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England and Wales Court of Appeal (Civil Division) Decisions

You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> White v Minnis & Anor [2000] EWCA Civ 149 (5 May 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/149.html
Cite as: [2000] 3 WLR 885, [2000] 3 All ER 618, [2000] WTLR 755, [2000] EWCA Civ 149, [2001] Ch 393
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Case No: CHANF/1999/0014/A3

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
Park J.
Royal Courts of Justice
Strand, London, WC2A 2LL
Friday 5 May 2000

B e f o r e :
LORD JUSTICE PETER GIBSON
LORD JUSTICE CHADWICK
and
LORD JUSTICE MANCE

WHITE

Respondent

- and -



MINNIS AND ANOTHER

Appellant


__________________________________
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
__________________________________

Miss Sonia Proudman Q.C. and Mr. Alistair Craig (instructed by Messrs Coldham Shield & Mace of Chingford for the Respondent)
Mr. George Laurence Q.C and Mr. Gordon Bennett (instructed by Messrs Sprecher Grier Halbertsam of London for the Appellants)
__________________________________
Judgment
As Approved by the Court
Crown Copyright ©


LORD JUSTICE CHADWICK:
1. This is an appeal from an order made on 16 December 1998 by Mr Justice Park in proceedings brought by Miss Olive White, as personal representative of her late father, Mr Dennis White, who died on 30 November 1993. Immediately before his death Mr Dennis White carried on business in partnership with his brother, Mr Lawrence White, under the firm name "B E White". Mr Lawrence White died on 23 June 1994. The defendants to the proceedings are his executors.
2. The partnership business was carried on from freehold premises at Brantwood Road, Tottenham. Those premises had been shown in the partnership accounts, over many years, at a value equal to historic cost. The terms of the partnership provided that, on the death of a partner, the partnership should not be wound up; rather the share of the deceased partner in the capital of the partnership should be paid to his personal representatives by the surviving partner. The issue in the proceedings is as to the basis on which the value of the share of the deceased partner should be ascertained. The judge held that the deceased partner's share in the capital of the partnership should be ascertained on the basis of an open market valuation of the premises at Brantwood Road. It is against that decision that the executors of Mr Lawrence White have appealed to this Court.
The underlying facts.

3. A business under the name "B E White" was established by Mr Bernard Edwin White at or about the turn of the century. In 1930 , Mr Bernard White purchased the freehold land at Brantwood Road, Tottenham, and arranged for factory premises to be constructed on that land. A balance sheet in respect of his business, as at 31 March 1934, shows as an asset: "Building Account - £6,409".
4. Mr Dennis White was born in 1911. Mr Lawrence White was born in 1920. On leaving school each worked in their father's business. In 1940 Mr Bernard White took his two sons into partnership. Accounts for the year ended 31 March 1945 show that the father was entitled to a 50% share in the profits of the business; and that each of the two sons was entitled to a 25% share in the profits. The balance sheet, as at 31 March 1945, shows the asset "Building Account" at a value of £8,098. By 31 March 1946 that balance sheet figure had risen to £8,135, by reason of "additions due to war damage". It remained at that figure in the balance sheet as at 31 March 1949.

5. With effect from 1 April 1949 Mr Bernard White's daughter, Mrs Jessie Emily Turner, was taken into partnership with her father and her two brothers. For that purpose a deed of partnership was executed on 12 May 1949. The deed recites that Bernard Edwin White, Dennis Arthur White and Lawrence Edwin White have, since 1 August 1940, carried on in partnership the business of an Electrical Engineer; that Jessie Emily Turner had been employed in the business for many years; and that it had been agreed that she should become a partner with the other partners. Clause 1 declares that the parties to the deed shall be partners in the trade or business of electrical engineers for a term of seven years from 1 April 1949 upon the terms of the deed. Clause 2 provides that the business of the partnership shall be carried on under the style or firm of "B E White" at the Brantwood Road premises. Clause 3 is in these terms:
The Capital of the partnership including the freehold premises and land at Brantwood Road Tottenham aforesaid shall be the sum of Nineteen Thousand Five Hundred Forty Five Pounds 10/- and there shall be credited to each Partner's Capital Account the sum of Four Thousand Eight Hundred Eighty Six Pounds, Seven Shillings Six Pence.
6. The words shown in italics were written into the deed after it had been typed. The amount of the capital of the new partnership (£19,545.10s) is equal to the aggregate of the amounts (£13,000 19s.6d., £2,822 5s. 3d. and £2,822 5s. 3d.) standing to the credit of the capital accounts of Mr Bernard White, Mr Dennis White and Mr Lawrence White in the closing balance sheet in respect of the old partnership; that is to say in the balance sheet as at 31 March 1949 to which I have already referred. The necessary inference, in my view, is that the new partnership deed was entered into on, or shortly after, the date upon which the 31 March 1949 accounts in respect of the old partnership had been prepared and approved; and with those accounts in mind. The capital of the new partnership was ascertained on the basis that the value of the freehold land and premises at Brantwood Road was that shown in the closing accounts of the old partnership under the item "Building Account". There is no dispute that that item (£8,135) represented the historic cost of purchasing the land and constructing the factory premises.
7. The amount to be credited to the capital account of each partner in the new partnership (£4,886 7s. 6d.)is one quarter of the aggregate of the amounts standing to the credit of the capital accounts of the three former partners in the old partnership. In effect, therefore, Mr Bernard White made gifts to each of his three children of parts of his interest in the business.


