England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL CIVIL JUSTICE CENTRE
(HIS HONOUR JUDGE COWELL)

		Royal Courts of Justice Strand, London, WC2A 2LL
		18th December 2007

Lord Justice May:

1. Ramesh Patel died on 2 June 1996. He and his brother, Ashok Patel, had for some years been in partnership. Their business was a corner shop in East London and the partnership owned a property in Lewisham which provided a rental income. In 1991 and 1992, perhaps before that as well, Mr Khanderia acted as accountant for the partners. He prepared the accounts up to December 1992, after which he ceased to be the accountant for the partnership. Ramesh Patel's drawings from the partnership were greater than Ashok's and, in December 1991, Mr Khanderia made an accounting transfer in the accounts for that year of an amount of £24,000 from Ashok's account to Ramesh's account. When HHJ Cowell came on the 8 March 2007 to determine in the Central London County Court various disputes between Ramesh's widow (the claimant in the proceedings) and Ashok, he clearly thought it might have been possible that the Inland Revenue might have regarded this as a dubious move. But the Inland Revenue had not taken this line, although they looked into partnership matters for other reasons, and the possibility was not relevant to the issues which the judge had to decide, nor is it centrally relevant to the single main issue on this appeal.
2. The judge held, having heard and considered oral and written evidence and documents, that the £24,000 was a simple or discreet loan from Ashok to Ramesh. Part of the evidence which contributed to this conclusion was a letter from Mr Khanderia to Ashok, dated 20 October 2000, in which Mr Khanderia explained what he had done in the 1991 accounts and why.
3. By section 33 of the Partnership Act 1890, subject to any agreement between the partners, every partnership is dissolved as regards all partners by the death of any partner. There was no suggestion in the evidence that Ramesh and Ashok had agreed that their partnership should not dissolve on the death of either of them, so this first partnership dissolved by operation of the statute upon Ramesh's death on 2 June 1996. By section 43 of the Partnership Act 1890, subject to any agreement between the partners, the amount due from surviving or continuing partners or the representatives of a deceased partner in respect of the outgoing or deceased partner's share in a debt is a debt accruing at the date of dissolution or death. If the £24,000 loan was a loan within the partnership this section would apply to the debt constituted by that loan from Ashok to Ramesh, subject to any agreement between them, so that, subject to that qualification, Ashok's claim against Ramesh's estate accrued due on 2 June 1996. The claimant is the administratrix of Ramesh's estate.
4. After Ramesh's death a second partnership came into being between Ashok and the claimant and between them they continued to run the partnership business. In succeeding years, accounts or draft accounts were prepared until this second partnership was dissolved on 29 August 2000. There was a partial distribution of assets until, in 2003, more than six years after Ramesh's death, the claimant began proceedings as administratrix of her former husband's estate, seeking an order for the sale of the rented Lewisham property and an account of rent due to her on the dissolution of the second partnership. Ashok did not oppose a sale and by 2005 had asserted as due to the claimant the sum of £10,217 for her share of the Lewisham rent. This was the amount for which the claimant eventually succeeded on her claim before the judge in 2007. The real issues at the trial were on Ashok's counterclaim. So far as is relevant, he claimed to be entitled to four amounts arising from events which happened during the first partnership. The judge largely rejected three of these claims on the facts. They were claims for £10,129.32 and £10,000, and another claim for £5,000 for which Ashok said he had put into the first partnership in various dates between 1990 and 1994. Ashok did recover a comparatively small amount of £1,020, constituting the transfer of £510 from the claimant's account to his account, making a difference of twice that amount.
5. The fourth sum which Ashok claimed was the £24,000 to which I have already referred. For this the judge held that it had been a simple or discreet debt which accrued due on Ramesh's death, but that it was statute-barred as having accrued more than the relevant statutory six years before the start of present proceedings. Ashok appeals against that finding with permission of Sir Henry Brooke -- that is to say, against the finding on limitation. There is no appeal in relation to the other parts of the claim which failed. There is a consequential appeal on the judge's costs order.
6. The written grounds of appeal in essence relied on submissions which failed on findings of fact before the judge. There were two, possibly three points made in writing, but Mr McGhee QC who now appears for Ashok does not pursue these. This was, in brief, that there was an agreement to which the opening words of section 43 of the 1890 Act would apply. Those words: "subject to any agreement between the partners" to the effect that the debt would not become payable upon Ramesh's death, but when the partnership was finally brought to an end. This submission blurred the necessary distinction between the first and second partnership and blurred the claimant's capacity as her husband's administratrix on the one hand and her separate capacity in law on her own account as partner in the second partnership. As Mr McCue rightly pointed out in writing, the agreement for section 43 would have to have been an agreement between Ramesh and Ashok before Ramesh's death. The judge held on the evidence that there was no such agreement. Mr McGhee, understandably, does not pursue this in the face of evidence marshalled in writing by Mr McCue, which amply sustained the judge's finding that there was no such agreement.
7. The ground of appeal which is pursued is that, by continuing the business seamlessly after her husband's death, the claimant implicitly or tacitly agreed to adopt or bring into the second partnership as part of its starting assets her husband's share of the assets and his liabilities of the first partnership. The judge found against this on the facts, holding among other things that the claimant did not even know about the £24,000 loan and that she did not, in any event, understand accounts. For my part, I do not see how a debt owed by a former partner to another -- which accrues due on the former partner's death -- can become an asset of the new partnership, and certainly not in the absence of some express agreement between the partners of the second partnership. It is said more generally that the accounting position under the first partnership, in which there was no dissolution accounts, was by agreement carried into the new partnership. It is said that the claimant signed some of the accounts of the second partnership. Mr McGhee took us to the unaudited 1996 accounts, which do show that, upon her husband's death, the claimant was credited with the balance of her husband's account at the date of his death. What they do not show is any reference to the £24,000, either expressly or by any form of derivative arithmetic.
8. The judge's findings of fact relevant to this ground of appeal are as follows: in paragraph 28 of his judgment, he referred to the letter written by Mr Khanderia of 20 October 2000 and he described it as probably the best account of all as to what happened, and he quoted from the letter at some length and I shall read some parts of it. The letter included the following:

