Scottish Court of Session Decisions

 

OUTER HOUSE, COURT OF SESSION

[2016] CSOH 59

 

CA179/15

OPINION OF LORD DOHERTY

In the cause

DAVID EASON

Pursuer;

against

(FIRST) GEORGE BRUCE MILLER;  (SECOND) DAVID JOHN HEWITSON;  (THIRD) THOMAS JOHN BARROWMAN HILLIS;  (FOURTH) DEIRDRE ELIZABETH MARY HART;  (FIFTH) MARY NIMMO;  (SIXTH) IRENE WALKER

Defenders:

Pursuer:  Davies;  Harper Macleod LLP

Defender:  Howie QC;  Brodies LLP

26 April 2016

 Introduction

[1]        The pursuer and the defenders are solicitors.  On 21 September 2000 the pursuer, the first, second and third defenders, and four other solicitors (Mr Tweedie, Mr Wood, Mr McDonald and Mrs Simpson) executed a Partnership Agreement (“the Agreement”).  The Agreement provided that notwithstanding the date of execution the partners should be held to have been and should continue in partnership on the basis of the Agreement with effect from 1 November 1994.

 

[2]        In terms of clause (EIGHT) of the Agreement the pursuer was compelled to retire from the partnership with effect from 31 March 2012 because he had reached the age of sixty-five (in August 2011).  At different times prior to the pursuer’s retirement Mr Tweedie, Mr Wood, Mr McDonald and Mrs Simpson had ceased to be partners.  They retired from the firm by giving not less than six months notice in terms of clause (TWELVE) (a).  No new partners had been assumed prior to the pursuer’s retiral, and no other partner had retired from the partnership by reason of clause (EIGHT).  Following the pursuer’s retiral a dispute arose between him and the remaining partners as to the sum due to him in respect of his share of the partnership assets.

[3]        The pursuer maintains that the Agreement makes no provision for the valuation of his interest and that his interest ought to be valued on the basis that the partnership was dissolved when he retired.  That would result in each of he and the three remaining partners being entitled to a one-quarter share of the net value of the whole assets of the partnership at the date of his retirement.

[4]        The remaining partners argue that on a proper construction of the Agreement it provides what is to happen in the circumstances of the pursuer’s retirement, and how his share in the partnership is to be valued.

[5]        In the present action the pursuer seeks declarator that the partnership was dissolved on 31 March 2012;  that he is entitled to payment by the defenders (a) of a 25 per cent share of the whole assets of the firm valued as at that date, and (b) to such share of the profits made by the defenders since 31 March 2012 as is attributable to the use of his share, or to interest on that share at the rate of 5 per cent per annum from that date.

 

[6]        A related action has been brought against the pursuer by the partnership of Munro & Noble and the current partners thereof. In that action the partnership seeks, inter alia, declarator that the whole assets of the firm are the exclusive property of the current partners of the firm.

[7]        Both actions came before me for a debate on the commercial roll.  Parties were agreed that the purpose of the debate was to determine the proper construction of the Agreement.

 

The terms of the Agreement

[8]        The Partnership provides (the emphasis in italics is mine):

“(ONE) The Partnership, subject to the terms of this Agreement, shall continue until terminated by written notice given by a majority of the Partners to the other Partners not less than six months before the effective date of the notice ….