8. The 1949 partnership deed contained provision for what should happen in the event of the death of one of the partners. Clause 18 was in these terms:
18. In the case of the death of a Partner his or her share in the capital of the Partnership and any undrawn profits when ascertained shall be paid to his or her Executors or Administrators by the surviving Partner or Partners by twelve equal quarterly instalments each instalment to be paid together with interest for the time being if remaining unpaid at the rate of five per cent per annum. The first of such instalments together with interest at the rate aforesaid from the date of death to be paid at the expiration of three calendar months after such death and the whole of the property of the partnership shall as from such death belong to the surviving Partner or Partners, as the case may be, and all liabilities of the partnership shall as from that date be discharged by the surviving Partner or Partners and all such assurances releases and instruments shall be executed by the said Executors or Administrators and the surviving Partner or Partners respectively as shall be necessary or expedient to vest all the property of the partnership in the surviving Partner or Partners alone and otherwise to give effect to the provisions of this Clause. Nothing shall be taken into account for goodwill.
9. Mr Bernard White died on 17 April 1950. The first year's accounts for the new partnership - for the year ended 31 March 1950 - were prepared after his death; the audit certificate is dated 14 July 1950. The item "Building Account" appears at the historic cost figure (£8,135). On that basis, the amount standing to the credit of Mr Bernard White's capital account as at 31 March 1950 was shown as £2,858 14s. 7d. That reflected his share of a trading loss made in the year, his drawings and a liability for sur-tax. It is clear, from contemporary correspondence with his personal representative, Midland Bank Executor and Trustee Company Limited, that his estate was paid out by the surviving partners on the basis that £2,858 14s. 7d. represented his share in the capital of the partnership. The estate was paid out on that basis notwithstanding that the surviving partners had obtained a professional valuation, dated 17 April 1950, which showed the value of the freehold land and buildings at Brantwood Road to be £25,000.
10. Following the death of their father, Mr Dennis White, Mr Lawrence White and Mrs Jessie Turner continued the business as partners entitled to the profits in equal shares. The balance sheet as at 31 March 1951 shows the item "Building Account" reduced to £7,781, after the deduction from the historic cost figure (£8,135) of £353 received by way of refund from the War Damage Commission. Over the years to 31 March 1961 that item fluctuated between £8,087 and £7,598 representing further additions and repairs at cost, offset by further refunds from the War Damage Commission. It stood at £7,598 in the balance sheet as at 31 March 1961.
11. The partnership between the three surviving partners continued as a partnership at will, but otherwise on the terms of the partnership deed, notwithstanding the expiry of the seven year term on 31 March 1956 - see section 27 of the Partnership Act 1890. But that partnership was dissolved with effect from 31 March 1961, under the terms of a dissolution agreement dated 28 July 1961. It was recited in that deed that, notwithstanding the figures in the firm's balance sheets, the capital account of Mrs Jessie Turner (as the "Outgoing Partner") had been reduced to £4,376 5s. 9d. which was to remain outstanding as a loan to her two brothers (as the "Continuing Partners") to be repaid with interest at 5 per cent per annum. It is unlikely to have been a coincidence that the figure to which Mrs Jessie Turner's capital account was reduced under the dissolution agreement (£4,376 5s. 9d.) was the amount which had stood to the credit of her capital account in the balance sheet as at 31 March 1950, immediately before the death of her father. In effect, therefore, it could be regarded as the amount which she had brought into the partnership when, on the death of Mr Bernard White, it was reconstituted as a partnership between the three children. Seen in that light, she was to take out no more (and no less) than that which she had brought in. The increase in the aggregate value of the partners' capital accounts was to accrue to her two brothers. Clause 1 of the dissolution agreement was in these terms:
1 The partnership between the parties hereto hitherto carried on by them at Brantwood Road, Tottenham, . . . under the name or style of "B. E. White" under or by virtue of a partnership deed dated the 12th day of May 1949 . . shall be dissolved as regards the Outgoing Partner as from the 31st day of March last and the business shall as from that date belong to the continuing Partners to be carried on by them in partnership with such variations only as the change of partnership may render necessary in equal shares.
12. The position was reflected in the accounts subsequently prepared for the year to 31 March 1961. Mrs Jessie Turner's capital account was reduced from £8,430 6s. 7d to £4,376 5s. 9d. by transfers of £2,027 0s.5d. to each of Mr Dennis White and Mr Lawrence White; and the balance (£4,376 5s. 9d.) was transferred to a loan account in her name.
13. The effect of the dissolution agreement of 28 July 1961 was to constitute a new partnership between Mr Dennis White and Mr Lawrence White in respect of the business carried on under the firm name "B E White". The new partnership commenced with effect from 1 April 1961. The partners were to share in profits and losses in equal shares; and were to remain bound by the terms of the 1949 partnership deed "with such variations only as the change in partnership may render necessary".
14. The new partnership continued upon those terms until the death of Mr Dennis White on 30 November 1993. In the balance sheet as at 31 March 1964 the item formerly described as "Building Account" was re-designated "Freehold Buildings at cost"; and in 1966 there was a further re-designation to "Freehold Property at cost". But the amount (£7,598) remained unaltered. Additions, at cost, during the years to 31 March 1968 and 1969 brought the figure up to £8,182; and there were further improvements (£224) in the year to 31 March 1985. The accounts for the year to 31 March 1991 were prepared on or about 8 November 1993. They were approved and signed by Mr Dennis White (and by his brother) very shortly before his death. They continued to show freehold property at cost (£8,182) and freehold improvements at cost (£224) - together an amount of £8,406.

15. Following the death of Mr Dennis White, the business was carried on by Mr Lawrence White for his own account, but with the assistance of his son, Mr Bernard Lawrence White, the second appellant. The second appellant, who was born in 1951, had been working in the business since his schooldays; and it is not in dispute that both Mr Dennis White and Mr Lawrence White had, for a long time, envisaged that he would carry on the family business into the next generation. His role was recognised by the fact that, although not a partner, he was added to the bank mandate in November 1989. On 15 February 1994 the second appellant was taken into partnership by his father, Mr Lawrence White, again on the terms of the 1949 partnership deed


16. The accounts to 31 March 1992 were approved and signed by Mr Lawrence White on or about 7 March 1994. Those accounts maintain freehold property and freehold improvements at the same figures as in the 1991 accounts.
17. The partnership between Mr Lawrence White and his son continued until his death on 23 June 1994. Thereafter the business passed to the second appellant as the surviving partner. The second appellant and his sister, Mrs Linda Minnis, the first appellant, are the personal representatives of their father, Mr Lawrence White. It is in that capacity that they are responsible for whatever payment was due from Mr Lawrence White to his brother's estate on the death of Mr Dennis White.
18. The accounts for the year to 31 March 1993 - the last complete accounting year before the death of Mr Dennis White - were approved and signed by the second appellant on or about 20 September 1994. Those accounts, also, maintain freehold property and freehold improvements at the historic cost figures of £8,182 and £224.
The 1949 partnership deed.

19. It is common ground that the basis upon which the personal representatives of a deceased partner are entitled to payment from the surviving partner or partners in respect of his former interest in the partnership is to be found in the 1949 partnership deed. I have already set out the provisions in clause 18 of that deed; which require payment of "his or her share in the capital of the Partnership and any undrawn profits when ascertained". I have referred, also, to the provisions in clause 3, which value and define the initial capital of the partnership at £19,545 10s. "including the freehold premises and land at Brantwood Road". There are other provisions to which it is necessary to have regard:

14 The net profits of the business after paying all expenses and outgoings shall be dealt with as follows:- First each of them the said Bernard Edwin White, Dennis Arthur White and Lawrence Edwin White shall be entitled to draw on account of the profits at the rate of Six hundred pounds a year and the said Jessie Emily Turner on account of profits at the rate of Two hundred pounds a year. The foregoing payments to be treated as between the Partners as an expense of the business. The remainder of the profits shall belong to the Partners in equal shares but such remainder without the unanimous consent of all the Partners shall be credited to their respective capital accounts and left in the business so as to build up the respective capital accounts of the Partners. . . . Losses of the partnership shall be borne by the partners in equal shares.
15 On [31 March 1950] and on [31 March] in every succeeding year a General Account shall be taken by the Partners of all the receipts payments sales purchases transactions and engagements of the partnership during the then preceding year and of all the capital stock-in-trade property engagements and liabilities for the time being of the partnership and in taking such account a just valuation shall be made of all particulars requiring and capable of valuation and the said General Account shall immediately after the same shall have been taken be signed by each Partner and after such signature each Partner shall keep one of the said Accounts and shall be bound by every such Account except that if any manifest error shall be found therein by either Partner within six calendar months next after the signing thereof by them such error shall be rectified, but nothing shall be taken into account for goodwill.
16 Within six calendar months after the expiration of the partnership (otherwise than by death of one of the Partners) a General Account shall be taken by the remaining Partners or Partner of all the capital property engagements and liabilities (excluding goodwill) of the partnership and immediately after any such last mentioned account shall have been taken and settled the remaining Partners or Partner shall forthwith make due provision for the payment of the debts and meeting all other liabilities of the partnership and subject thereto the remaining capital and the residue of the partnership property shall be divided between the Partners in the proportions in which they shall be entitled to the remaining capital and all such deeds and instruments in writing shall be executed by the Partners respectively for facilitating the getting in of the debts due to the partnership and for vesting the various parts or particulars of the partnership property in the Partner to whom the same respectively shall upon such division belong and for releasing to each other all claims on account of the partnership and otherwise as are usual in similar cases.
17 Upon the determination of the partnership or the retirement or expulsion of any Partner due notice of the fact of such determination shall be given by advertisement in the "London Gazette" and by circular to the customers of the firm . . .
18 In the case of the death of a Partner his or her share in the capital of the Partnership and any undrawn profits when ascertained shall be paid to his or her Executors or Administrators by the surviving Partner or Partners by twelve equal quarterly instalments . . .
19 Notwithstanding the foregoing provisions but in order to conserve the cash resources of the business the remaining Partners instead of paying out the capital of a deceased Partner shall have the right or option (to be exercised within three calendar months from the death of a deceased Partner) to transfer the capital standing to the credit of the deceased Partner to the person who shall have been nominated by the deceased Partner in his Will to receive such capital and in that event the person so nominated shall become a partner in the business with the surviving Partners entitled to the same rights and benefits and share of the profits to which the deceased Partner was entitled.
20 In the case of death or dissolution for the purpose of ascertaining any Partner's interest in the freehold property and land at Brantwood Road aforesaid the figure appearing in the Partnership accounts shall be deemed to be the value of the whole and therefore one-fourth of such figure shall be deemed to be the value of each Partner's interest in the said freehold property and land.
21 If any Partner shall assign charge or encumber his share in the partnership or any part thereof . . . or shall become bankrupt or a lunatic or otherwise permanently incapable of attending to partnership business or shall act in any manner inconsistent with the good faith observable between partners . . . then and in such case the remaining Partners may by notice in writing to the offending Partner . . . determine the Partnership whereupon the partnership shall determine as to such partner accordingly.
The interrelation of the 1949 deed and the Partnership Act 1890.

