New UK partnership case on variation of partnership agreements

Dakshu Patel v Kesha Patel [2019] EWHC 298 (Ch)
This case involved a challenge to an arbitrator’s award in relation to the profit shares in two partnerships which each had the same two partners. The arbitrator had found that although both partnership agreements provided for the two partners to share profits and losses equally, one agreement had been varied by a course of conduct, and the other had been varied by agreement, with the result that the defendant was entitled to 100% and 65% of the profits respectively.

The court upheld the claimant’s challenge. As to the alleged variation by agreement of the terms of one partnership, there was insufficient evidence that the claimant had offered to vary the agreement. As to the variation of the terms of other by a course of conduct, s19 of the Partnership Act 1890, which provided for a partnership agreement to be varied by unanimous consent either express or inferred from a course of dealing, required the parties to have reached a consensus. Thus, for conduct to have resulted in an agreed variation, it would need objectively to be capable of unambiguous interpretation as evincing an intention to vary the terms which was then acceded to (see, for example, Joyce v Morrisey [1999] EMLR 233 and Hodson v Hodson [2010] PNLR 8). Although the claimant had instructed the accountant that the defendant was to receive 100% of the profits of the partnership for two years, and had signed the accounts, this merely meant that he had waived his share in two accounting periods and could not objectively be interpreted as him giving up his rights to share in profits for any longer period.  Indeed, the partnership agreement expressly provided that failure or delay by a partner in enforcing a term would not affect his right to enforce it later, and that any variation of the agreement must be in writing and executed as a deed. The court noted that even if the conduct could have given rise to a variation, consideration would have been required (Joyce v Morrissey), for example in the form of an agreement not to terminate the existing partnership if new terms were agreed.

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