stevenson and Sons v. Aktiengesellshaft Cartonnagen Industrie (2); Bindon v. Barkers (3); Darby v. Darby (4); Fetherstonhaugh v. Fenwick (5); Crawshay v. Collins (6);Lindley on Partnership, Book III, Ch. 10, s. 6 and Book IV, Ch. 3, s. 1. This is so even where the partnership is being wound up by the Court. If one partner is a lunatic or an infant the Court may accept an offer for his share if it appears to be for his benefit, but if the other partners insist on their right to a sale they are entitled to have one: Rowlands v.Evans (7); Wilde v. Milne (8).
In Syers v. Syers (1) the order of the House was that an enquiry be held as to the value of the retiring partner’s one-eighth share of the business, if sold as a going concern, and the continuing partner was given liberty to purchase the share of the outgoing partner at the figure so determined. The circumstances of that case were special and unusual and its general applicability has been questioned (Lindley on Partnership, 10th ed., at p. 643, note (f).) Lord Cairns, at p. 183, states that the general course is for the Court to direct a sale of the assets and if necessary a sale of the concern as a going concern, but that having regard to the nature of the business (a music hall) and the very small interest taken by the outgoing partner, a Court might think it right to authorise the continuing partner who owned seven-eighths of the concern to lay proposals before the judge for the purchase of the one-eighth share.
I am unable to find any circumstances in this case sufficiently exceptional to warrant a departure from a rule which, with the exception of Syers v. Syers (1), appears to have been invariably followed in the case of assets which can be sold. Where an asset is incapable of sale a valuation must be made for there is no other resource, if the parties cannot agree: Smith v. Mules (2); Ambler v. Bolton (3).
Although, in default of agreement, either the surviving partners or the representatives of a deceased partner are entitled to have the value of the partnership assets ascertained by a sale in open market and not by a valuation, it does not necessarily follow that the price realised represents the market value of the assets at the date of dissolution. Even if only a short period elapses between dissolution and sale, there is likely to be some change in value due to altered circumstances such as alteration in public taste, depreciation, market fluctuation and other matters. The good sense of the parties and the practice of the Court seems to favour the ignoring of such changes and acceptance of the price realised as representing the value at dissolution. To do otherwise is to open the way to endless enquiries and expense and I am of opinion that the ordinary rule should be, as I think it has been, to accept the price realised as the value of the assets on dissolution. But this is a rule of sound practice and not of law, and the procedure of equity is elastic. If the surviving partners or the representatives of a deceased partner make out a plausible case to show that the value at dissolution varied appreciably from that realised by sale, it is within the power of the Court to direct an enquiry as to the amount of the difference and the causes of the difference. The price realised may be due to the personal efforts of a surviving partner from which the representatives of a deceased partner have no right to benefit. This seems to me to be the basis of the decision in Broughton v. Broughton (1).No doubt there may be other circumstances which enhance the price and of which the representatives of a deceased partner have no right to take the benefit.
The claim made in this case is that the representatives of the deceased have no right to take the benefit of a general rise in prices occurring between the dissolution and sale, but that the whole advantage of such a rise should go to the surviving partner. This appears to me to be contrary to the principles of equity and the provisions of the Partnership Act. Surviving partners stand in a fiduciary relationship to the representatives of a deceased partner: Stevensons’ Case (2), per Lord Dunedin at p. 248; per Lord Atkinson at pp. 250, 251, 252. It is the right and duty of surviving partners to realise the assets: Re Bourne (3), per Vaughan Williams L. J. at p. 430 and Romer L. J. at p. 431. A person in a fiduciary position cannot make a profit out of his trusteeship by appropriating to himself the rise in value of assets which he holds as a trustee. The same result can be arrived at by application of s. 42, sub-s. 1, of the Partnership Act which is 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 at 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 at the rate of five per cent per annum on the amount of his share of the partnership assets.”
In my opinion the increase in value of an asset due to a change in prices during the period of its retention can properly be regarded as a profit derived from its use. I may take an instance adapted from a recent case in our Courts. Suppose there are two partners in a firm of wholesale whiskey dealers. One partner dies during a war. The other partner, anticipating a rise in prices, sells no more whiskey from stocks till a heavy rise has taken place, when he realises.
The difference between the value of the whiskey at dissolution and at the date when it is sold appears to me clearly to be a profit derived from the use of the whiskey, even though the use made of it is only to keep it locked up. In Spanish Prospecting Co., Ltd. (1), Fletcher Moulton L.J. gives, at p. 99, what he calls a “fundamental definition of profits.” “If the total assets of the business at the two dates be compared, the increase which they shew at the later date as compared with the earlier date (due allowance . . . being made for any capital introduced into or taken out of the business in the meanwhile) represents in strictness the profits of the business during the period in question.”
It appears to me, therefore, that any increase in value of the assets of the business between the date of the dissolution and the date of realisation, which is attributable to the use of the assets (in the sense which I give to “use”)is properly to be regarded as profits, to one-third of which the plaintiff is entitled.
If, however, the plaintiff chooses to exercise her option and claim 5 per cent per annum on the amount of the deceased’s share in the partnership assets, a difficulty arises. Such an election foregoes any right to profits arising after the death and inevitably involves a valuation of the assets as at the time of death. It would be necessary to ascertain the notional value of the partnership property (including goodwill) as of the date of death and the amount of the partnership debts and liabilities as of that date. One-third of the figure arrived at by deducting debts and liabilities from the value of the property represents the share of the deceased on which interest must be calculated from the date of death to payment of the sum due on winding up.
Reliance was placed on s. 43 of the Partnership Act as indicating that the share of a deceased partner must be ascertained by a valuation made as of the date of his death. The section is as follows:
“Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner’s share is a debt accruing at the date of the dissolution or death.”
Except in cases where the partnership articles contain a provision for valuation the amount due in respect of a deceased partner’s share cannot be ascertained till there is a realisation of the assets which must take some considerable time. In default of agreement, on the authorities already cited, the assets must be sold. This section appears to me to be directed to limitation of actions, and is apparently so treated in Lindley on Partnership (8th ed., at p. 607). The section does not say that a valuation is to be made as of the date of death, but that the sum due is a debt accruing at the date of death. When the sum is ascertained, it ranks for the purpose of limitation as a sum accruing at the date of death. It will be noted that the section only refers to the “share” of the deceased, not to the profits, in the form of enhanced values, which may be made on that share.
It remains to be seen how the principles which appear to me to be correct are to be applied.