20. It is necessary to have in mind that the provisions of a partnership agreement take effect in the context of the general law as set out in the Partnership Act 1890; in particular, to have in mind that the provisions as to dissolution contained in sections 32 and 33 of the Act will apply - with the consequences set out in section 39 of the Act - unless, and to the extent that, those provisions are displaced by agreement between the partners.

21. Section 33 of the Partnership Act 1890 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. Upon a dissolution, in the sense in which that word is used in the Partnership Act 1890, every partner is entitled, as against the other partners in the firm, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners of the firm - see section 39 of that Act.

22. It is, I think, clear that section 33 of the Act was not to have effect in relation to the successive partnerships regulated by the terms of the 1949 deed; either on the death of a partner or (subject to the service of the requisite notice) on his bankruptcy. It is also clear that a power to expel, in cases other than bankruptcy, has been reserved by clause 21 of the 1949 deed - see section 25 of the Act. It is rather less clear whether a partner can retire unilaterally without thereby bringing the dissolution provisions of section 39 into effect; but that is not a question which arises on this appeal. Nor did it arise when Mrs Jessie Turner left the partnership; because the parties entered into a further agreement to provide for her retirement. But on death, bankruptcy or expulsion the intention is clear enough. The partnership is determined between the deceased or outgoing partner on the one hand and the surviving or continuing partners on the other hand; but the surviving or continuing partners remain in partnership, amongst themselves, and are entitled, as against the deceased or outgoing partner, to continue to carry on the partnership business. In order to give effect to that intention it is necessary to exclude the operation of the dissolution provisions in section 39 of the Act. An intention that the partnership business should continue to be carried on by the surviving or continuing partners, in partnership amongst themselves, is inconsistent with the winding up of the business and affairs which is the object of that section.
How is the amount of the payment to the estate of the deceased partner to be ascertained?
23. It follows, of course, that some other provision has to be made for the payment to the estate of the deceased partner, or to the outgoing partner (or his trustee) in a case of expulsion or bankruptcy, in respect of the value of his former interest in the partnership assets. In the case of a deceased partner, provision for payment is made by clause 18. The estate of the deceased partner is to be paid "his share in the capital of the Partnership and any undrawn profits when ascertained". The difficulty is that clause 18 does not give any guidance as to how the value of "his share in the capital of the Partnership and any undrawn profits" is to be ascertained. But two matters are clear. First, the value has to be determined by reference to an account between the partners (including the deceased partner); and, second, it was not intended that a General Account (within the meaning of clause 15 of the partnership deed) should be taken as at the date of the death.
24. The first of those propositions is self evident. If the value of a partner's share in the capital of the partnership is to be ascertained without there being a dissolution under section 39 of the Partnership Act 1890 - that is to say, without there being a realisation of partnership property and the discharge of partnership debts and liabilities so as to produce an actual surplus available for distribution amongst the partners - the valuation has to be based on an account. There is no other way in which the exercise can be done. Confirmation that there has to be an account is found in clause 20. The purpose of a provision which requires that "the figure appearing in the Partnership accounts" is to be deemed to be "the value of the freehold property and land at Brantwood Road" is to meet the need that some figure for the value of that property will have to be brought into an account between the partners for the purpose of ascertaining the value of the deceased's partner's share in the capital of the partnership.
25. The second of those propositions is founded on the words "(otherwise than by the death of one of the Partners)" which appear in clause 16. Clause 16 provides for a case in which there is not going to be a dissolution under section 39 of the Partnership Act 1890. That must follow from the use of the phrase (in two places) "the remaining Partners or Partner". The dichotomy is between the out-going partner and the remaining, or continuing, partner or partners. The clause is directed towards a division of the partnership property between the out-going partner on the one hand and the continuing partner or partners on the other hand. The division is to be made on the basis of a General Account. The account is to be taken within six months after the date on which the out-going partner leaves the partnership; but (as it seems to me) it is to be an account of the capital, property, engagements and liabilities of the partnership as at that date (and not at any other date). But clause 16 does not apply where the partnership comes to an end by reason of the death of one of the partners. That is made clear by the words in parenthesis to which I have referred.