(TWO)  The firm name shall be “MUNRO & NOBLE” …

(FIVE) A Balance Sheet and Profit and Loss Account shall be made up annually as at the Thirty-first day of March in each year by Messrs. MacKenzie Kerr, Chartered Accountants, Inverness or such other Accountants on whom the Partners may agree (”the Firm Accountants”) and the said Accounts and Balance Sheet shall be signed as “agreed and approved” by the Partners within one month after receipt from the Firm Accountants and shall then bind the Partners, failing which they shall be made up by or under the direction of the Arbiter to be appointed as aftermentioned and signed by him and his signature shall bind the partners and their representatives. All Profit and Loss Accounts and Balance Sheets for the Partnership will be prepared on the same basis as the immediately previous one prepared for the firm except to the extent that such is inappropriate following any change to the cash basis for Revenue purposes by the Firm Accountants and subject as hereinafter provided, except on the death of any partner or the date of any partner ceasing to be a partner by the operation of clauses (ELEVEN) or (TWELVE) hereof on any date other than the Thirty-first day of March in any year. In the event of the death of a partner or of a partner ceasing to be a partner under clause (ELEVEN) or (TWELVE) of this Agreement no Profit and Loss Account shall be prepared but a Balance Sheet will be prepared incorporating a proportionate share of profit or loss from the date to which the preceding Balance Sheet and Profit and Loss Account were prepared (apart from any gain or loss on heritable property belonging to the firm which shall be dealt with as hereinafter mentioned in this clause), as the case may be, as is brought out in the Profit and Loss Account prepared for the Firm Accountants as at the thirty-first day of March first succeeding the event giving rise to the preparation of the Balance Sheet in question in respect of the accounting period to that Thirty-first March, and that on the assumption that the profit or loss, as the case may be, accrues equally from day to day. The Profit and Loss Accounts and Balance Sheets have been prepared and approved in respect of all previous periods including that ending on the Thirty-first day of March Nineteen Hundred and Ninety-nine. Without prejudice to this generality in all Balance Sheets the following rules will apply:-

…

(Two) No account shall be taken of goodwill …”

 

Clause (FIVE)(Four) contains rules for the valuation of heritable property (including improvements).  It is to be valued at the cost of the heritage and improvements unless the partners have determined to revalue it in which case it is to be included at such revalued figure.  However, in any Balance Sheet prepared on the death of any partner “or the retiral of any Partner from the Partnership by the operation of clauses (ELEVEN) or (TWELVE)” all the firm’s heritable property is to be revalued to the higher of (a) cost or (b) market value at the date of the partner ceasing to be a partner;  and that the difference between the value in the Balance Sheet prepared as at the date of the partner in question ceasing to be a partner and the value of the heritable property as shown in the previous Balance Sheet if any is to be allocated to the partners in the same proportions as they shared the profits inter se immediately before the date of the partner in question ceasing to be a partner.  It was also agreed that the lease of the property at 47 Church Street should be regarded as having a nil value for the purposes of preparing the accounts of the firm.

Clause (EIGHT) provides:

“Each partner who has not then retired shall be deemed to retire and shall retire from the firm as a partner as at the Thirty-first day of March immediately following his sixty-fifth birthday.”

 

Clause (ELEVEN) makes provision for a partner being expelled from the Partnership by the remaining partners on the occurrence of certain specified events, “with effect from such date as they shall specify in a written notice given…to such partner and the partner so expelled shall be deemed to have so retired from the Partnership on such effective date.”

Clauses (TWELVE), (THIRTEEN), (FOURTEEN), (FIFTEEN) AND (SIXTEEN) provide:

“(TWELVE) (a) Any partner may retire from the Partnership on giving not less than six months’ written notice in terms of clause (ONE) hereof in writing to the other partners.

 (b) If a partner becomes of unsound mind in the opinion of the other partners or otherwise becomes incapable of managing his own affairs or is continually absent from business without good cause for an uninterrupted period of two consecutive months, or an aggregate of ninety days in any period of two consecutive years, such partner shall be deemed to have retired from the Partnership…

(THIRTEEN) In the event of the death of any partner, or the retiral of any partner from the Partnership by the operation of clause (ELEVEN) or (TWELVE) hereof, this Agreement shall not ipso facto be terminated but it shall, unless otherwise agreed, continue among the remaining partners. The share of profits or losses and the share of voting shares of the Outgoing Partner after his death or retiral shall respectively ipso facto accresce to and be divided among the remaining partners in proportion to

