Recent UK cases on expulsion of an LLP member, liability of a partnership for a partner's wrongful acts, and the existence of a partnership

Joseph v Deloitte NSE LLP [2020] EWCA Civ 1457
Joseph, an equity member who was expelled from the defendant LLP, claimed that the expulsion procedure set out in the LLP Agreement had not been correctly followed, in particular as to the time limits applicable to the various stages of the procedure. His claim was rejected by the High Court, and the Court of Appeal.

The court refused to imply the time limits argued for by Joseph because such a term in the agreement would conflict with the express words of another clause of the agreement. For a term to be implied into a contract it must:
i) be reasonable and equitable,
ii) be necessary to give business efficacy to the contract or so obvious that it goes without saying,
iii) be capable of clear expression, and
iv) not contradict any express term of the contract.

The court also held that a promissory estoppel did not arise because the LLP Board had not stated or implied anything about time limit. For such an estoppel to arise, there must be:
i) a legal relationship giving rise to rights and duties between the parties,
ii) a clear and unequivocal promise or representation by one party that they would not enforce their strict legal rights arising out of that relationship against the other,
iii) an intention by the former that the latter would rely on the promise or representation, and
iv) alteration of the position of the latter in reliance on the promise or representation such that it would be inequitable to allow the former to act inconsistently with it.

The court concluded that Joseph was entitled to feel harshly treated, but that his appeal must be dismissed. As had been frequently stated by the courts, the role of the court was not to make a fairer or more reasonable contract for the parties but to ascertain what their contract was.

See also the short article on this case by Bahamas law firm ParrisWhittaker, ‘Sympathy – but no remedy for firm partner’ at http://parriswhittaker.com/sympathy-but-no-remedy-for-firm-partner/?utm_source=rss&utm_medium=rss&utm_campaign=sympathy-but-no-remedy-for-firm-partner


Baines v Dixon Coles and Gill (A Firm) [2020] EWHC 2809 (Ch)
Mrs Box, one of three equity partners in a solicitors’ firm, was expelled for dishonestly making unauthorised payments from client account money and was subsequently convicted of a number of offences of dishonesty. Claims for summary judgment were brought against the two innocent partners by parties who alleged that they had suffered loss as a result of Mrs Box’s dishonesty. The relevant ground for summary judgment was that the defendants had no real prospect of success on the claim.

Section 10 of the Partnership Act 1890 provides that a firm is liable to make good loss caused by the wrongful act of a partner acting in the ordinary course of business of the firm or with the authority of his co-partners. The defendant partners accepted liability in relation to misappropriations made by Mrs Box in the course of conveyancing transactions, since that was within the firms business. However, they denied liability for all other misappropriations on the ground that her conduct was neither in the ordinary course of the firm’s business nor authorised by them.

In Dubai Aluminium Co Limited v Salaam [2003] 2 AC 366 the court had noted that since wrongdoing was not normally authorised, the question whether an act or omission was done in the ordinary course of the firm’s business could not be decided merely by reference to whether the partner had been authorised to do it. In Hamlyn v John Houston and Co [1903] 1 KB 81 the court had held that if it was within a partner’s authority to obtain information by legitimate means, then it was within the scope of his authority for the purposes of s10 to do so by illegitimate means, but the court in Dubai Aluminium noted that a distinction should be drawn between unlawful acts done to further the business of the firm, and those done only to further the interests of the wrongdoing partner. In the latter case the firm would not be liable merely because the act was of the kind the partner was authorised to do, but it was still possible that the act was so closely connected with the ordinary course of business of the firm that the firm was liable for it.

On the facts of the present case, the court considered that there was a real prospect of establishing that Mrs Box’s conduct in relation to two ledgers which she kept and which were not client ledgers was not conduct in the course of the firm’s business. However, the other ledger was a client ledger, and it could not be argued that setting up and transacting through such a ledger was outside the ordinary course of business of a solicitor. Indeed, such steps were integral to the running of a solicitors’ firm. Nor was setting up and transacting through a client account ledger outside the apparent authority of a partner. Summary judgment was therefore given in relation to this ledger.


Patel and another v Barlows Solicitors and others [2020] EWHC 2753 (Ch)
The first claimant alleged that there had been a partnership between him and two of the defendants. His capital contribution had been used to pay for two investment properties but the solicitors had negligently paid the money to the vendor’s solicitors without ensuring that good title to the properties would be acquired. The claim brought by one of the other partners against the solicitors was settled, and the first claimant sought repayment of his capital out of the settlement amount, on the basis that the amount was received on behalf of the partnership.

Section 1(1) of the Partnership Act 1890 defines a partnership as “the relation which subsists between persons carrying on business in common with a view of profit”. The court held that this definition was satisfied on the facts, and that the three alleged partners had indeed been in partnership. First, the purchase of a property with a view to its subsequent sale could constitute a business, and here the intended purchase and resale of three properties could realistically only have taken place in the course of carrying on a business. The court noted that the question whether an enterprise amounted to a business was a mixed question of law – i.e. the legal principles governing the meaning of the word “business” - and fact – i.e. the facts of the case. Second, there were clearly two or more persons involved, and they had carried out the purpose of the business for their common benefit and had agreed to share profits equally. Third, there was no suggestion that the business was not carried on with a view of profit, and indeed the written agreement between the three alleged partners expressly stated that it was.

The court made a declaration that the enterprise was carried out in partnership and that the partnership had been dissolved on the date that the first purchase of the first and second properties had to be aborted. It ordered that the affairs of the partnership be wound up and an account taken.

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