Patel v Patel

Factual and Procedural Background

This case concerns a challenge by the Plaintiff to an arbitrator's award under sections 68 and 69 of the Arbitration Act 1996. The award, delivered by the arbitrator on 31 January 2018, determined the profit-sharing rights between the Plaintiff and the Defendant under two partnership agreements relating to dental practices located in The City of Purley and The City of Mitcham, Surrey.

The proceedings originated in the Commercial Court but were transferred to the Chancery Division due to the underlying partnership law issues. Permission to appeal was granted by Judge Snowden on 20 August 2018, who was satisfied that the arbitrator’s decision on the relevant question of law was obviously wrong.

The Plaintiff and Defendant, both dentists, entered into a partnership in June 2012 to acquire the Purley Practice, funded by loans and contributions from both parties and the Plaintiff's brother-in-law. A partnership agreement provided for equal sharing of profits and losses. In November 2013, a second partnership was formed to acquire the Mitcham Practice, again with an agreement for equal profit and loss sharing.

The Plaintiff did not perform dental work at either practice; the Defendant managed day-to-day operations. For the first two years of the Purley Practice, 100% of profits were allocated to the Defendant without discussion, evidenced by signed partnership accounts. Following the separation and divorce of the Defendant and the Plaintiff’s nephew in January 2015, disputes arose over profit allocations, leading to arbitration.

The arbitration focused on whether the parties’ course of conduct had varied the partnership agreements under section 19 of the Partnership Act 1890, and the default position under section 24 regarding equal profit sharing.

Legal Issues Presented

1. Whether the arbitrator erred in law by concluding that the Plaintiff’s instruction to allocate 100% of the Purley Practice profits to the Defendant for two years, evidenced by signed accounts, constituted a variation of the partnership agreement by a course of conduct under section 19 of the Partnership Act 1890.
2. Whether the arbitrator’s decision that the parties varied the partnership agreement concerning the Mitcham Practice during the arbitral proceedings—based on evidence given—was legally valid, including whether a serious irregularity occurred under section 68 of the Arbitration Act 1996.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined whether the arbitrator correctly applied the law concerning variation of partnership agreements by conduct under section 19 of the Partnership Act 1890. It emphasized the necessity for objectively clear and unambiguous conduct demonstrating consensus to vary contractual terms. The court found the arbitrator erred in concluding that the Plaintiff’s instruction and execution of partnership accounts indicating 100% profit allocation to the Defendant for two years constituted such a variation. Instead, these acts were reasonably interpreted as temporary waivers rather than permanent variations, especially given clause 20 of the partnership agreement required written deed for variations.

Regarding the Mitcham Practice, the court found the arbitrator’s conclusion—that the parties varied the agreement during the arbitration hearing based on their evidence—was legally untenable. The evidence did not objectively amount to an offer and acceptance to vary the agreement, and the Defendant’s testimony did not indicate acceptance of such a variation. The court noted this raised a serious irregularity as the Claimant was not given an opportunity to address this new point.

The court declined to remit the matter to the arbitrator, as the parties did not request reconsideration, and instead varied the award itself. It also addressed the costs award, adjusting it to reflect the changed findings and relative success of the parties.

Holding and Implications

The court held that the arbitrator’s determinations regarding variations of the partnership agreements for both the Purley and Mitcham Practices were incorrect. The profit shares under the written partnership agreements—requiring equal division—remained unchanged.

The appeal under section 69 of the Arbitration Act 1996 is allowed. The award is varied to reflect that no valid variation of the partnership agreements occurred by conduct or otherwise.

The costs award is also varied accordingly, requiring the Defendant to repay sums received and make further payments to the Plaintiff. The decision directly affects the parties’ profit-sharing rights and cost liabilities but does not establish new legal precedent beyond clarifying the application of partnership variation principles.