26. What account, then, is to be the basis of the valuation which has to be made of a deceased partner's share in the capital of the partnership? The answer, as it seems to me, is that the valuation must be made on the basis of the last General Account - that is to say, in the usual case, the most recent of the annual partnership accounts which are required by clause 15 to be taken on 31 March in each year. If, as clause 16 makes clear, there is not to be a special General Account as at the date of death, there is really no other sensible candidate. Further, the reference in clause 18 to "any undrawn profits" suggests that there may be expected to be a period between the relevant General Account and the date of death during which profits will have accrued and may have remained undrawn. It is pertinent to have in mind the provisions of clause 14. In the usual course, profits accruing over the year which are undrawn by the partner entitled to them will be credited to that partner's capital account at the year end; so that a General Account taken under clause 15 will not be expected to show any undrawn profits - they will have been added to capital on the taking of that account. So the "undrawn profits" referred to in clause 18 must be profits which have accrued since the last General Account. The scheme, therefore, is that the payment to the deceased partner's estate comprises two elements (i) his share in the capital of the partnership, valued on the basis of the last General Account, and (ii) his share of the profits earned by the partnership since the date of the last General Account, so far as not already drawn.
27. So understood, it is not difficult to see how clause 20 fits into that scheme. If the share of the deceased partner in the capital of the partnership falls to be valued on the basis of the last General Account, then it is necessary to know whether the value which is to be put upon the Brantwood Road property for the purpose of ascertaining the value of the deceased partner's share is to be taken as the figure appearing in that account or some other value. Is it necessary to have a special valuation of the Brantwood Road property, either at the date of death or at some other date? Clause 20 supplies the answer. The value of the Brantwood Road property is to be taken at the figure appearing in "the Partnership accounts". In that context, "the Partnership accounts" means the last General Account taken under clause 15.
Which account is to treated as the last General Account for the purpose of ascertaining the payment to be made to the deceased's estate?
28. Clause 15 requires that a General Account shall be taken on 31 March in each year; and that the account shall be signed by each partner "immediately after the same shall have been taken". But it cannot have been contemplated that the account would be taken, approved and signed all on the one day, 31 March. It must have been appreciated that, in practice, a period of some weeks or months would elapse after 31 March before the partners were in a position to approve and sign a General Account taken as at that date. It must have been appreciated, also, that the death of a partner would not necessarily occur outside that period; a partner could well die during that period. If he did so, then the last General Account approved and signed before the death would not be the General Account for the year ending on the 31 March immediately before the death. It would be the General Account for the previous year - or, as occurred in the present case, for the year before that. That raises the question whether the relevant General Account, for the purposes of clause 18, is the account for the year ending on the 31 March immediately before the death - notwithstanding that that account will not have been approved by the deceased and will not have become available for approval by anyone until after the death - or is the last account that has actually been approved and signed - notwithstanding that that may be the General Account for an earlier year.
29. That question was considered by the Court of Appeal in Hunter v Dowling [1893] 3 Ch 212. The articles of partnership in that case provided, at clause 15, for an annual account to be taken on 31 March in each year; and, at clause 23, for a retiring or deceased partner to be paid out "at the amount standing to his credit in the last balance sheet which shall have been signed previously to the date of such retirement or death . . ." . On the death of a partner on 10 April 1891, no account had been taken for the year ending 31 March 1891. The question was whether his share should be ascertained by reference to the previous year's account (which had been taken and signed) or whether the correct course was to direct that an account be taken for the year to 31 March 1891 and ascertain the share by reference to that account. A literal construction of the words "shall have been signed" would have led to the conclusion that the relevant account was that for the year ending 31 March 1890. But the Court rejected that construction; holding that it ought to act on the basis that that which ought to be done must be treated as if it had been done. From 31 March 1891 each partner had an accrued right under clause 15 to have an account taken as at that date; and the personal representatives of a partner who died after that day had a right to be paid out as if that had been done.