Unless the parties otherwise agree there must be a sale of the partnership property including the goodwill. When the value of the property has been ascertained by sale, there must be deducted from the total amount realised by the sales of partnership property at any time since dissolution (a) such portion of the sum realised as is attributable to any expenditure on the assets by the surviving partners out of their own assets and not out of partnership property in regard to Edward and Patrick from the date of dissolution to the 18th April, 1948, and in respect of Patrick from the 18th April, 1948, to date of realisation; (b) such amount of the total sum as is properly allowable in respect of the personal superintendence, management and exertions in regard to the partnership business by Edward and Patrick as found on the return to the inquiries already directed under No. 2.
The sum so arrived at will represent the share of Thomas in the assets together with any enhanced value which is attributable as profits earned by the use of the assets, and if the plaintiff elects to take her share of profits instead of interest on the share of the deceased there need be no segregation of this sum into profits and value of original share. If, however, the plaintiff elects to take 5 per cent per annum on the deceased’s share from dissolution there must be an inquiry as to the value of his share on dissolution. In the conduct of this inquiry, regard must be had to the prices fetched on sale, but those must be reduced by any amounts ascertained as a result of inquiry (a), above suggested, and also by such amount as is attributable to the enhancement of value due to the retention of the assets unsold from the date of dissolution to the date of sale of the relevant assets.
I am not oblivious to the difficulty and expense involved in such inquiries. It is to avoid such difficulty and expense that special provisions are inserted in articles giving the surviving partners the right to take over the share of an outgoing or deceased partner at a valuation. In the absence of such a provision, unless the parties can come to an agreement, it appears to me that a sale of the assets and an investigation by means of inquiries along the lines I have indicated is inevitable. It may be that as a result of this judgment the parties may still be able to reach an agreement obviating a sale, which might be unprofitable, or inquiries which are sure to be long and expensive. To admit of this, if the parties so desire, the order will be held over, and in any case I would hear argument as to the exact form of the order.
Cronin -v- Kehoe & Anor
 IEHC 373
35. It is necessary to plough a furrow through some rather arcane law to determine whether the contention of counsel for the plaintiff that, after the death of Dr. Cronin, Dr. Kehoe had no entitlement to so much of the premium of €27,000 as remained outstanding, is correct. The starting point is s. 33(1) of the Act of 1890, which provides that, subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner. It is common case that the partnership created by the Partnership Agreement terminated on the death of Dr. Cronin on 26th June, 1995.
36. Both sides have regarded the sum of £27,000 as a premium. That was the correct approach. Provision for a premium is addressed in Lindley & Banks on Partnership (19th Ed.) at para. 10 – 43 where the author states:
“Although a reference to premiums has been retained, they are now rarely, if ever, encountered and most certainly could not be considered ‘usual’. If a premium is to be paid, the agreement should identify both the time and manner of payment and the circumstances in which it is to be returned, whether on dissolution or otherwise.”
It is interesting to note that after “the time and manner of payment” the author has included a footnote to the following effect:
“e.g. if it is payable in instalments, will they continue even if the partnership is dissolved?”
The author refers to para. 25 – 15 in that context, which is contained in the chapter which addresses the return of premiums. Counsel for the plaintiff lay particular emphasis on the following observations of Lord. Lindley, prior to the enactment of the Act of 1890, which are quoted in para. 25 – 07:
“It frequently happens, when one person is admitted into partnership with another already established in business, that it is agreed that the incoming partner shall pay the other a premium, i.e. a sum of money for his own private benefit . . . The consideration for the premium is not only the creation of a partnership between the person who takes, and him who parts with, the money, but also the continuance of that partnership . . ..”
37. There is a specific provision in relation to the apportionment of a premium in the Act of 1890 where a partnership is prematurely dissolved, namely, s. 40. However, it is expressly provided in s. 40 that it applies where one partner paid a premium to another on entering into a partnership for a fixed term and “the partnership is dissolved before the expiration of that term otherwise than by the death of a partner”. In relation to the exclusion of dissolution on the death of a partner from the operation of s. 40, it is stated in Lindley & Banks (at para. 25 – 12), under the heading “Death”:
“Prior to the Partnership Act 1890 a return of premium could not normally be obtained where the partnership was dissolved by the death of a partner since, in Lord Lindley’s own words:
‘Death is a contingency which all persons entering into a partnership know may unexpectedly put an end to it’.”
In the succeeding paragraph there is a suggestion that, notwithstanding that the exception is now embodied in s. 40, a return of premium may still conceivably be obtained if fraud can be proved, citing an example given by Lord Lindley, although the author questions whether a court today would readily override the provisions of the Act of 1890. The point is academic for present purposes, because the example cited envisages the recipient of the premium having acted fraudulently or dishonestly, so that it is of no assistance having regard to the facts here. Equally of no assistance is the commentary in paragraph 25 – 15 of Lindley & Banks, which deals with the situation where the dissolution has resulted from disagreements between the parties, although it is stated that a dissolution brought about by the misconduct of a party will not relieve him of the liability to pay a premium which is due but unpaid.
38. In Twomey on Partnership Law (at para. 26.56) the rationale of excepting dissolution caused by the death of a partner from s. 40 is explained as follows:
“The rationale for this exception is that every partner who enters into a partnership, whether paying a premium or not, should envisage the possibility of a partner’s death leading to the dissolution of the partnership. For this reason, such a partner cannot subsequently complain when the partnership is so dissolved and he cannot seek the return of his premium on the occurrence of such a death.”
In this case, the plaintiff did not seek the return of the portion of the premium (£13,500) actually paid by Dr. Cronin. However, the question which the Court has to determine is whether the defendants, as personal representatives of Dr. Kehoe, are entitled to claim the balance of the premium which remained unpaid on the dissolution of the partnership on the death of Dr. Cronin.
40. Dissolution on death is expressly outside the ambit of s. 40 of the Act of 1890. That being the case, in my view, it is not appropriate to attempt to resolve issues which arise in relation to a premium in the excepted circumstance as a corollary to the application of s. 40, as suggested by counsel for the plaintiff. On the contrary, it seems more logical that, if, having paid the whole premium upfront, the estate of the paying partner cannot seek the return of an apportioned part of it on the premature dissolution of the partnership on his death, where part of the premium remains outstanding at the death of the paying partner, the estate of the paying partner should be liable to the other partner for the balance of the premium, subject to any express agreement to the contrary.