"Ramesh's drawings up to 31 December 1990 were higher than yours [the letter being addressed to Ashok] as he was paying off his personal bank loan on his first house mortgage through the business account. As his drawings account was always in the red, both the partners paid more tax as a result because the business bank interest was disallowed when computing the partnership income. I will illustrate the effect of this by enclosing a copy of the tax computation for 1991-92 which you will find at the back of the 1990 accounts. This was relevant for five years or so whilst the mortgage was being paid off. That is why I transferred an amount of £24,000 from your current account to that of Ramesh. Look at the accounts for the year ended 31 December 1991."

9. And, parenthetically, Mr McGhee took us to those accounts and showed us where the figure of £24,000 was transferred. Going on with the letter:

"When the business money is finally divided between you and Ramesh's family, the business should pay to each partner the amount it owes to each on the current account which has been built up over the years and is actually undrawn profits plus capital invested at the start of the business. So when the final accounts have been drawn up, the business should pay to each one of you the balance outstanding on the partners' current account after charging Ramesh with £24,000."

10. I will not read the rest of the letter, but it can be found in paragraph 28 of the judge's judgment. The submission that Mr McGhee emphasised on a number of occasions was that this letter referred to the money as being business money to be repaid when final accounts had been drawn up, and this should be paid by the business; and he emphasised that the judge had referred to this as the best account of all as to what was happening. I shall return to that briefly in a moment. Going on with the judge's judgment, paragraph 30 has this:

"I have to say by way of decision on this particular issue that I have little difficulty in accepting that it was agreed that on a dissolution of the partnership between Ramesh and Ashok -- and I say this on the evidence of both Ashok and Mr Khanderia -- Ashok would be repaid £24,000 by Ramesh. It was a simple debt, as Mr Khanderia said in his oral evidence, owed by Ramesh to Ashok, and I infer from all the circumstances -- including the letter, although it was written long after the death of Ramesh -- that that was a simple debt that was to be repayable on dissolution."

Then part of paragraph 31:

"Later in this judgment I will mention matters which reflect on the want of credibility on Ashok's part, but it seems to me that it is not right to conclude that he is so lacking in credibility that nothing he says is to be accepted. Mr Khanderia's evidence supports his case, and the undoubted transfer in the books does, it seems to me, have no other satisfactory explanation.