30. In Hunter v Dowling [1893] 3 Ch 212, this Court followed the decision of Sir John Leach, Vice-Chancellor, in Pettyt v Janeson (1819) 6 Madd. 146. The principle has now stood for over 180 years and I have no doubt that it should be applied in this case also. The relevant General Account for the purpose of ascertaining the payment to be made to the personal representatives of Mr Dennis White is the account for the year ending 31 March 1993.
Ought the 1993 General Account to be re-opened?
31. The partnership accounts for the year to 31 March 1993 were approved and signed by the second appellant - as the surviving partner - on or about 20 September 1994. The Brantwood Road property appears in those accounts at historic cost - as it had done since 1932. If those accounts stand, then the value of the property, for the purpose of ascertaining Mr Dennis White's interest in the capital of the partnership, is £8,406 - that is to say, £8,182 + £224 (improvements at cost). That is, of course, very much less than the market value of the property as at 31 March 1993. Although that value has not been agreed between the parties, there is no dispute that it must be two hundred thousand pounds or more.
32. For my part, I have no doubt that the 1993 General Account cannot bind the personal representatives of Mr Dennis White after his death unless it was prepared on a basis which Mr Dennis White could have been required to accept during his lifetime. If it was not prepared on a basis which he could have been required to accept while he was alive, then the account must be re-opened. That conclusion, as it seems to me, follows from the principle in Hunter v Dowling [1893] 3 Ch 212. From 31 March 1993 Mr Dennis White's accrued rights included not only a right to have a General Account prepared at that date; but also a right to have that account prepared on the basis required by the partnership agreement. The test may be put in this way: would Mr Dennis White have been entitled, in the months between 31 March 1993 and his death in November 1993, to refuse to approve and sign a General Account for the year ending 31 March 1993 which had been prepared on the basis that the Brantwood Road property was included at historic cost value - that is to say, on the basis that had been adopted consistently since he first became a partner in the business in 1940, and (in particular) had been adopted in every General Account prepared since the date of the 1949 partnership deed - and, if so, at what value could he have required the Brantwood Road property to be included in the General Account for the year ending 31 March 1993?
The terms of the partnership in relation to the General Account.
33. The answer to those questions is determined by the terms of the partnership agreement by which Mr Dennis White and his brother were bound on and after 31 March 1993. The starting point is the 1949 deed. But it must be kept in mind, first, that the relevant date for construing that deed is 28 July 1961 - when, on signing the dissolution agreement under which Mrs Jessie Turner retired from the earlier partnership, the two brothers agreed to carry on business together as partners under the terms of that deed "with such variations only as the change of partnership may render necessary"; and, second, that, whatever the mutual rights and duties of the two brothers might have been in 1961, it is necessary to ask whether those were varied by a course of dealing from which consent to a new agreement is to be inferred - see Coventry v Barclay (1863) 3 De G J & Sm 320, Pilling v Pilling (1865) 3 De G J & Sm 162 and, now, section 19 of the Partnership Act 1890.
34. Clause 15 of the 1949 deed required that in taking a General Account of "all the capital stock-in-trade property engagements and liabilities for the time being of the partnership . . . a just valuation shall be made of all particulars requiring and capable of valuation". It is, to my mind, pertinent to note that the requirement is not for "a true valuation" or for "a market valuation" or even for "a fair valuation". Those are all expressions which, in an appropriate context, may have the same meaning as "a just valuation"; but it does not follow that that will be the meaning to be placed on the expression "a just valuation" when construing the 1949 deed in the circumstances known to Mr Dennis White and Mr Lawrence White in July 1961. The question of construction in the present case is not answered by recognising that "a just valuation" may have been held, in other cases, to have the same meaning as "a market valuation". The task, in the present case, is to determine what that expression meant to the two brothers when they adopted it in the context of their partnership agreement.
35. There are, as it seems to me, six factors which lead to the conclusion that, in relation to the Brantwood Road property, a just valuation for the purposes of the General Account to be taken each year was to be the historic cost. First, that was the basis upon which the property had been included in the accounts of the earlier partnership under which they had carried on business (with their father) between 1940 and 1949. Mr Bernard White and his two sons appear to have been content with that basis for some time before they entered into the new partnership in 1949; and there is no reason to think that they were concerned to alter it when they were joined by another member of the family, Mrs Jessie Turner.
36. Secondly, the four of them must be taken to have known that the opening accounts of the new partnership, under the 1949 deed, would be drawn on an historic cost basis. As I have already pointed out, Clause 3 of the 1949 deed defines the capital of the partnership "including the freehold premises and land at Brantwood Road" in terms which are consistent, and only consistent, with the value of the property being taken at historic cost. That is the basis upon which the capital of the partnership is fixed at the very precise figure of £19,545 10s. The figure is taken directly from the accounts to 31 March 1949 and used as the base from which the necessary adjustments are made in the accounts to 31 March 1950. It would be surprising if, at the time when they entered into the 1949 deed, the partners contemplated or intended that the requirement in clause 15 would have the effect that there would need to be radical adjustment to the figure which they had chosen as the capital of the partnership on the preparation of the first General Account.
37. Thirdly, the partners must have had some specific purpose in mind when they decided to include, at clause 20 of the 1949 deed, a provision that "the figure appearing in the Partnership accounts . . . be deemed to be the value of the [Brantwood Road property]". It must be kept in mind that that provision would have effect not only on a death, but also on a termination of the partnership under clause 16, following retirement or expulsion. In a case under clause 16 a General Account would need to be taken as at the date of termination. If the requirement, in paragraph 15, that the Brantwood Road property be shown at "a just valuation" in that account meant that that property was to be included at market value, the deeming provision in clause 20 would be otiose. The purpose of the deeming provision is to require there to be taken as the value of the property an amount which, but for the provision, might not be taken as its value. The deeming provision in clause 20 is explicable - and, to my mind, only explicable - on the basis that the parties to the 1949 deed recognised that, without it, the figure appearing in the General Account might not be taken as the value of the Brantwood Road property. That leads to the conclusion that the parties did not intend that the expression "a just valuation" in clause 15 should be synonymous with expressions such as "a true valuation" or "a market valuation". And, if the expression "a just valuation" was not to have the same meaning as "a true valuation" or a "market valuation", then the most obvious intention to attribute to the parties is that the meaning of that expression should reflect the practice, which had been adopted over many years, of including the Brantwood Road property in the accounts of the business at historic cost.
38. Fourthly, that was the basis on which the two brothers and their sister paid out the estate of their father on his death in 1950; in circumstances in which they knew, from the valuation which was in fact obtained, that the true or market value of the Brantwood Road property (£25,000) was much higher than the figure which had appeared in the last General Account (£8,135). The transaction between the continuing partners and the estate of their father was at arms' length; and was concluded with the advice of solicitors and accountants. It is not, I think, sufficient to dismiss that transaction on the basis given by the judge:
All this was 44 or 45 years before Dennis's death, and all that it shows was that some official at the bank executor and trustee department, which was the executor of Bernard Snr's will, did not raise the question of whether the estate might have been entitled to require the property to be revalued in the partnership's accounts (see [1999] 1 WLR 2079 at p. 2091C).
39. The relevant question is not what Mr Bernard White's executor thought the position to be; nor, as it seems to me, what the position actually was as a matter of law. The relevant question, in this context, is what Mr Dennis White and his brother, Lawrence, thought the position to be. There is no suggestion that either of them would have had any intention of seeking to deprive their father's estate of what they truly thought was due to it; and so it must follow that they thought, in 1950, that the position under the partnership deed was that the estate of a deceased partner was to be paid out on the basis that the value of the Brantwood Road property was taken at historic cost - that is to say, at the figure which had appeared in the accounts of the business for as long as they had been partners. That result depends upon treating the requirement for "a just valuation" in clause 15 as being satisfied by the inclusion of the property at historic cost.
40. Fifthly, that was the basis upon which the Brantwood Road property was included in the General Account taken in each year during the continuance of the partnership between the two brothers and their sister under the 1949 deed; that is to say, in the years from 1950 to 1961. There is no reason to think that, in taking the General Account, the partners did not intend to comply with what, as they understood the position, clause 15 of the 1949 partnership deed required. Again, it is irrelevant whether or not, as a matter of law, they were correct in that understanding; although, for the reasons which I have already given, I take the view that, following the payment out of Mr Bernard White's estate, there can be little doubt that they were correct. The relevant question, in the present context, is what Mr Dennis White and his brother thought the position to be. That is the relevant question because it was on the basis of their common understanding as to what clause 15 of the 1949 deed required that they entered into a new partnership in 1961 on the same terms.
41. Sixthly, the terms of the dissolution agreement of 28 July 1961, which the two brothers executed on the retirement from the partnership of their sister, Jessie, are consistent - and, to my mind, consistent only - with an understanding that her interest in the partnership was to be ascertained on the basis that the value of the Brantwood Road property was to be taken at historic cost. The judge may well have been correct when he said that she could have required the partnership to be dissolved. But that would have been a dissolution under section 39 of the Partnership Act 1890, following service of a notice under section 32(c) to determine what had, by then, become a partnership at will. It would not, as the judge seems to have thought, have been a retirement under clause 16 of the 1949 deed. If, as Mrs Jessie Turner and her brothers plainly intended, the business of the partnership was to continue, the only course open to her, unilaterally, was to retire in circumstances to which clause 16 applied. But, if clause 16 applied, so also did clause 20; the value of the Brantwood Road property had to be taken at the figure appearing in a General Account. That is what happened. Her interest in the capital of the partnership was ascertained on the basis the Brantwood Road property was included at historic cost. She took out, by way of loan, the amount which (ascertained on the same basis) she had brought into the partnership in 1949. And she transferred the balance of her capital account to her brothers. It is plain that there was an element of bounty. But the amount of the bounty was the subject of precise calculation; and that calculation was based on the premise that the amount to which Mrs Jessie Turner was entitled was to be ascertained by reference to the historic cost of the Brantwood Road property.
42. Taking these factors together, I am satisfied that the answer to the question "what did the expression `a just valuation' mean to the two brothers, in relation to the treatment of the Brantwood Road property in a General Account of the partnership, when they adopted the terms of the 1949 deed (including clause 15) on entering into a new partnership on 28 July 1961" is not open to any serious doubt. The expression required the Brantwood Road property to be included in a General Account at historic cost. That was how they had always dealt with the matter. In particular, that was the basis upon which they had come into the partnership in 1949; that was the basis on which they had paid out their father's estate; and that was the basis upon which they had dealt with their sister on her retirement. I have no doubt that each brother would have thought it "unjust" for the other to seek to insist (in the absence of agreement) on the inclusion of the property in a General Account at market value. And I have no doubt that each brother would have been right to take that view. The basis of their partnership was that, if they continued as partners throughout their joint lives, the survivor would be able to carry on the business on payment of a relatively modest sum to the estate of the deceased. That was an arrangement which was likely to benefit one at the expense of the estate of the other - but which would be the beneficiary would not be known until one or other died. It was not open to either to alter that arrangement unilaterally - save in the context of a dissolution of the partnership under section 39 of the Partnership Act 1890; and a dissolution of the partnership would mean an end to the family business.
43. It follows that the question "would Mr Dennis White have been entitled, in the months between 31 March 1993 and his death in November 1993, to refuse to approve and sign a General Account for the year ending 31 March 1993 which had been prepared on the basis that the Brantwood Road property was included at historic cost value" must be answered in the negative. And, if he would not have been entitled to refuse to approve and sign a General Account prepared on that basis, then his estate is bound by the 1993 Account that was prepared on that basis.