41. Reverting to the first passage from Lindley & Banks which I have quoted earlier, it is obviously a matter for parties entering into a partnership agreement and their legal advisers to address in the agreement how the premium is to be paid and, insofar as it is payable in instalments, what impact the dissolution of the partnership before the expiry of the agreed term by the death of the paying partner will have on the liability of his estate to continue to pay the instalments. In addition to the submissions which I have already outlined, it was submitted on behalf of the plaintiff that the wording in the Supplemental Agreement was crucial and that the fact that the balance remaining after the “immediate payment” was “spaced over the remainder of the partnership paid in 6 monthly intervals” meant that the instalments were only payable for as long as the partnership endured. The flaw in that argument is that neither the number nor the amount of the instalments was not specified and the words used are equally open to the construction that, if the partnership continued for only one year after the “immediate payment” was made, as happened, the balance due would be payable by two instalments, one payable after six months and the other payable after a year.
42. Having had regard to what I consider to be the relevant factors, namely –
(a) that the premium of £27,000 was the price Dr. Cronin agreed to pay for being brought into the partnership, and
(b) Dr. Kehoe in the Supplemental Agreement agreed to payment of part thereof by instalments, but did not agree to forgo any part of the premium in the event of premature dissolution on the death of Dr. Cronin,
I have come to the conclusion, albeit with a certain degree of diffidence, that the outstanding balance of the premium was due to Dr. Kehoe from the estate of Dr. Cronin following the death of Dr. Cronin. Therefore, I consider that that element of the defendants’ counterclaim succeeds.
Conclusion on plaintiff’s claim under s. 42 of the Act of 1890
43. This aspect of the plaintiff’s claim is based on s. 42(1) of the Act of 1890 which provides:
“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 at 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 at the rate of five per cent per annum on the amount of his share of the partnership assets.”
The manner in which counsel for the plaintiff has invoked that provision is that it is asserted that the plaintiff has not exercised her option to claim such amounts of the profits post-dissolution which may have been attributable to the defendants’ use of the plaintiff’s share in the partnership enterprise, but instead she now claims interest at the rate of five per cent per annum on the sum of £11,454 calculated from the date of Dr. Cronin’s death (26th June, 1995) to, presumably, the date of judgment.
44. I think it is important to recall what the figure of £11,545 represents. It represents what the Partnership Accountants have assessed as Dr. Cronin’s share of the profits of the partnership between 1st August, 1994 and 30th June, 1995. Where the estate of the deceased partner is entitled to elect under s. 42(1), the interest payable under s. 42(1) is payable on the amount of the share of the deceased partner in the partnership assets, not on his share of pre-dissolution profits.
45. As counsel for the defendants pointed out, the nature of the option under s. 42(1) is explained as follows in Lindley & Banks (at para. 25 – 26):
“Although the partner whose entitlement has not been paid out theoretically has an option to take a share of profits or interest at five per cent in all cases, that option will in fact be exercisable only where the continuing partners can be shown to have derived profits from the use of his share and where that partner does actually have a share in the assets in question.”
46. The submission made on behalf of the defendants that it is clear from the Partnership Agreement that Dr. Cronin did not actually bring anything into the partnership apart from his own work as a doctor, in respect of which his entitlement was to share in the profits on the basis provided in the Partnership Agreement, in my view, is correct. The practice was conducted from Dr. Kehoe’s premises, albeit that there was provision for a yearly rent. The present stock of surgical instruments, furniture and fittings in the surgery at the commencement was the property of Dr. Kehoe. Clause 14.1, which I have quoted above, provided that the business and goodwill remained in the ownership of Dr. Kehoe until the expiry of the term. Having regard to the foregoing matters, I can see no basis on which the plaintiff can maintain a claim under s. 42(1).
47. Apart from that, the eventuality envisaged in Clause 22, the death of Dr. Cronin during the currency of the partnership, unfortunately occurred. The provision made in Clause 22 was designed to compensate the estate of Dr. Cronin in respect of his interest in the goodwill of the partnership, presumably on expiry of the term. By finding that, notwithstanding that the policy of insurance on his life was not effected and that there was no insurance fund out of which to pay his estate the agreed sum of £60,000, nonetheless, Dr. Kehoe, because of his breach of Clause 22, was liable to the estate of Dr. Cronin for the sum of £60,000 and his estate is now liable for the euro equivalent of that sum, the plaintiff can have no further entitlement to any share in post-dissolution profits or, in the alternative, to the payment of interest in accordance with s. 42(1).
48. Finally, for the avoidance of doubt, I do not accept that this element of the plaintiff’s claim, which I consider to be wholly misconceived, did not require to be pleaded. One would expect at the very least that the circumstances which would give rise to a claim under s. 42(1) be pleaded, as well as the exercise by the estate of the deceased partner of the chosen option.
Gill v Sandhu
 EWCA Civ 1297
“The resolution of the first issue turns substantially on section 42(1), which provides 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 at 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 at the rate of five per cent. per annum on the amount of his share of the partnership assets.”
Section 42 is in that part of the 1890 Act, consisting of sections 32 to 44 inclusive, which are under the heading “Dissolution of Partnership, and its Consequences”. Sections 32 to 35 are concerned with methods of dissolution, and sections 36 to 38 deal with miscellaneous matters concerning outsiders to the partnership. Sections 39 to 44 deal with the rights of the partners following dissolution. Section 39 is concerned with the “Rights of Partners as to application of partnership property”, and section 41 with “Rights where partnership dissolves for fraud or misrepresentation”, section 42 with “Right of outgoing partner in certain cases to share profits made after dissolution” and section 44 is the “Rule for distribution of assets on final settlement of accounts”.
It is worth referring to section 44 in a little more detail. Section 44(a) deals with the sharing of losses. Section 44(b) provides that “the assets … shall be applied in the following manner and order”:
“1. In paying the debts and liabilities of the firm to persons who are not partners therein:
2. In paying to each partner rateably what is due … to him for advances …:
3. In paying to each partner rateably what is due … to him in respect of capital:
4. The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible. “
The only other provision of the 1890 Act to which I should make reference is section 24, which, according to its title, sets out certain “Rules as to interests and duties of partners subject to special agreement”. As the title indicates, the section sets out some rules which are to apply, save where something different has been expressly or impliedly agreed. Section 24(1) provides that “All partners are entitled to share equally in the capital and profits of the business …”.