32. There is an important finding, however, that I should make, and that is that he Claimant had no knowledge of this, as she said in her evidence and I accept, until the counterclaim was made, and she certainly had no knowledge of this matter, the £24,000 matter, and the transfer in the books, when she continued the business with Ashok after the death of Ramesh."

Then the judge just goes on:

"In truth the Claimant understood very little about the running of the partnership or the business except in so far as she was told by Ramesh while he was alive."

11. The judge's judgment then dealt with the other matters of counterclaim at some length and, on those matters, found against Ashok's claim. Coming on to paragraph 48 of the judge's judgment, we have this:

"It seems to me that in law there was a new partnership which came into existence between the Claimant herself after the death of Ramesh and Ashok."

Paragraph 50:

"There was undoubtedly a dissolution of the partnership between Ramesh and Ashok on Ramesh's death on 2 June 1996."

A little later on in that same paragraph:

"The question is whether by reason of that new partnership arising the Claimant became responsible as partner for any of the debts Ramesh owed the Defendant. I say 'as partner' because as personal representative of his estate she would in that capacity be liable for those debts so far as his estate consisted of assets to meet them, assuming of course if she were sued that she pleaded and established that limitation in relation to the size of the estate if arose."

Again in paragraph 50, after leaving out a bit:

"It is, I think, difficult to infer from the mere fact of the agreement to run a new partnership that the Claimant was thereby agreeing a further personal liability of her own in addition to her liability as personal representative to the extent of the assets of the estate. It is quite possible that a surviving partner reluctant to enter into a new partnership for fear of the estate's assets being thereby endangered might bargain and might obtain such an agreement but short of such an express agreement it is unlikely that any such agreement would be implied.

51. Then one goes to the next stage. It is even more difficult, in my judgment, to infer from the mere fact of the agreement to run a new partnership that the Claimant was thereby agreeing not only a further personal liability coextensive with the deceased's liability measured by reference to the accounts signed by him, but also a liability of which she knew nothing and could know nothing by reference to those accounts. She never understood the accounts she signed when they were put before her, but that is no reason to hold her to something which did not even feature in them. Ignorance of Ashok's claims would not be a defence against him if she had indeed undertaken liability for them, but an inference that she undertook them cannot stem, in my judgment, from the fact that she was ignorant of them."

12. Then the judge went on to deal with the question of limitation, observing that the partnership was not under seal, that a six year limitation period applied to an action for an account by section 23 of the Limitation Act 1980, and then he said:

"The question arises why should not the same Section 43 Partnership Act 1890 apply to the £24,000? One of Mr Ridd's arguments was that the opening words 'Subject to any agreement between the partners' saved the counterclaim of £24,000. I have to say that the evidence of Mr Khanderia is more consistent with the section having application than to any contrary agreement having been reached between the partners, because his evidence was that the repayment would happen on the death or the sale, either event culminating dissolution. It seems to me that his letter on page 537 written on 20 October 2000 is to the same effect or tenor."

I pause parenthetically to say that is the letter part of which I read slightly earlier in this judgment. Then finally paragraph 59:

"Then Mr Ridd argued that the dissolution account being sought was not that of the first partnership but that of the second."