Cruikshank v Sutherland
44. Unless there is binding authority which compels a different result, the reasons which I have set out above lead me to the conclusion that this appeal should be allowed. The only authority to which we were referred which is binding on this Court is the decision of the House of Lords in Cruikshank v Sutherland (1923) 92 LJ(Ch) 136.
45. The appellants were the executors of a deceased partner, Mr Cruikshank, who had entered into partnership with the respondents upon the terms of a deed executed on 1 May 1914. The assets of that partnership had been taken over from an earlier partnership between the parties and had been brought into the accounts of the new partnership at the values at which they had stood in the books of the earlier partnership. Article 13 of the 1914 deed required there to be a full and general account of the property, credits and liabilities of the partnership as at 30 April in each year. The accounts as at 30 April 1915 and 30 April 1916 were prepared on the basis that the assets were included at book values. Mr Cruikshank died on 27 October 1916. Article 16 of the 1914 deed had the effect that his estate was entitled to be paid his share in the partnership ascertained by reference to the accounts prepared under article 13 for 30 April next after the death - that is to say, on the basis of the 1917 accounts. The question was whether those accounts should be prepared on the basis of book values, or on some other basis.
46. Lord Wrenbury, with whose speech the other members of the House of Lords agreed, addressed that question, first, by construing the articles of partnership. He said this, at pages 137 to 138:
It is not, I think, disputed - and if it were, I should be of opinion that it could not successfully be disputed - that a full and general account of the partnership property will be an account at which the property will be brought in at its fair value. The articles are wholly silent as to the principle to be adopted in preparing this full and general account of the property - it remains simply that it must be a proper account of the property, whatever that is. What are the values to be attributed to the several assets falls to be determined by the partners by agreement, and - in case of dispute - is a matter for arbitration under clause 21 of the deed. . . . What the value is does not concern us. That is for an arbitrator, if there be a dispute. Your Lordships are concerned only to say what is the principle on which an arbitrator ought to act.
47. Thus far, as it seems to me, the decision is that, as a matter of construction of the articles of partnership with which House of Lords was concerned on that appeal, the requirement that a "full and general account" be taken was met by bringing assets in at a "fair value". But, as Lord Wrenbury pointed out, the articles were "wholly silent on the principle to be adopted". In particular, there was nothing in those articles comparable to clause 20 of the 1949 deed in the present case.
48. Lord Wrenbury then went on to consider whether there was any usage or course of dealing "such as that an inference is to be drawn that on the death of a partner his share is to be paid out on the footing of book values?". He answered that question in the negative. He said this, at page 138:
How could there be a practice and usage uniform and without variation to pay a deceased partner's share on the footing of book values, where no partner had died before and no partner had retired before? The only practice which existed - and that only on two occasions, namely, in April, 1915, and April, 1916 - was to prepare the account - when the interest of all the partners was the same - on the footing of book values. When a partner died or retired, the interests of all parties were not the same. The executors of a deceased partner were, so to say, vendors whose interest it was to put the highest sustainable value on the assets - the continuing partners were, so to say, purchasers whose interest was the reverse. Where was the practice and usage evidencing a new agreement outside the written articles to found a right to buy out the deceased partner on the terms which were best for the purchasers? . . .
The fact is that in this partnership an account has never been stated with a view to fixing the case of a retiring partner, or a deceased partner, or a senior partner who is going to take over all the assets. The partners have never had any such event in view in making the account which they have made. There has never been an account prepared which was intended to meet all the various contingencies of events such as these.


49. It will be apparent from the views which I have already expressed that I do not regard the present as a case in which it is necessary to rely on usage or course of dealing as a foundation for an inference that the partners reached a new agreement, or varied an existing agreement by consent. In the present case, the relevant agreement was made on 28 July 1961. The usage or course of dealing prior to that date does not alter or vary the agreement then made. Rather, it provides a context in which to construe the agreement then made. To take account of the usage or course of dealing prior to the date of the agreement is simply to apply the ordinary principles of construction to the task of ascertaining what the parties meant by the words which they used.
50. Nevertheless, the observations of Lord Wrenbury - although directed to a rather different question - are pertinent to the present case. The usage or course of dealing prior to the date of the relevant agreement provides a context in which to construe that agreement only to the extent that it assists in providing the answer to the question "what did the parties mean by the words which they used". If the pre-contract events have no relevance to the circumstances in relation to which that question has to be answered, they are unlikely to provide assistance.
51. It is, I think, important to have in mind that the question in the present case is not (as it was in Cruikshank) "on what basis did the parties intend a post-event account to be taken, following a death or retirement". The account on the basis of which the deceased partner's share in the capital of the partnership is to be ascertained, in the present case, is a pre-event account. Nor is the relevant question "at what value is the Brantwood Road property to be taken for the purpose of ascertaining the deceased partner's share". That question is answered by clause 20 of the partnership deed; the value is the figure appearing in the partnership accounts. The relevant question in the present case is "what did the partners intend the expression `a just valuation' to mean in relation to the Brantwood Road property". That question arises in the context of the preparation of a General Account under clause 15. The answer cannot depend on whether or not the General Account turns out to be relevant for the purpose of ascertaining the share in the capital of the partnership of a partner who happens to die in the course of the year following the date of the account. The answer must be the same whenever the General Account is taken. So, in the present case, the usage or course of dealing in relation to the General Accounts which were prepared year by year does provide a relevant context in which to determine the question "what did the partners intend the expression `a just valuation' to mean in relation to the Brantwood Road property. Further, of course, in the present case the General Account for 30 March 1950 was used as the basis for the payment out of Mr Bernard White's estate; and the General Account for 30 March 1961 was used in connection with Mrs Jessie Turner's retirement.
52. It follows, in my view, that there is nothing in Cruikshank v Sutherland (1923) 92 LJ(Ch) 137 which compels this Court to reach a conclusion other than that to which the reasoning already set out would lead.
The Scottish decisions

53. We were referred to a number of decisions of the Court of Session to which, although not binding upon this Court, I think it right to have regard. But, in examining those cases, it is pertinent to have in mind that if, as I think, the question in each case turns on the construction of the particular agreement in the light of the particular circumstances, the conclusion reached in one case may be of limited assistance in any other case.


54. In Noble v Noble 1965 SLT 415 a father took his son into a farming partnership in 1947 under the terms of an agreement which recited that it had been agreed that "the heritable property should be taken as of the value of eight thousand pounds, but which is burdened with a heritable security for three thousand five hundred pounds". The agreement required proper books of account to be kept. Until 1963 the books of account were prepared on the basis of those values. In 1963 the father (who may, perhaps, have been contemplating retirement) brought proceedings for a declaration that he was entitled to have the capital value of the assets of the partnership entered in the balance sheet at a real and not an arbitrary or notional value. Lord Strachan, sitting in the Outer House of the Court of Session, granted that declaration. After referring to the decision of the House of Lords in Cruikshank v Sutherland he said this, at page 417:
The fact that Cruikshank was dealing with the share of a deceased partner is not, in my opinion, a material ground for distinguishing it from the present case. Similar issues are involved in this case, because under clause seventh of the contract a retiring partner or the representatives of a deceased partner are to be paid the sum at his credit as shown in the last preceding balance sheet. The same issues are therefore raised, but ab ante. It was argued for the defender, however, that there is vital distinction between Cruikshank and the present case in respect that the agreement that the heritable property is to be taken as of the value of £8,000 laid down a definite figure which was to be adopted in preparing the accounts and that it therefore cannot be said that the contract is silent as to the principle to be adopted in entering the heritable property. That point is the crux of the case, and with some hesitation, I have come to the opinion that the narrative references in the contract and the disposition cannot reasonably be read as meaning that the figure of £8,000 was to be entered in every balance sheet. It was a figure which was agreed for the purpose of fixing the capital of the company but on a construction of the whole deeds I find insufficient warrant for holding that it was intended to be a permanent valuation to be entered in every balance sheet. If that were so, a retiring or deceased partner would have no share whatever in any increase in the market value of the property, and if such an apparently unfair result had been intended, I think it would have been provided for in the eight clauses in which the terms and conditions of the partnership are reduced to writing, and would not have been left to be inferred from the narrative clauses. In my opinion, therefore, the contract is silent as to the principle to be adopted in framing the balance sheet, and Cruikshank is not distinguishable on that ground.
55. That decision was upheld on appeal. The decision of the Inner House appears as an appendix to the decision of Lord Jauncey in Thom's Executrix v Russel & Aitken 1983 SLT 335, 339. In Noble v Noble, Lord Clyde said this, at page 340:
In my opinion the provision requiring the keeping of proper books annually balanced and regularly audited requires the inclusion in the balance sheet of the assets of the partnership at their true value at the end of the year in question. The language of cl.6 of the contract of co-partnery will not therefore be complied with if any of the assets, one of which is the farm itself, is entered at a mere nominal value which was fixed by agreement between the parties when the contract was made. I can find nothing in art. 6 of the contract to support the view that the value of the farm itself - the main asset - was to be frozen year by year at a constant figure throughout the partnership.
. . .
It was contended by the defender that in solicitors' partnership agreements it is quite common to provide that the heritable property in which the business is carried on should be entered at a constant figure in the balance sheets of the partnership throughout its term. It is of course quite legitimate for parties to make such a provision, but clear language to that effect is essential. There is no such provision in the present case.