With that, I now turn to the meaning of section 42(1). The concept of “a partner’s share of the partnership assets”, at any time before the end of the winding up process in accordance with section 44, is conceptually somewhat opaque. In a case to which I will have to return, Popat –v- Shonchhatra  1 WLR 1367, in an uncontroversial passage at 1372B-D, Nourse LJ said this:
“Although it is both customary and convenient to speak of a partner’s “share” of the partnership assets, that is not a truly accurate description of is interest in them, at all events so long as the partnership is a going concern. While each partner has a proprietary interest in each and every asset, he has no entitlement to any specific asset and, in consequence, no right, without the consent of the other partners or partner, to require the whole or even a share of any particular asset to be vested in him. On dissolution, the position is in substance not much different, the partnership property falling to be applied, subject to sections 40-43 (if and so far as applicable), in accordance with sections 39 and 44… As part of that process, each partner in a solvent partnership is presumptively entitled to payment of what is due from the firm to him in respect of capital before division of the ultimate residue in the shares in which profits are divisible: see section 44… it is only at that stage that a partner can accurately be said to be entitled to a share of anything, which, in the absence of agreements to the contrary, will be a share of cash.”
The meaning of section 42(1): the arguments for the appellant’s case
In the current (eighteenth) edition of Lindley & Banks on Partnership, the topic of “partnership shares” is dealt with in Chapter 19. Lord Lindley’s “classic definition” is quoted in paragraph 19-05. He said that “the share of a partner is his 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.” In the following paragraph, the editors effectively endorse this definition, albeit stating that “it would be more accurate to speak of a partner’s entitlement to a proportion of the net proceeds of sale of the assets”. The editors go on to explore a little further the nature of a partner’s share in three circumstances, namely while the partnership is continuing, after “general dissolution” and after “death, retirement or expulsion of a partner”.
As to the position while the partnership is continuing, Lindley & Banks suggest in paragraph 19-09 that:
“In the absence of any agreement to the contrary, the share of a partner will represent (and should always be stated in terms of) his proportionate share in the net proceeds of sale of the partnership assets, after the firm’s debts and liabilities have paid or provided for.”
The editors go on to suggest that this is supported “in substance” by the approach of the Court of Appeal in the passage I have quoted from Popat’s case.
In paragraph 19-10, the editors turn to the position on the general dissolution, and “submit” that “each partner’s share will have the same proprietary character as it had prior to the dissolution”. They immediately go on to state that “in terms of value, the share must still be expressed as a net entitlement, since, in the absence of some specific agreement between the partner, it cannot properly be viewed in any other light”. That is also stated to be supported by the passage I have quoted from Popat’s case.
One can find support for this conclusion in at least some of the authorities referred to in the footnotes to the passages that I have cited in Lindley & Banks. Thus, in Re Ritson  1 Ch. 128, Chitty LJ said at 131 of a deceased partner that his “interest in the joint assets [of the partnership] was only his share of the surplus after payment of the joint debts”, echoing a similar observation of Lindley MR himself at 130-131. In Rodriguez –v- Speyer Brothers  AC 59 at 68, Lord Finlay LC said this at 68:
“When a debt due to the firm is got in no partner has any share or definite interest in that debt; his right is merely to have the money so received applied, together with the other assets, in discharging the liabilities of the firm, and to receive his share of any surplus there may be when the liquidation has been completed.”
The concept of an interest in such a “surplus” is also to be found in a judgment of Buckley J, Burdett-Coutts –v- Inland Revenue Commissioners  1 WLR 1027 where he said this at 1035, when he observed that the analysis of Romer J in Manley –v- Sartori  1 Ch. 157:
“is authority for the view that, when a dissolved partnership is to be, or is in the course of being, wound up, each partner or his estate retains an interest in every single asset of the form of partnership which remains unrealised or unappropriated, and that that interest is proportionate to his share in the totality of the surplus assets of the partnership.”
So far, I have referred to authorities after the 1890 Act, but it is worth observing that it seems to have been the same before that Act came into force. Thus, in Ashworth –v- Munn (1880)15 Ch. D. 363, James LJ said this at 368:
“Their [sc. the partners’] interest is exactly in proportion to what the ultimate amount coming due to them upon the final taking and adjustment of the accounts may be… The share of each of the other partners no doubt is not a share in any specific asset or any specific part of the assets real or personal, but his share of what will ultimately come to him when the accounts are ascertained and when the partners who are to contribute have contributed, and when the assets are got in, the debts paid, and the amounts realised.”
Although this observation was, as mentioned, made before the 1890 Act came into force, it should be noted that, as stated in Lindley & Banks at paragraph 1-06, the 1890 Act “introduced no great change in the law”.
The situation catered for by section 42(1), namely the entitlement of what I shall call an excluded partner to compensation in light of post-dissolution profits made by his former partner or partners from continuing the partnership business, was the subject of a number of decisions prior to the 1890 Act. In one of those decisions, Featherstonhaugh –v-Fenwick (1810) 17 Ves. Jun. 291, Grant MR made the point that, once the partnership is dissolved, all the partners had the same right, namely “to have the whole concern wound up by a sale and a division of the profits” and that, if one partner carried on the business to the exclusion of the other and without the consent of the other, which was something which he was not in principle entitled to do, and he would therefore “come under a liability for whatever profits might be produced”.
Those observations, and also observations to which we were referred of Lord Eldon LC in Crawshay –v- Collins (1826) 2 Russ. 325 at 344-345, do not seem to me to impinge on the essential issue which we have to determine. They serve to emphasise the justice of the excluded partner (or his estate) being entitled to benefit from the carrying on of the partnership business after dissolution, given that the immediate right of all the partners is to have the partnership wound up, and that any profits earned after dissolution will, at least normally, be in part attributable to the earning capacity of assets in which the excluded partner or his estate has an interest, albeit an interest which will not crystallise until the winding up is completed. However, what those cases do not do, in my view, is to indicate how the excluded partner’s share of the post dissolution profits was to be assessed.
Based on the decision of Wigram V-C in Willett –v- Blanford (1842) 1 Hare 253, Lightman J said at paragraph  of his judgment that, before the 1890 Act, the approach of the courts to the question of the entitlement of the excluded partner to share in the post-dissolution profits was based on the particular circumstances of the case, and was relatively flexible. I think there is some force in that, with one exception, I shall say no more about those cases, save to say that I agree with Black J’s analysis in paragraphs 83 to 87 below. Yates –v- Finn (1880) 13 Ch. D. 839 was a decision which suggests that, prior to the 1890 Act the courts did adopt an underlying principle, albeit that it was one which could be modified, or even departed from, where the facts justified it.