(a) their existing shares…

(b) their existing voting shares…

(FOURTEEN) On the death of any partner or the retiral of any partner (“the Outgoing Partner”) from the Partnership by reason of the operation of clause (ELEVEN) or (TWELVE) hereof

(a) the whole assets … of the Partnership shall become the exclusive property of the remaining partners … who shall settle the whole debts and obligations of the Partnership (including any sum due to the Outgoing Partner or his trustee in terms of sub-clause (b) hereof) as at the date of  such death or retiral. Any Outgoing Partner in whom any heritable property which is an asset of the Partnership is vested … shall, whenever called upon to do so, execute a conveyance of such heritable property or such other documentation as is required in favour of the remaining partners …

(b) A Balance Sheet shall be made up in terms of clause (FIVE) hereof as at the date of the Outgoing Partner ceasing to be a partner and failing its being “agreed and approved” by the Partners … within thirty days of receipt from the Firm Accountants it shall be made up under the direction of the Arbiter … and signed by him and his signature shall bind the Partners … The sum at credit of the Outgoing Partner which the remaining partners shall become due to pay to the Outgoing Partner or his trustee or representatives shall be ascertained from such Balance Sheet and shall be paid by the remaining partners to the Outgoing Partner or his trustee or representatives …

(FIFTEEN) On the dissolution of the Partnership, the whole assets of the Partnership … including the firm name and goodwill (if any) unless otherwise agreed shall be realised to best effect and after settlement of all obligations of the Partnership the net proceeds shall be divided under the supervision of the said Firm Accountants.

(SIXTEEN) In this Agreement:-

…

(c) “Outgoing Partner” shall mean a deceased or retired or deemed retired partner; …”

 

 

Submissions for the pursuer

[9]        Mr Davies submitted that on a proper construction of the Agreement retiral of a partner in terms of clause (EIGHT) resulted in dissolution of the partnership.  On the retirement of any partner from a partnership there was, strictly speaking, a dissolution of the existing partnership and the constitution of a different partnership (Hadlee v Commissioner of Inland Revenue [1989] NZLR 447, per Eichelbaum CJ at p 455 ;  Miller on Partnership (2^nd ed.), pp. 469-470;  Lindley & Banks on Partnership (19^th ed.), para. 3-05, 10-108;  Jardine-Paterson v Fraser 1974 SLT 93, per Lord Maxwell at p. 97;  Bell, Commentaries on the Law of Scotland (7^th ed.) p. 631).  A partnership agreement could make specific provision for the partnership to be continued by the remaining partners and could stipulate an agreed basis for paying out a retiring partner, but in every case where a partner ceased to be a partner there was at least a technical dissolution and reconstitution of the partnership.  Where the consequences of such a dissolution were not agreed in terms of the partnership agreement the general law would prevail.   

[10]      The ordinary and natural meaning of the provisions of the Agreement should be given effect to.  The general principles of contractual interpretation had most recently been set out by the Supreme Court in Arnold v Britton [2016] AC 1619.  The primary consideration was the language used by the parties (per Lord Neuberger at paras. 14 - 19; per Lord Hodge at para. 77).  The observations in the Opinion of the Court delivered by Lord Drummond Young in Grove Investments Ltd v Cape Building Products Ltd 2014 Hous. L.R. 35, paras. 9-13 ought to be read in a way consonant with the general principles stated in Arnold v Britton.

 

[11]      It was plain that a reasonable person in the position of the contracting parties and having all their background knowledge would have understood that compulsory retirement on the ground of age was not to have the same consequences as cessation as a partner by reason of clauses (ELEVEN) or (TWELVE).   Different and specific provision for such cessation and for its consequences had been made in clauses (FIVE), (THIRTEEN) and (FOURTEEN).  It was clear that that specific provision had no application to a retirement in terms of clause (EIGHT).  That is what the partners had agreed and there was no ambiguity in the language used.

[12]      On a proper construction of the Agreement the pursuer’s retirement had given rise to a dissolution of the partnership to which clause (FIFTEEN) applied.  It followed that that clause set out the rights of the pursuer and the remaining partners to the partnership assets.