56. Lord Migdale expressed the same view, at page 341:

As I understood their arguments counsel on both sides are agreed that it is always open to partners to provide that an asset acquired by the partnership should continue to appear in the partnership books at its original value. The question raised here is not whether it can be so agreed but whether in this case it was so agreed.
57. The case affirms, therefore, that the issue is one of construction: what did the partners intend by the agreement which they made.
58. Cruikshank v Sutherland and Noble v Noble were considered by Lord Hunter, sitting in the Outer House, in Shaw v Shaw 1968 SLT 94. He said this:
The authorities to which I was referred, including, in particular, Noble v Noble; Inner House, 28th January 1966 (unreported), and Cruickshank's Trustees v Sutherland, satisfy me that, as a general principle, where in a partnership it is necessary to make up a balance sheet affecting the money interests of the partners, the partnership assets should be entered in the balance sheet at their fair value to the partners, unless there is provision to the contrary in the contract of co-partnery . . .
59. That statement of principle was adopted by Lord Dunpark, again in the Outer House, in Clark v Watson 1982 SLT 450. The partnership in that case was between two dentists. The relevant provision in the contract of partnership (or co-partnery, as it was in Scotland) required payment to the estate of a deceased partner of "the Capital standing to the credit of the deceased Partner in the Accounts of the Partnership" The first question was whether that required accounts to be taken as at the date of the death; or whether the relevant accounts were the last annual accounts - in that case, the accounts at 31 March 1977. The judge held that it was necessary to draw accounts at the date of the death. But he went on to say this, at page 453:
If this conclusion is incorrect and, contrary to my opinion, the phrase "the Accounts of the Partnership" in cl. Fourteenth falls to be construed as meaning inter alia a balance sheet as at 31 March 1977, it nevertheless follows from my opinion that there is nothing in this contract of copartnery to take it outwith the scope of the general rule that the pursuer qua executrix of the deceased is entitled to have the assets entered at their fair value in a fresh balance sheet as at 31 March 1977. This is certainly so if the deceased is not proved to have approved these existing accounts prepared as at 31 March 1977. Although I have heard no debate on what would be the effect of his approval of the accounts, I venture to think that his approval would not bind the pursuer to accept payment in accordance with these accounts. They were prepared upon the assumption that the partnership would continue. The deceased may have agreed to the assets being inserted at a book value in accounts prepared upon that assumption, but I do not, as at present advised, see how the deceased's approval of accounts for that purpose can bind the pursuer to accept that valuation of the assets for the purpose of obtaining payment of the deceased's share of capital on dissolution of the partnership by his death.
60. Lord Dunpark's view as to the position where the relevant accounts had been approved by the deceased partner before his death was, as he indicated, obiter and reached without hearing argument. The point does not arise in the present case. If it did, I have little doubt that I would have taken the opposite view. It seems to me that, whatever might be the position where the partners have not approved the accounts, the question whether they show assets at "a just valuation" must - in a case where the accounts have been agreed - be determined by their agreement. I do not see how a retiring partner, or the personal representatives of a deceased partner, can be heard to say that accounts which showed assets at a valuation which he was content to accept as a just valuation did not show assets at a just valuation. But, the question in the present case is not whether Mr Dennis White's estate is bound by a General Account (the 1993 account) which he did approve. He did not have the opportunity to approve or disapprove that account. The question in the present case is whether he could have refused to agree the account in the form in which it was subsequently drawn.
61. In Thom's Executrix v Russel & Aitken 1983 SLT 335 Lord Jauncey held that the payment of the deceased partner's share was restricted to book value of the capital. The facts have some similarity to the present case, in that they showed dealings on the basis of book values on occasions when partners left, or were taken into, the partnership. Lord Jauncey reached the conclusion which he did on the construction of the partnership agreement and after taking into consideration Cruikshank v Sutherland, Noble v Noble and Lord Hunter's statement of principle in Shaw v Shaw; but he went on to say this, at page 338:
That is sufficient for the disposal of the case but there is another and equally cogent reason for reaching the same conclusion namely, the actings of the parties under the contract. It was clearly recognised in the three cases to which I have referred that even if the contract is silent as to the accounting principles to be applied fair market valuations of assets will not be required to appear in the accounts if it can reasonably be inferred from the actings of the partners that they intended otherwise.
62. After examining the facts in that case - which, as I have said, have some similarity to those in the present case - Lord Jauncey concluded, at page 339:
Taking all the foregoing factors into account I conclude that even if the correct position were that the contract of co-partnery were silent on the matter nevertheless the actings of the partners thereunder and under the two preceding contracts demonstrate clearly that there was no intention on their part that a partner leaving the partnership either by retiral or by death should receive his share calculated other than by reference to book value.
63. The case provides, if I may say so, a useful illustration of what I would regard as the principles applicable to the solution of problems in this field.
64. We were referred, also, to the decision of Lord Mayfield, again in the Outer House, in Wilson v Dunbar 1988 SLT 93. I think that may fairly be described as an application of the principles established by the earlier decisions to the particular facts in that case. But, in so far as the actual decision provides support for Lord Dunpark's view, expressed in Clark v Watson, that an agreement to the insertion of book values in a balance sheet prepared during the continuance of the partnership did not bind the deceased partner if that balance sheet fell to be used for the purpose of the ascertainment his share in the partnership at his death, I do not find the reasoning persuasive.
65. The Scottish decisions provide illustrations of the application of the relevant principles to specific situations. They should not, in my view, lead to a conclusion in the present case other than the one which, as I have already indicated, seems to me to follow from an application of those principles to the facts in the present case.
The judgment below.
66. Mr Justice Park's judgment is reported at [1999] 1 WLR 2079. He identified the principles which, as he thought, were to be derived from Cruikshank v Sutherland, and from the Scottish cases to which I have referred, in a passage at page 2083E-G:
Where a partner dies or retires and his interest in the partnership assets accrues to the continuing partners, the amount payable to him is determined by reference to the partnership agreement. However the court leans to the conclusion that the agreement requires the amount payable to be ascertained by reference to the true current values of the assets, not by reference to their historic costs. That conclusion can be displaced by contrary provisions in the partnership agreement, but the provisions need to be clear. If the wording is broadly neutral as between taking current values or historic costs, it is very likely that the court will take current values. Further, a decision to take historic costs is unlikely to be justified merely on the ground that in earlier balance sheets which have not been relevant to the death or retirement of a partner the book values of assets have been their historic costs, without revaluations to current costs.