In that case, the excluded partner had provided about 75% of the capital, and under the partnership agreement it was agreed that profits would be shared equally between the partners. After dissolution, and both before and after the excluded partner’s death, the business was carried on profitably by the other partner, who had provided about 25% of the capital. After deducting in favour of the surviving partner a sum to compensate him for running the business after the dissolution, the Chief Clerk apportioned the post-dissolution profits equally between the two partners. That decision was successfully appealed to Hall V-C, and it is interesting to note that, at 841, he “remarked that it might be necessary to continue a business for the purpose of winding it up”.
Even more to the point, at 843-844, Hall V-C said this:
“In such a case as this I think that… the correct principle to be applied (in the absence of other special circumstances affecting the rights of the deceased partner on the one hand and the surviving partner on the other) is this: That the representatives of the deceased partner are entitled to say to the surviving partner, “you have been using our testator’s money in trade, and making profits by the use of it, and we are therefore entitled to an account of the profits you have made by continuing that money in the concern and trading with it.” Of Course I do not mean to say that there may not be special circumstances which may vary the case.”
It is fair to say that, in that case, the partnership agreement was for a fixed term, which had expired well before the excluded partner died, but I cannot think that makes any difference. Indeed, if anything, it could be said to be a stronger case than the present, where, for virtually the whole of the post-dissolution period of trading, the winding up of the partnership could be said to have been underway (bearing in mind that Mr. Sandhu applied for the partnership to be wound up within a month of the dissolution).
At least on the basis of the authorities we were referred to, Yates’s case is the clearest and most recent reported decision on this issue prior to the passing of the 1890 Act. Bearing in mind the fact that, as already mentioned, the purpose of that Act was more to codify (albeit partially) and clarify the law on the topic, rather than to change it, I consider that the decision is one which can justifiably be invoked to support the case advanced by Mr Blackett-Ord.
So far, it appears to me that the judicial and textbook analyses of the concept of a partner’s “share of the partnership assets” accords more with that advanced on behalf of the appellant Mr. Gill, than that favoured by the Judge and advanced on behalf of the respondent, Mr. Sandhu.
………………..Quite apart from this, section 42(1) is not, in my opinion, concerned with penalising a partner who continues the partnership business in such circumstances. It is specifically stated to apply, inter alia, where the excluded partner has in fact died; in other words, it applies where the partner who carries on the business really has no alternative but to do so, and indeed where the estate of the deceased partner would often expect to benefit from the fact that the business is being continued, so that, for instance, it could be sold as a going concern. Indeed, where the partnership takes a long time to wind up, as in the present case, it is similarly desirable that one partner should be able to continue the business essentially for the same reason.
In any event, if the excluded partner is entitled to be accorded some sort of extra right for the “insult” of the partnership business being continued against his will, it seems to me that the right he is given to elect between interest and a share of the profits, is quite sufficient. Any further right, such as that contended for by Mr Walker, could frequently turn out to be wholly disproportionate to any perceived injustice to him, and could also work arbitrarily.
It also seems to me that this conclusion receives a little indirect support from section 42(2), to which I have not so far referred. It provides that, where the continuing partners exercise an option to buy out an outgoing partner, the outgoing partner cannot rely on section 42(1), unless the continuing partners fail to comply with the terms of the option. Given that the amount payable under any such option would be likely to be based on the outgoing partner’s share of the net, rather than the gross, value of the partnership assets, it seems likely that the share of the profits, and the 5% per annum interest, in section 42(1) would be assessed on a similar basis.
In paragraph  of his judgment, Lightman J observed that the conclusion that the reference to a partner’s “share of partnership assets” was a reference to the gross assets and not to the net assets was supported by section 41(a) which applies where a partnership contract is rescinded on grounds of fraud or misrepresentation. In such a case, the rescinding party is entitled inter alia to:
“a lien on, or right of retention of, the surplus of the partnership assets, after satisfying the partnership liabilities, for any sum of money paid by him for the purchase of a share in the partnership as any capital contributed by him” (emphasis added).
That is a point with some force. On the construction of section 42(1) advanced by Mr. Blackett-Ord, the reference to “the surplus of the partnership assets, after satisfying the partnership liabilities” in section 41(a) has the same meaning as “the partnership assets” in section 42(1), whereas on the Judge’s construction, supported by Mr. Walker, the expression “the partnership assets” has the same meaning in the two sections.
However, I do not consider the point to be particularly powerful. First, section 41(a) is concerned with the actual net assets of the partnership after the payment of all liabilities, i.e. just before distribution of those net assets among the partners. On the other hand, section 42(1) is dealing with a period which may, and normally does, extend to a period before the winding up process has even begun, so the net assets are, as it were, prospective in nature. Further, the “share of the partnership assets” in section 42(1) is, in a sense, a composite expression which, as the passages I have quoted from Lindley & Banks demonstrate, had an established meaning when the 1890 Act was passed.
In any event, when one turns to another provision of the 1890 Act which has a reference to a partner’s “share of the partnership assets”, namely section 31, it appears to me that the expression is used in a way which is consistent with the case advanced by Mr. Blackett-Ord rather than that adopted by the Judge. Section 31(2) provides that an assignee of a partner’s share is entitled to receive “the share of the partnership assets to which the assigning partner is entitled as between himself and the other partners”. In my view, that must be a reference to the share of the net assets, or the “surplus assets” referred to, for instance, by Buckley J in Burdett-Coutts’s case. Support for that interpretation may be found in Hadlee –v- Commissioner of Inland Revenue  AC 524 at 533B, where the Privy Council appears to have taken the view that the identically worded New Zealand statutory provision was a reference to “the right on dissolution to a share in assets”, which seems to me to refer back to the description of a partner’s right “to share in the surplus assets of the partnership on a dissolution” on the previous page of the judgment at 532H.
It may be added that this interpretation appears to coincide with the view expressed in the current, eighth, edition of Higgins & Fletcher on The Law of Partnership in Australia and New Zealand. At page 250, when discussing the antipodean equivalent of section 42(1), they suggest that “the relevant share” there referred to is “the amount owing to the outgoing partner from the remaining partners”. It is also worth mentioning that, in paragraph  of his judgment, Lightman J referred to the New Zealand decision, De Renzy –v-De Renzy (1924) 43 NZLR 1065, and said that he had “some difficulty” with the approach of Stringer J to the apportionment of post dissolution profits between the surviving partner, who continued to carry on the partnership business, and the estate of the deceased partner. It appears to me that, if Mr. Blackett-Ord’s analysis in the present case is correct, no such difficulty arises.