[13]      If the pursuer’s retirement was not a “dissolution” falling within the meaning of that term where it appears in clause (FIFTEEN), then the Agreement made no provision as to the pursuer’s financial entitlement on retirement. The entitlements of the pursuer and his co-partners fell to be ascertained by reference to the general law (Bennet v Wallace 1988 SC 457, per the Opinion of the Court delivered by Lord Coulsfield at pp. 462B-G, 462H-463A). Under the general law, at the date of his retirement the pursuer was entitled to be paid his share of the partnership assets.  On an ordinary reading of the Agreement the partners had made specific provision which displaced the general law for certain cessations - the death of a partner or his ceasing to be a partner by virtue of clauses (ELEVEN) or (TWELVE).  They had not made any similar provision in respect of a retiral under clause (EIGHT).  If such a retirement did not result in a dissolution within the meaning of clause (FIFTEEN), the Agreement was silent as to the consequences and the general law fell to be applied.  Neither clause (EIGHT) nor any other of the relevant provisions of the Agreement were ambiguous. There was no proper basis for giving clause (EIGHT) the strained construction for which the defenders contended.   On an ordinary reading of the clause it did not impose any obligation on a partner to give notice of his retirement in terms of clause (TWELVE)(a).

[14]      The pursuer’s construction of the Agreement could not be said to be at odds with commercial common sense.  It was perfectly understandable, and in accordance with commercial common sense, that the contracting parties might wish to treat a partner who worked until the compulsory retirement age more favourably than a partner who ceased to be a partner before then.  It could hardly be said that the general law - which the pursuer maintained was applicable in his case if, indeed, the specific provision in clause (FIFTEEN) did not apply - was not in accordance with commercial common sense. There was nothing unfair or arbitrary in a retiring partner being paid his pro rata share of the net assets.

 

Submissions for the defenders

[15]      It was clear from the terms of the Agreement that the parties had agreed that the retirement of a partner would not result in the dissolution of the firm.  It was plain that the intention had been that the partnership should be continued by the remaining partners. Retirement from the partnership connoted that the partnership continued with the remaining partners after the retirement. The partnership was not a partnership at will.  It was to continue until terminated by written notice given by a majority of the partners (clause (ONE)).  It was also obvious that the reference to “dissolution” in clause (FIFTEEN) meant a general dissolution in terms of clause (ONE). The death or retirement of a partner did not give rise to such a dissolution.  A reasonable person having all the background knowledge available to the parties at the time of contracting (including knowledge of the tax consequences of a general dissolution) would not have understood clause (FIFTEEN) to apply where a partner retired in terms of clause (EIGHT).

[16]      On a proper construction of the Agreement it made provision for what was to happen when any partner retired from the partnership.  All the words used in clause (EIGHT) ought to be given content.  The clause, and in particular the words “and shall retire” created an obligation on each partner to retire at the agreed time. The obligation fell to be implemented by the partner serving a notice in terms of clause (TWELVE)(a). The deeming provision (“shall be deemed to retire”) would take effect if the partner failed to serve such a notice.  Whether or not the partner complied with his obligation to serve the notice he would be treated as having done so.  It followed that any retiral under clause (EIGHT) was also a retiral under clause (TWELVE)(a).  At the very least that was a possible construction of clause (EIGHT).

