One partner reluctantly accepting unlawful termination of agreement by remaining partners – Assets including onerous lease – Whether innocent partner discharged from contractual liability to indemnify named lessees against rents and other outgoings
Pursuant to merger talks between two firms of solicitors a partnership deed was executed in May 1989. Clause 3.3 provided that partners who held any freehold or leasehold property would do so as trustees for all the partners, who would indemnify them against rent and other outgoings. There was no provision dealing with dissolution. In due course there was vested in four of the partners the 19-year residue of a lease of office premises in King Street, London WC2. The firm did not prosper and in August 1990 all the partners with one exception served retirement notices to take effect on May 31 1991. Trading conditions deteriorated swiftly and on October 4 1990 all the partners with the exception of the appellant, who opposed an accelerated dissolution, agreed that the partnership should cease to practise on October 31. On November 2 the appellant wrote to his former partners stating that, since he had not concurred, their conduct amounted to a wrongful repudiation which as a practical matter he had to accept. In subsequent proceedings brought by the appellant the respondents counter claimed for a declaration that he remained liable under clause 3.3 to pay, inter alia, his share of losses attributable to the King Street premises, which the trustee partners had been forced to sublet at a rent substantially lower than that payable under the headlease. The appellant contended, relying on Bank of Boston v European Grain Ltd [1989] AC 1056 , that his acceptance of the repudiation operated to discharge him from performing any future obligation under the partnership agreement ,including his obligation under clause 3.3, as that had not accrued unconditionally at the time of his acceptance. That argument was rejected and the appellant appealed.
Held (Hobhouse LJ dissenting) The appeal was dismissed.
1. (Per Peter Gibson LJ) Although the appellant’s argument was sound in terms of contract law he had a continuing liability to indemnify as a matter of property law. Despite its negative value the lease remained an asset in which the former partners continued to have a beneficial interest regardless of the dissolution of the partnership. As trustees, the four ex-partners who held the lease were entitled as against beneficiaries, who received all the benefit of trust property, to an indemnity for losses incurred in the proper execution of the trust: see Hardoon v Belilos [1901] AC 118. The appellant was accordingly liable for his share qua beneficiary.
2. (Per Simon Brown LJ) The appellant continued to be liable as a matter of contract law. While the general effect of repudiation and acceptance was to relieve both parties from future performance, that did not apply to stipulations designed to operate for the benefit of all the parties. In this respect cClause 3.3, which provided machinery for accounting, fell within the rationale of Heyman v Darwins Ltd [1942] AC 356 where the general rule had been held not to apply to an arbitration clause.
Ian Leeming QC and Gerard van-Tonder (instructed by Penningtons) appeared for the appellant; Phillip Hoser (instructed by Church Adams, of Reigate) appeared for the respondents