In paragraph  of his judgment, Lightman J referred to Manley’s case, and cited rather more extensively the observations of Romer J which were quoted by Buckley J in Burdett-Coutts’s case. Rather contrary to the view of Buckley J, it appears that Lightman J took the view that those observations rather assisted Mr. Walker’s submissions in the present case. I am rather dubious whether the observations in Manley’s case, despite their authoritative source, are of much assistance, because Romer J was not really concerned with the issue which we have to decide.
However, as I have probably already implied, it seems to me that, if anything, the analysis of the law in Manley’s case assists Mr Blackett-Ord rather than Mr Walker. The passage I have in mind is at 162 where Romer J said this:
“There appears to have been an idea at one time that [where the partnership business was carried on after the death of a partner] the partners were interested in the profits so made in shares in which they would have been entitled to the profits if they had been earned while the partnership was a going concern. For instance, it was suggested that, supposing a partner brought no capital into the partnership but in consequence of his skill or for some other reason was entitled under the partnership articles to receive a particular share, say a one-third share, of the profits, then if, after his death, the surviving partner who brought all the capital into the concern carried on the business and made a profit, the executors of the deceased partner were entitled to one-third of that profit. That that is not so was explained by Wigram V-C in Willett –v- Blanford …. . He pointed out, in effect, that where the profits had been earned by reason of using the assets of the partnership, those profits were divisible between people who, in the events which it happened, were interested in the partnership assets: they were not divisible between the parties in accordance with their rights and interests in profits earned while the partnership was a going concern.”
The reason I consider that passage to be important in the present context is this. For the respondent, Mr Sandhu, Mr Walker contends that all the partners have an interest in the assets of the partnership until it is completely wound up, and, indeed, that all their interests are equal, unless there is an agreement to the contrary; this is no doubt because their right to have the assets dealt with in accordance with the rules of the partnership and the provisions of the 1890 Act can be said to be equal. On this basis, at least in the absence of an agreement to the contrary, post-dissolution profits are to be shared equally. If that were correct, then it seems to me that the example given by Romer J cannot be right. Even though the deceased partner in the example had not contributed any capital, he would still, on Mr. Walker’s case, have an interest in the assets of the partnership, in the sense of having been a partner and having an interest, which was prima facie “equal” of that of the other partner, in having the assets distributed in accordance with the provisions of the 1890 Act (or as varied, if at all, by the provisions of the relevant partnership agreement). Yet, under Romer J’s analysis he would not be entitled to any share of the post dissolution profits which appears to me to be entirely consistent with the analysis put forward by Mr. Blackett-Ord, on behalf of the appellant, Mr Gill.
In these circumstances, I am disposed to reach a different conclusion from that reached by Lightman J in that it appears to me that the reference in section 42(1) to “the partnership assets” is to the net partnership assets, and not the gross partnership assets. However, that would not necessarily be determinative of the first of the two issues on this appeal, because the basis for assessing the “share” in that section must also be determined. Having said that, many of the reasons for arriving at the conclusion that the reference to “assets” is to net assets appear to me to carry with them the notion that the “share” referred to is the actual share of those assets attributable to the partner concerned in the net assets in the winding up process in accordance with section 44. Further, logic and commercial common sense (which often, but not invariably, march together) suggest that if the value of “the partnership assets” in section 42(1) is to be assessed by reference to the present value of the prospective surplus, then the partner’s “share” under that section must be based on the actual proportion of those assets to which he would be entitled.
In other words, if the reference to “the partnership assets” in section 42(1) is to what Buckley J called the surplus, i.e. what remains out of the gross assets, for distribution between the partners, after all debts and other liabilities of the partnership have been met, it seems to follow that the “share” for the purposes of section 42(1) is to be assessed by reference to the share which the partner in question is entitled to receive at the conclusion of the winding up process. Indeed, it seems to me that the way in which the observations in the cases and textbook to which I have referred are expressed make that conclusion virtually inescapable.
Further, if the excluded partner’s share of net assets under section 42(1) is not to be assessed in this way, and the Judge is right, there would appear to be only two alternatives for assessing that share (subject to the possibility of agreement, which is specifically mentioned in the section). The first is that it is to be assessed in accordance with section 24(1). The alternative is that the excluded partner would be intended to have a share which was equal to that of each of the other partners. Either conclusion would be hard to reconcile with justice or authority, as discussed above. Also, if either had been the legislature’s intention, one would have expected section 42(1) to have been differently drafted. Either section 24(1) (together with the opening words of section 24 if the first alternative was intended) would have been referred to in section 42(1), or the latter section would have used the same language as the former. As it is, section 42(1) uses a different basis for the distribution of profits from that used in section 24(1), the basis involving an expression, which, when used elsewhere in section 42(1) itself (i.e. at the end) and in section 31, suggests a meaning consistent with the appellant’s case.
The meaning of section 42(1): the difficulties in the way of the appellant’s case
However, there are three points that give me considerable pause for thought before I go firm on the conclusion that section 42(1) has the meaning contended for by Mr Blackett-Ord on behalf of the appellant. The first is the practical consequences of this conclusion. The second is what is said in paragraphs 19-18ff. of Lindley & Banks under the heading “The Size of Each Partner’s Share”. The third is part of the reasoning of the Court of Appeal, to which I have not so far referred, in Popat’s case.
The practical consequences of accepting the appellant’s case can be said to be somewhat unsatisfactory, in that, in the absence of agreement, the court would have to carry out, or at least to commission, a fairly detailed account both of the assets and liabilities of the partnership and of the value of each partner’s share of the net assets, as at the date of dissolution, in order to determine the amount to which the excluded partner is entitled pursuant to the provisions of section 42(1). In other words, there would virtually have to be a hypothetical winding-up exercise as at the date of dissolution. If the Judge’s conclusion is right, such an exercise would be required more rarely, and it would be easier to carry out. It would be required more rarely because in the normal run of cases, each partner’s share would be equal, and it would therefore be unnecessary to determine the precise value of the partnership assets, unless the excluded partner opted for 5% per annum interest rather than a share of the profits. However, given that the 5% per annum interest would be based on proportion of the gross assets of the partnership, it would frequently be the preferred option, and therefore a valuation exercise would have to be carried out. However, because that accounting exercise would involve valuing only the assets, and not the liabilities, of the partnership, it would be a cheaper and simpler exercise than that of valuing the net assets.
