Judge erred in ordering transfer of assets to one partner

In the absence of agreement, where a partnership is dissolved the general principle is that partnership assets are sold on the open market to achieve full and fair value unless there are exceptional circumstances where such a sale would not do justice to the parties. The Court of Appeal has considered this issue allowing an appeal in Bahia v Sidhu and another [2024] EWCA Civ 605. The appellant and the late Tara Singh Sidhu entered into a partnership at will in which they were equal partners, in 1972. Over the years, the partnership acquired a sizeable property portfolio, valued at more than £11.5m, comprising both residential and retail premises mostly in and around Greater London. The relationship between the partners irretrievably broke down in 2012 with each harbouring suspicions of the other regarding the collection of and accounting for rental income and unauthorised use of partnership monies. The partnership was dissolved in October 2016. Each partner was entitled to half of the net proceeds of the winding up. Sidhu died in November 2018 by which time Bahia had already commenced legal proceedings and, in November 2019, the court dissolved the partnership, ordered the taking of a dissolution account and the trial of various inquiries. These were determined in early 2022, largely in favour of Bahia. By the date of a further hearing in November 2023 for the court to decide whether the properties should be sold or dealt with differently, Sidhu’s estate owed around £3.6m to the partnership with £50,000 due to Bahia personally. At that hearing the judge ordered four properties with a combined value of £5.575m to be transferred to Bahia with the remainder to be sold by a receiver with power to make distributions to ensure equality between the parties. Sidhu’s estate appealed. The normal rule is that partnership assets are sold on dissolution, sale on the open market being the best means to achieve a full and fair value for them. The judge had a discretion to depart from the normal practice in exceptional circumstances to do justice to the parties, not, as he decided, an overarching discretion to make whatever decision he regarded just. The transfer of properties to Bahia worth £1.9m in excess of what the partnership was owed by Sidhu’s estate was extraordinary and unjustified. The properties should have been put into auction at a reserve equal to valuations of them and Bahia permitted to bid on credit up to the amount of the judgment debt owed by the estate to the partnership. Louise Clark is a property law consultant and mediator