[17]      While it was accepted that the pursuer’s construction of clause (EIGHT) was also a possible construction, it could not be said that the clause was unambiguous or that the pursuer’s construction was obviously right.  In those circumstances the guidance in Grove Investments Ltd v Cape Building Products Ltd, supra was relevant. The court ought to prefer the construction which was more consistent with commercial common sense (Grove, para. 9); and which better reflected the fact that the Agreement was intended to encapsulate a co-operative enterprise. The presumption should be against a construction which would result the imposition of arbitrary or unpredictable burdens or the conferring of windfall benefits (Grove, para. 9).  It was very difficult to see why at the time of the Agreement the contracting partners should have wished that very different regimes should apply to partners retiring because of clause (EIGHT) on the one hand; and, on the other hand, to partners retiring in other situations, or ceasing to be partners because of death, ill health or other circumstances for which they were not to blame.  The pursuer’s suggested construction produced anomalous and absurd differences between the treatment of such partners and partners who retired under clause (EIGHT).  The defenders’ construction did not - all partners ceasing to be partners were treated in the same way (with the sole, and readily understandable, exception that partners who were expelled (clause (ELEVEN)) were not entitled to interest on the amount due to them).  That was likely to have been regarded, by persons in the position of the contracting partners at the time the Agreement was entered into, as being far fairer to their respective interests than the consequences of the pursuer’s construction.  None of the partners could have been sure as to the future and as to the circumstances in which they would, sooner or later, cease to be partners.  Each of them would know that if another partner ceased to be a partner before he or she did, he or she and the other continuing partners would have to find funds to pay the retiring partner (or the deceased partner’s estate) the sum brought out by the valuation provided for in clauses (FIVE) and (FOURTEEN):  but that the sum payable would not exceed that, and it would not include a share of the goodwill of the partnership. The pursuer had benefited from those provisions on each of the occasions when his four former partners had ceased to be partners (albeit that none of those cessations had been a retirement under clause (EIGHT)).

 

Further submissions

[18]      After the conclusion of the debate I sought clarification from the parties in relation to the following questions:

 

1. Is it correct that in terms of clause (FIVE) a Balance Sheet required to be prepared as at 31 March 2012 on Mr Eason’s retirement?

2. If, on a proper construction, his retirement was not “by operation of clause … (TWELVE)” is the position that the Balance Sheet fell to be prepared “on the same basis as the immediately previous one”?

3. If a Balance Sheet required to be prepared as at 31 March 2012 on Mr Eason’s retirement is the position that the rules set out in sub-clauses (One) to (Five) of clause (FIVE) apply to it? If so, would the consequences be (i) that if on a proper construction Mr Eason’s retirement was “by operation of clause … (TWELVE)” the value of the firm’s heritable property would fall to be valued at the higher of cost or market value; (ii) that if Mr Eason’s retirement was not “by operation of clause … (TWELVE)” that the heritable property fell to be entered in the Balance Sheet at the value brought out by the method described in the first part of sub-clause (Four) ? (iii) that in either case no account would be taken of goodwill?

4. Do these matters have any bearing upon the submissions which the parties have already made?

In response, both parties made further written submissions.

[19]      The defenders answered Question 1 in the affirmative.  The pursuer answered it in the negative, submitting that clause (FIVE) only applied during the currency of the partnership and that it did not apply to a retiral under clause (EIGHT).  If the pursuer’s retirement under clause (EIGHT) was not a dissolution to which clause (FIFTEEN) applied, the Agreement contained no agreement as to the pursuer’s entitlement.  In those circumstances it was clear that the general principle enunciated in Bennet v Wallace, supra, and previously exemplified in Shaw v Shaw 1968 SLT (Notes) 94, per Lord Hunter at pp. 94-95, and Clark v Watson 1982 SLT 450, per Lord Dunpark at p. 452, should be followed.

[20]      The defenders answered Question 2 in the affirmative, but adhered to their submission that the pursuer’s retirement had been “by operation of clause … (TWELVE)”. The pursuer answered the question in the negative submitting that clause (FIVE) had no application where the retirement was by reason of clause (EIGHT).

[21]      The defenders answered Question 3 in the affirmative. The pursuer answered in the negative, submitting that clause (FIVE) did not apply where the retirement was by virtue of clause (EIGHT).

[22]      Neither party thought that the matters raised in Questions 1 to 3 had any bearing on the submissions which they had made at the debate.

 

Decision and reasons

[23]      It is common ground that the partnership is not a partnership at will.  In my opinion that is correct.  It is clear from clause (ONE) that the parties intended that the partnership should continue unless and until a majority of the partners decided to terminate it by giving the requisite written notice to the other partners.