13. That is shown by reference to the part 20 pleading. But it seems to me that that cannot be said, because, first of all, no problem arises in relation to the dissolution account of the second partnership; the second partnership simply involved the equal division of the profits made by the work done by the claimant and Ashok, and the accounts for that have already been done. The second reason is that the £24,000 either stands alone as a discreet debt, as Mr Khanderia described it, or is the adjustment to be made to the dissolution account (and it matters not which) but it stems in either event from the dealings between Ashok and Ramesh under the first partnership, not from any dealings between Ashok and the claimant during the second partnership. In short, it seems to me that the counterclaim for £24,000 is a claim against the claimant in her capacity as personal representative of Ramesh, whose debt and obligation to account in that sum at dissolution it was. For that reason, the counterclaim and indeed the claim having been brought more than six years after the dissolution and death of Ramesh -- that claim is indeed barred by limitation.
14. A question arose during the hearing this morning whether the judge's finding of fact was that the £24,000 was, as Mr Khanderia's oral evidence had it, a personal debt or a debt within the partnership. If it were necessary to do so, I would be inclined to think that the judge's finding was that it was indeed a personal debt, although he did not use that phrase. The phrase he did use was 'a simple debt' at one point and 'discreet debt' at another. It seems to me that the evidence would support a finding that it was a personal debt, not least because Mr Khanderia has said so, and because it arose because Ramesh was personally overdrawing his partnership entitlement; that is to say, he was drawing personal amounts of money from the partnership. It was to cover that that the loan was made. However, the judge did find that the debt accrued due upon dissolution of the first partnership and I am prepared to proceed on the footing that this was his finding -- that is to say, that it was a debt subsisting within the first partnership. Mr McGhee demonstrated that the evidence was to the effect that, when the second partnership was constituted, the business just carried on and that, in colloquial terms, the claimant stepped into her husband's shoes and -- on the face of the accounts, which made no mention of the £24,000 -- took up where her husband left off when he died.
15. Mr McGhee's main submission was that, in these circumstances, the court should find that she assumed her husband's share of not only the assets but also the obligations of the first partnership, whatever they were, and whether she knew about them or not. Mr McGhee relies heavily on the terms of Mr Khanderia's letter of 20 October 2000, which uses the expression 'business money' and which explained, eight years after the event, his understanding of what he had arranged at the end of 1991. The letter says that the business should pay to each of Ashok and the claimant the balance outstanding on the partners' current account after charging Ramesh with £24,000. The judge said that this letter was "the best account" and Mr McGhee submits that the judge either did or should have found, in accordance with the letter, that this was a business or partnership debt which survived the dissolution of the first partnership and which was tacitly -- as on the facts the submission has to be --carried through into the second partnership. I think this submission puts too great weight on the expression "the best account" in paragraph 28 of the judgment. The judge was not there, in my view, saying that what was said in Mr Khanderia's letter was to be taken uncritically as literally correct. His later findings do not support that; rather he was saying something to the effect that this was the most convenient place to find what it was that Mr Khanderia was saying.
16. In any event, Mr Khanderia's account of what happened in 1991 has no direct bearing on what happened in 1996 when he was no longer concerned. The second partnership was a new partnership. The claimant may have impliedly acceded to become a partner upon the overt accounting position pertaining at her husband's death; but she cannot, in my judgment, possibly be taken to have assumed, as partner, the large liability of the £24,000 debt, owed by her late husband to Ashok, which she knew nothing about, which Ashok did not mention and which did not feature in the accounts in 1996 of either partnership. Her estate, as she was administratrix of that estate, was, on the judge's finding, liable to Ashok for the £24,000, but that debt accrued in June 1996 and was statute-barred. In my judgment, the judge's analysis upon his findings of fact -- which were entirely justified on the evidence -- was correct, and for these reasons I would dismiss the main appeal.
17. There is then the question of costs. The judge awarded the claimant 90% of her costs of the claim and counterclaim, except insofar as costs had been provided for by interim orders. The result of the trial was that the claimant in substance succeeded on both claim and counterclaim, but there was no real contest at trial on the claim, and the monetary amount awarded to her was exactly that which Ashok had promoted in 2005.
18. The appellant's counterclaim failed on the facts on all but £1,020 of three of the main sums claimed. He did establish that the £24,000 was a debt owed by Ramesh to the appellant, but he failed to recover against the estate by reason of the limitation defence and he failed to establish an independent agreement with the claimant. The limitation defence was introduced by amendment very late in the day, in October 2006; very close to an original hearing date in November 2006, which nevertheless in the event was abortive, the trial in fact taking place in March 2007. Mr McCue says that, as things turned out, the appellant had plenty of time to consider limitation but decided nevertheless to proceed.
19. It is submitted on appeal against the judge's costs order that it was so erroneous an exercise of discretion that this court should intervene. Mr McGhee very fairly says that the judge made no error of law and that he did not fail to take relevant matters into account, but he does say that the court should intervene because the 90% which the judge awarded was so obviously wrong in all the circumstances. I put it in those terms since costs are pre-eminently discretionary and this court will not intervene unless there was an error of principle, which there was not, or unless the judge's discretionary decision was plainly wrong.
20. Much costs are said to have been spent on (a) the claim where the appellant's proposed result was adopted, and (b) on the counterclaim when costs would have been saved (it is suggested) if the limitation defence had been advanced much earlier. There would, it was suggested in writing, have been a preliminary issue on limitation but, as the judge said, that might well have incurred much of the costs that were in fact incurred in the trial that took place and Mr McGhee did not press this point hard when he made his submissions before us this morning. As I say, the judge said that much the same material would have been needed to have been considered on such an issue as on the trial which in fact took place. The appellant in fact contested his counterclaim in full and would probably perhaps have done so anyway.
21. It is, I think, mildly surprising that the judge awarded as a high a percentage as 90% in the circumstances of this case and in the face of the points which have been raised. But I have reached the conclusion that this was not a case in which the judge can be said to have been so far wrong that this court ought to intervene. It was, I think, a discretionary decision which was open to him and he had the benefit, which we have not, of having heard the case from start to finish and being able to judge the details and nuances of what went on. In my judgment, the appeal against the costs order is not made out and I would dismiss it.