While such considerations cannot be ignored when determining the meaning of section 42(1), it seems to me that the practical consequences of the appellant’s construction is not so startling as to call the construction which he contends into question if it is otherwise correct.
In paragraph 19-19, the editors of Lindley & Banks quote Lord Lindley as saying that, in the absence of agreement to the contrary, “the shares of all the partners will be adjudged equal”, and that this is now supported by section 24(1), which provides that, in the absence of agreement to the contrary, all partners “are entitled to share equally in the capital and profits of the business”. They go on to explain in paragraph 19-20 that this rule applies even where the capital has been contributed, and is owned, unequally. They also point out, in paragraph 19-21, that this analysis is based on convenience, and that it was approved by this court in Joyce –v- Morrisey  EMLR 233 at 243.
I was initially impressed by the submission that, while they might be difficult to reconcile with the thrust of the authorities I have so far discussed (including earlier passages in the same Chapter), these observations in Lindley & Banks were of considerable assistance to the respondent’s case here. However, on further reflection, it appears to me that this is not so. In paragraph 19-20, Lord Lindley is quoted as saying:
“When it is said that the shares of partners are prima facie equal, although their capitals are unequal, … it is not meant that, on a final settlement of accounts, capitals contributed unequally are to be treated as one aggregate fund which ought to be divided between the parties in equal shares.”
In other words, as one would expect, the position as laid down by the 1890 Act, and, in this connection, in particular by section 44, reflects the position as developed by the Judges. After the assets of the dissolved partnership have been converted into money and have been used to pay off the debts and other liabilities of the partnership, any balance that remains is for the benefit of the partners individually, and is to be apportioned between them as laid down by section 44(b). The presumption of equality only comes into play in that connection at stage 4 of that subsection; it has no part to play at stage 3, or indeed stage 2. In these circumstances, it seems to me that the partners will only be presumed to have equal shares in any sum that remains after they have been paid what is due to each of them in respect of advances and of capital.
Accordingly, I do not consider that the contents of paragraphs 19-18ff of Lindley & Banks undermine the conclusion I have reached. Where the business of the partnership is carried on after dissolution by one partner to the exclusion of the other, the excluded partner’s entitlement to a payment under section 42(1) is to be calculated by reference to his share of the partnership assets, and that share is to be assessed in accordance with section 44, which does involve a rebuttable presumption of equality but only at stage 4.
So far as Popat’s case is concerned Mr. Walker for the respondent understandably relies on what Nourse LJ said at 1372E-G about the “size” of “a partner’s share of the assets”. He said that, in light of the absence of any express guidance on the topic from the 1890 Act, it was “necessary to have resort to the rule, established well before the Act of 1890 and no doubt recognised by section 24, that, subject to any agreement, all the partners are entitled to share equally in the partnership property”. At 1373G to 1374A, Nourse LJ then expressed the view that, in light of the terms of section 42(1) and of Manley’s case, the post dissolution profits made by a partner who carried on the business on his own should, in his view, have been divided “between the partners in equal shares”, and not by reference to the interest of the partners in the net assets of the partnership, valued as at the date of dissolution. It is plain that those observations were obiter, because, as Nourse LJ immediately went on to say at 1374A “the plaintiff has not appealed against that part of the Judge’s order”.
While it therefore follows that the analysis in Popat’s case was and is strictly obiter so far as this case is concerned, I accept that this court should be reluctant not to follow a clear (and unanimous) observation in the Court of Appeal on this very point. Indeed, it is clear that Lightman J justifiably relied on it in assisting the conclusion that he reached. It is particularly difficult not to follow, given that it can fairly be said that the whole thrust of the conclusion in Popat’s case, which was concerned with the apportionment of increase in the value of the capital assets of the partnership after it dissolution, can be said to be consistent with the Lightman J’s decision here. It is only right to add that the difficulty is reinforced in my case, not only because it was my judgment at first instance which was successfully appealed in Popat’s case, but also because in that judgment I decided (at  1 WLR 908 at 913C-914D) the present point at issue (although, as mentioned above, that part of my decision was not appealed).
Notwithstanding this difficulty (and, indeed, the real diffidence I feel in these somewhat invidious circumstances), I have come to the conclusion that the reasoning and observations in Popat’s case should not deflect me from the conclusion which I would otherwise had reached in relation to this appeal. First, as already mentioned, this court’s observations in relation to the effect of section 42(1) in Popat’s case were plainly obiter. Secondly, as explained above, the editors of Lindley & Banks appear to take the view that Nourse LJ had the same opinion as to the meaning of the expression “share of the partnership assets” in section 42(1) as I have formed. Thirdly, neither Yates’s case nor Burdett-Coutts’s case (nor a number of other cases to which I have referred on post-dissolution income) were cited to the court in Popat’s case.
Fourthly, I do not think that section 24 is of any assistance in a case where, as is common ground, section 42(1) applies; further, the passage in what was then the current, and is now the previous, edition of Lindley & Banks, cited at 1372H-1373A in the judgment of Nourse LJ, and relied on by him, is plainly concerned purely with capital, which was what was an issue in that case, and not with income, which is what this case is concerned with. Fifthly, I contributed to any difficulty faced by the Court of Appeal in Popat’s case by confusing in my judgment at first instance, the capital of the partnership with the assets of the partnership, as Nourse LJ observed at 1372A, although it appears to me that I was guilty of using the wrong terminology rather than the wrong figures (see at  1 WLR 908 at 914B-C). Sixthly, the commercial unjustness of giving section 42(1) the meaning adopted below was simply not considered in Popat’s case.
The effect of the deed and the consent order
Accordingly, I have come to the conclusion that the appellant’s case, as advanced by Mr Blackett-Ord, on this issue is correct. It is therefore appropriate to turn to the second issue, namely, what, in the light of this conclusion, is the effect of the terms of the deed and of the consent order so far as the entitlement of Mr Sandhu, the respondent, to any part of the post-dissolution profits.
In that connection, it is right to emphasise that, at any rate at this stage, it has not been suggested by either party that we should carry out a detailed assessment of the respondent’s share of the partnership assets. In other words, we are concerned with questions of principle, not with detailed assessments. I mention this because, in their respective skeleton arguments, Mr Blackett-Ord and Mr Walker have each put forward calculations, on the assumption that section 42(1) has the meaning for which the appellant contends, with a view to establishing that the respondent, Mr Sandhu has no, or as the case may be, a substantial, such share. We did not hear any argument on these calculations, any more than we heard any argument on the disputed facts relating to what contribution (other than financial) each party had made to the success of the home, although these issues were also debated in the skeleton arguments.