[24]      In my opinion it is also correct that on the retirement of a partner there is at least a technical dissolution of a partnership (Hadlee v Commissioner of Inland Revenue, supra, per Eichelbaum CJ at p 455;  Miller on Partnership (2^nd ed.), pp. 469-470;  Lindley & Banks on Partnership (19^th ed.), paras 3-05, 10-108;  Jardine-Paterson v Fraser, supra, per Lord Maxwell at p. 97).  Commonly, a partnership agreement provides that the partnership is to continue notwithstanding the retirement of a partner, and it makes provision for the continuing partners to acquire the retiring partner’s share at a valuation or in some other manner.  In that sense “retirement” from a partnership usually connotes a continuation of the firm (see e.g. Lindsay & Banks on Partnership (19^th ed.), paras 10-108, 10-109).  But if a partnership agreement does not provide what the retiring partner’s entitlement is to be on retirement the matter is governed by the general law. Under the general law a retiring partner is entitled to obtain an equal share of the whole net assets of the partnership (Bennet v Wallace, supra;  Shaw v Shaw, supra; and Clark v Watson, supra).

[25]      Does the Agreement make provision specifying the rights of a retiring partner and of the remaining partners to the partnership assets where the retirement is under clause (EIGHT)?  If it does, such provision will be determinative of the retiring partner’s rights. If it does not, there is an absence of provision, and the partners’ respective rights fall to be ascertained by the general law.  In that event it is not disputed that the whole net assets of the partnership should be shared equally between the partners.

[26]      In Arnold v Britton, supra, Lord Neuberger of Abbotsbury PSC observed at para 15:

“15 When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. In this connection, see Prenn [1971] 1 WLR 1381, 1384-1386; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989 , 995-997, per Lord Wilberforce; Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 , para 8, per Lord Bingham of Cornhill; and the survey of more recent authorities in Rainy Sky [2011] 1 WLR 2900, paras 21-30, per Lord Clarke of Stone-cum-Ebony JSC.” 

 

[27]      In my view the reasonable reader of clause (EIGHT) would understand the words “shall be deemed to retire and shall retire from the firm” as providing that the partner will cease to be a partner on the date specified.  That is the natural and ordinary meaning of the clause. In so far as the phrase incorporates a degree of repetition it seems to me that the purpose is merely to emphasise that the partner will cease to be a partner on the date specified.  It is far from unusual for agreements to say the same thing more than once, but in slightly different ways.  As Lord Neuberger observed in David T Morrison & Co Ltd t/a Gael Home Interiors v ICP Plastics Ltd 2014 SC (UKSC) 222 at para.49:

“….Cautious drafters of statutes and contracts often include protective or qualifying words which are not strictly necessary, and it would hinder clarity and certainty in the law, and serious risk subverting the parliamentary or contractual intention, if judges started giving such expressions unnatural meanings simply to avoid them being surplusage”.

 

  I do not find the presumption against superfluous language to be of any real assistance in the present context.  Nor do I think that clause (EIGHT) is ambiguous.  The construction the defenders contend for is not the natural and ordinary meaning of the clause.  At best, it is a strained and convoluted construction.  It involves inserting words into the clause which are not there.  In my view, if the court acceded to the defenders’ construction it would be rewriting the contract under the guise of interpreting it.

[28]      Examination of the other provisions of the Agreement tends to support the conclusion that clause (EIGHT) ought to be read as having the natural and ordinary meaning already discussed. The parties were at pains to specify the circumstances in which the Agreement regulated an outgoing partner’s entitlement; and those circumstances were that cessation was by death or by operation of clauses (ELEVEN) or (TWELVE).  If the parties had intended retirement under clause (EIGHT) to be dealt with in the same way it would have been very easy to have said so.

