Recent case on jurisdiction over (and remedies against) an overseas partner of a Scottish limited partnership

Trans-Oil International SA v Savoy Trading LP and Melnykov [2020] EWHC 57 (Comm)

Savoy Trading was a Scottish limited partnership with two partners, both of which were limited companies (Cadwell and Intech). After it notified the applicant that it could not fulfil its contractual obligations, and the applicant discovered that partnership had been subject to a sequestration award and a trustee appointed, it applied for and was granted a freezing order against the partnership. In these proceedings the applicant sought to add Melnykov to the freezing order or, in the alternative, to have him named personally in the penal notice of that order.

As Melnykov had no presence or assets in the jurisdiction, the applicant sought to found English jurisdiction on the basis that he was arguably personally liable on a contract which was governed by English law. The court noted that the opinion of the Scottish Advocate stated that even if an offence (in relation to obtaining credit without the trustee’s permission) had been committed, it would prima facie be committed by the partnership, and even if the general partner had committed the offence, that would not render Melnykov personally liable unless the court were to pierce the partner’s corporate veil which, on the facts, was unlikely. Although Cadwell acknowledged in a Norminee Declaration that its ownership of an interest in the partnership was as nominee and in trust for Melnykov, the beneficiary of a trust did not incur concurrent liability on a contract entered into by the trustee on behalf of the trust. The court concluded that the applicant had entered into a contract with the partnership, and neither the Nominee Declaration nor the fact that Melnykov signed the contract and had a power of attorney for the partnership was sufficient to make him personally liable. It therefore that it had no jurisdiction to make a freezing order against him.

The court held that even if it was wrong on the issue of jurisdiction, a freezing order should not be granted because there was no evidence of a real risk of dissipation of assets by Melnykov as there was little or no real evidence of dishonesty or low standards of commercial morality, beyond the use of the complex partnership structure which might be for good reasons. Surprisingly, the court held that there was no evidence of the strength of the trustee’s suspicions as to Melnykov’s conduct, even though the trustee had reported those suspicions to the police, and despite the background of the current inquiry by the UK’s Department of Business, Enterprise and Industrial Strategy  into the misuse of partnership structures, and in particular the Scottish limited partnership structure.

The court also dismissed the alternative claim for an order that Melnykov be named in the penal notice, on the grounds that he was a de facto partner, a de facto partner was analogous to a de facto director, and CPR 81.4(3) enabled the naming of directors personally in an order made against a company or other corporate body. The court held that there was no basis for extending the rule in CPR 81.4 to partners, and therefore no basis for extending it to de facto partners. Although Lindley & Banks on Partnership noted that the commercial view of a partnership was to treat it similarly to a company, the nature of a partnership was such that individual partners were personally liable for a breach of an order against the partnership without need for a provision such as CRP 81.4, other than where a partnership had separate legal personality.  The latter caveat is another rather surprising feature of this judgment, as is the court’s statement that it was unclear whether a Scottish partnership had separate legal personality. In fact, s4(2) of the Partnership Act 1890 states clearly that it does and it is settled law, but it is also well established that Scottish partners do incur personal liability for the obligations of the partnerships (see further Stephen Chan, A Practical Guide to Partnership Law in Scotland, Ch 4).

Finally, the court held that even if CPR 81.4 applied, Melnykov was not a de facto partner. In HMRC v Holland [2010] UKSC 51 Lord noted that there was no single test for a de facto director but referred to factors such aswhether he was held out as a director or purported to act as a director. It was not clear whether such authorities applied to partners, but in any event Melnykov was not held out as a partner and did not act as such. The Advocate’s opinion was that Cadwell was the general partner and liable as such, and the court concluded that Melnykov did not act as a general partner but pursuant to a power of attorney.

Add comment

Resources

Biographies

Links

Second Annual Conference of the Partnership, LLP and LLC Law Forum 10 January 2019

Comment List

  • None
This website is supported by the Society for Legal Scholars (SLS) Small Projects and Events Fund. The SLS is the learned society for those who teach law in a university or similar institution or who are otherwise engaged in legal scholarship. www.legalscholars.ac.uk