In the absence of any subsequent variation by agreement or otherwise, or an order for rectification, it seems to me that the effect of clauses 10.1 and 10.2 of the deed would be that the beneficial ownership of the property was vested solely in the appellant, Mr Gill. That was the position, at least on the face of it, when the deed was executed, as Mr Gillhad bought the property with his own money and had registered as the sole proprietor at H.M. Land Registry. Clause 10.2 appears to envisage that that should remain the position until Mr Sandhu pays “the Contribution”, which to this day he has not done.
However, it is contended by Mr Walker that this arrangement has been changed by the agreement embodied in the consent order. He says that, as a result of the parties agreeing that the property was an “asset … of the partnership”, it should now be treated as owned beneficially in equal shares by Mr Gill and Mr Sandhu. Mr Blackett-Ord suggests that that would be a surprising concession for Mr Gill to have made, given that it was after the parties had fallen out, and that it is misconceived, because the terms of the consent order nowhere deal with the beneficial ownership of the property, let alone the shares in which that beneficial interest is held.
Although Mr Walker’s argument can arguably be said to mean that Mr Gill did make a significant concession in the consent order as to the way in which the beneficial interest in the property is owned, I do not consider that the concession can be characterised as particularly surprising. First, the consent order settled a number of different disputes between the parties, and would almost inevitably have involved a degree of give and take on each side. Secondly, the proceedings included a claim by Mr Sandhu for rectification of the deed so that the property would have been held in accordance with clause 10.3, i.e. in equal shares beneficially. Thirdly, Mr Gill’s concession would not alter the fact that he had not received the full Contribution from Mr Sandhu, and, at least as I currently see it, Mr Gill would be entitled to require that debt from Mr Sandhu to be taken into account when settling the final account in accordance with clause 20 of the deed, which reflects the provisions of section 44. After all, Mr Sandhu’s liability to pay the Contribution, as expressed in clause 10.1, has still not been fully satisfied, and would therefore appear to be enforceable.
In my judgment, Mr Walker is correct on this second issue. The natural meaning and effect of the parties having agreed in writing, well after the partnership had determined, that the property was a partnership asset, when read in the context of clause 10.2, and Mr Sandhu’s claim for rectification, is that the parties intended that the beneficial interest in the property should be treated as be owned equally. First, it appears very difficult to discern any other purpose in the parties having made such an agreement. Secondly, if Mr Sandhu is still liable for the Contribution (as Clause 10.1 suggests he is), and this is to be recognised in the final accounts in the winding up, it would seem unfair if he was not entitled to benefit from the intended consequences of such payment as expressed in clause 10.2. Thirdly, although the expression “asset … of the partnership”, used in the consent order, is different from “partnership property”, used in clause 10.2 of the deed, the words have the same effect. Once the property is “partnership property”, the parties have agreed in clause 10.2 that it becomes effectively equally owned beneficially.
Indeed, given that Mr Gill appears to have contributed his share of the capital through the provision of the property (which cost almost exactly twice each party’s agreed capital contribution), it seems particularly sensible for the parties to have made the agreement contended for by Mr Walker, provided always that Mr Sandhu is still treated as liable to Mr Gill for the Contribution. (Mr Blackett-Ord makes the point that there is no reference to shares, let alone to equal shares in clause 10.2, but, on normal principles and in the light of the commercial realities, as just discussed, I think that there is nothing in that point). Finally, the consent order involved Mr Sandhu effectively abandoning his claim for rectification, which forms part of the factual matrix against which the consent order must be construed, and which renders it more likely (or at least more explicable) why Mr Gillwould have made such a concession (if, indeed, it is fair to characterise it as such).
I do not believe that it would be appropriate to go any further, at any rate at this stage, in identifying how the final accounts are to be drawn up, or how Mr Sandhu’s “share of the partnership assets” is to be assessed. I would hope that, despite the differences which still appear to exist between them, the parties, with the assistance of their respective legal advisers, will be able now to agree those matters. If that is not possible, then it may be necessary for the case to be remitted to the capable hands of Master Bowles.
In these circumstances, for the reasons I have given, and indeed for the reasons given by Mummery LJ and Black J, I would allow this appeal to this extent.
Manley v Sartori
 1 Ch 157
‘Where . . the surviving partners, instead of realizing the assets and distributing the proceeds amongst the partners in accordance with their rights and interests, choose to carry on the business and make profits by virtue of the employment of any of the partnership assets, then, subject no doubt to making a proper allowance to the surviving partners for their trouble in so carrying on the business, such profits belong to all the persons interested in the partnership assets by means of which the profits have been earned in accordance with their rights and interests in those assets; that is to say, proportionately to their interests in those assets. That has been laid down in numerous cases and is affirmed by s. 42 of the Partnership Act of 1890 . . [The] profits . . were not divisible between the parties in accordance with their rights and interests in profits earned while the partnership was a going concern . . . Now the rights of the deceased partner or his legal person representatives are rights over all the assets of the partnership. He has an unascertained interest in every single asset of the partnership, and it is not right to regard him as being merely entitled to a particular sum of cash ascertained from the balance-sheet of the partnership as drawn up at the date of his death . . . [as] was pointed out by Wigram V-C in Willett v. Blanford, it does not necessarily follow that because the surviving partners have been carrying on the business the profits or the whole of the profits are attributable to the use of the partnership assets . . . it may well be that in a particular case profits have been earned by the surviving partner, not by reason of the use of any asset of the partnership, but purely and solely by reason of the exercise of skill and diligence by the surviving partner; or it may appear that the profits have been wholly or partly earned not by reason of the use of the assets of the partnership, but by reason of the fact that the surviving partner himself provided further assets and further capital by means of which the profit has been earned. Those profits, so far as earned by sources outside the partnership assets, are not profits in which the executors of the deceased partner could be entitled to any share . . . Where surviving partners continue to carry on the business, prima facie they are carrying it on by reason of their possession of the assets of the partnership; and the executors of the deceased partner are prima facie entitled to a share of the profits proportionate to his share in the assets of the partnership. It is for the surviving partners to show, if they can, that the profits have been earned wholly or partly by means other than the utilization of the partnership assets . . ..’