[29]      I did not understand Mr Howie to argue that the overall purpose of clause (EIGHT) and of the Agreement pointed to the defenders’ construction being the correct one.  In fact, I think that consideration is a neutral factor.  In relation to relevant surrounding circumstances, Mr Howie suggested that under the tax regime current at the time of the Agreement ‘s execution adverse tax consequences would have followed a retirement under clause (EIGHT) if the pursuer’s construction is correct; and that the partners would have been aware of that.  However, Mr Davies disputed that there would have been such consequences, and I did not understand Mr Howie to continue to persist with this particular point.  In any event, I was not convinced on the basis of the submissions which he did make that there would have been such consequences.

[30]      Mr Howie also submitted that commercial common sense favoured his construction. I am not persuaded that is so. In relation to certain specified types of cessation (death, or by operation of clauses (ELEVEN) or (TWELVE)) the parties to the Agreement agreed a basis whereby the outgoing partner would be entitled to less than he would have been under the general law:  non constat that business common sense demands that the Agreement be construed as requiring that consequence to apply to other cessations.  Besides, I agree with Mr Davies that the consequence that the entitlement of a partner who retires under clause (EIGHT) should be determined by the general law does not flout commercial common sense. It is not an outcome which can be said to confer a windfall benefit on the outgoing partner, or to impose arbitrary or unpredictable burdens on the remaining partners.

[31]      I accept Mr Davies’ submission that the ordinary annual Balance Sheet is not intended to be determinative of an outgoing partner’s entitlement on cessation.  In the cases of the death or cessation by operation of clauses (ELEVEN) or (TWELVE) there is special provision dealing with ascertainment and valuation of the outgoing partner’s entitlement.  In the case of cessation under clause (EIGHT) there is no such special provision.  On a proper construction of the Agreement the parties have not contracted that the entitlement of a partner retiring under clause (EIGHT) is to be determined by reference to the items and values in the ordinary annual Balance Sheet.  It would require very clear provision - much clearer than the language of clause (FIVE) - to tie entitlement on cessation to such an annual valuation, particularly where, as here, the ordinary annual valuation proceeds on the basis that certain assets are to be excluded and others are to be inserted at historic, rather than market, values.  The lack of special provision dealing with entitlement of the outgoing partner in the case or retiral under clause (EIGHT) is complemented by the absence of terms agreeing accretion to the remaining partners of the outgoing partner’s share of profits or losses and share of voting shares, or agreeing vesting of the partnership assets in the remaining partners, or agreeing the mechanics of making payment of the outgoing partner’s share (cf. clause (THIRTEEN), (FOURTEEN)(a), and (FOURTEEN)(b) in relation to death or cessation by operation of clauses (ELEVEN) or (TWELVE)).   In my opinion the absence of such terms tends to reinforce the conclusion that the ordinary Balance Sheet is not intended to be determinative of an outgoing partner’s rights where he retires under clause (EIGHT).

[32]      Although the retiral of a partner under clause (EIGHT) gives rise to a technical dissolution, in my opinion that is not a “dissolution” within the meaning of that term where it occurs in clause (FIFTEEN).  On a proper construction of the Agreement I think that “dissolution” in clause (FIFTEEN) refers to a general dissolution following the procedure provided in clause (ONE). In my view, looking at the terms of the Agreement as a whole, it distinguishes all sorts of retiral from a general dissolution.

[33]      However, the fact that there is no dissolution within the meaning of clause (FIFTEEN) is of no great import.  The pursuer’s retirement under clause (EIGHT) was a technical dissolution of the partnership as constituted between the pursuer and his co-partners, albeit that a firm comprising the remaining partners was immediately reconstituted. The Agreement did not incorporate an agreed basis for the pursuer to obtain a share of the net partnership assets in the circumstances which he ceased to be a partner. Accordingly, his entitlement falls to be determined by the general law.

 

 Disposal

[34]      As requested by the parties I shall put both cases out by order for discussion of (i) the appropriate interlocutors to give effect to my decision; and (ii) further procedure in each case.