67. For my part, I doubt whether it is correct to approach the construction of a partnership agreement - or any other document - on the basis that the court leans towards one conclusion rather than another. The correct approach, as it seems to me, is to seek to ascertain what the parties intended by the words which they actually used, having proper regard to the circumstances in which they made their agreement. Those circumstances will include the obvious fact that, as they must be taken to have appreciated, valuation of the share of a retiring or deceased partner on the basis that assets are taken at historic cost is likely (with past experience of inflation in mind) to lead to the result that the retiring or deceased partner receives less for his share than he would do if the assets were taken at current market value. The question, in any particular case, is whether that is a result which they must be taken to have intended. As the judge, himself, pointed out at page 2089H-2090C, it was not unusual in a family partnership to find provisions designed to ensure that the business passed from one generation to another at a value which excluded goodwill, so avoiding a charge to estate duty - see Attorney-General v Boden [1912] 1 KB 539. There is, as it seems to me, no room for a presumption (at least in the context of a family partnership) that the partners do or do not intend that a retiring or deceased partner should receive full value for his share. Each case must depend on its own facts.
68. In my view the judge was misled by the principle which, as he thought, was to be derived from the earlier decisions to test each factor which he considered against a presumption that the partners must have intended that assets should be taken at current market value. His approach was, I think, that that presumption must prevail unless it was displaced. For the reasons which I have sought to explain, I regard that as the wrong approach. It led the judge to the conclusion that the March 1993 General Account should be re-opened; and that the Brantwood Road property should be re-valued to its market value. In my view that was the wrong conclusion in this case.
Conclusion
69. For the reasons I have set out, I would allow this appeal.
LORD JUSTICE MANCE:
70. I agree with the reasoning and conclusions of Lord Justice Chadwick which I have had the advantage of reading in draft.
LORD JUSTICE PETER GIBSON:
71. I also agree that this appeal should be allowed. But as we are differing from the trial judge and in deference to the arguments of counsel, I add some words of my own.
72. The question for the judge, as it is for this court, was primarily a question of construction of the Partnership Deed of 12 May 1949, adopted as it was, with necessary modifications, by the continuing partners, Dennis White and Lawrence White, by the Dissolution Agreement of 28 July 1961. That question is whether the interest of a deceased partner in the Brantwood Road property is to be reflected in the share of the capital of the partnership, which must be paid to the estate of the deceased partner, by reference to the market value of the property or, in the events that have happened, the historic cost value. The approach of the judge was to consider first six authorities, five of them Scottish, on valuations under partnership agreements and then to construe the Partnership Deed in the light of the guidance from those authorities. Having construed the Deed the judge then considered whether there was anything to prevent him giving effect to that construction. He held that there was not, and in so doing rejected a number of matters which might have been thought to indicate that his construction was not what the partners intended.
73. It is trite law that a decision on the true construction of an agreement is of little help in construing any other agreement. Partnership Deeds are no different in this respect from any other agreement. I think that the judge may have been overinfluenced by those authorities, turning as they did on the terms of the particular agreements and their own facts. To my mind, in order to ascertain what the partners intended by the agreement which they made, the proper starting point is the Partnership Deed itself. The entitlement of the estate of the deceased partner was, in accordance with clause 18, to be paid his share in the capital of the partnership and any undrawn profits. The capital of the partnership was by clause 3 expressed to include the property. Clause 20 requires in the case of death or dissolution the deeming of the figure for the property in the partnership accounts to be the value of the property and the deeming of the deceased partner's proportional share to be the value of his interest. By clause 15 on 31 March in each year a general account was to be taken and in taking that account a just valuation was to be made of all particulars requiring, and capable of, valuation.
74. I do not accept the submission of Mr. Laurence Q.C. for the Appellants that the accounts referred to in clause 20 were the last set of signed accounts before the deceased partner's death. Equity regards that as done which ought to be done, and the general account which should have been taken on 31 March 1993 is the relevant account for the purpose of clause 20 on Dennis White's death.
75. It is significant that by clause 15 the valuation is to be "a just valuation". I do not doubt that that term was deliberately chosen rather than an open market valuation, or a synonym thereof. That gave the partners scope for taking into account other considerations in determining what valuation was just. Like the judge I believe that the decision in A-G v Boden [1912] 1 KB 539 had a particular influence on the form of partnership agreements at the relevant time when the impact of estate duty was severe, and partners wanted the surviving partner or partners to be in a financial position to carry on the business on the death of a partner. But I disagree with the judge in his view ([1999] 1 W.L.R. 2079 at p. 2090) that in practice only goodwill was sought to be transferred free of estate duty by Boden-type provisions. In Boden itself the partnership articles provided that on the deceased partner's death his share should accrue to the surviving partners subject only to their paying the value of that share ascertained by a special account which made no allowance for goodwill. But practitioners were well aware that the principle thereby established went wider than being limited to goodwill and if it could be shown that the partnership agreement represented a true bargain, it was arguable that the only asset that passed for estate duty purposes was the right of the estate to receive the payment provided for in the agreement.
76. For the reasons given by Chadwick L.J. I do not accept the submissions of Miss Proudman Q.C. for the Respondent that the market value of the property was the value which should have been inserted in the accounts at 31 March 1993. I agree with him that in the circumstances of this case the figure which appeared in the actual accounts was the just valuation. I would add that the correctness of the conclusion that the historic cost basis was what the partners intended as the just valuation is supported by the evidence of Mrs. Patricia Daly who worked for the partnership business for nearly 30 years. She gave evidence in her witness statement that she had asked why the balance sheet always showed the value of the property at £8,000 even though it was obviously worth much more. She said that Dennis and Lawrence White told her that it suited them both to do this as it would enable the surviving partner to carry on the business if one of them should die and that their father had done the same thing before them. They told her, she said, that the purpose of the partnership agreement was to ensure that the business kept going for future generations. She was cross-examined on this:
"Q. You can actually recall that conversation?"
A. Yes, because I was surprised at the value of it and that's what they told me. They both - you see, they used to sit together and they shared the office and I remember them both explaining to me, that that was on purpose."
Although it was put to her that her evidence was untrue, she was not shaken in that evidence, and the judge accepted that she was a totally honest witness and that there was a conversation about the value of the property being carried at book value in the accounts. But the judge said (at p. 2091):
"But it would be a very strong thing to allow a recollection of a short conversation of over 20 years ago to override what I believe to be the true interpretation of the deed. There is in any case a difference between a situation where the parties to a contract agree to vary it and a situation where they both believe it to mean something different from what the court holds that it does mean. Mrs. Daly's evidence cannot take this case beyond the second of those two situations."
Miss Proudman submitted that the judge was not persuaded of the accuracy of Mrs. Daly's honest recollection. I do not agree. It seems plain to me that he did accept her evidence, yet refused to allow that to affect his conclusion on the construction of the Partnership Deed. In my judgment her evidence provides further support for the view that the just valuation of the property in the eyes of both Dennis and Lawrence White was the historic cost value which had consistently been entered in the accounts over so many years.
77. For these reasons, as well as those given by Chadwick L.J., I too would allow the appeal and set aside the order of the judge.

Order: Appeal Allowed with costs in Appeal and below. Declaration and order of inquiry be set aside.
(Order does not form part of the approved judgment)

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