Lord Justice Thomas:

22. I agree.

Lord Justice Pill:

23. On behalf of the appellant Mr McGhee QC submits that the judge has first found that the sum of £24,000 was a debt in the partnership between Ramesh and Ashok before Ramesh's death and, secondly, that the respondent has stood in the shoes of her late husband with respect to partnership matters. It follows, he submits, that she is liable for the sum as a partner. Mr McGhee submits that, in those circumstances and having regard to the evidence, the judge has approached the matter in the wrong way when he stated at paragraph 59 of his judgment:

"…it stems in either event from the dealings between Ashok and Ramesh under the first partnership not from any dealing between Ashok and the Claimant during the second partnership."

24. That conclusion cannot stand in the light of the judge's findings and evidence, it is submitted. Mr McGhee does not -- very understandably in my view -- seek a retrial. He submits that the court has the relevant material and should reach its own conclusion.
25. I have had some difficulty with the implications of the judge's findings at paragraph 30 which May LJ has read. The judge referred to the letter, which May LJ has also cited, and concluded it was a simple debt, as Mr Khanderia said in his oral evidence, owed by Ramesh to Ashok. I infer from all the circumstances, including the letter itself, that it was written long after the death of Ramesh. It was a simple debt that was to be repayable on dissolution. The appropriate reference in the letter is in the third paragraph: "When the final accounts have been drawn up, the business should pay to each one of you the balance outstanding on the partners' current account after charging Ramesh with £24,000". Mr McGhee submits that when you take that finding together with the strong evidence that the respondent was to stand in the shoes of her late husband, that they were to be equal partners, the debt remains a debt of the partnership.
26. What I cannot accept is that standing in the shoes did involve a finding that the respondent stood in the shoes for the purposes of the £24,000. However much standing in shoes was intended, it cannot be held upon a consideration of all the circumstances that the respondent should stand in her late husband's shoes with respect to the debt of £24,000. It had not been mentioned in partnership accounts since a single entry in 1991. The respondent was unaware of the sum and was not made aware of it by the appellant at any time. It was not brought home to her.
27. For those reasons, and the reasons given by May LJ, by reference to the findings of the judge, I am quite unable to hold that for this sum the respondent stood in the shoes of her late husband. The sum was not to be carried forward on his death in the circumstances described. On the dissolution of the partnership consequent upon his death, it became a personal debt recoverable from his estate and, as the judge found it was statute-barred, as such. That appears to me to be consistent with the finding of the judge towards the end of paragraph 59: "In short, it seems to me that the counterclaim for £24,000 is a claim against the claimant in her capacity as personal representative of Ramesh, whose debt and whose obligation to account in that sum at dissolution it was". This sum was not, in the circumstances, and cannot be, carried forward into the current partnership.
28. For those reasons I agree with May LJ and also, subject to what I have said, for the reasons he has given that the appeal must be dismissed. I also agree with his conclusion on the question of costs and for the reasons he gives.

Order: Appeal dismissed