Section 35(d) of the Partnership Act 1890 provides that the court may decree a dissolution of partnership when a partner, other than the partner suing;
“Wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on in partnership with him”
If such an order is made by the court it can also award the innocent partner compensation for any losses suffered as a result of the other partner’s breaches of the partnership.
In the recent case of Bishop v Golstein [2014] EWCA Civ 10 the court decided that even if the dissolution of the partnership did not arise as a result of an order made under Section 35(d) it may still be possible for the innocent partner to pursue a claim for compensation.
Background
Mr Bishop and Mr Golstein had entered into a solicitor’s partnership on 1st October 2007. It was agreed that it was to last for a minimum term of four years following which either party could retire on giving 6 months’ notice. More importantly, the Heads of Agreement stated that for the whole of this period Mr Golstein would be entitled to the benefit of a guaranteed minimum level of drawings from the firm regardless of whether the firm’s business yielded sufficient profits to support such drawings by reference to Mr Golstein’s 30% share.
The relationship between the parties deteriorated and by late 2009, Mr Bishop was conducting himself in such a way as to exclude Mr Golstein from receiving full accounting information. He had purported to terminate the partnership’s lease of its premises without Mr Golstein’s consent and had failed to require or encourage the partnership staff (all of whom had originally worked for him as a sole trader before the partnership was entered into) to respect Mr Golstein’s authority as a partner.
The parties conducted a mediation which did not resolve the dispute. Following this unsuccessful mediation Mr Bishop wrote to Mr Golstein a letter in March 2010 in which he said “the reality of the situation of the situation is that the relationship between us has been damaged beyond repair. I cannot believe that you would seriously think to suggest otherwise. It is time that we both recognised that fact and went our separate ways. How we get to that point is almost secondary”.
Mr Golstein continued with the partnership for a further three months but eventually reached the point at which he could go on no longer and agreed that the partnership should come to an end with effect from 30th June 2010. He pursued a claim for compensation in respect of the loss of the guaranteed earnings that he would have otherwise been entitled to receive if the partnership had run its full four year term.
The Decision
Mr Bishop argued that since Mr Golstein had agreed to bring the partnership to an end that he was not entitled to pursue a claim for compensation. Mr Golstein argued that he had been forced to bring the partnership to an end as a result of Mr Bishop’s intolerable conduct which rendered it impossible for him to continue and that he had decided to accept what he termed a repudiation of the contract by Mr Bishop.
The judge had decided, following dicta of Lord Millett in Hurst v Bryk [2002] 1AC 185 and the decision of Neuberger J in Mullins v Laughton [2003] Ch 250 that the contractual doctrine of repudiation does not apply to the dissolution of a partnership. Instead he had concluded that the partnership had indeed ended by agreement but that this did not prevent Mr Golstein from claiming compensation in respect of Mr Bishop’s prior breaches of the partnership agreement.
The measure of compensation had not been determined and was not an issue on appeal. However, the judge’s decision to allow Mr Golstein to claim compensation for the previous breaches of partnership by Mr Bishop was upheld by the Court of Appeal.